FIDELITY SCHOOL STREET TRUST/, 485APOS, 1998-12-17

FIDELITY SCHOOL STREET TRUST/
485APOS, 1998-12-17

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT (No. 2-57167)
UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. 60 [X]
and
REGISTRATION STATEMENT (No. 811-2676) UNDER THE INVESTMENT COMPANY
ACT OF 1940 [X]
Amendment No. 60 [X]
Fidelity School Street Trust
(Exact Name of Registrant as Specified in Charter)
82 Devonshire St., Boston, Massachusetts 02109
(Address Of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number: 617-563-7000
Eric D. Roiter, Secretary
82 Devonshire Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective
( ) immediately upon filing pursuant to paragraph (b).
( ) on ( ) pursuant to paragraph (b).
( ) 60 days after filing pursuant to paragraph (a)(1).
(x) on (February 27, 1999) pursuant to paragraph (a)(1) of Rule 485.
( ) 75 days after filing pursuant to paragraph (a)(2).
( ) on ( ) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
( ) this post-effective amendment designates a new effective date
for a previously filed
post-effective amendment.

LIKE SECURITIES OF ALL MUTUAL
FUNDS, THESE SECURITIES HAVE
NOT BEEN APPROVED OR
DISAPPROVED BY THE
SECURITIES AND EXCHANGE
COMMISSION, AND THE
SECURITIES AND EXCHANGE
COMMISSION HAS NOT
DETERMINED IF THIS PROSPECTUS
IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE
CONTRARY IS A CRIMINAL
OFFENSE.

FIDELITY
STRATEGIC INCOME
FUND
(fund number 368, trading symbol FSICX)

PROSPECTUS
FEBRUARY 27, 1999

(fidelity_logo_graphic)
82 Devonshire Street, Boston, MA 02109

CONTENTS

FUND SUMMARY 3 INVESTMENT SUMMARY

3 PERFORMANCE

3 FEE TABLE

FUND BASICS 6 INVESTMENT DETAILS

5 VALUING SHARES

SHAREHOLDER INFORMATION 5 BUYING AND SELLING SHARES

11 EXCHANGING SHARES

12 ACCOUNT FEATURES AND POLICIES

14 DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS

15 TAX CONSEQUENCES

FUND SERVICES 15 FUND MANAGEMENT

16 FUND DISTRIBUTION

APPENDIX 16 FINANCIAL HIGHLIGHTS

FUND SUMMARY

INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
STRATEGIC INCOME FUND seeks a high level of current income. The fund
may also seek capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Investing primarily in debt securities, including
lower-quality debt securities.
(small solid bullet) Allocating the fund's assets among four general
investment categories: high yield securities, U.S. Government and
investment-grade securities, emerging market securities, and foreign
developed market securities.
(small solid bullet) Potentially investing in equity securities.
(small solid bullet) Using a neutral mix of approximately 40% high
yield, 30% U.S. Government and investment-grade, 15% emerging markets,
and 15% foreign developed markets.
(small solid bullet) Analyzing a security's issuer using fundamental
factors and evaluating each security's current price relative to
estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) STOCK MARKET VOLATILITY. Stock markets are
volatile and can decline significantly in response to adverse issuer,
political, regulatory, market or economic developments. Different
parts of the market can react differently to these developments.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market. Emerging markets can be subject to greater social, economic,
regulatory and political uncertainty and can be extremely volatile.
(small solid bullet) PREPAYMENT. The ability of an issuer of a debt
security to repay principal prior to a security's maturity can cause
greater price volatility if interest rates change.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. Lower-quality debt securities
(those of less than investment-grade quality) can be more volatile due
to increased sensitivity to adverse issuer, political, regulatory,
market or economic developments.
In addition, the fund is considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund. As a result, changes in the market value of a
single issuer could cause greater fluctuations in share price than
would occur in a more diversified fund.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
Because the fund was new when this prospectus was printed, its
performance history is not included. Performance history will be
available for the fund after the fund has been in operation for one
calendar year.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold or sell shares of the fund. [The annual fund
operating expenses provided below for the fund are higher than the
expenses actually paid by the fund as the result of expense
reimbursements and the payment or reduction of certain expenses during
the period.]
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
SALES CHARGE (LOAD) ON PURCHASES NONE
AND REINVESTED DISTRIBUTIONS

DEFERRED SALES CHARGE (LOAD) ON REDEMPTIONS NONE

ANNUAL ACCOUNT MAINTENANCE FEE (FOR ACCOUNTS UNDER $2,500) $12.00

ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
MANAGEMENT FEE %

DISTRIBUTION AND SERVICE (12B-1) FEE NONE

OTHER EXPENSES %

TOTAL ANNUAL FUND OPERATING EXPENSES A %

A Effective May 1, 1998, FMR has voluntarily agreed to reimburse the
fund to the extent that total operating expenses (excluding interest,
taxes, brokerage commissions and extraordinary expenses), as a
percentage of its average net assets, exceed 1.10%. This arrangement
can be terminated by FMR at any time.
[A portion of the brokerage commissions that the fund pays is used to
reduce the fund's expenses. In addition, the fund has entered into
arrangements with its custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to reduce
custodian and transfer agent expenses. Including these reductions, the
total fund operating expenses, after reimbursement, would have been
__%.]
This EXAMPLE helps you compare the cost of investing in the fund with
the cost of investing in other mutual funds.
Let's say, hypothetically, that the fund's annual return is 5% and
that your shareholder fees and the fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account after the number of years
indicated:
1 YEAR $

3 YEARS $

5 YEARS $

10 YEARS $

FUND BASICS

INVESTMENT DETAILS
INVESTMENT OBJECTIVE
STRATEGIC INCOME FUND seeks a high level of current income. The fund
may also seek capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
FMR expects to invest the fund's assets primarily in debt securities,
including lower-quality debt securities, allocated among four general
investment categories: high yield securities, U.S. Government and
investment-grade securities, emerging market securities, and foreign
developed market securities. FMR may also invest the fund's assets in
equity securities.
The fund's neutral mix, or the benchmark for its combination of
investments in each category over time, is approximately 40% high
yield, 30% U.S. Government and investment-grade, 15% emerging markets,
and 15% foreign developed markets. In normal market environments, FMR
expects the fund's asset allocation to approximate the neutral mix
within a range of plus or minus 10% of assets per category, although
there are no absolute limits on the percent of assets invested in each
category. FMR regularly reviews the fund's allocation and makes
changes gradually over time to favor investments that it believes
provide the most favorable outlook for achieving the fund's objective.
By allocating investments across different types of fixed-income
securities, FMR attempts to moderate the significant risks of each
category through diversification.
The HIGH YIELD category includes high-yielding, lower-quality debt
securities consisting mainly of U.S. securities. The U.S. GOVERNMENT
AND INVESTMENT-GRADE category includes mortgage securities, U.S.
Government securities and other investment-grade U.S. dollar
denominated securities. The EMERGING MARKET category includes
corporate and government securities of any quality of issuers located
in emerging markets. The FOREIGN DEVELOPED MARKET category includes
corporate and government securities of any quality of issuers located
in developed foreign markets.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR generally analyzes
the issuer of a security using fundamental factors (e.g., growth
potential, earnings estimates and management) and evaluates each
security's current price relative to its estimated long-term value.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest,
but are sold at a discount from their face values. Debt securities
include corporate bonds, government securities, mortgage and other
asset-backed securities, and loans and loan participations.
EQUITY SECURITIES represent an ownership interest, or the right to
acquire an ownership interest, in an issuer. Different types of
equity securities provide different voting and dividend rights and
priority in the event of the bankruptcy of the issuer. Equity
securities include common stocks, preferred stocks, convertible
securities and warrants.
PRINCIPAL INVESTMENT RISKS
Many factors affect the fund's performance. The fund's yield and
share price change daily based on changes in interest rates and market
conditions and in response to other economic, political or financial
developments. The fund's reaction to these developments will be
affected by the types and maturities of the securities in which the
fund invests, the financial condition, industry and economic sector,
and geographic location of an issuer, and the fund's level of
investment in the securities of that issuer. When you sell your shares
of the fund, they could be worth more or less than what you paid for
them.
The following factors may significantly affect the fund's performance:
INTEREST RATE CHANGES. Debt securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when
interest rates fall. Securities with longer maturities and mortgage
securities can be more sensitive to interest rate changes. In other
words, the longer the maturity of a security, the greater the impact a
change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily
move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and long-term
securities tend to react to changes in long-term interest rates.
STOCK MARKET VOLATILITY. The value of equity securities fluctuates in
response to issuer, political, market and economic developments. In
the short-term, equity prices can fluctuate dramatically in response
to these developments. Different parts of the market can react
differently to these developments. For example, large cap stocks can
react differently than small cap stocks, and "growth" stocks can react
differently than "value" stocks. Issuer, political or economic
developments can affect a single issuer, issuers within an industry or
economic sector or geographic region, or the market as a whole.
FOREIGN EXPOSURE. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations
can involve additional risks relating to political, economic or
regulatory conditions in foreign countries. These risks include
fluctuations in foreign currencies; withholding or other taxes;
trading, settlement, custodial and other operational risks; and the
less stringent investor protection and disclosure standards of some
foreign markets. All of these factors can make foreign investments,
especially those in emerging markets, more volatile and potentially
less liquid than U.S. investments. In addition, foreign markets can
perform differently than the U.S. market.
Investing in emerging markets involves risks in addition to and
greater than those generally associated with investing in more
developed foreign markets. The extent of foreign development;
political stability; market depth, infrastructure and capitalization
and regulatory oversight is generally less than in more developed
markets. Emerging market economies can be subject to greater social,
economic, regulatory and political uncertainties. All of these
factors generally make emerging market securities more volatile and
potentially less liquid than securities issued in more developed
markets.
PREPAYMENT. Many types of debt securities, including mortgage
securities, are subject to prepayment risk. Prepayment occurs when
the issuer of a security can repay principal prior to the security's
maturity. Securities subject to prepayment generally offer less
potential for gains during a declining interest rate environment and
similar or greater potential for loss in a rising interest rate
environment. In addition, the potential impact of prepayment features
on the price of a debt security can be difficult to predict and result
in greater volatility.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.
Lower-quality debt securities involve greater risk of default or price
changes due to changes in the credit quality of the issuer. The value
of lower-quality debt securities often fluctuates in response to
company, political or economic developments and can decline
significantly over short periods of time or during periods of general
or regional economic difficulty. Lower-quality debt securities can be
thinly traded or have restrictions on resale, making them difficult to
sell at an acceptable price. The default rate for lower-quality debt
securities is likely to be higher during economic recessions or
periods of high interest rates.
In response to market, economic, political or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect the fund's
performance.

FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
STRATEGIC INCOME FUND seeks a high level of current income. The fund
may also seek capital appreciation.
VALUING SHARES
The fund is open for business each day the New York Stock Exchange
(NYSE) is open.
The fund's net asset value per share (NAV) is the value of a single
share. Fidelity(Registered trademark) normally calculates the fund's
NAV as of the close of business of the NYSE, normally 4:00 p.m.
Eastern time. However, NAV may be calculated earlier if trading on the
NYSE is restricted or as permitted by the Securities and Exchange
Commission (SEC). The fund's assets are valued as of this time for the
purpose of computing the fund's NAV.
To the extent that the fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of the fund's assets may not occur on days when the
fund is open for business.
The fund's assets are valued primarily on the basis of information
furnished by a pricing service or market quotations. Certain
short-term securities are valued on the basis of amortized cost. If
market quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the
exchange or market on which the security is principally traded (for
example, a foreign exchange or market), that security may be valued by
another method that the Board of Trustees believes accurately reflects
fair value. In these circumstances, the security's valuation may
differ from the generally expected valuation.
SHAREHOLDER INFORMATION

BUYING AND SELLING SHARES
GENERAL INFORMATION
Fidelity Investments(Registered trademark) was established in 1946 to
manage one of America's first mutual funds. Today, Fidelity is the
largest mutual fund company in the country, and is known as an
innovative provider of high-quality financial services to individuals
and institutions.
In addition to its mutual fund business, the company operates one of
America's leading discount brokerage firms, Fidelity Brokerage
Services, Inc. (FBSI). Fidelity is also a leader in providing
tax-advantaged retirement plans for individuals investing on their own
or through their employer.
For account, product and service information, please use the following
Web site and phone numbers:
(small solid bullet) For information over the Internet, visit
Fidelity's Web site at www.fidelity.com.
(small solid bullet) For accessing account information automatically
by phone, use TouchTone Xpress(registered trademark), 1-800-544-5555.
(small solid bullet) For exchanges and redemptions, 1-800-544-7777.
(small solid bullet) For account assistance, 1-800-544-6666.
(small solid bullet) For mutual fund and retirement information,
1-800-544-8888.
(small solid bullet) For brokerage information, 1-800-544-7272.
(small solid bullet) TDD - Service for the Deaf and Hearing-Impaired,
1-800-544-0118 (9:00 a.m. - 9:00 p.m. Eastern time).
Please use the following addresses:
BUYING SHARES
Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002
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
You may buy or sell shares of the fund through a retirement account or
an investment professional. If you invest through a retirement account
or an investment professional, the procedures for buying, selling and
exchanging shares of the fund and the account features and policies
may differ. Additional fees may also apply to your investment in the
fund, including a transaction fee if you buy or sell shares of the
fund through a broker or other investment professional.
Certain methods of contacting Fidelity, such as by telephone or
electronically, may be unavailable or delayed (for example, during
periods of unusual market activity). In addition, the level and type
of service available may be restricted based on criteria established
by Fidelity.
The different ways to set up (register) your account with Fidelity are
listed in the following table.
WAYS TO SET UP YOUR ACCOUNT
INDIVIDUAL OR JOINT TENANT
FOR YOUR GENERAL INVESTMENT NEEDS
RETIREMENT
FOR TAX-ADVANTAGED RETIREMENT SAVINGS
(solid bullet) TRADITIONAL INDIVIDUAL RETIREMENT ACCOUNTS (IRAS)
(solid bullet) ROTH IRAS
(solid bullet) ROTH CONVERSION IRAS
(solid bullet) ROLLOVER IRAS
(solid bullet) 401(K) PLANS, and certain other 401(A)-QUALIFIED PLANS
(solid bullet) KEOGH PLANS
(solid bullet) SIMPLE IRAS
(solid bullet) SIMPLIFIED EMPLOYEE PENSION PLANS (SEP-IRAS)
(solid bullet) SALARY REDUCTION SEP-IRAS (SARSEPS)
(solid bullet) 403(B) CUSTODIAL ACCOUNTS
(solid bullet) DEFERRED COMPENSATION PLANS (457 PLANS)
GIFTS OR TRANSFERS TO A MINOR (UGMA, UTMA)
TO INVEST FOR A CHILD'S EDUCATION OR OTHER FUTURE NEEDS
TRUST
FOR MONEY BEING INVESTED BY A TRUST
BUSINESS OR ORGANIZATION
FOR INVESTMENT NEEDS OF CORPORATIONS, ASSOCIATIONS, PARTNERSHIPS OR
OTHER GROUPS
BUYING SHARES
The price to buy one share of the fund is the fund's NAV. The fund's
shares are sold without a sales charge.
Your shares will be bought at the next NAV calculated after your
investment is received in proper form.
Short-term or excessive trading into and out of the fund may harm
performance by disrupting portfolio management strategies and by
increasing expenses. Accordingly, the fund may reject any purchase
orders, including exchanges, particularly from market timers or
investors who, in FMR's opinion, have a pattern of short-term or
excessive trading or whose trading has been or may be disruptive to
the fund. For these purposes, FMR may consider an investor's trading
history in the fund or other Fidelity funds, and accounts under common
ownership or control.
The fund may stop offering shares completely or may offer shares only
on a limited basis, for a period of time or permanently.
When you place an order to buy shares, note the following:
(small solid bullet) All of your purchases must be made in U.S.
dollars and checks must be drawn on U.S. banks.
(small solid bullet) Fidelity does not accept cash.
(small solid bullet) When making a purchase with more than one check,
each check must have a value of at least $50.
(small solid bullet) Fidelity reserves the right to limit the number
of checks processed at one time.
(small solid bullet) If your check does not clear, your purchase will
be canceled and you could be liable for any losses or fees the fund or
Fidelity has incurred.
Certain financial institutions that have entered into sales agreements
with Fidelity Distributors Corporation (FDC) may enter confirmed
purchase orders on behalf of customers by phone, with payment to
follow no later than the time when the fund is priced on the following
business day. If payment is not received by that time, the order will
be canceled and the financial institution could be held liable for
resulting fees or losses.
MINIMUMS
TO OPEN AN ACCOUNT $2,500
For certain Fidelity retirement accountsA $500
TO ADD TO AN ACCOUNT $250
Through regular investment plans $100
MINIMUM BALANCE $2,000
For certain Fidelity retirement accountsA $500
A FIDELITY TRADITIONAL IRA, ROTH IRA, ROTH CONVERSION IRA, ROLLOVER
IRA, SEP-IRA, AND KEOGH ACCOUNTS.
There is no minimum account balance or initial or subsequent purchase
minimum for investments through Fidelity Portfolio Advisory
ServicesSM, a qualified state tuition program, certain Fidelity
retirement accounts funded through salary deduction, or accounts
opened with the proceeds of distributions from such retirement
accounts. In addition, the fund may waive or lower purchase minimums
in other circumstances.
KEY
INFORMATI
ON

PHONE TO OPEN AN ACCOUNT
1-800-544-7777 (BULLET)
Exchange from another
Fidelity fund.
TO ADD TO AN
ACCOUNT
(BULLET)
Exchange from another
Fidelity fund.
(BULLET)
Use Fidelity Money
Line(Registered trademark) to transfer from
your bank account.

INTERNET TO OPEN AN ACCOUNT
WWW.FIDELITY.COM (BULLET)
Complete and sign the
application. Make your
check payable to the
complete name of the
fund. Mail to the address
under "Mail" below.
TO ADD TO AN
ACCOUNT
(BULLET)
Exchange from another
Fidelity fund.
(BULLET)
Use Fidelity Money Line
to transfer from your
bank account.

MAIL TO OPEN AN
FIDELITY ACCOUNT
INVESTMENTS (BULLET)
P.O. BOX 770001 Complete and sign the
CINCINNATI, OH application. Make your
45277-0002 check payable to the
complete name of the
fund. Mail to the
address at left.
TO ADD TO AN
ACCOUNT
(BULLET)
Make your check
payable to the complete
name of the fund.
Indicate your fund
account number on your
check and mail to the
address at left.
(BULLET)
Exchange from another
Fidelity fund. Send a
letter of instruction to
the address at left,
including your name, the
funds' names, the fund
account numbers, and
the dollar amount or
number of shares to be
exchanged.

IN PERSON TO OPEN AN
ACCOUNT
(BULLET)
Bring your application
and check to a Fidelity
Investor Center. Call
1-800-544-9797 for
the center nearest you.
TO ADD TO AN
ACCOUNT
(BULLET)
Bring your check to a
Fidelity Investor Center.
Call 1-800-544-9797
for the center nearest
you.

WIRE TO OPEN AN
ACCOUNT
(BULLET)
Call 1-800-544-7777 to
set up your account and
to arrange a wire
transaction.
(BULLET)
Wire within 24 hours to:
Bankers Trust Company,
Bank Routing #
021001033, Account #
00163053.
(BULLET)
Specify the complete
name of the fund and
include your new fund
account number and
your name.
TO ADD TO AN
ACCOUNT
(BULLET)
Wire to: Bankers Trust
Company, Bank Routing
# 021001033, Account
# 00163053.
(BULLET)
Specify the complete
name of the fund and
include your fund
account number and
your name.

AUTOMATICAL TO OPEN AN ACCOUNT
LY (BULLET)
Not available.
TO ADD TO AN
ACCOUNT
(BULLET)
Use Fidelity Automatic
Account Builder(Registered trademark) or
Direct Deposit.
(BULLET)
Use Fidelity Automatic
Exchange Service to
exchange from a Fidelity
money market fund.

SELLING SHARES
The price to sell one share of the fund is the fund's NAV.
Your shares will be sold at the next NAV calculated after your order
is received in proper form.
Certain requests must include a signature guarantee. It is designed to
protect you and Fidelity from fraud. Your request must be made in
writing and include a signature guarantee if any of the following
situations apply:
(small solid bullet) You wish to sell more than $100,000 worth of
shares;
(small solid bullet) Your account registration has changed within the
last 30 days;
(small solid bullet) The check is being mailed to a different address
than the one on your account (record address);
(small solid bullet) The check is being made payable to someone other
than the account owner;The fund is open for business each day the New
York Stock Exchange (NYSE) is open; or
(small solid bullet) The redemption proceeds are being transferred to
a Fidelity account with a different registration.
You should be able to obtain a signature guarantee from a bank, broker
(including Fidelity Investor Centers), dealer, credit union (if
authorized under state law), securities exchange or association,
clearing agency, or savings association. A notary public cannot
provide a signature guarantee.
When you place an order to sell shares, note the following:
(small solid bullet) If you are selling some but not all of your
shares, leave at least $2,000 worth of shares in the account to keep
it open ($500 for retirement accounts), except accounts not subject to
account minimums.
(small solid bullet) Normally, Fidelity will process redemptions by
the next business day, but Fidelity may take up to seven days to
process redemptions if making immediate payment would adversely affect
the fund.
(small solid bullet) Redemption proceeds (other than exchanges) may be
delayed until money from prior purchases sufficient to cover your
redemption has been received and collected. This can take up to seven
business days after a purchase.
(small solid bullet) Redemptions may be suspended or payment dates
postponed when the NYSE is closed (other than weekends or holidays),
when trading on the NYSE is restricted, or as permitted by the SEC.
(small solid bullet) Redemption proceeds may be paid in securities or
other assets rather than in cash if the Board of Trustees determines
it is in the best interests of the fund.
(small solid bullet) You will not receive interest on amounts
represented by uncashed redemption checks.
(small solid bullet) Unless otherwise instructed, Fidelity will send a
check to the record address.
KEY
INFORMATI
ON

PHONE (BULLET)
1-800-544-7777 Call the phone number at
left to initiate a wire
transaction or to request
a check for your
redemption.
(BULLET)
Use Fidelity Money Line
to transfer to your bank
account.
(BULLET)
Exchange to another
Fidelity fund. Call the
phone number at left.

INTERNET (BULLET)
WWW.FIDELITY.COM Exchange to another
Fidelity fund.
(BULLET)
Use Fidelity Money Line
to transfer to your bank
account.

MAIL INDIVIDUAL, JOINT
FIDELITY TENANT,
INVESTMENTS SOLE PROPRIETORSHIP,
P.O. BOX 660602 UGMA, UTMA
DALLAS, TX (BULLET)
75266-0602 Send a letter of
instruction to the
address at left, including
your name, the fund's
name, your fund account
number, and the dollar
amount or number of
shares to be sold. The
letter of instruction must
be signed by all persons
required to sign for
transactions, exactly as
their names appear on
the account.
RETIREMENT ACCOUNT
(BULLET)
The account owner
should complete a
retirement distribution
form. Call
1-800-544-6666 to
request one.
TRUST
(BULLET)
Send a letter of
instruction to the
address at left, including
the trust's name, the
fund's name, the trust's
fund account number,
and the dollar amount or
number of shares to be
sold. The trustee must
sign the letter of
instruction indicating
capacity as trustee. If the
trustee's name is not in
the account registration,
provide a copy of the trust
document certified within
the last 60 days.
BUSINESS OR
ORGANIZATION
(BULLET)
Send a letter of
instruction to the
address at left, including
the firm's name, the
fund's name, the firm's
fund account number,
and the dollar amount or
number of shares to be
sold. At least one person
authorized by corporate
resolution to act on the
account must sign the
letter of instruction.
(BULLET)
Include a corporate
resolution with corporate
seal or a signature
guarantee.
EXECUTOR,
ADMINISTRATOR,
CONSERVATOR,
GUARDIAN
(BULLET)
Call 1-800-544-6666
for instructions.

IN PERSON INDIVIDUAL, JOINT
TENANT,
SOLE PROPRIETORSHIP,
UGMA, UTMA
(BULLET)
Bring a letter of
instruction to a Fidelity
Investor Center. Call
1-800-544-9797 for
the center nearest you.
The letter of instruction
must be signed by all
persons required to sign
for transactions, exactly
as their names appear
on the account.
RETIREMENT ACCOUNT
(BULLET)
The account owner
should complete a
retirement distribution
form. Visit a Fidelity
Investor Center to
request one. Call
1-800-544-9797 for
the center nearest you.
TRUST
(BULLET)
Bring a letter of
instruction to a Fidelity
Investor Center. Call
1-800-544-9797 for
the center nearest you.
The trustee must sign the
letter of instruction
indicating capacity as
trustee. If the trustee's
name is not in the
account registration,
provide a copy of the trust
document certified within
the last 60 days.
BUSINESS OR
ORGANIZATION
(BULLET)
Bring a letter of
instruction to a Fidelity
Investor Center. Call
1-800-544-9797 for
the center nearest you.
At least one person
authorized by corporate
resolution to act on the
account must sign the
letter of instruction.
(BULLET)
Include a corporate
resolution with corporate
seal or a signature
guarantee.
EXECUTOR,
ADMINISTRATOR,
CONSERVATOR,
GUARDIAN
(BULLET)
Visit a Fidelity Investor
Center for instructions.
Call 1-800-544-9797
for the center nearest
you.

AUTOMATICAL (BULLET)
LY Use Personal Withdrawal
Service to set up periodic
redemptions from your
account.

EXCHANGING SHARES
An exchange involves the redemption of all or a portion of the shares
of one fund and the purchase of shares of another fund.
As a shareholder, you have the privilege of exchanging shares of the
fund for shares of other Fidelity funds.
However, you should note the following policies and restrictions
governing exchanges:
(small solid bullet) The fund you are exchanging into must be
available for sale in your state.
(small solid bullet) You may exchange only between accounts that are
registered in the same name, address, and taxpayer identification
number.
(small solid bullet) Before exchanging into a fund, read its
prospectus.
(small solid bullet) Exchanges may have tax consequences for you.
(small solid bullet) The fund may temporarily or permanently terminate
the exchange privilege of any investor who makes more than four
exchanges out of the fund per calendar year.
(small solid bullet) The exchange limit may be modified for accounts
held by certain institutional retirement plans to conform to plan
exchange limits and Department of Labor regulations. See your plan
materials for further information.
(small solid bullet) The fund may refuse exchange purchases by any
person or group if, in FMR's judgment, the fund would be unable to
invest the money effectively in accordance with its investment
objective and policies, or would otherwise potentially be adversely
affected.
The fund may terminate or modify the exchange privilege in the future.
Other funds may have different exchange restrictions, and may impose
administrative fees of up to 1.00% and trading fees of up to 3.00% of
the amount exchanged. Check each fund's prospectus for details.
ACCOUNT FEATURES AND POLICIES
FEATURES
The following features are available to buy and sell shares of the
fund.
AUTOMATIC INVESTMENT AND WITHDRAWAL PROGRAMS. Fidelity offers
convenient services that let you automatically transfer money into
your account, between accounts or out of your account. While automatic
investment programs do not guarantee a profit and will not protect you
against loss in a declining market, they can be an excellent way to
invest for retirement, a home, educational expenses, and other
long-term financial goals. Automatic withdrawal or exchange programs
can be a convenient way to provide a consistent income flow or to move
money between your investments.

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FIDELITY
AUTOMATIC
ACCOUNT
BUILDER(registered trademark)
TO MOVE MONEY
FROM YOUR BANK
ACCOUNT TO A
FIDELITY FUND

MINIMUM FREQUENCY PROCEDURES
$100 Monthly or quarterly (BULLET)
To set up for a new
account, complete the
appropriate section on
the fund application.
(BULLET)
To set up for existing
accounts, call
1-800-544-6666 or
visit Fidelity's Web site
for an application.
(BULLET)
To make changes, call
1-800-544-6666 at
least three business
days prior to your
next scheduled
investment date.

DIRECT DEPOSIT
TO SEND ALL OR A
PORTION OF YOUR
PAYCHECK OR
GOVERNMENT CHECK
TO A FIDELITY FUNDA

MINIMUM FREQUENCY PROCEDURES
$100 Every pay period (BULLET)
To set up for a new
account, check the
appropriate box on
the fund application.
(BULLET)
To set up for an
existing account, call
1-800-544-6666 or
visit Fidelity's Web site
for an authorization
form.
(BULLET)
To make changes you
will need a new
authorization form.
Call 1-800-544-6666
or visit Fidelity's Web
site to obtain one.

A BECAUSE ITS SHARE
PRICE FLUCTUATES, THE
FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR
DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.

FIDELITY
AUTOMATIC
EXCHANGE
SERVICE
TO MOVE MONEY
FROM A FIDELITY
MONEY MARKET
FUND TO ANOTHER
FIDELITY FUND

MINIMUM FREQUENCY PROCEDURES
$100 Monthly, bimonthly, (BULLET)
quarterly, or annually To set up, call
1-800-544-6666
after both accounts
are opened.
(BULLET)
To make changes, call
1-800-544-6666 at
least three business
days prior to your
next scheduled
exchange date.

PERSONAL
WITHDRAWAL
SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM
YOUR FUND ACCOUNT
TO YOU OR TO YOUR
BANK ACCOUNT.

FREQUENCY PROCEDURES
Monthly (BULLET)
To set up, call
1-800-544-6666.
(BULLET)
To make changes, call
Fidelity at
1-800-544-6666 at
least three business
days prior to your
next scheduled
withdrawal date.

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OTHER FEATURES. The following other features are also available to buy
and sell shares of the fund.
WIRE
TO PURCHASE AND SELL SHARES VIA THE FEDERAL RESERVE WIRE SYSTEM.
(BULLET) You must sign up for the Wire feature before using it.
Complete the appropriate section on the application when opening your
account, or call 1-800-544-7777 to add the feature after your account
is opened. Call 1-800-544-7777 before your first use to verify that
this feature is set up on your account.
(BULLET) To sell shares by wire, you must designate the U.S.
commercial bank account(s) into which you wish the redemption proceeds
deposited.
FIDELITY MONEY LINE
TO TRANSFER MONEY BY PHONE BETWEEN YOUR BANK ACCOUNT AND YOUR FUND
ACCOUNT.
(BULLET) You must sign up for the Money Line feature before using it.
Complete the appropriate section on the application and then call
1-800-544-7777 or visit Fidelity's Web site before your first use to
verify that this feature is set up on your account.
(BULLET) Most transfers are complete within three business days of
your call.
(BULLET) Maximum purchase: $100,000
FIDELITY ON-LINE XPRESS+(Registered trademark)
TO MANAGE YOUR INVESTMENTS THROUGH YOUR PC.
CALL 1-800-544-7272 OR VISIT FIDELITY'S WEB SITE FOR MORE INFORMATION.
(BULLET) For account balances and holdings;
(BULLET) To review recent account history;
(BULLET) For mutual fund and brokerage trading; and
(BULLET) For access to research and analysis tools.
FIDELITY WEB XPRESS(registered trademark)
TO ACCESS AND MANAGE YOUR ACCOUNT OVER THE INTERNET AT FIDELITY'S WEB
SITE.
(BULLET) For account balances and holdings;
(BULLET) To review recent account history;
(BULLET) To obtain quotes;
(BULLET) For mutual fund and brokerage trading; and
(BULLET) To access third-party research on companies, stocks, mutual
funds and the market.
TOUCHTONE XPRESS(registered trademark)
TO ACCESS AND MANAGE YOUR ACCOUNT AUTOMATICALLY BY PHONE.
CALL 1-800-544-5555.
(BULLET) For account balances and holdings;
(BULLET) For mutual fund and brokerage trading;
(BULLET) To obtain quotes;
(BULLET) To review orders and mutual fund activity; and
(BULLET) To change your personal identification number (PIN).
POLICIES
The following policies apply to you as a shareholder.
STATEMENTS AND REPORTS that Fidelity sends to you include the
following:
(small solid bullet) Confirmation statements (after transactions
affecting your account balance except reinvestment of distributions in
the fund or another fund and certain transactions through automatic
investment or withdrawal programs).
(small solid bullet) Monthly or quarterly account statements
(detailing account balances and all transactions completed during the
prior month or quarter).
(small solid bullet) Financial reports (every six months).
To reduce expenses, only one copy of most financial reports and
prospectuses will be mailed to your household, even if you have more
than one account in the fund. Call Fidelity at 1-800-544-8544 if you
need additional copies of financial reports, prospectuses or
historical account information.
Electronic copies of most financial reports and prospectuses are
available at Fidelity's Web site. To participate in Fidelity's
electronic delivery program, call Fidelity or visit Fidelity's Web
site for more information.
You may initiate many TRANSACTIONS BY TELEPHONE OR ELECTRONICALLY.
Fidelity will not be responsible for any losses resulting from
unauthorized transactions if it follows reasonable security procedures
designed to verify the identity of the investor. Fidelity will request
personalized security codes or other information, and may also record
calls. For transactions conducted through the Internet, Fidelity
recommends the use of an Internet browser with 128-bit encryption. You
should verify the accuracy of your confirmation statements immediately
after you receive them. If you do not want the ability to sell and
exchange by telephone, call Fidelity for instructions.
When you sign your ACCOUNT APPLICATION, you will be asked to certify
that your social security or taxpayer identification number is correct
and that you are not subject to 31% backup withholding for failing to
report income to the IRS. If you violate IRS regulations, the IRS can
require the fund to withhold 31% of your taxable distributions and
redemptions.
Fidelity may deduct an ANNUAL MAINTENANCE FEE of $12.00 from accounts
with a value of less than $2,500, subject to an annual maximum charge
of $24.00 per shareholder. It is expected that accounts will be valued
on the second Friday in November of each year. Accounts opened after
September 30 will not be subject to the fee for that year. The fee,
which is payable to Fidelity, is designed to offset in part the
relatively higher costs of servicing smaller accounts. This fee will
not be deducted from Fidelity brokerage accounts, retirement accounts
(except non-prototype retirement accounts), accounts using regular
investment plans, or if total assets with Fidelity exceed $30,000.
Eligibility for the $30,000 waiver is determined by aggregating
accounts with Fidelity maintained by Fidelity Service Company, Inc. or
FBSI which are registered under the same social security number or
which list the same social security number for the custodian of a
Uniform Gifts/Transfers to Minors Act account.
If your ACCOUNT BALANCE falls below $2,000 (except accounts not
subject to account minimums), you will be given 30 days' notice to
reestablish the minimum balance. If you do not increase your balance,
Fidelity may close your account and send the proceeds to you. Your
shares will be sold at the NAV on the day your account is closed.
Fidelity may charge a FEE FOR SPECIAL SERVICES, such as providing
historical account documents, that are beyond the normal scope of its
services.

DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
The fund earns interest, dividends and other income from its
investments, and distributes this income (less expenses) to
shareholders as dividends. The fund also realizes capital gains from
its investments, and distributes these gains (less any losses) to
shareholders as capital gains distributions.
The fund normally declares dividends daily and pays them monthly. The
fund normally pays capital gains distributions in December and
February.
EARNING DIVIDENDS
Shares begin to earn dividends on the first business day following the
day of purchase.
Shares earn dividends until, but not including, the next business day
following the day of redemption.
DISTRIBUTION OPTIONS
When you open an account, specify on your application how you want to
receive your distributions. The following options may be available for
the fund's distributions:
1. REINVESTMENT OPTION. Your dividends and capital gains distributions
will be automatically reinvested in additional shares of the fund. If
you do not indicate a choice on your application, you will be assigned
this option.
2. INCOME-EARNED OPTION. Your capital gains distributions will be
automatically reinvested in additional shares of the fund. Your
dividends will be paid in cash.
3. CASH OPTION. Your dividends and capital gains distributions will be
paid in cash.
4. DIRECTED DIVIDENDS(registered trademark) OPTION. Your dividends
will be automatically invested in shares of another identically
registered Fidelity fund. Your capital gains distributions will be
automatically invested in shares of another identically registered
Fidelity fund, automatically reinvested in additional shares of the
fund or paid in cash.
Not all distribution options are available for every account. If the
option you prefer is not listed on your account application, or if you
want to change your current option, call Fidelity.
If you elect to receive distributions paid in cash by check and the
U.S. Postal Service does not deliver your checks, your distribution
option may be converted to the Reinvestment Option. You will not
receive interest on amounts represented by uncashed distribution
checks.
TAX CONSEQUENCES
As with any investment, your investment in the fund could have tax
consequences for you. If you are not investing through a
tax-advantaged retirement account, you should consider these tax
consequences.
TAXES ON DISTRIBUTIONS.
Distributions you receive from the fund are subject to federal income
tax, and may also be subject to state or local taxes.
For federal tax purposes, the fund's dividends and distributions of
short-term capital gains are taxable to you as ordinary income. The
fund's distributions of long-term capital gains are taxable to you
generally as capital gains.
If a fund's distributions exceed its income and capital gains realized
in any year, which is sometimes the result of currency-related losses,
all or a portion of those distributions may be treated as a return of
capital to shareholders for tax purposes. A return of capital will
generally not be taxable to you, but will reduce the cost basis of
your shares and result in a higher reported capital gain or a lower
reported capital loss when you sell your shares.
If you buy shares when a fund has realized but not yet distributed
capital gains, you will be "buying a dividend" by paying the full
price for the shares and then receiving a portion of the price back in
the form of a taxable distribution.
Any taxable distributions you receive from the fund will normally be
taxable to you when you receive them, regardless of your distribution
option. If you elect to receive distributions in cash or to invest
distributions automatically in shares of another Fidelity fund, you
will receive certain December distributions in January, but those
distributions will be taxable as if you received them on December 31.
TAXES ON TRANSACTIONS. Your redemptions, including exchanges, may
result in a capital gain or loss for federal tax purposes. A capital
gain or loss on your investment in the fund is the difference between
the cost of your shares and the price you receive when you sell them.
FUND SERVICES

FUND MANAGEMENT
Strategic Income is a mutual fund, an investment that pools
shareholders' money and invests it toward a specified goal.
Fidelity Management & Research Company (FMR) is the fund's manager.
As of _____, FMR had approximately $__ billion in discretionary assets
under management.
As the manager, FMR is responsible for choosing the fund's investments
and handling its business affairs.
Affiliates assist FMR with foreign investments:
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for the fund. FMR
U.K. was organized in 1986 to provide investment research and advice
to FMR. Currently, FMR U.K. provides investment research and advice on
issuers based outside the United States and may also provide
investment advisory services for the fund.
(small solid bullet) Fidelity Management & Research Far East Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for the fund. FMR
Far East was organized in 1986 to provide investment research and
advice to FMR. Currently, FMR Far East provides investment research
and advice on issuers based outside the United States and may also
provide investment advisory services for the fund.
(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda, serves as a sub-adviser for the fund. As
of December 31, 1998, FIIA had approximately $___ in discretionary
assets under management. Currently, FIIA provides investment research
and advice on issuers based outside the United States and may also
provide investment advisory services for the fund.
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L), in London, England, serves as a sub-adviser for
the fund. As of December 31, 1998, FIIA(U.K.)L had approximately $___
in discretionary assets under management. Currently, FIIA(U.K.)L
provides investment research and advice on issuers based outside the
United States and may also provide investment advisory services for
the fund.
(small solid bullet) Fidelity Investment Japan Ltd. (FIJ), in Tokyo,
Japan, serves as a sub-adviser for the fund. As of December 31, 1998,
FIJ had approximately $___ in discretionary assets under management.
Currently, FIJ provides investment research and advice on issuers
based outside the United States and may also provide investment
advisory services for the fund.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM), in Merrimack, New Hampshire, will serve as sub-adviser and
choose certain types of investments for the fund. As of December 31,
1998, FIMM had approximately $__ in discretionary assets under
management.
The fund could be adversely affected if the computer systems used by
FMR and other service providers do not properly process and calculate
date-related information from and after January 1, 2000. FMR has
advised the fund that it is actively working on necessary changes to
its computer systems and expects that its systems, and those of other
major service providers, will be modified prior to January 1, 2000.
However, there can be no assurance that there will be no adverse
impact on the fund.
John Carlson is Vice President and lead manager of Strategic Income,
which he has managed since inception. He also manages the emerging
markets investments of Strategic Income and manages other Fidelity
funds. Prior to joining Fidelity in 1995, Mr. Carlson was executive
director of emerging markets at Lehman Brothers International from
1992 through 1995.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
The fund pays a management fee to FMR.
The management fee is calculated and paid to FMR every month. The fee
is calculated by adding a group fee rate to an individual fund fee
rate, dividing by twelve, and multiplying the result by the fund's
average net assets throughout the month.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
For December 1998, the group fee rate was __%. The individual fund fee
rate is 0.45%.
FMR pays FIMM, FMR U.K., FMR Far East, FIJ and FIIA for providing
assistance with investment advisory services and FIIA in turn pays
FIIA(U.K.)L.
FMR may, from time to time, agree to reimburse the fund for management
fees and other expenses above a specified limit. FMR retains the
ability to be repaid by the fund if expenses fall below the specified
limit prior to the end of the fiscal year. Reimbursement arrangements,
which may be terminated by FMR at any time, can decrease the fund's
expenses and boost its performance.
[As of December 31, 1998, approximately ____% of the fund's total
outstanding shares were held by [FMR/FMR and [an] FMR
affiliate[s]/[an] FMR affiliate[s]].]
FUND DISTRIBUTION
Fidelity Distributors Corporation, Inc. (FDC) distributes the fund's
shares.
The fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that recognizes that
FMR may use its management fee revenues, as well as its past profits
or its resources from any other source, to pay FDC for expenses
incurred in connection with providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees has authorized such
payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of the fund, provided that the fund
receives brokerage services and commission rates comparable to those
of other broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this Prospectus and in the related
Statement of Additional Information (SAI), in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the fund or FDC. This Prospectus and the related SAI do
not constitute an offer by the fund or by FDC to sell or to buy shares
of the fund to any person to whom it is unlawful to make such offer.
APPENDIX

FINANCIAL HIGHLIGHTS

[Financial Highlights to be filed by subsequent amendment.]
You can obtain additional information about the fund. The fund's SAI
includes more detailed information about the fund and its investments.
The SAI is incorporated herein by reference (legally forms a part of
the prospectus). The fund's annual and semi-annual reports include a
discussion of recent market conditions and the fund's investment
strategies, performance and holdings.
For a free copy of any of these documents or to request other
information or ask questions about the fund, call Fidelity at
1-800-544-8544 or visit Fidelity's Web site at www.fidelity.com.
The SAI, the fund's annual and semi-annual reports and other related
materials are available on the SEC's Internet Web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the fund, including the fund's SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBER, 811-2676
Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity
Investments, Fidelity Money Line, Fidelity On-Line Xpress+, Fidelity
Web Xpress, TouchTone Xpress, Fidelity Automatic Account Builder, and
Directed Dividends are registered trademarks of FMR Corp.
Portfolio Advisory Services is a service mark of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
[Item Code]. FSN--pro-0299

FIDELITY STRATEGIC INCOME FUND
A FUND OF FIDELITY SCHOOL STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 27, 1999
This Statement of Additional Information (SAI) is not a prospectus.
Portions of the fund's Annual Report are incorporated herein. The
Annual Report is supplied with this SAI.
To obtain a free additional copy of the Prospectus , dated February
27, 1999, or an Annual Report, please call Fidelity(registered
trademark) at 1-800-544-8544 or visit Fidelity's Web site at
www.fidelity.com.

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TABLE OF CONTENTS PAGE

INVESTMENT POLICIES AND LIMITATIONS 20

SPECIAL CONSIDERATIONS REGARDING AFRICA 26

SPECIAL CONSIDERATIONS REGARDING CANADA 26

SPECIAL CONSIDERATIONS REGARDING EUROPE 26

SPECIAL CONSIDERATIONS REGARDING JAPAN, THE PACIFIC BASIN, AND SOUTHEAST ASIA 29

SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA 35

SPECIAL CONSIDERATIONS REGARDING THE RUSSIAN FEDERATION 37

PORTFOLIO TRANSACTIONS 37

VALUATION 38

PERFORMANCE 39

ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION 43

DISTRIBUTIONS AND TAXES 43

TRUSTEES AND OFFICERS 43

CONTROL OF INVESTMENT ADVISERS 43

MANAGEMENT CONTRACT 46

DISTRIBUTION SERVICES 48

TRANSFER AND SERVICE AGENT AGREEMENTS 48

DESCRIPTION OF THE TRUST 49

FINANCIAL STATEMENTS 49

APPENDIX 49

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FSN-ptb-0299
[Item code number]
(fidelity_logo_graphic)
82 Devonshire Street, Boston, MA 02109

SPECIAL CONSIDERATIONS REGARDING CANADA
Canada is a confederation of ten provinces with a parliamentary
system of government. Canada is the world's second largest nation by
landmass and is inhabited by 30.2 million people, most of whom are
descendants of France, the United Kingdom and indigenous peoples. The
country has a workforce of over 15 million people in various
industries such as trade, manufacturing, mining, finance, construction
and government. While the country has many institutions which closely
parallel the United States, such as a transparent stock market and
similar accounting practices, it differs from the United States in
that it has an extensive social welfare system, much more akin to
European welfare states.
The confederated structures combined with recent financial pressure
on the federal government have pushed provinces, Quebec in particular,
to call for a revaluation of the legal and financial relationships
between the federal government in Ottawa and the provinces. Recent
referendums on Quebec sovereignty have been narrowly defeated and the
issue appears far from resolved. However, in August of 1998, the
country's Supreme Court decided that Quebec does not have the right to
secede unilaterally, removing any immediate threat that Canada will
break up. Nevertheless, the Canadian markets could continue to react
to any periodic escalations of separatist calls.
Canada is one of the richest nations in the world in terms of natural
resources. The country is a major producer of such commodities
as forest products, mining, metals, and agricultural products.
Additionally, energy related products such as oil, gas, and
hydroelectricity are important components of their economy.
Accordingly, the Canadian stock market is strongly represented by
basic material stocks, and movements in the supply and demand of
industrial materials, agriculture, and energy, both domestically and
internationally, can have a strong effect on market performance.
The United States is Canada's largest trading partner and
approximately 80% of Canadian merchandise traded in 1997 was with the
United States. Automobiles and auto parts accounted for the largest
export items followed by energy, mining and forest products. Canada is
the largest energy supplier to the United States, while the United
States is Canada's largest foreign investor. United States investment
has been largely focused on financial, energy, metals and mining
businesses. The expanding economic and financial integration of the
United States and Canada will likely make the Canadian economy and
securities markets increasingly sensitive to U.S. economic and market
events.
For United States investors in Canadian markets, currency has
become an important determinant of investment return. Since Canada let
its dollar float in 1970, its value has been in a steady decline
against its United States counterpart. While the decline has enabled
Canada to stay competitive with its more efficient southern neighbor,
which buys four-fifths of its exports, United States investors have
seen their investment returns eroded by the impact of currency
conversion.
SPECIAL CONSIDERATIONS REGARDING EUROPE
Europe can be divided into two distinct categories of market
development: the developed economies of Western Europe and the
transition economies of Eastern Europe.
Any discussion of European national economies and securities
markets must be made with an eye to the impact that the European Union
(EU) and European and Economic Monetary Union (EMU) - will have upon
the future of these countries as well as the rest of the world. The
scope and magnitude of these economic and political initiatives dwarfs
anything attempted to date. If successful, the EU will change or erase
many political, economic, cultural and market distinctions that define
and differentiate each of the Continent's countries today.
The third and final stage of the European Economic and Monetary
Union is scheduled to be implemented on January 1, 1999. The European
Union (EU) consists of 15 countries of western Europe: Austria,
Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United
Kingdom. The six founding countries first formed an economic community
in the 1950s to bring down trade barriers such as taxes and quotas, to
eliminate technical restrictions such as special standards and
regulations for foreigners, and to coordinate various industrial
policies, such as those pertaining to agriculture. Since that time the
group has admitted new members and, in time, may expand its membership
to other nations such as those of Eastern Europe. The EU has as its
goal, the creation of a single, unified market that would be, at over
370 million people, the largest in the developed world and through
which goods, people and capital could move freely.
A second component of the EU is the establishment of a single
currency - the Euro, to replace each member country's domestic
currencies. In preparation for the creation of the Euro, the Exchange
Rate Mechanism (ERM) was established to keep the various national
currencies at a pre-specified value relative to each other. The year
1997 is significant for membership in the EU as it is the initial
reference year for evaluating debt levels and deficits within the
criteria set forth by the Maastricht treaty. Specifically, the
Maastricht criteria include, among other indicators, an inflation rate
below 3.3%, a public debt below 60% of GDP, and a deficit of 3% or
less of GDP. Failure to meet the Maastricht levels would disqualify
any country from membership.
On May 3, 1998 the European Council of Ministers formally announced
the "first wave" of EMU participants. They are: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. On January 1, 1999, the Euro becomes a currency,
while the bank notes used by EMU's eleven members remain legal tender.
After a three year transition period, the Euro will begin circulating
on January 1, 2002. Six months later, today's currencies will cease to
exist.
Many foreign and domestic businesses are establishing or
increasing their presence in Europe in anticipation of the new
unified single market. Clear, confident visions of a
diverse, multi-industrial, unified market under a single currency have
been the impetus for much of the recent corporate restructuring
initiatives as well as for the increased mergers and acquisitions
activity in the region. A successful EMU could prove to be an
engine for sustained growth throughout Europe.
While the securities markets view the introduction of the euro as
inevitable, the success of the union is not wholly assured. Europe
must grapple with a number of challenges, any one of which could
threaten the survival of this monumental undertaking. For example,
eleven disparate economies must adjust to a unified monetary system,
the absence of exchange rate flexibility and the loss of economic
sovereignty. The Continent's economies are diverse, its governments
decentralized and its cultures differ widely. Unemployment is
historically high and could pose a political risk that one or more
countries might exit the union placing the currency and banking system
in jeopardy.
For those countries in Western and Eastern Europe that will not be
included in the first round of the EU implementation, the prospects
for eventual membership serves as a strong political impetus for
many governments to employ tight fiscal and monetary policies.
Particularly for the Eastern European countries, aspirations to join
the EU are likely to push governments to act decisively. At the same
time, there could become an increasingly widening gap between
rich and poor both within the aspiring countries and also those
countries who are close to meeting membership criteria and those who
are not. Realigning traditional alliances could result in altering
trading relationships and potentially provoking divisive
socio-economic splits.
The economies of Eastern Europe are embarking on the transition
from communism at different paces with appropriately different
characteristics. The transition countries also display sharp contrasts
in performance. Those that are most advanced in the transformation
process are now reaping the rewards of comprehensive reform and
stabilization policies pursued with determination over recent years.
These include Poland, the Baltic countries, Croatia, the Czech
Republic, Hungary, the Slovak Republic and Slovenia. Conversely, those
that are less advanced in the transition are struggling with a number
of policy challenges to strengthen their economies. Several countries
have made good progress, and in Armenia, Azerbaijan, Georgia,
Kazakhstan, and the Kyrgyz Republic, inflation has fallen considerably
in recent years. Nevertheless, the East European markets are
particularly vulnerable to weakness in the world's other emerging
countries and are particularly sensitive to events in Russia. For
example, in mid-1998 when economic and political turmoil forced the
Russian government to devalue its currency and restructure its debt
payments, the other markets in Eastern Europe suffered significant
destabilization of which the extent and duration is still unknown.
FRANCE. France is a republic of over 58 million people in
the historic if not the geographic center of Western Europe. The Fifth
French Republic, established in the early postwar period under Charles
de Gaulle, provides for a strong Presidency which can appoint its own
cabinet but must win approval of a parliamentary majority. The
government was founded upon the French cultural values of liberty,
brotherhood and egalitarianism. In France, this latter value often
translates into a government burden of providing job security. The
result is a large, vast bureaucracy in the public sector and strict
employment and labor laws in the private sector. In addition, a
significant portion of government economic policy revolves around
regulating and protecting domestic industries, particularly farming
and manufacturing. Finally, the French government frequently owns high
majority or minority interests in large companies, particularly
utility, transport and communications concerns. While privatization
has been a popular movement in many other European countries, it has
encountered a stalled stop-and-go cycle in France.
The French economy is the world's fourth-largest Western
industrialized economy, with a GDP of $1538 billion in 1996. The
nation has substantial agricultural resources, a diversified modern
industrial system, and a highly skilled labor force. France's economy
boasts a sophisticated industrial manufacturing base, which includes
not only high technology (information technology and
telecommunications, vehicles, aircraft, computer equipment, etc.) but
also a number of very large companies producing consumer goods. The
country's industrial structure is unusual for an industrialized
economy because the state still controls a large proportion of the
heavy strategic goods industries as well as institutions such as banks
and communications companies. The agricultural sector continues to be
important; however, most farms are small by European standards and
require massive government support. Exports are an economic strong
point and the nation has enjoyed trade surpluses in recent years.
Leading exports include chemicals, electronics and automotive and
aircraft machinery, while imports are dominated by petroleum,
industrial machinery and electronics. Their main trading partners are
the United States, Japan, and other EU countries.
The country is one of the largest consumers of nuclear energy,
obtaining nearly 75% of its total electricity needs from reactors.
While it has some small deposits of oil and gas, it remains heavily
dependent on imports for most of its needs.
In recent years, the country's economic growth has been hindered by
a series of general strikes. The government's efforts to reduce
spending to meet the Maastricht criteria have prompted strikes and
unrest from France's powerful trade unions. In addition, striking
workers have pushed their demands for a lower retirement age and a
reduction in the workweek. With an unemployment rate above 12%, the
country's labor markets are not functioning efficiently. France's
pay-as-you-go pension program is an additional deterrent to economic
growth as spending on pensions account for a tenth of GDP. While all
parties agree that the system must be replaced, no agreement has been
reached on an alternative.
France went to the polls in May 1997 after a surprise decision to
hold early elections by conservative President Jacques Chirac.
Chirac's calculation was to capitalize on popular support before he
was forced to undertake austere fiscal measures to meet the Maastricht
criteria. Voters responded that they were more concerned about the
country's high level of unemployment and Chirac's party lost enough
seats in the parliament that the president must now share power for
the remaining five years in office with a socialist-led government.
This change could set back the previous government's pledges to
continue its privatization initiatives, restrain spending, support the
franc, and endure fiscal austerity. It also calls into question
whether the French people have the will to adhere to the EMU
convergence criteria over the next few years.
The stock market in France has undergone both gradual and dramatic
changes in recent years, keeping pace with global trends toward
deregulation, privatization, and cross border activities, allowing
Paris to maintain its position as the world's fourth-largest financial
center. Until 1996, the Paris Bourse was the country's sole stock
exchange, providing access to all listed French securities. Since
then, foreign interest has been stimulated by the creation of new
markets, such as the Nouveau March<UNDEF>, for riskier, growth
oriented, small corporations. While the listings of these combined
markets are fairly diverse financial companies that account for
approximately one-third of the total. The system underwent many
regulatory changes in the late 1980s, taking steps toward combating
insider trading and ensuring market transparency.
GERMANY. Germany is the largest economy in all of Europe and
is the third largest economy in the world behind the United States and
Japan. The country occupies a central position in Western Europe with
strong cultural and economic ties with the countries of Eastern Europe
and borders on no less than six other Western European countries. The
country's size, location and proven industrial ability have
historically thrust it to the center of European economic life, a
position it was able to re-attain in the wake of the post-war period.
More recently, Germany has used this position as a platform to
champion the cause of the European Union, and also to absorb and
transform the devastated economy of its former communist eastern half.

The German economy is heavily industrialized, with a strong
emphasis on manufacturing. The manufacturing sector is driven by small
and medium-sized companies, most of which are very efficient and
dynamic. Germany, nevertheless, has many large industries and
manufacturing is dominated by the production of motor vehicles,
precision engineering, brewing, chemicals, pharmaceuticals and heavy
metal products.
The economy has benefited from a strong export performance
throughout the decade. Exports, weighted heavily in the industrial
machinery, autos and chemicals sectors, have provided the economy with
positive trade balances. Exports are the main engine of GDP growth,
highlighting Germany's dependence on the prosperity of its trading
partners. Five out of its top six trading partners are fellow EU
members (the sixth is the United States), while very low levels of
trade are conducted with Asian and Latin American countries. Germany
stands very well poised to supply the emerging markets of central
Europe. It is already the largest European foreign investor in the
Czech Republic and the largest trading partner for Poland and Hungary.
Accordingly, any weakness in the emerging market economies might
likely dampen demand for German goods, to the detriment of the German
economy. As most of these emerging markets aspire to join the EU, it
is possible that a larger EU could alter Germany's trading
relationships due to new quotas, tax rates, exchange rates and other
factors which will come with EU membership.
The recent performance of the German economy must be evaluated
within the context of the 1990 reunification of the eastern and
western states. GDP growth dropped markedly during the early years of
reunification. Industry in Eastern Germany is still catching up.
Workers in Eastern Germany earn two-thirds of western wages but
produce only half as much. In addition, one of the byproducts of
assimilating East Germany into the state has been the need to
restructure many of the government services to accommodate the new and
substantially less affluent citizens. Significant tax and welfare
reforms have yet to be undertaken, and pressure is mounting on the
government to address these issues. Unemployment rates have begun to
cause some discontent among German citizens whose culture generally
places strong emphasis on a social compact. Any dissatisfaction could
be expressed at the polls during the 1998 elections.
Germany is faced with other significant economic challenges.
Unemployment is currently above 12% as the country experiences its
longest period of slow growth since the Second World War. The
government's ability to deal with the problem is limited by its
efforts to meet the stringent Maastricht criteria for convergence.
There are also growing concerns about the exodus of German companies
relocating abroad in order to avoid the country's high labor costs. In
the longer run, Germany's government must alter the peculiar mix of
capitalism, welfarism and consensus that sets the country apart. Those
decisions will be politically sensitive - especially if they
antagonize the powerful trade unions or the country's many family-run
firms.
Germany's stock market has enjoyed dramatic growth in volume as the
main DAX index has soared over the past two years. Much of the
market's strength has been attributed to the dollar's recovery and
rising corporate earnings. In addition, a number of changes have
occurred recently to support the share-buying explosion and to
establish a German equity culture. A number of initial public
offerings were launched as the government sought to divest itself of
ownership in such businesses as the nation's telephone utility and
post office businesses to ease budgetary pressures. The government
also created a supervisory authority which has outlawed insider
trading and established stiffer company reporting standards intended
to further increase the appeal of Germany's stock market.
Nevertheless, while there has been progress in broadening the investor
base, shares remain overwhelmingly in the hands of institutions and
companies.
The German central bank is one of the world's strongest and most
independent. Their high interest rates have contributed to a
controlled growth of the stock market and a steadily decreasing
inflation rate. Keeping the Deutsche Mark strong in leading up to EMU
has been a priority for the bank. Nevertheless, exports have thrived
despite the currency's strong position.
A founding member of the EU and the most ardent proponent of EMU,
Germany is seen as the primary player in Union economics and politics.
Seeking to consolidate this position, recent government policy has put
a strong emphasis on the maintenance of a strong currency and the
achievement of the Maastricht criteria.
NORDIC COUNTRIES. Increasing economic globalization and the
expansion of the EU have forced the Nordic Countries to scale back
their historically liberal welfare spending policies. While public
spending has dropped from average levels, the cutbacks in social
programs have sparked drops in domestic demand and increases in
unemployment. Nevertheless, the Nordic economies are experiencing
positive growth fueled largely by strong exports and low interest
rates. The approaching EMU deadline is putting pressure on each nation
to maintain their economies in line with requirements of the
Maastricht treaty criteria and the fiscal and political issues remain
central in political debates.
Of the Nordic countries, Finland, Denmark and Sweden are all
members of the EU. Only Norway has elected not to join. However, the
decision likely will not isolate the Norwegian economy from those of
its Nordic neighbors. The country maintains a "shadow membership" in
the EU, by which it seeks to stay as closely informed as possible and
to make its voice heard on the issues. This may ensure that it will
become more closely aligned with the rest of Europe as time passes.
One significant aspect of opting out of the EU is that the central
bank is free to pursue its own agenda, such as setting inflation
targets as opposed to exchange rate targets. Inflation patterns and
currency stability could prove to be issues that may separate the
policy decisions of Norway from the other Nordic countries.
Politically, the countries of this region are historically known
for their approach to policy making that emphasizes consensus. The
most common type of government among the Nordic countries is dominated
by long-standing, left-of-center parties which often align themselves
with smaller centrist parties for majority support. The landscape,
however, is so fractured that governing from a minority position is
common. The absence of a clear majority party slows and sometimes
arrests policy making. The strongest opposition comes from traditional
European conservative parties, which have gained support in recent
years with the decline of the welfare state and the need for the
libertarian policies necessary to compete and integrate with free
markets. None of the Nordic countries face any serious risk of any
anti-democratic political change. However, in Sweden, the prospects of
the present government will depend on its ability to create more jobs
and to prepare the economy for EMU. A large minority of voters are
also disappointed about the benefits which membership in the EU was
expected to bring and have been increasingly voicing anti-EU
sentiments. However, in May 1998, Sweden and its fellow applicants,
Finland and Denmark, were formally admitted in the "first wave" of the
EMU.
Industry in the region is heavily resource-oriented. Denmark's
agricultural sector remains the backbone of the economy although other
industries have been developing rapidly in recent years, with
engineering, food processing, pharmaceuticals, brewing and
shipbuilding gaining in importance. Finland's major industry is
forestry which supplies a large paper and timber products sector. It
also produces household goods and telecommunications equipment and has
an extremely important heavy goods sector producing ships, cement,
steel and machine tools. In Sweden, the manufacturing sector dominates
the economy and includes major industries which range from motor
vehicles to aerospace, chemicals, pharmaceuticals, timber, pulp and
paper. Several of the country's export-oriented industries (in
particular forestry, mining and steel) are suffering as the country's
high wages squeeze them out of foreign markets. Norway's oil-driven
economy has provided its citizens with one of the highest standards of
living in the world. However, they must prepare for the time, due to
arrive early in the next century, when their vast reserves run out.
Reliance on exports concentrated in a few sectors tie these countries
closely to one another.
Economically, the Nordic countries are strong export economies that
take advantage of their abundant natural resources. They are also very
closely tied both to each other and to the rest of Europe. Most
countries have witnessed low levels of positive growth in the last six
years. Finland is the exception. As a significant portion of its trade
is with Russia, Finland suffered in the early years of the collapse of
the Soviet Union. However, in the past two years its economy has
recorded some of the highest growth rates in Western Europe while
having the lowest rate of inflation. Similarly, after five years of
recession, the overall outlook for the Swedish economy is also vastly
improved. A stringent package of spending cuts and tax increases has
brought down the budget deficit to a level that is well within the EMU
target. Exports are recovering as other parts of Europe are coming out
of recession and its inflation is among the lowest in Western Europe.
However, the one weak spot in both country's economies is a
persistently high unemployment rate. Finland's unemployment, at 17%,
is the second highest in Europe after Spain, and Finland's rate
represents only a marginal improvement over the previous year.
Norway's oil driven economy is the envy of many and unemployment is
just a little over five percent.
A portion of the region's unemployment woes can be attributed to
the cultural ethic which was advanced during the years of the welfare
state. Subsequent cuts in public spending, particularly in those
sectors that traditionally rely on large government spending,
exacerbated the problem. Labor market reform will be a critical issue
in these countries as public spending is cut back. Pensions and
structural issues such as union regulations all need to be reformed, a
task, which brings both challenges and unpopularity to the government
that accepts it. Not only will labor market reforms give governments a
daunting challenge; they could also cause the public to regret their
participation in the EMU. One positive point is that the countries
boast very high standards of living, which create healthy and highly
educated workforces.
The stock markets in Scandinavia are of medium size, and frequently
are strongly influenced by a small number of large multinational
firms. For example, in Sweden thirty firms constituted 75% of the
market's total capitalization and market turnover in 1997. Weighing
heavily in the equity markets are the electronics, forest products,
mining and manufacturing sectors. Market capitalization is highest in
Sweden at $273 billion, while the others are between $74 and $94
billion. Sweden also leads in numbers of firms (261) listed. Other
country's listings range from 126 (Finland) to 249 (Denmark).
Performance of Nordic country indexes tend to be skewed owing to the
dominant weightings that a few large companies have in the index. For
example, the market capitalization of Finnish telecommunications
equipment manufacturer Nokia comprises about one-third of the total
market capitalization of the Finnish exchange and has a substantial
impact upon the performance of the companies in the HEX Index.
UNITED KINGDOM. The United Kingdom is the world's sixth
largest economy and is home to one of the oldest, most established,
and most active stock markets. An island nation, it built an empire of
strategically located trading posts such as Hong Kong and India. While
today the empire is largely dissolved, trade remains a very key
component of the U.K. economy. Strong domestic sectors are services,
natural energy resources, and heavy industry, including steel, autos,
and machinery. Imports generally emphasize food and manufacturing
components. The United Kingdom's trading partners are predominately
established market economies, such as the United States, Japan, and
other member countries of the European Union. The United Kingdom, via
the North Sea, also has substantial petroleum resources.
The London Stock Exchange is comprised of six offices scattered
throughout Great Britain and Northern Ireland. It lists over 2900
firms, and trades both foreign and domestic securities as well as
securities issued by the British Government. A vast majority of the
firms listed (80%) are from the United Kingdom. Total market
capitalization in 1997 was over $5,440 billion. Such size prevents the
stock market from being overly sensitive to the performance of
individual firms.
In 1997 the U.K. posted its sixth year of recovery with GDP growth
of 3.5%, the third highest in the EU. The labor market also appears to
have improved as pay settlements and wages remain under control
despite the employment rate falling from 6.5% to 5% over the year. The
strengthening economy prompted a sharp acceleration in consumer
spending and, in response, the nation's Monetary Policy Committee was
forced to raise base rates. The interest rate rise added fuel to an
already robust sterling which rose 8.6% in 1997 after appreciating by
15.6% in 1996. This proved particularly damaging to the manufacturing
sector and, although exports held up well during the year, there were
early indications that a decline was underway. Inflation is low,
making the country attractive for foreign investment. Investment is
especially attractive to the United States, with which the United
Kingdom shares many market similarities. Each country is the other's
largest foreign investment partner.
Under Conservative Party leadership in the early 1980s, the United
Kingdom privatized many state-run utilities, such as British Gas and
British Telecom. The success of these efforts is evidence both of the
strong entrepreneurial spirit of British society and also a
fundamental rejection of the welfare state policies that dominated the
scene in the early post-war period. Even today, the Labour Party has
shed much of its socialist economic platform, reflecting a strong
break away from policies that continue to be popular in other European
countries. Eager to attract foreign investment the new administration
is not expected to undo any of the major reforms put in place by the
Conservatives during their last 18 years in power. Some changes could
include an increase in spending on social programs, a slowing of
privatization, and an increase in corporate taxes. Tight monetary
policy and interest rate hikes could be used to keep inflation below
the government's self-imposed 2.5% ceiling. In addition, the
government will probably wish to rebuild ties with the rest of the EU
and has already taken steps to get the pound back into the European
system by increasing the independence of the country's central bank.

Nevertheless, there appears to be some nervousness among many
investors who see the U.K. market lagging behind the continental
European stock markets where they see more compelling prospects for
economic growth. In addition, the manufacturing industry is suffering
from the pound's lofty valuation and many fear that an economic
slowdown could spread to the services sector.
The political scene in London is largely shaped by positions
regarding EMU. Pro Europe MPs in the Tory opposition leadership were
marginalized after the 1997 election, further polarizing the positions
of the two parties. Despite this expression of support, the United
Kingdom continues to be overtly less enthusiastic about EMU than other
countries in Europe and has not committed itself to immediately
joining the new currency once it is established. While the new
government has stated that it hopes to meet the Maastricht criteria,
it is less a self-imposed pressure on the U.K. government than it is
for other countries in the Union. Signing on to the EU Social Charter
would neutralize the policies which have set the United Kingdom above
other countries in attracting investment, such as wages and employment
conditions.
SPECIAL CONSIDERATIONS REGARDING ASIA
Asia has undergone an impressive economic transformation in the past
decade. Many developing economies, utilizing substantial
foreign investments, established themselves as inexpensive producers
of manufactured and re-manufactured consumer goods for export. As
household incomes rose, middle classes increased, stimulating
domestic consumption. In recent years, large projects in
infrastructure and energy resource development have been undertaken,
and have benefited from cheap labor, foreign investment, and a
business friendly regulatory environment. During the course of
development, democratic governments fought to maintain the
stability and control necessary to attract investment and provide
labor. Subsequently, Asian countries today are coming under
increasing, if inconsistent, pressure from western governments
regarding human rights practices.
Manufacturing exports declined significantly in 1997 , due to
drops in demand, increased competition, and strong performance of
the U.S. dollar. This significant decline is particularly
true of electronics, a critical industry for several Asian economies.
Declines in exports reveal how much of the recent growth in these
countries is dependent on their trading partners. Many Asian exports
are priced in U.S. dollars, while the majority of its imports
are paid for in local currencies. A stable exchange rate between the
U.S. dollar and Asian currencies is important to Asian trade
balances.
Despite the impressive economic growth experienced by Asia's emerging
economies, currency and economic concerns have recently roiled these
markets. Over the summer of 1997, a plunge in Thailand's currency set
off a wave of currency depreciations throughout South and Southeast
Asia. The Thai crisis was brought on by the country's failure to take
steps to curb its current-account deficit, reduce short-term foreign
borrowing and strengthen its troubled banking industry, which was
burdened by speculative property loans. Most of Southeast
Asia's stock markets tumbled in reaction to these events.
Investors were heavy sellers as they became increasingly concerned
that other countries in the region, faced with similar problems, would
have to allow their currencies to weaken further or take steps that
would choke off economic growth and erode company profits. For U.S.
investors, the impact of the market declines were further exacerbated
by the effect of the decline in the value of local currencies versus
the U.S. dollar.
The same kind of concerns that effected Thailand and other
Southeast Asian countries subsequently spread to North Asia. To widely
varying degrees, Taiwan, South Korea and Hong Kong all faced related
currency and/or equity market declines. Due to continued weakness in
the Japanese economy combined with the reliance of Asian economies on
intra-Asian trade and capital flows, most of the region was mired
in their worst recessions since World War II.
Investors continue to face considerable risk in Asian markets as
political, economic and currency turmoil has continued to undermine
market valuations throughout the first half of 1998. Rising
unemployment, food shortages and declining purchasing power could lead
to social unrest and threaten the orderly functioning of government.
Currency devaluations also increase pressure on both the consumers who
must pay more for imported goods and on many businesses that must deal
with the rising costs of raw materials. For U.S. investors, weakening
local currencies erode their returns in these markets upon currency
translation. Certainly, the resolve of the region's governments to
adhere to International Monetary Fund-mandated benchmarks will be
sorely tested, as their implementation could further exacerbate these
pressures on the nation's populace and businesses. In addition,
Japan's paralysis is fast becoming a problem for Asia. Worsening
Japanese banking problems could lead to a contraction of credit for
all of Asia and slow rehabilitation in the region. Similarly, a
significant portion of both domestic and foreign investors have fled
these markets in favor of safer havens outside of the region and will
not likely return until they see more evidence that these problems are
being effectively addressed. The scope and magnitude of the tasks that
these countries face in resolving their problems could mean that
investors will see a continuation of high market volatility over an
extended period.
JAPAN. A country of 126 million with a labor force of 64 million
people, Japan is renowned as the preeminent economic miracle of the
post-war era. Fueled by public investment, protectionist trade
policies, and innovative management styles, the Japanese economy has
transformed itself since the World War II into the world's
second largest economy. An island nation with limited natural
resources, Japan has developed a strong heavy industrial sector and is
highly dependent on international trade. Strong domestic industries
are automotive, electronics, and metals. Needed imports revolve around
raw materials such as oil, forest products, and iron ore.
Subsequently, Japan is sensitive to fluctuations in commodity prices.
With only 19% of its land suitable for cultivation, the agricultural
industry is small and largely protected. While the United
States is Japan's largest single trading partner, close to half of
Japan's trade is conducted with developing nations, almost all of
which are in southeast Asia. Investment patterns generally mirror
these trade relationships. Japan has over $100 billion of direct
investment in the United States.
The Tokyo Stock Exchange (TSE) is the largest of eight exchanges in
Japan. The exchanges divide the market for domestic stocks into two
sections, with larger companies assigned to the first section and
newly listed or smaller companies assigned to the second. In 1997,
1,805 firms were listed on the TSE, 96% of which were domestic.
Some believe that the TSE has a tendency to be strongly influenced by
the performance of a small circle of large cap firms that dominate the
market. The two key indexes are the Tokyo Stock Price Index (TOPIX)
and the Nikkei. In 1997, TSE performance was
disappointing , with the TOPIX down 28% for the year.
Since Japan's bubble economy collapsed seven years ago, the nation
has drifted between modest growth and recession. By mid-year 1998 the
world's second largest economic power had slipped into its deepest
recession since World War II. Much of the blame can be placed on
government inaction in implementing long-neglected structural reforms
despite strong and persistent proddings from the International
Monetary Fund and the G-7 nations. Steps have been taken to institute
deregulation and liberalization of protected areas of the economy, but
the pace of change has been disappointedly slow.
Unemployment levels, already at record rates when measured by the
broader criteria used in many other countries, have been an area of
increasing concern and a major cause of recent voter dissatisfaction
with recent governments. However, the most pressing need for action is
the daunting task of overhauling the nation's financial institutions
and securing public support for taxpayer-funded bailouts. Banks, in
particular, must dispose of their huge overhang of bad loans and trim
their balance sheets in preparation for greater competition from
foreign financial institutions as more areas of the financial sector
are opened. Successful financial sector reform would allow Japan's
financial institutions to act as a catalyst for economic recovery at
home and across the troubled Asian region. Further steps toward
complete financial liberalization are in the initial stages of
implementation. Proposals under consideration could lower many
barriers allowing foreign firms greater and cheaper access to funds,
and the recent relaxation of restrictions on the insurance market also
promise greater access to foreign companies. A large factor in
determining the pace and scope of recovery is the government's
handling of deregulation programs, a delicate task given the recent
changes in Japanese politics.
Recent political initiatives in Japan have fundamentally
transformed Japanese political life, ushering in a new attitude which
is strongly reverberating in the economy. The Japanese Parliament (the
Diet) had been consistently dominated by the Liberal Democratic Party
(LDP) since 1955. The LDP dynasty, recently fraught with scandal,
corruption, accusations of maintaining a virtual monopoly, effectively
ended in 1994 as a result of electoral reform measures that brought
Diet seats to previously underrepresented areas. The first election
under this new system was held in October 1996. While the LDP remained
as the ruling party, it did so from a minority position. A key result
of the electoral reforms has been a strengthening of ideas of
opposition parties. Indeed, many of the LDP's recent reforms
originated with the leaders of the opposition New Frontier Party. The
LDP's ability to consistently produce bold innovations in a
politically competitive environment is untested. The opposition
parties suffer from structural and organizational weaknesses.
Infighting and defections are common. This inexperience with a true
multi-party system has caused the rise and fall of four coalition
governments in recent years. Between the adjusting of the monolithic
LDP to a more demanding and competitive system and the settling of the
opposition parties, Japan's political environment remains unstable.
The desire for electoral reform arose out of what many see as a basic
change in Japanese public opinion in recent years. Faced with
recurring scandal and corruption, Japanese society has come to demand
more accountability from their leaders, more transparency in their
institutions, and less interference from their intensely bureaucratic
government. This attitude was reflected in the results of the recent
election where candidates of the LDP party were heavily defeated in an
election for the upper house of parliament and prime minister
Hashimoto was forced to resign. The election results were considered
to be a repudiation of the government's failure to come to grips with
the countries economic decline, widening corruption scandals and a
lack of any discernable progress in addressing the nation's banking
problems.
Nevertheless, sustaining reforms and recovery are not guaranteed.
Drops in consumption, increased budget deficits, or halting
deregulation could exacerbate the nation's economic woes. Furthermore,
as a trade-dependent nation long used to high levels of government
protection, it is unclear how the Japanese economy will react to the
potential adoption of the trade liberalization measures which are
constantly promoted by their trading partners. In addition, as the
largest economy in a rapidly changing and often volatile region of the
world, external events such as the Korean conflict could effect Japan.
As many of the governments of Southeast Asia frequently face domestic
discontent, and as many of these countries are Japanese trading
partners and investment recipients, their internal stability and its
impact on regional security are of tremendous importance to Japan.

Also of concern are Japan's trade and current-account surpluses. If
they continue to grow, they could lead to an increase in trade
friction between Japan and the United States. Additionally, with
inflationary pressures largely absent and wholesale prices falling,
Japan may be entering a period of deflation. A deflationary
environment would both hit corporate profits and increase the debt
burden of Japan's most highly leveraged companies.
CHINA AND HONG KONG. China is one of the world's last remaining
communist systems, and the only one that appears poised to endure due
to its measured embrace of capitalist institutions. It is the world's
most populous nation, with 1.22 billion people creating a
workforce of 699 million people. Today's Chinese
economy, roughly separated between the largely agricultural interior
provinces and the more industrialized coastal and southern provinces,
has its roots in the reforms of the recently deceased communist leader
Deng Xiaoping. Originally an orthodox communist system, China
undertook economic reforms in 1978 by providing broad autonomy to
certain industries and establishing special economic zones (SEZs) to
attract foreign investment (FDI). Attracted to low labor costs and
favorable government policies, investment flowed from many sources,
with Hong Kong, Taiwan, and the United States leading the way. Most
of this investment, has been concentrated in the
southern provinces, establishing manufacturing facilities to process
goods for re-export.
The result has been a steadily high level of real GDP growth,
averaging 11.35% per year so far this decade. With this growth has
come a doubling of total consumption, a tripling of real incomes for
many workers, and a reduction in the number of people living in
absolute poverty from 270 to 100 million people. Today there is
a market of more than 80 million people who are now able to
afford middle class western goods.
Such success has not come without negatives. As a communist system
in transition, there still exist high levels of subsidies to
state-owned enterprises (SOE) which are not productive. At the end of
1997, it was reported that close to half of the SOEs ran losses. In
addition, the inefficiencies endemic to communist systems, with their
parallel (thus redundant) political, economic and governmental policy
bodies, contribute to high levels of inflation. Fighting inflation and
attempting to cool runaway growth has forced the government to
repeatedly implement periods of fiscal and monetary austerity.
Periodic intervention seems to be their chosen method of guarding
against overheating.
Performance in 1997 reflects this dynamic between growth,
inflation, and the government's attempts to control them. Growth
slowed to 9.1%, largely as a result of a tightening of credits to
SOEs. Policy was a mix between a loose monetary stance and some
relatively austere fiscal positions. While growth was a priority, it
came at the cost of double-digit inflation.
China has two stock exchanges that are set up to accommodate foreign
investment, in Shenzhen and in Shanghai. In both cases, foreign
trading is limited to a special class of shares (Class B) which was
created for that purpose. Only foreign investors may own Class B
shares, but the government must approve sales of Class B shares among
foreign investors. As of December 1997, there were 51 companies with
Class B shares on the two exchanges, for a total Class B market
capitalization of $2.1 billion U.S. dollars. In 1997, all of
China's stock market indices finished the year below the level at
which they began it. These markets were buoyed by strong speculative
buying in the year's second quarter. Market valuations peaked in
September and were subsequently hit by a heavy sell off from October
onwards.
In Shanghai, all "B" shares are denominated in Chinese renminbi but
all transactions in "B" shares must be settled in U.S. dollars. All
distributions made on "B" shares are also payable in U.S. dollars, the
exchange rate being the weighted average exchange rate for the U.S.
dollar as published by the Shanghai Foreign Exchange Adjustment
Center. In Shenzhen, the purchase and sale prices for "B" shares are
quoted in Hong Kong dollars. Dividends and other lawful revenue
derived from "B" shares are calculated in renminbi but payable in Hong
Kong dollars, the rate of exchange being the average rate published by
the Shenzhen Foreign Exchange Adjustment Center. There are no foreign
exchange restrictions on the repatriation of gains made on or income
derived from "B" shares, subject to the repayment of taxes imposed by
China thereon.
China's proven ability to nurture domestic consumption and expand
export markets leads many to believe that the bulk of its growth has
yet to be seen. Most sources, notably the World Bank, predict future
growth levels through the year 2000 of over 7%. This auspicious
indicator notwithstanding, there are a few special considerations
regarding China's future. While this list is not all-inclusive, it
does highlight some internal and external forces that have a strong
influence on the country's future.
To begin with the internal issues, one matter is that
infrastructure bottlenecks could prove to be a problem, as most FDI
has been concentrated in manufacturing and industry at the expense of
badly needed transportation and power improvements. Secondly, as with
all transition economies, the ability to develop and sustain a
credible legal, regulatory, and tax system could influence the course
of investments. Third, environmentalists warn of the current and
looming problems regarding pollution and resource destruction, a
common result of such industrial growth in developing economies which
can't afford effective environmental protection. This is a
particularly noteworthy issue, given the size of the country's
agricultural sector. Lastly, given China's unique method of transition
there exists the possibility that further economic liberalization
could give rise to new social issues which have heretofore been
effectively mitigated. One such issue is the possible dismantling of
inefficient state-owned enterprises, something which is potentially
socially explosive given the communist policy of providing social
welfare through the firm. Exposing what many economists feel is a high
level of open unemployment and widening the gap between the newly
empowered business class and the disenfranchised could pressure the
government to retreat on the road to reform and continue with massive
state spending.
Regarding external issues, China's position in the world economy
and its relationship with the United States also have a strong
influence on it's economic performance. The country has recently
enjoyed an almost uninterrupted positive trade balance. As the largest
country amidst the fastest growing region in the world, China and its
multi-million person ethnic diaspora have a significant role to play
in Asian growth. Should China ascend to become a member of the World
Trade Organization (WTO), as it desires, such movements of capital and
goods will become easier.
Export growth in China has recently been subject to fluctuations
caused by external political events, such as the U.S. elections and
debates over human rights issues. U.S. policy (specifically most
favored nation status) is frequently reconsidered by various elements
of the U.S. government in reaction to a variety of issues, from
nuclear proliferation to Tibetan rights. Significant changes in U.S.
policy could impact China's growth, as close to 9% of their GDP is
trade with the U.S. and the U.S. represents the third biggest investor
in China.
Perhaps the strongest influence on the Chinese economy is the
policy that is set by the political leaders in Beijing and this is
somewhat of an open question as the death of Deng has created a slight
vacuum in Chinese political society. A large part of Deng's strength
derived from a newly empowered business class endeared to him and it
is unclear if any of his successors can harness this loyalty as
effectively as he did. Sustained growth is one possible way to win
over this constituency, leading many to believe that the future
Chinese leadership will respect market forces at least as much as Deng
did. Choosing between double digit growth and reduced inflation could
continue to be a central economic question, with 1997 (Deng
influenced) decisions pointing to an acceptance of lower, albeit still
high, GDP growth.
Another key political player is the Chinese army. With provocative
situations occurring in Taiwan and the Korean peninsula, and with ever
present pressure from internal democrats, the military is in a
position of leverage regarding the shaping of the future political
scene. Finally, there is the communist party, long seen as a loser
amongst the beneficiaries of Deng's reforms. Many view the battle
between the party and the middle class as a zero sum game and as the
leadership settles, respective alliances and constituencies could
determine how much the government pursues its growth strategy.
As with almost all foreign investments, U.S. investors face the
significant risk of currency devaluation by the Chinese government.
Despite assurances from officials reemphasizing China's policy
commitment to maintain the current exchange rate of the renminbi
against the U.S. dollar, many observers believe that this policy will
be soon tested as China monitors the effect of regional devaluations
on exports. Government authorities feel that China has boosted its
international reputation by refraining from devaluing the renminbi at
a time when such a move could further destabilize the currencies of
its neighbors. Nevertheless, Chinese authorities have recently hinted
that a continued slide in the Japanese yen would make it very
difficult for them to maintain their promise not to devalue. If
efforts to prevent the slide in the yen fail, then China may be pushed
into devaluing their currency. For U.S. investors, a devaluation would
erode the investment returns on their investments.
The last significant force in the Chinese economy is the
acquisition on July 1, 1997 of Hong Kong as a Special Autonomous
Region (SAR). For the past 99 years as a British Colony, Hong Kong has
established itself as the world's freest market and more recently as
an economic gateway between China and the west.
A tiny, 814 square mile area adjacent to the coast of southern
China with a population of 6.3 million, Hong Kong has a long
established history as a global trading center. Originally a
manufacturing-based economy; most of these businesses have migrated to
southern China. In their place has emerged a developed, mature service
economy which currently accounts for approximately 80% of ITS GROSS
DOMESTIC PRODUCT. Hong Kong trades over $400 billion in goods and
services each year with countries throughout the world, notably China,
Japan, and the U.S. Its leading exports are textiles and electronics
while imports tend to revolve around foodstuffs and raw materials.
Hong Kong's currency, the HK dollar, was pegged to the US dollar at
HK7.7=$1 in 1983 and investors consider it to be a stable mechanism in
enduring confidence lapses and speculator attacks. The operation of a
currency board and accumulation of U.S. dollars in its monetary fund
is partly responsible for this stability.
The stock market (SEHK) listed 658 publicly traded companies by the
end of 1997, with total capitalization at $413 billion U.S. dollars. A
significant portion of SEHK firms are in real estate, and are
sensitive to fluctuations in the property markets. 1997 was a
tumultuous year for the Hong Kong stock market as a speculative attack
on the Hong Kong dollar in October provoked a global sell-off in
equities. Investors were shocked as the Hong Kong market, long
regarded as a safe-haven, plunged 40% in October. The stock market's
decline and the attack on the local currency sent interest rates
soaring, precipitating an erosion in local property values. This in
turn put additional pressure on the banking sector which is heavily
geared to real estate. The Hong Kong market's dramatic downturn
illustrates how vulnerable it is to the Asian region's economic
problems. The structural problems besetting Hong Kong's neighbors in
Southeast and Northeast Asia may not be quickly resolved. Exports to
the Asian region may remain depressed as the process of economic
reform in countries such as Thailand, Malaysia, Indonesia, Japan and
South Korea will likely hold back economic growth in the area.
Accordingly, Hong Kong and China will likely be more dependent upon
demand from the U.S. and Europe for some time to come.
As a trade center, Hong Kong's economy is very closely tied to that
of its trading partners, particularly China and the United States. In
the wake of Deng's reforms, Hong Kong and China have become
increasingly interdependent economically. Currently, China is Hong
Kong's largest trading partner. After Taiwan, Hong Kong is the largest
foreign investor in China, accounting for about 60 percent of overall
foreign direct investment. Hong Kong plays a particularly significant
role as an intermediary in U.S.-China trade. In 1996, it handled 56%
of China's exports to the U.S. and 49% of Chinese imports from the
U.S.
The critical question regarding the future of Hong Kong is how the
Chinese leadership will exert its influence now that it has become a
Special Autonomous Region (SAR). This new status is in accordance with
pledges made at the Joint Declaration on the Question of Hong Kong
made by the Chinese and British governments in 1984. Leading up to the
hand over of the colony, the Chinese government has pledged to uphold
the Basic Law of 1990 which states that Hong Kong's status as an
unfettered financial center will remain intact for at least 50 years
after 1997. Part of this status includes retaining the legal,
financial and monetary systems (specifically the HK$/US$ peg) which
guarantee economic freedom and foster market expansion.
Many investors and citizens are closely monitoring Chinese actions
in order to assess their actual commitment to these principles.
Already there is evidence of a clear, if slow, current of political
change coming from Beijing. Certain actions, such as the curbing of
media freedoms, indicate that there is the possibility of significant
interference from communist authorities. More significant was the
clash between the U.K. and Chinese governments over China's abolition
of the elected legislature and subsequent installation of governmental
leaders in both the executive and the legislature who are directly
appointed by Beijing. Mr. Tung Chee-hwa, appointed as the first Chief
Executive of the SAR, has surrounded himself with like-minded
Machiavellian figures who have strong ties to both market successes
and Beijing leaders. They are portrayed as believing in the powers of
capitalism and central authority, if not democracy, leading some to
speculate that the SAR could develop into a South Korean style of
corporatism which preserves the economic status quo without
incorporating further political freedoms.
In assessing the prospects for Hong Kong's future, it must be noted
that China has a very strong interest in a prosperous SAR.
Particularly if Beijing pursues a growth strategy as it has in the
past, Hong Kong can be a key agent in China's economic policy. Desire
for investment and new technologies necessary for modernization is a
strong incentive to send positive signals through the treatment of
Hong Kong. This is reinforced by the respect Hong Kong is due given
its role in China's recent dynamic performance.
To be sure, there are more adamant concerns over the effect of the
acquisition. Many are skeptical of Beijing's ability to leave the
currency alone. Some note the continuous drop in GDP as evidence that
Hong Kong has yet to mature as a service economy and that the
workforce hasn't fully adjusted to the switch out of manufacturing.
Additionally, by tying Hong Kong so closely with China, it now must
weather the ups and downs of Beijing's relationship with the U.S. Most
Favored Nation Status now means just as much, if not more, to the SAR
than it does to Beijing, with some asserting that revoking MFN could
result in substantial losses in trade, income, and jobs.
Hong Kong's competitive advantage has traditionally been a mix of
geography, market freedoms and entrepreneurial spirit. The
preservation of these advantages is now a function of the island's
independence from Beijing. Today's investors will be vigilant in
measuring how much of that independence is retained after July 1,
1997.
AUSTRALIA. Australia is a 3 million square mile continent
(about the size of the 48 continental United States) with a
predominantly European ethnic population of 18.2 million people. A
member of the British Commonwealth, its government is a democratic,
federal-state system.
The country has a western style capitalist economy with a workforce
of 9.2 million people that is concentrated in services, mining, and
agriculture. Australia's large agricultural sector specializes in
wheat and sheep rearing and together, these two activities account for
more than half of the country's export revenues. Australia also
possesses abundant natural resources such as bauxite, coal, iron ore,
copper, tin, silver, uranium, nickel, tungsten, mineral sands, lead,
zinc, diamonds, natural gas, and oil. The health of the country's
domestic economy is particularly sensitive to movements in the world
prices of these commodities. Primary trading partners are the United
States, Japan, South Korea, New Zealand, the United Kingdom and
Germany. Imports revolve around machinery and high technology
equipment.
Historically, Australia's strong points were its agricultural and
mining sectors. While this is still true to a large extent, the
government managed to boost its manufacturing sector by undertaking
protective measures in the 1970's and early 1980's. These have
subsequently been liberalized in an effort to spur growth in
the industrial sector. Today's economy is more diverse, as
manufactures' share of total exports is increasing. Part of the
government's effort to make manufacturing more competitive was a
floating of the Australian dollar in 1984, precipitating an initial
depreciation, and a campaign to reduce taxes. Such reforms have
attracted foreign investment, particularly in the transport and
manufacturing sectors. Restrictions do exist on investment in certain
areas as media, mining and some real estate.
With inflation well under control but unemployment stubbornly high
and signs of cyclical slack in the economy, Australia's monetary
policy is focused on preserving the low inflation environment while
keeping monetary conditions conducive to stronger economic growth. The
government has set a goal of achieving a government budget surplus in
fiscal year 1998/1999.
Australia is fully integrated into the world economy, participating in
GATT and also more regional trade associations such as the Asia and
the Pacific Economic Cooperation (APEC) forum. Future growth could
result from their movement towards regional economic liberalization,
but a countervailing force is the reality that some export markets in
Europe could be lost to continued European economic integration.
After suffering a significant recession in 1990-91, the Australian
economy has enjoyed six years of expansion. The medium-term outlook
appears favorable, with domestic spending supported by low interest
rates, improving consumer confidence and a strengthening labor market.
GDP growth has increased steadily throughout 1997. However, weakness
in commodity prices, particularly metal prices, coupled with an
increase in the nation's current account deficit have placed
significant pressure on the Australian dollar.
Investors should be aware that, while Australia's prospects for
strong economic growth appear favorable over the long-term, many
sectors currently face significant risks arising from the recent
turbulence in Asian countries, which account altogether for almost 60
percent of Australia's exports. While projections already embody a
more subdued outlook for growth in these countries, there is a risk of
this outlook deteriorating further, especially in Japan and Korea.
Due to the large position that the agriculture and natural resource
sectors have in the nation's export driven economy, any weakness in
commodity prices may negatively impact both the economy and stock
prices. In addition, United States investors face the risk that their
investment returns from investments in Australia could be eroded if
the Australian currency declines relative to the United States
dollar.
INDONESIA. Indonesia is a country that encompasses over 17,000 islands
on which live 195 million people. It is a mixed economy that balances
free enterprise with significant government intervention. Deregulation
policies, diversification of strong domestic sectors, and investment
in infrastructure projects have all contributed to high levels of
growth since the late 1980's. Indonesia's economy grew at 7.1% in
1996, the exact average of its performance for the current
decade. Growth in the 1990's had been fairly steady, hovering between
6.5-7.5% for the most part, peaking at 8.1% in 1995. Moderate growth
in investment, including public investment, and also in import growth,
helped to slowdown GDP growth. Growth has been accompanied by
moderately high levels of inflation.
In recent years, Indonesia had been undergoing a
diversification of the core of its economy. No longer strictly
revolving around oil and textiles, it is now gaining strength in high
technology manufactures, such as electronics. Indonesia consistently
runs a positive trade balance. Strong export performers are oil, gas,
and textiles and apparel. Oil, once responsible for 80% of export
revenues, now accounts for only 25%, an indication of how far other
(mostly manufacturing and apparel) sectors have developed. Main
imports are raw materials and capital goods.
However, as with many of its Asian neighbors, Indonesia's bright
prospects came to a sudden halt in August of 1997 when the plunging
Thai baht began to destabilize the rupiah. By mid-year 1998 the local
currency had fallen more than 80% against the dollar, and hugely
increased the cost of servicing foreign debts; a collapse of the real
economy, and a growing number of bad loans. Various central bank
initiatives, including a doubling of interest rates, failed to halt
the currency's depreciation. The nation's banks, unable to service
their extensive short term borrowings, were suddenly in danger of
collapse. Of more than 200 local banks, a mere handful were estimated
to be solvent at mid-year 1998.
The social effects of this decline have been devastating. By the
end of 1998 the government expects 47% of the population to be living
below the poverty line and unemployment is expected to surpass 20% of
the workforce. This has led to an increase in social tensions and food
riots and large-scale strikes have broken out sporadically. Rioting
and attacks upon the countries business oriented ethnic Chinese
population have prompted as many as 80,000 to flee the country. Rising
popular opposition forced President Suharto to resign less than three
months after being appointed to his seventh consecutive five-year term
and was replaced by his vice-president, B. J. Habibie. The political
upheaval and resulting uncertainty has resulted in the further erosion
in public confidence at home and abroad.
The breakdown in public confidence in the Indonesian economy will
likely be difficult to reverse, and will prolong the period of
recovery. Resumption of lending by multilateral institutions under a
rescue package drawn up by the International Monetary Fund (IMF) may
speed up the process of restoring the faith in the government's
efforts to shore up the banking system. Nevertheless, even if the two
critical outstanding issues of restructuring the corporate sector's
external debt and shoring up the banking sector can be resolved this
year, the economy will remain weak in 1999 and recover only slowly in
the following years.
The Indonesian stock market plunged to record lows in 1997 under
the combined impact of the country's economic implosion, political
uncertainty and social unrest. The market's retreat continued into
mid-1998 as domestic and foreign investors fled the market for safer
havens overseas. While many investors believe that the market's steep
decline has brought valuations of a number of Indonesian companies to
very attractive levels, there remains considerable risk particularly
for foreign investors. As with most foreign investments, United States
investors could see their investment returns eroded if the Indonesian
currency declines in value relative to the U.S. dollar. Secondly, any
escalation of rioting and other forms of social unrest could be a
major obstacle in the path of economic recovery. Thirdly, many
question the will of the Indonesian government and its people to
accept the conditions of economic reform as mandated by the IMF.
Fourth, the Indonesian economy, currency and securities markets are
extremely sensitive to events that take place within the Asian region
and their fortunes are somewhat dependent upon how well other Asian
nations resolve their own economic and currency problems.
MALAYSIA. 1997 saw Malaysia's GDP growth slow to 7.4%, down from
over 8.2% in 1996 and 9.5% in 1995. Inflation has been kept relatively
low at 3.8%. Performance in 1996 avoided the economy's potential
overheating as export growth, investment, and consumption all
slowed. A large part of Malaysia's recent growth is due to its
manufacturing industries, particularly electronics and semiconductors.
This has led to an increased reliance on imports; thus the economy is
sensitive to shifts in foreign production and demand. This is
particularly true regarding its main trading partners: the United
States, Japan, and Singapore. Such shifts were partly responsible
for the slowdown in 1997. In addition, monetary policies to
stem the threat of overheating were evident, but the country still
needs massive public and private investment to finance several large
infrastructure projects. Government industrial policy seeks investment
to create more value added high technology manufacturing and service
sectors in order to decrease the emphasis on low skilled
manufacturing. Already U.S. investors have invested over $9
billion, and most of this is in electronics and energy projects.
However, like its Asian neighbors, Malaysia has stumbled in its
dash to become a developed nation by 2020. The grandiose ambitions of
Malaysian Prime Minister Mahathir Mohamad have been set back by its
worst-ever currency crisis, which also brought a sharp fall in the
country's stock market. An overheated property market, a growing
current-account deficit and a highly leveraged economy, precipitated
much of the country's problems. Following the sharp decline of
Thailand's currency, the Malaysian ringgit came under severe pressure.
The Malaysian central bank attempted to defend the currency and the
resulting spikes in interbank rates marked the start of a period of
escalating interest rates. Once the central bank ceased using foreign
exchange reserves to slow the ringgit's depreciation in the
region-wide currency slide, the Malaysian currency quickly weakened
versus the United States dollar and by year end had declined by 35%.

