Fidelity Stock Selector Small Cap Fund

Transcription

1 Fidelity Stock Selector Small Cap Fund Key Takeaways For the fiscal year ending October 31, 2017, the fund's Retail Class shares gained 22.00%, underperforming the 27.85% result of the benchmark Russell 2000 Index. In general, the fund's higher-quality bias held back our result versus the Russell index. Weak stock selection was the biggest detractor versus the benchmark, with nine of 11 sector sleeves underperforming the corresponding result of the Russell index. Our picks in financials, particularly banks, and information technology were the most detrimental on a relative basis. At the stock level, the fund's overweighting in non-bank ATM operator Cardtronics was the biggest relative detractor. On the positive side, choices in consumer staples helped most. The fund's largest individual contributor, however, came from the health care segment: biotechnology company AnaptysBio. Lead Portfolio Manager Rich Thompson emphasizes that the fund's four sector-focused co-managers will continue to seek high-quality, reasonably valued companies they believe have opportunities to grow over the long term. 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. 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 Rich Thompson Lead Manager Fund Facts Trading Symbol: FDSCX Start Date: June 28, 1993 Size (in millions): $1, Investment Approach Shadman Riaz Co-Manager Fidelity Stock Selector Small Cap Fund is a diversified domestic equity strategy focused on the small-cap segment of the market. The fund employs a team of sector portfolio managers, with each member dedicated to one or more of the major market sectors plus another manager focused exclusively on biotechnology stocks, given their representation in the index and the level of complexity associated with investing in these companies. The sector managers are overseen by a lead portfolio manager, who is responsible for portfolio construction and risk oversight. Portfolio sector weights are kept close to the index in an effort to add value through active stock selection our core competency and also to minimize the risk related to sector or market timing. Focused sector expertise, supported by our deep research infrastructure, is combined with disciplined portfolio construction to provide investment-process consistency in seeking to deliver attractive riskadjusted returns over time. An interview with Lead Portfolio Manager Richard Thompson and Co- Manager Shadman Riaz Q: Rich, how did the fund perform for the fiscal year ending October 31, 2017 R.T. The fund's Retail Class shares gained 22.00%, disappointingly lagging the 27.85% advance of the benchmark Russell 2000 Index. We also trailed the peer group average. It was a robust period of performance for small-cap stocks, bolstered by a post-election rally among firms investors believed could benefit from the pro-growth polices of President Donald Trump. For the full 12 months, eight of 11 market sectors in the Russell index increased by at least 20%, led by health care (+38%), industrials (+36%), materials (+34%) and information technology (+33%). The laggards were real estate (+15%), consumer staples (+5%) and energy (-5%). Q: How did your investment strategy play out the past 12 months R.T. Our goal is to deliver a superior risk-adjusted return for our investors. The fund's four sector-focused portfolio comanagers, which we consider our "alpha engine," rely on fundamental research to select stocks while maintaining sector weightings that are in line with those of the Russell index. This sector-neutral approach should result in fund performance driven by stock selection, which was the case this period. Unfortunately, however, stock choices were negative, with nine of 11 sector sleeves underperforming the corresponding sectors within the Russell index during the period. In general, the fund's higher-quality bias held back the fund's relative results. Q: Shadman, what specific factors detracted relative to the Russell benchmark S.R. Stock selection in financials, particularly banks, was especially detrimental. Choices in information technology also hurt, especially the fund's position in non-bank ATM operator Cardtronics, the biggest individual detractor. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 Co-Manager Morgen Peck initially established a stake in Cardtronics because she believed the company provides a clear value to retailers by driving traffic into stores, as well as to banks that are looking to outsource operating cumbersome ATM networks. Cardtronics had strong market share and a solid growth history, along with what Morgen considered a reasonable valuation. However, her thesis unraveled the past 12 months. The company reduced its earnings estimates, which were hampered by lower interchange fees in Australia (a primary market), concerns about a slowdown in earnings growth as one of Cardtronics' largest customers winds down its contract with the company, and worries about the company's financial leverage after Cardtronics announced a large acquisition in late Q: What else held back the fund's relative performance S.R. A non-benchmark stake in oil and natural gas drilling operator Nabors Industries notably detracted. The stock returned about -52% this period, as the company reported poor operational performance and a less-bullish