Fidelity VIP Asset Manager Growth Portfolio

Transcription

1 Fidelity VIP Asset Manager Growth Portfolio Key Takeaways For the year ending December 31, 2017, the fund's share classes gained roughly 19%, outpacing the 16.73% return of the Fidelity Asset Manager 70% Composite Index SM. Aided by a growth-stock-led tailwind, along with consistently positive stock market momentum, U.S. equity selection added considerable value and was the principal factor fueling the fund's outperformance of the benchmark. Security selection in U.S. investment-grade bonds and foreign developed-markets stocks also aided relative results. Asset allocation had an overall neutral impact on relative performance. Portfolio Manager Geoff Stein's fixed-income allocation strategy generated a positive net contribution, but this was more than offset by a small out-of-benchmark allocation to commodities, which failed to keep pace with equity market performance this period. As of December 31, Geoff thinks the U.S. economy will continue to advance but also believes markets are likely to be more volatile in 2018 compared with 2017, given the late stage of the economic and market cycles. Not FDIC Insured May Lose Value No Bank Guarantee

2 Market Recap U.S. equities gained 21.83% in 2017, with the S&P 500 closing the year just shy of an all-time high after a strong three-month finish. Early on, equities rallied on optimism for President Trump's pro-business agenda but leveled off in March amid fading optimism and stalled efforts by Congress to repeal and replace the Affordable Care Act. Upward momentum soon returned, with consumer sentiment and other market indicators remaining positive through year-end. The lone exception was a brief cooldown in August amid escalating geopolitical tension and uncertainty regarding the future of health care, tax reform and the U.S. debt ceiling. Sector-wise, information technology (+39%) fared best, with many major index constituents posting strong earnings growth. Materials (+24%) was helped by higher demand, especially from China, although industrials (+21%) modestly lagged. Consumer discretionary (+23%) fared well despite online competition to brick-and-mortar retailers. Financials edged the broader market on an uptick in interest rates that, at the same time, held back real estate (+11%) and other "bond proxy" sectors such as consumer staples (+13%) and utilities (+12%). Defensive-oriented energy (-1%) and telecomm services (-1%) marked the only sector declines. Elsewhere, the MSCI ACWI (All Country World Index) ex USA Index gained 27.40% for the year, helped partly by a generally weak U.S. dollar. Certain election results in continental Europe (+28%) suggested ebbing political worry and near-term risk there, whereas the U.K. (+21%) faced more-mixed conditions ahead of its expected exit from the European Union. Japan (+24%), despite central-bank easing and recent pressure from regional yen strength, lagged the rest of the Asia-Pacific group (+26%). Commodity-price volatility slowed Canada (+17%), but emerging markets (+36%) sped ahead. In fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index rose 3.54% for the year. After declining for much of 2017, longer-term yields ticked up amid recent U.S. Federal Reserve efforts to reduce its balance sheet; anticipation of a December rate hike; and tax reform that boosted expectations for near-term economic growth. Within the Bloomberg Barclays index, investment-grade corporate credit (+6%) led all major segments, including Treasuries (+2%). Outside the index, riskier, non-core fixed-income asset classes, such as emergingmarkets and U.S. high-yield debt, well outpaced the broader bond market; meanwhile, inflation-protected securities lagged, according to Bloomberg Barclays. BROAD ASSET CLASS RETURNS (%) PERIOD ENDING DECEMBER 31, 2017 Calendar- Returns Average Annual Cumulative P e r f o r m a n c e Best Worst Dispersion of Returns* Mos 3 Mos U.S. Equities Non-U.S. Developed-Markets Equities Emerging-Markets Equities Commodities High-Yield Debt Floating-Rate Debt International Debt Emerging-Markets Debt Real Estate Debt Investment-Grade Debt Inflation-Protected Debt Short-Term Debt Source: FMRCo., periods greater than one year are annualized *Difference between best- and worst-performing asset classes over the given time period You cannot invest directly in an index. Past performance is no guarantee of future results. U.S. Equities - Dow Jones U.S. Total Stock Market Index, Non-U.S. Developed-Markets Equities - MSCI World ex USA Net Mass, Emerging-Markets Equities - MSCI Emerging Markets Index, Commodities - Bloomberg Commodity Index Total Return, High-Yield Debt - The BofA Merrill Lynch U.S. High Yield Constrained Index, Floating-Rate Debt - S&P/LSTA Leveraged Performing Loan Index, International Debt - Bloomberg Barclays Global Aggregate Credit Ex U.S. Index Hedged (USD), Emerging-Markets Debt - J.P. Morgan Emerging Markets Bond Index Global, Real Estate Debt - Fidelity Real Estate Income Composite Index, Investment-Grade Debt - Bloomberg Barclays U.S. Aggregate Bond Index, Inflation-Protected Debt - Bloomberg Barclays U.S Treasury Inflation-Protected Securities (TIPS) Index (Series-L), Short-Term Debt - Bloomberg Barclays U.S. 3 Month Treasury Bellwether Index 2 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

3 Q&A An interview with Portfolio Manager Geoff Stein Fund Facts Geoff Stein Portfolio Manager Start Date: January 03, 1995 Size (in millions): $ Investment Approach Fidelity VIP Asset Manager Growth Portfolio is an all-inone investment strategy delivering broad, diversified asset-class exposure aligned with client risk objectives. The fund targets a neutral strategic allocation of 70% equities (49% U.S. and 21% non-u.s.), 25% debt securities and 5% cash. The fund leverages asset-class investment specialists to incorporate investment and research expertise from across the Fidelity organization. Assets are divided among several specialized Fidelity central funds, run by portfolio managers who seek to add value chiefly through security selection. In making asset allocation decisions for the Funds, the lead portfolio manager has the flexibility to make moderate tactical shifts around target mixes including investing in "extended" asset classes to capitalize on changing market conditions. Our disciplined approach to risk management affects all aspects of the investment process. Q: Geoff, how did the fund perform for the year ending December 31, 2017 The fund's share classes gained roughly 19% for the 12 months, outpacing the 16.73% return of the Fidelity Asset Manager 70% Composite Index SM and also finishing ahead of our Morningstar peer group average. Aided by a growth-stock-led tailwind, plus consistently positive stock-market momentum, active stock picking in the U.S. equity asset class added considerable value and was the main factor fueling the fund's relative performance. Q: What aided selection results within the U.S. equity sleeve Growth stocks outperformed value-oriented counterparts across all market-capitalization tiers this period, and strategies featuring a momentum bias generated some of the best results. These factors created a favorable backdrop for the approach employed by our U.S. equity portfolio managers. The domestic equity portfolio outdistanced its benchmark by a sizable margin, led by picks in information technology. Selection in the financials, consumer discretionary and materials sectors also notably contributed. Q: How is the fund's U.S. equity component structured Our domestic equity portfolio is organized using a centralfund structure. Fidelity's equity sector central funds are dedicated portfolios corresponding to the 11 economic sectors in the Dow Jones U.S. Total Stock Market Index SM. Within that index, real estate was separated from financials into its own sector in 2016 bringing the total to 11 index sectors. In response, we created a real-estate subportfolio within the financials central fund. The central funds are managed by sector-focused co-managers who concentrate on stock picking while sector weightings are kept roughly in line with those of the Dow Jones index. Managers take opportunistic active positions at both the industry and the security level within their respective sector sleeve(s) in an effort to capitalize on their high-conviction 3 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

