Fidelity Dividend Growth Fund

Transcription

1 QUARTERLY FUND REVIEW AS OF JUNE 30, 2016 Fidelity Dividend Growth Fund Investment Approach Fidelity Dividend Growth Fund is a diversified domestic equity strategy with a large-cap core orientation. The fund seeks risk-aware capital appreciation. We believe that value investing wins over time, where quality plus good or improving capital allocation typically via dividend-paying stocks can enhance downside protection. Our investment process is bottom-up in nature and focused on generating total return through both capital appreciation and the stabilizing force of dividend income. We focus on quality companies trading at reasonable valuations with strong or improving capitalallocation policies. This tends to lead to a fund with profitability metrics and dividend yields similar to its high-quality S&P 500 benchmark, but often with better valuations and a better volatility profile. PERFORMANCE SUMMARY Cumulative 3 Month YTD 1 Year Annualized 3 Year 5 Year 10 Year/ LOF 1 Fidelity Dividend Growth Fund Gross Expense Ratio: 0.69% % 1.09% -0.73% 9.94% 9.06% 6.74% S&P 500 Index 2.46% 3.84% 3.99% 11.66% 12.10% 7.42% Morningstar Large Blend 1.76% 2.16% -0.02% 9.43% 10.10% 6.41% % Rank in Morningstar Category (1% = Best) % 48% 75% 44% # of Funds in Morningstar Category ,523 1,392 1, Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 04/27/ This expense ratio is from the most recent prospectus and generally is based on amounts incurred during the most recent 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, advisor.fidelity.com, or 401k.com. Total returns are historical and include change in share value and reinvestment of dividends and capital gains, if any. Cumulative total returns are reported as of the period indicated. For definitions and other important information, please see the Definitions and Important section of this Fund Review. FUND INFORMATION Manager(s): Ramona Persaud Trading Symbol: FDGFX Start Date: April 27, 1993 Size (in millions): $7, Morningstar Category: Large Blend 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. Not FDIC Insured May Lose Value No Bank Guarantee

2 Performance Review For the three months ending June 30, 2016, the fund's share classes underperformed the 2.46% return of the benchmark S&P 500 index. The second quarter was challenging for the fund. Global growth remained highly uncertain, and it became more rewarding to own typically more-defensive, higher-quality stocks with little regard for valuation. This hurt the fund, which is focused on both quality and value. Versus the index, stock selection was the main factor behind the fund's underperformance. Specifically, picks in consumer discretionary, consumer staples, materials and energy dragged on results. Looking at individual investments, Target fit our investment philosophy of identifying quality companies trading at reasonable valuations with strong or improving capital-allocation policies. Our position hurt this quarter, however, because weaker first-quarter sales and hints of a second-quarter slump pressured shares of the general merchandiser as consumers continued to move away from brick-and-mortar stores in favor of online shopping. Target's stock returned about -15% for the three months, falling in mid- May to its lowest price level in 18 months. Avoiding index component Amazon.com also hurt. The e- commerce giant has been in a phase of intense capital investment to help support its growth, which means cash-flow generation and return on investment within the fund's investment time horizon a full market cycle is limited. We tend to avoid names like this. Unfortunately for the fund, Amazon shares rose about 21% for the quarter, spiking in late April after the online retailer announced first-quarter earnings that significantly topped analysts' estimates. It also hurt to overweight Apple, which we saw as a high-quality company whose stock was attractively valued. Apple was the fund's largest holding, on average, for the quarter. LARGEST CONTRIBUTORS VS. BENCHMARK Average Contribution (basis points)* Medtronic PLC Health Care 1.66% 21 ASAC II LP Technology 0.65% 17 Johnson & Johnson Health Care 1.61% 15 Activision Blizzard, Inc. Technology 1.02% 15 Chevron Corp. Energy 1.28% 10 * 1 basis point = 0.01%. This hurt performance, as Apple shares returned about -12%, falling in late April following the consumer electronics giant's first quarterly revenue decline in 13 years. This quarter also marked the first-ever slowdown in sales of iphone devices, a product that accounts for nearly two-thirds of Apple's revenue. In China, once a strong driver of international growth, iphone sales fell 26% from a year ago. Apple did report sales growth at Apple Music and the App Store, up 20% and 35%, respectively. The company also announced a 10% dividend increase during the quarter, as well as a $35 billion addition to stock-buyback program. Turning to positives, picks in health care and financials were a plus. From the former sector, an overweighting in Medtronic was the biggest individual contributor. Medtronic shares gained about 16% for the quarter, as the medical device company said it expects to launch more than 80 new products over the next three years, while boosting operating margins. Management said the company remained on track to reach cost savings related to its $50 billion purchase of Covidien, completed early last year. The firm's proposed acquisition of HeartWare International, a maker of devices and treatments for heart failure, also spurred late-period gains. Also from health care, our overweighted position in Johnson & Johnson lifted results. Shares of the pharmaceutical giant climbed 13% this quarter, as investors sought more-defensive names with solid financials and attractive dividends amid worries about the global economy and election-year jitters over health care regulation. The firm experienced market-share gains in the medical devices and diagnostics segment this period, while positioning itself to take advantage of e-commerce trends with online distribution for its baby, beauty, diabetes, vision care and other over-the-counter offerings. Another contributor was videogame publisher Activision Blizzard. We continued to like Activision's growth prospects, given its product pipeline. Indeed, the stock turned in a strong result amid a robust gaming cycle. LARGEST DETRACTORS VS. BENCHMARK Target Corp. Amazon.com, Inc. Foot Locker, Inc. Apple, Inc. Discretionary Discretionary Discretionary Technology Average Contribution (basis points)* 1.30% % % % -17 Pfizer, Inc. Health Care -1.12% -17 * 1 basis point = 0.01%. 2 For definitions and other important information, please see Definitions and Important section of this Fund Review.

