Fidelity VIP Equity-Income℠ Portfolio

PORTFOLIO MANAGER Q&A | AS OF DECEMBER 31, 2020

Fidelity? VIP Equity-Income Portfolio

Key Takeaways

? For the year ending December 31, 2020, the fund's share classes

advanced about 6% to 7%, handily topping the 2.87% advance of the benchmark Russell 3000? Value Index.

? Portfolio Manager Ramona Persaud says her focus on risk-adjusted

returns helped the fund handily outperform its benchmark in 2020, particularly in late February through March, when the coronavirus caused dislocation in financial markets. The fund also had reasonable upside participation during the sharp rebound that followed.

? Security selection contributed most, led by Ramona's stock choices in

the information technology and consumer staples sectors.

? The fund's cash position of 4% of assets, on average, was another

positive amid the market's decline.

? Sizable non-benchmark investments in consumer electronics giant

Apple (+81%) and software maker Microsoft (+41%) were the top individual contributors versus the benchmark.

? Conversely, overweightings in Wells Fargo, a large consumer bank,

and ConocoPhillips, a large international oil and natural gas producer, hurt relative performance most in 2020.

? As of year-end, several factors ? including the distribution of two or

more approved COVID-19 vaccines and improved trends in virus severity ? lead Ramona to believe that we're close to an economic recovery and due for an extended rebound in cyclical stocks.

? As a result, Ramona is focusing on stocks she thinks will be

beneficiaries of a pandemic resolution, but are not priced for it. Included are airports and travel names, brick-and-mortar retailers, restaurant-related stocks, banks and transportation-related names, among others.

Not FDIC Insured ? May Lose Value ? No Bank Guarantee

MARKET RECAP

The S&P 500? index gained 18.40% in 2020, a highly volatile and unpredictable year that will be remembered by most investors for the impact of the coronavirus pandemic. The early-2020 outbreak and spread of COVID-19 resulted in stocks suffering one of the quickest declines on record, through March 23, followed by a historic rebound that culminated with the index closing the year at an all-time high. The crisis and containment efforts caused broad contraction in economic activity, along with extreme uncertainty and dislocation in financial markets. A rapid and expansive U.S. monetary/fiscal-policy response partially offset the economic disruption and fueled the market surge, as did resilient corporate earnings and the potential for a COVID-19 vaccine breakthrough. The rally slowed in early September, when the S&P 500 began a two-month retreat amid Congress's inability to reach a deal on additional fiscal stimulus, as well as concerns about election uncertainty, indications the U.S. economic recovery was stalling and a new wave of COVID-19 cases. November (+11%) was a much different story, however, as investors reacted favorably to election results. The momentum continued in December (+4%), driven by regulatory approvals for two COVID-19 vaccines in the U.S. By sector for the full year, information technology (+44%) and consumer discretionary (+33%) led the way, boosted by a handful of large growth stocks. In contrast, energy shares (-34%) struggled along with global oil demand and pricing here.

PORTFOLIO MANAGER Q&A | AS OF DECEMBER 31, 2020

Q&A

Ramona Persaud Portfolio Manager

Fund Facts

Start Date: Size (in millions):

October 09, 1986 $5,501.78

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 for the year ending December 31, 2020

The fund's share classes gained about 6% to 7%, handily topping the 2.87% advance of the benchmark Russell 3000? Value Index. The fund also topped the Morningstar peer group average and the Lipper equity income peer average, the latter of which we consider a more relevant group of similar funds.

In managing the fund, I aim to provide income by taking a conservative approach to capital appreciation, with a focus on generating favorable risk-adjusted returns over full market cycles. This means that in very robust market conditions, I expect the fund will have positive absolute performance, but not necessarily keep up with its benchmark. That being said, I expect the fund to more than make up for this shortfall in down markets.

Given my primary goal of minimizing downside capture, the fund performed largely as I expected in 2020. It held up particularly well versus the benchmark in late February through March, as the outbreak and spread of the coronavirus led to COVID-19 containment efforts that caused broad contraction in economic activity, along with extreme uncertainty, volatility and dislocation in financial markets. The fund had reasonable upside participation during the sharp rebound that followed.