landdrilling outlook in the U.S. In addition, the U.S. rig count flatlined moving into the second half of 2017, causing Nabors to fall short of its financial expectations. As a result, Nabors experienced negative free-cash-flow generation, adding additional pressure to its already highly leveraged balance sheet and deterring investors. I still like the company's longer-term prospects, and chose to add a bit to the fund's position. In health care, Co-Manager Eirene Kontopoulos chose to avoid index component Kite Pharma, given her assessment that Kite's cancer drug is highly toxic and would not be easily administered in community hospitals. In April, though, shares of Kite soared after Gilead Sciences announced it would acquire the company for a substantial premium, hurting our relative result. Lastly, I'll mention the fund's cash position. For liquidity purposes, the fund maintains a small cash position, which dampened our relative result amid a strong market. With a focus on unmet medical needs, biotechnology company AnaptysBio was a match for a key tenet of Eirene's investment strategy, as it focuses on unmet needs in inflammation. She established a position in August, and in early October shares of the stock soared after the company announced positive Phase 2 data on its atopic dermatitis drug in clinical trials. Our non-benchmark stake in Advanced Accelerator Applications gained 123% this period, as the company's lead drug, Lutathera, had what Eirene considered unpredecented efficacy in treating neuroendocrine tumors, another unmet medical issue. In September, shares of Advanced Accelerator Applications began climbing amid rumors of an acquisition by pharma giant Novartis. Novartis announced the planned acquisition on October 30. Q: Rich, any final thoughts for shareholders R.T. While our relative performance this period was disappointing, we remain confident that our stock-selector approach to small-cap stocks and our investment process will prove itself over time. We will continue to seek what we believe are high-quality, reasonably valued companies with opportunities to grow over a two- to three-year time horizon, keeping down fund turnover. Q: What helped the fund's relative result S.R. Choices in consumer staples provided the biggest boost. Additionally, avoiding some of the index's weakest performers such as beauty product giants Avon Products and Revlon, which did not fit Morgen's investment process was particularly beneficial. Our two top individual relative contributors came from the health care sector: biotechnology company AnaptysBio and French pharma firm Advanced Accelerator Applications, which specializes in nuclear medicine. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 10 LARGEST HOLDINGS C-Manager Shadman Riaz on a recent success: "At Fidelity, we have the benefit of world-class research specialists that focus specifically on uncovering small-cap companies that are poised to present growth opportunities over time. "One example that illustrates the strength of our research team, as well as our focus on a long-term investment horizon, is our recent success with an investment in Orbital ATK, a weapons and space systems manufacturer in the defense industry. "In early 2015, shares fell precipitously after Orbital Sciences acquired ATK, another defenserelated company, to form Orbital ATK. The newly merged company continued to trade at a low valuation, which initially appealed to our small-cap team, especially given the value we believed the company could offer over time. As such, we established much of the fund's position in October 2015, at an average price of $77 per share. "In August 2016, shares of Orbital ATK fell again after the firm announced a material restatement to earnings related to a long-term ammunition supply contract. Still, we chose to hold on to the position because our own research indicated Orbital ATK's fundamental business remained sound. Excluding the accounting issues, which turned out to be better than initially feared, we noted the company was demonstrating solid performance and seeing accelerated demand for its products. Additionally, late in 2016, it successfully launched its first Antares rocket. The company also maintained a contract with the National Aeronautics and Space Administration (NASA) worth about $2 billion. "By the end of 2016, Orbital ATK's valuation had begun to improve steadily, and in September 2017, Northrop Grumman announced its plan to acquire Orbital ATK at a significant premium. "We ultimately sold the fund's stake by period end when shares were valued at $132 per share, benefiting the fund." Holding EMCOR Group, Inc. RingCentral, Inc. BancFirst Corp. Banner Corp. Cotiviti Holdings, Inc. WSFS Financial Corp. Associated Banc-Corp. Wintrust Financial Corp. Washington Federal, Inc. Primerica, Inc. 10 Largest Holdings as a % of Net Assets Market Segment Industrials Information Technology Health Care 9.38% Total Number of Holdings 211 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. ASSET ALLOCATION Asset Class Portfolio Weight Portfolio Weight Six Months Ago Domestic Equities 91.96% 94.48% International Equities 6.20% 3.58% Developed Markets 6.07% 3.58% Emerging Markets 0.13% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 1.84% 1.94% 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 Information section of this Q&A.

5 MARKET-SEGMENT DIVERSIFICATION Market Segment Portfolio Weight Portfolio Weight Six Months Ago 17.91% 18.66% Information Technology 17.62% 17.14% Industrials 15.69% 15.00% Health Care 14.50% 12.83% Consumer Discretionary 11.31% 11.97% Real Estate 7.02% 7.70% Materials 4.21% 4.92% Energy 3.77% 3.42% Utilities 3.35% 3.09% Consumer Staples 2.38% 2.81% Telecommunication Services 0.25% 0.25% Multi Sector 0.13% 0.26% Other 0.00% 0.00% FISCAL PERFORMANCE SUMMARY: Periods ending October 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Stock Selector Small Cap Fund Gross Expense Ratio: 0.89% % 9.66% 22.00% 9.34% 12.92% 5.23% Russell 2000 Index 8.01% 11.89% 27.85% 10.12% 14.49% 7.63% Morningstar Fund Small Blend 6.86% 9.65% 24.89% 8.55% 13.40% 7.07% % Rank in Morningstar Category (1% = Best) % 46% 67% 88% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 06/28/ 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. This fund has a short term trading fee 1.50% for shares held less than 90 days. 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 Information section of this Q&A.

6 Definitions and Important Information 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. The securities of smaller, less well-known companies can be more volatile than those of larger companies. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. 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 immediately under the fund name in the Performance Summary. 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. Effective 12/18/17, the fund's redemption fee has been removed. 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. Russell 2000 Index is a market-capitalization-weighted index designed to measure the performance of the small-cap segment of the U.S. equity market. It includes approximately 2,000 of the smallest securities in the Russell 3000 Index. 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 6

7 Manager Facts Richard Thompson is managing director of research at Fidelity Management & Research Company (FMR Co.), 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, Mr. Thompson is responsible for leading the Small Cap team and Fidelity's undergraduate research associate program. Additionally, he is the lead portfolio manager of Fidelity Stock Selector Small Cap Fund and Fidelity Series Small Cap Opportunities Fund. Prior to assuming his current responsibilities, Mr. Thompson held various other positions within Fidelity, including portfolio manager, small cap team leader at Fidelity International Limited (FIL) in London, equity research analyst, and research associate. Before joining Fidelity in 1996, Mr. Thompson worked as an analyst and fund manager on the Manchester Growth Fund. He has been in the investments industry since Mr. Thompson earned his bachelor of science degree in finance from Bentley College. Shadman Riaz 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 comanages Fidelity Series Small Cap Opportunities Fund, Fidelity Stock Selector Small Cap Fund, Fidelity Value Fund, Fidelity Advisor Value Fund, Fidelity Advisor Stock Selector Mid Cap Fund, and Fidelity Low-Priced Stock Fund. Prior to assuming his current position in January 2009, Shadman served as an equity analyst in FMRCo's Equity division from 2006 to 2008 and as a high income analyst in FMRCo's High Income division from 2001 to Before joining Fidelity in 2001, he held various other roles, including that of a financial analyst at Goldman Sachs & Co. from 1996 to 1999, as well as internships at Bain & Co. and an internet startup. He has been in the investments industry since Shadman earned his bachelor of science degree magna cum laude in actuarial science and finance from the University of Pennsylvania, and his master of business administration degree from Harvard Business School. 7 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

8 PERFORMANCE SUMMARY: Quarter ending December 31, Annualized 5 10 / LOF 1 Fidelity Stock Selector Small Cap Fund Gross Expense Ratio: 0.75% % 8.74% 12.71% 6.42% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 06/28/ 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. Information 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.