Fidelity Equity Dividend Income Fund

Transcription

1 Fidelity Equity Dividend Income Fund Key Takeaways For the semiannual reporting period ending May 31, 2017, the fund's share classes gained about 6%, topping the 5.19% return of the benchmark Russell 3000 Value Index. After lagging the benchmark in December and January amid market turbulence triggered by the U.S. presidential election the fund responded well to the managers' emphasis on stocks of high-quality, dividend-paying companies. Stock selection in the financials sector had by far the largest positive impact on relative performance, while positioning in consumer staples and real estate also helped. In energy, stock picking lifted relative performance but was offset by an overweighting in this lagging sector. Positioning in consumer discretionary, telecommunication services and utilities modestly detracted from performance versus the benchmark. On April 8, 2017, John Sheehy became the fund's Co-Manager, a post he will hold through December 31, 2017, at which time he will be named sole Portfolio Manager. MARKET RECAP The U.S. equity bellwether S&P 500 index returned 10.81% for the six months ending May 31, 2017, displaying a strong ramp-up during the first half of the period on optimism for President Trump's pro-business agenda. Equity markets leveled off in March, however, as the fledgling administration faced the first test of its domestic agenda. The S&P reacted with uncertainty to efforts by Congress to repeal and replace the Affordable Care Act (ACA) and was relatively flat through May 31. In a reversal from much of 2016, growth-oriented stocks handily topped their value counterparts the past six months. Among sectors, information technology (+22%) fared best, surging in 2017 as a handful of constituents posted stellar returns. Certain so-called bond-proxy sectors bounced back after struggling in late 2016, with consumer staples (+14%) and utilities (+17%) rising strongly for the full six months; conversely, dividend-rich telecom (-1%) struggled amid rising interest rates and increased competition. Health care (+12%) performed well in February and again in April, climbing higher following the ACA's reprieve. Meanwhile, financials (+4%) lagged the broader market when sentiment regarding the potential for deregulation and lower taxes faded as the White House turned its attention to other initiatives. Lastly, lower oil prices sent energy (-11%) to the bottom of the sector performance rankings. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A Scott Offen Lead Manager Fund Facts Trading Symbol: FEQTX John Sheehy Co-Manager Start Date: August 21, 1990 Size (in millions): $5, Investment Approach Fidelity Equity Dividend Income Fund seeks to deliver yield in excess of the equity market with a value approach to capital appreciation. We believe that dividends provide a significant percentage of total return over time, and that a portfolio of stocks with above-market dividend yields/growth and below-average valuations can match or exceed the performance of the market over a full market cycle, but with a lower volatility of returns. We also believe that lower payout ratios provide safety for a dividend and can be supportive of future dividend growth. We look for companies committed to increasing their payout ratios, as demonstration of good capital management can lead to valuation expansion. We focus on high-quality firms with high or improving returns, as well as those with strong balance sheets, including cash on hand or cash the enterprise is reasonably expected to generate in the very near future. An interview with Lead Portfolio Manager Scott Offen and Co- Manager John Sheehy Q: Scott, how did the fund perform for the semiannual reporting period ending May 31, 2017 S.O. The fund's share classes gained about 6%, topping the 5.19% return of the benchmark Russell 3000 Value Index. However, the fund fell short of the peer group average this period. After lagging the benchmark in December and January amid market turbulence triggered by the U.S. presidential election the fund responded well to our emphasis on stocks of high-quality, dividend-paying companies. Looking a bit longer term, the fund finished behind both its benchmark and peer average for the trailing year. Q: What was noteworthy about the investing backdrop the past six months S.O. Interestingly, most of the gyrations caused by the U.S. presidential election had played out prior to December 1, the beginning of this reporting period. For example, we'd seen a huge month of outperformance by the financials sector in November, as investors aggressively bought bank shares in response to sharply higher interest rates and the possibility of faster economic growth and higher loan demand. However, bank stocks modestly lagged the benchmark for the six-month reporting period, as promises by the new administration to loosen regulatory requirements for banks have, so far, gone unfulfilled. Consequently, investors who really loaded up on bank stocks this period probably were disappointed. We tend not to jump on each new hot trend in hopes of riding it for quick gains. Rather, we aim to have balanced exposure to each market sector, and try to add value mainly through stock selection, as well as industry selection within each sector. We do respond to trends that we believe might be significant and durable. For instance, we'd overweighted banks since around the middle of 2016 because, at that point, interest rates were exceptionally low and sentiment about bank shares seemed to be too negative. We 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 maintained this positioning until May, when we lightened up on our bank holdings and brought them back to roughly a neutral weighting. Although stock picking in financials was by far the largest positive influence on relative performance the past six months, it was the diversified financials group, rather than banks, that primarily drove results in the sector. Elsewhere, positioning in consumer staples and real estate helped. In energy, stock picking lifted relative performance but was offset by an overweighting in this lagging sector. Q: Which individual holdings helped relative performance most S.O. Eight of the 12 largest relative contributors were nonbenchmark positions, reflecting our willingness to look far and wide for attractive opportunities and not restrict our view to what's in the benchmark. The top contributor versus the benchmark was U.K.