Fidelity VIP Real Estate Portfolio

Transcription

1 Fidelity VIP Real Estate Portfolio Key Takeaways For the semiannual reporting period ending June 30, 2018, the fund's share classes gained roughly 1.6%, slightly trailing the 1.82% return of the Dow Jones U.S. Select Real Estate Securities Index SM. As lower-quality, lower-valuation real estate investment trust (REIT) stocks bounced back the past six months from earlier declines, the fund's outsized exposure to higher-quality REITs held back performance versus the Dow Jones real estate index. Security selection in the health care REIT subsector hurt the fund's relative result, as did a combination of security selection and an underweighting in the outperforming hotel & resort industry. Security selection among industrial REITs added value, while underweighting the struggling retail REIT subsector also contributed. During the period, Portfolio Manager Sam Wald continued to take advantage of opportunities to improve the quality of the portfolio by favoring similarly valued companies with better management, assets or balance sheets. Another emphasis in the portfolio was Sam's focus on real estate owners with stock prices that appeared too low relative to the value of the companies' underlying properties. As of June 30, Sam recognized that the current real estate cycle was mature, and he was seeking to take advantage of current opportunities while maintaining a long-term perspective. MARKET RECAP The U.S. equity bellwether S&P 500 index gained 2.65% for the first half of 2018, as a resurgence in volatility challenged the multiyear bull market. The steady growth seen throughout 2017 extended into the new year, as investors remained upbeat on hopes of continued strong economic and earnings growth. Stocks surged 5.73% in January alone. February was a decidedly different story, though, as volatility spiked amid concern that rising inflation would prompt the U.S. Federal Reserve to pick up the pace of interest rate hikes. The index returned -3.69% for the month, its first negative result since October 2016, and lost further ground in March on fear of a global trade war. The market stabilized in April and went on to achieve a solid gain for May. The uptrend continued through roughly mid-june, when escalating trade tension between the U.S. and China soured investor sentiment, and the index ended the six months with a two-week slump. By sector, consumer discretionary led the way, its roughly 12% gain driven by a 27% advance among retailers. Information technology rose 11%, boosted by strong earnings growth from several major index constituents. Energy gained 7% alongside higher oil prices. Conversely, notable laggards included some defensive groups consumer staples (-9%) and telecommunication services (-8%) that struggled amid rising interest rates and a general preference for risk. Financials, industrials and materials fared a bit better but each still lost ground. Not FDIC Insured May Lose Value No Bank Guarantee

2 Q&A An interview with Portfolio Manager Samuel Wald Fund Facts Samuel Wald Portfolio Manager Start Date: November 06, 2002 Size (in millions): $ Investment Approach Fidelity VIP Real Estate Portfolio seeks above-average income and long-term capital growth, consistent with reasonable investment risk, by investing in securities of companies that own and, in most cases, operate commercial real estate properties. Investment in real estate securities has the potential to provide portfolio diversification, consistent income generation and the ability to outpace inflation. We believe real estate investment trusts (REITs) represent a balance between real estate and stocks, and that recognizing attributes of both is key to identifying opportunities to outperform. Through rigorous bottom-up research from both Fidelity's dedicated real estate team and the firm's broader research resources, we strive to add value through security selection within a disciplined risk framework. Our process seeks to determine the relative attractiveness of individual REITs and will try to take advantage of pricing discrepancies in the market. Q: Sam, how did the fund perform for the six months ending June 30, 2018 The fund's share classes gained roughly 1.6%, slightly trailing the 1.82% return of the Dow Jones U.S. Select Real Estate Securities Index SM. The broader U.S. stock market, as measured by the S&P 500 index, gained 2.65%. The fund outpaced its peer group average. Versus the Dow Jones real estate index, security selection in the health care real estate investment trust (REIT) subsector held back performance, while a combination of stock picking and a modest underweighting in the outperforming hotel & resort industry also detracted. In contrast, the fund benefited from security selection among industrial REITs, as well as an underweighting among retail REITs, the weakest-performing industry in the index. Looking slightly longer term, the fund gained about 3% to 4% the past 12 months, again slightly trailing the Dow Jones real estate index and also lagging the S&P 500. The fund finished just short of its peer group average. Q: How would you assess the fund's performance the past six months Of course I'd like the fund to outperform the Dow Jones sector index on a risk-adjusted basis every single period. Unfortunately, the fund lagged very modestly the past six months, reflecting what I saw as a challenging stock picking environment, notably in the year's second quarter, when lower-quality, lower-valuation real estate stocks that had lagged earlier in the year and in much of 2017 bounced back. Although the fund certainly had an allocation to these types of names, we had much greater exposure to higher-quality securities, and during this period, these higher-quality stocks generally underperformed. Against this backdrop, I continued to stick to my investment philosophy, as I do regardless of the underlying market environment. To remind shareholders of my approach: It begins with the recognition that REITs are a balance of stocks and real estate, behaving more like the former in the short term and more like the latter over longer periods. REITs are like stocks in that a portfolio manager can often add value by correctly predicting earnings surprises, which correlate to short-term moves in the securities' prices. Longer term, a manager typically can boost returns by concentrating 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 on the value of a REIT's underlying assets and comparing that value to where the stock might be trading on any given day. This focus on the underlying assets provides an anchor point for my colleagues and me as we determine how REITs should be priced, allowing us to avoid getting sidetracked by day-to-day news. Second, my process involves in-depth research. With the help of Fidelity's highly capable team of analysts, we determine the relative appeal of individual REITs for the fund and will often take advantage of significant pricing discrepancies we see in the marketplace. Lastly, I generally believe that individual security selection and not sector allocation or market timing can provide the best opportunity for the fund to outperform over time. Stock picking historically has been where I've had the most success during my career as both a portfolio manager and analyst. Q: What about risk management Managing risk is a vital part of my approach. I think it's important to monitor risk every day, and not simply react to unexpected challenges as they occur. I regularly review the portfolio's risk parameters to help establish and maintain appropriate position sizes and sector weightings, as stock selection is the intended primary driver of the fund's relative performance. I also try to limit unexpected sources of risk, such as geographic or market-cap concentration, to try to reduce the fund's unintended outcomes. Of final note, I take part in quarterly meetings at Fidelity to review what went right in the portfolio and how we might replicate it, along with what went wrong and how best to strive to avoid it. Q: Which holdings detracted the most Shopping center REITs Urban Edge Properties and Cedar Realty Trust, two stocks we overweighted, both hampered relative performance, reflecting continued challenges for owners of retail properties. Despite their underperformance this period, I found both companies inexpensive relative to the value of their underlying real estate. Another relative detractor was Hilton Grand Vacations, an operator of time-share properties and one of the few non- REIT investments I held in the fund. In my opinion, this nonindex stock was very inexpensively valued relative to the value of the company's properties, and I further liked the high quality of the business relative to competitors in the industry. During the period, Hilton Grand Vacation's shares were hurt partly by concern about the company's business exposure to the Big Island of Hawaii, where an active volcano has added uncertainty to travelers' plans. Data-center operator Equinix also struggled, as investors developed concerns about slowing growth in its industry. I added modestly to this out-of-index position, however, believing the quality of Equinix's assets warranted a higher valuation than the market was assigning it. Also detracting during the period was Healthcare Realty Trust, an owner of medical office buildings that did not keep pace with the rest of the health care REIT sector this period. Q: What about contributors The fund's top relative contributor the past six months was DCT Industrial Trust. Shares of this owner of warehouse properties gained 15% for the period, as the company agreed to be acquired by Prologis another large holding in the benchmark and fund in April. Industrial REITs have been beneficiaries of the growth in e-commerce, which has increased the demand for specialized warehouse and distribution facilities. Similarly, Education Realty Trust, a student housing REIT, agreed to be acquired by Greystar, which is partnering with alternative asset manager Blackstone to make this acquisition. Shares of Education Realty Trust rose 21% for the fund this period. We sold the fund's stake in the stock shortly after the announcement. Another contributor was Diamondrock Hospitality. Diamondrock, along with other hotel REITs, benefited from the favorable economic environment, as well as an attractive valuation coming into the reporting period. Of final note, we lacked a position in shopping center REIT Regency Centers. Like other retail-oriented REITs, shares of Regency declined this period, so our lack of exposure to this benchmark component proved helpful for relative performance. Q: Any closing thoughts for shareholders, Sam We continued to pursue several investment themes. First, when appropriate, we were focused on trying to improve the quality of the portfolio. This entailed taking advantage of opportunities to invest in companies offering similar valuations as existing holdings in the fund but with better management teams, assets or balance sheets. We also continued to seek companies with stock prices that struck us as cheap relative to the value of the firms' underlying assets. One side benefit of this approach is that such stocks often become attractive merger-and-acquisition (M&A) candidates. M&A activity in the REIT market has increased this year, as I'll describe later. Other ongoing investment themes include companies with growth potential that may not be fully recognized by the market; those that are taking advantage of opportunities to sell assets and refinance debt; or those that are focused on redevelopment as opposed to growing through acquisitions. All of these themes have been present in the portfolio for some time, which reflects the relatively slow-moving nature of the real estate market and its underlying assets. We are well aware that it is relatively late in the current real estate cycle, and we will continue seeking to take advantage of current opportunities while simultaneously maintaining our long-term focus. 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 LARGEST CONTRIBUTORS VS. BENCHMARK Sam Wald explains the recent increase in REIT mergers and acquisitions: "So far during 2018, we have seen an uptick in REIT M&A activity, with several transactions already completed in the year's first half and a number of others currently being negotiated. We see good potential for that trend to continue for the balance of Why the recent increase in M&A The simple explanation is that real estate is currently cheaper on Wall Street than on Main Street meaning that today's investors are finding the publicly traded stocks of REITs to be more attractively valued than the combined value of the underlying properties owned by those companies. "Let me explain. The vast majority of commercial real estate is held by individual private companies or investors. That makes the real estate securities market fundamentally different than the broader equity market. For example, if you wanted to acquire, say, Microsoft, your price tag would be set in the public stock market. You might draw your own conclusion about whether Microsoft's current stock price is too high or low. But there's no alternative market available for you to offer a different price. "In real estate, however, individual properties are being sold all the time, often to publicly traded REITs. Over the long term, a REIT's stock price will tend to reflect the combined value of the individual properties it owns. But in the short term, you might see some meaningful discrepancies. These days, we as well as many other real estate investors are identifying various publicly traded REITs whose assets are being undervalued by the stock market. This helps explain the increased M&A activity. And as long as this valuation gap exists, we see the potential for this trend to continue. "Although we don't buy individual REIT stocks simply because we see them as a likely M&A target, we do regularly look for opportunities to invest in undervalued REITs exactly the types of real estate owners that can make attractive takeover candidates." Holding DCT Industrial Trust, Inc. Education Realty Trust, Inc. DiamondRock Hospitality Co. Regency Centers Corp. Extra Space Storage, Inc. * 1 basis point = 0.01%. Market Segment Average Relative Weight Relative Contribution (basis points)* Industrial/Office 2.29% 33 Residential 1.19% 24 Hotels 1.60% 17 Retail -1.40% 16 Self Storage 0.80% 15 LARGEST DETRACTORS VS. BENCHMARK Holding Market Segment Average Relative Weight Relative Contribution (basis points)* Urban Edge Properties Retail 2.37% -28 Hilton Grand Vacations, Inc. Cedar Realty Trust, Inc. Hotels 0.25% -17 Retail 0.67% -16 Equinix, Inc. Industrial/Office 2.62% -16 Healthcare Realty Trust, Inc. * 1 basis point = 0.01%. Healthcare 1.35% For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 ASSET ALLOCATION Asset Class Portfolio Weight Index Weight Relative Weight Relative Change From Six Months Ago Domestic Equities 97.50% % -2.50% -0.75% International Equities 0.00% 0.00% 0.00% -0.58% Developed Markets 0.00% 0.00% 0.00% -0.58% Emerging Markets 0.00% 0.00% 0.00% 0.00% Tax-Advantaged Domiciles 0.00% 0.00% 0.00% 0.00% Bonds 0.00% 0.00% 0.00% 0.00% Cash & Net Other Assets 2.50% 0.00% 2.50% 1.33% 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 Portfolio Weight Index Weight Relative Weight Relative Change From Six Months Ago Industrial/Office 31.44% 26.99% 4.45% 0.35% Residential 19.33% 20.49% -1.16% -2.97% Retail 17.65% 19.98% -2.33% 1.86% Health Care 9.30% 10.14% -0.84% 0.36% Self Storage 8.58% 8.70% -0.12% -0.12% Hotels 8.01% 8.92% -0.91% -0.03% Diversified 2.68% 3.77% -1.09% -0.33% Real-Estate Related 0.51% 0.00% 0.51% -0.38% Commercial 0.00% 1.02% -1.02% 0.05% Hybrid REIT 0.00% 0.00% 0.00% 0.00% Other 2.50% -0.01% 2.51% 1.21% 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

6 10 LARGEST HOLDINGS Holding Market Segment Portfolio Weight Portfolio Weight Six Months Ago Simon Property Group, Inc. Retail 7.76% 6.90% Public Storage Self Storage 7.34% 3.93% AvalonBay Communities, Inc. Residential 6.00% 5.76% Boston Properties, Inc. Industrial/Office 5.83% 4.87% Equity Residential (SBI) Residential 4.77% 2.19% Ventas, Inc. Healthcare 4.44% 4.62% Essex Property Trust, Inc. Residential 3.98% 3.96% Prologis, Inc. Industrial/Office 3.59% 3.27% SL Green Realty Corp. Industrial/Office 3.29% 3.04% Duke Realty Corp. Industrial/Office 3.13% 2.60% 10 Largest Holdings as a % of Net Assets 50.12% 43.56% Total Number of Holdings The 10 largest holdings are as of the end of the reporting period, and may not be representative of the fund's current or future investments. Holdings do not include money market investments. 6 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

7 PERFORMANCE SUMMARY Variable annuity contracts are issued by insurance companies through separate accounts that are part of the insurer. The value of a variable annuity contract depends on the values of units of subaccounts of the separate account. Each subaccount purchases shares of a corresponding mutual fund. Subaccount investment performance is based on the performance of the mutual fund in which it invests, less insurance company charges made against the assets of the separate account. A subaccount is not a mutual fund. The information provided in this Performance Summary contains performance information for the fund, or class, and each variable subaccount, with comparisons over different time periods to the fund's relevant benchmarks including an appropriate index as well as a group of similar funds whose average returns are compiled and monitored by an independent mutual fund research company. Figures for more than one year assume a steady compounded rate of return and are not a class' year-by-year results, which fluctuated over the periods shown. Fund performance numbers are net of all underlying fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If fund performance information included the effect of these additional charges, the total returns would have been lower. The performance table also contains performance information for certain insurance company subaccounts that invest in the fund. Each variable subaccount's performance, as shown, is net of all fees and expenses, including those charges imposed by your insurance company. Seeing the returns over different time periods can help you assess the performance against relevant measurements and across multiple market environments. The performance information includes average annual total returns and cumulative total returns and is further explained in this section.* Investing in a variable annuity involves risk of loss investment returns, contract value, and, for variable income annuities, payment amounts are not guaranteed and will fluctuate. Withdrawals of taxable amounts from an annuity are subject to ordinary income tax, and, if taken before age 59 1/2, may be subject to a 10% IRS penalty. Current performance may be higher or lower than the performance data quoted below. An investor's shares, when redeemed, may be worth more or less than their original cost. For month-end performance figures, please visit or call Fidelity. The performance data featured represents past performance, which is no guarantee of future results. Fiscal periods ending June 30, 2018 Cumulative Annualized Total Returns for the Fund 6 Month YTD / LOF 1 VIP Real Estate Portfolio - Initial Class Gross Expense Ratio: 0.68% % 1.66% 3.51% 6.92% 7.81% 8.18% VIP Real Estate Portfolio - Investor Class Gross Expense Ratio: 0.76% % 1.59% 3.43% 6.84% 7.72% 8.08% S&P 500 Index 2.65% 2.65% 14.37% 11.93% 13.42% 10.17% Dow Jones U.S. Select Real Estate Securities Index 1.82% 1.82% 4.23% 7.67% 8.27% 7.54% Morningstar Insurance Real Estate 0.74% 0.74% 3.83% 7.15% 7.79% 7.41% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 11/06/ This expense ratio is from the prospectus in effect as of the date shown above and generally is based on amounts incurred during that fiscal year. It does not include any fee waivers or reimbursements, which would be reflected in the fund's net expense ratio. Performance and disclosure information continued on next page. 7 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

