Fidelity Capital Appreciation Fund

Transcription

1 Fidelity Capital Appreciation Fund Key Takeaways For the fiscal year ending October 31, 2017, the fund's Retail Class shares gained 25.93%, topping the 23.63% advance of the benchmark S&P 500 index. The stock market rallied strongly following the U.S. presidential election, providing a favorable environment for Manager Fergus Shiel's flexible, go-anywhere investment strategy. Versus the benchmark, a large underweighting in the lagging consumer staples sector proved beneficial. Stock picking in information technology, industrials and health care also added value. Also, our foreign holdings lifted performance against a generally weaker U.S. dollar. Overall, active management added value in nine of 11 market sectors this period. Conversely, the primary drag on relative performance came from stock picking in consumer discretionary, especially the retailing and consumer services segments. A modest cash position also weighed on performance in a strong market. Fergus is encouraged by improving signs in a variety of developed economies and believes that, in this environment, companies might be motivated to increase their investments in productive assets such as plants, equipment and labor. MARKET RECAP The U.S. equity bellwether S&P 500 index gained 23.63% for the year ending October 31, Equity markets rose sharply following the November election and continued to rally through the end of February on optimism for President Trump's probusiness agenda. Stocks leveled off in March amid fading optimism and stalled efforts by Congress to repeal and replace the Affordable Care Act. Upward momentum soon returned and continued through period end amid positive consumer sentiment and other market indicators. The lone exception was a brief cooldown in August, when geopolitical tension escalated and uncertainty grew regarding the future of health care, tax reform and the debt ceiling. Sector-wise, information technology (+39%) performed best, surging as a handful of major index constituents posted strong returns. Financials gained 37%, riding an uptick in bond yields and a surge in banks. Materials (+29%) also did well, spurred by higher demand, especially from China. Conversely, consumer discretionary (+20%) lagged the broader market, as brick-and-mortar retailers continued to suffer from increased online competition. Rising interest rates held back real estate (+9%) and sluggish oil prices dragged on energy (+2%). Consumer staples (+4%) and telecommunication services (-1%) struggled due to investors' general preference for risk assets. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Manager Fergus Shiel Fund Facts Trading Symbol: Fergus Shiel Manager FDCAX Start Date: November 26, 1986 Size (in millions): $7, Investment Approach Fidelity Capital Appreciation Fund is a diversified domestic equity strategy focused on capital appreciation. We employ a flexible, "go-anywhere" investment approach that seeks investment opportunities across different market capitalizations and investment styles. The fund does not have an overriding style bias to either growth stocks or value stocks. The prevailing market environment and opportunities determine the style and positioning of the fund. We emphasize fundamental, bottom-up research, technical analytics and frequent company contact when evaluating investment opportunities and tend to favor companies with solid earnings growth and reasonable valuations, while a minority portion of the fund may focus on shorter-term, opportunistic trading. Q: Fergus, how did the fund perform for the fiscal year ending October 31, 2017 The fund's Retail Class shares gained a healthy 25.93%, topping the 23.63% advance of the benchmark S&P 500. However, the fund finished behind its peer group average. The stock market rallied strongly following the November 2016 U.S. presidential election, providing a favorable environment for my flexible, go-anywhere investment strategy. Q: Why was the fund able to outpace the benchmark this past year Active management added value in nine of 11 market sectors. Versus the benchmark, minimal exposure to the lagging consumer staples sector was the biggest positive. This wasn't so much a sector call as a company-specific issue, as I had trouble finding stocks in that segment with what I considered an attractive mix of valuation and growth prospects. Stock picking in information technology, industrials and health care also added value. Additionally, our foreign holdings lifted performance against the backdrop of a generally weaker U.S. dollar. The fund's primary headwind came from unfavorable stock selection in consumer discretionary, especially the retailing and consumer services segments. A modest cash position also weighed on performance in a strong market. Q: Which stocks were noteworthy contributors versus the benchmark Vertex Pharmaceuticals, a biotechnology firm focused on developing treatments for cystic fibrosis (CF) a previously incurable disease proved the fund's top relative contributor. The stock almost doubled in value this period, rewarding our large overweighting here. Vertex's share price enjoyed large upswings in March and July, spurred by positive clinical results for its next-generation combination drug therapy for CF. Given the stock's sizable move, I exited most of this position to nail down profits. Overweighting publishing-software developer Adobe Systems the fund's fourth-largest holding at period end 2 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

