Fidelity Select Materials Key Takeaways For the fiscal year ending February 28, 2018, the fund's Retail Class shares gained 14.96%, modestly ahead of the 14.70% return of the MSCI U.S. IMI Materials 25/50 Index, but trailing the 17.10% advance of the broadly based S&P 500. Against a backdrop of rebounding commodity prices from late June through late January, along with growing optimism about global economic growth, the materials stocks with positive cyclical drivers and strong fundamentals favored by the managers did well, especially in the second half of the period. Versus the MSCI sector index, a sizable underweighting in the steel segment, plus favorable stock selection in commodity chemicals and paper packaging, aided the fund's performance. Conversely, an underweighting and weak picks in industrial gases dampened the fund's relative result, as did positioning in fertilizers & agricultural chemicals and out-of-index exposure to trading companies and distributors. On November 17, 2017, Rick Malnight succeeded Tobias Welo as Manager of the fund. As of period end, Rick is optimistic about prospects for the materials sector, as long as commodity prices are firm and global economic growth remains solid. On December 8, 2017, shareholders approved proposals from the Board of Trustees to eliminate each sector/industry fund's fundamental "invests primarily" policy and to modify the fundamental concentration policy for certain funds. The changes took effect on January 1, 2018, and do not impact how the funds are managed. MARKET RECAP U.S. equities gained 17.10% for the 12 months ending February 28, 2018, as the S&P 500 index moved steadily higher throughout 2017 and into 2018 until sharply reversing course in February. The drop was in stark contrast to the low volatility seen throughout 2017, along with consumer sentiment and other market indicators that stayed positive. Investors remained decidedly upbeat as the calendar turned, and the index rose 5.73% in January. February was a decidedly different story, though, as volatility spiked amid fear that rising inflation and the potential for the economy to overheat would prompt the U.S. Federal Reserve to pick up the pace of interest rate hikes. The index returned -3.69% for the month, its first negative result since October 2016. For the full 12 months, growth stocks handily topped value, while large-caps bested smallcaps. By sector, information technology fared best by far, gaining 36% amid strong earnings growth from several major index constituents. Consumer discretionary (+22%) also stood out, driven by retailers. Financials added 20%, riding the uptick in bond yields. Materials and industrials rose about 16% each, boosted by higher demand, especially from China. Conversely, notable laggards included the defensive telecommunication services (-5%) and utilities (-2%) sectors, while rising rates held back real estate (-3%). Not FDIC Insured May Lose Value No Bank Guarantee
Q&A An interview with Manager Rick Malnight Fund Facts Trading Symbol: Richard Malnight Manager FSDPX Start Date: September 29, 1986 Size (in millions): $1,882.84 Investment Approach Fidelity Select Materials is a sector-based equity-focused strategy that seeks to outperform its benchmark through active management. We conduct in-depth fundamental research, supported by Fidelity's deep and experienced global cyclicals team, to develop a differentiated view from consensus on product- and end-market trends. We follow a contrarian investment approach and focus on companies in which we anticipate a positive change in business fundamentals before it is recognized and properly valued in the company's stock price. We also look for reasonably valued stocks of firms with improving returns on capital, healthy free-cash-flow yields, the potential for price-earnings multiple expansion, or defensive-growth characteristics. Sector strategies could be used by investors as alternatives to individual stocks for either tactical- or strategic-allocation purposes. Q: Rick, how did the fund perform for the 12 months ending February 28, 2018 The fund's Retail Class shares gained 14.96%, modestly ahead of the 14.70% return of the MSCI U.S. IMI Materials 25/50 Index but trailing the 17.10% advance of the broader-market S&P 500 equity index. The fund, however, handily outperformed its peer group average, which tracks the natural resources area. Q: From your perspective, what was noteworthy about the materials sector the past year Among the 11 market sectors in the S&P 500, materials finished around the middle of the pack, well behind market leaders such as information technology and consumer discretionary, but comfortably ahead of laggards such as energy and utilities. One favorable factor was that, after heading lower for most of the first half of 2017, commodity prices rallied strongly from late June through late January before giving back some of those gains during the market correction in early February. Meanwhile, economic growth across a broad range of developed and emerging markets seemed to be