Fidelity Japan Smaller Companies Fund Key Takeaways For the fiscal year ending October 31, 2017, the fund gained 23.68%, beating the 21.03% return of its benchmark, the Russell/Nomura Mid-Small Cap SM Index. Stocks in Japan benefited the past 12 months from improved domestic economic growth, rising consumer confidence, declining unemployment and a weaker yen. Small-cap stocks, with their more-domestic focus, outpaced mid- and large-caps. Against this backdrop, Portfolio Manager David Jenkins' focus on higher-quality companies with good balance sheets, strong freecash-flow conversion and attractive valuations aided the fund's result versus the benchmark, as did his small-cap bias. Security selection in the consumer discretionary and industrials sectors drove much of the fund's outperformance of the benchmark. Stock picks in consumer staples contributed to a lesser degree. By contrast, positioning in materials detracted from the fund's relative result. In addition, stock picks in real estate and positioning in information technology and telecommunication services nicked performance versus the index. As of October 31, David is optimistic about Japan's equity market, expecting economic improvement to benefit corporate earnings growth. He believes valuations, especially among smallcaps, remain attractive relative to other equity markets. MARKET RECAP The MSCI ACWI (All Country World Index) ex USA Index returned 23.85% for the 12 months ending October 31, 2017, helped partly by a generally weak U.S. dollar. Some favorable election results in continental Europe (+30%) suggested ebbing political uncertainty and near-term risk there, but the U.K. (+20%) faced more-mixed conditions ahead of its expected exit from the European Union. Despite central-bank easing and pressured recently by yen strength Japan (+18%) lagged the rest of the Asia-Pacific group (+22%). Commodity-price volatility slowed Canada (+17%), but the emergingmarkets group (+26%) sped ahead. Sector-wise, information technology (+47%) was driven by a surge among several Chinese internet-related names. Financials (+27%) rode rising interest rates that, at the same time, weighed on real estate (+17%), utilities (+16%), consumer staples (+14%) and telecommunication services (+9%) socalled "bond proxy" sectors. Materials (+28%) and industrials (+27%) responded to demand from China and price gains for certain commodities. In the energy sector (+20%), oil prices lost ground in the spring before rebounding through October 31 to end well above where they started 12 months ago. Lastly, health care (+14%) was hurt by early-period turmoil around drug pricing and health care legislation. Not FDIC Insured May Lose Value No Bank Guarantee
Q&A An interview with Portfolio Manager David Jenkins Fund Facts Trading Symbol: David Jenkins Portfolio Manager FJSCX Start Date: November 01, 1995 Size (in millions): $763.90 Investment Approach Fidelity Japan Smaller Companies Fund is a countryfocused equity strategy that seeks long-term growth of capital by investing primarily in the securities of Japanese issuers, and other investments that are tied economically to Japan, with smaller market capitalizations. Our investment approach is anchored by the philosophy that purchasing high-quality companies below their estimated fair value can generate excess return, and help manage risk, over a full market cycle. We aim to identify and exploit mispricing of individual stocks in the Japanese market, where 75% of the companies lack any sell-side coverage. Specifically, we seek small-cap companies with stable returns on capital, durable competitive advantages, strong free cash flow and attractive reinvestment opportunities. We also favor firms with attractive shareholder remuneration policies, whether in the form of buybacks or dividend payments. Q: David, how did the fund perform for the fiscal year ending October 31, 2017 My process of buying above-average quality businesses with below-average valuations worked well the past 12 months. The fund gained 23.68%, beating the 21.03% return of its benchmark, the Russell/Nomura Mid-Small Cap SM Index, and also outpacing the peer group average. More specifically, my bottom-up focus on companies with good balance sheets, strong free-cash-flow conversion and attractive valuations aided our result versus the benchmark. In addition, my process led us to invest in a number of small-cap stocks, which helped because smallcaps generally outpaced large- and mid-cap stocks the past year. Q: What factors drove Japan's stock market The Russell/Nomura index's strong gain was a result of a favorable economic backdrop, as evidenced by news in September that Japan's second-quarter gross domestic product had expanded for the sixth consecutive quarter. Additionally, consumer confidence rose, and unemployment fell below 3%, the lowest in a generation. The yen weakened versus the U.S. dollar. Then, in late October, Prime Minister Shinzo Abe was re-elected, reassuring investors there would be no change to the Bank of Japan's expansionary monetary policy. Small-cap stocks, which are largely geared to the domestic economy, were the biggest beneficiaries. However, the yen's depreciation also helped large export-based industries. Within the benchmark, the information technology, materials, energy and industrials sectors saw the biggest gains, while the more defensive telecommunication services, utilities and health care sectors each lagged by a wide margin. Q: Which sectors and stocks contributed to the fund's performance versus its benchmark Security selection was particularly strong in the consumer discretionary and industrials sectors. Top individual contributors in the former included Koshidaka Holdings and Central Automotive Products. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
Koshidaka's main businesses include a karaoke chain and the Curves fitness franchise in Japan. For the former, it rents out rooms for karaoke, serving food and drinks to guests. The introduction of a new urban store format and technology to enhance the customer experience drove earnings, which vastly exceeded guidance, and led to a very positive forecast for the new fiscal year. The company's outstanding financial performance resulted in a roughly 151% return for the fund's shares this past year. We boosted our stake, making Koshidaka the fund's largest holding on October 31. I view Central Automotive Products as one of the most promising stocks in the portfolio, even after its recent run. The company, best known for its aftermarket auto-body coatings and higher-end motor oil additives, enjoys strong brand recognition in niche markets with limited competition. Plus, the firm's strength in new-product development helps it to grow sales by introducing new products at higher price points. The fund's non-benchmark stake rose roughly 92% the past 12 months, thanks to earnings that consistently beat forecasts, an upward revision to the full-year earnings outlook and a dividend increase. This stock was among the fund's largest holdings. Q: Which industrials stocks stood out Funai Soken Holdings is a consulting firm that helps smalland mid-sized enterprises take their operations to the next level. The company has a very profitable business model, with excellent returns on capital, net cash on its balance sheet and strong free-cash-flow conversion. As Japan's economy improved, many smaller companies gained the financial resources and confidence to invest in growing their businesses, bolstering demand for Funai's services. The market began according the stock a higher price/earnings (P/E) multiple as the company repeatedly beat earnings estimates and forecast better-than-expected earnings. Funai returned 137% for the fund the past year. The other 'winner' here was Yamada Consulting Group, which also provides consulting services to small- and midsized businesses, but with a focus on turnarounds and workouts. Yamada recently expanded its successionplanning services, which have been in high demand. The stock, which I bought soon after taking over the fund in 2014, fit my process perfectly. It had a very good return on equity, excellent free-cash-flow conversion, a net-cash balance sheet, and a solid history of earnings growth. This period our sizable non-benchmark investment in Yamada returned 86%, benefiting from a positive earnings surprise and an upward revision in earnings guidance. Q: Which decisions hurt relative performance Positioning in materials and picks in real estate each detracted. The biggest individual disappointment versus the benchmark, however, was San A, a large food retailer dedicated to Okinawa Prefecture, a district that is enjoying above-average growth in its population, wages, jobs and economy, as well as an amazing tourism boom. While these factors stand to benefit San A's long-term outlook, the stock slid the past year because its near-term result wasn't juicy enough for investors, who favored more-economically sensitive companies or exporters. In materials, detractors included SK Kaken, a maker of coatings for commercial buildings. SK has a history of good returns, a high net-cash balance and an attractive valuation. Recent earnings, however, fell short of expectations due to rising raw material prices, resulting in the stock's -20% return this period. While SK may have to adjust pricing to protect profit margins, it stands to benefit as an improving economy bolsters construction activity. Elsewhere, our investment in Mitsubishi Shokuhn, a food distributor, returned -9%. This is a steady business that was left behind by investors because it doesn't benefit from either an improving economy or a weaker yen. However, I viewed the stock as attractively priced, with the potential to benefit as its main customer, the Lawson convenience store chain, expanded. All the stocks I've mentioned were small-cap companies, with market caps under $2 billion. Q: What's your outlook as of October 31, David On balance, I believe Japan's equity story remains compelling. The Bank of Japan's ultra-expansionary monetary policy has been successful and remains in place. Domestic economic growth seems likely to accelerate. Also, the adoption of more shareholder-friendly policies should help attract foreign investors. Lastly, although the Japanese stock market is trading at 20-year highs, it doesn't look expensive relative to history or to many other global markets. For example, the TOPIX (Tokyo Stock Price Index) has a forward P/E current stock price over forecasted earnings per share of about 14, versus 18 for the S&P 500. TOPIX also offers a 2% dividend yield, versus the 0.05% yield on the 10-year Japanese Government Bond. I believe the fund is well-positioned for this backdrop, with its bias toward smaller-cap companies that tend to do most of their business domestically. Despite the recent rally, I continue to find opportunities in high-quality Japanese stocks at what I view as attractive valuations. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
10 LARGEST HOLDINGS David Jenkins on a recent addition to the portfolio: "As the Japanese equity market rallied the past 12 months, the total number of equity holdings in the fund rose modestly, to 84 at period end, compared to 82 a year earlier. One of the stocks I added to the portfolio was Aucnet, a small-cap company in the software & services segment. "Aucnet is a 'B2B' (business-to-business) company that conducts online auctions of used cars, motorcycles, smartphones and luxury goods, as well as fresh flowers. In late March, the stock was re-listed on the Tokyo Stock Exchange, following a management buyout in July 2008. "I started buying shares shortly thereafter, in April, after reading a local brokerage company's report on Aucnet's re-listing and its auction businesses. As an analyst, I had covered a well-known usedcar auctioneer in Japan, so I knew how profitable the auction business could be. A subsequent meeting with Aucnet's management confirmed my thesis about the company's growing, cashgenerative business model. "Aucnet's history also interested me. In its nearly 10 years as a private company, the business went through a restructuring, successfully transitioning from satellite TV-based auctions to internet-based auctions of used cars. This shift reduced operating costs and significantly improved profit margins. The company also diversified into online auctions for used luxury goods and used smartphones, both of which are growing markets, with the latter being particularly profitable. "Given these changes, I thought the 2017 version of Aucnet was much better than the 2008 version. In my view, the company's long-term earningsgrowth outlook seemed quite favorable, while the valuation did not fully reflect improvement in either the quality of the business or its earnings-growth potential. Essentially, Aucnet fit the bill for the kind of stock I like: an above-average business selling at a below-average price." Holding Koshidaka Holdings Co. Ltd. Mitsubishi Chemical Holdings Corp. Fujitsu Ltd. Yamada Consulting Group Co. Ltd. Central Automotive Products Ltd. A/S One Corp. Sekisui Jushi Corp. Kotobuki Spirits Co. Ltd. Lintec Corp. ORIX Corp. 10 Largest Holdings as a % of Net Assets Total Number of Holdings 86 Market Segment Consumer Discretionary Materials Information Technology Industrials Consumer Discretionary Health Care Industrials Consumer Staples Materials Financials 18.42% 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 International Equities 93.01% 98.08% Developed Markets 93.01% 98.08% Emerging Markets 0.00% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Domestic Equities 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 6.99% 1.92% 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.
