Fidelity VIP Mid Cap Portfolio

PORTFOLIO MANAGER Q&A | AS OF JUNE 30, 2023

Fidelity? VIP Mid Cap Portfolio

Key Takeaways

? For the semiannual reporting period ending June 30, 2023, the fund's

share classes gained about 8%, trailing the 8.84% advance of the benchmark S&P MidCap 400? Index.

? Against the backdrop of a rising U.S. stock market the past six months,

mid-cap equities began the year by outpacing their large-cap counterparts but ceded market leadership around the time of the regional bank crisis in March, according to Co-Portfolio Managers Thomas Allen and Daniel Sherwood.

? The U.S. Federal Reserve continued to raise its key interest rate in an

effort to curb inflation. With that said, the Fed's three rate hikes in February, March and May were stepped-down increases of 0.25% in response to easing inflation.

? Versus the benchmark, stock selection in the industrials sector

detracted most from the fund's performance, with investment choices in consumer staples and health care weighing on the fund's relative result to a lesser extent.

? Conversely, picks among communication services, materials,

consumer discretionary and real estate firms all provided a notable lift for relative performance.

? As of June 30, the co-managers note that the U.S. stock market's

upward momentum has been strong lately, frustrating the naysayers as we close out the first half of the year. Although equities could be due for a near-term pullback of some kind, Tom and Dan are cautiously optimistic about the second half of 2023.

? With that said, the co-managers think higher interest rates could be

with us a while longer. Therefore, they continue to concentrate on building a high-quality portfolio, with the idea that such companies should suffer the least damage to earnings, even if the economy deteriorates further.

Not FDIC Insured ? May Lose Value ? No Bank Guarantee

MARKET RECAP

U.S. equities gained 16.89% for the six months ending June 30, 2023, according to the S&P 500? index, as continued global economic expansion, falling commodity prices and a slowing in the pace of inflation provided a favorable backdrop for risk assets. U.S. large-cap stocks spearheaded the rally, which was driven by the shares of a narrow set of mega-cap companies concentrated in the information technology and communication services sectors, largely due to exuberance related to artificial intelligence. Aggressive monetary tightening by major central banks, including the U.S. Federal Reserve, continued amid signs of consistent pressure on core inflation, a closely watched measure that excludes food and energy. Since March 2022, the Fed has hiked its benchmark interest rate 10 times, by 5 percentage points ? the fastest-ever pace of monetary tightening ? while also shrinking its massive asset portfolio. The latest bump came in early May, a third consecutive raise of 25 basis points. In June, the Fed held interest rates steady and signaled it was prepared to raise rates next month. The S&P 500? gained 6.61% in June, which saw the long-awaited return of market breadth and lower dispersion. Smaller-cap stocks had a particularly strong month, achieving the best result for the category since January. By sector for the full six months, information technology (+46%) and communication services (+36%) led, whereas energy returned about -6% amid falling oil prices.

PORTFOLIO MANAGER Q&A | AS OF JUNE 30, 2023

Q&A

Thomas Allen Co-Manager

Fund Facts

Start Date: Size (in millions):

Daniel Sherwood Co-Manager

December 28, 1998 $6,820.01

Investment Approach

? Fidelity? VIP Mid Cap Portfolio is a diversified domesticequity strategy with a mid-cap growth bias that seeks long-term growth of capital.

? In managing the fund, we look to own companies with above-average growth prospects trading at what we believe are reasonable valuations.

? Our strategy favors firms that exhibit high returns on capital, long-term revenue growth potential and healthy balance sheets.

? We strive to uncover these companies through in-depth fundamental analysis, leveraging Fidelity's global research capabilities.

? We also rely upon secondary resources, including quantitative and technical tools.

? The fund is broadly diversified and highly differentiated versus the benchmark. Individual position sizes are kept relatively flat in an attempt to reduce company-specific risk, while leaving ample opportunity to add value.

An interview with Co-Portfolio Managers Thomas Allen and Daniel Sherwood

Q: Tom, how did the fund perform in the first half of 2023

T.A. The fund's share classes gained about 8%, trailing the 8.84% advance of the benchmark S&P MidCap 400? Index. The portfolio modestly lagged the peer group average.

Looking back a bit longer term, the fund's share classes rose about 17% for the trailing 12 months, coming up a bit shy of the benchmark but finishing ahead of the peer group average.

Q: What was noteworthy about the market environment the past six months

T.A. Against the backdrop of a rising U.S. stock market, midcap equities began the year by outpacing their large-cap counterparts but ceded market leadership around the time of the regional bank crisis in March. Continued global economic expansion, falling commodity prices and a slowing in the pace of inflation provided a favorable backdrop for risk assets. For the period as a whole, the broader market's advance was driven by the strong performance of a narrow set of mega-cap companies concentrated in the information technology and communication services sectors, largely due to investors' exuberance related to artificial intelligence.

With that said, we did begin to see some broadening of the rally in June, when both mid- and small-caps outperformed large-caps. Within the fund's mid-cap benchmark, six-month gains were most pronounced in three sectors: information technology (+28%), industrials (+21%) and consumer discretionary (+12%).

The U.S. Federal Reserve continued to raise its key interest rate in an effort to curb inflation. However, the Fed's three rate hikes in February, March and May were stepped-down increases of 0.25% in response to easing inflation.

Q: How did these developments impact the fund's performance

T.A. Our growth-at-a-reasonable-price investment philosophy produced mixed results, as there was a huge divergence between growth and value stocks this period. For some context, the Russell Midcap? Growth Index gained

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, 2023

15.94% in the first half of 2023, whereas the Russell Midcap? Value Index rose 5.23%. Dan and I are always on the lookout for companies with healthy organic revenue and earnings growth, but we try not to overpay for it. Generally, that kind of balanced approach was not rewarded by the market the past six months.

Q: Specifically, what detracted most versus the benchmark this period

T.A. Stock selection in the industrials sector detracted most from the fund's relative performance, with investment choices in consumer staples and health care also weighing on the portfolio's result compared with the benchmark. A small out-of-benchmark position in Signature Bank was the largest relative detractor for the period, losing virtually all its value in Q1. On March 12, the New York-based commercial lender was shut down by regulators, the second U.S. bank to fall in three days. The firm was not able to withstand the run on deposits that immediately followed the announcement of Silicon Valley Bank's collapse on March 10. Signature had already been reeling for several months, following the November collapse of cryptocurrency exchange FTX. The bank subsequently made efforts to reduce its significant position in crypto banking, at a heavy loss.

Unfortunately, the portfolio also had a modest nonbenchmark stake in another troubled lender during the period: First Republic Bank (-81%). The 14th-largest bank in the U.S. teetered on the brink of collapse after the Silicon Valley Bank failure, and in a matter of days depositors pulled more than $70 billion out of First Republic, roughly half its total deposit base. Then, on March 16, U.S. Treasury Secretary Janet Yellen helped broker a rescue plan that involved 11 large U.S. banks injecting $30 billion of liquidity into the ailing bank. After bottoming on March 20, the stock stabilized through the end of the month. Nonetheless, we exited this position before the end of the first quarter.

Untimely positioning in benchmark component Super Micro Computer further detracted from performance versus the benchmark. Shares of the company gained 204% the past six months, leaping in May after the firm reported its fiscal thirdquarter financial results. Despite missing consensus revenue and earnings estimates, the manufacturer of server and storage solutions reiterated its strong full-year guidance. Investor optimism surrounding Super Micro's AI business, given its unique ability ? via its building block model ? to quickly deliver industry-optimized solutions helped fuel the stock's upward trajectory. Toward the end of the period, we built a roughly market-weight position.

An overweight in Jabil was the top individual relative contributor, with shares of the company advancing about 59%. The contract manufacturer has focused on high-margin, well-diversified businesses instead of revenue growth simply for its own sake. Emerging trends in health care, electric vehicles and 5G/cloud computing continue to be strong tailwinds for the company's operations. Jabil was the fund's largest holding on June 30.

The portfolio also benefited from outsized exposure to Builders FirstSource, which rose about 110% this period. The supplier of building products topped consensus expectations for both revenue and earnings in the first three months of 2023, despite what it called a "complex operating environment." New home construction was robust, partly reflecting the meager supply of existing properties for sale, as homeowners were reluctant to move and exchange their low-interest mortgages for loans with a much higher interest rate. Builders FirstSource was a top-5 holding at period end.

Lastly, I'll mention an out-of-benchmark position in onsemi (formerly ON Semiconductor) that increased about 51% and was part of the robust-performing semiconductor group. In early February, the provider of intelligent sensing and power solutions reported better-than-expected earnings for the fourth consecutive quarter. Specifically, Q4 results were driven by strong revenue growth in the firm's automotive segment, along with higher overall gross and operating profit margins. The company also announced a new $3 billion share-repurchase program. Second-quarter earnings topped expectations as well, although they declined modestly year over year.

Q: What's your outlook as of June 30, Dan

D.S. The U.S. stock market's upward momentum has been strong lately, frustrating the naysayers as we close out the first half of the year. Although equities could be due for a near-term pullback of some kind, we're cautiously optimistic about the second half of 2023.

With that said, we think higher interest rates could be with us a while longer. Therefore, we continue to concentrate on building a high-quality portfolio, with the idea that such companies should suffer the least damage to earnings, even if the economy deteriorates further.

Q: Turning to you, Dan, what helped

D.S. Picks among communication services, materials, consumer discretionary and real estate stocks all provided a notable lift to relative performance this period.

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, 2023

Co-Manager Dan Sherwood on midcaps versus large-caps:

"The U.S. stock market rally through the middle of 2023 has heavily featured large-cap stocks, which have outperformed mid-caps over the past five years ending June 30. However, we currently see some compelling reasons to favor mid-caps.

"First, mid-caps are considerably less expensive. As of midyear, the median stock in the large-cap S&P 500? index was trading at a one-year forward priceearnings ratio of around 17, compared with only 14 for the median stock in the S&P MidCap 400? Index, the fund's benchmark. The last time there was a valuation gap of this magnitude was coming out of the early 2000s recession. Starting from 2002, midcaps strongly outperformed large-caps for three-, five- and 10-year periods. For example, for the 10 years ending December 31, 2011, the S&P MidCap 400? Index had an average annual gain of 7.0%, versus 2.9% for the S&P 500?. Of course, past performance does not guarantee future results, but we believe market history is worth studying.

"Second, mid-cap earnings growth has kept pace with and often exceeded large-cap earnings growth over time. Case in point, from December 1990 through June 2023, the median stock in the S&P MidCap 400? Index grew earnings at an average annual rate of 11.3%, compared with 10.6% for the median stock in the S&P 500?. Robust earnings growth is the lifeblood of overall corporate health, setting the stage for potential share-price appreciation.

"Lastly, the S&P MidCap 400? Index offers better diversification, in our view. The recent stretch of outperformance by large-cap tech stocks has resulted in information technology accounting for 28% of the S&P 500? as of midyear. In contrast, technology was only 10% of the S&P MidCap 400? Index. The largest sector exposure in the mid-cap benchmark was industrials, at 23%. And, given the wave of infrastructure spending currently in the pipeline, one might argue that a large weighting there is an advantage.

"To be clear, we're not arguing that investors should ignore large-caps. Rather, we think they should consider weighting mid-caps more heavily within the context of a diversified portfolio."

LARGEST CONTRIBUTORS VS. BENCHMARK

Holding

Market Segment

Jabil, Inc.

Information Technology

Builders FirstSource, Inc.

Industrials

First Horizon National Corp.

Financials

onsemi

Information Technology

Deckers Outdoor Corp.

Consumer Discretionary

* 1 basis point = 0.01%.

Average Relative Relative Contribution Weight (basis points)*

1.21%

51

0.56%

41

-0.45%

39

0.91%

31

1.32%

28

LARGEST DETRACTORS VS. BENCHMARK

Holding

Market Segment

Signature Bank

Financials

First Republic Bank Financials

Super Micro Computer, Inc.

Information Technology

The AES Corp.

Utilities

Wintrust Financial Corp.

Financials

* 1 basis point = 0.01%.

Average Relative Relative Contribution Weight (basis points)*

0.18%

-59

0.19%

-45

-0.23%

-37

0.53%

-23

0.83%

-22

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, 2023

ASSET ALLOCATION

Asset Class

Portfolio Weight Index Weight

Relative Weight

Relative Change From Six Months

Ago

Domestic Equities

92.99%

100.00%

-7.01%

1.05%

International Equities

6.15%

0.00%

6.15%

-0.31%

Developed Markets

5.36%

0.00%

5.36%

-0.01%

Emerging Markets

0.79%

0.00%

0.79%

-0.30%

Tax-Advantaged Domiciles

0.00%

0.00%

0.00%

0.00%

Bonds

0.00%

0.00%

0.00%

0.00%

Cash & Net Other Assets

0.86%

0.00%

0.86%

-0.74%

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 Industrials Financials Information Technology Consumer Discretionary Health Care Real Estate Materials Consumer Staples Energy Utilities Other

Portfolio Weight 22.53% 13.21% 12.76% 12.59% 8.50% 7.25% 7.14% 4.50% 4.42% 3.73% 2.52%

Index Weight 22.95% 13.53% 10.38% 14.97% 9.48% 7.38% 7.35% 4.32% 4.20% 3.34% 2.10%

Relative Weight -0.42% -0.32% 2.38% -2.38% -0.98% -0.13% -0.21% 0.18% 0.22% 0.39% 0.42%

Relative Change From Six Months

Ago 2.62% 1.02% -0.74% -0.73% 0.22% 0.94% -0.88% -0.29% -1.65% -0.54% 0.78%

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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