Fidelity Variable Insurance Products:

Transcription

1 Fidelity Variable Insurance Products: Investment Grade Bond Portfolio Annual Report December 31, 2015

2 Contents VIP Investment Grade Bond Portfolio 3 Performance 4 Management s Discussion of Fund Performance 5 Investment Summary 6 Investments 9 Financial Statements 15 Notes to Financial Statements 20 Report of Independent Registered Public Accounting Firm 21 Trustees and Officers 28 Shareholder Expense Example 29 Distributions 30 Board Approval of Investment Advisory Contracts and Management Fees 34 Proxy Voting Results Fidelity VIP Investment Grade Central Fund 36 Performance 37 Management s Discussion of Fund Performance 38 Investment Summary 39 Investments 54 Financial Statements 57 Notes to Financial Statements 63 Report of Independent Registered Public Accounting Firm 64 Trustees and Officers 71 Shareholder Expense Example 72 Distributions 73 Board Approval of Investment Advisory Contracts and Management Fees 75 Proxy Voting Results To view a fund s proxy voting guidelines and proxy voting record for the 12-month period ended June 30, visit or visit the Securities and Exchange Commission s (SEC) web site at You may also call to request a free copy of the proxy voting guidelines. Fidelity Variable Insurance Products are separate account options which are purchased through a variable insurance contract. Standard & Poor s, S&P and S&P 500 are registered service marks of The McGraw-Hill Companies, Inc. and have been licensed for use by Fidelity Distributors Corporation. 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 FMR LLC. All rights reserved. This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. This report is not authorized for distribution to prospective investors in the Fund unless preceded or accompanied by an effective prospectus. A fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Forms N-Q are available on the SEC s web site at A fund s Forms N-Q may be reviewed and copied at the SEC s Public Reference Room in Washington, DC. Information regarding the operation of the SEC s Public Reference Room may be obtained by calling SEC For a complete list of a fund s portfolio holdings, view the most recent holdings listing, semiannual report, or annual report on Fidelity s web site at or as applicable. NOT FDIC INSURED MAY LOSE VALUE NO BANK GUARANTEE Neither the Fund nor Fidelity Distributors Corporation is a bank. Annual Report

3 VIP Investment Grade Bond Portfolio Performance: The Bottom Line Average annual total return reflects the change in the value of an investment, assuming reinvestment of distributions from dividend income and capital gains (the profits earned upon the sale of securities that have grown in value, if any) and assuming a constant rate of performance each year. During periods of reimbursement by Fidelity, a fund s total return will be greater than it would be had the reimbursement not occurred. 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 performance information included the effect of these additional charges, the total returns would have been lower. How a fund did yesterday is no guarantee of how it will do tomorrow. Average Annual Total Returns For the periods ended December 31, 2015 Past 1 year Initial Class -0.60% 3.27% 4.44% Service Class -0.71% 3.16% 4.34% Service Class % 3.00% 4.18% Investor Class -0.71% 3.22% 4.40% Past 5 years Past 10 years $10,000 Over 10 Years Let s say hypothetically that $10,000 was invested in VIP Investment Grade Bond Portfolio Initial Class on December 31, The chart shows how the value of your investment would have changed, and also shows how the Barclays U.S. Aggregate Bond Index performed over the same period. Period Ending Values $15,435 VIP Investment Grade Bond Portfolio Initial Class $15,552 Barclays U.S. Aggregate Bond Index 3 Annual Report

4 VIP Investment Grade Bond Portfolio Management s Discussion of Fund Performance Market Recap: U.S. taxable investment-grade bonds managed only a slight gain for calendar year 2015, in an environment of rising credit-risk premiums that made it difficult for many bond sectors to outperform U.S. Treasury investments. The Barclays U.S. Aggregate Bond Index returned 0.55%, with coupon (stated interest) payments roughly counterbalancing price weakness. Bonds suffered early in the period due to increased expectations for higher policy interest rates. The U.S. Federal Reserve, however, took no action to raise rates over the summer, amid a dampened global economic outlook. Rate-hike expectations cooled in August and September, in an environment of decreased bond issuance, weaker economic data emanating from China and falling crude-oil prices. They then rose significantly in late October and November, as the U.S. economy continued to improve, leading up to the Fed s mid-december rate hike, its first since Among sectors in the Barclays index, U.S. Treasury and agency mortgage-backed securities managed slight gains, versus modest declines for investment-grade credit and government-related securities. Outside the index, U.S. corporate high-yield bonds fell sharply, according to Barclays, fueled by a broad retreat from risk assets, while Treasury Inflation Protected Securities (TIPS) declined amid low inflation expectations. Comments from Portfolio Manager Ford O Neil: For the year, the absolute return of the fund s share classes were modestly negative, slightly trailing the benchmark Barclays U.S. Aggregate Bond Index. I attempt to add value through sector positioning. I also draw on Fidelity s considerable bottom-up fundamental research to identify what we believe are the best ideas in each sector. I keep the fund s duration, a measure of its sensitivity to interest rates, roughly in line with that the of the benchmark, but position the fund based on the shape and expected changes in the yield curve. Nearly all of the fund s assets were invested in Fidelity VIP Investment Grade Central Fund an investment-grade pool I manage for several VIP funds, including VIP Investment Grade Bond with the remainder spread among Fidelity Specialized High Income Central Fund, individual securities and cash equivalents. Out-of-benchmark positions in BB-rated securities hampered results versus the benchmark. The fund s underweighting in U.S. government-backed bonds detracted, as did its overweighting in TIPS. Holding taxable municipal bonds backed by Illinois and Chicago also hurt. In contrast, overweighting investment-grade corporate bonds added value, as did an overweighting in strong-performing financials and an underweighting in weaker industrials names. The fund s yield-curve positioning was additive. The views expressed above reflect those of the portfolio manager(s) only through the end of the period as stated on the cover of this report and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such 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. Annual Report 4

5 VIP Investment Grade Bond Portfolio Investment Summary (Unaudited) Quality Diversification (% of fund s net assets) As of December 31, 2015 U.S. Government and U.S. Government Agency Obligations 32.1% AAA 3.3% AA 3.8% A 10.9% BBB 33.5% BB and Below 14.0% Short-Term Investments and Net Other Assets 2.4% As of June 30, 2015 U.S. Government and U.S. Government Agency Obligations 36.4% AAA 3.7% AA 3.7% A 14.3% BBB 28.2% BB and Below 12.1% Not Rated 0.1% Short-Term Investments and Net Other Assets 1.5% We have used ratings from Moody s Investors Service, Inc. Where Moody s ratings are not available, we have used S&P ratings. All ratings are as of the date indicated and do not reflect subsequent changes. Securities rated BB or below were rated investment grade at the time of acquisition. The information in the above tables is based on the combined investments of the Fund and its pro-rata share of investments of Fidelity s fixed-income central funds. Weighted Average Maturity as of December 31, months ago Years This is a weighted average of all the maturities of the securities held in a fund. Weighted Average Maturity (WAM) can be used as a measure of sensitivity to interest rate changes and market changes. Generally, the longer the maturity, the greater the sensitivity to such changes. WAM is based on the dollar-weighted average length of time until principal payments must be paid. Depending on the types of securities held in a fund, certain maturity shortening devices (e.g., demand features, interest rate resets, and call options) may be taken into account when calculating the WAM. durations generally tend to be more sensitive to interest rate changes than securities with shorter durations. A fund with a longer average duration generally can be expected to be more sensitive to interest rate changes than a fund with a shorter average duration. Asset Allocation (% of fund s net assets) As of December 31, 2015 *, ** Corporate Bonds 51.3% U.S. Government and U.S. Government Agency Obligations 32.1% Asset-Backed Securities 0.9% CMOs and Other Mortgage Related Securities 6.3% Municipal Bonds 4.1% Other Investments 2.9% Short-Term Investments and Net Other Assets (Liabilities) 2.4% As of June 30, 2015 ***, Corporate Bonds 48.6% U.S. Government and U.S. Government Agency Obligations 36.4% Asset-Backed Securities 1.0% CMOs and Other Mortgage Related Securities 7.2% Municipal Bonds 3.9% Other Investments 1.4% Short-Term Investments and Net Other Assets (Liabilities) 1.5% * Foreign investments 14.5% ** Futures and Swaps 0.0% *** Foreign investments 13.6% Futures and Swaps 0.0% The information in the above table is based on the combined investments of the Fund and its pro rata share of the investments of Fidelity s fixed-income central funds. An unaudited holdings listing for the Fund, which presents direct holdings as well as the pro rata share of any securities and other investments held indirectly through its investment in underlying non-money market Fidelity Central Funds, is available at advisor.fidelity.com. Fidelity VIP Investment Grade Central Fund s holdings and financial statements are included at the end of this report. Percentages in the above tables are adjusted for the effect of TBA Sale Commitments. Duration as of December 31, months ago Years Duration is a measure of a security s price sensitivity to changes in interest rates. Duration differs from maturity in that it considers a security s interest payments in addition to the amount of time until the security reaches maturity, and also takes into account certain maturity shortening features (e.g., demand features, interest rate resets, and call options) when applicable. Securities with longer 5 Annual Report

6 VIP Investment Grade Bond Portfolio Investments December 31, 2015 Showing Percentage of Net Assets Nonconvertible Bonds 0.3% Principal Amount Value ENERGY 0.1% Oil, Gas & Consumable Fuels 0.1% Chesapeake Energy Corp. 5.75% 3/15/23 $ 8,800,000 $ 2,552,000 FINANCIALS 0.1% Diversified Financial Services 0.1% MSCI, Inc. 5.25% 11/15/24 (a) 3,400,000 3,451,000 Real Estate Investment Trusts 0.0% CommonWealth REIT 5.875% 9/15/20 546, ,923 Money Market Funds 0.4% Shares Value Fidelity Cash Central Fund, 0.33% (e) (Cost $14,354,356) 14,354,356 $ 14,354,356 TOTAL INVESTMENT PORTFOLIO 100.4% (Cost $3,594,769,415) 3,568,551,860 NET OTHER ASSETS (LIABILITIES) (0.4)% (15,949,542) NET ASSETS 100% $3,552,602,318 TOTAL FINANCIALS 4,037,923 HEALTH CARE 0.1% Health Care Providers & Services 0.1% Sabra Health Care LP/Sabra Capital Corp. 5.5% 2/1/21 5,515,000 5,694,238 TOTAL NONCONVERTIBLE BONDS (Cost $18,690,032) 12,284,161 U.S. Treasury Obligations 1.4% U.S. Treasury Bonds 2.875% 8/15/45 20,030,000 19,415,800 U.S. Treasury Notes 2% 8/15/25 31,170,000 30,390,251 TOTAL U.S. TREASURY OBLIGATIONS (Cost $50,827,997) 49,806,051 Collateralized Mortgage Obligations 0.0% Private Sponsor 0.0% MASTR Adjustable Rate Mortgages Trust Series Class 22A2, 0.407% 5/25/47 (b) 236, ,020 Merrill Lynch Alternative Note Asset Trust floater Series 2007 OAR1 Class A1, % 2/25/37 (b) 749, ,213 Wells Fargo Mortgage Backed Securities Trust Series 2005 AR2 Class 1A2, 2.63% 3/25/35 (b) 527, ,953 TOTAL PRIVATE SPONSOR (Cost $828,778) 1,375,186 Fixed-Income Funds 98.3% Shares Fidelity Specialized High Income Central Fund (c) 2,796, ,964,634 Fidelity VIP Investment Grade Central Fund (c)(d) 31,045,873 3,219,767,472 TOTAL FIXED-INCOME FUNDS (Cost $3,510,068,252) 3,490,732,106 See accompanying notes which are an integral part of the financial statements. Annual Report 6