By mid-year 1998, the outlook for the Malaysian economy remained
bleak as economists predicted that the economy would shrink by at
least 5 percent this year, the first contraction in 13 years. The
likelihood that Malaysia will be forced to seek IMF assistance is
increasing. Although Malaysia does not have the high level of foreign
debt that has overwhelmed its Asian neighbors, domestic lending, at
170 percent of GDP, was the highest in Southeast Asia when the
currency crisis struck. The nation's banks are now faced with a
growing number of unpaid loans as more businesses are struggling to
stay afloat in the sagging economic environment.
Adding to the bleak outlook is the government's seemingly confused
and erratic response to the nation's serious economic and currency
crisis. The Prime Minister is increasingly at odds with the finance
minister on what policies the country has to institute to remedy the
country's serious problems. Prime Minister Mahathir has abandoned the
tight money, financially conservative recovery policy endorsed by the
IMF and has placed the blame for the nation's troubles on foreign
currency and stock market speculators. The move risks triggering
another round of currency devaluations, inflation and, in the long
run, economic collapse.
Investors should be aware that investing in Malaysia currently
entails a number of potential risks, not the least of which is the
increasingly erratic economic policies of the Malaysian government
that are counter to the advice of the IMF and many of the developed
nations. In addition, the government appears to be escalating its
hostile attitude toward foreign investors. In September of 1998
Malaysian authorities imposed new restrictions on the foreign exchange
and securities markets. Included were limitations in repatriating the
investment proceeds of foreign investors.
While the Malaysian population has been relatively passive during
the first year of the economic meltdown, there could be mounting
social unrest if the crisis is prolonged. Should the country finally
adopt IMF remedies the Malaysian people may be reluctant to accept the
additional sacrifices that they will be called upon to endure. This
could seriously undermine the recovery of Malaysia's economy as well
as its currency and stock market. An increasingly hostile government
towards foreign investors could also lead to additional curbs on the
free access to their funds. As with other Asian markets, currency risk
remains substantial.
SINGAPORE. Since achieving independence from the British in 1965,
Singapore has repeatedly elected the People's Action Party (PAP) as
their government. It is a party that is so consistent it has only
offered up two prime ministers in this 32-year period. Elections in
January 1997 returned the PAP to power, signaling satisfaction with
their policy of close coordination with the private sector to
stimulate investment. Typical policies include selective tax
incentives, subsidies for R&D, and joint ventures with private firms.
While the combination of consistent leadership and interventionist
policies is sometimes seen as impeding civil liberties and
laissez-faire economics, it has produced an attractive investment
environment.
The Singapore economy is almost devoid of agriculture and natural
resources, not surprising given the island nation's geographic size.
Its strongest sector is manufacturing, particularly of electronics,
machinery and petroleum and chemical products. They produce 45% of the
world's computer disk drives. Major trading partners are Japan,
Malaysia and the United States.
The economic situation in Singapore registered a passable year in
1996 but weakened in early 1997, dragged down by the downturn in the
global electronics industry. However, it ended the year on a firmer
footing as real GDP growth rose from 4.1% in the first quarter to 7%
by the fourth quarter. Inflation remained low and the current account
balance maintained its large surplus. Property values have declined
recently, impacted by continuing oversupply.
Although Singapore boasts one of the strongest economies in Asia,
investors in that market face a number of possible risks. Chief among
these is that the country is not immune to the region's economic
troubles, as Singapore's neighbors account for nearly one-quarter of
its trade. Any prolonged regional economic downturn could slow its
growth. In addition, Analysts believe that there is considerable
downside risk in the current Singapore dollar exchange rate and any
decline in the Singapore currency versus the U.S. dollar could erode
the investment return of United States investors in that market.
Lastly, manufacturing, a major pillar of Singapore's economy, is
unlikely to sustain growth into 1998 as recent indications point to
continued excess capacity in the computer electronics industry.
SOUTH KOREA. South Korea has been one of the more spectacular
economic stories of the post-war period. Coming out of a civil war in
the mid-1950's, the country found itself with a destroyed economy and
boundaries that excluded most of the peninsula's mineral and
industrial resources. It proceeded over the next 40 years to create a
society that includes a highly skilled and educated labor force and an
economy that exploited the large amounts of foreign aid given to it by
the United States and other countries. Exports of labor
intensive products such as textiles initially drove the economy and
were eventually replaced by heavy industries such as automobiles.
Hostile relations with North Korea dictate large expenditures on the
military and political uncertainty and potential famine in the north
has put the south on high alert. Any kind of significant military
effort could have multiple effects, both positive and negative, on the
economy. South Korea's lack of natural resources put a premium on
imported energy products, making the economy very sensitive to oil
prices.
Since 1991, GDP growth has fluctuated widely between 5% and 9%,
settling down at 5.6% last year. Currently the labor market is
in need of restructuring, and its rigidity has hurt performance.
Relations between labor and the large conglomerates, or Chaebols,
could prove to be a significant influence on future growth. Inflation
in the same period has been consistently dropping, save a brief rise
in 1994 and finished the year at 4.5%. The country consistently runs
trade deficits, and the current account deficit widened sharply in
1996, more than doubling to $19.3 billion. South Korea's strong
domestic sectors are electronics, textiles and industrial machinery.
Exports revolve around electronics, textiles, automobiles, steel and
footwear, while imports focus on oil, food, chemicals and metals.
The stock market (Korea Stock Exchange) is currently undergoing
liberalization to include more foreign participation, which was only
first allowed in 1992, but the bond market remains off limits until
1999. Foreign ownership has since been increased to 55% for all listed
stocks except three. The foreign ownership liberalization is in
response to the KSE 1996 performance, which was down 18%. The number
of listed companies totaled 726 in 1997, a decline of 34 from the
previous year, while the market's capitalization plummeted 70 percent
from its 1996 level.
Over the calendar year 1997, the Korean stock market extended its
two-year decline plunging by 42% to its lowest year-end level since
1986. The collapse came as a direct result of the Asian region's
currency crisis and the failure of several Korean conglomerates. In
the summer of 1997 the South Korean won hit record lows against the
U.S. dollar as a series of nationwide labor strikes aggravated the
already escalating trade deficit. Despite aggressive official
intervention to support the local currency, the won had fallen from
860 to 914 to the U.S. dollar by year-end.
The Korean market poses risks for current and prospective
investors. The Korean government will need to maintain public support
to implement the radical and difficult restructuring of the economy
demanded by the IMF under a $58 million loan package. This opposition
could come from the country's major conglomerates that have yet to
institute necessary restructuring initiatives, and from workers
protesting against rising unemployment.
In addition, relations with its long-standing enemy, North Korea
have been worsening as widespread famine could prompt another attack
on its southern neighbor to divert the attention of its people from
their suffering. More importantly, South Korea's heavy reliance on
exporting to the Asian region holds its economy hostage to the
economic fortunes of its neighbors.
THAILAND. The Thai economy has witnessed a fundamental transition in
recent years. Traditionally it was a strong producer of textiles,
minerals and agricultural products, but more recently it has tried to
build high technology export industries. This proved
particularly fortuitous in the mid 1990s when flooding wiped out much
of their traditional exports, but the newer industries remained
strong, keeping the growth rate above 8%. (This level had been
achieved through the 1990s, giving the economy a name as one of the
fastest growing in the region.) Successive governments have
also taken steps toward reducing the influence of central planning,
opening its market to foreigners and abandoning five-year plans. This
restructuring is still underway, and the change can cause difficulty
at times.
The political situation in Thailand is tenuous. Democracy has a
short history in the country, and power is alternatively obtained by
the military, a non-elected bureaucratic elite, and democratically
elected officials. The frequent transfers of power have generally gone
without divisive, bloody conflicts, but there are bitter differences
between the military and the political parties. Free elections in 1992
and again in 1995 have produced non-military democratic leaders from
different parties, a healthy sign of party competition. More recently,
the dramatic downturn in the economy generated demands from all
sectors of society for the resignation of Prime Minister Chavalit. The
worsening economic situation threatened social stability of the nation
and the Prime Minister resigned after barely one year in power.
In 1997 GDP contracted by approximately 0.3%, compared with 7.2%
growth in 1996 and 8.6% in 1995. The 1997 current account deficit was
1.9% of GDP as against 7.9% in 1996. Inflation was 5.6%, however, the
government has projected a 16.2% rate for 1998. One cause for
Thailand's economic downturn was a decline in export growth as its
manufacturing industry faces stiff competition from low priced
competitors and its agriculture has suffered a severe drop in
production. In 1996, Thailand's currency, the baht, was linked to a
U.S. dollar dominated basket, and monetary policy had remained tight
to keep that link strong and avoid inflationary pressures.
The situation changed in early 1997, however, with the revelation of
many bad bank loans and a bubbling of property prices due to
over-investment. Many companies, faced with slowing exports, stopped
servicing their debts. Many other firms have stayed alive only with
infusions of public cash, and the government has been slow to let many
property laden financial firms fail. The stock market has reacted
strongly, dropping to new lows for the decade. Reluctant to float the
baht, indeed promising that it wouldn't, the government relented in
early July hoping to revive export and stock market growth. The
subsequent devaluation (approximately 20% against the dollar in the
first month) led to the need for a $16 billion loan coordinated by the
IMF to shore up foreign reserves. Most of the loan came from
neighboring countries led by Japan, indicating their desire to both
protect their own investments in Thailand, and also mitigate the
effect of the devaluation on their home currencies.
The total impact of the entire situation is negative, particularly on
inflation, unemployment and foreign debt. Significant turnover and a
major gamble on the currency has put the government in a precarious
position, especially given the fact that it is a six party coalition.
Dissatisfaction amongst the military, always a political factor, is
high.
The new Thai government has produced mixed results in their efforts
to remedy the country's serious economic woes. Crucial to Thailand's
recovery are both the outcome of newly instituted economic and banking
reforms and the outlook for both China's and Malaysia's economies.
Looking forward, currency risk remains high and the baht will likely
be highly vulnerable to regional contagion.
INDIA. India is the second most populous and seventh largest
country in the world. Although the country occupies only 2.4% of the
world's land area, it supports over 15% of the world's population.
Only China has a larger population. The Indian government is
classified as a federation, or union, and is, under its constitution a
"sovereign, socialist, secular, democratic republic" composed of 25
states and 7 union territories. Like the United States, it has a
federal form of government. However, the central government in India
has greater power in relation to its states, and is patterned after
the British parliamentary system.
India's population was estimated at 952 million in 1997 and has
been projected to double by the year 2028. Religion, caste, and
language are major determinants of social and political organization.
Although 83% of the people are Hindu, India also is the home of more
than 120 million Muslims - one of the world's largest Muslim
populations. Despite economic modernization and laws countering
discrimination against the lower end of the class structure, the caste
system remains an important factor in Indian society.
India has the world's fifth largest economy in terms of purchasing
power parity. About 62% of the population depends directly on
agriculture. Industry and services sectors are growing in importance
and account for 29% and 42% of GDP, respectively, while agriculture
contributes about 29%. More than 35% of the population lives below the
poverty line, but a large and growing middle class of 150 - 200
million has disposable income for consumer goods. In the industrial
sector, India now manufactures a variety of finished products for
domestic use and export.
India gained independence in 1997 after two centuries of British
colonial rule. Economic policies in the first four decades of
independence were driven by its leaders deep distrust of foreign
economic interests and admiration for the Soviet model of centrally
planned industrialization. Accordingly, the country has followed a
policy regime that has been characterized by extreme protectionism and
public sector dominance in strategic sectors. Nevertheless, India has
developed a large and diversified private sector, and agriculture has
remained almost entirely in private hands.
India's treatment of foreign investment has been alternatively
encouraging, ambivalent or difficult, depending on the industry sector
involved. Most industries are open to limited investment by
multinational companies while others are closed to foreign investors.
Sectors closed to foreign investment currently number five: mineral
oils; railway transport; war ships and the military-related areas of
aircraft; atomic energy; and associated minerals. Although recent
measures have liberalized the investment limits on a number of major
industries, several political parties, deeply hostile to foreign
investment, have made these issues the subject of pre-election
rhetoric.
India has a large and active stock market which ranks twentieth
globally in market value. There are 23 recognized stock exchanges in
India. The BSE is the premier exchange; accounting for more than
one-third of trading volume, over 70% of listed capital and over 90%
of market capitalization. As of the end of 1997 there were 5,842
listed companies on the BSE with a total market value of US$128.27
billion.
Relations between India and its neighbors have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. More recently, India's nuclear tests prompted Pakistan to reply
in kind, despite Western efforts to dissuade it. Economic sanctions
imposed by the U.S. and other industrialized countries following the
nuclear tests in May of 1998 have not been without consequences. While
their short-term, direct effect on the economy has been relatively
modest, the indirect and medium-term consequences of sanctions could
become more serious. Relations with Nepal, with Bhutan and with China
are marred by China's two territorial claims in the nation's east and
north. Historical suspicions remain following the 1962 border war
between India and China and the two countries have continued to work
towards expanding their political and economic influence in the South
Asian region.
While India presents many attractions for U.S. investors, there
are a number of factors that could pose considerable risk to those
investing in this market: Contemporary politics have become
increasingly unpredictable since the resounding defeat of Congress in
1996 after decades at the helm. The alignment of political forces has
become increasingly erratic among factions, parties and interest
groups. Some factions within the current administration have been
hostile to foreign investment and could impose measures that would be
detrimental to the interests and rights of these investors.
India's foreign relations in the region remain fragile and the
possibility of increased tensions or open warfare is an ever-present
danger to the stability of the market. In addition, the monetary cost
of economic sanctions resulting from recent nuclear tests could
substantially impact economic growth and corporate profits. Sanctions
affect India in several ways. Crucially, there will be a deferment or
loss of direct aid and concessional loans, from multilateral agencies
(notably the World Bank) and bilateral donors (the U.S., Japan and
Canada, among others). The loss of export credit and guarantees,
notably from the US Export-Import Bank could delay and increase the
cost of large infrastructure and foreign investment projects. This, in
turn, could have a negative impact upon creditor and investor
confidence in the Indian market.
Relative to the more mature markets of the world, the level of
corporate disclosure in India is very low and companies are generally
less disposed to act in the best interests of their shareholders.
Accordingly, investors face a much more difficult task in ascertaining
the true investment worth of a particular stock.
As with most other emerging markets, the Indian market has been
negatively impacted by recent economic and currency turmoil in the
world's less developed regions and is likely to be similarly impacted
in any future weakness. Currency fluctuation is an additional risk to
U.S. investors as any weakening in the value of the Indian rupee
versus the U.S. dollar could erode the value of their investments upon
currency translation.
TAIWAN. Taiwan is one of the most densely populated
countries in the world, with a population of over 20 million, or 1,504
persons per square mile. Most Taiwanese are descendants of immigrants
who came from China's Fukien and Kwantung provinces over 100 years
ago. Mandarin is the official language while English is taught to all
students as their first foreign language, beginning in the seventh
grade.
Although settled by Chinese in the seventeenth century, Taiwan
(also called Formosa) was ruled by Japan from 1895-1945 and
subsequently reverted to Chinese administration at the end of World
War II. In 1949, nationalist leader Chiang Kai-shek took control of
the island after fleeing mainland China with two million supporters,
following his defeat at the hands of the communists. Since that time,
Taiwan has been governed by the right-wing Kuomintang (KMT) which was
founded by Chiang Kai -shek. In 1996 the island held its first popular
presidential elections in which the KMT retained its control.
Both Taipei and Beijing governments consider Taiwan an integral
part of China. The KMT has vowed to reconquer the mainland while The
People's Republic of China has urged Taiwan to accept a peaceful
reunification with the mainland. China has proposed that they regain
sovereignty over Taiwan on the basis of `one country - two systems'
arrangement similar to that of the recent reunification of Hong Kong.
Nevertheless, China has periodically threatened to annex Taiwan
through military action.
Under the KMT government, Taiwan achieved a remarkable record of
economic growth with the assistance of massive U.S. aid in the early
years of the post war period. Today, Taiwan has one of the world's
strongest economies and is among the ten leading capital exporters.
Between 1980 and 1990 real GDP expanded at an average annual rate of
7.9%. During 1990-95 an annual GDP growth rate of 6.6% was recorded.
In 1996, compared with the previous year, GDP increased by 5.7% in
real terms, while it was anticipated that growth would exceed 6.0% in
1997 and 1998. Between 1960 and 1973 the island's exports rose 20 fold
and real GDP increased 3.3 times. Even more remarkable, as the shift
of millions of people from villages to cities took place, was the high
level of employment. Between 1964 and 1995 the unemployment rate
rarely exceeded 2% of the work force in any year.
Prior to 1967 foreign sources played a large role in financing
capital formation expansion, but thereafter domestic savings financed
the entire growth of net capital formation. By 1986 the ratio of
national gross savings to GDP had reached 38.5%. Thereafter the ratio
declined, standing at 26.0% in 1996. The expansion of foreign trade
was the major reason for Taiwan's rapid capital growth. Much of the
growth in exports could be attributed to the competitiveness of its
exports in price and quality in world markets.
Since the mid-1990s the island's traditional reliance upon light
industry has gradually given way to high technology activities, as
emphasis shifted from labor-intensive to capital-intensive production.
The electrical and electronic machinery sector continued to show
particularly strong growth in the 1990s as did the chemical sector.
Taiwan also has eleven vehicle manufacturers, all of which have
contracted joint ventures with foreign companies. By the mid-1990s
Taiwan had become one of the world's largest producers of personal
computers and semiconductors.
Taiwan has a large and active stock market ranking twelfth by
market value among the world's markets. The TSE in Taipei is the only
official stock exchange in Taiwan, although there is also a small OTC
market. At the end of 1997 there were 404 companies listed on the TSE
with a market capitalization of US$288.1 billion. The market is
dominated by individual investors, who account for 90.7% of total
turnover in listed shares. Many local institutions, such as banks,
insurance companies or pension funds, are prohibited or restricted
from investing in listed shares. Foreign individuals and institutional
investors meeting certain criteria have been able to invest in the
market directly since 1990 but are subject to certain limits. Foreign
involvement in the market through qualified foreign institutional
investors and mutual funds is small but growing.
Investing in Taiwan entails special risks as well as those risks
that are common to other emerging markets. Taiwan's relations with The
People's Republic of China remain fragile. The conflict between the
entrenched nationalization of China and the nascent nationalism of
Taiwan persists and armed conflict between the two nations remains a
possibility. Beijing continues its policy of attempting to isolate
Taiwan and could use its growing economic power and political
influence to interfere with the nation's trade with the rest of the
world's economies.
In addition, the Taiwan market has been one of the most volatile
in Asia over the past decade. The country did not escape the effects
of the Asian economic and currency crises in 1997 and 1998 and could
continue to be negatively impacted by an extension of the current
regional turmoil. The nation's heavy dependence upon trade and
manufacturing partnerships with foreign companies also leaves it
particularly vulnerable to downturns in the global economies. Currency
fluctuation is an additional risk to U. S. investors as any weakening
in the value of the local currency versus the U.S. dollar could erode
the value of their investments upon currency conversion.
THE PHILIPPINES. The Philippines is a developing democratic
republic. After 300 years of Spanish rule, the United States acquired
the Philippines from Spain in 1898 and ruled for 48 years. The country
subsequently gained its independence from the U.S. in 1946. The
nation, as provided by the 1987 Constitution, is a democratic
republican state with a presidential form of government. However,
since its independence, the government has been periodically roiled by
military coups, martial law and political assassinations.
The Filipino population consists of approximately 70 million
people, primarily of Indo-Malay, Chinese and Spanish descent. Thirteen
percent of the population lives within the Metro Manila area. Most
Filipinos are bilingual, with English as the basic language in
business, government, schools, and everyday communication. While there
are 87 languages spoken throughout the Philippines, the official
language is Pilipino, which is spoken mainly in the Metro Manila area
and widely used in the mass media.
The Philippine economy is basically agricultural if
food-processing manufacture is included. Agriculture, (including
forestry and fishing) contributed 21.5% of GDP in 1996, and engaged
39.8% of the employed labor force, while industry (including mining,
manufacturing, construction and power) contributed 31.9% of GDP and
engaged 16.5% of the employed labor force.
Manufacturing accounted for 22.6% of GDP in 1996 and engaged 9.8%
of the labor force. The principal branches of manufacturing are food
products, petroleum refineries, electrical machinery, chemical
products, beverages, metals and textiles.
The services sector contributed 46.6% of GDP in 1996, and engaged
43.7% of the employed labor force. Remittances from Filipino workers
abroad constituted the Government's principal source of foreign
exchange, while tourism remains a significant sector of the
economy.
In 1995 the Philippines recorded a trade deficit and a deficit on
the current account of the balance of payments. The principal source
of imports was Japan, which accounted for 22.1% of the total. Other
significant suppliers were the U.S., Saudi Arabia, Singapore, the
Republic of Korea and Taiwan. The U.S. was the principal market for
exports (35.8%), while other purchasers were Japan, Singapore and the
United Kingdom.
Under the regime of General Fidel Ramos, installed in 1992, the
economic performance of the Philippines improved dramatically, owing
to extensive structural reforms, including the dismantling of
protectionist legislation and the liberalization of trade, foreign
investment and foreign exchange controls. However,
economic growth was adversely affected by the regional financial
crisis in 1997. The effective devaluation of the peso in July caused a
collapse of the stock market and led to rising inflation and the
depletion of foreign exchange reserves. The absence of large foreign
investment inflows, which had previously contributed to an overall
surplus on the balance of payments despite a recurrent account
deficit, resulted in an overall deficit in 1997.
The Philippine stock exchange (PSE) is the country's only exchange
and ranks thirty-sixth in total market capitalization among the
world's markets. The total number of companies listed on the exchange
was 221 in 1997. Individual domestic investors are the majority
participants while foreign investment is dominated by the Taiwanese,
who are closely followed by the Japanese and Hong Kong Chinese.
Foreign investors are generally allowed to acquire 100% of the equity
of a Philippine listed company, although there are businesses where
foreign ownership is restricted by law.
Foreign investors face special risks when investing in the
Philippines. The country's economy and stock market have historically
been highly sensitive to changes in the Asian region's economies and
this has been amply demonstrated in recent years. After posting
dramatic gains in the four years preceding Asia's financial crisis in
mid-1997, the Philippine stock market plummeted in response to the
spreading economic, political turmoil in Southeast Asia and Japan. The
market's weakness was further exacerbated as foreign investors pulled
out of the market in large numbers.
Weakening conditions in neighboring countries has also negatively
impacted the Philippine peso. Plummeting currencies in Thailand,
Indonesia, Singapore and Malaysia sent the Philippine peso into a
steady decline. Over the 1997 calendar year, the value of the peso
fell by 52 percent versus the U.S. dollar.
For U.S. investors, currency fluctuation presents an additional
risk to investing in the Philippines as a weakening peso can erode the
investment returns on their investments in that country.
Because the Philippines is highly dependent upon the U.S., Japan
and the Southeast Asian countries as the primary purchasers of their
exports, their economy is particularly sensitive to changes in the
economic fortunes of these nations.
Although the Philippine political climate appears to have improved
over the past few years, investors should be aware that the country
has periodically been subjected to military coups, martial law, and
wide spread political corruption since it gained independence. Several
past administrations have instituted policies that have also been
detrimental to the domestic economy and the rights of its citizens.
Cronyism and corruption have also been rampant in both government and
the business community to the detriment of the interests of corporate
shareholders.
PAKISTAN. The Islamic Republic of Pakistan was founded in
1947, when the British partitioned the South Asian subcontinent into
two states: India and Pakistan. (East Pakistan broke away to become
Bangladesh in 1971). The Pakistan constitution of 1973, amended
substantially in 1985, provides for a President (Chief of State) who
is elected by an electoral college consisting of both houses of the
federal parliament and members of the four provincial legislatures.
The National Assembly in a special session elects a Prime Minister.
Following the election, the President invites the Prime Minister to
create a government. The constitution permits a vote of "no
confidence" against the Prime Minister by a majority of the National
Assembly. In practice, the army has a strong voice in the
decision-making process and few Presidents have been able to oppose
its interests for long.
Relations between Pakistan and India have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. India has accused Pakistan of fomenting religious and political
unrest and in 1994 there were frequent disturbances in the region. The
two sides frequently exchange fire. More recently, India's nuclear
tests prompted Pakistan to reply in kind, despite Western efforts to
dissuade it. Economic sanctions imposed by the U.S. and other
industrialized countries following the nuclear tests have not been
without consequences. While their short-term, direct effect on the
economy has been relatively modest, the indirect and medium-term
consequences of sanctions could become more serious as the resumption
of IMF funding is currently in jeopardy.
With a per capita GDP of about $470, Pakistan is considered a
low-income country by the World Bank. No more than 39% of adults are
literate and life expectancy at birth is about 62 years. Relatively
few resources have been devoted to socio-economic development or
infrastructure projects. Inadequate provision of social services and
high population growth have contributed to a persistence of poverty
and unequal income distribution.
The country's principal natural resource is arable land ( 25% of
the total land area is under cultivation). Agriculture accounts for
24% of GDP and employs about 50% of the labor force. Wheat, cotton,
and rice together account for almost 70% of the value of total crop
output and are among the countries major exports. Pakistan's
manufacturing sector accounts for about 20% of GDP. Cotton textile
production and apparel manufacturing are Pakistan's largest
industries, accounting for about 50% of total exports. Other major
industries include cement, fertilizer, sugar, steel, tobacco,
chemicals, machinery and food processing.
Weak world demand for its exports and domestic political
uncertainty have contributed to the nation's widening trade deficit.
The nation continues to rely heavily on imports of such materials as
petroleum products, capital goods, industrial raw materials and
consumer products and the resulting external imbalance has left
Pakistan with a growing foreign debt burden. Annual debt service now
exceeds 27% of export earnings.
Pakistan has three stock exchanges located in Karachi, Lahore and
Islamabad. The Karachi Stock Exchange (KSE) is dominant, accounting
for approximately 80% of equity transactions in Pakistan. The KSE
ranks forty-eighth among the world's markets and had a market
capitalization of US$11billion in 1997. At the end of that year there
were 781 companies listed on the KSE. The combined market
capitalization of the 20 largest companies represented 71.7% of the
market total.
U.S. investors should be aware that there are a number of factors
that could pose special risks to investing in Pakistan securities.
Among these is the country's long history of government instability
marked by military coups, political assassinations and frequent
outbreaks of violent rioting, strikes and ethnic unrest. While recent
governments have made some progress on addressing some of the
country's social and economic ills, the current administration is
faced with a number of serious crises. The country appears to be close
to defaulting on its international commitments. With no debt
repayments made since August of 1998, Pakistan faces the possibility
of outright default unless it can secure a bailout package and debt
rescheduling. Recent talks with the IMF on a debt rescue package broke
down and a default could precipitate declines in the nation's trade
and currency. By November of 1998, foreign investment has slowed
dramatically in response to a rise in investment risk and new
restrictions imposed by the central bank designed to limit the outflow
of foreign exchange.
Corruption within the government and business community remains a
problem and corporate managements are generally not focused on
improving shareholder interests.
The threat of war with India over the disputed province of Kashmir
remains a threat to peace in the region and any outbreak of
hostilities would likely plunge the nation's economy into deep
depression and further erode the relative value of its currency versus
the world's major currencies.

SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA
Latin America represents one of the world's more advanced emerging
markets. With a total population of 427 million peopl e and its
abundant natural resources, the area is a prime trading partner for
the United States and Canada. Latin American exports
represent, on average, 16.6% of GDP. Strong export sectors are
petroleum, manufactured goods, agricultural commodities such as coffee
and beef, and metals and mining products. GDP growth in Latin America
as a region was 3.4% in 1996, up from 0.1% in 1995. Recognizing the
important role of international trade as a component of GDP, the
countries of Latin America have formed strong regional trade
organizations, notably MERCOSUR. Talk of extending NAFTA down through
Latin America indicates some desire to tie the economies even closer
to those of the north.
Politically, Latin American countries generally have strong
presidential systems closely modeled after the U.S. The
transition to democracy is largely complete in most countries.
All countries enjoy good relations with the U.S. , with
whom they cooperate on a range of non-economic matters, such as
preservation of the environment and drug control. Monetarist minded
governments were responsible for the successful staving off of
contagion from the 1995 currency crisis in Mexico, increasing
their stature in the eyes of most capital market participants.
ARGENTINA. Prior to 1989, Argentine politics were characterized by
populist leaders, sometimes democratically elected and sometimes not,
who ruled with the overt support of the military. Coups and outright
military rule were not uncommon. Economic polices were highly
protectionist, with significant barriers and restrictions on foreign
trade and investment. Markets were highly regulated and the state was
heavily involved in many industries. Inflation was routinely high and
growth stagnant.
President Carlos Menem was first elected to office in 1989 and
undertook a program of deregulation, liberalization and macroeconomic
reform. The results have been positive. GDP growth in 1997 was
8.0%, up from 4.4% in 1996 and -4.4% in 1995. Argentina's growth,
averaging over 6% from 1991 to 1997, had been driven
primarily by domestic consumption. Immediately after the
Mexican crisis, bank liquidity was restrained.
However , deposits have since returned to the system
surpassing the levels that existed prior to the crisis and liquidity
is very much improved . Lending also increased and consumer
spending rebounded although it has slowed somewhat due to the most
recent Brazilian crisis . The positive effect is that inflation,
well over 150% at the beginning of the decade, was 0.4% in 1996. Still
troublesome for Argentina is unemployment, quite high at 15% .
Menem's economic liberalization policies have succeeded in attracting
foreign investment. From the U.S. alone, approximately $10
billion was invested by 1996. Investors have been most attracted to
the telecommunications, finance, and energy sectors.
Argentina enjoys a positive trade balance. The export economy is
heavily weighted toward agriculture, which represents 60% of the total
value of all Argentine exports. Primary products are livestock,
oilseeds, and grain. Argentina's single biggest trading partner is
Brazil, and the U.S. is the second. Primary imports are
machinery, vehicles and chemicals.
The resignation of Economy Minister Domingo Cavallo in July 1996 was
initially greeted with skepticism from the markets. Cavallo was widely
recognized as the man responsible for ensuring the convertibility of
the peso by pegging it to the dollar, a move which saved Argentina
from the hyperinflation and continuous drops in output which could
have followed from the Mexican crisis in 1994. Confidence was quickly
restored, however, with the appointment of Roque Fernandez, who
promptly reaffirmed commitment to Cavallo's plan and introduced
further measures for fiscal stability.
The next presidential election is due in 1999. In accordance with the
constitution, Menem, a member of the Peronist party, can not seek a
third consecutive term. The next election is likely to present a third
candidate to the voters beyond the traditional contestants from the
Peronist and Radical parties. Frepaso, a center-left alliance, first
emerged in the 1995 elections and by 1999 could build itself up enough
to promote a viable alternative to the older parties. It is uncertain
how policies would be effected by the systemic change from a
predominantly two party system to a three party one .
The Argentine stock market reached an all-time high in October of
1997 in response to rising corporate earnings and strong economic
growth. However, the market underwent a significant correction due
largely to the "contagion effect" of the Asian economic and currency
crisis and the Mervel index ended the year only 5.9% ahead. While,
there was little direct impact from the Asian crisis on Argentina's
economy foreign investors fled the market, as they feared that Asia's
currency problems would spread to Latin America.
The Argentine market may pose special risks for investors. As an
emerging nation, Argentina's stock market may be particularly
vulnerable to widespread economic, currency and market turmoil such as
we have seen recently in Asia. These crises may prompt investors to
become increasingly averse to emerging market exposure on concern that
the impact of these events will spread to other countries. In
addition, mutual funds that invest in emerging markets may be forced
to sell holdings in countries that have little similarity with the
markets in trouble, merely to raise cash to meet redemptions.
Similarly, the Asian crisis has accelerated a growing imbalance
between supply and demand for basic commodities such as oil, metals,
pulp, grains and others. This could impact the Argentinean stock
market where energy stocks (oil, gas and electricity) comprise
approximately 40% of the market's total value. A currency devaluation
by one or more of its Latin American neighbors could precipitate a
recession and political pressure for competitive devaluation to
protect the country's trade competitiveness.
While Argentina's political situation is relatively stable; there
is a high degree of dissatisfaction with the government's inability to
lower the country's high unemployment rate. This could eventually lead
to social unrest and a turnover of the government to the control of
parties less favorable to investors.
BRAZIL. Brazil is the largest country in South America and is home to
vast amounts of natural resources. Its 155 million people are
descendants from indigenous tribes and European immigrants. They live
in diverse socio-economic conditions, from the urban cities of Sao
Paolo to the undeveloped trading posts of the distant regions.
Industrial development has been concentrated in specific areas. The
disenfranchised population is quite large and is a source of many of
Brazil's social problems.
The Brazilian economy is currently undergoing extensive reforms,
stemming from a 1994 effort to stabilize the currency called the Real
Plan. With the aim of curbing inflation, a new currency, the Real, was
introduced and supported via a floating exchange band . The plan
has stabilized the exchange rate and controlled inflation which was at
2,700% IN 1994. Inflation in 1995 dropped to 81%, and fell even
further in 1996, settling at 18.7%. Perhaps the most remarkable
achievement for the Brazilian economy in 1997 was the lowest rate of
inflation in the past 40 years, as the National Consumer Price Index
increased just 7.48%. At the same time, however, the Real Plan has
sent the trade and current account balances into a deficit. The
current account deficit is expected to reach 30 billion in 1998,
equivalent to 3.6% of GDP .
Other objectives of the administration of the current President,
Fernando Henrique Cardoso, are trade liberalization and privatization,
but these efforts are sporadic and often stalled by special interests
in the legislature. Some privatization efforts are performing well,
particularly in the utilities sector. Utilities and telecommunications
have been key draws for foreign investment, and foreign direct
investment (FDI) is coming in at record levels. In 1998 the
country received over $20 billion from privatizations.
Still, there are restrictions against investments in certain
industries, such as metals and mining.
Traditionally a primarily agricultural economy, a strong
industrial sector has developed which produces metals, chemical, and
manufactured consumer goods. Agriculture still plays a significant
role, however, representing 11% of the GDP, 40% of exports and
employing over 35% of the work force . Primary agricultural
products are grains, coffee, and cattle. Regarding energy and
utilities, the country is a leading producer of hydroelectric power,
but they are dependent on imports for oil.
Presidential elections were held in October of 1998
and President Cardoso won with 53% of the vote. This should
insure continuity in policy, which will be much needed given the
difficulties caused by the recent instability in the global markets
and its impact on Brazil.
In 1997 the Brazilian stock market rose to an all-time high in the
first quarter. Over the summer, the speculative attack on the Thai
currency triggered a sharp reversal in the Brazilian market, as
investors feared a raid on the Brazilian real. However, the market
ended the year with a gain of 4.34%. By mid-year 1998 the Brazilian
market plummeted amid growing concern that Brazil, Latin America's
largest economy, might suffer the confidence crisis that had caused
large currency devaluations in Russia and Asia.
Investing in Brazil could entail special risks: High unemployment
is the chief challenge facing Brazil's president Cardoso following his
reelection in October of 1998. Joblessness is at a record high and
social unrest could hinder his progress in subduing inflation and
denationalizing government ownership of many of its businesses. Brazil
could be a likely target for a renewed attack on its currency. The
economy is in a more precarious state; interest rates remain high and,
despite austeriy measures, little progress has been made in reducing
the current account deficit. This poses particular risk for United
States investors who would see their investment returns eroded if the
Brazilian real were to be devalued.
Brazil could be a likely target for a renewed attack on its
currency. The economy is in a more precarious state: interest rates
remain high and, despite austerity measures, little progress has been
made in reducing the current account deficit. This poses particular
risk for United States investors who would see their investment
returns eroded if the Brazilian real were to be devalue d.
Overall, Brazil remains vulnerable to both external shocks and
changing sentiment due to worsening domestic indicators or political
risk.
CHILE. Chile is a transition economy which has recently made great
strides toward putting its authoritarian, statist, past behind itself.
In all of Latin America, it is the country with the highest rates of
growth. Averaging 7.3% so far this decade, GDP grew at 6.0% in
1996, down from 6.6% the previous year. Inflation has been
steadily declining and is down over 15% in the last five years.
Inflation in 1997 was 6.0%, a 0.6% drop over
1996 . Unemployment in 1996 was 6.2% , particularly low
for the Latin American region. Chile is still considered to have one
of the best performing stock markets in the region.
Performance of the Chilean stock market was lackluster in 1997 as
weak copper prices and rising interest rates led to a contraction in
the domestic economy. Also contributing to the market's weakness was
the contagion effect of the Asian economic and currency crises, a
decline in pulp and steel prices, and uncertainty about the growth
prospects of its Latin American neighbors. These factors combined to
produce a 15% decline in the stock market for the 1997 calendar year.
The market weakness carried through into the first half of the next
year.
Eduardo Frei is President and is due for reelection in 1999. President
Frei has been trying to decentralize the government but encounters
stiff opposition from the powerful trade unions. Also high on Frei's
agenda is tax reform.
There is a considerable military component to political life in Chile.
In the legislature there is strong representation by parties with
authoritarian views. As part of the negotiated settlement with coup
leader General Augusto Pinochet in 1990, the army chain of command
ends with General Pinochet, not an elected official. Furthermore,
certain seats are reserved in the Senate for appointed officials from
the military. Pinochet must resign in 1998, and shortly thereafter the
reserved Senate seats will fall open to election. There are
constitutional reforms currently in progress further diminishing the
role and influence of the military, and thus the political transition
is still underway. A successful outcome requires that the military
acquiesce as it is stripped of its political powers.
Investors in the Chilean market face special risks: The Chilean
market is particularly sensitive to the fluctuation in the
international price of copper and pulp on the international markets
and they have a significant impact on the nation's economy and stock
market.
As is typical of most emerging markets, much of the Chilean equity
market is firmly held by controlling families and their associates.
Accordingly, these owners may not always act in the interests of
outside shareholders. In addition, any weakness in the Chilean
currency versus the dollar could erode the investment returns to
United States investors upon currency conversion.
MEXICO. The Mexican economy has recovered fairly well since the
currency crisis of December 1994 thanks in large part to growth in
exports, peso stabilization, and massive financial assistance from the
United States. GDP growth rose to 7.3%, with consumer spending and
investment leading the way. A major positive factor supporting growth
during 1997 was the strength of the peso, which closed the year little
changed from its 1996 year-end level. In addition, the nation's
inflation rate declined to 15.7% from the 27.7% rate of 1996. This
marked the second straight year of improvement. Inflation is the chief
concern of the central bank, which takes active measures such as the
setting of wage ceilings and the adjustment of interest rates to
control it. Domestic consumption, while improved, has yet to return to
pre-1994 levels, and has also contributed to the containment of
inflation.
The Mexican economy is very strong in manufacturing and natural
resources, specifically oil. Manufacturing alone counts for 22% of the
Mexican GDP and 21% of all urban employment. The economy is also very
closely tied to the U.S. , which is responsible for 60% of all
foreign investment and with whom it conducts over 75% of all trade.
Trade pacts such as the North American Free Trade Agreement further
integrate the economies, giving the U.S. s trong incentives to
provide assistance in times of crisis. NAFTA also enabled the
recent recovery, given the ease with which it allows increases in
exports and investment. The Mexican stock market listed 194
companies with total capitalization of $156 billion in
1997.
Internally, the various people of the Mexican states have recently
experienced a great deal of dissatisfaction with their relationship to
the federal government. Most notably, in Chiapas there have been armed
uprisings by indigenous groups demanding further autonomy. While the
rebellions have not strongly shaken financial markets, they serve as a
reminder of the diversity of Mexico, of the vast socio-economic gaps
between various peoples, and of the potential for such groups to
demand the attention of both their government and the world.
Politically, the landscape changed fundamentally in July 1997. The
defeat of candidates from the Institutional Revolutionary Party (PRI)
in legislative elections signaled the end of decades of one party
rule. Citizens now have the confidence that their votes count and that
the PRI is no longer invincible. Winning every presidential election
since its founding in 1929, the PRI was the country's monolithic
political machine, maintaining power through rigged elections and
ruling in an environment rife with intrigue and corruption. Internal
pressures including armed rebellion from domestic interest groups,
extensive crises and scandals caused by intra-party rivalries and
corruption, and deteriorating relationships with foreign countries
over financial mismanagement and mutual social problems all
contributed to the establishment of fully free and unfettered
elections. Numerous electoral reforms implemented since 1989 have
aided in the further opening of the Mexican political system and
opposition parties have made historic gains in elections at all
levels. Much of the impetus for the establishing a real two party
system in Mexico can be credited to President Zedillo and the PRI
majority in Congress. During 1995-1996 the political parties
negotiated constitutional amendments to address electoral campaign
fairness issues, which passed unanimously. The response from the
Mexican people was clear as a record number of registered votes
cast ballots . Though they took the most votes (39%) for the
500-member Lower House of Congress, the PRI has lost their majority.
Mid-term elections held in July of 1997, also saw large gains for
opposition parties and marked a significant step in Mexico's political
transformation. Market reaction to the new Mexican political world
was positive. The IPC index, consisting of 35 of the most
representative stocks on the Mexican Stock Exchange, rose 3.25% the
day after the election. Further financial implications of the new
landscape are as yet uncertain. Relevant considerations are the effect
of the new configurations on government consensus and policy making,
the demands of newly empowered groups on economic and other resources,
the balance of power between the executive and the legislature, and
the ability of the government to maintain law and order.
Mexico's stock market fell sharply in late 1997 and continued its
decent through mid-1998 as the worsening Asian economic and currency
crises threatened to cause problems for Mexico's trade balance and
raised questions concerning the sustainability of its economic growth.
Foreign investors fled the Mexican market, as they feared that Asia's
currency problems would spread to Latin America.
Investors in Mexico face a number of potential risks. As an
emerging nation, Mexico's stock market may be particularly vulnerable
to widespread economic, currency and stock market turmoil such as that
recently experienced in Asia and Russia. These crises may prompt
investors to become increasingly averse to emerging market exposure on
concern that the impact of these events will spread to other
countries. In addition, mutual funds that invest in emerging markets
may be forced to sell holdings in countries that have little
similarity with the troubled markets, merely to raise cash to meet
redemptions. Similarly, because the United States is Mexico's largest
trading partner, any economic downturn in the U.S. economy can have a
strongly adverse impact upon Mexico's economy and stock market.
While Mexico's political situation is relatively stable, there is a
high degree of dissatisfaction with the government's inability to
effectively address the nation's growing social problems, particularly
in the countries less developed regions. Occasional flair-ups of
strikes and armed rebellion could pose a threat to Mexico's political,
economic stability.
SPECIAL CONSIDERATIONS REGARDING THE RUSSIAN FEDERATION
The Russian Federation is the largest republic of the Commonwealth
of Independent States with a 1995 population of 147,500,000. It is
about one and four fifths of the land area of the United States and
occupies most of Eastern Europe and north Asia.
Russia has had a long history of political and economic turbulence.
The USSR lasted 69 years and for more than half that time it ranked as
a nuclear superpower. In the 1930's tens of millions of its citizens
were collectivized under state agricultural and industrial enterprises
and millions died in political purges and the vast penal and labor
system or in state-created famines. During World War II, as many as 20
million Soviet citizens died. After decades of communist rule, the
Soviet Union was dissolved on December 8, 1991 following a failed coup
attempt against the government of Mikhail Gorbachev. On the day that
the leaders declared that the Soviet Union ceased to exist, the Soviet
republics were invited to join with Russia in the Commonwealth of
Independent states (CIS). At one time or another those that have
agreed to join have included the Ukraine, Belarus, Moldova, Georgia,
Armenia, Azerbaijan, Uzbekistan, Turkmenistan, Tajikistan, Kazakhstan
and Kyrgyzstan, but a number have dropped out since or have only
observer status. Each of the republics is a sovereign state that
controls its own economy and natural resources and collects its own
taxes, providing only minimal support to the CIS.
Boris Yeltsin, President of Russia, inherited the mantle of
economic and political chaos. With the freeing of most prices he
staked his political life on the rapid creation of a free market
economy. Since 1991 Yeltsin and his Russian reformers have been faced
with the daunting task of stabilizing the Russian economy while
transforming it into a modern and efficient structure able to compete
in international markets and respond to the needs of the Russian
people. To date, their efforts have yielded widely mixed results. On
the one hand, they have made some impressive progress. Since 1992,
they have abolished central planning, decontrolled prices, unified the
foreign exchange market, made the ruble convertible, and privatized
two thirds of the economy. They have accomplished this in spite of the
crushing burdens inherited from the communist system: huge industrial
enterprises that are unprofitable; an obsolete capital stock; a
crumbling energy sector, huge external debt; and armies that had to be
repatriated and resettled at home.
Russia remains a paradox among the major economies of the world in
that it is a country marked by stagnation in production levels, but
has few constraints on growth. Labor supply is adequate and savings
are high. In addition, there is almost unlimited scope for increasing
productivity through the introduction of improved technologies,
production process and market-oriented managerial development. There
are 147 million consumers who are slowly increasing their buying power
and education standards are high. Russia is also rich in natural
resources. It has 40% of the world's natural gas reserves, 6% of its
oil, 25% of coal, diamonds, gold and nickel, and 30% of timber and
bauxite. Approximately ten million people are engaged in agriculture
and they produce half of the region's grain, meat, milk, and other
dairy products.
The main reason for the continued poor performance of the Russian
economy is the country's failure to mobilize the resources that are
available. While the official unemployment rate was at 10.6% in 1996,
up to half of the working population is, in effect, unemployed or, to
a significant degree, underemployed in inefficient and unproductive
industries. Much of the country's savings have been siphoned off
through capital flight. Russia's technological potential for
assimilating both domestic and foreign technologies is not being
exploited. Industry privatization and restructuring initiatives have
generally failed to mobilize the available factors of production as
the country's privatization program virtually ensures the predominance
of the old management teams that are largely non market-oriented in
their management approach. Approximately 80% of Russian privatized
companies continue to be majority-owned by insiders and only 10% are
owned by investors with large enough stakes to influence the running
of the company.
In July 1996, Boris Yeltsin was re-elected for a second term and it
was hoped that the election would mark the start of a more stable
period of economic growth. However, macroeconomic indicators in 1996
proved contradictory. On the one hand, the Russian government
continued its strict credit policies, and the annual inflation rate
for 1997 dropped to 11%, down from 22% in 1996. Inflation has since
remained below 3% a month through the first half of 1997. In addition,
expenditure cuts trimmed the budget deficit to 7% of GDP for the first
nine months of 1996.
By the end of 1997, GDP was up 0.4% following 1996's 6% fall, and
industrial production was up by 1.9%. Non-payment continues to
represent a serious problem for the economy, particularly in the
energy sector.
While Russia is widely believed to be one of the most risky markets
in Eastern Europe, it is also recognized for its potential for
positive returns. However, the market has been essentially liquidity
driven and concentrated in very few of the country's largest
companies. At just $129 billion, the total capitalization of the stock
market accounts for just 28.7 percent of GDP. The majority of
investors in Russian equities are small and medium-sized United States
hedge funds. In addition, several country specific funds have been
established to make direct and portfolio investments in Russian
companies. To facilitate foreign investment, a number of the larger
Russian companies have issued equity in the form of American
depository receipts while six big firms have issued securities in the
form of Russian depository certificates. These certificates are issued
and marketed by the Bank of New York. Any investment in Russia is
risky and deciding which companies will perform well at this stage of
the country's transformation is far from easy. A combination of poor
accounting standards, inept management, limited shareholder rights and
the criminalization of large sectors of the economy pose a significant
risk, particularly to foreign investors.
In 1996 the Russian market delivered the world's best stock market
performance and was among the top performing markets in the first half
of 1997. However, the markets strength masked a rapidly deteriorating
political and economic picture. Many of the country's economic reform
initiatives have floundered as the proceeds of IMF and other
assistance have been squandered or stolen. Taxes were not being
collected and Russian banks, suffering from a collapsed ruble, could
not meet the demands of either domestic depositors or foreign
creditors. In July of 1998 the Yeltsin government effectively devalued
the Russian ruble by approximately 34% to strengthen the ailing
banking system and stimulate demand for Russian exports. In addition
the government announced a restructuring of their foreign debt that
would allow a 90-day moratorium on banks' foreign loans and a
rescheduling of $40 billion in domestic debt. These actions were
viewed by investors as being tantamount to default and they fled the
Russian stock market. President Yeltsin's relations with the communist
dominated Duma worsened and there was talk among the body of beginning
impeachment proceedings against the president. By August of 1998 the
ruble had fallen by 70 percent and food prices soared, heightening
fears of social unrest. By early September the Russian economy
appeared to be slipping out of control and the government in a state
of paralysis as the President and the Duma feuded over remedial
initiatives. Many observers fear that country's communist party could
regain control of the government and end free market reforms, which
could further negatively impact stock prices.
PORTFOLIO TRANSACTIONS
All orders for the purchase or sale of portfolio securities are placed
on behalf of the fund by FMR pursuant to authority contained in the
management contract. FMR is also responsible for the placement of
transaction orders for other investment companies and
investment accounts for which it or its affiliates act as
investment adviser. In selecting broker-dealers, subject to applicable
limitations of the federal securities laws, FMR considers various
relevant factors, including, but not limited to: the size and type of
the transaction; the nature and character of the markets for the
security to be purchased or so ld; the execution efficiency,
settlement capability, and financial condition of the broker-dealer
firm; the broker-dealer's execution services rendered on a continuing
basis; the reasonableness of any commissions; and, if
applicable, arrangements for payment of fund expenses.
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contract"), that sub-adviser is
authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
above.
Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
The fund may execute portfolio transactions with broker-dealers who
provide research and execution services to the fund or other
investment accounts over which FMR or its affiliates exercise
investment discretion. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing, or
selling securities; and the availability of securities or the
purchasers or sellers of securities. In addition, such broker-dealers
may furnish analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and
performance of investment accounts; and effect
securities transactions and perform functions incidental thereto (such
as clearance and settlement).
For transactions in fixed-income securities, FMR's selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering
investment management services to that fund or its other
clients, and conversely, such research provided by broker-dealers who
have executed transaction orders on behalf of other FMR clients may be
useful to FMR in carrying out its obligations to a fund. The
receipt of such research has not reduced FMR's normal independent
research activities; however, it enables FMR to avoid the additional
expenses that could be incurred if FMR tried to develop comparable
information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws, the
fund may pay a broker-dealer commissions for agency transactions that
are in excess of the amount of commissions charged by other
broker-dealers in recognition of their research and execution
services. In order to cause the fund to pay such higher commissions,
FMR must determine in good faith that such commissions are reasonable
in relation to the value of the brokerage and research services
provided by such executing broker-dealers, viewed in terms of a
particular transaction or FMR's overall responsibilities to
that fund or its other clients. In reaching this
determination, FMR will not attempt to place a specific dollar value
on the brokerage and research services provided, or to determine what
portion of the compensation should be related to those services.
To the extent permitted by applicable law , FMR is authorized
to allocate portfolio transactions in a manner that
takes into account assistance received in the
distribution of shares of the funds or other Fidelity funds
and to use the research services of brokerage and other firms
that have provided such assistance. FMR may use research services
provided by and place agency transactions with National Financial
Services Corporation (NFSC) and Fidelity Brokerage Services Japan LLC
(FBSJ), indirect subsidiaries of FMR Corp., if the commissions are
fair, reasonable, and comparable to commissions charged by
non-affiliated, qualified brokerage firms for similar services. Prior
to December 9, 1997, FMR used research services provided by and placed
agency transactions with Fidelity Brokerage Services (FBS), an
indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers
(including affiliates of FMR) who have entered into arrangements with
FMR under which the broker-dealer allocates a portion of the
commissions paid by a fund toward the reduction of that fund's
expenses. The transaction quality must, however, be comparable to
those of other qualified broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment accounts which they or their affiliates manage,
unless certain requirements are satisfied. Pursuant to such
requirements, the Board of Trustees has authorized NFSC to execute
portfolio transactions on national securities exchanges in accordance
with approved procedures and applicable SEC rules.
The Trustees periodically review FMR's performance of its
responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
For the fiscal period ended December 31, 1998, the fund's
portfolio turnover rate was ___% (annualized). [Variations in turnover
rate may be due to a fluctuating volume of shareholder purchase and
redemption orders, market conditions, or changes in FMR's investment
outlook.]
[For the fiscal year ended December 1998, the fund paid brokerage
commissions of $________. Significant changes in brokerage commissions
paid by the fund from year to year may result from changing asset
levels throughout the year.] The fund may pay both commissions and
spreads in connection with the placement of portfolio transactions.
[For the fiscal year ended December 1998, the fund paid no brokerage
commissions.]
[During the fiscal year ended December 1998, the fund paid
brokerage commissions of $_______ to NFSC. NFSC is paid on a
commission basis. During the fiscal year ended December 1998, this
amounted to approximately __% of the aggregate brokerage commissions
paid by the fund for transactions involving approximately __% of the
aggregate dollar amount of transactions for which the fund paid
brokerage commissions. [The difference between the percentage of
aggregate brokerage commissions paid to, and the percentage of the
aggregate dollar amount of transactions effected through, NFSC is a
result of the low commission rates charged by NFSC.] [NFSC has used a
portion of the commissions paid by the fund to reduce that fund's
custodian or transfer agent fee.]
[During the fiscal year ended December 1998, the fund paid
brokerage commissions of $_____ to FBS. FBS is paid on a commission
basis. During the fiscal year ended December 1998, this amounted to
approximately __% of the aggregate brokerage commissions paid by the
fund for transactions involving approximately __% of the aggregate
dollar amount of transactions for which the fund paid brokerage
commissions. [The difference between the percentage of aggregate
brokerage commissions paid to, and the percentage of the aggregate
dollar amount of transactions effected through, FBS is a result of the
low commission rates charged by FBS.] [FBS has used a portion of the
commissions paid by the fund to reduce that fund's custodian or
transfer agent fees.]
[During the fiscal year ended December 1998, the fund paid
brokerage commissions of $_____ to FBSJ. FBSJ is paid on a commission
basis. During the fiscal year ended December 1998, this amounted to
approximately __% of the aggregate brokerage commissions paid by the
fund for transactions involving approximately __% of the aggregate
dollar amount of transactions for which the fund paid brokerage
commissions. [The difference between the percentage of aggregate
brokerage commissions paid to, and the percentage of the aggregate
dollar amount of transactions effected through, FBSJ is a result of
the low commission rates charged by FBSJ.][FBSJ has used a portion of
the commissions paid by the fund to reduce that fund's custodian or
transfer agent fees.]
[During the fiscal year ended December, 1998, the fund paid $__ in
brokerage commissions to firms that provided research services
involving approximately $__ of transactions. The provision of research
services was not necessarily a factor in the placement of all this
business with such firms.] [During the fiscal year ended December,
1998, the fund paid no brokerage commissions to firms that provided
research services.]
The Trustees of the fund have approved procedures in conformity
with Rule 10f-3 under the 1940 Act whereby a fund may purchase
securities that are offered in underwritings in which an affiliate of
FMR participates. These procedures prohibit the fund from directly or
indirectly benefiting an FMR affiliate in connection with such
underwritings. In addition, for underwritings where an FMR affiliate
participates as a principal underwriter, certain restrictions may
apply that could, among other things, limit the amount of securities
that the fund could purchase in the underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the fund of some portion of the brokerage commissions
or similar fees paid by the fund on portfolio transactions is legally
permissible and advisable. The fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
the fund to seek such recapture.
Although the Trustees and officers of the fund are substantially the
same as those of other funds managed by FMR or its affiliates,
investment decisions for the fund are made independently from those of
other funds managed by FMR or investment accounts managed b y
FMR affiliates. It sometimes happens that the same security is held in
the portfolio of more than one of these funds or investment
accounts. Simultaneous transactions are inevitable when several funds
and investment accounts are managed by the same investment
adviser, particularly when the same security is suitable for the
investment objective of more than one fund or investment
account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as the fund is
concerned. In other cases, however, the ability of the fund to
participate in volume transactions will produce better executions and
prices for the fund. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser to the fund
outweighs any disadvantages that may be said to exist from exposure to
simultaneous transactions.
VALUATION
The fund's net asset value per share (NAV) is the value of a
single share. The NAV of the fund is computed by adding the value of
the fund's investments, cash, and other assets, subtracting its
liabilities, and dividing the result by the number of shares
outstanding.
Portfolio securities are valued by various methods depending on the
primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities and convertible securities may be valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the fund may use various pricing services or
discontinue the use of any pricing service.
Most equity securities for which the primary market is the United
States are valued at last sale price or, if no sale has occurred, at
the closing bid price. Most equity securities for which the primary
market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which
they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or closing bid price
normally is used.
Futures contracts and options are valued on the basis of market
quotations, if available. Securities of other open-end investment
companies are valued at their respective NAVs.
Independent brokers or quotation services provide prices of
foreign securities in their local currency. FSC gathers all
exchange rates daily at the close of the NYSE using the last quoted
price on the local currency and then translates the value of foreign
securities from their local currencies into U.S. dollars. Any changes
in the value of forward contracts due to exchange rate fluctuations
and days to maturity are included in the calculation of NAV. If an
event that is expected to materially affect the value of a portfolio
security occurs after the close of an exchange or market on
which that security is traded, then that security will be valued in
good faith by a committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value.
The procedures set forth above need not be used to determine the
value of the securities owned by the fund if, in the opinion of a
committee appointed by the Board of Trustees, some other method would
more accurately reflect the fair value of such securities. For
example, securities and other assets for which there is no readily
available market value may be valued in good faith by a committee
appointed by the Board of Trustees. In making a good faith
determination of the value of a security, the committee may review
price movements in futures contracts and ADRs, market and trading
trends, the bid/ask quotes of brokers and off-exchange institutional
trading.
PERFORMANCE
The fund may quote performance in various ways. All performance
information supplied by the fund in advertising is historical and is
not intended to indicate future returns. The fund's share price, yield
and return fluctuate in response to market conditions and other
factors, and the value of fund shares when redeemed may be more or
less than their original cost.
YIELD CALCULATIONS. Yields for the fund are computed by dividing the
fund's interest and dividend income for a given 30-day or one-month
period, net of expenses, by the average number of shares entitled to
receive distributions during the period, dividing this figure by the
fund's NAV at the end of the period, and annualizing the result
(assuming compounding of income) in order to arrive at an annual
percentage rate. Income is calculated for purposes of yield quotations
in accordance with standardized methods applicable to all stock and
bond funds. Dividends from equity investments are treated as if they
were accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with respect to
bonds trading at a premium over their par value by subtracting a
portion of the premium from income on a daily basis, and is increased
with respect to bonds trading at a discount by adding a portion of the
discount to daily income. For the fund's investments denominated in
foreign currencies, income and expenses are calculated first in their
respective currencies, and then are converted to U.S. dollars,
either when they are actually converted or at the end of the 30-day or
one month period, whichever is earlier. Income is adjusted to
reflect gains and losses from principal repayments received by a fund
with respect to mortgage-related securities and other asset-backed
securities. Other capital gains and losses generally are excluded
from the calculation as are gains and losses from currency exchange
rate fluctuations.
Income calculated for the purposes of calculating the fund's yield
differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, the fund's yield
may not equal its distribution rate, the income paid to your account,
or the income reported in the fund's financial statements.
In calculating the fund's yield, a fund may from time to time use a
portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing the fund's yield.
Yield information may be useful in reviewing the fund's performance
and in providing a basis for comparison with other investment
alternatives. However, the fund's yield fluctuates, unlike investments
that pay a fixed interest rate over a stated period of time. When
comparing investment alternatives, investors should also note the
quality and maturity of the portfolio securities of respective
investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
the fund's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates the fund's yield
will tend to be somewhat lower. Also, when interest rates are falling,
the inflow of net new money to the fund from the continuous sale of
its shares will likely be invested in instruments producing lower
yields than the balance of the fund's holdings, thereby reducing the
fund's current yield. In periods of rising interest rates, the
opposite can be expected to occur.
RETURN CALCULATIONS. Returns quoted in advertising reflect all
aspects of the fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in the fund's
NAV over a stated period. A cumulative return reflects actual
performance over a stated period of time. Average annual returns
are calculated by determining the growth or decline in value of a
hypothetical historical investment in the fund over a stated period,
and then calculating the annually compounded percentage rate that
would have produced the same result if the rate of growth or decline
in value had been constant over the period. For example, a cumulative
return of 100% over ten years would produce an average annual return
of 7.18%, which is the steady annual rate of return that would equal
100% growth on a compounded basis in ten years. Average annual returns
covering periods of less than one year are calculated by determining
the fund's return for the period, extending that return for a full
year (assuming that return remains constant over the year), and
quoting the result as an annual return. While average annual returns
are a convenient means of comparing investment alternatives, investors
should realize that the fund's performance is not constant over time,
but changes from year to year, and that average annual returns
represent averaged figures as opposed to the actual year-to-year
performance of the fund.
In addition to average annual returns, the fund may quote unaveraged
or cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative returns
may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a
series of redemptions, over any time period. Returns may be
broken down into their components of income and capital (including
capital gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to return.
Returns may be quoted on a before-tax or after-tax basis.
Returns may or may not include the effect of the fund's small
account fee. Excluding the fund's small account fee from a return
calculation produces a higher return figure. Returns , yields
and other performance information may be quoted numerically or in a
table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using the fund's NAVs, adjusted
NAVs, and benchmark indexes may be used to exhibit performance.
An adjusted NAV includes any distributions paid by the fund and
reflects all elements of its return. Unless otherwise indicated, the
fund's adjusted NAVs are not adjusted for sales charges, if any.
CALCULATING HISTORICAL FUND RESULTS. The following table
shows performance for the fund.
HISTORICAL FUND RESULTS. The following tables show the
fund's yield and return for the fiscal period ended December 31,
1998.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
AVERAGE ANNUAL CUMULATIVE RETURNS
RETURNS

THIRTY-DAY YIELD
LIFE OF LIFE OF
FUND* FUND*

STRATEGIC INCOME FUND % % %

</TABLE>

* From May 1, 1998 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's returns would have been lower.
Note: If FMR had not reimbursed certain fund expenses during these
periods, the fund's yield would have been ___%.
The following table shows the income and capital elements of the
fund's cumulative return. The table compares the fund's return to the
record of the Standard & Poor's 500 Index (S&P 500), the Dow Jones
Industrial Average (DJIA), and the cost of living, as measured by the
Consumer Price Index (CPI), over the same period. The CPI information
is as of the month-end closest to the initial investment date for the
fund. The S&P 500 and DJIA comparisons are provided to show how the
fund's return compared to the record of a broad unmanaged index of
common stocks and a narrower set of stocks of major industrial
companies, respectively, over the same period. Because the fund
invests in fixed-income securities, common stocks represent a
different type of investment from the fund. Common stocks generally
offer greater growth potential than the fund, but generally experience
greater price volatility, which means greater potential for loss. In
addition, common stocks generally provide lower income than a
fixed-income investment such as the fund. The S&P 500 and DJIA returns
are based on the prices of unmanaged groups of stocks and, unlike the
fund's returns, do not include the effect of brokerage commissions or
other costs of investing.
The fund may compare its return to the record of the S&P 500, the Dow
Jones Industrial Average (DJIA), and the cost of living, as measured
by the Consumer Price Index (CPI), over the same period. The S&P 500
and DJIA comparisons would show how the fund's return compared to the
record of a broad unmanaged index of common stocks and a narrower set
of stocks of major industrial companies, respectively. Because the
fund invests in fixed-income securities, common stocks represent a
different type of investment from the fund. Common stocks generally
offer greater growth potential than the fund, but generally experience
greater price volatility, which means greater potential for loss. In
addition, common stocks generally provide lower income than a
fixed-income investment such as the fund. The S&P 500 and DJIA returns
are based on the prices of unmanaged groups of stocks and, unlike the
fund's returns, do not include the effect of brokerage commissions or
other costs of investing.
INTERNATIONAL INDEXES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International
indexes database, the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database, and the performance of national stock
markets as measured in U.S. dollars by the Morgan Stanley Capital
International stock market indexes for the twelve months ended
December 31, 1998. Of course, these results are not indicative
of future stock market performance or the fund's performance.
Market conditions during the periods measured fluctuated widely.
Brokerage commissions and other fees are not factored into the values
of the indexes.
MARKET CAPITALIZATION. Companies outside the United States now
make up nearly two-thirds of the world's stock market capitalization.
According to Morgan Stanley Capital International, the size of the
markets as measured in U.S. dollars grew from $____ billion in 19__ to
$____ billion in 1998.
The following table measures the total market capitalization of
certain countries according to the Morgan Stanley Capital
International indexes database. The value of the markets are measured
in billions of U.S. dollars as of December 31, 1998.
TOTAL MARKET CAPITALIZATION
AUSTRALIA $ JAPAN $

AUSTRIA NETHERLANDS

BELGIUM NORWAY

CANADA SINGAPORE/MALAYSIA

DENMARK SPAIN

FRANCE SWEDEN

GERMANY SWITZERLAND

HONG KONG UNITED KINGDOM

ITALY UNITED STATES

The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in
billions of U.S. dollars as of December 31, 1998.
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
ARGENTINA $

BRAZIL

CHILE

COLOMBIA

MEXICO

VENEZUELA

TOTAL LATIN AMERICA $______

NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents
the performance of national stock markets as measured in U.S. dollars
by the Morgan Stanley Capital International stock market indexes
for the twelve months ended December 31, 1998. The second
table shows the same performance as measured in local currency. Each
table measures return based on the period's change in price, dividends
paid on stocks in the index, and the effect of reinvesting dividends
net of any applicable foreign taxes. These are unmanaged indexes
composed of a sampling of selected companies representing an
approximation of the market structure of the designated country.
STOCK MARKET PERFORMANCE
MEASURED IN U.S. DOLLARS
AUSTRALIA % JAPAN %

AUSTRIA NETHERLANDS

BELGIUM NORWAY

CANADA SINGAPORE/MALAYSIA

DENMARK SPAIN

FRANCE SWEDEN

GERMANY SWITZERLAND

HONG KONG UNITED KINGDOM

ITALY UNITED STATES

STOCK MARKET PERFORMANCE
MEASURED IN LOCAL CURRENCY
AUSTRALIA % JAPAN %

AUSTRIA NETHERLANDS

BELGIUM NORWAY

CANADA SINGAPORE/MALAYSIA

DENMARK SPAIN

FRANCE SWEDEN

GERMANY SWITZERLAND

HONG KONG UNITED KINGDOM

ITALY UNITED STATES

The following table shows the average annualized stock market returns
measured in U.S. dollars as of December 1998.
STOCK MARKET PERFORMANCE
<TABLE>
<CAPTION>
<S> <C> <C>
Five Years Ended Ten Years Ended
December 31, 1998 December 31, 1998

GERMANY

HONG KONG

JAPAN

SPAIN

UNITED KINGDOM

UNITED STATES
</TABLE>

PERFORMANCE COMPARISONS. The fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on return, assume reinvestment of distributions, do not take
sales charges or trading fees into consideration, and are prepared
without regard to tax consequences. Lipper may also rank based on
yield. In addition to the mutual fund rankings, the fund's performance
may be compared to stock, bond, and money market mutual fund
performance indexes prepared by Lipper or other organizations.
When comparing these indexes, it is important to remember the
risk and return characteristics of each type of investment. For
example, while stock mutual funds may offer higher potential returns,
they also carry the highest degree of share price volatility.
Likewise, money market funds may offer greater stability of principal,
but generally do not offer the higher potential returns available from
stock mutual funds.
From time to time, the fund's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, the fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. The fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
The fund's performance may also be compared to that of the benchmark
index representing the universe of securities in which the fund may
invest. The return of the index reflects reinvestment of all dividends
and capital gains paid by securities included in the index. Unlike the
fund's returns, however, the index's returns do not reflect
brokerage commissions, transaction fees, or other costs of investing
directly in the securities included in the index.
Strategic Income may compare its performance to that of the
Fidelity Strategic Income Composite Index which is a hypothetical
representation of the performance of the fund's general investment
categories according to their respective weightings in the fund's
neutral mix. The Fidelity Strategic Income Composite Index represents
Strategic Income's four general investment categories according to
their respective weighting in the fund's neutral mix (40% high yield,
30% U.S. Government and investment-grade, 15% foreign developed
markets and 15% emerging markets). The following indexes are used to
calculate the Fidelity Strategic Income Composite Index: Merrill Lynch
High Yield Master Index for the high yield category, Lehman Brothers
Government Bond Index for the U.S. Government and investment grade
category, Salomon Brothers Non-U.S. Dollar World Government Bond Index
for foreign developed markets category, and J.P. Morgan Emerging
Markets Bond Index Plus for the emerging markets category. The index
weightings of the Fidelity Strategic Income Composite Index are
rebalanced monthly.
MERRILL LYNCH HIGH YIELD MASTER INDEX. A market capitalization
weighted index of all domestic and yankee high-yield bonds with an
outstanding par value of at least $50 million and maturities of at
least one year. Issues included in the index have a credit rating
lower than BBB-/Baa3 but are not in default (DDD1 or lower).
Split-rated issues (i.e., rated investment-grade by one rating agency
and high-yield by another) are included in the index based on the
issue's corresponding composite rating. Structured-note issues,
deferred interest bonds, and pay-in-kind bonds are excluded
LEHMAN BROTHERS GOVERNMENT BOND INDEX. A market value weighted index
of U.S. Government and government agency securities (other than
mortgage securities) with maturities of one year or more. Issues
include all public obligations of the U.S. Treasury (excluding flower
bonds and foreign-targeted issues) and U.S. Government agencies and
quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government.
SALOMON BROTHERS NON-U.S. DOLLAR WORLD GOVERNMENT BOND INDEX. A
market-capitalization weighted index that is designed to
reflect 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.
J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS. A market capitalization
weighted return index of U.S. dollar- and other external
currency-denominated Brady bonds, loans, Eurobonds, and local market
debt instruments traded in emerging markets.
Strategic Income may compare its performance to that of the
Merrill Lynch High Yield Master Index, a market
capitalization-weighted index of all domestic and yankee high-yield
bonds with an outstanding par value of at least $50 million and
maturities of at least one year. Issues included in the index have a
credit rating lower than BBB-/Baa3 but are not in default (DDD1 or
lower). Split-rated issues (i.e., rated investment-grade by one rating
agency and high-yield by another) are included in the index based on
the issue's corresponding composite rating. Structured-note issues,
deferred interest bonds, and pay-in-kind bonds are excluded.
The fund may be compared in advertising to Certificates of Deposit
(CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, the fund may offer greater liquidity or higher
potential returns than CDs, the fund does not guarantee your principal
or your return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI, and combinations of various capital markets. The performance
of these capital markets is based on the returns of different
indexes.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes that may be developed and
made available in the future.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
The fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. The fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare the fund's historical share price fluctuations or
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, the fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate the fund's price movements over specific
periods of time. Each point on the momentum indicator represents the
fund's percentage change in price movements over that period.
The fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
The fund may be available for purchase through retirement plans or
other programs offering deferral of, or exemption from, income taxes,
which may produce superior after-tax returns over time. For example, a
$1,000 investment earning a taxable return of 10% annually would have
an after-tax value of $1,949 after ten years, assuming tax was
deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of December 31, 1998, FMR advised over $__ billion in
municipal fund assets, $__ billion in taxable fixed-income fund
assets, $__ billion in money market fund assets, $___ billion in
equity fund assets, $__ billion in international fund assets, and $___
billion in Spartan fund assets. The fund may reference the growth and
variety of money market mutual funds and the adviser's innovation and
participation in the industry. The equity funds under management
figure represents the largest amount of equity fund assets under
management by a mutual fund investment adviser in the United States,
making FMR America's leading equity (stock) fund manager. FMR, its
subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, the fund may compare its total
expense ratio to the average total expense ratio of similar funds
tracked by Lipper. The fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing the fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
DISTRIBUTIONS AND TAXES
DIVIDENDS. Because the fund invests significantly in foreign
securities, corporate shareholders should not expect fund dividends to
qualify for the dividends-received deduction. Short-term capital gains
are taxable as dividends, but do not qualify for the
dividends-received deduction.
CAPITAL GAINS DISTRIBUTIONS. The fund's long-term capital gains
distributions are federally taxable to shareholders generally as
capital gains.
[As of December 31, 1998, the fund had a capital loss carryforward
aggregating approximately $____. This loss carryforward, of which
$___, $___, and $___will expire on December 31, 199_, ____, and
____ , respectively, is available to offset future capital gains.]
RETURNS OF CAPITAL. If the fund's distributions exceed its taxable
income and capital gains realized during a taxable year, all or a
portion of the distributions made in the same taxable year may be
recharacterized as a return of capital to shareholders. A return of
capital distribution will generally not be taxable, but will reduce
each shareholder's cost basis in the fund and result in a higher
reported capital gain or lower reported capital loss when those shares
on which the distribution was received are sold.
FOREIGN TAX CREDIT OR DEDUCTION . Foreign governments may
withhold taxes on dividends and interest earned by the fund
with respect to foreign securities. Foreign governments may also
impose taxes on other payments or gains with respect to foreign
securities. If, at the close of its fiscal year, more than 50% of the
fund's total assets is invested in securities of foreign
issuers, the fund may elect to pass through eligible foreign
taxes paid and thereby allow shareholders to take a deduction or,
if they meet certain holding period requirements with respect to fund
shares, a credit on their individual tax returns.
TAX STATUS OF THE FUND. The fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code so that it will not be liable for federal tax on
income and capital gains distributed to shareholders. In order to
qualify as a regulated investment company, and avoid being subject to
federal income or excise taxes at the fund level, the fund intends to
distribute substantially all of its net investment income and net
realized capital gains within each calendar year as well as on a
fiscal year basis, and intends to comply with other tax rules
applicable to regulated investment companies.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting the fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. It is up to you or your tax preparer to determine
whether the sale of shares of the fund resulted in a capital gain or
loss or other tax consequence to you. In addition to federal
income taxes, shareholders may be subject to state and local taxes on
fund distributions, and shares may be subject to state and local
personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax
situation.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. The Board of Trustees governs the fund
and is responsible for protecting the interests of shareholders. The
Trustees are experienced executives who meet periodically throughout
the year to oversee the fund's activities, review contractual
arrangements with companies that provide services to the fund, and
review the fund's performance. Except as indicated, each
individual has held the office shown or other offices in the same
company for the last five years. All persons named as Trustees and
Members of the Advisory Board also serve in similar capacities for
other funds advised by FMR or its affiliates . The business
address of each Trustee, Member of the Advisory Board, and officer who
is an "interested person" (as defined in the 1940 Act) is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the
address of FMR. The business address of all the other Trustees is
Fidelity Investments(registered trademark), P.O. Box 9235, Boston,
Massachusetts 02205-9235. Those Trustees who are "interested persons"
by virtue of their affiliation with either the trust or FMR are
indicated by an asterisk (*).
*EDWARD C. JOHNSON 3d ( 68 ), Trustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman
and a Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD ( 57 ), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX ( 66 ), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS ( 67 ), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES ( 55 ), Trustee (1997), is a consultant, author,
and lecturer (1993). Mr. Gates was Director of the Central
Intelligence Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates
served as Assistant to the President of the United States and Deputy
National Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES ( 71 ), Trustee. Prior to his retirement in
1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel
Company. He is a Director of TRW Inc. (original equipment and
replacement products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK ( 66 ), Trustee, is Executive-in-Residence (1995)
at Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of National Arts Stabilization Inc. ,
Chairman of the Board of Trustees of the Greenwich Hospital
Association, Director of the Yale-New Haven Health Services Corp.
(1998) , a Member of the Public Oversight Board of the American
Institute of Certified Public Accountants' SEC Practice Section
(1995), and as a Public Governor of the National Association of
Securities Dealers, Inc. (1996).
*PETER S. LYNCH ( 55 ), Trustee, is Vice Chairman and Director of
FMR. Prior to May 31, 1990, he was a Director of FMR and Executive
Vice President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan(registered trademark) Fund and FMR
Growth Group Leader; and Managing Director of FMR Corp. Mr. Lynch was
also Vice President of Fidelity Investments Corporate Services
(1991-1992). In addition, he serves as a Trustee of Boston College,
Massachusetts Eye & Ear Infirmary, Historic Deerfield (1989) and
Society for the Preservation of New England Antiquities, and as an
Overseer of the Museum of Fine Arts of Boston.
WILLIAM O. McCOY ( 65 ), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH ( 70 ), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN (65), Trustee (1993), is Chairman of the Board, of
Lexmark International, Inc. (office machines, 1991). Prior to 1991, he
held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993), Imation Corp. (imaging and
information storage, 1997).
*ROBERT C. POZEN (52 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), Fidelity Management & Research (U.K.) Inc. (1997), and
Fidelity Management & Research (Far East) Inc. (1997). Previously, Mr.
Pozen served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS ( 70 ), Trustee, is President of The Wales
Group, Inc. (management and financial advisory services). Prior to
retiring in 1987, Mr. Williams served as Chairman of the Board of
First Wachovia Corporation (bank holding company), and Chairman and
Chief Executive Officer of The First National Bank of Atlanta and
First Atlanta Corporation (bank holding company). He is currently a
Director of ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
FRED L. HENNING, JR. ( 59 ), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
BART A. GRENIER, ( 39 ), is Vice President of certain High-Income
Bond Funds (1997). Mr. Grenier rejoined Fidelity in August 1997 from
DDJ Capital Management, LLC, where he had served as Managing Director
since April 1997. Mr. Grenier originally joined Fidelity in 1991 as a
senior analyst. Mr. Grenier served as a Director of High-Income Group
Research and as Director of U.S. Equity Research from 1994 to March
1996. He later became Group Leader of the Income-Growth and Asset
Allocation-Income Groups in 1996 and Assistant Equity Division Head in
1997.
JOHN CARLSON ()
MARGARET L. EAGLE ()
KEVIN GRANT ()
ERIC D. ROITER ( 50 ), Secretary ( 1998 ), is Vice President
(1998) and General Counsel of FMR (1998). Mr. Roiter was an Adjunct
Member, Faculty of Law, at Columbia University Law School (1996-1997).
Prior to joining Fidelity, Mr. Roiter was a partner at Debevoise &
Plimpton (1981-1997) and served as an Assistant General Counsel of the
U.S. Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER ( 51 ), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
MATTHEW N. KARSTETTER (37), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
S TANLEY N. GRIFFITH (52), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO ( 52 ), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH ( 52 ), Assistant Treasurer (1994), is an
employee of FMR (1994). Prior to becoming Assistant Treasurer of the
Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp.
(1993-1994) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
THOMAS J. SIMPSON (40), Assistant Treasurer (1996), is Assistant
Treasurer of Fidelity's Fixed-Income Funds (1998) and an employee of
FMR (1996). Prior to joining FMR, Mr. Simpson was Vice President and
Fund Controller of Liberty Investment Services (1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of the fund for his
or her services for the fiscal year ended December 31, 1998.
COMPENSATION TABLE

TRUSTEES AGGREGATE TOTAL
AND COMPENSATION COMPENSATION
MEMBERS OF THE ADVISORY BOARD FROM FROM THE
STRATEGIC INCOME FUND COMPLEX*
[B,]C A
[,+]

J. GARY BURKHEAD ** $ $

RALPH F. COX $ $

PHYLLIS BURKE DAVIS $ $

ROBERT M. GATES *** $ $

EDWARD C. JOHNSON 3D ** $ $

E. BRADLEY JONES $ $

DONALD J. KIRK $ $

PETER S. LYNCH ** $ $

WILLIAM O. MCCOY**** $ $

GERALD C. MCDONOUGH $ $

MARVIN L. MANN $ $

ROBERT C. POZEN** $ $

THOMAS R. WILLIAMS $ $

* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the fund and Mr. Burkhead are compensated by
FMR.
***Mr. Gates was appointed to the Board of Trustees effective March 1,
1997.
****Mr. McCoy was appointed to the Board of Trustees effective January
1, 1997.
+ Estimated
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox, $___;
Phyllis Burke Davis, $___; Robert M. Gates, $___; E. Bradley Jones,
$___; Donald J. Kirk, $___; William O. McCoy, $___; Gerald C.
McDonough, $___; Marvin L. Mann, $___; and Thomas R. Williams, $___.
Certain of the non-interested Trustees elected voluntarily to defer a
portion of their compensation as follows: Ralph F. Cox, $___; Marvin
L. Mann, $___; and Thomas R. Williams, $___.
[B Compensation figures include cash, and may include amounts required
to be deferred and amounts deferred at the election of Trustees.]
[C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $__; Phyllis Burke Davis, $__;
Robert M. Gates, $__; E. Bradley Jones, $__; Donald J. Kirk, $__;
William O. McCoy, $__; Gerald C. McDonough, $__; Marvin L. Mann, $__;
and Thomas R. Williams, $__.]
[F Certain of the non-interested Trustees' aggregate compensation from
the fund includes accrued voluntary deferred compensation as follows:
[_____,_____].]
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
[As of December 31, 1998, approximately __% of the fund's total
outstanding shares was held by [FMR] [[and] [an] FMR affiliate[s]].
FMR Corp. is the ultimate parent company of [FMR] [[and] [this/these]
FMR affiliate[s]]. By virtue of his ownership interest in FMR Corp.,
as described in the "Control of Investment Adviser" section on page
___, Mr. Edward C. Johnson 3d, President and Trustee of the fund, may
be deemed to be a beneficial owner of these shares. As of the above
date, with the exception of Mr. Johnson 3d's deemed ownership of the
fund's shares, the Trustees, Members of the Advisory Board, and
officers of the fund owned, in the aggregate, less than __% of the
fund's total outstanding shares.]
[As of December 31, 1998, the Trustees, Members of the Advisory
Board, and officers of the fund owned, in the aggregate, less than __%
of the fund's total outstanding shares.]
[As of December 31, 1998, the following owned of record or
beneficially 5% or more (up to and including 25%) of the fund's
outstanding shares:]
[As of December 31, 1998, approximately ____% of the fund's total
outstanding shares were held by [___}.]
[A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other
shareholders.]
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of
FMR, FIMM, FMR U.K. and FMR Far East. The voting common stock of FMR
Corp. is divided into two classes. Class B is held predominantly by
members of the Edward C. Johnson 3d family and is entitled to 49% of
the vote on any matter acted upon by the voting common stock. Class A
is held predominantly by non-Johnson family member employees of FMR
Corp. and its affiliates and is entitled to 51% of the vote on any
such matter. The Johnson family group and all other Class B
shareholders have entered into a shareholders' voting agreement under
which all Class B shares will be voted in accordance with the majority
vote of Class B shares. Under the 1940 Act, control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are
those conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity International Limited (FIL), a Bermuda company formed in
1968, is the ultimate parent company of FIIA, FIJ and FIIA(U.K.)L.
Edward C. Johnson 3d, Johnson family members, and various trusts for
the benefit of the Johnson family own, directly or indirectly, more
than 25% of the voting common stock of FIL. FIL provides investment
advisory services to non-U.S. investment companies and institutional
investors investing in securities throughout the world.
Fidelity investment personnel may invest in securities for their
own investment accounts pursuant to a code of ethics that sets forth
all employees' fiduciary responsibilities regarding the funds,
establishes procedures for personal investing and restricts certain
transactions. For example, all personal trades in most securities
require pre-clearance, and participation in initial public offerings
is prohibited. In addition, restrictions on the timing of personal
investing in relation to trades by Fidelity funds and on short-term
trading have been adopted.
MANAGEMENT CONTRACT
The fund has entered into a management contract with FMR, pursuant
to which FMR furnishes investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
the fund, FMR acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the
fund in accordance with its investment objective, policies and
limitations. FMR also provides the fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of the fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel of the
fund or FMR performing services relating to research, statistical and
investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of the fund. These services include
providing facilities for maintaining the fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters and other persons dealing with the fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining the fund's records and the
registration of the fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for the fund; and furnishing
reports, evaluations and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, pricing and bookkeeping agent, and
securities lending agent, the fund pays all of its expenses that are
not assumed by those parties. The fund pays for the typesetting,
printing, and mailing of its proxy materials to shareholders, legal
expenses, and the fees of the custodian, auditor and non-interested
Trustees. The fund's management contract further provides that the
fund will pay for typesetting, printing, and mailing prospectuses,
statements of additional information, notices, and reports to
shareholders; however, under the terms of the fund's transfer agent
agreement, the transfer agent bears the costs of providing these
services to existing shareholders. Other expenses paid by the fund
include interest, taxes, brokerage commissions, the fund's
proportionate share of insurance premiums and Investment Company
Institute dues, and the costs of registering shares under federal
securities laws and making necessary filings under state securities
laws. The fund is also liable for such non-recurring expenses as may
arise, including costs of any litigation to which the fund may be a
party, and any obligation it may have to indemnify its officers and
Trustees with respect to litigation.
MANAGEMENT FEE. For the services of FMR under the management contract,
the fund pays FMR a monthly management fee which has two components: a
group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

AVERAGE GROUP ANNUALIZED GROUP NET EFFECTIVE ANNUAL FEE
ASSETS RATE ASSETS RATE

0 - $3 BILLION .3700% $ 0.5 BILLION .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1690

24 - 30 .1800 200 .1652

30 - 36 .1750 225 .1618

36 - 42 .1700 250 .1587

42 - 48 .1650 275 .1560

48 - 66 .1600 300 .1536

66 - 84 .1550 325 .1514

84 - 120 .1500 350 .1494

120 - 156 .1450 375 .1476

156 - 192 .1400 400 .1459

192 - 228 .1350 425 .1443

228 - 264 .1300 450 .1427

264 - 300 .1275 475 .1413

300 - 336 .1250 500 .1399

336 - 372 .1225 525 .1385

372 - 408 .1200 550 .1372

408 - 444 .1175

444 - 480 .1150

480 - 516 .1125

OVER 516 .1100

The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $___ billion of group net assets - the approximate level for
December 1998 - was __%, which is the weighted average of the
respective fee rates for each level of group net assets up to $__
billion.
The fund's individual fund fee rate is 0.45%. Based on the average
group net assets of the funds advised by FMR for December 1998, the
fund's annual management fee rate would be calculated as follows:
GROUP FEE RATE INDIVIDUAL FUND FEE RATE MANAGEMENT
FEE RATE

0.___% + 0.45% = 0.___%

One-twelfth of the management fee rate is applied to the fund's
average net assets for the month, giving a dollar amount which is the
fee for that month.
For the fiscal year ended December 31, 1998, the fund paid FMR
management fees of $_________.
FMR may, from time to time, voluntarily reimburse all or a portion of
the fund's operating expenses (exclusive of interest, taxes,
brokerage commissions, and extraordinary expenses), which is
subject to revision or termination . FMR retains the ability to be
repaid for these expense reimbursements in the amount that expenses
fall below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase the fund's returns and
yield, and repayment of the reimbursement by the fund will lower its
returns and yield.
Effective May 1, 1998, FMR voluntarily agreed to reimburse the fund
if and to the extent that its aggregate operating expenses, including
management fees, were in excess of an annual rate of 1.10% of its
average net assets. For the fiscal year ended December 1998,
management fees incurred under the fund's contract prior to
reimbursement amounted to $_________, and management fees reimbursed
by FMR amounted to $_________.
SUB-ADVISERS. On behalf of the fund, FMR has entered into a
sub-advisory agreement with FIMM pursuant to which FIMM chooses
certain investments for the fund.
Under the terms of the sub-advisory agreement, FMR pays FIMM fees
equal to 50% of the management fee payable to FMR with respect to that
portion of the fund's assets that are managed by FIMM. The fees paid
to FIMM are not reduced by any voluntary or mandatory expense
reimbursements that may be in effect from time to time.
[On behalf of the fund, for the fiscal year ended December 31,
1998, FMR paid FIMM a fee of $______.]
On behalf of Strategic Income, FMR has entered into sub-advisory
agreements with FMR U.K., FMR Far East, FIJ, and FIIA. FIIA, in turn,
has entered into a sub-advisory agreement with FIIA(U.K.)L. Pursuant
to the sub-advisory agreements, FMR may receive investment advice and
research services outside the United States from the sub-advisers.
On behalf of the fund, FMR may also grant ____ investment
management authority as well as the authority to buy and sell
securities if FMR believes it would be beneficial to the fund.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, FIJ, and FIIA. FIIA, in turn, pays the fees of FIIA(U.K.)L.
For providing non-discretionary investment advice and research
services the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K. and FMR Far East fees equal to
110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services.
(small solid bullet) FMR pays FIIA and FIJ fees equal to 30% of FMR's
monthly management fee with respect to the average net assets held by
the fund for which the sub-adviser has provided FMR with investment
advice and research services.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing investment
advice and research services.
For providing discretionary investment management and executing
portfolio transactions, the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K., FMR Far East, FIJ, and FIIA a
fee equal to 50% of its monthly management fee with respect to the
fund's average net assets managed by the sub-adviser on a
discretionary basis.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing
discretionary investment management services.
[For investment advice and research services, no fees were paid to
____ on behalf of the fund for the past three fiscal years.]
[For providing investment advice and research services, fees paid
to ____ for the past three fiscal years are shown in the table
below.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31 FMR U.K. FMR FAR EAST FIIA FIIA(U.K.)L FIJ

1998 $ $ $ $ $

</TABLE>

[For discretionary investment management and e xecution of
portfolio transactions, no fees were paid to ____ on behalf of the
fund for the past three fiscal years.]
[For discretionary investment management and execution of portfolio
transactions, fees paid to the ___ for the past three fiscal years are
shown in the table below.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31 FMR U.K. FMR FAR EAST FIIA FIIA(U.K.)L FIJ

1998 $ $ $ $ $

</TABLE>

[No fees were paid to ____ on behalf of the fund for the past three
fiscal years.]
DISTRIBUTION SERVICES
The fund has entered into a distribution agreement with FDC, an
affiliate of FMR. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The distribution agreement
calls for FDC to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the fund, which are
continuously offered at NAV. Promotional and administrative expenses
in connection with the offer and sale of shares are paid by FMR.
The Trustees have approved a Distribution and Service Plan on behalf
of the fund (the Plan) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plan, as approved by the Trustees, allows the fund and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the fund of distribution expenses.
Under the Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. The Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with providing services intended to
result in the sale of fund shares and/or shareholder support
services. In addition, the Plan provides that FMR, directly or
through FDC, may pay intermediaries , such as banks,
broker-d ealers and other service-providers, that provide those
services. Currently, the Board of Trustees has authorized such
payments for fund shares.
[Payments made by FMR either directly or through FDC to
intermediaries for the fiscal year ended 1998 amounted to $____.]
[FMR made no payments either directly or through FDC to
intermediaries for the fiscal year ended 1998.]
Prior to approving the Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that the Plan does not authorize payments by the fund other than
those made to FMR under its management contract with the fund. To the
extent that the Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares or stabilization of cash flows may result. Furthermore,
certain shareholder support services may be provided more effectively
under the Plan by local entities with whom shareholders have other
relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the fund might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
The fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plan. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
TRANSFER AND SERVICE AGENT AGREEMENTS
The fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreement, FSC performs
transfer agency, dividend disbursing, and shareholder services for the
fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in the fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state
tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the QSTP's or Freedom Fund's
assets that is invested in the fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
The fund has also entered into a service agent agreement with FSC.
Under the terms of the agreement, FSC calculates the NAV and dividends
for the fund, maintains the fund's portfolio and general accounting
records, and administers the fund's securities lending program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on the fund's average daily net assets throughout the month.
The annual fee rates for pricing and bookkeeping services are .0400%
of the first $500 million of average net assets and .0200% of average
net assets in excess of $500 million. The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 and a maximum of $800,000 per year.
For the fiscal year ended December 31, 1998, the fund paid
FSC pricing and bookkeeping fees, including reimbursement for related
out-of-pocket expenses, of $____.
For administering the fund's securities lending program, FSC receives
fees based on the number and duration of individual securities loans.
[For the fiscal year ended December 1998, the fund paid no
securities lending fees.]
[For the fiscal year ended December 1998, the fund paid securities
lending fees of $__.]
DESCRIPTION OF THE TRUST
TRUST ORGANIZATION. Fidelity Strategic Income Fund is a fund of
Fidelity School Street Trust, an open-end management investment
company organized as a Massachusetts business trust on September 10,
1976. Currently, there are four funds in the trust: Fidelity Strategic
Income Fund, Spartan Intermediate Municipal Income Fund, Fidelity
International Bond Fund, and Fidelity New Markets Income Fund. The
Trustees are permitted to create additional funds in the trust.
The assets of the trust received for the issue or sale of shares of
each fund and all income, earnings, profits, and proceeds thereof,
subject to the rights of creditors, are allocated to such fund, and
constitute the underlying assets of such fund. The underlying assets
of each fund in the trust shall be charged with the liabilities and
expenses attributable to such fund. Any general expenses of the trust
shall be allocated between or among any one or more of the funds .
SHAREHOLDER LIABILITY. The trust is an entity commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust.
The Declaration of Trust provides that the trust shall not have any
claim against shareholders except for the payment of the purchase
price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the trust or the Trustees
relating to the trust shall include a provision limiting the
obligations created thereby to the trust and its assets.
The Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason
of his or her being or having been a shareholder and not because of
his or her acts or omissions or for some other reason . The
Declaration of Trust also provides that each fund shall, upon request,
assume the defense of any claim made against any shareholder for any
act or obligation of the fund and satisfy any judgment thereon. Thus,
the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you are entitled to one vote for
each dollar of net asset value that you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale
of its assets to another open-end management investment company, or
upon liquidation and distribution of its assets, if approved by a vote
of shareholders of the trust or the fund. In the event of
the dissolution or liquidation of the trust, shareholders of each of
its funds are entitled to receive the underlying assets of such fund
available for distribution. In the event of the dissolution or
liquidation of a fund, shareholders of that fund are entitled to
receive the underlying assets of the fund available for
distribution .
CUSTODIAN. The Bank of New York, 110 Washington Street, New York, New
York, is custodian of the assets of the fund. The custodian is
responsible for the safekeeping of a fund's assets and the appointment
of any subcustodian banks and clearing agencies. The Chase Manhattan
Bank, headquartered in New York, also may serve as a special purpose
custodian of certain assets in connection with repurchase agreement
transactions.
FMR, its officers and directors, its affiliated companies, and
members of the Board of Trustees may, from time to time,
conduct transactions with various banks, including banks serving as
custodians for certain funds advised by FMR. Transactions that have
occurred to date include mortgages and personal and general business
loans. In the judgment of FMR, the terms and conditions of those
transactions were not influenced by existing or potential custodial or
other fund relationships.
AUDITOR. ____ serves as the fund's independent accountant. The auditor
examines financial statements for the fund and provides other audit,
tax, and related services.
FINANCIAL STATEMENTS
APPENDIX
FIDELITY, FIDELITY INVESTMENTS & (PYRAMID) DESIGN, FIDELITY FOCUS,
FIDELITY INVESTMENTS AND MAGELLAN ARE REGISTERED TRADEMARKS OF FMR
CORP.
PORTFOLIO ADVISORY SERVICES IS A SERVICE MARK OF FMR CORP.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.