-based consumer goods company Unilever, one of the largest outof-benchmark positions in the fund and a stock I've followed for quite some time. I ramped up our exposure to Unilever this period based on how inexpensive I thought it was, the firm's exposure to more-vibrant emerging markets and its healthy dividend yield. The stock's performance also benefited from the unsuccessful mid-february bid for the company by U.S. rival Kraft Heinz. Overweighting Apple also lifted our relative result. This stock was the beneficiary of improving expectations about the next iteration of the firm's iphone device, scheduled for release in the fall of 2017 and rumored to be a major upgrade. In my view, investors frequently have underestimated the value of the Apple franchise and "ecosystem" of applications. Granted, it's now a mega-cap stock, and the company's fastest growth probably is behind it, but Apple still enjoys tremendous brand loyalty. Next, I'll mention alternative-asset manager Blackstone Group, another non-benchmark position. This company continued to profit from its expertise in managing private equity, hedge funds and other non-standard investments, which produced healthy capital inflows and profits for the firm. I liked Blackstone's strong cash flow, clean balance sheet and generous dividend yield. Cenovus Energy, the fund's largest relative detractor. This stock lost ground partly because of the firm's decision this period to purchase most of the Canadian assets of U.S. energy giant ConocoPhillips. The consensus was that Cenovus overpaid for these assets. A falling price for crude oil also hampered the stock. I liked the company for its production profile and its considerable exposure to the price of oil, as I thought the supply/demand situation in crude might improve in the next year or two. Shares of pipeline operator Williams Companies also lagged, despite its lower dependence on energy prices, high-quality assets and generous dividend yield. I reduced our Cenovus and Williams positions, but maintained meaningful exposure in both cases. Q: Turning to you, John, how was the fund positioned on May 31 J.S. My investment philosophy is similar to Scott's, so we've not made major changes to the fund's positioning. The fund continued to have a modestly cyclical tilt at period end, with overweightings in information technology and energy, and roughly neutral exposure to financials. Somewhat balancing these more-cyclical segments, the fund's largest sector overweighting on May 31 was consumer staples, a defensive group where we added exposure this period. The largest sector underweightings at period end were real estate and utilities, two groups that tend to move in tandem with bond prices. We thought interest rates could rise much further over time, potentially hurting stocks in these sectors, and valuations seemed relatively unattractive given the meager growth we anticipated there. In closing, Scott and I are focused on finding good, dividend-paying businesses with sustainably high returns on capital that we can buy at attractive valuations. In the callout box that follows, I offer further observations about the recent economic environment and our approach to selecting dividend stocks. Q: How about detractors S.O. Positioning in consumer discretionary, telecommunication services and utilities modestly detracted from performance versus the benchmark. Several positions that hurt fund performance were energy companies, including an out-of-benchmark position in 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 LARGEST CONTRIBUTORS VS. BENCHMARK John Sheehy on the U.S. economy and how he selects dividendpaying stocks: "Although Scott and I believe that the U.S. economic expansion that began in 2009 is getting long in the tooth, there appear to be relatively few signs of stress in the economy. Unemployment is low and there is modest wage growth, which means the consumer likely is in decent shape and able to continue spending. "Rising interest rates make all kinds of adjustablerate debt more expensive to service, and we would be concerned if rates rose too far, too fast. So far, though, that doesn't appear to be a concern. In fact, after spiking higher just after the election, market-driven rates have fallen slightly beginning around mid-march. "U.S. stock valuations are a potential headwind, as well. Now that price multiples have expanded so much, any further gains likely will be limited by earnings growth. Yet we see many high-quality companies that we believe can continue to grow their earnings and raise their dividends. "As a reminder, we don't simply look for the companies paying the highest dividend yields. That approach often leads to buying stagnant companies that prove to be 'value traps' that is, firms whose shares seem cheap at first glance but subsequently get cheaper because of significant fundamentals flaws. "In contrast, we exhaustively analyze a company's cash flow both current and potential as well as its balance sheet and management team. We look for firms with moderately high current yields that look to have stable revenue and earnings growth to fuel regularly increasing payouts in future years." Holding Market Segment Average Relative Relative Contribution (basis points)* Unilever NV (NY Reg.) Consumer Staples 1.24% 49 Apple, Inc. Information Technology 1.22% 36 The Blackstone