Fidelity International Discovery Fund

Transcription

1 Fidelity International Discovery Fund Key Takeaways The fund's Retail Class shares gained 26.33% for the fiscal year ending October 31, 2017, ahead of the 23.69% return of the benchmark MSCI EAFE Index. Despite a difficult start to the period, the fund was rewarded for maintaining its bottom-up focus on higher-quality companies with above-average earnings growth and reasonable valuations. Versus the benchmark, choices and a sizable overweighting in the top-performing information technology sector gave the biggest boost to the fund's performance. Security selection in industrials and consumer discretionary also added value. Geographically, stock picks in emerging markets, which are not part of the benchmark, as well as in Japan and continental Europe helped push the fund ahead of the MSCI benchmark. Relative detractors were minimal, with nicks from out-of-index picks in energy largely due to Canada-based Cenovus Energy and the United States. A small cash position also detracted. At period end, Manager Bill Kennedy thinks that although international stocks generally seem expensive, they remain cheaper than U.S. counterparts. He is optimistic that an improving macroeconomic backdrop can help fuel further gains in international equity markets. MARKET RECAP The MSCI ACWI (All Country World Index) ex USA Index returned 23.85% for the 12 months ending October 31, 2017, helped partly by a generally weak U.S. dollar. Some favorable election results in continental Europe (+30%) suggested ebbing political uncertainty and near-term risk there, but the U.K. (+20%) faced more-mixed conditions ahead of its expected exit from the European Union. Despite central-bank easing and pressured recently by yen strength Japan (+18%) lagged the rest of the Asia-Pacific group (+22%). Commodity-price volatility slowed Canada (+17%), but the emergingmarkets group (+26%) sped ahead. Sector-wise, information technology (+47%) was driven by a surge among several Chinese internet-related names. Financials (+27%) rode rising interest rates that, at the same time, weighed on real estate (+17%), utilities (+16%), consumer staples (+14%) and telecommunication services (+9%) socalled "bond proxy" sectors. Materials (+28%) and industrials (+27%) responded to demand from China and price gains for certain commodities. In the energy sector (+20%), oil prices lost ground in the spring before rebounding through October 31 to end well above where they started 12 months ago. Lastly, health care (+14%) was hurt by early-period turmoil around drug pricing and health care legislation. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Manager William Kennedy Fund Facts Trading Symbol: William Kennedy Manager FIGRX Start Date: December 31, 1986 Size (in millions): $10, Investment Approach Fidelity International Discovery Fund is a diversified international equity strategy that seeks capital growth by investing primarily in non-u.s. stocks. We manage the fund with a long-term view, focusing on high-quality companies with above-average growth prospects that are trading at reasonable prices. Layered into this investment framework is a desire to own businesses that have stable and high returns on capital, durable competitive positions, consistent profitability, solid free-cash-flow generation, good balance sheets and management teams whose interests are aligned with those of shareholders. We strive to uncover these companies through in-depth fundamental, technical and quantitative analysis, working in concert with Fidelity's global research team, with the goal of producing above-index performance over a full market cycle. Q: Bill, how did the fund perform for the fiscal year ending October 31, 2017 The fund's Retail Class shares gained 26.33% for the period, beating the 23.69% return of the benchmark MSCI EAFE Index and also outpacing the peer group average. Two factors worked in our favor. First, the past year was largely a good one for stock pickers. In other words, it really mattered which stocks you owned because the rising tide did not lift all boats equally. In this type of environment, Fidelity's fundamental research capabilities were a big advantage. Second, our bottom-up approach focuses on finding higher-quality companies with above-average earnings growth at reasonable valuations. Also, our growth bias was a plus particularly in 2017 as growth significantly outperformed value stocks within the MSCI EAFE index, largely because of outsized returns in the information technology sector. Q: How would you describe the market environment this past year Although the MSCI index posted a strong return for the year, we faced headwinds early on. Lower-quality stocks worldwide received a big boost following the election of Donald Trump as U.S. president, but many higher-quality stocks fell behind. Lingering uncertainties related to Britain's exit from the European Union led to volatility, particularly in the U.K., a major benchmark component. In 2017, however, much of the volatility subsided. Improved global economic growth bolstered earningsgrowth expectations. Elections in Japan, Brazil and India led to more political clarity. Oil prices stabilized at a higher level, commodity prices rose and local currencies started to strengthen versus the U.S. dollar. The big winners in the MSCI index included tech, materials, financials and industrials. Geographically, returns in continental Europe stood out as did those in China and South Korea, both of which are outside the benchmark. Q: Which investment choices helped most Versus the benchmark, our overweighting in tech helped, as the sector returned nearly 40% in the benchmark, 2 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

3 helped in part by corporations in continental Europe that needed to catch up on tech spending after years of deferral. The spread of e-commerce and the shift to electronic payments also bolstered the sector. In addition, investors were willing to pay higher prices for tech stocks because of the strong performance of big, well-known U.S. companies such as social networking giant Facebook. Security selection in industrials and consumer discretionary also aided our relative performance. Geographically, stock picks in emerging markets, which are not part of the benchmark, and in Japan and continental Europe helped. One of our top tech performers was e-commerce giant Alibaba Group Holding essentially the Amazon.com of China. At time of purchase, the shares seemed reasonably priced, given what I thought was the company's strong earnings-growth potential. That earnings growth came through in spades this past year, and our stake rose 81%. Alibaba's expanding e-commerce sales worldwide, plus the breadth of its offerings, which include artificial intelligence and web hosting, further boosted performance. In consumer discretionary, another standout was New Oriental Education & (+69%), an education company in China that helps prepare students for high school and college admissions tests. I thought the firm's earnings-growth potential could benefit and it did as China's one-child policy and growing middle class led to more consumers investing in their children's education. Q: Which other stocks stood out Relative to the index, top contributors included Amundi, a diversified financials firm based in France, and Kweichow Moutai, a consumer staples company in China. I bought Amundi when it went public in late 2015 at what I thought was a good price. The company is Europe's leader in assets under management and, to me, seemed well-managed and poised for further growth. Its shares returned 91% for the fund this past year, thanks to strong asset inflows and the highly accretive purchase in July of U.S.-based asset manager Pioneer Investments. Moutai is the market leader in China for baijiu, a traditional distilled liquor. I thought this company stood to benefit from the rising number of consumers in China with disposable income. Moutai was able to raise its prices this past year, boosting its earnings-growth outlook and fueling a 101% return for the fund's shares. All four positions mentioned were non-index holdings. Q: Which decisions detracted this period Selection in energy, as well as in out-of-index Canada, hurt our relative result largely due to a single holding: Cenovus Energy. This integrated oil company returned -32% the past year, as crude prices stayed at low levels. I held on to our position because I believe Cenovus has a capable management team and a positive long-term outlook. It recently began selling some non-core assets to help pay down debt and acquire some valuable Canadian oil-sands assets. I think Cenovus stands to benefit if tightening supply and steady demand helps oil prices. Modest holdings in the out-of-index U.S. also nicked our result. Our largest individual detractor, though, was KDDI in Japan. This stock was in the portfolio because I viewed it as a high-quality telecommunication-services company with an attractive share price. Despite decent earnings growth, the stock returned -10% this past year as investors rotated out of higher-quality Japanese stocks in favor of moreeconomically sensitive names that appeared to have more upside potential following Donald Trump's election. Q: What else disappointed Our small, non-benchmark stake in EOH Holdings, a South African software stock, returned about -39%. Initially I thought the stock had a lot of upside potential, given its cheap valuation and the general under-penetration of software and services in South Africa. However, allegations of corporate corruption caused the stock to sink, and I quickly eliminated the position from the portfolio. Although these allegations were later proven to be untrue, I tend to avoid names with any hint of wrongdoing or controversy. Q: What's your outlook at period end, Bill I'm optimistic. I think the macroeconomic backdrop is improving, notably in continental Europe, Japan and certain emerging markets. In many European countries, stabilizing or accelerating economic growth is expected to lead to greater spending on building and infrastructure. Japan is a big exporter, and stands to gain from economic recovery in the U.S. and Europe. Lastly, many emerging markets seem likely to benefit from greater political clarity and higher commodity prices. That said, finding stocks that meet both my quality and price criteria has become more challenging. But while international stocks have grown more expensive, their valuations are still cheaper than those for the U.S. and that discount is wide relative to history. I plan on remaining disciplined in selling stocks that have appreciated to what I regard as fair value and rotating into stocks that seem reasonably priced versus their earnings-growth prospects. 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 Bill Kennedy on where he's finding opportunity in Europe: "As of period end, the fund has about 47% of assets in continental Europe, the closest we've been to the benchmark in a long time. What's even more important than our weighting, however, is how our focus in Europe has changed. We had been investing in software companies that stood to benefit as banks and retailers caught up on their tech spending. And we made money as that neweconomy theme started to play out. "While we continue to hear a lot about the opportunities related to economic recovery in Europe, I think what's largely being overlooked is the potential upside from old-economy industry structures that have become a lot more rational than they were before the financial crisis and the subsequent European sovereigndebt crisis. Fewer players means less competition. As demand ramps up, the surviving businesses may be better positioned to raise prices, which in turn can benefit earnings. "Among the more-rational industries that I'm most excited about are homebuilders in Spain, Ireland and France, and construction and buildingmaterials companies in Europe. In Ireland and Spain, for example, fewer homebuilders has led supply to fall short of demand. In Europe, construction and capital expenditures as a percentage of gross domestic product remain at multi-decade lows. Given that backdrop, I think it's likely that more homes, roads and plants will be built going forward. I believe the combination of better economic growth, more-rational industry structures and pent-up demand bodes well for the earnings growth of these old-economy companies. "Some of the stocks in the fund at period end include a brick manufacturer in Austria that is heavily exposed to more homes being built in Europe, and an Ireland-headquartered cement and paving company that seems to me poised to gain as governments start investing in longneglected infrastructure upgrades." Holding Alibaba Group Holding Ltd. sponsored ADR Market Segment New Oriental Education & Consumer Group, Inc. Discretionary sponsored ADR Average Relative Relative Contribution (basis points)* 0.62% % 29 Amundi SA Financials 0.51% 29 Kweichow Moutai Co. Ltd. (A Shares) Wirecard AG * 1 basis point = 0.01%. Consumer Staples 0.39% 26 LARGEST DETRACTORS VS. BENCHMARK Holding KDDI Corp. Market Segment Telecommunication Services 0.32% 25 Average Relative Relative Contribution (basis points)* 0.75% -33 Cenovus Energy, Inc. Energy 0.35% -29 EOH Holdings Ltd. 0.30% -25 Allianz SE Financials -0.65% -19 LVMH Moet Hennessy - Louis Vuitton SA * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Consumer Discretionary -0.48% -18 Six Months Ago International Equities 96.90% 96.47% Developed Markets 86.34% 86.36% Emerging Markets 10.56% 10.11% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 0.67% 1.74% Bonds 0.00% 0.00% Cash & Net Other Assets 2.43% 1.79% 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 Market Segment Six Months Ago Financials 20.33% 20.00% Industrials 14.55% 16.71% Consumer Discretionary 12.74% 13.87% Consumer Staples 11.14% 10.54% Health Care 10.78% 7.68% 10.69% 13.30% Materials 5.64% 6.16% Energy 5.33% 4.79% Telecommunication Services 2.87% 2.83% Real Estate 1.65% 1.07% Multi Sector 1.51% 0.49% Utilities 0.34% 0.78% Other 0.00% 0.00% COUNTRY DIVERSIFICATION Country Six Months Ago Japan 17.78% 17.56% United Kingdom 14.41% 16.78% France 11.03% 9.32% Switzerland 7.26% 6.80% Germany 6.73% 5.66% Netherlands 5.27% 5.72% Spain 4.55% 4.12% India 3.67% 2.95% Sweden 3.24% 4.23% Ireland 3.12% 2.62% United States 3.02% 3.93% China 2.94% 3.22% Australia 2.04% 2.27% Canada 1.86% 1.98% Belgium 1.50% 1.50% Norway 1.49% 1.67% Hong Kong 1.43% 1.45% New Zealand 1.06% -- Austria 1.00% 1.00% 10 LARGEST HOLDINGS Holding Market Segment Six Months Ago Total SA Energy 2.04% 2.06% Unilever NV (Certificaten Van Aandelen) (Bearer) SAP SE Consumer Staples 1.65% 1.24% 1.63% 1.72% Statoil ASA Energy 1.49% 1.34% ORIX Corp. Financials 1.23% 1.13% VINCI SA Industrials 1.21% 0.87% Sony Corp. Micro Focus International PLC Consumer Discretionary 1.17% 1.08% 1.04% 1.36% KBC Groep NV Financials 1.01% 0.99% British American Tobacco PLC (United Kingdom) Consumer Staples 1.00% 1.15% 10 Largest Holdings as a % of Net Assets 13.47% 13.62% 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. 5 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