Fidelity's
INTERNATIONAL
BOND FUNDS

FIDELITY
INTERNATIONAL BOND
FUND

(fund number 451, trading symbol FGBDX)

FIDELITY NEW MARKETS
INCOME FUND
(fund number 331, trading symbol FNMIX)

PROSPECTUS
FEBRUARY 27, 1999

(fidelity_logo_graphic)
82 Devonshire Street, Boston, MA 02109

CONTENTS

FUND SUMMARY 3 INVESTMENT SUMMARY

3 PERFORMANCE

4 FEE TABLE

FUND BASICS 5 INVESTMENT DETAILS

7 VALUING SHARES

SHAREHOLDER INFORMATION 7 BUYING AND SELLING SHARES

13 EXCHANGING SHARES

14 ACCOUNT FEATURES AND POLICIES

16 DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS

17 TAX CONSEQUENCES

FUND SERVICES 17 FUND MANAGEMENT

18 FUND DISTRIBUTION

APPENDIX 18 FINANCIAL HIGHLIGHTS

FUND SUMMARY

INVESTMENT SUMMARY
INVESTMENT OBJECTIVE
INTERNATIONAL BOND FUND seeks high total investment return.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Investing at least 65% of total assets in foreign
debt securities.
(small solid bullet) Investing up to 35% of assets in emerging market
issuers, which are often lower-quality debt securities.
(small solid bullet) Allocating investments across countries and
regions considering the size of the market in each country and region
relative to the size of the international market as a whole.
(small solid bullet) Analyzing a security's issuer using fundamental
factors and evaluating each security's current price relative to
estimated long-term value in selecting investments.

PRINCIPAL INVESTMENT RISKS
The fund is subject to the following principal investment risks:
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) FOREIGN EXPOSURE. Foreign markets, particularly
emerging markets, can be more volatile than the U.S. market due to
increased risks of adverse issuer, political, regulatory, market or
economic developments and can perform differently than the U.S.
market. Emerging markets can be subject to greater social, economic,
regulatory and political uncertainties and can be extremely volatile.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole. Lower-quality debt securities
(those of less than investment-grade quality) can be more volatile due
to increased sensitivity to adverse issuer, political, regulatory,
market or economic developments.

In addition, the fund is considered non-diversified and can invest a
greater portion of assets in securities of individual issuers than a
diversified fund. As a result, changes in the market value of a single
issuer could cause greater fluctuations in share price than would
occur in a more diversified fund.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE
NEW MARKETS INCOME FUND seeks high current income. As a secondary
objective, the fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES
Fidelity Management & Research Company (FMR)'s principal investment
strategies include:
(small solid bullet) Investing at least 65% of total assets in debt
securities of issuers in emerging markets (countries that have an
emerging stock market as defined by the International Finance
Corporation, countries with low-to middle-income economies according
to the World Bank, and countries that are listed in World Bank
publications as "developing").
(small solid bullet) Potentially investing in other types of
securities, including equity securities of emerging market issuers,
debt securities of non-emerging market foreign issuers, and
lower-quality debt securities of U.S. issuers.
(small solid bullet) Allocating investments across countries
considering the size of the market in each country relative to the
size of the markets in countries considered emerging markets as a
whole.
(small solid bullet) Using fundamental analysis of each issuer's
financial condition and industry position and market and economic
conditions to select investments.

An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in the funds'
performance from year to year and compares the funds' performance to
the performance of a market index and an average of the performance of
similar funds over various periods of time. 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.
Returns are based on past results and are not an indication of future
performance.
YEAR-BY-YEAR RETURNS

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INTERNATIONAL BOND

CALENDAR YEARS 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

% % % % % % % % % %

</TABLE>

PERCENTAGE (%)
ROW: 1, COL: 1, VALUE: NIL
ROW: 2, COL: 1, VALUE: NIL
ROW: 3, COL: 1, VALUE: NIL
ROW: 4, COL: 1, VALUE: NIL
ROW: 5, COL: 1, VALUE: NIL
ROW: 6, COL: 1, VALUE: NIL
ROW: 7, COL: 1, VALUE: NIL
ROW: 8, COL: 1, VALUE: NIL
ROW: 9, COL: 1, VALUE: NIL
ROW: 10, COL: 1, VALUE: NIL
DURING THE PERIODS SHOWN IN THE CHART FOR INTERNATIONAL BOND, THE
HIGHEST RETURN FOR A QUARTER WAS __% (QUARTER ENDING ______, 19__) AND
THE LOWEST RETURN FOR A QUARTER WAS __% (QUARTER ENDING _______,
19__).

NEW MARKETS INCOME

CALENDAR YEARS 1994 1995 1996 1997 1998

% % % % %

PERCENTAGE (%)
ROW: 1, COL: 1, VALUE: NIL
ROW: 2, COL: 1, VALUE: NIL
ROW: 3, COL: 1, VALUE: NIL
ROW: 4, COL: 1, VALUE: NIL
ROW: 5, COL: 1, VALUE: NIL
ROW: 6, COL: 1, VALUE: NIL
ROW: 7, COL: 1, VALUE: NIL
ROW: 8, COL: 1, VALUE: NIL
ROW: 9, COL: 1, VALUE: NIL
ROW: 10, COL: 1, VALUE: NIL
DURING THE PERIODS SHOWN IN THE CHART FOR NEW MARKETS INCOME, THE
HIGHEST RETURN FOR A QUARTER WAS __% (QUARTER ENDING _______ 19__) AND
THE LOWEST RETURN FOR A QUARTER WAS __% (QUARTER ENDING _______ 19__).
AVERAGE ANNUAL RETURNS

<TABLE>
<CAPTION>
<S> <C> <C> <C>
FOR THE PERIODS ENDED PAST 1 PAST 5 PAST 10
DECEMBER 31, 1998 YEAR YEARS YEARS/LIFE OF FUND

INTERNATIONAL BOND % % %

SALOMON BROS. NON US WORLD GOV'T BOND INDEX, % % %
UNHEDGED

LIPPER INTERNATIONAL % % %
INCOME FUNDS AVERAGE

NEW MARKETS INCOME % % %A

J.P. MORGAN EMERGING MARKETS BOND INDEX PLUS % % %

LIPPER EMERGING MARKETS DEBT FUNDS AVERAGE % % %
</TABLE>

A FROM JANUARY 1, 1994.
If FMR had not reimbursed certain fund expenses during these periods,
each fund's total returns would have been lower.
Salomon Brothers Non-U.S. Dollar World Government Bond Index, Unhedged
is 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 one year or more.
J.P. Morgan Emerging Markets Bond Index Plus is a market
capitalization-weighted index of U.S. dollar- and other external
currency-denominated Brady bonds, loans, Eurobonds, and local market
debt instruments traded in emerging markets.
Each Lipper Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold or sell shares of a fund. [The annual fund
operating expenses provided below for [International Bond] [and] [New
Markets Income] are based on historical expenses, adjusted to reflect
current fees.] [The annual fund operating expenses provided below for
[International Bond] [and] [New Markets Income] are higher than the
expenses actually paid by the fund[s] as the result of the payment or
reduction of certain expenses during the period.] [The annual fund
operating expenses provided below for [International Bond] [and] [New
Markets Income] are based on historical expenses.]
SHAREHOLDER FEES (PAID BY THE INVESTOR DIRECTLY)
SALES CHARGE (LOAD) ON PURCHASES NONE
AND REINVESTED DISTRIBUTIONS

DEFERRED SALES CHARGE (LOAD) ON REDEMPTIONS NONE

REDEMPTION FEE (SHORT-TERM TRADING FEE) 1.00%
ON SHARES HELD LESS THAN 180 DAYS
(AS A % OF AMOUNT REDEEMED) FOR
NEW MARKETS INCOME ONLY

ANNUAL ACCOUNT MAINTENANCE FEE (FOR ACCOUNTS UNDER $2,500) $12.00

ANNUAL FUND OPERATING EXPENSES (PAID FROM FUND ASSETS)
INTERNATIONAL MANAGEMENT FEE %
BOND

DISTRIBUTION AND SERVICE (12B-1) FEE NONE

OTHER EXPENSES %

TOTAL ANNUAL FUND OPERATING EXPENSES %

NEW MANAGEMENT FEE %
MARKETS
INCOME

DISTRIBUTION AND SERVICE (12B-1) FEE NONE

OTHER EXPENSES %

TOTAL ANNUAL FUND OPERATING EXPENSES %

[A portion of the brokerage commissions that a fund pays is used to
reduce that fund's expenses. In addition, each fund has entered into
arrangements with its custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to reduce
custodian and transfer agent expenses. Including these reductions, the
total fund operating expenses would have been __% for International
Bond and __% for New Markets Income.]
This EXAMPLE helps you compare the cost of investing in the funds with
the cost of investing in other mutual funds.
Let's say, hypothetically, that each fund's annual return is 5% and
that your shareholder fees and each fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account after the number of years
indicated.
INTERNATIONAL BOND

1 YEAR $

3 YEARS $

5 YEARS $

10 YEARS $

NEW MARKETS INCOME

1 YEAR $

3 YEARS $

5 YEARS $

10 YEARS $

FUND BASICS

INVESTMENT DETAILS
INVESTMENT OBJECTIVE
INTERNATIONAL BOND FUND seeks high total investment return.
PRINCIPAL INVESTMENT STRATEGIES
FMR normally invests at least 65% of the fund's total assets in
foreign debt securities.
FMR currently intends to limit investments in emerging market issuers
to 35% of the fund's assets. The securities of most emerging market
issuers as well as some developed market issuers are lower-quality
debt securities.
FMR normally diversifies the fund's investments across different
countries and regions. In allocating the fund's investments across
countries and regions FMR will consider the size of the market in each
country and region relative to the size of the international market as
a whole.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR generally analyzes
the issuer of a security using fundamental factors (e.g., growth
potential, earnings estimates and management) and evaluates each
security's current price relative to its estimated long-term value.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
INVESTMENT OBJECTIVE
NEW MARKETS INCOME FUND seeks high current income. As a secondary
objective, the fund seeks capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES:
FMR normally invests at least 65% of the fund's total assets in debt
securities of issuers in emerging markets. Countries with emerging
markets include those that have an emerging stock market as defined by
the International Finance Corporation, those with low-to middle-income
economies according to the World Bank, and those that are listed in
World Bank publications as "developing." FMR expects to emphasize
countries with relatively low gross national product per capita
compared to the world's major economies and countries with the
potential for rapid economic growth.
FMR may also invest in equity securities of emerging market issuers,
debt securities of non-emerging market foreign issuers, and
lower-quality debt securities of U.S. issuers. Although FMR may invest
up to 35% of the fund's total assets in these securities, FMR does not
currently anticipate that these investments will exceed approximately
20% of the fund's total assets.
FMR normally diversifies the fund's investments across different
emerging market countries. In allocating the fund's investments across
countries, FMR will consider the size of the market in each country
relative to the size of the markets in countries considered emerging
markets as a whole.
Because the fund is considered non-diversified, FMR may invest a
significant percentage of the fund's assets in a single issuer.
In buying and selling securities for the fund, FMR relies on
fundamental analysis of each issuer and its potential for success in
light of its current financial condition, its industry position, and
economic and market conditions. Factors considered include growth
potential, earnings estimates and management.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest,
but are sold at a discount from their face values. Debt securities
include corporate bonds, government securities, mortgage and other
asset-backed securities, and loans and loan participations.
EQUITY SECURITIES represent an ownership interest, or the right to
acquire an ownership interest, in an issuer. Different types of
equity securities provide different voting and dividend rights and
priority in the event of the bankruptcy of the issuer. Equity
securities include common stocks, preferred stocks, convertible
securities and warrants.
PRINCIPAL INVESTMENT RISKS
Many factors affect each fund's performance. A fund's yield and share
price change daily based on changes in interest rates and market
conditions and in response to other economic, political or financial
developments. The fund's reaction to these developments will be
affected by the types and maturities of the securities in which the
fund invests, the financial condition, industry and economic sector,
and geographic location of an issuer, and the fund's level of
investment in the securities of that issuer. When you sell your shares
of a fund, they could be worth more or less than what you paid for
them.
The following factors may significantly affect the fund's performance:
INTEREST RATE CHANGES. Debt securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when
interest rates fall. Securities with longer maturities and mortgage
securities can be more sensitive to interest rate changes. In other
words, the longer the maturity of a security, the greater the impact a
change in interest rates could have on the security's price. In
addition, short-term and long-term interest rates do not necessarily
move in the same amount or the same direction. Short-term securities
tend to react to changes in short-term interest rates, and long-term
securities tend to react to changes in long-term interest rates.
STOCK MARKET VOLATILITY. The value of equity securities fluctuates in
response to issuer, political, market and economic developments. In
the short-term, equity prices can fluctuate dramatically in response
to these developments. Different parts of the market can react
differently to these developments. For example, large cap stocks can
react differently than small cap stocks, and "growth" stocks can react
differently than "value" stocks. Issuer, political or economic
developments can affect a single issuer, issuers within an industry or
economic sector or geographic region, or the market as a whole.
FOREIGN EXPOSURE. Foreign securities, foreign currencies, and
securities issued by U.S. entities with substantial foreign operations
can involve additional risks relating to political, economic or
regulatory conditions in foreign countries. These risks include
fluctuations in foreign currencies; withholding or other taxes;
trading settlement, custodial and other operational risks; and the
less stringent investor protection and disclosure standards of some
foreign markets. All of these factors can make foreign investments,
especially those in emerging markets, more volatile and potentially
less liquid than U.S. investments. In addition, foreign markets can
perform differently than the U.S. market.
Investing in emerging markets involves risks in addition to and
greater than those generally associated with investing in more
developed foreign markets. The extent of foreign development;
political stability; market depth, infrastructure and capitalization
and regulatory oversight is generally less than in more developed
markets. Emerging market economies can be subject to greater social,
economic, regulatory and political uncertainties. All of these
factors generally make emerging market securities more volatile and
potentially less liquid than securities issued in more developed
markets.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can affect the credit quality or value of an
issuer's securities. The value of securities of smaller, less
well-known issuers can be more volatile than that of larger issuers.
Lower-quality debt securities (those of less than investment-grade
quality) tend to be more sensitive to these changes than
higher-quality debt securities.
Lower-quality debt securities involve greater risk of default or price
changes due to changes in the credit quality of the issuer. The value
of lower-quality debt securities often fluctuates in response to
company, political or economic developments and can decline
significantly over short periods of time or during periods of general
or regional economic difficulty. Lower-quality debt securities can be
thinly traded or have restrictions on resale, making them difficult to
sell at an acceptable price. The default rate for lower-quality debt
securities is likely to be higher during economic recessions or
periods of high interest rates.
In response to market, economic, political or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect a fund's
performance.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
INTERNATIONAL BOND FUND seeks high total investment return by
investing principally in debt securities issued anywhere in the world.
NEW MARKETS INCOME FUND seeks high current income. As a secondary
objective, the fund seeks capital appreciation.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time. However, NAV
may be calculated earlier if trading on the NYSE is restricted or as
permitted by the Securities and Exchange Commission (SEC). Each fund's
assets are valued as of this time for the purpose of computing the
fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
Each fund's assets are valued primarily on the basis of information
furnished by a pricing service or market quotations. Certain
short-term securities are valued on the basis of amortized cost. If
market quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the
exchange or market on which the security is principally traded (for
example, a foreign exchange or market), that security may be valued by
another method that the Board of Trustees believes accurately reflects
fair value. In these circumstances, the security's valuation may
differ from the generally expected valuation.
SHAREHOLDER INFORMATION

KEY
INFORMATI
ON

INTERNET (BULLET)
WWW.FIDELITY.COM Exchange to another
Fidelity fund.
(BULLET)
Use Fidelity Money Line
to transfer to your bank
account.

AUTOMATICAL (BULLET)
LY Use Personal Withdrawal
Service to set up periodic
redemptions from your
account.

<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY
AUTOMATIC
ACCOUNT
BUILDER(registered trademark)
TO MOVE MONEY
FROM YOUR BANK
ACCOUNT TO A
FIDELITY FUND

DIRECT DEPOSIT
TO SEND ALL OR A
PORTION OF YOUR
PAYCHECK OR
GOVERNMENT CHECK
TO A FIDELITY FUNDA

A BECAUSE ITS SHARE
PRICE FLUCTUATES, THE
FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR
DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.

FIDELITY
AUTOMATIC
EXCHANGE
SERVICE
TO MOVE MONEY
FROM A FIDELITY
MONEY MARKET
FUND TO ANOTHER
FIDELITY FUND

PERSONAL
WITHDRAWAL
SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM
YOUR FUND ACCOUNT
TO YOU OR TO YOUR
BANK ACCOUNT.

</TABLE>

FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
FMR is each fund's manager.
As of __ 1998, FMR had approximately $__ billion in discretionary
assets under management.
As the manager, FMR is responsible for choosing the funds' investments
and handling their business affairs.
Affiliates assist FMR with foreign investments:
(small solid bullet) Fidelity Management & Research (U.K.) Inc. (FMR
U.K.), in London, England, serves as a sub-adviser for each fund. FMR
U.K. was organized in 1986 to provide investment research and advice
to FMR. Currently, FMR U.K. provides investment research and advice on
issuers based outside the United States and may also provide
investment advisory services for International Bond and New Markets
Income.
(small solid bullet) Fidelity Management & Research Far East Inc. (FMR
Far East), in Tokyo, Japan, serves as a sub-adviser for each fund. FMR
Far East was organized in 1986 to provide investment research and
advice to FMR. Currently, FMR Far East provides investment research
and advice on issuers based outside the United States and may also
provide investment advisory services for International Bond and New
Markets Income.
(small solid bullet) Fidelity International Investment Advisors
(FIIA), in Pembroke, Bermuda, serves as a sub-adviser for each fund.
As of _____ _, 1998, FIIA had approximately $____ in discretionary
assets under management. Currently, FIIA provides investment research
and advice on issuers based outside the United States and may also
provide investment advisory services for International Bond and New
Markets Income.
(small solid bullet) Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L), in London, England, serves as a sub-adviser for
each fund. As of ______ __, 1998, FIIA(U.K.)L had approximately $___
in discretionary assets under management. Currently, FIIA(U.K.)L
provides investment research and advice on issuers based outside the
United States and may also provide investment advisory services for
International Bond and New Markets Income.
(small solid bullet) Fidelity Investment Japan Ltd. (FIJ), in Tokyo,
Japan, serves as a sub-adviser for each fund. As of _______ __, 1998,
FIJ had approximately $___ in discretionary assets under management.
Currently, FIJ provides investment research and advice on issuers
based outside the United States and may also provide investment
advisory services for International Bond and New Markets Income.
A fund could be adversely affected if the computer systems used by FMR
and other service providers do not properly process and calculate
date-related information from and after January 1, 2000. FMR has
advised each fund that it is actively working on necessary changes to
its computer systems and expects that its systems, and those of other
major service providers, will be modified prior to January 1, 2000.
However, there can be no assurance that there will be no adverse
impact on a fund.
John Carlson is Vice President and lead manager of International Bond,
which he has managed since February 1998, and Vice President and
manager of New Markets Income, which he has managed since June 1995.
He also manages the emerging markets investments of International Bond
and manages other Fidelity funds. Prior to joining Fidelity in 1995,
Mr. Carlson was executive director of emerging markets at Lehman
Brothers International from 1992 to 1995.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each fund pays a management fee to FMR.
The management fee is calculated and paid to FMR every month. The fee
is calculated by adding a group fee rate to an individual fund fee
rate, dividing by twelve, and multiplying the result by the fund's
average net assets throughout the month.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
For December 1998, the group fee rate was __% for each fund. The
individual fund fee rate is 0.55% for each fund.
The total management fee for the fiscal year ended December 31, 1998
was __% of the fund's average net assets for International Bond and
__% of the fund's average net assets for New Markets Income.
FMR pays FMR U.K., FMR Far East, FIJ and FIIA for providing assistance
with investment advisory services, and FIIA in turn pays FIIA(U.K.)L.
FMR may, from time to time, agree to reimburse the funds for
management fees and other expenses above a specified limit. FMR
retains the ability to be repaid by a fund if expenses fall below the
specified limit prior to the end of the fiscal year. Reimbursement
arrangements which may be terminated by FMR at any time, can decrease
a fund's expenses and boost its performance.
[As of December __, 1998, approximately __% and __% of International
Bond and New Markets Income's total outstanding shares, respectively,
were held by FMR and FMR affiliates.]
FUND DISTRIBUTION
FDC distributes each fund's shares.
Each fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that recognizes that
FMR may use its management fee revenues, as well as its past profits
or its resources from any other source, to pay FDC for expenses
incurred in connection with providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees of each fund has authorized
such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of a fund, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this Prospectus and in the related
Statement of Additional Information (SAI), in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This Prospectus and the related SAI do
not constitute an offer by the funds or by FDC to sell or to buy
shares of the funds to any person to whom it is unlawful to make such
offer.
APPENDIX

FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
fund's financial history for the past 5 years. Certain information
reflects financial results for a single fund share. Total returns for
each period include the reinvestment of all dividends and
distributions. This information has been audited by __________,
independent accountants, whose report, along with each fund's
financial highlights and financial statements, are included in each
fund's Annual Report. A free copy of each Annual Report is available
upon request.

You can obtain additional information about the funds. The funds'
(SAI) includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of recent market conditions and the
fund's investment strategies, performance and holdings.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8544 or visit Fidelity's Web site at www.fidelity.com.
The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's Internet Web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBER 811-2676
Fidelity, Fidelity Investments and (Pyramid) Design, Fidelity
Investments, TouchTone Xpress, Fidelity Automatic Account Builder,
Fidelity On-Line Xpress+, Fidelity Web Xpress and Directed Dividends
are registered trademarks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.
Insert item code number _______________. GLO/NMI-pro-0298

FIDELITY INTERNATIONAL BOND FUND
FIDELITY NEW MARKETS INCOME FUND
FUNDS OF FIDELITY SCHOOL STREET TRUST
STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 27, 1999
This Statement of Additional Information (SAI) is not a prospectus.
Portions of the fund s ' Annual Reports are incorporated herein.
The Annual Reports ar e supplied with this SAI.
To obtain a free additional copy of the Prospectus, dated
February 27, 1999 , or an Annual Report, please call
Fidelity(registered trademark) at 1-800-544-8 544 or visit
Fidelity's Web site at www.fidelity.com.

<TABLE>
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<S> <C>
TABLE OF CONTENTS PAGE

INVESTMENT POLICIES AND LIMITATIONS 22

SPECIAL CONSIDERATIONS REGARDING AFRICA 28

SPECIAL CONSIDERATIONS REGARDING CANADA 29

SPECIAL CONSIDERATIONS REGARDING EUROPE 29

SPECIAL CONSIDERATIONS REGARDING JAPAN, THE PACIFIC BASIN, AND SOUTHEAST ASIA 31

SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA 38

SPECIAL CONSIDERATIONS REGARDING THE RUSSIAN FEDERATION 40

PORTFOLIO TRANSACTIONS 40

VALUATION 43

PERFORMANCE 43

ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION 49

DISTRIBUTIONS AND TAXES 49

TRUSTEES AND OFFICERS 50

CONTROL OF INVESTMENT ADVISER S 50

MANAGEMENT CONTRACT S

DISTRIBUTION SERVICES 55

TRANSFER AND SERVICE AGENT AGREEMENTS 56

DESCRIPTION OF THE TRUST S 56

FINANCIAL STATEMENTS 57

APPENDIX 57

</TABLE>

GLO/NMI-ptb- 0299
Insert item code number _______.

(fidelity_logo_graphic)
82 Devonshire Street, Boston, MA 02109

INVESTMENT POLICIES AND LIMITATIONS
The following policies and limitations supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy
or limitation states a maximum percentage of a fund's assets that may
be invested in any security or other asset, or sets forth a policy
regarding quality standards, such standard or percentage limitation
will be determined immediately after and as a result of the fund's
acquisition of such security or other asset. Accordingly, any
subsequent change in values, net assets, or other circumstances will
not be considered when determining whether the investment complies
with the fund's investment policies and limitations.
A fund's fundamental investment policies and limitations cannot be
changed without approval by a "majority of the outstanding voting
securities" (as defined in the Investment Company Act of 1940 (the
1940 Act)) of the fund. However, except for the fundamental investment
limitations listed below, the investment policies and limitations
described in this SAI are not fundamental and may be changed without
shareholder approval.
INVESTMENT LIMITATIONS OF FIDELITY INTERNATIONAL BOND FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except in connection with the
insurance program established by the fund pursuant to an exemptive
order issued by the Securities and Exchange Commission or as
otherwise permitted under the Investment Company Act of 1940 (1940
Act);
(2) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed), less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(3) underwrite securities issued by others (except to the extent that
the fund may be deemed to be an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities);
(4) purchase the securities of any issuer (other than obligations
issued or guaranteed by the government of the United States or its
agencies or instrumentalities, or by foreign governments or their
political subdivisions, or by supranational organizations) if, as a
result, more than 25% of the fund's total assets (taken at current
value) would be invested in the securities of issuers having their
principal business activities in the same industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(7) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(8) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE CHANGED
WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(v) The fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements.)
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
With respect to limitation (v), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 15% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options Transactions"
on page __.
INVESTMENT LIMITATIONS OF FIDELITY NEW MARKETS INCOME FUND
THE FOLLOWING ARE THE FUND'S FUNDAMENTAL INVESTMENT LIMITATIONS SET
FORTH IN THEIR ENTIRETY. THE FUND MAY NOT:
(1) issue senior securities, except in connection with the
insurance program established by the fund pursuant to an exemptive
order issued by the Securities and Exchange Commission or as
otherwise permitted under the Investment Company Act of 1940 (1940
Act);
(2) borrow money, except that the fund may borrow money for temporary
or emergency purposes (not for leveraging or investment) in an amount
not exceeding 33 1/3% of its total assets (including the amount
borrowed) less liabilities (other than borrowings). Any borrowings
that come to exceed this amount will be reduced within three days (not
including Sundays and holidays) to the extent necessary to comply with
the 33 1/3% limitation;
(3) underwrite securities issued by others, except to the extent that
the fund may be considered an underwriter within the meaning of the
Securities Act of 1933 in the disposition of restricted securities;
(4) purchase the securities of any issuer (other than securities
issued or guaranteed by the U.S. government or any of its agencies or
instrumentalities) if, as a result, more than 25% of the fund's total
assets would be invested in the securities of companies whose
principal business activities are in the same industry;
(5) purchase or sell real estate unless acquired as a result of
ownership of securities or other instruments (but this shall not
prevent the fund from investing in securities or other instruments
backed by real estate or securities of companies engaged in the real
estate business);
(6) purchase or sell physical commodities unless acquired as a result
of ownership of securities or other instruments (but this shall not
prevent the fund from purchasing or selling options and futures
contracts or from investing in securities or other instruments backed
by physical commodities); or
(7) lend any security or make any other loan if, as a result, more
than 33 1/3% of its total assets would be lent to other parties, but
this limitation does not apply to purchases of debt securities or to
repurchase agreements.
(8) The fund may, notwithstanding any other fundamental investment
policy or limitation, invest all of its assets in the securities of a
single open-end management investment company managed by Fidelity
Management & Research Company or an affiliate or successor with
substantially the same fundamental investment objective, policies, and
limitations as the fund.
THE FOLLOWING INVESTMENT LIMITATIONS ARE NOT FUNDAMENTAL AND MAY BE
CHANGED WITHOUT SHAREHOLDER APPROVAL.
(i) In order to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended, the
fund currently intends to comply with certain diversification limits
imposed by Subchapter M.
(ii) The fund does not currently intend to sell securities short,
unless it owns or has the right to obtain securities equivalent in
kind and amount to the securities sold short, and provided that
transactions in futures contracts and options are not deemed to
constitute selling securities short.
(iii) The fund does not currently intend to purchase securities on
margin, except that the fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments in connection with futures contracts and options on futures
contracts shall not constitute purchasing securities on margin.
(iv) The fund may borrow money only (a) from a bank or from a
registered investment company or portfolio for which FMR or an
affiliate serves as investment adviser or (b) by engaging in reverse
repurchase agreements with any party (reverse repurchase agreements
are treated as borrowings for purposes of fundamental investment
limitation (2)). The fund will not borrow from other funds advised by
FMR or its affiliates if total outstanding borrowings immediately
after such borrowing would exceed 15% of the fund's total assets.
(v) The fund does not currently intend to purchase any security if, as
a result, more than 15% of its net assets would be invested in
securities that are deemed to be illiquid because they are subject to
legal or contractual restrictions on resale or because they cannot be
sold or disposed of in the ordinary course of business at
approximately the prices at which they are valued.
(vi) The fund does not currently intend to lend assets other than
securities to other parties, except by (a) lending money (up to 7.5%
of the fund's net assets) to a registered investment company or
portfolio for which FMR or an affiliate serves as investment adviser
or (b) acquiring loans, loan participations, or other forms of direct
debt instruments and, in connection therewith, assuming any associated
unfunded commitments of the sellers. (This limitation does not apply
to purchases of debt securities or to repurchase agreements).
(vii) The fund does not currently intend to invest all of its assets
in the securities of a single open-end management investment company
managed by Fidelity Management & Research Company or an affiliate or
successor with substantially the same fundamental investment
objective, policies, and limitations as the fund.
For purposes of limitation (i), Subchapter M generally requires the
fund to invest no more than 25% of its total assets in securities of
any one issuer and to invest at least 50% of its total assets so that
no more than 5% of the fund's total assets are invested in securities
of any one issuer. However, Subchapter M allows unlimited investments
in cash, cash items, government securities (as defined in Subchapter
M) and securities of other investment companies. These tax
requirements are generally applied at the end of each quarter of the
fund's taxable year.
With respect to limitation (v), if through a change in values, net
assets, or other circumstances, the fund were in a position where more
than 15% of its net assets was invested in illiquid securities, it
would consider appropriate steps to protect liquidity.
For the fund's limitations on futures and options transactions, see
the section entitled "Limitations on Futures and Options
Transac tions" on page __.
The following pages contain more detailed information about types of
instruments in which a fund may invest, strategies FMR may employ in
pursuit of a fund's investment objective, and a summary of related
risks. FMR may not buy all of these instruments or use all of these
techniques unless it believes that doing so will help a fund achieve
its goal.
AFFILIATED BANK TRANSACTIONS. A fund may engage in transactions with
financial institutions that are, or may be considered to be,
"affiliated persons" of the fund under the 1940 Act. These
transactions may involve repurchase agreements with custodian banks;
short-term obligations of, and repurchase agreements with, the 50
largest U.S. banks (measured by deposits); municipal securities; U.S.
Government securities with affiliated financial institutions that are
primary dealers in these securities; short-term currency transactions;
and short-term borrowings. In accordance with exemptive orders issued
by the Securities and Exchange Commission (SEC), the Board of Trustees
has established and periodically reviews procedures applicable to
transactions involving affiliated financial institutions.
ASSET-BACKED SECURITIES represent interests in pools of mortgages,
loans, receivables or other assets. Payment of interest and repayment
of principal may be largely dependent upon the cash flows generated by
the assets backing the securities and, in certain cases, supported by
letters of credit, surety bonds, or other credit enhancements.
Asset-backed security values may also be affected by other factors
including changes in interest rates, the availability of information
concerning the pool and its structure, the creditworthiness of the
servicing agent for the pool, the originator of the loans or
receivables, or the entities providing the credit enhancement. In
addition, these securities may be subject to prepayment risk.
BORROWING. Each fund may borrow from banks or from other funds advised
by FMR or its affiliates, or through reverse repurchase agreements. If
a fund borrows money, its share price may be subject to greater
fluctuation until the borrowing is paid off. If a fund makes
additional investments while borrowings are outstanding, this may be
considered a form of leverage.
CASH MANAGEMENT. A fund can hold uninvested cash or can invest it in
cash equivalents such as money market securities, repurchase
agreements or shares of money market funds. Generally, these
securities offer less potential for gains than other types of
securities.
CENTRAL CASH FUNDS are money market funds managed by FMR or its
affiliates that seek to earn a high level of current income (free from
federal income tax in the case of a municipal money market fund) while
maintaining a stable $1.00 share price. The funds comply with
industry-standard requirements for money market funds regarding the
quality, maturity and diversification of their investments.
COMMON STOCK represents an equity or ownership interest in an issuer.
In the event an issuer is liquidated or declares bankruptcy, the
claims of owners of bonds and preferred stock take precedence over
the claims of those who own common stock.
CONVERTIBLE SECURITIES are bonds, debentures, notes, preferred stocks
or other securities that may be converted or exchanged (by the holder
or by the issuer) into shares of the underlying common stock (or cash
or securities of equivalent value) at a stated exchange ratio. A
convertible security may also be called for redemption or conversion
by the issuer after a particular date and under certain circumstances
(including a specified price) established upon issue. If a convertible
security held by a fund is called for redemption or conversion, the
fund could be required to tender it for redemption, convert it into
the underlying common stock, or sell it to a third party.
Convertible securities generally have less potential for gain or loss
than common stocks. Convertible securities generally provide yields
higher than the underlying common stocks, but generally lower than
comparable non-convertible securities. Because of this higher yield,
convertible securities generally sell at prices above their
"conversion value," which is the current market value of the stock to
be received upon conversion. The difference between this conversion
value and the price of convertible securities will vary over time
depending on changes in the value of the underlying common stocks and
interest rates. When the underlying common stocks decline in value,
convertible securities will tend not to decline to the same extent
because of the interest or dividend payments and the repayment of
principal at maturity for certain types of convertible securities.
However, securities that are convertible other than at the option of
the holder generally do not limit the potential for loss to the same
extent as securities convertible at the option of the holder. When the
underlying common stocks rise in value, the value of convertible
securities may also be expected to increase. At the same time,
however, the difference between the market value of convertible
securities and their conversion value will narrow, which means that
the value of convertible securities will generally not increase to the
same extent as the value of the underlying common stocks. Because
convertible securities may also be interest-rate sensitive, their
value may increase as interest rates fall and decrease as interest
rates rise. Convertible securities are also subject to credit risk,
and are often lower-quality securities.
COUNTRIES NOT CONSIDERED TO HAVE EMERGING MARKETS. As of December
31, 1998, the following countries are not considered to have emerging
markets: Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and
the United States.
EX POSURE TO FOREIGN MARKETS. Foreign securities, foreign
currencies, and securities issued by U.S. entities with substantial
foreign operations may involve significant risks in addition to the
risks inherent in U.S. investments.
Foreign investments involve risks relating to local political,
economic, regulatory, or social instability, military action or
unrest, or adverse diplomatic developments, and may be affected by
actions of foreign governments adverse to the interests of U.S.
investors. Such actions may include expropriation or nationalization
of assets, confiscatory taxation, restrictions on U.S. investment or
on the ability to repatriate assets or convert currency into U.S.
dollars, or other government intervention. Additionally, governmental
issuers of foreign debt securities may be unwilling to pay interest
and repay principal when due and may require that the conditions for
payment be renegotiated. There is no assurance that FMR will be able
to anticipate these potential events or counter their effects. In
addition, the value of securities denominated in foreign currencies
and of dividends and interest paid with respect to such securities
will fluctuate based on the relative strength of the U.S. dollar.
It is anticipated that in most cases the best available market for
foreign securities will be on an exchange or in over-the-counter (OTC)
markets located outside of the United States. Foreign stock markets,
while growing in volume and sophistication, are generally not as
developed as those in the United States, and securities of some
foreign issuers may be less liquid and more volatile than securities
of comparable U.S. issuers. Foreign security trading, settlement and
custodial practices (including those involving securities settlement
where fund assets may be released prior to receipt of payment) are
often less developed than those in U.S. markets, and may result in
increased risk or substantial delays in the event of a failed trade or
the insolvency of, or breach of duty by, a foreign broker-dealer,
securities depository or foreign subcustodian. In addition, the costs
associated with foreign investments, including withholding taxes,
brokerage commissions and custodial costs, are generally higher than
with U.S. investments.
Foreign markets may offer less protection to investors than U.S.
markets. Foreign issuers are generally not bound by uniform
accounting, auditing, and financial reporting requirements and
standards of practice comparable to those applicable to U.S. issuers.
Adequate public information on foreign issuers may not be available,
and it may be difficult to secure dividends and information regarding
corporate actions on a timely basis. In general, there is less overall
governmental supervision and regulation of securities exchanges,
brokers, and listed companies than in the United States. OTC markets
tend to be less regulated than stock exchange markets and, in certain
countries, may be totally unregulated. Regulatory enforcement may be
influenced by economic or political concerns, and investors may have
difficulty enforcing their legal rights in foreign countries.
Some foreign securities impose restrictions on transfer within the
United States or to U.S. persons. Although securities subject to such
transfer restrictions may be marketable abroad, they may be less
liquid than foreign securities of the same class that are not subject
to such restrictions.
American Depositary Receipts (ADRs) as well as other "hybrid" forms of
ADRs, including European Depositary Receipts (EDRs) and Global
Depositary Receipts (GDRs), are certificates evidencing ownership of
shares of a foreign issuer. These certificates are issued by
depository banks and generally trade on an established market in the
United States or elsewhere. The underlying shares are held in trust by
a custodian bank or similar financial institution in the issuer's home
country. The depository bank may not have physical custody of the
underlying securities at all times and may charge fees for various
services, including forwarding dividends and interest and corporate
actions. ADRs are alternatives to directly purchasing the underlying
foreign securities in their national markets and currencies. However,
ADRs continue to be subject to many of the risks associated with
investing directly in foreign securities. These risks include foreign
exchange risk as well as the political and economic risks of the
underlying issuer's country.
The risks of foreign investing may be magnified for investments in
emerging markets. Security prices in emerging markets can be
significantly more volatile than those in more developed markets,
reflecting the greater uncertainties of investing in less established
markets and economies. In particular, countries with emerging markets
may have relatively unstable governments, may present the risks of
nationalization of businesses, restrictions on foreign ownership and
prohibitions on the repatriation of assets, and may have less
protection of property rights than more developed countries. The
economies of countries with emerging markets may be based on only a
few industries, may be highly vulnerable to changes in local or global
trade conditions, and may suffer from extreme and volatile debt
burdens or inflation rates. Local securities markets may trade a small
number of securities and may be unable to respond effectively to
increases in trading volume, potentially making prompt liquidation of
holdings difficult or impossible at times .
FOREIGN CURRENCY TRANSACTIONS. A f und may conduct foreign
currency transactions on a spot (i.e., cash) or forward basis (i.e.,
by entering into forward contracts to purchase or sell foreign
currencies). Although foreign exchange dealers generally do not charge
a fee for such conversions, they do realize a profit based on the
difference between the prices at which they are buying and selling
various currencies. Thus, a dealer may offer to sell a foreign
currency at one rate, while offering a lesser rate of exchange should
the counterparty desire to resell that currency to the dealer. Forward
contracts are customized transactions that require a specific amount
of a currency to be delivered at a specific exchange rate on a
specific date or range of dates in the future. Forward contracts are
generally traded in an interbank market directly between currency
traders (usually large commercial banks) and their customers. The
parties to a forward contract may agree to offset or terminate the
contract before its maturity, or may hold the contract to maturity and
complete the contemplated currency exchange.
The following discussion summarizes the principal currency management
strategies involving forward contracts that could be used by a fund. A
fund may also use swap agreements, indexed securities, and options and
futures contracts relating to foreign currencies for the same
purposes.
A "settlement hedge" or "transaction hedge" is designed to protect a
fund against an adverse change in foreign currency values between the
date a security is purchased or sold and the date on which payment is
made or received. Entering into a forward contract for the purchase or
sale of the amount of foreign currency involved in an underlying
security transaction for a fixed amount of U.S. dollars "locks in" the
U.S. dollar price of the security. Forward contracts to purchase or
sell a foreign currency may also be used by a fund in anticipation of
future purchases or sales of securities denominated in foreign
currency, even if the specific investments have not yet been selected
by FMR.
A fund may also use forward contracts to hedge against a decline in
the value of existing investments denominated in foreign currency. For
example, if a fund owned securities denominated in pounds sterling, it
could enter into a forward contract to sell pounds sterling in return
for U.S. dollars to hedge against possible declines in the pound's
value. Such a hedge, sometimes referred to as a "position hedge,"
would tend to offset both positive and negative currency fluctuations,
but would not offset changes in security values caused by other
factors. A fund could also hedge the position by selling another
currency expected to perform similarly to the pound sterling. This
type of hedge, sometimes referred to as a "proxy hedge," could offer
advantages in terms of cost, yield, or efficiency, but generally would
not hedge currency exposure as effectively as a direct hedge into U.S.
dollars. Proxy hedges may result in losses if the currency used to
hedge does not perform similarly to the currency in which the hedged
securities are denominated.
A fund may enter into forward contracts to shift its investment
exposure from one currency into another. This may include shifting
exposure from U.S. dollars to a foreign currency, or from one foreign
currency to another foreign currency. This type of strategy, sometimes
known as a "cross-hedge," will tend to reduce or eliminate exposure to
the currency that is sold, and increase exposure to the currency that
is purchased, much as if a fund had sold a security denominated in one
currency and purchased an equivalent security denominated in another.
Cross-hedges protect against losses resulting from a decline in the
hedged currency, but will cause a fund to assume the risk of
fluctuations in the value of the currency it purchases.
Successful use of currency management strategies will depend on FMR's
skill in analyzing currency values. Currency management strategies may
substantially change a fund's investment exposure to changes in
currency exchange rates and could result in losses to a fund if
currencies do not perform as FMR anticipates. For example, if a
currency's value rose at a time when FMR had hedged a fund by selling
that currency in exchange for dollars, a fund would not participate in
the currency's appreciation. If FMR hedges currency exposure through
proxy hedges, a fund could realize currency losses from both the hedge
and the security position if the two currencies do not move in tandem.
Similarly, if FMR increases a fund's exposure to a foreign currency
and that currency's value declines, a fund will realize a loss. There
is no assurance that FMR's use of currency management strategies will
be advantageous to a fund or that it will hedge at appropriate times.
FOREIGN REPURCHASE AGREEMENTS. Foreign repurchase agreements involve
an agreement to purchase a foreign security and to sell that security
back to original seller at an agreed-upon price in either U.S. dollars
or foreign currency. Unlike typical U.S. repurchase agreements,
foreign repurchase agreements may not be fully collateralized at all
times. The value of a security purchased by a fund may be more or less
than the price at which the counterparty has agreed to repurchase the
security. In the event of default by the counterparty, the fund may
suffer a loss if the value of the security purchased is less than the
agreed-upon repurchase price, or if the fund is unable to successfully
assert a claim to the collateral under foreign laws. As a result,
foreign repurchase agreements may involve higher credit risks than
repurchase agreements in U.S. markets, as well as risks associated
with currency fluctuations. In addition, as with other emerging market
investments, repurchase agreements with counterparties located in
emerging markets or relating to emerging markets may involve issuers
or counterparties with lower credit ratings than typical U.S.
repurchase agreements.
FUNDS' RIGHTS AS SHAREHOLDER S . The funds do
not intend to direct or administer the day-to-day operations of
any company. A fund, however, may exercise its rights as a shareholder
and may communicate its views on important matters of policy to
management, the Board of Directors, and shareholders of a company when
FMR determines that such matters could have a significant effect on
the value of the fund's investment in the company. The activities in
which a fund may engage, either individually or in conjunction with
others, may include, among others, supporting or opposing proposed
changes in a company's corporate structure or business activities;
seeking changes in a company's directors or management; seeking
changes in a company's direction or policies; seeking the sale or
reorganization of the company or a portion of its assets; or
supporting or opposing third-party takeover efforts. This area of
corporate activity is increasingly prone to litigation and it is
possible that a fund could be involved in lawsuits related to such
activities. FMR will monitor such activities with a view to
mitigating, to the extent possible, the risk of litigation against a
fund and the risk of actual liability if a fund is involved in
litigation. No guarantee can be made, however, that litigation against
a fund will not be undertaken or liabilities incurred.
FUTURES AND OPTIONS. The following paragraphs pertain to futures and
options: Combined Positions, Correlation of Price Changes, Futures
Contracts, Futures Margin Payments, Limitations on Futures and Options
Transactions, Liquidity of Options and Futures Contracts, Options and
Futures Relating to Foreign Currencies, OTC Options, Purchasing
Put and Call Options, and Writing Put and Call Options.
COMBINED POSITIONS involve purchasing and writing options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the
overall position. For example, purchasing a put option and writing a
call option on the same underlying instrument would construct a
combined position whose risk and return characteristics are similar to
selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call
option at a lower price, to reduce the risk of the written call option
in the event of a substantial price increase. Because combined options
positions involve multiple trades, they result in higher transaction
costs and may be more difficult to open and close out.
CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely
that the standardized contracts available will not match a fund's
current or anticipated investments exactly. A fund may invest in
options and futures contracts based on securities with different
issuers, maturities, or other characteristics from the securities in
which the fund typically invests, which involves a risk that the
options or futures position will not track the performance of the
fund's other investments.
Options and futures prices can also diverge from the prices of their
underlying instruments, even if the underlying instruments match a
fund's investments well. Options and futures prices are affected by
such factors as current and anticipated short-term interest rates,
changes in volatility of the underlying instrument, and the time
remaining until expiration of the contract, which may not affect
security prices the same way. Imperfect correlation may also result
from differing levels of demand in the options and futures markets and
the securities markets, from structural differences in how options and
futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A fund may purchase or sell
options and futures contracts with a greater or lesser value than the
securities it wishes to hedge or intends to purchase in order to
attempt to compensate for differences in volatility between the
contract and the securities, although this may not be successful in
all cases. If price changes in a fund's options or futures positions
are poorly correlated with its other investments, the positions may
fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
FUTURES CONTRACTS. In purchasing a futures contract, the buyer agrees
to purchase a specified underlying instrument at a specified future
date. In selling a futures contract, the seller agrees to sell a
specified underlying instrument at a specified future date. The price
at which the purchase and sale will take place is fixed when the buyer
and seller enter into the contract. Futures can be held until their
delivery dates, or can be closed out before then if a liquid secondary
market is available.
The value of a futures contract tends to increase and decrease in
tandem with the value of its underlying instrument. Therefore,
purchasing futures contracts will tend to increase a fund's exposure
to positive and negative price fluctuations in the underlying
instrument, much as if it had purchased the underlying instrument
directly. When a fund sells a futures contract, by contrast, the value
of its futures position will tend to move in a direction contrary to
the market. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the
underlying instrument had been sold.
FUTURES MARGIN PAYMENTS. The purchaser or seller of a futures contract
is not required to deliver or pay for the underlying instrument unless
the contract is held until the delivery date. However, both the
purchaser and seller are required to deposit "initial margin" with a
futures broker, known as a futures commission merchant (FCM), when the
contract is entered into. Initial margin deposits are typically equal
to a percentage of the contract's value. If the value of either
party's position declines, that party will be required to make
additional "variation margin" payments to settle the change in value
on a daily basis. The party that has a gain may be entitled to receive
all or a portion of this amount. Initial and variation margin payments
do not constitute purchasing securities on margin for purposes of a
fund's investment limitations. In the event of the bankruptcy of an
FCM that holds margin on behalf of a fund, the fund may be entitled to
return of margin owed to it only in proportion to the amount received
by the FCM's other customers, potentially resulting in losses to the
fund.
LIMITATIONS ON FUTURES AND OPTIONS TRANSACTIONS. Each fund has
filed a notice of eligibility for exclusion from the definition of the
term "commodity pool operator" with the Commodity Futures Trading
Commission (CFTC) and the National Futures Association, which regulate
trading in the futures markets. The funds intend to comply with
Rule 4.5 under the Commodity Exchange Act, which limits the extent to
which the fund s can commit assets to initial margin deposits
and option premiums.
In addition, e ach fund will not: (a) sell futures
contracts, purchase put options, or write call options if, as a
result, more than 25% of the fund's total assets would be hedged with
futures and options under normal conditions; (b) purchase futures
contracts or write put options if, as a result, the fund's total
obligations upon settlement or exercise of purchased futures contracts
and written put options would exceed 25% of its total assets; or (c)
purchase call options if, as a result, the current value of option
premiums for call options purchased by the fund would exceed 5% of the
fund's total assets. These limitations do not apply to options
attached to or acquired or traded together with their underlying
securities, and do not apply to securities that incorporate features
similar to options.
The above limitations on the funds' investments in futures
contracts and options, and the funds' policies regarding
futures contracts and options discussed elsewhere in this SAI,
m ay be changed as regulatory agencies permit.
LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid secondary market will exist for any particular options or
futures contract at any particular time. Options may have relatively
low trading volume and liquidity if their strike prices are not close
to the underlying instrument's current price. In addition, exchanges
may establish daily price fluctuation limits for options and futures
contracts, and may halt trading if a contract's price moves upward or
downward more than the limit in a given day. On volatile trading days
when the price fluctuation limit is reached or a trading halt is
imposed, it may be impossible to enter into new positions or close out
existing positions. If the secondary market for a contract is not
liquid because of price fluctuation limits or otherwise, it could
prevent prompt liquidation of unfavorable positions, and potentially
could require a fund to continue to hold a position until delivery or
expiration regardless of changes in its value. As a result, a fund's
access to other assets held to cover its options or futures positions
could also be impaired.
OPTIONS AND FUTURES RELATING TO FOREIGN CURRENCIES. Currency futures
contracts are similar to forward currency exchange contracts, except
that they are traded on exchanges (and have margin requirements) and
are standardized as to contract size and delivery date. Most currency
futures contracts call for payment or delivery in U.S. dollars. The
underlying instrument of a currency option may be a foreign currency,
which generally is purchased or delivered in exchange for U.S.
dollars, or may be a futures contract. The purchaser of a currency
call obtains the right to purchase the underlying currency, and the
purchaser of a currency put obtains the right to sell the underlying
currency.
The uses and risks of currency options and futures are similar to
options and futures relating to securities or indices, as discussed
above. A fund may purchase and sell currency futures and may purchase
and write currency options to increase or decrease its exposure to
different foreign currencies. Currency options may also be purchased
or written in conjunction with each other or with currency futures or
forward contracts. Currency futures and options values can be expected
to correlate with exchange rates, but may not reflect other factors
that affect the value of a fund's investments. A currency hedge, for
example, should protect a Yen-denominated security from a decline in
the Yen, but will not protect a fund against a price decline resulting
from deterioration in the issuer's creditworthiness. Because the value
of a fund's foreign-denominated investments changes in response to
many factors other than exchange rates, it may not be possible to
match the amount of currency options and futures to the value of the
fund's investments exactly over time.
OTC OPTIONS. Unlike exchange-traded options, which are standardized
with respect to the underlying instrument, expiration date, contract
size, and strike price, the terms of over-the-counter (OTC) options
(options not traded on exchanges) generally are established through
negotiation with the other party to the option contract. While this
type of arrangement allows the purchaser or writer greater flexibility
to tailor an option to its needs, OTC options generally involve
greater credit risk than exchange-traded options, which are guaranteed
by the clearing organization of the exchanges where they are traded.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the
purchaser obtains the right (but not the obligation) to sell the
option's underlying instrument at a fixed strike price. In return for
this right, the purchaser pays the current market price for the option
(known as the option premium). Options have various types of
underlying instruments, including specific securities, indices of
securities prices, and futures contracts. The purchaser may terminate
its position in a put option by allowing it to expire or by exercising
the option. If the option is allowed to expire, the purchaser will
lose the entire premium. If the option is exercised, the purchaser
completes the sale of the underlying instrument at the strike price. A
purchaser may also terminate a put option position by closing it out
in the secondary market at its current price, if a liquid secondary
market exists.
The buyer of a typical put option can expect to realize a gain if
security prices fall substantially. However, if the underlying
instrument's price does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium, plus related transaction
costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right
to purchase, rather than sell, the underlying instrument at the
option's strike price. A call buyer typically attempts to participate
in potential price increases of the underlying instrument with risk
limited to the cost of the option if security prices fall. At the same
time, the buyer can expect to suffer a loss if security prices do not
rise sufficiently to offset the cost of the option.
WRITING PUT AND CALL OPTIONS. The writer of a put or call option takes
the opposite side of the transaction from the option's purchaser. In
return for receipt of the premium, the writer assumes the obligation
to pay the strike price for the option's underlying instrument if the
other party to the option chooses to exercise it. The writer may seek
to terminate a position in a put option before exercise by closing out
the option in the secondary market at its current price. If the
secondary market is not liquid for a put option, however, the writer
must continue to be prepared to pay the strike price while the option
is outstanding, regardless of price changes. When writing an option on
a futures contract, a fund will be required to make margin payments to
an FCM as described above for futures contracts.
If security prices rise, a put writer would generally expect to
profit, although its gain would be limited to the amount of the
premium it received. If security prices remain the same over time, it
is likely that the writer will also profit, because it should be able
to close out the option at a lower price. If security prices fall, the
put writer would expect to suffer a loss. This loss should be less
than the loss from purchasing the underlying instrument directly,
however, because the premium received for writing the option should
mitigate the effects of the decline.
Writing a call option obligates the writer to sell or deliver the
option's underlying instrument, in return for the strike price, upon
exercise of the option. The characteristics of writing call options
are similar to those of writing put options, except that writing calls
generally is a profitable strategy if prices remain the same or fall.
Through receipt of the option premium, a call writer mitigates the
effects of a price decline. At the same time, because a call writer
must be prepared to deliver the underlying instrument in return for
the strike price, even if its current value is greater, a call writer
gives up some ability to participate in security price increases.
ILLIQUID SECURITIES cannot be sold or disposed of in the ordinary
course of business at approximately the prices at which they are
valued. Difficulty in selling securities may result in a loss or may
be costly to a fund. Under the supervision of the Board of Trustees,
FMR determines the liquidity of a fund's investments and, through
reports from FMR, the Board monitors investments in illiquid
securities. In determining the liquidity of a fund's investments, FMR
may consider various factors, including (1) the frequency and volume
of trades and quotations, (2) the number of dealers and prospective
purchasers in the marketplace, (3) dealer undertakings to make a
market and (4) the nature of the security and the market in which it
trades (including any demand, put or tender features, the mechanics
and other requirements for transfer, any letters of credit or other
credit enhancement features, any ratings, the number of holders, the
method of soliciting offers, the time required to dispose of the
security, and the ability to assign or offset the rights and
obligations of the security).
INDEXED SECURITIES are instruments whose prices are indexed to the
prices of other securities, securities indices, currencies, or
other financial indicators. Indexed securities typically, but not
always, are debt securities or deposits whose value at maturity or
coupon rate is determined by reference to a specific instrument or
statistic.
C urrency-indexed securities typically are short-term to
intermediate-term debt securities whose maturity values or interest
rates are determined by reference to the values of one or more
specified foreign currencies, and may offer higher yields than U.S.
dollar-denominated securities. Currency-indexed securities may be
positively or negatively indexed; that is, their maturity value may
increase when the specified currency value increases, resulting in a
security that performs similarly to a foreign-denominated instrument,
or their maturity value may decline when foreign currencies increase,
resulting in a security whose price characteristics are similar to a
put on the underlying currency. Currency-indexed securities may also
have prices that depend on the values of a number of different foreign
currencies relative to each other .
The performance of indexed securities depends to a great extent on the
performance of the security , currency, or other instrument to
which they are indexed, and may also be influenced by interest rate
changes i n the United States and abroad. Indexed securities
may be more volatile than the underlying instruments. Indexed
securities are also subject to the credit risks associated with the
issuer of the security, and their values may decline substantially if
the issuer's creditworthiness deteriorates. Recent issuers of indexed
securities have included banks, corporations, and certain U.S.
Government agencies.
INTERFUND BORROWING AND LENDING PROGRAM. Pursuant to an exemptive
order issued by the SEC, a fund may lend money to, and borrow money
from, other funds advised by FMR or its affiliates. A fund will lend
through the program only when the returns are higher than those
available from an investment in repurchase agreements, and will borrow
through the program only when the costs are equal to or lower than the
cost of bank loans. Interfund loans and borrowings normally extend
overnight, but can have a maximum duration of seven days. Loans may be
called on one day's notice. A fund may have to borrow from a bank at a
higher interest rate if an interfund loan is called or not renewed.
Any delay in repayment to a lending fund could result in a lost
investment opportunity or additional borrowing costs.
INVESTMENT-GRADE DEBT SECURITIES. Investment-grade debt securities are
medium and high-quality securities. Some may possess speculative
characteristics and may be more sensitive to economic changes
and to changes in the financial conditions of issuers. A debt security
is considered to be investment-grade if it is rated investment-grade
by Moody's Investors Service, Standard & Poor's, Duff & Phelps Credit
Rating Co., or Fitch IBCA Inc., or is unrated but considered to be of
equivalent quality by FMR.
I SSUER LOCATION. FMR determines where an issuer o r its
principal activities ar e located by looking at such
factors as the issuer's country of organization, the primary trading
market for the issuer's securities, and the location of the issuer's
assets, personnel, sales, and earnings. The issuer of a security is
considered to be located in a particular country if (1) the security
is issued or guaranteed by the government of the country or any of its
agencies, political subdivisions, or instrumentalities; (2) the
security has its primary trading market in that country; or (3) the
issuer is organized under the laws of that country, derives at least
50% of its revenues or profits from goods sold, investments made, or
services performed in the country, or has at least 50% of its assets
located in the country .
LOANS AND OTHER DIRECT DEBT INSTRUMENTS. Direct debt instruments are
interests in amounts owed by a corporate, governmental, or other
borrower to lenders or lending syndicates (loans and loan
participations), to suppliers of goods or services (trade claims or
other receivables), or to other parties. Direct debt instruments
involve a risk of loss in case of default or insolvency of the
borrower and may offer less legal protection to the purchaser in the
event of fraud or misrepresentation, or there may be a requirement
that a fund supply additional cash to a borrower on demand.
Purchasers of loans and other forms of direct indebtedness depend
primarily upon the creditworthiness of the borrower for payment of
interest and repayment of principal. If scheduled interest or
principal payments are not made, the value of the instrument may be
adversely affected. Loans that are fully secured provide more
protections than an unsecured loan in the event of failure to make
scheduled interest or principal payments. However, there is no
assurance that the liquidation of collateral from a secured loan would
satisfy the borrower's obligation, or that the collateral could be
liquidated. Indebtedness of borrowers whose creditworthiness is poor
involves substantially greater risks and may be highly speculative.
Borrowers that are in bankruptcy or restructuring may never pay off
their indebtedness, or may pay only a small fraction of the amount
owed. Direct indebtedness of developing countries also involves a risk
that the governmental entities responsible for the repayment of the
debt may be unable, or unwilling, to pay interest and repay principal
when due.
Investments in loans through direct assignment of a financial
institution's interests with respect to a loan may involve additional
risks. For example, if a loan is foreclosed, the purchaser could
become part owner of any collateral, and would bear the costs and
liabilities associated with owning and disposing of the collateral. In
addition, it is conceivable that under emerging legal theories of
lender liability, a purchaser could be held liable as a co-lender.
Direct debt instruments may also involve a risk of insolvency of the
lending bank or other intermediary.
A loan is often administered by a bank or other financial institution
that acts as agent for all holders. The agent administers the terms of
the loan, as specified in the loan agreement. Unless, under the terms
of the loan or other indebtedness, the purchaser has direct recourse
against the borrower, the purchaser may have to rely on the agent to
apply appropriate credit remedies against a borrower. If assets held
by the agent for the benefit of a purchaser were determined to be
subject to the claims of the agent's general creditors, the purchaser
might incur certain costs and delays in realizing payment on the loan
or loan participation and could suffer a loss of principal or
interest.
Direct indebtedness may include letters of credit, revolving credit
facilities, or other standby financing commitments that obligate
purchasers to make additional cash payments on demand. These
commitments may have the effect of requiring a purchaser to increase
its investment in a borrower at a time when it would not otherwise
have done so, even if the borrower's condition makes it unlikely that
the amount will ever be repaid.
E ach fund limits the amount of total assets that it will invest
in any one issuer or in issuers within the same industry (see
e ach fund's investment limitations). For purposes of these
limitations, a fund generally will treat the borrower as the "issuer"
of indebtedness held by the fund. In the case of loan participations
where a bank or other lending institution serves as financial
intermediary between a fund and the borrower, if the participation
does not shift to the fund the direct debtor-creditor relationship
with the borrower, SEC interpretations require a fund, in appropriate
circumstances, to treat both the lending bank or other lending
institution and the borrower as "issuers" for these purposes. Treating
a financial intermediary as an issuer of indebtedness may restrict a
fund's ability to invest in indebtedness related to a single financial
intermediary, or a group of intermediaries engaged in the same
industry, even if the underlying borrowers represent many different
companies and industries.
LOWER-QUALITY DEBT SECURITIES. Lower-quality debt securities have poor
protection with respect to the payment of interest and repayment of
principal o r may be in default . These securities are
often considered to be speculative and involve greater risk of loss or
price changes due to changes in the issuer's capacity to pay. The
market prices of lower-quality debt securities may fluctuate more than
those of higher-quality debt securities and may decline significantly
in periods of general economic difficulty, which may follow periods of
rising interest rates.
The market for lower-quality debt securities may be thinner and less
active than that for higher-quality debt securities, which can
adversely affect the prices at which the former are sold. Adverse
publicity and changing investor perceptions may affect the liquidity
of lower-quality debt securities and the ability of outside pricing
services to value lower-quality debt securities.
Because the risk of default is higher for lower-quality debt
securities, FMR's research and credit analysis are an especially
important part of managing securities of this type. FMR will attempt
to identify those issuers of high-yielding securities whose financial
condition is adequate to meet future obligations, has improved, or is
expected to improve in the future. FMR's analysis focuses on relative
values based on such factors as interest or dividend coverage, asset
coverage, earnings prospects, and the experience and managerial
strength of the issuer.
A fund may choose, at its expense or in conjunction with others, to
pursue litigation or otherwise to exercise its rights as a security
holder to seek to protect the interests of security holders if it
determines this to be in the best interest of the fund's shareholders.
MORTGAGE SECURITIES are issued by government and non-government
entities such as banks, mortgage lenders, or other institutions. A
mortgage security is an obligation of the issuer backed by a mortgage
or pool of mortgages or a direct interest in an underlying pool of
mortgages. Some mortgage securities, such as collateralized mortgage
obligations (or "CMOs"), make payments of both principal and interest
at a range of specified intervals; others make semiannual interest
payments at a predetermined rate and repay principal at maturity (like
a typical bond). Mortgage securities are based on different types of
mortgages, including those on commercial real estate or residential
properties. Stripped mortgage securities are created when the interest
and principal components of a mortgage security are separated and sold
as individual securities. In the case of a stripped mortgage security,
the holder of the "principal-only" security (PO) receives the
principal payments made by the underlying mortgage, while the holder
of the "interest-only" security (IO) receives interest payments from
the same underlying mortgage.
Fannie Maes and Freddie Macs are pass-through securities issued by
Fannie Mae and Freddie Mac, respectively. Fannie Mae and Freddie Mac,
which guarantee payment of interest and repayment of principal on
Fannie Maes and Freddie Macs, respectively, are federally chartered
corporations supervised by the U.S. Government that act as
governmental instrumentalities under authority granted by Congress.
Fannie Mae is authorized to borrow from the U.S. Treasury to meet its
obligations. Fannie Maes and Freddie Macs are not backed by the full
faith and credit of the U.S. Government.
The value of mortgage securities may change due to shifts in the
market's perception of issuers and changes in interest rates. In
addition, regulatory or tax changes may adversely affect the mortgage
securities market as a whole. Non-government mortgage securities may
offer higher yields than those issued by government entities, but also
may be subject to greater price changes than government issues.
Mortgage securities are subject to prepayment risk, which is the risk
that early principal payments made on the underlying mortgages,
usually in response to a reduction in interest rates, will result in
the return of principal to the investor, causing it to be invested
subsequently at a lower current interest rate. Alternatively, in a
rising interest rate environment, mortgage security values may be
adversely affected when prepayments on underlying mortgages do not
occur as anticipated, resulting in the extension of the security's
effective maturity and the related increase in interest rate
sensitivity of a longer-term instrument. The prices of stripped
mortgage securities tend to be more volatile in response to changes in
interest rates than those of non-stripped mortgage securities.
In order to earn additional income for a fund, FMR may use a trading
strategy that involves selling mortgage securities and simultaneously
agreeing to purchase similar securities on a later date at a set
price. This trading strategy may result in an increased portfolio
turnover rate which increases costs and may increase taxable gains.
PREFERRED STOCK is a class of equity or ownership in an issuer that
pays dividends at a specified rate and that has precedence over common
stock in the payment of dividends. In the event an issuer is
liquidated or declares bankruptcy, the claims of owners of
bonds take precedence over the claims of those who own preferred and
common stock.
REAL ESTATE INVESTMENT TRUSTS. Equity real estate investment trusts
own real estate properties, while mortgage real estate investment
trusts make construction, development, and long-term mortgage loans.
Their value may be affected by changes in the value of the underlying
property of the trusts, the creditworthiness of the issuer, property
taxes, interest rates, and tax and regulatory requirements, such as
those relating to the environment. Both types of trusts are dependent
upon management skill, are not diversified, and are subject to heavy
cash flow dependency, defaults by borrowers, self-liquidation, and the
possibility of failing to qualify for tax-free status of income under
the Internal Revenue Code and failing to maintain exemption from the
1940 Act.
R EPURCHASE AGREEMENTS involve an agreement to purchase a
security and to sell that security back to the original seller at an
agreed-upon price. The resale price reflects the purchase price plus
an agreed-upon incremental amount which is unrelated to the coupon
rate or maturity of the purchased security. As protection against the
risk that the original seller will not fulfill its obligation, the
securities are held in a separate account at a bank, marked-to-market
daily, and maintained at a value at least equal to the sale price plus
the accrued incremental amount. The value of the security purchased
may be more or less than the price at which the counterparty has
agreed to purchase the security. In addition, delays or losses could
result if the other party to the agreement defaults or becomes
insolvent. The fund s will engage in repurchase agreement
transactions with parties whose creditworthiness has been reviewed and
found satisfactory by FMR .
RESTRICTED SECURITIES are subject to legal restrictions on their sale.
Difficulty in selling securities may result in a loss or be costly to
a fund. Restricted securities generally can be sold in privately
negotiated transactions, pursuant to an exemption from registration
under the Securities Act of 1933, or in a registered public offering.
Where registration is required, the holder of a registered security
may be obligated to pay all or part of the registration expense and a
considerable period may elapse between the time it decides to seek
registration and the time it may be permitted to sell a security under
an effective registration statement. If, during such a period, adverse
market conditions were to develop, the holder might obtain a less
favorable price than prevailed when it decided to seek registration of
the security.
REVERSE REPURCHASE AGREEMENTS. In a reverse repurchase agreement, a
fund sells a security to another party, such as a bank or
broker-dealer, in return for cash and agrees to repurchase that
security at an agreed-upon price and time. The fund s will enter
into reverse repurchase agreements with parties whose creditworthiness
has been reviewed and found satisfactory by FMR. Such transactions may
increase fluctuations in the market value of fund assets and a fund's
yield and may be viewed as a form of leverage.
SECURITIES OF OTHER INVESTMENT COMPANIES, including shares of
closed-end investment companies, unit investment trusts, and open-end
investment companies, represent interests in professionally managed
portfolios that may invest in any type of instrument. Investing in
other investment companies involves substantially the same risks as
investing directly in the underlying instruments, but may involve
additional expenses at the investment company-level, such as portfolio
management fees and operating expenses. Certain types of investment
companies, such as closed-end investment companies, issue a fixed
number of shares that trade on a stock exchange or over-the-counter at
a premium or a discount to their net asset value. Others are
continuously offered at net asset value, but may also be traded in the
secondary market.
The extent to which a fund can invest in securities of other
investment companies is limited by federal securities laws.
SECURITIES LENDING. A fund may lend securities to parties such as
broker-dealers or other institutions, including Fidelity Brokerage
Services, Inc. (FBSI). FBSI is a member of the New York Stock Exchange
and a subsidiary of FMR Corp.
Securities lending allows a fund to retain ownership of the securities
loaned and, at the same time, to earn additional income. Because there
may be delays in the recovery of loaned securities, or even a loss of
rights in collateral supplied should the borrower fail financially,
loans will be made only to parties deemed by FMR to be of good
standing. Furthermore, they will only be made if, in FMR's judgment,
the consideration to be earned from such loans would justify the risk.
FMR understands that it is the current view of the SEC Staff that a
fund may engage in loan transactions only under the following
conditions: (1) the fund must receive 100% collateral in the form of
cash or cash equivalents (e.g., U.S. Treasury bills or notes) from the
borrower; (2) the borrower must increase the collateral whenever the
market value of the securities loaned (determined on a daily basis)
rises above the value of the collateral; (3) after giving notice, the
fund must be able to terminate the loan at any time; (4) the fund must
receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest, or
other distributions on the securities loaned and to any increase in
market value; (5) the fund may pay only reasonable custodian fees in
connection with the loan; and (6) the Board of Trustees must be able
to vote proxies on the securities loaned, either by terminating the
loan or by entering into an alternative arrangement with the borrower.
Cash received through loan transactions may be invested in other
eligible securities. Investing this cash subjects that investment, as
well as the security loaned, to market forces (i.e., capital
appreciation or depreciation).
SOURCES OF CREDIT OR LIQUIDITY SUPPORT. Issuers may employ various
forms of credit and liquidity enhancements, including letters of
credit, guarantees, puts, and demand features, and insurance provided
by domestic or foreign entities such as banks and other
financial institutions. FMR may rely on its evaluation of the credit
of the credit or liquidity enhancement provider in determining whether
to purchase a security supported by such enhancement. In evaluating
the credit of a foreign bank or other foreign entities, FMR will
consider whether adequate public information about the entity is
available and whether the entity may be subject to unfavorable
political or economic developments, currency controls, or other
government restrictions that might affect its ability to honor its
commitment. C hanges in the credit quality of the entity providing
the enhancement could affect the value of the security or a fund's
share price.
SOVEREIGN DEBT OBLIGATIONS are issued or guaranteed by foreign
governments or their agencies, including debt of Latin American
nations or other developing countries. Sovereign debt may be in the
form of conventional securities or other types of debt instruments
such as loans or loan participations. Sovereign debt of developing
countries may involve a high degree of risk, and may be in default or
present the risk of default. Governmental entities responsible for
repayment of the debt may be unable or unwilling to repay principal
and pay interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of
principal and payment of interest may depend on political as well as
economic factors. Although some sovereign debt, such as Brady Bonds,
is collateralized by U.S. Government securities, repayment of
principal and payment of interest is not guaranteed by the U.S.
Government.
STRIPPED SECURITIES are the separate income or principal components of
a debt security. The risks associated with stripped securities are
similar to those of other debt securities, although stripped
securities may be more volatile, and the value of certain types of
stripped securities may move in the same direction as interest rates.
U.S. Treasury securities that have been stripped by a Federal Reserve
Bank are obligations issued by the U.S. Treasury.
Privately stripped government securities are created when a dealer
deposits a U.S. Treasury security or other U.S. Government security
with a custodian for safekeeping. The custodian issues separate
receipts for the coupon payments and the principal payment, which the
dealer then sells.
SWAP AGREEMENTS can be individually negotiated and structured to
include exposure to a variety of different types of investments or
market factors. Depending on their structure, swap agreements may
increase or decrease a fund's exposure to long- or short-term interest
rates (in the United States or abroad), foreign currency
values , mortgage securities, corporate borrowing rates, or
other factors such as security prices or inflation rates. Swap
agreements can take many different forms and are known by a variety of
names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a
fee by the other party. For example, the buyer of an interest rate cap
obtains the right to receive payments to the extent that a specified
interest rate exceeds an agreed-upon level, while the seller of an
interest rate floor is obligated to make payments to the extent that a
specified interest rate falls below an agreed-upon level. An interest
rate collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a fund's investment exposure from
one type of investment to another. F or example, if the fund
agreed to exchange payments in dollars for payments in foreign
currency, the swap agreement would tend to decrease the fund's
exposure to U.S. interest rates and increase its exposure to foreign
currency and interest rates. C aps and floors have an effect
similar to buying or writing options. Depending on how they are used,
swap agreements may increase or decrease the overall volatility of a
fund's investments and its share price and yield.
The most significant factor in the performance of swap agreements is
the change in the specific interest rate, currency, or other
factors that determine the amounts of payments due to and from a fund.
If a swap agreement calls for payments by the fund, the fund must be
prepared to make such payments when due. In addition, if the
counterparty's creditworthiness declined, the value of a swap
agreement would be likely to decline, potentially resulting in losses.
A fund may be able to eliminate its exposure under a swap agreement
either by assignment or other disposition, or by entering into an
offsetting swap agreement with the same party or a similarly
creditworthy party.
TEMPORARY DEFENSIVE POLICIES. Each fund reserves the right to
invest without limitation in U.S. securities for temporary defensive
purposes.
VARIABLE AND FLOATING RATE SECURITIES provide for periodic adjustments
in the interest rate paid on the security. Variable rate securities
provide for a specified periodic adjustment in the interest rate,
while floating rate securities have interest rates that change
whenever there is a change in a designated benchmark rate. Some
variable or floating rate securities are structured with put features
that permit holders to demand payment of the unpaid principal balance
plus accrued interest from the issuers or certain financial
intermediaries.
WARRANTS. Warrants are instruments which entitle the holder to buy an
equity security at a specific price for a specific period of time.
Changes in the value of a warrant do not necessarily correspond to
changes in the value of its underlying security. The price of a
warrant may be more volatile than the price of its underlying
security, and a warrant may offer greater potential for capital
appreciation as well as capital loss.
Warrants do not entitle a holder to dividends or voting rights with
respect to the underlying security and do not represent any rights in
the assets of the issuing company. A warrant ceases to have value if
it is not exercised prior to its expiration date. These factors can
make warrants more speculative than other types of investments.
WHEN-ISSUED AND FORWARD PURCHASE OR SALE TRANSACTIONS involve a
commitment to purchase or sell specific securities at a predetermined
price or yield in which payment and delivery take place after the
customary settlement period for that type of security. Typically, no
interest accrues to the purchaser until the security is delivered.
When purchasing securities pursuant to one of these transactions, the
purchaser assumes the rights and risks of ownership, including the
risks of price and yield fluctuations and the risk that the security
will not be issued as anticipated. Because payment for the securities
is not required until the delivery date, these risks are in addition
to the risks associated with a fund's investments. If a fund remains
substantially fully invested at a time when a purchase is outstanding,
the purchases may result in a form of leverage. When a fund has sold a
security pursuant to one of these transactions, the fund does not
participate in further gains or losses with respect to the security.
If the other party to a delayed-delivery transaction fails to deliver
or pay for the securities, a fund could miss a favorable price or
yield opportunity or suffer a loss.
A fund may renegotiate a when-issued or forward transaction and may
sell the underlying securities before delivery, which may result in
capital gains or losses for the fund.
ZERO COUPON BONDS do not make interest payments; instead, they are
sold at a discount from their face value and are redeemed at face
value when they mature. Because zero coupon bonds do not pay current
income, their prices can be more volatile than other types of
fixed-income securities when interest rates change. In calculating a
fund's dividend, a portion of the difference between a zero coupon
bond's purchase price and its face value is considered income.
SPECIAL CONSIDERATIONS REGARDING AFRICA
Africa is a highly diverse and politically unstable continent of over
50 countries and 720 million people. Civil wars, coups and even
genocidal warfare have beset much of this region in recent years.
Nevertheless, it is home to an abundance of natural resources,
including natural gas, aluminum, crude oil, copper, iron, bauxite,
cotton, diamonds and timber. Wealthier countries generally have strong
connections to European partners, and evidence of these relationships
is seen in the growing market capitalization and foreign investment of
these countries. Economic performance is closely tied to world
commodity markets, particularly oil, and also to weather conditions,
such as drought.
Five African countries are among the 20 fastest growing in the world
(Uganda, Ivory Coast, Botswana, Angola and Zimbabwe, confirm EIU
1995), with GDP growth rates ranging from 5.5% to 6.0%. Two countries,
Yemen and Bahrain, are experiencing growth at or below 2.0%, and one
country, Libya, is experiencing (-4.0%) negative growth.
African economic growth is projected to remain higher than in any
recent year other than 1996. The relatively small effects of the Asian
crisis are attributable to the comparatively low levels of private
capital flows to most countries in the regions. Africa can be
negatively impacted from the slowdown in global growth, and its
effects on commodity prices.
Several African countries in the north have substantial oil reserves
and accordingly their economies react strongly to world oil prices.
They share a regional and sometimes religious identification with the
oil producing nations of the Middle East and can be strongly affected
by political and economic developments in those countries. As in the
south, weather conditions also have a strong impact on many of their
natural resources, and, as was the case in 1995, severe drought can
adversely effect economic growth.
Twelve African countries have active equity markets (Bahrain,
Botswana, Egypt, Ghana, Kenya, Morocco, Nigeria, Oman, South Africa,
Tunisia, Zambia, and Zimbabwe). The oldest market, in Egypt, was
established in 1883, while the youngest, in Zambia, was established in
1994. Four additional markets have been established since 1989, and
the mean age for all equity markets is 40 years old. A total of 1,830
firms are listed on the respective exchanges. Total market
capitalization for these countries in 1996 was $290 billion, an
average increase of 54% over 1995 levels.
The South African market is the largest in Africa and has a
capitalization of more than ten times that of all the other African
markets combined. In 1997, the country's Johannesburg Stock Exchange
fell by 6.8%, due largely to weakening commodity prices and a slowdown
in the South African economy. The market decline extended into 1998 as
the South African rand declined versus the world's major currencies.
SPECIAL CONSIDERATIONS REGARDING CANADA
Canada is a confederation of ten provinces with a parliamentary system
of government. Canada is the world's second largest nation by landmass
and is inhabited by 30.2 million people, most of whom are descendants
of France, the United Kingdom and indigenous peoples. The country has
a workforce of over 15 million people in various industries such as
trade, manufacturing, mining, finance, construction and government.
While the country has many institutions which closely parallel the
United States, such as a transparent stock market and similar
accounting practices, it differs from the United States in that it has
an extensive social welfare system, much more akin to European welfare
states.
The confederated structures combined with recent financial pressure on
the federal government have pushed provinces, Quebec in particular, to
call for a revaluation of the legal and financial relationships
between the federal government in Ottawa and the provinces. Recent
referendums on Quebec sovereignty have been narrowly defeated and the
issue appears far from resolved. However, in August of 1998, the
country's Supreme Court decided that Quebec does not have the right to
secede unilaterally, removing any immediate threat that Canada will
break up. Nevertheless, the Canadian markets could continue to react
to any periodic escalations of separatist calls.
Canada is one of the richest nations in the world in terms of natural
resources. The country is a major producer of such commodities as
forest products, mining, metals, and agricultural products.
Additionally, energy related products such as oil, gas, and
hydroelectricity are important components of their economy.
Accordingly, the Canadian stock market is strongly represented by
basic material stocks, and movements in the supply and demand of
industrial materials, agriculture, and energy, both domestically and
internationally, can have a strong effect on market performance.
The United States is Canada's largest trading partner and
approximately 80% of Canadian merchandise traded in 1997 was with the
United States. Automobiles and auto parts accounted for the largest
export items followed by energy, mining and forest products. Canada is
the largest energy supplier to the United States, while the United
States is Canada's largest foreign investor. United States investment
has been largely focused on financial, energy, metals and mining
businesses. The expanding economic and financial integration of the
United States and Canada will likely make the Canadian economy and
securities markets increasingly sensitive to U.S. economic and market
events.
For United States investors in Canadian markets, currency has become
an important determinant of investment return. Since Canada let its
dollar float in 1970, its value has been in a steady decline against
its United States counterpart. While the decline has enabled Canada to
stay competitive with its more efficient southern neighbor, which buys
four-fifths of its exports, United States investors have seen their
investment returns eroded by the impact of currency conversion.
SPECIAL CONSIDERATIONS REGARDING EUROPE
Europe can be divided into two distinct categories of market
development: the developed economies of Western Europe and the
transition economies of Eastern Europe.
Any discussion of European national economies and securities markets
must be made with an eye to the impact that the European Union (EU)
and European and Economic Monetary Union (EMU) - will have upon the
future of these countries as well as the rest of the world. The scope
and magnitude of these economic and political initiatives dwarfs
anything attempted to date. If successful, the EU will change or erase
many political, economic, cultural and market distinctions that define
and differentiate each of the Continent's countries today.
The third and final stage of the European Economic and Monetary Union
is scheduled to be implemented on January 1, 1999. The European Union
(EU) consists of 15 countries of western Europe: Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
the Netherlands, Portugal, Spain, Sweden and the United Kingdom. The
six founding countries first formed an economic community in the 1950s
to bring down trade barriers such as taxes and quotas, to eliminate
technical restrictions such as special standards and regulations for
foreigners, and to coordinate various industrial policies, such as
those pertaining to agriculture. Since that time the group has
admitted new members and, in time, may expand its membership to other
nations such as those of Eastern Europe. The EU has as its goal, the
creation of a single, unified market that would be, at over 370
million people, the largest in the developed world and through which
goods, people and capital could move freely.
A second component of the EU is the establishment of a single currency
- - the Euro, to replace each member country's domestic currencies. In
preparation for the creation of the Euro, the Exchange Rate Mechanism
(ERM) was established to keep the various national currencies at a
pre-specified value relative to each other. The year 1997 is
significant for membership in the EU as it is the initial reference
year for evaluating debt levels and deficits within the criteria set
forth by the Maastricht treaty. Specifically, the Maastricht criteria
include, among other indicators, an inflation rate below 3.3%, a
public debt below 60% of GDP, and a deficit of 3% or less of GDP.
Failure to meet the Maastricht levels would disqualify any country
from membership.
On May 3, 1998 the European Council of Ministers formally announced
the "first wave" of EMU participants. They are: Austria, Belgium,
Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands,
Portugal and Spain. On January 1, 1999, the Euro becomes a currency,
while the bank notes used by EMU's eleven members remain legal tender.
After a three year transition period, the Euro will begin circulating
on January 1, 2002. Six months later, today's currencies will cease to
exist.
Many foreign and domestic businesses are establishing or increasing
their presence in Europe in anticipation of the new unified single
market. Clear, confident visions of a diverse, multi-industrial,
unified market under a single currency have been the impetus for much
of the recent corporate restructuring initiatives as well as for the
increased mergers and acquisitions activity in the region. A
successful EMU could prove to be an engine for sustained growth
throughout Europe.
While the securities markets view the introduction of the euro as
inevitable, the success of the union is not wholly assured. Europe
must grapple with a number of challenges, any one of which could
threaten the survival of this monumental undertaking. For example,
eleven disparate economies must adjust to a unified monetary system,
the absence of exchange rate flexibility and the loss of economic
sovereignty. The Continent's economies are diverse, its governments
decentralized and its cultures differ widely. Unemployment is
historically high and could pose a political risk that one or more
countries might exit the union placing the currency and banking system
in jeopardy.
For those countries in Western and Eastern Europe that will not be
included in the first round of the EU implementation, the prospects
for eventual membership serves as a strong political impetus for many
governments to employ tight fiscal and monetary policies. Particularly
for the Eastern European countries, aspirations to join the EU are
likely to push governments to act decisively. At the same time, there
could become an increasingly widening gap between rich and poor both
within the aspiring countries and also those countries who are close
to meeting membership criteria and those who are not. Realigning
traditional alliances could result in altering trading relationships
and potentially provoking divisive socio-economic splits.
The economies of Eastern Europe are embarking on the transition from
communism at different paces with appropriately different
characteristics. The transition countries also display sharp contrasts
in performance. Those that are most advanced in the transformation
process are now reaping the rewards of comprehensive reform and
stabilization policies pursued with determination over recent years.
These include Poland, the Baltic countries, Croatia, the Czech
Republic, Hungary, the Slovak Republic and Slovenia. Conversely, those
that are less advanced in the transition are struggling with a number
of policy challenges to strengthen their economies. Several countries
have made good progress, and in Armenia, Azerbaijan, Georgia,
Kazakhstan, and the Kyrgyz Republic, inflation has fallen considerably
in recent years. Nevertheless, the East European markets are
particularly vulnerable to weakness in the world's other emerging
countries and are particularly sensitive to events in Russia. For
example, in mid-1998 when economic and political turmoil forced the
Russian government to devalue its currency and restructure its debt
payments, the other markets in Eastern Europe suffered significant
destabilization of which the extent and duration is still unknown.
FRANCE. France is a republic of over 58 million people in the historic
if not the geographic center of Western Europe. The Fifth French
Republic, established in the early postwar period under Charles de
Gaulle, provides for a strong Presidency which can appoint its own
cabinet but must win approval of a parliamentary majority. The
government was founded upon the French cultural values of liberty,
brotherhood and egalitarianism. In France, this latter value often
translates into a government burden of providing job security. The
result is a large, vast bureaucracy in the public sector and strict
employment and labor laws in the private sector. In addition, a
significant portion of government economic policy revolves around
regulating and protecting domestic industries, particularly farming
and manufacturing. Finally, the French government frequently owns high
majority or minority interests in large companies, particularly
utility, transport and communications concerns. While privatization
has been a popular movement in many other European countries, it has
encountered a stalled stop-and-go cycle in France.
The French economy is the world's fourth-largest Western
industrialized economy, with a GDP of $1538 billion in 1996. The
nation has substantial agricultural resources, a diversified modern
industrial system, and a highly skilled labor force. France's economy
boasts a sophisticated industrial manufacturing base, which includes
not only high technology (information technology and
telecommunications, vehicles, aircraft, computer equipment, etc.) but
also a number of very large companies producing consumer goods. The
country's industrial structure is unusual for an industrialized
economy because the state still controls a large proportion of the
heavy strategic goods industries as well as institutions such as banks
and communications companies. The agricultural sector continues to be
important; however, most farms are small by European standards and
require massive government support. Exports are an economic strong
point and the nation has enjoyed trade surpluses in recent years.
Leading exports include chemicals, electronics and automotive and
aircraft machinery, while imports are dominated by petroleum,
industrial machinery and electronics. Their main trading partners are
the United States, Japan, and other EU countries.
The country is one of the largest consumers of nuclear energy,
obtaining nearly 75% of its total electricity needs from reactors.
While it has some small deposits of oil and gas, it remains heavily
dependent on imports for most of its needs.
In recent years, the country's economic growth has been hindered by a
series of general strikes. The government's efforts to reduce spending
to meet the Maastricht criteria have prompted strikes and unrest from
France's powerful trade unions. In addition, striking workers have
pushed their demands for a lower retirement age and a reduction in the
workweek. With an unemployment rate above 12%, the country's labor
markets are not functioning efficiently. France's pay-as-you-go
pension program is an additional deterrent to economic growth as
spending on pensions account for a tenth of GDP. While all parties
agree that the system must be replaced, no agreement has been reached
on an alternative.
France went to the polls in May 1997 after a surprise decision to hold
early elections by conservative President Jacques Chirac. Chirac's
calculation was to capitalize on popular support before he was forced
to undertake austere fiscal measures to meet the Maastricht criteria.
Voters responded that they were more concerned about the country's
high level of unemployment and Chirac's party lost enough seats in the
parliament that the president must now share power for the remaining
five years in office with a socialist-led government. This change
could set back the previous government's pledges to continue its
privatization initiatives, restrain spending, support the franc, and
endure fiscal austerity. It also calls into question whether the
French people have the will to adhere to the EMU convergence criteria
over the next few years.
The stock market in France has undergone both gradual and dramatic
changes in recent years, keeping pace with global trends toward
deregulation, privatization, and cross border activities, allowing
Paris to maintain its position as the world's fourth-largest financial
center. Until 1996, the Paris Bourse was the country's sole stock
exchange, providing access to all listed French securities. Since
then, foreign interest has been stimulated by the creation of new
markets, such as the Nouveau March<UNDEF>, for riskier, growth
oriented, small corporations. While the listings of these combined
markets are fairly diverse financial companies that account for
approximately one-third of the total. The system underwent many
regulatory changes in the late 1980s, taking steps toward combating
insider trading and ensuring market transparency.
GERMANY. Germany is the largest economy in all of Europe and is the
third largest economy in the world behind the United States and Japan.
The country occupies a central position in Western Europe with strong
cultural and economic ties with the countries of Eastern Europe and
borders on no less than six other Western European countries. The
country's size, location and proven industrial ability have
historically thrust it to the center of European economic life, a
position it was able to re-attain in the wake of the post-war period.
More recently, Germany has used this position as a platform to
champion the cause of the European Union, and also to absorb and
transform the devastated economy of its former communist eastern half.
The German economy is heavily industrialized, with a strong emphasis
on manufacturing. The manufacturing sector is driven by small and
medium-sized companies, most of which are very efficient and dynamic.
Germany, nevertheless, has many large industries and manufacturing is
dominated by the production of motor vehicles, precision engineering,
brewing, chemicals, pharmaceuticals and heavy metal products.
The economy has benefited from a strong export performance throughout
the decade. Exports, weighted heavily in the industrial machinery,
autos and chemicals sectors, have provided the economy with positive
trade balances. Exports are the main engine of GDP growth,
highlighting Germany's dependence on the prosperity of its trading
partners. Five out of its top six trading partners are fellow EU
members (the sixth is the United States), while very low levels of
trade are conducted with Asian and Latin American countries. Germany
stands very well poised to supply the emerging markets of central
Europe. It is already the largest European foreign investor in the
Czech Republic and the largest trading partner for Poland and Hungary.
Accordingly, any weakness in the emerging market economies might
likely dampen demand for German goods, to the detriment of the German
economy. As most of these emerging markets aspire to join the EU, it
is possible that a larger EU could alter Germany's trading
relationships due to new quotas, tax rates, exchange rates and other
factors which will come with EU membership.
The recent performance of the German economy must be evaluated within
the context of the 1990 reunification of the eastern and western
states. GDP growth dropped markedly during the early years of
reunification. Industry in Eastern Germany is still catching up.
Workers in Eastern Germany earn two-thirds of western wages but
produce only half as much. In addition, one of the byproducts of
assimilating East Germany into the state has been the need to
restructure many of the government services to accommodate the new and
substantially less affluent citizens. Significant tax and welfare
reforms have yet to be undertaken, and pressure is mounting on the
government to address these issues. Unemployment rates have begun to
cause some discontent among German citizens whose culture generally
places strong emphasis on a social compact. Any dissatisfaction could
be expressed at the polls during the 1998 elections.
Germany is faced with other significant economic challenges.
Unemployment is currently above 12% as the country experiences its
longest period of slow growth since the Second World War. The
government's ability to deal with the problem is limited by its
efforts to meet the stringent Maastricht criteria for convergence.
There are also growing concerns about the exodus of German companies
relocating abroad in order to avoid the country's high labor costs. In
the longer run, Germany's government must alter the peculiar mix of
capitalism, welfarism and consensus that sets the country apart. Those
decisions will be politically sensitive - especially if they
antagonize the powerful trade unions or the country's many family-run
firms.
Germany's stock market has enjoyed dramatic growth in volume as the
main DAX index has soared over the past two years. Much of the
market's strength has been attributed to the dollar's recovery and
rising corporate earnings. In addition, a number of changes have
occurred recently to support the share-buying explosion and to
establish a German equity culture. A number of initial public
offerings were launched as the government sought to divest itself of
ownership in such businesses as the nation's telephone utility and
post office businesses to ease budgetary pressures. The government
also created a supervisory authority which has outlawed insider
trading and established stiffer company reporting standards intended
to further increase the appeal of Germany's stock market.
Nevertheless, while there has been progress in broadening the investor
base, shares remain overwhelmingly in the hands of institutions and
companies.
The German central bank is one of the world's strongest and most
independent. Their high interest rates have contributed to a
controlled growth of the stock market and a steadily decreasing
inflation rate. Keeping the Deutsche Mark strong in leading up to EMU
has been a priority for the bank. Nevertheless, exports have thrived
despite the currency's strong position.
A founding member of the EU and the most ardent proponent of EMU,
Germany is seen as the primary player in Union economics and politics.
Seeking to consolidate this position, recent government policy has put
a strong emphasis on the maintenance of a strong currency and the
achievement of the Maastricht criteria.
NORDIC COUNTRIES. Increasing economic globalization and the expansion
of the EU have forced the Nordic Countries to scale back their
historically liberal welfare spending policies. While public spending
has dropped from average levels, the cutbacks in social programs have
sparked drops in domestic demand and increases in unemployment.
Nevertheless, the Nordic economies are experiencing positive growth
fueled largely by strong exports and low interest rates. The
approaching EMU deadline is putting pressure on each nation to
maintain their economies in line with requirements of the Maastricht
treaty criteria and the fiscal and political issues remain central in
political debates.
Of the Nordic countries, Finland, Denmark and Sweden are all members
of the EU. Only Norway has elected not to join. However, the decision
likely will not isolate the Norwegian economy from those of its Nordic
neighbors. The country maintains a "shadow membership" in the EU, by
which it seeks to stay as closely informed as possible and to make its
voice heard on the issues. This may ensure that it will become more
closely aligned with the rest of Europe as time passes. One
significant aspect of opting out of the EU is that the central bank is
free to pursue its own agenda, such as setting inflation targets as
opposed to exchange rate targets. Inflation patterns and currency
stability could prove to be issues that may separate the policy
decisions of Norway from the other Nordic countries.
Politically, the countries of this region are historically known for
their approach to policy making that emphasizes consensus. The most
common type of government among the Nordic countries is dominated by
long-standing, left-of-center parties which often align themselves
with smaller centrist parties for majority support. The landscape,
however, is so fractured that governing from a minority position is
common. The absence of a clear majority party slows and sometimes
arrests policy making. The strongest opposition comes from traditional
European conservative parties, which have gained support in recent
years with the decline of the welfare state and the need for the
libertarian policies necessary to compete and integrate with free
markets. None of the Nordic countries face any serious risk of any
anti-democratic political change. However, in Sweden, the prospects of
the present government will depend on its ability to create more jobs
and to prepare the economy for EMU. A large minority of voters are
also disappointed about the benefits which membership in the EU was
expected to bring and have been increasingly voicing anti-EU
sentiments. However, in May 1998, Sweden and its fellow applicants,
Finland and Denmark, were formally admitted in the "first wave" of the
EMU.
Industry in the region is heavily resource-oriented. Denmark's
agricultural sector remains the backbone of the economy although other
industries have been developing rapidly in recent years, with
engineering, food processing, pharmaceuticals, brewing and
shipbuilding gaining in importance. Finland's major industry is
forestry which supplies a large paper and timber products sector. It
also produces household goods and telecommunications equipment and has
an extremely important heavy goods sector producing ships, cement,
steel and machine tools. In Sweden, the manufacturing sector dominates
the economy and includes major industries which range from motor
vehicles to aerospace, chemicals, pharmaceuticals, timber, pulp and
paper. Several of the country's export-oriented industries (in
particular forestry, mining and steel) are suffering as the country's
high wages squeeze them out of foreign markets. Norway's oil-driven
economy has provided its citizens with one of the highest standards of
living in the world. However, they must prepare for the time, due to
arrive early in the next century, when their vast reserves run out.
Reliance on exports concentrated in a few sectors tie these countries
closely to one another.
Economically, the Nordic countries are strong export economies that
take advantage of their abundant natural resources. They are also very
closely tied both to each other and to the rest of Europe. Most
countries have witnessed low levels of positive growth in the last six
years. Finland is the exception. As a significant portion of its trade
is with Russia, Finland suffered in the early years of the collapse of
the Soviet Union. However, in the past two years its economy has
recorded some of the highest growth rates in Western Europe while
having the lowest rate of inflation. Similarly, after five years of
recession, the overall outlook for the Swedish economy is also vastly
improved. A stringent package of spending cuts and tax increases has
brought down the budget deficit to a level that is well within the EMU
target. Exports are recovering as other parts of Europe are coming out
of recession and its inflation is among the lowest in Western Europe.
However, the one weak spot in both country's economies is a
persistently high unemployment rate. Finland's unemployment, at 17%,
is the second highest in Europe after Spain, and Finland's rate
represents only a marginal improvement over the previous year.
Norway's oil driven economy is the envy of many and unemployment is
just a little over five percent.
A portion of the region's unemployment woes can be attributed to the
cultural ethic which was advanced during the years of the welfare
state. Subsequent cuts in public spending, particularly in those
sectors that traditionally rely on large government spending,
exacerbated the problem. Labor market reform will be a critical issue
in these countries as public spending is cut back. Pensions and
structural issues such as union regulations all need to be reformed, a
task, which brings both challenges and unpopularity to the government
that accepts it. Not only will labor market reforms give governments a
daunting challenge; they could also cause the public to regret their
participation in the EMU. One positive point is that the countries
boast very high standards of living, which create healthy and highly
educated workforces.
The stock markets in Scandinavia are of medium size, and frequently
are strongly influenced by a small number of large multinational
firms. For example, in Sweden thirty firms constituted 75% of the
market's total capitalization and market turnover in 1997. Weighing
heavily in the equity markets are the electronics, forest products,
mining and manufacturing sectors. Market capitalization is highest in
Sweden at $273 billion, while the others are between $74 and $94
billion. Sweden also leads in numbers of firms (261) listed. Other
country's listings range from 126 (Finland) to 249 (Denmark).
Performance of Nordic country indexes tend to be skewed owing to the
dominant weightings that a few large companies have in the index. For
example, the market capitalization of Finnish telecommunications
equipment manufacturer Nokia comprises about one-third of the total
market capitalization of the Finnish exchange and has a substantial
impact upon the performance of the co mpanies in the HEX Index.
UNITED KINGDOM. The United Kingdom is the world's sixth largest
economy and is home to one of the oldest, most established, and most
active stock markets. An island nation, it built an empire of
strategically located trading posts such as Hong Kong and India. While
today the empire is largely dissolved, trade remains a very key
component of the U.K. economy. Strong domestic sectors are services,
natural energy resources, and heavy industry, including steel, autos,
and machinery. Imports generally emphasize food and manufacturing
components. The United Kingdom's trading partners are predominately
established market economies, such as the United States, Japan, and
other member countries of the European Union. The United Kingdom, via
the North Sea, also has substantial petroleum resources.
The London Stock Exchange is comprised of six offices scattered
throughout Great Britain and Northern Ireland. It lists over 2900
firms, and trades both foreign and domestic securities as well as
securities issued by the British Government. A vast majority of the
firms listed (80%) are from the United Kingdom. Total market
capitalization in 1997 was over $5,440 billion. Such size prevents the
stock market from being overly sensitive to the performance of
individual firms.
In 1997 the U.K. posted its sixth year of recovery with GDP growth of
3.5%, the third highest in the EU. The labor market also appears to
have improved as pay settlements and wages remain under control
despite the employment rate falling from 6.5% to 5% over the year. The
strengthening economy prompted a sharp acceleration in consumer
spending and, in response, the nation's Monetary Policy Committee was
forced to raise base rates. The interest rate rise added fuel to an
already robust sterling which rose 8.6% in 1997 after appreciating by
15.6% in 1996. This proved particularly damaging to the manufacturing
sector and, although exports held up well during the year, there were
early indications that a decline was underway. Inflation is low,
making the country attractive for foreign investment. Investment is
especially attractive to the United States, with which the United
Kingdom shares many market similarities. Each country is the other's
largest foreign investment partner.
Under Conservative Party leadership in the early 1980s, the United
Kingdom privatized many state-run utilities, such as British Gas and
British Telecom. The success of these efforts is evidence both of the
strong entrepreneurial spirit of British society and also a
fundamental rejection of the welfare state policies that dominated the
scene in the early post-war period. Even today, the Labour Party has
shed much of its socialist economic platform, reflecting a strong
break away from policies that continue to be popular in other European
countries. Eager to attract foreign investment the new administration
is not expected to undo any of the major reforms put in place by the
Conservatives during their last 18 years in power. Some changes could
include an increase in spending on social programs, a slowing of
privatization, and an increase in corporate taxes. Tight monetary
policy and interest rate hikes could be used to keep inflation below
the government's self-imposed 2.5% ceiling. In addition, the
government will probably wish to rebuild ties with the rest of the EU
and has already taken steps to get the pound back into the European
system by increasing the independence of the country's central bank.
Nevertheless, there appears to be some nervousness among many
investors who see the U.K. market lagging behind the continental
European stock markets where they see more compelling prospects for
economic growth. In addition, the manufacturing industry is suffering
from the pound's lofty valuation and many fear that an economic
slowdown could spread to the services sector.
The political scene in London is largely shaped by positions regarding
EMU. Pro Europe MPs in the Tory opposition leadership were
marginalized after the 1997 election, further polarizing the positions
of the two parties. Despite this expression of support, the United
Kingdom continues to be overtly less enthusiastic about EMU than other
countries in Europe and has not committed itself to immediately
joining the new currency once it is established. While the new
government has stated that it hopes to meet the Maastricht criteria,
it is less a self-imposed pressure on the U.K. government than it is
for other countries in the Union. Signing on to the EU Social Charter
would neutralize the policies which have set the United Kingdom above
other countries in attracting investment, such as wages and employment
conditions.
SPECIAL CONSIDERATIONS REGARDING ASIA
Asia has undergone an impressive economic transformation in the past
decade. Many developing economies, utilizing substantial foreign
investments, established themselves as inexpensive producers of
manufactured and re-manufactured consumer goods for export. As
household incomes rose, middle classes increased, stimulating domestic
consumption. In recent years, large projects in infrastructure and
energy resource development have been undertaken, and have benefited
from cheap labor, foreign investment, and a business friendly
regulatory environment. During the course of development, democratic
governments fought to maintain the stability and control necessary to
attract investment and provide labor. Subsequently, Asian countries
today are coming under increasing, if inconsistent, pressure from
western governments regarding human rights practices.
Manufacturing exports declined significantly in 1997, due to drops in
demand, increased competition, and strong performance of the U.S.
dollar. This significant decline is particularly true of electronics,
a critical industry for several Asian economies. Declines in exports
reveal how much of the recent growth in these countries is dependent
on their trading partners. Many Asian exports are priced in U.S.
dollars, while the majority of its imports are paid for in local
currencies. A stable exchange rate between the U.S. dollar and Asian
currencies is important to Asian trade balances.
Despite the impressive economic growth experienced by Asia's emerging
economies, currency and economic concerns have recently roiled these
markets. Over the summer of 1997, a plunge in Thailand's currency set
off a wave of currency depreciations throughout South and Southeast
Asia. The Thai crisis was brought on by the country's failure to take
steps to curb its current-account deficit, reduce short-term foreign
borrowing and strengthen its troubled banking industry, which was
burdened by speculative property loans. Most of Southeast Asia's stock
markets tumbled in reaction to these events. Investors were heavy
sellers as they became increasingly concerned that other countries in
the region, faced with similar problems, would have to allow their
currencies to weaken further or take steps that would choke off
economic growth and erode company profits. For U.S. investors, the
impact of the market declines were further exacerbated by the effect
of the decline in the value of local currencies versus the U.S.
dollar.
The same kind of concerns that effected Thailand and other Southeast
Asian countries subsequently spread to North Asia. To widely varying
degrees, Taiwan, South Korea and Hong Kong all faced related currency
and/or equity market declines. Due to continued weakness in the
Japanese economy combined with the reliance of Asian economies on
intra-Asian trade and capital flows, most of the region was mired in
their worst recessions since World War II.
Investors continue to face considerable risk in Asian markets as
political, economic and currency turmoil has continued to undermine
market valuations throughout the first half of 1998. Rising
unemployment, food shortages and declining purchasing power could lead
to social unrest and threaten the orderly functioning of government.
Currency devaluations also increase pressure on both the consumers who
must pay more for imported goods and on many businesses that must deal
with the rising costs of raw materials. For U.S. investors, weakening
local currencies erode their returns in these markets upon currency
translation. Certainly, the resolve of the region's governments to
adhere to International Monetary Fund-mandated benchmarks will be
sorely tested, as their implementation could further exacerbate these
pressures on the nation's populace and businesses. In addition,
Japan's paralysis is fast becoming a problem for Asia. Worsening
Japanese banking problems could lead to a contraction of credit for
all of Asia and slow rehabilitation in the region. Similarly, a
significant portion of both domestic and foreign investors have fled
these markets in favor of safer havens outside of the region and will
not likely return until they see more evidence that these problems are
being effectively addressed. The scope and magnitude of the tasks that
these countries face in resolving their problems could mean that
investors will see a continuation of high market volatility over an
extended period.
JAPAN. A country of 126 million with a labor force of 64 million
people, Japan is renowned as the preeminent economic miracle of the
post-war era. Fueled by public investment, protectionist trade
policies, and innovative management styles, the Japanese economy has
transformed itself since the World War II into the world's second
largest economy. An island nation with limited natural resources,
Japan has developed a strong heavy industrial sector and is highly
dependent on international trade. Strong domestic industries are
automotive, electronics, and metals. Needed imports revolve around raw
materials such as oil, forest products, and iron ore. Subsequently,
Japan is sensitive to fluctuations in commodity prices. With only 19%
of its land suitable for cultivation, the agricultural industry is
small and largely protected. While the United States is Japan's
largest single trading partner, close to half of Japan's trade is
conducted with developing nations, almost all of which are in
southeast Asia. Investment patterns generally mirror these trade
relationships. Japan has over $100 billion of direct investment in the
United States.
The Tokyo Stock Exchange (TSE) is the largest of eight exchanges in
Japan. The exchanges divide the market for domestic stocks into two
sections, with larger companies assigned to the first section and
newly listed or smaller companies assigned to the second. In 1997,
1,805 firms were listed on the TSE, 96% of which were domestic. Some
believe that the TSE has a tendency to be strongly influenced by the
performance of a small circle of large cap firms that dominate the
market. The two key indexes are the Tokyo Stock Price Index (TOPIX)
and the Nikkei. In 1997, TSE performance was disappointing, with the
TOPIX down 28% for the year.
Since Japan's bubble economy collapsed seven years ago, the nation has
drifted between modest growth and recession. By mid-year 1998 the
world's second largest economic power had slipped into its deepest
recession since World War II. Much of the blame can be placed on
government inaction in implementing long-neglected structural reforms
despite strong and persistent proddings from the International
Monetary Fund and the G-7 nations. Steps have been taken to institute
deregulation and liberalization of protected areas of the economy, but
the pace of change has been disappointedly slow.
Unemployment levels, already at record rates when measured by the
broader criteria used in many other countries, have been an area of
increasing concern and a major cause of recent voter dissatisfaction
with recent governments. However, the most pressing need for action is
the daunting task of overhauling the nation's financial institutions
and securing public support for taxpayer-funded bailouts. Banks, in
particular, must dispose of their huge overhang of bad loans and trim
their balance sheets in preparation for greater competition from
foreign financial institutions as more areas of the financial sector
are opened. Successful financial sector reform would allow Japan's
financial institutions to act as a catalyst for economic recovery at
home and across the troubled Asian region. Further steps toward
complete financial liberalization are in the initial stages of
implementation. Proposals under consideration could lower many
barriers allowing foreign firms greater and cheaper access to funds,
and the recent relaxation of restrictions on the insurance market also
promise greater access to foreign companies. A large factor in
determining the pace and scope of recovery is the government's
handling of deregulation programs, a delicate task given the recent
changes in Japanese politics.
Recent political initiatives in Japan have fundamentally transformed
Japanese political life, ushering in a new attitude which is strongly
reverberating in the economy. The Japanese Parliament (the Diet) had
been consistently dominated by the Liberal Democratic Party (LDP)
since 1955. The LDP dynasty, recently fraught with scandal,
corruption, accusations of maintaining a virtual monopoly, effectively
ended in 1994 as a result of electoral reform measures that brought
Diet seats to previously underrepresented areas. The first election
under this new system was held in October 1996. While the LDP remained
as the ruling party, it did so from a minority position. A key result
of the electoral reforms has been a strengthening of ideas of
opposition parties. Indeed, many of the LDP's recent reforms
originated with the leaders of the opposition New Frontier Party. The
LDP's ability to consistently produce bold innovations in a
politically competitive environment is untested. The opposition
parties suffer from structural and organizational weaknesses.
Infighting and defections are common. This inexperience with a true
multi-party system has caused the rise and fall of four coalition
governments in recent years. Between the adjusting of the monolithic
LDP to a more demanding and competitive system and the settling of the
opposition parties, Japan's political environment remains unstable.
The desire for electoral reform arose out of what many see as a basic
change in Japanese public opinion in recent years. Faced with
recurring scandal and corruption, Japanese society has come to demand
more accountability from their leaders, more transparency in their
institutions, and less interference from their intensely bureaucratic
government. This attitude was reflected in the results of the recent
election where candidates of the LDP party were heavily defeated in an
election for the upper house of parliament and prime minister
Hashimoto was forced to resign. The election results were considered
to be a repudiation of the government's failure to come to grips with
the countries economic decline, widening corruption scandals and a
lack of any discernable progress in addressing the nation's banking
problems.
Nevertheless, sustaining reforms and recovery are not guaranteed.
Drops in consumption, increased budget deficits, or halting
deregulation could exacerbate the nation's economic woes. Furthermore,
as a trade-dependent nation long used to high levels of government
protection, it is unclear how the Japanese economy will react to the
potential adoption of the trade liberalization measures which are
constantly promoted by their trading partners. In addition, as the
largest economy in a rapidly changing and often volatile region of the
world, external events such as the Korean conflict could effect Japan.
As many of the governments of Southeast Asia frequently face domestic
discontent, and as many of these countries are Japanese trading
partners and investment recipients, their internal stability and its
impact on regional security are of tremendous importance to Japan.
Also of concern are Japan's trade and current-account surpluses. If
they continue to grow, they could lead to an increase in trade
friction between Japan and the United States. Additionally, with
inflationary pressures largely absent and wholesale prices falling,
Japan may be entering a period of deflation. A deflationary
environment would both hit corporate profits and increase the debt
burden of Japan's most highly leveraged companies.
CHINA AND HONG KONG. China is one of the world's last remaining
communist systems, and the only one that appears poised to endure due
to its measured embrace of capitalist institutions. It is the world's
most populous nation, with 1.22 billion people creating a workforce of
699 million people. Today's Chinese economy, roughly separated between
the largely agricultural interior provinces and the more
industrialized coastal and southern provinces, has its roots in the
reforms of the recently deceased communist leader Deng Xiaoping.
Originally an orthodox communist system, China undertook economic
reforms in 1978 by providing broad autonomy to certain industries and
establishing special economic zones (SEZs) to attract foreign
investment (FDI). Attracted to low labor costs and favorable
government policies, investment flowed from many sources, with Hong
Kong, Taiwan, and the United States leading the way. Most of this
investment, has been concentrated in the southern provinces,
establishing manufacturing facilities to process goods for re-export.
The result has been a steadily high level of real GDP growth,
averaging 11.35% per year so far this decade. With this growth has
come a doubling of total consumption, a tripling of real incomes for
many workers, and a reduction in the number of people living in
absolute poverty from 270 to 100 million people. Today there is a
market of more than 80 million people who are now able to afford
middle class western goods.
Such success has not come without negatives. As a communist system in
transition, there still exist high levels of subsidies to state-owned
enterprises (SOE) which are not productive. At the end of 1997, it was
reported that close to half of the SOEs ran losses. In addition, the
inefficiencies endemic to communist systems, with their parallel (thus
redundant) political, economic and governmental policy bodies,
contribute to high levels of inflation. Fighting inflation and
attempting to cool runaway growth has forced the government to
repeatedly implement periods of fiscal and monetary austerity.
Periodic intervention seems to be their chosen method of guarding
against overheating.
Performance in 1997 reflects this dynamic between growth, inflation,
and the government's attempts to control them. Growth slowed to 9.1%,
largely as a result of a tightening of credits to SOEs. Policy was a
mix between a loose monetary stance and some relatively austere fiscal
positions. While growth was a priority, it came at the cost of
double-digit inflation.
China has two stock exchanges that are set up to accommodate foreign
investment, in Shenzhen and in Shanghai. In both cases, foreign
trading is limited to a special class of shares (Class B) which was
created for that purpose. Only foreign investors may own Class B
shares, but the government must approve sales of Class B shares among
foreign investors. As of December 1997, there were 51 companies with
Class B shares on the two exchanges, for a total Class B market
capitalization of $2.1 billion U.S. dollars. In 1997, all of China's
stock market indices finished the year below the level at which they
began it. These markets were buoyed by strong speculative buying in
the year's second quarter. Market valuations peaked in September and
were subsequently hit by a heavy sell off from October onwards.
In Shanghai, all "B" shares are denominated in Chinese renminbi but
all transactions in "B" shares must be settled in U.S. dollars. All
distributions made on "B" shares are also payable in U.S. dollars, the
exchange rate being the weighted average exchange rate for the U.S.
dollar as published by the Shanghai Foreign Exchange Adjustment
Center. In Shenzhen, the purchase and sale prices for "B" shares are
quoted in Hong Kong dollars. Dividends and other lawful revenue
derived from "B" shares are calculated in renminbi but payable in Hong
Kong dollars, the rate of exchange being the average rate published by
the Shenzhen Foreign Exchange Adjustment Center. There are no foreign
exchange restrictions on the repatriation of gains made on or income
derived from "B" shares, subject to the repayment of taxes imposed by
China thereon.
China's proven ability to nurture domestic consumption and expand
export markets leads many to believe that the bulk of its growth has
yet to be seen. Most sources, notably the World Bank, predict future
growth levels through the year 2000 of over 7%. This auspicious
indicator notwithstanding, there are a few special considerations
regarding China's future. While this list is not all-inclusive, it
does highlight some internal and external forces that have a strong
influence on the country's future.
To begin with the internal issues, one matter is that infrastructure
bottlenecks could prove to be a problem, as most FDI has been
concentrated in manufacturing and industry at the expense of badly
needed transportation and power improvements. Secondly, as with all
transition economies, the ability to develop and sustain a credible
legal, regulatory, and tax system could influence the course of
investments. Third, environmentalists warn of the current and looming
problems regarding pollution and resource destruction, a common result
of such industrial growth in developing economies which can't afford
effective environmental protection. This is a particularly noteworthy
issue, given the size of the country's agricultural sector. Lastly,
given China's unique method of transition there exists the possibility
that further economic liberalization could give rise to new social
issues which have heretofore been effectively mitigated. One such
issue is the possible dismantling of inefficient state-owned
enterprises, something which is potentially socially explosive given
the communist policy of providing social welfare through the firm.
Exposing what many economists feel is a high level of open
unemployment and widening the gap between the newly empowered business
class and the disenfranchised could pressure the government to retreat
on the road to reform and continue with massive state spending.
Regarding external issues, China's position in the world economy and
its relationship with the United States also have a strong influence
on it's economic performance. The country has recently enjoyed an
almost uninterrupted positive trade balance. As the largest country
amidst the fastest growing region in the world, China and its
multi-million person ethnic diaspora have a significant role to play
in Asian growth. Should China ascend to become a member of the World
Trade Organization (WTO), as it desires, such movements of capital and
goods will become easier.
Export growth in China has recently been subject to fluctuations
caused by external political events, such as the U.S. elections and
debates over human rights issues. U.S. policy (specifically most
favored nation status) is frequently reconsidered by various elements
of the U.S. government in reaction to a variety of issues, from
nuclear proliferation to Tibetan rights. Significant changes in U.S.
policy could impact China's growth, as close to 9% of their GDP is
trade with the U.S. and the U.S. represents the third biggest investor
in China.
Perhaps the strongest influence on the Chinese economy is the policy
that is set by the political leaders in Beijing and this is somewhat
of an open question as the death of Deng has created a slight vacuum
in Chinese political society. A large part of Deng's strength derived
from a newly empowered business class endeared to him and it is
unclear if any of his successors can harness this loyalty as
effectively as he did. Sustained growth is one possible way to win
over this constituency, leading many to believe that the future
Chinese leadership will respect market forces at least as much as Deng
did. Choosing between double digit growth and reduced inflation could
continue to be a central economic question, with 1997 (Deng
influenced) decisions pointing to an acceptance of lower, albeit still
high, GDP growth.
Another key political player is the Chinese army. With provocative
situations occurring in Taiwan and the Korean peninsula, and with ever
present pressure from internal democrats, the military is in a
position of leverage regarding the shaping of the future political
scene. Finally, there is the communist party, long seen as a loser
amongst the beneficiaries of Deng's reforms. Many view the battle
between the party and the middle class as a zero sum game and as the
leadership settles, respective alliances and constituencies could
determine how much the government pursues its growth strategy.
As with almost all foreign investments, U.S. investors face the
significant risk of currency devaluation by the Chinese government.
Despite assurances from officials reemphasizing China's policy
commitment to maintain the current exchange rate of the renminbi
against the U.S. dollar, many observers believe that this policy will
be soon tested as China monitors the effect of regional devaluations
on exports. Government authorities feel that China has boosted its
international reputation by refraining from devaluing the renminbi at
a time when such a move could further destabilize the currencies of
its neighbors. Nevertheless, Chinese authorities have recently hinted
that a continued slide in the Japanese yen would make it very
difficult for them to maintain their promise not to devalue. If
efforts to prevent the slide in the yen fail, then China may be pushed
into devaluing their currency. For U.S. investors, a devaluation would
erode the investment returns on their investments.
The last significant force in the Chinese economy is the acquisition
on July 1, 1997 of Hong Kong as a Special Autonomous Region (SAR). For
the past 99 years as a British Colony, Hong Kong has established
itself as the world's freest market and more recently as an economic
gateway between China and the west.
A tiny, 814 square mile area adjacent to the coast of southern China
with a population of 6.3 million, Hong Kong has a long established
history as a global trading center. Originally a manufacturing-based
economy; most of these businesses have migrated to southern China. In
their place has emerged a developed, mature service economy which
currently accounts for approximately 80% of ITS GROSS DOMESTIC
PRODUCT. Hong Kong trades over $400 billion in goods and services each
year with countries throughout the world, notably China, Japan, and
the U.S. Its leading exports are textiles and electronics while
imports tend to revolve around foodstuffs and raw materials. Hong
Kong's currency, the HK dollar, was pegged to the US dollar at
HK7.7=$1 in 1983 and investors consider it to be a stable mechanism in
enduring confidence lapses and speculator attacks. The operation of a
currency board and accumulation of U.S. dollars in its monetary fund
is partly responsible for this stability.
The stock market (SEHK) listed 658 publicly traded companies by the
end of 1997, with total capitalization at $413 billion U.S. dollars. A
significant portion of SEHK firms are in real estate, and are
sensitive to fluctuations in the property markets. 1997 was a
tumultuous year for the Hong Kong stock market as a speculative attack
on the Hong Kong dollar in October provoked a global sell-off in
equities. Investors were shocked as the Hong Kong market, long
regarded as a safe-haven, plunged 40% in October. The stock market's
decline and the attack on the local currency sent interest rates
soaring, precipitating an erosion in local property values. This in
turn put additional pressure on the banking sector which is heavily
geared to real estate. The Hong Kong market's dramatic downturn
illustrates how vulnerable it is to the Asian region's economic
problems. The structural problems besetting Hong Kong's neighbors in
Southeast and Northeast Asia may not be quickly resolved. Exports to
the Asian region may remain depressed as the process of economic
reform in countries such as Thailand, Malaysia, Indonesia, Japan and
South Korea will likely hold back economic growth in the area.
Accordingly, Hong Kong and China will likely be more dependent upon
demand from the U.S. and Europe for some time to come.
As a trade center, Hong Kong's economy is very closely tied to that of
its trading partners, particularly China and the United States. In the
wake of Deng's reforms, Hong Kong and China have become increasingly
interdependent economically. Currently, China is Hong Kong's largest
trading partner. After Taiwan, Hong Kong is the largest foreign
investor in China, accounting for about 60 percent of overall foreign
direct investment. Hong Kong plays a particularly significant role as
an intermediary in U.S.-China trade. In 1996, it handled 56% of
China's exports to the U.S. and 49% of Chinese imports from the U.S.
The critical question regarding the future of Hong Kong is how the
Chinese leadership will exert its influence now that it has become a
Special Autonomous Region (SAR). This new status is in accordance with
pledges made at the Joint Declaration on the Question of Hong Kong
made by the Chinese and British governments in 1984. Leading up to the
hand over of the colony, the Chinese government has pledged to uphold
the Basic Law of 1990 which states that Hong Kong's status as an
unfettered financial center will remain intact for at least 50 years
after 1997. Part of this status includes retaining the legal,
financial and monetary systems (specifically the HK$/US$ peg) which
guarantee economic freedom and foster market expansion.
Many investors and citizens are closely monitoring Chinese actions in
order to assess their actual commitment to these principles. Already
there is evidence of a clear, if slow, current of political change
coming from Beijing. Certain actions, such as the curbing of media
freedoms, indicate that there is the possibility of significant
interference from communist authorities. More significant was the
clash between the U.K. and Chinese governments over China's abolition
of the elected legislature and subsequent installation of governmental
leaders in both the executive and the legislature who are directly
appointed by Beijing. Mr. Tung Chee-hwa, appointed as the first Chief
Executive of the SAR, has surrounded himself with like-minded
Machiavellian figures who have strong ties to both market successes
and Beijing leaders. They are portrayed as believing in the powers of
capitalism and central authority, if not democracy, leading some to
speculate that the SAR could develop into a South Korean style of
corporatism which preserves the economic status quo without
incorporating further political freedoms.
In assessing the prospects for Hong Kong's future, it must be noted
that China has a very strong interest in a prosperous SAR.
Particularly if Beijing pursues a growth strategy as it has in the
past, Hong Kong can be a key agent in China's economic policy. Desire
for investment and new technologies necessary for modernization is a
strong incentive to send positive signals through the treatment of
Hong Kong. This is reinforced by the respect Hong Kong is due given
its role in China's recent dynamic performance.
To be sure, there are more adamant concerns over the effect of the
acquisition. Many are skeptical of Beijing's ability to leave the
currency alone. Some note the continuous drop in GDP as evidence that
Hong Kong has yet to mature as a service economy and that the
workforce hasn't fully adjusted to the switch out of manufacturing.
Additionally, by tying Hong Kong so closely with China, it now must
weather the ups and downs of Beijing's relationship with the U.S. Most
Favored Nation Status now means just as much, if not more, to the SAR
than it does to Beijing, with some asserting that revoking MFN could
result in substantial losses in trade, income, and jobs.
Hong Kong's competitive advantage has traditionally been a mix of
geography, market freedoms and entrepreneurial spirit. The
preservation of these advantages is now a function of the island's
independence from Beijing. Today's investors will be vigilant in
measuring how much of that independence is retained after July 1,
1997.
AUSTRALIA. Australia is a 3 million square mile continent (about the
size of the 48 continental United States) with a predominantly
European ethnic population of 18.2 million people. A member of the
British Commonwealth, its government is a democratic, federal-state
system.
The country has a western style capitalist economy with a workforce of
9.2 million people that is concentrated in services, mining, and
agriculture. Australia's large agricultural sector specializes in
wheat and sheep rearing and together, these two activities account for
more than half of the country's export revenues. Australia also
possesses abundant natural resources such as bauxite, coal, iron ore,
copper, tin, silver, uranium, nickel, tungsten, mineral sands, lead,
zinc, diamonds, natural gas, and oil. The health of the country's
domestic economy is particularly sensitive to movements in the world
prices of these commodities. Primary trading partners are the United
States, Japan, South Korea, New Zealand, the United Kingdom and
Germany. Imports revolve around machinery and high technology
equipment.
Historically, Australia's strong points were its agricultural and
mining sectors. While this is still true to a large extent, the
government managed to boost its manufacturing sector by undertaking
protective measures in the 1970's and early 1980's. These have
subsequently been liberalized in an effort to spur growth in the
industrial sector. Today's economy is more diverse, as manufactures'
share of total exports is increasing. Part of the government's effort
to make manufacturing more competitive was a floating of the
Australian dollar in 1984, precipitating an initial depreciation, and
a campaign to reduce taxes. Such reforms have attracted foreign
investment, particularly in the transport and manufacturing sectors.
Restrictions do exist on investment in certain areas as media, mining
and some real estate.
With inflation well under control but unemployment stubbornly high and
signs of cyclical slack in the economy, Australia's monetary policy is
focused on preserving the low inflation environment while keeping
monetary conditions conducive to stronger economic growth. The
government has set a goal of achieving a government budget surplus in
fiscal year 1998/1999.
Australia is fully integrated into the world economy, participating in
GATT and also more regional trade associations such as the Asia and
the Pacific Economic Cooperation (APEC) forum. Future growth could
result from their movement towards regional economic liberalization,
but a countervailing force is the reality that some export markets in
Europe could be lost to continued European economic integration.
After suffering a significant recession in 1990-91, the Australian
economy has enjoyed six years of expansion. The medium-term outlook
appears favorable, with domestic spending supported by low interest
rates, improving consumer confidence and a strengthening labor market.
GDP growth has increased steadily throughout 1997. However, weakness
in commodity prices, particularly metal prices, coupled with an
increase in the nation's current account deficit have placed
significant pressure on the Australian dollar.
Investors should be aware that, while Australia's prospects for strong
economic growth appear favorable over the long-term, many sectors
currently face significant risks arising from the recent turbulence in
Asian countries, which account altogether for almost 60 percent of
Australia's exports. While projections already embody a more subdued
outlook for growth in these countries, there is a risk of this outlook
deteriorating further, especially in Japan and Korea.
Due to the large position that the agriculture and natural resource
sectors have in the nation's export driven economy, any weakness in
commodity prices may negatively impact both the economy and stock
prices. In addition, United States investors face the risk that their
investment returns from investments in Australia could be eroded if
the Australian currency declines relative to the United States dollar.
INDONESIA. Indonesia is a country that encompasses over 17,000 islands
on which live 195 million people. It is a mixed economy that balances
free enterprise with significant government intervention. Deregulation
policies, diversification of strong domestic sectors, and investment
in infrastructure projects have all contributed to high levels of
growth since the late 1980's. Indonesia's economy grew at 7.1% in
1996, the exact average of its performance for the current decade.
Growth in the 1990's had been fairly steady, hovering between 6.5-7.5%
for the most part, peaking at 8.1% in 1995. Moderate growth in
investment, including public investment, and also in import growth,
helped to slowdown GDP growth. Growth has been accompanied by
moderately high levels of inflation.
In recent years, Indonesia had been undergoing a diversification of
the core of its economy. No longer strictly revolving around oil and
textiles, it is now gaining strength in high technology manufactures,
such as electronics. Indonesia consistently runs a positive trade
balance. Strong export performers are oil, gas, and textiles and
apparel. Oil, once responsible for 80% of export revenues, now
accounts for only 25%, an indication of how far other (mostly
manufacturing and apparel) sectors have developed. Main imports are
raw materials and capital goods.
However, as with many of its Asian neighbors, Indonesia's bright
prospects came to a sudden halt in August of 1997 when the plunging
Thai baht began to destabilize the rupiah. By mid-year 1998 the local
currency had fallen more than 80% against the dollar, and hugely
increased the cost of servicing foreign debts; a collapse of the real
economy, and a growing number of bad loans. Various central bank
initiatives, including a doubling of interest rates, failed to halt
the currency's depreciation. The nation's banks, unable to service
their extensive short term borrowings, were suddenly in danger of
collapse. Of more than 200 local banks, a mere handful were estimated
to be solvent at mid-year 1998.
The social effects of this decline have been devastating. By the end
of 1998 the government expects 47% of the population to be living
below the poverty line and unemployment is expected to surpass 20% of
the workforce. This has led to an increase in social tensions and food
riots and large-scale strikes have broken out sporadically. Rioting
and attacks upon the countries business oriented ethnic Chinese
population have prompted as many as 80,000 to flee the country. Rising
popular opposition forced President Suharto to resign less than three
months after being appointed to his seventh consecutive five-year term
and was replaced by his vice-president, B. J. Habibie. The political
upheaval and resulting uncertainty has resulted in the further erosion
in public confidence at home and abroad.
The breakdown in public confidence in the Indonesian economy will
likely be difficult to reverse, and will prolong the period of
recovery. Resumption of lending by multilateral institutions under a
rescue package drawn up by the International Monetary Fund (IMF) may
speed up the process of restoring the faith in the government's
efforts to shore up the banking system. Nevertheless, even if the two
critical outstanding issues of restructuring the corporate sector's
external debt and shoring up the banking sector can be resolved this
year, the economy will remain weak in 1999 and recover only slowly in
the following years.
The Indonesian stock market plunged to record lows in 1997 under the
combined impact of the country's economic implosion, political
uncertainty and social unrest. The market's retreat continued into
mid-1998 as domestic and foreign investors fled the market for safer
havens overseas. While many investors believe that the market's steep
decline has brought valuations of a number of Indonesian companies to
very attractive levels, there remains considerable risk particularly
for foreign investors. As with most foreign investments, United States
investors could see their investment returns eroded if the Indonesian
currency declines in value relative to the U.S. dollar. Secondly, any
escalation of rioting and other forms of social unrest could be a
major obstacle in the path of economic recovery. Thirdly, many
question the will of the Indonesian government and its people to
accept the conditions of economic reform as mandated by the IMF.
Fourth, the Indonesian economy, currency and securities markets are
extremely sensitive to events that take place within the Asian region
and their fortunes are somewhat dependent upon how well other Asian
nations resolve their own economic and currency problems.
MALAYSIA. 1997 saw Malaysia's GDP growth slow to 7.4%, down from over
8.2% in 1996 and 9.5% in 1995. Inflation has been kept relatively low
at 3.8%. Performance in 1996 avoided the economy's potential
overheating as export growth, investment, and consumption all slowed.
A large part of Malaysia's recent growth is due to its manufacturing
industries, particularly electronics and semiconductors. This has led
to an increased reliance on imports; thus the economy is sensitive to
shifts in foreign production and demand. This is particularly true
regarding its main trading partners: the United States, Japan, and
Singapore. Such shifts were partly responsible for the slowdown in
1997. In addition, monetary policies to stem the threat of overheating
were evident, but the country still needs massive public and private
investment to finance several large infrastructure projects.
Government industrial policy seeks investment to create more value
added high technology manufacturing and service sectors in order to
decrease the emphasis on low skilled manufacturing. Already U.S.
investors have invested over $9 billion, and most of this is in
electronics and energy projects.
However, like its Asian neighbors, Malaysia has stumbled in its dash
to become a developed nation by 2020. The grandiose ambitions of
Malaysian Prime Minister Mahathir Mohamad have been set back by its
worst-ever currency crisis, which also brought a sharp fall in the
country's stock market. An overheated property market, a growing
current-account deficit and a highly leveraged economy, precipitated
much of the country's problems. Following the sharp decline of
Thailand's currency, the Malaysian ringgit came under severe pressure.
The Malaysian central bank attempted to defend the currency and the
resulting spikes in interbank rates marked the start of a period of
escalating interest rates. Once the central bank ceased using foreign
exchange reserves to slow the ringgit's depreciation in the
region-wide currency slide, the Malaysian currency quickly weakened
versus the United States dollar and by year end had declined by 35%.
By mid-year 1998, the outlook for the Malaysian economy remained bleak
as economists predicted that the economy would shrink by at least 5
percent this year, the first contraction in 13 years. The likelihood
that Malaysia will be forced to seek IMF assistance is increasing.
Although Malaysia does not have the high level of foreign debt that
has overwhelmed its Asian neighbors, domestic lending, at 170 percent
of GDP, was the highest in Southeast Asia when the currency crisis
struck. The nation's banks are now faced with a growing number of
unpaid loans as more businesses are struggling to stay afloat in the
sagging economic environment.
Adding to the bleak outlook is the government's seemingly confused and
erratic response to the nation's serious economic and currency crisis.
The Prime Minister is increasingly at odds with the finance minister
on what policies the country has to institute to remedy the country's
serious problems. Prime Minister Mahathir has abandoned the tight
money, financially conservative recovery policy endorsed by the IMF
and has placed the blame for the nation's troubles on foreign currency
and stock market speculators. The move risks triggering another round
of currency devaluations, inflation and, in the long run, economic
collapse.
Investors should be aware that investing in Malaysia currently entails
a number of potential risks, not the least of which is the
increasingly erratic economic policies of the Malaysian government
that are counter to the advice of the IMF and many of the developed
nations. In addition, the government appears to be escalating its
hostile attitude toward foreign investors. In September of 1998
Malaysian authorities imposed new restrictions on the foreign exchange
and securities markets. Included were limitations in repatriating the
investment proceeds of foreign investors.
While the Malaysian population has been relatively passive during the
first year of the economic meltdown, there could be mounting social
unrest if the crisis is prolonged. Should the country finally adopt
IMF remedies the Malaysian people may be reluctant to accept the
additional sacrifices that they will be called upon to endure. This
could seriously undermine the recovery of Malaysia's economy as well
as its currency and stock market. An increasingly hostile government
towards foreign investors could also lead to additional curbs on the
free access to their funds. As with other Asian markets, currency risk
remains substantial.
SINGAPORE. Since achieving independence from the British in 1965,
Singapore has repeatedly elected the People's Action Party (PAP) as
their government. It is a party that is so consistent it has only
offered up two prime ministers in this 32-year period. Elections in
January 1997 returned the PAP to power, signaling satisfaction with
their policy of close coordination with the private sector to
stimulate investment. Typical policies include selective tax
incentives, subsidies for R&D, and joint ventures with private firms.
While the combination of consistent leadership and interventionist
policies is sometimes seen as impeding civil liberties and
laissez-faire economics, it has produced an attractive investment
environment.
The Singapore economy is almost devoid of agriculture and natural
resources, not surprising given the island nation's geographic size.
Its strongest sector is manufacturing, particularly of electronics,
machinery and petroleum and chemical products. They produce 45% of the
world's computer disk drives. Major trading partners are Japan,
Malaysia and the United States.
The economic situation in Singapore registered a passable year in 1996
but weakened in early 1997, dragged down by the downturn in the global
electronics industry. However, it ended the year on a firmer footing
as real GDP growth rose from 4.1% in the first quarter to 7% by the
fourth quarter. Inflation remained low and the current account balance
maintained its large surplus. Property values have declined recently,
impacted by continuing oversupply.
Although Singapore boasts one of the strongest economies in Asia,
investors in that market face a number of possible risks. Chief among
these is that the country is not immune to the region's economic
troubles, as Singapore's neighbors account for nearly one-quarter of
its trade. Any prolonged regional economic downturn could slow its
growth. In addition, Analysts believe that there is considerable
downside risk in the current Singapore dollar exchange rate and any
decline in the Singapore currency versus the U.S. dollar could erode
the investment return of United States investors in that market.
Lastly, manufacturing, a major pillar of Singapore's economy, is
unlikely to sustain growth into 1998 as recent indications point to
continued excess capacity in the computer electronics industry.
SOUTH KOREA. South Korea has been one of the more spectacular economic
stories of the post-war period. Coming out of a civil war in the
mid-1950's, the country found itself with a destroyed economy and
boundaries that excluded most of the peninsula's mineral and
industrial resources. It proceeded over the next 40 years to create a
society that includes a highly skilled and educated labor force and an
economy that exploited the large amounts of foreign aid given to it by
the United States and other countries. Exports of labor intensive
products such as textiles initially drove the economy and were
eventually replaced by heavy industries such as automobiles.
Hostile relations with North Korea dictate large expenditures on the
military and political uncertainty and potential famine in the north
has put the south on high alert. Any kind of significant military
effort could have multiple effects, both positive and negative, on the
economy. South Korea's lack of natural resources put a premium on
imported energy products, making the economy very sensitive to oil
prices.
Since 1991, GDP growth has fluctuated widely between 5% and 9%,
settling down at 5.6% last year. Currently the labor market is in need
of restructuring, and its rigidity has hurt performance. Relations
between labor and the large conglomerates, or Chaebols, could prove to
be a significant influence on future growth. Inflation in the same
period has been consistently dropping, save a brief rise in 1994 and
finished the year at 4.5%. The country consistently runs trade
deficits, and the current account deficit widened sharply in 1996,
more than doubling to $19.3 billion. South Korea's strong domestic
sectors are electronics, textiles and industrial machinery. Exports
revolve around electronics, textiles, automobiles, steel and footwear,
while imports focus on oil, food, chemicals and metals.
The stock market (Korea Stock Exchange) is currently undergoing
liberalization to include more foreign participation, which was only
first allowed in 1992, but the bond market remains off limits until
1999. Foreign ownership has since been increased to 55% for all listed
stocks except three. The foreign ownership liberalization is in
response to the KSE 1996 performance, which was down 18%. The number
of listed companies totaled 726 in 1997, a decline of 34 from the
previous year, while the market's capitalization plummeted 70 percent
from its 1996 level.
Over the calendar year 1997, the Korean stock market extended its
two-year decline plunging by 42% to its lowest year-end level since
1986. The collapse came as a direct result of the Asian region's
currency crisis and the failure of several Korean conglomerates. In
the summer of 1997 the South Korean won hit record lows against the
U.S. dollar as a series of nationwide labor strikes aggravated the
already escalating trade deficit. Despite aggressive official
intervention to support the local currency, the won had fallen from
860 to 914 to the U.S. dollar by year-end.
The Korean market poses risks for current and prospective investors.
The Korean government will need to maintain public support to
implement the radical and difficult restructuring of the economy
demanded by the IMF under a $58 million loan package. This opposition
could come from the country's major conglomerates that have yet to
institute necessary restructuring initiatives, and from workers
protesting against rising unemployment.
In addition, relations with its long-standing enemy, North Korea have
been worsening as widespread famine could prompt another attack on its
southern neighbor to divert the attention of its people from their
suffering. More importantly, South Korea's heavy reliance on exporting
to the Asian region holds its economy hostage to the economic fortunes
of its neighbors.
THAILAND. The Thai economy has witnessed a fundamental transition in
recent years. Traditionally it was a strong producer of textiles,
minerals and agricultural products, but more recently it has tried to
build high technology export industries. This proved particularly
fortuitous in the mid 1990s when flooding wiped out much of their
traditional exports, but the newer industries remained strong, keeping
the growth rate above 8%. (This level had been achieved through the
1990s, giving the economy a name as one of the fastest growing in the
region.) Successive governments have also taken steps toward reducing
the influence of central planning, opening its market to foreigners
and abandoning five-year plans. This restructuring is still underway,
and the change can cause difficulty at times.
The political situation in Thailand is tenuous. Democracy has a short
history in the country, and power is alternatively obtained by the
military, a non-elected bureaucratic elite, and democratically elected
officials. The frequent transfers of power have generally gone without
divisive, bloody conflicts, but there are bitter differences between
the military and the political parties. Free elections in 1992 and
again in 1995 have produced non-military democratic leaders from
different parties, a healthy sign of party competition. More recently,
the dramatic downturn in the economy generated demands from all
sectors of society for the resignation of Prime Minister Chavalit. The
worsening economic situation threatened social stability of the nation
and the Prime Minister resigned after barely one year in power.
In 1997 GDP contracted by approximately 0.3%, compared with 7.2%
growth in 1996 and 8.6% in 1995. The 1997 current account deficit was
1.9% of GDP as against 7.9% in 1996. Inflation was 5.6%, however, the
government has projected a 16.2% rate for 1998. One cause for
Thailand's economic downturn was a decline in export growth as its
manufacturing industry faces stiff competition from low priced
competitors and its agriculture has suffered a severe drop in
production. In 1996, Thailand's currency, the baht, was linked to a
U.S. dollar dominated basket, and monetary policy had remained tight
to keep that link strong and avoid inflationary pressures.
The situation changed in early 1997, however, with the revelation of
many bad bank loans and a bubbling of property prices due to
over-investment. Many companies, faced with slowing exports, stopped
servicing their debts. Many other firms have stayed alive only with
infusions of public cash, and the government has been slow to let many
property laden financial firms fail. The stock market has reacted
strongly, dropping to new lows for the decade. Reluctant to float the
baht, indeed promising that it wouldn't, the government relented in
early July hoping to revive export and stock market growth. The
subsequent devaluation (approximately 20% against the dollar in the
first month) led to the need for a $16 billion loan coordinated by the
IMF to shore up foreign reserves. Most of the loan came from
neighboring countries led by Japan, indicating their desire to both
protect their own investments in Thailand, and also mitigate the
effect of the devaluation on their home currencies.
The total impact of the entire situation is negative, particularly on
inflation, unemployment and foreign debt. Significant turnover and a
major gamble on the currency has put the government in a precarious
position, especially given the fact that it is a six party coalition.
Dissatisfaction amongst the military, always a political factor, is
high.
The new Thai government has produced mixed results in their efforts to
remedy the country's serious economic woes. Crucial to Thailand's
recovery are both the outcome of newly instituted economic and banking
reforms and the outlook for both China's and Malaysia's economies.
Looking forward, currency risk remains high and the baht will likely
be highly vulnerable to regional contagion.
INDIA. India is the second most populous and seventh largest
country in the world. Although the country occupies only 2.4% of the
world's land area, it supports over 15% of the world's population.
Only China has a larger population. The Indian government is
classified as a federation, or union, and is, under its constitution a
"sovereign, socialist, secular, democratic republic" composed of 25
states and 7 union territories. Like the United States, it has a
federal form of government. However, the central government in India
has greater power in relation to its states, and is patterned after
the British parliamentary system.
India's population was estimated at 952 million in 1997 and has
been projected to double by the year 2028. Religion, caste, and
language are major determinants of social and political organization.
Although 83% of the people are Hindu, India also is the home of more
than 120 million Muslims - one of the world's largest Muslim
populations. Despite economic modernization and laws countering
discrimination against the lower end of the class structure, the caste
system remains an important factor in Indian society.
India has the world's fifth largest economy in terms of purchasing
power parity. About 62% of the population depends directly on
agriculture. Industry and services sectors are growing in importance
and account for 29% and 42% of GDP, respectively, while agriculture
contributes about 29%. More than 35% of the population lives below
the poverty line, but a large and growing middle class of 150 - 200
million has disposable income for consumer goods. In the industrial
sector, India now manufactures a variety of finished products for
domestic use and export.
India gained independence in 1947 after two centuries of British
colonial rule. Economic policies in the first four decades of
independence were driven by its leaders' deep distrust of foreign
economic interests and admiration for the Soviet model of centrally
planned industrialization. Accordingly, the country has followed a
policy regime that has been characterized by extreme protectionism and
public sector dominance in strategic sectors. Nevertheless, India has
developed a large and diversified private sector, and agriculture has
remained almost entirely in private hands.
India's treatment of foreign investment has been alternatively
encouraging, ambivalent or difficult, depending on the industry sector
involved. Most industries are open to limited investment by
multinational companies while others are closed to foreign investors.
Sectors closed to foreign investment currently number five: mineral
oils; railway transport; war ships and the military-related areas of
aircraft; atomic energy; and associated minerals. Although recent
measures have liberalized the investment limits on a number of major
industries, several political parties, deeply hostile to foreign
investment, have made these issues the subject of pre-election
rhetoric.
India has a large and active stock market which ranks twentieth
globally in market value. There are 23 recognized stock exchanges in
India. The BSE is the premier exchange; accounting for more than
one-third of trading volume, over 70% of listed capital and over 90%
of market capitalization. As of the end of 1997 there were 5,842
listed companies on the BSE with a total market value of US$128.27
billion.
Relations between India and its neighbors have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir,
and repeated attempts at mediation have not resolved this conflict.
The dispute has triggered wars between the two countries in 1947, 1965
and 1971. More recently, India's nuclear tests prompted Pakistan to
reply in kind, despite Western efforts to dissuade it. Economic
sanctions imposed by the U.S. and other industrialized countries
following the nuclear tests in May of 1998 have not been without
consequences. While their short-term, direct effect on the economy
has been relatively modest, the indirect and medium-term consequences
of sanctions could become more serious. Relations with Nepal, with
Bhutan and with China are marred by China's two territorial claims in
the nation's east and north. Historical suspicions remain following
the 1962 border war between India and China and the two countries have
continued to work towards expanding their political and economic
influence in the South Asian region.
While India presents many attractions for U.S. investors, there
are a number of factors that could pose considerable risk to those
investing in this market: Contemporary politics have become
increasingly unpredictable since the resounding defeat of Congress in
1996 after decades at the helm. The alignment of political forces has
become increasingly erratic among factions, parties and interest
groups. Some factions within the current administration have been
hostile to foreign investment and could impose measures that would be
detrimental to the interests and rights of these investors.
India's foreign relations in the region remain fragile and the
possibility of increased tensions or open warfare is an ever-present
danger to the stability of the market. In addition, the monetary cost
of economic sanctions resulting from recent nuclear tests could
substantially impact economic growth and corporate profits. Sanctions
affect India in several ways. Crucially, there will be a deferment or
loss of direct aid and concessional loans, from multilateral agencies
(notably the World Bank) and bilateral donors (the U.S., Japan and
Canada, among others). The loss of export credit and guarantees,
notably from the US Export-Import Bank could delay and increase the
cost of large infrastructure and foreign investment projects. This, in
turn, could have a negative impact upon creditor and investor
confidence in the Indian market.

