Fidelity VIP Equity-Income℠ Portfolio

PORTFOLIO MANAGER Q&A | AS OF JUNE 30, 2022

Fidelity? VIP Equity-Income Portfolio

Key Takeaways

? For the semiannual reporting period ending June 30, 2022, the fund's

share classes returned about -11%, outpacing the -13.15% result of the benchmark Russell 3000? Value Index.

? Portfolio Manager Ramona Persaud says the market backdrop the past

six months was volatile, largely due to high inflation, which spurred the U.S. Federal Reserve to hike interest rates more aggressively than anticipated.

? Against this backdrop, the fund topped its benchmark, consistent with

Ramona's expectation.

? Versus its benchmark, the fund was well-positioned in some defensive

areas of the market that outperformed this period, including health care. Here, Ramona's choices among biotechnology and pharmaceuticals stocks Bristol-Myers Squibb (+26%), Eli Lilly (+18%), AbbVie (+15%) and Amgen (+10%) were top relative contributors.

? In contrast, the biggest individual relative detractor was avoiding

benchmark component Chevron (-26%).

? Some of Ramona's cyclical investments also detracted this period,

including a sizable position in Bank of America (-29%).

? As of midyear, Ramona expects transitions to factors such as value

efficacy and globalization could result in increased market uncertainty, creating a significant role for active investing, which she says excels at differentiating long-term value from short-term swings in price.

? Even with high geopolitical uncertainty, valuation spreads between

sectors are narrow at midyear, according to Ramona, who is pursuing a balanced approach to fund positioning with a defensive tilt ? notably underweighting the financials and consumer discretionary sectors, and overweighting consumer staples and health care.

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MARKET RECAP

The S&P 500? index returned -19.96% for the six months ending June 30, 2022, as a multitude of crosscurrents challenged the global economy and financial markets. It was the index's worst first-half result to begin a year since 1970. Persistently high inflation, exacerbated by energy price shocks from the Russia?Ukraine conflict, spurred the U.S. Federal Reserve to hike interest rates more aggressively than anticipated, and concerns about the outlook for economic growth sent stocks into bear market territory. Against this backdrop, the index returned -8.72% in April amid clearer signals of the Fed's intention to tighten monetary policy. In early May, the Fed approved a rare halfpercentage-point interest rate increase and announced plans to shrink its $9 trillion asset portfolio. The S&P 500? gained 0.18% for the month. June began with the Fed allowing up to billions in Treasuries and mortgage bonds to mature every month without investing the proceeds. Two weeks later, the central bank raised rates by 0.75 percentage points, its largest increase since 1994, and said it was becoming more difficult to achieve a soft landing, in which the economy slows enough to bring down inflation while avoiding a recession. Partly in reaction, the S&P 500 returned -8.25% in June. By sector for the full six months, the growth-oriented consumer discretionary (-33%) and communication services (-30%) groups lagged most. In contrast, energy (+32%) rode a surge in commodity prices and led by a wide margin, followed by defensive sectors, such as utilities (-1%).

PORTFOLIO MANAGER Q&A | AS OF JUNE 30, 2022

Q&A

Ramona Persaud Portfolio Manager

Fund Facts

Start Date: Size (in millions):

October 09, 1986 $5,468.33

Investment Approach

? Fidelity? VIP Equity-Income Portfolio is a diversified domestic equity strategy that seeks reasonable income. In pursuing this objective, the fund also will consider the potential for capital appreciation.

? The fund seeks a yield for its shareholders that exceeds the yield on the securities comprising the S&P 500? index.

? We believe in mean reversion, a value-driven philosophy and investment duration as a competitive advantage.

? In our bottom-up investment process, we focus on higher-quality firms, which helps minimize downside capture over time.

An interview with Portfolio Manager Ramona Persaud

Q: Ramona, how did the fund perform in the first half of 2022

The fund's share classes returned about -11% the past six months, outpacing the -13.15% return of the benchmark Russell 3000? Value Index, and slightly lagging the Lipper peer group average.

Looking a bit longer term, fund's share classes returned roughly -4% for the trailing 12 months, again topping the benchmark and lagging the Lipper peer average.

Q: How would you assess the fund's performance for the past six months

Given the conservatism of my strategy and my focus on minimizing downside capture, the fund bested its benchmark amid a turbulent market backdrop and heightened uncertainty, as I'd expect. The volatility was stoked by the U.S. Federal Reserve's accelerated plans to hike interest rates, as well as rising geopolitical unrest due to Russia's ongoing attack on Ukraine. Surging commodity prices, rising sovereign bond yields in some markets, supply constraint and disruption, and emerging variants of the coronavirus also proved headwinds for stocks.