3 Outlook and Positioning In the context of sluggish global growth and increased market volatility, we continue to believe risk-aware investing will be rewarded over a full market cycle. To us, this means combining capital appreciation with stocks that produce dividend income, a combination that we think can drive lower volatility in the fund's total return over time. While the investment backdrop is still more uncertain than usual, we think quality companies trading at reasonable valuations are likely to contribute to the fund. We plan to continue favoring dividend growth over dividend yield, due to what we consider better valuations for the former. Importantly, our focus on value, quality and capital allocation gives the fund a risk profile that is lower than the market average, which we believe can lead to solid performance no matter the market backdrop. We have been finding opportunities among quality health care names, which have become better values, in our view, as concerns about drug pricing and potential political investigation of pricing practices weighed on the sector. We've also found potential opportunities in health care companies here that may drive value through synergies resulting from merger-andacquisition activity, including Teva Pharmaceuticals and Medtronic. discretionary names have been selling off due to higher energy prices and continued momentum in e-commerce. This has allowed us to pick up stocks at good values, including companies with extremely good operators and capital allocators, such as off-price retailers. Technology remains a sector of "haves" and "have-nots," rife with investor pessimism around the duration of cash-flow generation of legacy tech companies. We plan to wait for this pessimism to become very high before we add to our exposure here. We continue to like the willingness and ability of these legacy companies to increase payout ratios and therefore produce dividends that grow faster than earnings. Within the materials sector, we're finding opportunities in special situations, such as the impending merger of giants Dow Chemical and DuPont, as well as some other agriculture-oriented names. We're also watching for investor pessimism in macroeconomic variables like oil prices and global growth to add to the fund's cyclical exposure in sectors like energy and industrials. MARKET-SEGMENT DIVERSIFICATION Portfolio Index Change From Prior Quarter Technology 21.07% 19.77% 1.30% -0.41% Financials 16.02% 15.75% 0.27% 0.99% Staples 14.43% 10.56% 3.87% -0.45% Health Care 13.84% 15.03% -1.19% 0.69% Industrials 9.47% 9.85% -0.38% -1.00% Discretionary 8.85% 12.28% -3.43% 0.12% Energy 8.37% 7.40% 0.97% 0.13% Materials 3.35% 2.82% 0.53% 0.92% Telecommunication Services 2.23% 2.91% -0.68% 0.11% Utilities 0.00% 3.63% -3.63% -0.18% Other 0.00% 0.00% 0.00% 0.00% CHARACTERISTICS Valuation Portfolio Index Price/Earnings Trailing 18.8x 19.6x Price/Earnings (IBES 1-Year Forecast) 15.9x 17.0x Price/Book 2.9x 3.1x Price/Cash Flow 11.9x 12.1x Return on Equity (5-Year Trailing) 19.5% 17.9% Growth Sales/Share Growth 1-Year (Trailing) 0.2% 2.3% Earnings/Share Growth 1-Year (Trailing) 2.1% 2.8% Earnings/Share Growth 1-Year (IBES Forecast) 19.4% 14.2% Earnings/Share Growth 5-Year (Trailing) 6.4% 9.0% Size ed Average Market Cap ($ Billions) ed Median Market Cap ($ Billions) Median Market Cap ($ Billions) For definitions and other important information, please see Definitions and Important section of this Fund Review.