Relative to the more mature markets of the world, the level of
corporate disclosure in India is very low and companies are generally
less disposed to act in the best interests of their shareholders.
Accordingly, investors face a much more difficult task in ascertaining
the true investment worth of a particular stock.

As with most other emerging markets, the Indian market has been
negatively impacted by recent economic and currency turmoil in the
world's less developed regions and is likely to be similarly impacted
in any future weakness. Currency fluctuation is an additional risk to
U.S. investors as any weakening in the value of the Indian rupee
versus the U.S. dollar could erode the value of their investments upon
currency translation.
TAIWAN. Taiwan is one of the most densely populated countries in
the world, with a population of over 20 million, or 1,504 persons per
square mile. Most Taiwanese are descendants of immigrants who came
from China's Fukien and Kwantung provinces over 100 years ago.
Mandarin is the official language while English is taught to all
students as their first foreign language, beginning in the seventh
grade.
Although settled by Chinese in the seventeenth century, Taiwan
(also called Formosa) was ruled by Japan from 1895-1945 and
subsequently reverted to Chinese administration at the end of World
War II. In 1949, nationalist leader Chiang Kai-shek took control of
the island after fleeing mainland China with two million supporters,
following his defeat at the hands of the communists. Since that time,
Taiwan has been governed by the right-wing Kuomintang (KMT) which was
founded by Chiang Kai-shek. In 1996 the island held its first popular
presidential elections in which the KMT retained its control.

Both theTaipei and Beijing governments consider Taiwan an integral
part of China. The KMT has vowed to reconquer the mainland while The
People's Republic of China has urged Taiwan to accept a peaceful
reunification with the mainland. China has proposed that they regain
sovereignty over Taiwan on the basis of a "one country-two systems"
arrangement similar to that of the recent reunification of Hong Kong.
Nevertheless, China has periodically threatened to annex Taiwan
through military action.
Under the KMT government, Taiwan achieved a remarkable record of
economic growth with the assistance of massive U.S. aid in the early
years of the post war period. Today, Taiwan has one of the world's
strongest economies and is among the ten leading capital exporters.
Between 1980 and 1990 real GDP expanded at an average annual rate of
7.9%. During 1990-95 an annual GDP growth rate of 6.6% was recorded.
In 1996, compared with the previous year, GDP increased by 5.7% in
real terms, while it was anticipated that growth would exceed 6.0% in
1997 and 1998. Between 1960 and 1973 the island's exports rose 20 fold
and real GDP increased 3.3 times. Even more remarkable, as the shift
of millions of people from villages to cities took place, was the high
level of employment. Between 1964 and 1995 the unemployment rate
rarely exceeded 2% of the work force in any year.
Prior to 1967 foreign sources played a large role in financing
capital formation expansion, but thereafter domestic savings financed
the entire growth of net capital formation. By 1986 the ratio of
national gross savings to GDP had reached 38.5%. Thereafter the ratio
declined, standing at 26.0% in 1996. The expansion of foreign trade
was the major reason for Taiwan's rapid capital growth. Much of the
growth in exports could be attributed to the competitiveness of its
exports in price and quality in world markets.
Since the mid-1990s the island's traditional reliance upon light
industry has gradually given way to high technology activities, as
emphasis shifted from labor-intensive to capital-intensive production.
The electrical and electronic machinery sector continued to show
particularly strong growth in the 1990s as did the chemical sector.
Taiwan also has eleven vehicle manufacturers, all of which have
contracted joint ventures with foreign companies. By the mid-1990s
Taiwan had become one of the world's largest producers of personal
computers and semiconductors.
Taiwan has a large and active stock market ranking twelfth by
market value among the world's markets. The TSE in Taipei is the only
official stock exchange in Taiwan, although there is also a small OTC
market. At the end of 1997 there were 404 companies listed on the TSE
with a market capitalization of US$288.1 billion. The market is
dominated by individual investors, who account for 90.7% of total
turnover in listed shares. Many local institutions, such as banks,
insurance companies or pension funds, are prohibited or restricted
from investing in listed shares. Foreign individuals and
institutional investors meeting certain criteria have been able to
invest in the market directly since 1990 but are subject to certain
limits. Foreign involvement in the market through qualified foreign
institutional investors and mutual funds is small but growing.
Investing in Taiwan entails special risks as well as those risks
that are common to other emerging markets. Taiwan's relations with
The People's Republic of China remain fragile. The conflict between
the entrenched nationalization of China and the nascent nationalism of
Taiwan persists and armed conflict between the two nations remains a
possibility. Beijing continues its policy of attempting to isolate
Taiwan and could use its growing economic power and political
influence to interfere with the nation's trade with the rest of the
world's economies.

In addition, the Taiwan market has been one of the most volatile
in Asia over the past decade. The country did not escape the effects
of the Asian economic and currency crises in 1997 and 1998 and could
continue to be negatively impacted by an extension of the current
regional turmoil. The nation's heavy dependence upon trade and
manufacturing partnerships with foreign companies also leaves it
particularly vulnerable to downturns in the global economies. Currency
fluctuation is an additional risk to U. S. investors as any weakening
in the value of the local currency versus the U.S. dollar could erode
the value of their investments upon currency conversion.

THE PHILIPPINES. The Philippines is a developing democratic
republic. After 300 years of Spanish rule, the United States acquired
the Philippines from Spain in 1898 and ruled for 48 years. The
country subsequently gained its independence from the United States in
1946. The nation, as provided by the 1987 Constitution, is a
democratic republican state with a presidential form of government.
However, since its independence, the government has been periodically
roiled by military coups, martial law and political assassinations.

The Filipino population consists of approximately 70 million
people, primarily of Indo-Malay, Chinese and Spanish descent.
Thirteen percent of the population lives within the Metro Manila area.
Most Filipinos are bilingual, with English as the basic language in
business, government, schools, and everyday communication. While there
are 87 languages spoken throughout the Philippines, the official
language is Pilipino, which is spoken mainly in the Metro Manila area
and widely used in the mass media.
The Philippine economy is basically agricultural if
food-processing manufacture is included. Agriculture (including
forestry and fishing) contributed 21.5% of GDP in 1996, and engaged
39.8% of the employed labor force, while industry (including mining,
manufacturing, construction and power) contributed 31.9% of GDP and
engaged 16.5% of the employed labor force.
Manufacturing accounted for 22.6% of GDP in 1996 and engaged 9.8%
of the labor force. The principal branches of manufacturing are food
products, petroleum refineries, electrical machinery, chemical
products, beverages, metals and textiles.
The services sector contributed 46.6% of GDP in 1996, and engaged
43.7% of the employed labor force. Remittances from Filipino workers
abroad constituted the Government's principal source of foreign
exchange, while tourism remains a significant sector of the
economy.
In 1995 the Philippines recorded a trade deficit and a deficit on
the current account of the balance of payments. The principal source
of imports was Japan, which accounted for 22.1% of the total. Other
significant suppliers were the United States, Saudi Arabia, Singapore,
the Republic of Korea and Taiwan. The United States was the principal
market for exports (35.8%), while other purchasers were Japan,
Singapore and the United Kingdom.
Under the regime of General Fidel Ramos, installed in 1992, the
economic performance of the Philippines improved dramatically, owing
to extensive structural reforms, including the dismantling of
protectionist legislation and the liberalization of trade, foreign
investment and foreign exchange controls. However, economic growth was
adversely affected by the regional financial crisis in 1997. The
effective devaluation of the peso in July caused a collapse of the
stock market and led to rising inflation and the depletion of foreign
exchange reserves. The absence of large foreign investment inflows,
which had previously contributed to an overall surplus on the balance
of payments despite a recurrent account deficit, resulted in an
overall deficit in 1997.
The Philippine stock exchange (PSE) is the country's only exchange
and ranks thirty-sixth in total market capitalization among the
world's markets. The total number of companies listed on the exchange
was 221 in 1997. Individual domestic investors are the majority
participants while foreign investment is dominated by the Taiwanese,
who are closely followed by the Japanese and Hong Kong Chinese.
Foreign investors are generally allowed to acquire 100% of the equity
of a Philippine listed company, although there are businesses where
foreign ownership is restricted by law.
Foreign investors face special risks when investing in the
Philippines. The country's economy and stock market have historically
been highly sensitive to changes in the Asian region's economies and
this has been amply demonstrated in recent years. After posting
dramatic gains in the four years preceding Asia's financial crisis in
mid-1997, the Philippine stock market plummeted in response to the
spreading economic, political turmoil in Southeast Asia and Japan.
The market's weakness was further exacerbated as foreign investors
pulled out of the market in large numbers.
Weakening conditions in neighboring countries has also negatively
impacted the Philippine peso. Plummeting currencies in Thailand,
Indonesia, Singapore and Malaysia sent the Philippine peso into a
steady decline. Over the 1997 calendar year, the value of the peso
fell by 52 percent versus the U.S. dollar.

For U.S. investors, currency fluctuation presents an additional
risk to investing in the Philippines as a weakening peso can erode the
investment returns on their investments in that country.
Because the Philippines is highly dependent upon the United
States, Japan and the Southeast Asian countries as the primary
purchasers of their exports, their economy is particularly sensitive
to changes in the economic fortunes of these nations.
Although the Philippine political climate appears to have improved
over the past few years, investors should be aware that the country
has periodically been subjected to military coups, martial law, and
wide spread political corruption since it gained independence. Several
past administrations have instituted policies that have also been
detrimental to the domestic economy and the rights of its citizens.
Cronyism and corruption have also been rampant in both government and
the business community to the detriment of the interests of corporate
shareholders.
PAKISTAN. The Islamic Republic of Pakistan was founded in 1947,
when the British partitioned the South Asian subcontinent into two
states: India and Pakistan. (East Pakistan broke away to become
Bangladesh in 1971). The Pakistan constitution of 1973, amended
substantially in 1985, provides for a President (Chief of State) who
is elected by an electoral college consisting of both houses of the
federal parliament and members of the four provincial legislatures.
The National Assembly in a special session elects a Prime Minister.
Following the election, the President invites the Prime Minister to
create a government. The constitution permits a vote of "no
confidence" against the Prime Minister by a majority of the National
Assembly. In practice, the army has a strong voice in the
decision-making process and few Presidents have been able to oppose
its interests for long.
Relations between Pakistan and India have been fraught with
difficulties. India disputes Pakistan's claims to part of Kashmir, and
repeated attempts at mediation have not resolved this conflict. The
dispute has triggered wars between the two countries in 1947, 1965 and
1971. India has accused Pakistan of fomenting religious and political
unrest and in 1994 there were frequent disturbances in the region.
The two sides frequently exchange fire. More recently, India's
nuclear tests prompted Pakistan to reply in kind, despite Western
efforts to dissuade it. Economic sanctions imposed by the U.S. and
other industrialized countries following the nuclear tests have not
been without consequences. While their short-term, direct effect on
the economy has been relatively modest, the indirect and medium-term
consequences of sanctions could become more serious as the resumption
of IMF funding is currently in jeopardy.
With a per capita GDP of about $470, Pakistan is considered a
low-income country by the World Bank. No more than 39% of adults are
literate and life expectancy at birth is about 62 years. Relatively
few resources have been devoted to socio-economic development or
infrastructure projects. Inadequate provision of social services and
high population growth have contributed to a persistence of poverty
and unequal income distribution.
The country's principal natural resource is arable land ( 25% of
the total land area is under cultivation). Agriculture accounts for
24% of GDP and employs about 50% of the labor force. Wheat, cotton,
and rice together account for almost 70% of the value of total crop
output and are among the countries major exports. Pakistan's
manufacturing sector accounts for about 20% of GDP. Cotton textile
production and apparel manufacturing are Pakistan's largest
industries, accounting for about 50% of total exports. Other major
industries include cement, fertilizer, sugar, steel, tobacco,
chemicals, machinery and food processing.
Weak world demand for its exports and domestic political
uncertainty have contributed to the nation's widening trade deficit.
The nation continues to rely heavily on imports of such materials as
petroleum products, capital goods, industrial raw materials and
consumer products and the resulting external imbalance has left
Pakistan with a growing foreign debt burden. Annual debt service now
exceeds 27% of export earnings.
Pakistan has three stock exchanges located in Karachi, Lahore and
Islamabad. The Karachi Stock Exchange (KSE) is dominant, accounting
for approximately 80% of equity transactions in Pakistan. The KSE
ranks forty-eighth among the world's markets and had a market
capitalization of US$11billion in 1997. At the end of that year there
were 781 companies listed on the KSE. The combined market
capitalization of the 20 largest companies represented 71.7% of the
market total.
U.S. investors should be aware that there are a number of factors
that could pose special risks to investing in Pakistan securities.
Among these is the country's long history of government instability
marked by military coups, political assassinations and frequent
outbreaks of violent rioting, strikes and ethnic unrest. While recent
governments have made some progress on addressing some of the
country's social and economic ills, the current administration is
faced with a number of serious crises. The country appears to be
close to defaulting on its international commitments. With no debt
repayments made since August of 1998, Pakistan faces the possibility
of outright default unless it can secure a bailout package and debt
rescheduling. Recent talks with the IMF on a debt rescue package broke
down and a default could precipitate declines in the nation's trade
and currency. By November of 1998, foreign investment has slowed
dramatically in response to a rise in investment risk and new
restrictions imposed by the central bank designed to limit the outflow
of foreign exchange.
Corruption within the government and business community remains a
problem and corporate managements are generally not focused on
improving shareholder interests.
The threat of war with India over the disputed province of Kashmir
remains a threat to peace in the region and any outbreak of
hostilities would likely plunge the nation's economy into deep
depression and further erode the relative value of its currency versus
the world's major currencies.
SPECIAL CONSIDERATIONS REGARDING LATIN AMERICA
Latin America represents one of the world's more advanced emerging
markets. With a total population of 427 million people and its
abundant natural resources, the area is a prime trading partner for
the United States and Canada. Latin American exports represent,
on average, 16.6% of GDP. Strong export sectors are petroleum,
manufactured goods, agricultural commodities such as coffee and beef,
and metals and mining products. GDP growth in Latin America as a
region was 3.4% in 1996, up from 0.1% in 1995. Recognizing the
important role of international trade as a component of GDP, the
countries of Latin America have formed strong regional trade
organizations, notably MERCOSUR. Talk of extending NAFTA down through
Latin America indicates some desire to tie the economies even closer
to those of the north.
Politically, Latin American countries generally have strong
presidential systems closely modeled after the U.S. The
transition to democracy is largely complete in most
countries. All countries enjoy good relations with the
U.S., with whom they cooperate on a range of non-economic matters,
such as preservation of the environment and drug control.
Monetarist minded governments were responsible for the
successful staving off of contagion from the 1995 currency
crisis in Mexico, increasing their stature in the eyes of most capital
market participants.
ARGENTINA. Prior to 1989, Argentine politics were characterized by
populist leaders, sometimes democratically elected and sometimes not,
who ruled with the overt support of the military. Coups and outright
military rule were not uncommon. Economic polices were highly
protectionist, with significant barriers and restrictions on foreign
trade and investment. Markets were highly regulated and the state was
heavily involved in many industries. Inflation was routinely high and
growth stagnant.
President Carlos Menem was first elected to office in 1989 and
undertook a program of deregulation, liberalization and macroeconomic
reform. The results have been positive. GDP growth in 1997 was 8.0%,
up from 4.4% in 1996 and -4.4% in 1995. Argentina's growth, averaging
over 6% from 1991 to 1997, had been driven primarily by domestic
consumption. Immediately after the Mexican crisis, bank
liquidity was restrained. However deposits have since
returned to the system surpassing the levels that existed prior to the
crisis and liquid ity is very much improved. Lending also increased
and consumer spending rebounded although it has slowed somewhat due to
the most recent Brazilian crisis . The positive effect is that
inflation, well over 150% at the beginning of the decade, was 0.4% in
1996. Still troublesome for Argentina is unemployment, quite high at
15% . Menem's economic liberalization policies have succeeded in
attracting foreign investment. From the U.S . alone,
approximately $10 billion was invested by 1996. Investors have been
most attracted to the telecommunications, finance, and energy sectors.
Argentina enjoys a positive trade balance. The export economy is
heavily weighted toward agriculture, which represents 60% of the total
value of all Argentine exports. Primary products are livestock,
oilseeds, and grain. Argentina's single biggest trading partner is
Brazil, and the U.S . is the second. Primary imports are
machinery, vehicles and chemicals.
The resignation of Economy Minister Domingo Cavallo in July 1996 was
initially greeted with skepticism from the markets. Cavallo was widely
recognized as the man responsible for ensuring the convertibility of
the peso by pegging it to the dollar, a move which saved Argentina
from the hyperinflation and continuous drops in output which could
have followed from the Mexican crisis in 1994. Confidence was quickly
restored, however, with the appointment of Roque Fernandez, who
promptly reaffirmed commitment to Cavallo's plan and introduced
further measures for fiscal stability.
The next presidential election is due in 1999. In accordance with the
constitution, Menem, a member of the Peronist party, can not seek a
third consecutive term. The next election is likely to present a third
candidate to the voters beyond the traditional contestants from the
Peronist and Radical parties. Frepaso, a center-left alliance, first
emerged in the 1995 elections and by 1999 could build itself up enough
to promote a viable alternative to the older parties. It is uncertain
how policies would be effected by the systemic change from a
predominantly two party system to a three party one .
The Argentine stock market reached an all-time high in October of 1997
in response to rising corporate earnings and strong economic growth.
However, the market underwent a significant correction due largely to
the "contagion effect" of the Asian economic and currency crisis and
the Mervel index ended the year only 5.9% ahead. While ,
there was little direct impact from the Asian crisis on
Argentina's economy foreign investors fled the market, as they
feared that Asia's currency problems would spread to Latin America.
The Argentine market may pose special risks for investors. As an
emerging nation, Argentina's stock market may be particularly
vulnerable to widespread economic, currency and market turmoil such as
we have seen recently in Asia. These crises may prompt investors to
become increasingly averse to emerging market exposure on
concern that the impact of these events will spread to other
countries. In addition, mutual funds that invest in emerging markets
may be forced to sell holdings in countries that have little
similarity with the markets in trouble, merely to raise cash to meet
redemptions. Similarly, the Asian crisis has accelerated a growing
imbalance between supply and demand for basic commodities such as oil,
metals, pulp, grains and others. This could impact the Argentinean
stock market where energy stocks (oil, gas and electricity) comprise
approximately 40% of the market's total value. A currency devaluation
by one or more of its Latin American neighbors could precipitate a
recession and political pressure for competitive devaluation to
protect the country's trade competitiveness.
While Argentina's political situation is relatively stable; there is a
high degree of dissatisfaction with the government's inability to
lower the country's high unemployment rate. This could eventually lead
to social unrest and a turnover of the government to the
control of parties less favorable to investors.
BRAZIL. Brazil is the largest country in South America and is home to
vast amounts of natural resources. Its 155 million people are
descendants from indigenous tribes and European immigrants. They live
in diverse socio-economic conditions, from the urban cities of Sao
Paolo to the undeveloped trading posts of the distant regions.
Industrial development has been concentrated in specific areas. The
disenfranchised population is quite large and is a source of many of
Brazil's social problems.
The Brazilian economy is currently undergoing extensive reforms,
stemming from a 1994 effort to stabilize the currency called the Real
Plan. With the aim of curbing inflation, a new currency, the Real, was
introduced and supported via a floating exchange band . The plan
has stabilized the exchange rate and controlled inflation which was
at 2,700% in 1994. Inflation in 1995 dropped to 81%, and fell even
further in 1996, settling at 18.7%. Perhaps the most remarkable
achievement for the Brazilian economy in 1997 was the lowest rate of
inflation in the past 40 years, as the National Consumer Price Index
increased just 7.48%. At the same time, however, the Real Plan has
sent the trade and current account balances into a deficit. The
current account deficit is expected to reach 30 billion in
1998, equivalent to 3.6% of GDP.
Other objectives of the administration of the current President,
Fernando Henrique Cardoso, are trade liberalization and privatization,
but these efforts are sporadic and often stalled by special interests
in the legislature. Some privatization efforts are performing well,
particularly in the utilities sector. Utilities and telecommunications
have been key draws for foreign investment, and foreign direct
investment (FDI) is coming in at record levels. In 1998 the
country received over $20 billion from privatizations. Still, there
are restrictions against investments in certain industries, such as
metals and mining.
Traditionally a primarily agricultural economy, a strong
industrial sector has developed which produces metals, chemical, and
manufactured consumer goods. Agriculture still plays a significant
role, however, representing 11% of the GDP, 40% of exports and
employing over 35% of the work force. Primary agricultural
products are grains, coffee, and cattle. Regarding energy and
utilities, the country is a leading producer of hydroelectric power,
but it is dependent on imports for oil.
Presidential elections were held in October of 1998 and President
Cardoso won with 53% of the vote. This should ensure continuity in
policy, which will be much needed given the difficulties caused by the
recent instability in the global markets and its impact on Brazil.
In 1997 the Brazilian stock market rose to an all-time high in the
first quarter. Over the summer, the speculative attack on the Thai
currency triggered a sharp reversal in the Brazilian market, as
investors feared a raid on the Brazilian real . However, the
market ended the year with a gain of 4.34%. By mid-year 1998 the
Brazilian market plummeted amid growing concern that Brazil, Latin
America's largest economy, might suffer the confidence crisis that had
caused large currency devaluations in Russia and Asia.
Investing in Brazil could entail special risks: High unemployment is
the chief challenge facing Brazil's president Cardoso,following his
reelection in October of 1998. Joblessness is at a record high and
social unrest could hinder his progress in subduing inflation and
denationalizing government ownership of many of its businesses. Brazil
could be a likely target for a renewed attack on its currency. The
economy is in a more precarious state: interest rates remain high and,
despite austerity measures, little progress has been made in reducing
the current
Overall, Brazil remains vulnerable to both external shocks and
changing sentiment due to worsening domestic indicators or political
risk.
CHILE. Chile is a transition economy which has recently made great
strides toward putting its authoritarian, statist, past behind itself.
In all of Latin America, it is the country with the highest rates of
growth. Averaging 7.3% so far this decade, GDP grew at 6.0% in 1996,
down from 6.6% the previous year. Inflation has been steadily
declining and is down over 15% in the last five years. Inflation in
1997 was 6.0%, a 0.6% drop over 1996. Unemployment in 1996 was 6.2%,
particularly low for the Latin American region. Chile is still
considered to have one of the best performing stock markets in the
region.
Performance of the Chilean stock market was lackluster in 1997 as weak
copper prices and rising interest rates led to a contraction in the
domestic economy. Also contributing to the market's weakness was the
contagion effect of the Asian economic and currency crises, a decline
in pulp and steel prices , and uncertainty about the growth
prospects of its Latin American neighbors. These factors combined to
produce a 15% decline in the stock market for the 1997 calendar year.
The market weakness carried through into the first half of the next
year.
Eduardo Frei is President and is due for reelection in 1999. President
Frei has been trying to decentralize the government but encounters
stiff opposition from the powerful trade unions. Also high on Frei's
agenda is tax reform.
There is a considerable military component to political life in Chile.
In the legislature there is strong representation by parties with
authoritarian views. As part of the negotiated settlement with coup
leader General Augusto Pinochet in 1990, the army chain of command
ends with General Pinochet, not an elected official. Furthermore,
certain seats are reserved in the Senate for appointed officials from
the military. Pinochet must resign in 1998, and shortly thereafter the
reserved Senate seats will fall open to election. There are
constitutional reforms currently in progress further diminishing the
role and influence of the military, and thus the political transition
is still underway. A successful outcome requires that the military
acquiesce as it is stripped of its political powers.
Investors in the Chilean market face special risks : The Chilean
market is particularly sensitive to the fluctuation in the
international price of copper and pulp on the international markets
and they have a significant impact on the nation's economy and stock
market.
As is typical of most emerging markets, much of the Chilean market
equity is firmly held by controlling families and their associates.
Accordingly, these owners may not always act in the interests of
outside shareholders. In addition, any weakness in the Chilean
currency versus the dollar could erode the investment returns to
United States investors upon currency conversion.
MEXICO. The Mexican economy has recovered fairly well since the
currency crisis of December 1994 thanks in large part to growth in
exports, peso stabilization, and massive financial assistance from the
United States. GDP growth rose to 7.3%, with consumer spending and
investment leading the way. A major positive factor supporting growth
during 1997 was the strength of the peso, which closed the year little
changed from its 1996 year-end level. In addition, the nation's
inflation rate declined to 15.7% from the 27.7% rate of 1996. This
marked the second straight year of improvement. Inflation is the chief
concern of the central bank, which takes active measures such as the
setting of wage ceilings and the adjustment of interest rates
to control it. Domestic consumption, while improved, has yet to return
to pre-1994 levels, and has also contributed to the containment
of inflation.
The Mexican economy is very strong in manufacturing and natural
resources, specifically oil. Manufacturing alone counts for 22% of the
Mexican GDP and 21% of all urban employment. The economy is also very
closely tied to the U.S. , which is responsible for 60% of all
foreign investment and with whom it conducts over 75% of all trade.
Trade pacts such as the North American Free Trade Agreement
further integrate the economies, giving the United States strong
incentives to provide assistance in times of crisis. NAFTA also
enabled the recent recovery, given the ease with which it
allows increases in exports and investment. The Mexican stock market
listed 194 companies with total capitalization of $156 billion in
1997 .
Internally, the various people of the Mexican states have recently
experienced a great deal of dissatisfaction with their relationship to
the federal government. Most notably, in Chiapas there have been armed
uprisings by indigenous groups demanding further autonomy. While the
rebellions have not strongly shaken financial markets, they serve as a
reminder of the diversity of Mexico, of the vast socio-economic gaps
between various peoples, and of the potential for such groups to
demand the attention of both their government and the world.
Politically, the landscape changed fundamentally in July 1997. The
defeat of candidates from the Institutional Revolutionary Party (PRI)
in legislative elections signaled the end of decades of one party
rule. Citizens now have the confidence that their votes count and that
the PRI is no longer invincible. Winning every presidential election
since its founding in 1929, the PRI was the country's monolithic
political machine, maintaining power through rigged elections and
ruling in an environment rife with intrigue and corruption. Internal
pressures including armed rebellion from domestic interest groups,
extensive crises and scandals caused by intra-party rivalries and
corruption, and deteriorating relationships with foreign countries
over financial mismanagement and mutual social problems all
contributed to the establishment of fully free and unfettered
elections. Numerous electoral reforms implemented since 1989 have
aided in the further opening of the Mexican political system and
opposition parties have made historic gains in elections at all
levels. Much of the impetus for the establishing a real two party
system in Mexico can be credited to President Zedillo and the PRI
majority in Congress. During 1995-1996 the political parties
negotiated constitutional amendments to address electoral campaign
fairness issues, which passed unanimously. The response from the
Mexican people was clear as a record number of registered voters cast
ballots. Though they took the most votes (39%) for the 500-member
Lower House of Congress, the PRI has lost their majority. Mid-term
elections held in July off 1997, also saw large gains for opposition
parties and marked a significant step in Mexico's political
transformation. Market reaction to the new Mexican political world was
positive. The IPC index, consisting of 35 of the most representative
stocks on the Mexican Stock Exchange, rose 3.25% the day after the
election. Further financial implications of the new landscape are as
yet uncertain. Relevant considerations are the effect of the new
configurations on government consensus and policy making, the demands
of newly empowered groups on economic and other resources, the balance
of power between the executive and the legislature, and the ability of
the government to maintain law and order.
Mexico's stock market fell sharply in late 1997 and continued
its decent through mid-1998 as the worsening Asian economic and
currency crises threatened to cause problems for Mexico's trade
balance and raised questions concerning the sustainability of its
economic growth. Foreign investors fled the Mexican market, as they
feared that Asia's currency problems would spread to Latin America.
Investors in Mexico face a number of potential risks. As an emerging
nation, Mexico's stock market may be particularly vulnerable to
widespread economic, currency and stock market turmoil such as that
recently experienced in Asia and Russia. These crises may prompt
investors to become increasingly averse to emerging market exposure on
concern that the impact of these events will spread to other
countries. In addition, mutual funds that invest in emerging markets
may be forced to sell holdings in countries that have little
similarity with the troubled markets, merely to raise cash to meet
redemptions. Similarly, because the United States is Mexico's largest
trading partner, any economic downturn in the U.S. economy can have a
strongly adverse impact upon Mexico's economy and stock market.
While Mexico's political situation is relatively stable, there is a
high degree of dissatisfaction with the government's inability to
effectively address the nation's growing social problems, particularly
in the country's less developed regions. Occasional flair-ups
of strikes and armed rebellion could pose a threat to Mexico's
political, economic stability.
SPECIAL CONSIDERATIONS REGARDING THE RUSSIAN FEDERATION
The Russian Federation is the largest republic of the Commonwealth of
Independent States with a 1995 population of 147,500,000. It is about
one and four fifths of the land area of the United States and occupies
most of Eastern Europe and north Asia.
Russia has had a long history of political and economic turbulence.
The USSR lasted 69 years and for more than half that time it ranked as
a nuclear superpower. In the 1930's tens of millions of its citizens
were collectivized under state agricultural and industrial enterprises
and millions died in political purges and the vast penal and labor
system or in state-created famines. During World War II, as many as 20
million Soviet citizens died. After decades of communist rule, the
Soviet Union was dissolved on December 8, 1991 following a failed coup
attempt against the government of Mikhail Gorbachev. On the day that
the leaders declared that the Soviet Union ceased to exist, the Soviet
republics were invited to join with Russia in the Commonwealth of
Independent states (CIS). At one time or another those that have
agreed to join have included the Ukraine, Belarus, Moldova, Georgia,
Armenia, Azerbaijan, Uzbekistan, Turkmenistan, Tajikistan, Kazakhstan
and Kyrgyzstan, but a number have dropped out since or have only
observer status. Each of the republics is a sovereign state that
controls its own economy and natural resources and collects its own
taxes, providing only minimal support to the CIS.
Boris Yeltsin, President of Russia, inherited the mantle of economic
and political chaos. With the freeing of most prices he staked his
political life on the rapid creation of a free market economy. Since
1991 Yeltsin and his Russian reformers have been faced with the
daunting task of stabilizing the Russian economy while transforming it
into a modern and efficient structure able to compete in international
markets and respond to the needs of the Russian people. To date, their
efforts have yielded widely mixed results. On the one hand, they have
made some impressive progress. Since 1992, they have abolished central
planning, decontrolled prices, unified the foreign exchange market,
made the ruble convertible, and privatized two thirds of the economy.
They have accomplished this in spite of the crushing burdens inherited
from the communist system: huge industrial enterprises that are
unprofitable; an obsolete capital stock; a crumbling energy sector,
huge external debt; and armies that had to be repatriated and
resettled at home.
Russia remains a paradox among the major economies of the world in
that it is a country marked by stagnation in production levels, but
has few constraints on growth. Labor supply is adequate and savings
are high. In addition, there is almost unlimited scope for increasing
productivity through the introduction of improved technologies,
production process and market-oriented managerial development. There
are 147 million consumers who are slowly increasing their buying power
and education standards are high. Russia is also rich in natural
resources. It has 40% of the world's natural gas reserves, 6% of its
oil, 25% of coal, diamonds, gold and nickel, and 30% of timber and
bauxite. Approximately ten million people are engaged in agriculture
and they produce half of the region's grain, meat, milk, and other
dairy products.
The main reason for the continued poor performance of the Russian
economy is the country's failure to mobilize the resources that are
available. While the official unemployment rate was at 10.6% in 1996,
up to half of the working population is, in effect, unemployed or, to
a significant degree, underemployed in inefficient and unproductive
industries. Much of the country's savings have been siphoned off
through capital flight. Russia's technological potential for
assimilating both domestic and foreign technologies is not being
exploited. Industry privatization and restructuring initiatives have
generally failed to mobilize the available factors of production as
the country's privatization program virtually ensures the predominance
of the old management teams that are largely non market-oriented in
their management approach. Approximately 80% of Russian privatized
companies continue to be majority-owned by insiders and only 10% are
owned by investors with large enough stakes to influence the running
of the company.
In July 1996, Boris Yeltsin was re-elected for a second term and it
was hoped that the election would mark the start of a more stable
period of economic growth. However, macroeconomic indicators in 1996
proved contradictory. On the one hand, the Russian government
continued its strict credit policies, and the annual inflation rate
for 1997 dropped to 11%, down from 22% in 1996. Inflation has since
remained below 3% a month through the first half of 1997. In addition,
expenditure cuts trimmed the budget deficit to 7% of GDP for the first
nine months of 1996.
By the end of 1997, GDP was up 0.4% following 1996's 6% fall, and
industrial production was up by 1.9%. Non-payment continues to
represent a serious problem for the economy, particularly in the
energy sector.
While Russia is widely believed to be one of the most risky markets in
Eastern Europe, it is also recognized for its potential for positive
returns. However, the market has been essentially liquidity driven and
concentrated in very few of the country's largest companies. At just
$129 billion, the total capitalization of the stock market accounts
for just 28.7 percent of GDP. The majority of investors in Russian
equities are small and medium-sized United States hedge funds. In
addition, several country specific funds have been established to make
direct and portfolio investments in Russian companies. To facilitate
foreign investment, a number of the larger Russian companies have
issued equity in the form of American depository receipts while six
big firms have issued securities in the form of Russian depository
certificates. These certificates are issued and marketed by the Bank
of New York. Any investment in Russia is risky and deciding which
companies will perform well at this stage of the country's
transformation is far from easy. A combination of poor accounting
standards, inept management, limited shareholder rights and the
criminalization of large sectors of the economy pose a significant
risk, particularly to foreign investors.
In 1996 the Russian market delivered the world's best stock market
performance and was among the top performing markets in the first half
of 1997. However, the markets strength masked a rapidly deteriorating
political and economic picture. Many of the country's economic reform
initiatives have floundered as the proceeds of IMF and other
assistance have been squandered or stolen. Taxes were not being
collected and Russian banks, suffering from a collapsed ruble, could
not meet the demands of either domestic depositors or foreign
creditors. In July of 1998 the Yeltsin government effectively devalued
the Russian ruble by approximately 34% to strengthen the ailing
banking system and stimulate demand for Russian exports. In addition
the government announced a restructuring of their foreign debt that
would allow a 90-day moratorium on banks' foreign loans and a
rescheduling of $40 billion in domestic debt. These actions were
viewed by investors as being tantamount to default and they fled the
Russian stock market. President Yeltsin's relations with the communist
dominated Duma worsened and there was talk among the body of beginning
impeachment proceedings against the president. By August of 1998 the
ruble had fallen by 70 percent and food prices soared, heightening
fears of social unrest. By early September the Russian economy
appeared to be slipping out of control and the government in a state
of paralysis as the President and the Duma feuded over remedial
initiatives. Many observers fear that country's communist party could
regain control of the government and end free market reforms, which
could further negatively impact stock prices.
PORTFOLIO TRANSACTIONS
A ll orders for the purchase or sale of portfolio securities are
placed on behalf of each fund by FMR pursuant to authority contained
in the management contract. FMR is also responsible for the placement
of transaction orders for other investment companies and investment
accounts for which it or its affiliates act as investment adviser. In
selecting broker-dealers, subject to applicable limitations of the
federal securities laws, FMR considers various relevant factors,
including, but not limited to: the size and type of the transaction;
the nature and character of the markets for the security to be
purchased or sold; the execution efficiency, settlement capability,
and financial condition of the broker-dealer firm; the broker-dealer's
execution services rendered on a continuing basis; the reasonableness
of any commissions; and, if applicable, arrangements for payment of
fund expenses .
If FMR grants investment management authority to a sub-adviser (see
the section entitled "Management Contrac ts "), that sub-adviser
is authorized to place orders for the purchase and sale of portfolio
securities, and will do so in accordance with the policies described
above.
Generally, commissions for investments traded on foreign exchanges
will be higher than for investments traded on U.S. exchanges and may
not be subject to negotiation.
E ach fund may execute portfolio transactions with
broker-dealers who provide research and execution services to the fund
or other investment accounts over which FMR or its affiliates exercise
investment discretion. Such services may include advice concerning the
value of securities; the advisability of investing in, purchasing, or
selling securities; and the availability of securities or the
purchasers or sellers of securities. In addition, such broker-dealers
may furnish analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and
performance of investment accounts; and effect securities transactions
and perform functions incidental thereto (such as clearance and
settlement).
For transactions in fixed-income securities, FMR ' s selection of
broker-dealers is generally based on the availability of a security
and its price and, to a lesser extent, on the overall quality of
execution and other services, including research, provided by the
broker-dealer.
The receipt of research from broker-dealers that execute transactions
on behalf of a fund may be useful to FMR in rendering investment
management services to that fund or its other clients, and conversely,
such research provided by broker-dealers who have executed transaction
orders on behalf of other FMR clients may be useful to FMR in carrying
out its obligations to a fund. The receipt of such research has not
reduced FMR's normal independent research activities; however, it
enables FMR to avoid the additional expenses that could be incurred if
FMR tried to develop comparable information through its own efforts.
Fixed-income securities are generally purchased from an issuer or
underwriter acting as principal for the securities, on a net basis
with no brokerage commission paid. However, the dealer is compensated
by a difference between the security's original purchase price and the
selling price, the so-called "bid-asked spread." Securities may also
be purchased from underwriters at prices that include underwriting
fees.
Subject to applicable limitations of the federal securities laws,
a fund may pay a broker-dealer commissions for agency
transactions that are in excess of the amount of commissions charged
by other broker-dealers in recognition of their research and execution
services. In order to cause a fund to pay such higher
commissions, FMR must determine in good faith that such commissions
are reasonable in relation to the value of the brokerage and research
services provided by such executing broker-dealers, viewed in terms of
a particular transaction or FMR's overall responsibilities to that
fund or its other clients. In reaching this determination, FMR will
not attempt to place a specific dollar value on the brokerage and
research services provided, or to determine what portion of the
compensation should be related to those services.
To the extent permitted by applicable law, FMR is authorized to
allocate portfolio transactions in a manner that takes into account
assistance received in the distribution of shares of the funds or
other Fidelity funds and to use the research services of brokerage and
other firms that have provided such assistance. FMR may use research
services provided by and place agency transactions with National
Financial Services Corporation (NFSC) and Fidelity Brokerage Services
Japan LLC (FBSJ), indirect subsidiaries of FMR Corp., if the
commissions are fair, reasonable, and comparable to commissions
charged by non-affiliated, qualified brokerage firms for similar
services. Prior to December 9, 1997, FMR used research services
provided by and placed agency transactions with Fidelity Brokerage
Services (FBS), an indirect subsidiary of FMR Corp.
FMR may allocate brokerage transactions to broker-dealers (including
affiliates of FMR) who have entered into arrangements with FMR under
which the broker-dealer allocates a portion of the commissions paid by
a fund toward the reduction of that fund's expenses. The transaction
quality must, however, be comparable to those of other qualified
broker-dealers.
Section 11(a) of the Securities Exchange Act of 1934 prohibits members
of national securities exchanges from executing exchange transactions
for investment accounts which they or their affiliates manage, unless
certain requirements are satisfied. Pursuant to such requirements, the
Board of Trustees has authorized NFSC to execute portfolio
transactions on national securities exchanges in accordance with
approved procedures and applicable SEC rules.
The Trustees of each fund periodically review F MR's performance
of its responsibilities in connection with the placement of portfolio
transactions on behalf of the fund and review the commissions paid by
the fund over representative periods of time to determine if they are
reasonable in relation to the benefits to the fund.
F or the fiscal periods ended December 31, 1998 and 1997 ,
the portfolio turnover rates were ___% and 74 % ,
respectively, for International Bond and 656% and __%, respectively,
for New Markets Income. Variations in turnover rate may be due to a
fluctuating volume of shareholder purchase and redemption orders or
market conditions.
[ T he following tables show the brokerage commissions paid by
the funds. Significant changes in brokerage commissions paid by a fund
from year to year may result from changing asset levels throughout the
year. A fund may pay both commissions and spreads in connection with
the placement of portfolio transactions. ] [For the fiscal years
ended December 1998 and December 1997, the funds paid no
brokerage commissions .]
[The following table shows the total amount of brokerage
commissions paid by each fund.]
FISCAL TOTAL
YEAR AMOUNT PAID
ENDED

INTERNATIONAL BOND DECEMBER

199 8 $

199 7 0

199 6 0

NEW MARKETS INCOME

199 8

199 7 0

199 6 0

[ O f the following tables, the first shows the total amount of
brokerage commissions paid by each fund to NFSC , FBS
and FBSJ, as applicable, for the past three fiscal years. The
second table shows the approximate percentage of aggregate brokerage
commissions paid by a fund to NFSC , FBS and FBS J
for transactions involving the approximate percentage of the aggregate
dollar amount of transactions for which the fund paid brokerage
commissions for the fiscal year ended 1998 . NFSC, FBS, and
FBSJ are paid on a commission basis.]