This fund's outperformance of the benchmark this period is consistent with my expectation for market capture, as conservative strategies tend to be rewarded in market drawdowns and eschewed in up markets, particularly if strong.

As a reminder for shareholders, the fund's relative performance can be lumpy in the short term. Historically, it has typically topped its benchmark late in the economic cycle into recession, then lagged early in the cycle and picked up again in the mid-to-late cycle. Therefore, I evaluate performance throughout a full market cycle and, in terms of risk-adjusted returns, look to the fund's Sharpe and information ratios over longer periods.

Q: What notably contributed to performance versus the benchmark the past six months

We were well-positioned in some defensive areas of the market that outperformed this period, including health care. Here, my choices among biotechnology and pharmaceuticals stocks stood out, led by Bristol-Myers Squibb (+26%), Eli Lilly

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 JUNE 30, 2022

(+18%), AbbVie (+15%) and Amgen (+10%). Bristol-Myers, a top holding, and Amgen each announced stock buybacks this period. Eli Lilly benefited from a strong product cycle for its key Alzheimer's and diabetes treatments, while investors became more comfortable with AbbVie's business diversification plans amid the patent expiry of its blockbuster drug Humira. AbbVie was a non-benchmark holding.

I modestly overweighted health care this period, as I thought the sector offered a good combination of value, quality and income. Also, there was significant doubt about pipelines replacing current products, which historically has made for attractive stock prices. However, I slightly reduced our stake in the pharma, biotechnology & life sciences industry, including the four contributors I mentioned, as valuations got richer in the first half of 2022.

Q: What else notably influenced the fund's relative performance

Stock choices and an overweighting in energy were a plus, including an overweighting in Exxon Mobil (+43%), the fund's second-largest contributor versus the benchmark. Exxon was our top holding at midyear. Suncor Energy (+42%), Imperial Oil (+32%) and Canadian Natural Resources (+29%) ? all non-benchmark companies based in Canada ? also ranked among our top individual relative contributors. Notably, foreign holdings overall contributed to the fund's relative performance, despite continued U.S. dollar strength.

Energy stocks (+31%) led the market by a wide margin the past six months, rising on accelerating oil and gas prices, but I still thought the market underappreciated the structurally improved free-cash-flow (FCF) production in the sector. I increased our stake in energy this period, making it the fund's second-largest overweighting at midyear.

Q: What stocks were noteworthy detractors

Given the supportive backdrop for energy stocks, it hurt the most to not own benchmark component Chevron. Instead, I chose to invest in what I thought were better priced energy stocks, but this decision weighed on our relative result because Chevron advanced about 26% the past six months.

Some of our cyclical investments detracted this period, as these names pulled back. For example, a sizable position in Bank of America (-29%) hurt because recessionary fears began to weigh on bank stocks this period. Also, the firm reported first-quarter earnings and revenue in April, and both figures were lower than they were a year ago. Still, I thought the stock had value yet to be unlocked, so Bank of America was the fund's No. 5 holding at the end of June.

Our overweight in chipmaker NXP Semiconductors (-35%) was another notable detractor. The chip industry was plagued this period by lower-than-expected economic

growth, concerns about possible "double ordering" and inflation, among other headwinds.

Q: Ramona, what is your outlook, and how is the fund positioned as of midyear

Inflation is a persistent force for central banks to contend with, and interest rates have been on the rise in many parts of the world. Global demographic factors could offset this in the long term, though the market is steadfastly focused on short- to medium-term damage from inflation and rising rates. Indeed, at the midpoint of 2022 the market is very concerned about stagflation.

Since the global financial crisis, we have seen rate suppression accompanied by high correlation and low dispersion in stock prices, which has fueled stability in growth strategies at the expense of traditional value strategies. There is now a case for a normalization in rates, which is driving improved value efficacy. I'm keeping a close eye on structural factors like demographics-driven low global growth and accompanying lower rates, while maintaining flexibility when considering how to generate strong longterm returns through a value lens.

When valuations for value stocks are especially cheap, alpha odds tend to improve. In the past, when rates and economic growth were less distorted, value efficacy was less sensitive, broader and more sustainable. I think we could be on the verge of returning to an environment like that, which would be positive for value investing.

The other long-term trend I am considering is globalization. Globalization of the past several decades created distinct winners and losers. Recent policies, such as trade and tax, seem to focus on a reversal of globalization. The pandemic also revealed vulnerability in global supply chains, strengthening the argument for de-globalization.

Transitions such as these could result in increased market uncertainty, creating a significant role for active investing, which excels at differentiating long-term value from shortterm swings in price.