6 FISCAL PERFORMANCE SUMMARY: Periods ending October 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity International Discovery Fund Gross Expense Ratio: 1.00% % 28.95% 26.33% 7.66% 9.65% 1.69% MSCI EAFE Index (Net Massachusetts tax) 10.84% 22.01% 23.69% 6.28% 8.70% 1.26% Morningstar Fund Foreign Large Growth 12.91% 27.79% 25.00% 7.54% 9.13% 1.90% % Rank in Morningstar Category (1% = Best) % 43% 31% 55% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/31/ 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. 6 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

7 Definitions and Important 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, all of which are magnified in emerging markets. 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. 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. MSCI EAFE Index (Net MA Tax) is a market-capitalization-weighted index that is designed to measure the investable equity market performance for global investors in developed markets, excluding the U.S. & Canada. Index returns are adjusted for tax withholding rates applicable to U.S. based mutual funds organized as Massachusetts business trusts. MSCI ACWI (All Country World Index) ex USA Index is a marketcapitalization-weighted index that is designed to measure the investable equity market performance for global investors of developed and emerging markets, excluding the United States. 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 7

8 Manager Facts William Kennedy is a portfolio manager 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. Kennedy manages Fidelity International Discovery Fund and Fidelity Advisor International Discovery Fund. Additionally, he co-manages Fidelity Worldwide Fund and Fidelity Advisor Worldwide Fund. Prior to assuming his current responsibilities, Mr. Kennedy managed Fidelity Pacific Basin Fund and Fidelity Advisor Japan Fund. Previously, he served as an assistant portfolio manager and as a research analyst covering investment opportunities in India and the regional power sector. Mr. Kennedy also served as director of equity research in Fidelity's Hong Kong office as well as group leader of the Global Research group. He has been in the investments industry since Mr. Kennedy earned his bachelor of arts degree in economics from the University of Notre Dame. He is also a CFA charterholder. 8 For definitions, fund risks and other important information, please see the Definitions and Important section of this Q&A.

9 PERFORMANCE SUMMARY: Quarter ending December 31, Annualized 5 10 / LOF 1 Fidelity International Discovery Fund Gross Expense Ratio: 0.94% % 9.17% 8.94% 2.47% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/31/ 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.