4 LARGEST OVERWEIGHTS BY HOLDING Activision Blizzard, Inc. Technology 1.97% Medtronic PLC Health Care 1.80% Accenture PLC Class A Technology 1.45% Johnson & Johnson Health Care 1.44% Roper Technologies, Inc. Industrials 1.43% LARGEST UNDERWEIGHTS BY HOLDING Amazon.com, Inc. Discretionary -1.52% Facebook, Inc. Class A Technology -1.45% Verizon Communications, Inc. Telecommunication Services -1.25% Pfizer, Inc. Health Care -1.17% Merck & Co., Inc. Health Care -0.88% 10 LARGEST HOLDINGS Apple, Inc. Johnson & Johnson Microsoft Corp. Exxon Mobil Corp. General Electric Co. Medtronic PLC Chevron Corp. JPMorgan Chase & Co. Wells Fargo & Co. AT&T, Inc. 10 Largest s as a % of Net Assets Technology Health Care Technology Energy Industrials Health Care Energy Financials Financials Telecommunication Services 27.58% Total Number of s 106 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. s do not include money market investments. ASSET ALLOCATION Asset Class Portfolio Index Change From Prior Quarter Domestic Equities 89.62% 99.31% -9.69% 5.26% International Equities 7.90% 0.69% 7.21% -4.35% Developed Markets 7.90% 0.52% 7.38% -4.39% Emerging Markets 0.00% 0.17% -0.17% 0.04% Tax-Advantaged Domiciles 0.00% 0.00% 0.00% 0.00% Bonds 0.09% 0.00% 0.09% 0.00% Cash & Net Other Assets 2.39% 0.00% 2.39% -0.91% 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. 3-YEAR RISK/RETURN STATISTICS Portfolio Index Beta Standard Deviation 11.21% 11.25% Sharpe Ratio Tracking Error 1.70% -- Ratio R-Squared For definitions and other important information, please see Definitions and Important section of this Fund Review.

5 Definitions and Important CHARACTERISTICS IMPORTANT FUND INFORMATION positioning data presented in this commentary is based on the fund's primary benchmark (index) unless a secondary benchmark is provided to assess performance. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. 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 2016 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. RELATIVE WEIGHTS weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. 5

6 3-YEAR RISK/RETURN STATISTICS Beta is a measure of the volatility of a fund relative to its benchmark index. A beta greater (less) than 1 is more (less) volatile than the index. Ratio measures a fund's active return (fund's average monthly return minus the benchmark's average monthly return) in relation to the volatility of its active returns. R-Squared measures how a fund's performance correlates with a benchmark index's performance and shows what portion of it can be explained by the performance of the overall market/index. R- Squared ranges from 0, meaning no correlation, to 1, meaning perfect correlation. An R-Squared value of less than 0.5 indicates that annualized alpha and beta are not reliable performance statistics. Sharpe Ratio is a measure of historical risk-adjusted performance. It is calculated by dividing the fund's excess returns (the fund's average annual return for the period minus the 3-month "risk free" return rate) and dividing it by the standard deviation of the fund's returns. The higher the ratio, the better the fund's return per unit of risk. The three month "risk free" rate used is the 90-day Treasury Bill rate. Standard Deviation is a statistical measurement of the dispersion of a fund's return over a specified time period. Fidelity calculates standard deviations by comparing a fund's monthly returns to its average monthly return over a 36-month period, and then annualizes the number. Investors may examine historical standard deviation in conjunction with historical returns to decide whether a fund's volatility would have been acceptable given the returns it would have produced. A higher standard deviation indicates a wider dispersion of past returns and thus greater historical volatility. Standard deviation does not indicate how the fund actually performed, but merely indicates the volatility of its returns over time. Tracking Error is the divergence between the price behavior of a position or a portfolio and the price behavior of a benchmark, creating an unexpected profit or loss. Before investing in any mutual fund, please carefully consider the investment objectives, risks, charges, and expenses. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest. Past performance is no guarantee of future results. Views expressed are through the end of the period stated and do not necessarily represent the views of Fidelity. Views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or FMR LLC. References to specific company securities should not be construed as recommendations or investment advice. Diversification does not ensure a profit or guarantee against a loss. S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. Other third-party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR LLC or an affiliated company. Fidelity Brokerage Services LLC, Member NYSE, SIPC., 900 Salem Street, Smithfield, RI Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee