N-CSRS 1 main.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number 811-5511

Variable Insurance Products Fund II
 (Exact name of registrant as specified in charter)

82 Devonshire St., Boston, Massachusetts 02109
 (Address of principal executive offices)       (Zip code)

Scott C. Goebel, Secretary

82 Devonshire St.

Boston, Massachusetts 02109
(Name and address of agent for service)

Registrant's telephone number, including area code: 617-563-7000

Date of fiscal year end:

December 31

 

 

Date of reporting period:

June 30, 2008

Item 1. Reports to Stockholders

Fidelity® Variable Insurance Products:

Contrafund Portfolio

Semiannual Report

June 30, 2008
(2_fidelity_logos) (Registered_Trademark)

Contents

Shareholder Expense Example

<Click Here>

An example of shareholder expenses.

Investment Changes

<Click Here>

A summary of major shifts in the fund's investments over the past six months.

Investments

<Click Here>

A complete list of the fund's investments with their
market values.

Financial Statements

<Click Here>

Statements of assets and liabilities, operations, and
changes in net assets, as well as financial highlights.

Notes

<Click Here>

Notes to the financial statements.

Proxy Voting Results

<Click Here>

 

To view a fund's proxy voting guidelines and proxy voting record for the 12-month period ended June 30, visit http://www.fidelity.com (search for "proxy voting guidelines") or visit the Securities and Exchange Commission's (SEC) web site at http://www.sec.gov. You may also call 1-877-208-0098 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.

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 http://www.sec.gov. 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 1-800-SEC-0330. 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 http://www.fidelity.com or http://www.advisor.fidelity.com, as applicable.

NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

Shareholder Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2008 to June 30, 2008).

Actual Expenses

The first line of the accompanying table for each class of the Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line for a class of the Fund under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Hypothetical Example for Comparison Purposes

The second line of the accompanying table for each class of the Fund provides information about hypothetical account values and hypothetical expenses based on a Class' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

Beginning
Account Value
January 1, 2008

Ending
Account Value
June 30, 2008

Expenses Paid
During Period*
January 1, 2008 to June 30, 2008

Initial Class

 

 

 

Actual

$ 1,000.00

$ 878.30

$ 3.08

Hypothetical A

$ 1,000.00

$ 1,021.58

$ 3.32

Service Class

 

 

 

Actual

$ 1,000.00

$ 877.50

$ 3.55

Hypothetical A

$ 1,000.00

$ 1,021.08

$ 3.82

Service Class 2

 

 

 

Actual

$ 1,000.00

$ 877.10

$ 4.25

Hypothetical A

$ 1,000.00

$ 1,020.34

$ 4.57

Service Class 2R

 

 

 

Actual

$ 1,000.00

$ 877.30

$ 4.25

Hypothetical A

$ 1,000.00

$ 1,020.34

$ 4.57

Investor Class

 

 

 

Actual

$ 1,000.00

$ 877.60

$ 3.50

Hypothetical A

$ 1,000.00

$ 1,021.13

$ 3.77

A 5% return per year before expenses

* Expenses are equal to each Class' annualized expense ratio (shown in the table below); multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

 

Annualized
Expense Ratio

Initial Class

.66%

Service Class

.76%

Service Class 2

.91%

Service Class 2R

.91%

Investor Class

.75%

Semiannual Report

Investment Changes (Unaudited)

Top Ten Stocks as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Microsoft Corp.

3.6

3.7

ConocoPhillips

2.1

1.0

Apple, Inc.

2.0

0.1

Procter & Gamble Co.

1.8

1.9

AT&T, Inc.

1.8

1.4

American International Group, Inc.

1.6

2.4

Petrohawk Energy Corp.

1.6

0.5

Cisco Systems, Inc.

1.6

0.9

National Oilwell Varco, Inc.

1.4

0.9

Fannie Mae

1.4

1.1

 

18.9

Market Sectors as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Information Technology

16.2

16.8

Energy

15.0

12.0

Financials

13.2

17.2

Industrials

12.1

11.7

Health Care

11.7

11.4

Consumer Staples

11.2

10.3

Consumer Discretionary

7.1

6.9

Utilities

4.3

3.5

Telecommunication Services

3.8

4.1

Materials

3.8

3.3

Asset Allocation (% of fund's net assets)

As of June 30, 2008 *

As of December 31, 2007 **

fid3926

Stocks and
Equity Futures 98.7%

 

fid3926

Stocks and
Equity Futures 97.9%

 

fid3929

Short-Term
Investments and
Net Other Assets 1.3%

 

fid3929

Short-Term
Investments and
Net Other Assets 2.1%

 

* Foreign investments

16.9%

 

** Foreign investments

20.2%

 


fid3932

Semiannual Report

Investments June 30, 2008 (Unaudited)

Showing Percentage of Net Assets

Common Stocks - 97.7%

Shares

Value

CONSUMER DISCRETIONARY - 7.1%

Auto Components - 0.3%

Gentex Corp.

2,316,000

$ 33,443,040

Johnson Controls, Inc.

1,136,800

32,603,424

 

66,046,464

Automobiles - 0.1%

Renault SA

209,000

17,009,762

Distributors - 0.3%

Li & Fung Ltd.

23,904,000

72,043,862

Diversified Consumer Services - 0.2%

Hillenbrand, Inc.

800,000

17,120,000

New Oriental Education & Technology Group, Inc. sponsored ADR (a)

440,700

25,745,694

 

42,865,694

Hotels, Restaurants & Leisure - 0.7%

Life Time Fitness, Inc. (a)(d)

161,745

4,779,565

McDonald's Corp.

2,680,584

150,702,432

 

155,481,997

Household Durables - 0.2%

D.R. Horton, Inc.

1,307,200

14,183,120

Harman International Industries, Inc.

530,000

21,936,700

Whirlpool Corp.

171,800

10,605,214

 

46,725,034

Internet & Catalog Retail - 0.0%

Priceline.com, Inc. (a)

81,700

9,433,082

Leisure Equipment & Products - 0.0%

Nikon Corp.

285,000

8,321,952

Media - 2.8%

Central European Media Enterprises Ltd. Class A (a)

642,000

58,120,260

Comcast Corp. Class A

5,688,100

107,903,257

Liberty Global, Inc. Class A (a)(d)

935,300

29,396,479

News Corp. Class A

3,301,400

49,653,056

Omnicom Group, Inc.

1,283,200

57,590,016

The DIRECTV Group, Inc. (a)

801,400

20,764,274

The Walt Disney Co.

1,502,243

46,869,982

The Weinstein Co. II Holdings, LLC
Class A-1 (h)

11,499

11,499,000

Time Warner Cable, Inc. (a)

2,447,500

64,809,800

Time Warner, Inc.

9,291,900

137,520,120

Viacom, Inc. Class B (non-vtg.) (a)

1,217,400

37,179,396

 

621,305,640

Multiline Retail - 0.4%

Kohl's Corp. (a)

681,000

27,267,240

Target Corp. (d)

1,158,000

53,835,420

 

81,102,660

Specialty Retail - 1.1%

Abercrombie & Fitch Co. Class A

193,800

12,147,384

Lowe's Companies, Inc.

3,893,000

80,779,750

OfficeMax, Inc.

519,600

7,222,440

PetSmart, Inc.

943,500

18,822,825

 

Shares

Value

Ross Stores, Inc.

578,400

$ 20,544,768

Tiffany & Co., Inc.

502,600

20,480,950

TJX Companies, Inc. (d)

2,558,852

80,527,072

Zumiez, Inc. (a)(d)

1,031,020

17,094,312

 

257,619,501

Textiles, Apparel & Luxury Goods - 1.0%

Carter's, Inc. (a)

1,015,700

14,036,974

LVMH Moet Hennessy - Louis Vuitton

497,300

51,876,679

NIKE, Inc. Class B

872,900

52,033,569

Polo Ralph Lauren Corp. Class A

909,574

57,103,056

Ports Design Ltd.

3,909,500

11,181,102

Under Armour, Inc. Class A (sub. vtg.) (a)(d)

1,285,415

32,958,041

 

219,189,421

TOTAL CONSUMER DISCRETIONARY

1,597,145,069

CONSUMER STAPLES - 11.2%

Beverages - 4.0%

Brown-Forman Corp. Class B (non-vtg.)

160,400

12,121,428

Carlsberg AS Series B

95,500

9,199,491

Coca-Cola FEMSA SAB de CV sponsored ADR

812,800

45,833,792

Coca-Cola Hellenic Bottling Co. SA sponsored ADR

679,650

18,398,126

Companhia de Bebidas das Americas (AmBev) (PN) sponsored ADR

195,300

12,372,255

Constellation Brands, Inc. Class A (sub. vtg.) (a)

1,452,700

28,850,622

Diageo PLC sponsored ADR

500,300

36,957,161

Embotelladora Andina SA sponsored ADR

773,500

11,826,815

Fomento Economico Mexicano SA de CV sponsored ADR

284,300

12,938,493

Heineken NV (Bearer)

627,100

31,934,173

InBev SA

512,817

35,456,655

Molson Coors Brewing Co. Class B

1,092,100

59,333,793

PepsiCo, Inc.

3,966,162

252,208,242

Pernod Ricard SA (d)

357,600

36,491,220

SABMiller PLC

1,612,100

36,831,661

The Coca-Cola Co.

4,830,709

251,100,254

 

891,854,181

Food & Staples Retailing - 2.1%

Costco Wholesale Corp.

857,700

60,159,078

CVS Caremark Corp.

4,300,000

170,151,000

Kroger Co.

2,347,400

67,769,438

Safeway, Inc.

1,783,600

50,921,780

Sysco Corp.

1,194,800

32,868,948

Wal-Mart Stores, Inc.

368,400

20,704,080

Walgreen Co.

1,962,300

63,794,373

X5 Retail Group NV GDR (a)(f)

404,864

13,643,917

 

480,012,614

Common Stocks - continued

Shares

Value

CONSUMER STAPLES - continued

Food Products - 1.6%

Archer Daniels Midland Co.

1,268,400

$ 42,808,500

Bunge Ltd.

171,100

18,425,759

Green Mountain Coffee Roasters, Inc. (a)

529,901

19,908,381

Groupe Danone

328,056

22,955,389

Kraft Foods, Inc. Class A

1,257,400

35,773,030

Lindt & Spruengli AG

210

6,304,527

Marine Harvest ASA (a)(d)

16,582,000

12,145,037

Nestle SA (Reg.)

2,545,070

114,703,974

SLC Agricola SA

724,000

14,360,778

Unilever NV (NY Shares)

2,148,600

61,020,240

Wimm-Bill-Dann Foods OJSC sponsored ADR

46,800

4,924,296

 

353,329,911

Household Products - 2.5%

Colgate-Palmolive Co.

1,475,523

101,958,639

Kimberly-Clark Corp.

824,200

49,270,676

Procter & Gamble Co.

6,836,411

415,722,153

 

566,951,468

Personal Products - 0.5%

Avon Products, Inc.

2,521,300

90,817,226

Estee Lauder Companies, Inc. Class A

130,100

6,043,145

Herbalife Ltd.

328,400

12,725,500

 

109,585,871

Tobacco - 0.5%

British American Tobacco PLC sponsored ADR

1,233,900

85,447,575

Souza Cruz Industria Comerico

628,600

17,891,104

 

103,338,679

TOTAL CONSUMER STAPLES

2,505,072,724

ENERGY - 15.0%

Energy Equipment & Services - 5.7%

Atwood Oceanics, Inc. (a)

76,000

9,449,840

BJ Services Co.

2,567,062

81,991,960

ENSCO International, Inc.

665,200

53,708,248

Exterran Holdings, Inc. (a)

362,623

25,923,918

Global Industries Ltd. (a)

3,478,000

62,360,540

Halliburton Co.

2,354,800

124,969,236

Hercules Offshore, Inc. (a)

256,500

9,752,130

Nabors Industries Ltd. (a)

5,277,326

259,802,759

National Oilwell Varco, Inc. (a)

3,636,154

322,599,583

Oceaneering International, Inc. (a)

431,800

33,270,190

Parker Drilling Co. (a)

2,023,000

20,250,230

Petroleum Geo-Services ASA

3,495,729

85,600,193

Pride International, Inc. (a)

847,233

40,065,649

 

Shares

Value

Subsea 7, Inc. (a)(d)

1,269,500

$ 32,105,465

Weatherford International Ltd. (a)

2,029,200

100,628,028

 

1,262,477,969

Oil, Gas & Consumable Fuels - 9.3%

Canadian Natural Resources Ltd.

2,064,094

204,192,121

Concho Resources, Inc.

1,872,900

69,859,170

ConocoPhillips

4,985,200

470,553,028

CONSOL Energy, Inc.

1,018,375

114,434,799

Denbury Resources, Inc. (a)

2,411,400

88,016,100

Hess Corp.

458,100

57,807,639

Peabody Energy Corp.

1,399,187

123,198,415

Petrohawk Energy Corp. (a)

7,690,801

356,160,994

Petroplus Holdings AG (a)

1,959,150

104,862,573

Reliance Industries Ltd.

440,000

21,473,701

Southwestern Energy Co. (a)

1,737,400

82,717,614

Sunoco, Inc.

816,700

33,231,523

Ultra Petroleum Corp. (a)

101,700

9,986,940

Valero Energy Corp.

5,003,667

206,051,007

Williams Companies, Inc.

3,684,400

148,518,164

 

2,091,063,788

TOTAL ENERGY

3,353,541,757

FINANCIALS - 12.5%

Capital Markets - 1.5%

Bank of New York Mellon Corp.

3,699,682

139,958,970

Charles Schwab Corp.

4,967,222

102,026,740

Janus Capital Group, Inc.

3,940,227

104,297,809

 

346,283,519

Commercial Banks - 2.7%

Bangkok Bank Ltd. PCL (For. Reg.)

12,408,600

44,548,451

KeyCorp

3,222,701

35,385,257

Mitsubishi UFJ Financial Group, Inc.

10,000,000

88,391,094

Sumitomo Mitsui Financial Group,
Inc.

35,773

269,228,339

Uniao de Bancos Brasileiros SA (Unibanco) GDR

498,500

63,274,605

Wachovia Corp.

6,833,600

106,125,808

 

606,953,554

Consumer Finance - 0.8%

Capital One Financial Corp.

1,575,708

59,892,661

Discover Financial Services

2,418,693

31,854,187

Promise Co. Ltd.

1,273,850

35,636,363

SLM Corp. (a)

2,940,000

56,889,000

 

184,272,211

Diversified Financial Services - 1.5%

CIT Group, Inc.

5,327,300

36,278,913

JPMorgan Chase & Co.

8,725,500

299,371,905

 

335,650,818

Common Stocks - continued

Shares

Value

FINANCIALS - continued

Insurance - 4.1%

ACE Ltd.

1,332,600

$ 73,412,934

AFLAC, Inc.

1,514,300

95,098,040

American International Group, Inc.

13,771,446

364,392,461

Berkshire Hathaway, Inc. Class A (a)

1,351

163,133,250

China Life Insurance Co. Ltd.
(H Shares)

11,000,000

38,323,287

PartnerRe Ltd.

622,863

43,058,519

Sony Financial Holdings, Inc.

34,482

138,688,021

 

916,106,512

Real Estate Management & Development - 0.2%

Sun Hung Kai Properties Ltd.

3,000,000

40,706,660

Thrifts & Mortgage Finance - 1.7%

Fannie Mae (d)

15,822,890

308,704,584

New York Community Bancorp, Inc. (d)

2,076,500

37,044,760

Washington Mutual, Inc.

5,840,000

28,791,200

 

374,540,544

TOTAL FINANCIALS

2,804,513,818

HEALTH CARE - 11.7%

Biotechnology - 1.7%

Acorda Therapeutics, Inc. (a)

350,000

11,490,500

Amgen, Inc. (a)

1,450,000

68,382,000

Biogen Idec, Inc. (a)

781,200

43,661,268

BioMarin Pharmaceutical, Inc. (a)

325,000

9,418,500

Celgene Corp. (a)

454,346

29,019,079

CSL Ltd.

1,158,328

39,646,527

Genentech, Inc. (a)

447,169

33,940,127

Genzyme Corp. (a)

350,000

25,207,000

Gilead Sciences, Inc. (a)

1,826,906

96,734,673

ONYX Pharmaceuticals, Inc. (a)

350,000

12,460,000

United Therapeutics Corp. (a)

200,000

19,550,000

 

389,509,674

Health Care Equipment & Supplies - 3.3%

Alcon, Inc.

820,983

133,647,823

American Medical Systems Holdings, Inc. (a)

1,000,500

14,957,475

Baxter International, Inc.

2,633,700

168,398,778

Becton, Dickinson & Co.

412,420

33,529,746

C.R. Bard, Inc.

117,092

10,298,241

Covidien Ltd.

3,387,616

162,232,930

Edwards Lifesciences Corp. (a)

402,300

24,958,692

Gen-Probe, Inc. (a)

221,921

10,536,809

Mako Surgical Corp.

588,756

4,309,694

Masimo Corp.

300,000

10,305,000

Medtronic, Inc.

2,188,100

113,234,175

Sonova Holding AG

273,985

22,614,194

Stryker Corp.

595,100

37,419,888

 

746,443,445

 

Shares

Value

Health Care Providers & Services - 1.7%

Express Scripts, Inc. (a)

775,000

$ 48,608,000

Humana, Inc. (a)

532,726

21,186,513

McKesson Corp.

848,200

47,422,862

Medco Health Solutions, Inc. (a)

2,482,092

117,154,742

Tenet Healthcare Corp. (a)

9,028,570

50,198,849

UnitedHealth Group, Inc.

866,111

22,735,414

Universal Health Services, Inc. Class B

725,000

45,834,500

WellPoint, Inc. (a)

475,000

22,638,500

 

375,779,380

Health Care Technology - 0.2%

HLTH Corp. (a)

2,792,712

31,613,500

MedAssets, Inc.

397,451

6,776,540

 

38,390,040

Life Sciences Tools & Services - 0.3%

Pharmaceutical Product Development, Inc.

575,000

24,667,500

QIAGEN NV (a)

2,370,001

47,708,120

 

72,375,620

Pharmaceuticals - 4.5%

Abbott Laboratories

3,971,317

210,360,661

Allergan, Inc.

1,819,006

94,679,262

Johnson & Johnson

2,031,300

130,693,842

Merck & Co., Inc.

3,426,450

129,142,901

Novo Nordisk AS Series B

644,000

42,394,852

Pfizer, Inc.

6,647,900

116,138,813

Pronova BioPharma ASA

2,000,000

6,819,143

Schering-Plough Corp.

3,164,838

62,315,660

Wyeth

4,472,500

214,501,100

XenoPort, Inc. (a)

136,202

5,315,964

 

1,012,362,198

TOTAL HEALTH CARE

2,634,860,357

INDUSTRIALS - 12.1%

Aerospace & Defense - 3.3%

General Dynamics Corp.

1,641,146

138,184,493

Honeywell International, Inc.

3,181,500

159,965,820

Lockheed Martin Corp.

2,054,787

202,725,285

Raytheon Co.

2,734,000

153,869,520

The Boeing Co.

362,126

23,798,921

United Technologies Corp.

1,041,500

64,260,550

 

742,804,589

Air Freight & Logistics - 1.1%

C.H. Robinson Worldwide, Inc. (d)

2,423,301

132,893,827

FedEx Corp.

191,800

15,111,922

United Parcel Service, Inc. Class B

1,404,500

86,334,615

 

234,340,364

Commercial Services & Supplies - 0.5%

Stericycle, Inc. (a)

2,301,000

118,961,700

Common Stocks - continued

Shares

Value

INDUSTRIALS - continued

Construction & Engineering - 1.4%

Fluor Corp.

