Fidelity Growth & Income Key Takeaways For the semiannual reporting period ending January 31, 2018, the fund's Retail Class shares gained 14.05%, lagging the 15.43% advance of the benchmark S&P 500 index. The fund's underperformance of the benchmark the past six months was shaped by a market environment that favored highly priced growth stocks, a headwind for Manager Matt Fruhan's valuation-conscious strategy. Versus the benchmark, stock picking overall detracted, especially in the industrials, health care and energy sectors. Conversely, security selection in financials was the largest relative contributor. As of January 31, the fund remained significantly overweight in the financials and energy sectors, where Matt continued to see longer-term opportunities. Meanwhile, the fund remained notably underweight in the information technology and consumer discretionary sectors, particularly certain high-priced stocks Matt viewed as beneficiaries of intense investor interest. MARKET RECAP U.S. equities gained 15.43% for the six months ending January 31, 2018, as the S&P 500 index closed the period near an all-time high after a strong start to the new year. The lone exception to the uptrend was a brief cooldown in August, when geopolitical tension escalated and uncertainty grew regarding legislation out of Washington. Upward momentum soon returned and continued through year-end, with consumer sentiment and other market indicators staying positive. Investors remained decidedly upbeat as the calendar turned the index rose roughly 6% in January. Growth stocks handily topped value for the six months, while large-caps edged small-caps. By sector, information technology fared best, advancing 22% on strong earnings growth from several major index constituents. Financials (+20%) also stood out, riding the uptick in bond yields and a surge in banks (+24%). Consumer discretionary added 19%, driven by a roughly 33% gain for retailers. Materials rose about 16%, spurred by increased demand, especially from China. Conversely, notable laggards included some defensive-oriented categories, including utilities (-2%), telecommunication services (+5%) and consumer staples (+6%), that struggled amid investors' general preference for risk. Health care (+11%) fared better but still trailed the index. Lastly, rising interest rates held back real estate (+1%). Not FDIC Insured May Lose Value No Bank Guarantee
Q&A An interview with Manager Matthew Fruhan Fund Facts Trading Symbol: Matt Fruhan Manager FGRIX Start Date: December 30, 1985 Size (in millions): $7,747.19 Investment Approach Fidelity Growth & Income is a diversified domestic equity strategy that seeks to maintain a higher dividend yield and higher earnings growth than the S&P 500 index. Our investment approach is to find companies that we believe have attractive earnings and yield potential over the next two to three years, and where our view is different than market consensus. We believe securities can become mispriced relative to their true long-term value when investors become increasingly focused on the short term, and our process seeks to exploit these discrepancies to drive performance. We strive to uncover these companies through in-depth bottom-up, fundamental analysis, working in concert with Fidelity's global research team. Q: Matt, how did the fund perform for the six months ending January 31, 2018 The fund's Retail Class shares gained 14.05%, lagging the 15.43% advance of the benchmark S&P 500 index and finishing behind the Morningstar peer group average by a slightly smaller margin. By comparison, the fund handily topped its Lipper growth & income peer group average, representing a more relevant group of similar funds. My valuation-conscious strategy continued to face headwinds, which is reflected in weak stock picking overall, especially in industrials, health care and energy. This backdrop has been in place for a while now, hampering the fund's performance versus the benchmark on a slightly longer-term basis. For the trailing year, the fund again fell short of the S&P 500 and the Morningstar peer group average, but topped the Lipper peer average. Q: What made the past six months challenging Investors continued to favor highly priced growth stocks, especially a narrow slice of expensive tech and consumer discretionary names, many of which do not pay dividends and therefore I consider inappropriate investments for the fund. This resulted in a somewhat difficult backdrop for me and my valuation-conscious strategy and the fund's mandate to provide a dividend yield in line with to above the dividend yield of the S&P 500 over time. No matter the market conditions, I find that the market sometimes overreacts to changes in short-term earnings estimates, leading securities to become mispriced relative to their long-term intrinsic value. I combine deep investment research with patience and discipline as I aim to take advantage of this market inefficiency. At the same time, I will sell or avoid stocks with valuations that appear too high in relation to the companies' future earnings potential. Such close attention to what I consider underappreciated long-term earnings power, as well as valuation, is critical to my philosophy and process. Equities may outperform or underperform at different points in a market cycle, but paying close attention to the valuations of stocks with durable earnings power has tended to be helpful to fund performance over longer stretches. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