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
FISCAL TO NFSC T O FBS T O FBSJ
YEAR
ENDED

INTERNATIONAL BOND DECEMBER

199 8 $ $ $

199 7 0 0 0

199 6 0 0 0

NEW MARKETS INCOME DECEMBER

199 8

199 7 0 0 0

199 6 0 0 0

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FISCAL % OF % OF % OF % OF % OF % OF
YEAR AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE AGGREGATE
ENDED COMMISSIONS DOLLAR COMMISSIONS DOLLAR COMMISSIONS DOLLAR
199 8 PAID TO NFSC AMOUNT OF PAID TO AMOUNT OF PAID TO AMOUNT OF
TRANSACTIONS FB S TRANSACTIONS FBS J TRANSACTIONS
EFFECTED EFFECTED EFFECTED
THROUGH THROUGH FB S THROUGH
FBS J
NFSC

INTERNATIONAL DECEMBER % % % % % %
BOND

NEW MARKETS DECEMBER % % % % % %
INCOME

</TABLE>

[(dagger) The difference between the percentage of aggregate
brokerage commissions paid to, and the percentage of the aggregate
dollar amount of transactions effected through, NFSC, FBS and FBSJ
is a result of the low commission rates charged by NFSC, FBS and
FBSJ.
[ NFSC, FBS and FBSJ have used a portion of the commissions paid by
a fund to reduce that fund's custodian or transfer agent fees
expenses. ]
[ T he following table shows the dollar amount of brokerage
commissions paid to firms that provided research services and the
approximate dollar amount of the transactions involved for the fiscal
year ended 1998.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
FISCAL YEAR $ AMOUNT OF $ AMOUNT OF
ENDED 199 8 COMMISSIONS PAID TO BROKERAGE
FIRMS TRANSACTIONS
THAT PROVIDED INVOLVED*
RESEARCH SERVICES*

INTERNATIONAL BOND DECEMBER $ $

NEW MARKETS INCOME DECEMBER

</TABLE>

*The provision of research services was not necessarily a factor in
the placement of all this business with such firms .
F or the fiscal year ended December , 199 8 the
funds paid no brokerage commissions to firms that provided research
services .]
The Trustees of e ach fund have approved procedures in
conformity with Rule 10f-3 under the 1940 Act whereby a fund may
purchase securities that are offered in underwritings in which an
affiliate of FMR participates. These procedures prohibit the fund s
from directly or indirectly benefiting an FMR affiliate in
connection with such underwritings. In addition, for underwritings
where an FMR affiliate participates as a principal underwriter,
certain restrictions may apply that could, among other things, limit
the amount of securities that the funds could purchase in the
underwriting.
From time to time the Trustees will review whether the recapture for
the benefit of the funds of some portion of the brokerage commissions
or similar fees paid by the funds on portfolio transactions is legally
permissible and advisable. Each fund seeks to recapture soliciting
broker-dealer fees on the tender of portfolio securities, but at
present no other recapture arrangements are in effect. The Trustees
intend to continue to review whether recapture opportunities are
available and are legally permissible and, if so, to determine in the
exercise of their business judgment whether it would be advisable for
each fund to seek such recapture.
Although the Trustees and officers of each fund are substantially the
same as those of other funds managed by FMR or its affiliates,
investment decisions for each fund are made independently from those
of other funds managed by FMR or investment accounts managed by FMR
affiliates. It sometimes happens that the same security is held in the
portfolio of more than one of these funds or investment accounts.
Simultaneous transactions are inevitable when several funds and
investment accounts are managed by the same investment adviser,
particularly when the same security is suitable for the investment
objective of more than one fund or investment account.
When two or more funds are simultaneously engaged in the purchase or
sale of the same security, the prices and amounts are allocated in
accordance with procedures believed to be appropriate and equitable
for each fund. In some cases this system could have a detrimental
effect on the price or value of the security as far as each fund is
concerned. In other cases, however, the ability of the funds to
participate in volume transactions will produce better executions and
prices for the funds. It is the current opinion of the Trustees that
the desirability of retaining FMR as investment adviser
to each fund outweighs any disadvantages that may be said to exist
from exposure to simultaneous transactions.
VALUATION
Each fund's n et asset value per share (NAV) is
the value of a single share. The NAV of e ach fund is computed
by adding the value of the fund's investments, cash, and other assets,
subtracting its liabilities, and dividing the result by the number of
shares outstanding.
P ortfolio securities are valued by various methods depending on
the primary market or exchange on which they trade. Fixed-income
securities and other assets for which market quotations are readily
available may be valued at market values determined by such
securities' most recent bid prices (sales prices if the principal
market is an exchange) in the principal market in which they normally
are traded, as furnished by recognized dealers in such securities or
assets.
Or, fixed-income securities and convertible securities may be valued
on the basis of information furnished by a pricing service that uses a
valuation matrix which incorporates both dealer-supplied valuations
and electronic data processing techniques. Use of pricing services has
been approved by the Board of Trustees. A number of pricing services
are available, and the funds may use various pricing services or
discontinue the use of any pricing service.
Most equity securities for which the primary market is the United
States are valued at last sale price or, if no sale has occurred, at
the closing bid price. Most equity securities for which the primary
market is outside the United States are valued using the official
closing price or the last sale price in the principal market in which
they are traded. If the last sale price (on the local exchange) is
unavailable, the last evaluated quote or closing bid price normally is
used.
Futures contracts and options are valued on the basis of market
quotations, if available. S ecurities of other open-end
investment companies are valued at their respective NAVs .
I ndependent brokers or quotation services provide prices of
foreign securities in their local currency. FSC gathers all exchange
rates daily at the close of the NYSE using the last quoted price on
the local currency and then translates the value of foreign securities
from their local currencies into U.S. dollars. Any changes in the
value of forward contracts due to exchange rate fluctuations and days
to maturity are included in the calculation of NAV. If an event that
is expected to materially affect the value of a portfolio security
occurs after the close of an exchange or market on which that security
is traded, then that security will be valued in good faith by a
committee appointed by the Board of Trustees.
Short-term securities with remaining maturities of sixty days or less
for which market quotations and information furnished by a pricing
service are not readily available are valued either at amortized cost
or at original cost plus accrued interest, both of which approximate
current value.
The procedures set forth above need not be used to determine the value
of the securities owned by a fund if, in the opinion of a committee
appointed by the Board of Trustees, some other method would more
accurately reflect the fair value of such securities. For
example, securities and other assets for which there is no readily
available market value may be valued in good faith by a committee
appointed by the Board of Trustees. In making a good faith
determination of the value of a security, the committee may review
price movements in futures contracts and A merican Depositary
Receipts (ADRs) , market and trading trends, the bid/ask quotes
of brokers and off-exchange institutional trading.
PERFORMANCE
A fund may quote performance in various ways. All performance
information supplied by the funds in advertising is historical
and is not intended to indicate future returns. E ach fund's
share price, y ield a nd return fluctuate in response to
market conditions and other factors, and the value of fund shares when
redeemed may be more or less than their original cost.
YIELD CALCULATION S . Yields for a fund are
computed by dividing a fund's interest and di vidend
income for a given 30-day or one-month period, net of expenses, by
the average number of shares entitled to receive distributions during
the period, dividing this figure by the fund' s NAV at the end
of the period, and annualizing the result (assuming compounding of
income) in order to arrive at an annual percentage rate . Yields do
not reflect New Markets Income's short-term trading fee. Income
is calculated for purposes of yield quotations in accordance with
standardized methods applicable to all stock and bond funds.
D ividends from equity investments are treated as if they were
accrued on a daily basis, solely for the purposes of yield
calculations. In general, interest income is reduced with
respect to bonds trading at a premium over their par value by
subtracting a portion of the premium from income on a daily basis, and
is increased with respect to bonds trading at a discount by adding a
portion of the discount to daily income. For a fund's
investments denominated in foreign currencies, income and expenses are
calculated first in their respective currencies, and then are
converted to U.S. dollars, either when they are actually converted or
at the end of the 30-day or one month period, whichever is earlier.
Income is adjusted to reflect gains and losses from principal
repayments received by a fund with respect to mortgage-related
securities and other asset-backed securities. Other ca pital gains
and losses generally are excluded from the calculation as are gains
and losses from currency exchange rate fluctuations.
Income calculated for the purposes of calculating a fund's
yield differs from income as determined for other accounting purposes.
Because of the different accounting methods used, and because of the
compounding of income assumed in yield calculations, a fund's
yield may not equal its distribution rate, the income paid to your
account, or the income reported in the fund's financial statements.
In calculating a fund's yield, a fund may from time to time use
a portfolio security's coupon rate instead of its yield to maturity in
order to reflect the risk premium on that security. This practice will
have the effect of reducing a fund's yield.
Yield information may be useful in reviewing a fund's
performance and in providing a basis for comparison with other
investment alternatives. However, a fund's yield fluctuates,
unlike investments that pay a fixed interest rate over a stated period
of time. When comparing investment alternatives, investors should also
note the quality and maturity of the portfolio securities of
respective investment companies they have chosen to consider.
Investors should recognize that in periods of declining interest rates
a fund's yield will tend to be somewhat higher than prevailing
market rates, and in periods of rising interest rates a fund's
yield will tend to be somewhat lower. Also, when interest rates are
falling, the inflow of net new money to a fund from the
continuous sale of its shares will likely be invested in instruments
producing lower yields than the balance of the fund's holdings,
thereby reducing a fund's current yield. In periods of rising
interest rates, the opposite can be expected to occur.
RETURN CALCULATIONS. Returns quoted in advertising reflect all aspects
of a fund's return, including the effect of reinvesting
dividends and capital gain distributions, and any change in a
fund's NAV over a stated period. A cumulative return reflects
actual performance over a stated period of time. Average annual
returns are calculated by determining the growth or decline in value
of a hypothetical historical investment in a fund over a stated
period, and then calculating the annually compounded percentage rate
that would have produced the same result if the rate of growth or
decline in value had been constant over the period. For example, a
cumulative return of 100% over ten years would produce an
average annual return of 7.18%, which is the steady annual rate
of return that would equal 100% growth on a compounded basis in ten
years. W hile average annual returns are a convenient
means of comparing investment alternatives, investors should realize
that a fund's performance is not constant over time, but
changes from year to year, and that average annual returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote
unaveraged or cumulative returns reflecting the simple change
in value of an investment over a stated period. Average annual and
cumulative returns may be quoted as a percentage or as a dollar
amount, and may be calculated for a single investment, a series of
investments, or a series of redemptions, over any time period.
Returns may be broken down into their components of income and
capital (including capital gains and changes in share price) in order
to illustrate the relationship of these factors and their
contributions to return. Returns may be quoted on a before-tax or
after-tax basis. Total returns may or may not include the effect of
a fund's short-term trading fee. Excluding a fund's short-term trading
fee from a total return calculation produces a higher total return
figure. Returns, yields and other performance information may be
quoted numerically or in a table, graph, or similar illustration.
NET ASSET VALUE. Charts and graphs using a fund's NAVs,
adjusted NAVs, and benchmark indexes may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund
and reflects all elements of its return. Unless otherwise indicated,
a fund's adjusted NAVs are not adjusted for sales charges, if
any.
CALCULATING HISTORICAL FUND RESULTS. The following table s show
performance for each fund.
HISTORICAL FUND RESULTS. The following table s show each fund's
yield and return for the fiscal period ended December 31,1998.
For New Markets Income, returns do not include the effect of
the fund's 1.00% short-term trading fee, applicable to shares
held less than 180 days.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL TOTAL RETURNS CUMULATIVE TOTAL RETURNS

THIRTY ONE FIVE TEN ONE FIVE TEN
DAY YEAR YEARS YEARS/ YEAR YEARS YEARS/
YIELD LIFE OF LIFE OF
FUND FUND

INTERNATIONAL BOND % % % % % % %

NEW MARKETS INCOME % % % % * % % % *

</TABLE>

* From May 4, 1993 (commencement of operations).
Note: If FMR had not reimbursed certain fund expenses during these
periods, each fund's returns would have been lower.
The following tabl e show the income and capital elements of
e ach fund's cumulative return. The tables compar e e ach
fund's return to the record of the S tandard & Poor's 500 Index
(S&P 500) , the Dow Jones Industrial Average (DJIA), and the
cost of living, as measured by the Consumer Price Index (CPI), over
the same period. The CPI information is as of the month-end closest to
the initial investment date for e ach fund. The S&P 500 and DJIA
comparisons are provided to show how e ach fund's return
compared to the record of a broad unmanaged index of common stocks and
a narrower set of stocks of major industrial companies, respectively,
over the same period. Because each fund invests in fixed-income
securities, common stocks represent a different type of investment
from the funds . Common stocks generally offer greater growth
potential than the fund s , but generally experience greater
price volatility, which means greater potential for loss. In addition,
common stocks generally provide lower income than fixed-income
investmen t s such as the fun d s. The S&P 500 and
DJIA returns are based on the prices of unmanaged groups of stocks
and, unlike e ach fund's returns, do not include the effect of
brokerage commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the 10-year period ended
December 1998 or life of fund, as applicable, assuming all
distributions were reinvested. Returns are based on past results and
are not an indication of future performance. Tax consequences of
different investment s (with the exception of foreign tax
withholdings) have not been factored into the figures below.
During the 10-year period ended December 31, 1998, a hypothetical
$10,000 investment in International Bond would have grown to
$______.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY INTERNATIONAL BOND FUND INDEXES

FISCAL YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS

19 98 $ $ $ $ $ $ $

1997 $ 8,109 $ 8,043 $ 278 $ 16,430 $ 52,577 $ 54,688 $ 13,977

1996 $ 8,662 $ 7,673 $ 296 $ 16,631 $ 39,424 $ 43,801 $ 13,744

1995 $ 8,867 $ 6,922 $ 304 $ 16,093 $ 32,063 $ 34,032 $ 13,302

1994 $ 8,814 $ 5,973 $ 301 $ 15,088 $ 23,305 $ 24,891 $ 12,972

1993 $ 11,249 $ 6,424 $ 356 $ 18,029 $ 23,002 $ 23,712 $ 12,634

1992 $ 10,116 $ 4,673 $ 0 $ 14,789 $ 20,896 $ 20,268 $ 12,296

1991 $ 10,616 $ 3,550 $ 0 $ 14,166 $ 19,412 $ 18,890 $ 11,950

1990 $ 10,152 $ 2,410 $ 0 $ 12,562 $ 14,877 $ 15,192 $ 11,594

1989 $ 9,884 $ 1,304 $ 0 $ 11,188 $ 15,356 $ 15,274 $ 10,927

</TABLE>

** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in
International Bond on January 1, 1989 the net amount
invested in fund shares was $10,000 . The cost of the initial
investment ($10,000) together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested) amounted to $______. If
distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash
payments for the period would have amounted to $______ for dividends
a nd $_____ for capital gain distributions . 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.
During the 10-year period ended December 31, 1998, a hypothetical
$10,000 investment in New Markets Income would have grown to
$______.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
FIDELITY NEW MARKETS INCOME FUND INDEXES

FISCAL YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING**
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS

1998 $ $ $ $ $ $ $

1997 $ 12,970 $ 6,169 $ 1,647 $ 20,786 $ 24,479 $ 25,585 $ 11,201

1996 $ 12,960 $ 4,339 $ 388 $ 17,687 $ 18,355 $ 20,491 $ 11,014

1995 $ 9,950 $ 2,262 $ 298 $ 12,510 $ 14,928 $ 15,921 $ 10,660

1994 $ 10,190 $ 1,091 $ 305 $ 11,586 $ 10,850 $ 11,645 $ 10,396

1993* $ 13,070 $ 632 $ 182 $ 13,884 $ 10,709 $ 11,093 $ 10,125

</TABLE>

* From May 4, 1993 (commencement of operations).
** From month-end closest to initial investment date.
Explanatory Notes: With an initial investment of $10,000 in New
Markets Income on May 4, 1993 the net amount invested in fund shares
was $10,000. The cost of the initial investment ($10,000) together
with the aggregate cost of reinvested dividends and capital gain
distributions for the period covered (their cash value at the time
they were reinvested) amounted to $______. If distributions had not
been reinvested, the amount of distributions earned from the fund over
time would have been smaller, and cash payments for the period would
have amounted to $______ for dividends and $_____ for capital gain
distributions. The figures in the table do not include the effect of
New Markets Income's 1.00% short-term trading fee applicable to shares
held less than 180 days.
INTERNATIONAL INDEXES, MARKET CAPITALIZATION, AND NATIONAL
STOCK MARKET RETURN
The following tables show the total market capitalization of certain
countries according to the Morgan Stanley Capital International
indexes database, the total market capitalization of Latin American
countries according to the International Finance Corporation Emerging
Markets database, and the performance of national stock markets as
measured in U.S. dollars by the Morgan Stanley Capital International
stock market indexes for the twelve months ended December 31,
1998 . Of course, these results are not indicative of future stock
market performance or the funds' performance. Market conditions during
the periods measured fluctuated widely. Brokerage commissions and
other fees are not factored into the values of the indexes.
MARKET CAPITALIZATION. Companies outside the United States now make up
nearly two-thirds of the world's stock market capitalization.
According to Morgan Stanley Capital International, the size of the
markets as measured in U.S. dollars grew from $____ billion in 19 97
to $____ billion in 1998.
The following table measures the total market capitalization of
certain countries according to the Morgan Stanley Capital
International indexes database. The value of the markets are measured
in billions of U.S. dollars as of December 31, 1998.
TOTAL MARKET CAPITALIZATION
AUSTRALIA $ JAPAN $

AUSTRIA NETHERLANDS

BELGIUM NORWAY

CANADA SINGAPORE/MALAYSIA

DENMARK SPAIN

FRANCE SWEDEN

GERMANY SWITZERLAND

HONG KONG UNITED KINGDOM

ITALY UNITED STATES

The following table measures the total market capitalization of Latin
American countries according to the International Finance Corporation
Emerging Markets database. The value of the markets is measured in
billions of U.S. dollars as of [FYE].
TOTAL MARKET CAPITALIZATION - LATIN AMERICA
ARGENTINA $

BRAZIL

CHILE

COLOMBIA

MEXICO

VENEZUELA

TOTAL LATIN AMERICA $______

NATIONAL STOCK MARKET PERFORMANCE. Certain national stock markets have
outperformed the U.S. stock market. The first table below represents
the performance of national stock markets as measured in U.S. dollars
by the Morgan Stanley Capital International stock market indexes for
the twelve months ended December 31, 1998 . The second table
shows the same performance as measured in local currency. Each table
measures return based on the period's change in price,
dividends paid on stocks in the index, and the effect of reinvesting
dividends net of any applicable foreign taxes. These are unmanaged
indexes composed of a sampling of selected companies representing an
approximation of the market structure of the designated country.
STOCK MARKET PERFORMANCE
MEASURED IN U.S. DOLLARS
AUSTRALIA % JAPAN %

AUSTRIA NETHERLANDS

BELGIUM NORWAY

CANADA SINGAPORE/MALAYSIA

DENMARK SPAIN

FRANCE SWEDEN

GERMANY SWITZERLAND

HONG KONG UNITED KINGDOM

ITALY UNITED STATES

STOCK MARKET PERFORMANCE
MEASURED IN LOCAL CURRENCY
AUSTRALIA % JAPAN %

AUSTRIA NETHERLANDS

BELGIUM NORWAY

CANADA SINGAPORE/MALAYSIA

DENMARK SPAIN

FRANCE SWEDEN

GERMANY SWITZERLAND

HONG KONG UNITED KINGDOM

ITALY UNITED STATES

The following table shows the average annualized stock market returns
measured in U.S. dollars as of December 31, 1998 .
STOCK MARKET PERFORMANCE
Five Years Ended Ten Years Ended
December 31, 1998 December 31, 1998

GERMANY

HONG KONG

JAPAN

SPAIN

UNITED KINGDOM

UNITED STATES

PERFORMANCE COMPARISONS. A fund's performance may be compared
to the performance of other mutual funds in general, or to the
performance of particular types of mutual funds. These comparisons may
be expressed as mutual fund rankings prepared by Lipper Analytical
Services, Inc. (Lipper), an independent service located in Summit, New
Jersey that monitors the performance of mutual funds. Generally,
Lipper rankings are based on return, assume reinvestment of
distributions, do not take sales charges or trading fees into
consideration, and are prepared without regard to tax consequences.
Lipper may also rank based on yield. In addition to the mutual
fund rankings, a fund's performance may be compared to stock,
bond, and money market mutual fund performance indexes prepared by
Lipper or other organizations. When comparing these indexes, it is
important to remember the risk and return characteristics of each type
of investment. For example, while stock mutual funds may offer higher
potential returns, they also carry the highest degree of share price
volatility. Likewise, money market funds may offer greater stability
of principal, but generally do not offer the higher potential returns
available from stock mutual funds.
From time to time, a fund's performance may also be compared to
other mutual funds tracked by financial or business publications and
periodicals. For example, a fund may quote Morningstar, Inc. in
its advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
A fund's performance may also be compared to that of
e ach benchmark index representing the universe of securities in
which the fund may invest. The return of e ach index reflects
reinvestment of all dividends and capital gains paid by securities
included in eac h index. Unlike a fund's returns,
however, e ach index 's returns do not reflect brokerage
commissions, transaction fees, or other costs of investing directly in
the securities included in the index.
International Bond may compare its performance to that of the Salomon
Brothers Non- U.S. Dollar World Government Bond Index, Unhedged, a
market capitalization-weighted index that is designed to reflect the
performance of 16 world government bond markets, excluding the United
States. Issues included in the index have fixed-rate coupons and
maturities of one year or more.
N ew Markets Income may compare its performance to that of the
J.P. Morgan Emerging Markets Bond Index Plus, a market
capitalization-weighted index of U.S. dollar- and other external
currency-denominated Brady bonds, loans, Eurobonds, and local market
debt instruments traded in emerging markets.
A fund may be compared in advertising to Certificates of
Deposit (CDs) or other investments issued by banks or other depository
institutions. Mutual funds differ from bank investments in several
respects. For example, a fund may offer greater liquidity or
higher potential returns than CDs, a fund does not guarantee
your principal or your return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the Consumer Price Index ), and combinations of various capital
markets. The performance of these capital markets is based on the
returns of different indexes.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates returns in
the same method as the funds. The funds may also compare performance
to that of other compilations or indexes that may be developed and
made available in the future.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
A f und may present its fund number, Quotron(trademark) number,
and CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark. Measures of benchmark
correlation indicate how valid a comparative benchmark may be. All
measures of volatility and correlation are calculated using averages
of historical data. In advertising, a fund may also discuss or
illustrate examples of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over
specific periods of time. Each point on the momentum indicator
represents a fund's percentage change in price movements over
that period.
A fund may advertise examples of the effects of periodic
investment plans, including the principle of dollar cost averaging. In
such a program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
A fund may be available for purchase through retirement plans
or other programs offering deferral of, or exemption from, income
taxes, which may produce superior after-tax returns over time. For
example, a $1,000 investment earning a taxable return of 10% annually
would have an after-tax value of $1,949 after ten years, assuming tax
was deducted from the return each year at a 31% rate. An equivalent
tax-deferred investment would have an after-tax value of $2,100 after
ten years, assuming tax was deducted at a 31% rate from the
tax-deferred earnings at the end of the ten-year period.
As of December 31, 1998 , FMR advised over $__ billion in
municipal fund assets, $__ billion in taxable fixed-income fund
assets, $__ billion in money market fund assets, $___ billion in
equity fund assets, $__ billion in international fund assets, and $___
billion in Spartan fund assets. The fund s may reference the
growth and variety of money market mutual funds and the adviser's
innovation and participation in the industry. The equity funds under
management figure represents the largest amount of equity fund assets
under management by a mutual fund investment adviser in the United
States, making FMR America's leading equity (stock) fund manager. FMR,
its subsidiaries, and affiliates maintain a worldwide information and
communications network for the purpose of researching and managing
investments abroad.
In addition to performance rankings, a fund may compare its
total expense ratio to the average total expense ratio of similar
funds tracked by Lipper. A fund's total expense ratio is a
significant factor in comparing bond and money market investments
because of its effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing each fund's NAV. Shareholders receiving
securities or other property on redemption may realize a gain or loss
for tax purposes, and will incur any costs of sale, as well as the
associated inconveniences.
DISTRIBUTIONS AND TAXES
DIVIDENDS. Because each fund invests significantly in foreign
securities, corporate shareholders should not expect fund dividends to
qualify for the dividends-received deduction. Short-term capital gains
are taxable as dividends, but do not qualify for the
dividends-received deduction.
CAPITAL GAINS DISTRIBUTIONS. Each fund's long-term capital gains
distributions are federally taxable to shareholders generally as
capital gains.
[ A s of December 31, 199 8 , International Bond had
a capital loss carryforward aggregating approximately $____. This loss
carryforward, of which $___, $___, and $___will expire on December 31,
199_, ____, and ____ , respectively, is available to offset future
capital gains. ]
[As of December 31 , 1998, New Markets Income had a capital
loss carryforward aggregating approximately $____. This loss
carryforward, of which $___, $___, and $___will expire on December
31 , 199_, ____, and ____ , respectively, is available to offset
future capital gains.]
RETURNS OF CAPITAL. If a fund's distributions exceed its
taxable income and capital gains realized during a taxable year, all
or a portion of the distributions made in the same taxable year may be
recharacterized as a return of capital to shareholders. A return of
capital distribution will generally not be taxable, but will reduce
each shareholder's cost basis in the fund and result in a higher
reported capital gain or lower reported capital loss when those shares
on which the distribution was received are sold.
FOREIGN TAX CREDIT OR DEDUCTION. Foreign governments may withhold
taxes on dividends and interest earned by a fund with respect
to foreign securities. Foreign governments may also impose taxes on
other payments or gains with respect to foreign securities. If, at the
close of its fiscal year, more than 50% of a fund's total
assets is invested in securities of foreign issuers, the fund may
elect to pass through eligible foreign taxes paid and thereby allow
shareholders to take a deduction or, if they meet certain holding
period requirements with respect to fund shares, a credit on their
individual tax returns.
TAX STATUS OF THE FUND S . E ach fund intends to qualify
each year as a "regulated investment company" under Subchapter M of
the Internal Revenue Code so that it will not be liable for federal
tax on income and capital gains distributed to shareholders. In order
to qualify as a regulated investment company, and avoid being subject
to federal income or excise taxes at the fund level, e ach fund
intends to distribute substantially all of its net investment income
and net realized capital gains within each calendar year as well as on
a fiscal year basis, and intends to comply with other tax rules
applicable to regulated investment companies.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting e ach fund
and its shareholders, and no attempt has been made to discuss
individual tax consequences. It is up to you or your tax preparer to
determine whether the sale of shares of a fund resulted in a
capital gain or loss or other tax consequence to you. In addition to
federal income taxes, shareholders may be subject to state and local
taxes on fund distributions, and shares may be subject to state and
local personal property taxes. Investors should consult their tax
advisers to determine whether a fund is suitable to their particular
tax situation.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trust are listed below. The Board of Trustees governs e ach
fund and is responsible for protecting the interests of shareholders.
The Trustees are experienced executives who meet periodically
throughout the year to oversee e ach fund's activities, review
contractual arrangements with companies that provide services to
e ach fund, and review e ach fund's performance. Except as
indicated, each individual has held the office shown or other offices
in the same company for the last five years. All persons named as
Trustees and Members of the Advisory Board also serve in similar
capacities for other funds advised by FMR or its affiliates .
The business address of each Trustee, Member of the Advisory Board,
and officer who is an "interested person" (as defined in the 1940 Act)
is 82 Devonshire Street, Boston, Massachusetts 02109, which is also
the address of FMR. The business address of all the other Trustees is
Fidelity Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235.
T hose Trustees who are "interested persons" by virtue of their
affiliation with either the trust or FMR are indicated by an asterisk
(*) .
*EDWARD C. JOHNSON 3d ( 68 ), Trustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman
and a Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc. [IF YOUR SAI INCLUDES ABIGAIL JOHNSON'S
BIOGRAPHY: Abigail Johnson, Vice President of certain Equity Funds, is
Mr. Johnson's daughter.]
J. GARY BURKHEAD ( 57 ), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX ( 65 ), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS ( 66 ), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
R OBERT M. GATES ( 55 ), Trustee (1997), is a consultant,
author, and lecturer (1993). Mr. Gates was Director of the Central
Intelligence Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates
served as Assistant to the President of the United States and Deputy
National Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America .
E. BRADLEY JONES ( 71 ), Trustee. Prior to his retirement in
1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel
Company. He is a Director of TRW Inc. (original equipment and
replacement products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK ( 66 ), Trustee, is Executive-in-Residence (1995)
at Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of National Arts Stabilization Inc., Chairman of
the Board of Trustees of the Greenwich Hospital Association, Director
of the Yale-New Haven Health Services Corp. (1998), a Member of the
Public Oversight Board of the American Institute of Certified Public
Accountants' SEC Practice Section (1995), and as a Public Governor of
the National Association of Securities Dealers, Inc. (1996).
*PETER S. LYNCH ( 55 ), Trustee, is Vice Chairman and Director of
FMR. Prior to May 31, 1990, he was a Director of FMR and Executive
Vice President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
W ILLIAM O. McCOY ( 65 ), Trustee (1997), is the Vice
President of Finance for the University of North Carolina (16-school
system, 1995). Prior to his retirement in December 1994, Mr. McCoy was
Vice Chairman of the Board of BellSouth Corporation
(telecommunications, 1984) and President of BellSouth Enterprises
(1986). He is currently a Director of Liberty Corporation (holding
company, 1984), Weeks Corporation of Atlanta (real estate, 1994),
Carolina Power and Light Company (electric utility, 1996), and the
Kenan Transport Co. (1996). Previously, he was a Director of First
American Corporation (bank holding company, 1979-1996). In addition,
Mr. McCoy serves as a member of the Board of Visitors for the
University of North Carolina at Chapel Hill (1994) and for the
Kenan-Flager Business School (University of North Carolina at Chapel
Hill, 1988) .
GERALD C. McDONOUGH ( 70 ), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN ( 65 ), Trustee (1993), is Chairman of the Board,
of Lexmark International, Inc. (office machines, 1991). Prior to 1991,
he held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993), Imation Corp. (imaging and
information storage, 1997).
* ROBERT C. POZEN ( 52 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), Fidelity Management & Research (U.K.) Inc. (1997), and
Fidelity Management & Research (Far East) Inc. (1997). Previously, Mr.
Pozen served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp .
THOMAS R. WILLIAMS ( 70 ), Trustee, is President of The Wales
Group, Inc. (management and financial advisory services). Prior to
retiring in 1987, Mr. Williams served as Chairman of the Board of
First Wachovia Corporation (bank holding company), and Chairman and
Chief Executive Officer of The First National Bank of Atlanta and
First Atlanta Corporation (bank holding company). He is currently a
Director of ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
B ART A. GRENIER, ( 39 ), is Vice President of certain
High-Income Bond Funds (1997). Mr. Grenier rejoined Fidelity in August
1997 from DDJ Capital Management, LLC, where he had served as Managing
Director since April 1997. Mr. Grenier originally joined Fidelity in
1991 as a senior analyst. Mr. Grenier served as a Director of
High-Income Group Research and as Director of U.S. Equity Research
from 1994 to March 1996. He later became Group Leader of the
Income-Growth and Asset Allocation-Income Groups in 1996 and Assistant
Equity Division Head in 1997 .
JOHN H. CARLSON (49), is Vice President of Fidelity International
Bond Fund (1998) and Fidelity New Markets Income Fund (1996). Prior to
joining Fidelity in 1995, Mr. Carlson spent three years with Lehman
Brothers as executive director of emerging markets and senior vice
president and head trader at Lehman's Latin American emerging markets
fixed-income desk.
ERIC D. ROITER ( 50 ), Secretary (1998), is Vice President (1998)
and General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER ( 51 ), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
MATTHEW N. KARSTETTER (37), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
JOHN H. COSTELLO ( 52 ), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH ( 52 ), Assistant Treasurer (1994), is an
employee of FMR (1994). Prior to becoming Assistant Treasurer of the
Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp.
(1993-1994) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of e ach fund
for his or her services for the fiscal year ended December
199 8.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
TRUSTEES AGGREGATE AGGREGATE TOTAL
AND COMPENSATION COMPENSATION COMPENSATION
MEMBERS OF THE ADVISORY BOARD FROM FROM FROM THE
INTERNATIONAL NEW MARKETS FUND COMPLEX*
BOND B,C INCOME B,D A

J. GARY BURKHEAD ** $ 0 $ 0 $ 0

RALPH F. COX $ $ $ 214,500

PHYLLIS BURKE DAVIS $ $ $ 210,000

ROBERT M. GATES ** * $ $ $ 176,000

EDWARD C. JOHNSON 3D ** $ 0 $ 0 $ 0

E. BRADLEY JONES $ $ $ 211,500

DONALD J. KIRK $ $ $ 211,500

PETER S. LYNCH ** $ 0 $ 0 $ 0

W ILLIAM O. MCCOY**** $ $ $ 214,500

GERALD C. MCDONOUGH $ $ $ 264,500

MARVIN L. MANN $ $ $ 214,500

R OBERT C. POZEN* * $ 0 $ 0 $ 0

THOMAS R. WILLIAMS $ $ $214,500

</TABLE>

* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the fund s and Mr. Burkhead are
compensated by FMR.
* ** Mr. Gates was appointed to the Board of Trustees
of Fidelity School Street Trust effective March 1, 1997.
* *** Mr. McCoy was appointed to the Board of Trustees of
Fidelity School Street Trust effective January 1, 1997.
A Compensation figures include cash, amounts required to be
deferred, and may include amounts deferred at the election of
Trustees. For the calendar year ended December 31, 1997, the Trustees
accrued required deferred compensation from the funds as follows:
Ralph F. Cox, $75,000; Phyllis Burke Davis, $75,000; Robert M. Gates,
$62,500; E. Bradley Jones, $75,000; Donald J. Kirk, $75,000; William
O. McCoy, $75,000; Gerald C. McDonough, $87,500; Marvin L. Mann,
$75,000; and Thomas R. Williams, $75,000. Certain of the
non-interested Trustees elected voluntarily to defer a portion of
their compensation as follows: Ralph F. Cox, $53,699; Marvin L. Mann,
$53,699; and Thomas R. Williams, $62,462.
B Compensation figures include cash, and may include amounts
required to be deferred and amounts deferred at the election of
Trustees .
C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $__; Phyllis Burke Davis, $__;
Robert M. Gates, $__; E. Bradley Jones, $__; Donald J. Kirk,
$__; William O. McCoy, $__; Gerald C. McDonough, $__; Marvin L. Mann,
$__; and Thomas R. Williams, $__ .
D The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $__; Phyllis Burke Davis, $__;
Rob ert M. Gates, $__; E. Bradley Jones, $__; Donald J. Kirk,
$__; William O. McCoy, $__; Gerald C. McDonough, $__; Marvin L. Mann,
$__; and Thomas R. Williams, $__ .
E Certain of the non-interested Trustees' aggregate
compensation from a fund includes accrued voluntary deferred
compensation as follows: [trustee name, dollar amount of deferred
compensation, fund name]; [trustee name, dollar amount of deferred
compensation, fund name]; and [trustee name, dollar amount of deferred
compensation, fund name].]
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
[ A s of December __, 1998 , approximately __% of
[International Bond and New Markets Income] 's total outstanding
shares was held by FMR and FMR affiliates . FMR
Corp. is the ultimate parent company of F MR and
thes e FMR affiliates . By virtue of his ownership
interest in FMR Corp., as described in the "Control of Investment
Advisers" section on page ___, Mr. Edward C. Johnson 3d, President and
Trustee of the fund, may be deemed to be a beneficial owner of these
shares. As of the above date, with the exception of Mr. Johnson 3d's
deemed ownership of [International Bond and New Markets
Income] 's shares, the Trustees, Members of the Advisory Board, and
officers of the funds owned, in the aggregate, less than __% of each
fund's total outstanding shares. ]
[ A s of December __, 1998 , the Trustees, Members of the
Advisory Board, and officers of e ach fund owned, in the
aggregate, less than __% of e ach fund' s total
outstanding shares.]
[ A s of December __, 1998, the following owned of record
or beneficially 5% or more (up to and including 25%) of e ach
fund' s outstanding shares: ]
[ A s o f December __, 1998 , approximately ____% of
_____________ 's total outstanding shares were held by
____________ ; approximately ___% of _____________ 's total
outstanding shares were held by ______________.]
[ A shareholder owning of record or beneficially more than 25%
of a fund's outstanding shares may be considered a controlling person.
That shareholder's vote could have a more significant effect on
matters presented at a shareholders' meeting than votes of other
shareholders. ]
CONTROL OF INVESTMENT ADVISER S
FMR Corp., organized in 1972, is the ultimate parent company of
F MR , FMR U.K. and FM R Far East. The voting
common stock of FMR Corp. is divided into two classes. Class B is held
predominantly by members of the Edward C. Johnson 3d family and is
entitled to 49% of the vote on any matter acted upon by the voting
common stock. Class A is held predominantly by non-Johnson family
member employees of FMR Corp. and its affiliates and is entitled to
51% of the vote on any such matter. The Johnson family group and all
other Class B shareholders have entered into a shareholders' voting
agreement under which all Class B shares will be voted in accordance
with the majority vote of Class B shares. Under the I nvestment
Company Act of 1940 (1940 Act) , control of a company is
presumed where one individual or group of individuals owns more than
25% of the voting stock of that company. Therefore, through their
ownership of voting common stock and the execution of the
shareholders' voting agreement, members of the Johnson family may be
deemed, under the 1940 Act, to form a controlling group with respect
to FMR Corp.
At present, the principal operating activities of FMR Corp. are those
conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity International Limited (FIL), a Bermuda company formed in
1968, is the ultimate parent company of FIIA, FIJ and
FIIA(U.K.)L . Edward C. Johnson 3d, Johnson family members,
and various trusts for the benefit of the Johnson family own, directly
or indirectly, more than 25% of the voting common stock of FIL. FIL
provides investment advisory services to non-U.S. investment companies
and institutional investors investing in securities throughout the
world.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that sets forth all
employees' fiduciary responsibilities regarding the funds, establishes
procedures for personal investing and restricts certain transactions.
For example, all personal trades in most securities require
pre-clearance, and participation in initial public offerings is
prohibited. In addition, restrictions on the timing of personal
investing in relation to trades by Fidelity funds and on short-term
trading have been adopted.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant to
which FMR furnishes investment advisory and other services .
MANAGEMENT SERVICES. Under the terms of its management contract with
each fund, FMR acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the
fund in accordance with its investment objective, policies and
limitations. FMR also provides each fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of each fund and all Trustees who are
"interested persons" of the trust or of FMR, and all personnel
of each fund or FMR performing services relating to research,
statistical and investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, pricing and bookkeeping agent ,
and securities lending agent, e ach fund pays all of its
expenses that are not assumed by those parties. E ach fund pays
for the typesetting, printing, and mailing of its proxy materials to
shareholders, legal expenses, and the fees of the custodian, auditor
and non-interested Trustees. E ach fund's management contract
further provides that the fund will pay for typesetting, printing, and
mailing prospectuses, statements of additional information, notices,
and reports to shareholders; however, under the terms of e ach
fund's transfer agent agreement, the transfer agent bears the costs of
providing these services to existing shareholders. Other expenses paid
by e ach fund include interest, taxes, brokerage commissions,
the fund's proportionate share of insurance premiums and Investment
Company Institute dues, and the costs of registering shares under
federal securities laws and making necessary filings under state
securities laws. E ach fund is also liable for such
non-recurring expenses as may arise, including costs of any litigation
to which the fund may be a party, and any obligation it may have to
indemnify its officers and Trustees with respect to litigation.
M ANAGEMENT FEES. For the services of FMR under the management
contract, e ach fund pays FMR a monthly management fee
which has two components: a group fee rate and an individual fund fee
rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

AVERAGE GROUP ANNUALIZED GROUP NET EFFECTIVE ANNUAL FEE
ASSETS RATE ASSETS RATE

0 - $3 BILLION .3700% $ 0.5 BILLION .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 .1690

24 - 30 .1800 200 .1652

30 - 36 .1750 225 .1618

36 - 42 .1700 250 .1587

42 - 48 .1650 275 .1560

48 - 66 .1600 300 .1536

66 - 84 .1550 325 .1514

84 - 120 .1500 350 .1494

120 - 156 .1450 375 .1476

156 - 192 .1400 400 .1459

192 - 228 .1350 425 .1443

228 - 264 .1300 450 .1427

264 - 300 .1275 475 .1413

300 - 336 .1250 500 .1399

336 - 372 .1225 525 .1385

372 - 408 .1200 550 .1372

408 - 444 .1175

444 - 480 .1150

480 - 516 .1125

OVER 516 .1100

The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $___ billion of group net assets - the approximate level for
December 199 8 - was __%, which is the weighted average
of the respective fee rates for each level of group net assets up to
$__ billion.
E ach fund's individual fund fee rate is 0.55 %.
Based on the average group net assets of the funds advised by FMR for
December 1998, e ach fund's annual management fee rate would be
calculated as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GROUP FEE RATE INDIVIDUAL FUND FEE RATE MANAGEMENT
FEE RATE

INTERNATIONAL BOND 0.% + 0. 55% = 0.___%

NEW MARKETS INCOME 0.% + 0.55% = 0.___%

</TABLE>

One-twelfth of the management fee rate is applied to each
fund's average net assets for the month, giving a dollar amount
which is the fee for that month.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years.
FUND FISCAL YEARS ENDED MANAGEMENT FEES
DECEMBER 31 PAID TO FMR

INTERNATIONAL BOND 199 8 $

199 7 $

199 6 $

NEW MARKETS INCOME 19 98 $

199 7 $

199 6 $

D uring the reporting period, FMR voluntarily modified the
breakpoints in the group fee rate schedule s on January 1, 1996
to provide for lower management fee rates as FMR's assets under
management increase.
FMR may, from time to time, voluntarily reimburse all or a portion of
a fund's operating expenses (exclusive of interest, taxes, brokerage
commissions, and extraordinary expenses) which i s subject to
revision or termination . FMR retains the ability to be repaid
for these expense reimbursements in the amount that expenses fall
below the limit prior to the end of the fiscal year.
Expense reimbursements by FMR will increase a fund's total
returns and yield, and repayment of the reimbursement by a fund
will lower its total returns and yield.
S UB-ADVISERS. On behalf of International Bond and New
Markets Income , FMR has entered into sub-advisory agreements with
FMR U.K., FMR Far East, FIJ, and FIIA. FIIA, in turn, has entered into
a sub-advisory agreement with FIIA(U.K.)L . Pursuant to the
sub-advisory agreements, FMR may receive investment advice and
research services outside the United States from the sub-advisers.
On behalf of each fund, FMR may also grant FMR U.K., FMR Far East,
FIJ, FIIA. and FIIA(U.K.)L investment management authority to buy and
sell securities if FMR believes it would be beneficial to the
funds.
Under the sub-advisory agreements FMR pays the fees of FMR U.K., FMR
Far East, FIJ, and FIIA. FIIA, in turn, pays the fees of FIIA(U.K.)L.
For providing non-discretionary investment advice and research
services the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K. and FMR Far East fees equal to
110% and 105%, respectively, of FMR U.K.'s and FMR Far East's costs
incurred in connection with providing investment advice and research
services.
(small solid bullet) FMR pays FIIA and FIJ fees equal to 30% of FMR's
monthly management fee with respect to the average net assets held by
the fund for which the sub-adviser has provided FMR with investment
advice and research services.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing investment
advice and research services.
Fo r providing discretionary investment management and executing
portfolio transactions, the sub-advisers are compensated as follows:
(small solid bullet) FMR pays FMR U.K., FMR Far East, FIJ, and FIIA a
fee equal to 50% of its monthly management fee wi th respect to
the fund's average net assets managed by the sub-adviser on a
discretionary basis.
(small solid bullet) FIIA pays FIIA(U.K.)L a fee equal to 110% of
FIIA(U.K.)L's costs incurred in connection with providing
discretionary investment management services.
[ F or investment advice and research services, no fees were paid
to FMR U.K., FMR Far East, FIJ, and FIIA. or FIIA(U.K.)L on behalf of
International Bond and New Markets Income for the past three
fiscal years. ]
[ F or providing investment advice and research services, fees
paid to FMR U.K., FMR Far East, FIJ, and FIIA. and FIIA(U.K.)L on
behalf of [International Bond] [and] [New Markets Income] for
the past three fiscal years are shown in the table below.]

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31 FMR U.K. FMR FAR EAST FIIA FIIA(U.K.)L FIJ

[INTERNATIONAL
BOND]

199 8 $ $ $ $ $

199 7 _ $ $ $ $ $

199 6 _ $ $ $ $ $

FISCAL YEAR ENDED
DECEMBER 31 FMR U.K. FMR FAR EAST FIIA FIIA(U.K.)L FIJ

[NEW MARKETS
INCOME]

199 8 $ $ $ $ $

199 7 _ $ $ $ $ $

199 6 _ $ $ $ $ $

</TABLE>

[For discretionary investment management and execution of portfolio
transactions, no fees were paid to FMR U.K., FMR Far East, FIJ,
and FIIA. and FIIA(U.K.)L on behalf of International Bond for the
past three fiscal years.]
[ F or discretionary investment management and execution of
portfolio transactions, no fees were paid to FMR U.K., FMR Far East,
FIJ, and FIIA. and FIIA(U.K.)L on behalf of New Markets Income
for the past three fiscal years.]
[ F or discretionary investment management and execution of
portfolio transactions, fees paid to FMR U.K., FMR Far East,
FIJ, and FIIA. and FIIA(U.K.)L o n behalf of [International
Bond] [and] [New Markets Income] f or the past three fiscal years
are shown in the table s below.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31 FMR U.K. FMR FAR EAST FIIA FIIA(U.K.)L FIJ

INTERNATIONAL
BOND
19 98 $ $ $ $ $

199 7 $ 0 $ 0 $ 221,132 $ 122,400 $ 0

199 6 $ 0 $ 0 $ 478,336 $ 185,613 $ 0

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FISCAL YEAR ENDED
DECEMBER 31 FMR U.K. FMR FAR EAST FIIA FIIA(U.K.)L FIJ

NEW MARKETS
INCOME

1998 $ $ $ $ $

1997 $ 0 $ 0 $ $ $ 0

1996 $ 0 $ 0 $ $ $ 0
</TABLE>

[No fees were paid to FMR U.K., FMR Far East, FIJ, and FIIA. and
FIIA(U.K.)L on behalf of International Bond and New Markets Income for
the past three fiscal years.]
DISTRIBUTION SERVICES
Each fund has entered into a distribution agreement with FDC,
an affiliate of FMR. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The distribution
agreement s call for FDC to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the fund, which are continuously offered at NAV. Promotional and
administrative expenses in connection with the offer and sale of
shares are paid by FMR.
The Trustees have approved D istribution and Service Plans
on behalf of e ach fund (the Plan s ) pursuant
to Rule 12b-1 under the 1940 Act (the Rule). The Rule provides in
substance that a mutual fund may not engage directly or indirectly in
financing any activity that is primarily intended to result in the
sale of shares of the fund except pursuant to a plan approved on
behalf of the fund under the Rule. The Plan s , as approved by
the Trustees, allow the fund s and FMR to incur certain
expenses that might be considered to constitute i ndirect
payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the fund
to FMR is deemed to be indirect financing by the fund of the
distribution of its shares, such payment is authorized by the Plan.
E ach Plan specifically recognizes that FMR may use its
management fee revenue, as well as its past profits or its other
resources, to pay FDC for expenses incurred in connection with
providing services intended to result in the sale of fund
shares and/or shareholder support services. In addition,
each Plan provides that FMR, directly or through FDC, may pay
intermediaries, such as banks, broker-dealers and other
service-providers, that provide those services. Currently, the Board
of Trustees has authorized such payments for International Bond and
New Markets Income shares.
[ P ayments made by FMR e ither directly or through FDC to
intermediaries for the fiscal year ended 1998 amounted to $____
for International Bond and $_____ for New Markets
Income] .
[ F MR made no payments either directly or through FDC to
intermediaries for the fiscal year ended 1998] .
Prior to approving e ach Plan, the Trustees carefully considered
all pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that e ach Plan does not authorize payments by the fund
other than those made to FMR under its management contract with the
fund. To the extent that e ach Plan gives FMR and FDC greater
flexibility in connection with the distribution of fund shares,
additional sales of fund shares or stabilization of cash flows may
result. Furthermore, certain shareholder support services may be
provided more effectively under the Plans by local entities
with whom shareholders have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the fund[s] might occur, including possible termination
of any automatic investment or redemption or other services then
provided by the bank. It is not expected that shareholders would
suffer any adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
E ach fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plan s . No preference for the instruments of such
depository institutions will be shown in the selection of investments.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each fund has entered into a transfer agent agreement with FSC, an
affiliate of FMR. Under the terms of the agreements, FSC performs
transfer agency, dividend disbursing, and shareholder services for
each fund.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional
accounts, these fees are based on account size and fund type. For
certain institutional retirement accounts, these fees are based on
fund type. For certain other institutional retirement accounts, these
fees are based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, FSC receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state tuition
program (QSTP), as defined under the Small Business Job Protection Act
of 1996, managed by FMR or an affiliate and each Fidelity Freedom
Fund, a fund of funds managed by an FMR affiliate, according to the
percentage of the QSTP's or Freedom Fund's assets that is invested in
a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each fund has also entered into a service agent agreement with
FSC . Under the terms of the agreements, FSC calculates the NAV
and dividends for each fund, maintains each fund's portfolio and
general accounting records, and administers e ach fund's
securities lending program.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on e ach fund's average daily net assets throughout
the month. The annual fee rates for pricing and bookkeeping services
are .0750% of the first $500 million of average net assets and
.0375% of average net assets in excess of $500 million. The fee, not
including reimbursement for out-of-pocket expenses, is limited to a
minimum of $800,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
FUND 199 8 199 7 199 6

INTERNATIONAL BOND $ $ 70,104 $ 155,301

NEW MARKETS INCOME $ $ 291,248 $ 98,972

For administering e ach fund's securities lending
program, FSC receives fees based on the number and duration of
individual securities loans.
[ F or the fiscal years ended December 31, 1998, 1997, and
1996, the funds paid no securities lending fees. ]
[ F or the fiscal years ended December 31, 1998, 1997, and
1996, _____________ paid securities lending fees of $__,
$ 0 , and $ 0 , respectively.
[For the fiscal years ended December 31, 1998, 1997, and 1996,
_____________ paid securities lending fees of $__, $0, and $0,
respectively.
DESCRIPTION OF THE TRUS T
TRUST ORGANIZATION. Fidelity International Bond Fund and Fidelity
New Markets Income Fund are funds of Fidelity School Street Trust, an
open-end management investment company organized as a Massachusetts
business trust on September 10, 1976. Currently, there are four funds
in the trust: Spartan Intermediate Municipal Income Fund, Fidelity
International Bond Fund, Fidelity New Markets Income Fund and Fidelity
Strategic Income Fund. The Trustees are permitted to create additional
funds in the trust.
T he assets of the trust received for the issue or sale of
shares of each fund and all income, earnings, profits, and proceeds
thereof, subject to the rights of creditors, are allocated to such
fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in the trust shall be charged with the
liabilities and expenses attributable to such fund. Any general
expenses of the trust shall be allocated between or among any one or
more of the funds .
SHAREHOLDER LIABILITY. The trust is an entity commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust.
T he Declaration of Trust provides that the trust shall not have
any claim against shareholders except for the payment of the purchase
price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the trust or the Trustees
relating to the trust s hall include a provision limiting the
obligations created thereby t o the trust and its assets .
The Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason of
his or her being or having been a shareholder and not because of his
or her acts or omissions or for some other reason. The Declaration of
Trust also provides that each fund shall, upon request, assume the
defense of any claim made against any shareholder for any act or
obligation of the fund and satisfy any judgment thereon. Thus, the
risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which a fund
itself would be unable to meet its obligations. FMR believes that, in
view of the above, the risk of personal liability to shareholders is
remote .
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you are entitled to one vote for each
dollar of net asset value that you own. The voting rights of
shareholders can be changed only by a shareholder vote. Shares may be
voted in the aggregate, by fund and by class.
The shares have no preemptive or c onversion rights. Shares are
fully paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
The trust or any of its funds may be terminated upon the sale
of its assets to another open-end management investment company, or
upon liquidation and distribution of its assets, if approved by a vote
of shareholders of the trust or the fund. In the event of the
dissolution or liquidation of the trust, shareholders of each
of its funds are entitled to receive the underlying assets of such
fund available for distribution. In the event of the dissolution or
liquidation of a fund, shareholders of that fund are entitled to
receive the underlying assets of the fund available for
distribution .
C USTODIAN. The Chase Manhattan Bank, 1 Chase Manhattan Plaza,
New York, New York, is custodian of the assets of each
fund . The custodian is responsible for the safekeeping
of a fund's assets and the appointment of any subcustodian banks and
clearing agencies. Th e Bank of New York , headquartered
in New York, also may serve as a special purpose custodian of
certain assets in connection with repurchase agreement
transactions .
FMR, its officers and directors, its affiliated companies, and members
of the Board of Trustees may, from time to time, conduct transactions
with various banks, including banks serving as custodians for certain
funds advised by FMR. T ransactions that have occurred to date
include mortgages and personal and general business loans. In the
judgment of FMR, the terms and conditions of those transactions were
not influenced by existing or potential custodial or other fund
relationships.
AUDITOR. _____________________ , 160 Federal Street, Boston,
Massachusetts serves as the fund s' independent accountant. The
auditor examines financial statements for the fund and provides other
audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended December 31, 199 8, and reports of the
auditors, are included in each fund's Annual Report and are
incorporated herein by reference.
APPENDIX
Fidelity, Fidelity Investments & (Pyramid) Design, Fidelity Focus,
Fidelity Investments and Magellan are registered trademarks of FMR
Corp.
Portfolio Advisory Services is a service mark of FMR Corp.
THE THIRD PARTY MARKS APPEARING ABOVE ARE THE MARKS OF THEIR
RESPECTIVE OWNERS.

SPARTAN(registered trademark)
MUNICIPAL
FUNDS

SPARTAN
INTERMEDIATE MUNICIPAL INCOME
FUND
(fund number 036, trading symbol FLTMX)

SPARTAN
MUNICIPAL INCOME
FUND
(fund number 037, trading symbol FHIGX)

PROSPECTUS
FEBRUARY 27, 1999

(fidelity_logo_graphic)
82 Devonshire Street, Boston, MA 02109

CONTENTS

FUND SUMMARY 3 INVESTMENT SUMMARY

3 PERFORMANCE

4 FEE TABLE

FUND BASICS 5 INVESTMENT DETAILS

6 VALUING SHARES

SHAREHOLDER INFORMATION 6 BUYING AND SELLING SHARES

13 EXCHANGING SHARES

13 ACCOUNT FEATURES AND POLICIES

16 DIVIDENDS AND CAPITAL GAINS
DISTRIBUTIONS

16 TAX CONSEQUENCES

FUND SERVICES 16 FUND MANAGEMENT

17 FUND DISTRIBUTION

APPENDIX 17 FINANCIAL HIGHLIGHTS

FUND SUMMARY

INVESTMENT SUMMARY
INVESTMENT OBJECTIVE. Spartan Intermediate Municipal Income Fund seeks
a high level of income exempt from federal income tax, consistent with
the preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES. Fidelity Management & Research
Company (FMR)'s principal investment strategies include:
(small solid bullet) Investing normally in investment-grade municipal
debt securities.
(small solid bullet) Investing at least 80% of assets in municipal
securities whose interest is exempt from federal income tax.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar types of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers 1-17 Year Municipal Bond
Index.
(small solid bullet) Normally maintaining a dollar-weighted average
maturity between three and ten years.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features,
current pricing and trading opportunities, and the credit quality of
its issuer in selecting investments.
PRINCIPAL INVESTMENT RISKS. The fund is subject to the following
principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
INVESTMENT OBJECTIVE. Spartan Municipal Income Fund seeks to provide a
high current yield exempt from federal income tax.
PRINCIPAL INVESTMENT STRATEGIES. FMR's principal investment strategies
include:
(small solid bullet) Investing normally in investment-grade municipal
debt securities.
(small solid bullet) Investing so that at least 80% of the fund's
income is exempt from federal income tax.
(small solid bullet) Potentially investing more than 25% of total
assets in municipal securities that finance similar type of projects.
(small solid bullet) Managing the fund to have similar overall
interest rate risk to the Lehman Brothers Municipal Bond Index.
(small solid bullet) Allocating assets across different market sectors
and maturities.
(small solid bullet) Analyzing a security's structural features,
current pricing and trading opportunities, and the credit quality of
its issuer in selecting investments.
PRINCIPAL INVESTMENT RISKS. The fund is subject to the following
principal investment risks:
(small solid bullet) MUNICIPAL MARKET VOLATILITY. The municipal market
is volatile and can be significantly affected by adverse tax,
legislative or political changes and the financial condition of the
issuers of municipal securities.
(small solid bullet) INTEREST RATE CHANGES. Interest rate increases
can cause the price of a debt security to decrease.
(small solid bullet) ISSUER-SPECIFIC CHANGES. The value of an
individual security or particular type of security can be more
volatile than the market as a whole and can perform differently than
the value of the market as a whole.
An investment in the fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency.
When you sell your shares of the fund, they could be worth more or
less than what you paid for them.
PERFORMANCE
The following information illustrates the changes in the funds'
performance from year to year and compares the funds' performance to
the performance of a market index and an average of the performance of
similar funds over various periods of time. Data for the market index
for Spartan Intermediate Municipal Income is available only from June
30, 1993 to the present. Returns are based on past results and are not
an indication of future performance.
YEAR-BY-YEAR RETURNS

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN INTERMEDIATE MUNICIPAL INCOME

CALENDAR YEARS 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

% % % % % % % % % %

</TABLE>

PERCENTAGE (%)
ROW: 1, COL: 1, VALUE: NIL
ROW: 2, COL: 1, VALUE: NIL
ROW: 3, COL: 1, VALUE: NIL
ROW: 4, COL: 1, VALUE: NIL
ROW: 5, COL: 1, VALUE: NIL
ROW: 6, COL: 1, VALUE: NIL
ROW: 7, COL: 1, VALUE: NIL
ROW: 8, COL: 1, VALUE: NIL
ROW: 9, COL: 1, VALUE: NIL
ROW: 10, COL: 1, VALUE: NIL
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN INTERMEDIATE
MUNICIPAL INCOME, THE HIGHEST RETURN FOR A QUARTER WAS __% (QUARTER
ENDING [CALENDAR QUARTER], [YEAR]) AND THE LOWEST RETURN FOR A QUARTER
WAS __% (QUARTER ENDING [CALENDAR QUARTER], [YEAR]).

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SPARTAN MUNICIPAL INCOME

CALENDAR YEARS 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

% % % % % % % % % %

</TABLE>

PERCENTAGE (%)
ROW: 1, COL: 1, VALUE: NIL
ROW: 2, COL: 1, VALUE: NIL
ROW: 3, COL: 1, VALUE: NIL
ROW: 4, COL: 1, VALUE: NIL
ROW: 5, COL: 1, VALUE: NIL
ROW: 6, COL: 1, VALUE: NIL
ROW: 7, COL: 1, VALUE: NIL
ROW: 8, COL: 1, VALUE: NIL
ROW: 9, COL: 1, VALUE: NIL
ROW: 10, COL: 1, VALUE: NIL
DURING THE PERIODS SHOWN IN THE CHART FOR SPARTAN MUNICIPAL INCOME,
THE HIGHEST RETURN FOR A QUARTER WAS __% (QUARTER ENDING [CALENDAR
QUARTER], [YEAR]) AND THE LOWEST RETURN FOR A QUARTER WAS __% (QUARTER
ENDING [CALENDAR QUARTER], [YEAR]).

AVERAGE ANNUAL RETURNS
FOR THE PERIODS ENDED DECEMBER 31, 1998 PAST 1 PAST 5 PAST 10
YEAR YEARS YEARS

SPARTAN INTERMEDIATE MUNICIPAL INCOME % % %

LEHMAN BROS. 1-17 YEAR MUNI. BOND INDEX % % %

LIPPER INTERMEDIATE MUNI. DEBT FUNDS AVERAGE % % %

SPARTAN MUNI. INCOME % % %

LEHMAN BROS. MUNI. BOND INDEX % % %

LIPPER GENERAL MUNI. DEBT FUNDS AVERAGE % % %

If FMR had not reimbursed certain fund expenses during these periods,
each fund's total returns would have been lower.
The Lehman Brothers Municipal Bond Index is a market
capitalization-weighted index of investment-grade municipal bonds with
maturities of one year or more.
The Lehman Brothers 1-17 Year Municipal Bond Index is a market
capitalization-weighted index of investment-grade municipal bonds with
maturities between one and 17 years.
Each Lipper Funds Average reflects the performance (excluding sales
charges) of mutual funds with similar objectives.
FEE TABLE
The following table describes the fees and expenses that are incurred
when you buy, hold or sell shares of a fund. The annual fund operating
expenses provided below for each fund are based on historical
expenses, adjusted to reflect current fees. The annual fund operating
expenses provided below for each fund are higher than the expenses
actually paid by the funds as the result of expense reimbursements and
the payment or reduction of certain expenses during the period.
SHAREHOLDER FEES (PAID BY THE INVESTOR)
SALES CHARGE (LOAD) ON PURCHASES NONE
AND REINVESTED DISTRIBUTIONS

DEFERRED SALES CHARGE (LOAD) ON REDEMPTIONS NONE

ANNUAL ACCOUNT MAINTENANCE FEE (FOR ACCOUNTS UNDER $2,500) $12.00

FUND OPERATING EXPENSES (PAID BY THE FUNDS)
SPARTAN INTERMEDIATE MANAGEMENT FEE %
MUNICIPAL INCOME

DISTRIBUTION AND SERVICE (12B-1) FEE NONE

OTHER EXPENSES %

TOTAL ANNUAL FUND OPERATING EXPENSES A %

SPARTAN MUNICIPAL INCOME MANAGEMENT FEE %

DISTRIBUTION AND SERVICE (12B-1) FEE NONE

OTHER EXPENSES %

TOTAL ANNUAL FUND OPERATING EXPENSES A %

A EFFECTIVE MARCH 20, 1998 AND AUGUST 20, 1998, FMR HAS VOLUNTARILY
AGREED TO REIMBURSE EACH OF SPARTAN INTERMEDIATE MUNICIPAL INCOME AND
SPARTAN MUNICIPAL INCOME TO THE EXTENT THAT TOTAL OPERATING EXPENSES
(EXCLUDING INTEREST, TAXES, BROKERAGE COMMISSIONS, AND EXTRAORDINARY
EXPENSES) AS A PERCENTAGE OF THEIR RESPECTIVE AVERAGE NET ASSETS,
EXCEED 0.53%. THESE ARRANGEMENTS WILL REMAIN IN EFFECT THROUGH
DECEMBER 31, 1999 AND DECEMBER 31, 2000, RESPECTIVELY.
A portion of the brokerage commissions that a fund pays is used to
reduce that fund's expenses. In addition, each fund has entered into
arrangements with its custodian and transfer agent whereby credits
realized as a result of uninvested cash balances are used to reduce
custodian and transfer agent expenses. Including these reductions, the
total fund operating expenses, after reimbursement, would have been
__% for Spartan Intermediate Municipal Income and __% for Spartan
Municipal Income.
This EXAMPLE helps you compare the cost of investing in the funds with
the cost of investing in other mutual funds.
Let's say, hypothetically, that each fund's annual return is 5% and
that your shareholder fees and each fund's annual operating expenses
are exactly as described in the fee table. This example illustrates
the effect of fees and expenses, but is not meant to suggest actual or
expected fees and expenses or returns, all of which may vary. For
every $10,000 you invested, here's how much you would pay in total
expenses if you close your account after the number of years
indicated:
SPARTAN INTERMEDIATE MUNICIPAL INCOME 1 YEAR $
3 YEARS $
5 YEARS $
10 YEARS $

SPARTAN MUNICIPAL INCOME 1 YEAR $
3 YEARS $
5 YEARS $
10 YEARS $

FUND BASICS

INVESTMENT DETAILS
INVESTMENT OBJECTIVE:
SPARTAN INTERMEDIATE MUNICIPAL INCOME FUND seeks a high level of
income exempt from federal income tax, consistent with the
preservation of capital.
PRINCIPAL INVESTMENT STRATEGIES:
FMR normally invests the fund's assets in investment-grade municipal
debt securities.
FMR normally invests at least 80% of the fund's assets in municipal
securities whose interest is exempt from federal income tax. Although
FMR does not currently intend to invest the fund's assets in municipal
securities whose interest is subject to federal income tax, FMR may
invest all of the fund's assets in municipal securities whose interest
is subject to the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation and utilities.
FMR uses the Lehman Brothers 1-17 Year Municipal Bond Index as a guide
in structuring the fund and selecting its investments. FMR manages the
fund to have similar overall interest rate risk to the index. In
addition, the fund normally maintains a dollar-weighted average
maturity between three and ten years. As of December 31, 1998, the
dollar-weighted average maturity of the fund and the index was
approximately _____ and ____ years, respectively.
FMR allocates the fund's assets among different market sectors (for
example, general obligation bonds of a state or bonds financing a
specific project) and different maturities based on its view of the
relative value of each sector or maturity.
In buying and selling securities for the fund, FMR analyzes a
security's structural features, current price compared to its
estimated long-term value, and any short-term trading opportunities
resulting from market inefficiencies and the credit quality of its
issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
INVESTMENT OBJECTIVE:
SPARTAN MUNICIPAL INCOME FUND seeks to provide a high current yield
exempt from federal income tax.
PRINCIPAL INVESTMENT STRATEGIES:
FMR normally invests the fund's assets in investment-grade municipal
debt securities.
FMR normally invests the fund's assets so that at least 80% of the
fund's income is exempt from federal income tax. Although FMR does not
currently intend to invest the fund's assets in municipal securities
whose interest is subject to federal income tax, FMR may invest all of
the fund's assets in municipal securities whose interest is subject to
the federal alternative minimum tax.
FMR may invest more than 25% of the fund's total assets in municipal
securities that finance similar projects, such as those relating to
education, health care, transportation and utilities.
FMR uses the Lehman Brothers Municipal Bond Index as a guide in
structuring the fund and selecting its investments. FMR manages the
fund to have similar overall interest rate risk to the index. As of
November 30, 1998, the dollar-weighted average maturity of the fund
and the index was approximately _____ and ____ years, respectively.
FMR allocates the fund's assets among different market sectors (for
example, general obligation bonds of a state or bonds financing a
specific project) and different maturities based on its view of the
relative value of each sector or maturity.
In buying and selling securities for the fund, FMR analyzes a
security's structural features, current price compared to its
estimated long-term value, and any short-term trading opportunities
resulting from market inefficiencies and the credit quality of its
issuer.
FMR may use various techniques, such as buying and selling futures
contracts, to increase or decrease the fund's exposure to changing
security prices, interest rates or other factors that affect security
values. If FMR's strategies do not work as intended, the fund may not
achieve its objective.
DESCRIPTION OF PRINCIPAL SECURITY TYPES:
DEBT SECURITIES are used by issuers to borrow money. The issuer
usually pays a fixed, variable or floating rate of interest, and must
repay the amount borrowed at the maturity of the security. Some debt
securities, such as zero coupon bonds, do not pay current interest,
but are sold at a discount from their face values. Municipal debt
securities include general obligation bonds of municipalities, local
or state governments, project or revenue-specific bonds, or pre-funded
or escrowed bonds.
MUNICIPAL SECURITIES are issued to raise money for a variety of public
and private purposes, including general financing for state and local
governments, or financing for a specific project of public facility.
Municipal securities may be fully or partially backed by the local
government, by the credit of a private issuer, by the current or
anticipated revenues from a specific project or specific assets, or by
domestic or foreign entities providing credit support such as letters
of credit, guarantees or insurance.
PRINCIPAL INVESTMENT RISKS:
Many factors affect each fund's performance. A fund's yield and share
price change daily based on changes in interest rates and market
conditions and in response to other economic, political or financial
developments. A fund's reaction to these developments will be affected
by the types and maturities of the securities in which a fund invests,
the financial condition, industry and economic sector, and geographic
location of an issuer, and a fund's level of investment in the
securities of that issuer. When you sell your shares of a fund, they
could be worth more or less than what you paid for them.
The following factors may significantly affect a fund's performance:
MUNICIPAL MARKET VOLATILITY. Municipal securities can be significantly
affected by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes, or the
rights of municipal security holders. Because many municipal
securities are issued to finance similar projects, especially those
relating to education, health care, transportation and utilities,
conditions in those sectors can affect the overall municipal market.
In addition, changes in the financial condition of an individual
municipal insurer can affect the overall municipal market.
INTEREST RATE CHANGES. Debt securities have varying levels of
sensitivity to changes in interest rates. In general, the price of a
debt security can fall when interest rates rise and can rise when
interest rates fall. Securities with long maturities can be more
sensitive to interest rate changes. In other words, the longer the
maturity of a security, the greater the impact a change in interest
rates could have on the security's price. In addition, short-term and
long-term interest rates do not necessarily move in the same amount or
the same direction. Short-term securities tend to react to changes in
short-term interest rates, and long-term securities tend to react to
changes in long-term interest rates.
ISSUER-SPECIFIC CHANGES. Changes in the financial condition of an
issuer, changes in specific economic or political conditions that
affect a particular type of issuer, and changes in general economic or
political conditions can adversely affect the credit quality or value
of an issuer's securities. Lower-quality debt securities (those of
less than investment-grade quality) tend to be more sensitive to these
changes than higher-quality debt securities. Municipal securities
backed by current or anticipated revenues from a specific project or
specific assets can be negatively affected by the discontinuance of
the taxation supporting the project or assets or the inability to
collect revenues for the project or from the assets. If the Internal
Revenue Service determines an issuer of a municipal security has not
complied with the applicable tax requirements, interest from the
security could become taxable and the security could decline
significantly in value.
In response to market, economic, political or other conditions, FMR
may temporarily use a different investment strategy for defensive
purposes. If FMR does so, different factors could affect a fund's
performance, and a fund may distribute income subject to federal
income tax.
FUNDAMENTAL INVESTMENT POLICIES
The policies discussed below are fundamental, that is, subject to
change only by shareholder approval.
SPARTAN INTERMEDIATE MUNICIPAL INCOME seeks the highest level of
income exempt from federal income tax that can be obtained, consistent
with the preservation of capital, from a diversified portfolio of
investment-grade obligations. The fund will normally invest so that at
least 80% of its assets are invested in municipal securities whose
interest is free from federal income tax.
SPARTAN MUNICIPAL INCOME seeks to provide a high current yield exempt
from federal income tax. The fund will normally invest so that at
least 80% of its income is exempt from federal income tax.
VALUING SHARES
Each fund is open for business each day the New York Stock Exchange
(NYSE) is open.
Each fund's net asset value per share (NAV) is the value of a single
share. Fidelity normally calculates each fund's NAV as of the close of
business of the NYSE, normally 4:00 p.m. Eastern time. However, NAV
may be calculated earlier if trading on the NYSE is restricted or as
permitted by the Securities and Exchange Commission (SEC). Each fund's
assets are valued as of this time for the purpose of computing the
fund's NAV.
To the extent that each fund's assets are traded in other markets on
days when the NYSE is closed, the value of the fund's assets may be
affected on days when the fund is not open for business. In addition,
trading in some of a fund's assets may not occur on days when the fund
is open for business.
Each fund's assets are valued primarily on the basis of information
furnished by a pricing service or market quotations. If market
quotations or information furnished by a pricing service is not
readily available for a security or if a security's value has been
materially affected by events occurring after the close of the market
on which the security is principally traded, that security may be
valued by another method that the Board of Trustees believes
accurately reflects fair value. In these circumstances, the security's
valuation may differ from the generally expected valuation.
SHAREHOLDER INFORMATION

KEY
INFORMATI
ON

INTERNET (BULLET)
WWW.FIDELITY.COM Exchange to another
Fidelity fund.
(BULLET)
Use Fidelity Money Line
to transfer to your bank
account.

AUTOMATICAL (BULLET)
LY Use Personal Withdrawal
Service to set up periodic
redemptions from your
account.

<TABLE>
<CAPTION>
<S> <C> <C>
FIDELITY
AUTOMATIC
ACCOUNT
BUILDER(registered trademark)
TO MOVE MONEY
FROM YOUR BANK
ACCOUNT TO A
FIDELITY FUND

DIRECT DEPOSIT
TO SEND ALL OR A
PORTION OF YOUR
PAYCHECK OR
GOVERNMENT CHECK
TO A FIDELITY FUNDA

A BECAUSE ITS SHARE
PRICE FLUCTUATES, THE
FUND MAY NOT BE AN
APPROPRIATE CHOICE FOR
DIRECT DEPOSIT OF YOUR
ENTIRE CHECK.

FIDELITY
AUTOMATIC
EXCHANGE
SERVICE
TO MOVE MONEY
FROM A FIDELITY
MONEY MARKET
FUND TO ANOTHER
FIDELITY FUND

PERSONAL
WITHDRAWAL
SERVICE
TO SET UP PERIODIC
REDEMPTIONS FROM
YOUR FUND ACCOUNT
TO YOU OR TO YOUR
BANK ACCOUNT.

</TABLE>

FUND MANAGEMENT
Each fund is a mutual fund, an investment that pools shareholders'
money and invests it toward a specified goal.
Fidelity Management & Research Company (FMR) is each fund's manager.
As of __, [month] [day] [year], FMR had $__ billion in discretionary
assets under management.
As the manager, FMR is responsible for choosing the funds' investments
and handling their business affairs.
Beginning January 1, 1999, Fidelity Investments Money Management, Inc.
(FIMM) in Merrimack, New Hampshire, will serve as sub-adviser and be
primarily responsible for choosing investments for the funds. FIMM is
an affiliate of FMR. As of [month][day][year], FIMM had $____ in
discretionary assets under management.
A fund could be adversely affected if the computer systems used by FMR
and other service providers do not properly process and calculate
date-related information from and after January 1, 2000. FMR has
advised each fund that it is actively working on necessary changes to
its computer systems and expects that its systems, and those of other
major service providers, will be modified prior to January 1, 2000.
However, there can be no assurance that there will be no adverse
impact on a fund.
Norman Lind is Vice President and manager of Spartan Intermediate
Municipal Income, which he has been managing since January 1998. He
also manages several other Fidelity funds. Since joining Fidelity in
1986, Mr. Lind has worked as an analyst and manager.
George Fischer is Vice President and manager of Spartan Municipal
Income, which he has been managing since January 1998. He also manages
several other Fidelity funds. Since joining Fidelity in 1989, Mr.
Fischer has worked as an analyst and manager.
Fidelity investment personnel may invest in securities for their own
investment accounts pursuant to a code of ethics that establishes
procedures for personal investing and restricts certain transactions.
Each fund pays a management fee to FMR.
The management fee is calculated and paid to FMR every month.
For the fiscal year ended December 31, 1998, Spartan Intermediate
Municipal Income's annual management fee was __% of its average net
assets. The fee for Spartan Intermediate Municipal Income is
calculated by dividing an annual asset-based fee rate of 0.10% by
twelve and multiplying the result by the fund's average net assets
throughout the month, and then adding an income-based fee. The
income-based fee is 5% of the fund's gross income throughout the
month.
After reimbursement, the total management fee for the fiscal year
ended [month] [day], [year] was __% of the fund's average net assets.
For Spartan Municipal Income, the fee is calculated by adding a group
fee rate to an individual fund fee rate, dividing by twelve, and
multiplying the result by the fund's average net assets throughout the
month.
The group fee rate is based on the average net assets of all the
mutual funds advised by FMR. This rate cannot rise above 0.37%, and it
drops as total assets under management increase.
For November 1998, the group fee rate was __% for Spartan Municipal
Income. The individual fund fee rate is 0.25% for Spartan Municipal
Income.
The total management fee for the fiscal year ended November 30, 1998
was __%, after reimbursement, of the fund's average net assets for
Spartan Municipal Income.
On [month] [day], [year], [FMR/Strategic Advisers/BT/FIMM] reduced the
[management fee/individual fund fee] rate for the [fund/[Name(s) of
Fund(s)]] from __% to __%.
FMR pays FIMM for providing assistance with investment advisory
services.
FMR may, from time to time, agree to reimburse the funds for
management fees and other expenses above a specified limit. FMR
retains the ability to be repaid by a fund if expenses fall below the
specified limit prior to the end of the fiscal year. Reimbursement
arrangements can decrease a fund's expenses and boost its performance.
As of _____, approximately __% and __% OF [NAME OF FUND]'s total
outstanding shares, respectively, were held by FMR/FMR and [an] FMR
affiliate[s]/[an] FMR affiliate[s]].
FUND DISTRIBUTION
FDC distributes each fund's shares.
Each fund has adopted a Distribution and Service Plan pursuant to Rule
12b-1 under the Investment Company Act of 1940 that recognizes that
FMR may use its management fee revenues, as well as its past profits
or its resources from any other source, to pay FDC for expenses
incurred in connection with providing services intended to result in
the sale of fund shares and/or shareholder support services. FMR,
directly or through FDC, may pay intermediaries, such as banks,
broker-dealers and other service-providers, that provide those
services. Currently, the Board of Trustees of each fund has authorized
such payments.
To receive payments made pursuant to a Distribution and Service Plan,
intermediaries must sign the appropriate agreement with FDC in
advance.
FMR may allocate brokerage transactions in a manner that takes into
account the sale of shares of a fund, provided that the fund receives
brokerage services and commission rates comparable to those of other
broker-dealers.
No dealer, sales representative, or any other person has been
authorized to give any information or to make any representations,
other than those contained in this Prospectus and in the related
Statement of Additional Information (SAI), in connection with the
offer contained in this Prospectus. If given or made, such other
information or representations must not be relied upon as having been
authorized by the funds or FDC. This Prospectus and the related SAI do
not constitute an offer by the funds or by FDC to sell or to buy
shares of the funds to any person to whom it is unlawful to make such
offer.
APPENDIX

FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
fund's financial history for the past 5 years. Certain information
reflects financial results for a single fund share. Total returns for
each period include the reinvestment of all dividends and
distributions. This information has been audited by "_________",
independent accountants, whose report, along with each fund's
financial highlights and financial statements, are included in each
fund's Annual Report. A free copy of each Annual Report is available
upon request.

[Financial Highlights to be filed by subsequent amendment.]

You can obtain additional information about the funds. The funds' SAI
includes more detailed information about each fund and its
investments. The SAI is incorporated herein by reference (legally
forms a part of the prospectus). Each fund's annual and semi-annual
reports include a discussion of recent market conditions and the
fund's investment strategies, performance and holdings.
For a free copy of any of these documents or to request other
information or ask questions about a fund, call Fidelity at
1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com.
The SAI, the funds' annual and semi-annual reports and other related
materials are available on the SEC's Internet Web site
(http://www.sec.gov). You can obtain copies of this information upon
paying a duplicating fee, by writing the Public Reference Section of
the SEC, Washington, D.C. 20549-6009. You can also review and copy
information about the funds, including the funds' SAI, at the SEC's
Public Reference Room in Washington, D.C. Call 1-800-SEC-0330 for
information on the operation of the SEC's Public Reference Room.
INVESTMENT COMPANY ACT OF 1940, FILE NUMBERS, __________
Spartan, Fidelity Investments and (Pyramid) Design, Fidelity
Investments, TouchTone Xpress, Fidelity Automatic Account Builder,
Fidelity Money Line, Fidelity On-Line Xpress, Fidelity Web Xpress, and
Directed Dividends are registered trademarks of FMR Corp.
Fidelity GoalPlanner and Fidelity Portfolio Advisory Services are
registered service marks of FMR Corp.
Insert item code number __________ MUB-pro-0299

SPARTAN(registered trademark) INTERMEDIATE MUNICIPAL INCOME FUND
A FUND OF FIDELITY SCHOOL STREET TRUST
SPARTAN MUNICIPAL INCOME FUND
A FUND OF FIDELITY COURT STREET TRUST

STATEMENT OF ADDITIONAL INFORMATION
FEBRUARY 27, 1999

This Statement of Additional Information (SAI) is not a prospectus.
Portions of the funds' Annual Reports are incorporated
herein. The Annual Reports are supplied with this SAI.
To obtain a free additional copy of the Prospectus, dated February 27,
1999, or an Annual Report, please call Fidelity(registered trademark)
at 1-800-544-8888 or visit Fidelity's Web site at www.fidelity.com.

TABLE OF CONTENTS PAGE

INVESTMENT POLICIES AND LIMITATIONS 22

PORTFOLIO TRANSACTIONS 27

VALUATION 28

PERFORMANCE 28

ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION 32

DISTRIBUTIONS AND TAXES 32

TRUSTEES AND OFFICERS 32

CONTROL OF INVESTMENT ADVISERS 35

MANAGEMENT CONTRACTS 35

DISTRIBUTION SERVICES 38

TRANSFER AND SERVICE AGENT AGREEMENTS 38

DESCRIPTION OF THE TRUSTS 38

FINANCIAL STATEMENTS 39

APPENDIX 39

MUB -ptb-0299
Insert item code number _____.

