QUARTERLY FUND REVIEW AS OF SEPTEMBER 30, 2017 Fidelity Capital & Income Fund Investment Approach Fidelity Capital & Income Fund is a diversified high-yield bond strategy that seeks income and capital growth by investing primarily in the bonds of non-investment-grade companies. We apply an opportunistic investment approach, which results in tactical positions aimed to capitalize on relative value across a company's capital structure, including high-yield bonds, stocks, convertible securities, leveraged loans and preferred stocks. In particular, we seek companies with strong balance sheets, high free cash flow, improving business/industry fundamentals and sharp management teams that are motivated to reduce debt. In doing so, we take a longer-term investment outlook and also may take advantage of opportunities based on where we are in the credit cycle. We strive to uncover these investments through in-depth fundamental credit analysis, working in concert with Fidelity's high-income and global research teams. PERFORMANCE SUMMARY Cumulative 3 Month YTD 1 Year Annualized 3 Year 5 Year 10 Year/ LOF 1 Fidelity Capital & Income Fund Gross Expense Ratio: 0.73% 2 3.15% 9.67% 11.30% 6.52% 7.70% 8.06% The BofA Merrill Lynch US High Yield/US High Yield Constrained Blend 2.04% 7.04% 9.05% 5.88% 6.39% 7.81% Morningstar Fund High Yield Bond 1.79% 5.94% 7.77% 4.17% 5.14% 6.24% % Rank in Morningstar Category (1% = Best) -- -- 5% 4% 3% 3% # of Funds in Morningstar Category -- -- 697 601 485 319 FUND INFORMATION Manager(s): Mark Notkin Trading Symbol: FAGIX Start Date: November 01, 1977 Size (in millions): $11,785.40 Morningstar Category: Fund High Yield Bond Interest rate increases can cause the price of a debt security to decrease. Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/1977. 2 This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent fiscal year. This fund has a short term trading fee 1.00% 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. For definitions and other important information, please see the Definitions and Important Information section of this Fund Review. Not FDIC Insured May Lose Value No Bank Guarantee
High-Yield Bond Market Review U.S. corporate high-yield bonds gained 2.02% for the three months ending September 30, 2017, as measured by The BofA Merrill Lynch SM US High Yield Constrained, extending an upward trend that began in mid-february 2016. This quarter, synchronized expansion in global economic activity along with low inflation and accommodative monetary policies continued to provide a steady backdrop for most asset classes, including high yield. The exception was a brief stretch in early August, when high yield was pressured by heightened geopolitical risk and some industry-specific developments. All in all, the broader backdrop was largely supportive, and credit spreads continued to narrow, spurred by an improving U.S. economy, generally positive issuer fundamentals and enormous monetary support from major central banks worldwide. Throughout most of the quarter, risk assets across the board traded higher with minimal resistance. In July, high-yield bonds rose 1.16% amid upbeat corporate earnings and light new issuance. A modest dip in performance in August reflected escalating tension between the U.S. and North Korea, causing risk assets across the board to pull back. The energy-heavy highyield market came back strong in September, gaining 0.88%, led by a 3.43% gain for energy as a group, which received a boost from news of lower crude-oil supplies in the U.S. and a subsequent price surge for the global commodity. For the full three months, gains were broad-based across industries, but generally within a fairly tight range. Energy (+5%), transportation ex air/rail (+4%), utilities (+4%) and metals/mining (+4%) led the way. Firms in the banks & thrifts segment gained about 2%, carrying some of the post-election momentum picked up from investors who expect a new, pro-business presidential administration to ease financial regulation. Several more-defensive categories lagged the broader market, but only with a slight disadvantage, including food/beverage/tobacco (+2%). The group struggled as brick-and-mortar retailers faced significant competitive challenges from online merchants. Defensive-oriented health care and telecommunications