MARKET-SEGMENT DIVERSIFICATION COUNTRY DIVERSIFICATION Market Segment Portfolio Weight Portfolio Weight Six Months Ago Industrials 22.40% 23.95% Consumer Discretionary 19.82% 20.26% Information Technology 11.01% 11.10% Materials 10.40% 10.12% Financials 9.43% 10.11% Consumer Staples 8.63% 9.55% Health Care 4.85% 5.28% Utilities 2.51% 3.54% Energy 2.19% 2.11% Real Estate 1.40% 1.60% Telecommunication Services 0.38% 0.47% Other 0.00% 0.00% Country Portfolio Weight Portfolio Weight Six Months Ago Japan 92.12% 98.18% United States 7.88% 1.82% FISCAL PERFORMANCE SUMMARY: Periods ending October 31, 2017 6 Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Japan Smaller Companies Fund Gross Expense Ratio: 0.96% 2 17.68% 28.60% 23.68% 15.15% 18.16% 5.99% Russell/Nomura Mid Small Cap Japan Index with Dividends 15.05% 23.49% 21.03% 13.81% 14.57% 4.83% Fidelity Japan Smaller Companies Blend 15.05% 23.49% 21.03% 13.81% 14.57% 5.39% Morningstar Fund Japan Stock 14.65% 20.81% 22.20% 11.61% 14.61% 4.63% % Rank in Morningstar Category (1% = Best) -- -- 36% 20% 13% 37% # of Funds in Morningstar Category -- -- 51 36 25 13 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/1995. 2 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.
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. The risks are particularly significant for funds that focus on a single country or region. The securities of smaller, less well-known companies can be more volatile than those of larger companies. 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 12/18/17, the fund's redemption fee has been removed. 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 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. Russell/Nomura Mid-Small Cap Index measures the performance of medium and small companies that represent the smallest 50% of companies of the Russell/Nomura Total Market Index as defined by float-adjusted market-capitalization. The Russell/Nomura Total Market Index represents 98% of the investable Japan equity market, consisting of common stock securities domiciled in Japan. Fidelity Japan Smaller Companies Blend represents the performance of the Russell/Nomura Mid-Small Cap Index since January 1, 2009, and the Russell/Nomura Small Cap Index prior to that date. MSCI ACWI (All Country World Index) ex USA Index is a marketcapitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. Should not be construed or used as a recommendation for any sector or industry. RANKING INFORMATION 2017 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for 6
Manager Facts David Jenkins is a portfolio manager/research analyst at Fidelity Management & Research Company (FMRCo), 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. Jenkins manages Fidelity Japan Smaller Companies Fund (since March 2014). He is also responsible for performing fundamental research on Japanese small cap companies across various sectors. Prior to joining Fidelity in 2007, Mr. Jenkins was vice president, equity analyst at Eaton Vance Management from 2003 to 2007 and senior investment associate, domestic value equities at Putnam Investments from 2000 to 2003. He has been in the investments industry since 2000. Mr. Jenkins earned his bachelor of science degree in business finance from Brigham Young University. He is a Chartered Financial Analyst (CFA) charterholder as well a member of the CFA Institute and the Boston Security Analysts Society (BSAS). 7 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
PERFORMANCE SUMMARY: Quarter ending September 30, 2017 1 3 Annualized 5 10 / LOF 1 Fidelity Japan Smaller Companies Fund Gross Expense Ratio: 0.96% 2 21.03% 13.71% 16.79% 5.87% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/01/1995. 2 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 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. 726469.7.0 Diversification does not ensure a profit or guarantee against a loss.