Fidelity Value Strategies Fund

Transcription

1 Fidelity Value Strategies Fund Key Takeaways For the fiscal year ending November 30, 2017, the fund's Retail Class shares gained 20.18%, handily outpacing the 13.95% return of the benchmark Russell Midcap Value Index. Manager Matthew Friedman says his focus on underappreciated, high-quality companies with strong competitive positions worked out well the past year, as both security selection and industry positioning boosted the fund's performance versus its benchmark. Among sectors, the biggest contribution came from security selection in real estate. Here, the fund's largest individual contributor was American Tower, which owns and operates wireless and broadcast communications towers. In financials, an overweighting in FNF Group, a provider of title insurance and transaction services to the real estate and mortgage industries, also boosted the fund's relative result. Conversely, choices in health care hurt most. In fact, the fund's biggest detractor was an untimely position in Israel's Teva Pharmaceutical Industries, a maker of generic drugs. Given the market's recent strong performance, Matt has increased the fund's stake in some typically more-defensive names and sectors, such as consumer staples, and largely is avoiding lower-quality companies he thinks could underperform in a market correction. MARKET RECAP The U.S. equity bellwether S&P 500 index gained 22.87% for the year ending November 30, 2017, rising steadily and closing the period at an alltime high after a particularly strong three-month finish. Early on, equities rallied on optimism for President Trump's pro-business agenda but 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 with consumer sentiment and other market indicators staying positive. 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. Sectorwise, info tech (+41%) led by a wide margin, surging amid strong earnings growth from several major index constituents. Utilities and financials each gained about 25%, the latter group riding an uptick in bond yields. Conversely, consumer discretionary (+20%) also rose solidly but lagged the broader market, as many brick-andmortar retailers continued to suffer from increased online competition. Rising interest rates held back real estate (+16%), while consumer staples (+15%) and telecom (+1%) struggled due to investors' general preference for risk assets. Lastly, sluggish oil prices pushed energy to a -4% return. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Manager Matthew Friedman Fund Facts Trading Symbol: Matt Friedman Manager FSLSX Start Date: December 31, 1983 Size (in millions): $1, Investment Approach Fidelity Value Strategies Fund is a mid-cap value U.S. equity strategy that seeks capital appreciation by investing in 60 to 80 stocks. Core to our investment philosophy is the belief that cheap stocks outperform expensive stocks over the long term. Consistent with this value orientation, we try to find companies that are underappreciated by the market relative to their earnings and free cash flow. Our approach emphasizes high-quality companies with strong competitive positions and superior returns on invested capital. We also favor firms that we believe offer greater visibility into the future, having demonstrated the ability to grow earnings and cash flow over multiyear periods. Supported by Fidelity's deep research infrastructure, we rely on fundamental security selection and disciplined portfolio construction as we seek to deliver attractive riskadjusted returns over the long term. Q: Matt, how did the fund perform for the fiscal year ending November 30, 2017 I'm pleased with the fund's result. The Retail Class shares advanced 20.18%, handily outpacing the 13.95% return of the benchmark Russell Midcap Value Index. The fund also comfortably outperformed its peer group average. In a reversal from what we experienced in 2016, growth stocks particularly those of high-quality, large-cap growth firms surged ahead of value-oriented names in Still, I kept my focus on underappreciated, high-quality companies with strong competitive positions and superior profits relative to the capital invested in their businesses. I also sought to own the shares of these companies that trade at low price-to-earnings (P/E) ratios. Even though growth was in favor, my value picks many of which were not in our benchmark this period helped the fund outperform. Q: What factors boosted fund performance most the past 12 months From a sector perspective, choices in real estate were a big plus versus the benchmark. I endeavor to build a real estate portfolio I think can add value, regardless of the path of interest rates. For us, that means selecting real estate investment trusts (REITs) with high AFFO (adjusted funds from operations) yield the industry's rough equivalent of free cash flow (FCF) and a durable business model. One company I thought matched these criteria was American Tower, the fund's second-largest holding, on average, the past 12 months. The firm owns and operates wireless and broadcast communications towers in several countries. Our position in American Tower rose about 44%, as the company benefited from increased investment by wireless carriers in their 5G networks, as well as rising demand for tower leasing due to the growing use of smartphones and tablets. Further, the company continued its expansion and benefited from strong organic revenue growth in its international segments. As the stock's valuation increased, I pared the fund's holdings to lock in profits, but it remained among our largest holdings as of November For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 Elsewhere in the real estate sector, it helped to hold an overweighting in commercial property owner CBRE Group and a stake in Equity Lifestyle Properties, an owner and operator of manufactured-housing and RV (recreational vehicle) parks. Our positions in these stocks rallied roughly 48% and 33%, respectively. Q: What was the story in financials This sector was an area of strength. Here, it helped to overweight financial firm FNF Group, a provider of title insurance and transaction services to the real estate and mortgage industries. Our investments in private-equity firm Apollo Global Management also worked out well. FNF and Apollo exhibited strong FCF and return on equity (ROE) characteristics I seek. FNF's valuation surged as investors better understood the company's business. In addition, its Black Knight Financial Services subsidiary performed very well this period, boosting shares of FNF. Meanwhile, Apollo's stock outperformed because the market became more confident the company's earnings were sustainable. I trimmed our positions in both companies this period to lock in some gains and maintain allocations I felt reflected a reasonable risk/reward balance. Q: What else influenced the fund's result Successful security selection and an overweighting in the strong-performing materials sector also contributed to our relative result. Here, I seek stocks of firms headed by strong management teams, and that also have an attractive valuation. Westlake Chemical, which returned about 67%, was a notable contributor that fit this description. The company engaged in value-additive merger-andacquisition activity, helping to boost its share price. I also found value among consumer discretionary holdings. The main contributor here was auto-parts supplier Aptiv, formerly Delphi Automotive. The company announced plans to spin off its powertrain business in May, leading to a price surge for its shares. On the flip side, choices in health care hurt most. In fact, the fund's biggest detractor was an untimely position in Israel-based Teva Pharmaceutical Industries, the world's largest maker of generic drugs. I liked the company based on valuation and the fact that, historically, it had been considered a good business based on ROE. However, the stock was hurt by a combination of excess debt from the company's 2016 acquisition of Actavis' generics business, and by drug-pricing pressure stemming from poor industry fundamentals and turnover in the broader generics product cycle. I sold our stake in Teva by period end. Q: Aside from Teva, which stocks disappointed Another health care stock that hindered our relative result was Envision Healthcare, which provides medical staff to hospitals and other facilities. Our holdings in Envision returned -54% this period, as the company's billing practices came under intense scrutiny. In addition, shares plummeted in late October after the firm released weakerthan-anticipated quarterly earnings and a profit drop. Envision also announced its intent to pursue "strategic alternatives," signaling to investors a potential sale may be forthcoming. Lastly, several energy positions hurt our relative result as well, including Cobalt International Energy and Teekay Offshore Partners. Liquidity concerns plagued Teekay, which I eliminated from the fund, while Cobalt was negatively affected by investors' concern about the company's inability after several years to sell some of its Angolan assets under favorable terms. I'll note, however, that the fund benefited overall from an underweighting and stock selection elsewhere in energy, one of only two sectors that declined in the benchmark the past year. Q: What's your outlook as of November 30 Although I continue to find cash-generative businesses trading at less than their intrinsic value, I'm cognizant of the stock market's strong performance the past 12 months, and that the current bull market is nearly nine years running. Some of the best-performing stocks the past year were ones that have historically struggled to earn their cost of capital; their strong performance came mostly from multiple expansion, rather than earnings growth. In my view, this is not sustainable over the longer term. Overall, I've been making a concerted effort to avoid lowerquality companies based on industry structure, long-term returns and balance sheets that may appear cheap just because the market is expensive. If the market goes through a correction, these firms' earnings should decrease significantly and performance may suffer. 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 Matt Friedman on changes to the fund's positioning: "As I mentioned, I'm increasingly focused on avoiding lower-quality companies in light of the current market's extended bull run and my cautious outlook. As a result, the fund has taken a slightly more-defensive tilt over the past year. The fund's allocation to consumer staples increased as I added to our position in agricultural processing firm Darling Ingredients. I found the stock's valuation attractive when prices for the firm's various end products, such as ethanol and animal feed, declined last year. In addition, the firm's fundamentals stabilized and the company showed its ability to remain profitable and generate cash flow despite market challenges. Elsewhere within the sector, I established stakes in J.M. Smucker, best known for its fruit spreads and peanut butter, and U.S. Foods, one of the country's largest foodservice distributors. "The fund's cash position also rose, finishing the period at about 2% of assets. This position was a relative detractor the past