each gained roughly 1%. Meanwhile, food & drug retail was the biggest laggard by a wide margin, returning about -4%. The only other industry to finish in the red was entertainment/film, which finished at roughly breakeven. Although investor sentiment around risk assets wavered during the quarter, lower-quality bonds rated CCC fared best, but by a slim margin. The higher-quality B and BB tiers finished the threemonth period with slightly smaller gains. By comparison, third-quarter results for high yield lagged largecap U.S. equities, slightly trailed emerging-markets debt, and outpaced floating-rate leveraged bank loans and investmentgrade bonds. HIGH-YIELD SPREAD AND AVERAGE YIELD (BASIS POINTS*) Basis Points 2,400 2,000 1,600 1,200 800 THREE-MONTH HIGH-YIELD RETURNS Quality Total Return BB 2.09% B 1.84% CCC and Below 2.63% The BofA Merrill Lynch US High Yield Constrained Source: Bank of America Merrill Lynch 2.04% 400 0 1/31/97 1/31/99 1/31/01 1/31/03 1/31/05 1/31/07 1/31/09 1/31/11 1/31/13 1/31/15 1/31/17 HY Yield Spread *1 basis point = 0.01%. Source: Bank of America Merrill Lynch as of 9/30/17. Yield spread is represented by the option-adjusted spread of the The BofA Merrill Lynch US High Yield/US High Yield Constrained Blend. The average spread is calculated from 1/31/97 through the most recent period. 2 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.
Performance Review The fund gained 3.15% for the three months ending September 30, 2017, topping the 2.02% advance of its benchmark, The BofA Merrill Lynch SM US High Yield Constrained. The investment environment this quarter was broadly constructive for risk assets, and stocks handily beat high yield's gain. Our investments in high-yield bonds, the fund's core area of focus, rose 2.78% for the quarter, contributing to performance versus the benchmark. The fund's roughly 20% non-benchmark stake in equities gained 6.30% the past three months, topping the 4.48% advance of the S&P 500 index and boosting the fund's result versus its high-yield benchmark. We held a small non-benchmark stake in floating-rate leveraged bank loans, to improve the quality and reduce the duration of the portfolio. This allocation modestly helped the fund's relative return. Within high yield, security selection drove the fund's relative performance, led by picks in technology, utilities and telecommunications. Conversely, relative performance was hampered most by picks in the health care industry, along with unfavorable positioning in energy. The top relative contributor was Texas utility firm TXU, a sizable non-benchmark holding. We sold our position in TXU this quarter but maintained a stake in its subsidiary Energy Future Holdings. Elsewhere, it helped to own a non-benchmark equity position in Air Canada. Overall, we have a favorable view of airlines because we believe industry fundamentals are much improved after a wave of consolidation in recent years. A sizable position in Air Canada among the fund's largest reflects our view that it has some unique growth opportunities, faces less competition than others and had a cheap valuation. A large stake in United Rentals was another top contributor. The major equipment rental company benefited as oil prices rebounded and it began to see better utilization from its business that serves energy companies. Conversely, our biggest detractor was an equity investment in Allergan, maker of Botox wrinkle treatment and dry-eye drug Restasis. The stock struggled because the firm continued to report minimal revenue growth not tied to acquisitions. The fund's position in cash also detracted. LARGEST OVERWEIGHTS BY MARKET SEGMENT Market Segment Banks & Thrifts 10.12% 2.80% 7.33% 0.29% Technology 10.63% 6.05% 4.58% 0.40% Utilities 4.11% 2.80% 1.31% -0.04% Air Transportation 1.18% 0.55% 0.63% 0.21% Food/Beverage/Tobac co 1.95% 1.35% 0.60% 0.29% Outlook and Positioning We continued to position the fund with an emphasis on our research team's best ideas. This includes companies with what we consider strong balance sheets, improving company/industry fundamentals and strong management teams. We can invest across a company's entire capital structure including high-yield bonds, stocks, convertible securities and preferred stocks in search of income and capital appreciation. The fund's exposure to