accelerating. As a result, most groups in the MSCI sector index posted double-digit gains during the period. Copper and aluminum were particularly strong index groups, rising roughly 39% and 31%, respectively. Meanwhile, the chemicals complex which represents more than half of the MSCI index posted smaller but still solid gains in most cases. However, index constituents tied to steel lagged after recording huge gains in late 2016. Versus the MSCI sector index, our sizable underweighting in the steel segment, plus good stock picking in the commodity chemicals and paper packaging groups, made noteworthy contributions to fund performance. That said, after starting the period with no holdings in steel, by period end the fund carried a roughly neutral weighting of about 6% here. Tobias and I made this adjustment in response to what we viewed as a growing likelihood of tariffs or some other moves intended to protect domestic steel producers from foreign imports. 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
Q: Versus the MSCI sector index, which stocks aided the fund's performance most A large overweighting in Westlake Chemical proved our top relative contributor; the stock rose about 72% this period. In November, Westlake posted third-quarter earnings that were considerably better than estimates, aided by its August 2016 acquisition of Axiall, improved demand in its chlorovinyls and olefins business lines, and higher prices in the chlorovinyls market. Fourth-quarter numbers, released in February, were helped by the same trends. I substantially increased this position during the period. The global chlorovinyls market consisting of chlorine, caustic soda, and polyvinyl chloride or PVC is among the biggest beneficiaries of China's environmental crackdown aimed at closing highly polluting plants, which significantly tightened the global supply/demand balance of these products. I thought U.S. chlorovinyl producers, such as Westlake, were well-positioned to benefit from this trend, based on the shale-driven U.S. cost advantage provided by key raw materials natural gas (for electricity) and ethylene. Q: What else helped LyondellBasell Industries, the fund's largest overweighting at period end, was another strong contributor, rising 23%. While the consensus call has been that a wave of new U.S. ethylene capacity would lead to global oversupply, I made the contrarian bet that the supply/demand balance would remain tight due to strong growth in global demand and delays in the start of new capacity. The company also benefited from higher oil prices, which increased the shaledriven U.S. cost advantage of the natural gas-based feedstocks used by LyondellBasell over the marginal global ethylene producers relying on oil-based feedstocks. Steel Dynamics, another contributor, was one of the U.S. steel producers I added this period. I considered this firm a "best-of-breed" player, with an excellent management team motivated by a properly incentivized compensation structure. The company also was among the industry's leaders in productivity and profitability. The fund's largest holding, DowDuPont, also helped. I'll have more to say about the company in the callout section. the past 12 months and we didn't own it. In early June, this producer and distributor of industrial gases announced plans to merge with Germany-based counterpart Linde. Admittedly, the market began to recognize the expected benefits of this merger sooner than I had anticipated. Late in 2017, I established a large position in Linde, believing this stock offered the same upside potential if the merger went ahead, but less risk were it to get derailed for antitrust or other reasons. Another relative detractor was strong-performing agricultural chemical supplier and MSCI benchmark name FMC, which we didn't own early in the period. FMC shares benefited from the late-march announcement of a definitive agreement to acquire a portion of DuPont's crop-protection business in exchange for FMC's health & nutrition operations plus $425 million in working capital and $1.2 billion in cash. Following this announcement, FMC's stock price shot up, finishing the period with about a 37% gain. In light of the deal and FMC's improving outlook, by period end we had built an overweighting here but nevertheless missed much of the stock's earlier advance. Q: What's your outlook at period end, and what changes have you made to fund positioning Overall, I'm fairly optimistic about prospects for the materials sector, especially in view of broadly accelerating economic growth around the globe and the recent firming trend in most commodity prices. Given this environment, since taking over in November, I moved more capital into commodity chemicals a group that historically has tended to exhibit greater sensitivity to economic activity while lowering our exposure to specialty chemicals and paper packaging, two groups that typically have been somewhat less economically sensitive. As mentioned earlier, I also eliminated the fund's underweighting in steel during the period. When faced with a stock or group I don't like enough to overweight but where I believe there could be risk in not owning it or underweighting it I'll often give it a market weighting in the fund. Steel is a good example of this strategy at work. Q: How about negatives An underweighting and weak picks in industrial gases dampened the fund's relative performance, as did positioning in fertilizers & agricultural chemicals and out-ofindex exposure to trading companies and distributors. MSCI index stalwart Praxair finished the period as the fund's largest relative detractor. The stock advanced 29% 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 Rick Malnight discusses his background and investment philosophy: "I joined the fund after working at Fidelity for about 10 years as a high-yield bond analyst covering materials companies. I did the same thing at another shop for roughly five years, and before that I worked in the chemicals industry for 13 years. The industrial gases company I worked for sold to a wide variety of firms, such as copper smelters, paper mills, steel mills and so on. So, I've likely seen the materials sector from more angles than the typical portfolio manager coming to this fund for the first time. "I believe my experience in high-yield bonds translates well to stocks. The primary way you make money in high yield is by identifying situations where there is less risk than appears at first glance. I believe this perspective will be useful in picking and choosing among companies that can seem challenged from a balance-sheet perspective. "My main focus in managing the fund will be to use Fidelity's comprehensive research capabilities and my own experience to identify situations where I believe the market has mispriced a stock and where I see a potential catalyst that I think could move the stock higher within the next 12 months or so. I believe the materials sector offers ample opportunity to find such mispricings. "For example, DowDuPont was by far the fund's largest position as of February 28, accounting for about 22% of fund assets. As I see it, there are two potential drivers of value-creation here. One comes from cost reductions that appear likely as management integrates the assets from Dow Chemical and DuPont, which merged at the end of August 2017. The other major catalyst, in my view, is likely to be the plan to spin off various businesses into separate companies in agriculture, material science and specialty products. I think most investors continue to underestimate the potential value in these moves." Holding Westlake Chemical Corp. LyondellBasell Industries NV Class A Market Segment Average Relative Relative Contribution (basis points)* Commodity Chemicals 1.33% 71 Commodity Chemicals 3.01% 56 Steel Dynamics, Inc. Steel 0.73% 46 DowDuPont, Inc. Diversified Chemicals 1.63% 43 The Chemours Co. LLC Diversified Chemicals 1.94% 35 * 1 basis point = 0.01%. LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment Average Relative Relative Contribution (basis points)* Praxair, Inc. Industrial Gases -4.47% -59 FMC Corp. Ball Corp. Platform Specialty Products Corp. Univar, Inc. * 1 basis point = 0.01%. Fertilizers & Agricultural Chemicals Metal & Glass Containers -0.09% -58 2.62% -49 Specialty Chemicals 0.99% -44 Trading Companies & Distributors 1.46% -40 4 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
10 LARGEST HOLDINGS Holding Market Segment Six Months Ago DowDuPont, Inc. Diversified Chemicals 22.34% -- LyondellBasell Industries NV Class A Commodity Chemicals 9.80% 5.83% The Chemours Co. LLC Diversified Chemicals 5.36% 2.34% Linde AG Industrial Gases 5.14% -- WestRock Co. Paper Packaging 4.20% 4.40% Sherwin-Williams Co. Specialty Chemicals 3.62% 5.05% Westlake Chemical Corp. Commodity Chemicals 3.08% 1.40% Steel Dynamics, Inc. Steel 3.07% 2.23% Freeport-McMoRan, Inc. Copper 3.02% 2.63% FMC Corp. Fertilizers & Agricultural Chemicals 2.24% 1.62% 10 Largest Holdings as a % of Net Assets 61.88% 54.48% Total Number of Holdings 52 41 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. MARKET-SEGMENT DIVERSIFICATION Market Segment Six Months Ago Diversified Chemicals 29.78% 24.98% Commodity Chemicals 19.12% 8.18% Paper Packaging 8.75% 10.74% Specialty Chemicals 8.68% 18.25% Steel 6.17% 3.58% Industrial Gases 5.14% 3.01% Fertilizers & Agricultural Chemicals 4.95% 9.12% Construction Materials 4.42% 3.57% Copper 3.52% 2.63% Gold 2.72% 4.62% Other 5.96% 10.26% ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 85.96% 92.83% International Equities 13.25% 6.12% Developed Markets 10.37% 6.12% Emerging Markets 2.88% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 0.79% 1.05% 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. 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
FISCAL PERFORMANCE SUMMARY: Periods ending February 28, 2018 6 Month Cumulative YTD 1 3 Annualized 5 10 / LOF 1 Select Materials Gross Expense Ratio: 0.81% 2 8.24% -2.28% 14.96% 6.36% 8.29% 7.64% S&P 500 Index 10.84% 1.83% 17.10% 11.14% 14.73% 9.73% MSCI US IMI Materials 25/50 Linked Index 8.80% -1.74% 14.70% 8.13% 11.40% 6.78% Morningstar Fund Natural Resources 8.83% -2.93% 9.99% 2.95% 1.67% 0.40% % Rank in Morningstar Category (1% = Best) -- -- 34% 33% 20% 11% # of Funds in Morningstar Category -- -- 141 129 120 74 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 09/29/1986. 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. 6 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 The value of the fund's domestic and foreign investments will vary from day to day in response to many factors. Stock values fluctuate in response to issuer, political, regulatory, market, or economic developments. You may have a gain or loss when you sell your shares. Investments in foreign securities, especially those in emerging markets, involve risks in addition to those of U.S. investments, including increased political and economic risk, as well as exposure to currency fluctuations. Because FMR concentrates the fund's investments in a particular industry, the fund's performance could depend heavily on the performance of that industry and could be more volatile than the performance of less concentrated funds and the market as a whole. The fund is considered non-diversified and can invest a greater portion of assets in securities of individual issuers than a diversified fund; thus changes in the market value of a single investment could cause greater fluctuations in share price than would occur in a more diversified fund. The materials industries can be significantly affected by the level and volatility of commodity prices, the exchange value of the dollar, import controls, worldwide competition, liability for environmental damage, depletion of resources, and mandated expenditures for safety and pollution control. 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. The Board of Trustees unanimously approved a proposal to shareholders for trustee election that would combine oversight of Fidelity's sector funds with Fidelity's broader equity and high income funds under a single Board of Trustees. If approved, the unified Board would be effective on or about 3/1/18. Effective 11/17/17, Rick Malnight became portfolio manager and Tobias Welo transitioned off the fund. At a shareholder meeting on 12/8/17, a proposal was approved to combine the oversight of Fidelity's sector funds with Fidelity's broader equity and high income funds under a single Board of Trustees. The unified Board will be effective on 3/1/18. 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 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. MSCI US IMI Materials 25/50 Index is a modified marketcapitalization-weighted index of stocks designed to measure the performance of Materials companies in the MSCI U.S. Investable Market 2500 Index. The MSCI U.S. Investable Market 2500 Index is the aggregation of the MSCI U.S. Large Cap 300, Mid Cap 450, and Small Cap 1750 Indices. Index returns shown for periods prior to January 1, 2010 are returns of the MSCI US Investable Market Materials Index. 7
Manager Facts Richard Malnight is a portfolio manager and research analyst 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. Malnight is responsible for managing Fidelity Select Chemicals, Fidelity Select Materials, Fidelity Advisor Materials Fund, Fidelity VIP Materials, Fidelity Materials Central Fund, and the Materials sleeve of the Balanced Funds, Series All Sector Equity and VIP Contrafund. Mr. Malnight also is responsible for covering the chemicals industry for the Equity group. Prior to assuming his current responsibilities, Mr. Malnight was a research analyst in the High Income group at FMR Co., covering the chemicals, refining, steel and mining industries. Before joining Fidelity in 2007, Mr. Malnight was a research analyst at W.R. Huff Asset Management, where he covered the chemicals and paper industries. Additionally, Mr. Malnight held various roles with Air Products and Chemicals, Inc., primarily managing business units in the U.S. and Asia supplying industrial gases to customers in the chemical, refining, steel, and electronics industries. He has been in the financial industry since 2001. Mr. Malnight earned his bachelor of science in engineering degree from the University of Pennsylvania and his master of business administration degree in finance from The Wharton School of the University of Pennsylvania. He is also a CFA charterholder. Mr. Malnight earned his bachelor of science in engineering degree from the University of Pennsylvania and his master of business administration degree in finance from The Wharton School of the University of Pennsylvania. He is also a CFA charterholder. 8 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
PERFORMANCE SUMMARY: Quarter ending March 31, 2018 1 3 Annualized 5 10 / LOF 1 Select Materials Gross Expense Ratio: 0.81% 2 10.24% 6.45% 6.94% 7.39% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 09/29/1986. 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. 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 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. 738970.6.0