3 also paid off. The stock was driven by a combination of market optimism and expectations for continued growth of its Creative Cloud platform, which includes Photoshop digital-editing software. Although the stock was a fairly steady gainer from early December 2016 on, it gapped higher in the period's final month after the firm upped its estimates for fiscal 2018 revenue and earnings. Here, too, I considerably reduced our position for valuation reasons. I'll also mention FMC, a supplier of agricultural chemicals, and a position I increased significantly this period. In March, the company agreed to buy a portion of DuPont's crop-protection business in exchange for FMC's health & nutrition operations, along with $425 million in working capital and $1.2 billion in cash. The consensus opinion which I shared was that this transaction was a significant upgrade for FMC, and this optimism was reflected in a jump in the stock's price. The company also mines lithium, a mineral used in batteries for electric vehicles (EVs), and its share price benefited from the recent surge in the popularity of EV technology. Q: What about detractors The biggest relative detractor by far was J.C. Penney, an out-of-benchmark position for the fund. Our stake here suffered a steady erosion in value, as the retailer recorded its fifth straight quarter of weaker sales in August. Penney also missed estimates with a larger loss of 9 cents a share on an adjusted basis, versus expectations of 5 cents per share. Retailers like J.C. Penney have struggled to stem a decline in store traffic as consumers shift more of their spending online. Yet, unlike many of its competitors in the retailing space, I thought Penney had a credible plan for turning things around by adjusting its product mix and paying down debt. Consequently, I maintained our position. Alexion Pharmaceuticals also worked against us. The stock lost altitude near period end following a disappointing thirdquarter financial report. Although Alexion topped earnings estimates by a comfortable margin, investors found fault with the firm's sales figures for Soliris, an expensive drug used to treat two rare diseases, and the anchor of the company's revenue stream. I lowered our share count here by roughly half as part of a broader reduction in the fund's biotech exposure. A sizable out-of-benchmark position in Netherlands-based telecommunications provider Altice also hampered the fund's relative result. Following its June 2016 acquisition of Cablevision Systems, the company formed a new telecoms giant in the U.S. under the name of Altice USA, whose stock began trading in June The stock struggled between then and period end, however, amid reports that the company, which already carried considerable debt from previous deals, was thinking about buying Charter Communications, the second-largest U.S. cable company. Q: Would you comment on the fund's shifts in positioning this period I've already mentioned the reduction in biotechnology, which actually began in the first half of the period. That adjustment reflected my reassessment of the biotech space to account for greater challenges in competition and pricing than I had seen before. The sale of major holding Gilead Sciences was the biggest change there, although I trimmed or eliminated a number of other biotech positions. I also reduced our stake in the consumer discretionary sector. Most of the drop there came in the retailing group, which faced a difficult environment due to the growing popularity of online shopping, coupled with tepid wage growth at the lower end of the U.S. economic scale. Conversely, information technology, financials and materials were sectors that saw notably increased exposure in the fund this period. Purchases in materials included mining companies and chemical manufacturers. In technology, I favored software & services companies for their steady earnings growth and ample cash flow. In financials, I liked diversified financials over banks, as I saw potential sources of profits in the former group that didn't depend on favorable movements in interest rates. Q: What's your outlook at period end, Fergus As I'll explain later in greater detail, I'm encouraged by what appears to be a unified strengthening among the world's developed economies. Although I don't believe we're on the verge of a global economic boom, even modest strengthening across a broad swath of economies could be quite positive for corporate earnings. Consequently, despite the market's strong performance the past few years and some concerns about valuations I'm optimistic about the future. 3 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