year amid a positivetrending market. Being roughly nine years into the market recovery, I held some cash on hand because I became more sensitive to valuations and aimed to be flexible in case there was market turbulence. "Notably, I added some positions in real estate, moving the fund's stance here to a slight overweighting versus the benchmark as of November 30. I found improving valuations among some higher-quality companies with high AFFO, including National Retail Properties, which primarily invests in prime retail properties subject generally to long-term net leases; Douglas Emmett, which focuses on luxury apartment communities and Class A office properties (meaning those with superior location, access and management) in Southern California and Honolulu; and Equinix, a global datacenter provider." Holding Market Segment Average Relative Relative Contribution (basis points)* American Tower Corp. Real Estate 2.93% 87 FNF Group Financials 1.46% 74 Westlake Chemical Corp. Delphi Automotive PLC Consumer Discretionary Apollo Global Management LLC Class A * 1 basis point = 0.01%. Materials 1.46% % 59 Financials 1.08% 56 LARGEST DETRACTORS VS. BENCHMARK Holding Teva Pharmaceutical Industries Ltd. sponsored ADR Cobalt International Energy, Inc % 12/1/19 Envision Healthcare Corp. Teekay Offshore Partners LP Anadarko Petroleum Corp. * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Market Segment Average Relative Relative Contribution (basis points)* Health Care 0.74% -81 Energy 0.50% -65 Health Care 0.76% -64 Energy 0.32% -54 Energy 0.49% -46 Six Months Ago Domestic Equities 91.06% 93.24% International Equities 7.03% 6.13% Developed Markets 7.03% 5.74% Emerging Markets 0.00% 0.39% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.17% 0.59% Cash & Net Other Assets 1.74% 0.04% 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 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 Six Months Ago Financials 18.05% 16.33% Real Estate 14.68% 13.82% Industrials 10.91% 11.29% Information Technology 9.97% 11.44% Consumer Discretionary 9.96% 9.72% Materials 9.50% 8.62% Energy 7.61% 8.01% Utilities 7.36% 8.68% Health Care 5.72% 7.94% Consumer Staples 4.51% 4.11% Telecommunication Services 0.00% 0.00% Other 0.00% 0.00% Holding Market Segment Six Months Ago Edison International Utilities 2.74% 3.32% Sempra Energy Utilities 2.71% 3.17% American Tower Corp. Real Estate 2.64% 3.41% Synchrony Financial Financials 2.61% 2.22% U.S. Bancorp Financials 2.25% 2.45% Wells Fargo & Co. Financials 2.15% 1.65% Extra Space Storage, Inc. Real Estate 2.08% 2.18% Discover Financial Services Financials 1.97% 1.23% Xcel Energy, Inc. Utilities 1.91% -- Equity Lifestyle Properties, Inc. Real Estate 1.87% 2.00% 10 Largest Holdings as a % of Net Assets 22.93% 25.08% 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 November 30, Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Value Strategies Fund Gross Expense Ratio: 0.56% % 17.49% 20.18% 8.42% 12.76% 7.14% Russell Midcap Value Index 8.03% 11.96% 13.95% 8.83% 14.99% 8.84% Morningstar Fund Large Value 9.98% 14.23% 16.55% 8.14% 13.33% 6.59% % Rank in Morningstar Category (1% = Best) % 48% 70% 35% # of Funds in Morningstar Category ,266 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. 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. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. Value stocks can perform differently than other types of stocks and can continue to be undervalued by the market for long periods of time. 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. Russell Midcap Value Index is a market-capitalization-weighted index designed to measure the performance of the mid-cap value segment of the U.S. equity market. It includes those Russell Midcap Index companies with lower price-to-book ratios and lower forecasted growth values. 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 2018 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 Matthew Friedman is a portfolio manager in the Equity division at Fidelity Investments. 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. Friedman manages Fidelity VIP Value Fund, Fidelity Stock Selector Large Cap Value Fund, Fidelity Value Fund, and Fidelity Advisor Series Stock Selector Large Cap Value Fund. Additionally, he manages Fidelity and Fidelity Advisor Value Strategies Fund, Fidelity VIP Value Strategies, and Fidelity Flex Mid Cap Value Fund. He also is co-manager for the consumer discretionary and consumer staples sleeves of Fidelity and Fidelity Advisor Value Funds and Fidelity Flex Mid Cap Value Fund. Prior to assuming his current responsibilities, Mr. Friedman managed several select funds. Additionally, he was sector leader of the industrials and energy research groups and followed specialty pharmaceuticals and generics stocks, as well as media, cable, and satellite. Previously, Mr. Friedman was a summer intern following internet infrastructure stocks. Before joining Fidelity in 1999, Mr. Friedman worked as an investment banking analyst at Lehman Brothers and as an audit senior at Arthur Andersen. He has been in the financial industry since Mr. Friedman earned his bachelor of business administration degree in accounting from Emory University and his master of business administration degree from the University of Chicago. He is also a CFA charterholder and 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 Value Strategies Fund Gross Expense Ratio: 0.56% % 7.75% 12.50% 6.18% 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. Diversification does not ensure a profit or guarantee against a loss. 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