Group LP Financials 1.42% 36 British American Tobacco PLC sponsored ADR Consumer Staples 0.84% 23 GlaxoSmithKline PLC Health Care 1.53% 23 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment Average Relative Relative Contribution (basis points)* Cenovus Energy, Inc. Energy 0.78% -47 Philip Morris International, Inc. The Williams Companies, Inc. Verizon Communications, Inc. Consumer Staples -1.18% -35 Energy 2.32% -33 Telecommunicatio n Services 2.22% -27 Chevron Corp. Energy 2.31% -25 * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Portfolio Portfolio Six Months Ago Domestic Equities 88.89% 88.46% International Equities 10.26% 8.23% Developed Markets 10.26% 8.23% Emerging Markets 0.00% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 0.85% 3.31% 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 10 LARGEST HOLDINGS Market Segment Portfolio Portfolio Six Months Ago Financials 26.30% 28.01% Energy 13.01% 16.04% Information Technology 12.45% 10.14% Consumer Staples 10.56% 6.74% Health Care 10.30% 8.21% Industrials 9.18% 10.76% Utilities 4.50% 3.29% Telecommunication Services 4.47% 3.48% Consumer Discretionary 4.01% 5.75% Materials 2.28% 2.39% Real Estate 2.11% 1.87% Other 0.00% 0.00% Holding Verizon Communications, Inc. Market Segment Telecommuni cation Services Portfolio Portfolio Six Months Ago 4.47% 2.16% Wells Fargo & Co. Financials 3.78% 2.73% JPMorgan Chase & Co. Financials 3.74% 4.80% Chevron Corp. Energy 3.72% 4.37% Cisco Systems, Inc. Procter & Gamble Co. Unilever NV (NY Reg.) Information Technology Consumer Staples Consumer Staples 2.86% 2.69% 2.75% 1.80% 2.51% 0.43% The Williams Companies, Inc. Energy 2.20% 3.21% General Electric Co. Industrials 2.14% 1.99% Medtronic PLC Health Care 2.12% 1.07% 10 Largest Holdings as a % of Net Assets 30.30% 28.89% 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 May 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Equity Dividend Income Fund Gross Expense Ratio: 0.72% % 3.22% 13.34% 7.66% 13.09% 4.19% MSCI US Investable Market High Dividend Yield Index 7.62% 4.75% 15.06% 9.97% 14.86% -- Russell 3000 Value Index 5.19% 2.50% 15.12% 7.66% 14.59% 5.16% Morningstar Fund Large Value 6.13% 3.96% 14.75% 6.65% 13.24% 4.82% % Rank in Morningstar Category (1% = Best) % 28% 59% 66% # of Funds in Morningstar Category ,244 1, Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 08/21/ 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, advisor.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 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. Fixed income investments entail interest rate risk (as interest rates rise bond prices usually fall), the risk of issuer default, issuer credit risk and inflation risk. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. IMPORTANT FUND INFORMATION Relative positioning data presented in this commentary is based on the fund's primary benchmark (index). Effective 4/8/17, John Sheehy was added as co-portfolio manager and Scott Offen transitioned to lead portfolio manager of the fund. 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. 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. 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. 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 U.S. Investable Market High Dividend Yield Index is a marketcapitalization-weighted index of stocks designed to measure the performance of the high dividend yielding segment of the U.S. large, mid, and small cap equity market. Real Estate Investment Trusts (REITs) are excluded. Eligible companies must have a persistent and sustainable dividend and a dividend yield that is meaningfully higher than average for the parent MSCI U.S. Investable Market 2500 Index. Russell 3000 Value Index is a market-capitalization-weighted index designed to measure the performance of the broad value segment of the U.S. equity market. It includes those Russell 3000 Index companies with lower price-to-book ratios and lower forecasted growth rates. 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 6

7 Manager Facts Scott Offen 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. Offen co-manages Fidelity Equity Dividend Income Fund and the equity sleeve of Fidelity Strategic Dividend & Income Fund. Prior to assuming his current responsibilities, Mr. Offen managed VIP Value Portfolio, Fidelity Advisor Equity Value Fund, and Fidelity Value Discovery Fund, as well as nine additional funds/portfolios since joining Fidelity's Equity Research department in He has been in the investments industry since Mr. Offen attended Hamilton College. John Sheehy 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. Sheehy co-manages the information technology and telecommunication services sleeves of Fidelity Stock Selector Large Cap Value Fund, Fidelity Series Stock Selector Large Cap Value Fund, and Fidelity Advisor Series Stock Selector Large Cap Value Fund. Additionally, he co-manages Fidelity Advisor Equity Income Fund and Fidelity Equity Dividend Income Fund. In addition to his current responsibilities, Mr. Sheehy co-managed Fidelity Select Banking Portfolio until Previously, he covered various sectors as an analyst at FMR Co., including banking, aerospace and defense, and paper and packaging. Before joining Fidelity in 2007, Mr. Sheehy worked as an audit manager at Deloitte. He has been in the investments industry since Mr. Sheehy earned his bachelor of arts degree in economics and accounting from the College of the Holy Cross and his master of business administration degree in finance from New York University's Stern School of Business. He is also a Certified Public Accountant (CPA). 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 September 30, Annualized 5 10 / LOF 1 Fidelity Equity Dividend Income Fund Gross Expense Ratio: 0.72% % 8.67% 11.94% 4.78% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 08/21/ 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.