7 Legend (a) Security exempt from registration under Rule 144A of the Securities Act of These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers. At the end of the period, the value of these securities amounted to $3,451,000 or 0.1% of net assets. (b) Coupon rates for floating and adjustable rate securities reflect the rates in effect at period end. (c) Affiliated fund that is generally available only to investment companies and other accounts managed by Fidelity Investments. A complete unaudited schedule of portfolio holdings for each Fidelity Central Fund is filed with the SEC for the first and third quarters of each fiscal year on Form N-Q and is available upon request or at the SEC s website at An unaudited holdings listing for the Fund, which presents direct holdings as well as the pro-rata share of securities and other investments held indirectly through its investment in underlying non-money market Fidelity Central Funds, is available at advisor.fidelity.com. In addition, each Fidelity Central Fund s financial statements, which are not covered by the Fund s Report of Independent Registered Public Accounting Firm, are available on the SEC s website or upon request. (d) Affiliated central fund that is available only to investment companies and other accounts managed by Fidelity Investments. Fidelity VIP Investment Grade Central Fund s investments and financial statements are included at the end of this report as an attachment. (e) Affiliated fund that is generally available only to investment companies and other accounts managed by Fidelity Investments. The rate quoted is the annualized seven-day yield of the fund at period end. A complete unaudited listing of the fund s holdings as of its most recent quarter end is available upon request. In addition, each Fidelity Central Fund s financial statements, which are not covered by the Fund s Report of Independent Registered Public Accounting Firm, are available on the SEC s website or upon request. Affiliated Central Funds Information regarding fiscal year to date income earned by the Fund from investments in Fidelity Central Funds is as follows: Fund Income earned Fidelity Cash Central Fund $ 47,830 Fidelity Specialized High Income Central Fund 12,216,236 Fidelity VIP Investment Grade Central Fund 97,232,608 Total $ 109,496,674 Additional information regarding the Fund s fiscal year to date purchases and sales, including the ownership percentage, of the non Money Market Central Funds is as follows: Fund Value, beginning of period Purchases Sales Proceeds Value, end of period % ownership, end of period Fidelity Specialized High Income Central Fund $ 199,928,323 $ 86,961,156 $ $ 270,964, % Fidelity VIP Investment Grade Central Fund 3,101,051, ,789, ,856,550 3,219,767, % Total $ 3,300,980,287 $ 481,751,145 $ 179,856,550 $ 3,490,732,106 Investment Valuation The following is a summary of the inputs used, as of December 31, 2015, involving the Fund s assets and liabilities carried at fair value. The inputs or methodology used for valuing securities may not be an indication of the risk associated with investing in those securities. For more information on valuation inputs, and their aggregation into the levels used below, please refer to the Investment Valuation section in the accompanying Notes to Financial Statements. Valuation Inputs at Reporting Date: Description Total Level 1 Level 2 Level 3 Investments in Securities: Corporate Bonds $ 12,284,161 $ $12,284,161 $ U.S. Government and Government Agency Obligations 49,806,051 49,806,051 Collateralized Mortgage Obligations 1,375,186 1,375,186 Fixed-Income Funds 3,490,732,106 3,490,732,106 Money Market Funds 14,354,356 14,354,356 Total Investments in Securities: $3,568,551,860 $3,505,086,462 $63,465,398 $ See accompanying notes which are an integral part of the financial statements. 7 Annual Report

8 Investments continued Other Information Distribution of investments by country or territory of incorporation, as a percentage of Total Net Assets, is as follows (Unaudited): United States of America 85.5% United Kingdom 3.1% Mexico 1.8% Netherlands 1.6% Cayman Islands 1.2% Luxembourg 1.2% Others (Individually Less Than 1%) 5.6% 100.0% The information in the above table is based on the combined investments of the fund and its pro-rata share of the investments of Fidelity s Fixed-Income Central Funds See accompanying notes which are an integral part of the financial statements. Annual Report 8

9 VIP Investment Grade Bond Portfolio Financial Statements Statement of Assets and Liabilities Assets Investment in securities, at value See accompanying schedule: Unaffiliated issuers (cost $70,346,807) $ 63,465,398 Fidelity Central Funds (cost $3,524,422,608) 3,505,086,462 December 31, 2015 Total Investments (cost $3,594,769,415) $ 3,568,551,860 Receivable for fund shares sold 4,918,761 Interest receivable 763,007 Distributions receivable from Fidelity Central Funds 3,013 Prepaid expenses 7,791 Total assets 3,574,244,432 Liabilities Payable for fund shares redeemed $ 20,068,402 Accrued management fee 925,491 Distribution and service plan fees payable 293,241 Other affiliated payables 318,335 Other payables and accrued expenses 36,645 Total liabilities 21,642,114 Net Assets $ 3,552,602,318 Net Assets consist of: Paid in capital $ 3,586,248,910 Undistributed net investment income 1,745,501 Accumulated undistributed net realized gain (loss) on investments (9,174,538) Net unrealized appreciation (depreciation) on investments (26,217,555) Net Assets $ 3,552,602,318 Initial Class: Net Asset Value, offering price and redemption price per share ($1,052,892,975 85,130,829 shares) $ Service Class: Net Asset Value, offering price and redemption price per share ($519,999,579 42,479,461 shares) $ Service Class 2: Net Asset Value, offering price and redemption price per share ($1,186,855,211 98,145,226 shares) $ Investor Class: Net Asset Value, offering price and redemption price per share ($792,854,553 64,333,825 shares) $ See accompanying notes which are an integral part of the financial statements. 9 Annual Report