high-yield bonds moved modestly higher this quarter, and represented 70% of assets as of September 30. The fund's allocation to equities was largely unchanged at about 20%. Floating-rate leveraged bank loans accounted for roughly 3% of the fund as of September 30. Lastly, cash finished the quarter at 6% of assets, down a bit from the end of the prior quarter. In terms of high-yield industries, we made no noteworthy changes in positioning. Our largest absolute allocations at the end of the third quarter were: telecommunications, energy, technology, and banks & thrifts. At period end, we maintain our positive view of the U.S. economy. The valuation of stocks compared with highyield debt is not where it used to be, but still suggests that stocks are cheap on a relative basis. From a risk perspective and given where we are in the credit cycle we believe equities offer a more attractive risk-reward profile than credits rated CCC and lower. Given the fund's higherthan-average allocation to equites, the fund's fixed-income component exhibited a higher-quality credit profile than the index, with a yield to worst lower than that of the index. In choosing stocks, we look across both investment-grade and high-yield issuers using a growth-at-a-reasonable price, or GARP, investment approach, with a particular focus on the PEG ratio the price-to-earnings multiple divided by earnings growth. Within the equity portion of the fund, our largest allocations at period end were in the following industries: software & services, semiconductors & semiconductor equipment, media, consumer services and capital goods. Conversely, we had no exposure to insurance, food & staples retailing, and household & personal products. The fund had a negligible allocation to real estate investments trusts (REITs) as of September 30. LARGEST UNDERWEIGHTS BY MARKET SEGMENT Market Segment Healthcare 5.82% 9.62% -3.81% -0.84% Energy 11.10% 13.41% -2.31% 0.77% Metals/Mining 2.08% 4.24% -2.17% 0.56% Super Retail 1.33% 2.87% -1.54% -0.13% Homebuilders/Real Estate 1.74% 3.19% -1.45% -0.18% 3 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.
3-YEAR RISK/RETURN STATISTICS Beta 0.89 1.00 Standard Deviation 5.75% 5.83% Sharpe Ratio 1.08 0.96 Tracking Error 2.62% -- Information Ratio 0.25 -- R-Squared 0.81 -- CHARACTERISTICS Duration 3.32 years 3.50 years 30-Day SEC Yield 3.50% -- 30-Day SEC Restated Yield -- -- Net Asset Value $10.24 -- ASSET ALLOCATION Asset Class Bank Debt 2.57% 0.00% 2.57% 0.20% Corporate Bond: Cash Pay 68.92% 99.30% -30.38% 1.01% Corporate Bond: Deferred Pay 0.00% 0.10% -0.10% -0.01% Other Debt 0.00% 0.60% -0.60% -0.21% Convertible Bonds 0.01% 0.00% 0.01% 0.00% Convertible Preferred Stock Non-Convertible Preferred Stock 0.08% 0.00% 0.08% -0.04% 0.02% 0.00% 0.02% 0.00% Equities 21.34% 0.00% 21.34% -0.49% Cash & Net Other Assets 7.06% 0.00% 7.06% -0.46% 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. CREDIT-QUALITY DIVERSIFICATION Credit Quality BBB & Above 3.69% 0.77% 2.92% -0.26% BB 21.48% 41.21% -19.73% -1.42% B 30.17% 41.61% -11.44% 1.90% CCC & Below 12.41% 15.75% -3.34% 0.39% Not Rated/Not Available 25.15% 0.06% 25.09% 0.03% Cash & Net Other Assets 7.10% 0.60% 6.50% -0.64% 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. Credit ratings for a rated issuer or security are categorized using Moody's Investors Service (Moody's). If Moody's does not publish a rating for a security or issuer, then the Standard & Poor's Ratings Services (S&P) rating is used. When S&P and Moody's provide different ratings for the same issuer or security, the Moody's rating is used. Securities that are not rated by these NRSROs (e.g. equity securities) are categorized as Not Rated. All U.S. government securities are included in the U.S. Government category. The table information is based on the combined investments of the fund and its pro-rata share of any investments in other Fidelity funds. LARGEST HOLDINGS BY ISSUER Issuer ALLY FINL INC SFR GROUP SA ENERGY FUT INT CO LLC/ FIN INC CCO HLDGS LLC/CAP CORP CITIGROUP INC Five Largest Issuers as a % of Net Assets 11.20% Total Number of Holdings 663 The five largest issuers 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. 4 For definitions and other important information, please see Definitions and Important Information section of this Fund Review.