Q: Where were you investing this period The fund's biggest overweights by a wide margin remained in the financials and energy sectors, whereas our largest underweights were in information technology and consumer discretionary. Many of the fast-growing companies in the latter two were being valued as though their growth rates would continue for many years, and were not pricing in the risk of disappointment. These latter two allocations fit my theme of avoiding or limiting exposure to a handful of fast-growing, highly valued companies offering what I believed were poor risk/reward trade-offs. For several years, the fund has been significantly overweight financials. This stance reflects my view that the earnings power of many companies in the sector have been undervalued by the market. Representing 23% of fund assets the past six months, the sector began its recovery in the summer of 2016 and gained about 20% this period. In recent years, the market's expectation has shifted from a deflationary environment with downward pressure on interest rates and bond yields to one characterized by upward pressure. In addition, loan growth has picked up, while hope for eased industry regulation has further boosted the sector, particularly banks. This period, the fund's top contributors included Bank of America and JPMorgan Chase, large banks benefiting from higher rates, which tend to create more-profitable lending conditions. Each was among the fund's largest holdings, although I trimmed exposure to both, as I saw the opportunity relative to the reward gradually decline. Q: How did you approach energy stocks I remained overweight based on my view that the sector's down cycle has been a function of excess supply and not a demand issue, as global demand has steadily increased. Although ample supply has returned to the market, I'm expecting supply growth to moderate over the long term as capital becomes more expensive and less available to marginal producers. I think we even have begun to see this occur, as oil prices rose steadily for most of the period. Within energy, the fund benefited from a large overweight in exploration and production company ConocoPhillips, one of the fund's largest holdings. The fund's shares were up 30% for the six months, reflecting the better pricing environment for oil. In contrast, investments in pipeline operators Williams Companies and Kinder Morgan, which tend to be less sensitive to fluctuating energy prices, were notable relative detractors. We have long liked these energy transportation companies for their more-stable business models, ability to consistently generate cash and willingness to reward shareholders with growing dividends. Q: Which other stocks detracted In health care, it hurt to hold an out-of-benchmark stake in drugmaker Teva Pharmaceutical Industries. In recent years, Israel-based Teva faced one challenge after another. Although I've lost significant confidence in the company, I do think the market overcorrected in its negative assessment. As of January 31, Teva's valuation was well below my price target for the stock, which is why it remained in the portfolio. I'll be closely watching the company's new CEO, who took the reins on November 1. My willingness to stick with this stock over the longer term may well depend on how credible I find the company's plan to generate long-term earnings and free cash flow, as well as on the valuation assigned to this potential. Also in health care, the fund was hurt by an out-of-index investment in GlaxoSmithKline. I found this U.K.-based drugmaker appealing both for its attractive valuation and business transition to a more diversified product mix that includes more exposure to consumer health care offerings. In October, some confusion about Glaxo's commitment to supporting its dividend caused the company's shares to drop. As of January 31, however, I still have confidence in Glaxo's ability and willingness to continue paying its dividend. The fund's biggest detractor was a sizable stake in industrial conglomerate General Electric. Although GE's historical portfolio allocation and ability to manage costs has been a huge disappointment, I continued to see good prospects for a turnaround here, led by the company's new CEO. We are cognizant that business turnarounds can take time, however, and are remaining patient with the company, having added to our stake the past six months. Q: Which other stocks contributed The fund's relative result benefited from my decision to avoid several weak-performing benchmark stocks, including biotechnology company Celgene, telecommunication services provider AT&T, tobacco manufacturer Philip Morris International and drugmaker Merck. None of these names fit my investment philosophy or approach, so I chose to invest in areas of the market where I saw better long-term potential. Looking ahead, I'm fairly optimistic about the backdrop for the fund. My investment style leads me to lower-valuation, dividend-oriented companies, and at period end many of these are quite attractively valued relative to some of the market's highest-growth names. I don't think the market has caught up to this reality yet, but if and when it does, I think it could be positive for the fund. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
LARGEST CONTRIBUTORS VS. BENCHMARK Matt Fruhan on the fund's underweights in technology and consumer discretionary: "In the slow-growth environment of the past few years, investors have crowded into a relatively small handful of fast-growing companies. These include highly profitable businesses such as social-media platform Facebook, as well as competitively dominant firms such as e-commerce giant Amazon.com and companies with less-robust balance sheets, including streaming entertainment company Netflix and electric-automobile maker Tesla. "I consider each a good business, some better than others. I chose to avoid all of them because the problem I see is that, as of January 31, their stocks are trading at massive premiums that I don't believe reflect their true prospects for future earnings, free cash flow and returns on capital. Nor do they pay dividends, which is an important criterion for this fund. "In the case of a financially strong company like Facebook, it's done a phenomenal job taking market share. But investors already appear to have priced in the assumption that future growth will continue at the same pace as past growth an unlikely event as the law of large numbers starts to kick in. "I'd put Netflix and Tesla in a different category than Facebook or Amazon neither of the former group generates a lot of earnings or cash flow, and their financial situations look less certain. "But for most of these companies, the market now expects the fast revenue-growth trends of the past to continue, and I believe there is decent probability that things slow down." Holding Market Segment Average Relative Relative Contribution (basis points)* Bank of America Corp. Financials 2.38% 41 ConocoPhillips Co. Energy 1.64% 24 Celgene Corp. Health Care -0.43% 20 Qualcomm, Inc. AT&T, Inc. * 1 basis point = 0.01%. Information Technology Telecommunication Services LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment 1.31% 19-1.03% 19 Average Relative Relative Contribution (basis points)* General Electric Co. Industrials 1.15% -75 Amazon.com, Inc. Teva Pharmaceutical Industries Ltd. sponsored ADR GlaxoSmithKline PLC sponsored ADR Consumer Discretionary -1.95% -59 Health Care 0.41% -36 Health Care 1.46% -32 AbbVie, Inc. Health Care -0.65% -25 * 1 basis point = 0.01%. ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 90.00% 91.75% International Equities 9.54% 7.93% Developed Markets 9.37% 7.80% Emerging Markets 0.17% 0.13% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.28% 0.24% Cash & Net Other Assets 0.18% 0.08% 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 10 LARGEST HOLDINGS Market Segment Six Months Ago Financials 23.04% 24.10% Information Technology 16.53% 16.96% Energy 13.29% 12.86% Health Care 12.31% 13.87% Industrials 11.70% 11.59% Consumer Staples 9.30% 7.49% Consumer Discretionary 8.04% 6.45% Materials 2.03% 3.09% Telecommunication Services 1.26% 1.15% Utilities 1.14% 1.20% Real Estate 1.02% 1.04% Other 0.00% 0.00% Holding Microsoft Corp. Market Segment Information Technology Six Months Ago 3.80% 3.59% Bank of America Corp. Financials 3.26% 3.36% JPMorgan Chase & Co. Financials 3.06% 3.36% Citigroup, Inc. Financials 2.99% 3.32% Comcast Corp. Class A Consumer Discretionary 2.38% 1.94% Wells Fargo & Co. Financials 2.22% 1.81% State Street Corp. Financials 1.97% 2.08% Apple, Inc. Information Technology 1.95% 2.80% ConocoPhillips Co. Energy 1.83% 1.78% Qualcomm, Inc. Information Technology 1.78% 1.57% 10 Largest Holdings as a % of Net Assets 25.24% 26.46% Total Number of Holdings 226 209 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 January 31, 2018 6 Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Fidelity Growth & Income Gross Expense Ratio: 0.63% 2 14.05% 5.04% 21.60% 13.38% 14.29% 6.03% S&P 500 Index 15.43% 5.73% 26.41% 14.66% 15.91% 9.78% Morningstar Fund Large Blend 14.62% 5.23% 24.48% 12.79% 14.24% 8.86% % Rank in Morningstar Category (1% = Best) -- -- 80% 48% 61% 97% # of Funds in Morningstar Category -- -- 1,397 1,211 1,073 796 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/30/1985. 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. 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. FUND RISKS Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Fixed income investments entail interest rate risk (as interest rates rise bond prices usually fall), the risk of issuer default, issuer credit risk and inflation risk. Lowerquality 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. 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. 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 charges. Multiple share classes of a fund have a common portfolio but impose different expense structures. RELATIVE WEIGHTS 6
Manager Facts Matthew Fruhan is a portfolio manager at Fidelity Management & Research Company (FMR Co.), the investment advisor for Fidelity's family of mutual funds. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, Mr. Fruhan manages Fidelity Advisor Capital Development Fund, Fidelity Series Growth & Income Fund, Fidelity Advisor Series Growth & Income Fund, Fidelity Growth & Income, Fidelity Advisor Growth & Income Fund, and Fidelity VIP Growth & Income. Additionally, he manages Fidelity Mega Cap Stock Fund, Fidelity Advisor Mega Cap Stock Fund, Fidelity Large Cap Stock Fund, and Fidelity Advisor Large Cap Fund, as well as co-manages Fidelity Equity-Income Strategy, a separately managed account (SMA). Prior to assuming his current responsibilities, Mr. Fruhan managed Fidelity Advisor Financial Services Fund, VIP Financial Services, and Select Financial Services. Previously, he served as the industrials sector leader and managed Fidelity Advisor Industrials Fund, VIP Industrials, and Select Industrials. Prior to that, Mr. Fruhan managed Select Defense and Aerospace, Select Air Transportation, and Select Consumer Staples. Additionally, Mr. Fruhan worked as an equity analyst following the food and supermarket industries, and in Fidelity's High Yield Research department following the specialty retail, automotive supply, and transportation industries. He has been in the investment industry since joining Fidelity in 1995. Mr. Fruhan earned his bachelor of arts degree, cum laude, in economics from Harvard College and his master of business administration degree from Harvard Business School. 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 December 31, 2017 1 3 Annualized 5 10 / LOF 1 Fidelity Growth & Income Gross Expense Ratio: 0.63% 2 16.88% 9.85% 14.31% 5.02% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 12/30/1985. 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. 2018 FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. 714622.7.0 Diversification does not ensure a profit or guarantee against a loss.