8 PERFORMANCE SUMMARY (continued): Fiscal periods ending June 30, 2018 Total Returns for the Variable Subaccount** Annualized Cumulative Annualized New York Only: 10 /Life of Subaccount 6 Month YTD /Life of Subaccount Fidelity Retirement Reserves A 7.31% 1.25% 1.25% 2.69% 6.07% 6.94% 7.31% Fidelity Income Advantage B 7.10% 1.15% 1.15% 2.48% 5.85% 6.73% 7.10% Fidelity Personal Retirement Annuity C (for contracts purchased prior to 1/1/09 and on or after 9/7/10) Fidelity Personal Retirement Annuity C (for contracts purchased between 1/1/09 and 9/6/10) Fidelity Personal Retirement Annuity C (for contracts purchased on or after 9/7/10 with an initial purchase payment of $1M+) 7.81% 1.47% 1.47% 3.17% 6.58% 7.45% 7.81% 7.79% 1.47% 1.47% 3.17% 6.58% 7.45% 7.79% 7.98% 1.54% 1.54% 3.33% 6.74% 7.61% 7.98% Fidelity Retirement Reserves - Subaccount Inception: September 26, 2003; New York Only Inception: September 26, Fidelity Income Advantage - Subaccount Inception: September 26, 2003; New York Only Inception: September 26, Fidelity Personal Retirement Annuity - Subaccount Inception: August 15, 2005; New York Only Inception: October 28, Fidelity Retirement Reserves' underlying fund options are Initial Class fund offerings. Fidelity Income Advantage's underlying fund options are Initial Class fund offerings. Fidelity Personal Retirement Annuity's underlying fund options are Investor Class fund offerings. A In NY, Retirement Reserves B In NY, Income Advantage C In NY, Personal Retirement Annuity * Total returns are historical and include changes in share price (for the fund) and unit price (for the variable subaccount) and reinvestment of dividends and capital gains, if any. ** Returns for Fidelity Retirement Reserves include the 0.80% annual annuity charge. For Fidelity Retirement Reserves contracts, returns do not reflect the annual $30 maintenance fee which applies to contracts where purchase payments less any withdrawals are less than $25,000. Returns for Fidelity Income Advantage include the 1.00% annual annuity charge. Returns for Fidelity Personal Retirement Annuity ("FPRA") include the 0.25% annual annuity charge for contracts purchased prior to 1/1/2009, and on or after 9/7/2010. For FPRA contracts purchased between 1/1/2009 and 9/6/2010, returns include a 0.35% annual annuity charge prior to 9/7/2010 and 0.25% thereafter. For FPRA contracts purchased on or after 9/7/2010 with an initial purchase payment of $1,000,000 or more, returns include a 0.10% annual annuity charge. Life of subaccount returns are from the subaccount inception, the date the portfolio was first available in the insurance company's variable product. Please see the last page(s) of this Q&A document for most-recent calendar-quarter performance. 8 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

9 Definitions and Important Information Unless otherwise disclosed to you, in providing this information, Fidelity is not undertaking to provide impartial investment advice, act as an impartial adviser, or to give advice in a fiduciary capacity. Fidelity Income Advantage (policy form nos. FVIA-92100, et al. and FVIA-99100, et al.), Fidelity Retirement Reserves (policy form no. NRR-96100, et al.), Fidelity Personal Retirement Annuity (policy form no. DVA-2005, et al.), Fidelity Freedom Lifetime Income (policy form nos. FFLI-Q-2005, et al. and FFLI-NQ-2005, et al.), and Fidelity Growth and Guaranteed Income (policy form no. DVA-GWB- 2007, et al.) are issued by Fidelity Investments Life Insurance Company, 100 Salem Street, Smithfield, RI 02917, and for NY residents, Income Advantage (policy form nos. EFVIA-92100, et al. and EFVIA-99100, et al.), Retirement Reserves (policy form no. EVA-91100, et al.), Personal Retirement Annuity (policy form no. EDVA-2005, et al.), Fidelity Freedom Lifetime Income (policy form nos. EFLI-Q-2005, et al. and EFLI-NQ-2005, et al.), and Growth and Guaranteed Income (policy form no. EDVA-GWB-2007, et al.) are issued by Empire Fidelity Investments Life Insurance Company, New York, NY. Annuities are distributed by Fidelity Brokerage Services (Member NYSE, SIPC) and Fidelity Insurance Agency, Inc. FUND RISKS Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks. Changes in real estate values or economic downturns can have a significant negative effect on issuers in the real estate industry. The fund may have additional volatility because it can invest a significant portion of assets in securities of a small number of individual issuers. MARKET-SEGMENT WEIGHTS Market-segment weights illustrate examples of sectors or industries in which the fund may invest, and may not be representative of the fund's current or future investments. Should not be construed or used as a recommendation for any sector or industry. MORNINGSTAR INFORMATION 2018 Morningstar, Inc. All rights reserved. The Morningstar information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or redistributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Fidelity does not review the Morningstar data and, for mutual fund performance, you should check the fund's current prospectus for the most up-to-date information concerning applicable loads, fees and expenses. RELATIVE WEIGHTS Relative weights represents the % of fund assets in a particular market segment, asset class or credit quality relative to the benchmark. A positive number represents an overweight, and a negative number is an underweight. The fund's benchmark is listed immediately under the fund name in the Performance Summary. IMPORTANT FUND INFORMATION Relative positioning data presented in this commentary is based on the fund's primary benchmark (index) unless a secondary benchmark is provided to assess performance. VIP refers to Variable Insurance Products At a shareholder meeting on 12/8/17, a proposal was approved to combine the oversight of Fidelity's sector funds with Fidelity's broader equity and high income funds under a single Board of Trustees. The unified Board will be effective on 3/1/18. INDICES It is not possible to invest directly in an index. All indices represented are unmanaged. All indices include reinvestment of dividends and interest income unless otherwise noted. Dow Jones U.S. Select Real Estate Securities Index is a floatadjusted market-capitalization-weighted index of publicly traded real estate securities such as real estate investment trusts (REITs) and real estate operating companies (REOCs). S&P 500 is a market-capitalization-weighted index of 500 common stocks chosen for market size, liquidity, and industry group representation to represent U.S. equity performance. 9

10 Manager Facts Samuel Wald is a portfolio manager in the Equity and High Income division at Fidelity Investments. Fidelity Investments is a leading provider of investment management, retirement planning, portfolio guidance, brokerage, benefits outsourcing and other financial products and services to more than 20 million individuals, institutions and financial intermediaries. In this role, Mr. Wald manages a number of real estate/reit equity portfolios offered in various stand-alone and multi-asset class vehicles, which are distributed across various distribution channels. Prior to assuming his current position in 2004, Mr. Wald held various other positions at FMR Co., including that of research analyst and research associate in the Equity Research division following real estate, REITs and specialty and generic pharmaceuticals stocks. He has been in the financial industry since joining Fidelity in Mr. Wald earned his bachelor of science degree in finance, magna cum laude, from Yeshiva University. He is a CFA charterholder, and is also published in the Fall 2013 Journal of Portfolio Management with his paper titled "Searching for a Common Factor in Public and Private Real Estate Returns". 10 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

11 PERFORMANCE SUMMARY Quarter ending September 30, 2018 Total Returns for the Variable Subaccount New York Only: 10 /Life of Subaccount 1 Annualized /Life of Subaccount Fidelity Retirement Reserves 7.06% 2.97% 5.64% 7.68% 7.06% Fidelity Income Advantage 6.84% 2.76% 5.42% 7.46% 6.84% Fidelity Personal Retirement Annuity (for contracts purchased prior to 1/1/09 and on or after 9/7/10) Fidelity Personal Retirement Annuity (for contracts purchased between 1/1/09 and 9/6/10) Fidelity Personal Retirement Annuity (for contracts purchased on or after 9/7/10 with an initial purchase payment of $1M+) 7.56% 3.45% 6.14% 8.19% 7.56% 7.54% 3.45% 6.14% 8.19% 7.54% 7.72% 3.61% 6.30% 8.35% 7.72% Current performance may be higher or lower than the performance data quoted above. For month-end performance figures, please visit or call Fidelity. The performance data featured represents past performance, which is no guarantee of future results. Investing in a variable annuity involves risk of loss investment returns, contract value, and, for variable income annuities, payment amounts are not guaranteed and will fluctuate. Withdrawals of taxable amounts from an annuity are subject to ordinary income tax, and, if taken before age 59 1/2, may be subject to a 10% IRS penalty. Please see the Fiscal Performance Summary section of this Q&A document for performance footnotes and additional information. Before investing, please carefully consider the investment objectives, risks, charges, and expenses of the fund or annuity and its investment options. For this and other information, call or write Fidelity for a free prospectus or, if available, a summary prospectus. Read it carefully before you invest. Past performance is no guarantee of future results. Views expressed are through the end of the period stated and do not necessarily represent the views of Fidelity. Views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund. The securities mentioned are not necessarily holdings invested in by the portfolio manager(s) or FMR LLC. References to specific company securities should not be construed as recommendations or investment advice. Diversification does not ensure a profit or guarantee against a loss. Information included on this page is as of the most recent calendar quarter. S&P 500 is a registered service mark of Standard & Poor's Financial Services LLC. Other third-party marks appearing herein are the property of their respective owners. All other marks appearing herein are registered or unregistered trademarks or service marks of FMR LLC or an affiliated company. Fidelity Brokerage Services LLC, Member NYSE, SIPC., 900 Salem Street, Smithfield, RI Fidelity Investments Institutional Services Company, Inc., 500 Salem Street, Smithfield, RI FMR LLC. All rights reserved. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee