Classifying by market capitalization

Stocks can be classified by the market capitalization of the underlying company.

Morningstar, a leading third-party provider of mutual fund investment information, defines a company's capitalization size using three categories: large cap stocks, small cap stocks1, and in between, mid-cap stocks. Morningstar resets the boundaries of these definitions periodically by examining the relative sizes of their database of stocks.

Over time these three categories have demonstrated different levels of volatility and investment returns. Looking at the market capitalization focus of funds is another way to examine the diversification in your portfolio.

Capitalization size Definition Large cap stocks have market capitalizations above $8 billion2 Large cap stocks are usually stocks of well-established companies - the names you know. They are generally companies with diversified product lines and experienced management teams. Many of these companies have sound businesses and have had a long history of steady growth. A Fidelity mutual fund that specializes in large cap stocks is the Fidelity Large Cap Stock Fund   Mid-cap stocks fall in between small and large cap stocks. Currently, the market capitalization range is from $1 billion to $8 billion.2 Mid-caps range from relatively young enterprises to more established companies poised for market leadership. Some may be in new economy industries such as Internet, wireless and biotechnology, but mid-caps can cover nearly every industry sector. In general, mid-cap stocks offer growth potential with medium risk. A Fidelity mutual fund that specializes in mid-cap stocks is the Fidelity Mid Cap Value Fund   Small cap1 stocks have market capitalizations less than $1 billion. Investors often think of small caps as young, dynamic companies in high-growth phases. However, not all small cap stocks have technology focus. There are small cap stocks in nearly every industry sector. It is true, however, that small-company stocks are often more volatile than stocks of larger, more established companies. Smaller companies do not always have the resources and management experience to weather down-turns in business cycles. Small caps can offer growth potential, but may have higher risk. A Fidelity mutual fund that specializes in small-cap stocks is the Fidelity Small Cap Independence Fund.

Performance Trends

As with growth and value stocks, performance of each market capitalization sector has fluctuated in the past.3 Here's a historical look at cyclical performance of small, mid and large cap stocks since 1980:4

Best <--------------------------> Worst        1980 Small Mid Large 1981 Mid Small Large 1982 Small Mid Large 1983 Small Mid Large 1984 Large Mid Small 1985 Large Mid Small 1986 Large Mid Small 1987 Large Mid Small 1988 Small Mid Large 1989 Large Mid Small 1990 Large Mid Small 1991 Small Mid Large 1992 Small Mid Large 1993 Small Mid Large 1994 Large Small Mid 1995 Large Mid Small 1996 Large Mid Small 1997 Large Mid Small 1998 Large Mid Small 1999 Small Large Mid 2000 Mid Small Large 2001 Small Mid Large 2002 Mid Small Large 2003 Small Mid Large 2004 Mid Small Large 2005 Mid Large Small

1 Securities of small, less well known companies may be more volatile than those of larger companies.

2 Data provided by FMR,Co. December 2005. Data provided by Morningstar, Inc.© 2005. All rights reserved. The information contained herein is the proprietary information of Morningstar, Inc., and may not be copied or redistributed for any purpose. Fidelity and Morningstar are not affiliates and neither represents or warrants the data contained herein to be accurate, correct, complete or timely and neither shall be responsible for the results obtained from its use. Morningstar, Inc. has not granted consent for it to be considered or deemed an "expert" under the Securities Act of 1933.

3 Past performance is no guarantee of future results.

4 Source: Frank Russell Company, Fidelity Management & Research Company, 12/31/05. Note: Based on total returns. Small=Russell 2000® Index, Mid=Russell Mid Cap Index, Large= Russell 1000® Index.

Definitions Market capitalization - calculated by taking the stock's share price and multiplying it by the total number of shares outstanding. Shares outstanding - the number of shares that a company has issued in the market.