Fidelity Select Leisure Key Takeaways For the fiscal year ending February 28, 2018, the fund gained 24.75%, modestly behind the 25.48% advance of the MSCI U.S. IMI Consumer Services 25/50 Index, but well ahead of the 17.10% result of the broad-market S&P 500 index. The past 12 months, leisure stocks benefited from rising business and consumer sentiment, a tight labor market, low unemployment, and wage growth. Solid fundamentals, among other factors, boosted the casinos & gaming and hotels, resorts & cruise lines subindustries. Versus the MSCI index, fast-food giant McDonald's was the biggest individual detractor. McDonald's was the fund's largest holding, but remained an underweighting. Picks in casinos & gaming also hurt, including Wynn Resorts. Choices in hotels, resorts & cruise lines notably contributed to the fund's relative result, especially overweightings in Marriott International and Wyndham Worldwide. 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. On August 3, 2017, Rebecca Painter became Co- Manager of the fund, joining Lead Manager Katherine Shaw. On March 1, 2018, Rebecca was named sole manager of the fund. Rebecca believes industry positives, such as consumers valuing experiences over things, should drive leisure stocks through 2018. Still, she's keeping an eye on inflation, which could weigh on labor-intensive subindustries, including restaurants. 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 Rebecca Painter Fund Facts Trading Symbol: Rebecca Painter Manager FDLSX Start Date: May 08, 1984 Size (in millions): $544.70 Investment Approach Fidelity Select Leisure is an industry-based, equity-focused strategy that seeks to outperform its benchmark through active management. The fund is constructed to maximize ownership of companies with characteristics we believe can drive outperformance over a multiyear period: have competitive "moats" or secular tailwinds; are in subindustries where demand is strong and supply growth is constrained; and have either strong cash generation or high-return investment opportunities. These attributes are generally slow to change, giving us conviction that over three to five years, we can see earnings and free-cash-flow growth that can significantly outpace any valuation-multiple compression that may occur. Position sizes and fund concentration are a function of our conviction level in our investment ideas, weighed against the probability of upside to a stock's intrinsic (fair) value and the time horizon needed to capture it. Stock selection and idea generation come from bottom-up research that leverages Fidelity's deep and experienced global consumer team. We consider attractive consumer stocks outside of the benchmark that offer the potential for favorable risk-adjusted returns. Sector and industry strategies could be used by investors as alternatives to individual stocks for either tactical- or strategic-allocation purposes. Q: Becky, how did the fund and industry perform for the fiscal year ending February 28, 2018 The fund gained 24.75%, modestly behind the 25.48% advance of the MSCI U.S. IMI Consumer Services 25/50 Index, but well ahead of the 17.10% result of the broadmarket S&P 500. We also outperformed our peer group average by a comfortable margin. Leisure stocks benefited from a supportive backdrop the past 12 months, including rising business and consumer sentiment, a tight labor market, low unemployment, and wage growth. In addition, the sweeping $1.5 trillion taxreform plan passed in December bodes well for consumers' discretionary spending in 2018. Solid fundamentals, among other factors, boosted the casinos & gaming and hotels, resorts & cruise lines subindustries, which represented about a third of the industry index this period. Q: Did you make any changes to the fund's positioning the past 12 months Most notably, I shifted positioning in two of the fund's (and index's) largest players: McDonald's and Starbucks. Unfortunately, I made these changes too late to influence the impact these stocks had on relative performance for the full period, and they both detracted materially. Fast-food giant McDonald's was by far the fund's biggest individual relative detractor. It was our largest holding, but was an underweighting, on average, the past year, when the stock made up 22% of the MSCI industry index. McDonald's share price advanced about 27%, boosted by the firm's move to feature all-day breakfast, along with a focus on higher-quality ingredients, cost-cutting and the remodeling of its restaurants. The firm also made shrewd investments, such as adding delivery options. We took notice of these changes and materially added to the fund's position, ending the period with a modest overweighting. Turning to coffee giant Starbucks, which gained roughly 2% the past year: The stock was a notable relative detractor because of the fund's overweighting, on average, the past 12 months. We began the period with an 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.
overweighted stake, which I reduced to less-than-index exposure by February 28. One reason I pared the stock is that I'm concerned Starbucks won't be able to grow store volumes from its already-strong base. Competition from newer high-end coffee shops is intensifying, and consumers continue to do more online shop and order meals, among others which makes it harder for the overall coffee retail industry to grow. With heightened competition and slowing overall industry growth, it has become more difficult for Starbucks to maintain the pace of same-store sales growth we saw a few years ago. Given the environment of strong labor inflation, and the fact that Starbucks owns most of its stores unlike McDonald's, for example, which is franchised same-store sales are key for Starbucks to maintain margins and reach earnings-growth targets. Q: What other factors influenced the fund's relative result Among subindustries, picks in casinos & gaming hurt most. Here, our underweighting in Wynn Resorts was a notable detractor because shares of the casino giant gained about 77%. Wynn had the most exposure to the gaming market in China's Macau region, which experienced strong growth this period and propelled Wynn's stock. Elsewhere, I established a position in Scientific Games, increasing it to a roughly index-neutral allocation by February 28. Unfortunately, we missed out on the stock's strong advance earlier in the period. Scientific Games makes a variety of electronic gaming machines and table games. There aren't many players in this market, and the firm appeared poised to benefit from an improved end market. Overall, regional casinos were in a good spot to refurbish their game machines, as they benefited from an increase in spending power from their core customers: lowincome consumers. In addition, hotel and casino giant Caesars Entertainment emerged from bankruptcy in October. After a long period in which Caesars could not spend capital, the firm was able to place meaningful new orders with Scientific Games to update its slot machines. This prompted some of Caesars' competitors to step up and replace machines, as well. I should note that Caesar's is a fund holding. Q: Where did you find success My choices in hotels, resorts & cruise lines contributed most to our relative result. In particular, it helped to overweight big hotel chains Marriott International (+64%) and Wyndham Worldwide, which gained 43% for the fund. Each was among our largest holdings. These firms were broadly boosted by a surge in business confidence following the November 2016 presidential election, and continuing throughout most of the past 12 months. I'm particularly bullish on global hotel firms, which have strong business models and competitive moats around brand and loyalty programs that lure frequent stayers who become familiar with the chain's quality. These companies including Marriott and Wyndham are entrenched in the U.S. market, but still have an immense opportunity to grow units internationally. I see them as long-term share gainers. An out-of-index stake in 2U was another contributor. The firm offers cloud-based online campuses and learning platforms for nonprofit colleges and universities. Shares of 2U benefited this period from a string of strong quarterly earnings reports for the firm, as well as new partnerships and education programs. While I see 2U as a great long-term growth story, I cut our position in the stock. The firm pays considerable upfront capital to get its programs up and running and must contend with a considerable time lag before it receives revenue for enrolled students. Without near-term earnings support, I fear the stock could face considerable volatility. Our position in fast-casual bakery chain Panera Bread was another plus while held in the fund. Panera developed a significant technology lead in implementing online ordering, and we thought the company had been executing very well. In April, JAB the owner of beverage chains Peet's Coffee & Tea and Caribou Coffee announced its acquisition bid for Panera, valued at approximately $7.5 billion. We sold down our stake following this development, completely exiting the position by the end of May. Q: Becky, what is your period-end outlook, and how do you intend to manage the fund now that you are sole manager I remain positive on leisure industry trends. Lower unemployment, higher wage growth and consumers' continued interest in experiences over things should continue to drive industry performance through 2018. In addition, demand across all industry segments appears strong and stock valuations look reasonable to me. One risk factor I'm keeping an eye on is inflation, particularly in labor-intensive areas of the market. The fund is notably underweight restaurants, as many names here require high hourly labor and are franchised. Conversely, we're overweighted the hotels, resorts & cruise lines subindustry, which I think is poised to benefit from growing consumer demand and spending. In addition, this area of the market is not nearly as labor intensive, especially hotels. 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 Becky Painter on her investment strategy and where she's looking for investment opportunities: "My strategy is to own stocks of firms I think can achieve strong earnings growth and free cash flow over a period of three to five years. Specifically, I look to invest in names where I believe that earnings growth can significantly outpace any derating or when I believe the market has significantly undervalued a company's future earnings potential. I think these types of firms should outperform over time. "Companies that meet these criteria often have competitive moats and are in industries with secular tailwinds that support growth, or are operating in cyclical industries where demand is strong and supply is constrained. I'm also partial to firms either boasting strong cash generation or engaged in high-return investment opportunities. "An interesting trend I'm following is consolidation in the regional gaming, or casino, industry. The industry is fragmented: There are 550 commercial casinos in the U.S., and Caesars Entertainment the largest operator owns only 47 properties. "This period I established positions in both Eldorado Resorts and Penn National Gaming, and both firms are in the process of acquiring other small- and mid-sized casino companies. I view these acquisitions as healthy for the industry, given the benefits that scale can bring including promotional spending. "For example, Eldorado has been able to capitalize on the strong performance of some of its more efficient properties to market others with room to grow. I built our position in Eldorado to a significant overweighting by February 28, because I am optimistic there should be room for consolidation to continue." Holding Marriott International, Inc. Class A 2U, Inc. Wyndham Worldwide Corp. Panera Bread Co. Class A Royal Caribbean Cruises Ltd. * 1 basis point = 0.01%. Market Segment Hotels, Resorts & Cruise Lines Internet Software & Services Hotels, Resorts & Cruise Lines Average Relative Relative Contribution (basis points)* 1.13% 46 0.60% 39 1.61% 32 Restaurants -0.03% 30 Hotels, Resorts & Cruise Lines LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment 0.90% 26 Average Relative Relative Contribution (basis points)* McDonald's Corp. Restaurants -3.48% -81 Wynn Resorts Ltd. Casinos & Gaming -0.89% -55 Scientific Games Corp. Class A Casinos & Gaming -0.23% -30 Starbucks Corp. Restaurants 0.96% -29 Watchers International, Inc. * 1 basis point = 0.01%. Specialized Consumer Services -0.20% -29 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 McDonald's Corp. Restaurants 21.05% 20.15% Starbucks Corp. Restaurants 11.52% 15.13% Marriott International, Inc. Class A Hotels, Resorts & Cruise Lines 8.58% 7.13% Royal Caribbean Cruises Ltd. Hotels, Resorts & Cruise Lines 5.01% 5.05% Las Vegas Sands Corp. Casinos & Gaming 4.87% 5.84% Carnival Corp. Hotels, Resorts & Cruise Lines 4.19% 1.02% MGM Mirage, Inc. Casinos & Gaming 3.28% 3.58% Hilton Worldwide Holdings, Inc. Hotels, Resorts & Cruise Lines 3.11% 2.85% Wyndham Worldwide Corp. Hotels, Resorts & Cruise Lines 3.05% 4.03% Yum! Brands, Inc. Restaurants 3.04% 4.94% 10 Largest Holdings as a % of Net Assets 67.69% 71.29% Total Number of Holdings 52 60 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 Restaurants 45.25% 52.86% Hotels, Resorts & Cruise Lines 29.04% 21.47% Casinos & Gaming 14.41% 11.30% Leisure Facilities 3.41% 3.27% Specialized Consumer Services 2.02% 2.04% Food Distributors 2.01% 1.79% Education Services 1.98% 0.10% Internet Software & Services 0.79% 1.59% Internet & Direct Marketing Retail 0.36% 1.11% Apparel, Accessories & Luxury Goods 0.27% 0.25% Other 0.24% 2.24% ASSET ALLOCATION Asset Class Six Months Ago Domestic Equities 89.82% 92.99% International Equities 9.97% 6.84% Developed Markets 0.67% 0.67% Emerging Markets 9.30% 6.17% Tax-Advantaged Domiciles 0.00% 0.00% Bonds 0.00% 0.00% Cash & Net Other Assets 0.21% 0.17% 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 Leisure Gross Expense Ratio: 0.80% 2 10.14% -0.14% 24.75% 10.24% 15.30% 13.27% S&P 500 Index 10.84% 1.83% 17.10% 11.14% 14.73% 9.73% MSCI US IMI Consumer Services 25/50 9.43% -0.23% 25.48% 13.50% 16.27% 12.82% Morningstar Fund Consumer Cyclical 13.94% 1.68% 18.49% 7.29% 12.54% 11.27% % Rank in Morningstar Category (1% = Best) -- -- 13% 30% 26% 22% # of Funds in Morningstar Category -- -- 50 46 45 35 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 05/08/1984. 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 leisure industry can be significantly affected by the performance of the overall economy, changing consumer tastes, intense competition, technological developments, and government regulation. 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 12/18/17, the fund's redemption fee has been removed. 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. 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. 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. MSCI US IMI Consumer Services 25/50 Index is a modified marketcapitalization-weighted index of stocks designed to measure the performance of Consumer Services 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. MARKET-SEGMENT WEIGHTS 7
Manager Facts Rebecca Painter is a research analyst and 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, Ms. Painter covers consumer stocks, including restaurants, hotels, gaming, and cruise lines. Additionally, she manages Fidelity Select Leisure. Prior to joining Fidelity as an equity research intern in 2012, Ms. Painter served an equity analyst intern at SEI Investments. She has been in the investments industry since 2013. Ms. Painter earned her bachelor of arts degree in economics from Swarthmore College. 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 June 30, 2018 1 3 Annualized 5 10 / LOF 1 Select Leisure Gross Expense Ratio: 0.77% 2 9.70% 9.05% 12.84% 14.34% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 05/08/1984. 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. It does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio. 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. 739463.6.0