Fidelity Small Cap Stock Fund

Transcription

1 Fidelity Small Cap Stock Fund Key Takeaways For the semiannual period ending October 31, 2017, the fund gained 6.64% trailing the 8.01% advance of the benchmark Russell 2000 Index. Investors favored an increasingly narrow slice of growth stocks this period a poor fit for the value- and quality-focused management strategy followed by the fund's managers, regardless of market conditions. By sector, weak stock picking in industrials and financials hampered the relative return. However, security selection in the real estate and information technology sectors, as well as positioning in consumer discretionary, added value. On July 1, 2017, Kip Johann-Berkel assumed Co-Manager responsibilities for the fund. Kip joins Lionel Harris, who remains Lead Portfolio Manager. Lionel will step away from portfolio management on June 30, Kip is expected to assume Lead Portfolio Management responsibility for the fund at that time. As of period end, Lionel and Kip recognize that their investment approach has been out of favor in recent years, but anticipate that a reversal in market conditions may provide a more helpful backdrop for their strategy. MARKET RECAP The U.S. equity bellwether S&P 500 index returned 9.10% for the six months ending October 31, Markets notched strong gains, and the index hit a series of all-time highs late in the period. With exception of a brief cooldown in August, when geopolitical tension escalated and uncertainty grew regarding legislation out of Washington, consumer sentiment and other market indicators remained positive. In a stark reversal from 2016, growth-oriented stocks handily topped their value counterparts. Among sectors, information technology (+19%) was a standout, surging as a handful of major index constituents, notably in the semiconductor group (+30%) within the index, posted strong returns. Financials gained 14%, riding the uptick in bond yields and a surge in banks late in the period. Materials (+12%) also did well, spurred by increased demand, especially from China. Conversely, rising interest rates held back real estate (+4%), while sluggish oil prices dragged on energy (+2%) and weak media shares (-10%) curbed what was an otherwise decent period for consumer discretionary (+3%). Ending in negative territory, consumer staples (-2%) and telecommunication services (-5%) struggled due to investors' general preference for risk assets, coupled with increased competition. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A Lionel Harris Lead Manager Fund Facts Trading Symbol: FSLCX Kip Johann-Berkel Co-Manager Start Date: March 12, 1998 Size (in millions): $1, Investment Approach Fidelity Small Cap Stock Fund is a small-cap core strategy that seeks higher-quality small-cap companies offering attractive growth prospects and reasonable valuations. We believe stock prices follow companies' underlying earnings, and firms that can grow their earnings at aboveaverage rates for extended periods offer the most compelling investment opportunities. However, we recognize that the small-cap companies in which we invest are inherently riskier, so we try to reduce the level of risk in the portfolio by investing in what we believe are more-dependable small-cap names. In pursuit of these companies, we gravitate toward solid management teams that generate strong returns on capital, produce abundant free cash flow and allocate capital prudently. We also look for reasonable valuations and where we expect one or more catalyst to lift the firm's share price over the next six to 12 months. An interview with Lead Portfolio Manager Lionel Harris and Co- Manager Kip Johann-Berkel Q: Kip, how did the fund perform for the semiannual period ending October 31, 2017 K.J.B. The fund rose 6.64%, lagging the benchmark Russell 2000 Index, which gained 8.01%. The fund also modestly trailed the peer group average. Security selection in the industrials and financials sectors hurt performance versus the index the most, while stock picking in real estate and information technology contributed, as did positioning in consumer discretionary. Looking a bit longer term, the fund gained significant ground the past 12 months, but meaningfully trailed the Russell index, as well as the peer average. Q: Lionel, were you satisfied with the fund's result this period L.H. We never like to see the fund lag the benchmark. That said, I'm not especially surprised by the fund's underperformance, given that investors favored an increasingly narrow slice of growth stocks this period a poor fit for the value-focused management strategy we follow in all types of market conditions. As a reminder for shareholders: The fund's approach emphasizes high-quality companies with strong management teams and good balance sheets with stocks that trade at attractive valuations. We believe stock prices follow companies' intrinsic (true) value over the long term, and we regularly look for investments that currently trade below intrinsic value that we think have the potential to appreciate faster than the market over time. We also look for one or more near- or medium-term catalysts that could drive a company's stock upward. This is a relatively conservative approach to small-cap investing that tends to outperform when higher-quality, attractively priced stocks are in favor. Q: How does risk management fit into this strategy L.H. Our approach generally steers the fund clear of companies with the highest