4 LARGEST CONTRIBUTORS VS. BENCHMARK Fergus Shiel on the potential impact of a unified global economic expansion: "I'm not an economist, but I do listen carefully to what company managers are saying about the economic conditions they encounter. On a recent call, management at one of our chemical holdings remarked that, for the first time in recent memory, all 40 or so developed economies in which the firm operates were expected to gain ground in "To me, that's significant because if virtually all developed economies are expanding, then we are more likely to benefit from a series of positive feedback loops in which various economies reinforce each other. "This situation, if it persists, could go a long way toward solving a problem that's been holding back the developed world since the Great Recession of In a nutshell, it's the fact that, although huge amounts of capital have flowed into financial assets, relatively little has been invested in productive assets, such as plants, equipment and labor. "Various reasons have been cited for this underinvestment, but I think it comes down to toplevel management deciding that the global economic outlook is too iffy to make major capital investments. "At period end, I think we're seeing conditions that could alleviate those concerns and potentially result in a new cycle of long-term investment that might have a significant impact for the next several decades." Holding Vertex Pharmaceuticals, Inc. Adobe Systems, Inc. Market Segment Average Relative Relative Contribution (basis points)* Health Care 2.06% % 83 FMC Corp. Materials 1.43% 70 PayPal Holdings, Inc. 0.94% 65 CME Group, Inc. Financials 3.10% 64 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding JC Penney Corp., Inc. Alexion Pharmaceuticals, Inc. Altice NV Class A Market Segment Consumer Discretionary Average Relative Relative Contribution (basis points)* 1.06% -159 Health Care 0.93% -59 Consumer Discretionary 1.80% -52 Gilead Sciences, Inc. Health Care 0.60% -52 Interpublic Group of Companies, Inc. * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Consumer Discretionary 1.21% -47 Six Months Ago Domestic Equities 86.79% 81.12% International Equities 11.61% 13.77% Developed Markets 7.77% 13.11% Emerging Markets 3.84% 0.66% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 1.60% 5.11% Net Other Assets can include fund receivables, fund payables, and offsets to other derivative positions, as well as certain assets that do not fall into any of the portfolio composition categories. Depending on the extent to which the fund invests in derivatives and the number of positions that are held for future settlement, Net Other Assets can be a negative number. "Tax-Advantaged Domiciles" represent countries whose tax policies may be favorable for company incorporation. 4 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

5 MARKET-SEGMENT DIVERSIFICATION 10 LARGEST HOLDINGS Market Segment Six Months Ago 30.09% 21.80% Financials 18.20% 14.72% Consumer Discretionary 15.13% 22.02% Health Care 10.77% 12.21% Industrials 9.80% 8.31% Materials 8.12% 7.02% Energy 3.25% 5.24% Telecommunication Services 1.73% 1.48% Consumer Staples 0.92% 2.09% Real Estate 0.38% 0.01% Utilities 0.00% 0.00% Other 0.00% 0.00% Holding Apple, Inc. Las Vegas Sands Corp. Alphabet, Inc. Class C Adobe Systems, Inc. Market Segment Consumer Discretionary Six Months Ago 5.20% 4.05% 3.44% 3.88% 3.39% 2.28% 3.00% 3.06% CME Group, Inc. Financials 2.92% 3.08% Morgan Stanley Financials 2.88% 1.30% Goldman Sachs Group, Inc. Financials 2.56% 2.29% Amgen, Inc. Health Care 2.39% 3.10% PayPal Holdings, Inc. 2.29% 1.06% FMC Corp. Materials 2.17% 1.70% 10 Largest Holdings as a % of Net Assets 30.25% 28.27% Total Number of Holdings The 10 largest holdings are as of the end of the reporting period, and may not be representative of the fund's current or future investments. Holdings do not include money market investments. FISCAL PERFORMANCE SUMMARY: Periods ending October 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Capital Appreciation Fund Gross Expense Ratio: 0.61% % 19.63% 25.93% 8.11% 14.31% 6.91% S&P 500 Index 9.10% 16.91% 23.63% 10.77% 15.18% 7.51% Morningstar Fund Large Growth 11.39% 23.60% 26.56% 10.57% 15.09% 7.47% % Rank in Morningstar Category (1% = Best) % 84% 66% 64% # of Funds in Morningstar Category ,375 1,233 1, Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/26/ This expense ratio is from the prospectus in effect as of the date shown above and generally is based on amounts incurred during that fiscal year. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com/performance, institutional.fidelity.com, or 401k.com. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. Please see the last page(s) of this Q&A document for most-recent calendarquarter performance. 5 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

6 Definitions and Important immediately under the fund name in the Performance Summary. Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, act as an impartial adviser, or to give advice in a fiduciary capacity. FUND RISKS Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. IMPORTANT FUND INFORMATION Relative positioning data presented in this commentary is based on the fund's primary benchmark (index) unless a secondary benchmark is provided to assess performance. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. S&P 500 is a market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. Should not be construed or used as a recommendation for any sector or industry. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed 6

7 Manager Facts Fergus Shiel is a portfolio manager at Fidelity Management & Research Company (FMRCo), the investment advisor for Fidelity's family of mutual funds. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, he manages Fidelity Capital Appreciation Fund (since 2005) and VIP Dynamic Capital Appreciation (since 2005; ). Apart from his current responsibilities, Mr. Shiel managed Fidelity Advisor Stock Selector All Cap Fund until March Before rejoining Fidelity in 2005, he started his own investment management firm in Prior to that, he managed Fidelity Fifty Fund and Fidelity Advisor Fifty Fund from 2002 to 2003, Fidelity Independence Fund from 1996 to 2003, Fidelity Advisor Stock Selector All Cap Fund from 1998 to 2002, Fidelity Trend Fund from 1995 to 1996, and Fidelity Dividend Growth Fund from 1994 to Between 1990 and 1994, Mr. Shiel managed a number of Fidelity Select s, including Fidelity Select Multimedia, Fidelity Select Telecommunications, and Fidelity Select Consumer Discretionary. He joined Fidelity in 1989 as an equity research analyst, following the broadcast and media, telephone and consumer products industries. Before initially joining Fidelity, he was a manager of investment accounting at Meritor Savings Bank in Philadelphia for two years. Previously, he held a similar position with USLICO Corporation in Washington, D.C., from 1983 to Mr. Shiel earned his bachelor of arts degree in economics and international relations from the University of Virginia and his master of business administration degree in finance from Columbia University. 7 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

8 PERFORMANCE SUMMARY: Quarter ending September 30, Annualized 5 10 / LOF 1 Fidelity Capital Appreciation Fund Gross Expense Ratio: 0.61% % 8.29% 13.42% 7.16% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/26/ This expense ratio is from the prospectus in effect as of the date shown above and generally is based on amounts incurred during that fiscal year. Past performance is no guarantee of future results. Investment return and principal value of an investment will fluctuate; therefore, you may have a gain or loss when you sell your shares. Current performance may be higher or lower than the performance stated. Performance shown is that of the fund's Retail Class shares (if multiclass). You may own another share class of the fund with a different expense structure and, thus, have different returns. To learn more or to obtain the most recent month-end or other share-class performance, visit fidelity.com/performance, institutional.fidelity.com, or 401k.com. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest. Past performance is no guarantee of future results. Views expressed are through the end of the period stated and do not necessarily represent the views of Fidelity. Views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or FMR LLC. References to specific company securities should not be construed as recommendations or investment advice. included on this page is as of the most recent calendar quarter. S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. Other 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 LLC or an affiliated company. Fidelity Brokerage Services LLC, Member NYSE, SIPC., 900 Salem Street, Smithfield, RI Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee Diversification does not ensure a profit or guarantee against a loss.