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. CHARACTERISTICS Duration is a measure of a security's price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security's interest payments in addition to the amount of time until the security reaches maturity, and also takes into account certain maturity shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration generally can be expected to be more sensitive to interest rate changes than a fund with a shorter average duration. 30-day SEC Yield is a standard yield calculation developed by the Securities and Exchange Commission for bond funds. The yield is calculated by dividing the net investment income per share earned during the 30-day period by the maximum offering price per share on the last day of the period. The yield figure reflects the dividends and interest earned during the 30-day period, after the deduction of the fund's expenses. It is sometimes referred to as "SEC 30-Day Yield" or "standardized yield". 30-Day SEC Restated Yield is the fund's 30-day yield without applicable waivers or reimbursements, stated as of month-end. Net Asset Value is the dollar value of one share of a fund; determined by taking the total assets of a fund, subtracting the total liabilities, and dividing by the total number of shares outstanding. IMPORTANT FUND INFORMATION 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. The BofA Merrill Lynch US High Yield Constrained is a modified market-capitalization-weighted index of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody's, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the U.S. or a Western European nation. The FX-G10 includes all Euro members, the U.S., Japan, the U.K., Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The BofA Merrill Lynch US High Yield but caps issuer exposure at 2%. The BofA Merrill Lynch US High Yield/U.S. High Yield Constrained Blend is a modified market-capitalization-weighted index of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody's, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the U.S. or a Western European nation. The FX-G10 includes all Euro members, the U.S., Japan, the U.K., Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The BofA Merrill Lynch US High Yield but caps issuer exposure at 2%. S&P 500 is a market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. Should not be construed or used as a recommendation for any sector or industry. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. % Rank in Morningstar Category is the fund's total-return percentile rank relative to all funds that have the same Morningstar Category. The highest (or most favorable) percentile rank is 1 and the lowest (or least favorable) percentile rank is 100. The top-performing fund in a category will always receive a rank of 1%. % Rank in Morningstar Category is based on total returns which include reinvested dividends and capital gains, if any, and exclude sales charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS 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. 5
3-YEAR RISK/RETURN STATISTICS Beta is a measure of the volatility of a fund relative to its benchmark index. A beta greater (less) than 1 is more (less) volatile than the index. Information Ratio measures a fund's active return (fund's average monthly return minus the benchmark's average monthly return) in relation to the volatility of its active returns. R-Squared measures how a fund's performance correlates with a benchmark index's performance and shows what portion of it can be explained by the performance of the overall market/index. R- Squared ranges from 0, meaning no correlation, to 1, meaning perfect correlation. An R-Squared value of less than 0.5 indicates that annualized alpha and beta are not reliable performance statistics. Sharpe Ratio is a measure of historical risk-adjusted performance. It is calculated by dividing the fund's excess returns (the fund's average annual return for the period minus the 3-month "risk free" return rate) and dividing it by the standard deviation of the fund's returns. The higher the ratio, the better the fund's return per unit of risk. The three month "risk free" rate used is the 90-day Treasury Bill rate. Standard Deviation is a statistical measurement of the dispersion of a fund's return over a specified time period. Fidelity calculates standard deviations by comparing a fund's monthly returns to its average monthly return over a 36-month period, and then annualizes the number. Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how the fund actually performed, but merely indicates the volatility of its returns over time. Tracking Error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark, creating an unexpected profit or loss. 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. 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 02917. Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI 02917. 2017 FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. 657128.18.0