Even with high geopolitical uncertainty, valuation spreads between sectors are narrow as of midyear. Thus, I'm pursuing a balanced approach to fund positioning, with a defensive tilt. It is possible that persistent inflation, decelerating leading economic indicators and strong geopolitical headwinds have pushed the economic cycle from mid to late, increasing the likelihood of recession. I am considering what conditions could push the market cycle back to mid, in which case, depending on valuations, a rerisking could be in order.

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 JUNE 30, 2022

Portfolio Manager Ramona Persaud on the fund's defensive tilt:

"I started reducing the fund's sensitivity to the economy in 2021, when intra-sector valuation spreads narrowed, and the past six months I continued to decrease this exposure. For instance, I lowered our allocation to financials due to more central banks turning hawkish to battle persistently high inflation, the increasing possibility of moving into later-cycle conditions and the absence of compelling valuations. Financials was the fund's largest underweighting as of midyear.

"I also reduced investments in the consumer discretionary sector, where the challenge to traditional retailers from e-commerce accelerated during the stay-at-home response to the pandemic. In the long term, I continue to be wary of value traps here, though valuations for some names remain dislocated enough to maintain an allocation. Services and media seem to have fewer challenges, as consumers may accelerate seeking experiences over things, as well as shift where those experiences occur (e.g., home versus out). I believe there is still reasonable valuation in names that benefit from experiences like travel.

"Meanwhile, this period I modestly increased the fund's exposure to consumer staples, given reasonable valuations for quality defensive names at this point in the economic cycle. As I mentioned in past updates, staples brand power may be eroding structurally, itself a function of the structural income pressure on consumers. In an Amazon-centric world, this sector may display a tug-of-war quality between peaking long-term returns on capital as brand power erodes versus the scarcity value of yield and/or defensive quality. This is likely to be the case in other defensive groups ? real estate, telecommunications and utilities ? where free-cashflow generation is weaker than staples, but the scarcity of yield provides a valuation floor, if interest rates remain low. In effect, there is a natural tension among the driving factors in this sector ? valuation, economic cycle and potentially peaking returns."

LARGEST CONTRIBUTORS VS. BENCHMARK

Holding

Market Segment

Bristol-Myers Squibb Co.

Health Care

Exxon Mobil Corp. Energy

Eli Lilly & Co.

Health Care

Suncor Energy, Inc. Energy

AbbVie, Inc.

Health Care

* 1 basis point = 0.01%.

Average Relative Relative Contribution Weight (basis points)*

1.25%

41

0.99%

38

1.39%

37

0.87%

36

1.10%

28

LARGEST DETRACTORS VS. BENCHMARK

Holding

Market Segment

Chevron Corp.

Energy

Bank of America Corp. Financials

NXP Semiconductors Information

NV

Technology

Burlington Stores, Inc.

Consumer Discretionary

Tempur Sealy International, Inc.

Consumer Discretionary

* 1 basis point = 0.01%.

Average Relative Relative Contribution Weight (basis points)*

-1.40%

-40

1.32%

-23

0.79%

-23

0.38%

-20

0.30%

-20

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 JUNE 30, 2022

ASSET ALLOCATION

Asset Class

Portfolio Weight Index Weight

Relative Weight

Relative Change From Six Months

Ago

Domestic Equities

82.25%

99.76%

-17.51%

-11.65%

International Equities

12.17%

0.24%

11.93%

0.38%

Developed Markets

10.33%

0.19%

10.14%

0.47%

Emerging Markets

1.84%

0.04%

1.80%

-0.09%

Tax-Advantaged Domiciles

0.00%

0.01%

-0.01%

0.00%

Bonds

0.00%

0.00%

0.00%

0.00%

Cash & Net Other Assets

5.58%

0.00%

5.58%

11.27%

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.

MARKET-SEGMENT DIVERSIFICATION

Market Segment Health Care Financials Consumer Staples Communication Services Energy Information Technology Industrials Utilities Materials Consumer Discretionary Other

Portfolio Weight 17.93% 13.96% 10.39% 9.58% 9.55% 9.10% 7.14% 6.61% 4.83% 3.21% 2.11%

Index Weight 16.86% 20.05% 7.02% 8.43% 7.10% 8.86% 10.07% 5.92% 4.21% 5.98% 5.49%

Relative Weight 1.07% -6.09% 3.37% 1.15% 2.45% 0.24% -2.93% 0.69% 0.62% -2.77% -3.38%

Relative Change From Six Months

Ago -0.52% -5.84% 1.44% -0.10% 1.35% -1.84% -2.70% -0.44% 1.34% -3.51% -0.47%

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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