Fidelity Strategic Dividend & Income Fund

PORTFOLIO MANAGER Q&A | AS OF MAY 31, 2024

Fidelity? Strategic Dividend &

Income? Fund

Key Takeaways

MARKET RECAP

? For the semiannual reporting period ending May 31, 2024, the fund's

Risk assets enjoyed a generally strong

backdrop over the six-month period

ending May 31, 2024, driven by several

factors, including the Federal Reserve's

likely pivot to cutting interest rates later

this year. On December 13, the U.S.

central bank signaled three rate cuts in

2024, while risk assets were further aided

on March 20, when it held the benchmark

federal funds rate steady and affirmed its

projection to cut rates in 2024. Against

this backdrop, the Fidelity Strategic

Dividend & Income Composite Index

rose 9.30% the past six months. Within

the index, dividend-paying equities, as

measured by the MSCI USA High

Dividend Yield Index (+11.74%), led the

way as value stocks trailed their growth

counterparts, with the latter mostly

driven by a narrow set of firms seen as

benefiting from investors' excitement for

AI. Meanwhile, convertible securities,

according to the ICE BofA? All U.S.

Convertibles Index, gained 7.32%,

lagging the broader stock market in light

of these securities' low equity sensitivity.

Real estate investment trusts, indicated

by the FTSE NAREIT Equity REITs Index,

rose 6.69%, as certain segments of that

market that had disproportionately

struggled during the pandemic ¨C namely

mall and office REITs ¨C regained some

lost value, whereas others that had

recently outperformed, including

industrial REITs, were relative laggards.

Of final note, preferred stocks, as

measured by the ICE BofA? Fixed Rate

Preferred Securities Index, increased

6.42%, benefiting from mounting

expectations for lower interest rates.

Retail Class shares gained 9.81%, outperforming the 9.30% advance of

the Fidelity Strategic Dividend & Income Composite IndexSM.

? The fund's performance unfolded within a broadly favorable

environment for risk assets, buoyed by robust corporate earnings,

heightened excitement around generative artificial intelligence and

the anticipated shift by the Federal Reserve toward lowering interest

rates later this year.

? Co-Lead Portfolio Managers Adam Kramer and Ford O'Neil note that

security selection drove the portfolio's outperformance of the

Composite index the past six months, while asset allocation, the

primary way they can directly influence the fund's result, had a more

modest positive impact this period.

? Versus the Composite index, stock picks among dividend-paying

equities contributed most by far, while the fund's positioning among

convertible securities was another plus. Security selection among

preferred stocks and out-of-index exposure to infrastructure equities

further proved advantageous.

? In contrast, picks among real estate investment trusts hampered the

portfolio's relative result, as categories that had held up better in

recent years ¨C including industrial and mall REITs ¨C underperformed

the past six months.

? As of May 31, the co-lead managers were comfortable with the

portfolio's positioning, especially its non-Composite exposure to

infrastructure stocks ¨C which they believe is the best available

opportunity within their investment universe ¨C as well as a smaller

overweight in preferreds and an out-of-index stake in master limited

partnerships.

? On January 1, 2024, Rick Gandhi assumed co-management

responsibilities for the fund's preferred and convertibles sleeves.

Not FDIC Insured ? May Lose Value ? No Bank Guarantee

PORTFOLIO MANAGER Q&A | AS OF MAY 31, 2024

Q&A

An interview with Co-Lead Managers

Adam Kramer and Ford O'Neil

Adam Kramer

Co-Lead Manager

Ford O'Neil

Co-Lead Manager

Fund Facts

Trading Symbol:

FSDIX

Start Date:

December 23, 2003

Size (in millions):

$5,201.21

Investment Approach

? Fidelity? Strategic Dividend & Income? Fund is a multiasset-class strategy that seeks to provide reasonable

income, and potentially also capital appreciation, by

investing in a diversified mix of dividend-oriented equity

and hybrid securities.

? The fund's assets are allocated among high dividendyielding stocks, preferred stocks, real estate investment

trusts (REITs) and convertible securities, using a target

weighting of 50%, 20%, 15% and 15%, respectively. This

strategic allocation attempts to take advantage of the

low correlation among these equity/hybrid classes with a

goal of optimizing total returns while containing volatility

over time.

? Specialized subportfolio managers are responsible for

security selection in their respective areas of expertise

and represent the primary source of alpha (risk-adjusted

excess return), while the lead portfolio managers have

the flexibility to make tactical allocation shifts around the

target mix to help manage risk and capitalize on relativevalue opportunities.

Q: Ford, how did the fund perform for the

six-month period ending May 31, 2024?

F.O. The fund's Retail Class shares gained 9.81%,

outperforming the 9.30% advance of the Fidelity Strategic

Dividend & Income Composite IndexSM. The portfolio trailed

its peer group average, which tracks asset allocation funds

with a target equity exposure of 70% to 85%.

Security selection was the main driver of the fund's

outperformance of the Composite index. Meanwhile, asset

class positioning, the primary way Adam and I, as co-lead

managers, can directly influence performance, modestly

aided the portfolio's relative result.

Longer-term, the fund's Retail Class shares rose 14.71% the

past 12 months, versus 14.63% for the Composite index. The

portfolio lagged the peer average by a wider margin.

Q: Can you please describe the market

backdrop underlying the fund's performance?

F.O. The fund's result unfolded within a broadly favorable

environment for risk assets, buoyed by robust corporate

earnings, heightened excitement around generative artificial

intelligence and the anticipated shift by the Federal Reserve

toward lowering interest rates later this year.

In managing the fund against this backdrop, we remained

mindful of the fund's rationale: it's designed to be a vehicle

for income, along with providing the potential for capital

appreciation. As co-lead managers, Adam and I allocate

assets across several dividend- and income-paying

categories. Based on Fidelity's research, we've established a

target (neutral) mix of 50% dividend-paying common

equities, 20% preferred stocks, 15% convertible securities

and 15% REITs. As the fund's neutral positioning, this is the

combination of asset classes and weightings that, over time,

we believe should provide the most favorable risk/reward.

Our approach to managing the portfolio is always tactical,

meaning we make shifts to the asset mix based on where we

see opportunities in the marketplace at any given time.

Q: Adam, what contributed most versus the

Composite index the past six months?

A.K. The largest driver of the fund's positive relative return

was security selection among dividend-paying equities.

2 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

PORTFOLIO MANAGER Q&A | AS OF MAY 31, 2024

These investments outperformed the category benchmark,

the MSCI USA High Dividend Yield Index, by 1.42

percentage points.

More specifically, picks in the industrials, utilities, health care

and financials sectors proved especially beneficial.

Underweight exposure to consumer discretionary and health

care also helped. In contrast, investment choices and an

underweight in the market-leading information technology

category ¨C particularly the portfolio's lack of exposure to

certain strong-performing semiconductor-related firms ¨C

notably detracted from relative performance.

The fund's positioning among convertible securities was

another plus. In fact, our convertibles holdings outperformed

the asset class benchmark, the ICE BofA All U.S. Convertibles

Index, by 0.86 percentage points, largely due to an out-ofbenchmark stake in DHT Holdings, an oil-tanker company

that benefited from a favorable energy pricing backdrop.

Security selection among preferred stocks added further

value compared with the Composite. Here, solid security

selection enabled the portfolio to outpace the category

benchmark, the ICE BofA? Fixed Rate Preferred Securities

Index, by 0.59 percentage points, despite a modest drag

stemming from the fund's average overweight in this

category, which trailed the broader index. Specifically,

emphasis on fixed-to-floating-rate preferreds was particularly

beneficial. Meanwhile, investment choices in financial

services provided the biggest lift within the asset class.

Q: What else notably helped?

F.O. Non-Composite index exposure to infrastructure

equities, a group that outpaced the Composite index by 2.43

percentage points, also proved advantageous. Picks among

these securities, however, was modestly negative, primarily

due to certain underperforming real estate and energy

infrastructure positions.

The portfolio's only meaningful relative detractor the past six

months was subpar security selection in REITs, given that

these investments trailed the category benchmark by 0.98

percentage points. During the period, investors anticipated a

shift in the interest-rate environment and became more

comfortable embracing risk. Thus, many of the property

sectors that had struggled in past years produced much

stronger results, whereas those that lately held up better did

not fare as well. For example, the fund's overweight in

industrial REITs weighed on performance, as did the lack of

exposure to mall REITs, especially leading U.S. mall operator

Simon Property Group.

Q: Were there any material positioning

changes within the portfolio?

underweight in convertibles and invested most of the sale

proceeds in preferred securities, thus moving from a neutral

stance to a target overweight. I'll note that, primarily due to

market movements, the fund's target weights will typically

vary from its actual weights.

With the rest of the proceeds, we added to the fund's out-ofindex allocation to infrastructure equities, due to the

attractive risk/reward trade-off we saw in that segment of the

market. We finished the period with a 3% stake in

infrastructure stocks.

As I'll describe in the callout portion of this review, we were

finding the convertibles market particularly unattractive due

to limited equity sensitivity and little new issuance. Instead,

we favored the preferred market because we believed too

much bad news had initially been priced into fixed-tofloating-rate preferreds. These low-duration securities had

sold off amid investors' concern about potentially higher

interest rates.

F.O. As the period progressed, however, valuations in the

preferred market began to rise. As such, we modestly

reduced the portfolio's exposure to preferreds and, to better

manage risk, reinvested in convertibles a bit. The asset class

finished May with a target underweight of 4.26 percentage

points, below our 5-percentage-point underweight in

January but still our largest active asset class allocation as of

period end.

Q: Any closing thoughts for shareholders as

of May 31, Ford?

F.O. We'll continue to stick with our approach of relying on

the expertise of our asset class leads to try to add value

through effective security selection, while also seeking to

generate positive relative performance by over- and

underweighting individual segments of the market we

believe may be mispriced.

As of May 31, we are comfortable with the portfolio's

positioning, especially its non-Composite exposure to

infrastructure stocks ¨C the best available opportunity within

our investment universe, we believe ¨C as well as a smaller

overweight in preferreds and an out-of-index stake in master

limited partnerships.

Meanwhile, with limited near-term upside for convertibles,

we are maintaining our large underweight in the asset class.

We will continually monitor conditions over the coming year

to determine whether further changes in that allocation may

be warranted. Lastly, we finished the period with neutral

positioning among equities and REITs, as we await episodic

sell-offs and/or other market events that could provide

attractive investment opportunities. ¡ö

A.K. We made several meaningful shifts the past six months,

primarily in January, when we doubled the fund's target

3 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

PORTFOLIO MANAGER Q&A | AS OF MAY 31, 2024

Adam Kramer on the fund's

underweight in convertibles:

"The past few years have been challenging for the

convertible securities market. Think back to 2020.

That first calendar year of the pandemic, we had

close to 100 new deals, as issuing companies were

looking for ways to shore up their balance sheets. In

a declining stock market, investors had the

opportunity to buy convertibles with very wide

credit spreads and depressed stock valuations. As

the market appeared ¨C wrongly, in our view ¨C to be

pricing in the risk of a prolonged economic

downcycle, ultimately weighing on otherwise solid

issuers, it created market inefficiencies that we

found attractive and took advantage of.

"Since then, unfortunately, we haven't seen that sort

of buying opportunity among convertibles. In early

2021, in fact, we saw the opposite: many mid-cap

software companies issued convertibles at very rich

valuations, only to see their stocks drop by half in

the subsequent 12 to 18 months. As a result, many

convertibles, just by the nature of having been

issued in an environment of elevated stock prices,

saw their equity sensitivity drop dramatically and,

consequently, their convertible prices dropped to

between 50 and 80 cents on the dollar. That decline

came even though we believed there was no

compelling reason for it. The securities were shortdated debt instruments with little to no bankruptcy

risk, given issuers' very large cash balances.

"These days, the environment for convertibles

investors is challenging because we're not seeing

new deals come to market, and potential issuers

have a lot of liquidity and other options for

financing. As a result, until the situation begins to

reverse itself, we don't see much opportunity

among convertibles.

"One potential future tailwind for the asset class,

though, is that in 2025 and 2026, about one-quarter

to one-third of the outstanding convertible issuance

will mature. That will potentially result in a wide

variety of new convertible bonds. Time will tell if

these deals come to market attractively priced, as

the economic and credit market backdrop is

constantly evolving."

4 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

PORTFOLIO MANAGER Q&A | AS OF MAY 31, 2024

SUBPORTFOLIO COMPOSITION

Asset Class

Portfolio Weight Strategic Allocation

Relative Weight

Relative Change

From Six Months

Ago

Dividend-Paying Equities

50.09%

50.00%

0.09%

0.01%

Domestic Equities

43.39%

--

--

--

International Equities

6.26%

--

--

--

Cash & Net Other Assets

0.45%

--

--

--

Preferred Stock

20.80%

20.00%

0.80%

0.70%

Preferred Stock/Convertible Preferred

7.65%

--

--

--

Corporate Bonds

11.59%

--

--

--

Cash & Net Other Assets

1.55%

--

--

--

10.74%

15.00%

-4.26%

-1.45%

Convertibles

9.48%

--

--

--

Domestic Equities

0.70%

--

--

--

International Equities

0.20%

--

--

--

Corporate Bonds

0.11%

--

--

--

Convertibles

Cash & Net Other Assets

0.25%

--

--

--

15.21%

15.00%

0.21%

-0.13%

REITs & Related Investments

15.05%

--

--

--

Cash & Net Other Assets

0.16%

--

--

--

0.49%

--

0.49%

-0.10%

MLPs & Related Investments

0.47%

--

--

--

Cash & Net Other Assets

0.01%

--

--

--

2.67%

--

2.67%

0.97%

2.67%

--

--

--

REITs

MLPs

Top Level Fund

Top-Level Cash & Net Other Assets

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.

5 | For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

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