FIDELITY SCHOOL STREET TRUST/, N-30D, 1999-02-23

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FIDELITY
STRATEGIC INCOME
FUND

ANNUAL REPORT
DECEMBER 31, 1998

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)

CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.

PERFORMANCE 4 How the fund has done over
time.

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

INVESTMENT CHANGES 11 A summary of major shifts in
the fund's investments over
the past six months.

INVESTMENTS 12 A complete list of the fund's
investments with their
market values.

FINANCIAL STATEMENTS 24 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.

NOTES 28 Footnotes to the financial
statements.

REPORT OF INDEPENDENT 33 The auditors' opinion.
ACCOUNTANTS

OF SPECIAL NOTE 34

Third party marks appearing herein are the property of their
respective owners.

All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.

This report is printed on recycled paper using soy-based inks.

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

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

PRESIDENT'S MESSAGE

(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:

Resurgent stock market performance in the fourth quarter helped the
Dow Jones Industrial Average post a double-digit return for the fourth
year in a row - a first in the Dow's 100-plus year history. Three
interest-rate cuts made late in the year by the Federal Reserve Board
helped spark the equity rally. Meanwhile, while the majority of bonds
posted positive performance, most bond returns for 1998 trailed their
gains from 1997.

While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.

The longer your investment time frame, the less likely it is that you
will be affected by short-term market volatility. A 10-year investment
horizon appropriate for saving for a college education, for example,
enables you to weather market cycles in a long-term fund, which may
have a higher risk potential, but also has a higher potential rate of
return.

An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.

If your time horizon is less than a year, you might want to consider
moving some of your bond investment into a money market fund. These
funds seek income and a stable share price by investing in
high-quality, short-term investments. Of course, it's important to
remember that an investment in a money market fund is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although money market funds seek to preserve the
value of your investment at $1.00 per share, it is possible to lose
money by investing in these types of funds.

Finally, no matter what your time horizon or portfolio diversity, it
makes good sense to follow a regular investment plan, investing a
certain amount of money in a fund at the same time each month or
quarter and periodically reviewing your overall portfolio. By doing
so, you won't get caught up in the excitement of a rapidly rising
market, nor will you buy all your shares at market highs. While this
strategy - known as dollar cost averaging - won't assure a profit or
protect you from a loss in a declining market, it should help you
lower the average cost of your purchases. Of course, you should
consider your financial ability to continue your purchases through
periods of low price levels before undertaking such a strategy.

If you have questions, please call us at 1-800-544-8888, or visit our
web site at www.fidelity.com. We are available 24 hours a day, seven
days a week to provide you the information you need to make the
investments that are right for you.

Best regards,
Edward C. Johnson 3d

PERFORMANCE: THE BOTTOM LINE

There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at income, to measure
performance. If Fidelity had not reimbursed certain fund expenses, the
fund's total return would have been lower.

CUMULATIVE TOTAL RETURNS
PERIOD ENDED DECEMBER 31, 1998 LIFE OF FUND

FIDELITY STRATEGIC INCOME 0.13%

Fidelity Strategic Income 2.08%
Composite

JP EMBI Plus -19.06%

LB Government Bond 7.67%

ML High Yield Master 0.31%

SB Non-US Dollar World Govt. 14.36%
Bond

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, since the fund started on May
1, 1998. For example, if you had invested $1,000 in a fund that had a
5% return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Fidelity Strategic Income Composite Index, a hypothetical combination
of unmanaged indices. The composite index combines the total returns
of the J.P. Morgan Emerging Markets Bond Index Plus, the Lehman
Brothers Government Bond Index, the Merrill Lynch High Yield Master
Index and the Salomon Brothers Non-US Dollar World Government Bond
Index weighted according to the fund's neutral mix. The benchmarks
listed in the table above include reinvested dividends and capital
gains, if any, and exclude the effect of sales charges.

AVERAGE ANNUAL TOTAL RETURNS
AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. These numbers will be reported once the fund
is a year old.

<TABLE>
<CAPTION>
<S> <C> <C> <C>
$10,000 OVER LIFE OF FUND
Strategic Income FID Strategic Inc Comp. ML High Yield Master
00368 F0086 ML002
1998/05/01 10000.00 10000.00 10000.00
1998/05/31 9906.11 9990.30 10058.52
1998/06/30 9906.23 9995.55 10113.28
1998/07/31 9999.96 10034.98 10170.95
1998/08/31 9282.03 9548.68 9732.07
1998/09/30 9621.91 9867.70 9751.48
1998/10/31 9669.33 9955.35 9588.81
1998/11/30 10026.54 10195.08 10028.11
1998/12/31 10012.62 10208.05 10031.44
</TABLE>
IMATRL PRASUN SHR__CHT 19981231 19990113 132356 R00000000000011

$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity Strategic Income Fund on May 1, 1998, when the
fund started. As the chart shows, by December 31, 1998, the value of
the investment would have grown to $10,013 - a 0.13% increase on the
initial investment. For comparison, look at how the Merrill Lynch High
Yield Master Index - a market value-weighted index of all domestic and
yankee high-yield bonds. Issues included in the index have maturities
of one year or more and have a credit rating lower than BBB-/Baa3, but
are not in default. With dividends and capital gains, if any,
reinvested, the same $10,000 investment would have grown to $10,031 -
a 0.31% increase. You can also look at how the Fidelity Strategic
Income Composite Index - a hypothetical combination of unmanaged
indices that is more representative of the fund's investable universe
- - did over the same period. This index combines returns from the J.P.
Morgan Emerging Markets Bond Index Plus (-19.06%), Lehman Brothers
Government Bond Index (7.67%), Merrill Lynch High Yield Master Index
(0.31%), and Salomon Brothers Non-U.S. Dollar World Government Bond
Index (14.36%), according to the fund's neutral mix *, and assumes
monthly rebalancing of the mix. With dividends and capital gains, if
any, reinvested, the same $10,000 investment would have grown to
$10,208 - a 2.08% increase.

(checkmark)UNDERSTANDING
PERFORMANCE

How a fund did yesterday is
no guarantee of how it will do
tomorrow. If you sell your
shares during a market
downturn, you might lose
money. But if you can ride out
the market's ups and downs,
you may have a gain.

* CURRENTLY 40% HIGH-YIELD, 30% U.S. GOVERNMENT AND INVESTMENT-GRADE
BONDS, 15% EMERGING-MARKETS, AND 15% FOREIGN DEVELOPED-MARKETS.

TOTAL RETURN COMPONENTS
MAY 1, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31,
1998

Dividend returns 4.93%

Capital returns -4.80%

Total returns 0.13%

TOTAL RETURN COMPONENTS include both dividend returns and capital
returns. A dividend return reflects the actual dividends paid by the
fund. A capital return reflects both the amount paid by the fund to
shareholders as capital gain distributions and changes in the fund's
share price. Both returns assume the dividends or capital gains, if
any, paid by the fund are reinvested.

DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, 1998 PAST 1 MONTH PAST 6 MONTHS LIFE OF FUND

Dividends per share 11.66(cents) 38.73(cents) 48.33(cents)

Annualized dividend rate 14.33% 8.08% 7.50%

30-day annualized yield n/a - -

DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of $9.58
over the past one month, $9.51 over the past six months and $9.60 over
the life of fund, you can compare the fund's income over these three
periods. The past month dividends per share include additional
distributions required by federal tax regulations. These distributions
may not be reflected in future monthly dividends. The 30-day
annualized YIELD is a standard formula for all bond funds based on the
yields of the bonds in the fund, averaged over the past 30 days. This
figure shows you the yield characteristics of the fund's investments
at the end of the period. It also helps you compare funds from
different companies on an equal basis. Yield information will be
reported once the fund has a longer, more stable, operating history.

FUND TALK: THE MANAGERS' OVERVIEW

MARKET RECAP

Escalating volatility characterized
capital markets during the 12-month
period ending December 31, 1998.
Below-investment-grade issues such
as high-yield bonds and
emerging-market debt bore the
brunt of this increased volatility, as
did any sector priced relative to U.S.
Treasury yields. Investors entered
the year fairly upbeat thanks to
positive economic data, favorable
corporate earnings estimates and
resilience in emerging markets.
However, as spring ended, global
events undermined investor
confidence. Prolonged uncertainty
surrounding resolution of Japan's
banking crisis put significant
pressure on the yen. This called into
question the export competitiveness
of surrounding Asian countries.
Russian debt came under pressure
when investors' attention turned to
the significant reform challenges the
country faced and its slow progress
in addressing them. As the summer
wore on, investors began turning
their backs on higher-yielding,
more volatile debt instruments in
favor of lower-yielding,
higher-quality issues. The ensuing
rapid flight to quality in August,
triggered by Russia's default and
devaluation, caused the gap
between Treasury yields and the
yields on non-investment-grade
debt to increase dramatically. The
key beneficiaries in this environment
included U.S. Treasuries as well as
G-7 government bonds. As the
year came to a close, investors were
focusing on Brazil's outlook and its
potential for unsettling global
markets.

(photograph of John Carlson)
(photograph of Kevin Grant)
(photograph of Margaret Eagle)
(photograph of Ian Spreadbury)

The following is an interview with John Carlson (top left), Lead
Portfolio Manager of Fidelity Strategic Income Fund, with additional
comments from Kevin Grant (top right), who replaced Curt Hollingsworth
on December 7, 1998, on U.S. government and investment-grade
securities; Margaret Eagle (lower left) on high-yield securities; and
Ian Spreadbury (lower right) on foreign developed-market securities.
Mr. Carlson also manages the emerging-markets portion of the fund,
replacing Brian Hogan as of November 16, 1998.

Q. HOW DID THE FUND PERFORM, JOHN?

J.C. Since the fund's inception on May 1, 1998 through December 31,
1998, the fund returned 0.13%. The fund's composite benchmark -
comprised of the J.P. Morgan Emerging Markets Bond Index Plus, the
Lehman Brothers Government Bond Index, the Salomon Brothers Non-US
Dollar World Government Bond Index and the Merrill Lynch High Yield
Master Index - returned 2.08% over the same period.

Q. JOHN, WHAT WERE THE MAJOR THEMES IN THE CREDIT MARKETS IN 1998?

J.C. When I look back on 1998, two words epitomize the year -
deflation and deleveraging. Deflation in the form of declining
commodity prices destabilized revenue sources for many emerging-market
countries, while lack of pricing power inhibited cash flow growth for
some corporations. These issues contributed to higher risk premiums
for emerging-market and high-yield debt, while developed-country debt
yields declined. With risk premiums rising, banks, Wall Street firms
and hedge funds curtailed lending, reducing their exposure to
volatility and possible credit disappointments. This liquidity
retraction left the gap between developed-country debt yields and
below-investment-grade yields much wider year-over-year.

Q. JOHN, WHAT DROVE PERFORMANCE IN THE EMERGING-MARKET DEBT
SUB-PORTFOLIO?

J.C. Russia's highly unusual decision to default on its local
currency-denominated debt detracted from the sub-portfolio's
performance. The action was considered unusual because a government
has the option of printing money to meet principal and interest
payments. In terms of positive contributors to performance, country
fundamentals drive my decision-making, as do individual security
valuations in the market. This strategy benefited performance even in
a turbulent year. For example, Korea, an out-of-index country, was the
best contributor to fund performance during the year. Venezuela and
Bulgaria, countries represented in the index, also generated positive
returns.

Q. MARGARET, HOW DID THE HIGH-YIELD MARKET FARE IN 1998? WHAT IS YOUR
OUTLOOK FOR THE HIGH-YIELD MARKET?

M.E. The high-yield sub-portfolio was bolstered by the performance of
cable issues since the fund's inception, while an underweighted
position in diversified media companies detracted from performance.
While resilient in the face of increased global market volatility in
the first half, the high-yield market weakened in the summer. With
Asian currencies declining dramatically, making their exports cheaper,
U.S. export competitiveness was questioned. In spite of this
environment, companies continued to look to the high-yield market for
financing - surpassing demand at times. However, few anticipated the
significant August flight to quality and the repercussions on
liquidity. The high-yield bond market rebounded somewhat in the fourth
quarter, and their yields relative to Treasuries narrowed a bit.
However, yields still reflect a more severe outlook for credit quality
than I believe is warranted. While worldwide deflation is likely to
lead to further economic softening, I do not believe it will intensify
into a recession.

Q. KEVIN, HOW DID THE U.S. GOVERNMENT SECTOR OF THE PORTFOLIO FARE?

K.G. The fixed-income markets were an interesting place to be in 1998.
Financial and economic turmoil abroad, and sustained U.S. growth in
the absence of inflation, produced a dramatic decline in domestic
interest rates. The fund's Treasury holdings generated strong
performance during the year as 10-year yields at one point reached
their lowest level in over 30 years. The yield curve steepened as
short rates fell more than long rates. Long-term interest rates
declined in response to benign inflation, an unchanged monetary policy
and Asian instability that pushed the dollar to an eight-year high
against the Japanese yen. Treasuries benefited as a safe haven, and
federal agency securities were favored over other sectors. However,
the Fed unexpectedly eased monetary policy on October 15th, boosting
confidence and restoring liquidity. Economic vitality continued to
confound expectations, limiting the extent of the central bank's role
in reducing short-term interest rates to a series of three 25 basis
point reductions. Investor demand for securities offering a yield
advantage over Treasuries allowed agencies to outperform Treasuries
during the fourth quarter. Since the fund's inception, Treasuries made
the largest contribution; while mortgage-backed debt was the biggest
drag on performance.

Q. IAN, HOW DID THE FOREIGN DEVELOPED MARKETS FARE IN 1998?

I.S. 1998 was a generally positive year for G-7 bond markets as
government bond yields fell and the U.S. dollar was generally weaker
against the world's major currencies. These developments were driven
by fears of global deflation and a general flight to quality. As it
became clear that the launch of the euro was unlikely to be delayed,
we began to treat the German, French and Italian markets as one. One
strategy was to position the sub-portfolio in shorter maturities in
Italy and in longer maturities in Germany, thus keeping overall
interest-rate exposure unchanged, but taking advantage of the
relatively higher yields in the three-year sector of the Italian
market.

Q. JOHN, AS LEAD PORTFOLIO MANAGER, WHAT'S YOUR OUTLOOK FOR THE FUND?

J.C. In general, I am very cautious about the capital markets in 1999.
I think there is considerable risk in several markets. However, I also
believe yield levels at the end of the year reflected these risks, and
in some instances, overestimated them. We will rely on our global
research to differentiate the winners from the losers and continue to
look to the high-yield debt and emerging-market sectors of the market
to provide value added to the fund's return.

THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT
AS STATED ON THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT
ANY TIME BASED ON MARKET AND OTHER CONDITIONS.

JOHN CARLSON ON THE FUND'S
ASSET ALLOCATION:

"Four sectors comprise the fund:
high yield (40%), U.S. government
and investment-grade securities
(30%), non-U.S. developed (15%)
and emerging-market debt (15%).
Fidelity performed extensive
analysis to determine the optimal
mix for meaningful diversification
and a reasonable level of return.
Each sector plays a role:
high-yield and emerging-market
debt typically provide the bulk of
the added value, while U.S.
governments provide liquidity and
non-U.S. provides diversification.

"We are frequently asked `when do
we change the sector weightings?'
The answer is, we don't. The
optimal mix is designed to work
across an entire market cycle. The
events of 1998 demonstrated why
the mix works.

"Deleveraging by banks and other
market participants led to
negative returns for the high- yield
and emerging-debt markets in
1998. However, these same forces
benefited U.S. and other
developed-country government
bonds through lower inflation and
a weaker U.S. dollar. As a result,
even though high-yield and
emerging-market debt suffered,
the other two sectors picked up
the slack.

"Looking forward, no change is
seen in the fund's structure. We do
not believe it is possible to predict
the direction of markets
consistently. Instead, we rely on
the individual managers to add
value over their benchmarks."

(checkmark)FUND FACTS

GOAL: high current income
with the potential for capital
appreciation

FUND NUMBER: 368

TRADING SYMBOL: FSICX

START DATE: May 1, 1998

SIZE: as of December 31,
1998, more than $24 million

MANAGER: John Carlson, lead
and emerging-markets
manager; since 1998, Kevin
Grant, U.S. government and
investment-grade securities;
since December 1998,
Margaret Eagle, high-yield
investments, since inception;
and Ian Spreadbury, foreign
developed market securities,
since inception

INVESTMENT CHANGES

<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1998

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

U.S. Treasury Obligations 23.5 26.3

German Federal Republic 5.5 2.7

Nextel Communications, Inc. 2.7 3.3

Argentinian Republic 2.6 2.7

Canadian Government 2.5 1.4

TOP FIVE MARKET SECTORS AS OF
DECEMBER 31, 1998

% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE MARKET SECTORS 6
MONTHS AGO

UTILITIES 15.2 13.7

MEDIA & LEISURE 10.9 8.8

RETAIL & WHOLESALE 3.8 5.2

ENERGY 2.5 5.1

NONDURABLES 1.5 0.4

QUALITY DIVERSIFICATION AS OF
DECEMBER 31, 1998

(MOODY'S RATINGS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS 6
MONTHS AGO

Aaa, Aa, A 36.7 35.1

Baa 0.4 0.3

Ba 9.7 6.7

B 24.4 26.8

Caa, Ca, C 7.3 7.7

Not Rated 2.2 3.2

</TABLE>

TABLE EXCLUDES SHORT-TERM INVESTMENTS. WHERE MOODY'S RATINGS ARE NOT
AVAILABLE, WE HAVE USED S&P RATINGS. UNRATED DEBT SECURITIES THAT ARE
EQUIVALENT TO BA AND BELOW AT DECEMBER 31, 1998 AND JUNE 30, 1998
ACCOUNT FOR 0.6% AND 1.9% RESPECTIVELY, OF THE FUND'S INVESTMENTS.

ASSET ALLOCATION (% OF FUND'S INVESTMENTS)

AS OF DECEMBER 31, 1998 *
Nonconvertible
bonds 32.6%
U.S. Treasury
obligations 23.5%
Foreign government and
government agency
obligations 23.7%
Stocks 5.5%
Other 1.2%
Short-term
investments 13.5%
*FOREIGN
INVESTMENTS 28.0%
Row: 1, Col: 1, Value: 32.3
Row: 1, Col: 2, Value: 23.5
Row: 1, Col: 3, Value: 23.7
Row: 1, Col: 4, Value: 5.5
Row: 1, Col: 5, Value: 1.5
Row: 1, Col: 6, Value: 13.5

AS OF JUNE 30, 1998 **
Nonconvertible
bonds 30.9%
U.S. Treasury
obligations 26.3%
Foreign government and
government agency
obligations 21.1%
Stocks 8.9%
Other 1.5%
Short-term
investments 11.3%
**FOREIGN
INVESTMENTS 23.1%
Row: 1, Col: 1, Value: 30.9
Row: 1, Col: 2, Value: 26.3
Row: 1, Col: 3, Value: 21.1
Row: 1, Col: 4, Value: 8.9
Row: 1, Col: 5, Value: 1.5
Row: 1, Col: 6, Value: 11.3

INVESTMENTS DECEMBER 31, 1998

Showing Percentage of Total Value of Investment in Securities

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 32.6%

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

BASIC INDUSTRIES - 0.2%

PACKAGING & CONTAINERS - 0.1%

Gaylord Container Corp. Caa1 $ 40,000 $ 34,000
9.375% 6/15/07

PAPER & FOREST PRODUCTS - 0.1%

Florida Coast Paper Co. Ca 40,000 21,400
LLC/Florida Coast Paper
Finance Corp. Series B,
12.75% 6/1/03

TOTAL BASIC INDUSTRIES 55,400

CONSTRUCTION & REAL ESTATE -
0.3%

REAL ESTATE INVESTMENT TRUSTS
- - 0.3%

Ocwen Asset Investment Corp. - 80,000 61,600
11.5% 7/1/05 (g)

DURABLES - 0.3%

AUTOS, TIRES, & ACCESSORIES -
0.2%

Blue Bird Body Co. 10.75% B2 10,000 10,300
11/15/06

Breed Technologies, Inc. B3 10,000 8,750
9.25% 4/15/08 (g)

Federal-Mogul Corp. 7.875% Ba2 30,000 30,693
7/1/10

49,743

HOME FURNISHINGS - 0.1%

Sealy Mattress Co. 9.875% B3 20,000 19,300
12/15/07

TOTAL DURABLES 69,043

ENERGY - 2.5%

COAL - 0.1%

P&L Coal Holdings Corp. B2 30,000 30,525
9.625% 5/15/08

ENERGY SERVICES - 0.3%

Petroliam Nasional BHD yankee Baa3 100,000 69,350
7.625% 10/15/26 (g)

OIL & GAS - 2.1%

Chesapeake Energy Corp. B3 230,000 172,500
9.625% 5/1/05

Cross Timbers Oil Co. 8.75% B2 70,000 62,300
11/1/09

Ocean Energy, Inc.:

8.375% 7/1/08 B1 50,000 46,750

8.875% 7/15/07 B1 10,000 9,700

10.375% 10/15/05 B2 10,000 10,325

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

ENERGY - CONTINUED

OIL & GAS - CONTINUED

Petroleos Mexicanos 10.2613% Ba2 $ 200,000 $ 186,000
7/15/05 (Reg. S) (h)

Snyder Oil Corp. 8.75% 6/15/07 B2 20,000 19,725

507,300

TOTAL ENERGY 607,175

FINANCE - 1.3%

BANKS - 0.7%

Banco Nacional de B1 200,000 160,000
Desenvolvimento Economico e
Social 14.724% 6/16/08 (g)(h)

CREDIT & OTHER FINANCE - 0.6%

ORBCOMM Global LP/ORBCOMM B3 60,000 61,800
Capital Co. 14% 8/15/04

Time Warner Telecom LLC/Time B2 80,000 82,200
Warner Telecom, Inc. 9.75%
7/15/08

144,000

TOTAL FINANCE 304,000

HEALTH - 0.7%

DRUGS & PHARMACEUTICALS - 0.2%

Global Health Sciences, Inc. Caa1 80,000 54,800
11% 5/1/08

MEDICAL FACILITIES MANAGEMENT
- - 0.5%

Oxford Health Plans, Inc. 11% Caa1 120,000 112,800
5/15/05 (g)

TOTAL HEALTH 167,600

MEDIA & LEISURE - 10.5%

BROADCASTING - 8.5%

ACME Television LLC/ACME B3 30,000 23,925
Financial Corp. 0% 9/30/04
(e)

Adelphia Communications Corp.:

9.5% 2/15/04 pay-in-kind B2 500,000 511,195

9.875% 3/1/07 B2 40,000 44,200

Ascent Entertainment Group, B3 20,000 12,000
Inc. 0% 12/15/04 (e)

Benedek Communications Corp. B3 40,000 28,000
0% 5/15/06 (e)

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

MEDIA & LEISURE - CONTINUED

BROADCASTING - CONTINUED

Century Communications Corp.:

8.75% 10/1/07 Ba3 $ 30,000 $ 33,000

9.5% 3/1/05 Ba3 20,000 22,350

Chancellor Media Corp. 8% Ba2 130,000 132,600
11/1/08 (g)

Citadel Broadcasting Co.:

9.25% 11/15/08 (g) B3 40,000 41,800

10.25% 7/1/07 B3 10,000 10,900

Comcast UK Cable Partners B2 40,000 33,800
Ltd. 0% 11/15/07 (e)

CSC Holdings, Inc. 7.625% Ba2 30,000 29,892
7/15/18

Diamond Cable Communications B3 10,000 8,250
PLC yankee 0% 12/15/05 (e)

EchoStar Communications Corp. B2 60,000 61,350
0% 6/1/04 (e)

Echostar DBS Corp. 12.5% Caa1 80,000 92,500
7/1/02

Falcon Holding Group
LP/Falcon Funding Corp.:

0% 4/15/10 (e) B2 340,000 228,650

8.375% 4/15/10 B2 50,000 50,500

Intermedia Capital Partners B2 20,000 22,500
IV LP / Intermedia Partners
IV Capital Corp. 11.25%
8/1/06

International Cabletel, Inc. B3 50,000 40,500
0% 2/1/06 (e)

Iridium Operating LLC/Iridium
Capital Corp.:

10.875% 7/15/05 B3 40,000 34,000

11.25% 7/15/05 B3 10,000 8,600

Lenfest Communications, Inc. B2 20,000 20,600
8.25% 2/15/08

LIN Holdings Corp. 0% 3/1/08 B3 40,000 28,100
(e)

NTL, Inc.:

0% 4/1/08 (e) B3 60,000 37,050

10% 2/15/07 B3 40,000 41,200

11.5% 10/1/08 (g) B3 180,000 193,500

Olympus Communications B1 10,000 11,000
LP/Olympus Capital Corp.
10.625% 11/15/06

Orbital Imaging Corp. 11.625% - 20,000 20,300
3/1/05

Renaissance Media Group B3 80,000 54,000
LLC/Renaissance Media
Capital Corp. 0% 4/15/08 (e)

Telewest Communications PLC B1 40,000 45,000
11.25% 11/1/08 (g)

Telewest PLC yankee 9.625% B1 100,000 104,000
10/1/06

2,025,262

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

MEDIA & LEISURE - CONTINUED

ENTERTAINMENT - 0.9%

Cinemark USA, Inc. 8.5% 8/1/08 B2 $ 10,000 $ 9,825

Premier Parks, Inc.:

0% 4/1/08 (e) B3 140,000 94,850

9.25% 4/1/06 B3 120,000 124,200

228,875

LODGING & GAMING - 0.7%

Circus Circus Enterprises,
Inc.:

6.7% 11/15/96 Baa3 30,000 28,200

7.625% 7/15/13 Ba2 30,000 26,400

9.25% 12/1/05 Ba2 40,000 40,600

Signature Resorts, Inc. 9.75% B3 100,000 84,000
10/1/07

179,200

PUBLISHING - 0.4%

World Color Press, Inc. B1 90,000 90,000
8.375% 11/15/08 (g)

TOTAL MEDIA & LEISURE 2,523,337

NONDURABLES - 1.5%

FOODS - 1.0%

Aurora Foods, Inc. 8.75% B1 20,000 20,800
7/1/08

Del Monte Corp. 12.25% 4/15/07 Caa1 70,000 78,050

Del Monte Foods Co. 0% Caa2 170,000 116,450
12/15/07 (e)

Gorges/Quik-To-Fix Foods, Caa1 40,000 16,800
Inc. 11.5% 12/1/06

232,100

HOUSEHOLD PRODUCTS - 0.5%

AKI, Inc. 10.5% 7/1/08 (g) B2 20,000 19,000

Revlon Consumer Products Corp.:

8.625% 2/1/08 B3 50,000 45,500

9% 11/1/06 (g) B2 70,000 69,300

133,800

TOTAL NONDURABLES 365,900

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

RETAIL & WHOLESALE - 3.8%

GROCERY STORES - 3.8%

Fleming Companies, Inc. B3 $ 300,000 $ 279,750
Series B, 10.625% 7/31/07

Jitney-Jungle Stores America, B3 104,000 106,600
Inc. 10.375% 9/15/07

Pathmark Stores, Inc.:

11.625% 6/15/02 Caa2 480,000 462,600

12.625% 6/15/02 Caa2 60,000 57,750

906,700

SERVICES - 0.3%

Iron Mountain, Inc. 8.75% B3 50,000 51,500
9/30/09

Spin Cycle, Inc. 0% 5/1/05 (e) - 20,000 9,200

TOTAL SERVICES 60,700

TECHNOLOGY - 0.5%

COMMUNICATIONS EQUIPMENT - 0.2%

Intermedia Communications,
Inc.:

8.5% 1/15/08 B2 30,000 28,350

8.875% 11/1/07 B2 20,000 19,300

47,650

COMPUTER SERVICES & SOFTWARE
- - 0.3%

Concentric Network Corp. - 50,000 51,000
12.75% 12/15/07

DecisionOne Corp. 9.75% 8/1/07 B3 40,000 18,400

69,400

TOTAL TECHNOLOGY 117,050

TRANSPORTATION - 0.4%

AIR TRANSPORTATION - 0.3%

Atlas Air, Inc. 9.25% 4/15/08 B3 50,000 49,500

Kitty Hawk, Inc. 9.95% B1 30,000 29,550
11/15/04

79,050

SHIPPING - 0.1%

Cenargo International PLC Ba3 10,000 9,400
9.75% 6/15/08 (g)

TOTAL TRANSPORTATION 88,450

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

UTILITIES - 10.3%

CELLULAR - 1.5%

McCaw International Ltd. 0% Caa1 $ 50,000 $ 27,000
4/15/07 (e)

Nextel Communications, Inc.:

0% 8/15/04 (e) B2 70,000 68,075

12% 11/1/08 (g) B2 90,000 98,325

Orange PLC 8% 8/1/08 Ba3 50,000 50,000

Rogers Communications, Inc. B2 10,000 10,300
8.875% 7/15/07

Teligent, Inc. 11.5% 12/1/07 Caa1 115,000 107,525

361,225

ELECTRIC UTILITY - 1.2%

Niagara Mohawk Power Corp.:

0% 7/1/10 (e) Ba2 140,000 106,400

7.625% 10/1/05 Ba2 90,000 93,267

7.75% 10/1/08 Ba2 90,000 96,300

295,967

TELEPHONE SERVICES - 7.6%

Allegiance Telecom, Inc.:

0% 2/15/08 (e) - 20,000 9,200

12.875% 5/15/08 - 50,000 48,500

Covad Communications Group, - 40,000 22,000
Inc. 0% 3/15/08 (e)

Dobson Wireline Co. 12.25% - 100,000 89,500
6/15/08

Firstworld Communications, - 40,000 12,000
Inc. 0% 4/15/08 (e)

Global Crossing Holdings Ltd. B1 150,000 157,875
9.625% 5/15/08

GST Network Funding, Inc. 0% - 90,000 40,950
5/1/08 (e)(g)

Hermes Europe Railtel BV B3 70,000 74,725
11.5% 8/15/07

IXC Communications, Inc. 9% B3 100,000 99,000
4/15/08

Level 3 Communications, Inc. B3 300,000 297,375
9.125% 5/1/08

McLeodUSA, Inc. 9.5% 11/1/08 B2 90,000 95,400
(g)

MetroNet Communications Corp.:

0% 11/1/07 (e) B3 90,000 59,400

0% 6/15/08 (e) B3 70,000 42,875

10.625% 11/1/08 (g) B3 80,000 84,800

Pathnet, Inc. 12.25% 4/15/08 - 5,000 3,500

Qwest Communications
International, Inc.:

0% 10/15/07 (e) Ba1 50,000 38,750

7.5% 11/1/08 (g) Ba1 70,000 72,800

Telegroup, Inc. 0% 11/1/04 (e) - 20,000 10,000

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

UTILITIES - CONTINUED

TELEPHONE SERVICES - CONTINUED

Viatel, Inc.:

0% 4/15/08 (e) Caa1 $ 10,000 $ 5,600

11.25% 4/15/08 Caa1 500,000 500,000

WinStar Communications, Inc.:

0% 3/15/08 (e) CCC 20,000 14,200

10% 3/15/08 CCC 50,000 40,000

1,818,450

TOTAL UTILITIES 2,475,642

TOTAL NONCONVERTIBLE BONDS 7,802,597
(Cost $7,861,507)

U.S. TREASURY OBLIGATIONS -
23.5%

U.S. Treasury Bond:

9% 11/15/18 Aaa 975,000 1,400,948

10.75% 8/15/05 Aaa 2,210,000 2,947,586

U.S. Treasury Notes 5.875% Aaa 1,250,000 1,260,033
8/31/99

TOTAL U.S. TREASURY OBLIGATIONS 5,608,567
(Cost $5,471,226)

ASSET-BACKED SECURITIES - 0.6%

Airplanes Pass Through Trust Ba2 130,000 136,500
10.875% 3/15/19 (Cost
$133,900)

FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - 23.7%

Argentinian Republic:

BOCON 3.29% 9/1/02 (h) Ba3 ARS 88,781 69,847

Brady 6.1875% 3/31/05 (h) Ba3 141,000 118,352

Brady par euro 5.75% 3/31/23 Ba3 30,000 21,600
(f)

global bond 11% 10/9/06 Ba3 150,000 147,188

global bond 11.375% 1/30/17 Ba3 100,000 99,875

8.75% 7/10/02 (Reg. S) Ba3 ARS 60,000 48,946

11.75% 2/12/07 Ba3 ARS 150,000 126,962

Austrian Republic 5% 1/22/01 Aaa JPY 30,000,000 288,742

FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) interest
notes:

5.9688% 12/15/15 (h) B1 $ 260,000 $ 28,275

5.9688% 12/15/15 (g)(h) Ca 226 25

Brazilian Federative Republic
Brady:

capitalization bond 8% 4/15/14 B2 435,720 259,798

IDU euro 6.75% 1/1/01 (h) B2 59,040 53,579

new money bond L 6.1875% B2 100,000 54,625
4/15/09 (Bearer) (h)

Bulgarian Republic Brady:

discount A 6.6875% 7/28/24 (h) B2 130,000 91,975

FLIRB A 2.5% 7/28/12 (h) B2 150,000 85,500

Canadian Government:

7% 12/1/06 Aa1 CAD 690,000 512,489

10% 5/1/02 Aa1 CAD 100,000 75,557

City of Buenos Aires euro B1 ARS 118,000 90,945
10.5% 5/28/04

Ecuador Republic 6.625% B3 1,132 457
2/27/15 (h)

German Federal Republic:

4.75% 7/4/28 Aaa DEM 300,000 179,148

7.375% 1/3/05 Aaa DEM 1,000,000 720,255

9% 10/20/00 Aaa DEM 630,000 416,215

Hungarian Government:

13% 7/24/03 A1 HUF 3,500,000 16,362

15% 7/24/01 A1 HUF 2,600,000 12,341

Moscow City 9.5% 5/31/00 B3 200,000 74,000
(Reg.)