Q: What helped the fund outperform the benchmark for the year

By sector, security selection in information technology was the biggest contributor. Tech stocks in the fund rose roughly 31%, as many companies we held looked to capitalize on the trend of globalization. Strong growth in free-cash-flow (FCF) margins has been driven by structurally lower capital intensity over time. Thus, it has been helpful to own strong FCF generators in the tech sector, and this year I increased exposure to them at times of improved valuations.

Our top individual relative contributors were sizable nonbenchmark positions in consumer electronics giant Apple and software maker Microsoft. I thought both companies offered very good income and low downside capture relative to the rest of the high-beta tech sector, and also provided favorable starting valuations to help me achieve a good investment return.

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 DECEMBER 31, 2020

Our position in Apple gained 81% in 2020, as the company benefited in part from excitement for the September launch of its fifth-generation (5G) products that operate on the faster network.

Meanwhile, our shares of Microsoft advanced about 41%, boosted by strong demand for the company's cloud-based services, including its Teams communication platform and Azure-based cloud-computing system.

Given my value-conscious investment approach, I reduced the fund's positions in both Apple and Microsoft this year, as I thought the stocks' valuations became overly expensive.

Q: What else contributed

The fund's cash position of 4% of assets, on average, was a significant positive amid the volatile market backdrop.

Choices among consumer staples stocks also lifted relative performance, including overweighted stakes in BJ's Wholesale Club and Walmart. Both retailers are purveyors of food and other staples, and they benefited from being an essential retailer, which allowed their stores to remain open during stay-at-home orders. The fund's shares of BJ's and Walmart advanced 61% and 23%, respectively, in 2020. I reduced positions in both stocks the past year, as their valuations became richer.

Meanwhile, it helped to overweight wireless services provider T-Mobile U.S., which benefited from favorable news related to the cellular network operator's planned merger with Sprint. After a long wait, the two companies completed the deal in April. Our shares in the stock gained about 71% for the year.

Q: What hurt fund performance in 2020

Wells Fargo was the fund's largest individual detractor, as the stock of the consumer bank returned -42% for the fund. I'm partial to financial companies, including Wells Fargo, that look undervalued due to low inflation expectations. However, shares of Wells Fargo declined the past year because investors feared potential loan defaults would hurt the firm.

I reduced the fund's exposure to the financials sector in the first half of 2020, amid peaking economic indicators. However, with recessionary conditions prevailing later in the year, the sector looked more attractive to me and I began adding exposure to some financials stocks, including Wells Fargo, which ended 2020 as our No. 7 holding.

The fund's overweighting in ConocoPhillips (-34%), a large international oil and natural gas producer, was hurt by oil prices and volatility in demand. Energy was another sector I added to later in the year, as I thought stocks here stood to benefit from potential economic reopenings and improvement.

Q: What's your outlook as of year-end

I positioned the fund more defensively entering 2020, because valuations and fundamentals ? growth, margins, balance sheets and leading economic indicators ? appeared stretched. Fidelity's research, especially in the insurance industry, identified pandemic risk early on.

This gave us an investment edge and allowed me to keep the fund almost fully invested during the coronavirus-related drawdown, while also minimizing downside capture.

As the coronavirus pandemic escalated, the valuation dispersion between stocks widened significantly ? a reflection of market uncertainty. As a result, I reversed course and tilted the fund more offensively toward economically sensitive stocks where price dislocation was the most extreme.

Subsequently, the market began to achieve some balance as economic stimulus bridged the economic fallout, and as government and corporate America continued to make progress on potential treatments and vaccines. However, I continued to slowly add value during bouts of market fear about stimulus, subsequent virus waves, the U.S. presidential election and interest rates.

While valuation dispersion has recently narrowed somewhat, at year-end value stocks still look attractively priced to me. This, in combination with signals that lead me to believe we're headed toward an economic recovery, makes me especially bullish on risk assets in the near term. In the callout portion of this review, I'll have more to say about this, as well as where I'm finding investment opportunities.

While I expect cyclical improvement in value efficacy as the pandemic resolves near term, I believe structural factors like anemic global growth, accompanying low interest rates and globalization require continued flexibility when considering how to generate strong long-term returns with a value lens.

As always, I will look to continue to find large price/value disconnects in quality companies in order to meet my three goals: investment return, low downside capture and yield.

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 DECEMBER 31, 2020

Ramona Persaud on positioning the fund for an economic recovery:

"Several factors lead me to believe that we're close to an economic recovery and due for an extended rebound among cyclical stocks. First, I'm positive on the wider distribution of one or more approved COVID-19 vaccines, which should lead to a reopening of the global economy and easing of investors' fears into 2021.

"Second, we've come a long way in the treatment of COVID-19. Fidelity's research in health care has given us a strong understanding for the science of diagnostics, neutralizing antibody cocktails and vaccines. It appears to me there is a hyper-focus on the frequency of COVID-19 cases, and not as much on the severity of outcomes. Covering banks during the global financial crisis of 2008?09 taught me that the severity of a crisis matters as much as ? if not more than ? its frequency. In the case of the coronavirus, COVID-19 severity, as measured by hospitalization and fatality rates, seems to improve with every wave.

"Further, a peer-reviewed study published in the British scientific journal Nature showed very few drivers of superspreaders, suggesting we can take a less-dramatic scalpel versus hammer approach to virus mitigation in the future. Data also suggests that Europe is past the peak of its second wave, and vaccine data is strong. In addition, credit markets have not reflected as much fear as equity markets, adding to my conviction in adding risk in the portfolio. In my view, we still need monetary stimulus because therapeutic and vaccine manufacturing capacity is likely to be challenging. However, valuation dispersion as of year-end is still above average, which I believe is another positive for the fund's higher-risk positioning.

"Looking ahead to 2021, I'm focusing on stocks I think will be beneficiaries of a pandemic resolution ? but are not priced for it. Included are airports and travel names, brick-and-mortar retailers, entertainment firms ? such as gyms, casinos and karaoke ? restaurant-related stocks, banks, industrials tied to global trade, and transportationrelated names. I'm also interested in cyclical technology names in categories like semiconductors, memory, equipment and outsourcing, as well as various materials stocks, and many other categories."

LARGEST CONTRIBUTORS VS. BENCHMARK

Holding

Market Segment

Apple, Inc.

Information Technology

Microsoft Corp.

Information Technology

T-Mobile U.S., Inc.

Communication Services

Taiwan Semiconductor Manufacturing Co. Ltd. sponsored ADR

Information Technology

Lowe's Companies, Inc.

Consumer Discretionary

* 1 basis point = 0.01%.

Average Relative Relative Contribution Weight (basis points)*

1.50%

87

1.76%

62

0.86%

49

0.77%

47

0.99%

42

LARGEST DETRACTORS VS. BENCHMARK

Holding

Market Segment

Wells Fargo & Co.

Financials

ConocoPhillips Co. Energy

Procter & Gamble Co. Consumer Staples

Chevron Corp.

Energy

Citigroup, Inc.

Financials

* 1 basis point = 0.01%.

Average Relative Relative Contribution Weight (basis points)*

0.91%

-60

0.53%

-42

-0.91%

-30

0.60%

-29

0.89%

-23

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 DECEMBER 31, 2020

ASSET ALLOCATION

Asset Class

Portfolio Weight Index Weight

Relative Weight

Relative Change From Six Months

Ago

Domestic Equities

89.68%

99.67%

-9.99%

1.63%

International Equities

8.42%

0.33%

8.09%

-0.21%

Developed Markets

6.72%

0.15%

6.57%

-0.89%

Emerging Markets

1.70%

0.17%

1.53%

0.68%

Tax-Advantaged Domiciles

0.00%

0.01%

-0.01%

0.00%

Bonds

0.00%

0.00%

0.00%

0.00%

Cash & Net Other Assets

1.90%

0.00%

1.90%

-1.42%

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

Portfolio Weight 19.20% 13.36% 11.52% 10.84% 10.82% 9.03% 7.72% 6.46% 4.93% 3.11% 1.12%

Index Weight 20.07% 12.96% 13.65% 9.46% 7.98% 9.18% 7.38% 4.35% 5.40% 4.86% 4.71%

Relative Weight -0.87% 0.40% -2.13% 1.38% 2.84% -0.15% 0.34% 2.11% -0.47% -1.75% -3.59%

Relative Change From Six Months

Ago 2.26% -2.30% 0.36% -0.87% 0.37% 0.76% -0.58% 1.29% -0.45% 0.63% -0.06%

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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