valuations and those 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 generating losses or volatile profits. Instead, we focus on firms we think have attractive valuations relative to their earnings. The idea is that we believe the lower a company's price-earnings ratio, the less downside risk an investor will tend to assume. A focus on companies with sustainable growth prospects and strong or improving cash flow is intended to help the fund weather the inevitable storms that occur with all stocks. When tough times hit, a company that can generate a lot of cash will tend to fare better than a more speculative business with little or no earnings or relatively high debt. At the portfolio level, our goal is to position the fund so it can succeed as a result of stock selection, which we believe is a more repeatable skill than timing the markets, and is an area in which we've had a longer track record of success. To accomplish this, we try to limit the fund's beta (a measure of volatility) within a range around its benchmark. We tend to keep sector weightings within five percentage points of index weightings, in an effort to limit the risk of a particular sector growing to a larger-thandesired portion of the portfolio and becoming vulnerable to a potential industry correction. Also, we will sometimes take advantage of opportunities to invest in companies outside the U.S. Q: Which stocks detracted relative to the index for the six months L.H. The fund's biggest individual detractor this period was CommScope, which supplies network infrastructure to large communication services providers. CommScope's shares fell sharply in August, after the company reported weakerthan-anticipated quarterly revenue and earnings. We were not overly concerned by this near-term challenge which we attributed to a temporary pullback in customers' capital spending. To the contrary, we continued to see a business with a track record of good financial returns over time that may benefit from favorable longer-term industry trends. HD Supply Holdings, one of the fund's largest positions as of October 31, also hampered relative results. In June, this distributor of building supplies reported weaker-thanexpected earnings and agreed to sell its Waterworks business unit for a price many investors found disappointing. We added to this position during the period, as we continued to believe the stock offered a good risk/reward trade-off. K.J.B. Another detractor was TreeHouse Foods, which, like CommScope and HD Supply, was an out-of-benchmark holding. In August, TreeHouse, the country's largest manufacturer of private-label food products, reported lighter-than-expected revenue. The company also has had some business execution problems. Longer-term, however, we still see good potential here: The company has a dominant position in its marketplace and the opportunity to benefit from an industrywide shift toward more private-label foods. Moreover, we think the shares offer very good value. Q: Which stocks contributed L.H. The fund's top contributor was Stamps.com, a provider of internet-based postage and delivery services. This fast-growing company continued to beat analysts' earnings expectations. It also has benefited from a strong competitive position and business model, as well as the global push toward internet-based solutions to longstanding business needs. Another strong performer for the fund was LivaNova, a medical device company emphasizing cardiac health. Coming into the period, we thought LivaNova's shares were attractively valued which we think helped lead to a price gain when the company produced favorable financial results this period. K.J.B. Also adding value was ON Semiconductor, a manufacturer of semiconductors for applications in automobiles and industrial equipment. We really like the company's automotive niche, partly because the product cycles are relatively long. We think the company has a strong market position in various key parts of vehicle production these days, such as infotainment and autonomous-driving systems. As of October 31, we continued to hold sizable positions in all three names, even as we trimmed the fund's stakes as their valuations became somewhat less compelling. Q: Any closing thoughts, gentlemen L.H. Next July, as I plan to retire from money management, I'll be handing over the reins to Kip. I think he'll do an outstanding job for shareholders. As we will discuss shortly, our respective investment approaches have a lot more similarities than differences, which I think should make for a relatively seamless transition process. Looking ahead, shareholders should expect us to remain true to our investment style, focusing on small-cap stocks with above-average quality and growth characteristics, strong free cash flow, and solid balance sheets. We're aware that this approach has been somewhat out of favor in recent years, but we remain optimistic over the longer term. 