Panamanian Republic Brady par Ba1 60,000 36,900
3.5% 7/17/26 (f)

Peruvian Republic Brady FLIRB Ba3 100,000 56,750
3.25% 3/7/17 (h)

Russian Federation euro B3 80,000 24,400
12.75% 6/24/28 (Reg. S)

Treuhandanstalt 6.625%, 7/9/03 Aaa DEM 700,000 475,918

United Kingdom, Great Britain
& Northern Ireland:

8.75% 8/25/17 Aaa GBP 80,000 203,808

9.75% 8/27/02 Aaa GBP 125,000 241,652

United Mexican States:

Brady par A 6.25% 12/31/19 Ba2 250,000 194,375
unit

Cetes:

0% 3/4/99 - MXN 390,000 37,285

FOREIGN GOVERNMENT AND
GOVERNMENT AGENCY
OBLIGATIONS (I) - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

United Mexican States: -
continued

Cetes 0% 3/11/99 - MXN 190,000 $ 18,150

global bond 11.5% 5/15/26 Ba2 275,000 294,938

Venezuelan Republic:

Brady debt conversion bond B2 642,855 408,213
euro 5.9375% 12/18/07 (h)

global bond 13.625% 8/15/18 B2 100,000 77,000

TOTAL FOREIGN GOVERNMENT AND 5,662,447
GOVERNMENT AGENCY OBLIGATIONS
(Cost $5,650,836)

</TABLE>

COMMON STOCKS - 0.0%

MEDIA & LEISURE - 0.0%

BROADCASTING - 0.0%

NTL, Inc. warrants 12/31/08 56 840
(a)

Orbital Imaging Corp. 20 200
warrants 3/1/05 (a)(g)

1,040

SERVICES - 0.0%

Spin Cycle, Inc. warrants 20 -
5/1/05 (a)(g)

UTILITIES - 0.0%

TELEPHONE SERVICES - 0.0%

Covad Communications Group, 40 2,000
Inc. warrants 3/15/08 (a)(g)

FirstCom Corp. warrants 1,750 875
10/27/07 (Reg. S) (a)

Firstworld Communications, 40 400
Inc. warrants 4/15/08 (a)(g)

Pathnet, Inc. warrants 5 50
4/15/08 (a)(g)

3,325

TOTAL COMMON STOCKS 4,365
(Cost $2,757)

PREFERRED STOCKS - 5.5%

CONVERTIBLE PREFERRED STOCKS
- - 0.5%

UTILITIES - 0.5%

TELEPHONE SERVICES - 0.5%

IXC Communications, Inc. 4,000 132,500
$3.375 (g)

PREFERRED STOCKS - CONTINUED

SHARES VALUE (NOTE 1)

NONCONVERTIBLE PREFERRED
STOCKS - 5.0%

CONSTRUCTION & REAL ESTATE -
0.2%

REAL ESTATE INVESTMENT TRUSTS
- - 0.2%

California Federal Preferred 1,513 $ 38,014
Capital Corp. $2.28

MEDIA & LEISURE - 0.4%

BROADCASTING - 0.4%

CSC Holdings, Inc. 11.125% 146 16,279
pay-in-kind

Echostar Communications Corp. 76 87,875
12.125% pay-in-kind

104,154

UTILITIES - 4.4%

CELLULAR - 2.0%

Nextel Communications, Inc. 527 474,300
11.125% pay-in-kind (a)

TELEPHONE SERVICES - 2.4%

ICG Holdings, Inc. 14% 554 540,150
pay-in-kind (a)

Viatel, Inc. 10% pay-in-kind 265 29,150
(a)(g)

569,300

TOTAL UTILITIES 1,043,600

TOTAL NONCONVERTIBLE 1,185,768
PREFERRED STOCKS

TOTAL PREFERRED STOCKS 1,318,268
(Cost $1,580,482)

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOVEREIGN LOAN PARTICIPATIONS
- - 0.6%

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D)

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank):

loan participation
restructured under 1997
Agreement:

BankBoston Corp. 6.7188% - $ 245,000 15,313
12/15/20 (c)(h)

Deutsche Bank 6.7188% - 280,000 17,500
12/15/20 (c)(h)

Merrill Lynch, Pierce, - 110,000 6,875
Fenner & Smith, Inc. 6.7188%
12/15/20 (c)(h)

Morgan (J.P.) Securities, - 70,000 4,375
Inc. 5.9688% 12/15/20 (c)(h)

SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement: -
continued

The Chase Manhattan Bank - $ 310,000 $ 19,375
5.9688% 12/15/20 (c)(h)

Moroccan Kingdom loan - 100,000 79,500
participation Series A -
Morgan Guaranty Trust Co.
6.0625% 1/1/09 (h)

TOTAL SOVEREIGN LOAN 142,938
PARTICIPATIONS
(Cost $303,586)

</TABLE>

CASH EQUIVALENTS - 13.5%

MATURITY AMOUNT

Investments in repurchase $ 3,241,699 3,240,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.72%,
dated 12/31/98 due 1/4/99

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
PURCHASED OPTIONS - 0.0%

EXPIRATION DATE/ STRIKE YIELD UNDERLYING FACE AMOUNT AT VALUE

The Chase Manhattan Bank Call May 99/ 16% $ 71,924 1,961
Option on ZAR 500,000
notional amount of South
African Republic 12% 2/28/05
(a) (Cost $2,720)

TOTAL INVESTMENT IN $ 23,917,643
SECURITIES - 100%
(Cost $24,247,014)

</TABLE>

SECURITY TYPE ABBREVIATIONS

FLIRB - Front Loaded Interest
Reduction Bonds

CURRENCY ABBREVIATIONS

ARS - Argentine peso

CAD - Canadian dollar

DEM - German deutsche mark

GBP - British pound

HUF - Hungarian forint

JPY - Japanese yen

MXN - Mexican peso

ZAR - South African rand

LEGEND
(a) Non-income producing

(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.

(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.

(d) Principal amount is stated in United States dollars unless
otherwise noted.

(e) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.

(f) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.

(g) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $1,569,700 or 6.5% of net assets.

(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.

(i) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.

OTHER INFORMATION

The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):

MOODY'S RATINGS S&P RATINGS

Aaa, Aa, A 36.7% AAA, AA, A 36.7%

Baa 0.4% BBB 1.4%

Ba 9.7% BB 11.4%

B 24.4% B 21.1%

Caa 6.9% CCC 4.9%

Ca, C 0.1% D 0.1%

For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 2.2%. FMR has determined that
unrated debt securities that are lower quality account for 0.6% of the
total value of investment in securities.
Distribution of investments by country of issue, as a percentage of
total value of investments in securities, is as follows:

United States of America 72.0%

Germany 7.5

Canada 3.2

Mexico 3.1

Argentina 3.0

United Kingdom 2.7

Brazil 2.2

Venezuela 2.0

Austria 1.2

(Others individually less 3.1
than 1%)

100.0%

INCOME TAX INFORMATION

At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $24,418,646. Net unrealized depreciation
aggregated $501,003, of which $485,633 related to appreciated
investment securities and $986,636 related to depreciated investment
securities.

The fund intends to defer to its fiscal year ending December 31, 1999
approximately $223,000 of losses recognized during the period November
1, 1998 to December 31, 1998.

At December 31, 1998, the fund had a capital loss carryforward of
approximately $69,000 all of which will expire on December 31, 2006.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

ASSETS

Investment in securities, at $ 23,917,643
value (including repurchase
agreements of $3,240,000)
(cost $24,247,014) - See
accompanying schedule

Cash 9,693

Receivable for investments 14,760
sold

Receivable for fund shares 8,069
sold

Dividends receivable 3,375

Interest receivable 430,839

Prepaid expenses 6,050

TOTAL ASSETS 24,390,429

LIABILITIES

Payable for fund shares $ 10,369
redeemed

Distributions payable 44,055

Accrued management fee 31,451

Other payables and accrued 43,794
expenses

TOTAL LIABILITIES 129,669

NET ASSETS $ 24,260,760

Net Assets consist of:

Paid in capital $ 25,010,757

Undistributed net investment 31,853
income

Accumulated undistributed net (453,177)
realized gain (loss) on
investments and foreign
currency transactions

Net unrealized appreciation (328,673)
(depreciation) on
investments and assets and
liabilities in foreign
currencies

NET ASSETS, for 2,548,199 $ 24,260,760
shares outstanding

NET ASSET VALUE, offering $9.52
price and redemption price
per share ($24,260,760
(divided by) 2,548,199
shares)

STATEMENT OF OPERATIONS
MAY 1, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31,
1998

INVESTMENT INCOME $ 99,390
Dividends

Interest 941,199

TOTAL INCOME 1,040,589

EXPENSES

Management fee $ 70,570

Transfer agent fees 19,845

Accounting fees and expenses 39,895

Non-interested trustees' 38
compensation

Custodian fees and expenses 8,745

Registration fees 33,473

Audit 28,362

Legal 52

Miscellaneous 279

Total expenses before 201,259
reductions

Expense reductions (67,103) 134,156

NET INVESTMENT INCOME 906,433

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

Investment securities (346,255)

Foreign currency transactions 3,040 (343,215)

Change in net unrealized
appreciation (depreciation)
on:

Investment securities (329,371)

Assets and liabilities in 698 (328,673)
foreign currencies

NET GAIN (LOSS) (671,888)

NET INCREASE (DECREASE) IN $ 234,545
NET ASSETS RESULTING FROM
OPERATIONS

STATEMENT OF CHANGES IN NET ASSETS
MAY 1, 1998 (COMMENCEMENT OF
OPERATIONS) TO DECEMBER 31,
1998

INCREASE (DECREASE) IN NET
ASSETS

Operations Net investment $ 906,433
income

Net realized gain (loss) (343,215)

Change in net unrealized (328,673)
appreciation (depreciation)

NET INCREASE (DECREASE) IN 234,545
NET ASSETS RESULTING FROM
OPERATIONS

Distributions to shareholders (984,542)
from net investment income

Share transactions Net 29,660,234
proceeds from sales of shares

Reinvestment of distributions 894,120

Cost of shares redeemed (5,543,597)

NET INCREASE (DECREASE) IN 25,010,757
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) 24,260,760
IN NET ASSETS

NET ASSETS

Beginning of period -

End of period (including $ 24,260,760
undistributed net investment
income of $31,853)

OTHER INFORMATION
Shares

Sold 3,037,462

Issued in reinvestment of 93,798
distributions

Redeemed (583,061)

Net increase (decrease) 2,548,199

FINANCIAL HIGHLIGHTS
PERIOD ENDED DECEMBER 31,

1998 E

SELECTED PER-SHARE DATA

Net asset value, beginning of $ 10.000
period

Income from Investment .469
Operations Net investment
income D

Net realized and unrealized (.466)
gain (loss)

Total from investment .003
operations

Less Distributions

From net investment income (.483)

Net asset value, end of period $ 9.520

TOTAL RETURN B, C .13%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 24,261
(000 omitted)

Ratio of expenses to average 1.10% A, F
net assets

Ratio of expenses to average 1.09% A, G
net assets after expense
reductions

Ratio of net investment 7.40% A
income to average net assets

Portfolio turnover rate 97% A

A ANNUALIZED

B TOTAL RETURNS FOR PERIODS OF LESS THAN ONE YEAR ARE NOT ANNUALIZED.

C THE TOTAL RETURN WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIOD SHOWN (SEE NOTE 5 OF NOTES TO FINANCIAL
STATEMENTS).

D NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.

E FOR THE PERIOD MAY 1, 1998 (COMMENCEMENT OF OPERATIONS) TO DECEMBER
31, 1998.

F FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER (SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).

G FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND' EXPENSES
(SEE NOTE 5 OF NOTES TO FINANCIAL STATEMENTS).

NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998

1. SIGNIFICANT ACCOUNTING POLICIES.

Fidelity Strategic Income Fund (the fund) is a fund of Fidelity School
Street Trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company
organized as a Massachusetts business trust. The financial statements
have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:

SECURITY VALUATION. Securities for which quotations are readily
available are valued by a pricing service at their market values as
determined by their most recent bid prices (sales prices if the
principal market is an exchange) in the principal market in which such
securities are normally traded. Securities for which market quotations
are not readily available (and in certain cases debt securities which
trade on an exchange) are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short-term securities with remaining maturities of
sixty days or less for which quotations are not readily available are
valued at amortized cost or original cost plus accrued interest, both
of which approximate current value.

FOREIGN CURRENCY TRANSLATION. The accounting records of the fund are
maintained in U.S. dollars. Investment securities and other assets and
liabilities denominated in a foreign currency are translated into U.S.
dollars at the prevailing rates of exchange at period end. Purchases
and sales of securities, income receipts and expense payments are
translated into U.S. dollars at the prevailing exchange rate on the
respective dates of the transactions.

Net realized gains and losses on foreign currency transactions
represent net gains and losses from sales and maturities of foreign
currency contracts, disposition of foreign currencies, the difference
between the amount of net investment income accrued and the U.S.
dollar amount actually received, and gains and losses between trade
and settlement date on purchases and sales of securities. The effects
of changes in foreign currency exchange rates on investments in
securities are included with the net realized and unrealized gain or
loss on investment securities.

INCOME TAXES. The fund intends to qualify as a regulated investment
company under Subchapter M of the Internal Revenue Code. By so
qualifying, the fund will not be subject to income taxes to the extent
that it distributes substantially all of its taxable income for its
fiscal year. The schedule of investments includes information
regarding income taxes under the caption "Income Tax Information."

INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date

1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

INVESTMENT INCOME - CONTINUED

may have passed, are recorded as soon as the fund is informed of the
ex-dividend date. Non-cash dividends included in dividend income, if
any, are recorded at the fair market value of the securities received.
Interest income, which includes accretion of original issue discount,
is accrued as earned. Investment income is recorded net of foreign
taxes withheld where recovery of such taxes is uncertain. The fund may
place a debt obligation on non-accrual status and reduce related
interest income by ceasing current accruals and writing off interest
receivables when the collection of all or a portion of interest has
become doubtful based on consistently applied procedures, under the
general supervision of the Board of Trustees of the fund. A debt
obligation is removed from non-accrual status when the issuer resumes
interest payments or when collectibility of interest is reasonably
assured.

EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.

PREPAID EXPENSES. Fidelity Management & Research Company (FMR) bears
all organizational expenses of the fund except for the cost of
registering and qualifying shares of the fund for distribution under
federal and state securities law. These registration expenses are
borne by the fund and amortized over one year.

DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.

Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for foreign currency transactions, market discount, capital
loss carryforwards, and losses deferred due to wash sales and excise
tax regulations.

Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions
may include temporary book and tax basis differences which will
reverse in a subsequent period. Any taxable income or gain remaining
at fiscal year end is distributed in the following year.

SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.

2. OPERATING POLICIES.

FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of

2. OPERATING POLICIES - CONTINUED

FOREIGN CURRENCY CONTRACTS - CONTINUED

the foreign currency or if the counterparties do not perform under the
contracts' terms. The U.S. dollar value of foreign currency contracts
is determined using contractual currency exchange rates established at
the time of each trade.

JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of FMR, may transfer uninvested cash balances into
one or more joint trading accounts. These balances are invested in one
or more repurchase agreements for U.S. Treasury or Federal Agency
obligations.

REPURCHASE AGREEMENTS. The underlying U.S. Treasury or Federal Agency
securities are transferred to an account of the fund, or to the Joint
Trading Account, at a bank custodian. The securities are
marked-to-market daily and maintained at a value at least equal to the
principal amount of the repurchase agreement (including accrued
interest). FMR, the fund's investment adviser, is responsible for
determining that the value of the underlying securities remains in
accordance with the market value requirements stated above.

OPTIONS. The fund may use options to manage its exposure to the bond
market and to fluctuations in interest rates and currency values.
Writing puts and buying calls tend to increase the fund's exposure to
the underlying instrument. Buying puts and writing calls tend to
decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. The underlying face amount at value of any
open options at period end is shown in the schedule of investments
under the caption "Purchased Options". This amount reflects each
contract's exposure to the underlying instrument at period end. Losses
may arise from changes in the value of the underlying instruments, if
there is an illiquid secondary market for the contracts, or if the
counterparties do not perform under the contracts' terms. Gains and
losses are realized upon the expiration or closing of the options.
Realized gains (losses) on purchased options are included in realized
gains (losses) on investment securities.

Exchange-traded options are valued using the last sale price or, in
the absence of a sale, the last offering price. Options traded
over-the-counter are valued using dealer-supplied valuations.

RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period, the fund had no investments in restricted
securities (excluding 144A issues).

2. OPERATING POLICIES - CONTINUED

LOANS AND OTHER DIRECT DEBT INSTRUMENTS. The fund is permitted to
invest in loans and loan participations, trade claims or other
receivables. These investments may include standby financing
commitments that obligate the fund to supply additional cash to the
borrower on demand. Loan participations involve a risk of insolvency
of the lending bank or other financial intermediary. At the end of the
period, these investments amounted to $142,938 or .6% of net assets.

3. PURCHASES AND SALES OF INVESTMENTS.

Purchases and sales of securities, other than short-term securities,
aggregated $30,521,257 and $9,774,713, respectively, of which U.S.
government and government agency obligations aggregated $5,722,413 and
$252,031, respectively.

4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.

MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .45%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annualized rate of .58% of average net
assets.

SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., and Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research services and may grant the
sub-advisers investment management authority to buy and sell
securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services.
FIIA pays FIIA(U.K.)L a fee based on costs incurred for either
service.

TRANSFER AGENT FEES. Fidelity Service Company, Inc. (FSC), an
affiliate of FMR, is the fund's transfer, dividend disbursing and
shareholder servicing agent. FSC receives account fees and asset-based
fees that vary according to account size and type of account. FSC pays
for typesetting, printing and mailing of all shareholder reports,
except proxy statements. For the period, the transfer agent fees were
equivalent to an annualized rate of .16% of average net assets.

4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES - CONTINUED

ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.

5. EXPENSE REDUCTIONS.

FMR voluntarily agreed to reimburse the fund's operating expenses
(excluding interest, taxes, brokerage commissions and extraordinary
expenses) above an annual rate of 1.10% of average net assets. For the
period, the reimbursement reduced the expenses by $66,488.

FMR has also directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $53 under this arrangement.

In addition, the fund has entered into an arrangement with its
custodian whereby credits realized as a result of uninvested cash
balances were used to reduce a portion of the fund's expenses. During
the period, the fund's custodian fees were reduced by $562 under this
arrangement.

6. CREDIT RISK.

The fund's relatively large investment in countries with limited or
developing capital markets may involve greater risks than investments
in more developed markets and the prices of such investments may be
volatile. The yields of emerging market debt obligations reflect,
among other things, perceived credit risk. The consequences of
political, social or economic changes in these markets may have
disruptive effects on the market prices of the fund's investments and
the income they generate, as well as the fund's ability to repatriate
such amounts.

7. BENEFICIAL INTEREST.

At the end of the period, FMR Capital, an affiliate of FMR was record
owner of approximately 42% of the total outstanding shares of the
fund.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity School Street Trust and the Shareholders
of Fidelity Strategic Income Fund:

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity Strategic Income Fund (a fund of Fidelity School Street
Trust) at December 31, 1998, and the results of its operations, the
changes in its net assets and the financial highlights for the period
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Fidelity Strategic Income Fund's management; our
responsibility is to express an opinion on these financial statements
based on our audit. We conducted our audit of these financial
statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audit, which included confirmation
of securities at December 31, 1998 by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion
expressed above.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999

OF SPECIAL NOTE

INTRODUCING FIDELITY'S NEW, REORGANIZED PROSPECTUS

Recently, the SEC issued new disclosure requirements for all mutual
fund prospectuses. While Fidelity could have complied by simply
following the new requirements, we saw a different opportunity. We saw
the chance to create a brand new prospectus: one that is better
organized, easier to use and more informative than ever.

The new format of the Fidelity mutual fund prospectus puts the
information you need to make informed investment decisions right at
your fingertips. In the opening pages, you will find the SEC-mandated
summary that highlights the fund's investment objectives, strategies
and risks. There's also an easy-to-read performance chart and fee
table right up front.

Inside, you will find additional features we've introduced to make the
fund prospectus a more useful tool. In our new Shareholder Information
section, for example, we have provided practical, beneficial
information - from how to buy or sell shares, key contact information,
investment services, ways to set up your account and more - all in one
convenient location.

We invite you to spend a moment and review our new prospectus. It is
designed to help make your investment decision easier, no matter which
of the Fidelity funds you invest in.

MANAGING YOUR INVESTMENTS

Fidelity offers several ways to conveniently manage your personal
investments via your telephone or PC. You can access your account
information, conduct trades and research your investments 24 hours a
day.

BY PHONE

Fidelity TouchTone Xpress(registered trademark) provides a single
toll-free number to access account balances, positions, quotes and
trading. It's easy to navigate the service, and on your first call,
the system will help you create a personal identification number (PIN)
for security.
(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555

PRESS
1 For mutual fund and brokerage trading.

2 For quotes.*

3 For account balances and holdings.

4 To review orders and mutual
fund activity.

5 To change your PIN.

*0 To speak to a Fidelity representative.

BY PC

Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.

(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM

If you are not currently on the Internet, call EarthLink Sprint at
1-800-288-2967, and be sure to ask for registration number SMD004 to
receive a special Fidelity package that includes 30 days of free
Internet access. EarthLink is North America's #1 independent Internet
access provider.

(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)

* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE
WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL
BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.

TO VISIT FIDELITY

For directions and hours,
please call 1-800-544-9797.

ARIZONA

7373 N. Scottsdale Road
Scottsdale, AZ

CALIFORNIA

815 East Birch Street
Brea, CA

851 East Hamilton Avenue
Campbell, CA

527 North Brand Boulevard
Glendale, CA

19200 Von Karman Avenue
Irvine, CA

10100 Santa Monica Blvd.
Los Angeles, CA

251 University Avenue
Palo Alto, CA

1760 Challenge Way
Sacramento, CA

7676 Hazard Center Drive
San Diego, CA

455 Market Street
San Francisco, CA

950 Northgate Drive
San Rafael, CA

1400 Civic Drive
Walnut Creek, CA

6300 Canoga Avenue
Woodland Hills, CA

COLORADO

1625 Broadway
Denver, CO

CONNECTICUT

48 West Putnam Avenue
Greenwich, CT

265 Church Street
New Haven, CT

300 Atlantic Street
Stamford, CT

29 South Main Street
West Hartford, CT

DELAWARE

222 Delaware Avenue
Wilmington, DE

FLORIDA

4400 N. Federal Highway
Boca Raton, FL

90 Alhambra Plaza
Coral Gables, FL

4090 N. Ocean Boulevard
Ft. Lauderdale, FL

1907 West State Road 434
Longwood, FL

8880 Tamiami Trail, North
Naples, FL

2401 PGA Boulevard
Palm Beach Gardens, FL

8065 Beneva Road
Sarasota, FL

1502 N. Westshore Blvd.
Tampa, FL

GEORGIA

3445 Peachtree Road, N.E.
Atlanta, GA

1000 Abernathy Road
Atlanta, GA

HAWAII

700 Bishop Street
Honolulu, HI

ILLINOIS

One North Franklin Street
Chicago, IL

1415 West 22nd Street
Oak Brook, IL

1700 East Golf Road
Schaumburg, IL

3232 Lake Avenue
Wilmette, IL

INDIANA

4729 East 82nd Street
Indianapolis, IN

MAINE

3 Canal Plaza
Portland, ME

MARYLAND

7401 Wisconsin Avenue
Bethesda, MD

1 West Pennsylvania Ave.
Towson, MD

MASSACHUSETTS

470 Boylston Street
Boston, MA

155 Congress Street
Boston, MA

25 State Street
Boston, MA

300 Granite Street
Braintree, MA

44 Mall Road
Burlington, MA

416 Belmont Street
Worcester, MA

MICHIGAN

280 North Woodward Ave.
Birmingham, MI

29155 Northwestern Hwy.
Southfield, MI

MINNESOTA

7600 France Avenue South
Edina, MN

MISSOURI

700 West 47th Street
Kansas City, MO

8885 Ladue Road
Ladue, MO

200 North Broadway
St. Louis, MO

NEW JERSEY

150 Essex Street
Millburn, NJ

56 South Street
Morristown, NJ

501 Route 17, South
Paramus, NJ

NEW YORK

1055 Franklin Avenue
Garden City, NY

999 Walt Whitman Road
Melville, L.I., NY

1271 Avenue of the Americas
New York, NY

71 Broadway
New York, NY

350 Park Avenue
New York, NY

NORTH CAROLINA

4611 Sharon Road
Charlotte, NC

2200 West Main Street
Durham, NC

OHIO

600 Vine Street
Cincinnati, OH

28699 Chagrin Boulevard
Woodmere Village, OH

OREGON

16850 SW 72 Avenue
Tigard, OR

PENNSYLVANIA

1735 Market Street
Philadelphia, PA

439 Fifth Avenue
Pittsburgh, PA

TENNESSEE

6150 Poplar Road
Memphis, TN

TEXAS

10000 Research Boulevard
Austin, TX

4017 Northwest Parkway
Dallas, TX

1155 Dairy Ashford Street
Houston, TX

2701 Drexel Drive
Houston, TX

400 East Las Colinas Blvd.
Irving, TX

14100 San Pedro
San Antonio, TX

19740 IH 45 North
Spring, TX

UTAH

215 South State Street
Salt Lake City, UT

VIRGINIA

8180 Greensboro Drive
McLean, VA

WASHINGTON

411 108th Avenue, N.E.
Bellevue, WA

511 Pine Street
Seattle, WA

WASHINGTON, DC

1900 K Street, N.W.
Washington, DC

WISCONSIN

595 North Barker Road
Brookfield, WI

TO WRITE FIDELITY

If more than one address is listed, please locate the address that is
closest to you. We'll give your correspondence immediate attention and
send you written confirmation upon completion of your request.

(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)

Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002

(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS

BUYING SHARES

Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003

OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048

SELLING SHARES

Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602

OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75039-5517

GENERAL CORRESPONDENCE

Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500

(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS

BUYING SHARES

Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003

SELLING SHARES

Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602

OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75039-5517

GENERAL CORRESPONDENCE

Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500

INVESTMENT ADVISER
Fidelity Management & Research Company Boston, MA
INVESTMENT SUB-ADVISERS
Fidelity Management & Research (U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
Fidelity International Investment Advisors, Pembroke, Bermuda
Fidelity International Investment Advisors (U.K.) Limited, Kent,
England
Fidelity Investments Japan Ltd.,
Tokyo, Japan
OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Bart A. Grenier, Vice President
John H. Carlson, Vice President
Margaret L. Eagle, Vice President
Kevin E. Grant, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *
ADVISORY BOARD
J. Gary Burkhead
GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA

FSN-ANN-0299 70450
1.714732.100

TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA
CUSTODIAN
The Bank of New York
New York, NY
FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(Registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target TimelineSM 1999, 2001 & 2003
THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
(registered trademark)
TouchTone Xpress (registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE
* INDEPENDENT TRUSTEES

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com

FIDELITY
INTERNATIONAL BOND
FUND

ANNUAL REPORT
DECEMBER 31, 1998

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)

CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.

PERFORMANCE 4 How the fund has done over
time.

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

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

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

FINANCIAL STATEMENTS 18 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.

NOTES 22 Footnotes to the financial
statements.

REPORT OF INDEPENDENT 27 The auditors' opinion.
ACCOUNTANTS

OF SPECIAL NOTE 28

Third party marks appearing herein are the property of their
respective owners.
All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.
This report is printed on recycled paper using soy-based inks.

PRESIDENT'S MESSAGE

(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:

While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.

An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.

Best regards,
Edward C. Johnson 3d

PERFORMANCE: THE BOTTOM LINE

There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the Fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the past 10 year total returns
would have been lower.

CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS

FIDELITY INTERNATIONAL BOND A 6.33% -3.10% 68.52%

SB Non-US Dollar World Govt 17.79% 48.72% 132.15%
Bond

SB World Govt Bond 15.30% 45.90% 135.95%

International Income Funds 11.91% 38.37% 105.57%
Average

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or 10
years. For example, if you had invested $1,000 in a fund that had a 5%
return over the past year, the value of your investment would be
$1,050. You can compare the fund's returns to the performance of the
Salomon Brothers Non-U.S. Dollar World Government Bond Index, Unhedged
- - a market value-weighted index that is designed to represent the
performance of 16 world Government bond markets, excluding the United
States. Issues included in the index have fixed-rate coupons and
maturities of at least one year. The fund formerly was compared to the
Salomon Brothers World Government Bond Index, Unhedged - a
market-capitalization weighted index of debt issues traded in 14 world
government bond markets. Issues included in the index have fixed-rate
coupons and maturities of at least one year. To measure how the fund's
performance stacked up against its peers, you can compare it to the
international income funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper Inc. The past
one year average represents a peer group of 51 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.

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

FIDELITY INTERNATIONAL BOND A 6.33% -0.63% 5.36%

SB Non-US Dollar World Govt 17.79% 8.26% 8.79%
Bond

SB World Govt Bond 15.30% 7.85% 8.96%

International Income Funds 11.91% 6.55% 7.39%
Average

AVERAGE ANNUAL TOTAL RETURNS take the fund's cumulative return and
show you what would have happened if the fund had performed at a
constant rate each year. (Note: Lipper calculates average annual total
returns by annualizing each fund's total return, then taking an
arithmetic average. This may produce a different figure than that
obtained by averaging the cumulative total returns and annualizing the
result.)

A PRIOR TO FEBRUARY 27, 1998, INTERNATIONAL BOND OPERATED UNDER
CERTAIN DIFFERENT INVESTMENT POLICIES. ACCORDINGLY, THE FUND'S
HISTORICAL PERFORMANCE MAY NOT REPRESENT ITS CURRENT INVESTMENT
POLICIES.

$10,000 OVER 10 YEARS
International Bond SB Non-US World Govt Bond
00451 SB023
1988/12/31 10000.00 10000.00
1989/01/31 9972.01 9635.94
1989/02/28 9888.06 9714.22
1989/03/31 9860.07 9418.24
1989/04/30 9990.67 9498.96
1989/05/31 9822.76 8926.58
1989/06/30 10027.99 8984.88
1989/07/31 10354.48 9604.14
1989/08/31 10205.22 9138.98
1989/09/30 10326.49 9439.03
1989/10/31 10466.42 9360.35
1989/11/30 10578.36 9442.29
1989/12/31 10792.91 9658.77
1990/01/31 10763.69 9542.17
1990/02/28 10627.32 9250.28
1990/03/31 10753.95 9057.44
1990/04/30 10753.95 9081.90
1990/05/31 10900.06 9439.44
1990/06/30 11133.84 9636.35
1990/07/31 11523.48 10110.89
1990/08/31 11455.29 10101.10
1990/09/30 11601.40 10220.15
1990/10/31 11874.15 10952.75
1990/11/30 12000.78 11086.06
1990/12/31 12117.91 11135.80
1991/01/31 12384.12 11565.49
1991/02/28 12501.26 11531.25
1991/03/31 12330.88 10662.89
1991/04/30 12501.26 10864.28
1991/05/31 12650.34 10800.68
1991/06/30 12501.26 10584.21
1991/07/31 12629.20 10904.64
1991/08/31 12748.14 11086.06
1991/09/30 13040.52 11714.30
1991/10/31 13217.05 11865.14
1991/11/30 13150.85 12110.97
1991/12/31 13665.57 12941.82
1992/01/31 13527.76 12689.06
1992/02/29 13585.18 12501.12
1992/03/31 13562.37 12315.63
1992/04/30 13746.74 12402.87
1992/05/31 14000.24 12947.94
1992/06/30 14173.80 13472.22
1992/07/31 14386.21 13766.15
1992/08/31 14595.48 14375.23
1992/09/30 14392.32 14467.77
1992/10/31 14298.75 13945.53
1992/11/30 14084.08 13587.59
1992/12/31 14266.44 13559.05
1993/01/31 14431.26 13744.14
1993/02/28 14653.48 14017.29
1993/03/31 14976.29 14365.44
1993/04/30 15118.71 14796.77
1993/05/31 15396.61 15066.25
1993/06/30 15705.72 14784.13
1993/07/31 15944.72 14794.73
1993/08/31 16347.51 15321.46
1993/09/30 16440.68 15580.33
1993/10/31 16866.57 15508.99
1993/11/30 16812.87 15437.65
1993/12/31 17391.72 15609.28
1994/01/31 17581.61 15676.95
1994/02/28 16624.39 15720.98
1994/03/31 15427.51 15912.59
1994/04/30 15123.70 16016.14
1994/05/31 15208.04 15800.89
1994/06/30 14552.82 16183.29
1994/07/31 14817.78 16224.88
1994/08/31 15001.83 16131.11
1994/09/30 15002.60 16450.73
1994/10/31 15070.96 16874.72
1994/11/30 15133.31 16535.53
1994/12/31 14554.87 16544.50
1995/01/31 14427.84 16904.89
1995/02/28 14387.07 17383.91
1995/03/31 14480.93 18933.10
1995/04/30 14725.12 19338.33
1995/05/31 15169.19 19760.69
1995/06/30 15311.30 19858.94
1995/07/31 15282.89 19964.12
1995/08/31 14810.84 18822.62
1995/09/30 15066.95 19376.66
1995/10/31 15251.76 19438.62
1995/11/30 15354.89 19608.63
1995/12/31 15523.66 19779.04
1996/01/31 15331.24 19340.78
1996/02/29 15337.98 19396.22
1996/03/31 15307.79 19443.92
1996/04/30 15253.05 19403.97
1996/05/31 15263.43 19412.94
1996/06/30 15351.12 19521.79
1996/07/31 15617.94 20061.15
1996/08/31 15644.27 20195.69
1996/09/30 15717.67 20157.77
1996/10/31 15951.57 20497.78
1996/11/30 16183.88 20732.60
1996/12/31 16043.44 20585.84
1997/01/31 15569.83 19749.28
1997/02/28 15467.65 19519.75
1997/03/31 15310.06 19395.41
1997/04/30 15194.72 19001.59
1997/05/31 15604.12 19700.76
1997/06/30 15758.84 19943.33
1997/07/31 15609.77 19422.72
1997/08/31 15559.26 19510.38
1997/09/30 15933.03 19985.32
1997/10/31 16173.40 20433.36
1997/11/30 15933.14 19909.49
1997/12/31 15848.96 19708.51
1998/01/31 15988.15 19841.82
1998/02/28 16119.52 20120.67
1998/03/31 16103.85 19789.64
1998/04/30 16320.08 20225.04
1998/05/31 16133.69 20192.02
1998/06/30 15980.60 20119.45
1998/07/31 16043.07 20143.50
1998/08/31 15117.72 20695.50
1998/09/30 16030.52 22053.08
1998/10/31 16462.12 23048.23
1998/11/30 16583.02 22578.58
1998/12/31 16852.12 23214.56
IMATRL PRASUN SHR__CHT 19981231 19990114 113307 R00000000000123

$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Fidelity International Bond Fund on December 31, 1988. As
the chart shows, by December 31, 1998, the value of the investment
would have grown to $16,852 - a 68.52% increase on the initial
investment. For comparison, look at how the Salomon Brothers Non-U.S.
Dollar World Government Bond Index, Unhedged did over the same period.
With dividends and capital gains, if any, reinvested, the same $10,000
would have grown to $23,215 - a 132.15% increase.

The fund will compare its performance to that of the Salomon Brothers
Non-U.S. Dollar World Government Bond Index rather than the Salomon
Brothers World Government Bond Index. The Salomon Brothers Non-U.S.
Dollar World Government Bond Index is a better representative of the
fund's investment policy of investing primarily outside of the U.S.

(checkmark)UNDERSTANDING
PERFORMANCE

Many markets around the globe
offer the potential for significant
growth over time; however,
investing in foreign markets
means assuming greater risks
than investing in the United
States. Factors like changes in
a country's financial markets,
its local political and
economic climate, and the
fluctuating value of its currency
create these risks. For these
reasons an international fund's
performance may be more
volatile than a fund that invests
exclusively in the United
States.

DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
1998

Dividends per share A 4.64(cents) 27.48(cents) 52.22(cents)

Annualized dividend rate 6.02% 6.14% 5.80%

30-day annualized yield 4.61% - -

DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on the fund's average share price
of $9.08 over the past one month, $8.88 over the past six months and
$9.00 over the past one year, you can compare the fund's income over
these three periods.

The 30-day annualized YIELD is a standard formula for all funds based
on the yields of the bonds in the fund, averaged over the past 30
days. This figure shows you the yield characteristics of the fund's
investments at the end of the period. It also helps you compare funds
from different companies on an equal basis. It does not reflect the
cost of hedging and other currency gains and losses.

A NON-TAXABLE DIVIDENDS: DIVIDENDS PAID ARE BASED ON THE FUND'S
INVESTMENT INCOME AND DO NOT REFLECT CURRENCY RELATED LOSSES. AS A
RESULT OF CURRENCY LOSSES, DIVIDENDS OF APPROXIMATELY 35(CENTS) PER
SHARE PAID DURING 1998 WERE A NON-TAXABLE RETURN OF CAPITAL. THE EXACT
NON-TAXABLE AMOUNT TO USE IN PREPARING YOUR INCOME TAX RETURN WILL
DEPEND ON YOUR SHARE ACTIVITY AND WAS REPORTED TO YOU IN JANUARY 1999.

FUND TALK: THE MANAGERS' OVERVIEW

MARKET RECAP

Escalating volatility characterized
capital markets during the 12-month
period ended December 31, 1998.
Below-investment-grade issues such
as high-yield bonds and
emerging-market debt bore the
brunt of this increased volatility, as
did any sector priced relative to U.S.
Treasury yields. Investors entered
the year fairly upbeat thanks to
positive economic data, favorable
corporate earnings estimates and
resilience in emerging markets.
However, as spring ended, global
events undermined investor
confidence. Prolonged uncertainty
surrounding resolution of Japan's
banking crisis put significant
pressure on the yen. This called into
question the export competitiveness
of surrounding Asian countries.
Russian debt came under pressure
when investors' attention turned to
the significant reform challenges the
country faced and its slow progress
in addressing them. As the summer
wore on, investors began turning
their backs on higher-yielding,
more-volatile debt instruments in
favor of lower-yielding,
higher-quality issues. The ensuing
rapid flight to quality in August,
triggered by Russia's default and
devaluation, caused the gap
between Treasury yields and the
yields on non-investment-grade
debt to increase dramatically. The
key beneficiaries in this environment
included U.S. Treasuries as well as
G-7 government bonds. As the
year came to a close, investors were
focusing on Brazil's outlook and its
potential for unsettling global
markets.

(photograph of John Carlson)
(photograph of Ian Spreadbury)

The following is an interview with John Carlson (top left), Lead
Portfolio Manager of Fidelity International Bond Fund, and Ian
Spreadbury (lower right) manager of the fund's investment-grade
developed-market investments. Mr. Carlson also manages the
emerging-markets portion of the fund, replacing Luis Martins on
January 4, 1999.

Q. HOW DID THE FUND PERFORM, JOHN?

J.C. For the 12 months ended December 31, 1998, the fund returned
6.33%. Over the same period, the Salomon Brothers Non-US World
Government Bond Index, Unhedged, returned 17.79%. The international
income funds average, as tracked by Lipper Inc., returned 11.91%.

Q. WHAT EXPLAINS THE FUND'S PERFORMANCE IN 1998?

J.C. The fund's investments in developed-market debt generated a
strong return during the year. Specifically, German bonds made the
largest positive contribution. However, the fund's emerging-market
debt sub-portfolio partially offset these gains owing to its Russian
exposure.

Q. CAN YOU OUTLINE EMERGING-MARKET EVENTS IN 1998?

J.C. Sure. At the beginning of the period, emerging markets
experienced renewed investor confidence in Mexico, Argentina and
Venezuela. These factors, as well as a strong push from U.S. equities,
enabled emerging markets to rally in the first quarter. However, the
escalating Japanese banking crisis and Russia's brewing fiscal crisis
increased yield volatility and led to weaker prices in the second
quarter. This was only a preamble to the significant liquidity
disruption brought on by Russia's default and devaluation in August.
Banks, hedge funds and other market participants re-examined their
portfolio diversification and risk and reined in lending to
emerging-market countries. The yield difference between
emerging-market debt and comparable U.S. Treasuries increased by 689
basis points from June to September. Fourth-quarter returns improved
as the Federal Reserve Board announced a series of rate cuts, Japan
publicized a bank bailout plan and Argentina sold $1 billion in bonds,
the first Latin American deal since August. However, as 1998 ended,
investor concerns over Brazil's significant budget deficit intensified
despite a newly minted agreement with the International Monetary Fund
and third party lenders for a $40 billion aid package.

Q. IAN, HOW DID THE NON-U.S. DEVELOPED MARKETS FARE IN 1998?

I.S. 1998 was a generally positive one for G-7 bond markets as
government-bond yields fell and the U.S. dollar was generally weaker
against the world's major currencies. These developments were driven
by fears of global deflation and a general flight to quality.

Q. WHAT WERE SOME OF YOUR STRATEGIES DURING THE COURSE OF THE YEAR?

I.S. As it became clear launch of the euro was unlikely to be delayed,
we began to treat the German, French and Italian markets as one. One
strategy was to position the sub-portfolio in shorter maturities in
Italy and in longer maturities in Germany, thus keeping overall
interest-rate exposure unchanged, but taking advantage of the
relatively higher yields in the three-year sector of the Italian
market. The bilateral currency rates that will apply beginning January
1999 were fixed in May 1998; this gave us parameters for switching
between European currencies. Another strategy was to improve liquidity
and credit quality by switching part of the French and Italian
exposure into Germany at the same yield level (currency adjusted).
Given the deteriorating credit outlook for Japan, the fund's yen
assets are held entirely in bonds issued by the World Bank (euro-yen
bonds) and European countries with no direct exposure to Japan. With
yields falling under 1% and with an escalating fiscal deficit, the
portfolio significantly reduced duration, thereby decreasing the
sub-portfolio's sensitivity to changes in interest rates.

Q. LOOKING FORWARD, IAN, DO YOU SEE MANY ATTRACTIVE OPPORTUNITIES IN
YOUR SECTOR?

I.S. Opportunities to invest in European corporate bonds are starting
to appear attractive with yield spreads having widened. Also, with the
move to a single currency, we expect corporate markets to continue to
develop rapidly, presenting opportunities which play to our research
strength. We will try and take advantage of rising bond prices among
non-euro countries as they position themselves for entering the euro
group.

Q. JOHN, AS LEAD PORTFOLIO MANAGER, PLEASE GIVE US YOUR OUTLOOK FOR
THE FUND.

J.C. In general, I am very cautious about the capital markets in 1999.
I think there is considerable risk in several markets. However, I also
believe yield levels at the end of the year reflected these risks, and
in some instances, overestimated them. We will rely on our global
research to differentiate the winners from the losers. The
investment-grade portion of the fund will continue to be managed for
income stability and diversification. We will look to the
emerging-market debt sector to provide value added to the fund's
return.

THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGERS ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGERS' VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.

JOHN CARLSON DISCUSSES 1998'S
MAJOR MARKET THEMES:

"When I look back on 1998, two
words come to mind - deflation
and deleveraging. Deflation,
particularly in the form of declining
commodity prices, put pressure on a
number of emerging-market
countries that export resources
such as oil, aluminum, copper and
agricultural products. For example,
historically low oil prices hurt
countries like Venezuela, Ecuador,
Russia and Nigeria by putting
pressure on the government's
budget deficit and reducing the U.S.
dollars coming into the economy. In
a number of emerging economies
these problems caused a general
deterioration in creditworthiness.
The most extreme example of this
was Russia, which devalued its
currency and defaulted on its
domestic ruble debt in August.

"Deleveraging also played a major
role, particularly after the Russian
crisis. Large losses by banks, hedge
funds and other market participants
dramatically reduced investors'
appetites for risk. Banks reduced
emerging-country loan exposure,
and Wall Street reduced its capital
commitments to emerging-market
businesses. Some hedge funds also
suffered catastrophic losses,
removing them from the markets.
These factors led to enormous risk
premiums for emerging-market debt
securities in the second half of 1998.
"Liquidity improved somewhat in
the fourth quarter, aided by
interest-rate cuts by the Federal
Reserve Board and other central
banks, but yield spreads were still
significantly higher at the end of
1998 than in January of 1998."

(checkmark)FUND FACTS

GOAL: high total investment
return

FUND NUMBER: 451

TRADING SYMBOL: FGBDX

START DATE: December 30,
1986

SIZE: as of December 31,
1998, more than $74 million

MANAGERS: John Carlson, lead
and emerging-markets
manager, since 1998; Ian
Spreadbury, manager foreign
developed-market securities,
since 1996

INVESTMENT CHANGES

<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE COUNTRIES AS OF
DECEMBER 31, 1998

(EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE COUNTRIES 6 MONTHS AGO

United Kingdom 16.5 14.8

Germany 15.2 16.9

Canada 12.9 13.7

France 11.7 10.6

Italy 4.7 3.2

</TABLE>

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

<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1998

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

German Federal Republic 13.9 8.7

French Government 5.9 5.3

Credit Local De France 5.8 5.3

United Kingdom, Great Britain 5.7 4.9
& Northern Ireland

Ontario Province 5.4 5.7

</TABLE>

ASSET ALLOCATION (% OF FUND'S INVESTMENTS)

AS OF DECEMBER 31, 1998

Corporate bonds 27.4%
Foreign government
obligations 61.0%
Other 9.2%
Short-term
investments 2.4%
Row: 1, Col: 1, Value: 27.4
Row: 1, Col: 2, Value: 62.6
Row: 1, Col: 3, Value: 7.6
Row: 1, Col: 4, Value: 2.4

AS OF JUNE 30, 1998

Corporate bonds 22.9%
Foreign government
obligations 63.4%
Other 12.0%
Short-term
investments 1.7%
Row: 1, Col: 1, Value: 22.9
Row: 1, Col: 2, Value: 63.4
Row: 1, Col: 3, Value: 12.0
Row: 1, Col: 4, Value: 1.7

INVESTMENTS DECEMBER 31, 1998

Showing Percentage of Total Value of Investment in Securities

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 27.4%

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

BRAZIL - 1.0%

Banco Nacional de
Desenvolvimento Economico e
Social:

14.724% 6/16/08 (h) B1 $ 100,000 $ 80,000

14.724% 6/16/08 (g)(h) B1 800,000 640,000

720,000

CANADA - 2.3%

Canada Trustco Mortgage Corp. - CAD 2,000,000 1,308,984
5.2% 9/13/00

Trizec Hahn Corp. 7.45% 6/1/04 Ba1 CAD 500,000 333,159

1,642,143

FRANCE - 5.8%

Credit Local de France euro Aa1 ITL 5,500,000 4,183,735
8.125% 12/6/06 (e)

GERMANY - 1.3%

Depfa Bank AG 4.75% 3/20/03 Aaa DEM 1,500,000 941,483

MALAYSIA - 0.4%

Petroliam Nasional BHD:

yankee 7.625% 10/15/26 (g) Baa3 100,000 69,350

7.125% 10/18/06 (Reg. S) Baa3 200,000 163,480

7.625% 10/15/26 (Reg. S) A2 100,000 69,350

302,180

MEXICO - 0.8%

Petroleos Mexicanos:

9.5% 9/15/27 BB 100,000 82,000

10.2613% 7/15/05 (Reg. S) (h) Ba2 500,000 465,000

547,000

SWEDEN - 1.7%

Investor Group Finance AB A3 DEM 2,000,000 1,241,006
euro 5.25% 6/30/08

UNITED KINGDOM - 10.8%

Abbey National Treasury Aa2 GBP 500,000 862,765
Services PLC euro 6.5%
3/5/04

Argyll Group PLC euro 8.125% A- GBP 250,000 452,409
10/4/02

Lloyds Bank PLC euro 5.25% Aa2 DEM 2,000,000 1,246,036
7/14/08

Punch Taverns Finance PLC Baa2 GBP 1,000,000 1,720,524
euro 7.567% 4/15/26

NONCONVERTIBLE BONDS -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

UNITED KINGDOM - CONTINUED

Royal Bank of Scotland PLC A1 DEM 2,000,000 $ 1,241,035
euro 5.25% 7/22/08

Tesco PLC euro 8.75% 2/20/03 Aa3 GBP 1,200,000 2,221,015

7,743,784

UNITED STATES OF AMERICA - 3.3%

AirTouch Communications, Inc. Baa2 DEM 2,000,000 1,219,549
euro 5.5% 7/24/08

Brazil Mydfa Trust 6.5469% - 147,150 82,772
9/15/07 (Reg. S) (h)

Citicorp euro 5.5% 6/30/10 A1 DEM 1,000,000 629,315

KFW International Finance, Aaa GBP 250,000 466,058
Inc. euro 10.625% 9/3/01

2,397,694

TOTAL NONCONVERTIBLE BONDS 19,719,025
(Cost $18,541,026)

GOVERNMENT OBLIGATIONS (I) -
61.0%

ARGENTINA - 4.4%

Argentinian Republic:

BOCON 3.29% 9/1/02 (h) Ba3 ARS 769,437 605,341

Brady par euro 5.75% 3/31/23 Ba3 650,000 468,000
(f)

global bond 11.375% 1/30/17 Ba3 530,000 529,338

8.75% 5/9/02 Ba3 200,000 181,500

8.75% 7/10/02 (Reg. S) Ba3 ARS 1,090,000 889,181

11.75% 2/12/07 Ba3 ARS 400,000 338,567

City of Buenos Aires euro B1 ARS 200,000 154,144
10.5% 5/28/04

3,166,071

AUSTRIA - 3.6%

Austrian Republic 5% 1/22/01 Aaa JPY 270,000 2,598,675
(e)

BRAZIL - 3.0%

Brazilian Federative Republic:

Brady capitalization bond 8% B2 824,334 491,509
4/15/14

Brady:

FLIRB L 5% 4/15/09 (Bearer) B2 700,000 363,125
(h)

IDU euro 6.75% 1/1/01 (h) B2 152,520 138,412

GOVERNMENT OBLIGATIONS (I) -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

BRAZIL - CONTINUED

Brazilian Federative
Republic: - continued

new money bond L 6.1875% B2 $ 1,550,000 $ 846,688
4/15/09 (Bearer) (h)

global bond 9.375% 4/7/08 B2 500,000 343,125

2,182,859

BULGARIA - 1.0%

Bulgarian Republic:

Brady discount A 6.6875% B2 200,000 141,500
7/28/24 (h)

Brady FLIRB A 2.5% 7/28/12 (h) B2 950,000 541,500

683,000

CANADA - 10.6%

Canadian Government:

4.75% 9/15/99 Aa1 CAD 2,050,000 1,338,762

9% 6/1/25 Aa1 CAD 2,350,000 2,352,564

Ontario Province 9% 9/15/04 Aa3 CAD 5,000,000 3,897,746

7,589,072

FRANCE - 5.9%

French Government OAT 9.5% Aaa FRF 21,000,000 4,220,851
1/25/01

GERMANY - 13.9%

German Federal Republic:

4.75% 7/4/28 Aaa DEM 5,000,000 2,985,792

7.375% 1/3/05 Aaa DEM 2,100,000 1,512,535

9% 10/20/00 Aaa DEM 8,300,000 5,483,467

9,981,794

ITALY - 4.7%

Italian Republic:

3.5% 6/20/01 (e) Aa3 JPY 220,000 2,067,709

6% 11/1/07 (e) Aa3 ITL 1,900,000 1,312,797

3,380,506

IVORY COAST - 0.2%

Ivory Coast:

Brady past due interest 2% - 345,625 95,047
3/30/18 (g)(h)

2% 3/30/18 (h) - 200,000 48,000

143,047

GOVERNMENT OBLIGATIONS (I) -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

MEXICO - 3.3%

United Mexican States:

Brady par A 6.25% 12/31/19 Ba2 $ 500,000 $ 388,750
unit

Brady par B 6.25% 12/31/19 Ba2 1,000,000 777,500
unit

Cetes 0% 3/4/99 - MXN 3,260,000 311,667

global bond 11.5% 5/15/26 Ba2 850,000 911,625

2,389,542

PANAMA - 0.9%

Panamanian Republic Brady:

interest reduction bond euro Ba1 450,000 330,750
4% 7/17/14 (h)

par 3.5% 7/17/26 (f) Ba1 100,000 61,500

past due interest euro Ba1 316,399 234,135
6.6875% 7/17/16 (h)

626,385

PERU - 0.5%

Peruvian Republic Brady FLIRB Ba3 600,000 340,500
3.25% 3/7/17 (h)

RUSSIA - 0.8%

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) interest
notes:

5.9688% 12/15/15 (h) B1 1,140,000 123,975

5.9688% 12/15/15 (g)(h) Ca 405 44

Moscow City 9.5% 5/31/00 B3 1,020,000 377,400
(Reg.)

Russian Federation euro B3 320,000 97,600
12.75% 6/24/28 (Reg. S)

599,019

UNITED KINGDOM - 5.7%

United Kingdom, Great Britain
& Northern Ireland:

7.5% 12/7/06 Aaa GBP 700,000 1,391,283

8% 12/7/15 Aaa GBP 1,160,000 2,729,091

4,120,374

VENEZUELA - 2.5%

Venezuelan Republic:

Brady debt conversion bond B2 1,714,280 1,088,568
euro 5.9375% 12/18/07 (h)

GOVERNMENT OBLIGATIONS (I) -
CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

VENEZUELA - CONTINUED

Venezuelan Republic: -
continued

global bond:

13.625% 8/15/18 B2 $ 150,000 $ 115,500

13.625% 8/15/18 B2 800,000 616,000

1,820,068

TOTAL GOVERNMENT OBLIGATIONS 43,841,763
(Cost $44,497,495)

SUPRANATIONAL OBLIGATIONS -
7.6%

Eurofima euro11.125% 2/2/00 Aaa ITL 3,000,000 1,964,208
(e)

Inter-American Development Aaa JPY 250,000 2,486,585
Bank 6.75% 2/20/01 (e)

International Bank for Aaa JPY 100,000 1,042,128
Reconstruction & Development
4.75% 12/20/04 (e)

TOTAL SUPRANATIONAL OBLIGATIONS 5,492,921
(Cost $5,497,977)

</TABLE>

COMMON STOCKS - 0.0%

UNITED STATES OF AMERICA - 0.0%

FirstCom Corp. warrants 5,250 2,625
10/27/07 (Reg. S) (a) (Cost
$1,916)

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOVEREIGN LOAN PARTICIPATIONS
- - 1.6%

PRINCIPAL AMOUNT (D)

ALGERIA - 1.1%

Algerian Republic loan
participation:

- - Merrill Lynch, Pierce, - $ 75,000 62,250
Fenner & Smith, Inc. 7.3125%
3/4/00 (h)

- - The Chase Manhattan Bank - 887,500 736,625
7.3125% 3/4/00 (h)

798,875

MOROCCO - 0.2%

Moroccan Kingdom loan - 150,000 119,250
participation Series A -
Paribas Capital Markets
6.0625% 1/1/09 (h)

SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

RUSSIA - 0.3%

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 Agreement:

- - BankBoston Corp. 6.7188% - $ 1,950,000 $ 121,875
12/15/20 (c)(h)

- - Deutsche Bank 6.7188% - 50,000 3,125
12/15/20 (c)(h)

- - Lehman Commercial Paper, - 790,000 49,375
Inc. 6.7188% 12/15/20 (c)(h)

- - Merrill Lynch, Pierce, - 550,000 34,375
Fenner & Smith, Inc. 6.7188%
12/15/20 (c)(h)

- - Morgan (J.P.) Securities, - 540,000 33,750
Inc. 5.9688% 12/15/20 (c)(h)

242,500

TOTAL SOVEREIGN LOAN 1,160,625
PARTICIPATIONS
(Cost $2,301,101)

CASH EQUIVALENTS - 2.4%

MATURITY AMOUNT

Investments in repurchase $ 1,724,904 1,724,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.72%,
dated 12/31/98 due 1/4/99
(Cost $1,724,000)

TOTAL INVESTMENT IN $ 71,940,959
SECURITIES - 100%
(Cost $72,563,515)

</TABLE>

SECURITY TYPE ABBREVIATIONS

FLIRB - Front Loaded Interest
Reduction Bonds

CURRENCY ABBREVIATIONS

ARS - Argentine peso

CAD - Canadian dollar

DEM - German deutsche mark

FRF - French franc

GBP - British pound

ITL - Italian lira

JPY - Japanese yen

MXN - Mexican peso

LEGEND
(a) Non-income producing

(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.

(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.

(d) Principal amount is stated in United States dollars unless
otherwise noted.

(e) Principal amount in thousands.

(f) Debt obligation initially issued at one coupon which converts to a
higher coupon at a specified date. The rate shown is the rate at
period end.

(h) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.

OTHER INFORMATION

The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):

MOODY'S RATINGS S&P RATINGS

Aaa, Aa, A 70.2% AAA, AA, A 65.8%

Baa 4.4% BBB 5.2%

Ba 9.7% BB 11.7%

B 8.5% B 2.5%

Ca, C 0.0% CCC 0.1%

CC, C 0.0%

D 0.0%

For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 3.8%. FMR has determined that
unrated debt securities that are lower quality account for 1.9% of the
total value of investment in securities.

INCOME TAX INFORMATION

At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $72,919,782. Net unrealized depreciation
aggregated $978,823, of which $2,446,236 related to appreciated
investment securities and $3,425,059 related to depreciated investment
securities.

At December 31, 1998, the fund had a capital loss carryforward of
approximately $94,001,000 of which $81,207,000 and $12,794,000 will
expire on December 31, 2002 and December 31, 2003, respectively.

The percentage of dividends distributed during the fiscal year
representing income derived from sources within, and taxes paid, to
foreign countries or possessions of the United States are 100% and 0%,
respectively (unaudited).

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

ASSETS

Investment in securities, at $ 71,940,959
value (including repurchase
agreements of $1,724,000)
(cost $72,563,515) - See
accompanying schedule

Cash 713

Receivable for investments 451,798
sold

Receivable for fund shares 31,831
sold

Interest receivable 2,053,983

TOTAL ASSETS 74,479,284

LIABILITIES

Payable for fund shares $ 215,313
redeemed

Accrued management fee 42,202

Other payables and accrued 81,886
expenses

TOTAL LIABILITIES 339,401

NET ASSETS $ 74,139,883

Net Assets consist of:

Paid in capital $ 169,502,003

Distributions in excess of (378,944)
net investment income

Accumulated undistributed net (94,356,725)
realized gain (loss) on
investments and foreign
currency transactions

Net unrealized appreciation (626,451)
(depreciation) on
investments and assets and
liabilities in foreign
currencies

NET ASSETS, for 8,129,822 $ 74,139,883
shares outstanding

NET ASSET VALUE, offering $9.12
price and redemption price
per share ($74,139,883
(divided by) 8,129,822
shares)

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998

INVESTMENT INCOME $ 5,213,080
Interest

EXPENSES

Management fee $ 509,978

Transfer agent fees 235,745

Accounting fees and expenses 60,495

Non-interested trustees' 2,892
compensation

Custodian fees and expenses 20,122

Registration fees 28,776

Audit 65,631

Legal 1,587

Interest 1,113

Miscellaneous 9,062

Total expenses before 935,401
reductions

Expense reductions (2,377) 933,024

NET INVESTMENT INCOME 4,280,056

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

Investment securities (3,227,519)

Foreign currency transactions (8,342) (3,235,861)

Change in net unrealized
appreciation (depreciation)
on:

Investment securities 3,469,237

Assets and liabilities in 76,269 3,545,506
foreign currencies

NET GAIN (LOSS) 309,645

NET INCREASE (DECREASE) IN $ 4,589,701
NET ASSETS RESULTING FROM
OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997

INCREASE (DECREASE) IN NET
ASSETS

Operations Net investment $ 4,280,056 $ 4,958,974
income

Net realized gain (loss) (3,235,861) (3,055,231)

Change in net unrealized 3,545,506 (3,699,648)
appreciation (depreciation)

NET INCREASE (DECREASE) IN 4,589,701 (1,795,905)
NET ASSETS RESULTING FROM
OPERATIONS

Distributions to shareholders (1,417,935) (1,504,944)
From net investment income

Return of capital (2,893,391) (3,461,039)

TOTAL DISTRIBUTIONS (4,311,326) (4,965,983)

Share transactions Net 46,704,839 38,795,875
proceeds from sales of shares

Reinvestment of distributions 3,897,316 4,325,909

Cost of shares redeemed (55,122,986) (71,608,454)

NET INCREASE (DECREASE) IN (4,520,831) (28,486,670)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) (4,242,456) (35,248,558)
IN NET ASSETS

NET ASSETS

Beginning of period 78,382,339 113,630,897

End of period (including $ 74,139,883 $ 78,382,339
distributions in excess of
net investment income of
$378,944 and $361,431,
respectively)

OTHER INFORMATION
Shares

Sold 5,204,600 4,190,363

Issued in reinvestment of 434,377 469,964
distributions

Redeemed (6,129,140) (7,737,241)

Net increase (decrease) (490,163) (3,076,914)

</TABLE>

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

1998 1997 1996 1995 1994

SELECTED PER-SHARE DATA

Net asset value, beginning $ 9.090 $ 9.710 $ 9.940 $ 9.880 $ 12.610
of period

Income from Investment .518 A .497 A .550 .745 .569
Operations Net investment
income

Net realized and unrealized .034 (.621) (.234) (.109) (2.589)
gain (loss)

Total from investment .552 (.124) .316 .636 (2.020)
operations

Less Distributions

From net investment income (.172) (.150) (.096) (.516) (.225)

In excess of net - - - - (.054)
investment income

From net realized gain - - - - -

In excess of net realized - - - - (.020)
gain

Return of capital (.350) (.346) (.450) (.060) (.411)

Total distributions (.522) (.496) (.546) (.576) (.710)

Net asset value, end of period $ 9.120 $ 9.090 $ 9.710 $ 9.940 $ 9.880

TOTAL RETURN B 6.33% (1.21)% 3.35% 6.66% (16.31)%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 74,140 $ 78,382 $ 113,631 $ 196,862 $ 382,803
(000 omitted)

Ratio of expenses to average 1.26% 1.27% 1.22% 1.16% 1.14%
net assets

Ratio of expenses to average 1.25% C 1.27% 1.22% 1.16% 1.14%
net assets after expense
reductions

Ratio of net investment 5.75% 5.36% 6.09% 6.19% 6.50%
income to average net assets

Portfolio turnover rate 246% 74% 91% 322% 367%

</TABLE>

A NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
B TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT BEEN
REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO FINANCIAL
STATEMENTS)
C FMR OR THE FUND HAS ENTERED INTO VARYING ARRANGEMENTS WITH THIRD
PARTIES WHO EITHER PAID OR REDUCED A PORTION OF THE FUND'S EXPENSES
(SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).

NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998

1. SIGNIFICANT ACCOUNTING POLICIES.

Fidelity International Bond Fund (the fund) (formerly Fidelity Global
Bond Fund) is a fund of Fidelity School Street Trust (the trust)
(formerly a fund of Fidelity Investment Trust) and is authorized to
issue an unlimited number of shares. The trust is registered under the
Investment Company Act of 1940, as amended, as an open-end management
investment company organized as a Massachusetts business trust. The
financial statements have been prepared in conformity with generally
accepted accounting principles which require management to make
certain estimates and assumptions at the date of the financial
statements. The following summarizes the significant accounting
policies of the fund:

SECURITY VALUATION. Securities for which quotations are readily
available are valued at the last sale price, or if no sale price, at
the closing bid price in the principal market in which such securities
are normally traded. Securities (including restricted securities) for
which quotations are not readily available are valued primarily using
dealer-supplied valuations or at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term securities with
remaining maturities of sixty days or less for which quotations are
not readily available are valued at amortized cost or original cost
plus accrued interest, both of which approximate current value.

INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
U.S. federal income taxes to the extent that it distributes
substantially all of its taxable income for its fiscal year. The fund
may be subject to foreign taxes on income and gains on investments
which are accrued based upon the fund's understanding of the tax rules
and regulations that exist in the markets in which it invests. The
fund accrues such taxes as applicable.

1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

INCOME TAXES - CONTINUED

The schedule of investments includes information regarding income
taxes under the caption "Income Tax Information."

INVESTMENT INCOME. Interest income, which includes accretion of
original issue discount, is accrued as earned. Interest income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain. The fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a
portion of interest has become doubtful based on consistently applied
procedures, under the general supervision of the Board of Trustees of
the fund. A debt obligation is removed from non-accrual status when
the issuer resumes interest payments or when collectibility of
interest is reasonably assured.

EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.

DISTRIBUTIONS TO SHAREHOLDERS. Dividends are declared daily and paid
monthly from net investment income. Distributions to shareholders from
realized gains, if any, are recorded on the ex-dividend date.

Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for paydown gains/losses on certain securities, foreign
currency transactions, market discount, capital loss carryforwards and
losses deferred due to wash sales.

Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distributions in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences that will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.

For the periods ended December 31, 1998 and 1997, the fund's
distributions exceeded the aggregate amount of taxable income and net
realized gains resulting in a return of capital. This was due to
certain foreign currency losses which decreased taxable income
available for distribution after certain distributions had been made.
(The tax treatment of distributions for the 1998 calendar year will be
reported to shareholders prior to February 1, 1999.)

SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.

2. OPERATING POLICIES.

FOREIGN CURRENCY CONTRACTS. The fund generally uses foreign currency
contracts to facilitate transactions in foreign-denominated
securities. Losses may arise from changes in the value of the foreign
currency or if the counterparties do not perform under the contracts'
terms. The U.S. dollar value of foreign currency contracts is
determined using contractual currency exchange rates established at
the time of each trade.

JOINT TRADING ACCOUNT. Pursuant to an Exemptive Order issued by the
Securities and Exchange Commission, the fund, along with other
affiliated entities of Fidelity Management & Research Company (FMR),
may transfer uninvested cash balances into one or more joint trading
accounts. These balances are invested in one or more repurchase
agreements for U.S. Treasury or Federal Agency obligations.

RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period the fund had no investments in restricted
securities (excluding 144A issues).

3. PURCHASES AND SALES OF INVESTMENTS.

Purchases and sales of securities, other than short-term securities,
aggregated $173,158,640 and $179,463,873, respectively, of which U.S.
government and government agency obligations aggregated $20,648,684
and $29,064,430, respectively.

4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.

MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .55%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .68% of average net assets.

SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research services and may grant the
sub-advisers investment management authority to buy and sell
securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services.
FIIA pays FIIA(U.K.)L a fee based on costs incurred for either
service.

ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.

5. BANK BORROWINGS.

The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balances during the period for which loans were outstanding amounted
to $3,468,000 and $2,538,000, respectively . The weighted average
interest rate was 5.26%.

6. EXPENSE REDUCTIONS.

The fund has entered into arrangements with its custodian and transfer
agent whereby credits realized as a result of uninvested cash balances
were used to reduce a portion of the fund's expenses. During the
period, the fund's custodian and transfer agent fees were reduced by
$418 and $1,959, respectively, under these arrangements.

7. CREDIT RISK.

8. LITIGATION.

The fund is engaged in litigation against the obligor on the inflation
adjusted debt of Siderurgica Brasileiras SA, contesting the
calculation of the principal adjustment. The probability of success of
this litigation cannot be predicted and the amount of recovery cannot
be estimated. Any recovery from this litigation would inure to the
benefit of the fund. As of period end, the fund no longer holds
Siderurgica Brasileiras SA debt securities.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity School Street Trust and the Shareholders
of Fidelity International Bond Fund:

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity International Bond Fund, formerly Fidelity Global Bond Fund
(a fund of Fidelity School Street Trust, formerly a fund of Fidelity
Investment Trust) at December 31, 1998, and the results of its
operations, the changes in its net assets and the financial highlights
for the periods indicated, in conformity with generally accepted
accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fidelity International Bond Fund's management;
our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1998, by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999

OF SPECIAL NOTE

INTRODUCING FIDELITY'S NEW, REORGANIZED PROSPECTUS

We invite you to spend a moment and review our new prospectus. It is
designed to help make your investment decision easier, no matter which
of the Fidelity funds you invest in.

MANAGING YOUR INVESTMENTS

BY PHONE

(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.

2 For quotes.*

3 For account balances and holdings.

4 To review orders and mutual
fund activity.

5 To change your PIN.

*0 To speak to a Fidelity representative.

BY PC

Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.

(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM

(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)

Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE
WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL
BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.

TO VISIT FIDELITY

For directions and hours,
please call 1-800-544-9797.

ARIZONA

7373 N. Scottsdale Road
Scottsdale, AZ

CALIFORNIA

815 East Birch Street
Brea, CA

851 East Hamilton Avenue
Campbell, CA

527 North Brand Boulevard
Glendale, CA

19200 Von Karman Avenue
Irvine, CA

10100 Santa Monica Blvd.
Los Angeles, CA

251 University Avenue
Palo Alto, CA

1760 Challenge Way
Sacramento, CA

7676 Hazard Center Drive
San Diego, CA

455 Market Street
San Francisco, CA

950 Northgate Drive
San Rafael, CA

1400 Civic Drive
Walnut Creek, CA

6300 Canoga Avenue
Woodland Hills, CA

COLORADO

1625 Broadway
Denver, CO

CONNECTICUT

48 West Putnam Avenue
Greenwich, CT

265 Church Street
New Haven, CT

300 Atlantic Street
Stamford, CT

29 South Main Street
West Hartford, CT

DELAWARE

222 Delaware Avenue
Wilmington, DE

FLORIDA

4400 N. Federal Highway
Boca Raton, FL

90 Alhambra Plaza
Coral Gables, FL

4090 N. Ocean Boulevard
Ft. Lauderdale, FL

1907 West State Road 434
Longwood, FL

8880 Tamiami Trail, North
Naples, FL

2401 PGA Boulevard
Palm Beach Gardens, FL

8065 Beneva Road
Sarasota, FL

1502 N. Westshore Blvd.
Tampa, FL

GEORGIA

3445 Peachtree Road, N.E.
Atlanta, GA

1000 Abernathy Road
Atlanta, GA

HAWAII

700 Bishop Street
Honolulu, HI

ILLINOIS

One North Franklin Street
Chicago, IL

1415 West 22nd Street
Oak Brook, IL

1700 East Golf Road
Schaumburg, IL

3232 Lake Avenue
Wilmette, IL

INDIANA

4729 East 82nd Street
Indianapolis, IN

MAINE

3 Canal Plaza
Portland, ME

MARYLAND

7401 Wisconsin Avenue
Bethesda, MD

1 West Pennsylvania Ave.
Towson, MD

MASSACHUSETTS

470 Boylston Street
Boston, MA

155 Congress Street
Boston, MA

25 State Street
Boston, MA

300 Granite Street
Braintree, MA

44 Mall Road
Burlington, MA

416 Belmont Street
Worcester, MA

MICHIGAN

280 North Woodward Ave.
Birmingham, MI

29155 Northwestern Hwy.
Southfield, MI

MINNESOTA

7600 France Avenue South
Edina, MN

MISSOURI

700 West 47th Street
Kansas City, MO

8885 Ladue Road
Ladue, MO

200 North Broadway
St. Louis, MO

NEW JERSEY

150 Essex Street
Millburn, NJ

56 South Street
Morristown, NJ

501 Route 17, South
Paramus, NJ

NEW YORK

1055 Franklin Avenue
Garden City, NY

999 Walt Whitman Road
Melville, L.I., NY

1271 Avenue of the Americas
New York, NY

71 Broadway
New York, NY

350 Park Avenue
New York, NY

NORTH CAROLINA

4611 Sharon Road
Charlotte, NC

2200 West Main Street
Durham, NC

OHIO

600 Vine Street
Cincinnati, OH

28699 Chagrin Boulevard
Woodmere Village, OH

OREGON

16850 SW 72 Avenue
Tigard, OR

PENNSYLVANIA

1735 Market Street
Philadelphia, PA

439 Fifth Avenue
Pittsburgh, PA

TENNESSEE

6150 Poplar Road
Memphis, TN

TEXAS

10000 Research Boulevard
Austin, TX

4017 Northwest Parkway
Dallas, TX

1155 Dairy Ashford Street
Houston, TX

2701 Drexel Drive
Houston, TX

400 East Las Colinas Blvd.
Irving, TX

14100 San Pedro
San Antonio, TX

19740 IH 45 North
Spring, TX

UTAH

215 South State Street
Salt Lake City, UT

VIRGINIA

8180 Greensboro Drive
McLean, VA

WASHINGTON

411 108th Avenue, N.E.
Bellevue, WA

511 Pine Street
Seattle, WA

WASHINGTON, DC

1900 K Street, N.W.
Washington, DC

WISCONSIN

595 North Barker Road
Brookfield, WI

INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA

INVESTMENT SUB-ADVISERS
Fidelity Management & Research
(U.K.) Inc., London, England
Fidelity Management & Research
(Far East) Inc., Tokyo, Japan
Fidelity International Investment
Advisors
Fidelity International Investment
Advisors (U.K.) Limited
Fidelity Investments Japan Limited

OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
John H. Carlson, Vice President
Bart A. Grenier, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer

BOARD OF TRUSTEES
Ralph F. Cox *
Phyllis Burke Davis *
Robert M. Gates *
Edward C. Johnson 3d
E. Bradley Jones *
Donald J. Kirk *
Peter S. Lynch
Marvin L. Mann *
William O. McCoy *
Gerald C. McDonough *
Robert C. Pozen
Thomas R. Williams *

ADVISORY BOARD
J. Gary Burkhead

GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA

* INDEPENDENT TRUSTEES

GLO-ANN-0299 70491
1.540225.101

TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA

CUSTODIAN
The Chase Manhattan Bank
New York, NY

FIDELITY'S TAXABLE BOND FUNDS
Capital & Income
Ginnie Mae
Government Income
High Income
Intermediate Bond
Intermediate Government Income
International Bond
Investment Grade Bond
New Markets Income
Short-Intermediate Government
Short-Term Bond
Spartan(registered trademark) Ginnie Mae
Spartan Government Income
Spartan Investment Grade Bond
Spartan Short-Intermediate Government
Spartan Short-Term Bond
Strategic Income
Target TimelineSM 1999, 2001 & 2003

THE FIDELITY TELEPHONE CONNECTION
MUTUAL FUND 24-HOUR SERVICE
Exchanges/Redemptions 1-800-544-7777
Account Assistance 1-800-544-6666
Product Information 1-800-544-8888
Retirement Accounts 1-800-544-4774
(8 a.m. - 9 p.m.)
TDD Service 1-800-544-0118
for the deaf and hearing impaired
(9 a.m. - 9 p.m. Eastern time)
TouchTone Xpress (registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com

SPARTAN(REGISTERED TRADEMARK)
INTERMEDIATE MUNICIPAL INCOME
FUND

ANNUAL REPORT
DECEMBER 31, 1998

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)

CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.

PERFORMANCE 4 How the fund has done over
time.

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

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

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

FINANCIAL STATEMENTS 31 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.

NOTES 35 Notes to the financial
statements.

REPORT OF INDEPENDENT 39 The auditors' opinion.
ACCOUNTANTS

DISTRIBUTIONS 40

OF SPECIAL NOTE 41

Third party marks appearing herein are the property of their
respective owners.

All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.

This report is printed on recycled paper using soy-based inks.

PRESIDENT'S MESSAGE

(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:

While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.

An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.

Best regards,
Edward C. Johnson 3d

PERFORMANCE: THE BOTTOM LINE

There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in its yield, to measure performance.

CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998 PAST 1 YEAR PAST 5 YEARS PAST 10 YEARS

SPARTAN INTERMEDIATE 5.89% 30.90% 103.81%
MUNICIPAL INCOME

LB 1-17 Year Municipal Bond 6.28% 33.30% n/a

Intermediate Municipal Debt 5.35% 28.73% 94.74%
Funds Average

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

SPARTAN INTERMEDIATE 5.89% 5.53% 7.38%
MUNICIPAL INCOME

LB 1-17 Year Municipal Bond 6.28% 5.92% n/a

Intermediate Municipal Debt 5.35% 5.17% 6.88%
Funds Average

$10,000 OVER 10 YEARS
Spartan Int. Muni Income LB Municipal Bond
00036 LB015
1988/12/31 10000.00 10000.00
1989/01/31 10109.63 10206.80
1989/02/28 10035.24 10090.34
1989/03/31 9993.78 10066.22
1989/04/30 10171.89 10305.20
1989/05/31 10340.45 10519.24
1989/06/30 10442.00 10662.09
1989/07/31 10544.19 10807.20
1989/08/31 10489.63 10701.40
1989/09/30 10482.70 10669.51
1989/10/31 10573.95 10799.99
1989/11/30 10701.12 10988.99
1989/12/31 10782.53 11078.88
1990/01/31 10746.41 11026.48
1990/02/28 10827.15 11124.62
1990/03/31 10865.23 11127.95
1990/04/30 10771.23 11047.39
1990/05/31 10937.50 11288.55
1990/06/30 11021.21 11387.78
1990/07/31 11153.50 11555.18
1990/08/31 11131.88 11387.40
1990/09/30 11207.26 11393.89
1990/10/31 11320.96 11600.57
1990/11/30 11471.48 11833.86
1990/12/31 11533.61 11885.34
1991/01/31 11658.57 12044.84
1991/02/28 11771.68 12149.63
1991/03/31 11824.13 12154.00
1991/04/30 11951.22 12315.65
1991/05/31 12041.62 12425.14
1991/06/30 12044.76 12412.84
1991/07/31 12175.35 12564.02
1991/08/31 12292.46 12729.49
1991/09/30 12447.37 12895.23
1991/10/31 12563.64 13011.29
1991/11/30 12572.45 13047.59
1991/12/31 12823.85 13327.59
1992/01/31 12894.41 13357.98
1992/02/29 12941.56 13362.25
1992/03/31 12914.82 13367.20
1992/04/30 13023.46 13486.16
1992/05/31 13134.15 13644.90
1992/06/30 13282.79 13873.86
1992/07/31 13669.00 14289.80
1992/08/31 13567.52 14150.47
1992/09/30 13631.99 14243.01
1992/10/31 13444.37 14103.01
1992/11/30 13719.53 14355.59
1992/12/31 13871.24 14502.16
1993/01/31 14036.69 14670.82
1993/02/28 14543.76 15201.46
1993/03/31 14402.32 15040.79
1993/04/30 14538.96 15192.55
1993/05/31 14632.28 15277.93
1993/06/30 14827.94 15532.92
1993/07/31 14863.95 15553.27
1993/08/31 15167.67 15877.08
1993/09/30 15336.24 16057.92
1993/10/31 15357.87 16088.92
1993/11/30 15256.33 15947.17
1993/12/31 15569.10 16283.82
1994/01/31 15746.26 16469.78
1994/02/28 15383.73 16043.21
1994/03/31 14760.14 15389.93
1994/04/30 14843.25 15520.44
1994/05/31 14975.53 15655.00
1994/06/30 14898.06 15559.35
1994/07/31 15175.86 15844.55
1994/08/31 15229.84 15899.37
1994/09/30 15038.40 15665.97
1994/10/31 14832.69 15387.74
1994/11/30 14542.30 15109.53
1994/12/31 14827.64 15442.09
1995/01/31 15213.16 15883.43
1995/02/28 15575.97 16345.32
1995/03/31 15730.26 16533.13
1995/04/30 15733.56 16552.64
1995/05/31 16125.26 17080.83
1995/06/30 16042.85 16932.23
1995/07/31 16164.98 17092.74
1995/08/31 16389.77 17309.48
1995/09/30 16526.52 17419.05
1995/10/31 16716.88 17672.32
1995/11/30 16905.63 17965.51
1995/12/31 17028.52 18138.15
1996/01/31 17185.33 18275.10
1996/02/29 17130.33 18151.74
1996/03/31 16957.87 17919.76
1996/04/30 16924.59 17869.05
1996/05/31 16907.24 17861.90
1996/06/30 17049.05 18056.42
1996/07/31 17176.79 18220.73
1996/08/31 17179.25 18216.36
1996/09/30 17341.52 18471.39
1996/10/31 17542.87 18680.30
1996/11/30 17815.42 19022.15
1996/12/31 17783.72 18942.25
1997/01/31 17841.77 18978.06
1997/02/28 17985.06 19152.27
1997/03/31 17784.29 18896.97
1997/04/30 17897.42 19055.14
1997/05/31 18125.54 19341.73
1997/06/30 18313.62 19547.72
1997/07/31 18730.66 20089.19
1997/08/31 18599.56 19900.96
1997/09/30 18806.45 20137.18
1997/10/31 18921.81 20266.66
1997/11/30 19016.07 20385.83
1997/12/31 19247.71 20683.26
1998/01/31 19422.73 20896.71
1998/02/28 19429.31 20902.98
1998/03/31 19430.88 20921.38
1998/04/30 19370.49 20827.02
1998/05/31 19607.45 21156.71
1998/06/30 19704.42 21240.07
1998/07/31 19744.91 21293.38
1998/08/31 20024.80 21622.36
1998/09/30 20262.76 21891.78
1998/10/31 20282.60 21891.34
1998/11/30 20340.29 21968.18
1998/12/31 20380.72 22023.54
IMATRL PRASUN SHR__CHT 19981231 19990111 111338 R00000000000123

$10,000 OVER 10 YEARS: Let's say hypothetically that $10,000 was
invested in Spartan Intermediate Municipal Income Fund on December 31,
1988. As the chart shows, by December 31, 1998, the value of the
investment would have grown to $20,381 - a 103.81% increase on the
initial investment. For comparison, look at how the Lehman Brothers
Municipal Bond Index - a market value-weighted index of investment
grade municipal bonds with maturities of one year or more - did over
the same period. With dividends and capital gains, if any, reinvested,
the same $10,000 would have grown to $22,024 - a 120.24% increase.

(checkmark)UNDERSTANDING
PERFORMANCE

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

TOTAL RETURN COMPONENTS
YEARS ENDED DECEMBER 31,

1998 1997 1996 1995 1994

Dividend returns 4.89% 5.22% 5.12% 5.83% 5.07%

Capital returns 1.00% 3.01% -0.69% 9.01% -9.83%

Total returns 5.89% 8.23% 4.43% 14.84% -4.76%

DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
1998

Dividends per share 4.00(cents) 23.83(cents) 47.45(cents)

Annualized dividend rate 4.69% 4.72% 4.76%

30-day annualized yield 3.89% - -

30-day annualized 6.08% - -
tax-equivalent yield

DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on an average share price of
$10.05 over the past one month, $10.01 over the past six months and
$9.97 over the past one year, you can compare the fund's income over
these three periods. The 30-day annualized YIELD is a standard formula
for all funds based on the yields of the bonds in the fund, averaged
over the past 30 days. This figure shows you the yield characteristics
of the fund's investments at the end of the period. It also helps you
compare funds from different companies on an equal basis. The
tax-equivalent yield shows what you would have to earn on a taxable
investment to equal the fund's tax-free yield, if you're in the 36%
federal tax bracket. A portion of the fund's income may be subject to
the federal alternative minimum tax.

FUND TALK: THE MANAGER'S OVERVIEW

MARKET RECAP

Thanks to volatile and unpredictable
equity markets worldwide, new
money flowed steadily into bond
funds throughout 1998. Bond
performance, however, varied widely
from sector to sector. For the 12-month
period ending December 31, 1998, the
Lehman Brothers Municipal Bond
Index - a popular measure of the
municipal bond market - returned
6.48%. In contrast, the Lehman
Brothers Aggregate Bond Index - a
widely followed measure of
taxable-bond performance -
returned 8.69% during the period.
In fact, according to research
conducted by Morningstar, Inc. - a
leading provider of investment
information and analysis - munis
lagged the majority of bond
investments over the course of the
year, trailing Treasuries, long-term
corporate bonds and international
bonds, among others. While
Treasuries in particular reaped the
benefits of equity investors' flight to
safety, municipal bond returns in
general were somewhat tempered by
record-high issuance that was met
with only subdued demand.
Fortunately, the outlook for municipal
bonds improved during the fourth
quarter. Towards the end of the
12-month period, municipals were
priced quite attractively compared to
their U.S. Treasury counterparts and
were yielding about the same as
30-year Treasuries. Also, municipal
bonds - along with the majority of
fixed-income issues - were
bolstered by three recent
interest-rate cuts by the Federal
Reserve Board, which dropped the
fed funds rate to 4.75%.

(photograph of Norm Lind)

An interview with Norm Lind, Portfolio Manager of Spartan Intermediate
Municipal Income Fund

Q. HOW DID THE FUND PERFORM, NORM?

A. For the 12-month period that ended December 31, 1998, the fund had
a total return of 5.89%. To get a sense of how the fund did relative
to its competitors, the intermediate municipal debt funds average
returned 5.35% for the same 12-month period, according to Lipper Inc.
Additionally, the Lehman Brothers 1-17 Year Municipal Bond Index -
which tracks the types of securities in which the fund invests -
returned 6.28% for the same one-year period.

Q. WHAT HELPED THE FUND BEAT ITS COMPETITORS DURING THE YEAR?

A. There were two primary reasons why the fund outpaced its peers
during 1998. First, the fund had a relatively large weighting in
non-callable bonds, which can't be redeemed by their issuers before
maturity. Like a homeowner refinancing a mortgage, municipal bond
issuers often "call" - or redeem - their loans when interest rates
fall. Although refinancing is a positive for the homeowners and
municipal issuers, it can be a negative for bondholders. After a bond
is called, bondholders often are faced with reinvesting the proceeds,
which they generally must do at lower interest rates. As interest
rates declined throughout much of 1998, the demand for non-callable
securities was quite strong as investors gravitated towards bonds that
were protected against inopportune calls. That strong demand helped
non-callable bonds outpace bonds that didn't share the same call
protection.

Q. WHAT WAS THE SECOND FACTOR THAT HELPED THE FUND'S PERFORMANCE?

A. The fund also had a relatively large stake in bonds rated Baa by
Moody's Investors Service. Falling interest rates prompted investors
to increasingly seek out bonds with relatively high yields, including
Baa-rated securities. Not only was there a growing demand for
Baa-rated bonds, but there also was a limited supply of them, which
generally helped boost their prices. That said, I kept the majority of
the fund's investments in higher-quality bonds. Throughout the year,
Baa-rated bonds offered a smaller and smaller yield advantage over
higher-rated securities. The yield differential diminished so much
that I felt that Baa-rated securities in many cases no longer offered
enough additional yield to compensate for their added credit risk,
which is an assessment of a municipal issuer's ability to pay the
principal and interest on its debt in a timely fashion. More recently,
I've been adding more higher-quality bonds because I can do it without
sacrificing a lot of additional yield.

Q. WERE THERE ANY DISAPPOINTMENTS?

A. Yes, there were. Early on in the period, I had reduced the fund's
stake in bonds issued in California. My feeling at the time was that
California bond prices were already reflecting most of the improvement
in that state's economy, and I didn't feel that the bonds could
appreciate much more even with further economic strength. As it turned
out, however, California bonds generally continued to appreciate as
the state's economy continued its somewhat surprisingly strong
recovery. Although the fund did have some California holdings, it
didn't fully participate in the rally the state's bonds experienced.

Q. WHAT FACTORS DO YOU CONSIDER WHEN CHOOSING VARIOUS STATES AND BOND
MATURITIES?

A. In deciding in which states to invest, I look at a number of
factors, including the economic and fiscal health of that state and
its many municipal bond issuers. I tend to emphasize areas where
municipal bond demand is relatively constant and strong as a result of
high local taxes. As for choosing various bond maturities, I look for
bonds that I think currently pay an appropriate amount of yield given
their interest-rate sensitivity, which generally increases the longer
the bond's maturity.

Q. WHAT'S AHEAD FOR THE MUNICIPAL MARKET AND THE FUND?

A. After lagging Treasuries during most of 1998, municipals may be in
for a fairly strong period of performance in 1999 as they play catch
up to the U.S. Treasury market. That said, the direction of interest
rates will be the primary determinant of municipal performance, and
it's anybody's guess where rates will be six months or a year from
now. As far as the fund is concerned, I'll continue to emphasize bonds
that I think offer good value given their yields and their risk. I'm
comfortable sticking with a fairly large weighting in high-quality
bonds for the time being, because I feel that lower-quality securities
currently do not offer enough additional yield to adequately
compensate for their added risk.

THE VIEWS EXPRESSED IN THIS REPORT REFLECT THOSE OF THE PORTFOLIO
MANAGER ONLY THROUGH THE END OF THE PERIOD OF THE REPORT AS STATED ON
THE COVER. THE MANAGER'S VIEWS ARE SUBJECT TO CHANGE AT ANY TIME BASED
ON MARKET AND OTHER CONDITIONS.

NORM LIND ON DEVELOPMENTS
IN TECHNOLOGY AND THEIR EFFECT
ON MUNICIPAL-BOND ISSUERS:

"I'm currently keeping an eye on
two technology-related
developments and their potential
effect on municipal-bond issuers.
The first is the rise of the Internet.
As more and more people shop for
goods and services online, it's
uncertain to what extent states and
municipalities will lose out on sales
tax revenue. The question is whether
states or municipalities will be able to
tax Internet-based sales that
emanate from those states or
municipalities. Although there's
no clear sense right now of the
magnitude of potential problems
deriving from this issue, I'm
factoring it in when I evaluate the
attractiveness of issuers, especially
those that are heavily reliant on
sales-tax revenues.

"The second technology-related issue
I'm watching is the potential
problems stemming from the
so-called Year 2000 glitch, or `Y2K.'
Here I'm focusing on a couple of
things. The first is whether the
problems that arise from Y2K will
seriously compromise the operations
of a municipal issuer. Second, I'll be
watching the extent to which
municipal issuers adequately budget
for Y2K fixes. How individual
municipalities meet these
technology-related challenges could
affect their fiscal health and,
ultimately, their creditworthiness."

(checkmark)FUND FACTS

GOAL: to provide high current
income free from federal income
tax with preservation of capital

FUND NUMBER: 036

TRADING SYMBOL: FLTMX

START DATE: April 15,1977

SIZE: as of December 31,
1998, more than $1.1 billion

MANAGER: Norm Lind, since
1998; manager, various Fidelity
and Spartan municipal income
funds; joined Fidelity in 1986

INVESTMENT CHANGES

<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE STATES AS OF
DECEMBER 31, 1998

% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE HOLDINGS 6 MONTHS AGO

Texas 15.0 14.3

New York 10.8 8.5

Massachusetts 10.3 10.4

California 7.9 10.6

Washington 6.6 6.2

TOP FIVE SECTORS AS OF
DECEMBER 31, 1998

% OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE SECTORS 6 MONTHS AGO

General Obligations 37.4 37.1

Health Care 11.9 11.5

Electric Utilities 11.5 10.9

Transportation 8.2 7.6

Education 7.9 9.3

AVERAGE YEARS TO MATURITY AS
OF DECEMBER 31, 1998

6 MONTHS AGO

Years 8.8 7.8

</TABLE>

AVERAGE YEARS TO MATURITY IS BASED ON THE AVERAGE TIME UNTIL PRINCIPAL
PAYMENTS ARE EXPECTED FROM EACH OF THE FUND'S BONDS, WEIGHTED BY
DOLLAR AMOUNT.

DURATION AS OF DECEMBER 31,
1998

6 MONTHS AGO

Years 5.4 5.4

DURATION SHOWS HOW MUCH A BOND FUND'S PRICE FLUCTUATES WITH CHANGES IN
COMPARABLE INTEREST RATES. IF RATES RISE 1%, FOR EXAMPLE, A FUND WITH
A FIVE-YEAR DURATION IS LIKELY TO LOSE ABOUT 5% OF ITS VALUE. OTHER
FACTORS ALSO CAN INFLUENCE A BOND FUND'S PERFORMANCE AND SHARE PRICE.
ACCORDINGLY, A BOND FUND'S ACTUAL PERFORMANCE MAY DIFFER FROM THIS
EXAMPLE.

QUALITY DIVERSIFICATION
(MOODY'S RATINGS)

AS OF DECEMBER 31, 1998
Aaa 53.5%
Aa, A 33.3%
Baa 10.9%
Not Rated 2.1%
Short-term
investments 0.2%
Row: 1, Col: 1, Value: 53.0
Row: 1, Col: 2, Value: 33.0
Row: 1, Col: 3, Value: 10.7
Row: 1, Col: 4, Value: 2.1
Row: 1, Col: 5, Value: 1.2

AS OF JUNE 30, 1998
Aaa 50.1%
Aa, A 34.2%
Baa 12.0%
Not Rated 2.2%
Short-term
investments 1.5%
Row: 1, Col: 1, Value: 50.0
Row: 1, Col: 2, Value: 34.0
Row: 1, Col: 3, Value: 12.0
Row: 1, Col: 4, Value: 2.3
Row: 1, Col: 5, Value: 1.7

WHERE MOODY'S RATINGS ARE NOT AVAILABLE, WE HAVE USED S&P RATINGS.
AMOUNTS SHOWN ARE AS A PERCENTAGE OF THE FUND'S INVESTMENTS.

INVESTMENTS DECEMBER 31, 1998

Showing Percentage of Total Value of Investment in Securities

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
MUNICIPAL BONDS - 99.8%

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

ALABAMA - 1.2%

Alabama Gen. Oblig. Rfdg.
(Cap. Appreciation):

0% 3/1/01 Aa $ 10,000 $ 9,247

0% 9/1/01 Aa 5,000 4,531

13,778

ALASKA - 4.7%

Anchorage Hosp. Rev. Rfdg. A1 2,575 2,793
(Sisters of Providence
Proj.) Series 1991, 6.75%
10/1/02

North Slope Borough (Cap.
Appreciation):

Series A:

0% 6/30/01 (MBIA Insured) Aaa 12,000 10,934

0% 6/30/02 (MBIA Insured) Aaa 23,950 20,985

0% 6/30/03 (MBIA Insured) Aaa 11,500 9,632

Series B:

0% 1/1/02 (MBIA Insured) Aaa 8,500 7,590

0% 1/1/03 (MBIA Insured) Aaa 3,200 2,735

54,669

ARIZONA - 1.0%

Arizona Trans. Board Excise
Tax Rev.:

(Maricopa Reg'l. Road) (Cap. Aaa 1,700 1,486
Appreciation): Series A, 0%
7/1/02 (FGIC Insured)

Rfdg. (Maricopa County Reg'l.
Area):

Series A, 6.5% 7/1/04 (AMBAC Aaa 1,100 1,237
Insured)

Series B, 6.5% 7/1/04 (AMBAC Aaa 1,220 1,372
Insured)

Maricopa County Cmnty.
College District Series A:

6% 7/1/09 Aa1 90 98

6% 7/1/09 (Pre-Refunded to Aa1 1,910 2,090
7/1/03 @ 101) (f)

Phoenix Civic Impt. Corp. Aa 2,420 2,537
Rev. Rfdg. (Arpt. Impts.)
Series A, 5.85% 7/1/01 (e)

Univ. of Arizona Univ. Rev. A1 2,100 2,291
Rfdg. (Univ. Rev. Sys.)
6.375% 6/1/05

11,111

ARKANSAS - 0.1%

Arkansas Gen. Oblig. (College
Savings Prog.) (Cap.
Appreciation):

0% 6/1/03 Aa3 1,190 1,000

0% 6/1/02 Aa3 705 619

1,619

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

CALIFORNIA - 7.9%

California Dept. of Wtr. Aa2 $ 9,705 $ 10,823
Resources Wtr. Sys. Rev.
(Central Valley Proj.)
Series P, 5.75% 12/1/16
(Pre-Refunded to 6/1/06 @
101) (f)

California Ed. Facilities AAA 3,000 3,127
Auth. Rev. Rfdg. (Chapman
Univ.) 5.375% 10/1/16
(Connie Lee Insured)

California Health Facilities A+ 1,660 1,766
Fin. Auth. Rev. (Casa de Las
Campanas) Series A, 5.375%
8/1/10

California Hsg. Fin. Agcy.
Rev.:

(Home Mtg. Single Family) Aa2 19,346 4,235
(Cap. Appreciation) Series
1983 A, 0% 2/1/15

(Home Mtg.) Series G, 6% Aaa 2,000 2,117
2/1/10 (MBIA Insured) (e)

California Poll. Cont. Fing. Baa3 2,500 2,684
Auth. Resource Recovery Rev.
(Waste Mgmt., Inc.) Series
A, 7.15% 2/1/11 (e)

California Rural Home Mtg. Aaa 3,000 3,041
Fin. Auth. Lease Rev. (Rural
Lease Purp.) Series A, 4.45%
8/1/01 (MBIA Insured)

California Statewide Cmntys.
Dev. Auth. Rev. Ctfs. of
Prtn. Rfdg. (Triad
Healthcare Hosp.):

5.9% 8/1/01 (Escrowed to A+ 4,415 4,662
Maturity) (f)

6% 8/1/02 (Escrowed to A+ 4,145 4,461
Maturity) (f)

Carson Redev. Agcy. Rfdg.
(Redev. Proj. Area 2):

5.4% 10/1/01 Baa2 1,350 1,397

5.5% 10/1/02 Baa2 1,320 1,381

5.6% 10/1/03 Baa2 1,500 1,587

Central Valley Fin. Auth. BBB- 1,875 1,948
Cogeneration Proj. Rev.
(Carson Ice Gen. Proj.) 5.5%
7/1/01

Clovis Unified School Aaa 5,700 4,983
District (Cap. Appreciation)
Series B, 0% 8/1/02 (MBIA
Insured) (Escrowed to
Maturity) (f)

East Bay Muni. Util. District Aaa 1,000 1,027
Wtr. Sys. Rev. Rfdg. 5%
6/1/13 (FGIC Insured)

Long Beach Hbr. Dept. Rfdg. Aaa 3,080 3,367
Series A, 5.5% 5/15/07 (FGIC
Insured) (e)

Los Angeles County Pub. Works Aaa 1,195 1,223
Fing. Auth. Lease Rev.
(Multiple Cap. Facilities
Proj. #4) 4.75% 12/1/10
(MBIA Insured)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

CALIFORNIA - CONTINUED

Los Angeles Unified School
District Series A:

6% 7/1/11 (FGIC Insured) Aaa $ 1,110 $ 1,284

6% 7/1/13 (FGIC Insured) Aaa 500 579

Modesto Irrigation District Aaa 4,390 5,988
Elec. Rev. Series A, 9.625%
1/1/11 (Escrowed to
Maturity) (f)

Modesto Wastewtr. Treatment Aaa 8,705 9,347
Facilities Rev. 5.625%
11/1/17 (MBIA Insured)

Pleasanton Joint Powers Fing. Baa1 1,390 1,503
Auth. Rev. Series A, 6.15%
9/2/12

Sacramento Cogeneration Auth. BBB- 1,400 1,466
Cogeneration Proj. Rev.
(Proctor & Gamble Proj.)
5.8% 7/1/01

Sacramento Pwr. Auth.
Cogeneration Proj. Rev.:

6% 7/1/00 BBB- 3,100 3,207

6% 7/1/01 BBB- 3,300 3,471

6% 7/1/99 BBB- 3,000 3,039

6.5% 7/1/05 BBB- 2,000 2,256

6.5% 7/1/08 BBB- 2,000 2,267

San Francisco City & County
Arpt. Commission Int'l.
Arpt. Rev. 2nd Series Issue
9 B:

5.25% 5/1/11 (FGIC Insured) Aaa 1,700 1,790

5.25% 5/1/12 (FGIC Insured) Aaa 1,000 1,046

91,072

COLORADO - 4.6%

Arapaho County Cap. Impt. Aaa 52,100 8,244
Trust Fund Hwy. Rev. (Cap.
Appreciation) Series C, 0%
8/31/26 (Pre-Refunded to
8/31/05 @ 20.8626) (f)

Colorado Health Facilities Baa2 18,100 19,097
Auth. Rev. Rfdg. (Rocky
Mountain Adventist) 6.25%
2/1/04

Denver City & County Arpt.
Rev.:

(Cap. Appreciation):

Series A:

0% 11/15/04 (e) Baa1 2,070 1,568

0% 11/15/05 (MBIA Insured) (e) Aaa 2,250 1,691

Series D:

0% 11/15/03 (MBIA Insured) (e) Aaa 5,320 4,365

0% 11/15/05 (MBIA Insured) (e) Aaa 2,055 1,545

0% 11/15/06 (e) Baa1 4,500 3,073

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

COLORADO - CONTINUED

Denver City & County Arpt.
Rev.: - continued

Series A:

8.25% 11/15/02 (e) Baa1 $ 730 $ 794

8.5% 11/15/23 (e) Baa1 2,000 2,180

Series C, 6.55% 11/15/16 Aaa 2,660 2,943
(MBIA Insured) (e)

Series D, 7% 11/15/25 (e) Baa1 1,340 1,424

Jefferson County School
District # R-001 Series A:

5.5% 12/15/09 (FGIC Insured) Aaa 1,000 1,102

5.5% 12/15/14 (FGIC Insured) Aaa 5,000 5,356

53,382

CONNECTICUT - 0.1%

Connecticut Health & Edl. BBB- 1,100 1,147
Facilities Auth. Rev. Rfdg.
(Quinnipiac College) Series
D, 5.625% 7/1/03

DISTRICT OF COLUMBIA - 2.9%

District of Columbia Gen.
Oblig.:

Rfdg.:

Series A 3:

5.3% 6/1/04 (AMBAC Insured) Aaa 735 780

5.3% 6/1/04 (AMBAC Insured) Aaa 40 42
(Escrowed to Maturity) (f)

5.4% 6/1/05 (AMBAC Insured) Aaa 625 668

5.4% 6/1/05 (AMBAC Insured) Aaa 35 37
(Escrowed to Maturity) (f)

Series A, 5.75% 6/1/03 (AMBAC Aaa 85 91
Insured) (Escrowed to
Maturity) (f)

Series C, 5.75% 12/1/05 Aaa 260 285
(AMBAC Insured)
(Pre-Refunded to 12/1/03 @
102) (f)

Series A:

5.25% 6/1/10 (MBIA Insured) Aaa 3,000 3,151

5.25% 6/1/11 (MBIA Insured) Aaa 3,905 4,070

5.75% 6/1/03 (AMBAC Insured) Aaa 1,055 1,130

5.875% 6/1/05 (AMBAC Insured) Aaa 3,705 4,061

5.875% 6/1/05 (AMBAC Insured) Aaa 295 324
(Escrowed to Maturity) (f)

Series C, 5.75% 12/1/05 Aaa 1,895 2,059
(AMBAC Insured)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

DISTRICT OF COLUMBIA -
CONTINUED

District of Columbia Gen.
Oblig.: - continued

Series E:

5% 6/1/04 (FGIC Insured) Aaa $ 960 $ 1,005

5% 6/1/04 (FGIC Insured) Aaa 40 42
(Pre-Refunded to 6/1/03 @
102) (f)

District of Columbia Hosp.
Rev. Rfdg.:

(Medlantic Healthcare Group): A3 2,600 2,656
Series A, 6.8% 8/15/99

Series B:

6.125% 8/15/99 A3 4,520 4,599

6.25% 8/15/00 (Escrowed to A3 4,805 5,006
Maturity) (f)

District of Columbia Rev. A1 3,500 3,579
(Georgetown Univ.) Series A,
7.25% 4/1/11

33,585

FLORIDA - 1.0%

Alachua County Health Baa1 1,645 1,811
Facilities Auth. Health
Facilities Rev. Rfdg. (Santa
Fe Healthcare Facilities
Proj.) 6% 11/15/09 (Escrowed
to Maturity) (f)

Broward County Resource A3 3,565 3,779
Recovery Rev. (SES Broward
Co. LP South Proj.) 7.95%
12/1/08

Hillsborough County Port Aaa 2,000 2,167
District Spl. Refing. Rev.
Rfdg. (Tampa Port Auth.)
6.5% 6/1/02 (FSA Insured)
(e)

Miami Beach Hsg. Fin. Auth. BBB 2,000 1,949
Hosp. Rev. 5.375% 11/15/28

Pasco County Solid Waste Aaa 2,000 2,246
Disp. & Resource Recovery
Sys. Rev. Rfdg. 6% 4/1/10
(AMBAC Insured) (e)

11,952

GEORGIA - 0.3%

Atlanta Gen. Oblig. Rfdg. 5% Aa3 3,550 3,709
12/1/10 (Pre-Refunded to
12/1/08 @ 100) (f)

IDAHO - 0.5%

Idaho Falls Gen. Oblig. Rfdg. Aaa 7,000 5,469
0% 4/1/05 (FGIC Insured)

ILLINOIS - 2.6%

Chicago Midway Arpt. Rev.:

Series A, 5.5% 1/1/29 (MBIA Aaa 4,000 4,166
Insured)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

ILLINOIS - CONTINUED

Chicago Midway Arpt. Rev.: -
continued

Series B:

6% 1/1/09 (MBIA Insured) (e) Aaa $ 2,000 $ 2,211

6.125% 1/1/12 (MBIA Insured) Aaa 2,740 3,048
(e)

Chicago O'Hare Int'l. Arpt. Aaa 9,820 11,121
Rev. Rfdg. (Gen. Arpt.
Proj.) (2nd Lien) Series A,
6.25% 1/1/08 (AMBAC Insured)
(e)

Lake County Forest Aa2 5,850 4,623
Preservation District (Cap.
Appreciation) 0% 12/1/04

Rolling Meadows Multi-Family A 5,000 5,320
Mtg. Rev. Rfdg. (Woodfield
Garden Apts. Proj.) 7.75%
2/1/04, LOC Banque Paribas

30,489

INDIANA - 1.7%

Indiana Employment Dev. - 5,000 5,059
Commission Poll. Cont. Rev.
(Chrysler Corp. Proj.) 5.7%
10/1/99

Indianapolis Resource
Recovery Rev. Rfdg. (Ogden
Martin Sys., Inc. Proj.):

6.75% 12/1/04 (AMBAC Insured) Aaa 3,520 4,024

6.75% 12/1/05 (AMBAC Insured) Aaa 8,185 9,451

Marion County Ind. Hosp. Aaa 800 819
Auth. Hosp. Facilities Rev.
Rfdg. (Univ. Heights Hosp.)
8.625% 10/1/99 (AMBAC
Insured)

19,353

KANSAS - 1.0%

Kansas City Util. Sys. Rev.
(Cap. Appreciation):

0% 3/1/04 (AMBAC Insured) Aaa 3,735 3,045

0% 3/1/04 (AMBAC Insured) Aaa 5,015 4,083
(Escrowed to Maturity) (f)

Kansas Dev. Fin. Auth. Rev.

(Sisters of Charity
Leavenworth Health Svc. Co.):

5.125% 12/1/18 (MBIA Insured) Aaa 1,000 1,004

5.25% 12/1/10 (MBIA Insured) Aaa 1,000 1,062

5.25% 12/1/11 (MBIA Insured) Aaa 1,805 1,902

11,096

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

LOUISIANA - 1.2%

Louisiana Pub. Facilities
Auth. Rev. Rfdg. (Student
Ln.) Senior Series A 1:

6.1% 3/1/00 Aaa $ 1,240 $ 1,267

6.1% 9/1/00 Aaa 2,490 2,568

New Orleans Gen. Oblig. Rfdg. Aaa 13,500 10,222
(Cap. Appreciation) 0%
9/1/05 (AMBAC Insured)

14,057

MARYLAND - 0.2%

Prince George's County Rev. A 1,130 1,170
Rfdg. (Dimensions Health
Corp. Proj.) 5% 7/1/05

Prince George's County Hosp.
Rev. (Dimensions Health
Corp.):

7% 7/1/01 A3 970 1,025

7.2% 7/1/06 A3 305 340

2,535

MASSACHUSETTS - 10.3%

Boston Gen. Oblig. Rev. Aaa 2,000 2,171
(Boston City Hosp.) Series
A, 7.625% 2/15/21
(Pre-Refunded to 8/15/00 @
101.666) (f)

Boston Wtr. & Swr. Commission Aaa 4,000 4,051
Rev. Series C, 5.2% 11/1/21
(FGIC Insured)

Massachusetts Gen. Oblig.:

(Consolidated Ln.) Series C, Aaa 2,500 2,752
5.625% 8/1/13 (MBIA Insured)
(Pre-Refunded to 8/1/05 @
101) (f)

Rfdg. Series A, 5.5% 2/1/11 Aa3 2,755 2,922

Rfdg. Series C, 4.7% 8/1/02 Aa3 6,000 6,185

Series C, 6.5% 8/1/11 Aa3 720 775

Massachusetts Health & Edl.
Facilities Auth. Rev.:

(Lawrence Gen. Hosp.) Series Baa2 4,430 4,643
B, 7.25% 7/1/01

(WalthamWeston Hosp. & Med. Baa 2,100 2,260
Ctr.) Series B, 8% 7/1/02
(Escrowed to Maturity) (f)

Rfdg. (Fairview Extended Aaa 1,400 1,409
Care) Series B, 4.55% 1/1/21
(MBIA Insured), LOC
BankBoston NA

Massachusetts Ind. Fin. Agcy.
Rev. (Massachusetts
Biomedical) (Cap.
Appreciation):

Series A 1:

0% 8/1/01 A1 10,800 9,775

0% 8/1/02 A1 5,700 4,928

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

MASSACHUSETTS - CONTINUED

Massachusetts Ind. Fin. Agcy.
Rev. (Massachusetts
Biomedical) (Cap.
Appreciation): - continued

Series A 2:

0% 8/1/04 A1 $ 10,800 $ 8,616

0% 8/1/05 A1 5,100 3,870

0% 8/1/07 - 5,800 4,004

Massachusetts Muni. Wholesale Baa2 3,610 3,936
Elec. Co. Pwr. Supply Sys.
Rev. Rfdg. Series A, 6.75%
7/1/05

Massachusetts Tpk. Auth. Aaa 13,200 13,309
Western Tpk. Rev. Series A,
5.55% 1/1/17 (MBIA Insured)

New England Ed. Ln. Marketing
Corp. Massachusetts Student
Ln. Rev. Rfdg. (Senior
Issue):

Series A, 6.5% 9/1/02 Aaa 28,215 30,439

Series D:

6.2% 9/1/00 Aaa 3,000 3,111

6.3% 9/1/02 Aaa 7,815 8,389

Univ. of Lowell Bldg. Auth. Aaa 1,705 1,979
Massachusetts Guaranteed
Rfdg. Series A, 6.75%
11/1/05 (AMBAC Insured)

119,524

MICHIGAN - 3.9%

Detroit Convention Facilities A 22,300 22,688
Rev. Rfdg. (Cobo Hall
Expansion Proj.) 5.25%
9/30/12

Michigan Hosp. Fin. Auth. Rev.:

(Mercy Health Svcs., Inc.) Aaa 1,195 1,326
Series Q, 6% 8/15/09 (AMBAC
Insured)

Rfdg.:

(Henry Ford Health Sys.) Aa3 3,500 3,513
Series A, 5.25% 11/15/25

(McLaren Health Care Corp.) A1 8,000 7,770
Series A, 5% 6/1/19

Michigan Muni. Bond Auth. Aaa 1,000 1,132
Rev. Rfdg. (Local Govt. Ln.
Prog.) Series G, 6.3%
11/1/05 (AMBAC Insured)

Michigan Strategic Fund Rev.:

(Chrysler Corp. Proj.) 5.7% - 5,000 5,060
10/1/99

Rfdg. (Detroit Edison Co. Aaa 4,000 4,060
Proj.) Series A, 5.55%
9/1/29 (MBIA Insured) (c)(e)

45,549

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

MINNESOTA - 1.4%

Minneapolis Gen. Oblig. (Cap.
Appreciation) Series B:

0% 12/1/03 Aaa $ 300 $ 248

0% 12/1/04 Aaa 440 350

Rochester Health Care AA+ 14,500 15,198
Facilities Rev. (Mayo
Foundation) Series A, 5.5%
11/15/27

15,796

NEBRASKA - 0.4%

Nebraska Invt. Fin. Auth. Aaa 2,000 2,168
Hosp. Rev. (Nebraska
Methodist Health Sys.) 6.85%
3/1/02 (MBIA Insured)
(Pre-Refunded to 3/1/01 @
102) (f)

Nebraska Pub. Pwr. District A1 2,000 2,133
Rev. Rfdg. (Pwr. Supply
Sys.) Series B, 5.25% 1/1/13
(Pre-Refunded to 1/1/03 @
102) (f)

4,301

NEVADA - 0.4%

Clark County School District Aaa 6,195 4,763
(Cap. Appreciation) Series
B, 0% 3/1/05 (FGIC Insured)

NEW HAMPSHIRE - 0.7%

New Hampshire Higher Edl. &
Health Facilities Auth. Rev.:

(Frisbee Memorial Hosp.) 5.7% Baa1 4,145 4,331
10/1/04

5% 6/1/28 Aaa 3,500 3,416

7,747

NEW JERSEY - 1.3%

New Jersey Econ. Dev. Auth. Aaa 5,000 5,650
Marketing Transition
Facilities Rev. (Senior
Lien) Series A, 7% 7/1/03
(MBIA Insured)

New Jersey Health Care
Facilities Fing. Auth. Rev.
Rfdg. (Atlantic City Med.
Ctr.) Series C:

6.55% 7/1/03 A3 2,200 2,394

6.8% 7/1/05 A3 3,500 3,799

Passaic County Util. Auth. Aaa 3,380 3,001
Solid Waste Disp. Rev.
Rfdg. (Cap. Appreciation) 0%
3/1/02 (MBIA Insured)

14,844

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

NEW MEXICO - 0.8%

Albuquerque Arpt. Rev. Rfdg. Aaa $ 1,400 $ 1,613
6.5% 7/1/07 (AMBAC Insured)
(e)

Farmington Poll. Cont. Rev. Aaa 1,300 1,304
(Tucson Gas & Elec. Co.)
Series A, 6.1% 1/1/08 (MBIA
Insured)

New Mexico Edl. Assistance Aaa 4,635 4,983
Foundation Student Ln. Rev.
Senior Series IV, 7.05%
3/1/10 (e)

Rio Rancho Wtr. & Wastewtr. Aaa 1,420 1,692
Sys. Rev. Series A, 8%
5/15/04 (FSA Insured)

9,592

NEW YORK - 10.8%

Long Island Pwr. Auth. Elec. Baa1 3,000 3,019
Sys. Rev. 4.25% 4/1/00

Metropolitan Trans. Auth. Aaa 7,305 8,089
Commuter Facilities Rev.
Series E, 5.625% 7/1/08
(AMBAC Insured)

Metropolitan Trans. Auth. Baa1 5,280 5,572
Svc. Contract Trans.
Facilities Rfdg. Series 7,
5.2% 7/1/04

Muni. Assistance Corp. for
New York City Rfdg. Series E:

6% 7/1/04 Aa2 4,000 4,402

6% 7/1/05 Aa2 1,500 1,667

Nassau County Gen. Oblig. Aaa 3,860 3,980
Series Y, 4.9% 3/1/02 (FGIC
Insured)

New York City Gen. Oblig.:

Rfdg. Series A, 5.25% 8/1/06 A3 11,535 12,214

Series B:

7.5% 2/1/04 A3 5,000 5,561

7.5% 2/1/05 A3 2,030 2,256

7.5% 2/1/05 (Pre-Refunded to A3 590 661
2/1/02 @ 101.5) (f)

Series C:

6.4% 8/1/03 A3 3,000 3,274

6.5% 8/1/07 A3 1,660 1,806

6.5% 8/1/07 (Pre-Refunded to A3 340 375
8/1/02 @ 101.5) (f)

Series H, 7% 2/1/06 A3 360 394

New York City Transitional
Fin. Auth. Rev. Series A:

5% 8/15/14 (MBIA Insured) Aaa 21,245 21,532

5.125% 11/15/14 Aa3 5,000 5,144

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

NEW YORK - CONTINUED

New York Local Govt. A3 $ 2,500 $ 2,710
Assistance Corp. Series B,
6% 4/1/18 (Pre-Refunded to
4/1/02 @ 102) (f)

New York State Dorm. Auth.
Rev.:

(City Univ. Sys. Consolidated):

Series A, 5.75% 7/1/13 Baa1 3,000 3,301

Series B, 5.75% 7/1/06 Baa1 1,080 1,179

Series C, 7.5% 7/1/10 Baa1 2,500 3,021

Series D, 8.75% 7/1/02 Baa1 1,700 1,962

(Ithaca College) 5.25% 7/1/10 Aaa 1,670 1,785
(AMBAC Insured)

(New York Univ.) Series A, Aaa 3,235 3,558
5.5% 7/1/10 (MBIA Insured)

(State Univ. Edl. Facilities):

Series A, 5.2% 5/15/06 A3 2,000 2,118

Series B, 5.25% 5/15/11 A3 2,000 2,131

Series C, 5.2% 5/15/04 A3 4,185 4,411

Rfdg. (New York & Aaa 5,000 5,064
Presbyterian Hosp.) 4.4%
8/1/13 (AMBAC Insured)
(Fed. Hsg. Administration
Insured)

New York State Thruway Auth.
Hwy. & Bridge Trust Fund:

Series A, 5.8% 4/1/09 A3 3,000 3,218

Series B, 5.25% 4/1/13 (FGIC Aaa 4,350 4,560
Insured)

New York State Urban Dev.
Corp. Rev.:

Rfdg. (Correctional Cap. Baa1 1,785 1,967
Facilities) Series A, 6.4%
1/1/04

Series A, 5.5% 4/1/10 (MBIA Aaa 3,990 4,307
Insured)

125,238

NORTH CAROLINA - 2.1%

North Carolina Eastern Muni.
Pwr. Agcy. Pwr. Sys. Rev.
Rfdg.:

Series B:

5.625% 1/1/03 Baa1 1,000 1,045

6% 1/1/06 Baa1 6,750 7,292

Series C:

5.25% 1/1/04 Baa1 9,340 9,693

5.5% 1/1/07 Baa1 500 527

5.5% 1/1/07 (MBIA Insured) Aaa 2,340 2,538

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

NORTH CAROLINA - CONTINUED

North Carolina Edl. AAA $ 1,000 $ 1,080
Facilities Fin. Agcy. Rev.
Rfdg. (Elon College) 6.375%
1/1/07 (Connie Lee Insured)

North Carolina Muni. Pwr. A3 2,000 2,128
Agcy. #1 Catawba Elec. Rev.
Rfdg. 5.9% 1/1/03

24,303

OHIO - 2.8%

Butler County Trans. Impt. Aaa 2,000 2,179
District Series A, 5.5%
4/1/09 (FSA Insured)

Cincinnati Student Ln. Fund Aaa 925 968
Corp. Student Ln. Rev. Rfdg.
Series C, 6.2% 7/1/03 (e)

Franklin County Gen. Oblig.
Rev. (Online Computer
Library Ctr., Inc. Proj.):

Series 1991:

6.6% 7/15/99 - 895 909

6.7% 7/15/00 - 960 1,001

6.8% 7/15/01 - 800 853

5.65% 4/15/01 - 840 870

5.75% 4/15/02 - 1,030 1,079

5.9% 4/15/04 - 500 533

6% 4/15/09 - 4,500 4,720

Lake County Hosp. Impt. Aaa 3,800 4,464
Facilities Rev. (Lake Hosp.
Sys., Inc.) 6.875% 8/15/11
(AMBAC Insured) (Escrowed to
Maturity) (f)

Ohio Bldg. Auth. Facilities Aa3 2,000 2,182
(Administration Bldg. Fund
Proj.) Series A, 6.3% 10/1/11

Ohio Tpk. Commission Tpk. Rev.:

Rfdg. Series A, 5.5% 2/15/26 Aaa 10,000 10,930
(FGIC Insured)

Series A, 5.6% 2/15/12 (MBIA Aaa 1,250 1,349
Insured)

32,037

OKLAHOMA - 0.2%

Tulsa Ind. Auth. Hosp. Rev. AAA 2,080 2,320
(Tulsa Reg'l. Med. Ctr.) 7%
6/1/06 (Pre-Refunded to
6/1/03 @ 102) (f)

OREGON - 0.1%

Clackamas County School Aaa 1,630 1,705
District #12 5.25% 6/1/13
(FGIC Insured)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

PENNSYLVANIA - 4.4%

Allegheny County Gen. Oblig. Aaa $ 21,000 $ 23,860
Series C 34, 8.5% 2/15/02
(MBIA Insured)

Allegheny County Hosp. Dev.
Auth. Rev. (Univ. of
Pittsburgh Med. Ctr.) Series
B:

5% 7/1/16 (MBIA Insured) Aaa 2,500 2,485

5.25% 7/1/06 (MBIA Insured) Aaa 3,335 3,560

Delaware County Gen. Oblig. Aa3 5,500 4,559
Rfdg. (Cap. Apprecation) 0%
11/15/03

Northampton County Hosp. BBB 1,905 1,986
Auth. Rev. Rfdg. (Easton
Hosp.) Series B, 6.9% 1/1/02

Philadelphia Gen. Oblig. Aaa 3,610 4,064
6.25% 5/15/12 (MBIA Insured)

Philadelphia Hosp. & Higher Baa1 2,675 2,716
Ed. Facilities Auth. Hosp.
Rev. Rfdg. (Temple Univ.
Hosp.) Series A, 5.75%
11/15/99

Philadelphia Wtr. & Wastewtr. Aaa 3,300 3,506
Rev. Rfdg. 5.5% 6/15/03
(FGIC Insured)

Wilkens Area Ind. Dev. Auth. Aaa 3,770 3,793
Rev. Rfdg. (Fairview
Extended Care) Series B,
4.55% 1/1/21 (MBIA Insured),
LOC MBIA

50,529

RHODE ISLAND - 0.2%

Rhode Island Student Ln. A 2,340 2,385
Auth. Student Ln. Rev. Rfdg.
Series A, 6.4% 12/1/99

SOUTH CAROLINA - 0.3%

South Carolina Ed. Assistance A 2,000 2,122
Auth. Rev. Rfdg. (Guaranteed
Student Ln.) Series B, 5.7%
9/1/05 (e)

South Carolina Gen. Oblig. Aaa 1,000 1,091
(State Hwy.) Series B,
5.625% 7/1/11

3,213

SOUTH DAKOTA - 0.5%

South Dakota Student Ln. A+ 5,000 5,369
Fing. Corp. Student Ln. Rev.
Rfdg. Series A, 6.15% 8/1/03
(Pre-Refunded to 8/1/01 @
102) (e)(f)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

TENNESSEE - 0.7%

Memphis-Shelby County Arpt.
Auth. Arpt. Rev. Rfdg.
Series A:

5.5% 2/15/03 (MBIA Insured) Aaa $ 1,405 $ 1,482
(e)

6% 2/15/06 (MBIA Insured) (e) Aaa 2,000 2,209

Montgomery County Health Edl. Baa2 2,800 2,758
& Hsg. Facilities Board
Hosp. Rev. (Rfdg. & Impt.
Clarksville Reg'l. Health
Sys.) 5.375% 1/1/28

Shelby County Pub. Impt. Rev. Aa2 2,200 1,177
Series A, 0% 5/1/11
(Pre-Refunded to 5/1/05 @
69.561) (f)

7,626

TEXAS - 15.0%

Alief Independent School
District:

7% 2/15/03 Aaa 1,125 1,254

7% 2/15/04 Aaa 1,125 1,279

Allen Independent School Aaa 1,370 1,017
District Rfdg. (Cap.
Appreciation) 0% 2/15/06

Arlington Independent School
District Rfdg. & Impt.:

(Cap. Appreciation) 0% 2/15/07 Aaa 1,570 1,114

6.5% 2/15/03 Aaa 1,500 1,647

Austin Independent School
District:

5.7% 8/1/11 Aaa 1,070 1,156

5.7% 8/1/11 (Pre-Refunded to Aaa 2,430 2,681
8/1/06 @ 100) (f)

Austin Util. Sys. Rev. Rfdg. Aaa 16,130 14,172
(Cap. Appreciation) Series
A, 0% 5/15/02 (MBIA Insured)

Brazos Higher Ed. Auth., Inc.
Student Ln. Rev. Rfdg.
Series C 1:

5.6% 6/1/03 (e) Aaa 6,515 6,777

5.7% 6/1/04 (e) Aaa 2,410 2,527

Brazosport Independent School Aaa 1,290 1,345
District (School House) 5.4%
2/15/13

Cedar Hill Independent School
District Rfdg. (Cap.
Appreciation):

0% 8/15/05 Aaa 2,830 2,159

0% 8/15/07 Aaa 1,465 1,009

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

TEXAS - CONTINUED

Conroe Independent School Aaa $ 500 $ 355
District Rfdg. (Cap.
Appreciation) Series B, 0%
2/15/07

Dallas County Gen. Oblig.
Rfdg. (Cap. Appreciation)
Series A:

0% 8/15/05 Aaa 7,125 5,497

0% 8/15/06 Aaa 6,700 4,934

0% 8/15/07 Aaa 3,605 2,518

Eanes Independent School Aaa 2,005 1,605
District Rfdg. (Cap.
Appreciation) 0% 8/1/04

Garland Independent School Aaa 3,505 3,078
District Series A, 4% 2/15/17

Harris County Gen. Oblig.
Rfdg. (Cap. Appreciation):

(Toll Road Sub-Lien Rev. ) Aa2 8,485 7,413
Series 1991: 0% 8/1/02

0% 8/1/03 Aa2 12,570 10,520

0% 8/1/05 Aa2 16,275 12,494

0% 8/1/06 Aa2 13,000 9,517

Humble Independent School Aaa 1,300 1,571
District 8% 2/15/05

Irving Independent School Aaa 4,000 3,849
District (Cap. Appreciation)
0% 2/15/00

Katy Independent School Aaa 2,550 1,809
District Rfdg. (Cap.
Appreciation) Series A, 0%
2/15/07

Keller Independent School
District Rfdg.:

(Cap. Appreciation) Series A, Aaa 1,590 839
0% 8/15/12

5% 8/15/30 Aaa 8,000 7,877

Laredo Gen. Oblig. Rfdg.:

5.125% 8/15/11 (FGIC Insured) Aaa 2,225 2,325

5.25% 2/15/13 (FGIC Insured) Aaa 1,335 1,380

Leander Independent School
District:

7.5% 8/15/04 Aaa 500 587

7.5% 8/15/05 Aaa 600 717

7.5% 8/15/06 Aaa 800 970

7.5% 8/15/07 Aaa 800 985

Lewisville Independent School Aaa 5,000 3,261
District Rfdg. (Cap.
Appreciation) 0% 8/15/08

Lower Colorado River Auth. Aaa 615 396
Rev. Rfdg. (Cap.
Appreciation) 0% 1/1/09
(MBIA Insured) (Escrowed to
Maturity) (f)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

TEXAS - CONTINUED

Midlothian Independent School Aaa $ 1,905 $ 1,414
District Rfdg. (Cap.
Appreciation) 0% 2/15/06

Northside Independent School
District Rfdg. (Cap.
Appreciation):

0% 2/15/02 Aaa 1,000 888

0% 2/15/03 Aaa 1,230 1,046

0% 2/1/05 Aaa 6,155 4,801

Round Rock Independent School
District:

Rfdg. (Cap. Appreciation) 0% Aaa 7,645 5,422
2/15/07

Series B, 7% 8/1/03 Aaa 1,325 1,493

San Antonio Elec. & Gas Rev. Aa1 5,655 5,923
5.75% 2/1/11

San Antonio Gen. Oblig.:

Rfdg. 5.5% 8/1/04 Aa2 2,745 2,967

5% 2/1/13 (c) Aa2 1,535 1,530

5% 2/1/14 (c) Aa2 2,250 2,235

Socorro Independent School Aaa 3,000 2,393
District Rfdg. 0% 9/1/04

Spring Independent School Aaa 5,900 4,185
District Rfdg. (Cap.
Appreciation) 0% 2/15/07

Texas Pub. Fin. Auth.:

(College Student Ln.) 5.8% Aa2 2,350 2,486
8/1/05 (e)

(Wtr. Dev.) Series E, 5% Aa2 6,705 6,688
8/1/20

Series A, 5% 10/1/14 Aa2 3,375 3,414

Univ. of Texas Permanent Aaa 2,495 2,621
Univ. Fund 5% 7/1/10

Yselta Independent School Aaa 1,100 616
District Rfdg. (Cap.
Appreciation) 0% 8/15/11

172,756

UTAH - 3.1%

Intermountain Pwr. Agcy. Pwr.
Supply Rev. Rfdg.:

Series A:

5.25% 7/1/12 (MBIA Insured) Aaa 2,605 2,749
(c)

6.5% 7/1/10 (AMBAC Insured) Aaa 1,000 1,194

Series B, 5.75% 7/1/16 (MBIA Aaa 1,000 1,094
Insured)

Series D, 5% 7/1/21 (MBIA Aaa 3,000 2,956
Insured)

Series G, 0% 7/1/12 Aaa 17,000 19,140
(Pre-Refunded to 1/1/03 @
101) (b)(f)

Jordan School District 7.625% Aa3 1,000 1,176
6/15/04

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

UTAH - CONTINUED

Salt Lake County Wtr. Aaa $ 3,500 $ 2,539
Conservancy District Rev.
Rfdg. (Cap. Appreciation)
Series A, 0% 10/1/06 (AMBAC
Insured)

Utah Board of Regents Student Aaa 4,900 5,151
Ln. Rev. Series A, 7.6%
11/1/00 (AMBAC Insured)

35,999

VIRGINIA - 2.8%

Arlington County Ind. Dev. Aaa 2,965 3,149
Auth. Resource Recovery Rev.
(Ogden Martin Sys.) 5.375%
1/1/11 (FSA Insured) (e)

Chesapeake Gen. Oblig. Pub. Aa3 2,400 2,631
Impt. 6% 5/1/11 (MBIA
Insured)

Pocahontas Parkway Assoc. Baa3 4,000 3,916
Toll Road Rev. Series A, 5%
8/15/11

Virginia Hsg. Dev. Auth.
Multi-family Hsg. Rev.
Senior Series I:

5.75% 5/1/07 (e) Aa1 1,380 1,473

5.85% 5/1/08 (e) Aa1 1,370 1,469

Virginia Pub. Bldg. Auth. Aa2 14,010 14,830
Pub. Facilities Rev. Rfdg.
Series A, 5% 8/1/09

Virginia Trans. Board Trans.
Contract Rev. (Northern
Virginia Trans. District)
Series A:

6.75% 5/15/03 Aa2 1,895 2,104

6.75% 5/15/04 Aa2 2,020 2,282

31,854

WASHINGTON - 6.6%

Grant County Pub. Util. Aaa 1,235 1,232
District #2 Wanapum Hydro
Elec. Rev. Rfdg. Second
Series B, 5.25% 1/1/14
(MBIA Insured) (c)

King County Gen. Oblig.
Series B:

5.75% 12/1/11 Aa1 6,000 6,665

5.85% 12/1/13 Aa1 13,480 15,073

Washington Gen. Oblig. Rfdg. Aa1 1,450 1,590
Series R, 5.625% 9/1/05

Washington Health Care Aaa 3,000 3,225
Facilities Auth. Rev. Rfdg.
(Swedish Health Svcs.) 5.5%
11/15/12 (AMBAC Insured)

MUNICIPAL BONDS - CONTINUED

MOODY'S RATINGS (UNAUDITED) (A) PRINCIPAL AMOUNT (000S) VALUE (NOTE 1) (000S)

WASHINGTON - CONTINUED

Washington Pub. Pwr. Supply
Sys. Nuclear Proj. #2 Rev.
Rfdg.:

Series A, 5% 7/1/09 (MBIA Aaa $ 5,000 $ 5,206
Insured)

Series C, 7.5% 7/1/03 Aa1 1,000 1,091
(Pre-Refunded to 1/1/01 @
102) (f)

Washington Pub. Pwr. Supply
Sys. Nuclear Proj. #3 Rev.
Rfdg.:

(Cap. Appreciation) Series B:

0% 7/1/07 Aa1 15,000 10,358

0% 7/1/10 Aa1 16,000 9,322

0% 7/1/04 (MBIA Insured) Aaa 5,450 4,374

0% 7/1/05 (MBIA Insured) Aaa 10,000 7,663

0% 7/1/10 Aa1 2,250 1,304

Series C, 7.5% 7/1/08 (MBIA Aaa 6,940 8,689
Insured) (d)

75,792

TOTAL MUNICIPAL BONDS 1,152,265
(Cost $1,085,881)

MUNICIPAL NOTES - 0.2%

MICHIGAN - 0.2%

Michigan Muni. Bond Auth. 2,000 2,015
Rev. RAN Series 98 D, 4.25%
8/27/99 (g) (Cost $2,010)

TOTAL INVESTMENT IN $ 1,154,280
SECURITIES - 100%
(Cost $1,087,891)
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
FUTURES CONTRACTS

EXPIRATION DATE UNDERLYING FACE AMOUNT (000S) UNREALIZED GAIN/(LOSS) (000S)

SOLD

60 Bond Buyer Municipal Bond Mar. 1999 $ 7,500 $ (32)
Index Contracts

90 U.S. Treasury Bond Contracts Mar. 1999 11,500 222

$ 190
THE FACE VALUE OF FUTURES SOLD AS A PERCENTAGE OF TOTAL INVESTMENT IN
SECURITIES - 1.6%.

</TABLE>

SECURITY TYPE ABBREVIATION
RAN - REVENUE ANTICIPATION NOTE

LEGEND
(a) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.

(b) Debt obligation initially issued in zero coupon form which
converts to coupon form at a specified rate and date. The rate shown
is the rate at period end.

(d) Security or a portion of the security was pledged to cover margin
requirements for futures contracts. At the period end, the value of
securities pledged amounted to $864,000.

(e) Private activity obligations whose interest is subject to the
federal alternative minimum tax for individuals.

(f) Security collateralized by an amount sufficient to pay interest
and principal.

(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.

OTHER INFORMATION

The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):

MOODY'S RATINGS S&P RATINGS

Aaa, Aa, A 80.8% AAA, AA, A 76.8%

Baa 8.8% BBB 10.2%

Ba 0.0% BB 0.0%

B 0.0% B 0.0%

Caa 0.0% CCC 0.0%

Ca, C 0.0% CC, C 0.0%

D 0.0%

The percentage not rated by Moody's or S&P amounted to 2.1%. FMR has
determined that unrated debt securities that are lower quality account
for 0% of the total value of investment in securities.
The distribution of municipal securities by revenue source, as a
percentage of total value of investments in securities, is as follows:

General Obligations 37.4%

Health Care 11.9

Electric Utilities 11.5

Transportation 8.2

Education 7.9

Escrowed/Pre-Refunded 7.8

Special Tax 6.6

Others (individually less 8.7
than 5%)

TOTAL 100.0%

INCOME TAX INFORMATION

At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $1,087,891,000. Net unrealized appreciation
aggregated $66,389,000, of which $66,522,000 related to appreciated
investment securities and $133,000 related to depreciated investment
securities.

The fund hereby designates approximately $6,412,000 as a capital gain
dividend for the purpose of the dividend paid deduction.

At December 31, 1998, the fund had a capital loss carryforward of
approximately $5,889,000 of which $592,000 and $5,297,000 will expire
on December 31, 2002 and 2003, respectively. All of the loss
carryforward was acquired in the merger and is available to offset
future capital gains of the fund to the extent provided by regulations
(see Note 6 of Notes to Financial Statements).

At December 31, 1998, the fund was required to defer approximately
$3,439,000 of losses on futures and options contracts.

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
AMOUNTS IN THOUSANDS (EXCEPT
PER-SHARE AMOUNT) DECEMBER
31, 1998

ASSETS

Investment in securities, at $ 1,154,280
value (cost $1,087,891) -
See accompanying schedule

Receivable for fund shares 776
sold

Interest receivable 14,720

Receivable for daily 15
variation on futures
contracts

Other receivables 70

TOTAL ASSETS 1,169,861

LIABILITIES

Payable to custodian bank $ 355

Payable for investments 11,648
purchased on a delayed
delivery basis

Payable for fund shares 762
redeemed

Distributions payable 2,545

Accrued management fee 351

Other payables and accrued 187
expenses

TOTAL LIABILITIES 15,848

NET ASSETS $ 1,154,013

Net Assets consist of:

Paid in capital $ 1,096,095

Accumulated undistributed net (8,661)
realized gain (loss) on
investments

Net unrealized appreciation 66,579
(depreciation) on investments

NET ASSETS, for 115,577 $ 1,154,013
shares outstanding

NET ASSET VALUE, offering $9.98
price and redemption price
per share ($1,154,013
(divided by) 115,577 shares)

STATEMENT OF OPERATIONS
AMOUNTS IN THOUSANDS YEAR
ENDED
DECEMBER 31, 1998

INTEREST INCOME $ 57,320

EXPENSES

Management fee $ 3,951

Transfer agent fees 1,116

Accounting fees and expenses 335

Non-interested trustees' 3
compensation

Custodian fees and expenses 53

Registration fees 121

Audit 40

Legal 21

Miscellaneous 4

Total expenses before 5,644
reductions

Expense reductions (6) 5,638

NET INTEREST INCOME 51,682

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

Investment securities 10,455

Futures contracts (696) 9,759

Change in net unrealized
appreciation (depreciation)
on:

Investment securities 1,245

Futures contracts 193 1,438

NET GAIN (LOSS) 11,197

NET INCREASE (DECREASE) IN $ 62,879
NET ASSETS RESULTING FROM
OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
AMOUNTS IN THOUSANDS YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997

INCREASE (DECREASE) IN NET
ASSETS

Operations Net interest income $ 51,682 $ 44,276

Net realized gain (loss) 9,759 4,578

Change in net unrealized 1,438 22,145
appreciation (depreciation)

NET INCREASE (DECREASE) IN 62,879 70,999
NET ASSETS RESULTING FROM
OPERATIONS

Distributions to shareholders (51,682) (44,276)
From net interest income

From net realized gain (6,394) (4,596)

TOTAL DISTRIBUTIONS (58,076) (48,872)

Share transactions Net 244,699 174,332
proceeds from sales of shares

Net asset value of shares 196,898 -
issued in exchange for the
net assets of the former
Spartan Intermediate
Municipal Income Fund
(Note 6)

Reinvestment of distributions 44,103 37,663

Cost of shares redeemed (251,231) (223,107)

NET INCREASE (DECREASE) IN 234,469 (11,112)
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS

TOTAL INCREASE (DECREASE) 239,272 11,015
IN NET ASSETS

NET ASSETS

Beginning of period 914,741 903,726

End of period $ 1,154,013 $ 914,741

OTHER INFORMATION
Shares

Sold 24,546 17,854

Issued in exchange for 19,829 -
shares of the former Spartan
Intermediate Municipal
Income Fund (Note 6)

Issued in reinvestment of 4,424 3,855
distributions

Redeemed (25,225) (22,918)

Net increase (decrease) 23,574 (1,209)

</TABLE>

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

1998 1997 1996 1995 1994

SELECTED PER-SHARE DATA

Net asset value, beginning $ 9.940 $ 9.700 $ 9.800 $ 8.990 $ 9.990
of period

Income from Investment .474 .485 .488 .497 .512
Operations Net interest
income

Net realized and unrealized .097 .290 (.069) .810 (.980)
gain (loss)

Total from investment .571 .775 .419 1.307 (.468)
operations

Less Distributions

From net interest income (.474) (.485) (.488) (.497) (.512)

From net realized gain (.057) (.050) (.031) - (.010)

In excess of net realized - - - - (.010)
gain

Total distributions (.531) (.535) (.519) (.497) (.532)

Net asset value, end of period $ 9.980 $ 9.940 $ 9.700 $ 9.800 $ 8.990

TOTAL RETURN 5.89% 8.23% 4.43% 14.84% (4.76)%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 1,154 $ 915 $ 904 $ 943 $ 878
(in millions)

Ratio of expenses to average .50% .55% .56% .57% .56%
net assets

Ratio of net interest income 4.58% 4.97% 5.06% 5.25% 5.42%
to average net assets

Portfolio turnover rate 18% A 22% 27% 31% 30%

</TABLE>

A THE PORTFOLIO TURNOVER RATE DOES NOT INCLUDE THE ASSETS ACQUIRED IN
THE MERGER (SEE NOTE 6 OF NOTES TO FINANCIAL STATEMENTS).

NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998

1. SIGNIFICANT ACCOUNTING POLICIES.

Spartan Intermediate Municipal Income Fund (formerly Fidelity Limited
Term Municipal Income Fund)(the fund) is a fund of Fidelity School
Street trust (the trust) and is authorized to issue an unlimited
number of shares. The trust is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company
organized as a Massachusetts business trust. The financial statements
have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:

SECURITY VALUATION. Securities are valued based upon a computerized
matrix system and/or appraisals by a pricing service, both of which
consider market transactions and dealer-supplied valuations.
Securities for which quotations are not readily available are valued
at their fair value as determined in good faith under consistently
applied procedures under the general supervision of the Board of
Trustees. Short-term securities with remaining maturities of sixty
days or less for which quotations are not readily available are valued
at amortized cost or original cost plus accrued interest, both of
which approximate current value.

INCOME TAXES. As a qualified regulated investment company under
Subchapter M of the Internal Revenue Code, the fund is not subject to
income taxes to the extent that it distributes substantially all of
its taxable income for its fiscal year. The schedule of investments
includes information regarding income taxes under the caption "Income
Tax Information."

INTEREST INCOME. Interest income, which includes amortization of
premium and accretion of original issue discount, is accrued as
earned.

EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.

DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net interest income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.

Income and capital gain distributions are determined in accordance
with income tax regulations which may differ from generally accepted
accounting principles. These differences, which may result in
distribution reclassifications, are primarily due to differing
treatments for futures and options transactions, market discount,
capital loss carryforwards and losses deferred due to futures and
options. The fund also utilized earnings and profits distributed to
shareholders on redemption of shares as a part of the dividends paid
deduction for income tax purposes.

Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital and
may affect the per-share allocation between net interest income and
realized and unrealized gain (loss). Accumulated undistributed net
realized gain (loss) on investments may include temporary book and tax
basis differences that will reverse

1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

DISTRIBUTIONS TO SHAREHOLDERS - CONTINUED

in a subsequent period. Any taxable gain remaining at fiscal year end
is distributed in the following year.

SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.

2. OPERATING POLICIES.

MUNICIPAL CENTRAL CASH FUND. Pursuant to an Exemptive Order issued by
the Securities and Exchange Commission, the fund may invest in the
Municipal Central Cash Fund (the Cash Fund) managed by Fidelity
Investments Money Management, Inc., an affiliate of Fidelity
Management & Research Company (FMR). The Cash Fund is an open-end
money market fund available only to investment companies and other
accounts managed by FMR and its affiliates. The Cash Fund seeks
preservation of capital, liquidity, and current income by investing in
high-quality, short-term municipal securities of various states and
municipalities. Income distributions from the Cash Fund are declared
daily and paid monthly from net interest income. Income distributions
earned by the fund are recorded as interest income in the accompanying
financial statements.

WHEN-ISSUED SECURITIES. The fund may purchase or sell securities on a
when-issued basis. Payment and delivery may take place a month or more
after the date of the transaction. The price of the underlying
securities is fixed at the time the transaction is negotiated. The
market values of the securities purchased on a when-issued or forward
commitment basis are identified as such in the fund's schedule of
investments. The fund may receive compensation for interest forgone in
the purchase of a when-issued security. Losses may arise due to
changes in the market value of the underlying securities, if the
counterparty does not perform under the contract, or if the issuer
does not issue the securities due to political, economic, or other
factors.

FUTURES CONTRACTS. The fund may use futures contracts to manage its
exposure to the bond market and to fluctuations in interest rates.
Buying futures tends to increase the fund's exposure to the underlying
instrument, while selling futures tends to decrease the fund's
exposure to the underlying instrument or hedge other fund investments.
Futures contracts involve, to varying degrees, risk of loss in excess
of the futures variation margin reflected in the Statement of Assets
and Liabilities. The underlying face amount at value of any open
futures contracts at period end is shown in the schedule of
investments under the caption "Futures Contracts." This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments or if the counterparties do not perform under
the contracts' terms. Gains (losses) are realized upon the expiration
or closing of the futures contracts. Futures contracts are valued at
the settlement price established each day by the board of trade or
exchange on which they are traded.

3. PURCHASES AND SALES OF INVESTMENTS.

Purchases and sales of securities, other than short-term securities,
aggregated $218,126,000 and $187,106,000, respectively.
The market value of futures contracts opened and closed during the
period amounted to $121,099,000 and $103,282,000, respectively.

4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.

MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee computed daily and paid monthly, based on the fund's gross
income at the rate of 5% of the gross income and .10% of average net
assets. Gross income includes interest accrued less amortization of
premium excluding accretion of discount. For the period, the
management fee was equivalent to an annual rate of .35% of average net
assets.

TRANSFER AGENT AND ACCOUNTING FEES. UMB Bank, n.a. (UMB) is the
custodian and transfer and shareholder servicing agent for the fund.
UMB has entered into a sub-contract with Fidelity Service Company,
Inc. (FSC), an affiliate of FMR, under which FSC performs the
activities associated with the fund's transfer and shareholder
servicing agent and accounting functions. The fund pays account fees
and asset-based fees that vary according to account size and type of
account. FSC pays for typesetting, printing and mailing of all
shareholder reports, except proxy statements. The accounting fee is
based on the level of average net assets for the month plus
out-of-pocket expenses.

For the period, the transfer agent fees were equivalent to an annual
rate of .10% of average net assets.

5. EXPENSE REDUCTIONS.

Effective March 20, 1998, FMR voluntarily agreed to reimburse the
fund's operating expenses (excluding interest, taxes, brokerage
commissions and extraordinary expenses) above an annual rate of .53%
of the fund's average net assets through December 31, 1999. There was
no reimbursement for the period.

In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce a portion of the fund's expenses.
During the period, the fund's custodian and transfer agent fees were
reduced by $1,000 and $5,000, respectively, under these arrangements.

6. MERGER INFORMATION.

On March 19, 1998, Fidelity Limited Term Municipal Income Fund
(currently Spartan Intermediate Municipal Income Fund) acquired all of
the assets and assumed all of the liabilities of the former Spartan
Intermediate Municipal Income Fund. The acquisition, which was
approved by the shareholders of the former Spartan Intermediate
Municipal Income Fund on March 9, 1998, was accomplished by an
exchange of 19,828,609 shares (each valued at $9.93) of Fidelity
Limited Term Municipal Income Fund (currently Spartan Intermediate
Municipal Income Fund) for

6. MERGER INFORMATION - CONTINUED

the 18,663,326 shares then outstanding (each valued at $10.55) of the
former Spartan Intermediate Municipal Income Fund. Based on the
opinion of fund counsel, the reorganization qualified as a tax-free
reorganization for federal income tax purposes with no gain or loss
recognized to the funds or their shareholders. The former Spartan
Intermediate Municipal Income Fund's net assets, including $9,378,552
of unrealized appreciation, were combined with Fidelity Limited Term
Municipal Income Fund (currently Spartan Intermediate Municipal Income
Fund) for total net assets after the acquisition of $1,132,856,426.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity School Street Trust and the Shareholders
of Spartan Intermediate Municipal Income Fund (formerly Fidelity
Limited Term Municipal Income Fund):

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Spartan Intermediate Municipal Income Fund (formerly Fidelity Limited
Term Municipal Income Fund (a fund of Fidelity School Street Trust))
at December 31, 1998, and the results of its operations, the changes
in its net assets and the financial highlights for the periods
indicated, in conformity with generally accepted accounting
principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the
responsibility of the Spartan Intermediate Municipal Income Fund's
management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of
these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at December 31, 1998 by
correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 12, 1999

DISTRIBUTIONS

The Board of Trustees of Spartan Intermediate Municipal Income Fund
(formerly Fidelity Limited Term Municipal Income Fund) voted to pay on
February 8, 1999, to shareholders of record at the opening of business
on February 5, 1999 a distribution of $.003 derived from capital gains
realized from sales of portfolio securities.

During the fiscal year ended 1998, 100% of the fund's income dividends
was free from federal income tax, and 7.52% of the fund's income
dividends was subject to the federal alternative minimum tax.

The fund hereby designates 100% of the long-term capital gain
dividends distributed during the fiscal year as 20%-rate capital gain
dividends.

The fund will notify shareholders in January 1999 of the applicable
percentages for use in preparing 1998 income tax returns.

OF SPECIAL NOTE

INTRODUCING FIDELITY'S NEW, REORGANIZED PROSPECTUS

We invite you to spend a moment and review our new prospectus. It is
designed to help make your investment decision easier, no matter which
of the Fidelity funds you invest in.

MANAGING YOUR INVESTMENTS

BY PHONE

(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555
PRESS
1 For mutual fund and brokerage trading.

2 For quotes.*

3 For account balances and holdings.

4 To review orders and mutual
fund activity.

5 To change your PIN.

*0 To speak to a Fidelity representative.

BY PC

Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.

(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM

(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)

TO WRITE FIDELITY

(LETTER_GRAPHIC)MAKING CHANGES
TO YOUR ACCOUNT
(such as changing name, address, bank, etc.)

Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0002

(LETTER_GRAPHIC)FOR NON-RETIREMENT
ACCOUNTS

BUYING SHARES

Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003

OVERNIGHT EXPRESS
Fidelity Investments
2300 Litton Lane - KH1A
Hebron, KY 41048

SELLING SHARES

Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602

OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6I
400 East Las Colinas Blvd.
Irving, TX 75309-5517

GENERAL CORRESPONDENCE

Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500

(LETTER_GRAPHIC)FOR RETIREMENT
ACCOUNTS

BUYING SHARES

Fidelity Investments
P.O. Box 770001
Cincinnati, OH 45277-0003

SELLING SHARES

Fidelity Investments
P.O. Box 660602
Dallas, TX 75266-0602

OVERNIGHT EXPRESS
Fidelity Investments
Attn: Redemptions - CP6R
400 East Las Colinas Blvd.
Irving, TX 75309-5517

GENERAL CORRESPONDENCE

Fidelity Investments
P.O. Box 500
Merrimack, NH 03054-0500

TO VISIT FIDELITY

For directions and hours,
please call 1-800-544-9797.

ARIZONA

7373 N. Scottsdale Road
Scottsdale, AZ

CALIFORNIA

815 East Birch Street
Brea, CA

851 East Hamilton Avenue
Campbell, CA

527 North Brand Boulevard
Glendale, CA

19200 Von Karman Avenue
Irvine, CA

10100 Santa Monica Blvd.
Los Angeles, CA

251 University Avenue
Palo Alto, CA

1760 Challenge Way
Sacramento, CA

7676 Hazard Center Drive
San Diego, CA

455 Market Street
San Francisco, CA

950 Northgate Drive
San Rafael, CA

1400 Civic Drive
Walnut Creek, CA

6300 Canoga Avenue
Woodland Hills, CA

COLORADO

1625 Broadway
Denver, CO

CONNECTICUT

48 West Putnam Avenue
Greenwich, CT

265 Church Street
New Haven, CT

300 Atlantic Street
Stamford, CT

29 South Main Street
West Hartford, CT

DELAWARE

222 Delaware Avenue
Wilmington, DE

FLORIDA

4400 N. Federal Highway
Boca Raton, FL

90 Alhambra Plaza
Coral Gables, FL

4090 N. Ocean Boulevard
Ft. Lauderdale, FL

1907 West State Road 434
Longwood, FL

8880 Tamiami Trail, North
Naples, FL

2401 PGA Boulevard
Palm Beach Gardens, FL

8065 Beneva Road
Sarasota, FL

1502 N. Westshore Blvd.
Tampa, FL

GEORGIA

3445 Peachtree Road, N.E.
Atlanta, GA

1000 Abernathy Road
Atlanta, GA

HAWAII

700 Bishop Street
Honolulu, HI

ILLINOIS

One North Franklin Street
Chicago, IL

1415 West 22nd Street
Oak Brook, IL

1700 East Golf Road
Schaumburg, IL

3232 Lake Avenue
Wilmette, IL

INDIANA

4729 East 82nd Street
Indianapolis, IN

MAINE

3 Canal Plaza
Portland, ME

MARYLAND

7401 Wisconsin Avenue
Bethesda, MD

1 West Pennsylvania Ave.
Towson, MD

MASSACHUSETTS

470 Boylston Street
Boston, MA

155 Congress Street
Boston, MA

25 State Street
Boston, MA

300 Granite Street
Braintree, MA

44 Mall Road
Burlington, MA

416 Belmont Street
Worcester, MA

MICHIGAN

280 North Woodward Ave.
Birmingham, MI

29155 Northwestern Hwy.
Southfield, MI

MINNESOTA

7600 France Avenue South
Edina, MN

MISSOURI

700 West 47th Street
Kansas City, MO

8885 Ladue Road
Ladue, MO

200 North Broadway
St. Louis, MO

NEW JERSEY

150 Essex Street
Millburn, NJ

56 South Street
Morristown, NJ

501 Route 17, South
Paramus, NJ

NEW YORK

1055 Franklin Avenue
Garden City, NY

999 Walt Whitman Road
Melville, L.I., NY

1271 Avenue of the Americas
New York, NY

71 Broadway
New York, NY

350 Park Avenue
New York, NY

NORTH CAROLINA

4611 Sharon Road
Charlotte, NC

2200 West Main Street
Durham, NC

OHIO

600 Vine Street
Cincinnati, OH

28699 Chagrin Boulevard
Woodmere Village, OH

OREGON

16850 SW 72 Avenue
Tigard, OR

PENNSYLVANIA

1735 Market Street
Philadelphia, PA

439 Fifth Avenue
Pittsburgh, PA

TENNESSEE

6150 Poplar Road
Memphis, TN

TEXAS

10000 Research Boulevard
Austin, TX

4017 Northwest Parkway
Dallas, TX

1155 Dairy Ashford Street
Houston, TX

2701 Drexel Drive
Houston, TX

400 East Las Colinas Blvd.
Irving, TX

14100 San Pedro
San Antonio, TX

19740 IH 45 North
Spring, TX

UTAH

215 South State Street
Salt Lake City, UT

VIRGINIA

8180 Greensboro Drive
McLean, VA

WASHINGTON

411 108th Avenue, N.E.
Bellevue, WA

511 Pine Street
Seattle, WA

WASHINGTON, DC

1900 K Street, N.W.
Washington, DC

WISCONSIN

595 North Barker Road
Brookfield, WI

INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA

OFFICERS
Edward C. Johnson 3d, President
Robert C. Pozen, Senior Vice President
Fred L. Henning, Jr., Vice President
Dwight D. Churchill, Vice President
Norman U. Lind, Vice President
Eric D. Roiter, Secretary
Richard A. Silver, Treasurer
Matthew N. Karstetter, Deputy Treasurer
Stanley N. Griffith, Assistant Vice President
John H. Costello, Assistant Treasurer
Leonard M. Rush, Assistant Treasurer
Thomas J. Simpson, Assistant Treasurer

ADVISORY BOARD
J. Gary Burkhead

GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA

TRANSFER AND SHAREHOLDER
SERVICING AGENT
UMB Bank, n.a.
Kansas City, MO
Fidelity Service Company, Inc.
Boston, MA

* INDEPENDENT TRUSTEES

LIM-ANN-0299 70461
1.540000.101

CUSTODIAN
UMB Bank, n.a.
Kansas City, MO

FIDELITY'S MUNICIPAL BOND FUNDS
Spartan(registered trademark) Arizona Municipal Income
Spartan California Municipal Income
Spartan Connecticut Municipal Income
Spartan Florida Municipal Income
Spartan Intermediate Municipal Income
Spartan Maryland Municipal Income
Spartan Massachusetts Municipal Income
Spartan Michigan Municipal Income
Spartan Minnesota Municipal Income
Spartan Municipal Income
Spartan New Jersey Municipal Income
Spartan New York Municipal Income
Spartan Ohio Municipal Income
Spartan Pennsylvania Municipal Income
Spartan Short-Intermediate
Municipal Income

TouchTone Xpress (registered trademark) 1-800-544-5555
AUTOMATED LINE FOR QUICKEST SERVICE

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com

FIDELITY
NEW MARKETS INCOME
FUND

ANNUAL REPORT
DECEMBER 31, 1998

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)

CONTENTS

PRESIDENT'S MESSAGE 3 Ned Johnson on investing
strategies.

PERFORMANCE 4 How the fund has done over
time.

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

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

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

FINANCIAL STATEMENTS 18 Statements of assets and
liabilities, operations, and
changes in net assets, as
well as financial highlights.

NOTES 22 Footnotes to the financial
statements.

REPORT OF INDEPENDENT 27 The auditors' opinion.
ACCOUNTANTS

OF SPECIAL NOTE 28

Third party marks appearing herein are the property of their
respective owners.

All other marks appearing herein are registered or unregistered
trademarks or service marks of FMR Corp. or an affiliated company.

This report is printed on recycled paper using soy-based inks.

PRESIDENT'S MESSAGE

(PHOTO_OF_EDWARD_C_JOHNSON_3D)
DEAR SHAREHOLDER:

While it's impossible to predict the future direction of the markets
with any degree of certainty, there are certain basic principles that
can help investors plan for their future needs.

An intermediate-length fund could make sense if your investment
horizon is two to four years, while a short-term bond fund could be
the right choice if you need your money in one or two years.

Best regards,
Edward C. Johnson 3d

PERFORMANCE: THE BOTTOM LINE

There are several ways to evaluate a fund's historical performance.
You can look at the total percentage change in value, the average
annual percentage change or the growth of a hypothetical $10,000
investment. Total return reflects the change in the value of an
investment, assuming reinvestment of the fund's dividend income and
capital gains (the profits earned upon the sale of securities that
have grown in value). You can also look at the fund's income, as
reflected in the fund's yield, to measure performance. If Fidelity had
not reimbursed certain fund expenses, the past five year and life of
fund total returns and dividends would have been lower.

CUMULATIVE TOTAL RETURNS
PERIODS ENDED DECEMBER 31, 1998 PAST 1 YEAR PAST 5 YEARS LIFE OF FUND

FIDELITY NEW MARKETS INCOME -22.38% 16.21% 61.34%

JP EMBI Plus -14.35% 38.59% n/a

Emerging Markets Debt Funds -20.80% 16.74% n/a
Average

CUMULATIVE TOTAL RETURNS show the fund's performance in percentage
terms over a set period - in this case, one year, five years or since
the fund started on May 4, 1993. For example, if you had invested
$1,000 in a fund that had a 5% return over the past year, the value of
your investment would be $1,050. You can compare the fund's returns to
the performance of the J.P. Morgan Emerging Markets Bond Index Plus- a
market value-weighted index of U.S. dollar and other external
currency-denominated Brady bonds, loans, Eurobonds, and local
instruments traded in emerging markets. To measure how the fund's
performance stacked up against its peers, you can compare it to the
emerging markets debt funds average, which reflects the performance of
mutual funds with similar objectives tracked by Lipper, Inc. The past
one year average represents a peer group of 45 mutual funds. These
benchmarks reflect reinvestment of dividends and capital gains, if
any, and exclude the effect of sales charges.

AVERAGE ANNUAL TOTAL RETURNS
PERIODS ENDED DECEMBER 31, PAST 1 YEAR PAST 5 YEARS LIFE OF FUND
1998

FIDELITY NEW MARKETS INCOME -22.38% 3.05% 8.81%

JP EMBI Plus -14.35% 6.74% n/a

Emerging Markets Debt Funds -20.80% 3.03% n/a
Average

$10,000 OVER LIFE OF FUND
New Markets Income JP Emg Mkt Bond Index
00331 JP001
1993/05/04 10000.00 10000.00
1993/05/31 10300.87 10333.23
1993/06/30 10710.66 10694.64
1993/07/31 11253.11 11140.58
1993/08/31 11586.74 11364.17
1993/09/30 11955.99 11513.02
1993/10/31 12900.58 12483.31
1993/11/30 13042.02 12358.35
1993/12/31 13883.68 13113.02
1994/01/31 14404.11 13148.55
1994/02/28 12954.23 12054.52
1994/03/31 11006.80 10675.65
1994/04/30 10542.95 10680.55
1994/05/31 11095.86 11418.07
1994/06/30 10464.54 10498.62
1994/07/31 10752.29 10756.51
1994/08/31 11938.20 11525.27
1994/09/30 12528.12 11638.59
1994/10/31 12291.04 11309.04
1994/11/30 12238.94 11424.20
1994/12/31 11585.89 10663.40
1995/01/31 10244.50 10294.64
1995/02/28 9514.84 9758.04
1995/03/31 9213.43 9482.39
1995/04/30 9862.05 10500.46
1995/05/31 10518.02 11425.42
1995/06/30 10659.69 11647.17
1995/07/31 10678.43 11655.74
1995/08/31 11026.21 11930.78
1995/09/30 11455.38 12341.81
1995/10/31 11377.65 12215.01
1995/11/30 11743.18 12642.57
1995/12/31 12509.53 13600.61
1996/01/31 13426.92 14798.16
1996/02/29 12701.78 13758.65
1996/03/31 12839.61 14111.49
1996/04/30 13515.35 14821.44
1996/05/31 13894.84 15005.82
1996/06/30 14254.79 15421.13
1996/07/31 14387.90 15538.74
1996/08/31 14906.81 16042.88
1996/09/30 16125.36 17021.13
1996/10/31 16574.14 17089.13
1996/11/30 17521.71 18045.94
1996/12/31 17687.29 18246.86
1997/01/31 18443.09 18905.97
1997/02/28 18765.22 19245.33
1997/03/31 18014.98 18494.33
1997/04/30 18635.49 19122.21
1997/05/31 19470.77 19890.35
1997/06/30 20091.13 20352.83
1997/07/31 20976.37 21334.15
1997/08/31 20850.07 21124.04
1997/09/30 21518.36 21831.42
1997/10/31 19407.58 19481.84
1997/11/30 20139.53 20516.75
1997/12/31 20786.22 21194.30
1998/01/31 20807.27 21241.78
1998/02/28 21380.86 21765.15
1998/03/31 21984.44 22305.54
1998/04/30 22010.98 22318.35
1998/05/31 21099.35 21652.31
1998/06/30 20423.58 21141.81
1998/07/31 20743.69 21420.95
1998/08/31 13300.13 15930.35
1998/09/30 14462.48 17271.73
1998/10/31 15447.22 18274.55
1998/11/30 16603.01 19447.66
1998/12/31 16134.28 18854.70
IMATRL PRASUN SHR__CHT 19981231 19990111 114652 R00000000000071

$10,000 OVER LIFE OF FUND: Let's say hypothetically that $10,000 was
invested in Fidelity New Markets Income Fund on May 4, 1993 when the
fund started. As the chart shows, by December 31, 1998, the value of
the investment would have grown to $16,134 - a 61.34% increase on the
initial investment. For comparison, look at how the J.P. Morgan
Emerging Markets Bond Index did over the same period. (The JP Morgan
Emerging Markets Bond Index Plus does not extend as far back as the
fund's start date, and therefore, is not appropriate for this
comparison). With dividends and capital gains, if any, reinvested, the
same $10,000 would have grown to $18,855 - a 88.55% increase.

(checkmark)UNDERSTANDING
PERFORMANCE

DIVIDENDS AND YIELD
PERIODS ENDED DECEMBER 31, PAST 1 MONTH PAST 6 MONTHS PAST 1 YEAR
1998

Dividends per share A 7.66(cents) 58.92(cents) 121.68(cents)

Annualized dividend rate 10.07% 12.25% 10.84%

30-day annualized yield 10.84% - -

DIVIDENDS per share show the income paid by the fund for a set period.
If you annualize this number, based on the fund's average share price
of $8.96 over the past one month, $9.54 over the past six months and
$11.23 over the past one year, you can compare the fund's income over
these three periods.

A NON-TAXABLE DIVIDENDS: DIVIDENDS PAID ARE BASED ON THE FUND'S
INVESTMENT INCOME AND DO NOT REFLECT CURRENCY RELATED LOSSES. AS A
RESULT OF CURRENCY LOSSES, DIVIDENDS OF APPROXIMATELY 19.5(CENTS) PER
SHARE PAID DURING 1998 WERE A NON-TAXABLE RETURN OF CAPITAL. THE EXACT
NON-TAXABLE AMOUNT TO USE IN PREPARING YOUR INCOME TAX RETURN WILL
DEPEND ON YOUR SHARE ACTIVITY AND WAS REPORTED TO YOU IN JANUARY 1999.

FUND TALK: THE MANAGER'S OVERVIEW

MARKET RECAP

Escalating volatility characterized
emerging markets during the
12-month period ended
December 31, 1998. For the year,
the JP Morgan EMBI Plus Index
returned -14.35%. The market's poor
showing was driven largely by
Russia's devaluation of the ruble
and loan defaults in August, causing
emerging-market debt prices to fall to
unprecedented levels. Emerging
markets began 1998 on a positive
note with renewed investor
confidence in Mexico, Argentina
and Venezuela sparking a rally in
the first quarter. However, the
escalating Japanese banking crisis
and Russia's brewing fiscal
problems increased yield volatility
relative to U.S. Treasuries, leading
to weaker prices in the second
quarter. This was only a preamble
to the significant liquidity disruption
to come. Banks, hedge funds and
other market participants
re-examined their portfolio
diversification and risk, and reined in
lending to emerging-market
countries. Fourth quarter returns
rebounded strongly as the Federal
Reserve Board announced a series
of rate cuts, Japan publicized a
bank bailout plan and Argentina
sold $1 billion of bonds, the first
Latin American deal since August.
However, as 1998 ended, investor
concerns over Brazil's significant
budget deficit intensified despite a
newly minted agreement with the
International Monetary Fund and
third-party lenders for a $40 billion
aid package.

(photograph of John Carlson)

An interview with John Carlson, Portfolio Manager of Fidelity New
Markets Income Fund

Q. HOW DID THE FUND PERFORM, JOHN?

A. It was a tough year for emerging markets. For the 12 months that
ended December 31, 1998, the fund posted a return of -22.38%. The
emerging market debt funds average, as tracked by Lipper Inc.,
returned -20.80% during the period, while the J.P. Morgan Emerging
Markets Bond Index Plus returned -14.35%.

Q. CAN YOU RELATE HOW THE EVENTS HIGHLIGHTED IN THE MARKET RECAP
INFLUENCED THE FUND'S RETURN?

A. Sure. In fact, we have done a great deal of analysis to answer this
question for ourselves. The fund entered the second half of 1998 in
line with the index, which was down 1.08% year-to-date through June
30. However, the overriding performance factor for the fund in 1998
was its exposure to Russia and the critical few days in August when
the country defaulted on its local-currency debt and devalued the
ruble.

Q. WHAT LED TO RUSSIA TAKING SUCH UNPRECEDENTED STEPS?

A. From a credit perspective, Russia's external debt profile was not
that dissimilar to Mexico's. Russia had a low external debt load as a
percent of GDP (less than 55%) and exports (less than 160%), and a
debt-service ratio of approximately 10%, while Mexico had comparable
ratios of 40%, 120% and 20%, respectively. In 1998, the Russian
government found itself coming under pressure as a result of the
country's extended recession and plunging commodity prices. The
problems were compounded by Russia's practice of funding budget
deficits with short-term, high- yielding government bonds that sent
local interest rates skyrocketing and led to a loss of investor
confidence in late spring. Ultimately, even with ruble-denominated
interest rates of 150%, investors were unwilling to finance new debt
or rollover existing debt, and the authorities were forced to devalue
the ruble. At the same time, the government also took the further step
of defaulting on their domestic debt.

Q. HAD YOU ANTICIPATED THESE EVENTS?

A. Having traveled to Russia in June, I was troubled by the economic
environment and anticipated a ruble devaluation, but not a
local-currency debt default. Defaulting on local currency denominated
debt is considered highly unusual because a government has the option
to service the debt by printing more money. As a result, the fund was
underweighted in Russia from October 1997 though mid-summer 1998 and
never owned any Russian local debt denominated in rubles. After a
dramatic fall in Russian debt prices from the mid-70's to
approximately 28 cents on the dollar, I increased the fund's weighting
in U.S. dollar-denominated Russian debt in mid-August because I
believed prices reflected compelling valuations. However, the decision
by the Russian government to both devalue the ruble and default on
their local currency debt on August 17th caused prices to fall even
further to unprecedented levels. One Russian dollar-denominated debt
instrument was trading as low as five cents on the dollar.

Q. HOW DID YOU POSITION THE FUND IN THE AFTERMATH OF THIS SELL-OFF?

A. The last two weeks of August were characterized by investors' panic
selling, lack of liquidity and very little real news to make
investment decisions. During this period, I quickly raised cash by
selling the less liquid non-Russian assets and swapping the Soviet-era
debt for higher-credit Russian Eurobonds. I maintained the fund's
overweighted position in Russia and refused to sell into the panic. At
year-end, U.S. dollar-denominated Russian exposure accounted for 6.8%
of the fund.

Q. WHAT WERE SOME OF THE BRIGHT SPOTS FOR THE FUND IN 1998?

A. Glad you asked. The principal way I try to add value to fund
performance is by investing in countries that are represented in the
J.P. Morgan Emerging Markets Bond Index Plus , as well as in a handful
of countries not in the index. Country fundamentals drive my
decision-making, as do individual security valuations in the market.
This strategy continued to serve the fund well even in a turbulent
year. For example, Turkey, an out-of-index country, was a relatively
small investment, but the largest source of fund outperformance.
Venezuela and Bulgaria, countries represented in the index, generated
positive returns due to security selection and country weighting,
respectively.

Q. JOHN, WHAT IS YOUR OUTLOOK FOR 1999?

A. Looking forward to next year, I remain cautious given the global
financial crisis, the U.S. trade imbalance and the lower estimates of
global growth. In addition, due to an uneven distribution of wealth in
almost all emerging-market countries, political and social instability
will likely rise as well. I'm focusing on countries with positive
fundamentals such as a strong trade surplus, positive domestic growth
prospects, low public sector borrowing requirements and records of
strong economic reform.

JOHN CARLSON DISCUSSES
1998'S MAJOR MARKET THEMES.

"When I look back on 1998, two
words come to mind - deflation
and deleveraging. Deflation,
particularly in the form of
declining commodity prices, put
pressure on a number of emerging
countries that export resources
such as oil, aluminum, copper and
agricultural products. For
example, historically low oil
prices hurt countries like
Venezuela, Ecuador, Russia and
Nigeria by putting pressure on the
government's budget deficit and
reducing the U.S. dollars coming
into the economy. In a number of
emerging economies these
problems caused a general
deterioration in creditworthiness.
The most extreme example of this
was Russia, which devalued its
currency and defaulted on its
domestic ruble debt in August.

"Liquidity improved somewhat in
the fourth quarter, aided by
interest-rate cuts by the Federal
Reserve Board and other central
banks, but yield spreads were still
significantly higher at the end of
1998 than in January of 1998."

(checkmark)FUND FACTS

GOAL: a high level of current
income; as a secondary
objective, the fund seeks
capital appreciation

FUND NUMBER: 331

TRADING SYMBOL: FNMIX

START DATE: May 4, 1993

SIZE: as of December 31,
1998, more than $207 million

MANAGER: John Carlson, since
1995; also lead manager,
Fidelity International Bond
Fund, since 1998; Fidelity
Strategic Income Fund, since
1998; joined Fidelity in
1995

INVESTMENT CHANGES

<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE COUNTRIES AS OF
DECEMBER 31, 1998

(EXCLUDING CASH EQUIVALENTS) % OF FUND'S INVESTMENTS % OF FUND'S INVESTMENTS IN
THESE COUNTRIES 6 MONTHS AGO

Mexico 22.5 12.8

Argentina 18.9 22.8

Brazil 15.3 15.5

Venezuela 12.6 5.3

Russia 6.8 10.0

</TABLE>

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

<TABLE>
<CAPTION>
<S> <C> <C>
TOP FIVE HOLDINGS AS OF
DECEMBER 31, 1998

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

United Mexican States 16.8 6.0

Argentinian Republic 13.2 18.6

Venezuelan Republic 12.6 5.3

Brazilian Federative Republic 5.9 11.6

Banco Nacional De 5.3 1.2
Desenvolvimento Economico e
Social

</TABLE>

ASSET ALLOCATION (% OF FUND'S INVESTMENTS)

AS OF DECEMBER 31, 1998
Corporate bonds 15.6%
Foreign government
obligations 67.0%
Other 11.5%
Row: 1, Col: 1, Value: 15.6
Row: 1, Col: 2, Value: 67.0
Row: 1, Col: 3, Value: 11.5
Row: 1, Col: 4, Value: 5.9

AS OF JUNE 30, 1998
Short-term
investments 5.9%
Corporate bonds 11.8%
Foreign government
obligations 77.1%
Other 9.6%
Short-term
investments 1.5%
Row: 1, Col: 1, Value: 11.8
Row: 1, Col: 2, Value: 76.09999999999999
Row: 1, Col: 3, Value: 9.6
Row: 1, Col: 4, Value: 2.5

INVESTMENTS DECEMBER 31, 1998

Showing Percentage of Total Value of Investment in Securities

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
NONCONVERTIBLE BONDS - 15.6%

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

ARGENTINA - 2.5%

Compania Internacional de BB ARS 7,080,000 $ 4,889,772
Telecomunicaciones 10.375%
8/1/04 (Reg. S)

BRAZIL - 5.3%

Banco Nacional de
Desenvolvimento Economico e
Social:

14.724% 6/16/08 (g) B1 10,250,000 8,200,000

14.724% 6/16/08 (f)(g) B1 2,830,000 2,264,000

10,464,000

MALAYSIA - 2.6%

Petroliam Nasional BHD:

yankee 7.625% 10/15/26 (f) Baa3 1,330,000 922,355

7.125% 10/18/06 (Reg. S) Baa3 2,400,000 1,961,760

7.625% 10/15/26 (Reg. S) A2 3,210,000 2,226,135

5,110,250

MEXICO - 4.4%

Petroleos Mexicanos:

9.25% 3/30/18 Ba2 2,250,000 1,845,000

9.5% 9/15/27 BB 2,450,000 2,009,000

10.2613% 7/15/05 (Reg. S) (g) Ba2 5,080,000 4,724,400

8,578,400

UNITED STATES OF AMERICA - 0.8%

Samsung Electronics America,
Inc.:

9.75% 5/1/03 (f) Ba1 1,290,000 1,219,050

9.75% 5/1/03 Ba1 360,000 340,200

1,559,250

TOTAL NONCONVERTIBLE BONDS 30,601,672
(Cost $29,264,771)

FOREIGN GOVERNMENT
OBLIGATIONS (H) - 67.0%

ARGENTINA - 15.3%

Argentinian Republic:

global bond:

11% 12/4/05 Ba3 7,850,000 7,805,844

11.375% 1/30/17 Ba3 3,715,000 3,710,356

11.375% 1/30/17 Ba3 1,920,000 1,917,600

FOREIGN GOVERNMENT
OBLIGATIONS (H) - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

ARGENTINA - CONTINUED

Argentinian Republic: -
continued

warrants 12/3/99 (a)(i) - 7,850 $ 353,250

8.75% 7/10/02 (Reg. S) Ba3 ARS 4,970,000 4,054,341

11.75% 2/12/07 Ba3 ARS 8,390,000 7,101,434

11.75% 2/12/07 (f) Ba3 ARS 1,000,000 846,416

City of Buenos Aires euro B1 ARS 5,490,000 4,231,256
10.5% 5/28/04

30,020,497

BRAZIL - 5.9%

Brazilian Federative Republic
Brady:

FLIRB L 5% 4/15/09 (Bearer) B2 1,660,000 861,125
(g)

IDU euro 6.75% 1/1/01 (g) B2 2,007,360 1,821,679

new money bond L:

6.1875% 4/15/09 (Bearer) (g) B2 10,650,000 5,817,563

6.1875% 4/15/09 (Reg.) (g) B2 5,530,000 3,020,763

11,521,130

BULGARIA - 5.2%

Bulgarian Republic:

Brady discount A 6.6875% B2 10,020,000 7,089,150
7/28/24 (g)

Brady FLIRB A 2.5% 7/28/12 (g) B2 5,625,000 3,206,250

10,295,400

ECUADOR - 0.4%

Ecuador Republic Brady
interest equalization bond:

6% 12/21/04 (Bearer) (g) B3 800,000 504,000

6% 12/21/04 (Reg.) (g) B3 320,000 201,600

705,600

GREECE - 2.1%

Greek Government Treasury Bill:

8.6% 3/26/08 (e) A2 GRD 543,800 2,158,321

9.2% 3/21/02 (e) A2 GRD 540,800 1,995,924

4,154,245

FOREIGN GOVERNMENT
OBLIGATIONS (H) - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

HUNGARY - 1.0%

Hungarian Government:

13% 7/24/03 (e) A1 HUF 201,400 $ 941,527

15% 7/24/01 (e) A1 HUF 220,800 1,048,069

1,989,596

MEXICO - 16.8%

United Mexican States:

Brady par A 6.25% 12/31/19 Ba2 16,780,000 13,046,450
unit

Brady par B 6.25% 12/31/19 Ba2 7,900,000 6,142,250
unit

Cetes:

0% 3/4/99 - MXN 22,710,000 2,171,149

0% 3/11/99 - MXN 10,560,000 1,008,771

global bond 11.5% 5/15/26 Ba2 9,930,000 10,649,925

value recovery rights 6/30/03:

discount A (i) - 2,000 0

discount C (i) - 1,000 0

33,018,545

PERU - 1.6%

Peruvian Republic Brady FLIRB Ba3 5,375,000 3,050,313
3.25% 3/7/17 (g)

POLAND - 1.3%

Polish Republic 25.05% A2 PLN 9,100,000 2,634,074
1/18/08 (g)

RUSSIA - 4.8%

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) interest
notes:

5.9688% 12/15/15 (g) B1 11,670,000 1,269,113

5.9688% 12/15/15 (f)(g) Ca 602 65

Moscow City 9.5% 5/31/00 B3 16,780,000 6,208,600
(Reg.)

Russian Federation euro B3 6,710,000 2,046,550
12.75% 6/24/28 (Reg. S)

9,524,328

VENEZUELA - 12.6%

Venezuelan Republic:

Brady debt conversion bond B2 34,071,315 21,635,283
euro 5.9375% 12/18/07 (g)

global bond:

13.625% 8/15/18 B2 930,000 716,100

FOREIGN GOVERNMENT
OBLIGATIONS (H) - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

VENEZUELA - CONTINUED

Venezuelan Republic: -
continued

13.625% 8/15/18 B2 $ 3,010,000 $ 2,317,700

Oil recovery rights 3/31/20 - 25,015 0
(i)

24,669,083

TOTAL GOVERNMENT OBLIGATIONS 131,582,811
(Cost $133,682,338)

COMMON STOCKS - 6.9%

ARGENTINA - 1.1%

YPF Sociedad Anonima 78,300 2,187,506
sponsored ADR representing
Class D shares

BRAZIL - 4.1%

Telebras sponsored ADR 111,600 8,111,925
PFD-Holdr

MEXICO - 1.3%

Fomento Economico Mexicano SA 94,100 2,505,413
de CV sponsored ADR

RUSSIA - 0.4%

AO Tatneft sponsored ADR 365,400 707,963
(Reg.) unit (a)

TOTAL COMMON STOCKS 13,512,807
(Cost $16,677,980)
</TABLE>

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
SOVEREIGN LOAN PARTICIPATIONS
- - 4.6%

PRINCIPAL AMOUNT (D)

ANGOLA - 0.6%

Banco Nacional de Angola loan - $ 4,922,048 1,230,512
participation - Societe
Generale (a)

CAMEROON - 0.3%

Cameroon Republic:

loan participation - Societe - FRF 6,240,000 178,613
Generale (a)

loan participation - Societe - DEM 4,510,000 433,511
Generale (a)

612,124

CONGO - 0.4%

Congo Republic:

loan participation - Societe - 2,758,208 496,477
Generale (a)

SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

CONGO - CONTINUED

Congo Republic: - continued

loan participation - Societe - FRF 2,765,958 $ 89,069
Generale (a)

loan participation - Societe - DEM 849,310 91,842
Generale (a)

677,388

MOROCCO - 1.7%

Moroccan Kingdom loan
participation:

Series A - Merrill Lynch, - 930,000 739,350
Pierce, Fenner & Smith, Inc.
6.0625% 1/1/09 (g)

Series A - Morgan Guaranty - 3,180,000 2,528,100
Trust Co. 6.0625% 1/1/09 (g)

3,267,450

RUSSIA - 1.6%

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank)

loan participation
restructured under 1997
Agreement:

- - BankBoston Corp. 6.7188% - 1,080,000 67,500
12/15/20 (c)(g)

- - Deutsche Bank 6.7188% - 3,350,000 209,375
12/15/20 (c)(g)

- - Donald, Lufkin & Jenrette - 2,450,000 153,125
Securities Corp. 6.7188%
12/15/20 (c)(g)

- - ING Bank NV 5.9688% - 2,900,000 181,250
12/15/20 (c)(g)

- - Lehman Commercial Paper, - 810,000 50,625
Inc. 6.7188% 12/15/20 (c)(g)

- - Merrill Lynch, Pierce, - 7,750,000 484,375
Fenner & Smith, Inc. 6.7188%
12/15/20 (c)(g)

- - Morgan (J.P.) Securities, - 13,920,000 870,000
Inc. 5.9688% 12/15/20 (c)(g)

SOVEREIGN LOAN PARTICIPATIONS
- - CONTINUED

MOODY'S RATINGS (UNAUDITED) (B) PRINCIPAL AMOUNT (D) VALUE (NOTE 1)

RUSSIA - CONTINUED

Bank for Foreign Economic
Affairs of Russia
(Vnesheconombank) loan
participation restructured
under 1997 agreement: -
continued

- - Paribus Capital Markets - $ 3,270,000 $ 204,375
6.7188% 12/15/20 (c)(g)

- - The Chase Manhattan Bank - 15,180,000 948,750
5.9688% 12/15/20 (c)(g)

3,169,375

TOTAL SOVEREIGN LOAN 8,956,849
PARTICIPATIONS
(Cost $14,997,306)

</TABLE>

CASH EQUIVALENTS - 5.9%

MATURITY AMOUNT

Investments in repurchase $ 11,502,029 11,496,000
agreements (U.S. Treasury
obligations), in a joint
trading account at 4.72%,
dated 12/31/98 due 1/4/99
(Cost $11,496,000)

<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PURCHASED OPTIONS - 0.0%

EXPIRATION DATE/STRIKE YIELD UNDERLYING FACE AMOUT AT VALUE

SOUTH AFRICA - 0.0%

The Chase Manhattan Bank Call May 99/ 16% $ 3,250,981 88,631
Option on ZAR 22,600,000
notional amount of South
African Republic 12% 2/28/05
(Cost $122,947)

TOTAL INVESTMENT IN $ 196,238,770
SECURITIES - 100%
(Cost $206,241,342)

</TABLE>

SECURITY TYPE ABBREVIATIONS

FLIRB - Front Loaded Interest
Reduction Bonds

CURRENCY ABBREVIATIONS

ARS - Argentine peso

DEM - German deutsche mark

FRF - French franc

GRD - Greek drachma

HUF - Hungarian forint

MXN - Mexican peso

PLN - Polish zloty

ZAR - South African rand

LEGEND
(a) Non-income producing

(b) Standard & Poor's credit ratings are used in the absence of a
rating by Moody's Investors Service, Inc.

(c) Non-income producing - issuer filed for protection under the
Federal Bankruptcy Code or is in default of interest payment.

(d) Principal amount is stated in United States dollars unless
otherwise noted.

(e) Principal amount in thousands.

(f) Security exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration, normally to qualified
institutional buyers. At the period end, the value of these securities
amounted to $5,251,886 or 2.5% of net assets.

(g) The coupon rate shown on floating or adjustable rate securities
represents the rate at period end.

(h) For foreign government obligations not individually rated by S&P
or Moody's, the ratings listed have been assigned by FMR, the fund's
investment adviser, based principally on S&P and Moody's ratings of
the sovereign credit of the issuing government.

(i) Quantity represents share amount.

OTHER INFORMATION

The composition of long-term debt holdings as a percentage of total
value of investments in securities, is as follows (ratings are
unaudited):

MOODY'S RATINGS S&P RATINGS
Aaa, Aa, A 5.5% AAA, AA, A 4.4%
Baa 1.5% BBB 7.6% Ba 34.0% BB 46.9%
B 36.3% B 12.6%
Ca, C 0.0% CCC 1.0%

For some foreign government obligations, FMR has assigned the ratings
for the sovereign credit of the issuing government. The percentage not
rated by Moody's or S&P amounted to 4.6%. FMR has determined that
unrated debt securities that are lower quality account for 4.6% of the
total value of investment in securities.

INCOME TAX INFORMATION

At December 31, 1998, the aggregate cost of investment securities for
income tax purposes was $212,634,221. Net unrealized depreciation
aggregated $16,395,451, of which $7,441,395 related to appreciated
investment securities and $23,836,846 related to depreciated
investment securities.

At December 31, 1998, the fund had a capital loss carry forward of
approximately $50,343,000 which will expire on December 31, 2006.

The fund intends to elect to defer to its fiscal year ending December
31, 1999 approximately $12,702,000 of losses recognized during the
period November 1, 1998 to December 31, 1998.

The percentage of dividends distributed during the fiscal year
representing income derived from sources within, and taxes paid to
foreign countries or possessions of the United States are 100% and 0%
respectively (unaudited).

FINANCIAL STATEMENTS

STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1998

ASSETS

Investment in securities, at $ 196,238,770
value (including repurchase
agreements of $11,496,000)
(cost $206,241,342) - See
accompanying schedule

Receivable for investments 10,092,285
sold

Receivable for fund shares 139,710
sold

Interest receivable 4,591,996

Redemption fees receivable 413

TOTAL ASSETS 211,063,174

LIABILITIES

Payable to custodian bank $ 4,825

Payable for investments 644,429
purchased

Payable for fund shares 928,536
redeemed

Foreign tax payable 1,041,917

Distributions payable 295,380

Accrued management fee 119,250

Other payables and accrued 186,981
expenses

TOTAL LIABILITIES 3,221,318

NET ASSETS $ 207,841,856

Net Assets consist of:

Paid in capital $ 289,085,350

Distribution in excess of net (1,790,840)
investment income

Accumulated undistributed net (69,438,106)
realized gain (loss) on
investments and foreign
currency transactions

Net unrealized appreciation (10,014,548)
(depreciation) on
investments and assets and
liabilities in foreign
currencies

NET ASSETS, for 23,126,053 $ 207,841,856
shares outstanding

NET ASSET VALUE, offering $8.99
price and redemption price
per share ($207,841,856
(divided by) 23,126,053
shares)

STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998

INVESTMENT INCOME $ 12,144
Dividends

Interest 33,053,921

33,066,065

Less foreign taxes withheld (624,266)

TOTAL INCOME 32,441,799

EXPENSES

Management fee $ 1,913,267

Transfer agent fees 723,882

Accounting fees and expenses 210,316

Non-interested trustees' 1,158
compensation

Custodian fees and expenses 162,655

Registration fees 39,666

Audit 77,337

Legal 6,363

Interest 6,334

Miscellaneous 21,175

Total expenses before 3,162,153
reductions

Expense reductions (17,175) 3,144,978

NET INVESTMENT INCOME 29,296,821

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

Investment securities (66,124,373)

Foreign currency transactions (187,783) (66,312,156)

Change in net unrealized
appreciation (depreciation)
on:

Investment securities (20,040,565)

Assets and liabilities in 72,717 (19,967,848)
foreign currencies

NET GAIN (LOSS) (86,280,004)

NET INCREASE (DECREASE) IN $ (56,983,183)
NET ASSETS RESULTING FROM
OPERATIONS

<TABLE>
<CAPTION>
<S> <C> <C>
STATEMENT OF CHANGES IN NET ASSETS
YEAR ENDED DECEMBER 31, 1998 YEAR ENDED DECEMBER 31, 1997

INCREASE (DECREASE) IN NET
ASSETS

Operations Net investment $ 29,296,821 $ 29,226,827
income

Net realized gain (loss) (66,312,156) 36,931,214

Change in net unrealized (19,967,848) (13,489,997)
appreciation (depreciation)

NET INCREASE (DECREASE) IN (56,983,183) 52,668,044
NET ASSETS RESULTING FROM
OPERATIONS

Distributions to shareholders (25,046,743) (36,824,907)
From net investment income

From net realized gain - (23,562,318)

Return of capital (4,765,993) -

TOTAL DISTRIBUTIONS (29,812,736) (60,387,225)

Share transactions Net 124,884,456 279,802,013
proceeds from sales of shares

Reinvestment of distributions 26,508,421 56,096,039

Cost of shares redeemed (237,972,754) (258,266,914)

NET INCREASE (DECREASE) IN (86,579,877) 77,631,138
NET ASSETS RESULTING FROM
SHARE TRANSACTIONS

Redemption fees 382,995 777,898

TOTAL INCREASE (DECREASE) (172,992,801) 70,689,855
IN NET ASSETS

NET ASSETS

Beginning of period 380,834,657 310,144,802

End of period (including $ 207,841,856 $ 380,834,657
under (over) distribution
of net investment income of
($1,790,840) and $1,117,086,
respectively)

OTHER INFORMATION
Shares

Sold 11,840,971 20,050,430

Issued in reinvestment of 2,410,872 4,190,974
distributions

Redeemed (20,498,133) (18,794,517)

Net increase (decrease) (6,246,290) 5,446,887

</TABLE>

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

1998 1997 1996 1995 1994

SELECTED PER-SHARE DATA

Net asset value, beginning $ 12.970 $ 12.960 $ 9.950 $ 10.190 $ 13.070
of period

Income from Investment 1.201 B 1.065 B .866 1.222 .573
Operations Net investment
income

Net realized and (3.980) 1.105 3.035 (.583) (2.687)
unrealized gain (loss)

Total from investment (2.779) 2.170 3.901 .639 (2.114)
operations

Less Distributions

From net investment income (1.022) (1.318) (.932) (.916) (.529)

Return of capital (.195) - - - -

In excess of net - - - - (.057)
investment income

From net realized gain - (.870) - - (.180)

Total distributions (1.217) (2.188) (.932) (.916) (.766)

Redemption fees added to .016 .028 .041 .037 -
paid in capital

Net asset value, end of period $ 8.990 $ 12.970 $ 12.960 $ 9.950 $ 10.190

TOTAL RETURN A (22.38)% 17.52% 41.39% 7.97% (16.55)%

RATIOS AND SUPPLEMENTAL DATA

Net assets, end of period $ 207,842 $ 380,835 $ 310,145 $ 176,499 $ 179,114
(000 omitted)

Ratio of expenses to average 1.13% 1.08% 1.09% 1.17% 1.28% C
net assets

Ratio of net investment 10.50% 7.56% 7.68% 9.51% 5.87%
income to average net assets

Portfolio turnover rate 488% 656% 405% 306% 409%

</TABLE>

A THE TOTAL RETURNS WOULD HAVE BEEN LOWER HAD CERTAIN EXPENSES NOT
BEEN REDUCED DURING THE PERIODS SHOWN (SEE NOTE 6 OF NOTES TO
FINANCIAL STATEMENTS).
B NET INVESTMENT INCOME PER SHARE HAS BEEN CALCULATED BASED ON AVERAGE
SHARES OUTSTANDING DURING THE PERIOD.
C FMR AGREED TO REIMBURSE A PORTION OF THE FUND'S EXPENSES DURING THE
PERIOD. WITHOUT THIS REIMBURSEMENT, THE FUND'S EXPENSE RATIO WOULD
HAVE BEEN HIGHER.

NOTES TO FINANCIAL STATEMENTS
For the period ended December 31, 1998

1. SIGNIFICANT ACCOUNTING POLICIES.

Fidelity New Markets Income Fund (the fund) is a fund of Fidelity
School Street Trust (the trust) (formerly a fund of Fidelity
Investment Trust) and is authorized to issue an unlimited number of
shares. The trust is registered under the Investment Company Act of
1940, as amended, as an open-end management investment company
organized as a Massachusetts business trust. The financial statements
have been prepared in conformity with generally accepted accounting
principles which require management to make certain estimates and
assumptions at the date of the financial statements. The following
summarizes the significant accounting policies of the fund:

1. SIGNIFICANT ACCOUNTING POLICIES - CONTINUED

INVESTMENT INCOME. Dividend income is recorded on the ex-dividend
date, except certain dividends from foreign securities where the
ex-dividend date may have passed, are recorded as soon as the fund is
informed of the ex-dividend date. Non-cash dividends included in
dividend income, if any, are recorded at the fair market value of the
securities received. Interest income, which includes accretion of
original issue discount, is accrued as earned. Investment income is
recorded net of foreign taxes withheld where recovery of such taxes is
uncertain. The fund may place a debt obligation on non-accrual status
and reduce related interest income by ceasing current accruals and
writing off interest receivables when the collection of all or a
portion of interest has become doubtful based on consistently applied
procedures, under the general supervision of the Board of Trustees of
the fund. A debt obligation is removed from non-accrual status when
the issuer resumes interest payments or when collectibility of
interest is reasonably assured.

EXPENSES. Most expenses of the trust can be directly attributed to a
fund. Expenses which cannot be directly attributed are apportioned
among the funds in the trust.

DISTRIBUTIONS TO SHAREHOLDERS. Distributions are declared daily and
paid monthly from net investment income. Distributions from realized
gains, if any, are recorded on the ex-dividend date.

Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Distribution in excess of net investment income and accumulated
undistributed net realized gain (loss) on investments and foreign
currency transactions may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.

For the period ended December 31, 1998, the fund's distributions
exceeded the aggregate amount of taxable income and net realized gains
resulting in a return of capital. This was due to certain foreign
currency losses which decreased taxable income available for
distribution after certain distributions had been made. (The tax
treatment of distributions for the 1998 calendar year will be reported
to shareholders prior to February 1, 1999.)

SHORT-TERM TRADING (REDEMPTION) FEES. Shares held in the fund less
than 180 days are subject to a short-term trading fee equal to 1% of
the proceeds of the redeemed shares. The fee, which is retained by the
fund, is accounted for as an addition to paid in capital.

SECURITY TRANSACTIONS. Security transactions are accounted for as of
trade date. Gains and losses on securities sold are determined on the
basis of identified cost.

2. OPERATING POLICIES.

OPTIONS. The fund may use options to manage its exposure to the bond
market and to fluctuations in interest rates and currency values.
Writing puts and buying calls tend to increase the fund's exposure to
the underlying instrument. Buying puts and writing calls tend to
decrease the fund's exposure to the underlying instrument, or hedge
other fund investments. Losses may arise from changes in the value of
the underlying instruments, if there is an illiquid secondary market
for the contracts, or if the counterparties do not perform under the
contracts' terms. Gains and losses are realized upon the expiration or
closing of the options. Realized gains (losses) on purchased options
are included in realized gains (losses) on investment securities.

Exchange-traded options are valued using the last sale price or, in
the absence of a sale, the last offering price. Options traded
over-the-counter are valued using dealer-supplied valuations.

RESTRICTED SECURITIES. The fund is permitted to invest in securities
that are subject to legal or contractual restrictions on resale. These
securities generally may be resold in transactions exempt from
registration or to the public if the securities are registered.
Disposal of these securities may involve time-consuming negotiations
and expense, and prompt sale at an acceptable price may be difficult.
At the end of the period the fund had no investments in restricted
securities (excluding 144A issues).

3. PURCHASES AND SALES OF INVESTMENTS.

Purchases and sales of securities, other than short-term securities,
aggregated $1,190,910,788 and $1,249,892,811, respectively.

4. FEES AND OTHER TRANSACTIONS WITH AFFILIATES.

MANAGEMENT FEE. As the fund's investment adviser, FMR receives a
monthly fee that is calculated on the basis of a group fee rate plus a
fixed individual fund fee rate applied to the average net assets of
the fund. The group fee rate is the weighted average of a series of
rates and is based on the monthly average net assets of all the mutual
funds advised by FMR. The rates ranged from .1100% to .3700% for the
period. The annual individual fund fee rate is .55%. In the event that
these rates were lower than the contractual rates in effect during the
period, FMR voluntarily implemented the above rates, as they resulted
in the same or a lower management fee. For the period, the management
fee was equivalent to an annual rate of .69% of average net assets.

SUB-ADVISER FEE. FMR, on behalf of the fund, entered into sub-advisory
agreements with Fidelity Management & Research (U.K.) Inc., Fidelity
Management & Research (Far East) Inc., Fidelity International
Investment Advisors (FIIA), and Fidelity Investments Japan Limited
(FIJ). In addition, FIIA entered into a sub-advisory agreement with
its subsidiary, Fidelity International Investment Advisors (U.K.)
Limited (FIIA(U.K.)L). Under the sub-advisory arrangements, FMR may
receive investment advice and research services and may grant the
sub-advisers investment management authority to buy and sell
securities. FMR pays its sub-advisers either a portion of its
management fee or a fee based on costs incurred for these services.
FIIA pays FIIA(U.K.)L a fee based on costs incurred for either
service.

ACCOUNTING FEES. FSC maintains the fund's accounting records. The fee
is based on the level of average net assets for the month plus
out-of-pocket expenses.

5. BANK BORROWINGS.

The fund is permitted to have bank borrowings for temporary or
emergency purposes to fund shareholder redemptions. The fund has
established borrowing arrangements with certain banks. Under the most
restrictive arrangement, the fund must pledge to the bank securities
having a market value in excess of 220% of the total bank borrowings.
The interest rate on the borrowings is the bank's base rate, as
revised from time to time. The maximum loan and the average daily loan
balances during the period for which loans were outstanding amounted
to $6,958,000 and $3,885,700, respectively. The weighted average
interest rate was 5.94%.

6. EXPENSE REDUCTIONS.

FMR has directed certain portfolio trades to brokers who paid a
portion of the fund's expenses. For the period, the fund's expenses
were reduced by $1,770 under this arrangement.

In addition, the fund has entered into arrangements with its custodian
and transfer agent whereby credits realized as a result of uninvested
cash balances were used to reduce a portion of the fund's expenses.
During the period, the fund's custodian and transfer agent fees were
reduced by $10,596 and $4,809, respectively, under these arrangements.

7. CREDIT RISK.

8. LITIGATION.

REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees of Fidelity School Street Trust and the Shareholders
of Fidelity New Markets Income Fund:

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights
present fairly, in all material respects, the financial position of
Fidelity New Markets Income Fund (a fund of Fidelity School Street
Trust, formerly a fund of Fidelity Investment Trust) at December 31,
1998, and the results of its operations, the changes in its net assets
and the financial highlights for the periods indicated, in conformity
with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fidelity New
Market Income Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe
that our audits, which included confirmation of securities at December
31, 1998 by correspondence with the custodian and brokers, provide a
reasonable basis for the opinion expressed above.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 17, 1999

OF SPECIAL NOTE

INTRODUCING FIDELITY'S NEW, REORGANIZED PROSPECTUS

We invite you to spend a moment and review our new prospectus. It is
designed to help make your investment decision easier, no matter which
of the Fidelity funds you invest in.

MANAGING YOUR INVESTMENTS

BY PHONE

(PHONE_GRAPHIC)TOUCHTONE XPRESS
1-800-544-5555

PRESS
1 For mutual fund and brokerage trading.

2 For quotes.*

3 For account balances and holdings.

4 To review orders and mutual
fund activity.

5 To change your PIN.

*0 To speak to a Fidelity representative.

BY PC

Fidelity's Web site on the Internet provides a wide range of
information, including daily financial news, fund performance,
interactive planning tools and news about Fidelity products and
services.

(COMPUTER_GRAPHIC)FIDELITY'S WEB SITE
WWW.FIDELITY.COM

(COMPUTER_GRAPHIC)
FIDELITY ON-LINE XPRESS+(registered trademark)
Fidelity On-line Xpress+ software for Windows combines comprehensive
portfolio management capabilities, securities trading and access to
research and analysis tools . . . all on your desktop. Call Fidelity
at 1-800-544-7272 or visit our Web site for more information on how to
manage your investments via your PC.
* WHEN YOU CALL THE QUOTES LINE, PLEASE REMEMBER THAT A FUND'S YIELD
AND RETURN WILL VARY AND, EXCEPT FOR MONEY MARKET FUNDS, SHARE PRICE
WILL ALSO VARY. THIS MEANS THAT YOU MAY HAVE A GAIN OR LOSS WHEN YOU
SELL YOUR SHARES. THERE IS NO ASSURANCE THAT MONEY MARKET FUNDS WILL
BE ABLE TO MAINTAIN A STABLE $1 SHARE PRICE; AN INVESTMENT IN A MONEY
MARKET FUND IS NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT. TOTAL
RETURNS ARE HISTORICAL AND INCLUDE CHANGES IN SHARE PRICE,
REINVESTMENT OF DIVIDENDS AND CAPITAL GAINS, AND THE EFFECTS OF ANY
SALES CHARGES.

TO VISIT FIDELITY

For directions and hours,
please call 1-800-544-9797.

ARIZONA

7373 N. Scottsdale Road
Scottsdale, AZ

CALIFORNIA

815 East Birch Street
Brea, CA

851 East Hamilton Avenue
Campbell, CA

527 North Brand Boulevard
Glendale, CA

19200 Von Karman Avenue
Irvine, CA

10100 Santa Monica Blvd.
Los Angeles, CA

251 University Avenue
Palo Alto, CA

1760 Challenge Way
Sacramento, CA

7676 Hazard Center Drive
San Diego, CA

455 Market Street
San Francisco, CA

950 Northgate Drive
San Rafael, CA

1400 Civic Drive
Walnut Creek, CA

6300 Canoga Avenue
Woodland Hills, CA

COLORADO

1625 Broadway
Denver, CO

CONNECTICUT

48 West Putnam Avenue
Greenwich, CT

265 Church Street
New Haven, CT

300 Atlantic Street
Stamford, CT

29 South Main Street
West Hartford, CT

DELAWARE

222 Delaware Avenue
Wilmington, DE

FLORIDA

4400 N. Federal Highway
Boca Raton, FL

90 Alhambra Plaza
Coral Gables, FL

4090 N. Ocean Boulevard
Ft. Lauderdale, FL

1907 West State Road 434
Longwood, FL

8880 Tamiami Trail, North
Naples, FL

2401 PGA Boulevard
Palm Beach Gardens, FL

8065 Beneva Road
Sarasota, FL

1502 N. Westshore Blvd.
Tampa, FL

GEORGIA

3445 Peachtree Road, N.E.
Atlanta, GA

1000 Abernathy Road
Atlanta, GA

HAWAII

700 Bishop Street
Honolulu, HI

ILLINOIS

One North Franklin Street
Chicago, IL

1415 West 22nd Street
Oak Brook, IL

1700 East Golf Road
Schaumburg, IL

3232 Lake Avenue
Wilmette, IL

INDIANA

4729 East 82nd Street
Indianapolis, IN

MAINE

3 Canal Plaza
Portland, ME

MARYLAND

7401 Wisconsin Avenue
Bethesda, MD

1 West Pennsylvania Ave.
Towson, MD

MASSACHUSETTS

470 Boylston Street
Boston, MA

155 Congress Street
Boston, MA

25 State Street
Boston, MA

300 Granite Street
Braintree, MA

44 Mall Road
Burlington, MA

416 Belmont Street
Worcester, MA

MICHIGAN

280 North Woodward Ave.
Birmingham, MI

29155 Northwestern Hwy.
Southfield, MI

MINNESOTA

7600 France Avenue South
Edina, MN

MISSOURI

700 West 47th Street
Kansas City, MO

8885 Ladue Road
Ladue, MO

200 North Broadway
St. Louis, MO

NEW JERSEY

150 Essex Street
Millburn, NJ

56 South Street
Morristown, NJ

501 Route 17, South
Paramus, NJ

NEW YORK

1055 Franklin Avenue
Garden City, NY

999 Walt Whitman Road
Melville, L.I., NY

1271 Avenue of the Americas
New York, NY

71 Broadway
New York, NY

350 Park Avenue
New York, NY

NORTH CAROLINA

4611 Sharon Road
Charlotte, NC

2200 West Main Street
Durham, NC

OHIO

600 Vine Street
Cincinnati, OH

28699 Chagrin Boulevard
Woodmere Village, OH

OREGON

16850 SW 72 Avenue
Tigard, OR

PENNSYLVANIA

1735 Market Street
Philadelphia, PA

439 Fifth Avenue
Pittsburgh, PA

TENNESSEE

6150 Poplar Road
Memphis, TN

TEXAS

10000 Research Boulevard
Austin, TX

4017 Northwest Parkway
Dallas, TX

1155 Dairy Ashford Street
Houston, TX

2701 Drexel Drive
Houston, TX

400 East Las Colinas Blvd.
Irving, TX

14100 San Pedro
San Antonio, TX

19740 IH 45 North
Spring, TX

UTAH

215 South State Street
Salt Lake City, UT

VIRGINIA

8180 Greensboro Drive
McLean, VA

WASHINGTON

411 108th Avenue, N.E.
Bellevue, WA

511 Pine Street
Seattle, WA

WASHINGTON, DC

1900 K Street, N.W.
Washington, DC

WISCONSIN

595 North Barker Road
Brookfield, WI

INVESTMENT ADVISER
Fidelity Management & Research Company
Boston, MA

GENERAL DISTRIBUTOR
Fidelity Distributors Corporation
Boston, MA

* INDEPENDENT TRUSTEES

NMI-ANN-0299 70492
1.540082.101

TRANSFER AND SHAREHOLDER
SERVICING AGENT
Fidelity Service Company, Inc.
Boston, MA

CUSTODIAN
The Chase Manhattan Bank
New York, NY

(2_FIDELITY_LOGOS)(REGISTERED TRADEMARK)
Corporate Headquarters
82 Devonshire St., Boston, MA 02109
www.fidelity.com