4 ideas. We invest across the market-cap range and style classifications, but tend to have a smaller-cap, highergrowth bias relative to the Dow Jones index across the sleeves, harnessing research and stock-picking skill from throughout the Fidelity organization. Q: What about security selection in other areas Given the fund's moderate risk positioning from an asset allocation perspective, we generally expected security selection to drive relative performance, and that was indeed the case in In addition to the contribution from U.S. stock picking, the fund benefited from security selection in non-u.s. equities and investment-grade bonds, although not to the extent that U.S. stocks helped. Within foreign developed-markets (DM) equities, picks in Japan contributed the most. The fund's exposure to and overall positioning in emerging-markets (EM) stocks also added value. In our investment-grade bond portfolio, holdings of corporate bonds issued by financial institutions primarily banks along with an overweighting in the financial sector overall, proved beneficial. Outside of corporate credit, positions in non-government-agency mortgage-backed securities and taxable municipal issues provided a further boost. The portfolio's contribution was partly offset by an out-of-benchmark allocation to Treasury Inflation-Protected Securities (TIPS). TIPS lagged nominal Treasuries due to muted inflation expectations and minimal concern about inflation risk for most of the period. Q: Let's shift gears and talk about how asset allocation decisions influenced performance. On the whole, asset allocation had a net neutral impact on the fund's relative performance. This outcome was not surprising, since we have been seeing only limited opportunities to add value via asset allocation at this stage of the economic and market cycles. On the plus side, the fund's integrated fixed-income strategy generated a positive net contribution. I used underweightings in cash and investment-grade bonds to help fund out-of-benchmark positions in U.S. high-yield bonds, floating-rate bank loans, TIPS, long-term Treasuries, non-u.s. investment-grade credit and EM debt. The allocation to TIPS detracted and partially offset the strategy's overall contribution. My equity allocation strategy an underweighting in U.S. stocks combined with an overweighting in foreign DM shares, an equal weighting in EM equities and out-ofbenchmark exposure to commodity securities and real estate investment trusts (REITs) worked against relative results this period. The beneficial effect of overweighting foreign DM markets, along with exposure to strongperforming EM stocks, was negated by our equity underweighting here at home. Meanwhile, our commodities allocation materially detracted for the year. The asset class was hurt as oil prices were largely range-bound for most of 2017 due to increased U.S. production combined with the inability of OPEC (Organization of the Petroleum Exporting Countries) to limit global supply. Industrial commodities also lagged, dampened largely by weak demand from China. In 2017's fourth quarter, however, oil prices rallied to more than $60 per barrel on improving global demand, an agreement between OPEC and Russia to extend supply cuts through 2018, and supply disruptions in Libya. Q: What is your outlook at year-end We saw a variety of factors during the latter part of the year that suggest to us that the overall economic backdrop is likely to remain favorable for risk-based assets going forward, at least over the near term. Improving growth trends in both U.S. and overseas, along with stronger-thanforecast growth in corporate profits, bolstered investor sentiment in Consumer spending was solid overall, as was business investment, and exports grew, reflecting a strengthening global economy. As of December 31, we think a portion of the $1.5 trillion tax cut that was approved by Congress in late December is likely to exert a positive influence on the economy in We don't expect growth in the United States to accelerate dramatically, but we do think it likely will continue on a solid mid-to-late-cycle trajectory. From our vantage point at year-end, we think the positive trend in corporate earnings is likely to continue in 2018, although we don't expect future earnings growth to be as robust as it was this past year. U.S. equity valuations appear full to us, but not extreme. We don't see inflation as a major near-term threat, and investor sentiment remains largely skeptical, in our view. Despite these positives, we think vigilance will be necessary, given our sense that markets are likely to be more volatile in the coming year than they were during the relative calm of For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