(fidelity_logo_graphic)
82 Devonshire Street, Boston, MA 02109

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1999 TAX RATES AND TAX-EQUIVALENT YIELDS
FEDERAL IF INDIVIDUAL TAX-EXEMPT YIELD IS:

TAXABLE INCOME* MARGINAL % % % % % % % %

SINGLE RETURN JOINT RETURN RATE** THEN TAXABLE-EQUIVALENT YIELD IS

$ $ % % % % % % % %

</TABLE>

* Net amount subject to federal income tax after deductions and
exemptions. Assumes ordinary income only.
** Excludes the impact of the phaseout of personal exemptions,
limitations on itemized deductions, and other credits, exclusions, and
adjustments which may increase a taxpayer's marginal tax rate. An
increase in a shareholder's marginal tax rate would increase that
shareholder's tax-equivalent yield.
A fund may invest a portion of its assets in obligations that
are subject to federal income tax. When a fund invests in these
obligations, its tax-equivalent yields will be lower. In the table
above, tax-equivalent yields are calculated assuming investments are
100% federally tax-free.
RETURN CALCULATIONS. Returns quoted in advertising reflect all aspects
of a fund's return, including the effect of reinvesting dividends and
capital gain distributions, and any change in a fund's NAV over a
stated period. A cumulative return reflects actual performance over
a stated period of time. Average annual returns are calculated by
determining the growth or decline in value of a hypothetical
historical investment in a fund over a stated period, and then
calculating the annually compounded percentage rate that would have
produced the same result if the rate of growth or decline in value had
been constant over the period. For example, a cumulative return of
100% over ten years would produce an average annual return of 7.18%,
which is the steady annual rate of return that would equal 100% growth
on a compounded basis in ten years. While average annual returns are a
convenient means of comparing investment alternatives, investors
should realize that a fund's performance is not constant over time,
but changes from year to year, and that average annual returns
represent averaged figures as opposed to the actual year-to-year
performance of a fund.
In addition to average annual returns, a fund may quote unaveraged or
cumulative returns reflecting the simple change in value of an
investment over a stated period. Average annual and cumulative returns
may be quoted as a percentage or as a dollar amount, and may be
calculated for a single investment, a series of investments, or a
series of redemptions, over any time period. Returns may be broken
down into their components of income and capital (including capital
gains and changes in share price) in order to illustrate the
relationship of these factors and their contributions to return.
Returns may be quoted on a before-tax or after-tax basis. Returns may
or may not include the effect of a fund's small account fee. Excluding
a fund's small account fee from a total return calculation produces a
higher return figure. Returns, yields and other performance
information may be quoted numerically or in a table, graph, or similar
illustration.
NET ASSET VALUE. Charts and graphs using a fund's NAVs ,
adjusted NAVs , and benchmark indexes may be used to exhibit
performance. An adjusted NAV includes any distributions paid by a fund
and reflects all elements of its return. Unless otherwise indicated, a
fund's adjusted NAVs are not adjusted for sales charges, if any.
CALCULATING HISTORICAL FUND RESULTS. The following table
shows performance for each fund.
HISTORICAL FUND RESULTS. The following table shows each fund's yield,
tax-equivalent yield and return for the fisca l periods ended
December 31, 1998 and November 30, 1998 , as applicable.
The tax-equivalent yield for each fund is based on a __ %
federal income tax rate. Note that each fund may invest in securities
whose income is subject to the federal alternative minimum tax.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
AVERAGE ANNUAL RETURNS CUMULATIVE RETURNS

THIRTY-/SEV TAX- ONE FIVE TEN ONE FIVE TEN
EN-DAY EQUIVALENT YEAR YEARS YEARS YEAR YEARS YEARS
YIELD YIELD

SPARTAN INTERMEDIATE % % % % % % % %
MUNICIPAL INCOME

SPARTAN MUNICIPAL % % % % % % % %
INCOME

</TABLE>

Note: If FMR had not reimbursed certain fund expenses during these
periods, each fund's returns would have been lower.
Note: If FMR had not reimbursed certain fund expenses during these
periods, each fund's yield and tax equivalent yield would have been
___% and __% respectively, for Spartan Intermediate Municipal Income
and ___% and ____%, respectively, for Spartan Municipal Income.
The following tables show the income and capital elements of each
fund's cumulative return. The tables compare each fund's return to the
record of the Standard & Poor's 500 Index (S&P 500), the Dow Jones
Industrial Average (DJIA), and the cost of living, as measured by the
Consumer Price Index (CPI), over the same period. The CPI information
is as of the month-end closest to the initial investment date for each
fund. The S&P 500 and DJIA comparisons are provided to show how each
fund's return compared to the record of a broad unmanaged index of
common stocks and a narrower set of stocks of major industrial
companies, respectively, over the same period. Because each fund
invests in fixed-income securities, common stocks represent a
different type of investment from the funds. Common stocks generally
offer greater growth potential than the funds, but generally
experience greater price volatility, which means greater potential for
loss. In addition, common stocks generally provide lower income than
fixed-income investments such as the funds. The S&P 500 and DJIA
returns are based on the prices of unmanaged groups of stocks and,
unlike each fund's returns, do not include the effect of brokerage
commissions or other costs of investing.
The following tables show the growth in value of a hypothetical
$10,000 investment in each fund during the past 10 fiscal years ended
1998 , assuming all distributions were reinvested. Returns
are based on past results and are not an indication of future
performance. Tax consequences of different investments have not
been factored into the figures below.
During the 10-year period ended December 31, 1998 , a
hypothetical $10,000 investment in Spartan Intermediate Municipal
Income would have grown to $______.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN INTERMEDIATE MUNICIPAL INCOME INDEXES

FISCAL YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS

1998 $ $ $ $ $ $ $

1997 $ $ $ $ $ $ $

1996 $ $ $ $ $ $ $

1995 $ $ $ $ $ $ $

1994 $ $ $ $ $ $ $

1993 $ $ $ $ $ $ $

1992 $ $ $ $ $ $ $

1991 $ $ $ $ $ $ $

1990 $ $ $ $ $ $ $

1989 $ $ $ $ $ $ $

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Spartan
Intermediate Municipal Income on January 1, 1989 , the net
amount invested in fund shares was $10,000. The cost of the initial
investment ($10,000) together with the aggregate cost of reinvested
dividends and capital gain distributions for the period covered (their
cash value at the time they were reinvested) amounted to
$ ______ . If distributions had not been reinvested, the amount
of distributions earned from the fund over time would have been
smaller, and cash payments for the period would have amounted to
$ ______ for dividends and $ _____ for capital gain
distributions.
During the 10-year period ended November 3 0, 1998, a
hypothetical $10,000 investment in Spartan Municipal Income would have
grown to $ ____.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
SPARTAN MUNICIPAL INCOME INDEXES

FISCAL YEAR VALUE OF VALUE OF VALUE OF TOTAL S&P 500 DJIA COST OF
ENDED INITIAL REINVESTED REINVESTED VALUE LIVING
$10,000 DIVIDEND CAPITAL GAIN
INVESTMENT DISTRIBUTIONS DISTRIBUTIONS

1998 $ $ $ $ $ $ $

1997 $ $ $ $ $ $ $

1996 $ $ $ $ $ $ $

1995 $ $ $ $ $ $ $

1994 $ $ $ $ $ $ $

1993 $ $ $ $ $ $ $

1992 $ $ $ $ $ $ $

1991 $ $ $ $ $ $ $

1990 $ $ $ $ $ $ $

1989 $ $ $ $ $ $ $

</TABLE>

Explanatory Notes: With an initial investment of $10,000 in Spartan
Municipal Income on December 1, 1988 , the net amount invested
in fund shares was $10,000. The cost of the initial investment ($10,
000) together with the aggregate cost of reinvested dividends and
capital gain distributions for the period covered (their cash value at
the time they were reinvested) amounted to $ _____ . If
distributions had not been reinvested, the amount of distributions
earned from the fund over time would have been smaller, and cash
payments for the period would have amounted to $ _____ f or
dividends and $ ______ f or capital gain distributions.
PERFORMANCE COMPARISONS. A fund's performance may be compared to the
performance of other mutual funds in general, or to the performance of
particular types of mutual funds. These comparisons may be expressed
as mutual fund rankings prepared by Lipper Analytical Services, Inc.
(Lipper), an independent service located in Summit, New Jersey that
monitors the performance of mutual funds. Generally, Lipper rankings
are based on return, assume reinvestment of distributions, do not take
sales charges or trading fees into consideration, and are prepared
without regard to tax consequences. Lipper may also rank based on
yield. In addition to the mutual fund rankings, a fund's performance
may be compared to stock, bond, and money market mutual fund
performance indexes prepared by Lipper or other organizations. When
comparing these indexes , it is important to remember the risk
and return characteristics of each type of investment. For example,
while stock mutual funds may offer higher potential returns, they also
carry the highest degree of share price volatility. Likewise, money
market funds may offer greater stability of principal, but generally
do not offer the higher potential returns available from stock mutual
funds.
From time to time, a fund's performance may also be compared to other
mutual funds tracked by financial or business publications and
periodicals. For example, a fund may quote Morningstar, Inc. in its
advertising materials. Morningstar, Inc. is a mutual fund rating
service that rates mutual funds on the basis of risk-adjusted
performance. Rankings that compare the performance of Fidelity funds
to one another in appropriate categories over specific periods of time
may also be quoted in advertising. A fund may advertise risk
ratings, including symbols or numbers, prepared by independent rating
agencies.
A fund's performance may also be compared to that of each benchmark
index representing the universe of securities in which the fund may
invest. The return of each index reflects reinvestment of all
dividends and capital gains paid by securities included in each index.
Unlike a fund's returns, however, each index's returns do not
reflect brokerage commissions, transaction fees, or other costs of
investing directly in the securities included in the index (es).
Each fund may compare its performance to the Lehman Brothers
Municipal Bond Index, a market capitalization-weighted index
for investment-grade municipal bonds with maturities of one year or
more. In addition, Spartan Intermediate Municipal Income may
compare its performance to that of the Lehman Brothers 1-17 Year
Municipal Bond Index, a market capitalization-weighted index
for investment-grade municipal bonds with maturities between one and
17 years. Issues included in each index have been issued after
December 31, 1990 and have an outstanding par value of at least $50
million. Subsequent to December 31, 1995, zero coupon bonds and issues
subject to the alternative minimum tax are included in each index.
A fund may be compared in advertising to Certificates of Deposit (CDs)
or other investments issued by banks or other depository institutions.
Mutual funds differ from bank investments in several respects. For
example, a fund may offer greater liquidity or higher potential
returns than CDs, a fund does not guarantee your principal or your
return, and fund shares are not FDIC insured.
Fidelity may provide information designed to help individuals
understand their investment goals and explore various financial
strategies. Such information may include information about current
economic, market, and political conditions; materials that describe
general principles of investing, such as asset allocation,
diversification, risk tolerance, and goal setting; questionnaires
designed to help create a personal financial profile; worksheets used
to project savings needs based on assumed rates of inflation and
hypothetical rates of return; and action plans offering investment
alternatives. Materials may also include discussions of Fidelity's
asset allocation funds and other Fidelity funds, products, and
services.
Ibbotson Associates of Chicago, Illinois (Ibbotson) provides
historical returns of the capital markets in the United States,
including common stocks, small capitalization stocks, long-term
corporate bonds, intermediate-term government bonds, long-term
government bonds, Treasury bills, the U.S. rate of inflation (based on
the CPI), and combinations of various capital markets. The performance
of these capital markets is based on the returns of different indexes.
Fidelity funds may use the performance of these capital markets in
order to demonstrate general risk-versus-reward investment scenarios.
Performance comparisons may also include the value of a hypothetical
investment in any of these capital markets. The risks associated with
the security types in any capital market may or may not correspond
directly to those of the funds. Ibbotson calculates returns in the
same method as the funds. The funds may also compare performance to
that of other compilations or indexes that may be developed and made
available in the future.
A bond fund may compare and contrast in advertising the
relative advantages of investing in a mutual fund versus an individual
municipal bond. Unlike municipal bond mutual funds, individual
municipal bonds offer a stated rate of interest and, if held to
maturity, repayment of principal. Although some individual municipal
bonds might offer a higher return, they do not offer the reduced risk
of a mutual fund that invests in many different securities. The
sales charges of many municipal bond mutual funds are lower
than the purchase cost of individual municipal bonds, which are
generally subject to direct brokerage costs.
In advertising materials, Fidelity may reference or discuss its
products and services, which may include other Fidelity funds;
retirement investing; brokerage products and services; model
portfolios or allocations; saving for college or other goals; and
charitable giving. In addition, Fidelity may quote or reprint
financial or business publications and periodicals as they relate to
current economic and political conditions, fund management, portfolio
composition, investment philosophy, investment techniques, the
desirability of owning a particular mutual fund, and Fidelity services
and products. Fidelity may also reprint, and use as advertising and
sales literature, articles from Fidelity Focus(Registered trademark),
a quarterly magazine provided free of charge to Fidelity fund
shareholders.
A fund may present its fund number, Quotron(trademark) number, and
CUSIP number, and discuss or quote its current portfolio manager.
VOLATILITY. A fund may quote various measures of volatility and
benchmark correlation in advertising. In addition, the fund may
compare these measures to those of other funds. Measures of volatility
seek to compare a fund's historical share price fluctuations or
returns to those of a benchmark. Measures of benchmark correlation
indicate how valid a comparative benchmark may be. All measures of
volatility and correlation are calculated using averages of historical
data. In advertising, a fund may also discuss or illustrate examples
of interest rate sensitivity.
MOMENTUM INDICATORS indicate a fund's price movements over specific
periods of time. Each point on the momentum indicator represents a
fund's percentage change in price movements over that period.
A fund may advertise examples of the effects of periodic investment
plans, including the principle of dollar cost averaging. In such a
program, an investor invests a fixed dollar amount in a fund at
periodic intervals, thereby purchasing fewer shares when prices are
high and more shares when prices are low. While such a strategy does
not assure a profit or guard against loss in a declining market, the
investor's average cost per share can be lower than if fixed numbers
of shares are purchased at the same intervals. In evaluating such a
plan, investors should consider their ability to continue purchasing
shares during periods of low price levels.
As of December 31, 1998 , FMR advised over $ __ billion in
municipal fund assets, $ __ billion in taxable fixed-income fund
assets, $__ billion in money market fund assets, $ ___ billion
in equity fund assets, $ __ billion in international fund
assets, and $ ___ billion in Spartan fund assets. The funds may
reference the growth and variety of money market mutual funds and the
adviser's innovation and participation in the industry. The equity
funds under management figure represents the largest amount of equity
fund assets under management by a mutual fund investment adviser in
the United States, making FMR America's leading equity (stock) fund
manager. FMR, its subsidiaries, and affiliates maintain a worldwide
information and communications network for the purpose of researching
and managing investments abroad.
In addition to performance rankings, a fund may compare its
total expense ratio to the average total expense ratio of similar
funds tracked by Lipper. A fund's total expense ratio is a significant
factor in comparing bond and money market investments because of its
effect on yield.
ADDITIONAL PURCHASE, EXCHANGE AND REDEMPTION INFORMATION
If the Trustees determine that existing conditions make cash payments
undesirable, redemption payments may be made in whole or in part in
securities or other property, valued for this purpose as they are
valued in computing each fund's NAV. Shareholders receiving securities
or other property on redemption may realize a gain or loss for tax
purposes, and will incur any costs of sale, as well as the associated
inconveniences.
DISTRIBUTIONS AND TAXES
DIVIDENDS. To the extent that each fund's income is designated as
federally tax-exempt interest, the dividends declared by the fund are
also federally tax-exempt. Short-term capital gains are taxable as
dividends, but do not qualify for the dividends-received
deduction.
Each fund purchases municipal securities whose interest FMR believes
is free from federal income tax. Generally, issuers or other parties
have entered into covenants requiring continuing compliance with
federal tax requirements to preserve the tax-free status of interest
payments over the life of the security. If at any time the covenants
are not complied with, or if the IRS otherwise determines that the
issuer did not comply with relevant tax requirements, interest
payments from a security could become federally taxable retroactive to
the date the security was issued. For certain types of structured
securities, the tax status of the pass-through of tax-free income may
also be based on the federal tax treatment of the structure.
Interest on certain "private activity" securities is subject to the
federal alternative minimum tax (AMT), although the interest continues
to be excludable from gross income for other tax purposes. Interest
from private activity securities will be considered tax-exempt for
purposes of Spartan Municipal Income's policy of investing so that at
least 80% of its income is free from federal income tax. Interest from
private activity securities is a tax preference item for the purposes
of determining whether a taxpayer is subject to the AMT and the amount
of AMT to be paid, if any.
A portion of the gain on municipal bonds purchased at market
discount after April 30, 1993 is taxable to shareholders as
ordinary income , not as capital gains. Dividends
resulting from a recharacterization of gain from the sale of bonds
purchased at market discount after April 30, 1993 are not
considered income for purposes of Spartan Municipal Income's policy of
investing so that at least 80% of its income is free from federal
income tax.
CAPITAL GAINS DISTRIBUTIONS. Each fund's capital gains
distributions are federally taxable to shareholders generally as
capital gains.
As of December 31, 1998 , Spartan Intermediate Municipal Income
had a capital loss carryforward aggregating approximately $_________.
This loss carryforward, acquired as a result of a merger, of which
$_______, $_______, and $_______ will expire on December 31, ____,
____, and ____, respectively, is available to offset future capital
gains.
As of November 30, 1998 , Spartan Municipal Income had a capital
loss carryforward aggregating approximately $_________. This loss
carryforward, acquired as a result of a merger, of which $_______,
$_______, and $_______ will expire on November 30, ____, ____, and
____, respectively, is available to offset future capital gains.
TAX STATUS OF THE FUNDS. Each fund intends to qualify each year as a
"regulated investment company" under Subchapter M of the Internal
Revenue Code so that it will not be liable for federal tax on
income and capital gains distributed to shareholders. In order to
qualify as a regulated investment company, and avoid being subject to
federal income or excise taxes at the fund level, each fund intends to
distribute substantially all of its net investment income and net
realized capital gains within each calendar year as well as on a
fiscal year basis, and intends to comply with other tax rules
applicable to regulated investment companies.
OTHER TAX INFORMATION. The information above is only a summary of some
of the tax consequences generally affecting each fund and its
shareholders, and no attempt has been made to discuss individual tax
consequences. I t is up to you or your tax preparer to determine
whether the sale of shares of a fund resulted in a capital gain or
loss or other tax consequence to you. In addition to federal
income taxes, shareholders may be subject to state and local taxes on
fund distributions, and shares may be subject to state and local
personal property taxes. Investors should consult their tax advisers
to determine whether a fund is suitable to their particular tax
situation.
TRUSTEES AND OFFICERS
The Trustees, Members of the Advisory Board, and executive officers of
the trusts are listed below. The Board of Trustees governs each
fund and is responsible for protecting the interests of shareholders.
The Trustees are experienced executives who meet periodically
throughout the year to oversee each fund's activities, review
contractual arrangements with companies that provide services to each
fund, and review each fund's performance . Except as indicated,
each individual has held the office shown or other offices in the same
company for the last five years. All persons named as Trustees and
Members of the Advisory Board also serve in similar capacities for
other funds advised by FMR or its affiliates . The business
address of each Trustee, Member of the Advisory Board, and officer who
is an "interested person" (as defined in the 1940 Act ) is 82
Devonshire Street, Boston, Massachusetts 02109, which is also the
address of FMR. The business address of all the other Trustees is
Fidelity Investments, P.O. Box 9235, Boston, Massachusetts 02205-9235.
Those Trustees who are "interested persons" by virtue of their
affiliation with either the trust or FMR are indicated by an asterisk
(*).
*EDWARD C. JOHNSON 3d ( 68 ), Trustee and President, is Chairman,
Chief Executive Officer and a Director of FMR Corp.; a Director and
Chairman of the Board and of the Executive Committee of FMR; Chairman
and a Director of Fidelity Investments Money Management, Inc. (1998),
Fidelity Management & Research (U.K.) Inc., and Fidelity Management &
Research (Far East) Inc.
J. GARY BURKHEAD ( 57 ), Member of the Advisory Board (1997), is
Vice Chairman and a Member of the Board of Directors of FMR Corp.
(1997) and President of Fidelity Personal Investments and Brokerage
Group (1997). Previously, Mr. Burkhead served as President of Fidelity
Management & Research Company.
RALPH F. COX ( 66 ), Trustee, is President of RABAR Enterprises
(management consulting-engineering industry, 1994). Prior to February
1994, he was President of Greenhill Petroleum Corporation (petroleum
exploration and production). Until March 1990, Mr. Cox was President
and Chief Operating Officer of Union Pacific Resources Company
(exploration and production). He is a Director of USA Waste Services,
Inc. (non-hazardous waste, 1993), CH2M Hill Companies (engineering),
Rio Grande, Inc. (oil and gas production), and Daniel Industries
(petroleum measurement equipment manufacturer). In addition, he is a
member of advisory boards of Texas A&M University and the University
of Texas at Austin.
PHYLLIS BURKE DAVIS ( 67 ), Trustee. Prior to her retirement in
September 1991, Mrs. Davis was the Senior Vice President of Corporate
Affairs of Avon Products, Inc. She is currently a Director of
BellSouth Corporation (telecommunications), Eaton Corporation
(manufacturing, 1991), and the TJX Companies, Inc. (retail stores),
and previously served as a Director of Hallmark Cards, Inc.
(1985-1991) and Nabisco Brands, Inc. In addition, she is a member of
the President's Advisory Council of The University of Vermont School
of Business Administration.
ROBERT M. GATES ( 55 ), Trustee (1997), is a consultant, author,
and lecturer (1993). Mr. Gates was Director of the Central
Intelligence Agency (CIA) from 1991-1993. From 1989 to 1991, Mr. Gates
served as Assistant to the President of the United States and Deputy
National Security Advisor. Mr. Gates is a Director of LucasVarity PLC
(automotive components and diesel engines), Charles Stark Draper
Laboratory (non-profit), NACCO Industries, Inc. (mining and
manufacturing), and TRW Inc. (original equipment and replacement
products). Mr. Gates also is a Trustee of the Forum for International
Policy and of the Endowment Association of the College of William and
Mary. In addition, he is a member of the National Executive Board of
the Boy Scouts of America.
E. BRADLEY JONES ( 71 ), Trustee. Prior to his retirement in
1984, Mr. Jones was Chairman and Chief Executive Officer of LTV Steel
Company. He is a Director of TRW Inc. (original equipment and
replacement products), Consolidated Rail Corporation, Birmingham Steel
Corporation, and RPM, Inc. (manufacturer of chemical products), and he
previously served as a Director of NACCO Industries, Inc. (mining and
manufacturing, 1985-1995), Hyster-Yale Materials Handling, Inc.
(1985-1995), and Cleveland-Cliffs Inc (mining), and as a Trustee of
First Union Real Estate Investments. In addition, he serves as a
Trustee of the Cleveland Clinic Foundation, where he has also been a
member of the Executive Committee as well as Chairman of the Board and
President, a Trustee and member of the Executive Committee of
University School (Cleveland), and a Trustee of Cleveland Clinic
Florida.
DONALD J. KIRK ( 66 ), Trustee, is Executive-in-Residence (1995)
at Columbia University Graduate School of Business and a financial
consultant. From 1987 to January 1995, Mr. Kirk was a Professor at
Columbia University Graduate School of Business. Prior to 1987, he was
Chairman of the Financial Accounting Standards Board. Mr. Kirk is a
Director of General Re Corporation (reinsurance), and he previously
served as a Director of Valuation Research Corp. (appraisals and
valuations, 1993-1995). In addition, he serves as Chairman of the
Board of Directors of National Arts Stabilization Inc .,
Chairman of the Board of Trustees of the Greenwich Hospital
Association, Director of the Yale-New Haven Health Services Corp.
( 1998 ), a Member of the Public Oversight Board of the
American Institute of Certified Public Accountants' SEC Practice
Section (1995), and as a Public Governor of the National Association
of Securities Dealers, Inc. (1996).
*PETER S. LYNCH ( 55 ), Trustee, is Vice Chairman and Director of
FMR. Prior to May 31, 1990, he was a Director of FMR and Executive
Vice President of FMR (a position he held until March 31, 1991); Vice
President of Fidelity Magellan Fund and FMR Growth Group Leader; and
Managing Director of FMR Corp. Mr. Lynch was also Vice President of
Fidelity Investments Corporate Services (1991-1992). In addition, he
serves as a Trustee of Boston College, Massachusetts Eye & Ear
Infirmary, Historic Deerfield (1989) and Society for the Preservation
of New England Antiquities, and as an Overseer of the Museum of Fine
Arts of Boston.
WILLIAM O. McCOY ( 65 ), Trustee (1997), is the Vice President of
Finance for the University of North Carolina (16-school system, 1995).
Prior to his retirement in December 1994, Mr. McCoy was Vice Chairman
of the Board of BellSouth Corporation (telecommunications, 1984) and
President of BellSouth Enterprises (1986). He is currently a Director
of Liberty Corporation (holding company, 1984), Weeks Corporation of
Atlanta (real estate, 1994), Carolina Power and Light Company
(electric utility, 1996), and the Kenan Transport Co. (1996).
Previously, he was a Director of First American Corporation (bank
holding company, 1979-1996). In addition, Mr. McCoy serves as a member
of the Board of Visitors for the University of North Carolina at
Chapel Hill (1994) and for the Kenan-Flager Business School
(University of North Carolina at Chapel Hill, 1988).
GERALD C. McDONOUGH ( 70 ), Trustee and Chairman of the
non-interested Trustees, is Chairman of G.M. Management Group
(strategic advisory services). Mr. McDonough is a Director of York
International Corp. (air conditioning and refrigeration), Commercial
Intertech Corp. (hydraulic systems, building systems, and metal
products, 1992), CUNO, Inc. (liquid and gas filtration products,
1996), and Associated Estates Realty Corporation (a real estate
investment trust, 1993). Mr. McDonough served as a Director of
ACME-Cleveland Corp. (metal working, telecommunications, and
electronic products) from 1987-1996 and Brush-Wellman Inc. (metal
refining) from 1983-1997.
MARVIN L. MANN ( 65 ), Trustee (1993), is Chairman of the Board,
of Lexmark International, Inc. (office machines, 1991). Prior to 1991,
he held the positions of Vice President of International Business
Machines Corporation ("IBM") and President and General Manager of
various IBM divisions and subsidiaries. Mr. Mann is a Director of M.A.
Hanna Company (chemicals, 1993), Imation Corp. (imaging and
information storage, 1997).
*ROBERT C. POZEN ( 52 ), Trustee (1997) and Senior Vice
President, is also President and a Director of FMR (1997); and
President and a Director of Fidelity Investments Money Management,
Inc. (1998), Fidelity Management & Research (U.K.) Inc. (1997), and
Fidelity Management & Research (Far East) Inc. (1997). Previously, Mr.
Pozen served as General Counsel, Managing Director, and Senior Vice
President of FMR Corp.
THOMAS R. WILLIAMS ( 70 ), Trustee, is President of The Wales
Group, Inc. (management and financial advisory services). Prior to
retiring in 1987, Mr. Williams served as Chairman of the Board of
First Wachovia Corporation (bank holding company), and Chairman and
Chief Executive Officer of The First National Bank of Atlanta and
First Atlanta Corporation (bank holding company). He is currently a
Director of ConAgra, Inc. (agricultural products), Georgia Power
Company (electric utility), National Life Insurance Company of
Vermont, American Software, Inc., and AppleSouth, Inc. (restaurants,
1992).
DWIGHT D. CHURCHILL ( 45 ), is Vice President of Bond Funds,
Group Leader of the Bond Group, Senior Vice President of FMR (1997),
and Vice President of FIMM (1998). Mr. Churchill joined Fidelity in
1993 as Vice President and Group Leader of Taxable Fixed-Income
Investments.
FRED L. HENNING, JR. ( 59 ), is Vice President of Fidelity's
Fixed-Income Group (1995), Senior Vice President of FMR (1995), and
Senior Vice President of FIMM (1998). Before assuming his current
responsibilities, Mr. Henning was head of Fidelity's Money Market
Division.
BART A. GRENIER, (39), is Vice President of certain High-Income
Bond Funds (1997). Mr. Grenier rejoined Fidelity in August 1997 from
DDJ Capital Management, LLC, where he had served as Managing Director
since April 1997. Mr. Grenier originally joined Fidelity in 1991 as a
senior analyst. Mr. Grenier served as a Director of High-Income Group
Research and as Director of U.S. Equity Research from 1994 to March
1996. He later became Group Leader of the Income-Growth and Asset
Allocation-Income Groups in 1996 and Assistant Equity Division Head in
1997.
NORMAN LIND ( 42 ), is Vice President of Spartan Intermediate
Municipal Income Fund (1998) and other funds advised by FMR. Prior to
his current responsibilities, Mr. Lind managed a variety of Fidelity
funds.
GEORGE FISCHER ( 37 ), is Vice President of Spartan Municipal
Income Fund (1998) and other funds advised by FMR. Prior to his
current responsibilities, Mr. Fischer managed a variety of Fidelity
funds.
ERIC D. ROITER ( 50 ), Secretary (1998), is Vice President (1998)
and General Counsel of FMR (1998). Mr. Roiter was an Adjunct Member,
Faculty of Law, at Columbia University Law School (1996-1997). Prior
to joining Fidelity, Mr. Roiter was a partner at Debevoise & Plimpton
(1981-1997) and served as an Assistant General Counsel of the U.S.
Securities and Exchange Commission (1979-1981).
RICHARD A. SILVER ( 51 ), Treasurer (1997), is Treasurer of the
Fidelity funds and is an employee of FMR (1997). Before joining FMR,
Mr. Silver served as Executive Vice President, Fund Accounting &
Administration at First Data Investor Services Group, Inc.
(1996-1997). Prior to 1996, Mr. Silver was Senior Vice President and
Chief Financial Officer at The Colonial Group, Inc. Mr. Silver also
served as Chairman of the Accounting/Treasurer's Committee of the
Investment Company Institute (1987-1993).
MATTHEW N. KARSTETTER (37), Deputy Treasurer (1998), is Deputy
Treasurer of the Fidelity funds and is an employee of FMR (1998).
Before joining FMR, Mr. Karstetter served as Vice President of
Investment Accounting and Treasurer of IDS Mutual Funds at American
Express Financial Advisors (1996-1998). Prior to 1996, Mr. Karstetter
was Vice President, Mutual Fund Services at State Street Bank & Trust
(1991-1996).
ST ANLEY N. GRIFFITH (52), Assistant Vice President (1998), is
Assistant Vice President of Fidelity's Fixed-Income Funds (1998) and
an employee of FMR Corp.
JOHN H. COSTELLO ( 52 ), Assistant Treasurer, is an employee of
FMR.
LEONARD M. RUSH ( 52 ), Assistant Treasurer (1994), is an
employee of FMR (1994). Prior to becoming Assistant Treasurer of the
Fidelity funds, Mr. Rush was Chief Compliance Officer of FMR Corp.
(1993-1994) and Chief Financial Officer of Fidelity Brokerage
Services, Inc. (1990-1993).
THOMAS J. SIMPSON ( 40 ), Assistant Treasurer (1996), is
Assistant Treasurer of Fidelity's Fixed-Income Funds (1998) and an
employee of FMR (1996). Prior to joining FMR, Mr. Simpson was Vice
President and Fund Controller of Liberty Investment Services
(1987-1995).
The following table sets forth information describing the compensation
of each Trustee and Member of the Advisory Board of each fund for his
or her services for the fiscal year ended November 30, 1998 or
for the fiscal year ended December 31, 1998.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
COMPENSATION TABLE
TRUSTEES AGGREGATE AGGREGATE TOTAL
AND COMPENSATION COMPENSATION COMPENSATION
MEMBERS OF THE ADVISORY BOARD FROM FROM FROM THE
SPARTAN SPARTAN MUNICIPAL FUND COMPLEX*,A
INTERMEDIATE INCOME[B,]D[,+]
MUNICIPAL
INCOME[B,]C[,+]

J. GARY BURKHEAD** $ 0 $ 0 $ 0

RALPH F. COX $ $ $ 214,500

PHYLLIS BURKE DAVIS $ $ $ 210,000

ROBERT M. GATES*** [$ ] [$ ] [$176,000]

EDWARD C. JOHNSON 3D** $ 0 $ 0 $ 0

E. BRADLEY JONES $ $ $ 211,500

DONALD J. KIRK $ $ $ 211,500

PETER S. LYNCH** $ 0 $ 0 $ 0

WILLIAM O. MCCOY**** [$ ] [$ ] [$ 214,500]

GERALD C. MCDONOUGH $ $ $ 264,500

MARVIN L. MANN $ $ $ 214,500

ROBERT C. POZEN** [$ 0] [$ 0] [$ 0]

THOMAS R. WILLIAMS $ $ $214,500

</TABLE>

* Information is for the calendar year ended December 31, 1997 for 230
funds in the complex.
** Interested Trustees of the funds and Mr. Burkhead are compensated
by FMR.
*** Mr. Gates was appointed to the Board of Trustees effective March
1, 1997.
**** Mr. McCoy was appointed to the Board of Trustees effective
January 1, 1997.
A Compensation figures include cash, amounts required to be deferred,
and may include amounts deferred at the election of Trustees. For the
calendar year ended December 31, 1997, the Trustees accrued required
deferred compensation from the funds as follows: Ralph F. Cox,
$75,000; Phyllis Burke Davis, $75,000; Robert M. Gates, $62,500; E.
Bradley Jones, $75,000; Donald J. Kirk, $75,000; William O. McCoy,
$75,000; Gerald C. McDonough, $87,500; Marvin L. Mann, $75,000; and
Thomas R. Williams, $75,000. Certain of the non-interested Trustees
elected voluntarily to defer a portion of their compensation as
follows: Ralph F. Cox, $53,699; Marvin L. Mann, $53,699; and Thomas R.
Williams, $62,462.
B Compensation figures include cash, and may include amounts required
to be deferred and amounts deferred at the election of Trustees.
C The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $__; Phyllis Burke Davis, $__;
Robert M. Gates, $__; E. Bradley Jones, $__; Donald J. Kirk, $__;
William O. McCoy, $__; Gerald C. McDonough, $__; Marvin L. Mann, $__;
and Thomas R. Williams, $__.
D The following amounts are required to be deferred by each
non-interested Trustee: Ralph F. Cox, $__; Phyllis Burke Davis, $__;
Robert M. Gates, $__; E. Bradley Jones, $__; Donald J. Kirk, $__;
William O. McCoy, $__; Gerald C. McDonough, $__; Marvin L. Mann, $__;
and Thomas R. Williams, $__.
F Certain of the non-interested Trustees' aggregate compensation from
[the/a] fund includes accrued voluntary deferred compensation as
follows: [trustee name, dollar amount of deferred compensation, fund
name]; [trustee name, dollar amount of deferred compensation, fund
name]; and [trustee name, dollar amount of deferred compensation, fund
name].
Under a deferred compensation plan adopted in September 1995 and
amended in November 1996 (the Plan), non-interested Trustees must
defer receipt of a portion of, and may elect to defer receipt of an
additional portion of, their annual fees. Amounts deferred under the
Plan are subject to vesting and are treated as though equivalent
dollar amounts had been invested in shares of a cross-section of
Fidelity funds including funds in each major investment discipline and
representing a majority of Fidelity's assets under management (the
Reference Funds). The amounts ultimately received by the Trustees
under the Plan will be directly linked to the investment performance
of the Reference Funds. Deferral of fees in accordance with the Plan
will have a negligible effect on a fund's assets, liabilities, and net
income per share, and will not obligate a fund to retain the services
of any Trustee or to pay any particular level of compensation to the
Trustee. A fund may invest in the Reference Funds under the Plan
without shareholder approval.
As of ________, approximately __% of [Fund Name(s)]'s total
outstanding shares was held by [FMR] [[and] [an] FMR affiliate[s]].
FMR Corp. is the ultimate parent company of [FMR] [[and] [this/these]
FMR affiliate[s]]. By virtue of his ownership interest in FMR Corp.,
as described in the "Control of Investment Advisers" section on page
___, Mr. Edward C. Johnson 3d, President and Trustee of the fund, may
be deemed to be a beneficial owner of these shares. As of the above
date, with the exception of Mr. Johnson 3d's deemed ownership of [Fund
Name(s)]'s shares, the Trustees, Members of the Advisory Board, and
officers of the funds owned, in the aggregate, less than __% of each
fund's total outstanding shares.
As of _ ________ , the Trustees, Members of the Advisory Board,
and officers of [the/each] fund owned, in the aggregate, less than
__% of [[each fund/[Fund Name(s)]]'s total outstanding shares.
As of _________, the following owned of record or beneficially
5% or more (up to and including 25%) of [ [each fund/[Fund
Name(s)]]'s outstanding shares:
A s of __________, approximately ____% of [NAME OF FUND]'s total
outstanding shares were held by [NAME OF SHAREHOLDER]; approximately
___% of [NAME OF FUND]'s total outstanding shares were held by [NAME
OF SHAREHOLDER]; and approximately ___% of [NAME OF FUND]'s total
outstanding shares were held by [NAME OF SHAREHOLDER].
A shareholder owning of record or beneficially more than 25% of a
fund's outstanding shares may be considered a controlling person. That
shareholder's vote could have a more significant effect on matters
presented at a shareholders' meeting than votes of other
shareholders.
CONTROL OF INVESTMENT ADVISERS
FMR Corp., organized in 1972, is the ultimate parent company of FMR
and FIMM. The voting common stock of FMR Corp. is divided into two
classes. Class B is held predominantly by members of the Edward C.
Johnson 3d family and is entitled to 49% of the vote on any matter
acted upon by the voting common stock. Class A is held predominantly
by non-Johnson family member employees of FMR Corp. and its affiliates
and is entitled to 51% of the vote on any such matter. The Johnson
family group and all other Class B shareholders have entered into a
shareholders' voting agreement under which all Class B shares will be
voted in accordance with the majority vote of Class B shares. Under
the 1940 Act, control of a company is presumed where one individual or
group of individuals owns more than 25% of the voting stock of that
company. Therefore, through their ownership of voting common stock and
the execution of the shareholders' voting agreement, members of the
Johnson family may be deemed, under the 1940 Act, to form a
controlling group with respect to FMR Corp.
At present, the principal operating activities of FMR Corp. are
those conducted by its division, Fidelity Investments Retail Marketing
Company, which provides marketing services to various companies within
the Fidelity organization.
Fidelity investment personnel may invest in securities for their
own investment accounts pursuant to a code of ethics that sets forth
all employees' fiduciary responsibilities regarding the funds,
establishes procedures for personal investing and restricts certain
transactions. For example, all personal trades in most securities
require pre-clearance, and participation in initial public offerings
is prohibited. In addition, restrictions on the timing of personal
investing in relation to trades by Fidelity funds and on short-term
trading have been adopted.
MANAGEMENT CONTRACTS
Each fund has entered into a management contract with FMR, pursuant
to which FMR furnishes investment advisory and other services.
MANAGEMENT SERVICES. Under the terms of its management contract with
each fund, FMR acts as investment adviser and, subject to the
supervision of the Board of Trustees, directs the investments of the
fund in accordance with its investment objective, policies and
limitations. FMR also provides each fund with all necessary office
facilities and personnel for servicing the fund's investments,
compensates all officers of each fund and all Trustees who are
"interested persons" of the trusts or of FMR, and all personnel of
each fund or FMR performing services relating to research, statistical
and investment activities.
In addition, FMR or its affiliates, subject to the supervision of the
Board of Trustees, provide the management and administrative services
necessary for the operation of each fund. These services include
providing facilities for maintaining each fund's organization;
supervising relations with custodians, transfer and pricing agents,
accountants, underwriters and other persons dealing with each fund;
preparing all general shareholder communications and conducting
shareholder relations; maintaining each fund's records and the
registration of each fund's shares under federal securities laws and
making necessary filings under state securities laws; developing
management and shareholder services for each fund; and furnishing
reports, evaluations and analyses on a variety of subjects to the
Trustees.
MANAGEMENT-RELATED EXPENSES. In addition to the management fee payable
to FMR and the fees payable to the transfer, dividend disbursing, and
shareholder servicing agent, and pricing and bookkeeping agent, each
fund pays all of its expenses that are not assumed by those parties.
Each fund pays for the typesetting, printing, and mailing of its proxy
materials to shareholders, legal expenses, and the fees of the
custodian, auditor and non-interested Trustees. Each fund's management
contract further provides that the fund will pay for typesetting,
printing, and mailing prospectuses, statements of additional
information, notices, and reports to shareholders; however, under the
terms of each fund's transfer agent agreement, the transfer agent
bears the costs of providing these services to existing shareholders.
Other expenses paid by each fund include interest, taxes, brokerage
commissions, the fund's proportionate share of insurance premiums and
Investment Company Institute dues, and the costs of registering shares
under federal securities laws and making necessary filings under state
securities laws. Each fund is also liable for such non-recurring
expenses as may arise, including costs of any litigation to which the
fund may be a party, and any obligation it may have to indemnify its
officers and Trustees with respect to litigation.
MANAGEMENT FEES. For the services of FMR under the management
contract, Spartan Intermediate Municipal Income pays FMR a monthly
management fee at the annual rate of 0.10% of the fund's average net
assets throughout the month plus a n amount equal to 5% of
the fund's gross income throughout the month. For this purpose,
gross income includes interest accrued on portfolio obligations,
adjusted for amortization of purchase premium, but excludes
adjustments for purchase discount on portfolio obligations.
For the services of FMR under the management contract, Spartan
Municipal Income pays FMR a monthly management fee which has two
components: a group fee rate and an individual fund fee rate.
The group fee rate is based on the monthly average net assets of all
of the registered investment companies with which FMR has management
contracts.
GROUP FEE RATE SCHEDULE EFFECTIVE ANNUAL FEE RATES

AVERAGE GROUP ANNUALIZED GROUP NET EFFECTIVE ANNUAL FEE
ASSETS RATE ASSETS RATE

0 - $3 BILLION .3700% $ 0.5 BILLION .3700%

3 - 6 .3400 25 .2664

6 - 9 .3100 50 .2188

9 - 12 .2800 75 .1986

12 - 15 .2500 100 .1869

15 - 18 .2200 125 .1793

18 - 21 .2000 150 .1736

21 - 24 .1900 175 . 1690

24 - 30 .1800 200 . 1652

30 - 36 .1750 225 . 1618

36 - 42 .1700 250 . 1587

42 - 48 .1650 275 . 1560

48 - 66 .1600 300 . 1536

66 - 84 .1550 32 5 . 1514

84 - 120 .1500 350 . 1494

120 - 156 . 1450 375 . 1476

156 - 192 . 1400 400 . 1459

192 - 228 . 1350 425 . 1443

228 - 264 .13 0 0 450 . 1427

264 - 300 . 1275 475 . 1413

300 - 336 . 1250 500 . 1399

336 - 372 . 1225 525 . 1385

372 - 408 . 1200 550 . 1372

408 - 444 . 1175

444 - 480 . 1150

480 - 51 6 . 1125

OVER 516 . 1100

The group fee rate is calculated on a cumulative basis pursuant to the
graduated fee rate schedule shown above on the left. The schedule
above on the right shows the effective annual group fee rate at
various asset levels, which is the result of cumulatively applying the
annualized rates on the left. For example, the effective annual fee
rate at $ ___ billion of group net assets - the approximate
level for November 1998 - was __ %, which is the weighted
average of the respective fee rates for each level of group net assets
up to $ __ billion.
The individual fund fee rate for Spartan Municipal Income is
0.25%. Based on the average group net assets of the funds advised by
FMR for November 1998 , the fund's annual management fee
rate would be calculated as follows:

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
GROUP FEE RATE INDIVIDUAL FUND FEE RATE MANAGEMENT
FEE RATE

SPARTAN MUNICIPAL 0.___ % + 0.25% = 0.___ %
INCOME

</TABLE>

One-twelfth of the management fee rate is applied to the fund's
average net assets f or the month, giving a dollar amount which
is the fee for that month.
The following table shows the amount of management fees paid by each
fund to FMR for the past three fiscal years.
FUND FISCAL YEARS ENDED MANAGEMENT FEES
DECEMBER PAID TO FMR

SPARTAN INTERMEDIATE MUNICIPAL INCOME 1998 $

1997 $

1996 $

FUND FISCAL YEARS ENDED MANAGEMENT FEES
NOVEMBER PAID TO FMR

SPARTAN MUNICIPAL INCOME 1998 $

1997 $

1996 $

[(dagger)]On [month] [day], 19__, FMR reduced the [management
fee/individual fund fee] rate paid by [Name(s) of Fund(s)] from __% to
__%.
During the reporting period, FMR voluntarily modified the
breakpoints in the group fee rate schedule on January 1, 1996 to
provide for lower management fee rates as FMR's assets under
management increase.
FMR may, from time to time, voluntarily reimburse all or a portion of
a fund's operating expenses (exclusive of interest, taxes,
brokerage commissions, and extraordinary expenses). FMR retains the
ability to be repaid for these expense reimbursements in the amount
that expenses fall below the limit prior to the end of the fiscal
year.
Expense reimbursements by FMR will increase a fund's total returns and
yield, and repayment of the reimbursement by a fund will lower its
total returns and yield.
During the past three fiscal years, FMR voluntarily agreed to
reimburse each fund if and to the extent that its aggregate operating
expenses, including management fees, were in excess of an annual rate
of its average net assets. The tables below shows the periods of
reimbursement and levels of expense limitations; the dollar amount of
management fees incurred under each fund's contract before
reimbursement; and the dollar amount of management fees reimbursed by
FMR under the expense reimbursement for each period.
The reimbursement arrangement that is in effect for Spartan
Intermediate Municipal Income will continue through December 31, 1999,
after which time FMR may elect to discontinue it. The reimbursement
arrangement that is in effect for Spartan Municipal Income will
continue through December 31, 2000, after which time FMR may elect to
discontinue it.

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIODS OF AGGREGATE FISCAL YEARS MANAGEMENT AMOUNT OF
EXPENSE LIMITATION OPERATING ENDED FEE BEFORE MANAGEMENT
FROM TO EXPENSE DECEMBER 31 REIMBURSEMENT FEE
LIMITATION REIMBURSEMENT

SPARTAN MARCH 20, DECEMBER 31, 0.53 % 1998 $ [*] $ 0
INTERMEDIATE 1998 1999
MUNICIPAL
INCOME

APRIL 1, DECEMBER 31, 0.55% 1997 $ [*] $
1997 1997

</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
PERIODS OF AGGREGATE FISCAL YEARS MANAGEMENT AMOUNT OF
EXPENSE LIMITATION OPERATING ENDED FEE BEFORE MANAGEMENT
FROM TO EXPENSE NOVEMBER 30 REIMBURSEMENT FEE
LIMITATION REIMBURSEMENT

SPARTAN OCTOBER 24, DECEMBER 31, 0.53% 1998 $ $
MUNICIPAL 1997 2000
INCOME

APRIL 1, OCTOBER 23, 0.55% 1997 $ $
1997 1997

</TABLE>

SUB-ADVISER On behalf of each fund, FMR has entered into a
sub-advisory agreement with FIMM pursuant to which FIMM has primary
responsibility for choosing investments for the funds.
Under the terms of the sub-advisory agreements for the funds, FMR
pays FIMM fees equal to 50% of the management fee payable to FMR under
its management contract with each fund. The fees paid to FIMM are not
reduced by any voluntary or mandatory expense reimbursements that may
be in effect from time to time.
DISTRIBUTION SERVICES
Each fund has entered into a distribution agreement with FDC, an
affiliate of FMR. FDC is a broker-dealer registered under the
Securities Exchange Act of 1934 and a member of the National
Association of Securities Dealers, Inc. The distribution agreements
call for FDC to use all reasonable efforts, consistent with its other
business, to secure purchasers for shares of the fund, which are
continuously offered at NAV. Promotional and administrative expenses
in connection with the offer and sale of shares are paid by FMR.
The Trustees have approved Distribution and Service Plans on behalf of
each fund (the Plans) pursuant to Rule 12b-1 under the 1940 Act (the
Rule). The Rule provides in substance that a mutual fund may not
engage directly or indirectly in financing any activity that is
primarily intended to result in the sale of shares of the fund except
pursuant to a plan approved on behalf of the fund under the Rule. The
Plans, as approved by the Trustees, allow the funds and FMR to incur
certain expenses that might be considered to constitute indirect
payment by the funds of distribution expenses.
Under each Plan, if the payment of management fees by the fund to FMR
is deemed to be indirect financing by the fund of the distribution of
its shares, such payment is authorized by the Plan. Each Plan
specifically recognizes that FMR may use its management fee revenue,
as well as its past profits or its other resources, to pay FDC for
expenses incurred in connection with providing services intended to
result in the sale of fund shares and/or shareholder support services.
In addition, each Plan provides that FMR, directly or through FDC,
may pay intermediaries, s uch as banks, broker-dealers and
other service-providers, that provide those services. Currently,
the Board of Trustees has authorized such payments for shares.
Payments made by FMR either directly or through FDC to intermediaries
for the fiscal year ended [year] amounted to $____ [for [Fund Name]],
$____ [for [Fund Name]], and $_____ [for [Fund Name]].
FMR made no payments either directly or through FDC to intermediaries
for the fiscal year ended [year].
Prior to approving each Plan, the Trustees carefully considered all
pertinent factors relating to the implementation of the Plan, and
determined that there is a reasonable likelihood that the Plan will
benefit the fund and its shareholders. In particular, the Trustees
noted that each Plan does not authorize payments by the fund other
than those made to FMR under its management contract with the fund. To
the extent that each Plan gives FMR and FDC greater flexibility in
connection with the distribution of fund shares, additional sales of
fund shares or stabilization of cash flows may result.
Furthermore, certain shareholder support services may be provided more
effectively under the Plans by local entities with whom shareholders
have other relationships.
The Glass-Steagall Act generally prohibits federally and state
chartered or supervised banks from engaging in the business of
underwriting, selling or distributing securities. Although the scope
of this prohibition under the Glass-Steagall Act has not been clearly
defined by the courts or appropriate regulatory agencies, FDC believes
that the Glass-Steagall Act should not preclude a bank from performing
shareholder support services, or servicing and recordkeeping
functions. FDC intends to engage banks only to perform such functions.
However, changes in federal or state statutes and regulations
pertaining to the permissible activities of banks and their affiliates
or subsidiaries, as well as further judicial or administrative
decisions or interpretations, could prevent a bank from continuing to
perform all or a part of the contemplated services. If a bank were
prohibited from so acting, the Trustees would consider what actions,
if any, would be necessary to continue to provide efficient and
effective shareholder services. In such event, changes in the
operation of the funds might occur, including possible termination of
any automatic investment or redemption or other services then provided
by the bank. It is not expected that shareholders would suffer any
adverse financial consequences as a result of any of these
occurrences. In addition, state securities laws on this issue may
differ from the interpretations of federal law expressed herein, and
banks and other financial institutions may be required to register as
dealers pursuant to state law.
Each fund may execute portfolio transactions with, and purchase
securities issued by, depository institutions that receive payments
under the Plans. No preference for the instruments of such depository
institutions will be shown in the selection of investments.
TRANSFER AND SERVICE AGENT AGREEMENTS
Each fund has entered into a transfer agent agreement with UMB,
which is located at 1010 Grand Avenue, Kansas City, Missouri.
Under the terms of the agreements, UMB provides transfer agency,
dividend disbursing, and shareholder services for each fund. UMB in
turn has entered into sub-transfer agent agreements with FSC, an
affiliate of FMR. Under the terms of the sub-agreements, FSC performs
all processing activities associated with providing these services for
each fund and receives all related transfer agency fees paid to UMB.
For providing transfer agency services, FSC receives an account fee
and an asset-based fee each paid monthly with respect to each account
in a fund. For retail accounts and certain institutional accounts,
these fees are based on account size and fund type. For certain
institutional retirement accounts, these fees are based on fund type.
For certain other institutional retirement accounts, these fees are
based on account type (i.e., omnibus or non-omnibus) and, for
non-omnibus accounts, fund type. The account fees are subject to
increase based on postage rate changes.
FSC also collects small account fees from certain accounts with
balances of less than $2,500.
In addition, UMB receives the pro rata portion of the transfer agency
fees applicable to shareholder accounts in a qualified state
tuition program (QSTP), as defined under the Small Business Job
Protection Act of 1996, managed by FMR or an affiliate and each
Fidelity Freedom Fund, a fund of funds managed by an FMR affiliate,
according to the percentage of the QSTP's or Freedom Fund's assets
that is invested in a fund.
FSC pays out-of-pocket expenses associated with providing transfer
agent services. In addition, FSC bears the expense of typesetting,
printing, and mailing prospectuses, statements of additional
information, and all other reports, notices, and statements to
existing shareholders, with the exception of proxy statements.
Each fund has also entered into a service agent agreement with UMB.
Under the terms of the agreements, UMB provides pricing and
bookkeeping services for each fund. UMB in turn has entered into
sub-service agent agreements with FSC . Under the terms of the
sub-agreements, FSC performs all processing activities associated with
providing these services, including calculating the NAV and dividends
for each fund and maintaining each fund's portfolio and general
accounting records, and receives all related pricing and bookkeeping
fees paid to UMB.
For providing pricing and bookkeeping services, FSC receives a monthly
fee based on each fund's average daily net assets throughout the
month. The annual fee rates for pricing and bookkeeping services are
.0400% for fixed-income funds of the first $500 million of
average net assets and .0200% for fixed-income funds of average
net assets in excess of $500 million. The fee, not including
reimbursement for out-of-pocket expenses, is limited to a minimum of
$60,000 and a maximum of $800,000 per year.
Pricing and bookkeeping fees, including reimbursement for
out-of-pocket expenses, paid by the funds to FSC for the past three
fiscal years are shown in the table below.
FUND 1998 1997 1996

SPARTAN INTERMEDIATE MUNICIPAL INCOME $ $ $

SPARTAN MUNICIPAL INCOME $ $ $

DESCRIPTION OF THE TRUSTS
TRUST ORGANIZATION. Spartan Intermediate Municipal Income Fund is a
fund of Fidelity School Street Trust, an open end management
investment company organized as a Massachusetts business trust on
September 10, 1976. Currently, there are four funds in the
trust: Spartan Intermediate Municipal Income Fund, Fidelity
International Bond Fund, Fidelity New Markets Income Fund, and
Fidelity Strategic Income Fund. Fidelity Municipal Income Fund is
a fund of Fidelity Court Street Trust, an open-end management
investment company organized as a Massachusetts business trust on
April 21, 1977. Currently, there are four funds in the trust:
Spartan Municipal Income Fund, Spartan Connecticut Municipal Income
Fund, Spartan New Jersey Municipal Income Fund, and Spartan Florida
Municipal Income Fund. The Trustees are permitted to create
additional funds in the trusts.
The assets of each trust received for the issue or sale of shares of
each of its funds and all income, earnings, profits, and proceeds
thereof, subject to the rights of creditors, are allocated to such
fund, and constitute the underlying assets of such fund. The
underlying assets of each fund in a trust shall be charged with the
liabilities and expenses attributable to such fund. Any general
expenses of the respective trusts shall be allocated between or among
any one or more of its funds.
SHAREHOLDER LIABILITY. Each trust is an entity commonly known as a
"Massachusetts business trust." Under Massachusetts law, shareholders
of such a trust may, under certain circumstances, be held personally
liable for the obligations of the trust.
The Declaration of Trust provides that the trust shall not have any
claim against shareholders except for the payment of the purchase
price of shares and requires that each agreement, obligation, or
instrument entered into or executed by the trust or the Trustees
relating to the trust shall include a provision limiting the
obligations created thereby to the trust and its assets.
Each Declaration of Trust provides for indemnification out of each
fund's property of any shareholder or former shareholder held
personally liable for the obligations of the fund solely by reason
of his or her being or having been a shareholder and not because of
his or her acts or omissions or for some other reason. Each
Declaration of Trust also provides that each fund shall, upon
request, assume the defense of any claim made against any shareholder
for any act or obligation of the fund and satisfy any judgment
thereon. Thus, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which
a fund itself would be unable to meet its obligations. FMR
believes that, in view of the above, the risk of personal liability to
shareholders is remote.
VOTING RIGHTS. Each fund's capital consists of shares of beneficial
interest. As a shareholder, you are entitled to one vote for
each dollar of net asset value that you own. The voting
rights of shareholders can be changed only by a shareholder vote.
Shares may be voted in the aggregate, by fund and by class.
The shares have no preemptive or conversion rights. Shares are fully
paid and nonassessable, except as set forth under the heading
"Shareholder Liability" above.
Each trust or any of its funds may be terminated upon the sale of its
assets to another open-end management investment company, or upon
liquidation and distribution of its assets, if approved by a vote of
shareholders of the trust or the fund. In the event of the dissolution
or liquidation of a trust, shareholders of each of its funds are
entitled to receive the underlying assets of such fund available for
distribution. In the event of the dissolution or liquidation of a
fund, shareholders of that fund are entitled to receive the underlying
assets of the fund available for distribution.
CUSTODIAN. UMB Bank, n.a., 1010 Grand Avenue, Kansas City, Missouri,
is custodian of the assets of the funds. The custodian is responsible
for the safekeeping of a fund's assets and the appointment of any
subcustodian banks and clearing agencies.
FMR, its officers and directors, its affiliated companies, and
members of the Board of Trustees may, from time to time,
conduct transactions with various banks, including banks serving as
custodians for certain funds advised by FMR. Transactions that have
occurred to date include mortgages and personal and general business
loans. In the judgment of FMR, the terms and conditions of those
transactions were not influenced by existing or potential custodial or
other fund relationships.
AUDITOR. ____________________ serves as each fund's independent
accountant. The auditor examines financial statements for the funds
and provides other audit, tax, and related services.
FINANCIAL STATEMENTS
Each fund's financial statements and financial highlights for the
fiscal year ended December 31, 1998 or November 30,
1998 , as applicable, and reports of the auditor, are included
in each fund's Annual Report and are incorporated herein by
reference.
APPENDIX
Spartan, Fidelity, Fidelity Investments and (Pyramid) Design, and
Fidelity Focus are registered trademarks of FMR Corp.
The third party marks appearing above are the marks of their
respective owners.

PART C - OTHER INFORMATION
Item 23. Exhibits
(a) Amended and Restated Declaration of Trust, dated January 19,
1995, is incorporated herein by reference to Exhibit 1(a) of
Post-Effective Amendment No. 45.
(b) Bylaws of the Trust, as amended and dated May 19, 1994, are
incorporated herein by reference to Exhibit 2(a) of Fidelity Union
Street Trust's (File No. 2-50318) Post-Effective Amendment No. 87.
(c) Not applicable.
(d) (1) Management Contract, dated January 19, 1995, between Fidelity
Limited Term Municipals (currently known as Spartan Intermediate
Municipal Income Fund) and Fidelity Management & Research Company
dated January 1, 1995 is incorporated herein by reference to Exhibit
5(a) of Post-Effective Amendment No. 45.
(2) Management Contract, dated February 26, 1998, between Fidelity
International Bond Fund and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(b) of Post-Effective
Amendment No. 59.
(3) Management Contract, dated February 26, 1998, between Fidelity
New Markets Income Fund and Fidelity Management & Research Company is
incorporated herein by reference to Exhibit 5(h) of Post-Effective
Amendment No. 59.
(4) Management Contract, dated April 16, 1998, between Fidelity
Strategic Income Fund and Fidelity Management and Research Company is
filed herein as Exhibit d(4).
(5) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity Management & Research (Far East) Inc. on
behalf of Fidelity International Bond Fund is filed herein as Exhibit
d(5).
(6) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity Management & Research (U.K.) Inc. on
behalf of Fidelity International Bond Fund is filed herein as Exhibit
d(6).
(7) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity International Investment Advisors on
behalf of Fidelity International Bond Fund is filed herein as Exhibit
d(7).
(8) Form of Sub-Advisory Agreement between Fidelity International
Investment Advisors and Fidelity International Investment Advisors
(U.K.) Limited is filed herein as Exhibit d(8).
(9) Form of Sub-Advisory Agreement between Fidelity Investments
Japan Limited, Fidelity Management & Research Company and Fidelity
Investments Japan Limited on behalf of Fidelity International Bond
Fund is filed herein as Exhibit d(9).
(10) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity Management & Research (Far East) Inc. on
behalf of Fidelity New Markets Income Fund is filed herein as Exhibit
d(10).
(11) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity Management & Research (U.K.) Inc. on
behalf of Fidelity New Markets Income Fund is filed herein as Exhibit
d(11).
(12) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity International Investment Advisors on
behalf of Fidelity New Markets Income Fund is filed herein as Exhibit
d(12).
(13) Form of Sub-Advisory Agreement between Fidelity International
Investment Advisors and Fidelity International Investment Advisors
(U.K.) Limited is filed herein as Exhibit d(13).
(14) Form of Sub-Advisory Agreement between Fidelity Management &
Research Company and Fidelity Investments Japan Limited on behalf of
Fidelity New Markets Income Fund is filed herein as Exhibit d(14).
(15) Sub-Advisory Agreement, dated April 16, 1998, between Fidelity
Management & Research Company and Fidelity Management & Research
(U.K.) Inc. on behalf of Fidelity Strategic Income Fund is filed
herein as Exhibit d(15).
(16) Sub-Advisory Agreement, dated April 16, 1998, between Fidelity
Management & Research Company and Fidelity Management & Research (Far
East) Inc. on behalf of Fidelity Strategic Income Fund is filed herein
as Exhibit d(16).
(17) Sub-Advisory Agreement, dated April 16, 1998, between Fidelity
Management & Research Company and Fidelity Investments Japan Limited
on behalf of Fidelity Strategic Income Fund is filed herein as Exhibit
d(17).
(18) Sub-Advisory Agreement, dated April 16, 1998, between Fidelity
Management & Research Company and Fidelity International Investment
Advisors on behalf of Fidelity Strategic Income Fund is filed herein
as Exhibit d(18).
(19) Sub-Advisory Agreement, dated April 16, 1998, between Fidelity
International Investment Advisors and Fidelity International
Investment Advisors (U.K.) Limited is filed herein as Exhibit d(19).
(e) (1) General Distribution Agreement, dated April 1, 1987, between
Fidelity Limited Term Municipals (currently known as Spartan
Intermediate Municipal Income Fund) and Fidelity Distributors
Corporation is incorporated herein by reference to Exhibit 6(a) of
Post-Effective Amendment No. 45.
(2) Amendment to the General Distribution Agreement, dated January
1, 1988, between Fidelity Limited Term Municipals (currently known as
Spartan Intermediate Municipal Income Fund) and Fidelity Distributors
Corporation, is incorporated herein by reference to Exhibit 6(b) of
Post-Effective Amendment No. 45.
(3) Amendments to the General Distribution Agreement between the
Fidelity Limited Term Municipals (currently known as Spartan
Intermediate Municipal Income Fund) and Fidelity Distributors
Corporation, dated March 14, 1996 and July 15, 1996, are incorporated
herein by reference to Exhibit 6(a) of Fidelity Court Street Trust's
Post-Effective Amendment No. 61 (File No. 2-58774).
(4) Form of General Distribution Agreement between Fidelity
International Bond Fund and Fidelity Distributors Corporation is filed
herein as Exhibit e(4).
(5) Form of General Distribution Agreement between Fidelity New
Markets Income Fund and Fidelity Distributors Corporation is filed
herein as Exhibit e(5).
(6) General Distribution Agreement, dated April 16, 1998, between
Fidelity Strategic Income Fund and Fidelity Distributors Corporation
is filed herein as Exhibit e(6).
(f) (1) Retirement Plan for Non-Interested Person Trustees, Directors
or General Partners, as amended on November 16, 1995, is incorporated
herein by reference to Exhibit 7(a) of Fidelity Select Portfolio's
(File No. 2-69972) Post-Effective Amendment No. 54.
(2) The Fee Deferral Plan for Non-Interested Person Directors and
Trustees of the Fidelity Funds, effective as of September 14, 1995 and
amended through November 14, 1996, is incorporated herein by reference
to Exhibit 7(b) of Fidelity Aberdeen Street Trust's (File No.
33-43529) Post-Effective Amendment No. 19.
(g) (1) Custodian Agreement, Appendix B, and Appendix C, dated
December 1, 1994, between UMB Bank, n.a. and Fidelity School Street
Trust on behalf of Fidelity Limited Term Municipals (currently known
as Spartan Intermediate Municipal Income Fund) is incorporated herein
by reference to Exhibit 8 of Fidelity California Municipal Trust's
Post-Effective Amendment No. 28 (File No. 2-83367).
(2) Appendix A, dated September 18, 1997, to the Custodian
Agreement, dated December 1, 1994, between UMB Bank, n.a. and Fidelity
School Street Trust on behalf of Fidelity Limited Term Municipals
(currently known as Spartan Intermediate Municipal Income Fund) is
incorporated herein by reference to Exhibit 8(b) of Fidelity Municipal
Trust II's Post-Effective Amendment No. 17 (File No. 33-43986).
(3) Custodian Agreement and Appendix C, dated August 1, 1994,
between The Chase Manhattan Bank, N.A. and Fidelity School Street
Trust on behalf of Fidelity International Bond Fund and Fidelity New
Markets Income Fund is incorporated herein by reference to Exhibit
8(a) of Fidelity Investment Trust's Post-Effective Amendment No. 59
(File No. 2-90649).
(4) Appendix A, dated February 26, 1998, to the Custodian Agreement,
dated August 1, 1994, between The Chase Manhattan Bank, N.A. and
Fidelity School Street Trust on behalf of Fidelity International Bond
Fund and Fidelity New Markets Income Fund is incorporated herein by
reference to Exhibit 8(b) of Fidelity Puritan Trust's Post-Effective
Amendment No. 116 (File No. 2-11884).
(5) Appendix B, dated June 18, 1998, to the Custodian Agreement,
dated August 1, 1994, between The Chase Manhattan Bank, N.A. and
Fidelity School Street Trust on behalf of Fidelity International Bond
Fund and Fidelity New Markets Income Fund is incorporated herein by
reference to Exhibit 8(c) of Fidelity Puritan Trust's Post-Effective
Amendment No. 116 (File No. 2-11884).
(6) Form of Schedule 1 to the Fidelity Group Repo Custodian
Agreement between The Bank of New York and Fidelity School Street
Trust on behalf of Fidelity International Bond Fund and Fidelity New
Markets Income Fund is filed herein as Exhibit g(6).
(7) Form of Fidelity Group Repo Custodian Agreement among Chemical
Bank, Greenwich Capital Markets, Inc., and Fidelity School Street
Trust on behalf of Fidelity International Bond Fund, Fidelity New
Markets Income Fund, and Fidelity Strategic Income Fund is filed
herein as Exhibit g(7).
(8) Form of Schedule 1 to the Fidelity Group Repo Custodian
Agreement between Chemical Bank and Fidelity School Street Trust on
behalf of Fidelity International Bond Fund, Fidelity New Markets
Income Fund, and Fidelity Strategic Income Fund is filed herein as
Exhibit g(8).
(9) Form of Joint Trading Account Custody Agreement between The Bank
of New York and Fidelity School Street Trust on behalf of Fidelity
International Bond Fund, Fidelity New Markets Income Fund, and
Fidelity Strategic Income Fund is filed herein as Exhibit g(9).
(10) Form of First Amendment to Joint Trading Account Custody
Agreement between The Bank of New York and Fidelity School Street
Trust on behalf of Fidelity International Bond Fund, Fidelity New
Markets Income Fund, and Fidelity Strategic Income Fund is filed
herein as Exhibit g(10).
(11) Custodian Agreement and Appendix C, dated December 1, 1994,
between The Bank of New York and Fidelity School Street Trust on
behalf of Fidelity Strategic Income Fund is incorporated herein by
reference to Exhibit 8(a) of Fidelity Hereford Street Trust's
Post-Effective Amendment No. 4 (File No. 33-52577).
(12) Appendix A, dated June 18, 1998, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and Fidelity
School Street Trust on behalf of Fidelity Strategic Income Fund is
incorporated herein by reference to Exhibit 8(b) of Fidelity Boston
Street Trust's Post-Effective Amendment No. 22 (File No. 33-17704).
(13) Appendix B, dated June 18, 1998, to the Custodian Agreement,
dated December 1, 1994, between The Bank of New York and Fidelity
School Street Trust on behalf of Fidelity Strategic Income Fund is
incorporated herein by reference to Exhibit 8(c) of Fidelity Boston
Street Trust's Post-Effective Amendment No. 22 (File No. 33-17704).
(h) Not applicable.
(i) Not applicable.
(j) Not applicable.
(k) Not applicable.
(l) Not applicable.
(m) (1) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Limited Term Municipal Income Fund (currently known as
Spartan Intermediate Municipal Income Fund) is incorporated herein by
reference to Exhibit 15(a) of Post-Effective Amendment No. 54.
(2) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity International Bond Fund is incorporated herein by reference
to Exhibit 15(b) of Post-Effective Amendment No. 57.
(3) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity New Markets Income Fund is incorporated herein by reference
to Exhibit 15(c) of Post-Effective Amendment No. 57.
(4) Distribution and Service Plan pursuant to Rule 12b-1 for
Fidelity Strategic Income Fund is incorporated herein by reference to
Exhibit 15(d) of Post-Effective Amendment No. 59.
(n) Not applicable.
(o) Not applicable.
Item 24. Trusts Controlled by or under Common Control with this Trust
The Board of Trustees of the Trust is the same as the board of other
Fidelity funds, each of which has Fidelity Management & Research
Company, or an affiliate, as its investment adviser. In addition, the
officers of the Trust are substantially identical to those of the
other Fidelity funds. Nonetheless, the Trust takes the position that
it is not under common control with other Fidelity funds because the
power residing in the respective boards and officers arises as the
result of an official position with the respective trusts.
Item 25. Indemnification
Article XI, Section 2 of the Declaration of Trust sets forth the
reasonable and fair means for determining whether indemnification
shall be provided to any past or present Trustee or officer. It states
that the Trust shall indemnify any present or past trustee or officer
to the fullest extent permitted by law against liability, and all
expenses reasonably incurred by him or her in connection with any
claim, action, suit or proceeding in which he or she is involved by
virtue of his or her service as a trustee or officer and against any
amount incurred in settlement thereof. Indemnification will not be
provided to a person adjudged by a court or other adjudicatory body to
be liable to the Trust or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his
or her duties (collectively, "disabling conduct"), or not to have
acted in good faith in the reasonable belief that his or her action
was in the best interest of the Trust. In the event of a settlement,
no indemnification may be provided unless there has been a
determination, as specified in the Declaration of Trust, that the
officer or trustee did not engage in disabling conduct.
Pursuant to Section 11 of the Distribution Agreement, the Trust
agrees to indemnify and hold harmless the Distributor and each of its
directors and officers and each person, if any, who controls the
Distributor within the meaning of Section 15 of the 1933 Act against
any loss, liability, claim, damages or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damages, or expense and reasonable counsel fees
incurred in connection therewith) arising by reason of any person
acquiring any shares, based upon the ground that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Trust (as from time to time amended) included an untrue statement of a
material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading
under the 1933 Act, or any other statute or the common law. However,
the Trust does not agree to indemnify the Distributor or hold it
harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Trust by or on behalf of the Distributor. In no case is the indemnity
of the Trust in favor of the Distributor or any person indemnified to
be deemed to protect the Distributor or any person against any
liability to the Issuer or its security holders to which the
Distributor or such person would otherwise be subject by reason of
willful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("FSC") is appointed sub-transfer agent, the Transfer Agent agrees to
indemnify FSC for FSC's losses, claims, damages, liabilities and
expenses (including reasonable counsel fees and expenses) (losses) to
the extent that the Transfer Agent is entitled to and receives
indemnification from the Fund for the same events. Under the Transfer
Agency Agreement, the Trust agrees to indemnify and hold the Transfer
Agent harmless against any losses, claims, damages, liabilities, or
expenses (including reasonable counsel fees and expenses) resulting
from:
(1) any claim, demand, action or suit brought by any person other
than the Trust, including by a shareholder which names the Transfer
Agent and/or the Trust as a party and is not based on and does not
result from the Transfer Agent's willful misfeasance, bad faith or
negligence or reckless disregard of duties, and arises out of or in
connection with the Transfer Agent's performance under the Transfer
Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by the Transfer Agent's willful misfeasance, bad faith
or negligence or reckless disregard of its duties) which results from
the negligence of the Trust, or from the Transfer Agent's acting upon
any instruction(s) reasonably believed by it to have been executed or
communicated by any person duly authorized by the Trust, or as a
result of the Transfer Agent's acting in reliance upon advice
reasonably believed by the Transfer Agent to have been given by
counsel for the Trust, or as a result of the Transfer Agent's acting
in reliance upon any instrument or stock certificate reasonably
believed by it to have been genuine and signed, countersigned or
executed by the proper person.
Pursuant to the agreement by which Fidelity Service Company, Inc.
("FSC") is appointed transfer agent, the Trust agrees to indemnify and
hold FSC harmless against any losses, claims, damages, liabilities or
expenses (including reasonable counsel fees and expenses) resulting
from:
(1) any claim, demand, action or suit brought by any person other
than the Trust, including by a shareholder, which names FSC and/or the
Trust as a party and is not based on and does not result from FSC's
willful misfeasance, bad faith or negligence or reckless disregard of
duties, and arises out of or in connection with FSC's performance
under the Transfer Agency Agreement; or
(2) any claim, demand, action or suit (except to the extent
contributed to by FSC's willful misfeasance, bad faith or negligence
or reckless disregard of its duties) which results from the negligence
of the Trust, or from FSC's acting upon any instruction(s) reasonably
believed by it to have been executed or communicated by any person
duly authorized by the Trust, or as a result of FSC's acting in
reliance upon advice reasonably believed by FSC to have been given by
counsel for the Trust, or as a result of FSC's acting in reliance upon
any instrument or stock certificate reasonably believed by it to have
been genuine and signed, countersigned or executed by the proper
person.
Item 26. Business and Other Connections of Investment Adviser
(1) FIDELITY MANAGEMENT & RESEARCH COMPANY (FMR)
82 Devonshire Street, Boston, MA 02109
FMR serves as investment adviser to a number of other investment
companies. The directors and officers of the Adviser have held,
during the past two fiscal years, the following positions of a
substantial nature.

<TABLE>
<CAPTION>
<S> <C>
Edward C. Johnson 3d Chairman of the Board and Director of FMR; President
and Chief Executive Officer of FMR Corp.; Chairman
of the Board and Director of FMR Corp., Fidelity
Investments Money Management, Inc. (FIMM), Fidelity
Management & Research (U.K.) Inc. (FMR U.K.), and
Fidelity Management & Research (Far East) Inc. (FMR
Far East); Chairman of the Executive Committee of
FMR; Director of Fidelity Investments Japan Limited
(FIJ); President and Trustee of funds advised by FMR.

Robert C. Pozen President and Director of FMR; Senior Vice President
and Trustee of funds advised by FMR; President and
Director of FIMM, FMR U.K., and FMR Far East;
Previously, General Counsel, Managing Director, and
Senior Vice President of FMR Corp.

Peter S. Lynch Vice Chairman of the Board and Director of FMR.

John H. Carlson Vice President of FMR and of funds advised by FMR.

Dwight D. Churchill Senior Vice President of FMR and Vice President of
Bond Funds advised by FMR; Vice President of FIMM.

Brian Clancy Vice President of FMR and Treasurer of FMR, FIMM,
FMR U.K., and FMR Far East.

Barry Coffman Vice President of FMR.

Arieh Coll Vice President of FMR.

Frederic G. Corneel Tax Counsel of FMR.

Stephen G. Manning Assistant Treasurer of FMR, FIMM, FMR U.K., FMR
Far East; Vice President and Treasurer of FMR Corp.;
Treasurer of Strategic Advisers, Inc.

William Danoff Senior Vice President of FMR and Vice President of a
fund advised by FMR.

Scott E. DeSano Vice President of FMR.

Penelope Dobkin Vice President of FMR and of a fund advised by FMR.

Walter C. Donovan Vice President of FMR.

Bettina Doulton Vice President of FMR and of funds advised by FMR.

Margaret L. Eagle Vice President of FMR and of funds advised by FMR.

William R. Ebsworth Vice President of FMR.

Richard B. Fentin Senior Vice President of FMR and Vice President of a
fund advised by FMR.

Gregory Fraser Vice President of FMR and of a fund advised by FMR.

Jay Freedman Assistant Clerk of FMR; Clerk of FMR Corp., FMR
U.K., FMR Far East, and Strategic Advisers, Inc.;
Secretary of FIMM; Associate General Counsel FMR
Corp.

David L. Glancy Vice President of FMR and of a fund advised by FMR.

Barry A. Greenfield Vice President of FMR and of a fund advised by FMR.

Boyce I. Greer Senior Vice President of FMR and Vice President of
Money Market Funds advised by FMR; Vice President
of FIMM.

Bart A. Grenier Senior Vice President of FMR; Vice President of
High-Income Funds advised by FMR.

Robert Haber Vice President of FMR.

Richard C. Habermann Senior Vice President of FMR; Vice President of funds
advised by FMR.

Fred L. Henning Jr. Senior Vice President of FMR and Vice President of
Fixed-Income Funds advised by FMR.

Bruce T. Herring Vice President of FMR.

Robert F. Hill Vice President of FMR; Director of Technical Research.

Abigail P. Johnson Senior Vice President of FMR and Vice President of
funds advised by FMR; Director of FMR Corp.;
Associate Director and Senior Vice President of Equity
Funds advised by FMR.

David B. Jones Vice President of FMR.

Steven Kaye Vice President of FMR and of a fund advised by FMR.

Francis V. Knox Vice President of FMR; Compliance Officer of FMR
U.K.

Harris Leviton Vice President of FMR and of a fund advised by FMR.

Bradford E. Lewis Vice President of FMR and of funds advised by FMR.

Richard R. Mace Jr. Vice President of FMR and of funds advised by FMR.

Charles A. Mangum Vice President of FMR and of a fund advised by FMR.

Kevin McCarey Vice President of FMR and of a fund advised by FMR.

Neal P. Miller Vice President of FMR.

Jacques Perold Vice President of FMR.

Alan Radlo Vice President of FMR.

Eric D. Roiter Senior Vice President and General Counsel of FMR and
Secretary of funds advised by FMR.

Lee H. Sandwen Vice President of FMR.

Patricia A. Satterthwaite Vice President of FMR and of a fund advised by FMR.

Fergus Shiel Vice President of FMR.

Richard A. Silver Vice President of FMR.

Carol A. Smith-Fachetti Vice President of FMR.

Steven J. Snider Vice President of FMR and of funds advised by FMR.

Thomas T. Soviero Vice President of FMR and of a fund advised by FMR.

Richard Spillane Senior Vice President of FMR; Associate Director and
Senior Vice President of Equity Funds advised by FMR;
Previously, Senior Vice President and Director of
Operations and Compliance of FMR U.K.

Thomas M. Sprague Vice President of FMR and of funds advised by FMR.

Robert E. Stansky Senior Vice President of FMR and Vice President of a
fund advised by FMR.

Scott D. Stewart Vice President of FMR.

Thomas Sweeney Vice President of FMR.

Beth F. Terrana Senior Vice President of FMR and Vice President of a
fund advised by FMR.

Yoko Tilley Vice President of FMR.

Joel C. Tillinghast Vice President of FMR and of a fund advised by FMR.

Robert Tuckett Vice President of FMR.

Jennifer Uhrig Vice President of FMR and of funds advised by FMR.

George A. Vanderheiden Senior Vice President of FMR and Vice President of
funds advised by FMR; Director of FMR Corp.

Steven S. Wymer Vice President of FMR and of a fund advised by FMR.

</TABLE>

(2) FIDELITY MANAGEMENT & RESEARCH (U.K.) INC. (FMR U.K.)
25 Lovat Lane, London, EC3R 8LL, England
FMR U.K. provides investment advisory services to Fidelity Management
& Research Company and Fidelity Management Trust Company. The
directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR U.K.,
FMR, FMR Corp., FIMM, and FMR Far East; President
and Chief Executive Officer of FMR Corp.; Chairman
of the Executive Committee of FMR; Director of
Fidelity Investments Japan Limited (FIJ); President and
Trustee of funds advised by FMR.

Brian Clancy Treasurer of FMR U.K., FMR Far East, FMR, and
FIMM and Vice President of FMR.

Stephen G. Manning Assistant Treasurer of FMR U.K., FMR, FMR Far East,
and FIMM; Vice President and Treasurer of FMR
Corp.; Treasurer of Strategic Advisers, Inc.

Francis V. Knox Compliance Officer of FMR U.K.; Vice President of
FMR.

Jay Freedman Clerk of FMR U.K., FMR Far East, FMR Corp. and
Strategic Advisers, Inc.; Assistant Clerk of FMR;
Secretary of FIMM; Associate General Counsel FMR
Corp.

Sarah H. Zenoble Senior Vice President and Director of Operations and
Compliance.

(3) FIDELITY MANAGEMENT & RESEARCH (Far East) INC. (FMR Far East)
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan
FMR Far East provides investment advisory services to Fidelity
Management & Research Company and Fidelity Management Trust Company.
The directors and officers of the Sub-Adviser have held the following
positions of a substantial nature during the past two fiscal years.
Edward C. Johnson 3d Chairman of the Board and Director of FMR Far
East, FMR, FMR Corp., FIMM, and FMR U.K.;
Chairman of the Executive Committee of FMR;
President and Chief Executive Officer of FMR
Corp.; Director of Fidelity Investments Japan
Limited (FIJ); President and Trustee of funds
advised by FMR.

Robert C. Pozen President and Director of FMR; Senior Vice
President and Trustee of funds advised by FMR;
President and Director of FIMM, FMR U.K., and
FMR Far East; Previously, General Counsel,
Managing Director, and Senior Vice President of
FMR Corp.

Robert H. Auld Senior Vice President of FMR Far East.

Brian Clancy Treasurer of FMR Far East, FMR U.K., FMR,
and FIMM and Vice President of FMR.

Jay Freedman Clerk of FMR Far East, FMR U.K., FMR Corp.
and Strategic Advisers, Inc.; Assistant Clerk of
FMR; Secretary of FIMM; Associate General
Counsel FMR Corp.

Stephen G. Manning Assistant Treasurer of FMR Far East, FMR,
FMR U.K., and FIMM; Vice President and
Treasurer of FMR Corp.; Treasurer of Strategic
Advisers, Inc.

Billy Wilder Vice President of FMR Far East; President and
Representative Director of Fidelity Investments
Japan Limited.

(4) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (FIIA)
Pembroke Hall, 42 Crow Lane, Pembroke HM19, Bermuda
The directors and officers of FIIA have held, during the past two
fiscal years, the following positions of a substantial nature.
Robert H. Auld Director of FIIA and Senior Vice President of
Fidelity Management & Research (Far East) Inc.
(FMR Far East).

Anthony J. Bolton Director of FIIA, Fidelity International
Investment Advisors (U.K.) Limited
(FIIA(U.K.)L), Fidelity Investment Management
Limited (FIML (U.K.)), Fidelity Investment
Services Limited (FISL (U.K.)), and Fidelity
Investments International (FII).

Brett P. Goodin Director, Vice President, Secretary and Chief
Legal Officer of many Fidelity International
Limited (FIL) companies.

Simon Haslam Director of FIIA, FISL (U.K.), and FII;
Previously, Chief Financial Officer of FIL;
Company Secretary of Fidelity Investments
Group of Companies (U.K.).

K.C. Lee Director of FIIA and Fidelity Investments
Management (Hong Kong) Limited.

Peter Phillips Director of FIIA and Fidelity Investments
Management (Hong Kong) Limited.

Terrence V. Richards Assistant Secretary of FIIA.

David J. Saul President and Director of FIIA; Previously,
Director of Fidelity International Limited; and
numerous companies and funds in the FIL group.

(5) FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
(FIIA(U.K.)L)
26 Lovat Lane, London, EC3R 8LL, England
The directors and officers of FIIA(U.K.)L have held, during the past
two fiscal years, the following positions of a substantial nature.
Anthony J. Bolton Director of FIIA(U.K.)L, Fidelity International
Investment Advisors (FIIA), Fidelity Investment
Management Limited (FIML (U.K.)), Fidelity
Investment Services Limited (FISL (U.K.)), and
Fidelity Investments International (FII).

Pamela Edwards Director of FIIA(U.K.)L, FISL (U.K.), and FII;
Previously, Director of Legal Services for
Europe.

Simon Haslam Director of FIIA, FISL (U.K.), and FII; Chief
Financial Officer of FIL (U.K.); Previously,
Company Secretary of Fidelity Investments
Group of Companies (U.K.).

Sally Walden Director of FIIA(U.K.)L and FISL (U.K.).

Sally Hinchliffe Assistant Company Secretary of Fidelity
International Group of Companies (U.K.).

Emma Barratt Assistant Company Secretary of Fidelity
International Group of Companies (U.K.).

(6) FIDELITY INVESTMENTS JAPAN LIMITED (FIJ)
Shiroyama JT Mori Bldg., 4-3-1 Toranomon Minato-ku, Tokyo 105,
Japan
The directors and officers of FIJ have held, during the past two
fiscal years, the following positions of a substantial nature.
Edward C. Johnson 3d Director of FIJ; Chairman of the Board and
Director of FMR Far East, FMR, FMR Corp.,
FMR U.K., and FIMM; Chairman of the
Executive Committee of FMR; President and
Chief Executive Officer of FMR Corp.;
President and Trustee of funds advised by FMR.

Yasuo Kuramoto Vice Chairman, Representative Director of FIJ.

Billy Wilder President and Representative Director of FIJ;
Vice President of FMR Far East.

Simon Fraser Director and Chief Investment Officer of FIJ.

Simon Haslam Director of FIJ; Chief Financial Officer of
Fidelity International Limited.

Noboru Kawai Director and General Manager of
Administration of FIJ.

Tetsuzo Nishimura Director and Vice President of Broker
Distribution of FIJ.

Hiroshi Yamashita Managing Director and Portfolio Manager of
FIJ.

Item 27. Principal Underwriters
(a) Fidelity Distributors Corporation (FDC) acts as distributor for
all funds advised by FMR or an affiliate.
(b)

Name and Principal Positions and Offices Positions and Offices

Business Address* with Underwriter with Fund

Edward C. Johnson 3d Director Trustee and President

Michael Mlinac Director None

James Curvey Director None

Martha B. Willis President None

Eric D. Roiter Senior Vice President Secretary

Caron Ketchum Treasurer and Controller None

Gary Greenstein Assistant Treasurer None

Jay Freedman Assistant Clerk None

Linda Holland Compliance Officer None

* 82 Devonshire Street, Boston, MA
(c) Not applicable.

Item 28. Location of Accounts and Records
All accounts, books, and other documents required to be maintained by
Section 31a of the 1940 Act and the Rules promulgated thereunder are
maintained by Fidelity Management & Research Company or Fidelity
Service Company, Inc. 82 Devonshire Street, Boston, MA 02109, or the
funds' respective custodian, The Chase Manhattan Bank, 1 Chase
Manhattan Plaza, New York, N.Y., UMB Bank, n.a., 1010 Grand Avenue,
Kansas City, MO and The Bank of New York, 110 Washington Street, New
York, N.Y.
Item 29. Management Services
Not applicable.
Item 30. Undertakings
(a) The Registrant undertakes for Fidelity Strategic Income Fund: (1)
to call a meeting of shareholders for the purpose of voting upon the
questions of removal of a trustee or trustees, when requested to do so
by record holders of not less than 10% of its outstanding shares; and
(2) to assist in communications with other shareholders pursuant to
Section 16(c)(1) and (2), whenever shareholders meeting the
qualifications set forth in Section 16(c) seek the opportunity to
communicate with other shareholders with a view toward requesting a
meeting.

SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment No. 60 to the Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in
the City of Boston, and Commonwealth of Massachusetts, on the 17th day
of December 1998.

FIDELITY SCHOOL STREET TRUST
By /s/Edward C. Johnson 3d (dagger)
Edward C. Johnson 3d, President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
<S> <C> <C>
(Signature) (Title) (Date)
/s/Edward C. Johnson 3d (dagger) President and Trustee December 17, 1998

Edward C. Johnson 3d (Principal Executive Officer)

/s/Richard A. Silver Treasurer December 17, 1998

Richard A. Silver

/s/Robert C. Pozen Trustee December 17, 1998

Robert C. Pozen

/s/Ralph F. Cox * Trustee December 17, 1998

Ralph F. Cox

/s/Phyllis Burke Davis * Trustee December 17, 1998

Phyllis Burke Davis

/s/Robert M. Gates ** Trustee December 17, 1998

Robert M. Gates

/s/E. Bradley Jones * Trustee December 17, 1998

E. Bradley Jones

/s/Donald J. Kirk * Trustee December 17, 1998

Donald J. Kirk

/s/Peter S. Lynch * Trustee December 17, 1998

Peter S. Lynch

/s/Marvin L. Mann * Trustee December 17, 1998

Marvin L. Mann

/s/William O. McCoy * Trustee December 17, 1998

William O. McCoy

/s/Gerald C. McDonough * Trustee December 17, 1998

Gerald C. McDonough

/s/Thomas R. Williams * Trustee December 17, 1998

Thomas R. Williams

</TABLE>

(dagger) Signatures affixed by Robert C. Pozen pursuant to a power of
attorney dated July 17, 1997 and filed herewith.
* Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated December 19, 1996 and filed herewith.
** Signature affixed by Robert C. Hacker pursuant to a power of
attorney dated March 6, 1997 and filed herewith.
POWER OF ATTORNEY
I, the undersigned President and Director, Trustee, or General
Partner, as the case may be, of the following investment companies:

<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Hereford Street Trust
Fidelity Advisor Series I Fidelity Income Fund
Fidelity Advisor Series II Fidelity Institutional Cash Portfolios
Fidelity Advisor Series III Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series IV Fidelity Investment Trust
Fidelity Advisor Series V Fidelity Magellan Fund
Fidelity Advisor Series VI Fidelity Massachusetts Municipal Trust
Fidelity Advisor Series VII Fidelity Money Market Trust
Fidelity Advisor Series VIII Fidelity Mt. Vernon Street Trust
Fidelity Beacon Street Trust Fidelity Municipal Trust
Fidelity Boston Street Trust Fidelity Municipal Trust II
Fidelity California Municipal Trust Fidelity New York Municipal Trust
Fidelity California Municipal Trust II Fidelity New York Municipal Trust II
Fidelity Capital Trust Fidelity Phillips Street Trust
Fidelity Charles Street Trust Fidelity Puritan Trust
Fidelity Commonwealth Trust Fidelity Revere Street Trust
Fidelity Concord Street Trust Fidelity School Street Trust
Fidelity Congress Street Fund Fidelity Securities Fund
Fidelity Contrafund Fidelity Select Portfolios
Fidelity Corporate Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Court Street Trust Fidelity Summer Street Trust
Fidelity Court Street Trust II Fidelity Trend Fund
Fidelity Covington Trust Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Daily Money Fund Fidelity U.S. Investments-Government Securities
Fidelity Destiny Portfolios Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity Union Street Trust
Portfolio, L.P. Fidelity Union Street Trust II
Fidelity Devonshire Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Exchange Fund Newbury Street Trust
Fidelity Financial Trust Variable Insurance Products Fund
Fidelity Fixed-Income Trust Variable Insurance Products Fund II
Fidelity Government Securities Fund Variable Insurance Products Fund III
Fidelity Hastings Street Trust

</TABLE>

in addition to any other investment company for which Fidelity
Management & Research Company or an affiliate acts as investment
adviser and for which the undersigned individual serves as President
and Director, Trustee, or General Partner (collectively, the "Funds"),
hereby constitute and appoint Robert C. Pozen my true and lawful
attorney-in-fact, with full power of substitution, and with full power
to him to sign for me and in my name in the appropriate capacity, all
Registration Statements of the Funds on Form N-1A, Form N-8A, or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A, Form N-8A, or any successor thereto, any
Registration Statements on Form N-14, and any supplements or other
instruments in connection therewith, and generally to do all such
things in my name and on my behalf in connection therewith as said
attorney-in-fact deems necessary or appropriate, to comply with the
provisions of the Securities Act of 1933 and the Investment Company
Act of 1940, and all related requirements of the Securities and
Exchange Commission. I hereby ratify and confirm all that said
attorney-in-fact or his substitutes may do or cause to be done by
virtue hereof. This power of attorney is effective for all documents
filed on or after August 1, 1997.
WITNESS my hand on the date set forth below.
/s/Edward C. Johnson 3d_ July 17, 1997

Edward C. Johnson 3d

POWER OF ATTORNEY
We, the undersigned Directors, Trustees, or General Partners, as the
case may be, of the following investment companies:

<TABLE>
<CAPTION>
<S> <C>
Fidelity Aberdeen Street Trust Fidelity Government Securities Fund
Fidelity Advisor Annuity Fund Fidelity Hastings Street Trust
Fidelity Advisor Series I Fidelity Hereford Street Trust
Fidelity Advisor Series II Fidelity Income Fund
Fidelity Advisor Series III Fidelity Institutional Cash Portfolios
Fidelity Advisor Series IV Fidelity Institutional Tax-Exempt Cash Portfolios
Fidelity Advisor Series V Fidelity Institutional Trust
Fidelity Advisor Series VI Fidelity Investment Trust
Fidelity Advisor Series VII Fidelity Magellan Fund
Fidelity Advisor Series VIII Fidelity Massachusetts Municipal Trust
Fidelity Beacon Street Trust Fidelity Money Market Trust
Fidelity Boston Street Trust Fidelity Mt. Vernon Street Trust
Fidelity California Municipal Trust Fidelity Municipal Trust
Fidelity California Municipal Trust II Fidelity Municipal Trust II
Fidelity Capital Trust Fidelity New York Municipal Trust
Fidelity Charles Street Trust Fidelity New York Municipal Trust II
Fidelity Commonwealth Trust Fidelity Phillips Street Trust
Fidelity Congress Street Fund Fidelity Puritan Trust
Fidelity Contrafund Fidelity Revere Street Trust
Fidelity Corporate Trust Fidelity School Street Trust
Fidelity Court Street Trust Fidelity Securities Fund
Fidelity Court Street Trust II Fidelity Select Portfolios
Fidelity Covington Trust Fidelity Sterling Performance Portfolio, L.P.
Fidelity Daily Money Fund Fidelity Summer Street Trust
Fidelity Daily Tax-Exempt Fund Fidelity Trend Fund
Fidelity Destiny Portfolios Fidelity U.S. Investments-Bond Fund, L.P.
Fidelity Deutsche Mark Performance Fidelity U.S. Investments-Government Securities
Portfolio, L.P. Fund, L.P.
Fidelity Devonshire Trust Fidelity Union Street Trust
Fidelity Exchange Fund Fidelity Union Street Trust II
Fidelity Financial Trust Fidelity Yen Performance Portfolio, L.P.
Fidelity Fixed-Income Trust Variable Insurance Products Fund
Variable Insurance Products Fund II

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Directors, Trustees, or
General Partners (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, our true and lawful attorneys-in-fact,
with full power of substitution, and with full power to each of them,
to sign for us and in our names in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in our names
and behalf in connection therewith as said attorneys-in-fact deems
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after January
1, 1997.
WITNESS our hands on this nineteenth day of December, 1996.

/s/Edward C. Johnson 3d___________ /s/Peter S. Lynch________________

Edward C. Johnson 3d Peter S. Lynch

/s/J. Gary Burkhead_______________ /s/William O. McCoy______________

J. Gary Burkhead William O. McCoy

/s/Ralph F. Cox __________________ /s/Gerald C. McDonough___________

Ralph F. Cox Gerald C. McDonough

/s/Phyllis Burke Davis_____________ /s/Marvin L. Mann________________

Phyllis Burke Davis Marvin L. Mann

/s/E. Bradley Jones________________ /s/Thomas R. Williams ____________

E. Bradley Jones Thomas R. Williams

/s/Donald J. Kirk __________________

Donald J. Kirk

POWER OF ATTORNEY
I, the undersigned Director, Trustee, or General Partner, as the case
may be, of the following investment companies:

</TABLE>

plus any other investment company for which Fidelity Management &
Research Company or an affiliate acts as investment adviser and for
which the undersigned individual serves as Director, Trustee, or
General Partner (collectively, the "Funds"), hereby constitute and
appoint Arthur J. Brown, Arthur C. Delibert, Stephanie A. Djinis,
Robert C. Hacker, Thomas M. Leahey, Richard M. Phillips, and Dana L.
Platt, each of them singly, my true and lawful attorneys-in-fact, with
full power of substitution, and with full power to each of them, to
sign for me and in my name in the appropriate capacities, all
Registration Statements of the Funds on Form N-1A, Form N-8A or any
successor thereto, any and all subsequent Amendments, Pre-Effective
Amendments, or Post-Effective Amendments to said Registration
Statements on Form N-1A or any successor thereto, any Registration
Statements on Form N-14, and any supplements or other instruments in
connection therewith, and generally to do all such things in my name
and behalf in connection therewith as said attorneys-in-fact deem
necessary or appropriate, to comply with the provisions of the
Securities Act of 1933 and the Investment Company Act of 1940, and all
related requirements of the Securities and Exchange Commission. I
hereby ratify and confirm all that said attorneys-in-fact or their
substitutes may do or cause to be done by virtue hereof. This power
of attorney is effective for all documents filed on or after March 1,
1997.
WITNESS my hand on the date set forth below.
/s/Robert M. Gates March 6, 1997

Robert M. Gates

Exhibit d(4)
MANAGEMENT CONTRACT
between
FIDELITY SCHOOL STREET TRUST:
FIDELITY STRATEGIC INCOME FUND
and
FIDELITY MANAGEMENT & RESEARCH COMPANY
AGREEMENT made this 16th day of April 1998, by and between Fidelity
School Street Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Fund"), on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio"), and Fidelity Management &
Research Company, a Massachusetts corporation (hereinafter called the
"Adviser") as set forth in its entirety below.
1. (a) Investment Advisory Services. The Adviser undertakes to act
as investment adviser of the Portfolio and shall, subject to the
supervision of the Fund's Board of Trustees, direct the investments of
the Portfolio in accordance with the investment objective, policies
and limitations as provided in the Portfolio's Prospectus or other
governing instruments, as amended from time to time, the Investment
Company Act of 1940 and rules thereunder, as amended from time to time
(the "1940 Act"), and such other limitations as the Portfolio may
impose by notice in writing to the Adviser. The Adviser shall also
furnish for the use of the Portfolio office space and all necessary
office facilities, equipment and personnel for servicing the
investments of the Portfolio; and shall pay the salaries and fees of
all officers of the Fund, of all Trustees of the Fund who are
"interested persons" of the Fund or of the Adviser and of all
personnel of the Fund or the Adviser performing services relating to
research, statistical and investment activities. The Adviser is
authorized, in its discretion and without prior consultation with the
Portfolio, to buy, sell, lend and otherwise trade in any stocks, bonds
and other securities and investment instruments on behalf of the
Portfolio. The investment policies and all other actions of the
Portfolio are and shall at all times be subject to the control and
direction of the Fund's Board of Trustees.
(b) Management Services. The Adviser shall perform (or arrange for
the performance by its affiliates of) the management and
administrative services necessary for the operation of the Fund. The
Adviser shall, subject to the supervision of the Board of Trustees,
perform various services for the Portfolio, including but not limited
to: (i) providing the Portfolio with office space, equipment and
facilities (which may be its own) for maintaining its organization;
(ii) on behalf of the Portfolio, supervising relations with, and
monitoring the performance of, custodians, depositories, transfer and
pricing agents, accountants, attorneys, underwriters, brokers and
dealers, insurers and other persons in any capacity deemed to be
necessary or desirable; (iii) preparing all general shareholder
communications, including shareholder reports; (iv) conducting
shareholder relations; (v) maintaining the Fund's existence and its
records; (vi) during such times as shares are publicly offered,
maintaining the registration and qualification of the Portfolio's
shares under federal and state law; and (vii) investigating the
development of and developing and implementing, if appropriate,
management and shareholder services designed to enhance the value or
convenience of the Portfolio as an investment vehicle.
The Adviser shall also furnish such reports, evaluations, information
or analyses to the Fund as the Fund's Board of Trustees may request
from time to time or as the Adviser may deem to be desirable. The
Adviser shall make recommendations to the Fund's Board of Trustees
with respect to Fund policies, and shall carry out such policies as
are adopted by the Trustees. The Adviser shall, subject to review by
the Board of Trustees, furnish such other services as the Adviser
shall from time to time determine to be necessary or useful to perform
its obligations under this Contract.
(c) The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Adviser, which may include brokers or dealers
affiliated with the Adviser. The Adviser shall use its best efforts
to seek to execute portfolio transactions at prices which are
advantageous to the Portfolio and at commission rates which are
reasonable in relation to the benefits received. In selecting brokers
or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of 1934) to the Portfolio and/or the other
accounts over which the Adviser or its affiliates exercise investment
discretion. The Adviser is authorized to pay a broker or dealer who
provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Adviser determines in
good faith that such amount of commission is reasonable in relation to
the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Adviser and its affiliates have with respect to accounts over which
they exercise investment discretion. The Trustees of the Fund shall
periodically review the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
The Adviser shall, in acting hereunder, be an independent contractor.
The Adviser shall not be an agent of the Portfolio.
2. It is understood that the Trustees, officers and shareholders of
the Fund are or may be or become interested in the Adviser as
directors, officers or otherwise and that directors, officers and
stockholders of the Adviser are or may be or become similarly
interested in the Fund, and that the Adviser may be or become
interested in the Fund as a shareholder or otherwise.
3. The Adviser will be compensated on the following basis for the
services and facilities to be furnished hereunder. The Adviser shall
receive a monthly management fee, payable monthly as soon as
practicable after the last day of each month, composed of a Group Fee
and an Individual Fund Fee.
(a) Group Fee Rate. The Group Fee Rate shall be based upon the
monthly average of the net assets of the registered investment
companies having Advisory and Service or Management Contracts with the
Adviser (computed in the manner set forth in the fund's Declaration of
Trust or other organizational document) determined as of the close of
business on each business day throughout the month. The Group Fee
Rate shall be determined on a cumulative basis pursuant to the
following schedule:
Average Net Assets Annualized Fee Rate (for each level)

0 - $ 3 billion .3700%

3 - 6 .3400

6 - 9 .3100

9 - 12 .2800

12 - 15 .2500

15 - 18 .2200

18 - 21 .2000

21 - 24 .1900

24 - 30 .1800

30 - 36 .1750

36 - 42 .1700

42 - 48 .1650

48 - 66 .1600

66 - 84 .1550

84 - 120 .1500

120 - 156 .1450

156 - 192 .1400

192 - 228 .1350

228 - 264 .1300

264 - 300 .1275

300 - 336 .1250

336 - 372 .1225

372 - 408 .1200

408 - 444 .1175

444 - 480 .1150

480 - 516 .1125

Over - 516 .1100

(b) Individual Fund Fee Rate. The Individual Fund Fee Rate shall be
0.45%.
The sum of the Group Fee Rate, calculated as described above to the
nearest millionth, and the Individual Fund Fee Rate shall constitute
the Annual Management Fee Rate. One-twelfth of the Annual Management
Fee Rate shall be applied to the average of the net assets of the
Portfolio (computed in the manner set forth in the Fund's Declaration
of Trust or other organizational document) determined as of the close
of business on each business day throughout the month.
(c) In case of termination of this Contract during any month, the fee
for that month shall be reduced proportionately on the basis of the
number of business days during which it is in effect, and the fee
computed upon the average net assets for the business days it is so in
effect for that month.

4. It is understood that the Portfolio will pay all its expenses,
which expenses payable by the Portfolio shall include, without
limitation, (i) interest and taxes; (ii) brokerage commissions and
other costs in connection with the purchase or sale of securities and
other investment instruments; (iii) fees and expenses of the Fund's
Trustees other than those who are "interested persons" of the Fund or
the Adviser; (iv) legal and audit expenses; (v) custodian, registrar
and transfer agent fees and expenses; (vi) fees and expenses related
to the registration and qualification of the Fund and the Portfolio's
shares for distribution under state and federal securities laws; (vii)
expenses of printing and mailing reports and notices and proxy
material to shareholders of the Portfolio; (viii) all other expenses
incidental to holding meetings of the Portfolio's shareholders,
including proxy solicitations therefor; (ix) a pro rata share, based
on relative net assets of the Portfolio and other registered
investment companies having Advisory and Service or Management
Contracts with the Adviser, of 50% of insurance premiums for fidelity
and other coverage; (x) its proportionate share of association
membership dues; (xi) expenses of typesetting for printing
Prospectuses and Statements of Additional Information and supplements
thereto; (xii) expenses of printing and mailing Prospectuses and
Statements of Additional Information and supplements thereto sent to
existing shareholders; and (xiii) such non-recurring or extraordinary
expenses as may arise, including those relating to actions, suits or
proceedings to which the Portfolio is a party and the legal obligation
which the Portfolio may have to indemnify the Fund's Trustees and
officers with respect thereto.
5. The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and
engage in other activities, provided, however, that such other
services and activities do not, during the term of this Contract,
interfere, in a material manner, with the Adviser's ability to meet
all of its obligations with respect to rendering services to the
Portfolio hereunder. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject
to liability to the Portfolio or to any shareholder of the Portfolio
for any act or omission in the course of, or connected with, rendering
services hereunder or for any losses that may be sustained in the
purchase, holding or sale of any security or other investment
instrument.
6. (a) Subject to prior termination as provided in sub-paragraph (d)
of this paragraph 6, this Contract shall continue in force until June
30, 1998 and indefinitely thereafter, but only so long as the
continuance after such date shall be specifically approved at least
annually by vote of the Trustees of the Fund or by vote of a majority
of the outstanding voting securities of the Portfolio.
(b) This Contract may be modified by mutual consent subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.
(c) In addition to the requirements of sub-paragraphs (a) and (b) of
this paragraph 6, the terms of any continuance or modification of this
Contract must have been approved by the vote of a majority of those
Trustees of the Fund who are not parties to the Contract or interested
persons of any such party, cast in person at a meeting called for the
purpose of voting on such approval.
(d) Either party hereto may, at any time on sixty (60) days' prior
written notice to the other, terminate this Contract, without payment
of any penalty, by action of its Trustees or Board of Directors, as
the case may be, or with respect to the Portfolio by vote of a
majority of the outstanding voting securities of the Portfolio. This
Contract shall terminate automatically in the event of its assignment.
7. The Adviser is hereby expressly put on notice of the limitation of
shareholder liability as set forth in the Fund's Declaration of Trust
or other organizational document and agrees that the obligations
assumed by the Fund pursuant to this Contract shall be limited in all
cases to the Portfolio and its assets, and the Adviser shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio or any other Portfolios of the Fund. In
addition, the Adviser shall not seek satisfaction of any such
obligations from the Trustees or any individual Trustee. The Adviser
understands that the rights and obligations of any Portfolio under the
Declaration of Trust or other organizational document are separate and
distinct from those of any and all other Portfolios.
8. This Agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
The terms "vote of a majority of the outstanding voting securities,"
"assignment," and "interested persons," when used herein, shall have
the respective meanings specified in the 1940 Act, as now in effect or
as hereafter amended, and subject to such orders as may be granted by
the Commission.
IN WITNESS WHEREOF the parties have caused this instrument to be
signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.

FIDELITY SCHOOL STREET TRUST
on behalf of Fidelity Strategic Income Fund
By /s/Robert C. Pozen
Robert C. Pozen
Senior Vice President
FIDELITY MANAGEMENT & RESEARCH COMPANY
By /s/Robert C. Pozen
Robert C. Pozen
President

EXHIBIT D(5)

FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY (FAR EAST) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY INTERNATIONAL BOND
FUND
AGREEMENT made this ___ day of _____, 1998, by Fidelity Management &
Research Company, a Massachusetts corporation with principal offices
at 82 Devonshire Street, Boston, Massachusetts (hereinafter called the
"Advisor"); Fidelity Management & Research Company (Far East) Inc.
(hereinafter called the "Sub-Advisor"); and Fidelity School Street
Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity International Bond Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued in and issuers located
in such countries, and providing investment advisory services in
connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor, at
its own expense, shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor or Sub-Advisor. The Sub-Advisor
shall use its best efforts to seek to execute portfolio transactions
at prices which are advantageous to the Portfolio and at commission
rates which are reasonable in relation to the benefits received. In
selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and to
any other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker
or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the
Sub-Advisor determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities which the Sub-Advisor has with respect to accounts
over which it exercises investment discretion. The Trustees of the
Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 105% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until ______,
1998 and indefinitely thereafter, but only so long as the continuance
after such period shall be specifically approved at least annually by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Advisor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Advisor seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(6)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY (U.K.) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY INTERNATIONAL BOND
FUND
AGREEMENT made this ____ day of ____, 1998, by Fidelity Management &
Research Company, a Massachusetts corporation with principal offices
at 82 Devonshire Street, Boston, Massachusetts (hereinafter called the
"Advisor"); Fidelity Management & Research Company (U.K.) Inc.
(hereinafter called the "Sub-Advisor"); and Fidelity School Street
Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity International Bond Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued in and issuers located
in such countries, and providing investment advisory services in
connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor, at
its own expense, shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor or Sub-Advisor. The Sub-Advisor
shall use its best efforts to seek to execute portfolio transactions
at prices which are advantageous to the Portfolio and at commission
rates which are reasonable in relation to the benefits received. In
selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and any
other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker
or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the
Sub-Advisor determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities which the Sub-Advisor has with respect to accounts
over which it exercises investment discretion. The Trustees of the
Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 110% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers or reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1)
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until
_______, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Advisor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Advisor seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(7)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY INVESTMENT TRUST ON BEHALF OF FIDELITY INTERNATIONAL BOND
FUND
AGREEMENT made this ____ day of ____, 1998, by Fidelity Management &
Research Company, a Massachusetts corporation with principal offices
at 82 Devonshire Street, Boston, Massachusetts (hereinafter called the
"Advisor"); Fidelity International Investment Advisors, a Bermuda
company with principal offices at Pembroke Hall, Pembroke, Bermuda
(hereinafter called the "Sub-Advisor"); and Fidelity School Street
Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity International Bond Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor
acts as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued in and issuers located
in such countries, and providing investment advisory services in
connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor, at
its own expense, shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor or Sub-Advisor. The Sub-Advisor
shall use its best efforts to seek to execute portfolio transactions
at prices which are advantageous to the Portfolio and at commission
rates which are reasonable in relation to the benefits received. In
selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and to
any other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker
or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the
Sub-Advisor determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities which the Sub-Advisor has with respect to accounts
over which it exercises investment discretion. The Trustees of the
Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until
_______, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Advisor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Advisor seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(8)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
AND
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AGREEMENT made this ___ day of ____, 1998, by Fidelity International
Investment Advisors (U.K.) Limited, 27-28 Lovat Lane, London, England
(hereinafter called the "U.K. Sub-Advisor") and Fidelity International
Investment Advisors, a Bermuda company with principal offices at
Pembroke Hall, Pembroke, Bermuda (hereinafter called the
"Sub-Advisor").
WHEREAS Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Advisor"), has entered into a
Management Contract with Fidelity School Street Trust, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Trust"), on behalf of
Fidelity International Bond Fund (hereinafter called the "Portfolio"),
pursuant to which the Advisor acts as investment advisor to the
Portfolio, and
WHEREAS, the Sub-Advisor has entered into a Sub-Advisory Agreement
with the Advisor (the "Sub-Advisory Agreement") pursuant to which the
Sub-Advisor, directly or through certain of its subsidiaries or other
affiliated persons, shall provide investment advice or investment
management and order execution services to the Portfolio, and
WHEREAS the U.K. Sub-Advisor has personnel in Western Europe and has
been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued and issuers located
outside of North America, principally in the U.K. and Europe.
NOW THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Sub-Advisor and the U.K.
Sub-Advisor agree as follows:
1. Duties: The Sub-Advisor may, in its discretion, appoint the U.K.
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio, in
connection with the Sub-Advisor's duties under the Sub-Advisory
Agreement. The services and the portion of the investments of the
Portfolio advised or managed by the U.K. Sub-Advisor shall be as
agreed upon from time to time by the Sub-Advisor and the U.K.
Sub-Advisor. The U.K. Sub-Advisor shall pay the salaries and fees of
all personnel of the U.K. Sub-Advisor performing services for the
Portfolio relating to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall provide investment advice to
the Sub-Advisor with respect to all or a portion of the investments of
the Portfolio, and in connection with such advice shall furnish the
Sub-Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such
information may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall manage all or a portion of the
investments of the Portfolio in accordance with the investment
objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to
time, the Investment Company Act of 1940 (the "1940 Act") and rules
thereunder, as amended from time to time, and such other limitations
as the Trust or Advisor may impose with respect to the Portfolio by
notice to the U.K. Sub-Advisor. With respect to the portion of the
investments of the Portfolio under its management, the U.K.
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the U.K. Sub-Advisor
may select. The U.K. Sub-Advisor may also be authorized, but only to
the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign
currency investments, purchasing and selling or writing futures and
options contracts, borrowing money or lending securities on behalf of
the Portfolio. All investment management and any other activities of
the U.K. Sub-Advisor shall at all times be subject to the control and
direction of the Sub-Advisor, the Advisor and the Trust's Board of
Trustees.
2. Information to be Provided to the Trust and the Advisor: The
U.K. Sub-Advisor shall furnish such reports, evaluations, information
or analyses to the Trust, the Advisor, and the Sub-Advisor as the
Trust's Board of Trustees, the Advisor or the Sub-Advisor may
reasonably request from time to time, or as the U.K. Sub-Advisor may
deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the U.K.
Sub-Advisor, at its own expense, shall place all orders for the
purchase and sale of portfolio securities for the Portfolio's account
with brokers or dealers selected by the U.K. Sub-Advisor, which may
include brokers or dealers affiliated with the Advisor, Sub-Advisor or
U.K. Sub-Advisor. The U.K. Sub-Advisor shall use its best efforts to
seek to execute portfolio transactions at prices which are
advantageous to the Portfolio and at commission rates which are
reasonable in relation to the benefits received. In selecting brokers
or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and to any other
accounts over which the U.K. Sub-Advisor, the Sub-Advisor or Advisor
exercise investment discretion. The U.K. Sub-Advisor is authorized to
pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the
Portfolio which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
the U.K. Sub-Advisor determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular
transaction or the overall responsibilities which the U.K. Sub-Advisor
and the Sub-Advisor have with respect to accounts over which they
exercise investment discretion. The Trustees of the Trust shall
periodically review the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Sub-Advisor shall compensate the U.K.
Sub-Advisor on the following basis for the services to be furnished
hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly U.K. Sub-Advisory Fee.
The U.K. Sub-Advisory Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly Investment Management
Fee. The Investment Management Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (b) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(c) PROVISION OF MULTIPLE SERVICES: If the U.K. Sub-Advisor shall
have provided both investment advisory services under subparagraph (a)
and investment management services under subparagraph (b) of paragraph
1 for the same portion of the investments of the Portfolio for the
same period, the fees paid to the U.K. Sub-Advisor with respect to
such investments shall be calculated exclusively under subparagraph
(b) of this paragraph 4.

(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor, the U.K. Sub-Advisor or the
Portfolio may, at any time on sixty (60) days' prior written notice to
the other parties, terminate this Agreement, without payment of any
penalty, by action of its Board of Trustees or Directors, or with
respect to the Portfolio by vote of a majority of its outstanding
voting securities. This Agreement shall terminate automatically in
the event of its assignment.
10. Limitation of Liability: The U.K. Sub-Advisor is hereby
expressly put on notice of the limitation of shareholder liability as
set forth in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the U.K. Sub-Advisor shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the U.K. Sub-Advisor seek satisfaction of any
such obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.

IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(9)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INVESTMENTS JAPAN LIMITED
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY INTERNATIONAL BOND FUND
AGREEMENT made this ____ day of February 1998, by and between
Fidelity Management & Research Company, a Massachusetts corporation
with principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Investments Japan
Limited, a Japanese company with principal offices at Shiroyama JT
Mori Bldg., 4-3-1 Toranomon, Minato-ku, Tokyo 105, Japan (hereinafter
called the "Sub-Advisor"); and Fidelity School Street Trust, a
Massachusetts business trust which may issue one or more series of
shares of beneficial interest (hereinafter called the "Trust") on
behalf of Fidelity International Bond Fund (hereinafter called the
"Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor has been formed in part for the purpose of
researching and compiling information and recommendations with respect
to the economies of various countries, and securities of issuers
located in such countries, and providing investment advisory services
in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect to
the portion of the investments of the Portfolio under its management,
the Sub-Advisor is authorized to make investment decisions on behalf
of the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the extent
such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.
2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on the
following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers, and
shareholders of the Trust are or may be or become interested in the
Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until ______,
1998 and indefinitely thereafter, but only so long as the continuance
after such period shall be specifically approved at least annually by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly put
on notice of the limitation of shareholder liability as set forth in
the Declaration of Trust or other organizational document of the Trust
and agrees that any obligations of the Trust or the Portfolio arising
in connection with this Agreement shall be limited in all cases to the
Portfolio and its assets, and the Sub-Advisor shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and construed
in accordance with, the laws of the Commonwealth of Massachusetts,
without giving effect to the choice of laws provisions thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, all as of the date written above.

SIGNATURE LINES OMITTED

FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY (FAR EAST) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY NEW MARKETS INCOME FUND
AGREEMENT made this ____ day of ____, 1998, by Fidelity Management &
Research Company, a Massachusetts corporation with principal offices
at 82 Devonshire Street, Boston, Massachusetts (hereinafter called the
"Advisor"); Fidelity Management & Research Company (Far East) Inc.
(hereinafter called the "Sub-Advisor"); and Fidelity School Street
Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity New Markets Income Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of Portfolio, pursuant to which the Advisor acts as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued in and issuers located
in such countries, and providing investment advisory services in
connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect
to the portion of the investments of the Portfolio under its
management, the Sub-Advisor is authorized to make investment decisions
on behalf of the Portfolio with regard to any stock, bond, other
security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as
the Sub-Advisor may select. The Sub-Advisor may also be authorized,
but only to the extent such duties are delegated in writing by the
Advisor, to provide additional investment management services to the
Portfolio, including but not limited to services such as managing
foreign currency investments, purchasing and selling or writing
futures and options contracts, borrowing money, or lending securities
on behalf of the Portfolio. All investment management and any other
activities of the Sub-Advisor shall at all times be subject to the
control and direction of the Advisor and the Trust's Board of
Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor, at
its own expense, shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor or Sub-Advisor. The Sub-Advisor
shall use its best efforts to seek to execute portfolio transactions
at prices which are advantageous to the Portfolio and at commission
rates which are reasonable in relation to the benefits received. In
selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and to
any other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker
or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the
Sub-Advisor determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities which the Sub-Advisor has with respect to accounts
over which it exercises investment discretion. The Trustees of the
Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 105% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until ______,
1998 and indefinitely thereafter, but only so long as the continuance
after such period shall be specifically approved at least annually by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Advisor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Advisor seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY (U.K.) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY NEW MARKETS INCOME FUND
AGREEMENT made this ___ day of April, 1998, by Fidelity Management &
Research Company, a Massachusetts corporation with principal offices
at 82 Devonshire Street, Boston, Massachusetts (hereinafter called the
"Advisor"); Fidelity Management & Research Company (U.K.) Inc.
(hereinafter called the "Sub-Advisor"); and Fidelity School Street
Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity New Markets Income Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of Portfolio, pursuant to which the Advisor acts as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued in and issuers located
in such countries, and providing investment advisory services in
connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect
to the portion of the investments of the Portfolio under its
management, the Sub-Advisor is authorized to make investment decisions
on behalf of the Portfolio with regard to any stock, bond, other
security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as
the Sub-Advisor may select. The Sub-Advisor may also be authorized,
but only to the extent such duties are delegated in writing by the
Advisor, to provide additional investment management services to the
Portfolio, including but not limited to services such as managing
foreign currency investments, purchasing and selling or writing
futures and options contracts, borrowing money or lending securities
on behalf of the Portfolio. All investment management and any other
activities of the Sub-Advisor shall at all times be subject to the
control and direction of the Advisor and the Trust's Board of
Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor, at
its own expense, shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor or Sub-Advisor. The Sub-Advisor
shall use its best efforts to seek to execute portfolio transactions
at prices which are advantageous to the Portfolio and at commission
rates which are reasonable in relation to the benefits received. In
selecting brokers or dealers qualified to execute a particular
transaction, brokers or dealers may be selected who also provide
brokerage and research services (as those terms are defined in Section
28(e) of the Securities Exchange Act of l934) to the Portfolio and to
any other accounts over which the Sub-Advisor or Advisor exercise
investment discretion. The Sub-Advisor is authorized to pay a broker
or dealer who provides such brokerage and research services a
commission for executing a portfolio transaction for the Portfolio
which is in excess of the amount of commission another broker or
dealer would have charged for effecting that transaction if the
Sub-Advisor determines in good faith that such amount of commission is
reasonable in relation to the value of the brokerage and research
services provided by such broker or dealer. This determination may be
viewed in terms of either that particular transaction or the overall
responsibilities which the Sub-Advisor has with respect to accounts
over which it exercises investment discretion. The Trustees of the
Trust shall periodically review the commissions paid by the Portfolio
to determine if the commissions paid over representative periods of
time were reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 110% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers or reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1)
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until _____,
1998 and indefinitely thereafter, but only so long as the continuance
after such period shall be specifically approved at least annually by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Advisor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Advisor seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(12)
FORM OF

SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY NEW MARKETS INCOME FUND
AGREEMENT made this _____ day of _____, 1998 by Fidelity Management &
Research Company, a Massachusetts corporation with principal offices
at 82 Devonshire Street, Boston, Massachusetts (hereinafter called the
"Advisor"); Fidelity International Investment Advisors, a Bermuda
company with principal offices at Pembroke Hall, Pembroke, Bermuda
(hereinafter called the "Sub-Advisor"); and Fidelity School Street
Trust, a Massachusetts business trust which may issue one or more
series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity New Markets Income Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of Portfolio, pursuant to which the Advisor acts as
investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued in and issuers located
in such countries, and providing investment advisory services in
connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect
to the portion of the investments of the Portfolio under its
management, the Sub-Advisor is authorized to make investment decisions
on behalf of the Portfolio with regard to any stock, bond, other
security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as
the Sub-Advisor may select. The Sub-Advisor may also be authorized,
but only to the extent such duties are delegated in writing by the
Advisor, to provide additional investment management services to the
Portfolio, including but not limited to services such as managing
foreign currency investments, purchasing and selling or writing
futures and options contracts, borrowing money, or lending securities
on behalf of the Portfolio. All investment management and any other
activities of the Sub-Advisor shall at all times be subject to the
control and direction of the Advisor and the Trust's Board of
Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until _____,
1998 and indefinitely thereafter, but only so long as the continuance
after such period shall be specifically approved at least annually by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the Sub-Advisor shall not seek satisfaction of any such
obligation from the shareholders or any shareholder of the Portfolio.
Nor shall the Sub-Advisor seek satisfaction of any such obligation
from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(13)
FORM OF
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
AND
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AGREEMENT made this ____ day of ____, 1998, by Fidelity International
Investment Advisors (U.K.) Limited, 27-28 Lovat Lane, London, England
(hereinafter called the "U.K. Sub-Advisor") and Fidelity International
Investment Advisors, a Bermuda company with principal offices at
Pembroke Hall, Pembroke, Bermuda (hereinafter called the
"Sub-Advisor").
WHEREAS Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Advisor"), has entered into a
Management Contract with Fidelity School Street Trust, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Trust"), on behalf of
Fidelity New Markets Income Fund (hereinafter called the "Portfolio"),
pursuant to which the Advisor acts as investment advisor to the
Portfolio, and
WHEREAS, the Sub-Advisor has entered into a Sub-Advisory Agreement
with the Advisor (the "Sub-Advisory Agreement") pursuant to which the
Sub-Advisor, directly or through certain of its subsidiaries or other
affiliated persons, shall provide investment advice or investment
management and order execution services to the Portfolio, and
WHEREAS the U.K. Sub-Advisor has personnel in Western Europe and has
been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, including securities issued and issuers located
outside of North America, principally in the U.K. and Europe.
NOW THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Sub-Advisor and the U.K.
Sub-Advisor agree as follows:
1. Duties: The Sub-Advisor may, in its discretion, appoint the U.K.
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio, in
connection with the Sub-Advisor's duties under the Sub-Advisory
Agreement. The services and the portion of the investments of the
Portfolio advised or managed by the U.K. Sub-Advisor shall be as
agreed upon from time to time by the Sub-Advisor and the U.K.
Sub-Advisor. The U.K. Sub-Advisor shall pay the salaries and fees of
all personnel of the U.K. Sub-Advisor performing services for the
Portfolio relating to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall provide investment advice to
the Sub-Advisor with respect to all or a portion of the investments of
the Portfolio, and in connection with such advice shall furnish the
Sub-Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such
information may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall manage all or a portion of the
investments of the Portfolio in accordance with the investment
objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to
time, the Investment Company Act of 1940 (the"1940 Act") and rules
thereunder, as amended from time to time, and such other limitations
as the Trust or Advisor may impose with respect to the Portfolio by
notice to the U.K. Sub-Advisor. With respect to the portion of the
investments of the Portfolio under its management, the U.K.
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the U.K. Sub-Advisor
may select. The U.K. Sub-Advisor may also be authorized, but only to
the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign
currency investments, purchasing and selling or writing futures and
options contracts, borrowing money or lending securities on behalf of
the Portfolio. All investment management and any other activities of
the U.K. Sub-Advisor shall at all times be subject to the control and
direction of the Sub-Advisor, the Advisor and the Trust's Board of
Trustees.
2. Information to be Provided to the Trust and the Advisor: The
U.K. Sub-Advisor shall furnish such reports, evaluations, information
or analyses to the Trust, the Advisor, and the Sub-Advisor as the
Trust's Board of Trustees, the Advisor or the Sub-Advisor may
reasonably request from time to time, or as the U.K. Sub-Advisor may
deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the U.K.
Sub-Advisor, at its own expense, shall place all orders for the
purchase and sale of portfolio securities for the Portfolio's account
with brokers or dealers selected by the U.K. Sub-Advisor, which may
include brokers or dealers affiliated with the Advisor, Sub-Advisor or
U.K. Sub-Advisor. The U.K. Sub-Advisor shall use its best efforts to
seek to execute portfolio transactions at prices which are
advantageous to the Portfolio and at commission rates which are
reasonable in relation to the benefits received. In selecting brokers
or dealers qualified to execute a particular transaction, brokers or
dealers may be selected who also provide brokerage and research
services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and to any other
accounts over which the U.K. Sub-Advisor, the Sub-Advisor or Advisor
exercise investment discretion. The U.K. Sub-Advisor is authorized to
pay a broker or dealer who provides such brokerage and research
services a commission for executing a portfolio transaction for the
Portfolio which is in excess of the amount of commission another
broker or dealer would have charged for effecting that transaction if
the U.K. Sub-Advisor determines in good faith that such amount of
commission is reasonable in relation to the value of the brokerage and
research services provided by such broker or dealer. This
determination may be viewed in terms of either that particular
transaction or the overall responsibilities which the U.K. Sub-Advisor
and the Sub-Advisor have with respect to accounts over which they
exercise investment discretion. The Trustees of the Trust shall
periodically review the commissions paid by the Portfolio to determine
if the commissions paid over representative periods of time were
reasonable in relation to the benefits to the Portfolio.
4. Compensation: The Sub-Advisor shall compensate the U.K.
Sub-Advisor on the following basis for the services to be furnished
hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly U.K. Sub-Advisory Fee.
The U.K. Sub-Advisory Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly Investment Management
Fee. The Investment Management Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (b) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(c) PROVISION OF MULTIPLE SERVICES: If the U.K. Sub-Advisor shall
have provided both investment advisory services under subparagraph (a)
and investment management services under subparagraph (b) of paragraph
1 for the same portion of the investments of the Portfolio for the
same period, the fees paid to the U.K. Sub-Advisor with respect to
such investments shall be calculated exclusively under subparagraph
(b) of this paragraph 4.

5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the U.K.
Sub-Advisor hereunder, by the Sub-Advisor under the Sub-Advisory
Agreement or by the Advisor under the Management Contract with the
Portfolio.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor, the Sub-Advisor or the U.K. Sub-Advisor as directors,
officers or otherwise and that directors, officers and stockholders of
the Advisor, the Sub-Advisor or the U.K. Sub-Advisor are or may be or
become similarly interested in the Trust, and that the Advisor, the
Sub-Advisor or the U.K. Sub-Advisor may be or become interested in the
Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The Services of the
U.K. Sub-Advisor to the Sub-Advisor are not to be deemed to be
exclusive, the U.K. Sub-Advisor being free to render services to
others and engage in other activities, provided, however, that such
other services and activities do not, during the term of this
Agreement, interfere, in a material manner, with the U.K.
Sub-Advisor's ability to meet all of its obligations hereunder. The
U.K. Sub-Advisor shall for all purposes be an independent contractor
and not an agent or employee of the Advisor, the Sub-Advisor or the
Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the U.K. Sub-Advisor, the U.K. Sub-Advisor
shall not be subject to liability to the Sub-Advisor, the Advisor, the
Trust or to any shareholder of the Portfolio for any act or omission
in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale
of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until
_______, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the U.K. Sub-Advisor, the Sub-Advisor and the Portfolio, such consent
on the part of the Portfolio to be authorized by vote of a majority of
the outstanding voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor, the U.K. Sub-Advisor or the
Portfolio may, at any time on sixty (60) days' prior written notice to
the other parties, terminate this Agreement, without payment of any
penalty, by action of its Board of Trustees or Directors, or with
respect to the Portfolio by vote of a majority of its outstanding
voting securities. This Agreement shall terminate automatically in
the event of its assignment.
10. Limitation of Liability: The U.K. Sub-Advisor is hereby
expressly put on notice of the limitation of shareholder liability as
set forth in the Declaration of Trust of the Trust and agrees that any
obligations of the Trust or the Portfolio arising in connection with
this Agreement shall be limited in all cases to the Portfolio and its
assets, and the U.K. Sub-Advisor shall not seek satisfaction of any
such obligation from the shareholders or any shareholder of the
Portfolio. Nor shall the U.K. Sub-Advisor seek satisfaction of any
such obligation from the Trustees or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(14)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INVESTMENTS JAPAN LIMITED
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY NEW MARKETS INCOME FUND
AGREEMENT made this ____ day of _____ 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Investments Japan
Limited, a Japanese company with principal offices at Shiroyama JT
Mori Building, 19th Floor, 3-1 Toranomon 4-chome, Minato-ku, Tokyo
105, Japan (hereinafter called the "Sub-Advisor"); and Fidelity School
Street Trust, a Massachusetts business trust which may issue one or
more series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity New Markets Income Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor has been formed in part for the purpose of
researching and compiling information and recommendations with respect
to the economies of various countries, and securities of issuers
located in such countries, and providing investment advisory services
in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect
to the portion of the investments of the Portfolio under its
management, the Sub-Advisor is authorized to make investment decisions
on behalf of the Portfolio with regard to any stock, bond, other
security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as
the Sub-Advisor may select. The Sub-Advisor may also be authorized,
but only to the extent such duties are delegated in writing by the
Advisor, to provide additional investment management services to the
Portfolio, including but not limited to services such as managing
foreign currency investments, purchasing and selling or writing
futures and options contracts, borrowing money, or lending securities
on behalf of the Portfolio. All investment management and any other
activities of the Sub-Advisor shall at all times be subject to the
control and direction of the Advisor and the Trust's Board of
Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until _____,
1998 and indefinitely thereafter, but only so long as the continuance
after such period shall be specifically approved at least annually by
vote of the Trust's Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio, such consent on the part of the
Portfolio to be authorized by vote of a majority of the outstanding
voting securities of the Portfolio.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, all as of the date written above.
[SIGNATURE LINES OMITTED]

EXHIBIT D(15)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY STRATEGIC INCOME
FUND
AGREEMENT made this 16th day of April, 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Management & Research
(U.K.) Inc. (hereinafter called the "Sub-Advisor"); and Fidelity
School Street Trust, a MassachusettS business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 110% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers or reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph (1)
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
FIDELITY MANAGEMENT & RESEARCH (U.K.) INC.
BY: /s/Brian A. Clancy
Brian A. Clancy
Title
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/Robert C. Pozen
Robert C. Pozen
Title
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY STRATEGIC INCOME FUND
BY: /s/Robert C. Pozen
Robert C. Pozen
Title

EXHIBIT D(16)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY STRATEGIC INCOME
FUND
AGREEMENT made this 16th day of April, 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Management & Research
(Far East) Inc. (hereinafter called the "Sub-Advisor"); and Fidelity
School Street Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to 105% of the Sub-Advisor's costs incurred in
connection with rendering the services referred to in subparagraph (a)
of paragraph 1 of this Agreement. The Sub-Advisory Fee shall not be
reduced to reflect expense reimbursements or fee waivers by the
Advisor, if any, in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefore; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
FIDELITY MANAGEMENT & RESEARCH (FAR EAST) INC.
BY: /s/Brian A. Clancy
Brian A. Clancy
Title
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/Robert C. Pozen
Robert C. Pozen
Title
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY STRATEGIC INCOME FUND
BY: /s/Robert C. Pozen
Robert C. Pozen
Title

EXHIBIT D(17)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INVESTMENTS JAPAN LIMITED
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY STRATEGIC INCOME
AGREEMENT made this 16th day of April, 1998, by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity Investments Japan
Limited, a Japanese company with principal offices at Shiroyama JT
Mori Building, 19th Floor, 3-1 Toranomon 4-chome, Minato-ku, Tokyo
105, Japan (hereinafter called the "Sub-Advisor"); and Fidelity School
Street Trust, a Massachusetts business trust which may issue one or
more series of shares of beneficial interest (hereinafter called the
"Trust") on behalf of Fidelity Strategic Income Fund (hereinafter
called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor has been formed in part for the purpose of
researching and compiling information and recommendations with respect
to the economies of various countries, and securities of issuers
located in such countries, and providing investment advisory services
in connection therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940
(the"1940 Act") and rules thereunder, as amended from time to time,
and such other limitations as the Trust or Advisor may impose with
respect to the Portfolio by notice to the Sub-Advisor. With respect
to the portion of the investments of the Portfolio under its
management, the Sub-Advisor is authorized to make investment decisions
on behalf of the Portfolio with regard to any stock, bond, other
security or investment instrument, and to place orders for the
purchase and sale of such securities through such broker-dealers as
the Sub-Advisor may select. The Sub-Advisor may also be authorized,
but only to the extent such duties are delegated in writing by the
Advisor, to provide additional investment management services to the
Portfolio, including but not limited to services such as managing
foreign currency investments, purchasing and selling or writing
futures and options contracts, borrowing money, or lending securities
on behalf of the Portfolio. All investment management and any other
activities of the Sub-Advisor shall at all times be subject to the
control and direction of the Advisor and the Trust's Board of
Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.

IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, all as of the date written above.
FIDELITY INVESTMENTS JAPAN LIMITED
BY: /s/Billy Wilder
Billy Wilder
President
FIDELITY MANAGEMENT & RESEARCH COMPANY
BY: /s/Robert C. Pozen
Robert C. Pozen
President
FIDELITY SCHOOL STREET TRUST
ON BEHALF OF FIDELITY STRATEGIC INCOME FUND
BY: /s/Robert C. Pozen
Robert C. Pozen
Senior Vice President

EXHIBIT D(18)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AND
FIDELITY MANAGEMENT & RESEARCH COMPANY
AND
FIDELITY SCHOOL STREET TRUST ON BEHALF OF FIDELITY STRATEGIC INCOME
FUND
AGREEMENT made this 16th day of April, 1998 by and between Fidelity
Management & Research Company, a Massachusetts corporation with
principal offices at 82 Devonshire Street, Boston, Massachusetts
(hereinafter called the "Advisor"); Fidelity International Investment
Advisors, a Bermuda company with principal offices at Pembroke Hall,
Pembroke, Bermuda (hereinafter called the "Sub-Advisor"); and Fidelity
School Street Trust, a Massachusetts business trust which may issue
one or more series of shares of beneficial interest (hereinafter
called the "Trust") on behalf of Fidelity Strategic Income Fund
(hereinafter called the "Portfolio").
WHEREAS the Trust and the Advisor have entered into a Management
Contract on behalf of the Portfolio, pursuant to which the Advisor is
to act as investment manager of the Portfolio; and
WHEREAS the Sub-Advisor and its subsidiaries and other affiliated
persons have personnel in various locations throughout the world and
have been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located in such
countries, and providing investment advisory services in connection
therewith;
NOW, THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Trust, the Advisor and the
Sub-Advisor agree as follows:
1. Duties: The Advisor may, in its discretion, appoint the
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio. The
services and the portion of the investments of the Portfolio to be
advised or managed by the Sub-Advisor shall be as agreed upon from
time to time by the Advisor and the Sub-Advisor. The Sub-Advisor shall
pay the salaries and fees of all personnel of the Sub-Advisor
performing services for the Portfolio relating to research,
statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Advisor, the Sub-Advisor shall provide investment advice to the
Portfolio and the Advisor with respect to all or a portion of the
investments of the Portfolio, and in connection with such advice shall
furnish the Portfolio and the Advisor such factual information,
research reports and investment recommendations as the Advisor may
reasonably require. Such information may include written and oral
reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Advisor, the Sub-Advisor shall, subject to the supervision of the
Advisor, manage all or a portion of the investments of the Portfolio
in accordance with the investment objective, policies and limitations
provided in the Portfolio's Prospectus or other governing instruments,
as amended from time to time, the Investment Company Act of 1940 (the
"1940 Act") and rules thereunder, as amended from time to time, and
such other limitations as the Trust or Advisor may impose with respect
to the Portfolio by notice to the Sub-Advisor. With respect to the
portion of the investments of the Portfolio under its management, the
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the Sub-Advisor may
select. The Sub-Advisor may also be authorized, but only to the
extent such duties are delegated in writing by the Advisor, to provide
additional investment management services to the Portfolio, including
but not limited to services such as managing foreign currency
investments, purchasing and selling or writing futures and options
contracts, borrowing money, or lending securities on behalf of the
Portfolio. All investment management and any other activities of the
Sub-Advisor shall at all times be subject to the control and direction
of the Advisor and the Trust's Board of Trustees.
(c) SUBSIDIARIES AND AFFILIATES: The Sub-Advisor may perform any or
all of the services contemplated by this Agreement directly or through
such of its subsidiaries or other affiliated persons as the
Sub-Advisor shall determine; provided, however, that performance of
such services through such subsidiaries or other affiliated persons
shall have been approved by the Trust to the extent required pursuant
to the 1940 Act and rules thereunder.

2. Information to be Provided to the Trust and the Advisor: The
Sub-Advisor shall furnish such reports, evaluations, information or
analyses to the Trust and the Advisor as the Trust's Board of Trustees
or the Advisor may reasonably request from time to time, or as the
Sub-Advisor may deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with brokers or dealers
selected by the Sub-Advisor, which may include brokers or dealers
affiliated with the Advisor or Sub-Advisor. The Sub-Advisor shall use
its best efforts to seek to execute portfolio transactions at prices
which are advantageous to the Portfolio and at commission rates which
are reasonable in relation to the benefits received. In selecting
brokers or dealers qualified to execute a particular transaction,
brokers or dealers may be selected who also provide brokerage and
research services (as those terms are defined in Section 28(e) of the
Securities Exchange Act of l934) to the Portfolio and/or to the other
accounts over which the Sub-Advisor or Advisor exercise investment
discretion. The Sub-Advisor is authorized to pay a broker or dealer
who provides such brokerage and research services a commission for
executing a portfolio transaction for the Portfolio which is in excess
of the amount of commission another broker or dealer would have
charged for effecting that transaction if the Sub-Advisor determines
in good faith that such amount of commission is reasonable in relation
to the value of the brokerage and research services provided by such
broker or dealer. This determination may be viewed in terms of either
that particular transaction or the overall responsibilities which the
Sub-Advisor has with respect to accounts over which it exercises
investment discretion. The Trustees of the Trust shall periodically
review the commissions paid by the Portfolio to determine if the
commissions paid over representative periods of time were reasonable
in relation to the benefits to the Portfolio.
4. Compensation: The Advisor shall compensate the Sub-Advisor on
the following basis for the services to be furnished hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Sub-Advisory Fee. The Sub-Advisory
Fee shall be equal to: (i) 30% of the monthly management fee rate
(including performance adjustments, if any) that the Portfolio is
obligated to pay the Advisor under its Management Contract with the
Advisor, multiplied by (ii) the fraction equal to the net assets of
the Portfolio as to which the Sub-Advisor shall have provided
investment advice divided by the net assets of the Portfolio for that
month. The Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Advisor, if any, in effect from
time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Advisor agrees
to pay the Sub-Advisor a monthly Investment Management Fee. The
Investment Management Fee shall be equal to: (i) 50% of the monthly
management fee rate (including performance adjustments, if any) that
the Portfolio is obligated to pay the Advisor under its Management
Contract with the Advisor, multiplied by: (ii) the fraction equal to
the net assets of the Portfolio as to which the Sub-Advisor shall have
provided investment management services divided by the net assets of
the Portfolio for that month. If in any fiscal year the aggregate
expenses of the Portfolio exceed any applicable expense limitation
imposed by any state or federal securities laws or regulations, and
the Advisor waives all or a portion of its management fee or
reimburses the Portfolio for expenses to the extent required to
satisfy such limitation, the Investment Management Fee paid to the
Sub-Advisor will be reduced by 50% of the amount of such waivers or
reimbursements multiplied by the fraction determined in (ii). If the
Sub-Advisor reduces its fees to reflect such waivers or reimbursements
and the Advisor subsequently recovers all or any portion of such
waivers and reimbursements, then the Sub-Advisor shall be entitled to
receive from the Advisor a proportionate share of the amount
recovered. To the extent that waivers and reimbursements by the
Advisor required by such limitations are in excess of the Advisor's
management fee, the Investment Management Fee paid to the Sub-Advisor
will be reduced to zero for that month, but in no event shall the
Sub-Advisor be required to reimburse the Advisor for all or a portion
of such excess reimbursements.
(c) PROVISION OF MULTIPLE SERVICES: If the Sub-Advisor shall have
provided both investment advisory services under subparagraph (a) and
investment management services under subparagraph (b) of paragraph 1
for the same portion of the investments of the Portfolio for the same
period, the fees paid to the Sub-Advisor with respect to such
investments shall be calculated exclusively under subparagraph (b) of
this paragraph 4.
5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the
Sub-Advisor hereunder or by the Advisor under the Management Contract
with the Portfolio, which expenses payable by the Portfolio shall
include, without limitation, (i) interest and taxes; (ii) brokerage
commissions and other costs in connection with the purchase or sale of
securities and other investment instruments; (iii) fees and expenses
of the Trust's Trustees other than those who are "interested persons"
of the Trust, the Sub-Advisor or the Advisor; (iv) legal and audit
expenses; (v) custodian, registrar and transfer agent fees and
expenses; (vi) fees and expenses related to the registration and
qualification of the Trust and the Portfolio's shares for distribution
under state and federal securities laws; (vii) expenses of printing
and mailing reports and notices and proxy material to shareholders of
the Portfolio; (viii) all other expenses incidental to holding
meetings of the Portfolio's shareholders, including proxy
solicitations therefor; (ix) a pro rata share, based on relative net
assets of the Portfolio and other registered investment companies
having Advisory and Service or Management Contracts with the Advisor,
of 50% of insurance premiums for fidelity and other coverage; (x) its
proportionate share of association membership dues; (xi) expenses of
typesetting for printing Prospectuses and Statements of Additional
Information and supplements thereto; (xii) expenses of printing and
mailing Prospectuses and Statements of Additional Information and
supplements thereto sent to existing shareholders; and (xiii) such
non-recurring or extraordinary expenses as may arise, including those
relating to actions, suits or proceedings to which the Portfolio is a
party and the legal obligation which the Portfolio may have to
indemnify the Trust's Trustees and officers with respect thereto.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor or the Sub-Advisor as directors, officers or otherwise and
that directors, officers and stockholders of the Advisor or the
Sub-Advisor are or may be or become similarly interested in the Trust,
and that the Advisor or the Sub-Advisor may be or become interested in
the Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The services of the
Sub-Advisor to the Advisor are not to be deemed to be exclusive, the
Sub-Advisor being free to render services to others and engage in
other activities, provided, however, that such other services and
activities do not, during the term of this Agreement, interfere, in a
material manner, with the Sub-Advisor's ability to meet all of its
obligations hereunder. The Sub-Advisor shall for all purposes be an
independent contractor and not an agent or employee of the Advisor or
the Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Sub-Advisor, the Sub-Advisor shall not be
subject to liability to the Advisor, the Trust or to any shareholder
of the Portfolio for any act or omission in the course of, or
connected with, rendering services hereunder or for any losses that
may be sustained in the purchase, holding or sale of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the Sub-Advisor and the Portfolio subject to the provisions of Section
15 of the 1940 Act, as modified by or interpreted by any applicable
order or orders of the Securities and Exchange Commission (the
"Commission") or any rules or regulations adopted by, or
interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, by action of
its Board of Trustees or Directors, or with respect to the Portfolio
by vote of a majority of its outstanding voting securities. This
Agreement shall terminate automatically in the event of its
assignment.
10. Limitation of Liability: The Sub-Advisor is hereby expressly
put on notice of the limitation of shareholder liability as set forth
in the Declaration of Trust or other organizational document of the
Trust and agrees that any obligations of the Trust or the Portfolio
arising in connection with this Agreement shall be limited in all
cases to the Portfolio and its assets, and the Sub-Advisor shall not
seek satisfaction of any such obligation from the shareholders or any
shareholder of the Portfolio. Nor shall the Sub-Advisor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.

Director
FIDELITY MANAGEMENT & RESEARCH COMPANY
By: /s/Robert C. Pozen
Robert C. Pozen
President
FIDELITY SCHOOL STREET TRUST ON BEHALF OF
FIDELITY STRATEGIC INCOME FUND
By: /s/Robert C. Pozen
Robert C. Pozen
Senior Vice President

EXHIBIT D(19)
SUB-ADVISORY AGREEMENT
BETWEEN
FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
AND
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
AGREEMENT made this 16th day of April, 1998, by and between Fidelity
International Investment Advisors (U.K.) Limited, 27-28 Lovat Lane,
London, England (hereinafter called the "U.K. Sub-Advisor") and
Fidelity International Investment Advisors, a Bermuda company with
principal offices at Pembroke Hall, Pembroke, Bermuda (hereinafter
called the "Sub-Advisor").
WHEREAS Fidelity Management & Research Company, a Massachusetts
corporation (hereinafter called the "Advisor"), has entered into a
Management Contract with Fidelity School Street Trust, a Massachusetts
business trust which may issue one or more series of shares of
beneficial interest (hereinafter called the "Trust"), on behalf of
Fidelity Strategic Income Fund (hereinafter called the "Portfolio"),
pursuant to which the Advisor is act as investment advisor to the
Portfolio, and
WHEREAS, the Sub-Advisor has entered into a Sub-Advisory Agreement
with the Advisor (the "Sub-Advisory Agreement") pursuant to which the
Sub-Advisor, directly or through certain of its subsidiaries or other
affiliated persons, shall provide investment advice or investment
management and order execution services to the Portfolio, and
WHEREAS the U.K. Sub-Advisor has personnel in Western Europe and has
been formed in part for the purpose of researching and compiling
information and recommendations with respect to the economies of
various countries, and securities of issuers located outside of North
America, principally in the U.K. and Europe.
NOW THEREFORE, in consideration of the premises and the mutual
promises hereinafter set forth, the Sub-Advisor and the U.K.
Sub-Advisor agree as follows:
1. Duties: The Sub-Advisor may, in its discretion, appoint the U.K.
Sub-Advisor to perform one or more of the following services with
respect to all or a portion of the investments of the Portfolio, in
connection with the Sub-Advisor's duties under the Sub-Advisory
Agreement. The services and the portion of the investments of the
Portfolio advised or managed by the U.K. Sub-Advisor shall be as
agreed upon from time to time by the Sub-Advisor and the U.K.
Sub-Advisor. The U.K. Sub-Advisor shall pay the salaries and fees of
all personnel of the U.K. Sub-Advisor performing services for the
Portfolio relating to research, statistical and investment activities.
(a) INVESTMENT ADVICE: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall provide investment advice to
the Sub-Advisor with respect to all or a portion of the investments of
the Portfolio, and in connection with such advice shall furnish the
Sub-Advisor such factual information, research reports and investment
recommendations as the Advisor may reasonably require. Such
information may include written and oral reports and analyses.
(b) INVESTMENT MANAGEMENT: If and to the extent requested by the
Sub-Advisor, the U.K. Sub-Advisor shall manage all or a portion of the
investments of the Portfolio in accordance with the investment
objective, policies and limitations provided in the Portfolio's
Prospectus or other governing instruments, as amended from time to
time, the Investment Company Act of 1940 (the "1940 Act") and rules
thereunder, as amended from time to time, and such other limitations
as the Trust or Advisor may impose with respect to the Portfolio by
notice to the U.K. Sub-Advisor. With respect to the portion of the
investments of the Portfolio under its management, the U.K.
Sub-Advisor is authorized to make investment decisions on behalf of
the Portfolio with regard to any stock, bond, other security or
investment instrument, and to place orders for the purchase and sale
of such securities through such broker-dealers as the U.K. Sub-Advisor
may select. The U.K. Sub-Advisor may also be authorized, but only to
the extent such duties are delegated in writing by the Advisor, to
provide additional investment management services to the Portfolio,
including but not limited to services such as managing foreign
currency investments, purchasing and selling or writing futures and
options contracts, borrowing money or lending securities on behalf of
the Portfolio. All investment management and any other activities of
the U.K. Sub-Advisor shall at all times be subject to the control and
direction of the Sub-Advisor, the Advisor and the Trust's Board of
Trustees.
2. Information to be Provided to the Trust and the Advisor: The
U.K. Sub-Advisor shall furnish such reports, evaluations, information
or analyses to the Trust, the Advisor, and the Sub-Advisor as the
Trust's Board of Trustees, the Advisor or the Sub-Advisor may
reasonably request from time to time, or as the U.K. Sub-Advisor may
deem to be desirable.
3. Brokerage: In connection with the services provided under
subparagraph (b) of paragraph 1 of this Agreement, the U.K.
Sub-Advisor shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with brokers or
dealers selected by the U.K. Sub-Advisor, which may include brokers or
dealers affiliated with the Advisor, Sub-Advisor or U.K. Sub-Advisor.
The U.K. Sub-Advisor shall use its best efforts to seek to execute
portfolio transactions at prices which are advantageous to the
Portfolio and at commission rates which are reasonable in relation to
the benefits received. In selecting brokers or dealers qualified to
execute a particular transaction, brokers or dealers may be selected
who also provide brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of l934) to
the Portfolio and/or to the other accounts over which the U.K.
Sub-Advisor, the Sub-Advisor or Advisor exercise investment
discretion. The U.K. Sub-Advisor is authorized to pay a broker or
dealer who provides such brokerage and research services a commission
for executing a portfolio transaction for the Portfolio which is in
excess of the amount of commission another broker or dealer would have
charged for effecting that transaction if the U.K. Sub-Advisor
determines in good faith that such amount of commission is reasonable
in relation to the value of the brokerage and research services
provided by such broker or dealer. This determination may be viewed
in terms of either that particular transaction or the overall
responsibilities which the U.K. Sub-Advisor and the Sub-Advisor have
with respect to accounts over which they exercise investment
discretion. The Trustees of the Trust shall periodically review the
commissions paid by the Portfolio to determine if the commissions paid
over representative periods of time were reasonable in relation to the
benefits to the Portfolio.
4. Compensation: The Sub-Advisor shall compensate the U.K.
Sub-Advisor on the following basis for the services to be furnished
hereunder.
(a) INVESTMENT ADVISORY FEE: For services provided under
subparagraph (a) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly U.K. Sub-Advisory Fee.
The U.K. Sub-Advisory Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (a) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(b) INVESTMENT MANAGEMENT FEE: For services provided under
subparagraph (b) of paragraph 1 of this Agreement, the Sub-Advisor
agrees to pay the U.K. Sub-Advisor a monthly Investment Management
Fee. The Investment Management Fee shall be equal to 110% of the U.K.
Sub-Advisor's costs incurred in connection rendering the services
referred to in subparagraph (b) of paragraph 1 of this Agreement.
The U.K. Sub-Advisory Fee shall not be reduced to reflect expense
reimbursements or fee waivers by the Sub-Advisor or Advisor, if any,
in effect from time to time.
(c) PROVISION OF MULTIPLE SERVICES: If the U.K. Sub-Advisor shall
have provided both investment advisory services under subparagraph (a)
and investment management services under subparagraph (b) of paragraph
1 for the same portion of the investments of the Portfolio for the
same period, the fees paid to the U.K. Sub-Advisor with respect to
such investments shall be calculated exclusively under subparagraph
(b) of this paragraph 4.

5. Expenses: It is understood that the Portfolio will pay all of its
expenses other than those expressly stated to be payable by the U.K.
Sub-Advisor hereunder, by the Sub-Advisor under the Sub-Advisory
Agreement or by the Advisor under the Management Contract with the
Portfolio.
6. Interested Persons: It is understood that Trustees, officers,
and shareholders of the Trust are or may be or become interested in
the Advisor, the Sub-Advisor or the U.K. Sub-Advisor as directors,
officers or otherwise and that directors, officers and stockholders of
the Advisor, the Sub-Advisor or the U.K. Sub-Advisor are or may be or
become similarly interested in the Trust, and that the Advisor, the
Sub-Advisor or the U.K. Sub-Advisor may be or become interested in the
Trust as a shareholder or otherwise.
7. Services to Other Companies or Accounts: The Services of the
U.K. Sub-Advisor to the Sub-Advisor are not to be deemed to be
exclusive, the U.K. Sub-Advisor being free to render services to
others and engage in other activities, provided, however, that such
other services and activities do not, during the term of this
Agreement, interfere, in a material manner, with the U.K.
Sub-Advisor's ability to meet all of its obligations hereunder. The
U.K. Sub-Advisor shall for all purposes be an independent contractor
and not an agent or employee of the Advisor, the Sub-Advisor or the
Trust.
8. Standard of Care: In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the U.K. Sub-Advisor, the U.K. Sub-Advisor
shall not be subject to liability to the Sub-Advisor, the Advisor, the
Trust or to any shareholder of the Portfolio for any act or omission
in the course of, or connected with, rendering services hereunder or
for any losses that may be sustained in the purchase, holding or sale
of any security.
9. Duration and Termination of Agreement; Amendments:
(a) Subject to prior termination as provided in subparagraph (d) of
this paragraph 9, this Agreement shall continue in force until June
30, 1998 and indefinitely thereafter, but only so long as the
continuance after such period shall be specifically approved at least
annually by vote of the Trust's Board of Trustees or by vote of a
majority of the outstanding voting securities of the Portfolio.
(b) This Agreement may be modified by mutual consent of the Advisor,
the U.K. Sub-Advisor, the Sub-Advisor and the Portfolio subject to the
provisions of Section 15 of the 1940 Act, as modified by or
interpreted by any applicable order or orders of the Securities and
Exchange Commission (the "Commission") or any rules or regulations
adopted by, or interpretative releases of, the Commission.
(c) In addition to the requirements of subparagraphs (a) and (b) of
this paragraph 9, the terms of any continuance or modification of this
Agreement must have been approved by the vote of a majority of those
Trustees of the Trust who are not parties to this Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Advisor, the Sub-Advisor, the U.K. Sub-Advisor or the
Portfolio may, at any time on sixty (60) days' prior written notice to
the other parties, terminate this Agreement, without payment of any
penalty, by action of its Board of Trustees or Directors, or with
respect to the Portfolio by vote of a majority of its outstanding
voting securities. This Agreement shall terminate automatically in
the event of its assignment.
10. Limitation of Liability: The U.K. Sub-Advisor is hereby
expressly put on notice of the limitation of shareholder liability as
set forth in the Declaration of Trust or other organizational document
of the Trust and agrees that any obligations of the Trust or the
Portfolio arising in connection with this Agreement shall be limited
in all cases to the Portfolio and its assets, and the U.K. Sub-Advisor
shall not seek satisfaction of any such obligation from the
shareholders or any shareholder of the Portfolio. Nor shall the U.K.
Sub-Advisor seek satisfaction of any such obligation from the Trustees
or any individual Trustee.
11. Governing Law: This Agreement shall be governed by, and
construed in accordance with, the laws of the Commonwealth of
Massachusetts, without giving effect to the choice of laws provisions
thereof.
The terms "registered investment company," "vote of a majority of the
outstanding voting securities," "assignment," and "interested
persons," when used herein, shall have the respective meanings
specified in the 1940 Act as now in effect or as hereafter amended.
IN WITNESS WHEREOF the parties hereto have caused this instrument to
be signed in their behalf by their respective officers thereunto duly
authorized, and their respective seals to be hereunto affixed, all as
of the date written above.
FIDELITY INTERNATIONAL INVESTMENT ADVISORS (U.K.) LIMITED
By /s/Simon Haslam
Simon Haslam
Director
FIDELITY INTERNATIONAL INVESTMENT ADVISORS
By /s/David J. Saul
David J. Saul
Director

EXHIBIT E(4)
FORM OF

GENERAL DISTRIBUTION AGREEMENT
between
FIDELITY SCHOOL STREET TRUST:
FIDELITY INTERNATIONAL BOND FUND
and
FIDELITY DISTRIBUTORS CORPORATION
Agreement made this ___ day of , 1998, between Fidelity
School Street Trust, a Massachusetts business trust having its
principal place of business in Boston, Massachusetts and which may
issue one or more series of beneficial interest ("Issuer"), with
respect to shares of Fidelity International Bond Fund, a series of the
Issuer, and Fidelity Distributors Corporation, a Massachusetts
corporation having its principal place of business in Boston,
Massachusetts ("Distributors").
In consideration of the mutual promises and undertakings herein
contained, the parties agree as follows:
1. Sale of Shares - The Issuer grants to Distributors the right to
sell shares on behalf of the Issuer during the term of this Agreement
and subject to the registration requirements of the Securities Act of
1933, as amended ("1933 Act"), and of the laws governing the sale of
securities in the various states ("Blue Sky Laws") under the following
terms and conditions: Distributors (i) shall have the right to sell,
as agent on behalf of the Issuer, shares authorized for issue and
registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among the funds advised by
Fidelity Management & Research Company ("FMR") or any of its
affiliates.
2. Sale of Shares by the Issuer - The rights granted to the
Distributor shall be nonexclusive in that the Issuer reserves the
right to sell its shares to investors on applications received and
accepted by the Issuer. Further, the Issuer reserves the right to
issue shares in connection with the merger or consolidation, or
acquisition by the Issuer through purchase or otherwise, with any
other investment company, trust, or personal holding company.
3. Shares Covered by this Agreement - This Agreement shall apply to
unissued shares of the Issuer, shares of the Issuer held in its
treasury in the event that in the discretion of the Issuer treasury
shares shall be sold, and shares of the Issuer repurchased for resale.
4. Public Offering Price - Except as otherwise noted in the Issuer's
current Prospectus and/or Statement of Additional Information, all
shares sold to investors by the Distributor or the Issuer will be sold
at the public offering price. The public offering price for all
accepted subscriptions will be the net asset value per share, as
determined in the manner described in the Issuer's current Prospectus
and/or Statement of Additional Information, plus a sales charge (if
any) described in the Issuer's current Prospectus and/or Statement of
Additional Information. The Issuer shall in all cases receive the net
asset value per share on all sales. If a sales charge is in effect,
the Distributor shall have the right subject to such rules or
regulations of the Securities and Exchange Commission as may then be
in effect pursuant to Section 22 of the Investment Company Act of 1940
to pay a portion of the sales charge to dealers who have sold shares
of the Issuer. If a fee in connection with shareholder redemptions is
in effect, the Issuer shall collect the fee on behalf of Distributors
and, unless otherwise agreed upon by the Issuer and Distributors,
Distributors shall be entitled to receive all of such fees.
5. Suspension of Sales - If and whenever the determination of net
asset value is suspended and until such suspension is terminated, no
further orders for shares shall be processed by the Distributor except
such unconditional orders as may have been placed with the Distributor
before it had knowledge of the suspension. In addition, the Issuer
reserves the right to suspend sales and the Distributor's authority to
process orders for shares on behalf of the Issuer if, in the judgment
of the Issuer, it is in the best interests of the Issuer to do so.
Suspension will continue for such period as may be determined by the
Issuer.
6. Solicitation of Sales - In consideration of these rights granted to
the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the Issuer. This shall not prevent the Distributor from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. This does not obligate
the Distributor to register as a broker or dealer under the Blue Sky
Laws of any jurisdiction in which it is not now registered or to
maintain its registration in any jurisdiction in which it is now
registered. If a sales charge is in effect, the Distributor shall
have the right to enter into sales agreements with dealers of its
choice for the sale of shares of the Issuer to the public at the
public offering price only and fix in such agreements the portion of
the sales charge which may be retained by dealers, provided that the
Issuer shall approve the form of the dealer agreement and the dealer
discounts set forth therein and shall evidence such approval by filing
said form of dealer agreement and amendments thereto as an exhibit to
its currently effective Registration Statement under the 1933 Act.
7. Authorized Representations - The Distributor is not authorized by
the Issuer to give any information or to make any representations
other than those contained in the appropriate registration statements
or Prospectuses and Statements of Additional Information filed with
the Securities and Exchange Commission under the 1933 Act (as these
registration statements, Prospectuses and Statements of Additional
Information may be amended from time to time), or contained in
shareholder reports or other material that may be prepared by or on
behalf of the Issuer for the Distributor's use. This shall not be
construed to prevent the Distributor from preparing and distributing
sales literature or other material as it may deem appropriate.
8. Portfolio Securities - Portfolio securities of the Issuer may be
bought or sold by or through the Distributor, and the Distributor may
participate directly or indirectly in brokerage commissions or
"spreads" for transactions in portfolio securities of the Issuer.
9. Registration of Shares - The Issuer agrees that it will take all
action necessary to register shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be
available for sale the number of shares the Distributor may reasonably
be expected to sell. The Issuer shall make available to the
Distributor such number of copies of its currently effective
Prospectus and Statement of Additional Information as the Distributor
may reasonably request. The Issuer shall furnish to the Distributor
copies of all information, financial statements and other papers which
the Distributor may reasonably request for use in connection with the
distribution of shares of the Issuer.
10. Expenses - The Issuer shall pay all fees and expenses (a) in
connection with the preparation, setting in type and filing of any
registration statement, Prospectus and Statement of Additional
Information under the 1933 Act and amendments for the issue of its
shares, (b) in connection with the registration and qualification of
shares for sale in the various states in which the Board of Trustees
of the Issuer shall determine it advisable to qualify such shares for
sale (including registering the Issuer as a broker or dealer or any
officer of the Issuer as agent or salesman in any state), (c) of
preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Issuer in their capacity as such,
and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements
thereto sent to existing shareholders.
As provided in the Distribution and Service Plan adopted by the
Issuer, it is recognized by the Issuer that FMR may make payment to
Distributors with respect to any expenses incurred in the distribution
of shares of the Issuer, such payments payable from the past profits
or other resources of FMR including management fees paid to it by the
Issuer.
11. Indemnification - The Issuer agrees to indemnify and hold harmless
the Distributor and each of its directors and officers and each
person, if any, who controls the Distributor within the meaning of
Section 15 of the 1933 Act against any loss, liability, claim, damages
or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damages, or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the ground that
the registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Issuer (as from time to time amended) included an untrue
statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading under the 1933 Act, or any other statute or the common law.
However, the Issuer does not agree to indemnify the Distributor or
hold it harmless to the extent that the statement or omission was made
in reliance upon, and in conformity with, information furnished to the
Issuer by or on behalf of the Distributor. In no case (i) is the
indemnity of the Issuer in favor of the Distributor or any person
indemnified to be deemed to protect the Distributor or any person
against any liability to the Issuer or its security holders to which
the Distributor or such person would otherwise be subject by reason of
wilful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Issuer to
be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or person, as the case may be,
shall have notified the Issuer in writing of the claim within a
reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served
upon the Distributor or any such person (or after the Distributor or
such person shall have received notice of service on any designated
agent). However, failure to notify the Issuer of any claim shall not
relieve the Issuer from any liability which it may have to the
Distributor or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
paragraph. The Issuer shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any claims, but if the Issuer elects to
assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Issuer elects
to assume the defense of any suit and retain counsel, the Distributor,
officers or directors or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Issuer does not elect to
assume the defense of any suit, it will reimburse the Distributor,
officers or directors or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Issuer agrees to notify the Distributor
promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance
or sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Issuer and each of its Board members and officers
and each person, if any, who controls the Issuer within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the 1933 Act or
any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Issuer (as from time to time amended) included an untrue statement of
a material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon, and in
conformity with information furnished to the Issuer by or on behalf of
the Distributor. In no case (i) is the indemnity of the Distributor
in favor of the Issuer or any person indemnified to be deemed to
protect the Issuer or any person against any liability to which the
Issuer or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties under this Agreement, or (ii) is the Distributor to be liable
under its indemnity agreement contained in this paragraph with respect
to any claim made against the Issuer or any person indemnified unless
the Issuer or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the
nature of the claim shall have been served upon the Issuer or any such
person (or after the Issuer or such person shall have received notice
of service on any designated agent). However, failure to notify the
Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Issuer or any person against whom
the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to
the Distributor, it shall be entitled to participate, at its own
expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if the Distributor elects
to assume the defense, the defense shall be conducted by counsel
chosen by it and satisfactory to the Issuer, to its officers and Board
and to any controlling person or persons, defendant or defendants in
the suit. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the Issuer or controlling
persons, defendant or defendants in the suit, shall bear the fees and
expense of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will
reimburse the Issuer, officers and Board or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Distributor agrees
to notify the Issuer promptly of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of
the shares.
12. Effective Date - This agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force
until __________ and thereafter from year to year, provided
continuance is approved annually by the vote of a majority of the
Board members of the Issuer, and by the vote of those Board members of
the Issuer who are not "interested persons" of the Issuer and, if a
plan under Rule 12b-1 under the Investment Company Act of 1940 is in
effect, by the vote of those Board members of the Issuer who are not
"interested persons" of the Issuer and who are not parties to the
Distribution and Service Plan or this Agreement and have no financial
interest in the operation of the Distribution and Service Plan or in
any agreements related to the Distribution and Service Plan, cast in
person at a meeting called for the purpose of voting on the approval.
This Agreement shall automatically terminate in the event of its
assignment. As used in this paragraph, the terms "assignment" and
"interested persons" shall have the respective meanings specified in
the Investment Company Act of 1940 as now in effect or as hereafter
amended. In addition to termination by failure to approve continuance
or by assignment, this Agreement may at any time be terminated by
either party upon not less than sixty days' prior written notice to
the other party.
13. Notice - Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Issuer, at 82 Devonshire Street,
Boston, Massachusetts, and if to the Distributor, at 82 Devonshire
Street, Boston, Massachusetts.
14. Limitation of Liability - The Distributor is expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Issuer and agrees that the obligations
assumed by the Issuer under this contract shall be limited in all
cases to the Issuer and its assets. The Distributor shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Issuer. Nor shall the Distributor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee of the Issuer. The Distributor understands that
the rights and obligations of each series of shares of the Issuer
under the Issuer's Declaration of Trust are separate and distinct
from those of any and all other series.
IN WITNESS WHEREOF, the Issuer has executed this instrument in its
name and behalf, and its seal affixed, by one of its officers duly
authorized, and the Distributor has executed this instrument in its
name and behalf, and its corporate seal affixed, by one of its
officers duly authorized, as of the day and year first above written.
[SIGNATURE LINES OMITTED]

EXHIBIT E(5)
FORM OF
GENERAL DISTRIBUTION AGREEMENT
between
FIDELITY SCHOOL STREET TRUST:
FIDELITY NEW MARKETS INCOME FUND
and
FIDELITY DISTRIBUTORS CORPORATION
Agreement made this _____ day of ____, 1998, between Fidelity School
Street Trust, a Massachusetts business trust having its principal
place of business in Boston, Massachusetts and which may issue one or
more series of beneficial interest ("Issuer"), with respect to shares
of Fidelity New Markets Income Fund, a series of the Issuer, and
Fidelity Distributors Corporation, a Massachusetts corporation having
its principal place of business in Boston, Massachusetts
("Distributors").
In consideration of the mutual promises and undertakings herein
contained, the parties agree as follows:
1. Sale of Shares - The Issuer grants to Distributors the right to
sell shares on behalf of the Issuer during the term of this Agreement
and subject to the registration requirements of the Securities Act of
1933, as amended ("1933 Act"), and of the laws governing the sale of
securities in the various states ("Blue Sky Laws") under the following
terms and conditions: Distributors (i) shall have the right to sell,
as agent on behalf of the Issuer, shares authorized for issue and
registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among the funds advised by
Fidelity Management & Research Company ("FMR") or any of its
affiliates.
2. Sale of Shares by the Issuer - The rights granted to the
Distributor shall be nonexclusive in that the Issuer reserves the
right to sell its shares to investors on applications received and
accepted by the Issuer. Further, the Issuer reserves the right to
issue shares in connection with the merger or consolidation, or
acquisition by the Issuer through purchase or otherwise, with any
other investment company, trust, or personal holding company.
3. Shares Covered by this Agreement - This Agreement shall apply to
unissued shares of the Issuer, shares of the Issuer held in its
treasury in the event that in the discretion of the Issuer treasury
shares shall be sold, and shares of the Issuer repurchased for resale.
4. Public Offering Price - Except as otherwise noted in the Issuer's
current Prospectus and/or Statement of Additional Information, all
shares sold to investors by the Distributor or the Issuer will be sold
at the public offering price. The public offering price for all
accepted subscriptions will be the net asset value per share, as
determined in the manner described in the Issuer's current Prospectus
and/or Statement of Additional Information, plus a sales charge (if
any) described in the Issuer's current Prospectus and/or Statement of
Additional Information. The Issuer shall in all cases receive the net
asset value per share on all sales. If a sales charge is in effect,
the Distributor shall have the right subject to such rules or
regulations of the Securities and Exchange Commission as may then be
in effect pursuant to Section 22 of the Investment Company Act of 1940
to pay a portion of the sales charge to dealers who have sold shares
of the Issuer. If a fee in connection with shareholder redemptions is
in effect, the Issuer shall collect the fee on behalf of Distributors
and, unless otherwise agreed upon by the Issuer and Distributors,
Distributors shall be entitled to receive all of such fees.
5. Suspension of Sales - If and whenever the determination of net
asset value is suspended and until such suspension is terminated, no
further orders for shares shall be processed by the Distributor except
such unconditional orders as may have been placed with the Distributor
before it had knowledge of the suspension. In addition, the Issuer
reserves the right to suspend sales and the Distributor's authority to
process orders for shares on behalf of the Issuer if, in the judgment
of the Issuer, it is in the best interests of the Issuer to do so.
Suspension will continue for such period as may be determined by the
Issuer.
6. Solicitation of Sales - In consideration of these rights granted to
the Distributor, the Distributor agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the Issuer. This shall not prevent the Distributor from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. This does not obligate
the Distributor to register as a broker or dealer under the Blue Sky
Laws of any jurisdiction in which it is not now registered or to
maintain its registration in any jurisdiction in which it is now
registered. If a sales charge is in effect, the Distributor shall
have the right to enter into sales agreements with dealers of its
choice for the sale of shares of the Issuer to the public at the
public offering price only and fix in such agreements the portion of
the sales charge which may be retained by dealers, provided that the
Issuer shall approve the form of the dealer agreement and the dealer
discounts set forth therein and shall evidence such approval by filing
said form of dealer agreement and amendments thereto as an exhibit to
its currently effective Registration Statement under the 1933 Act.
7. Authorized Representations - The Distributor is not authorized by
the Issuer to give any information or to make any representations
other than those contained in the appropriate registration statements
or Prospectuses and Statements of Additional Information filed with
the Securities and Exchange Commission under the 1933 Act (as these
registration statements, Prospectuses and Statements of Additional
Information may be amended from time to time), or contained in
shareholder reports or other material that may be prepared by or on
behalf of the Issuer for the Distributor's use. This shall not be
construed to prevent the Distributor from preparing and distributing
sales literature or other material as it may deem appropriate.
8. Portfolio Securities - Portfolio securities of the Issuer may be
bought or sold by or through the Distributor, and the Distributor may
participate directly or indirectly in brokerage commissions or
"spreads" for transactions in portfolio securities of the Issuer.
However, all sums of money received by the Distributor as a result of
such purchases and sales or as a result of such participation must,
after reimbursement of actual expenses of the Distributor in
connection with such activity, be paid over by the Distributor for the
benefit of the Issuer.
9. Registration of Shares - The Issuer agrees that it will take all
action necessary to register shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be
available for sale the number of shares the Distributor may reasonably
be expected to sell. The Issuer shall make available to the
Distributor such number of copies of its currently effective
Prospectus and Statement of Additional Information as the Distributor
may reasonably request. The Issuer shall furnish to the Distributor
copies of all information, financial statements and other papers which
the Distributor may reasonably request for use in connection with the
distribution of shares of the Issuer.
10. Expenses - The Issuer shall pay all fees and expenses (a) in
connection with the preparation, setting in type and filing of any
registration statement, Prospectus and Statement of Additional
Information under the 1933 Act and amendments for the issue of its
shares, (b) in connection with the registration and qualification of
shares for sale in the various states in which the Board of Trustees
of the Issuer shall determine it advisable to qualify such shares for
sale (including registering the Issuer as a broker or dealer or any
officer of the Issuer as agent or salesman in any state), (c) of
preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Issuer in their capacity as such,
and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements
thereto sent to existing shareholders.
As provided in the Distribution and Service Plan adopted by the
Issuer, it is recognized by the Issuer that FMR may make payment to
Distributors with respect to any expenses incurred in the distribution
of shares of the Issuer, such payments payable from the past profits
or other resources of FMR including management fees paid to it by the
Issuer.
11. Indemnification - The Issuer agrees to indemnify and hold harmless
the Distributor and each of its directors and officers and each
person, if any, who controls the Distributor within the meaning of
Section 15 of the 1933 Act against any loss, liability, claim, damages
or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, claim, damages, or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the ground that
the registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Issuer (as from time to time amended) included an untrue
statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading under the 1933 Act, or any other statute or the common law.
However, the Issuer does not agree to indemnify the Distributor or
hold it harmless to the extent that the statement or omission was made
in reliance upon, and in conformity with, information furnished to the
Issuer by or on behalf of the Distributor. In no case (i) is the
indemnity of the Issuer in favor of the Distributor or any person
indemnified to be deemed to protect the Distributor or any person
against any liability to the Issuer or its security holders to which
the Distributor or such person would otherwise be subject by reason of
wilful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Issuer to
be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against the Distributor or any person
indemnified unless the Distributor or person, as the case may be,
shall have notified the Issuer in writing of the claim within a
reasonable time after the summons or other first written notification
giving information of the nature of the claim shall have been served
upon the Distributor or any such person (or after the Distributor or
such person shall have received notice of service on any designated
agent). However, failure to notify the Issuer of any claim shall not
relieve the Issuer from any liability which it may have to the
Distributor or any person against whom such action is brought
otherwise than on account of its indemnity agreement contained in this
paragraph. The Issuer shall be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense of
any suit brought to enforce any claims, but if the Issuer elects to
assume the defense, the defense shall be conducted by counsel chosen
by it and satisfactory to the Distributor or person or persons,
defendant or defendants in the suit. In the event the Issuer elects
to assume the defense of any suit and retain counsel, the Distributor,
officers or directors or controlling person or persons, defendant or
defendants in the suit, shall bear the fees and expenses of any
additional counsel retained by them. If the Issuer does not elect to
assume the defense of any suit, it will reimburse the Distributor,
officers or directors or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. The Issuer agrees to notify the Distributor
promptly of the commencement of any litigation or proceedings against
it or any of its officers or trustees in connection with the issuance
or sale of any of the shares.
The Distributor also covenants and agrees that it will indemnify and
hold harmless the Issuer and each of its Board members and officers
and each person, if any, who controls the Issuer within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the 1933 Act or
any other statute or common law, alleging any wrongful act of the
Distributor or any of its employees or alleging that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Issuer (as from time to time amended) included an untrue statement of
a material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon, and in
conformity with information furnished to the Issuer by or on behalf of
the Distributor. In no case (i) is the indemnity of the Distributor
in favor of the Issuer or any person indemnified to be deemed to
protect the Issuer or any person against any liability to which the
Issuer or such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties under this Agreement, or (ii) is the Distributor to be liable
under its indemnity agreement contained in this paragraph with respect
to any claim made against the Issuer or any person indemnified unless
the Issuer or person, as the case may be, shall have notified the
Distributor in writing of the claim within a reasonable time after the
summons or other first written notification giving information of the
nature of the claim shall have been served upon the Issuer or any such
person (or after the Issuer or such person shall have received notice
of service on any designated agent). However, failure to notify the
Distributor of any claim shall not relieve the Distributor from any
liability which it may have to the Issuer or any person against whom
the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to
the Distributor, it shall be entitled to participate, at its own
expense, in the defense or, if it so elects, to assume the defense of
any suit brought to enforce the claim, but if the Distributor elects
to assume the defense, the defense shall be conducted by counsel
chosen by it and satisfactory to the Issuer, to its officers and Board
and to any controlling person or persons, defendant or defendants in
the suit. In the event that the Distributor elects to assume the
defense of any suit and retain counsel, the Issuer or controlling
persons, defendant or defendants in the suit, shall bear the fees and
expense of any additional counsel retained by them. If the
Distributor does not elect to assume the defense of any suit, it will
reimburse the Issuer, officers and Board or controlling person or
persons, defendant or defendants in the suit, for the reasonable fees
and expenses of any counsel retained by them. The Distributor agrees
to notify the Issuer promptly of the commencement of any litigation or
proceedings against it in connection with the issue and sale of any of
the shares.
12. Effective Date - This agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force
until ____________ and thereafter from year to year, provided
continuance is approved annually by the vote of a majority of the
Board members of the Issuer, and by the vote of those Board members of
the Issuer who are not "interested persons" of the Issuer and, if a
plan under Rule 12b-1 under the Investment Company Act of 1940 is in
effect, by the vote of those Board members of the Issuer who are not
"interested persons" of the Issuer and who are not parties to the
Distribution and Service Plan or this Agreement and have no financial
interest in the operation of the Distribution and Service Plan or in
any agreements related to the Distribution and Service Plan, cast in
person at a meeting called for the purpose of voting on the approval.
This Agreement shall automatically terminate in the event of its
assignment. As used in this paragraph, the terms "assignment" and
"interested persons" shall have the respective meanings specified in
the Investment Company Act of 1940 as now in effect or as hereafter
amended. In addition to termination by failure to approve continuance
or by assignment, this Agreement may at any time be terminated by
either party upon not less than sixty days' prior written notice to
the other party.
13. Notice - Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Issuer, at 82 Devonshire Street,
Boston, Massachusetts, and if to the Distributor, at 82 Devonshire
Street, Boston, Massachusetts.
14. Limitation of Liability - The Distributor is expressly put on
notice of the limitation of shareholder liability as set forth in the
Declaration of Trust of the Issuer and agrees that the obligations
assumed by the Issuer under this contract shall be limited in all
cases to the Issuer and its assets. The Distributor shall not seek
satisfaction of any such obligation from the shareholders or any
shareholder of the Issuer. Nor shall the Distributor seek
satisfaction of any such obligation from the Trustees or any
individual Trustee of the Issuer. The Distributor understands that
the rights and obligations of each series of shares of the Issuer
under the Issuer's Declaration of Trust are separate and distinct from
those of any and all other series.
IN WITNESS WHEREOF, the Issuer has executed this instrument in its
name and behalf, and its seal affixed, by one of its officers duly
authorized, and the Distributor has executed this instrument in its
name and behalf by one of its officers duly authorized, as of the day
and year first above written.
[SIGNATURE LINES OMITTED]

EXHIBIT E(6)
GENERAL DISTRIBUTION AGREEMENT
between
FIDELITY SCHOOL STREET TRUST
and
FIDELITY DISTRIBUTORS CORPORATION
Agreement made this 16th day of April, 1998, between Fidelity School
Street Trust, a Massachusetts business trust having its principal
place of business in Boston, Massachusetts and which may issue one or
more series of beneficial interest ("Issuer"), with respect to shares
of Fidelity Strategic Income Fund, a series of the Issuer, and
Fidelity Distributors Corporation, a Massachusetts corporation having
its principal place of business in Boston, Massachusetts
("Distributors").
In consideration of the mutual promises and undertakings herein
contained, the parties agree as follows:
1. Sale of Shares - The Issuer grants to Distributors the right to
sell shares on behalf of the Issuer during the term of this Agreement
and subject to the registration requirements of the Securities Act of
1933, as amended ("1933 Act"), and of the laws governing the sale of
securities in the various states ("Blue Sky Laws") under the following
terms and conditions: Distributors (i) shall have the right to sell,
as agent on behalf of the Issuer, shares authorized for issue and
registered under the 1933 Act, and (ii) may sell shares under offers
of exchange, if available, between and among the funds advised by
Fidelity Management & Research Company ("FMR") or any of its
affiliates.
2. Sale of Shares by the Issuer - The rights granted to Distributors
shall be nonexclusive in that the Issuer reserves the right to sell
its shares to investors on applications received and accepted by the
Issuer. Further, the Issuer reserves the right to issue shares in
connection with the merger or consolidation, or acquisition by the
Issuer through purchase or otherwise, with any other investment
company, trust, or personal holding company.
3. Shares Covered by this Agreement - This Agreement shall apply to
unissued shares of the Issuer, shares of the Issuer held in its
treasury in the event that in the discretion of the Issuer treasury
shares shall be sold, and shares of the Issuer repurchased for resale.
4. Public Offering Price - Except as otherwise noted in the Issuer's
current Prospectus and/or Statement of Additional Information, all
shares sold to investors by Distributors or the Issuer will be sold at
the public offering price. The public offering price for all accepted
subscriptions will be the net asset value per share, as determined in
the manner described in the Issuer's current Prospectus and/or
Statement of Additional Information, plus a sales charge (if any)
described in the Issuer's current Prospectus and/or Statement of
Additional Information. The Issuer shall in all cases receive the net
asset value per share on all sales. If a sales charge is in effect,
Distributors shall have the right subject to such rules or regulations
of the Securities and Exchange Commission as may then be in effect
pursuant to Section 22 of the Investment Company Act of 1940 to pay a
portion of the sales charge to dealers who have sold shares of the
Issuer. If a fee in connection with shareholder redemptions is in
effect, the Issuer shall collect the fee on behalf of Distributors
and, unless otherwise agreed upon by the Issuer and Distributors,
Distributors shall be entitled to receive all of such fees.
5. Suspension of Sales - If and whenever the determination of net
asset value is suspended and until such suspension is terminated, no
further orders for shares shall be processed by Distributors except
such unconditional orders as may have been placed with Distributors
before it had knowledge of the suspension. In addition, the Issuer
reserves the right to suspend sales and Distributors' authority to
process orders for shares on behalf of the Issuer if, in the judgment
of the Issuer, it is in the best interests of the Issuer to do so.
Suspension will continue for such period as may be determined by the
Issuer.
6. Solicitation of Sales - In consideration of these rights granted to
Distributors, Distributors agrees to use all reasonable efforts,
consistent with its other business, to secure purchasers for shares of
the Issuer. This shall not prevent Distributors from entering into
like arrangements (including arrangements involving the payment of
underwriting commissions) with other issuers. This does not obligate
Distributors to register as a broker or dealer under the Blue Sky Laws
of any jurisdiction in which it is not now registered or to maintain
its registration in any jurisdiction in which it is now registered.
If a sales charge is in effect, Distributors shall have the right to
enter into sales agreements with dealers of its choice for the sale of
shares of the Issuer to the public at the public offering price only
and fix in such agreements the portion of the sales charge which may
be retained by dealers, provided that the Issuer shall approve the
form of the dealer agreement and the dealer discounts set forth
therein and shall evidence such approval by filing said form of dealer
agreement and amendments thereto as an exhibit to its currently
effective Registration Statement under the 1933 Act.
7. Authorized Representations - Distributors is not authorized by the
Issuer to give any information or to make any representations other
than those contained in the appropriate registration statements or
Prospectuses and Statements of Additional Information filed with the
Securities and Exchange Commission under the 1933 Act (as these
registration statements, Prospectuses and Statements of Additional
Information may be amended from time to time), or contained in
shareholder reports or other material that may be prepared by or on
behalf of the Issuer for Distributors' use. This shall not be
construed to prevent Distributors from preparing and distributing
sales literature or other material as it may deem appropriate.
8. Portfolio Securities - Portfolio securities of the Issuer may be
bought or sold by or through Distributors, and Distributors may
participate directly or indirectly in brokerage commissions or
"spreads" for transactions in portfolio securities of the Issuer.
9. Registration of Shares - The Issuer agrees that it will take all
action necessary to register shares under the 1933 Act (subject to the
necessary approval of its shareholders) so that there will be
available for sale the number of shares Distributors may reasonably be
expected to sell. The Issuer shall make available to Distributors
such number of copies of its currently effective Prospectus and
Statement of Additional Information as Distributors may reasonably
request. The Issuer shall furnish to Distributors copies of all
information, financial statements and other papers which Distributors
may reasonably request for use in connection with the distribution of
shares of the Issuer.
10. Expenses - The Issuer shall pay all fees and expenses (a) in
connection with the preparation, setting in type and filing of any
registration statement, Prospectus and Statement of Additional
Information under the 1933 Act and amendments for the issue of its
shares, (b) in connection with the registration and qualification of
shares for sale in the various states in which the Board of Trustees
of the Issuer shall determine it advisable to qualify such shares for
sale (including registering the Issuer as a broker or dealer or any
officer of the Issuer as agent or salesman in any state), (c) of
preparing, setting in type, printing and mailing any report or other
communication to shareholders of the Issuer in their capacity as such,
and (d) of preparing, setting in type, printing and mailing
Prospectuses, Statements of Additional Information and any supplements
thereto sent to existing shareholders.
As provided in the Distribution and Service Plan adopted by the
Issuer, it is recognized by the Issuer that FMR may make payment to
Distributors with respect to any expenses incurred in the distribution
of shares of the Issuer, such payments payable from the past profits
or other resources of FMR including management fees paid to it by the
Issuer.
11. Indemnification - The Issuer agrees to indemnify and hold harmless
Distributors and each of its directors and officers and each person,
if any, who controls Distributors within the meaning of Section 15 of
the 1933 Act against any loss, liability, claim, damages or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damages, or expense and reasonable
counsel fees incurred in connection therewith) arising by reason of
any person acquiring any shares, based upon the ground that the
registration statement, Prospectus, Statement of Additional
Information, shareholder reports or other information filed or made
public by the Issuer (as from time to time amended) included an untrue
statement of a material fact or omitted to state a material fact
required to be stated or necessary in order to make the statements not
misleading under the 1933 Act, or any other statute or the common law.
However, the Issuer does not agree to indemnify Distributors or hold
it harmless to the extent that the statement or omission was made in
reliance upon, and in conformity with, information furnished to the
Issuer by or on behalf of Distributors. In no case (i) is the
indemnity of the Issuer in favor of Distributors or any person
indemnified to be deemed to protect Distributors or any person against
any liability to the Issuer or its security holders to which
Distributors or such person would otherwise be subject by reason of
wilful misfeasance, bad faith or gross negligence in the performance
of its duties or by reason of its reckless disregard of its
obligations and duties under this Agreement, or (ii) is the Issuer to
be liable under its indemnity agreement contained in this paragraph
with respect to any claim made against Distributors or any person
indemnified unless Distributors or person, as the case may be, shall
have notified the Issuer in writing of the claim within a reasonable
time after the summons or other first written notification giving
information of the nature of the claim shall have been served upon
Distributors or any such person (or after Distributors or such person
shall have received notice of service on any designated agent).
However, failure to notify the Issuer of any claim shall not relieve
the Issuer from any liability which it may have to Distributors or any
person against whom such action is brought otherwise than on account
of its indemnity agreement contained in this paragraph. The Issuer
shall be entitled to participate at its own expense in the defense,
or, if it so elects, to assume the defense of any suit brought to
enforce any claims, but if the Issuer elects to assume the defense,
the defense shall be conducted by counsel chosen by it and
satisfactory to Distributors or person or persons, defendant or
defendants in the suit. In the event the Issuer elects to assume the
defense of any suit and retain counsel, Distributors, officers or
directors or controlling person or persons, defendant or defendants in
the suit, shall bear the fees and expenses of any additional counsel
retained by them. If the Issuer does not elect to assume the defense
of any suit, it will reimburse Distributors, officers or directors or
controlling person or persons, defendant or defendants in the suit,
for the reasonable fees and expenses of any counsel retained by them.
The Issuer agrees to notify Distributors promptly of the commencement
of any litigation or proceedings against it or any of its officers or
trustees in connection with the issuance or sale of any of the shares.
Distributors also covenants and agrees that it will indemnify and
hold harmless the Issuer and each of its Board members and officers
and each person, if any, who controls the Issuer within the meaning of
Section 15 of the 1933 Act, against any loss, liability, damages,
claim or expense (including the reasonable cost of investigating or
defending any alleged loss, liability, damages, claim or expense and
reasonable counsel fees incurred in connection therewith) arising by
reason of any person acquiring any shares, based upon the 1933 Act or
any other statute or common law, alleging any wrongful act of
Distributors or any of its employees or alleging that the registration
statement, Prospectus, Statement of Additional Information,
shareholder reports or other information filed or made public by the
Issuer (as from time to time amended) included an untrue statement of
a material fact or omitted to state a material fact required to be
stated or necessary in order to make the statements not misleading,
insofar as the statement or omission was made in reliance upon, and in
conformity with information furnished to the Issuer by or on behalf of
Distributors. In no case (i) is the indemnity of Distributors in
favor of the Issuer or any person indemnified to be deemed to protect
the Issuer or any person against any liability to which the Issuer or
such person would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of its
duties or by reason of its reckless disregard of its obligations and
duties under this Agreement, or (ii) is Distributors to be liable
under its indemnity agreement contained in this paragraph with respect
to any claim made against the Issuer or any person indemnified unless
the Issuer or person, as the case may be, shall have notified
Distributors in writing of the claim within a reasonable time after
the summons or other first written notification giving information of
the nature of the claim shall have been served upon the Issuer or any
such person (or after the Issuer or such person shall have received
notice of service on any designated agent). However, failure to
notify Distributors of any claim shall not relieve Distributors from
any liability which it may have to the Issuer or any person against
whom the action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. In the case of any notice to
Distributors, it shall be entitled to participate, at its own expense,
in the defense or, if it so elects, to assume the defense of any suit
brought to enforce the claim, but if Distributors elects to assume the
defense, the defense shall be conducted by counsel chosen by it and
satisfactory to the Issuer, to its officers and Board and to any
controlling person or persons, defendant or defendants in the suit.
In the event that Distributors elects to assume the defense of any
suit and retain counsel, the Issuer or controlling persons, defendant
or defendants in the suit, shall bear the fees and expense of any
additional counsel retained by them. If Distributors does not elect
to assume the defense of any suit, it will reimburse the Issuer,
officers and Board or controlling person or persons, defendant or
defendants in the suit, for the reasonable fees and expenses of any
counsel retained by them. Distributors agrees to notify the Issuer
promptly of the commencement of any litigation or proceedings against
it in connection with the issue and sale of any of the shares.
12. Effective Date - This agreement shall be effective upon its
execution, and unless terminated as provided, shall continue in force
until March 31, 1999 and thereafter from year to year, provided
continuance is approved annually by the vote of a majority of the
Board members of the Issuer, and by the vote of those Board members of
the Issuer who are not "interested persons" of the Issuer and, if a
plan under Rule 12b-1 under the Investment Company Act of 1940 is in
effect, by the vote of those Board members of the Issuer who are not
"interested persons" of the Issuer and who are not parties to the
Distribution and Service Plan or this Agreement and have no financial
interest in the operation of the Distribution and Service Plan or in
any agreements related to the Distribution and Service Plan, cast in
person at a meeting called for the purpose of voting on the approval.
This Agreement shall automatically terminate in the event of its
assignment. As used in this paragraph, the terms "assignment" and
"interested persons" shall have the respective meanings specified in
the Investment Company Act of 1940 as now in effect or as hereafter
amended. In addition to termination by failure to approve continuance
or by assignment, this Agreement may at any time be terminated by
either party upon not less than sixty days' prior written notice to
the other party.
13. Notice - Any notice required or permitted to be given by either
party to the other shall be deemed sufficient if sent by registered or
certified mail, postage prepaid, addressed by the party giving notice
to the other party at the last address furnished by the other party to
the party giving notice: if to the Issuer, at 82 Devonshire Street,
Boston, Massachusetts, and if to Distributors, at 82 Devonshire
Street, Boston, Massachusetts.
14. Limitation of Liability - Distributors is expressly put on notice
of the limitation of shareholder liability as set forth in the
Declaration of Trust or other organizational document of the Issuer
and agrees that the obligations assumed by the Issuer under this
contract shall be limited in all cases to the Issuer and its assets.
Distributors shall not seek satisfaction of any such obligation from
the shareholders or any shareholder of the Issuer. Nor shall
Distributors seek satisfaction of any such obligation from the
Trustees or any individual Trustee of the Issuer. Distributors
understands that the rights and obligations of each series of shares
of the Issuer under the Issuer's Declaration of Trust or other
organizational document are separate and distinct from those of any
and all other series.
15. This agreement shall be governed by, and construed in accordance
with, the laws of the Commonwealth of Massachusetts, without giving
effect to the choice of laws provisions thereof.
IN WITNESS WHEREOF, the Issuer has executed this instrument in its
name and behalf, and its seal affixed, by one of its officers duly
authorized, and Distributors has executed this instrument in its name
and behalf by one of its officers duly authorized, as of the day and
year first above written.
FIDELITY SCHOOL STREET TRUST
By /s/Robert C. Pozen
Robert C. Pozen
FIDELITY DISTRIBUTORS CORPORATION
By /s/Martha B. Willis
Martha B. Willis

Exhibit g(6)
FORM OF
SCHEDULE 1

The following lists the additional counterparties to the Repo
Custodian Agreement for Joint Trading Account between The Bank of New
York and the Fidelity Funds:

EXHIBIT G(7)

FORM OF
FIDELITY GROUP
REPO CUSTODIAN AGREEMENT
FOR JOINT TRADING ACCOUNT
AGREEMENT dated as of ___________, among CHEMICAL BANK, a banking
corporation organized under the laws of the State of New York ("Repo
Custodian"), GREENWICH CAPITAL MARKETS, INC. ("Seller") and each of
the entities listed on Schedule A-1, A-2, A-3 and A-4 hereto acting on
behalf of itself or (i) in the case of a series company, on behalf of
one or more of its portfolios or series listed on Schedule A-1 or A-2
hereto, (ii) in the case of the accounts listed on Schedule A-3
hereto, acting through Fidelity Management & Research Company, and
(iii) in the case of the commingled or individual accounts listed on
Schedule A-4 hereto, acting through Fidelity Management Trust Company
(collectively, the "Funds" and each, a "Fund").
WITNESSETH
WHEREAS, each of the Funds has entered into a master repurchase
agreement dated as of ____________, (the "Master Agreement") with
Seller pursuant to which from time to time one or more of the Funds,
as buyers, and Seller, as seller, may enter into repurchase
transactions effected through one or more joint trading accounts
(collectively, the "Joint Trading Account") established and
administered by one or more custodians of the Funds identified on
Schedule C hereto (each a "Custodian"); and,
WHEREAS, in each such repurchase transaction Seller will sell to such
Funds certain Securities (as hereinafter defined) selected from
Eligible Securities (as hereinafter defined) held by Repo Custodian ,
subject to an agreement by Seller to repurchase such Securities; and
WHEREAS, Repo Custodian currently maintains a cash and securities
account (the "Seller Account") for Seller for the purpose of, among
other things, effecting repurchase transactions hereunder; and
WHEREAS, the Funds desire that the Repo Custodian serve as the
custodian for each of the Funds in connection with the repurchase
transactions effected hereunder, and that the Repo Custodian hold
cash, Cash Collateral (as hereinafter defined) and Securities for each
of the Funds for the purpose of effecting repurchase transactions
hereunder.
NOW THEREFORE, the parties hereto hereby agree as follows:
1. Definitions.
Whenever used in this Agreement, the following terms shall have the
meanings set forth below:
(a) "Banking Day" shall mean any day on which the Funds, Seller
Custodian, Repo Custodian, and the Federal Reserve Banks where the
Custodian and the Repo Custodian are located, are each open for
business.
(b) "Cash Collateral" shall mean all cash, denominated in U.S.
Dollars, credited by Repo Custodian to a Transaction Account pursuant
to Paragraphs 3, 6, 8 or 9 of the Master Agreement.
(c) "Custodian" shall have the meaning set forth in the preamble of
this Agreement.
(d) "Eligible Securities" shall mean those securities which are
identified as permissible securities for a particular Transaction
Category.
(e) "FICASH I Transaction" and "FICASH III Transaction" shall mean a
repurchase transaction in which the Repurchase Date is the Banking Day
next following the Sale Date and for which securities issued by the
government of the United States of America that are direct obligations
of the government of the United States of America shall constitute
Eligible Securities.
(f) "FICASH II Transaction" shall mean a repurchase transaction in
which the Repurchase Date is the Banking Day next following the Sale
Date and for which one or more of the following two categories of
securities, as specified by the Funds, shall constitute Eligible
Securities: (x) securities issued by the government of the United
States of America that are direct obligations of the government of the
United States of America, or (y) securities issued by or guaranteed as
to principal and interest by the government of the United States of
America, or by its agencies and/or instrumentalities, including, but
not limited to, the Federal Home Loan Bank, Federal Home Loan Mortgage
Corp., Government National Mortgage Association, Federal National
Mortgage Association, Federal Farm Credit Bank, Federal Intermediate
Credit Bank, Banks for Cooperatives, and Federal Land Banks.
(g) "FITERM I Transaction" and "FITERM III Transaction" shall mean a
repurchase transaction in which the Repurchase Date is a date fixed by
agreement between Seller and the Participating Funds which is not the
Banking Day next following the Sale Date, or if applicable, the date
fixed upon exercise of an Unconditional Resale Right (as hereinafter
defined) by the Participating Funds and for which securities issued by
the government of the United States of America that are direct
obligations of the government of the United States of America shall
constitute Eligible Securities.
(h) "FITERM II Transaction" shall mean a repurchase transaction in
which the Repurchase Date is a date fixed by agreement between Seller
and the Participating Funds which is not the Banking Day next
following the Sale Date, or, if applicable, the date fixed upon
exercise of an Unconditional Resale Right (as hereinafter defined) by
the Participating Funds and for which one or more of the following two
categories of securities, as specified by the Funds, shall constitute
Eligible Securities: (x) securities issued by the government of the
United States of America that are direct obligations of the government
of the United States of America, or (y) securities issued by or
guaranteed as to principal and interest by the government of the
United States of America, or by its agencies and/or instrumentalities,
including, but not limited to, the Federal Home Loan Bank, Federal
Home Loan Mortgage Corp., Government National Mortgage Association,
Federal National Mortgage Association, Federal Farm Credit Bank,
Federal Intermediate Credit Bank, Banks for Cooperatives, and Federal
Land Banks.
(i) "Fund" shall have the meaning set forth in the preamble of this
Agreement.
(j) "Fund Agent" shall mean the agent for the Participating Funds
designated in Paragraph 18 of the Master Agreement.
(k) "Joint Trading Account" shall have the meaning set forth in the
preamble of this Agreement.
(l) "Margin Percentage" with respect to any repurchase transaction
shall be 102% or such other percentage as is agreed to by Seller and
the Participating Funds (except that in no event shall the Margin
Percentage be less than 100%).
(m) "Market Value" shall have the meaning set forth in Paragraph 4 of
the Master Agreement.
(n) "Master Agreement" shall have the meaning set forth in the
preamble of this Agreement.
(o) "1940 Act" shall mean have the meaning set forth in Paragraph
3(c) of this Agreement.
(p) "Partial Payment" shall have the meaning set forth in Section
4(g) of this Agreement.
(q) "Participating Funds" shall mean those Funds that are parties to
a particular repurchase transaction effected through the Joint Trading
Account.
(r) "Pricing Rate" shall mean the per annum percentage rate agreed to
by Seller and the Participating Funds for a particular repurchase
transaction.
(s) "Pricing Services" shall have the meaning set forth in Paragraph
7 of this Agreement.
(t) "Repo Custodian" shall have the meaning set forth in the preamble
of this Agreement.
(u) "Repurchase Date" shall mean the date fixed by agreement between
Seller and the Participating Funds on which the Seller is to
repurchase Securities and Cash Collateral, if any, from the
Participating Funds and the Participating Funds are to resell the
Securities and Cash Collateral, if any, including any date determined
by application of the provisions of Paragraphs 7(a) and 15 of the
Master Agreement.
(v) "Repurchase Price" for each repurchase transaction shall mean the
Sale Price, plus an incremental amount determined by applying the
Pricing Rate to the Sale Price, calculated on the basis of a 360-day
year and the number of actual days elapsed from (and including) the
Sale Date to (but excluding) the Repurchase Date.
(w) "Sale Date" shall mean the Banking Day on which Securities and
Cash Collateral, if any, are to be sold to the Participating Funds by
Seller pursuant to a repurchase transaction hereunder.
(x) "Sale Price" shall mean the price agreed upon by the
Participating Funds and Seller at which the Securities and Cash
Collateral, if any, are to be sold to the Participating Funds by
Seller.
(y) "Securities" shall mean all Eligible Securities delivered by
Seller or to be delivered by Seller to the Participating Funds
pursuant to a particular repurchase transaction and not yet
repurchased hereunder, together with all rights related thereto and
all proceeds thereof.
(z) "Securities System" shall have the meaning set forth in Paragraph
3(c) of this Agreement.
(aa) "Seller" shall have the meaning set forth in the preamble to
this Agreement.
(bb) "Seller Account" shall have the meaning set forth in the
preamble of this Agreement.
(cc) "Transaction Account" shall mean a cash account established and
maintained by Repo Custodian for the Funds to effect repurchase
transactions pursuant to the Master Agreement.
(dd) "Transaction Category" shall mean the particular type of
repurchase transaction effected hereunder, as determined with
reference to the term of the transaction and the categories of
Securities that constitute Eligible Securities therefor, which term
shall include FICASH I Transactions, FICASH II Transactions, FICASH
III Transactions, FITERM I Transactions, FITERM II Transactions,
FITERM III Transactions, and such other transaction categories as may
from time to time be designated by the Funds by notice to Seller,
Custodian and Repo Custodian.
(ee) "Unconditional Resale Right" shall have the meaning set forth
in Paragraph 7(b) of the Master Agreement.
(ff) "Valuation Day" shall mean any day on which Repo Custodian is
open for business.
2. Appointment of Repo Custodian. Upon the terms and conditions set
forth in this Agreement, Repo Custodian is hereby appointed by the
Funds to act as the custodian for the Participating Funds to hold
cash, Cash Collateral and Securities for the purpose of effecting
repurchase transactions for the Participating Funds through the Joint
Trading Account pursuant to the Master Agreement. Repo Custodian
hereby acknowledges the terms of the Master Agreement between the
Funds and Seller (attached as an Exhibit hereto), as amended from time
to time, and agrees to abide by the provisions thereof to the extent
such provisions relate to the responsibilities and operations of Repo
Custodian hereunder.
3. Maintenance of Transaction Accounts.
(a) Repo Custodian shall establish and maintain one or more
Transaction Accounts for the purpose of effecting repurchase
transactions hereunder for the Funds, in each case pursuant to the
Master Agreement. From time to time the Funds may cause Custodian, on
behalf of the Funds, to deposit Securities and cash with Repo
Custodian in the designated Transaction Account, in each case in
accordance with Paragraph 3 of the Master Agreement.
(b) Repo Custodian shall keep all Securities, cash and Cash
Collateral received for the Participating Funds segregated at all
times from those of any other person, firm or corporation in its
possession and shall identify all such Securities, cash and Cash
Collateral as subject to this Agreement and the Master Agreement.
Segregation may be accomplished by physical segregation with respect
to certificated securities held by the Repo Custodian and, in
addition, by appropriate identification on the books and records of
Repo Custodian in the case of all other Securities, cash and Cash
Collateral. Title to all Securities and Cash Collateral under a
repurchase transaction shall pass to the Participating Funds that are
parties to such repurchase transaction. All such Securities and Cash
Collateral shall be held by Repo Custodian for the Participating
Funds, and shall be subject at all times to the proper instructions of
the Participating Funds, or the Custodian on behalf of the
Participating Funds, with respect to the holding, transfer or
disposition of such Securities and Cash Collateral. Repo Custodian
shall include in its records for each Transaction Account all
instructions received by it which evidence an interest of the
Participating Funds in the Securities and Cash Collateral and shall
hold physically segregated any written agreement, receipt or other
writing received by it which evidences an interest of the
Participating Funds in the Securities and Cash Collateral.
(c) Any requirement to "deliver" or "transfer" cash or Cash
Collateral to the Participating Funds or to "credit" a Transaction
Account under this or any other paragraph of this Agreement shall be
made in immediately available funds. If Repo Custodian is required to
"deliver" or "transfer" Securities to the Participating Funds under
this or any other paragraph of this Agreement, Repo Custodian shall
take, or cause to be taken, the following actions to perfect the
Participating Funds' interest in such Securities as an outright
purchaser: (i) in the case of certificated securities and instruments
held by Seller, by physical delivery of the share certificates or
other instruments representing the Securities and by physical
segregation of such certificates or instruments from the Repo
Custodian's other assets in a manner indicating that the Securities
are being held for the Participating Funds (such securities and
instruments to be delivered in form suitable for transfer or
accompanied by duly executed instruments of transfer or assignment in
blank and accompanied by such other documentation as the Participating
Funds may request), (ii) in the case of Securities held in a customer
only account in a clearing agency or federal book-entry system
authorized for use by the Funds and meeting the requirements of Rule
17f-4 under the Investment Company Act of 1940, as amended (the "1940
Act") (such authorized agency or system being referred to herein as a
"Securities System"), by appropriate entry on the books and records of
Repo Custodian identifying the Securities as belonging to the
Participating Funds, or (iii) in the case of Securities held in Repo
Custodian's own account in a Securities System, by transfer to a
customer only account in the Securities System and by appropriate
entry on the books and records of Repo Custodian identifying such
Securities as belonging to the Participating Funds; provided, further,
that Repo Custodian shall confirm to the Participating Funds the
identity of the Securities transferred or delivered. Acceptance of a
"due bill", "trust receipt" or similar receipt or notification of
segregation issued by a third party with respect to Securities held by
such third party shall not constitute good delivery of Securities to
Repo Custodian for purposes of this Agreement or the Master Agreement
and shall expressly violate the terms of this Agreement and the Master
Agreement. The Funds shall identify by notice to Repo Custodian and
Seller those agencies or systems which have been approved by the Funds
for use under this Agreement and the Master Agreement. The Funds
hereby notify Repo Custodian and Seller that the following agencies
and systems have been approved by the Funds for use under this
Agreement and the Master Agreement, until such time as Repo Custodian
and Seller shall have been notified by the Funds to the contrary: (i)
Participants Trust Company; (ii) The Depository Trust Company; and
(iii) any book-entry system as provided in (A) Subpart O of Treasury
Circular No. 300, 31 CFR 306.115, (B) Subpart B of Treasury Circular
Public Debt Series No. 27-76, 31 CFR 350.2, or (C) the book-entry
regulations of federal agencies substantially in the form of 31 CFR
306.115.
4. Repurchase Transactions.
(a) Repo Custodian shall make all credits and debits to the
Transaction Account and effect the transfer of Securities to or from
the Participating Funds upon proper instructions received from the
Participating Funds, or the Custodian on behalf of the Participating
Funds, and shall make all credits and debits to the Seller Account and
effect the transfer of Securities to or from the Seller upon proper
instructions received from Seller. In the event that Repo Custodian
receives conflicting proper instructions from Seller and the
Participating Funds, or the Custodian on behalf of the Participating
Funds, Repo Custodian shall follow the Participating Funds' or the
Custodian's proper instructions. The Participating Funds shall give
Repo Custodian only such instructions as shall be permitted by the
Master Agreement. Notwithstanding the preceding sentence, the
Participating Funds, or the Custodian on behalf of the Participating
Funds, may from time to time instruct Repo Custodian to transfer cash
from the Transaction Account to Custodian so long as such transfer is
not in contravention of the Master Agreement.
(b) (i) Whenever on any Banking Day one or more Funds and Seller agree
to enter into a repurchase transaction, Seller and the Participating
Funds, or the Custodian on behalf of the Participating Funds, will
give Repo Custodian proper instructions by telephone or otherwise by
5:00 p.m. New York time on the Sale Date, specifying the Transaction
Category, Repurchase Date, Sale Price, Repurchase Price or the
applicable Pricing Rate and the Margin Percentage for each such
repurchase transaction.
(ii) In the case of repurchase transactions in which the Repurchase
Date is the Banking Day next following the Sale Date (x) the
Participating Funds may increase or decrease the Sale Price for any
such repurchase transaction by no more than 10% of the initial Sale
Price by causing to be delivered further proper instructions by
telephone or otherwise to Repo Custodian by 5:15 p.m. New York time
(or at such later time as may be agreed upon by the parties) on the
Sale Date and (y) Seller and the Participating Funds may by mutual
consent agree to increase or decrease the Sale Price by more than 10%
of the initial Sale Price by causing to be provided further proper
instructions to Repo Custodian by the close of business on the Sale
Date. In any event, Repo Custodian shall not be responsible for
determining whether any such increase or decrease of the Sale Price
exceeds the 10% limitation.
(c) Seller will take such actions as are necessary to ensure that on
the Sale Date the aggregate Market Value of all Securities held by
Repo Custodian for Seller and cash in the Seller Account equals or
exceeds the Margin Percentage of the Sale Price. Seller shall give
Repo Custodian proper instructions specifying with respect to each of
the Securities which is to be the subject of a repurchase transaction
(a) the name of the issuer and the title of the Securities, and (b)
the Market Value of such Securities. Such instructions shall
constitute Seller's instructions to Repo Custodian to transfer the
Securities to the Participating Funds and/or Cash Collateral from the
Seller Account to the Transaction Account.
(d) By 5:00 p.m. New York Time on the Sale Date, the Participating
Funds shall transfer to, or maintain on deposit with, Repo Custodian
in the Transaction Account immediately available funds in an amount
equal to the Sale Price with respect to a particular repurchase
transaction.
(e) Prior to the close of business on the Sale Date, Repo Custodian
shall transfer Securities from Seller to the Participating Funds
and/or cash held in the Seller Account to the Transaction Account and
shall transfer to the Seller Account immediately available funds from
the Transaction Account in accordance with the following provisions:
(i) Repo Custodian shall determine that all securities to be
transferred by Seller to the Participating Funds are Eligible
Securities. Any securities which are not Eligible Securities for a
particular repurchase transaction hereunder shall not be included in
the calculations set forth below and shall not be transferred to the
Participating Funds.
(ii) Repo Custodian shall then calculate the aggregate Market Value
of the Securities and cash, if any, to be so transferred.
(iii) Repo Custodian shall notify Seller in the event that the
aggregate Market Value of Securities and cash, if any, applicable to
the repurchase transaction is less than the Margin Percentage of the
Sale Price and Seller shall transfer, by the close of business on the
Sale Date, to Repo Custodian additional Securities and/or cash in the
amount of such deficiency. If Seller does not, by the close of
business on the Sale Date, transfer additional Securities and/or cash,
the Market Value of which equals or exceeds such deficiency, Repo
Custodian may, at its option, without notice to Seller, advance the
amount of such deficiency to Seller in order to effectuate the
repurchase transaction. It is expressly agreed that Repo Custodian is
not obligated to make an advance to Seller to enable it to complete
any repurchase transaction.
(iv) Subject to the provisions of Subparagraph (v) below, Repo
Custodian shall cause the Securities applicable to the repurchase
transaction received from Seller to be transferred to the
Participating Funds and shall cause any cash received from Seller to
be transferred to the Transaction Account, against transfer of the
Sale Price from the Transaction Account to the Seller Account, such
transfers of Securities and/or cash and funds to be deemed to occur
simultaneously.
(v) Notwithstanding anything to the contrary, if, for any repurchase
transaction, the amount of immediately available funds in the
Transaction Account is less than the agreed upon Sale Price in
connection with the repurchase transaction immediately prior to
effectuating such repurchase transaction, or if the aggregate Market
Value of the Securities and cash, if any, applicable to such
repurchase transaction is less than the Sale Price multiplied by the
Margin Percentage immediately prior to effectuating such repurchase
transaction, Repo Custodian shall effect the repurchase transaction to
the best of its ability by transferring Securities from Seller to the
Participating Funds and/or cash from the Seller Account to the
Transaction Account with an aggregate Market Value equal to the lesser
of (x) the amount of immediately available funds in the Transaction
Account multiplied by the Margin Percentage and (y) the aggregate
Market Value of the Securities available for transfer from Seller to
the Participating Funds and cash, if any, in the Seller Account,
against the transfer of immediately available funds from the
Transaction Account to the Seller Account in an amount equal to the
aggregate Market Value of the Securities and/or cash to be transferred
divided by the Margin Percentage; provided, however, that in either
such event Repo Custodian shall have the right not to transfer to the
Participating Funds such Securities and not to transfer such cash, if
any, to the Transaction Account and not to transfer from the
designated Transaction Account such funds as Repo Custodian
determines, in its sole discretion, will not be the subject of a
repurchase transaction. The actions of Repo Custodian pursuant to
this subparagraph (e)(v) shall not affect the obligations and
liabilities of the parties to each other pursuant to the Master
Agreement with regard to such repurchase transaction.
(f) In the event that on a Banking Day Seller desires to substitute
Securities applicable to such repurchase transaction with Eligible
Securities and/or Cash Collateral (to the extent provided in the
Master Agreement), Repo Custodian shall perform such substitution in
accordance with the following provisions:
(i) Repo Custodian shall determine that all securities to be
transferred to the Participating Funds are Eligible Securities. Any
securities which are not eligible for repurchase transactions
hereunder shall not be included in the calculations set forth below
and shall not be transferred to the Participating Funds.
(ii) Repo Custodian shall then calculate the aggregate Market Value
of the Eligible Securities and/or Cash Collateral to be transferred.
Repo Custodian shall not make any substitution if, at the time of
substitution, the aggregate Market Value of all Securities and any
Cash Collateral applicable to such repurchase transaction immediately
after such substitution would be less than the Margin Percentage of
the Repurchase Price (calculated as if the Repurchase Date were the
date of substitution).
(iii) Repo Custodian shall then deliver to the Seller, subject to the
qualifications set forth above, the Securities to be substituted
against the delivery by Repo Custodian of substitute Eligible
Securities to the Participating Funds and/or the crediting of the
Transaction Account with Cash Collateral.
(iv) In the event Seller has caused Repo Custodian to credit the
Transaction Account with Cash Collateral in lieu of substitute
Eligible Securities, and has failed to deliver Eligible Securities
against such Cash Collateral not later than the close of business on
such Banking Day in accordance with the terms of the Master Agreement,
Repo Custodian shall promptly, but in no event later than 10:00 a.m.
the following Banking Day, notify the Participating Funds and Seller
of such failure.
(g) With respect to each repurchase transaction, at 9:00 a.m. New
York time, or at such other time as specified in proper instructions
of the Participating Funds (or the Custodian on behalf of the
Participating Funds) on the Repurchase Date, Repo Custodian shall
debit the Seller Account and credit the Transaction Account in the
amount of the Repurchase Price and shall transfer Securities from the
Participating Funds to the Seller and Cash Collateral, if any, from
the Transaction Account to the Seller Account in accordance with the
following provisions:
(i) If the amount of available funds in the Seller Account equals or
exceeds the Repurchase Price, Repo Custodian shall debit the Seller
Account and credit the Transaction Account in the amount of the
Repurchase Price and shall transfer all Securities applicable to such
repurchase transaction from the Participating Funds to the Seller and
debit the Transaction Account and credit the Seller Account in the
amount of any Cash Collateral applicable to such repurchase
transaction.
(ii) If the amount of available funds in the Seller Account is less
than the Repurchase Price, then Repo Custodian shall notify the Seller
of the amount of the deficiency and Seller shall promptly cause such
amount to be transferred to the Seller Account. If Seller fails to
cause the transfer of the entire amount of the deficiency to the
Seller Account, then Repo Custodian may, at its option and without
notice to Seller, advance to Seller the amount of such remaining
deficiency. It is expressly agreed that Repo Custodian is not
obligated to make any advance to Seller. If, following such transfer
and/or advance, the amount of available funds in the Seller Account
equals or exceeds the Repurchase Price then Repo Custodian shall debit
the Seller Account and credit the Transaction Account in the amount of
the Repurchase Price and shall transfer from the Participating Funds
to the Seller all Securities applicable to such repurchase transaction
and debit the Transaction Account and credit the Seller Account in the
amount of any Cash Collateral applicable to such repurchase
transaction.
(iii) If the Seller fails to cause the transfer of the entire amount
of the deficiency, as required by (ii) above, and Repo Custodian fails
to advance to Seller an amount sufficient to eliminate the entire
deficiency, then Repo Custodian shall debit the Seller Account in the
amount of all immediately available funds designated by Seller as
applicable to the repurchase transaction and credit the Transaction
Account in such amount (such amount being referred to as the "Partial
Payment") and shall transfer Securities from the Participating Funds
to the Seller such that the aggregate Market Value of all remaining
Securities and Cash Collateral in the Transaction Account with respect
to such repurchase transaction shall at least equal the difference
between Margin Percentage of the Repurchase Price and the Partial
Payment.
5. Payments on Securities. Repo Custodian shall credit to the Seller
Account as soon as received, all principal, interest and other sums
paid by or on behalf of the issuer in respect of the Securities and
collected by Repo Custodian, except as otherwise provided in Paragraph
8 of the Master Agreement.
6. Daily Statement. On each Banking Day on which any Participating
Funds have an outstanding repurchase transaction, Repo Custodian shall
deliver by facsimile, or other electronic means acceptable to the
Participating Funds, the Custodian and the Repo Custodian, to
Custodian and to the Participating Funds a statement identifying the
Securities held by Repo Custodian with respect to such repurchase
transaction and the cash and Cash Collateral, if any, held by Repo
Custodian in the Transaction Account, including a statement of the
then current Market Value of such Securities and the amounts, if any,
credited to the Transaction Account as of the close of trading on the
previous Banking Day. Repo Custodian shall also deliver to Custodian
and the Participating Funds such additional statements as the Repo
Custodian and the Participating Funds may agree upon from time to
time.
7. Valuation.
(a) Repo Custodian shall confirm the Market Value of Securities and
the amount of Cash Collateral, if any (i) on the Sale Date prior to
transferring the Sale Price out of the Transaction Account to the
Seller Account against the receipt from Seller of the Securities and
Cash Collateral, if any, and (ii) on each Valuation Day on which such
repurchase transaction is outstanding. If on any Valuation Day the
aggregate Market Value of the Securities and Cash Collateral with
respect to any repurchase transaction is less than the Margin
Percentage of the Repurchase Price (calculated as if the Repurchase
Date were such Valuation Day) for such transaction, Repo Custodian
shall promptly, but in any case no later than 10:00 a.m. the following
Valuation Day, notify Seller. If on any Valuation Day the aggregate
market value of the Securities and Cash Collateral with respect to any
repurchase transaction is less than the Margin Percentage of the
Repurchase Price (calculated as if the Repurchase Date were such
Valuation Day) for such transaction, and Seller fails to deliver
additional Eligible Securities applicable to such repurchase
transaction or an additional amount of Cash Collateral by the close of
business on such Valuation Day such that the aggregate market value of
the Securities and Cash Collateral at least equals the Margin
Percentage of the Repurchase Price (calculated as if the Repurchase
Date were such Valuation Day), Repo Custodian shall promptly, but in
any event no later than 10:00 a.m. the following Valuation Day, notify
the Participating Funds of such failure.
(b) Repo Custodian shall determine the bid side portion of the Market
Value of the Securities by reference to the independent pricing
services ("Pricing Services") set forth on Schedule B. It is
understood and agreed that Repo Custodian shall use the prices made
available by the Pricing Services at the close of business of the
preceding Valuation Day. In the event that Repo Custodian is unable
to obtain a valuation of any Securities from the Pricing Services,
Repo Custodian shall request a bid quotation from a broker's broker or
a broker dealer, set forth in Schedule B, other than Seller. In the
event Repo Custodian is unable to obtain a bid quotation for any
Securities from such a broker's broker or a broker dealer, Repo
Custodian (i) shall not include any such Securities in the
determination of whether the aggregate Market Value of the Securities
and any Cash Collateral equals at least the Margin Percentage of the
Repurchase Price and (ii) shall redeliver such Securities to Seller if
the Market Value of all other Securities and any Cash Collateral with
respect to such repurchase transaction equals at least the Margin
Percentage of the Repurchase Price (calculated as if the Repurchase
Date were such Valuation Day). The Repo Custodian may rely on prices
quoted by Pricing Services, broker's brokers or broker dealers, except
Seller, as set forth in Schedule B.
(c) (i) If, on any Valuation Day, the aggregate Market Value of the
Securities and any Cash Collateral with respect to a repurchase
transaction is less than the Margin Percentage of the Repurchase Price
(calculated as if the Repurchase Date were such Valuation Day)
applicable to such repurchase transaction, Repo Custodian shall
deliver to the Participating Funds an amount of additional Eligible
Securities applicable to such repurchase transaction and/or debit the
Seller Account and credit the Transaction Account with an additional
amount of Cash Collateral, such that the aggregate Market Value of all
Securities and any Cash Collateral with respect to such repurchase
transaction shall equal at least the Margin Percentage of the
Repurchase Price (calculated as if the Repurchase Date were such
Valuation Day) applicable to such repurchase transaction.
(ii) If, on any Valuation Day, the aggregate Market Value of the
Securities and any Cash Collateral with respect to a repurchase
transaction exceeds the Margin Percentage of the Repurchase Price
(calculated as if the Repurchase Date were such Valuation Day)
applicable to such repurchase transaction, Repo Custodian shall return
to the Seller all or a portion of such Securities or Cash Collateral,
if any; provided that the Market Value of the remaining Securities and
any Cash Collateral with respect to the repurchase transaction shall
be at least equal to the Margin Percentage of the Repurchase Price
(calculated as if the Repurchase Date were such Valuation Day)
applicable to such repurchase transaction. At any time and from time
to time with respect to any repurchase transaction, if authorized by
the Participating Funds, or the Custodian on behalf of the
Participating Funds, the Repo Custodian shall debit the Transaction
Account by an amount of Cash Collateral and credit the Seller Account
by the same amount of Cash Collateral against simultaneous delivery
from Seller to the Participating Funds of Eligible Securities
applicable to such repurchase transaction with a Market Value at least
equal to the amount of Cash Collateral credited and debited.
8. Authorized Persons. Schedule C hereto sets forth those persons
who are authorized to act for Repo Custodian, Custodian, Seller and
the Funds, respectively, under this Agreement.
9. Proper Instructions. Proper instructions shall mean a tested
telex, facsimile, a written request, direction, instruction or
certification signed or initialed by or on behalf of the party giving
the instructions by one or more authorized persons (as provided in
Paragraph 8); provided, however, that no instructions directing the
delivery of Securities or the payment of funds to any individual who
is an authorized signatory of Custodian or Repo Custodian shall be
signed by that individual. Telephonic, other oral or
electro-mechanical or electronic instructions (including the code
which may be assigned by Repo Custodian to Custodian from time to
time) given by one of the above authorized persons shall also be
considered proper instructions if the party receiving such
instructions reasonably believes them to have been given by an
authorized person with respect to the transaction involved. Oral
instructions will be confirmed by tested telex, facsimile or in
writing in the manner set forth above. The Funds and Seller authorize
Repo Custodian to tape record any and all telephonic or other oral
instructions given to Repo Custodian. Proper instructions may relate
to specific transactions or to types or classes of transactions, and
may be in the form of standing instructions.
10. Standard of Care.
(a) Repo Custodian shall be obligated to use reasonable care and
diligence in carrying out the provisions of this Agreement and the
Master Agreement and shall be liable to the Funds and/or Seller only
for direct damages resulting from the negligence or willful misconduct
of the Repo Custodian or its officers, employees or agents. The
parties hereby agree that Repo Custodian shall not be liable for
consequential, special or indirect damages, even if Repo Custodians
has been advised as to the possibility thereof. So long as and to the
extent that Repo Custodian exercises reasonable care and diligence and
acts without negligence, misfeasance or misconduct, Repo Custodian
shall not be liable to Seller or the Funds for (i) any action taken or
omitted in good faith in reliance upon proper instructions, (ii) any
action taken or omitted in good faith upon any notice, request,
certificate or other instrument reasonably believed by it to be
genuine and to be signed by the proper party or parties, (iii) any
delay or failure to act as may be required under this Agreement or
under the Master Agreement when such delay or failure is due to any
act of God or war, (iv) the actions or omissions of a Securities
System, (v) the title, validity or genuineness of any security
received, delivered or held by it pursuant to this Agreement or the
Master Agreement, (vi) the legality of the purchase or sale of any
Securities by or to the Participating Funds or Seller or the propriety
of the amount for which the same are purchased or sold (except to the
extent of Repo Custodian's obligations hereunder to determine whether
securities are Eligible Securities and to calculate the Market Value
of Securities and any Cash Collateral), (vii) the due authority of any
person listed on Schedule C to act on behalf of Custodian, Seller or
the Funds, as the case may be, with respect to this Agreement or
(viii) the errors of the Pricing Services, broker's brokers or broker
dealers set forth in Schedule B.
(b) Repo Custodian shall not be liable to Seller or the Funds for, or
considered to be the custodian of, any Eligible Securities or any
money to be used in a repurchase transaction, whether or not such
money is represented by any check, draft, or other instrument for the
payment of money, until the Eligible Securities have been delivered in
accordance with Paragraph 3 or until Repo Custodian actually receives
and collects such money on behalf of Seller or the Funds directly or
by the final crediting of the Seller Account or a Transaction Account
through the Securities System, except that this Paragraph 10(b) shall
not be deemed to limit the liability of Repo Custodian to Seller or
the Funds if the non-delivery of such Eligible Securities or the
failure to receive and collect such money results from the breach by
Repo Custodian of its obligations under this Agreement or the Master
Agreement.
(c) Repo Custodian shall not be under any duty or obligation to
ascertain whether any Securities at any time delivered to or held by
it are such as properly may be held by the Participating Funds;
provided that notwithstanding anything to the contrary herein, Repo
Custodian shall be obligated to act in accordance with the guidelines
and proper instructions of the Participating Funds, or the Custodian
on behalf of the Participating Funds, with respect to the types of
Eligible Securities and the issuers of such Eligible Securities that
may be used in specific repurchase transactions.
(d) Repo Custodian promptly shall notify the Fund Agent and the
Custodian if Securities held by Repo Custodian are in default or if
payment on any Securities has been refused after due demand and
presentation and Repo Custodian shall take action to effect collection
of any such amounts upon the proper instructions of the Participating
Funds, or the Custodian on behalf of the Participating Funds, and
assurances satisfactory to it that it will be reimbursed for its costs
and expenses in connection with any such action.
(e) Repo Custodian shall have no duties, other than such duties as
are necessary to effectuate repurchase transactions in accordance with
this Agreement and the Master Agreement within the standard of care
set forth in Paragraph 10(a) above and in a commercially reasonable
manner.
11. Representations and Additional Covenants of Repo Custodian.
(a) Repo Custodian represents and warrants that (i) it is duly
authorized to execute and deliver this Agreement and to perform its
obligations hereunder and has taken all necessary action to authorize
such execution, delivery and performance, (ii) the execution, delivery
and performance of this Agreement do not and will not violate any
ordinance, declaration of trust, partnership agreement, articles of
incorporation, charter, rule or statute applicable to it or any
agreement by which it is bound or by which any of its assets are
affected, (iii) the person executing this Agreement on its behalf is
duly and properly authorized to do so, (iv) it has (and will maintain)
a copy of this Agreement and evidence of its authorization in its
official books and records, and (v) this Agreement has been executed
by one of its duly authorized officers at the level of Vice President
or higher.
(b) Repo Custodian further represents and warrants that (i) it has
not pledged, encumbered, hypothecated, transferred, disposed of, or
otherwise granted, any third party an interest in any Securities, (ii)
it does not have any security interest, lien or right of setoff in the
Securities, and (iii) it has not received notification from any third
party, in its capacity as Repo Custodian, custodian bank or clearing
bank, of any lien, claim, charge or encumbrance with respect to any
Securities that are the subject of such repurchase transaction. Repo
Custodian agrees that (i) it will not pledge, encumber, hypothecate,
transfer, dispose of, or otherwise grant, any third party an interest
in any Securities, (ii) it will not acquire any security interest,
lien or right of setoff in the Securities, and (iii) it will promptly
notify the Fund Agent, if, during the term of any outstanding
repurchase transaction, it is notified by any third party, in its
capacity as Repo Custodian, custodian bank or clearing bank, of the
Participating Funds or Seller, of the existence of any lien, claim,
charge or encumbrance with respect to any Securities that are the
subject of such repurchase transaction.
12. Indemnification.
(a) Notwithstanding the Participating Fund's obligation to the Repo
Custodian under Paragraph 12(b) below, so long as and to the extent
that Repo Custodian is in the exercise of reasonable care and
diligence and acts without negligence, misfeasance or misconduct,
Seller will indemnify Repo Custodian and hold it harmless against any
and all losses, claims, damages, liabilities or actions to which it
may become subject, and reimburse it for any expenses (including
attorneys' fees and expenses) incurred by it in connection therewith,
insofar as such losses, claims, damages, liabilities or actions arise
out of or are based upon or in any way related to this Agreement, the
Master Agreement or any transactions contemplated hereby or thereby or
effected hereunder or thereunder. Without limiting the generality of
the foregoing indemnification, Repo Custodian shall be indemnified by
Seller for all costs and expenses, including attorneys' fees, for its
successful defense against claims that Repo Custodian breached its
standard of care and was negligent or engaged in misfeasance or
misconduct.
(b) So long as and to the extent that Repo Custodian is in the
exercise of reasonable care and diligence and acts without negligence,
misconduct or misfeasance, the Participating Funds will indemnify Repo
Custodian and hold it harmless against any and all losses, claims,
damages, liabilities or actions to which it may become subject, and
reimburse it for any expenses (including attorneys' fees and expenses)
incurred by it in connection therewith, insofar as such losses,
claims, damages, liabilities or actions result from the negligence,
misconduct or misfeasance of the Participating Funds under this
Agreement.
13. Rights and Remedies. The rights and remedies conferred upon the
parties hereto shall be cumulative, and the exercise or waiver of any
thereof shall not preclude or inhibit the exercise of any additional
rights and remedies.
14. Modification or Amendment. Except as otherwise provided in this
Paragraph 14, no modification, waiver or amendment of this Agreement
shall be binding unless in writing and executed by the parties hereto.
Schedule A, listing the Funds, may be amended from time to time to add
or delete Funds by the Funds (i) delivering an executed copy of an
addendum to Schedule A to Seller and Repo Custodian, and (ii)
amending Schedule A to the Master Agreement in accordance with the
provisions therein. The amendment of Schedule A as provided above
shall constitute appointment of Repo Custodian as a custodian for such
Fund. Schedule B may be amended from time to time by an instrument in
writing, or counterpart thereof, executed by Repo Custodian, Seller
and the Funds. Schedule C may be amended from time to time to change
an authorized person of: (i) the Funds, by written notice to Repo
Custodian and Seller by Ms. Sarah Zenoble or the Treasurer of the
Funds (or such persons who may be authorized from time to time in
writing by Ms. Zenoble or the President or Treasurer of Fidelity
Management and Research Company to trade on behalf of Fidelity's
taxable money market funds); (ii) Seller, by written notice to Repo
Custodian and the Funds by any Vice President of Seller; (iii) Repo
Custodian, by written notice to Seller, Custodian and the Funds by any
Vice President of Repo Custodian; and (iv) Custodian, by written
notice to Repo Custodian by any Vice President of Custodian. Schedule
D may be amended from time to time by any party hereto by delivery of
written notice to the other parties hereto. Repo Custodian shall
receive notice of any amendment to the Master Agreement at the address
set forth in Schedule D hereto; and, if such amendment would have a
material adverse effect on the rights of, or would materially increase
the obligations of Repo Custodian under this Agreement, any such
amendment shall also require the consent of Repo Custodian. Any such
amendment shall be deemed not to be material if Repo Custodian fails
to object in writing within 21 days after receipt of notice thereof.
No amendment to this Agreement shall affect the rights or obligations
of any Fund with respect to any outstanding repurchase transaction
entered into under this Agreement and the Master Agreement prior to
such amendment or with respect to any actions or omissions by any
party hereto prior to such amendment. In the event of conflict
between this Agreement and the Master Agreement, the Master Agreement
shall control.
15. Termination. This Agreement shall terminate forthwith upon
termination of the Master Agreement or may be terminated by any party
hereto on ten Valuation Days' written notice to the other parties;
provided, however, that any such termination shall not affect any
repurchase transaction then outstanding or any rights or obligations
under this Agreement or the Master Agreement with respect to any
actions or omissions of any party hereto prior to termination. In the
event of termination, Repo Custodian will deliver any Securities, Cash
Collateral or cash held by it or any agent to Custodian or to such
successor custodian or custodian or subcustodian as the Participating
Funds shall instruct.
16. Compensation. Seller agrees to pay Repo Custodian compensation
for the services to be rendered hereunder, based upon rates which
shall be agreed upon from time to time.
17. Notices. Except with respect to communications between Custodian
and the Funds which shall be governed by the custodian agreement or
subcustodian agreement between such parties, as the case may be, and
except as otherwise provided herein or as the parties to the Agreement
shall from time to time otherwise agree, all instructions, notices,
reports and other communications contemplated by this Agreement shall
be given to the party entitled to receive such notice at the telephone
number and address listed on Schedule D hereto.
18. Severability. If any provision of this Agreement is held to be
unenforceable as a matter of law, the other terms and provisions
hereof shall not be affected thereby and shall remain in full force
and effect.
19. Binding Nature. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their successors and
assignees; provided that, no party hereto may assign this Agreement or
any of the rights or obligations hereunder without the prior written
consent of the other parties.
20. Headings. Section headings are for reference purposes only and
shall not be construed as a part of this Agreement.
21. Counterparts. This Agreement may be executed in one or more
counterparts, all of which taken together shall constitute one
instrument.
22. Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT GIVING
EFFECT TO THE CONFLICT OF LAW PRINCIPLES THEREOF.
23. Limitation of Liability. Repo Custodian and Seller are hereby
expressly put on notice of the limitation of liability set forth in
the Declarations of Trust and in the Certificates and Agreements of
Limited Partnership of the Funds and agree that the obligations
assumed by any Fund hereunder shall be limited in all cases to a Fund
and its assets or, in the case of a series Fund, to the assets of that
series only, and neither Seller, Repo Custodian nor their respective
agents or assigns shall seek satisfaction of any such obligation from
the officers, agents, employees, directors, trustees, shareholders or
partners of any such Fund or series.
24. Rights and Obligations of Each Fund. The rights and obligations
set forth in this Agreement with respect to each repurchase
transaction shall accrue only to the Participating Funds in accordance
with their respective interests therein. No other Fund shall receive
any rights or have any liabilities arising from any action or inaction
of any Participating Fund under this Agreement with respect to such
repurchase transaction.
25. General Provisions. This Agreement supersedes any other
custodian agreement by and among Seller, the Funds, and Repo Custodian
concerning repurchase transactions effected through the Joint Trading
Account. It is understood and agreed that time is of the essence with
respect to the performance of each party's respective obligations
hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
CHEMICAL BANK
Dated: By: /s/ Title:

GREENWICH CAPITAL MARKETS, INC.
Dated: By: /s/ Title:

FIDELITY INVESTMENT COMPANIES LISTED ON SCHEDULE A-1 HERETO AND
ACCOUNTS LISTED ON SCHEDULE A-3 HERETO
Dated: By: /s/
Name:
Title:
FIDELITY INVESTMENT COMPANIES LISTED ON SCHEDULE A-2 HERETO
Dated: By: /s/
Name:
Title:
ACCOUNTS LISTED ON SCHEDULE A-4 HERETO
By: FIDELITY MANAGEMENT TRUST COMPANY
Dated: By: /s/
Name:
Title:
SCHEDULE A-1
SCHEDULE A-2
SCHEDULE A-3
SCHEDULE A-4
SCHEDULE B
PRICING SOURCES
PRICING SERVICES
U.S. Government Securities Interactive Data Services or Mellon Data
Services (or any other pricing service mutually agreed upon by Seller
and the Funds)
GNMA - The Bond Buyer
FHLMC - The Bond Buyer
All other U.S. Government
and Agency Securities Interactive Data Services or Mellon Data
Services (or any other pricing service mutually agreed upon by Seller
and the Funds)
BROKERS' BROKERS AND BROKER DEALERS
U.S. Government Securities - Any Primary Dealer
GNMA - Any Primary Broker-Dealer's bid rate for such security
FHLMC - Any Primary Broker-Dealer's bid rate for such security
All other U.S. Government and Agency Securities - Any Primary
Broker-Dealer's bid rate for such security
Prices shall be as of the business day immediately preceding the date
of determination or the last quote available. The pricing services,
Brokers' Brokers and Broker Dealers may be changed from time to time
by agreement of all the parties.

SCHEDULE C
AUTHORIZED PERSONS
Repo Custodian
Custodian
Seller
The Funds
SCHEDULE D
NOTICES
If to Custodian: Morgan Guaranty Trust Co. of New York
15 Broad Street, 16th Floor
New York, New York 10015
Telephone: (212) 483-4150
Attention: Ms. Kimberly Smith
or
The Bank of New York
One Wall Street, 4th Floor
New York, NY 10286
Telephone: (312) 635-4808
Attention: Claire Meskovic
With a copy to the Fund Agent
If to Repo Custodian: Chemical Bank
4 New York Plaza
21st Floor
New York, NY 10004-2477
Telephone: (212) 623-6446
Attention: Anthony Isola
If to Seller: Greenwich Capital Markets, Inc.
600 Steamboat Road
Greenwich, Connecticut 06830
Telephone: (203) 625-7909
Attention: Peter Sanchez
If to any of the Funds: FMR Texas Inc.
400 East Las Colinas Blvd., CP9M
Irving, Texas 75039
Telephone: (214) 584-7800
Attention: Ms. Deborah R. Todd or
Mr. Samuel Silver
If to the Fund Agent: Fidelity Investments
[Name of Fund]
400 East Las Colinas Blvd., CP9E
Irving, Texas 75039
Telephone: (214) 584-4071
Attention: Mr. Mark Mufler
277262.c1

Exhibit g(8)

FORM OF
SCHEDULE 1

The following lists the additional counterparties to the Repo
Custodian Agreement for Joint Trading Account between Chemical Bank
and the Fidelity Funds:

EXHIBIT G(9)
FORM OF
JOINT TRADING ACCOUNT CUSTODY AGREEMENT
Between
THE BANK OF NEW YORK
and
FIDELITY FUNDS
Dated as of: _______

<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS Page
ARTICLE I - APPOINTMENT OF CUSTODIAN 2
ARTICLE II - POWERS AND DUTIES OF CUSTODIAN 2
Section 2.01. Establishment of Accounts 2
Section 2.02. Receipt of Funds 2
Section 2.03. Repurchase Transactions 2
Section 2.04. Other Transfers 4
Section 2.05. Custodian's Books and Records 5
Section 2.06. Reports by Independent Certified Public Accountants 5
Section 2.07. Securities System 6
Section 2.08. Collections 6
Section 2.09. Notices, Consents, Etc. 6
Section 2.10. Notice of Custodian's Inability to Perform 7
ARTICLE III - PROPER INSTRUCTIONS AND RELATED MATTERS 7
Section 3.01. Proper Instructions; Special Instruction 7
Section 3.02. Authorized Persons 8
Section 3.03. Investment Limitations 8
Section 3.04. Persons Having Access to Assets of the Funds 8
Section 3.05. Actions of Custodian Based on Proper Instructions
and Special Instructions 9
ARTICLE IV - STANDARD OF CARE; INDEMNIFICATION 9
Section 4.02. Liability of Custodian for Actions of Securities Systems 9
Section 4.03. Indemnification 9
Section 4.04. Funds, Right to Proceed 10
ARTICLE V - COMPENSATION 11
Section 5.01. Compensation 11
Section 5.02. Waiver of Right of Set-Off 11
ARTICLE VI - TERMINATION 11
Section 6.01. Events of Termination 11
Section 6.02. Successor Custodian; Payment of Compensation 11
ARTICLE VII - MISCELLANEOUS 12
Section 7.01. Representative Capacity and Binding Obligation 12
Section 7.02. Entire Agreement 12
Section 7.03. Amendments 12
Section 7.04. Interpretation 12
Section 7.05. Captions 13
Section 7.06. Governing Law 13
Section 7.07. Notice and Confirmations 13
Section 7.08. Assignment 14
Section 7.09. Counterparts 14
Section 7.10. Confidentiality; Survival of Obligations 14

JOINT TRADING ACCOUNT CUSTODY AGREEMENT
AGREEMENT dated as of _________ by and between The Bank of New York
(hereinafter referred to as the "Custodian") and each of the entities
listed on Schedules A-1, A-2, A-3 and A-4 hereto, acting on behalf of
itself or, (i) in the case of a series company, on behalf of one or
more of its portfolios or series listed on Schedule A-1 or A-2 hereto,
(ii) in the case of the accounts listed on Schedule A-3 hereto, acting
through Fidelity Management & Research Company, and (iii) in the case
of the commingled or individual accounts listed on Schedule A-4
hereto, acting through Fidelity Management Trust Company
(collectively, the "Funds" and each, a "Fund").
W I T N E S S E T H
WHEREAS, each of the Funds desire to appoint the Custodian as its
custodian for the purpose of establishing and administering one or
more joint trading accounts or subaccounts thereof (individually, an
"Account" and collectively, the "Accounts") and holding cash and
securities for the Funds in connection with repurchase transactions
effected through the Accounts; and
WHEREAS, one or more of the Funds may, from time to time, enter into
one or more written repurchase agreements pursuant to which one or
more of the Funds agrees to purchase and resell, and the sellers named
in such agreements agree to sell and repurchase through the Accounts,
certain securities (collectively, the "Securities") (such repurchase
agreements being hereinafter referred to, collectively, as the
"Repurchase Agreements"); and
WHEREAS, each of the custodians identified in ScheduleB hereto (each,
a "Fund Custodian") serves as the primary custodian for one or more of
the Funds; and
WHEREAS, from time to time one or more of the Funds may arrange to
transfer cash or Securities from one or more Fund Custodians to the
Custodian or transfer cash or Securities from the Custodian to one or
more Fund Custodians, or in the case of Funds in which Custodian is
also Fund Custodian, such Fund may arrange for transfer of cash or
Securities between an Account and an account maintained by Custodian
in its capacity as Fund Custodian for such Fund, in each event in
connection with Repurchase Agreement transactions; and
WHEREAS, from time to time, such Funds may arrange to transfer cash
or securities from the Custodian to the seller in such Repurchase
Agreement transactions, or in the case in which Custodian is also the
clearing bank for such seller, such Funds may arrange for transfer of
cash or securities between an Account and an account maintained by
Custodian for such seller in its capacity as clearing bank, in each
event in connection with two-party Repurchase Agreement transactions;
and
WHEREAS, each of the custodians identified in Schedule C hereto
(each, a "Repo Custodian") serves as a third-party custodian of the
Funds for purposes of effecting third-party Repurchase Agreement
transactions; and
WHEREAS, from time to time one or more of the Funds may arrange to
transfer cash or Securities from the Custodian to one or more Repo
Custodians or transfer cash or Securities from one or more Repo
Custodians to the Custodian, or in the case in which Custodian is also
Repo Custodian, such Funds may arrange for transfer of cash or
securities between an Account and an account maintained for such Funds
in its capacity as Repo Custodian, in each event in connection with
third-party Repurchase Agreement transactions;
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I - APPOINTMENT OF CUSTODIAN
Each of the Funds hereby employs and appoints the Custodian as its
custodian, subject to the terms and provisions of this Agreement.
ARTICLE II - POWERS AND DUTIES OF CUSTODIAN
As custodian, the Custodian shall have and perform the powers and
duties, and only such powers and duties, as are set forth in this
Agreement.
Section 2.01. Establishment of Accounts. The Custodian shall
establish one or more Accounts as segregated joint trading accounts
for the Funds through which the Funds shall, from time to time, effect
Repurchase Agreement transactions.
Section 2.02. Receipt of Funds. The Custodian shall, from time to
time, receive funds for or on behalf of the Funds and shall hold such
funds in safekeeping. Upon receipt of Proper Instructions, the
Custodian shall credit funds so received to one or more Accounts
designated in such Proper Instructions. Promptly after receipt of
such funds from the Fund Custodian or a Repo Custodian or promptly
following the transfer to an Account from any account maintained by
Custodian in its capacity as Fund Custodian, or as Repo Custodian, the
Custodian shall provide written confirmation of such receipt to the
Fund Custodian or Repo Custodian, when and as applicable, and of such
receipt or transfer to the Fund Agent designated in Section 7.07(b)
hereof (the "Fund Agent"). The Custodian shall designate on its books
and records the funds allocable to each Account and the identity of
each Fund participating in such Account.
Section 2.03. Repurchase Transactions. The Funds may, from time to
time, enter into Repurchase Agreement transactions. In connection
with each such Repurchase Agreement transaction, unless otherwise
specifically directed by Special Instructions, the Custodian shall
take the following actions:
(a) Purchase of Securities. Upon receipt of Proper Instructions, the
Custodian shall pay for and receive Securities and any cash
denominated in U.S. Dollars which is serving as collateral ("Cash
Collateral"), provided that payment therefor shall be made by the
Custodian only against prior or simultaneous receipt of the Securities
and any Cash Collateral in the manner prescribed in subsection 2.03(b)
below. Except as provided in Section2.04 hereof, in no event shall
the Custodian deliver funds from an Account for the purchase of
Securities and any Cash Collateral prior to receipt of the Securities
and any Cash Collateral by the Custodian or a Securities System (as
hereinafter defined). The Custodian is not under any obligation to
make credit available to the Funds to complete transactions hereunder.
Promptly after the transfer of funds and receipt of Securities and any
Cash Collateral, the Custodian shall provide a confirmation to the
Fund Agent, setting forth (i) the Securities and any Cash Collateral
which the Custodian has received pursuant to the Repurchase Agreement
transaction, (ii) the amount of funds transferred from the applicable
Account, and (iii) any security or transaction identification numbers
reasonably requested by the Fund Agent.
(b) Receipt and Holding of Securities. In connection with each
Repurchase Agreement transaction, the Custodian shall receive and hold
the Securities as follows: (i) in the case of certificated securities,
by physical receipt of the certificates or other instruments
representing such Securities and by physical segregation of such
certificates or instruments from other assets of the Custodian in a
manner indicating that such Securities belong to specified Funds; and
(ii) in the case of Securities held in book-entry form by a Securities
System (as hereinafter defined), by appropriate transfer and
registration of such Securities to a customer only account of the
Custodian on the book-entry records of the Securities System, and by
appropriate entry on the books and records of the Custodian
identifying such Securities as belonging to specified Funds.
(c) Sale of Securities. Upon receipt of Proper Instructions, the
Custodian shall make delivery of Securities and any Cash Collateral
held in or credited to an Account against prior or simultaneous
payment for such Securities in immediately available funds in the form
of: (i) cash, bank credit, or bank wire transfer received by the
Custodian; or (ii) credit to the customer only account of the
Custodian with a Securities System. Notwithstanding the foregoing,
the Custodian shall make delivery of Securities held in physical form
in accordance with "street delivery custom" to a broker or its
clearing agent, against delivery to the Custodian of a receipt for
such Securities; provided that the Custodian shall have taken all
actions possible to ensure prompt collection of the payment for, or
the return of such Securities by the broker or its clearing agent.
Promptly after the transfer of Securities and any Cash Collateral and
the receipt of funds, the Custodian shall provide a confirmation to
the Fund Agent, setting forth the amount of funds received by the
Custodian or a Securities System for credit to the applicable Account.
(d) Additional Functions. Upon receipt of Proper Instructions, the
Custodian shall take all such other actions as specified in such
Proper Instructions and as shall be reasonable or necessary with
respect to Repurchase Agreement transactions and the Securities and
funds transferred and received pursuant to such transactions,
including, without limitation, all such actions as shall be prescribed
in the event of a default under a Repurchase Agreement.
(e) Nondiscretionary Functions. The Custodian shall attend to all
non-discretionary details in connection with the purchase, sale,
transfer or other dealings with Securities or other assets of the
Funds held by the Custodian.
(f) In the event that the Custodian is directed by Proper
Instructions to make any payment or transfer of funds on behalf of a
Fund for which there would be, at the close of business on the date of
such payment or transfer, insufficient funds held by the Custodian on
behalf of such Fund, the Custodian may, in its discretion, provide an
overdraft ("Overdraft") to the Fund, in an amount sufficient to allow
the completion of such payment or transfer. Any Overdraft provided
hereunder: (a) shall be payable on the next Business Day, unless
otherwise agreed by the Fund and the Custodian; and (b) shall accrue
interest form the date of the Overdraft to the date of payment in full
by the Fund at a rate agreed upon in writing, from time to time, by
the Custodian and the Fund. The Custodian and the Funds acknowledge
that the purpose of such Overdrafts is to temporarily finance the
purchase or sale of securities for prompt delivery in accordance with
the terms hereof, or to meet emergency expenses not reasonably
foreseeable by a particular Fund. The Funds hereby agree that the
Custodian shall have a continuing lien and security interest in and to
all Securities whose purchase is financed by Custodian and which are
in Custodian's possession or in the possession or control of any third
party acting on Custodian's behalf and the proceeds thereof. In this
regard, Custodian shall be entitled to all the rights and remedies of
a pledgee under common law and a secured party under the New York
Uniform Commercial Code and any other applicable laws or regulations
as then in effect.
Section 2.04. Other Transfers.
(a) In addition to transfers of funds and Securities referred to in
Section 2.03, the Custodian shall transfer funds and Securities held
in an Account: (a) upon receipt of Proper Instructions, to (i)any
Fund Custodian, or (ii)any other account maintained for any Fund by
the Custodian in its capacity as a Fund Custodian, (iii)any Repo
Custodian or (iv) any other account maintained for any Fund by the
Custodian in its capacity as a Repo Custodian; or (b) upon receipt of
Special Instructions, and subject to Section 3.04 hereof, to any other
person or entity designated in such Special Instructions.
(b) Determination of Fund Custodian Daily Net Amount. On each
banking day, based upon daily transaction information provided to the
Custodian by the Funds, Custodian shall determine: (i) the amount of
cash due to be transferred on such day by each Fund Custodian to the
Custodian in connection with all Repurchase Agreement transactions in
which the date fixed for the repurchase and resale of Securities is
the banking day next following the date on which the sale and purchase
of such Securities takes place (each, an "Overnight Repo Transaction")
to be effected through the Accounts in such day; and (ii) the amount
of cash due to be transferred on such day by Custodian to such Fund
Custodian in connection with all outstanding Overnight Repo
Transactions previously effected through the Accounts (the difference
between (i) and (ii) with respect to each Fund Custodian being
referred to as the "Fund Custodian Daily Net Amount"). On each
banking day, Custodian shall notify each Fund Custodian of the
foregoing determination and, unless otherwise directed in accordance
with Proper Instructions, Custodian shall (i) instruct such Fund
Custodian to transfer cash to the Custodian equal to the Fund
Custodian Daily Net Amount (if the Fund Custodian Daily Net Amount is
positive) or (ii) transfer to such Fund Custodian cash equal to the
Fund Custodian Daily Net Amount (if the Fund Custodian Daily Net
Amount is negative).
(c) Determination of Repo Custodian Daily Net Amount. On each
banking day, based upon daily transaction information provided to the
Custodian by the Funds and each Repo Custodian, Custodian shall
determine: (i) the amount of cash due to be transferred on such day
by each Repo Custodian on behalf of the Funds to all counterparties in
connection with all third-party Overnight Repo Transactions to be
effected through the Accounts on such day; and (ii) the amount of cash
due to be transferred on such day by each Repo Custodian on behalf of
all counterparties to the Funds in connection with all outstanding
third-party Overnight Repo Transactions previously effected through
the Accounts (the difference between (i) and (ii) with respect to each
Repo Custodian being referred to as the "Repo Custodian Daily Net
Amount"). On each banking day, Custodian shall notify the Funds of
the foregoing determinations and, unless otherwise directed in
accordance with Proper Instructions, Custodian shall (i) transfer to
each Repo Custodian cash equal to the Repo Custodian Daily Net Amount
(if the Repo Custodian Daily Net Amount is positive) or (ii) instruct
each Repo Custodian to transfer to the Custodian cash equal to the
Repo Custodian Daily Net Amount (if the Repo Custodian Daily Net
Amount is negative).
Section 2.05. Custodian's Books and Records. The Custodian shall
provide any assistance reasonably requested by the Funds in the
preparation of reports to shareholders of the Funds and others, audits
of accounts, and other ministerial matters of like nature. The
Custodian shall maintain complete and accurate records with respect to
cash and Securities held for the benefit of the Funds as required by
the rules and regulations of the Securities and Exchange Commission
applicable to investment companies registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act"),
including: (a) journals or other records of original entry containing
a detailed and itemized daily record of all receipts and deliveries of
securities (including certificate and transaction identification
numbers, if any), and all receipts and disbursements of cash; (b)
ledgers or other records reflecting Securities in transfer, and
Securities in physical possession; and (c) cancelled checks and bank
records related thereto. The Custodian shall keep such other books
and records of the Funds relating to repurchase transactions effected
through the Accounts as the Funds shall reasonably request. Such
books and records maintained by the Custodian shall reflect at all
times the identity of each Fund participating in each Account and the
aggregate amount of the Securities and any Cash Collateral held by the
Custodian on behalf of the Funds in such Account pursuant to this
Agreement. All such books and records maintained by the Custodian
shall be maintained in a form acceptable to the Funds and in
compliance with the rules and regulations of the Securities and
Exchange Commission, including, but not limited to, books and records
required to be maintained by Section 31(a) of the Investment Company
Act and the rules from time to time adopted thereunder. All books and
records maintained by the Custodian relating to the Accounts shall at
all times be the property of the Funds and shall be available during
normal business hours for inspection and use by the Funds and their
agents, including, without limitation, their independent certified
public accountants. Notwithstanding the preceding sentence, the Funds
shall not take any actions or cause Custodian to take any actions
which would cause, either directly or indirectly, the Custodian to
violate any applicable laws, regulations, rules or orders.
Section 2.06. Reports by Independent Certified Public Accountants.
At the request of the Funds, the Custodian shall deliver to the Funds
such annual reports and other interim reports prepared by the
independent certified public accountants of the Custodian with respect
to the services provided by the Custodian under this Agreement,
including, without limitation, the Custodian's accounting system,
internal accounting control and procedures for safeguarding
Securities, including Securities deposited and/or maintained in a
Securities System. Such reports, which shall be of sufficient scope
and in sufficient detail as may reasonably be required by the Funds
and as may reasonably by obtained by the Custodian, shall provide
reasonable assurance to the Funds that the procedures employed by the
independent certified public accountants are reasonably designed to
detect any material inadequacies with respect to the matters discussed
in the report, shall state in detail the material inadequacies
disclosed by such examination, and, if no such inadequacies exist,
shall so state.
Section 2.07. Securities System. As used herein the term "Securities
System" shall mean each of the following: (a) the Depository Trust
Company; (b) the Participants Trust Company; (c) any book-entry system
as provided in (i) Subpart0 of Treasury Circular No. 300, 31CFR
306.115, (ii) SubpartB of Treasury Circular Public Debt Series No.
27-76, 31CFR 350.2, or (iii) the book-entry regulations of federal
agencies substantially in the form of 31CFR 306.115; or (d) any
domestic clearing agency registered with the Securities and Exchange
Commission under Section17A of the Securities Exchange Act of 1934, as
amended (or as may otherwise be authorized by the Securities and
Exchange Commission to serve in the capacity of depository or clearing
agent for the securities or other assets of investment companies)
which acts as a securities depository and the use of which has been
approved in Special Instructions. Use of a Securities System by the
Custodian shall be in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions:
(A) The Custodian may deposit and/or maintain Securities held
hereunder in a Securities System, provided that such Securities are
represented in an account of the Custodian in the Securities System
which account shall not contain any assets of the Custodian other than
assets held as a fiduciary, custodian, or otherwise for customers.
(B) The Custodian shall, if requested by the Funds, provide the Funds
with all reports obtained by the Custodian with respect to the
Securities System's accounting system, internal accounting control and
procedures for safeguarding securities deposited in the Securities
System.
(C) Upon receipt of Special Instructions, the Custodian shall
terminate the use hereunder of any Securities System (except for the
federal book-entry system) as promptly as practicable and shall take
all actions reasonably practicable to safeguard the Securities and
other assets of the Funds maintained with such Securities System.
Section 2.08. Collections. The Custodian shall (a) collect, receive
and deposit in the applicable Account all income and other payments
with respect to Securities held by the Custodian hereunder; (b)
endorse and deliver any instruments required to effect such
collection; and (c) execute ownership and other certificates and
affidavits for all federal, state and foreign tax purposes in
connection with receipt of income or other payments with respect to
Securities, or in connection with the transfer of Securities.
Section 2.09. Notices, Consents, Etc. The Custodian shall deliver to
the Funds, in the most expeditious manner practicable, all notices,
consents or announcements affecting or relating to Securities held by
the Custodian on behalf of the Funds that are received by the
Custodian, and, upon receipt of Proper Instructions, the Custodian
shall execute and deliver such consents or other authorizations as may
be required.
Section 2.10. Notice of Custodian's Inability to Perform. The
Custodian shall promptly notify the Funds in writing by facsimile
transmission or such other manner as the Funds may designate, if, for
any reason: (a) the Custodian determines that it is unable to perform
any of its duties or obligations hereunder or its duties or
obligations with respect to any repurchase transaction; or (b) the
Custodian reasonably foresees that it will be unable to perform any
such duties or obligations.

ARTICLE III - PROPER INSTRUCTIONS AND RELATED MATTERS
Section 3.01. Proper Instructions; Special Instruction.
(a) Proper Instructions. As used herein, the term "Proper
Instructions" shall mean: (i) a tested telex, a written (including,
without limitation, facsimile transmission) request, direction,
instruction or certification signed or initialed by one or more
Authorized Persons (as hereinafter defined); (ii) a telephonic or
other oral communication by one or more Authorized Persons; or (iii) a
communication effected directly between electromechanical or
electronic devices or systems (including, without limitation,
computers) by one or more Authorized Persons; provided, however, that
communications of the types described in clauses (ii) and (iii) above
purporting to be given by an Authorized Person shall be considered
Proper Instructions only if the Custodian reasonably believes such
communications to have been given by an Authorized Person with respect
to the transaction involved. Proper Instructions in the form of oral
communications shall be confirmed by the Funds by tested telex or in
writing in the manner set forth in clause(i) above, but the lack of
such confirmation shall in no way affect any action taken by the
Custodian in reliance upon such oral instructions prior to the
Custodian's receipt of such confirmation. Each of the Funds and the
Custodian is hereby authorized to record any and all telephonic or
other oral instructions communicated to the Custodian. Proper
Instructions may relate to specific transactions or to types or
classes of transactions, and may be in the form of standing
instructions.
(b) Special Instructions. As used herein, the term "Special
Instructions" shall mean Proper Instructions countersigned or
confirmed in writing by, in the case of the entities listed in
Schedules A-1 or A-2 hereto, the Treasurer or any Assistant Treasurer
of the Funds or any other person designated in writing by the
Treasurer of the Funds, and in the case of each of the entities listed
on Schedules A-3 or A-4, by the officer who is a signatory to this
Agreement on behalf of such entity or any other person designated in
writing by such officer or an officer of such entity of higher
authority, which countersignature or written confirmation shall be (i)
included on the same instrument containing the Proper Instructions or
on a separate instrument relating thereto, and (ii) delivered by hand,
by facsimile transmission, or in such other manner as the parties
hereto may agree in writing.
(c) Address for Proper Instructions and Special Instructions. Proper
Instructions and Special Instructions shall be delivered to the
Custodian at the address and/or telephone, telecopy or telex number
agreed upon from time to time by the Custodian and the Funds.
Section 3.02. Authorized Persons. Concurrently with the execution of
this Agreement and from time to time thereafter, as appropriate, the
Funds shall deliver to the Custodian, duly certified as appropriate by
the Treasurer or any Assistant Treasurer of the Funds or by a
Secretary or Assistant Secretary of the Funds, and in the case of each
of the entities listed on Schedules A-3 or A-4, by the officer who is
a signatory to this Agreement on behalf of such entity or any other
person designated in writing by such officer or an officer of higher
authority, a certificate setting forth (a) the names, signatures and
scope of authority of all persons authorized to give Proper
Instructions or any other notice, request, direction, instruction,
certificate or instrument on behalf of the Funds (collectively, the
"Authorized Persons," and individually, an "Authorized Person"), and
(b) the names and signatures of those persons authorized to issue
Special Instructions. Such certificate may be accepted and relied
upon by the Custodian as conclusive evidence of the facts set forth
therein and shall be considered to be in full force and effect until
delivery to the Custodian of a similar certificate to the contrary.
Upon delivery of a certificate which deletes the name of a person
previously authorized to give Proper Instructions or to issue Special
Instructions, such person shall no longer be considered an Authorized
Person or authorized to issue Special Instructions, as applicable.
Section 3.03. Investment Limitations. In performing its duties
hereunder the Custodian may assume, unless and until it receives
special Instructions to the contrary (a "Contrary Notice"), that
Proper Instructions received by it are not in conflict with or in any
way contrary to any investment or other limitation applicable to any
of the Funds. The Custodian shall in no event be liable to the Funds
and shall be indemnified by the Funds for any loss, damage or expense
to the Custodian arising out of any violation of any investment or
other limitation to which any Fund is subject, except to the extent
that such loss, damage or expense: (i) relates to a violation of any
investment or other limitation of a Fund occurring after receipt by
the Custodian of a Contrary Notice; or (ii) arises from a breach of
this Agreement by the Custodian.
Section 3.04. Persons Having Access to Assets of the Funds. No
Authorized Person, Trustee, officer, employee or agent of the Funds
(other than the Custodian) shall have physical access to the assets of
the Funds held by the Custodian, or shall be authorized or permitted
to withdraw any such assets for delivery to an account of such person,
nor shall the Custodian deliver any such assets to any such person;
provided, however, that nothing in this Section 3.04 shall prohibit:
(a) any Authorized Person from giving Proper Instructions, or the
persons described in Section 3.01(b) from issuing Special
Instructions, so long as such action does not result in delivery of or
access to assets of the Funds prohibited by this Section 3.04; or (b)
the Funds' independent certified public accountants from examining or
reviewing the assets of the Funds held by the Custodian.
Section 3.05. Actions of Custodian Based on Proper Instructions and
Special Instructions. Subject to the provisions of Section 4.01
hereof, the Custodian shall not be responsible for the title, validity
or genuineness of any property, or evidence of title thereof, received
by it or delivered by it pursuant to this Agreement.
ARTICLE IV - STANDARD OF CARE; INDEMNIFICATION
Section 4.01. Standard of Care.
(a) General Standard of Care. The Custodian shall exercise
reasonable care and diligence in carrying out all of its duties and
obligations under this Agreement, and shall be liable to the Funds for
all loss, damage and expense incurred or suffered by the Funds,
resulting from the failure of the Custodian to exercise such
reasonable care and diligence or from any other breach by the
Custodian of the terms of this Agreement.
(b) Acts of God, Etc. In no event shall the Custodian incur
liability hereunder if the Custodian is prevented, forbidden or
delayed from performing, or omits to perform, any act or thing which
this Agreement provides shall be performed or omitted to be performed
by reason of: (i) any provision of any present or future law or
regulation or order of the United States of America, or any state
thereof, or of any foreign country, or political subdivision thereof
or of any court of competent jurisdiction; or (ii) any act of God or
war; unless, in each case, such delay or nonperformance is caused by
(A) the negligence, misfeasance or misconduct of the Custodian, or (B)
a malfunction or failure of equipment maintained or operated by the
Custodian other than a malfunction or failure caused by events beyond
the Custodian's control and which could not reasonably be anticipated
and/or prevented by the Custodian.
(c) Mitigation by Custodian. Upon the occurrence of any event which
causes or may cause any loss, damage or expense to the Funds, the
Custodian shall use all commercially reasonable efforts and shall take
all reasonable steps under the circumstances to mitigate the effects
of such event and to avoid continuing harm to the Funds.
Section 4.02. Liability of Custodian for Actions of Securities
Systems. Notwithstanding the provisions of Section4.01 to the
contrary, the Custodian shall not be liable to the Funds for any loss,
damage or expense resulting from the use by the Custodian of a
Securities System, unless such loss, damage or expense is caused by,
or results from, negligence, misfeasance or misconduct of the
Custodian. In the case of loss, damage or expense resulting from use
of a Securities System by the Custodian, the Custodian shall take all
reasonable steps to enforce such rights as it may have against the
Securities System to protect the interest of the Funds.
Section 4.03. Indemnification.
(a) Indemnification Obligations. Subject to the limitations set
forth in this Agreement, the Funds severally agree to indemnify and
hold harmless the Custodian from all claims and liabilities (including
reasonable attorneys' fees) incurred or assessed against the Custodian
for actions taken in reliance upon Proper Instructions or Special
Instructions; provided, however, that such indemnity shall not apply
to claims and liabilities occasioned by or resulting from the
negligence, misfeasance or misconduct of the Custodian, or any other
breach of this Agreement by the Custodian. In addition, the Funds
severally agree to indemnify the Custodian against any liability
incurred by the Custodian by reason of taxes assessed to the
Custodian, or other costs, liability or expenses incurred by the
Custodian, resulting directly or indirectly solely from the fact that
securities and other property of the Funds is registered in the name
of the Custodian; provided, however, in no event shall such
indemnification be applicable to income, franchise or similar taxes
which may be imposed or applied against the Custodian or charges
imposed by a Federal Reserve Bank with respect to intra-day overdrafts
unless separately agreed to by the Funds.
(b) Extent of Liability. Notwithstanding anything to the contrary
contained herein, with respect to the indemnification obligations of
the Funds provided in this Section4.03, each Fund shall be: (i)
severally, and not jointly and severally, liable with each of the
other Funds; and (ii) liable only for its pro rata share of such
liabilities, determined with reference to such Fund's proportionate
interest in the aggregate of assets held by the Custodian in the
Account with respect to which such liability relates at the time such
liability was incurred, as reflected on the books and records of the
Funds.
(c) Notice of Litigation, Right to Prosecute, Etc. The Custodian
shall promptly notify the Funds in writing of the commencement of any
litigation or proceeding brought against the Custodian in respect of
which indemnity may be sought against the Funds pursuant to this
Section4.03. The Funds shall be entitled to participate in any such
litigation or proceeding and, after written notice from the Funds to
the Custodian, the Funds may assume the defense of such litigation or
proceeding with counsel of their choice at their own expense. The
Custodian shall not consent to the entry of any judgment or enter into
any settlement in any such litigation or proceeding without providing
the Funds with adequate notice of any such settlement or judgment, and
without the Funds' prior written consent. The Custodian shall submit
written evidence to the Funds with respect to any cost or expense for
which it seeks indemnification in such form and detail as the Funds
may reasonably request.
Section 4.04. Funds, Right to Proceed. Notwithstanding anything to
the contrary contained herein, the Funds shall have, at their election
upon reasonable notice to the Custodian, the right to enforce, to the
extent permitted by any applicable agreement and applicable law, the
Custodian's rights against any Securities System or other person for
loss, damage or expense caused the Custodian or the Funds by such
Securities System or other person, and shall be entitled to enforce
the rights of the Custodian with respect to.any claim against such
Securities System or other person which the Custodian may have as a
consequence of any such loss, damage or expense if and to the extent
that the Custodian or any Fund has not been made whole for any such
loss, damage or expense.
ARTICLE V - COMPENSATION
Section 5.01. Compensation. The Custodian shall be compensated for
its services hereunder in an amount, and at such times, as may be
agreed upon, from time to time, by the Custodian and the Funds. Each
Fund shall be severally, and not jointly, liable with the other Funds
only for its pro rata share of such compensation, determined with
reference to such Fund's proportionate interest in each Repurchase
Agreement transaction to which such compensation relates.
Section 5.02. Waiver of Right of Set-Off. The Custodian hereby
waives and relinquishes all contractual and common law rights of
set-off to which it may now or hereafter be or become entitled with
respect to any obligations of the Funds to the Custodian arising under
this Agreement.
ARTICLE VI - TERMINATION
Section 6.01. Events of Termination. This Agreement shall continue
in full force and effect until the first to occur of: (a) termination
by the Custodian or the Funds by an instrument in writing delivered to
the other party, such termination to take effect not sooner than
ninety (90) days after the date of such delivery; or (b) termination
by the Funds by written notice delivered to the Custodian, based upon
the Funds' determination that there is a reasonable basis to conclude
that the Custodian is insolvent or that the financial condition of the
Custodian is deteriorating in any material respect, in which case
termination shall take effect upon the Custodians receipt of such
notice or at such later time as the Funds shall designate; provided,
however, that this Agreement may be terminated as to one or more Funds
(but less than all Funds) by delivery of an amended Schedule A-1, A-2,
A-3 or A-4 pursuant to Section7.03 hereof. The execution and delivery
of an amended Schedule A-1, A-2, A-3 or A-4 which deletes one or more
Funds shall constitute a termination of this Agreement only with
respect to such deleted Fund(s).
Section 6.02. Successor Custodian; Payment of Compensation. Each of
the Funds may identify a successor custodian to which the cash,
Securities and other assets of such Fund shall, upon termination of
this Agreement, be delivered; provided that in the case of the
termination of this Agreement with respect to any of the Funds, such
Fund or Funds shall direct the Custodian to transfer the assets of
such Fund or Funds held by the Custodian pursuant to Proper
Instructions. The Custodian agrees to cooperate with the Funds in the
execution of documents and performance or all other actions necessary
or desirable in order to substitute the successor custodian for the
Custodian under this Agreement. In the event of termination, each
Fund shall make payment of such Fund's applicable share of unpaid
compensation within a reasonable time following termination and
delivery of a statement to the Funds setting forth such fees. The
termination of this Agreement with respect to any of the Funds shall
be governed by the provisions of this ArticleVI as to notice, payments
and delivery of securities and other assets, and shall not affect the
obligations of the parties hereunder with respect to the other Funds
set forth in Schedule A-1, A-2, A-3 or A-4 as amended from time to
time.
ARTICLE VII - MISCELLANEOUS
Section 7.01. Representative Capacity and Binding Obligation. A COPY
OF THE DECLARATION OF TRUST OR OTHER ORGANIZATIONAL DOCUMENTS OF EACH
FUND IS ON FILE WITH THE SECRETARY OF THE STATE OF EACH FUND'S
FORMATION, AND NOTICE IS HEREBY GIVEN THAT THIS AGREEMENT IS NOT
EXECUTED ON BEHALF OF THE TRUSTEES OF ANY FUND AS INDIVIDUALS, AND THE
OBLIGATIONS OF THIS AGREEMENT ARE NOT BINDING UPON ANY OF THE
SHAREHOLDERS, TRUSTEES, DIRECTORS, PARTNERS, OFFICERS, EMPLOYEES OR
AGENTS OF ANY FUND INDIVIDUALLY, BUT ARE BINDING ONLY UPON THE ASSETS
AND PROPERTY OF THE FUNDS, AND IN THE CASE OF SERIES COMPANIES, SUCH
FUNDS' RESPECTIVE PORTFOLIOS OR SERIES.
THE CUSTODIAN AGREES THAT NO SHAREHOLDER, TRUSTEE, DIRECTOR, PARTNER,
OFFICER, EMPLOYEE OR AGENT OF ANY FUND MAY BE HELD PERSONALLY LIABLE
OR RESPONSIBLE FOR ANY OBLIGATIONS OF THE FUNDS ARISING OUT OF THIS
AGREEMENT. WITH RESPECT TO OBLIGATIONS OF EACH FUND ARISING OUT OF
THIS AGREEMENT, THE CUSTODIAN SHALL LOOK FOR PAYMENT OR SATISFACTION
OF ANY CLAIM SOLELY TO THE ASSETS AND PROPERTY OF THE FUND TO WHICH
SUCH OBLIGATION RELATES AS THOUGH EACH FUND HAD SEPARATELY CONTRACTED
WITH THE CUSTODIAN BY SEPARATE WRITTEN INSTRUMENT."
Section 7.02. Entire Agreement. This Agreement constitutes the
entire understanding and agreement of the parties hereto with respect
to the subject matter hereof.
Section 7.03. Amendments. No provision of this Agreement may be
amended except by a statement in writing signed by the party against
which enforcement of the amendment is sought; provided, however,
Schedule A-1, A-2, A-3 or A-4 listing the Funds which are parties
hereto, Schedule B listing the Fund Custodians and Schedule C listing
the Repo Custodians may be amended from time to time to add or delete
one or more Funds, Fund Custodians or Repo Custodians, as the case may
be, by the Funds' delivery of an amended Schedule A-1, A-2, A-3 or
A-4, Schedule B or Schedule C to the Custodian. The deletion of one
or more Funds from Schedule A-1, A-2, A-3 or A-4 shall have the effect
of terminating this Agreement as to such Fund(s), but shall not affect
this Agreement with respect to any other Fund.
Section 7.04. Interpretation. In connection with the operation of
this Agreement, the Custodian, and the Funds may agree in writing from
time to time on such provisions interpretative of or in addition to
the provisions of this Agreement as may in their joint opinion be
consistent with the general tenor of this Agreement. No
interpretative or additional provisions made as provided in the
preceding sentence shall be deemed to be an amendment of this
Agreement.
Section 7.05. Captions. Headings contained in this Agreement, which
are included as convenient references only, shall have no bearing upon
the interpretation of the terms of the Agreement or the obligations of
the parties hereto.
Section 7.06. Governing Law. THE PROVISIONS OF THIS AGREEMENT SHALL
BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEW YORK WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPLES THEREOF.
Section 7.07. Notice and Confirmations.
(a) Except as provided in Section 7.07(b) below and except in the
case of Proper Instructions or Special Instructions, notices and other
writings contemplated by this Agreement shall be delivered by hand or
by facsimile transmission (provided that in the case of delivery by
facsimile transmission, notice shall also be mailed postage prepaid)
to the parties at the following addresses:
(i) If to the Funds:
FMR Texas Inc.
400 East Las Colinas Blvd., CP9M
Irving, Texas 75039
Telephone: (214) 584-7800
Attention: Ms. Deborah Todd or
Mr. Samuel Silver
(ii) If to the Custodian:
The Bank of New York
One Wall Street
Fourth Floor
New York, NY 10286
Attn: Claire Meskovic
Telephone: (212) 635-4808
Telefax: (212) 635-4828
(b) The Custodian may provide the confirmations required by Sections
2.02 and 2.03 of this Agreement by making the information available in
the form of a communication directly between electromechanical or
electrical devices or systems (including, without limitation,
computers) (or in such other manner as the parties hereto may agree in
writing) to the following Fund Agent:
Fidelity Accounting and Custody
Domestic Securities Operations
400 East Las Colinas Blvd., CP9E
Irving, Texas 75039
Telephone: (214) 506-4071
Attention: Mr. Mark Mufler
The address and telephone number of the Funds, the Fund Agent and the
Custodian and the identity of the Fund Agent specified in this Section
7.07 may be changed by written notice of the Funds to Custodian or
Custodian to the Funds, as the case may be. All written notices which
are required or provided to be given hereunder shall be effective upon
actual receipt by the entity to which such notice is given.
Section 7.08. Assignment. This Agreement shall be binding on and
shall inure to the benefit of the parties hereto and their respective
successors and assigns, provided that, no party hereto may assign this
Agreement or any of its rights or obligations hereunder without the
prior written consent of each of the other parties.
Section 7.09. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original.
This Agreement shall become effective when one or more counterparts
have been signed and delivered by each of the parties.
Section 7.10. Confidentiality; Survival of Obligations. The parties
hereto agree that they shall each shall treat confidentially the terms
and conditions of this Agreement and all information provided by each
party to the others regarding its business and operations. All
confidential information provided by a party hereto shall be used by
any other party hereto solely for the purpose of rendering services
pursuant to this Agreement and, except as may be required in carrying
out this Agreement, shall not be disclosed to any third party without
the prior consent of such providing party. The foregoing shall not be
applicable to any information that is publicly available when provided
or thereafter becomes publicly available other than through a breach
of this Agreement, or that is required to be disclosed by any bank
examiner of the Custodian, any auditor of the parties hereto or by
judicial or administrative process or otherwise by applicable law or
regulation. The provisions of this Section 7.10 and Sections3.03,
4.01, 4.02, 4.03, 4.04, 4.05, 7.01 and 7.06 shall survive any
termination of this Agreement, provided that in the event of
termination the Custodian agrees that it shall transfer and return
Securities and other assets held by the Custodian for the benefit of
the Funds as the Funds direct pursuant to Proper Instructions.

IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed in its name and behalf on the day and year first above
written.
BANK OF NEW YORK
By: /s/
Name:
Title:
FIDELITY INVESTMENT COMPANIES LISTED
ON SCHEDULE A-1 HERETO AND ACCOUNTS
LISTED ON SCHEDULE A-3 HERETO
Dated:
By: /s/
Name:
Title:
FIDELITY INVESTMENT COMPANIES LISTED
ON SCHEDULE A-2 HERETO
Dated:
By: /s/
Name:
Title:
ACCOUNTS LISTED ON SCHEDULE A-4 HERETO
By: FIDELITY MANAGEMENT TRUST COMPANY
Dated:
By: /s/
Name:
Title:
94975.c5
SCHEDULES A-1, A-2, A-3 AND A-4
TO JOINT TRADING ACCOUNT CUSTODY AGREEMENT BETWEEN
THE BANK OF NEW YORK AND FIDELITY FUNDS DATED AS OF _________
The following is a list of the Funds to which this Agreement applies:
SCHEDULE A-1
SCHEDULE A-2
SCHEDULE A-3
SCHEDULE A-4
SCHEDULE B
TO JOINT TRADING ACCOUNT CUSTODY AGREEMENT
BETWEEN THE BANK OF NEW YORK AND
FIDELITY FUNDS DATED AS OF __________

The following is a list of the Fund Custodians of the Funds:

SCHEDULE C
TO JOINT TRADING ACCOUNT CUSTODY AGREEMENT
BETWEEN THE BANK OF NEW YORK AND
FIDELITY FUNDS DATED AS OF ____________
The following is a list of Repo Custodians of the Funds:

</TABLE>

EXHIBIT
G(10)
FORM OF
FIRST AMENDMENT TO
JOINT TRADING ACCOUNT CUSTODY AGREEMENT
BETWEEN
THE BANK OF NEW YORK
AND
FIDELITY FUNDS
FIRST AMENDMENT TO JOINT TRADING ACCOUNT CUSTODY AGREEMENT BETWEEN
THE BANK OF NEW YORK AND FIDELITY FUNDS, dated as of ______, by and
between THE BANK OF NEW YORK ("Custodian") and each of the entities
listed on SchedulesA-1, A-2, A-3 and A-4 hereto on behalf of itself
or, (i) in the case of a series company, on behalf of one or more of
its portfolios or series listed on SchedulesA-1 or A-2 hereto, (ii) in
the case of the accounts listed on Schedule A-3 hereto, acting through
Fidelity Management & Research Company, and (iii)in the case of the
commingled or individual accounts listed on Schedule A-4 hereto,
acting through Fidelity Management Trust Company (collectively, the
"Funds" and each, a "Fund").
WITNESSETH
WHEREAS, Custodian and certain of the Funds have entered into that
certain Joint Trading Account Custody Agreement between The Bank of
New York and Fidelity Funds, dated as of _______ (the "Agreement"),
pursuant to which the Funds have appointed the Custodian as its
custodian for the purpose of establishing and administering one or
more joint trading accounts or subaccounts thereof (individually, an
"Account" and collectively, the "Accounts") and holding cash and
securities for the Funds in connection with repurchase transactions
effected through the Accounts; and
WHEREAS, Seller and the Funds desire to amend the Agreement as set
forth below.
NOW, THEREFORE, in consideration of the premises and mutual promises
and covenants contained herein, the parties hereto agree as follows.
Unless otherwise defined herein or the context otherwise requires,
terms used in this Amendment, including the preamble and recitals,
have the meanings provided in the Agreement.
The Agreement is hereby amended by deleting Paragraph2.03(f) in its
entirety and substituting the following in lieu thereof:
"(f) Overdraft. In the event that the Custodian is directed by
Proper Instructions to make any payment or transfer of funds on behalf
of a Fund for which there would be, at the close of business on the
date of such payment or transfer, insufficient funds held by the
Custodian on behalf of such Fund, the Custodian may, in its
discretion, provide an overdraft ("Overdraft") to the Fund (such Fund
being referred to herein as an "Overdraft Fund"), in an amount
sufficient to allow the completion of such payment or transfer. Any
Overdraft provided hereunder: (a) shall be payable on the next
Business Day, unless otherwise agreed by the Overdraft Fund and the
Custodian; and (b) shall accrue interest from the date of the
Overdraft to the date of payment in full by the Overdraft Fund at a
rate agreed upon in writing, from time to time, by the Custodian and
the Overdraft Fund. The Custodian and the Funds acknowledge that the
purpose of such Overdrafts is to temporarily finance the purchase or
sale of securities for prompt delivery in accordance with the terms
hereof. The Custodian hereby agrees to notify each Overdraft Fund by
3:00 p.m., New York time, of the amount of any Overdraft. Provided
that Custodian has given the notice required by this subparagraph (f),
the Funds hereby agree that, as security for the Overdraft of an
Overdraft Fund, the Custodian shall have a continuing lien and
security interest in and to all interest of such Overdraft Fund in
Securities whose purchase is financed by Custodian and which are in
Custodian's possession or in the possession or control of any third
party acting on Custodian's behalf and the proceeds thereof. In this
regard, Custodian shall be entitled to all the rights and remedies of
a pledgee under common law and a secured party under the New York
Uniform Commercial Code and any other applicable laws or regulations
as then in effect."

IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed and delivered under seal by their duly authorized officers.
BANK OF NEW YORK
By: /s/
Name:
Title:
FIDELITY INVESTMENT COMPANIES LISTED
ON SCHEDULE A-1 HERETO AND ACCOUNTS
LISTED ON SCHEDULE A-3 HERETO
Dated:
By: /s/
Name:
Title:
FIDELITY INVESTMENT COMPANIES LISTED
ON SCHEDULE A-2 HERETO
Dated:
By: /s/
Name:
Title:
ACCOUNTS LISTED ON SCHEDULE A-4 HERETO
By: FIDELITY MANAGEMENT TRUST COMPANY
Dated:
By: /s/
Name:

Title:
SCHEDULE A-1
SCHEDULE A-2
SCHEDULE A-3
SCHEDULE A-4