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 Lionel Harris and Kip Johann- Berkel discuss the management transition: L.H. "One reason I think Kip is a good choice to succeed me as manager of Small Cap Stock Fund is that he's been an important part of Fidelity's small-cap research team, having provided a variety of investment ideas to me and my colleagues for a number of years. "As I mentioned, our management transition is well underway. Kip is already adding new ideas to the fund, and this process should continue until sometime next year, when he is expected to become the lead manager." K.J.B. "I think current shareholders should be happy to know about the many similarities between how Lionel and I approach investing. The simplest way I can put it is that we both favor stocks displaying quality at a reasonable price. "More specifically, we both favor companies with solid cash flow and that we think have demonstrated the ability to intelligently allocate that cash flow. We like management teams that are properly incented to act in an investor-friendly way. And we both pay close attention to valuation, in an effort to avoid overpaying for stocks. "No two managers will ever approach investing exactly the same way. If there are any differences in how we invest, I'd say the biggest one is that I'm probably a bit more comfortable considering stocks at the smaller end of our market-cap range. Often, this involves a 'basket' approach, meaning we own a handful of stocks in a particular industry to avoid concentration risk in a more-volatile market segment. "In general, though, shareholders should expect a fairly seamless management transition. I expect that changes to the fund's holdings will be gradual and well-controlled." Holding Allison Transmission Holdings, Inc. Genpact Ltd. Employers Holdings, Inc. LivaNova PLC HD Supply Holdings, Inc. UMB Financial Corp. Prosperity Bancshares, Inc. j2 Global, Inc. Dechra Pharmaceuticals PLC Landstar System, Inc. 10 Largest Holdings as a % of Net Assets Market Segment Industrials Information Technology Financials Health Care Industrials Financials Financials Information Technology Health Care Industrials 20.49% Total Number of Holdings 119 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 82.90% 82.21% International Equities 15.86% 16.19% Developed Markets 14.73% 14.91% Emerging Markets 1.13% 1.28% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 1.24% 1.60% 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 Financials 20.57% 21.20% Industrials 18.03% 17.66% Information Technology 15.27% 16.32% Health Care 15.01% 14.26% Consumer Discretionary 10.85% 8.72% Real Estate 6.18% 6.08% Materials 4.86% 3.22% Consumer Staples 4.03% 5.19% Energy 2.85% 4.36% Utilities 1.11% 1.39% Telecommunication Services 0.00% 0.00% Other 0.00% 0.00% FISCAL PERFORMANCE SUMMARY: Periods ending October 31, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Small Cap Stock Fund Gross Expense Ratio: 1.02% % 9.70% 21.47% 9.02% 12.83% 6.10% 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) % 51% 69% 77% # of Funds in Morningstar Category Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 03/12/ 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 2.00% 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. 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 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 7/1/17, Lionel Harris transitioned to lead portfolio manager and Kip Johann-Berkel was added as co-portfolio manager of the fund. 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 6

7 Manager Facts Lionel Harris 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. computer science from the Massachusetts Institute of Technology (MIT) and his master of business administration degree in finance and accounting from the Booth School of Business at the University of Chicago. In this role, Mr. Harris serves as lead portfolio manager of Fidelity Small Cap Stock Fund and Fidelity Small Cap Stock K6 Fund. Prior to assuming his current responsibilities, Mr. Harris managed Fidelity Small Cap Growth Fund and Fidelity Advisor Small Cap Growth Fund. He also co-managed Fidelity Series Small Cap Opportunities Fund and managed Fidelity Small Cap Discovery Fund. Previously, Mr. Harris served as sector leader of Fidelity's Small-Cap team and as director of research for the High Income division. He joined Fidelity as a research analyst in Before joining Fidelity, Mr. Harris served as a research project manager at Cambridge Associates, Inc. In this capacity, Mr. Harris researched, authored and managed the firm's research publication "High-Yield Bonds," which served as the basis for asset allocation decisions of consultants and over 150 endowed institutions. He has been in the investments industry since Mr. Harris earned his bachelor of arts degree in economics from Dartmouth College and his master of business administration degree from The Wharton School of the University of Pennsylvania. He is also a CFA charterholder. Kip Johann-Berkel is a research analyst and 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. Johann-Berkel is responsible for the coverage of U.S. small cap consumer stocks. Additionally, he co-manages Fidelity Small Cap Stock Fund and Fidelity Small Cap Stock K6 Fund. Prior to assuming his current responsibilities, Mr. Johann-Berkel covered small cap industrial stocks, financial technology stocks, and U.S. railroads. Before joining Fidelity full-time in 2009, Mr. Johann-Berkel worked as a computer programmer at UBS Investment Bank. He has been in the investments industry since Mr. Johann-Berkel earned his bachelor of science degree in 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 Small Cap Stock Fund Gross Expense Ratio: 1.02% % 10.25% 11.80% 6.22% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 03/12/ 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 2.00% 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. 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.