10 Financial Statements continued Statement of Operations Year ended December 31, 2015 Investment Income Interest $ 2,576,926 Income from Fidelity Central Funds 109,496,674 Total income 112,073,600 Expenses Management fee $ 11,176,425 Transfer agent fees 2,733,003 Distribution and service plan fees 3,465,485 Accounting and security lending fees 1,113,781 Custodian fees and expenses 7,713 Independent trustees compensation 14,660 Registration fees 26,062 Audit 51,707 Legal 14,912 Miscellaneous 165,157 Total expenses before reductions 18,768,905 Expense reductions (8,202) 18,760,703 Net investment income (loss) 93,312,897 Realized and Unrealized Gain (Loss) Net realized gain (loss) on: Investment securities: Unaffiliated issuers (5,318,663) Fidelity Central Funds (5,078,449) Capital gain distributions from Fidelity Central Funds 2,299,416 Total net realized gain (loss) (8,097,696) Change in net unrealized appreciation (depreciation) on investment securities (114,860,697) Net gain (loss) (122,958,393) Net increase (decrease) in net assets resulting from operations $ (29,645,496) Statement of Changes in Net Assets Year ended December 31, 2015 Year ended December 31, 2014 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ 93,312,897 $ 75,267,939 Net realized gain (loss) (8,097,696) (1,144,373) Change in net unrealized appreciation (depreciation) (114,860,697) 95,049,878 Net increase (decrease) in net assets resulting from operations (29,645,496) 169,173,444 Distributions to shareholders from net investment income (91,918,960) (70,644,189) Distributions to shareholders from net realized gain (2,733,126) (1,215,407) Total distributions (94,652,086) (71,859,596) Share transactions net increase (decrease) 320,862, ,893,177 Total increase (decrease) in net assets 196,565, ,207,025 Net Assets Beginning of period 3,356,037,132 2,944,830,107 End of period (including undistributed net investment income of $1,745,501 and undistributed net investment income of $3,246,610, respectively) $ 3,552,602,318 $ 3,356,037,132 See accompanying notes which are an integral part of the financial statements. Annual Report 10

11 Financial Highlights VIP Investment Grade Bond Portfolio Initial Class Years ended December 31, Selected Per Share Data Net asset value, beginning of period $ $ $ $ $ Income from Investment Operations Net investment income (loss) A Net realized and unrealized gain (loss) (.419).392 (.526) Total from investment operations (.074).719 (.231) Distributions from net investment income (.336) (.284) (.310) (.315) (.436) Distributions from net realized gain (.010) (.005) (.159) (.356) (.347) Total distributions (.346) (.289) (.469) (.671) (.783) Net asset value, end of period $ $ $ $ $ Total Return B,C (.60)% 5.83% (1.78)% 5.90% 7.33% Ratios to Average Net Assets D,E Expenses before reductions.42%.42%.42%.42%.43% Expenses net of fee waivers, if any.42%.42%.42%.42%.42% Expenses net of all reductions.42%.42%.42%.42%.42% Net investment income (loss) 2.69% 2.56% 2.29% 2.39% 3.30% Supplemental Data Net assets, end of period (000 omitted) $ 1,052,893 $ 1,081,564 $ 981,378 $ 1,149,849 $ 1,116,778 Portfolio turnover rate F 9% 7% 4% 2% 5% A Calculated based on average shares outstanding during the period. B Total returns do not reflect charges attributable to your insurance company s separate account. Inclusion of these charges would reduce the total returns shown. C Total returns would have been lower if certain expenses had not been reduced during the applicable periods shown. D Fees and expenses of any underlying Fidelity Central Funds are not included in the Fund s expense ratio. The Fund indirectly bears its proportionate share of the expenses of any underlying Fidelity Central Funds. Based on their most recent shareholder report date, the expenses of any underlying non-money market Fidelity Central Funds were less than.01%. E Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expenses net of fee waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. F Amount does not include the portfolio activity of any underlying Fidelity Central Funds. See accompanying notes which are an integral part of the financial statements. 11 Annual Report

12 Financial Highlights VIP Investment Grade Bond Portfolio Service Class Years ended December 31, Selected Per Share Data Net asset value, beginning of period $ $ $ $ $ Income from Investment Operations Net investment income (loss) A Net realized and unrealized gain (loss) (.416).391 (.523) Total from investment operations (.087).703 (.243) Distributions from net investment income (.323) (.278) (.298) (.302) (.423) Distributions from net realized gain (.010) (.005) (.159) (.356) (.347) Total distributions (.333) (.283) (.457) (.658) (.770) Net asset value, end of period $ $ $ $ $ Total Return B,C (.71)% 5.75% (1.89)% 5.77% 7.21% Ratios to Average Net Assets D,E Expenses before reductions.52%.52%.52%.52%.52% Expenses net of fee waivers, if any.52%.52%.52%.52%.52% Expenses net of all reductions.52%.52%.52%.52%.52% Net investment income (loss) 2.60% 2.46% 2.19% 2.29% 3.20% Supplemental Data Net assets, end of period (000 omitted) $ 520,000 $ 432,656 $ 265,505 $ 288,708 $ 277,732 Portfolio turnover rate F 9% 7% 4% 2% 5% A Calculated based on average shares outstanding during the period. B Total returns do not reflect charges attributable to your insurance company s separate account. Inclusion of these charges would reduce the total returns shown. C Total returns would have been lower if certain expenses had not been reduced during the applicable periods shown. D Fees and expenses of any underlying Fidelity Central Funds are not included in the Fund s expense ratio. The Fund indirectly bears its proportionate share of the expenses of any underlying Fidelity Central Funds. Based on their most recent shareholder report date, the expenses of any underlying non-money market Fidelity Central Funds were less than.01%. E Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expenses net of fee waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. F Amount does not include the portfolio activity of any underlying Fidelity Central Funds. See accompanying notes which are an integral part of the financial statements. Annual Report 12

13 Financial Highlights VIP Investment Grade Bond Portfolio Service Class 2 Years ended December 31, Selected Per Share Data Net asset value, beginning of period $ $ $ $ $ Income from Investment Operations Net investment income (loss) A Net realized and unrealized gain (loss) (.410).379 (.510) Total from investment operations (.104).668 (.253) Distributions from net investment income (.306) (.253) (.278) (.283) (.402) Distributions from net realized gain (.010) (.005) (.159) (.356) (.347) Total distributions (.316) (.258) (.437) (.639) (.749) Net asset value, end of period $ $ $ $ $ Total Return B,C (.85)% 5.53% (1.99)% 5.60% 7.03% Ratios to Average Net Assets D,E Expenses before reductions.67%.67%.67%.67%.67% Expenses net of fee waivers, if any.67%.67%.67%.67%.67% Expenses net of all reductions.67%.67%.67%.67%.67% Net investment income (loss) 2.45% 2.31% 2.04% 2.14% 3.05% Supplemental Data Net assets, end of period (000 omitted) $ 1,186,855 $ 1,082,467 $ 1,115,493 $ 1,198,326 $ 972,651 Portfolio turnover rate F 9% 7% 4% 2% 5% A Calculated based on average shares outstanding during the period. B Total returns do not reflect charges attributable to your insurance company s separate account. Inclusion of these charges would reduce the total returns shown. C Total returns would have been lower if certain expenses had not been reduced during the applicable periods shown. D Fees and expenses of any underlying Fidelity Central Funds are not included in the Fund s expense ratio. The Fund indirectly bears its proportionate share of the expenses of any underlying Fidelity Central Funds. Based on their most recent shareholder report date, the expenses of any underlying non-money market Fidelity Central Funds were less than.01%. E Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expenses net of fee waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. F Amount does not include the portfolio activity of any underlying Fidelity Central Funds. See accompanying notes which are an integral part of the financial statements. 13 Annual Report

14 Financial Highlights VIP Investment Grade Bond Portfolio Investor Class Years ended December 31, Selected Per Share Data Net asset value, beginning of period $ $ $ $ $ Income from Investment Operations Net investment income (loss) A Net realized and unrealized gain (loss) (.428).395 (.526) Total from investment operations (.088).717 (.236) Distributions from net investment income (.332) (.282) (.305) (.311) (.433) Distributions from net realized gain (.010) (.005) (.159) (.356) (.347) Total distributions (.342) (.287) (.464) (.667) (.780) Net asset value, end of period $ $ $ $ $ Total Return B,C (.71)% 5.83% (1.82)% 5.89% 7.25% Ratios to Average Net Assets D,E Expenses before reductions.45%.45%.45%.46%.46% Expenses net of fee waivers, if any.45%.45%.45%.46%.45% Expenses net of all reductions.45%.45%.45%.46%.45% Net investment income (loss) 2.66% 2.53% 2.26% 2.36% 3.27% Supplemental Data Net assets, end of period (000 omitted) $ 792,855 $ 759,351 $ 582,454 $ 744,227 $ 612,611 Portfolio turnover rate F 9% 7% 4% 2% 5% A Calculated based on average shares outstanding during the period. B Total returns do not reflect charges attributable to your insurance company s separate account. Inclusion of these charges would reduce the total returns shown. C Total returns would have been lower if certain expenses had not been reduced during the applicable periods shown. D Fees and expenses of any underlying Fidelity Central Funds are not included in the Fund s expense ratio. The Fund indirectly bears its proportionate share of the expenses of any underlying Fidelity Central Funds. Based on their most recent shareholder report date, the expenses of any underlying non-money market Fidelity Central Funds were less than.01%. E Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expenses net of fee waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. F Amount does not include the portfolio activity of any underlying Fidelity Central Funds. See accompanying notes which are an integral part of the financial statements. Annual Report 14

15 Notes to Financial Statements For the period ended December 31, Organization. VIP Investment Grade Bond Portfolio (the Fund) is a fund of Variable Insurance Products Fund V (the Trust) and is authorized to issue an unlimited number of shares. The Trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business trust. Shares of the Fund may only be purchased by insurance companies for the purpose of funding variable annuity or variable life insurance contracts. The Fund offers the following classes of shares: Initial Class shares, Service Class shares, Service Class 2 shares and Investor Class shares. All classes have equal rights and voting privileges, except for matters affecting a single class. 2. Investments in Fidelity Central Funds. The Fund invests in Fidelity Central Funds, which are open-end investment companies generally available only to other investment companies and accounts managed by the investment adviser and its affiliates. The Fund s Schedule of Investments lists each of the Fidelity Central Funds held as of period end, if any, as an investment of the Fund, but does not include the underlying holdings of each Fidelity Central Fund. As an Investing Fund, the Fund indirectly bears its proportionate share of the expenses of the underlying Fidelity Central Funds. Based on its investment objective, each Fidelity Central Fund may invest or participate in various investment vehicles or strategies that are similar to those of the Fund. These strategies are consistent with the investment objectives of the Fund and may involve certain economic risks which may cause a decline in value of each of the Fidelity Central Funds and thus a decline in the value of the Fund. The Money Market Central Funds seek preservation of capital and current income and are managed by Fidelity Investments Money Management, Inc. (FIMM), an affiliate of the investment adviser. Annualized expenses of the Money Market Central Funds as of their most recent shareholder report date are less than.005%. The following summarizes the Fund s investment in each non-money market Fidelity Central Fund. Fidelity Central Fund Fidelity Specialized High Income Central Fund Fidelity VIP Investment Grade Central Fund Investment Manager FMR Co., Inc. (FMRC) FIMM Investment Objective Investment Practices Expense Ratio (a) Seeks a high level of current income by normally investing in income-producing debt securities, with an emphasis on lower-quality debt securities. Seeks a high level of current income by normally investing in investment-grade debt securities and repurchase agreements. Loans & Direct Debt Instruments Restricted Securities Delayed Delivery & When Issued Securities Futures Repurchase Agreements Restricted Securities Swaps (a) Expenses expressed as a percentage of average net assets and are as of each underlying Central Fund s most recent annual or semi-annual shareholder report. Less than.005% Less than.005% An unaudited holdings listing for each Fund, which presents direct holdings as well as the pro-rata share of any securities and other investments held indirectly through each Fund s investment in underlying non-money market Fidelity Central Funds, is available at advisor.fidelity.com. A complete unaudited list of holdings for each Fidelity Central Fund is available upon request or at the Securities and Exchange Commission (the SEC) website at In addition, the financial statements of the Fidelity Central Funds which contain the significant accounting policies (including investment valuation policies) of those funds, which are not covered by the Fund s Report of Independent Registered Public Accounting Firm, are available on the SEC website or upon request. 3. Significant Accounting Policies. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. Subsequent events, if any, through the date that the financial statements were issued have been evaluated in the preparation of the financial statements. The following summarizes the significant accounting policies of the Fund: Investment Valuation. Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of the period. The Board of Trustees (the Board) has delegated the day to day responsibility for the valuation of the Fund s investments to the Fidelity Management & Research Company (FMR) Fair Value Committee (the Committee). In accordance with valuation policies and procedures approved by the Board, the Fund attempts to obtain prices from one or more third party pricing vendors or brokers to value its investments. When current market prices, quotations or currency exchange rates are not readily available or reliable, investments will be fair valued in good faith by the Committee, in accordance with procedures adopted by the Board. Factors used in determining fair value vary by investment type and may include market or investment specific events, changes in interest rates and credit quality. The frequency with which these procedures are used cannot be predicted and they may be utilized to a significant extent. The Committee oversees the Fund s valuation policies and procedures and reports to the Board on the Committee s activities and fair value determinations. The Board monitors the appropriateness of the procedures used in valuing the Fund s investments and ratifies the fair value determinations of the Committee. 15 Annual Report

16 Notes to Financial Statements continued The Fund categorizes the inputs to valuation techniques used to value its investments into a disclosure hierarchy consisting of three levels as shown below: Level 1 quoted prices in active markets for identical investments Level 2 other significant observable inputs (including quoted prices for similar investments, interest rates, prepayment speeds, etc.) Level 3 unobservable inputs (including the Fund s own assumptions based on the best information available) Valuation techniques used to value the Fund s investments by major category are as follows: Debt securities, including restricted securities, are valued based on evaluated prices received from third party pricing vendors or from brokers who make markets in such securities. Corporate bonds and U.S. government and government agency obligations are valued by pricing vendors who utilize matrix pricing which considers yield or price of bonds of comparable quality, coupon, maturity and type or by broker-supplied prices. Collateralized mortgage obligations are valued by pricing vendors who utilize matrix pricing which considers prepayment speed assumptions, attributes of the collateral, yield or price of bonds of comparable quality, coupon, maturity and type or by broker-supplied prices. When independent prices are unavailable or unreliable, debt securities may be valued utilizing pricing methodologies which consider similar factors that would be used by third party pricing vendors. Debt securities are generally categorized as Level 2 in the hierarchy but may be Level 3 depending on the circumstances. Investments in open-end mutual funds, including the Fidelity Central Funds, are valued at their closing net asset value (NAV) each business day and are categorized as Level 1 in the hierarchy. Changes in valuation techniques may result in transfers in or out of an assigned level within the disclosure hierarchy. The aggregate value of investments by input level as of December 31, 2015, is included at the end of the Fund s Schedule of Investments. Investment Transactions and Income. For financial reporting purposes, the Fund s investment holdings and NAV include trades executed through the end of the last business day of the period. The NAV per share for processing shareholder transactions is calculated as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time and includes trades executed through the end of the prior business day. Gains and losses on securities sold are determined on the basis of identified cost. Income and capital gain distributions from Fidelity Central Funds, if any, are recorded on the ex-dividend date. Interest income is accrued as earned and includes coupon interest and amortization of premium and accretion of discount on debt securities as applicable. Debt obligations may be placed on non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectability of interest is reasonably assured. Class Allocations and Expenses. Investment income, realized and unrealized capital gains and losses, common expenses of the Fund, and certain fund-level expense reductions, if any, are allocated daily on a pro-rata basis to each class based on the relative net assets of each class to the total net assets of the Fund. Each class differs with respect to transfer agent and distribution and service plan fees incurred. Certain expense reductions may also differ by class. For the reporting period, the allocated portion of income and expenses to each class as a percent of its average net assets may vary due to the timing of recording these transactions in relation to fluctuating net assets of the classes. Expenses directly attributable to a fund are charged to that fund. Expenses attributable to more than one fund are allocated among the respective funds on the basis of relative net assets or other appropriate methods. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known. Income Tax Information and Distributions to Shareholders. Each year, the Fund intends to qualify as a regulated investment company under Subchapter M of the Internal Revenue Code, including distributing substantially all of its taxable income and realized gains. As a result, no provision for U.S. Federal income taxes is required. As of December 31, 2015, the Fund did not have any unrecognized tax benefits in the financial statements; nor is the Fund aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. The Fund files a U.S. federal tax return, in addition to state and local tax returns as required. The Fund s federal income tax returns are subject to examination by the Internal Revenue Service (IRS) for a period of three fiscal years after they are filed. State and local tax returns may be subject to examination for an additional fiscal year depending on the jurisdiction. Distributions are declared and recorded on the ex-dividend date. Income dividends and capital gain distributions are declared separately for each class. Income and capital gain distributions are determined in accordance with income tax regulations, which may differ from GAAP. Capital accounts within the financial statements are adjusted for permanent book-tax differences. These adjustments have no impact on net assets or the results of operations. Capital accounts are not adjusted for temporary book-tax differences which will reverse in a subsequent period. Book-tax differences are primarily due to partnerships (including allocations from Fidelity Central Funds), market discount, Short-term gain distributions from the fidelity central funds, capital loss carryforwards, deferred trustees compensation and losses deferred due to wash sales. Annual Report 16

17 The federal tax cost of investment securities and unrealized appreciation (depreciation) as of period end were as follows: Gross unrealized appreciation $ 78,754,752 Gross unrealized depreciation (51,090,915) Net unrealized appreciation (depreciation) on securities $ 27,663,837 Tax Cost $3,540,888,023 The tax-based components of distributable earnings as of period end were as follows: Undistributed ordinary income $ 3,279,553 Capital loss carryforward $ (9,837,955) Net unrealized appreciation (depreciation) on securities and other investments $ 27,663,837 Capital loss carryforwards are only available to offset future capital gains of the Fund to the extent provided by regulations and may be limited. Under the Regulated Investment Company Modernization Act of 2010 (the Act), the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period and such capital losses are required to be used prior to any losses that expire. The capital loss carryforward information presented below, including any applicable limitation, is estimated as of fiscal period end and is subject to adjustment. Fiscal year of expiration No expiration Short-term $ (7,828,852) Long-term (2,009,103) Total capital loss carryforward $ (9,837,955) The tax character of distributions paid was as follows: December 31, 2015 December 31, 2014 Ordinary Income $92,738,898 $70,903,328 Long-term Capital Gains 1,913, ,268 Total $94,652,086 $71,859,596 Restricted Securities. The Fund may invest in securities that are subject to legal or contractual restrictions on resale. These securities generally may be resold in transactions exempt from registration or to the public if the securities are registered. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at an acceptable price may be difficult. Information regarding restricted securities is included at the end of the Fund s Schedule of Investments. 4. Purchases and Sales of Investments. Purchases and sales of securities (Including the Fixed-Income Central Funds), other than short-term securities and U.S. government securities, aggregated $499,926,808 and $180,626,385, respectively. 5. Fees and Other Transactions with Affiliates. Management Fee. Fidelity Management & Research Company (the investment adviser) and its affiliates provide the Fund with investment management related services for which the Fund pays a monthly management fee. The management fee is the sum of an individual fund fee rate that is based on an annual rate of.20% of the Fund s average net assets and an annualized group fee rate that averaged.11% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by the investment adviser, including any mutual funds previously advised by the investment adviser that are currently advised by Fidelity SelectCo, LLC, an affiliate of the investment adviser. The group fee rate decreases as assets under management increase and increases as assets under management decrease. For the reporting period, the total annual management fee rate was.31% of the Fund s average net assets. Distribution and Service Plan Fees. In accordance with Rule 12b-1 of the 1940 Act, the Fund has adopted separate 12b-1 Plans for each Service Class of shares. Each Service Class pays Fidelity Distributors Corporation (FDC), an affiliate of the investment adviser, a service fee. For the period, the service fee is based on an annual rate of.10% of Service Class average net assets and.25% of Service Class 2 s average net assets. 17 Annual Report

18 Notes to Financial Statements continued For the period, total fees, all of which were re-allowed to insurance companies for the distribution of shares and providing shareholder support services, were as follows: Service Class $ 544,061 Service Class 2 2,921,424 $3,465,485 Transfer Agent Fees. Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an affiliate of the investment adviser, is the Fund s transfer, dividend disbursing, and shareholder servicing agent. FIIOC receives an asset-based fee with respect to each class. Each class (with the exception of Investor Class) pays a fee for transfer agent services, typesetting, printing and mailing of shareholder reports, excluding mailing of proxy statements and out of pocket expenses, equal to an annual rate of.07% (.10% for Investor Class) of class-level average net assets. For the period, transfer agent fees for each class, including out of pocket expenses, were as follows: Initial Class $ 749,062 Service Class 370,503 Service Class 2 795,828 Investor Class 817,610 $2,733,003 Accounting and Security Lending Fees. Fidelity Service Company, Inc. (FSC), an affiliate of the investment adviser, maintains the Fund s accounting records. The accounting fee is based on the level of average net assets for each month. Under a separate contract, FSC administers the security lending program. The security lending fee is based on the number and duration of lending transactions. Interfund Trades. The Fund may purchase from or sell securities to other Fidelity Funds under procedures adopted by the Board. The procedures have been designed to ensure these interfund trades are executed in accordance with Rule 17a-7 of the 1940 Act. Interfund trades are included within the respective purchases and sales amounts shown in the Purchases and Sales of Investments note. 6. Committed Line of Credit. The Fund participates with other funds managed by the investment adviser or an affiliate in a $4.25 billion credit facility (the line of credit ) to be utilized for temporary or emergency purposes to fund shareholder redemptions or for other short-term liquidity purposes. The Fund has agreed to pay commitment fees on its pro-rata portion of the line of credit, which amounted to $5,040 and is reflected in Miscellaneous expenses on the Statement of Operations. During the period, the Fund did not borrow on this line of credit. 7. Security Lending. The Fund lends portfolio securities from time to time in order to earn additional income. On the settlement date of the loan, the Fund receives collateral (in the form of U.S. Treasury obligations, letters of credit and/or cash) against the loaned securities and maintains collateral in an amount not less than 100% of the market value of the loaned securities during the period of the loan. The market value of the loaned securities is determined at the close of business of the Fund and any additional required collateral is delivered to the Fund on the next business day. The Fund or borrower may terminate the loan at any time, and if the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, the Fund may apply collateral received from the borrower against the obligation. The Fund may experience delays and costs in recovering the securities loaned. Any cash collateral received is maintained at the Fund s custodian and/or invested in cash equivalents. At period end, there were no security loans outstanding. Security lending income represents the income earned on investing cash collateral, less rebates paid to borrowers, plus any premium payments received for lending certain types of securities. Security lending income is presented in the Statement of Operations as a component of interest income. Total security lending income during the period amounted to $16, Expense Reductions. During the period the investment adviser reimbursed and/or waived a portion of operating expenses in the amount of $8,202. Annual Report 18

19 9. Distributions to Shareholders. Distributions to shareholders of each class were as follows: Years ended December 31, From net investment income Initial Class $27,917,082 $23,476,631 Service Class 13,896,003 9,308,715 Service Class 2 29,321,568 21,500,125 Investor Class 20,784,307 16,358,718 Total $91,918,960 $70,644,189 From net realized gain Initial Class $ 853,091 $ 396,937 Service Class 402, ,370 Service Class 2 868, ,134 Investor Class 609, ,966 Total $ 2,733,126 $ 1,215, Share Transactions. Transactions for each class of shares were as follows: Shares Shares Dollars Dollars Years ended December 31, Initial Class Shares sold 14,124,329 14,887,162 $ 181,300,197 $ 191,382,664 Reinvestment of distributions 2,307,903 1,874,260 28,770,173 23,873,568 Shares redeemed (15,849,228) (11,623,368) (203,182,390) (148,686,558) Net increase (decrease) 583,004 5,138,054 $ 6,887,980 $ 66,569,674 Service Class Shares sold 16,473,822 15,305,544 $ 209,904,413 $ 196,687,350 Reinvestment of distributions 1,158, ,760 14,298,327 9,428,085 Shares redeemed (9,317,150) (3,573,520) (117,443,843) (45,315,403) Net increase (decrease) 8,315,097 12,479,784 $ 106,758,897 $ 160,800,032 Service Class 2 Shares sold 25,136,170 9,674,571 $ 316,191,051 $ 121,180,701 Reinvestment of distributions 2,475,925 1,762,226 30,189,942 21,952,259 Shares redeemed (15,972,221) (17,157,102) (199,946,110) (214,534,274) Net increase (decrease) 11,639,874 (5,720,305) $ 146,434,883 $ (71,401,314) Investor Class Shares sold 10,950,224 16,034,544 $ 140,247,630 $ 205,597,932 Reinvestment of distributions 1,721,835 1,307,748 21,393,644 16,605,684 Shares redeemed (7,902,704) (5,058,062) (100,860,266) (64,278,831) Net increase (decrease) 4,769,355 12,284,230 $ 60,781,008 $ 157,924, Other. The Fund s organizational documents provide former and current trustees and officers with a limited indemnification against liabilities arising in connection with the performance of their duties to the Fund. In the normal course of business, the Fund may also enter into contracts that provide general indemnifications. The Fund s maximum exposure under these arrangements is unknown as this would be dependent on future claims that may be made against the Fund. The risk of material loss from such claims is considered remote. At the end of the period, the investment adviser or its affiliates were the owners of record of 23% of the total outstanding shares of the Fund and one otherwise unaffiliated shareholder was the owner of record of 20% of the total outstanding shares of the Fund. 19 Annual Report

20 VIP Investment Grade Bond Portfolio Report of Independent Registered Public Accounting Firm To the Trustees of Variable Insurance Products Fund V and Shareholders of VIP Investment Grade Bond Portfolio: We have audited the accompanying statement of assets and liabilities of VIP Investment Grade Bond Portfolio (the Fund), a fund of Variable Insurance Products Fund V, including the schedule of investments, as of December 31, 2015, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2015, by correspondence with the custodians and brokers. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of VIP Investment Grade Bond Portfolio as of December 31, 2015, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts February 23, 2016 Annual Report 20