5 ASSET ALLOCATION PERFORMANCE SUMMARY Geoff Stein expands on his outlook: "The U.S. Federal Reserve has begun the process of gradually unwinding its ultra-accommodative monetary policy by raising short-term interest rates and slowly reducing its massive bond portfolio. Central banks elsewhere in the world also are beginning to move away from providing extraordinary liquidity to financial markets. While we expect the rate hikes to proceed at a measured pace, we sense some risk that the Fed could increase rates too much too soon in an effort to stave off nascent inflation. "Given this environment, I increased the fund's U.S. equity allocation to a near-neutral weighting during the latter months of I then rebalanced in late December, after U.S. stock indexes had hit a series of new highs. By period end, we were slightly underweighted in U.S. equities, marginally overweighted in foreign DM stocks and about neutral in EM shares. The fund's total equity allocation U.S. and non-u.s. stocks plus commodities and REITs was roughly 73%. Looking ahead, while we expect earnings growth to be solid, we don't think it will be strong enough to warrant extending the overweighting in the fund's total equity exposure by any meaningful degree. "The most recent data on U.S. inflation showed that the personal-consumption expenditures price index the Fed's preferred price gauge had risen at a 1.8% annual rate, still below the central bank's long-elusive 2.0% target. Inflation also remains low in the eurozone, Japan and most other developed economies. That said, rising energy prices and a tight labor market could lead to an uptick in inflation in As a result, I increased the Fund's exposure to commodities and TIPS. Even if inflation remains subdued, I think it's prudent to maintain some degree of inflation hedging in a diversified portfolio in case price pressure unexpectedly rises." Asset Class DOMESTIC EQUITY FUNDS COMMODITY FUNDS INTERNATIONAL EQUITY FUNDS BOND FUNDS SHORT-TERM FUNDS & OTHER ASSETS INVESTED ASSETS SUBTOTALS Benchmark Average Relative Weight Relative Contribution (basis points)* DJ US Total Stk Mkt -6.0% 16 BBG Commodity Ind TR MSCI AC Wld exus (Net MA) BBgBarc U.S. Agg Bond 1.9% % % 64 BBgBarc 3M t-bill 1.2% -14 Fid AM 70% Comp Idx 0.0% 280 NET EXPENSES Total Value Added 199 *1 basis point = 0.01%. 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. 10 LARGEST HOLDINGS Holding Portfolio Weight Portfolio Weight Six Months Ago ishares S&P 500 Index ETF 3.77% -- ishares 20+ Treasury Bond ETF 1.80% 0.98% U.S. Treasury Notes 2% 12/31/ % 1.46% ishares Core MSCI Emerging Markets ETF 1.14% 2.45% ishares MSCI Japan ETF 1.06% 0.90% Apple, Inc. 0.97% 1.16% Amazon.com, Inc. 0.80% 0.85% U.S. Treasury Notes 1.25% 10/31/ % 0.85% U.S. Treasury Notes 1.875% 7/31/ % -- U.S. Treasury Notes 1.875% 3/31/ % 0.58% 10 Largest Holdings as a % of Net Assets 13.12% 11.92% 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. 5 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

6 EQUITY MARKET-SEGMENT DIVERSIFICATION Market Segment Portfolio Weight* Portfolio Weight Six Months Ago* Financials 18.36% 17.42% Information Technology 15.63% 16.02% Consumer Discretionary 11.55% 11.40% Health Care 10.43% 11.17% Industrials 9.75% 10.02% Multi Sector 9.70% 7.83% Consumer Staples 6.92% 7.84% Energy 5.34% 5.04% Materials 4.17% 4.18% Real Estate 3.82% 3.84% Utilities 2.45% 2.87% Telecommunication Services 1.87% 2.38% Other 0.01% -0.01% *% of equity assets. FIXED-INCOME MARKET-SEGMENT DIVERSIFICATION Market Segment Portfolio Weight Portfolio Weight Six Months Ago U.S. Treasury 46.08% 40.59% U.S. Agency 0.00% 0.00% Mortgage Pass-Through 15.16% 16.27% Asset-Backed Securities 0.43% 0.47% CMBS 0.41% 0.61% CMOs 0.13% 0.17% Investment-Grade Credit 14.94% 16.50% Municipal Bonds 1.13% 1.52% High-Yield Credit 12.09% 12.83% Non-U.S. Developed 5.26% 6.00% Emerging Markets 4.37% 5.04% Other Debt Assets 0.00% 0.00% ASSET ALLOCATION Asset Class Portfolio Weight Portfolio Weight Six Months Ago Domestic Equities 48.70% 42.88% Equities 46.69% 41.23% Commodities & Related Investments 2.01% 1.65% International Equities 24.62% 27.48% Bonds 23.19% 23.54% Short-Term/Money Market & Net Other Assets 3.49% 6.10% 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. 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 December 31, 2017 Cumulative Annualized Total Returns for the Fund 6 Month YTD / LOF 1 VIP Asset Manager Growth Portfolio - Initial Class Gross Expense Ratio: 0.72% % 18.73% 18.73% 6.78% 9.55% 5.43% VIP Asset Manager Growth Portfolio - Investor Class Gross Expense Ratio: 0.80% % 18.68% 18.68% 6.70% 9.47% 5.34% S&P 500 Index 11.42% 21.83% 21.83% 11.41% 15.79% 8.50% Fidelity Asset Manager 70% Composite Index 8.17% 16.73% 16.73% 8.06% 10.01% 6.12% Morningstar Insurance Allocation--50% to 70% Equity 7.05% 14.72% 14.72% 6.45% 8.63% 5.66% 1 Life of Fund (LOF) if performance is less than 10 years. Fund inception date: 01/03/ 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. 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 December 31, 2017 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 4.59% 8.03% 17.78% 17.78% 5.93% 8.68% 4.59% Fidelity Income Advantage B 4.37% 7.92% 17.54% 17.54% 5.71% 8.46% 4.37% 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+) 5.08% 8.31% 18.39% 18.39% 6.44% 9.19% 5.08% 5.05% 8.31% 18.39% 18.39% 6.44% 9.19% 5.05% 5.24% 8.39% 18.57% 18.57% 6.60% 9.36% 5.24% Fidelity Retirement Reserves - Subaccount Inception: January 09, 1995; New York Only Inception: January 09, Fidelity Income Advantage - Subaccount Inception: January 09, 1995; New York Only Inception: January 09, 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. BROAD ASSET CLASS RETURNS A graphical representation of historical market performance and the variations in returns among asset classes, as represented by the following indexes: Bloomberg Barclays U.S Treasury Inflation-Protected Securities (TIPS) Index (Series-L) is a market value-weighted index that measures the performance of inflation-protected securities issued by the U.S. Treasury that have a remaining average life between 1 and 10 years. Bloomberg Barclays U.S. 3 Month Treasury Bellwether Index is a market value-weighted index of investment-grade fixed-rate public obligations of the U.S. Treasury with maturities of 3 months, excluding zero coupon strips. Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based, market-value-weighted benchmark that measures the performance of the investment grade, U.S. dollardenominated, fixed-rate taxable bond market. Sectors in the index include Treasuries, governmentrelated and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS. BofA Merrill Lynch U.S. High Yield Constrained Index is a modified market capitalization weighted index of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody's, S&P and Fitch). The country of risk of qualifying issuers must be an FX-G10 member, a Western European nation, or a territory of the US or a Western European nation. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. In addition, qualifying securities must have at least one year remaining to final maturity, a fixed coupon schedule and at least $100 million in outstanding face value. Defaulted securities are excluded. The index contains all securities of The BofA Merrill Lynch US High Yield Index but caps issuer exposure at 2%. Bloomberg Commodity Index Total Return measures the performance of the commodities market. It consists of exchangetraded futures contracts on physical commodities that are weighted to account for the economic significance and market liquidity of each commodity. Dow Jones U.S. Total Stock Market Index is a float-adjusted market capitalization weighted index of all equity securities of U.S. headquartered companies with readily available price data. Fidelity Real Estate Income Composite Index is a customized blend of unmanaged indexes, weighted as follows: The BofA Merrill Lynch US Real Estate Index - 40%; MSCI REIT Preferred Index - 40%; and FTSE NAREIT All REITs Index - 20%. J.P. Morgan Emerging Markets Bond Index Global tracks total returns for the U.S. dollar-denominated debt instruments issued by Emerging Market sovereign and quasi-sovereign entities, such as Brady bonds, loans, and Eurobonds. MSCI World ex USA Index is a market capitalization weighted index that is designed to measure the investable equity market performance for global investors of developed markets outside the United States. MSCI Emerging Markets Index is a market capitalization-weighted index that is designed to measure the investable equity market performance for global investors in emerging markets. S&P/LSTA Leveraged Performing Loan Index is a market valueweighted index designed to represent the performance of U.S. dollar-denominated institutional leveraged performing loan portfolios (excluding loans in payment default) using current market weightings, spreads and interest payments. FUND RISKS Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Fixed income investments entail interest rate risk (as interest rates rise bond prices usually fall), the risk of issuer default, issuer credit risk and inflation risk. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. Lower-quality bonds can be more volatile and have greater risk of default than higher-quality bonds. Leverage can increase market exposure and magnify investment risk. 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 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. Total Stock Market Index is a float-adjusted marketcapitalization-weighted index of all equity securities of U.S. headquartered companies with readily available price data. Fidelity Asset Manager 70% Composite Index is a customized blend 9

10 of unmanaged indices, weighted as follows: Dow Jones U.S. Total Stock Market Index 49%; Bloomberg Barclays U.S. Aggregate Bond Index 25%; MSCI ACWI (All Country World Index) ex USA Index 21%; and Bloomberg Barclays U.S. 3 Month Treasury Bellwether Index 5%. The composition differed in periods prior to October 1, 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. MSCI ACWI (All Country World Index) ex USA Index is a marketcapitalization-weighted index designed to measure the investable equity market performance for global investors of large and mid-cap stocks in developed and emerging markets, excluding the United States. Bloomberg Barclays Global Aggregate Credit Ex US Index Hedged (USD) is a market value weighted index that measures the performance, hedged in USD, of the global non-us dollar denominated investment-grade corporate fixed-rate debt issues with maturities of one year or more. 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. 10

11 Manager Facts Geoff Stein is a portfolio manager in the Global Asset Allocation (GAA) group 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. Stein serves as lead or co-manager for a number of multiasset class mutual funds and sub advisory accounts for US and Canadian investors. Such funds include the Fidelity Asset Manager Funds, Fidelity Canadian Asset Allocation Funds, Fidelity Monthly Income Fund, Fidelity Income Allocation Fund, Fidelity Dividend Fund, Fidelity Asset Allocation Private Pool, and various other Fidelity funds. He focuses primarily on active asset allocation. Prior to assuming his current position in April 2009, Mr. Stein was Chief Investment Officer of Fidelity Charitable Gift Fund from 2007 to Previously, he worked as a portfolio manager and director of portfolio management from 1998 to 2007, focusing on Fidelity Portfolio Advisory Service, and as an investment consultant for Fidelity Investments Institutional Services Company, Inc. (FIIS) and Fidelity Management & Research Company (FMRCo) from 1994 to Before joining Fidelity in 1994, Mr. Stein served as a director of client services at Jacobs Levy Equity Management from 1992 to 1994, and as a consultant at Cambridge Associates from 1988 to He has been in the industry since Mr. Stein earned his bachelor of arts degree in economics from Yale and his master of business administration degree from Stanford University. He is also a Chartered Financial Analyst (CFA ) charterholder. 11 For definitions, fund risks and other important information, please see the Definitions and Important Information section of this Q&A.

12 PERFORMANCE SUMMARY Quarter ending December 31, 2017 Total Returns for the Variable Subaccount New York Only: 10 /Life of Subaccount 1 Annualized /Life of Subaccount Fidelity Retirement Reserves 4.59% 17.78% 5.93% 8.68% 4.59% Fidelity Income Advantage 4.37% 17.54% 5.71% 8.46% 4.37% 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+) 5.08% 18.39% 6.44% 9.19% 5.08% 5.05% 18.39% 6.44% 9.19% 5.05% 5.24% 18.57% 6.60% 9.36% 5.24% 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. 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 Diversification does not ensure a profit or guarantee against a loss. Information included on this page is as of the most recent calendar quarter.