691,700

$ 128,711,536

Jacobs Engineering Group, Inc. (a)

1,474,438

118,987,147

Quanta Services, Inc. (a)(d)

2,020,100

67,208,727

 

314,907,410

Electrical Equipment - 2.5%

ABB Ltd. sponsored ADR

2,273,200

64,377,024

Alstom SA (d)

610,500

139,990,923

China High Speed Transmission Equipment Group Co. Ltd.

2,811,000

5,768,188

First Solar, Inc. (a)

102,000

27,827,640

JA Solar Holdings Co. Ltd. ADR (a)

2,077,300

35,002,505

Q-Cells AG (a)

632,500

64,072,878

Sunpower Corp. Class A (a)

110,200

7,932,196

Suntech Power Holdings Co. Ltd. sponsored ADR (a)(d)

3,164,300

118,534,678

Suzlon Energy Ltd.

290,000

1,458,782

Vestas Wind Systems AS (a)

677,400

88,195,423

 

553,160,237

Industrial Conglomerates - 0.5%

Siemens AG sponsored ADR

972,900

107,145,477

Machinery - 2.8%

Caterpillar, Inc.

409,569

30,234,384

Cummins, Inc.

1,211,300

79,364,376

Danaher Corp.

2,019,250

156,088,025

Deere & Co.

1,518,800

109,551,044

Eaton Corp.

1,265,300

107,512,541

Navistar International Corp. (a)

896,700

59,020,794

Sulzer AG (Reg.)

672,460

84,966,035

Vallourec SA

29,600

10,351,989

 

637,089,188

TOTAL INDUSTRIALS

2,708,408,965

INFORMATION TECHNOLOGY - 16.2%

Communications Equipment - 3.9%

Alcatel-Lucent SA sponsored ADR

8,495,000

51,309,800

Ciena Corp. (a)(d)

4,456,358

103,253,815

Cisco Systems, Inc. (a)

15,171,200

352,882,112

Juniper Networks, Inc. (a)

12,414,100

275,344,738

QUALCOMM, Inc.

400,000

17,748,000

Sycamore Networks, Inc. (a)(e)

18,993,656

61,159,572

 

861,698,037

Computers & Peripherals - 2.0%

Apple, Inc. (a)

2,700,000

452,088,000

Electronic Equipment & Instruments - 0.3%

Avnet, Inc. (a)

969,600

26,450,688

 

Shares

Value

Hon Hai Precision Industry Co. Ltd. (Foxconn)

990,000

$ 4,876,124

Tyco Electronics Ltd.

1,010,000

36,178,200

 

67,505,012

Internet Software & Services - 1.0%

eBay, Inc. (a)

2,954,700

80,751,951

Google, Inc. Class A (sub. vtg.) (a)

184,403

97,073,427

VistaPrint Ltd. (a)

1,119,340

29,953,538

Yahoo!, Inc. (a)

1,225,000

25,308,500

 

233,087,416

IT Services - 1.5%

Infosys Technologies Ltd. sponsored ADR

1,270,000

55,194,200

Visa, Inc.

3,320,000

269,949,200

 

325,143,400

Semiconductors & Semiconductor Equipment - 2.7%

Altera Corp.

3,230,000

66,861,000

Analog Devices, Inc.

2,675,000

84,984,750

Applied Materials, Inc.

880,000

16,799,200

Applied Micro Circuits Corp. (a)

947,858

8,113,664

ASML Holding NV (NY Shares)

980,000

23,912,000

Broadcom Corp. Class A (a)

6,184,559

168,776,615

Brooks Automation, Inc. (a)

451,312

3,732,350

Cirrus Logic, Inc. (a)(e)

6,059,839

33,692,705

KLA-Tencor Corp.

1,867,000

76,005,570

Lam Research Corp. (a)

377,285

13,638,853

Linear Technology Corp.

235,000

7,653,950

Micron Technology, Inc. (a)

3,650,002

21,900,012

MIPS Technologies, Inc. (a)

497,283

1,864,811

Novellus Systems, Inc. (a)

3,144,772

66,637,719

Samsung Electronics Co. Ltd.

14,000

8,361,203

Teradyne, Inc. (a)

840,666

9,306,173

 

612,240,575

Software - 4.8%

Electronic Arts, Inc. (a)

2,810,000

124,848,300

Microsoft Corp.

29,754,200

818,538,040

Nuance Communications, Inc. (a)(d)

2,937,800

46,035,326

Oracle Corp. (a)

3,995,000

83,895,000

 

1,073,316,666

TOTAL INFORMATION TECHNOLOGY

3,625,079,106

MATERIALS - 3.8%

Chemicals - 1.9%

Albemarle Corp.

852,000

34,003,320

CF Industries Holdings, Inc.

62,400

9,534,720

Ecolab, Inc.

575,361

24,734,769

FMC Corp.

484,300

37,504,192

Monsanto Co.

1,296,235

163,895,953

Potash Corp. of Saskatchewan, Inc.

234,500

53,599,665

Common Stocks - continued

Shares

Value

MATERIALS - continued

Chemicals - continued

Praxair, Inc.

366,632

$ 34,551,400

The Mosaic Co. (a)

431,600

62,452,520

 

420,276,539

Containers & Packaging - 0.2%

Ball Corp.

52,300

2,496,802

Owens-Illinois, Inc. (a)

305,700

12,744,633

Rock-Tenn Co. Class A

508,300

15,243,917

Temple-Inland, Inc.

2,050,800

23,112,516

 

53,597,868

Metals & Mining - 1.7%

Agnico-Eagle Mines Ltd.

397,500

29,827,611

AK Steel Holding Corp. (d)

1,039,900

71,753,100

Alcoa, Inc.

1,268,600

45,187,532

Barrick Gold Corp.

292,200

13,360,908

Century Aluminum Co. (a)

717,800

47,726,522

Freeport-McMoRan Copper & Gold, Inc. Class B

752,900

88,232,351

Goldcorp, Inc.

501,900

23,146,435

Ivanhoe Mines Ltd. (a)

884,700

9,590,362

Kinross Gold Corp.

213,715

5,052,761

Nucor Corp.

436,400

32,585,988

United States Steel Corp.

75,400

13,932,412

 

380,395,982

TOTAL MATERIALS

854,270,389

TELECOMMUNICATION SERVICES - 3.8%

Diversified Telecommunication Services - 2.7%

AT&T, Inc.

12,011,716

404,674,712

CenturyTel, Inc.

200,800

7,146,472

FairPoint Communications, Inc. (d)

2,559,858

18,456,576

Qwest Communications International, Inc.

2,916,900

11,463,417

TELUS Corp.

158,900

6,682,732

Verizon Communications, Inc.

4,717,800

167,010,120

 

615,434,029

Wireless Telecommunication Services - 1.1%

American Tower Corp. Class A (a)

3,632,300

153,464,675

China Mobile (Hong Kong) Ltd.

254,500

3,416,114

Clearwire Corp. (a)(d)

4,325,616

56,059,983

Leap Wireless International, Inc. (a)

287,400

12,407,058

NII Holdings, Inc. (a)

330,100

15,676,449

 

241,024,279

TOTAL TELECOMMUNICATION SERVICES

856,458,308

 

Shares

Value

UTILITIES - 4.3%

Electric Utilities - 2.6%

Allegheny Energy, Inc.

1,226,800

$ 61,474,948

American Electric Power Co., Inc.

783,600

31,524,228

Edison International

112,100

5,759,698

Entergy Corp.

594,100

71,577,168

Exelon Corp.

1,274,000

114,609,040

FirstEnergy Corp.

968,200

79,711,906

FPL Group, Inc.

1,819,100

119,296,578

PPL Corp.

1,883,900

98,471,453

 

582,425,019

Gas Utilities - 0.1%

Questar Corp.

372,800

26,483,712

Independent Power Producers & Energy Traders - 0.8%

Clipper Windpower PLC (a)

1,425,263

15,100,368

Constellation Energy Group, Inc.

831,516

68,267,464

NRG Energy, Inc. (a)

2,130,900

91,415,610

Reliant Energy, Inc. (a)

179,200

3,811,584

 

178,595,026

Multi-Utilities - 0.8%

PG&E Corp.

831,200

32,990,328

Public Service Enterprise Group, Inc.

1,460,700

67,089,951

Sempra Energy

1,521,700

85,899,965

 

185,980,244

TOTAL UTILITIES

973,484,001

TOTAL COMMON STOCKS

(Cost $22,456,691,251)

21,912,834,494

Convertible Preferred Stocks - 0.7%

 

 

 

 

FINANCIALS - 0.7%

Capital Markets - 0.2%

Lehman Brothers Holdings, Inc. 7.25%

69,000

55,505,670

Commercial Banks - 0.2%

Huntington Bancshares, Inc. 8.50%

52,000

36,400,000

Diversified Financial Services - 0.0%

CIT Group, Inc. Series C, 8.75%

197,000

8,053,360

Insurance - 0.3%

American International Group, Inc.
Series A, 8.50%

1,000,000

59,663,000

TOTAL FINANCIALS

159,622,030

HEALTH CARE - 0.0%

Biotechnology - 0.0%

Fluidigm Corp. (h)

1,378,965

5,515,860

TOTAL CONVERTIBLE PREFERRED STOCKS

(Cost $208,129,277)

165,137,890

U.S. Treasury Obligations - 0.0%

 

Principal Amount

Value

U.S. Treasury Bills, yield at date of purchase 1.07% to 1.82% 7/10/08 to 9/4/08 (g)
(Cost $4,224,872)

$ 4,235,000

$ 4,228,083

Money Market Funds - 4.0%

Shares

 

Fidelity Cash Central Fund, 2.38% (b)

275,522,104

275,522,104

Fidelity Securities Lending Cash Central Fund, 2.39% (b)(c)

613,225,170

613,225,170

TOTAL MONEY MARKET FUNDS

(Cost $888,747,274)

888,747,274

TOTAL INVESTMENT
PORTFOLIO - 102.4%

(Cost $23,557,792,674)

22,970,947,741

NET OTHER ASSETS - (2.4)%

(533,832,554)

NET ASSETS - 100%

$ 22,437,115,187

Futures Contracts

Expiration Date

Underlying Face Amount at Value

Unrealized
Appreciation/
(Depreciation)

Purchased

Equity Index Contracts

969 CME E-mini S&P 500 Index Contracts

Sept. 2008

$ 62,069,295

$ (3,809,720)

The face value of futures purchased as a percentage of net assets - 0.3%

Legend

(a) Non-income producing

(b) Affiliated fund that is 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.

(c) Investment made with cash collateral received from securities on loan.

(d) Security or a portion of the security is on loan at period end.

(e) Affiliated company

(f) Security exempt from registration under Rule 144A of the Securities Act of 1933. 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 $13,643,917 or 0.1% of net assets.

(g) Security or a portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $4,288,083.

(h) Restricted securities - Investment in securities not registered under the Securities Act of 1933 (excluding 144A issues). At the end of the period, the value of restricted securities (excluding 144A issues) amounted to $17,014,860 or 0.1% of net assets.

Additional information on each holding is as follows:

Security

Acquisition Date

Acquisition Cost

Fluidigm Corp.

10/9/07

$ 5,515,860

The Weinstein Co. II Holdings, LLC Class A-1

10/19/05

$ 11,499,000

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

$ 8,971,632

Fidelity Securities Lending Cash Central Fund

4,939,750

Total

$ 13,911,382

Other Affiliated Issuers

An affiliated company is a company in which the fund has ownership of at least 5% of the voting securities. Fiscal year to date transactions with companies which are or were affiliates are as follows:

Affiliates

Value,
beginning of period

Purchases

Sales
Proceeds

Dividend
Income

Value,
end of
period

Ciena Corp.

$ 80,149,836

$ 87,086,403

$ 34,633,555

$ -

$ -

Cirrus Logic, Inc.

22,700,679

35,898,846

30,915,229

-

33,692,705

Sycamore Networks, Inc.

21,666,920

46,740,285

-

-

61,159,572

Total

$ 124,517,435

$ 169,725,534

$ 65,548,784

$ -

$ 94,852,277

Other Information

The following is a summary of the inputs used, as of June 30, 2008, involving the Fund's assets carried at 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 in the tables below, please refer to the Security 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

$ 22,970,947,741

$ 21,587,969,669

$ 1,365,963,212

$ 17,014,860

Other Financial Instruments*

$ (3,809,720)

$ (3,809,720)

$ -

$ -

*Other financial instruments include Futures Contracts.

The following is a reconciliation of assets for which Level 3 inputs were used in determining value:

 

Investments in Securities

 

Beginning Balance

$ 17,014,860

Total Realized Gain (Loss)

-

Total Unrealized Gain (Loss)

-

Cost of Purchases

-

Proceeds of Sales

-

Amortization/Accretion

-

Transfer in/out of Level 3

-

Ending Balance

$ 17,014,860

The information used in the above reconciliation represents fiscal year to date activity for any Investment Securities identified as using Level 3 inputs at either the beginning or the end of the current fiscal period. Transfers in or out of Level 3 represents either the beginning value (for transfers in), or the ending value (for transfers out) of any Security or Instrument where a change in the pricing level occurred from the beginning to the end of the period.

Distribution of investments by country of issue, as a percentage of total net assets, is as follows: (Unaudited)

United States of America

83.1%

Japan

2.4%

Switzerland

2.4%

Bermuda

1.7%

Canada

1.4%

France

1.4%

Cayman Islands

1.4%

Others (individually less than 1%)

6.2%

 

100.0%

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Statements

Statement of Assets and Liabilities

 

June 30, 2008 (Unaudited)

 

 

 

Assets

Investment in securities, at value (including securities loaned of $581,029,771) - See accompanying schedule:

Unaffiliated issuers (cost $22,568,948,129)

$ 21,987,348,190

 

Fidelity Central Funds (cost $888,747,274)

888,747,274

 

Other affiliated issuers (cost $100,097,271)

94,852,277

 

Total Investments (cost $23,557,792,674)

 

$ 22,970,947,741

Foreign currency held at value (cost $5,611,505)

5,611,505

Receivable for investments sold

222,595,626

Receivable for fund shares sold

18,417,793

Dividends receivable

21,310,821

Distributions receivable from Fidelity Central Funds

1,954,326

Receivable for daily variation on futures contracts

53,295

Prepaid expenses

36,522

Other receivables

679,730

Total assets

23,241,607,359

 

 

 

Liabilities

Payable for investments purchased

$ 149,753,159

Payable for fund shares redeemed

24,743,567

Accrued management fee

10,888,809

Distribution fees payable

2,194,612

Other affiliated payables

1,484,990

Other payables and accrued expenses

2,201,865

Collateral on securities loaned, at value

613,225,170

Total liabilities

804,492,172

 

 

 

Net Assets

$ 22,437,115,187

Net Assets consist of:

 

Paid in capital

$ 23,146,628,260

Undistributed net investment income

101,491,283

Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions

(219,970,921)

Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies

(591,033,435)

Net Assets

$ 22,437,115,187

Statement of Assets and Liabilities - continued

 

June 30, 2008 (Unaudited)

 

 

 

Initial Class:
Net Asset Value, offering price and redemption price per share ($10,315,709,821 ÷ 432,382,050 shares)

$ 23.86

 

 

 

Service Class:
Net Asset Value, offering price and redemption price per share ($2,504,077,162 ÷ 105,428,843 shares)

$ 23.75

 

 

 

Service Class 2:
Net Asset Value, offering price and redemption price per share ($9,079,391,798 ÷ 387,334,694 shares)

$ 23.44

 

 

 

Service Class 2R:
Net Asset Value, offering price and redemption price per share ($26,763,394 ÷ 1,146,428 shares)

$ 23.35

 

 

 

Investor Class:
Net Asset Value, offering price and redemption price per share ($511,173,012 ÷ 21,501,991 shares)

$ 23.77

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Statement of Operations

Six months ended June 30, 2008 (Unaudited)

 

 

 

Investment Income

 

 

Dividends

 

$ 175,236,208

Interest

 

339,438

Income from Fidelity Central Funds

 

13,911,382

Total income

 

189,487,028

 

 

 

Expenses

Management fee

$ 64,892,251

Transfer agent fees

7,960,640

Distribution fees

12,680,368

Accounting and security lending fees

943,122

Custodian fees and expenses

490,239

Independent trustees' compensation

50,326

Depreciation in deferred trustee compensation account

(84)

Registration fees

55,601

Audit

52,363

Legal

246,494

Miscellaneous

2,119,715

Total expenses before reductions

89,491,035

Expense reductions

(616,032)

88,875,003

Net investment income (loss)

100,612,025

Realized and Unrealized Gain (Loss)

Net realized gain (loss) on:

Investment securities:

 

 

Unaffiliated issuers

(85,700,511)

Other affiliated issuers

8,733,098

 

Foreign currency transactions

(1,112,291)

Futures contracts

(13,745,470)

Total net realized gain (loss)

 

(91,825,174)

Change in net unrealized appreciation (depreciation) on:

Investment securities

(3,113,540,111)

Assets and liabilities in foreign currencies

(493,026)

Futures contracts

(1,630,228)

Total change in net unrealized appreciation (depreciation)

 

(3,115,663,365)

Net gain (loss)

(3,207,488,539)

Net increase (decrease) in net assets resulting from operations

$ (3,106,876,514)

Statement of Changes in Net Assets

 

Six months ended June 30, 2008
(Unaudited)

Year ended
December 31,
2007

Increase (Decrease) in Net Assets

 

 

Operations

 

 

Net investment income (loss)

$ 100,612,025

$ 207,930,815

Net realized gain (loss)

(91,825,174)

6,292,852,945

Change in net unrealized appreciation (depreciation)

(3,115,663,365)

(2,807,429,656)

Net increase (decrease) in net assets resulting from operations

(3,106,876,514)

3,693,354,104

Distributions to shareholders from net investment income

(4,553,250)

(205,774,191)

Distributions to shareholders from net realized gain

(591,923,050)

(6,071,525,358)

Total distributions

(596,476,300)

(6,277,299,549)

Share transactions - net increase (decrease)

853,260,098

6,980,890,493

Redemption fees

17,593

16,524

Total increase (decrease) in net assets

(2,850,075,123)

4,396,961,572

 

 

 

Net Assets

Beginning of period

25,287,190,310

20,890,228,738

End of period (including undistributed net investment income of $101,491,283 and undistributed net investment income of $5,432,508, respectively)

$ 22,437,115,187

$ 25,287,190,310

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Initial Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.90

$ 31.47

$ 31.03

$ 26.62

$ 23.13

$ 18.10

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  .12

.34

.27

.18

.08

.07

Net realized and unrealized gain (loss)

  (3.50)

5.17

3.30

4.32

3.49

5.05

Total from investment operations

  (3.38)

5.51

3.57

4.50

3.57

5.12

Distributions from net investment income

  (.01)

(.33)

(.42)

(.08)

(.08)

(.09)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.08)

(3.13)

(.09) J

(.08)

(.09)

Redemption fees added to paid in capital E,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.86

$ 27.90

$ 31.47

$ 31.03

$ 26.62

$ 23.13

Total Return B,C,D

  (12.17)%

17.59%

11.72%

16.94%

15.48%

28.46%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .66% A

.65%

.66%

.66%

.68%

.67%

Expenses net of fee waivers, if any

  .66% A

.65%

.66%

.66%

.68%

.67%

Expenses net of all reductions

  .65% A

.64%

.65%

.64%

.66%

.65%

Net investment income (loss)

  .97% A

1.00%

.85%

.66%

.35%

.34%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 10,315,710

$ 12,371,009

$ 11,595,588

$ 11,099,527

$ 9,127,616

$ 7,665,424

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.09 per share is comprised of distributions from net investment income of $.080 and distributions from net realized gain of $.005 per share.

Financial Highlights - Service Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.80

$ 31.38

$ 30.93

$ 26.53

$ 23.06

$ 18.04

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss)E

  .11

.30

.24

.16

.06

.05

Net realized and unrealized gain (loss)

  (3.50)

5.16

3.28

4.30

3.47

5.04

Total from investment operations

  (3.39)

5.46

3.52

4.46

3.53

5.09

Distributions from net investment income

  (.01)

(.29)

(.36)

(.06)

(.06)

(.07)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.04)

(3.07)

(.06) J

(.06)

(.07)

Redemption fees added to paid in capitalE,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.75

$ 27.80

$ 31.38

$ 30.93

$ 26.53

$ 23.06

Total Return B,C,D

  (12.25)%

17.51%

11.59%

16.85%

15.34%

28.35%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .76% A

.75%

.76%

.76%

.78%

.77%

Expenses net of fee waivers, if any

  .76% A

.75%

.76%

.76%

.78%

.77%

Expenses net of all reductions

  .75% A

.74%

.75%

.74%

.76%

.75%

Net investment income (loss)

  .87% A

.90%

.75%

.56%

.25%

.24%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 2,504,077

$ 3,008,644

$ 2,766,343

$ 2,503,244

$ 2,111,969

$ 1,695,467

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.06 per share is comprised of distributions from net investment income of $.055 and distributions from net realized gain of $.005 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Service Class 2

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.46

$ 31.11

$ 30.69

$ 26.35

$ 22.93

$ 17.95

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  .09

.25

.19

.11

.02

.02

Net realized and unrealized gain (loss)

  (3.45)

5.11

3.26

4.27

3.45

5.02

Total from investment operations

  (3.36)

5.36

3.45

4.38

3.47

5.04

Distributions from net investment income

  (.01)

(.26)

(.32)

(.04)

(.05)

(.06)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.01)

(3.03)

(.04) J

(.05)

(.06)

Redemption fees added to paid in capital E,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.44

$ 27.46

$ 31.11

$ 30.69

$ 26.35

$ 22.93

Total Return B,C,D

  (12.29)%

17.30%

11.43%

16.65%

15.16%

28.20%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of fee waivers, if any

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of all reductions

  .90% A

.89%

.90%

.89%

.91%

.90%

Net investment income (loss)

  .72% A

.75%

.60%

.40%

.10%

.09%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 9,079,392

$ 9,339,663

$ 6,185,595

$ 3,247,909

$ 1,638,617

$ 910,341

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.04 per share is comprised of distributions from net investment income of $.035 and distributions from net realized gain of $.005 per share.

Financial Highlights - Service Class 2R

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.35

$ 31.02

$ 30.61

$ 26.29

$ 22.90

$ 17.95

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  .09

.25

.19

.11

.02

.02

Net realized and unrealized gain (loss)

  (3.43)

5.09

3.25

4.27

3.44

5.01

Total from investment operations

  (3.34)

5.34

3.44

4.38

3.46

5.03

Distributions from net investment income

  (.01)

(.26)

(.32)

(.05)

(.07)

(.08)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.01)

(3.03)

(.06) J

(.07)

(.08)

Redemption fees added to paid in capital E,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.35

$ 27.35

$ 31.02

$ 30.61

$ 26.29

$ 22.90

Total Return B,C,D

  (12.27)%

17.30%

11.43%

16.67%

15.15%

28.18%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of fee waivers, if any

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of all reductions

  .90% A

.89%

.90%

.89%

.91%

.90%

Net investment income (loss)

  .72% A

.75%

.60%

.39%

.10%

.08%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 26,763

$ 35,606

$ 26,707

$ 19,596

$ 7,088

$ 2,705

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.06 per share is comprised of distributions from net investment income of $.050 and distributions from net realized gain of $.005 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Investor Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005 H

Selected Per-Share Data

 

 

 

 

Net asset value, beginning of period

$ 27.82

$ 31.41

$ 31.00

$ 28.34

Income from Investment Operations

 

 

 

 

Net investment income (loss) E

  .11

.30

.23

.06

Net realized and unrealized gain (loss)

  (3.50)

5.16

3.30

2.60

Total from investment operations

  (3.39)

5.46

3.53

2.66

Distributions from net investment income

  (.01)

(.30)

(.41)

-

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

-

Total distributions

  (.66)

(9.05)

(3.12)

-

Redemption fees added to paid in capital E,J

  -

-

-

-

Net asset value, end of period

$ 23.77

$ 27.82

$ 31.41

$ 31.00

Total Return B,C,D

  (12.24)%

17.47%

11.60%

9.39%

Ratios to Average Net Assets F,I

 

 

 

 

Expenses before reductions

  .75% A

.76%

.78%

.83% A

Expenses net of fee waivers, if any

  .75% A

.76%

.78%

.83% A

Expenses net of all reductions

  .74% A

.75%

.78%

.81% A

Net investment income (loss)

  .88% A

.89%

.73%

.43% A

Supplemental Data

 

 

 

 

Net assets, end of period (000 omitted)

$ 511,173

$ 532,268

$ 315,995

$ 88,673

Portfolio turnover rate G

  160% A

134%

75%

60%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H For the period July 21, 2005 (commencement of sale of shares) to December 31, 2005. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. Expenses net of fee waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. J Amount represents less than $.01 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Notes to Financial Statements

For the period ended June 30, 2008 (Unaudited)

1. Organization.

VIP Contrafund Portfolio (the Fund) is a fund of Variable Insurance Products Fund II, (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, Service Class 2R shares and Investor Class shares. All classes have equal rights and voting privileges, except for matters affecting a single class. Investment income, realized and unrealized capital gains and losses, the common expenses of the Fund, and certain fund-level expense reductions, if any, are allocated 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 distribution and service plan fees incurred. Certain expense reductions also differ by class.

2. Investments in Fidelity Central Funds.

The Fund may invest in Fidelity Central Funds, which are open-end investment companies available only to other investment companies and accounts managed by Fidelity Management & Research Company (FMR) and its affiliates. The Fund's Schedule of Investments lists each of the Fidelity Central Funds 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.

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 FMR.

A complete unaudited list of holdings for each Fidelity Central Fund is available upon request or at the SEC's web site at www.sec.gov. In addition, the financial statements of the Fidelity Central Funds are available on the SEC's web site 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, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation. Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of the period. Wherever possible, the Fund uses independent pricing services approved by the Board of Trustees to value its investments.

Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Investments in open-end mutual funds, including the Fidelity Central Funds, are valued at their closing net asset value each business day. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.

When current market prices or quotations are not readily available or reliable, valuations may be determined in good faith in accordance with procedures adopted by the Board of Trustees. Factors used in determining value may include significant market or security specific events, changes in interest rates and credit quality, and developments in foreign markets which are monitored by evaluating the performance of ADRs, futures contracts and exchange-traded funds. The frequency with which these procedures are used cannot be predicted and may be utilized to a significant extent. The value of securities used for net asset value (NAV) calculation under these procedures may differ from published prices for the same securities.

Semiannual Report

3. Significant Accounting Policies - continued

Security Valuation - continued

The Fund is subject to the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy under SFAS 157 are described below:

Level 1

Quoted prices in active markets for identical securities.

Level 2

Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

Level 3

Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

Changes in valuation techniques may result in transfers in or out of an investment's assigned level within the hierarchy.

The aggregate value by input level, as of June 30, 2008, for the Fund's investments, as well as a reconciliation of assets for which significant unobservable inputs (Level 3) were used in determining value, is included at the end of the Fund's Schedule of Investments.

Foreign Currency. The Fund uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms.

Foreign-denominated assets, including investment securities, and liabilities are translated into U.S. dollars at the exchange rate at period end. Purchases and sales of investment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.

The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.

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 pm 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 and may include proceeds received from litigation. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The Fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Interest income and distributions from the Fidelity Central Funds are accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.

Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each Fund in the trust. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Deferred Trustee Compensation. Under a Deferred Compensation Plan (the Plan), independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, their annual compensation. Deferred amounts are invested in a cross-section of Fidelity funds, are marked-to-market and remain in the Fund until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting payable to the Trustees are included in the accompanying Statement of Assets and Liabilities.

Income Tax Information and Distributions to Shareholders. Each year, the Fund intends to qualify as a regulated investment company by distributing substantially all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code and filing its U.S. federal tax return. As a result, no provision for income taxes is required. The Fund is subject to the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48). FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. Foreign taxes are provided for based on the Fund's understanding of the tax rules and rates that exist in the foreign markets in which it invests.

Distributions are 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 generally accepted accounting principles.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

3. Significant Accounting Policies - continued

Income Tax Information and Distributions to Shareholders - continued

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. Temporary book-tax differences will reverse in a subsequent period.

Book-tax differences are primarily due to futures transactions, foreign currency transactions, certain foreign taxes, passive foreign investment companies (PFIC), partnerships, deferred trustees compensation and losses deferred due to wash sales.

The federal tax cost of investments and unrealized appreciation (depreciation) as of period end were as follows:

Unrealized appreciation

$ 2,066,676,984

 

Unrealized depreciation

(2,809,633,003)

 

Net unrealized appreciation (depreciation)

$ (742,956,019)

 

Cost for federal income tax purposes

$ 23,713,903,760

 

Trading (Redemption) Fees. Service Class 2R shares held less than 60 days are subject to a redemption fee equal to 1% of the proceeds of the redeemed shares. All redemption fees, including any estimated redemption fees paid by FMR, are retained by the Fund and accounted for as an addition to paid in capital.

New Accounting Pronouncement. In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161), was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

4. Operating Policies.

Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the Fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The Fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non-government securities. Upon settlement date, collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The Fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.

Futures Contracts. The Fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund's exposure to the underlying instrument, while selling futures tends to decrease a fund's exposure to the underlying instrument or hedge other fund investments. Upon entering into a futures contract, a fund is required to deposit with a clearing broker, no later than the following business day, an amount ("initial margin") equal to a certain percentage of the face value of the contract. The initial margin may be in the form of cash or securities and is transferred to a segregated account on settlement date. Subsequent payments ("variation margin") are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized gains or losses. Realized gains (losses) are recorded upon the expiration or closing of the futures contract. Securities deposited to meet margin requirements are identified in the Schedule of Investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption "Futures Contracts." This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contract's terms.

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.

5. Purchases and Sales of Investments.

Purchases and sales of securities, other than short-term securities, aggregated $18,983,627,920 and $18,305,863,177, respectively.

Semiannual Report

6. Fees and Other Transactions with Affiliates.

Management Fee. FMR 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 .30% of the Fund's average net assets and a group fee rate that averaged .26% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. For the period, the total annualized management fee rate was .56% of the Fund's average net assets.

Distribution and Service Plan. 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 FMR, 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 and Service Class 2R's average net assets.

For the period, each class paid FDC the following amounts, all of which were re-allowed to insurance companies for the distribution of shares and providing shareholder support services:

Service Class

$ 1,343,875

 

Service Class 2

11,299,553

 

Service Class 2R

36,940

 

 

$ 12,680,368

 

Transfer Agent Fees. Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an affiliate of FMR, 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 transfer agent fee, excluding out of pocket expenses, equal to an annual rate of .07% of average net assets. Investor Class pays a monthly asset-based transfer agent fee of .15% of average net assets. Prior to February 1, 2008, Investor Class paid a monthly asset-based transfer agent fee of .18% of average net assets. The total transfer agent fees paid by each class to FIIOC, including out of pocket expenses, were as follows:

Initial Class

$ 3,662,943

 

Service Class

892,177

 

Service Class 2

2,997,382

 

Service Class 2R

9,755

 

Investor Class

398,383

 

 

$ 7,960,640

 

Accounting and Security Lending Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, maintains the Fund's accounting records. The accounting fee is based on the level of average net assets for the 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.

Brokerage Commissions. The Fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $247,167 for the period.

7. Committed Line of Credit.

The Fund participates with other funds managed by FMR in a $4.2 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 $23,327 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

8. 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. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Any cash collateral received is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the Fund's Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities. Security lending income is presented in the Statement of Operations as a component of income from Fidelity Central Funds. Net income from lending portfolio securities during the period amounted to $4,939,750.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

9. Expense Reductions.

Many of the brokers with whom FMR places trades on behalf of the Fund provided services to the Fund in addition to trade execution. These services included payments of certain expenses on behalf of the Fund totaling $587,063 for the period. In addition, through arrangements with the Fund's custodian, credits realized as a result of uninvested cash balances were used to reduce the Fund's expenses. During the period, these credits reduced the Fund's custody expenses by $28,969.

10. 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, two otherwise unaffiliated shareholders were the owners of record of 22% of the total outstanding shares of the Fund.

In December 2006, the Independent Trustees, with the assistance of independent counsel, completed an investigation regarding gifts, gratuities and business entertainment provided by certain brokers to certain individuals who were employed on FMR's domestic equity trading desk during the period 2002 to 2004. The Independent Trustees and FMR agreed that, despite the absence of proof that the Fidelity mutual funds experienced diminished execution quality as a result of the improper receipt of gifts and business entertainment, the conduct at issue was serious and was worthy of redress. Accordingly, the Independent Trustees requested, and FMR agreed to make, a payment of $42 million plus accrued interest, which equaled approximately $7.3 million, to certain Fidelity mutual funds.

In March 2008, the Trustees approved a method for allocating this payment among the funds and, in total, FMR paid the fund $1,122,635, which is recorded in the accompanying Statement of Operations.

In a related administrative order dated March 5, 2008, the U.S. Securities and Exchange Commission ("SEC") announced a settlement with FMR and FMR Co., Inc. (an affiliate of FMR) involving the SEC's regulatory rules for investment advisers and the improper receipt of gifts, gratuities and business entertainment. Without admitting or denying the SEC's findings, FMR agreed to pay an $8 million civil penalty to the United States Treasury.

11. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

From net investment income

 

 

Initial Class

$ 2,181,847

$ 111,417,608

Service Class

533,467

24,318,080

Service Class 2

1,735,182

65,476,768

Service Class 2R

5,788

262,843

Investor Class

96,966

4,298,892

Total

$ 4,553,250

$ 205,774,191

From net realized gain

 

 

Initial Class

$ 283,640,043

$ 2,975,569,660

Service Class

69,350,695

726,713,446

Service Class 2

225,574,285

2,234,968,989

Service Class 2R

752,454

8,871,324

Investor Class

12,605,573

125,401,939

Total

$ 591,923,050

$ 6,071,525,358

Semiannual Report

12. Share Transactions.

Transactions for each class of shares were as follows:

 

Shares

Dollars

 

Six months ended June 30,
2008

Year ended
December 31,
2007

Six months ended June 30,
2008

Year ended
December 31,
2007

Initial Class

 

 

 

 

Shares sold

8,372,196

17,478,838

$ 210,215,742

$ 594,284,099

Reinvestment of distributions

11,810,822

109,587,502

285,821,889

3,086,987,268

Shares redeemed

(31,149,170)

(52,177,578)

(779,871,436)

(1,746,106,450)

Net increase (decrease)

(10,966,152)

74,888,762

$ (283,833,805)

$ 1,935,164,917

Service Class

 

 

 

 

Shares sold

4,772,647

6,710,212

$ 119,143,443

$ 225,338,266

Reinvestment of distributions

2,899,758

26,766,756

69,884,162

751,031,526

Shares redeemed

(10,484,030)

(13,390,785)

(260,541,793)

(448,909,951)

Net increase (decrease)

(2,811,625)

20,086,183

$ (71,514,188)

$ 527,459,841

Service Class 2

 

 

 

 

Shares sold

53,689,464

83,177,998

$ 1,321,749,579

$ 2,766,576,376

Reinvestment of distributions

9,550,819

83,070,567

227,309,467

2,300,445,756

Shares redeemed

(15,998,288)

(24,985,477)

(395,413,441)

(841,364,996)

Net increase (decrease)

47,241,995

141,263,088

$ 1,153,645,605

$ 4,225,657,136

Service Class 2R

 

 

 

 

Shares sold

210,267

417,603

$ 5,129,373

$ 14,264,062

Reinvestment of distributions

31,993

331,032

758,242

9,134,167

Shares redeemed

(397,560)

(307,879)

(9,608,948)

(9,961,471)

Net increase (decrease)

(155,300)

440,756

$ (3,721,333)

$ 13,436,758

Investor Class

 

 

 

 

Shares sold

2,403,603

4,942,578

$ 59,922,671

$ 166,133,204

Reinvestment of distributions

526,639

4,625,172

12,702,539

129,700,832

Shares redeemed

(561,147)

(495,596)

(13,941,391)

(16,662,195)

Net increase (decrease)

2,369,095

9,072,154

$ 58,683,819

$ 279,171,841

Semiannual Report

Proxy Voting Results

A special meeting of the fund's shareholders was held on May 14, 2008. The results of votes taken among shareholders on the proposals before them are reported below. Each vote reported represents one dollar of net asset value held on the record date for the meeting.

PROPOSAL 1

To elect a Board of Trustees.A

 

# of
Votes

% of
Votes

James C. Curvey

Affirmative

754,396,118.13

95.721

Withheld

33,724,400.40

4.279

TOTAL

788,120,518.53

100.000

Dennis J. Dirks

Affirmative

755,765,958.75

95.895

Withheld

32,354,559.78

4.105

TOTAL

788,120,518.53

100.000

Edward C. Johnson 3d

Affirmative

753,714,712.60

95.634

Withheld

34,405,805.93

4.366

TOTAL

788,120,518.53

100.000

Alan J. Lacy

Affirmative

755,539,784.95

95.866

Withheld

32,580,733.58

4.134

TOTAL

788,120,518.53

100.000

Ned C. Lautenbach

Affirmative

755,270,925.90

95.832

Withheld

32,849,592.63

4.168

TOTAL

788,120,518.53

100.000

Joseph Mauriello

Affirmative

755,673,213.30

95.883

Withheld

32,447,305.23

4.117

TOTAL

788,120,518.53

100.000

Cornelia M. Small

Affirmative

755,628,126.83

95.877

Withheld

32,492,391.70

4.123

TOTAL

788,120,518.53

100.000

William S. Stavropoulos

Affirmative

754,899,686.63

95.785

Withheld

33,220,831.90

4.215

TOTAL

788,120,518.53

100.000

David M. Thomas

Affirmative

755,655,877.24

95.881

Withheld

32,464,641.29

4.119

TOTAL

788,120,518.53

100.000

Michael E. Wiley

Affirmative

755,513,012.38

95.863

Withheld

32,607,506.15

4.137

TOTAL

788,120,518.53

100.000

PROPOSAL 2

To amend the Declaration of Trust to reduce the required quorum for future shareholder meetings.A

 

# of
Votes

% of
Votes

Affirmative

637,916,630.61

80.942

Against

98,488,476.51

12.496

Abstain

51,715,411.41

6.562

TOTAL

788,120,518.53

100.000

A Denotes trust-wide proposal and voting results.

Semiannual Report

Investment Adviser

Fidelity Management & Research Company
Boston, MA

Investment Sub-Advisers

FMR Co., Inc.

Fidelity Management & Research (U.K.) Inc.

Fidelity Research & Analysis Company

Fidelity Investments Japan Limited

Fidelity International Investment Advisors

Fidelity International Investment Advisors
(U.K.) Limited

General Distributor

Fidelity Distributors Corporation
Boston, MA

Transfer and Service Agents

Fidelity Investments Institutional Operations Company, Inc.
Boston, MA 

Fidelity Service Company, Inc.
Boston, MA 

Custodian

Brown Brothers Harriman & Co.
Boston, MA 

VIPCON-SANN-0808
1.705691.110

Fidelity® Variable Insurance Products:

Contrafund Portfolio - Service Class 2R

Semiannual Report

June 30, 2008
(2_fidelity_logos) (Registered_Trademark)

Contents

Shareholder Expense Example

<Click Here>

An example of shareholder expenses.

Investment Changes

<Click Here>

A summary of major shifts in the fund's investments over the past six months.

Investments

<Click Here>

A complete list of the fund's investments with their
market values.

Financial Statements

<Click Here>

Statements of assets and liabilities, operations, and
changes in net assets, as well as financial highlights.

Notes

<Click Here>

Notes to the financial statements.

Proxy Voting Results

<Click Here>

 

To view a fund's proxy voting guidelines and proxy voting record for the 12-month period ended June 30, visit http://www.fidelity.com (search for "proxy voting guidelines") or visit the Securities and Exchange Commission's (SEC) web site at http://www.sec.gov. You may also call 1-877-208-0098 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.

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 http://www.sec.gov. 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 1-800-SEC-0330. 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 a http://www.fidelity.com or http://www.advisor.fidelity.com, as applicable.

NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

Shareholder Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including redemption fees, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2008 to June 30, 2008).

Actual Expenses

The first line of the accompanying table for each class of the Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line for a class of the Fund under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Hypothetical Example for Comparison Purposes

The second line of the accompanying table for each class of the Fund provides information about hypothetical account values and hypothetical expenses based on a Class' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

Beginning
Account Value
January 1, 2008

Ending
Account Value
June 30, 2008

Expenses Paid
During Period*
January 1, 2008 to June 30, 2008

Initial Class

 

 

 

Actual

$ 1,000.00

$ 878.30

$ 3.08

Hypothetical A

$ 1,000.00

$ 1,021.58

$ 3.32

Service Class

 

 

 

Actual

$ 1,000.00

$ 877.50

$ 3.55

Hypothetical A

$ 1,000.00

$ 1,021.08

$ 3.82

Service Class 2

 

 

 

Actual

$ 1,000.00

$ 877.10

$ 4.25

Hypothetical A

$ 1,000.00

$ 1,020.34

$ 4.57

Service Class 2R

 

 

 

Actual

$ 1,000.00

$ 877.30

$ 4.25

Hypothetical A

$ 1,000.00

$ 1,020.34

$ 4.57

Investor Class

 

 

 

Actual

$ 1,000.00

$ 877.60

$ 3.50

Hypothetical A

$ 1,000.00

$ 1,021.13

$ 3.77

A 5% return per year before expenses

* Expenses are equal to each Class' annualized expense ratio (shown in the table below); multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

 

Annualized
Expense Ratio

Initial Class

.66%

Service Class

.76%

Service Class 2

.91%

Service Class 2R

.91%

Investor Class

.75%

Semiannual Report

Investment Changes (Unaudited)

Top Ten Stocks as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Microsoft Corp.

3.6

3.7

ConocoPhillips

2.1

1.0

Apple, Inc.

2.0

0.1

Procter & Gamble Co.

1.8

1.9

AT&T, Inc.

1.8

1.4

American International Group, Inc.

1.6

2.4

Petrohawk Energy Corp.

1.6

0.5

Cisco Systems, Inc.

1.6

0.9

National Oilwell Varco, Inc.

1.4

0.9

Fannie Mae

1.4

1.1

 

18.9

Market Sectors as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Information Technology

16.2

16.8

Energy

15.0

12.0

Financials

13.2

17.2

Industrials

12.1

11.7

Health Care

11.7

11.4

Consumer Staples

11.2

10.3

Consumer Discretionary

7.1

6.9

Utilities

4.3

3.5

Telecommunication Services

3.8

4.1

Materials

3.8

3.3

Asset Allocation (% of fund's net assets)

As of June 30, 2008 *

As of December 31, 2007 **

fid3926

Stocks and
Equity Futures 98.7%

 

fid3926

Stocks and
Equity Futures 97.9%

 

fid3929

Short-Term
Investments and
Net Other Assets 1.3%

 

fid3929

Short-Term
Investments and
Net Other Assets 2.1%

 

* Foreign investments

16.9%

 

** Foreign investments

20.2%

 


fid3944

Semiannual Report

Investments June 30, 2008 (Unaudited)

Showing Percentage of Net Assets

Common Stocks - 97.7%

Shares

Value

CONSUMER DISCRETIONARY - 7.1%

Auto Components - 0.3%

Gentex Corp.

2,316,000

$ 33,443,040

Johnson Controls, Inc.

1,136,800

32,603,424

 

66,046,464

Automobiles - 0.1%

Renault SA

209,000

17,009,762

Distributors - 0.3%

Li & Fung Ltd.

23,904,000

72,043,862

Diversified Consumer Services - 0.2%

Hillenbrand, Inc.

800,000

17,120,000

New Oriental Education & Technology Group, Inc. sponsored ADR (a)

440,700

25,745,694

 

42,865,694

Hotels, Restaurants & Leisure - 0.7%

Life Time Fitness, Inc. (a)(d)

161,745

4,779,565

McDonald's Corp.

2,680,584

150,702,432

 

155,481,997

Household Durables - 0.2%

D.R. Horton, Inc.

1,307,200

14,183,120

Harman International Industries, Inc.

530,000

21,936,700

Whirlpool Corp.

171,800

10,605,214

 

46,725,034

Internet & Catalog Retail - 0.0%

Priceline.com, Inc. (a)

81,700

9,433,082

Leisure Equipment & Products - 0.0%

Nikon Corp.

285,000

8,321,952

Media - 2.8%

Central European Media Enterprises Ltd. Class A (a)

642,000

58,120,260

Comcast Corp. Class A

5,688,100

107,903,257

Liberty Global, Inc. Class A (a)(d)

935,300

29,396,479

News Corp. Class A

3,301,400

49,653,056

Omnicom Group, Inc.

1,283,200

57,590,016

The DIRECTV Group, Inc. (a)

801,400

20,764,274

The Walt Disney Co.

1,502,243

46,869,982

The Weinstein Co. II Holdings, LLC
Class A-1 (h)

11,499

11,499,000

Time Warner Cable, Inc. (a)

2,447,500

64,809,800

Time Warner, Inc.

9,291,900

137,520,120

Viacom, Inc. Class B (non-vtg.) (a)

1,217,400

37,179,396

 

621,305,640

Multiline Retail - 0.4%

Kohl's Corp. (a)

681,000

27,267,240

Target Corp. (d)

1,158,000

53,835,420

 

81,102,660

Specialty Retail - 1.1%

Abercrombie & Fitch Co. Class A

193,800

12,147,384

Lowe's Companies, Inc.

3,893,000

80,779,750

OfficeMax, Inc.

519,600

7,222,440

PetSmart, Inc.

943,500

18,822,825

 

Shares

Value

Ross Stores, Inc.

578,400

$ 20,544,768

Tiffany & Co., Inc.

502,600

20,480,950

TJX Companies, Inc. (d)

2,558,852

80,527,072

Zumiez, Inc. (a)(d)

1,031,020

17,094,312

 

257,619,501

Textiles, Apparel & Luxury Goods - 1.0%

Carter's, Inc. (a)

1,015,700

14,036,974

LVMH Moet Hennessy - Louis Vuitton

497,300

51,876,679

NIKE, Inc. Class B

872,900

52,033,569

Polo Ralph Lauren Corp. Class A

909,574

57,103,056

Ports Design Ltd.

3,909,500

11,181,102

Under Armour, Inc. Class A (sub. vtg.) (a)(d)

1,285,415

32,958,041

 

219,189,421

TOTAL CONSUMER DISCRETIONARY

1,597,145,069

CONSUMER STAPLES - 11.2%

Beverages - 4.0%

Brown-Forman Corp. Class B (non-vtg.)

160,400

12,121,428

Carlsberg AS Series B

95,500

9,199,491

Coca-Cola FEMSA SAB de CV sponsored ADR

812,800

45,833,792

Coca-Cola Hellenic Bottling Co. SA sponsored ADR

679,650

18,398,126

Companhia de Bebidas das Americas (AmBev) (PN) sponsored ADR

195,300

12,372,255

Constellation Brands, Inc. Class A (sub. vtg.) (a)

1,452,700

28,850,622

Diageo PLC sponsored ADR

500,300

36,957,161

Embotelladora Andina SA sponsored ADR

773,500

11,826,815

Fomento Economico Mexicano SA de CV sponsored ADR

284,300

12,938,493

Heineken NV (Bearer)

627,100

31,934,173

InBev SA

512,817

35,456,655

Molson Coors Brewing Co. Class B

1,092,100

59,333,793

PepsiCo, Inc.

3,966,162

252,208,242

Pernod Ricard SA (d)

357,600

36,491,220

SABMiller PLC

1,612,100

36,831,661

The Coca-Cola Co.

4,830,709

251,100,254

 

891,854,181

Food & Staples Retailing - 2.1%

Costco Wholesale Corp.

857,700

60,159,078

CVS Caremark Corp.

4,300,000

170,151,000

Kroger Co.

2,347,400

67,769,438

Safeway, Inc.

1,783,600

50,921,780

Sysco Corp.

1,194,800

32,868,948

Wal-Mart Stores, Inc.

368,400

20,704,080

Walgreen Co.

1,962,300

63,794,373

X5 Retail Group NV GDR (a)(f)

404,864

13,643,917

 

480,012,614

Common Stocks - continued

Shares

Value

CONSUMER STAPLES - continued

Food Products - 1.6%

Archer Daniels Midland Co.

1,268,400

$ 42,808,500

Bunge Ltd.

171,100

18,425,759

Green Mountain Coffee Roasters, Inc. (a)

529,901

19,908,381

Groupe Danone

328,056

22,955,389

Kraft Foods, Inc. Class A

1,257,400

35,773,030

Lindt & Spruengli AG

210

6,304,527

Marine Harvest ASA (a)(d)

16,582,000

12,145,037

Nestle SA (Reg.)

2,545,070

114,703,974

SLC Agricola SA

724,000

14,360,778

Unilever NV (NY Shares)

2,148,600

61,020,240

Wimm-Bill-Dann Foods OJSC sponsored ADR

46,800

4,924,296

 

353,329,911

Household Products - 2.5%

Colgate-Palmolive Co.

1,475,523

101,958,639

Kimberly-Clark Corp.

824,200

49,270,676

Procter & Gamble Co.

6,836,411

415,722,153

 

566,951,468

Personal Products - 0.5%

Avon Products, Inc.

2,521,300

90,817,226

Estee Lauder Companies, Inc. Class A

130,100

6,043,145

Herbalife Ltd.

328,400

12,725,500

 

109,585,871

Tobacco - 0.5%

British American Tobacco PLC sponsored ADR

1,233,900

85,447,575

Souza Cruz Industria Comerico

628,600

17,891,104

 

103,338,679

TOTAL CONSUMER STAPLES

2,505,072,724

ENERGY - 15.0%

Energy Equipment & Services - 5.7%

Atwood Oceanics, Inc. (a)

76,000

9,449,840

BJ Services Co.

2,567,062

81,991,960

ENSCO International, Inc.

665,200

53,708,248

Exterran Holdings, Inc. (a)

362,623

25,923,918

Global Industries Ltd. (a)

3,478,000

62,360,540

Halliburton Co.

2,354,800

124,969,236

Hercules Offshore, Inc. (a)

256,500

9,752,130

Nabors Industries Ltd. (a)

5,277,326

259,802,759

National Oilwell Varco, Inc. (a)

3,636,154

322,599,583

Oceaneering International, Inc. (a)

431,800

33,270,190

Parker Drilling Co. (a)

2,023,000

20,250,230

Petroleum Geo-Services ASA

3,495,729

85,600,193

Pride International, Inc. (a)

847,233

40,065,649

 

Shares

Value

Subsea 7, Inc. (a)(d)

1,269,500

$ 32,105,465

Weatherford International Ltd. (a)

2,029,200

100,628,028

 

1,262,477,969

Oil, Gas & Consumable Fuels - 9.3%

Canadian Natural Resources Ltd.

2,064,094

204,192,121

Concho Resources, Inc.

1,872,900

69,859,170

ConocoPhillips

4,985,200

470,553,028

CONSOL Energy, Inc.

1,018,375

114,434,799

Denbury Resources, Inc. (a)

2,411,400

88,016,100

Hess Corp.

458,100

57,807,639

Peabody Energy Corp.

1,399,187

123,198,415

Petrohawk Energy Corp. (a)

7,690,801

356,160,994

Petroplus Holdings AG (a)

1,959,150

104,862,573

Reliance Industries Ltd.

440,000

21,473,701

Southwestern Energy Co. (a)

1,737,400

82,717,614

Sunoco, Inc.

816,700

33,231,523

Ultra Petroleum Corp. (a)

101,700

9,986,940

Valero Energy Corp.

5,003,667

206,051,007

Williams Companies, Inc.

3,684,400

148,518,164

 

2,091,063,788

TOTAL ENERGY

3,353,541,757

FINANCIALS - 12.5%

Capital Markets - 1.5%

Bank of New York Mellon Corp.

3,699,682

139,958,970

Charles Schwab Corp.

4,967,222

102,026,740

Janus Capital Group, Inc.

3,940,227

104,297,809

 

346,283,519

Commercial Banks - 2.7%

Bangkok Bank Ltd. PCL (For. Reg.)

12,408,600

44,548,451

KeyCorp

3,222,701

35,385,257

Mitsubishi UFJ Financial Group, Inc.

10,000,000

88,391,094

Sumitomo Mitsui Financial Group,
Inc.

35,773

269,228,339

Uniao de Bancos Brasileiros SA (Unibanco) GDR

498,500

63,274,605

Wachovia Corp.

6,833,600

106,125,808

 

606,953,554

Consumer Finance - 0.8%

Capital One Financial Corp.

1,575,708

59,892,661

Discover Financial Services

2,418,693

31,854,187

Promise Co. Ltd.

1,273,850

35,636,363

SLM Corp. (a)

2,940,000

56,889,000

 

184,272,211

Diversified Financial Services - 1.5%

CIT Group, Inc.

5,327,300

36,278,913

JPMorgan Chase & Co.

8,725,500

299,371,905

 

335,650,818

Common Stocks - continued

Shares

Value

FINANCIALS - continued

Insurance - 4.1%

ACE Ltd.

1,332,600

$ 73,412,934

AFLAC, Inc.

1,514,300

95,098,040

American International Group, Inc.

13,771,446

364,392,461

Berkshire Hathaway, Inc. Class A (a)

1,351

163,133,250

China Life Insurance Co. Ltd.
(H Shares)

11,000,000

38,323,287

PartnerRe Ltd.

622,863

43,058,519

Sony Financial Holdings, Inc.

34,482

138,688,021

 

916,106,512

Real Estate Management & Development - 0.2%

Sun Hung Kai Properties Ltd.

3,000,000

40,706,660

Thrifts & Mortgage Finance - 1.7%

Fannie Mae (d)

15,822,890

308,704,584

New York Community Bancorp, Inc. (d)

2,076,500

37,044,760

Washington Mutual, Inc.

5,840,000

28,791,200

 

374,540,544

TOTAL FINANCIALS

2,804,513,818

HEALTH CARE - 11.7%

Biotechnology - 1.7%

Acorda Therapeutics, Inc. (a)

350,000

11,490,500

Amgen, Inc. (a)

1,450,000

68,382,000

Biogen Idec, Inc. (a)

781,200

43,661,268

BioMarin Pharmaceutical, Inc. (a)

325,000

9,418,500

Celgene Corp. (a)

454,346

29,019,079

CSL Ltd.

1,158,328

39,646,527

Genentech, Inc. (a)

447,169

33,940,127

Genzyme Corp. (a)

350,000

25,207,000

Gilead Sciences, Inc. (a)

1,826,906

96,734,673

ONYX Pharmaceuticals, Inc. (a)

350,000

12,460,000

United Therapeutics Corp. (a)

200,000

19,550,000

 

389,509,674

Health Care Equipment & Supplies - 3.3%

Alcon, Inc.

820,983

133,647,823

American Medical Systems Holdings, Inc. (a)

1,000,500

14,957,475

Baxter International, Inc.

2,633,700

168,398,778

Becton, Dickinson & Co.

412,420

33,529,746

C.R. Bard, Inc.

117,092

10,298,241

Covidien Ltd.

3,387,616

162,232,930

Edwards Lifesciences Corp. (a)

402,300

24,958,692

Gen-Probe, Inc. (a)

221,921

10,536,809

Mako Surgical Corp.

588,756

4,309,694

Masimo Corp.

300,000

10,305,000

Medtronic, Inc.

2,188,100

113,234,175

Sonova Holding AG

273,985

22,614,194

Stryker Corp.

595,100

37,419,888

 

746,443,445

 

Shares

Value

Health Care Providers & Services - 1.7%

Express Scripts, Inc. (a)

775,000

$ 48,608,000

Humana, Inc. (a)

532,726

21,186,513

McKesson Corp.

848,200

47,422,862

Medco Health Solutions, Inc. (a)

2,482,092

117,154,742

Tenet Healthcare Corp. (a)

9,028,570

50,198,849

UnitedHealth Group, Inc.

866,111

22,735,414

Universal Health Services, Inc. Class B

725,000

45,834,500

WellPoint, Inc. (a)

475,000

22,638,500

 

375,779,380

Health Care Technology - 0.2%

HLTH Corp. (a)

2,792,712

31,613,500

MedAssets, Inc.

397,451

6,776,540

 

38,390,040

Life Sciences Tools & Services - 0.3%

Pharmaceutical Product Development, Inc.

575,000

24,667,500

QIAGEN NV (a)

2,370,001

47,708,120

 

72,375,620

Pharmaceuticals - 4.5%

Abbott Laboratories

3,971,317

210,360,661

Allergan, Inc.

1,819,006

94,679,262

Johnson & Johnson

2,031,300

130,693,842

Merck & Co., Inc.

3,426,450

129,142,901

Novo Nordisk AS Series B

644,000

42,394,852

Pfizer, Inc.

6,647,900

116,138,813

Pronova BioPharma ASA

2,000,000

6,819,143

Schering-Plough Corp.

3,164,838

62,315,660

Wyeth

4,472,500

214,501,100

XenoPort, Inc. (a)

136,202

5,315,964

 

1,012,362,198

TOTAL HEALTH CARE

2,634,860,357

INDUSTRIALS - 12.1%

Aerospace & Defense - 3.3%

General Dynamics Corp.

1,641,146

138,184,493

Honeywell International, Inc.

3,181,500

159,965,820

Lockheed Martin Corp.

2,054,787

202,725,285

Raytheon Co.

2,734,000

153,869,520

The Boeing Co.

362,126

23,798,921

United Technologies Corp.

1,041,500

64,260,550

 

742,804,589

Air Freight & Logistics - 1.1%

C.H. Robinson Worldwide, Inc. (d)

2,423,301

132,893,827

FedEx Corp.

191,800

15,111,922

United Parcel Service, Inc. Class B

1,404,500

86,334,615

 

234,340,364

Commercial Services & Supplies - 0.5%

Stericycle, Inc. (a)

2,301,000

118,961,700

Common Stocks - continued

Shares

Value

INDUSTRIALS - continued

Construction & Engineering - 1.4%

Fluor Corp.

691,700

$ 128,711,536

Jacobs Engineering Group, Inc. (a)

1,474,438

118,987,147

Quanta Services, Inc. (a)(d)

2,020,100

67,208,727

 

314,907,410

Electrical Equipment - 2.5%

ABB Ltd. sponsored ADR

2,273,200

64,377,024

Alstom SA (d)

610,500

139,990,923

China High Speed Transmission Equipment Group Co. Ltd.

2,811,000

5,768,188

First Solar, Inc. (a)

102,000

27,827,640

JA Solar Holdings Co. Ltd. ADR (a)

2,077,300

35,002,505

Q-Cells AG (a)

632,500

64,072,878

Sunpower Corp. Class A (a)

110,200

7,932,196

Suntech Power Holdings Co. Ltd. sponsored ADR (a)(d)

3,164,300

118,534,678

Suzlon Energy Ltd.

290,000

1,458,782

Vestas Wind Systems AS (a)

677,400

88,195,423

 

553,160,237

Industrial Conglomerates - 0.5%

Siemens AG sponsored ADR

972,900

107,145,477

Machinery - 2.8%

Caterpillar, Inc.

409,569

30,234,384

Cummins, Inc.

1,211,300

79,364,376

Danaher Corp.

2,019,250

156,088,025

Deere & Co.

1,518,800

109,551,044

Eaton Corp.

1,265,300

107,512,541

Navistar International Corp. (a)

896,700

59,020,794

Sulzer AG (Reg.)

672,460

84,966,035

Vallourec SA

29,600

10,351,989

 

637,089,188

TOTAL INDUSTRIALS

2,708,408,965

INFORMATION TECHNOLOGY - 16.2%

Communications Equipment - 3.9%

Alcatel-Lucent SA sponsored ADR

8,495,000

51,309,800

Ciena Corp. (a)(d)

4,456,358

103,253,815

Cisco Systems, Inc. (a)

15,171,200

352,882,112

Juniper Networks, Inc. (a)

12,414,100

275,344,738

QUALCOMM, Inc.

400,000

17,748,000

Sycamore Networks, Inc. (a)(e)

18,993,656

61,159,572

 

861,698,037

Computers & Peripherals - 2.0%

Apple, Inc. (a)

2,700,000

452,088,000

Electronic Equipment & Instruments - 0.3%

Avnet, Inc. (a)

969,600

26,450,688

 

Shares

Value

Hon Hai Precision Industry Co. Ltd. (Foxconn)

990,000

$ 4,876,124

Tyco Electronics Ltd.

1,010,000

36,178,200

 

67,505,012

Internet Software & Services - 1.0%

eBay, Inc. (a)

2,954,700

80,751,951

Google, Inc. Class A (sub. vtg.) (a)

184,403

97,073,427

VistaPrint Ltd. (a)

1,119,340

29,953,538

Yahoo!, Inc. (a)

1,225,000

25,308,500

 

233,087,416

IT Services - 1.5%

Infosys Technologies Ltd. sponsored ADR

1,270,000

55,194,200

Visa, Inc.

3,320,000

269,949,200

 

325,143,400

Semiconductors & Semiconductor Equipment - 2.7%

Altera Corp.

3,230,000

66,861,000

Analog Devices, Inc.

2,675,000

84,984,750

Applied Materials, Inc.

880,000

16,799,200

Applied Micro Circuits Corp. (a)

947,858

8,113,664

ASML Holding NV (NY Shares)

980,000

23,912,000

Broadcom Corp. Class A (a)

6,184,559

168,776,615

Brooks Automation, Inc. (a)

451,312

3,732,350

Cirrus Logic, Inc. (a)(e)

6,059,839

33,692,705

KLA-Tencor Corp.

1,867,000

76,005,570

Lam Research Corp. (a)

377,285

13,638,853

Linear Technology Corp.

235,000

7,653,950

Micron Technology, Inc. (a)

3,650,002

21,900,012

MIPS Technologies, Inc. (a)

497,283

1,864,811

Novellus Systems, Inc. (a)

3,144,772

66,637,719

Samsung Electronics Co. Ltd.

14,000

8,361,203

Teradyne, Inc. (a)

840,666

9,306,173

 

612,240,575

Software - 4.8%

Electronic Arts, Inc. (a)

2,810,000

124,848,300

Microsoft Corp.

29,754,200

818,538,040

Nuance Communications, Inc. (a)(d)

2,937,800

46,035,326

Oracle Corp. (a)

3,995,000

83,895,000

 

1,073,316,666

TOTAL INFORMATION TECHNOLOGY

3,625,079,106

MATERIALS - 3.8%

Chemicals - 1.9%

Albemarle Corp.

852,000

34,003,320

CF Industries Holdings, Inc.

62,400

9,534,720

Ecolab, Inc.

575,361

24,734,769

FMC Corp.

484,300

37,504,192

Monsanto Co.

1,296,235

163,895,953

Potash Corp. of Saskatchewan, Inc.

234,500

53,599,665

Common Stocks - continued

Shares

Value

MATERIALS - continued

Chemicals - continued

Praxair, Inc.

366,632

$ 34,551,400

The Mosaic Co. (a)

431,600

62,452,520

 

420,276,539

Containers & Packaging - 0.2%

Ball Corp.

52,300

2,496,802

Owens-Illinois, Inc. (a)

305,700

12,744,633

Rock-Tenn Co. Class A

508,300

15,243,917

Temple-Inland, Inc.

2,050,800

23,112,516

 

53,597,868

Metals & Mining - 1.7%

Agnico-Eagle Mines Ltd.

397,500

29,827,611

AK Steel Holding Corp. (d)

1,039,900

71,753,100

Alcoa, Inc.

1,268,600

45,187,532

Barrick Gold Corp.

292,200

13,360,908

Century Aluminum Co. (a)

717,800

47,726,522

Freeport-McMoRan Copper & Gold, Inc. Class B

752,900

88,232,351

Goldcorp, Inc.

501,900

23,146,435

Ivanhoe Mines Ltd. (a)

884,700

9,590,362

Kinross Gold Corp.

213,715

5,052,761

Nucor Corp.

436,400

32,585,988

United States Steel Corp.

75,400

13,932,412

 

380,395,982

TOTAL MATERIALS

854,270,389

TELECOMMUNICATION SERVICES - 3.8%

Diversified Telecommunication Services - 2.7%

AT&T, Inc.

12,011,716

404,674,712

CenturyTel, Inc.

200,800

7,146,472

FairPoint Communications, Inc. (d)

2,559,858

18,456,576

Qwest Communications International, Inc.

2,916,900

11,463,417

TELUS Corp.

158,900

6,682,732

Verizon Communications, Inc.

4,717,800

167,010,120

 

615,434,029

Wireless Telecommunication Services - 1.1%

American Tower Corp. Class A (a)

3,632,300

153,464,675

China Mobile (Hong Kong) Ltd.

254,500

3,416,114

Clearwire Corp. (a)(d)

4,325,616

56,059,983

Leap Wireless International, Inc. (a)

287,400

12,407,058

NII Holdings, Inc. (a)

330,100

15,676,449

 

241,024,279

TOTAL TELECOMMUNICATION SERVICES

856,458,308

 

Shares

Value

UTILITIES - 4.3%

Electric Utilities - 2.6%

Allegheny Energy, Inc.

1,226,800

$ 61,474,948

American Electric Power Co., Inc.

783,600

31,524,228

Edison International

112,100

5,759,698

Entergy Corp.

594,100

71,577,168

Exelon Corp.

1,274,000

114,609,040

FirstEnergy Corp.

968,200

79,711,906

FPL Group, Inc.

1,819,100

119,296,578

PPL Corp.

1,883,900

98,471,453

 

582,425,019

Gas Utilities - 0.1%

Questar Corp.

372,800

26,483,712

Independent Power Producers & Energy Traders - 0.8%

Clipper Windpower PLC (a)

1,425,263

15,100,368

Constellation Energy Group, Inc.

831,516

68,267,464

NRG Energy, Inc. (a)

2,130,900

91,415,610

Reliant Energy, Inc. (a)

179,200

3,811,584

 

178,595,026

Multi-Utilities - 0.8%

PG&E Corp.

831,200

32,990,328

Public Service Enterprise Group, Inc.

1,460,700

67,089,951

Sempra Energy

1,521,700

85,899,965

 

185,980,244

TOTAL UTILITIES

973,484,001

TOTAL COMMON STOCKS

(Cost $22,456,691,251)

21,912,834,494

Convertible Preferred Stocks - 0.7%

 

 

 

 

FINANCIALS - 0.7%

Capital Markets - 0.2%

Lehman Brothers Holdings, Inc. 7.25%

69,000

55,505,670

Commercial Banks - 0.2%

Huntington Bancshares, Inc. 8.50%

52,000

36,400,000

Diversified Financial Services - 0.0%

CIT Group, Inc. Series C, 8.75%

197,000

8,053,360

Insurance - 0.3%

American International Group, Inc.
Series A, 8.50%

1,000,000

59,663,000

TOTAL FINANCIALS

159,622,030

HEALTH CARE - 0.0%

Biotechnology - 0.0%

Fluidigm Corp. (h)

1,378,965

5,515,860

TOTAL CONVERTIBLE PREFERRED STOCKS

(Cost $208,129,277)

165,137,890

U.S. Treasury Obligations - 0.0%

 

Principal Amount

Value

U.S. Treasury Bills, yield at date of purchase 1.07% to 1.82% 7/10/08 to 9/4/08 (g)
(Cost $4,224,872)

$ 4,235,000

$ 4,228,083

Money Market Funds - 4.0%

Shares

 

Fidelity Cash Central Fund, 2.38% (b)

275,522,104

275,522,104

Fidelity Securities Lending Cash Central Fund, 2.39% (b)(c)

613,225,170

613,225,170

TOTAL MONEY MARKET FUNDS

(Cost $888,747,274)

888,747,274

TOTAL INVESTMENT
PORTFOLIO - 102.4%

(Cost $23,557,792,674)

22,970,947,741

NET OTHER ASSETS - (2.4)%

(533,832,554)

NET ASSETS - 100%

$ 22,437,115,187

Futures Contracts

Expiration Date

Underlying Face Amount at Value

Unrealized
Appreciation/
(Depreciation)

Purchased

Equity Index Contracts

969 CME E-mini S&P 500 Index Contracts

Sept. 2008

$ 62,069,295

$ (3,809,720)

The face value of futures purchased as a percentage of net assets - 0.3%

Legend

(a) Non-income producing

(b) Affiliated fund that is 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.

(c) Investment made with cash collateral received from securities on loan.

(d) Security or a portion of the security is on loan at period end.

(e) Affiliated company

(f) Security exempt from registration under Rule 144A of the Securities Act of 1933. 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 $13,643,917 or 0.1% of net assets.

(g) Security or a portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $4,288,083.

(h) Restricted securities - Investment in securities not registered under the Securities Act of 1933 (excluding 144A issues). At the end of the period, the value of restricted securities (excluding 144A issues) amounted to $17,014,860 or 0.1% of net assets.

Additional information on each holding is as follows:

Security

Acquisition Date

Acquisition Cost

Fluidigm Corp.

10/9/07

$ 5,515,860

The Weinstein Co. II Holdings, LLC Class A-1

10/19/05

$ 11,499,000

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

$ 8,971,632

Fidelity Securities Lending Cash Central Fund

4,939,750

Total

$ 13,911,382

Other Affiliated Issuers

An affiliated company is a company in which the fund has ownership of at least 5% of the voting securities. Fiscal year to date transactions with companies which are or were affiliates are as follows:

Affiliates

Value,
beginning of period

Purchases

Sales
Proceeds

Dividend
Income

Value,
end of
period

Ciena Corp.

$ 80,149,836

$ 87,086,403

$ 34,633,555

$ -

$ -

Cirrus Logic, Inc.

22,700,679

35,898,846

30,915,229

-

33,692,705

Sycamore Networks, Inc.

21,666,920

46,740,285

-

-

61,159,572

Total

$ 124,517,435

$ 169,725,534

$ 65,548,784

$ -

$ 94,852,277

Other Information

The following is a summary of the inputs used, as of June 30, 2008, involving the Fund's assets carried at 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 in the tables below, please refer to the Security 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

$ 22,970,947,741

$ 21,587,969,669

$ 1,365,963,212

$ 17,014,860

Other Financial Instruments*

$ (3,809,720)

$ (3,809,720)

$ -

$ -

*Other financial instruments include Futures Contracts.

The following is a reconciliation of assets for which Level 3 inputs were used in determining value:

 

Investments in Securities

 

Beginning Balance

$ 17,014,860

Total Realized Gain (Loss)

-

Total Unrealized Gain (Loss)

-

Cost of Purchases

-

Proceeds of Sales

-

Amortization/Accretion

-

Transfer in/out of Level 3

-

Ending Balance

$ 17,014,860

The information used in the above reconciliation represents fiscal year to date activity for any Investment Securities identified as using Level 3 inputs at either the beginning or the end of the current fiscal period. Transfers in or out of Level 3 represents either the beginning value (for transfers in), or the ending value (for transfers out) of any Security or Instrument where a change in the pricing level occurred from the beginning to the end of the period.

Distribution of investments by country of issue, as a percentage of total net assets, is as follows: (Unaudited)

United States of America

83.1%

Japan

2.4%

Switzerland

2.4%

Bermuda

1.7%

Canada

1.4%

France

1.4%

Cayman Islands

1.4%

Others (individually less than 1%)

6.2%

 

100.0%

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Statements

Statement of Assets and Liabilities

 

June 30, 2008 (Unaudited)

 

 

 

Assets

Investment in securities, at value (including securities loaned of $581,029,771) - See accompanying schedule:

Unaffiliated issuers (cost $22,568,948,129)

$ 21,987,348,190

 

Fidelity Central Funds (cost $888,747,274)

888,747,274

 

Other affiliated issuers (cost $100,097,271)

94,852,277

 

Total Investments (cost $23,557,792,674)

 

$ 22,970,947,741

Foreign currency held at value (cost $5,611,505)

5,611,505

Receivable for investments sold

222,595,626

Receivable for fund shares sold

18,417,793

Dividends receivable

21,310,821

Distributions receivable from Fidelity Central Funds

1,954,326

Receivable for daily variation on futures contracts

53,295

Prepaid expenses

36,522

Other receivables

679,730

Total assets

23,241,607,359

 

 

 

Liabilities

Payable for investments purchased

$ 149,753,159

Payable for fund shares redeemed

24,743,567

Accrued management fee

10,888,809

Distribution fees payable

2,194,612

Other affiliated payables

1,484,990

Other payables and accrued expenses

2,201,865

Collateral on securities loaned, at value

613,225,170

Total liabilities

804,492,172

 

 

 

Net Assets

$ 22,437,115,187

Net Assets consist of:

 

Paid in capital

$ 23,146,628,260

Undistributed net investment income

101,491,283

Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions

(219,970,921)

Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies

(591,033,435)

Net Assets

$ 22,437,115,187

Statement of Assets and Liabilities - continued

 

June 30, 2008 (Unaudited)

 

 

 

Initial Class:
Net Asset Value, offering price and redemption price per share ($10,315,709,821 ÷ 432,382,050 shares)

$ 23.86

 

 

 

Service Class:
Net Asset Value, offering price and redemption price per share ($2,504,077,162 ÷ 105,428,843 shares)

$ 23.75

 

 

 

Service Class 2:
Net Asset Value, offering price and redemption price per share ($9,079,391,798 ÷ 387,334,694 shares)

$ 23.44

 

 

 

Service Class 2R:
Net Asset Value, offering price and redemption price per share ($26,763,394 ÷ 1,146,428 shares)

$ 23.35

 

 

 

Investor Class:
Net Asset Value, offering price and redemption price per share ($511,173,012 ÷ 21,501,991 shares)

$ 23.77

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Statement of Operations

Six months ended June 30, 2008 (Unaudited)

 

 

 

Investment Income

 

 

Dividends

 

$ 175,236,208

Interest

 

339,438

Income from Fidelity Central Funds

 

13,911,382

Total income

 

189,487,028

 

 

 

Expenses

Management fee

$ 64,892,251

Transfer agent fees

7,960,640

Distribution fees

12,680,368

Accounting and security lending fees

943,122

Custodian fees and expenses

490,239

Independent trustees' compensation

50,326

Depreciation in deferred trustee compensation account

(84)

Registration fees

55,601

Audit

52,363

Legal

246,494

Miscellaneous

2,119,715

Total expenses before reductions

89,491,035

Expense reductions

(616,032)

88,875,003

Net investment income (loss)

100,612,025

Realized and Unrealized Gain (Loss)

Net realized gain (loss) on:

Investment securities:

 

 

Unaffiliated issuers

(85,700,511)

Other affiliated issuers

8,733,098

 

Foreign currency transactions

(1,112,291)

Futures contracts

(13,745,470)

Total net realized gain (loss)

 

(91,825,174)

Change in net unrealized appreciation (depreciation) on:

Investment securities

(3,113,540,111)

Assets and liabilities in foreign currencies

(493,026)

Futures contracts

(1,630,228)

Total change in net unrealized appreciation (depreciation)

 

(3,115,663,365)

Net gain (loss)

(3,207,488,539)

Net increase (decrease) in net assets resulting from operations

$ (3,106,876,514)

Statement of Changes in Net Assets

 

Six months ended June 30, 2008
(Unaudited)

Year ended
December 31,
2007

Increase (Decrease) in Net Assets

 

 

Operations

 

 

Net investment income (loss)

$ 100,612,025

$ 207,930,815

Net realized gain (loss)

(91,825,174)

6,292,852,945

Change in net unrealized appreciation (depreciation)

(3,115,663,365)

(2,807,429,656)

Net increase (decrease) in net assets resulting from operations

(3,106,876,514)

3,693,354,104

Distributions to shareholders from net investment income

(4,553,250)

(205,774,191)

Distributions to shareholders from net realized gain

(591,923,050)

(6,071,525,358)

Total distributions

(596,476,300)

(6,277,299,549)

Share transactions - net increase (decrease)

853,260,098

6,980,890,493

Redemption fees

17,593

16,524

Total increase (decrease) in net assets

(2,850,075,123)

4,396,961,572

 

 

 

Net Assets

Beginning of period

25,287,190,310

20,890,228,738

End of period (including undistributed net investment income of $101,491,283 and undistributed net investment income of $5,432,508, respectively)

$ 22,437,115,187

$ 25,287,190,310

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Initial Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.90

$ 31.47

$ 31.03

$ 26.62

$ 23.13

$ 18.10

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  .12

.34

.27

.18

.08

.07

Net realized and unrealized gain (loss)

  (3.50)

5.17

3.30

4.32

3.49

5.05

Total from investment operations

  (3.38)

5.51

3.57

4.50

3.57

5.12

Distributions from net investment income

  (.01)

(.33)

(.42)

(.08)

(.08)

(.09)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.08)

(3.13)

(.09) J

(.08)

(.09)

Redemption fees added to paid in capital E,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.86

$ 27.90

$ 31.47

$ 31.03

$ 26.62

$ 23.13

Total Return B,C,D

  (12.17)%

17.59%

11.72%

16.94%

15.48%

28.46%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .66% A

.65%

.66%

.66%

.68%

.67%

Expenses net of fee waivers, if any

  .66% A

.65%

.66%

.66%

.68%

.67%

Expenses net of all reductions

  .65% A

.64%

.65%

.64%

.66%

.65%

Net investment income (loss)

  .97% A

1.00%

.85%

.66%

.35%

.34%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 10,315,710

$ 12,371,009

$ 11,595,588

$ 11,099,527

$ 9,127,616

$ 7,665,424

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.09 per share is comprised of distributions from net investment income of $.080 and distributions from net realized gain of $.005 per share.

Financial Highlights - Service Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.80

$ 31.38

$ 30.93

$ 26.53

$ 23.06

$ 18.04

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss)E

  .11

.30

.24

.16

.06

.05

Net realized and unrealized gain (loss)

  (3.50)

5.16

3.28

4.30

3.47

5.04

Total from investment operations

  (3.39)

5.46

3.52

4.46

3.53

5.09

Distributions from net investment income

  (.01)

(.29)

(.36)

(.06)

(.06)

(.07)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.04)

(3.07)

(.06) J

(.06)

(.07)

Redemption fees added to paid in capitalE,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.75

$ 27.80

$ 31.38

$ 30.93

$ 26.53

$ 23.06

Total Return B,C,D

  (12.25)%

17.51%

11.59%

16.85%

15.34%

28.35%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .76% A

.75%

.76%

.76%

.78%

.77%

Expenses net of fee waivers, if any

  .76% A

.75%

.76%

.76%

.78%

.77%

Expenses net of all reductions

  .75% A

.74%

.75%

.74%

.76%

.75%

Net investment income (loss)

  .87% A

.90%

.75%

.56%

.25%

.24%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 2,504,077

$ 3,008,644

$ 2,766,343

$ 2,503,244

$ 2,111,969

$ 1,695,467

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.06 per share is comprised of distributions from net investment income of $.055 and distributions from net realized gain of $.005 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Service Class 2

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.46

$ 31.11

$ 30.69

$ 26.35

$ 22.93

$ 17.95

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  .09

.25

.19

.11

.02

.02

Net realized and unrealized gain (loss)

  (3.45)

5.11

3.26

4.27

3.45

5.02

Total from investment operations

  (3.36)

5.36

3.45

4.38

3.47

5.04

Distributions from net investment income

  (.01)

(.26)

(.32)

(.04)

(.05)

(.06)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.01)

(3.03)

(.04) J

(.05)

(.06)

Redemption fees added to paid in capital E,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.44

$ 27.46

$ 31.11

$ 30.69

$ 26.35

$ 22.93

Total Return B,C,D

  (12.29)%

17.30%

11.43%

16.65%

15.16%

28.20%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of fee waivers, if any

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of all reductions

  .90% A

.89%

.90%

.89%

.91%

.90%

Net investment income (loss)

  .72% A

.75%

.60%

.40%

.10%

.09%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 9,079,392

$ 9,339,663

$ 6,185,595

$ 3,247,909

$ 1,638,617

$ 910,341

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.04 per share is comprised of distributions from net investment income of $.035 and distributions from net realized gain of $.005 per share.

Financial Highlights - Service Class 2R

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 27.35

$ 31.02

$ 30.61

$ 26.29

$ 22.90

$ 17.95

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  .09

.25

.19

.11

.02

.02

Net realized and unrealized gain (loss)

  (3.43)

5.09

3.25

4.27

3.44

5.01

Total from investment operations

  (3.34)

5.34

3.44

4.38

3.46

5.03

Distributions from net investment income

  (.01)

(.26)

(.32)

(.05)

(.07)

(.08)

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

(.01)

-

-

Total distributions

  (.66)

(9.01)

(3.03)

(.06) J

(.07)

(.08)

Redemption fees added to paid in capital E,I

  -

-

-

-

-

-

Net asset value, end of period

$ 23.35

$ 27.35

$ 31.02

$ 30.61

$ 26.29

$ 22.90

Total Return B,C,D

  (12.27)%

17.30%

11.43%

16.67%

15.15%

28.18%

Ratios to Average Net Assets F,H

 

 

 

 

 

 

Expenses before reductions

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of fee waivers, if any

  .91% A

.90%

.91%

.91%

.93%

.93%

Expenses net of all reductions

  .90% A

.89%

.90%

.89%

.91%

.90%

Net investment income (loss)

  .72% A

.75%

.60%

.39%

.10%

.08%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 26,763

$ 35,606

$ 26,707

$ 19,596

$ 7,088

$ 2,705

Portfolio turnover rate G

  160% A

134%

75%

60%

64%

66%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. I Amount represents less than $.01 per share. J Total distributions of $.06 per share is comprised of distributions from net investment income of $.050 and distributions from net realized gain of $.005 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Investor Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005 H

Selected Per-Share Data

 

 

 

 

Net asset value, beginning of period

$ 27.82

$ 31.41

$ 31.00

$ 28.34

Income from Investment Operations

 

 

 

 

Net investment income (loss) E

  .11

.30

.23

.06

Net realized and unrealized gain (loss)

  (3.50)

5.16

3.30

2.60

Total from investment operations

  (3.39)

5.46

3.53

2.66

Distributions from net investment income

  (.01)

(.30)

(.41)

-

Distributions from net realized gain

  (.65)

(8.75)

(2.71)

-

Total distributions

  (.66)

(9.05)

(3.12)

-

Redemption fees added to paid in capital E,J

  -

-

-

-

Net asset value, end of period

$ 23.77

$ 27.82

$ 31.41

$ 31.00

Total Return B,C,D

  (12.24)%

17.47%

11.60%

9.39%

Ratios to Average Net Assets F,I

 

 

 

 

Expenses before reductions

  .75% A

.76%

.78%

.83% A

Expenses net of fee waivers, if any

  .75% A

.76%

.78%

.83% A

Expenses net of all reductions

  .74% A

.75%

.78%

.81% A

Net investment income (loss)

  .88% A

.89%

.73%

.43% A

Supplemental Data

 

 

 

 

Net assets, end of period (000 omitted)

$ 511,173

$ 532,268

$ 315,995

$ 88,673

Portfolio turnover rate G

  160% A

134%

75%

60%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H For the period July 21, 2005 (commencement of sale of shares) to December 31, 2005. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. Expenses net of fee waivers reflect expenses after reimbursement by the investment adviser but prior to reductions from brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class. J Amount represents less than $.01 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Notes to Financial Statements

For the period ended June 30, 2008 (Unaudited)

1. Organization.

VIP Contrafund Portfolio (the Fund) is a fund of Variable Insurance Products Fund II, (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, Service Class 2R shares and Investor Class shares. All classes have equal rights and voting privileges, except for matters affecting a single class. Investment income, realized and unrealized capital gains and losses, the common expenses of the Fund, and certain fund-level expense reductions, if any, are allocated 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 distribution and service plan fees incurred. Certain expense reductions also differ by class.

2. Investments in Fidelity Central Funds.

The Fund may invest in Fidelity Central Funds, which are open-end investment companies available only to other investment companies and accounts managed by Fidelity Management & Research Company (FMR) and its affiliates. The Fund's Schedule of Investments lists each of the Fidelity Central Funds 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.

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 FMR.

A complete unaudited list of holdings for each Fidelity Central Fund is available upon request or at the SEC's web site at www.sec.gov. In addition, the financial statements of the Fidelity Central Funds are available on the SEC's web site 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, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation. Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of the period. Wherever possible, the Fund uses independent pricing services approved by the Board of Trustees to value its investments.

Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Investments in open-end mutual funds, including the Fidelity Central Funds, are valued at their closing net asset value each business day. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.

When current market prices or quotations are not readily available or reliable, valuations may be determined in good faith in accordance with procedures adopted by the Board of Trustees. Factors used in determining value may include significant market or security specific events, changes in interest rates and credit quality, and developments in foreign markets which are monitored by evaluating the performance of ADRs, futures contracts and exchange-traded funds. The frequency with which these procedures are used cannot be predicted and may be utilized to a significant extent. The value of securities used for net asset value (NAV) calculation under these procedures may differ from published prices for the same securities.

Semiannual Report

3. Significant Accounting Policies - continued

Security Valuation - continued

The Fund is subject to the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy under SFAS 157 are described below:

Level 1

Quoted prices in active markets for identical securities.

Level 2

Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

Level 3

Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

Changes in valuation techniques may result in transfers in or out of an investment's assigned level within the hierarchy.

The aggregate value by input level, as of June 30, 2008, for the Fund's investments, as well as a reconciliation of assets for which significant unobservable inputs (Level 3) were used in determining value, is included at the end of the Fund's Schedule of Investments.

Foreign Currency. The Fund uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms.

Foreign-denominated assets, including investment securities, and liabilities are translated into U.S. dollars at the exchange rate at period end. Purchases and sales of investment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.

The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.

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 pm 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 and may include proceeds received from litigation. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The Fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Interest income and distributions from the Fidelity Central Funds are accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.

Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each Fund in the trust. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Deferred Trustee Compensation. Under a Deferred Compensation Plan (the Plan), independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, their annual compensation. Deferred amounts are invested in a cross-section of Fidelity funds, are marked-to-market and remain in the Fund until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting payable to the Trustees are included in the accompanying Statement of Assets and Liabilities.

Income Tax Information and Distributions to Shareholders. Each year, the Fund intends to qualify as a regulated investment company by distributing substantially all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code and filing its U.S. federal tax return. As a result, no provision for income taxes is required. The Fund is subject to the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48). FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service. Foreign taxes are provided for based on the Fund's understanding of the tax rules and rates that exist in the foreign markets in which it invests.

Distributions are 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 generally accepted accounting principles.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

3. Significant Accounting Policies - continued

Income Tax Information and Distributions to Shareholders - continued

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. Temporary book-tax differences will reverse in a subsequent period.

Book-tax differences are primarily due to futures transactions, foreign currency transactions, certain foreign taxes, passive foreign investment companies (PFIC), partnerships, deferred trustees compensation and losses deferred due to wash sales.

The federal tax cost of investments and unrealized appreciation (depreciation) as of period end were as follows:

Unrealized appreciation

$ 2,066,676,984

 

Unrealized depreciation

(2,809,633,003)

 

Net unrealized appreciation (depreciation)

$ (742,956,019)

 

Cost for federal income tax purposes

$ 23,713,903,760

 

Trading (Redemption) Fees. Service Class 2R shares held less than 60 days are subject to a redemption fee equal to 1% of the proceeds of the redeemed shares. All redemption fees, including any estimated redemption fees paid by FMR, are retained by the Fund and accounted for as an addition to paid in capital.

New Accounting Pronouncement. In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161), was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

4. Operating Policies.

Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the Fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The Fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non-government securities. Upon settlement date, collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The Fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.

Futures Contracts. The Fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund's exposure to the underlying instrument, while selling futures tends to decrease a fund's exposure to the underlying instrument or hedge other fund investments. Upon entering into a futures contract, a fund is required to deposit with a clearing broker, no later than the following business day, an amount ("initial margin") equal to a certain percentage of the face value of the contract. The initial margin may be in the form of cash or securities and is transferred to a segregated account on settlement date. Subsequent payments ("variation margin") are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized gains or losses. Realized gains (losses) are recorded upon the expiration or closing of the futures contract. Securities deposited to meet margin requirements are identified in the Schedule of Investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption "Futures Contracts." This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contract's terms.

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.

5. Purchases and Sales of Investments.

Purchases and sales of securities, other than short-term securities, aggregated $18,983,627,920 and $18,305,863,177, respectively.

Semiannual Report

6. Fees and Other Transactions with Affiliates.

Management Fee. FMR 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 .30% of the Fund's average net assets and a group fee rate that averaged .26% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. For the period, the total annualized management fee rate was .56% of the Fund's average net assets.

Distribution and Service Plan. 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 FMR, 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 and Service Class 2R's average net assets.

For the period, each class paid FDC the following amounts, all of which were re-allowed to insurance companies for the distribution of shares and providing shareholder support services:

Service Class

$ 1,343,875

 

Service Class 2

11,299,553

 

Service Class 2R

36,940

 

 

$ 12,680,368

 

Transfer Agent Fees. Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an affiliate of FMR, 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 transfer agent fee, excluding out of pocket expenses, equal to an annual rate of .07% of average net assets. Investor Class pays a monthly asset-based transfer agent fee of .15% of average net assets. Prior to February 1, 2008, Investor Class paid a monthly asset-based transfer agent fee of .18% of average net assets. The total transfer agent fees paid by each class to FIIOC, including out of pocket expenses, were as follows:

Initial Class

$ 3,662,943

 

Service Class

892,177

 

Service Class 2

2,997,382

 

Service Class 2R

9,755

 

Investor Class

398,383

 

 

$ 7,960,640

 

Accounting and Security Lending Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, maintains the Fund's accounting records. The accounting fee is based on the level of average net assets for the 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.

Brokerage Commissions. The Fund placed a portion of its portfolio transactions with brokerage firms which are affiliates of the investment adviser. The commissions paid to these affiliated firms were $247,167 for the period.

7. Committed Line of Credit.

The Fund participates with other funds managed by FMR in a $4.2 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 $23,327 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

8. 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. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Any cash collateral received is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the Fund's Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities. Security lending income is presented in the Statement of Operations as a component of income from Fidelity Central Funds. Net income from lending portfolio securities during the period amounted to $4,939,750.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

9. Expense Reductions.

Many of the brokers with whom FMR places trades on behalf of the Fund provided services to the Fund in addition to trade execution. These services included payments of certain expenses on behalf of the Fund totaling $587,063 for the period. In addition, through arrangements with the Fund's custodian, credits realized as a result of uninvested cash balances were used to reduce the Fund's expenses. During the period, these credits reduced the Fund's custody expenses by $28,969.

10. 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, two otherwise unaffiliated shareholders were the owners of record of 22% of the total outstanding shares of the Fund.

In December 2006, the Independent Trustees, with the assistance of independent counsel, completed an investigation regarding gifts, gratuities and business entertainment provided by certain brokers to certain individuals who were employed on FMR's domestic equity trading desk during the period 2002 to 2004. The Independent Trustees and FMR agreed that, despite the absence of proof that the Fidelity mutual funds experienced diminished execution quality as a result of the improper receipt of gifts and business entertainment, the conduct at issue was serious and was worthy of redress. Accordingly, the Independent Trustees requested, and FMR agreed to make, a payment of $42 million plus accrued interest, which equaled approximately $7.3 million, to certain Fidelity mutual funds.

In March 2008, the Trustees approved a method for allocating this payment among the funds and, in total, FMR paid the fund $1,122,635, which is recorded in the accompanying Statement of Operations.

In a related administrative order dated March 5, 2008, the U.S. Securities and Exchange Commission ("SEC") announced a settlement with FMR and FMR Co., Inc. (an affiliate of FMR) involving the SEC's regulatory rules for investment advisers and the improper receipt of gifts, gratuities and business entertainment. Without admitting or denying the SEC's findings, FMR agreed to pay an $8 million civil penalty to the United States Treasury.

11. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

From net investment income

 

 

Initial Class

$ 2,181,847

$ 111,417,608

Service Class

533,467

24,318,080

Service Class 2

1,735,182

65,476,768

Service Class 2R

5,788

262,843

Investor Class

96,966

4,298,892

Total

$ 4,553,250

$ 205,774,191

From net realized gain

 

 

Initial Class

$ 283,640,043

$ 2,975,569,660

Service Class

69,350,695

726,713,446

Service Class 2

225,574,285

2,234,968,989

Service Class 2R

752,454

8,871,324

Investor Class

12,605,573

125,401,939

Total

$ 591,923,050

$ 6,071,525,358

Semiannual Report

12. Share Transactions.

Transactions for each class of shares were as follows:

 

Shares

Dollars

 

Six months ended June 30,
2008

Year ended
December 31,
2007

Six months ended June 30,
2008

Year ended
December 31,
2007

Initial Class

 

 

 

 

Shares sold

8,372,196

17,478,838

$ 210,215,742

$ 594,284,099

Reinvestment of distributions

11,810,822

109,587,502

285,821,889

3,086,987,268

Shares redeemed

(31,149,170)

(52,177,578)

(779,871,436)

(1,746,106,450)

Net increase (decrease)

(10,966,152)

74,888,762

$ (283,833,805)

$ 1,935,164,917

Service Class

 

 

 

 

Shares sold

4,772,647

6,710,212

$ 119,143,443

$ 225,338,266

Reinvestment of distributions

2,899,758

26,766,756

69,884,162

751,031,526

Shares redeemed

(10,484,030)

(13,390,785)

(260,541,793)

(448,909,951)

Net increase (decrease)

(2,811,625)

20,086,183

$ (71,514,188)

$ 527,459,841

Service Class 2

 

 

 

 

Shares sold

53,689,464

83,177,998

$ 1,321,749,579

$ 2,766,576,376

Reinvestment of distributions

9,550,819

83,070,567

227,309,467

2,300,445,756

Shares redeemed

(15,998,288)

(24,985,477)

(395,413,441)

(841,364,996)

Net increase (decrease)

47,241,995

141,263,088

$ 1,153,645,605

$ 4,225,657,136

Service Class 2R

 

 

 

 

Shares sold

210,267

417,603

$ 5,129,373

$ 14,264,062

Reinvestment of distributions

31,993

331,032

758,242

9,134,167

Shares redeemed

(397,560)

(307,879)

(9,608,948)

(9,961,471)

Net increase (decrease)

(155,300)

440,756

$ (3,721,333)

$ 13,436,758

Investor Class

 

 

 

 

Shares sold

2,403,603

4,942,578

$ 59,922,671

$ 166,133,204

Reinvestment of distributions

526,639

4,625,172

12,702,539

129,700,832

Shares redeemed

(561,147)

(495,596)

(13,941,391)

(16,662,195)

Net increase (decrease)

2,369,095

9,072,154

$ 58,683,819

$ 279,171,841

Semiannual Report

Proxy Voting Results

A special meeting of the fund's shareholders was held on May 14, 2008. The results of votes taken among shareholders on the proposals before them are reported below. Each vote reported represents one dollar of net asset value held on the record date for the meeting.

PROPOSAL 1

To elect a Board of Trustees.A

 

# of
Votes

% of
Votes

James C. Curvey

Affirmative

754,396,118.13

95.721

Withheld

33,724,400.40

4.279

TOTAL

788,120,518.53

100.000

Dennis J. Dirks

Affirmative

755,765,958.75

95.895

Withheld

32,354,559.78

4.105

TOTAL

788,120,518.53

100.000

Edward C. Johnson 3d

Affirmative

753,714,712.60

95.634

Withheld

34,405,805.93

4.366

TOTAL

788,120,518.53

100.000

Alan J. Lacy

Affirmative

755,539,784.95

95.866

Withheld

32,580,733.58

4.134

TOTAL

788,120,518.53

100.000

Ned C. Lautenbach

Affirmative

755,270,925.90

95.832

Withheld

32,849,592.63

4.168

TOTAL

788,120,518.53

100.000

Joseph Mauriello

Affirmative

755,673,213.30

95.883

Withheld

32,447,305.23

4.117

TOTAL

788,120,518.53

100.000

Cornelia M. Small

Affirmative

755,628,126.83

95.877

Withheld

32,492,391.70

4.123

TOTAL

788,120,518.53

100.000

William S. Stavropoulos

Affirmative

754,899,686.63

95.785

Withheld

33,220,831.90

4.215

TOTAL

788,120,518.53

100.000

David M. Thomas

Affirmative

755,655,877.24

95.881

Withheld

32,464,641.29

4.119

TOTAL

788,120,518.53

100.000

Michael E. Wiley

Affirmative

755,513,012.38

95.863

Withheld

32,607,506.15

4.137

TOTAL

788,120,518.53

100.000

PROPOSAL 2

To amend the Declaration of Trust to reduce the required quorum for future shareholder meetings.A

 

# of
Votes

% of
Votes

Affirmative

637,916,630.61

80.942

Against

98,488,476.51

12.496

Abstain

51,715,411.41

6.562

TOTAL

788,120,518.53

100.000

A Denotes trust-wide proposal and voting results.

Semiannual Report

Investment Adviser

Fidelity Management & Research Company
Boston, MA

Investment Sub-Advisers

FMR Co., Inc.

Fidelity Management & Research (U.K.) Inc.

Fidelity Research & Analysis Company

Fidelity Investments Japan Limited

Fidelity International Investment Advisors

Fidelity International Investment Advisors (U.K.) Limited

General Distributor

Fidelity Distributors Corporation
Boston, MA

Transfer and Servicing Agents

Fidelity Investments Institutional Operations Company, Inc.
Boston, MA 

Fidelity Service Company, Inc.
Boston, MA

Custodian

Brown Brothers Harriman & Co.
Boston, MA 

VIPCONR-SANN-0808
1.833452.102

Fidelity® Variable Insurance Products:

Disciplined Small Cap Portfolio

Semiannual Report

June 30, 2008
(2_fidelity_logos) (Registered_Trademark)

Contents

Shareholder Expense Example

<Click Here>

An example of shareholder expenses.

Investment Changes

<Click Here>

A summary of major shifts in the fund's investments over the past six months.

Investments

<Click Here>

A complete list of the fund's investments with their
market values.

Financial Statements

<Click Here>

Statements of assets and liabilities, operations, and
changes in net assets, as well as financial highlights.

Notes

<Click Here>

Notes to the financial statements.

Proxy Voting Results

<Click Here>

 

 

 

 

To view a fund's proxy voting guidelines and proxy voting record for the 12-month period ended June 30, visit http://www.fidelity.com (search for "proxy voting guidelines") or visit the Securities and Exchange Commission's (SEC) web site at http://www.sec.gov. You may also call 1-877-208-0098 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.

Geode is a registered trademark of Geode Capital Management, LLC.

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.

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 http://www.sec.gov. 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 1-800-SEC-0330. 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 http://www.fidelity.com or http://www.advisor.fidelity.com, as applicable.

NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

Shareholder Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2008 to June 30, 2008).

Actual Expenses

The first line of the accompanying table for each class of the Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line for a class of the Fund under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Hypothetical Example for Comparison Purposes

The second line of the accompanying table for each class of the Fund provides information about hypothetical account values and hypothetical expenses based on a Class' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 

Beginning
Account Value
January 1, 2008

Ending
Account Value
June 30, 2008

Expenses Paid
During Period*
January 1, 2008 to June 30, 2008

Initial Class

 

 

 

Actual

$ 1,000.00

$ 902.40

$ 4.73

HypotheticalA

$ 1,000.00

$ 1,019.89

$ 5.02

Service Class

 

 

 

Actual

$ 1,000.00

$ 900.60

$ 5.10

HypotheticalA

$ 1,000.00

$ 1,019.49

$ 5.42

Service Class 2

 

 

 

Actual

$ 1,000.00

$ 900.40

$ 5.91

HypotheticalA

$ 1,000.00

$ 1,018.65

$ 6.27

Investor Class

 

 

 

Actual

$ 1,000.00

$ 901.30

$ 5.11

HypotheticalA

$ 1,000.00

$ 1,019.49

$ 5.42

A 5% return per year before expenses

* Expenses are equal to each Class' annualized expense ratio (shown in the table below); multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

 

Annualized
Expense Ratio

Initial Class

1.00%

Service Class

1.08%

Service Class 2

1.25%

Investor Class

1.08%

Semiannual Report

Investment Changes (Unaudited)

Top Ten Stocks as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

GrafTech International Ltd.

0.6

0.5

Stone Energy Corp.

0.6

0.6

Owens & Minor, Inc.

0.6

0.0

Wabtec Corp.

0.6

0.4

Swift Energy Co.

0.6

0.4

Concho Resources, Inc.

0.6

0.0

Nordic American Tanker
Shipping Ltd.

0.6

0.0

Woodward Governor Co.

0.6

0.5

Atheros Communications, Inc.

0.6

0.0

Callon Petroleum Co.

0.6

0.0

 

6.0

Top Five Market Sectors as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Financials

17.3

17.2

Information Technology

17.2

18.6

Industrials

16.3

13.4

Consumer Discretionary

13.9

14.0

Health Care

12.4

13.4

Asset Allocation (% of fund's net assets)

As of June 30, 2008 *

As of December 31, 2007 **

fid3926

Stocks and
Equity Futures 100.0%

 

fid3926

Stocks and
Equity Futures 99.6%

 

fid3929

Short-Term
Investments and
Net Other Assets 0.0%

 

fid3929

Short-Term
Investments and
Net Other Assets 0.4%

 

* Foreign investments

2.5%

 

** Foreign investments

1.1%

 


fid3956

Semiannual Report

Investments June 30, 2008 (Unaudited)

Showing Percentage of Net Assets

Common Stocks - 98.9%

Shares

Value

CONSUMER DISCRETIONARY - 13.9%

Auto Components - 1.6%

ATC Technology Corp. (a)

5,887

$ 137,049

Cooper Tire & Rubber Co.

4,849

38,016

Drew Industries, Inc. (a)

3,910

62,365

Fuel Systems Solutions, Inc. (a)

1,564

60,214

Lear Corp. (a)

2,155

30,558

Stoneridge, Inc. (a)

8,500

145,010

Superior Industries International, Inc.

2,350

39,668

 

512,880

Diversified Consumer Services - 1.4%

American Public Education, Inc.

1,762

68,788

DeVry, Inc.

1,730

92,763

Jackson Hewitt Tax Service, Inc.

705

8,615

Sotheby's Class A (ltd. vtg.)

3,892

102,632

Stewart Enterprises, Inc. Class A

11,153

80,302

Strayer Education, Inc.

581

121,470

 

474,570

Hotels, Restaurants & Leisure - 2.3%

Bally Technologies, Inc. (a)

4,528

153,046

Bob Evans Farms, Inc.

5,707

163,220

Buffalo Wild Wings, Inc. (a)

3,034

75,334

Chipotle Mexican Grill, Inc. Class A (a)

590

48,746

Denny's Corp. (a)

43,142

122,523

Jack in the Box, Inc. (a)

1,986

44,506

Papa John's International, Inc. (a)

5,410

143,852

Speedway Motorsports, Inc.

593

12,085

 

763,312

Household Durables - 1.0%

American Greetings Corp. Class A

4,030

49,730

Furniture Brands International, Inc.

11,470

153,239

Tupperware Brands Corp.

2,201

75,318

Universal Electronics, Inc. (a)

2,278

47,610

 

325,897

Internet & Catalog Retail - 1.2%

Blue Nile, Inc. (a)

623

26,490

FTD Group, Inc.

4,591

61,198

Netflix, Inc. (a)(d)

5,056

131,810

NutriSystem, Inc.

4,817

68,112

Priceline.com, Inc. (a)

892

102,990

 

390,600

Leisure Equipment & Products - 0.1%

Polaris Industries, Inc.

914

36,907

Media - 1.6%

Belo Corp. Series A

12,677

92,669

Cox Radio, Inc. Class A (a)

5,046

59,543

Interactive Data Corp.

4,661

117,131

Lee Enterprises, Inc. (d)

2,988

11,922

LIN TV Corp. Class A (a)

13,271

79,095

Marvel Entertainment, Inc. (a)

1,338

43,003

 

Shares

Value

Sinclair Broadcast Group, Inc. Class A

11,371

$ 86,420

World Wrestling Entertainment, Inc.
Class A

1,956

30,259

 

520,042

Specialty Retail - 3.2%

Aeropostale, Inc. (a)

5,479

171,657

Christopher & Banks Corp.

2,824

19,203

Dress Barn, Inc. (a)

5,045

67,502

Finish Line, Inc. Class A

11,176

97,231

Genesco, Inc. (a)

5,700

175,959

Gymboree Corp. (a)

2,698

108,109

Jo-Ann Stores, Inc. (a)

3,450

79,454

Midas, Inc. (a)

4,273

57,686

Talbots, Inc. (d)

6,885

79,797

The Buckle, Inc.

1,025

46,873

Wet Seal, Inc. Class A (a)

28,985

138,258

 

1,041,729

Textiles, Apparel & Luxury Goods - 1.5%

Deckers Outdoor Corp. (a)

628

87,418

Fossil, Inc. (a)

2,680

77,908

Lululemon Athletica, Inc. (d)

2,437

70,819

Maidenform Brands, Inc. (a)

4,432

59,832

Perry Ellis International, Inc. (a)

4,985

105,782

Quiksilver, Inc. (a)

11,000

108,020

 

509,779

TOTAL CONSUMER DISCRETIONARY

4,575,716

CONSUMER STAPLES - 3.0%

Food & Staples Retailing - 1.2%

Casey's General Stores, Inc.

5,592

129,567

Longs Drug Stores Corp.

3,179

133,868

Nash-Finch Co.

4,043

138,554

 

401,989

Food Products - 1.2%

Darling International, Inc. (a)

5,134

84,814

Flowers Foods, Inc.

5,485

155,445

Ralcorp Holdings, Inc. (a)(d)

2,890

142,882

TreeHouse Foods, Inc. (a)

902

21,883

 

405,024

Personal Products - 0.6%

Chattem, Inc. (a)

1,644

106,942

Prestige Brands Holdings, Inc. (a)

7,666

81,720

 

188,662

TOTAL CONSUMER STAPLES

995,675

ENERGY - 9.2%

Energy Equipment & Services - 2.6%

Grey Wolf, Inc. (a)

18,864

170,342

Gulfmark Offshore, Inc. (a)

2,314

134,629

IHS, Inc. Class A (a)

712

49,555

Common Stocks - continued

Shares

Value

ENERGY - continued

Energy Equipment & Services - continued

Newpark Resources, Inc. (a)

6,146

$ 48,308

Oil States International, Inc. (a)

1,200

76,128

T-3 Energy Services, Inc. (a)

1,386

110,145

Trico Marine Services, Inc. (a)(d)

3,810

138,760

Willbros Group, Inc. (a)

2,545

111,496

 

839,363

Oil, Gas & Consumable Fuels - 6.6%

Abraxas Petroleum Corp. (a)

5,502

29,766

Alpha Natural Resources, Inc. (a)

667

69,561

Bois d'Arc Energy LLC (a)

5,393

131,104

Callon Petroleum Co. (a)

6,657

182,136

Concho Resources, Inc.

5,192

193,662

Endeavor International Corp. (a)

41,869

90,856

Gasco Energy, Inc. (a)

24,077

99,920

Gran Tierra Energy, Inc. (a)

6,476

51,614

Mariner Energy, Inc. (a)

2,882

106,548

McMoRan Exploration Co. (a)

6,388

175,798

Nordic American Tanker Shipping Ltd.

4,979

193,285

Penn Virginia Corp.

1,640

123,689

Petrohawk Energy Corp. (a)

1,425

65,992

Stone Energy Corp. (a)

3,139

206,891

Swift Energy Co. (a)

2,955

195,207

Teekay Tankers Ltd.

7,000

162,470

Whiting Petroleum Corp. (a)

1,004

106,504

 

2,185,003

TOTAL ENERGY

3,024,366

FINANCIALS - 17.3%

Capital Markets - 2.2%

Apollo Investment Corp.

1,129

16,179

BGC Partners, Inc. Class A (a)

11,784

88,969

Hercules Technology Growth Capital, Inc.

5,945

53,089

Knight Capital Group, Inc. Class A (a)

7,721

138,824

MCG Capital Corp.

2,761

10,989

MVC Capital, Inc.

6,117

83,742

optionsXpress Holdings, Inc.

5,596

125,015

Patriot Capital Funding, Inc.

1,816

11,350

Prospect Capital Corp.

9,281

122,324

Waddell & Reed Financial, Inc. Class A

1,676

58,677

 

709,158

Commercial Banks - 4.4%

City Bank Lynnwood, Washington

576

4,954

Community Bank System, Inc.

5,377

110,874

Community Trust Bancorp, Inc.

441

11,581

First Bancorp, Puerto Rico

8,058

51,088

First Financial Bankshares, Inc.

2,188

100,232

Glacier Bancorp, Inc.

6,474

103,519

Green Bankshares, Inc.

1,133

15,885

 

Shares

Value

Home Bancshares, Inc.

3,707

$ 83,333

MainSource Financial Group, Inc.

1,846

28,613

National Penn Bancshares, Inc.

10,058

133,570

Old Second Bancorp, Inc.

4,540

52,755

Oriental Financial Group, Inc.

8,636

123,149

Pacific Capital Bancorp (d)

6,873

94,710

Renasant Corp.

2,905

42,791

S&T Bancorp, Inc.

4,662

135,478

Sandy Spring Bancorp, Inc.

2,625

43,523

Santander Bancorp

8,098

85,920

Suffolk Bancorp

2,487

73,068

Tompkins Financial Corp.

1,411

52,489

Virginia Commerce Bancorp, Inc. (d)

6,431

33,377

WesBanco, Inc.

4,385

75,203

 

1,456,112

Consumer Finance - 0.3%

Advance America Cash Advance Centers, Inc.

515

2,616

Dollar Financial Corp. (a)

3,243

49,002

EZCORP, Inc. (non-vtg.) Class A (a)

4,085

52,084

 

103,702

Diversified Financial Services - 0.2%

Encore Capital Group, Inc. (a)

7,618

67,267

Insurance - 3.3%

Amerisafe, Inc. (a)

10,033

159,926

Aspen Insurance Holdings Ltd.

2,856

67,602

Assured Guaranty Ltd. (d)

5,203

93,602

Darwin Professional
Underwriters, Inc. (a)

3,854

118,703

FBL Financial Group, Inc. Class A

1,983

39,422

Harleysville Group, Inc.

2,459

83,188

IPC Holdings Ltd.

1,987

52,755

Max Capital Group Ltd.

1,140

24,316

Navigators Group, Inc. (a)

2,312

124,964

Platinum Underwriters Holdings Ltd.

2,294

74,807

RLI Corp.

2,327

115,117

SeaBright Insurance Holdings, Inc. (a)

8,000

115,840

 

1,070,242

Real Estate Investment Trusts - 5.8%

Alexandria Real Estate Equities, Inc.

280

27,255

Ashford Hospitality Trust, Inc.

22,853

105,581

BioMed Realty Trust, Inc.

4,954

121,522

Digital Realty Trust, Inc.

1,196

48,928

Extra Space Storage, Inc.

9,770

150,067

First Industrial Realty Trust, Inc.

1,941

53,319

Highwoods Properties, Inc. (SBI)

4,392

137,997

LaSalle Hotel Properties (SBI)

5,221

131,204

Lexington Corporate Properties Trust

8,043

109,626

Mission West Properties, Inc.

2,117

23,202

National Retail Properties, Inc.

6,398

133,718

Nationwide Health Properties, Inc.

3,217

101,303

NorthStar Realty Finance Corp.

17,683

147,123

Omega Healthcare Investors, Inc.

5,889

98,052

Common Stocks - continued

Shares

Value

FINANCIALS - continued

Real Estate Investment Trusts - continued

Parkway Properties, Inc.

3,391

$ 114,378

Pennsylvania Real Estate Investment
Trust (SBI)

3,210

74,279

PS Business Parks, Inc.

1,285

66,306

Realty Income Corp.

4,414

100,463

Senior Housing Properties Trust (SBI)

638

12,460

Sunstone Hotel Investors, Inc.

9,475

157,285

 

1,914,068

Real Estate Management & Development - 0.2%

Tejon Ranch Co. (a)

1,827

65,882

Thrifts & Mortgage Finance - 0.9%

First Niagara Financial Group, Inc.

6,825

87,770

Flushing Financial Corp.

980

18,571

Ocwen Financial Corp. (a)

22,000

102,300

Provident Financial Services, Inc.

6,863

96,151

 

304,792

TOTAL FINANCIALS

5,691,223

HEALTH CARE - 12.4%

Biotechnology - 2.9%

Alexion Pharmaceuticals, Inc. (a)

339

24,578

Alnylam Pharmaceuticals, Inc. (a)

6,092

162,839

ARIAD Pharmaceuticals, Inc. (a)

16,331

39,194

Avant Immunotherapeutics, Inc. (a)

2,256

32,847

BioMarin Pharmaceutical, Inc. (a)

2,545

73,754

Cubist Pharmaceuticals, Inc. (a)

3,317

59,242

GTx, Inc. (a)(d)

2,373

34,053

Isis Pharmaceuticals, Inc. (a)

7,498

102,198

Martek Biosciences (a)

2,151

72,510

Momenta Pharmaceuticals, Inc. (a)

3,458

42,533

ONYX Pharmaceuticals, Inc. (a)

757

26,949

OSI Pharmaceuticals, Inc. (a)

2,965

122,514

Regeneron Pharmaceuticals, Inc. (a)

3,429

49,515

Seattle Genetics, Inc. (a)

4,613

39,026

Synta Pharmaceuticals Corp. (a)

6,254

38,149

Targacept, Inc. (a)

3,150

22,901

Theravance, Inc. (a)

1,800

21,366

 

964,168

Health Care Equipment & Supplies - 3.2%

CONMED Corp. (a)

2,427

64,437

Cryolife, Inc. (a)

11,080

126,755

Invacare Corp.

5,350

109,354

Inverness Medical Innovations, Inc. (a)

337

11,178

Masimo Corp.

4,163

142,999

Meridian Bioscience, Inc.

3,961

106,630

Merit Medical Systems, Inc. (a)

8,763

128,816

Quidel Corp. (a)

9,021

149,027

 

Shares

Value

Somanetics Corp. (a)

5,703

$ 120,904

Steris Corp.

3,471

99,826

 

1,059,926

Health Care Providers & Services - 3.8%

AMERIGROUP Corp. (a)

1,381

28,725

AMN Healthcare Services, Inc. (a)

9,581

162,111

AmSurg Corp. (a)

2,857

69,568

Apria Healthcare Group, Inc. (a)

2,860

55,455

Centene Corp. (a)

3,412

57,287

Chemed Corp.

2,318

84,862

Hanger Orthopedic Group, Inc. (a)

3,844

63,388

HealthSouth Corp. (a)(d)

7,689

127,868

Magellan Health Services, Inc. (a)

1,215

44,991

Medcath Corp. (a)

1,514

27,222

Molina Healthcare, Inc. (a)

5,357

130,389

Owens & Minor, Inc.

4,506

205,879

PharMerica Corp. (a)

6,481

146,406

RehabCare Group, Inc. (a)

2,526

40,492

 

1,244,643

Life Sciences Tools & Services - 1.1%

Bio-Rad Laboratories, Inc. Class A (a)

478

38,665

Dionex Corp. (a)

1,306

86,679

eResearchTechnology, Inc. (a)

4,920

85,805

Illumina, Inc. (a)

723

62,981

Kendle International, Inc. (a)

790

28,701

Varian, Inc. (a)

1,325

67,655

 

370,486

Pharmaceuticals - 1.4%

Adolor Corp. (a)

7,772

42,591

Medicis Pharmaceutical Corp. Class A

4,189

87,047

Pain Therapeutics, Inc. (a)

7,000

55,300

Perrigo Co.

4,099

130,225

Sciele Pharma, Inc.

3,630

70,241

ViroPharma, Inc. (a)

6,494

71,824

XenoPort, Inc. (a)

200

7,806

 

465,034

TOTAL HEALTH CARE

4,104,257

INDUSTRIALS - 16.3%

Aerospace & Defense - 2.0%

Ceradyne, Inc. (a)

464

15,915

Cubic Corp.

3,968

88,407

Curtiss-Wright Corp.

769

34,405

Esterline Technologies Corp. (a)

3,298

162,459

Hexcel Corp. (a)

4,663

89,996

Teledyne Technologies, Inc. (a)

2,665

130,025

TransDigm Group, Inc. (a)

3,863

129,758

 

650,965

Air Freight & Logistics - 1.0%

Atlas Air Worldwide Holdings, Inc. (a)

2,150

106,339

Common Stocks - continued

Shares

Value

INDUSTRIALS - continued

Air Freight & Logistics - continued

Hub Group, Inc. Class A (a)

3,844

$ 131,196

Pacer International, Inc.

4,439

95,483

 

333,018

Airlines - 0.2%

SkyWest, Inc.

4,677

59,164

Building Products - 0.9%

Gibraltar Industries, Inc.

7,556

120,669

Insteel Industries, Inc.

8,756

160,322

 

280,991

Commercial Services & Supplies - 3.7%

Administaff, Inc.

1,404

39,158

Cenveo, Inc. (a)

13,938

136,174

Comfort Systems USA, Inc.

9,491

127,559

CoStar Group, Inc. (a)

1,784

79,299

Deluxe Corp.

4,754

84,716

Heidrick & Struggles International, Inc.

1,899

52,488

Interface, Inc. Class A

5,655

70,857

Korn/Ferry International (a)

2,264

35,613

MPS Group, Inc. (a)

11,025

117,196

Navigant Consulting, Inc. (a)

8,129

159,003

On Assignment, Inc. (a)

15,650

125,513

Waste Connections, Inc. (a)

761

24,299

Watson Wyatt Worldwide, Inc. Class A

3,243

171,522

 

1,223,397

Construction & Engineering - 1.2%

EMCOR Group, Inc. (a)

5,538

157,999

MasTec, Inc. (a)

7,999

85,269

Perini Corp. (a)

4,663

154,112

 

397,380

Electrical Equipment - 3.0%

Acuity Brands, Inc.

2,190

105,295

Belden, Inc.

2,687

91,036

Brady Corp. Class A

4,626

159,736

Encore Wire Corp.

2,549

54,013

GrafTech International Ltd. (a)

7,898

211,892

II-VI, Inc. (a)

3,493

121,976

Regal-Beloit Corp.

1,680

70,980

Woodward Governor Co.

5,118

182,508

 

997,436

Industrial Conglomerates - 0.2%

Walter Industries, Inc.

716

77,879

Machinery - 3.1%

Actuant Corp. Class A

4,173

130,824

Bucyrus International, Inc. Class A

630

46,003

CIRCOR International, Inc.

3,248

159,120

Columbus McKinnon Corp. (NY Shares) (a)

4,501

108,384

Gorman-Rupp Co.

772

30,756

 

Shares

Value

Graham Corp.

799

$ 59,214

Middleby Corp. (a)(d)

1,360

59,718

Robbins & Myers, Inc.

3,431

171,104

Valmont Industries, Inc.

538

56,108

Wabtec Corp.

4,080

198,370

 

1,019,601

Road & Rail - 0.3%

Arkansas Best Corp.

3,106

113,804

Trading Companies & Distributors - 0.7%

Applied Industrial Technologies, Inc.

3,090

74,685

Beacon Roofing Supply, Inc. (a)

13,018

138,121

 

212,806

TOTAL INDUSTRIALS

5,366,441

INFORMATION TECHNOLOGY - 17.2%

Communications Equipment - 2.5%

3Com Corp. (a)

45,733

96,954

BigBand Networks, Inc. (a)

17,705

83,745

Blue Coat Systems, Inc. (a)

5,741

81,006

Emulex Corp. (a)

10,894

126,915

Foundry Networks, Inc. (a)

6,626

78,319

NETGEAR, Inc. (a)

2,161

29,951

Polycom, Inc. (a)

5,454

132,859

Powerwave Technologies, Inc. (a)

5,108

21,709

Tekelec (a)

9,903

145,673

ViaSat, Inc. (a)

1,100

22,231

 

819,362

Computers & Peripherals - 1.2%

Electronics for Imaging, Inc. (a)

9,423

137,576

Intevac, Inc. (a)

2,045

23,068

Novatel Wireless, Inc. (a)

8,840

98,389

Rackable Systems, Inc. (a)

11,007

147,494

 

406,527

Electronic Equipment & Instruments - 1.7%

Checkpoint Systems, Inc. (a)

6,342

132,421

CTS Corp.

7,618

76,561

FLIR Systems, Inc. (a)

2,051

83,209

Littelfuse, Inc. (a)

846

26,691

Park Electrochemical Corp.

3,538

86,009

Sanmina-SCI Corp. (a)

29,203

37,380

Technitrol, Inc.

3,693

62,744

TTM Technologies, Inc. (a)

5,077

67,067

 

572,082

Internet Software & Services - 2.3%

EarthLink, Inc. (a)

14,961

129,413

Greenfield Online, Inc. (a)

7,211

107,588

InfoSpace, Inc.

11,332

94,396

Interwoven, Inc. (a)

6,635

79,686

j2 Global Communications, Inc. (a)

959

22,057

LoopNet, Inc. (a)(d)

6,758

76,365

NIC, Inc.

2,321

15,852

Common Stocks - continued

Shares

Value

INFORMATION TECHNOLOGY - continued

Internet Software & Services - continued

SonicWALL, Inc. (a)

6,903

$ 44,524

United Online, Inc.

9,913

99,427

ValueClick, Inc. (a)

2,097

31,770

Vignette Corp. (a)

4,944

59,328

 

760,406

IT Services - 0.7%

Global Cash Access Holdings, Inc. (a)

2,730

18,728

Maximus, Inc.

1,836

63,930

SAIC, Inc. (a)

4,381

91,169

Sapient Corp. (a)

7,526

48,317

 

222,144

Semiconductors & Semiconductor Equipment - 4.1%

Advanced Energy Industries, Inc. (a)

2,737

37,497

Amkor Technology, Inc. (a)

16,695

173,795

Atheros Communications, Inc. (a)

6,082

182,460

Cymer, Inc. (a)

1,526

41,019

Lattice Semiconductor Corp. (a)

17,554

54,944

MKS Instruments, Inc. (a)

4,464

97,762

ON Semiconductor Corp. (a)

5,073

46,519

PMC-Sierra, Inc. (a)

4,592

35,129

Silicon Image, Inc. (a)

19,774

143,362

Skyworks Solutions, Inc. (a)

16,011

158,029

TriQuint Semiconductor, Inc. (a)

22,945

139,047

Ultratech, Inc. (a)

846

13,130

Veeco Instruments, Inc. (a)

8,258

132,789

Zoran Corp. (a)

7,629

89,259

 

1,344,741

Software - 4.7%

Ansoft Corp. (a)

2,478

90,199

Ansys, Inc. (a)

2,094

98,669

Aspen Technology, Inc. (a)

9,238

122,865

Bottomline Technologies, Inc. (a)

4,780

46,509

Jack Henry & Associates, Inc.

5,370

116,207

JDA Software Group, Inc. (a)

8,691

157,307

Macrovision Solutions Corp. (a)

3,446

51,552

Manhattan Associates, Inc. (a)

2,763

65,566

MICROS Systems, Inc. (a)

2,394

72,993

MicroStrategy, Inc. Class A (a)

550

35,613

Net 1 UEPS Technologies, Inc. (a)

1,487

36,134

Nuance Communications, Inc. (a)

2,907

45,553

Quest Software, Inc. (a)

2,763

40,920

Secure Computing Corp. (a)

9,473

39,218

Solera Holdings, Inc.

6,355

175,779

SPSS, Inc. (a)

3,570

129,841

Sybase, Inc. (a)

6,085

179,021

TIBCO Software, Inc. (a)

4,073

31,158

 

1,535,104

TOTAL INFORMATION TECHNOLOGY

5,660,366

 

Shares

Value

MATERIALS - 4.9%

Chemicals - 1.9%

CF Industries Holdings, Inc.

415

$ 63,412

H.B. Fuller Co.

7,563

169,714

Hercules, Inc.

5,026

85,090

Innophos Holdings, Inc.

3,443

110,004

Innospec, Inc.

4,442

83,598

Terra Industries, Inc.

2,107

103,980

 

615,798

Containers & Packaging - 1.1%

Aptargroup, Inc.

2,260

94,807

Greif, Inc. Class A

548

35,088

Rock-Tenn Co. Class A

3,045

91,320

Silgan Holdings, Inc.

2,916

147,958

 

369,173

Metals & Mining - 0.8%

Universal Stainless & Alloy
Products, Inc. (a)

3,675

136,122

Worthington Industries, Inc. (d)

7,205

147,703

 

283,825

Paper & Forest Products - 1.1%

Buckeye Technologies, Inc. (a)

12,714

107,560

Glatfelter

11,026

148,961

Mercer International, Inc. (SBI) (a)

13,060

97,689

 

354,210

TOTAL MATERIALS

1,623,006

TELECOMMUNICATION SERVICES - 1.9%

Diversified Telecommunication Services - 1.5%

Cincinnati Bell, Inc. (a)

40,235

160,135

Consolidated Communications
Holdings, Inc.

3,258

48,512

Iowa Telecommunication Services, Inc.

8,642

152,186

NTELOS Holdings Corp.

5,271

133,725

 

494,558

Wireless Telecommunication Services - 0.4%

Syniverse Holdings, Inc. (a)

8,956

145,087

TOTAL TELECOMMUNICATION SERVICES

639,645

UTILITIES - 2.8%

Electric Utilities - 0.9%

Central Vermont Public Service Corp.

1,500

29,055

El Paso Electric Co. (a)

6,126

121,295

Portland General Electric Co.

5,278

118,861

Westar Energy, Inc.

1,931

41,536

 

310,747

Gas Utilities - 1.0%

New Jersey Resources Corp.

1,818

59,358

Northwest Natural Gas Co.

1,998

92,427

Common Stocks - continued

Shares

Value

UTILITIES - continued

Gas Utilities - continued

Southwest Gas Corp.

1,335

$ 39,690

WGL Holdings, Inc.

3,897

135,382

 

326,857

Independent Power Producers & Energy Traders - 0.2%

Black Hills Corp.

1,600

51,296

Multi-Utilities - 0.4%

Aquila, Inc. (a)

12,000

45,240

Avista Corp.

4,057

87,063

 

132,303

Water Utilities - 0.3%

American States Water Co.

2,775

96,959

TOTAL UTILITIES

918,162

TOTAL COMMON STOCKS

(Cost $33,927,020)

32,598,857

Investment Companies - 0.1%

 

 

 

 

iShares Russell 2000 Index ETF
(Cost $44,683)

625

43,144

U.S. Treasury Obligations - 0.1%

 

Principal Amount

 

U.S. Treasury Bills, yield at date of purchase 1.72% 9/25/08 (e)
(Cost $29,877)

$ 30,000

29,876

Money Market Funds - 5.8%

Shares

Value

Fidelity Cash Central Fund, 2.38% (b)

333,992

$ 333,992

Fidelity Securities Lending Cash Central Fund, 2.39% (b)(c)

1,563,571

1,563,571

TOTAL MONEY MARKET FUNDS

(Cost $1,897,563)

1,897,563

TOTAL INVESTMENT PORTFOLIO - 104.9%

(Cost $35,899,143)

34,569,440

NET OTHER ASSETS - (4.9)%

(1,603,239)

NET ASSETS - 100%

$ 32,966,201

Futures Contracts

Expiration Date

Underlying Face Amount at Value

Unrealized Appreciation/
(Depreciation)

Purchased

Equity Index Contracts

5 CME E-mini Russell 2000 Index Contracts

Sept. 2008

$ 345,874

$ (2,685)

The face value of futures purchased as a percentage of net assets - 1.0%

Security Type Abbreviations

ETF

-

Exchange-Traded Fund

Legend

(a) Non-income producing

(b) Affiliated fund that is 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.

(c) Investment made with cash collateral received from securities on loan.

(d) Security or a portion of the security is on loan at period end.

(e) Security or a portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $29,876.

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

$ 8,391

Fidelity Securities Lending Cash Central Fund

35,531

Total

$ 43,922

Other Information

The following is a summary of the inputs used, as of June 30, 2008, involving the Fund's assets carried at 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 in the table below, please refer to the Security 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

$ 34,569,440

$ 34,539,564

$ 29,876

$ -

Other Financial Instruments*

$ (2,685)

$ (2,685)

$ -

$ -

*Other financial instruments include Futures Contracts.

Income Tax Information

The Fund intends to elect to defer to its fiscal year ending December 31, 2008 approximately $1,049,146 of losses recognized during the period November 1, 2007 to December 31, 2007.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Statements

Statement of Assets and Liabilities

 

June 30, 2008 (Unaudited)

 

 

 

Assets

Investment in securities, at value (including securities loaned of $1,488,074) - See accompanying schedule:

Unaffiliated issuers (cost $34,001,580)

$ 32,671,877

 

Fidelity Central Funds (cost $1,897,563)

1,897,563

 

Total Investments (cost $35,899,143)

 

$ 34,569,440

Cash

44,683

Receivable for investments sold

7,747,888

Receivable for fund shares sold

10,850

Dividends receivable

48,833

Distributions receivable from Fidelity Central Funds

5,355

Prepaid expenses

62

Total assets

42,427,111

 

 

 

Liabilities

Payable for investments purchased

$ 7,793,795

Payable for fund shares redeemed

27,655

Accrued management fee

21,814

Distribution fees payable

874

Payable for daily variation on futures contracts

20,875

Other affiliated payables

4,754

Other payables and accrued expenses

27,572

Collateral on securities loaned, at value

1,563,571

Total liabilities

9,460,910

 

 

 

Net Assets

$ 32,966,201

Net Assets consist of:

 

Paid in capital

$ 36,949,959

Undistributed net investment income

78,139

Accumulated undistributed net realized gain (loss) on investments

(2,729,509)

Net unrealized appreciation (depreciation) on investments

(1,332,388)

Net Assets

$ 32,966,201

Statement of Assets and Liabilities - continued

 

June 30, 2008 (Unaudited)

 

 

 

Initial Class:
Net Asset Value, offering price and redemption price per share ($8,040,746 ÷ 798,076 shares)

$ 10.08

 

 

 

Service Class:
Net Asset Value, offering price and redemption price per share ($1,205,519 ÷ 119,776 shares)

$ 10.06

 

 

 

Service Class 2:
Net Asset Value, offering price and redemption price per share ($3,451,637 ÷ 343,735 shares)

$ 10.04

 

 

 

Investor Class:
Net Asset Value, offering price and redemption price per share ($20,268,299 ÷ 2,016,672 shares)

$ 10.05

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Statements - continued

Statement of Operations

Six months ended June 30, 2008 (Unaudited)

 

 

 

Investment Income

 

 

Dividends

 

$ 223,083

Interest

 

747

Income from Fidelity Central Funds (including $35,531 from security lending)

 

43,922

Total income

 

267,752

 

 

 

Expenses

Management fee

$ 128,622

Transfer agent fees

26,213

Distribution fees

5,303

Accounting and security lending fees

7,153

Custodian fees and expenses

5,072

Independent trustees' compensation

79

Audit

21,962

Legal

52

Miscellaneous

3,348

Total expenses before reductions

197,804

Expense reductions

(1,740)

196,064

Net investment income (loss)

71,688

Realized and Unrealized Gain (Loss)

Net realized gain (loss) on:

Investment securities:

 

 

Unaffiliated issuers

(1,465,833)

Futures contracts

(186,527)

Total net realized gain (loss)

 

(1,652,360)

Change in net unrealized appreciation (depreciation) on:

Investment securities

(2,234,203)

Futures contracts

(9,062)

Total change in net unrealized appreciation (depreciation)

 

(2,243,265)

Net gain (loss)

(3,895,625)

Net increase (decrease) in net assets resulting from operations

$ (3,823,937)

Statement of Changes in Net Assets

 

Six months ended June 30, 2008
(Unaudited)

Year ended
December 31, 2007

Increase (Decrease) in Net Assets

 

 

Operations

 

 

Net investment income (loss)

$ 71,688

$ 145,706

Net realized gain (loss)

(1,652,360)

(882,461)

Change in net unrealized appreciation (depreciation)

(2,243,265)

(809,151)

Net increase (decrease) in net assets resulting from operations

(3,823,937)

(1,545,906)

Distributions to shareholders from net investment income

-

(178,882)

Distributions to shareholders from net realized gain

-

(211,153)

Total distributions

-

(390,035)

Share transactions - net increase (decrease)

(2,304,049)

16,167,023

Total increase (decrease) in net assets

(6,127,986)

14,231,082

 

 

 

Net Assets

Beginning of period

39,094,187

24,863,105

End of period (including undistributed net investment income of $78,139 and undistributed net investment income of $6,451, respectively)

$ 32,966,201

$ 39,094,187

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Initial Class

 

Six months ended
June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005 H

Selected Per-Share Data

 

 

 

 

Net asset value, beginning of period

$ 11.17

$ 11.56

$ 9.94

$ 10.00

Income from Investment Operations

 

 

 

 

Net investment income (loss) E

  .02

.05

.04

- J

Net realized and unrealized gain (loss)

  (1.11)

(.32)

1.60

(.06)

Total from investment operations

  (1.09)

(.27)

1.64

(.06)

Distributions from net investment income

  -

(.06)

(.02)

-

Distributions from net realized gain

  -

(.07)

-

-

Total distributions

  -

(.12) K

(.02)

-

Net asset value, end of period

$ 10.08

$ 11.17

$ 11.56

$ 9.94

Total Return B, C, D

  (9.76)%

(2.33)%

16.51%

(.60)%

Ratios to Average Net Assets F, I

 

 

 

 

Expenses before reductions

  1.02% A

1.01%

1.30%

42.86% A

Expenses net of fee waivers, if any

  1.00% A

1.00%

1.00%

1.00% A

Expenses net of all reductions

  1.00% A

1.00%

.98%

1.00% A

Net investment income (loss)

  .47% A

.45%

.34%

2.50% A

Supplemental Data

 

 

 

 

Net assets, end of period (000 omitted)

$ 8,041

$ 11,668

$ 10,119

$ 1,242

Portfolio turnover rate G

  111% A

113%

47%

0%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H For the period December 27, 2005 (commencement of operations) to December 31, 2005. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. 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. J Amount represents less than $.01 per share. K Total distributions of $.12 per share is comprised of distributions from net investment income of $.059 and distributions from net realized gain of $.065 per share.

Financial Highlights - Service Class

 

Six months ended
June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005 H

Selected Per-Share Data

 

 

 

 

Net asset value, beginning of period

$ 11.17

$ 11.56

$ 9.94

$ 10.00

Income from Investment Operations

 

 

 

 

Net investment income (loss) E

  .02

.04

.03

- J

Net realized and unrealized gain (loss)

  (1.13)

(.31)

1.60

(.06)

Total from investment operations

  (1.11)

(.27)

1.63

(.06)

Distributions from net investment income

  -

(.05)

(.01)

-

Distributions from net realized gain

  -

(.07)

-

-

Total distributions

  -

(.12) K

(.01)

-

Net asset value, end of period

$ 10.06

$ 11.17

$ 11.56

$ 9.94

Total Return B, C, D

  (9.94)%

(2.40)%

16.40%

(.60)%

Ratios to Average Net Assets F, I

 

 

 

 

Expenses before reductions

  1.08% A

1.09%

1.54%

42.96% A

Expenses net of fee waivers, if any

  1.08% A

1.09%

1.10%

1.10% A

Expenses net of all reductions

  1.08% A

1.08%

1.08%

1.10% A

Net investment income (loss)

  .39% A

.37%

.24%

2.40% A

Supplemental Data

 

 

 

 

Net assets, end of period (000 omitted)

$ 1,206

$ 1,411

$ 1,446

$ 1,242

Portfolio turnover rate G

  111% A

113%

47%

0%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H For the period December 27, 2005 (commencement of operations) to December 31, 2005. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. 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. J Amount represents less than $.01 per share. K Total distributions of $.12 per share is comprised of distributions from net investment income of $.051 and distributions from net realized gain of $.065 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Service Class 2

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005 H

Selected Per-Share Data

 

 

 

 

Net asset value, beginning of period

$ 11.15

$ 11.55

$ 9.94

$ 10.00

Income from Investment Operations

 

 

 

 

Net investment income (loss) E

  .01

.02

.01

- J

Net realized and unrealized gain (loss)

  (1.12)

(.32)

1.61

(.06)

Total from investment operations

  (1.11)

(.30)

1.62

(.06)

Distributions from net investment income

  -

(.04)

(.01)

-

Distributions from net realized gain

  -

(.07)

-

-

Total distributions

  -

(.10) K

(.01)

-

Net asset value, end of period

$ 10.04

$ 11.15

$ 11.55

$ 9.94

Total Return B, C, D

  (9.96)%

(2.60)%

16.25%

(.60)%

Ratios to Average Net Assets F, I

 

 

 

 

Expenses before reductions

  1.29% A

1.24%

1.69%

43.12% A

Expenses net of fee waivers, if any

  1.25% A

1.24%

1.25%

1.25% A

Expenses net of all reductions

  1.25% A

1.24%

1.23%

1.25% A

Net investment income (loss)

  .22% A

.21%

.09%

2.25% A

Supplemental Data

 

 

 

 

Net assets, end of period (000 omitted)

$ 3,452

$ 4,143

$ 1,444

$ 1,242

Portfolio turnover rate G

  111% A

113%

47%

0%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H For the period December 27, 2005 (commencement of operations) to December 31, 2005. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. 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. J Amount represents less than $.01 per share K Total distributions of $.10 per share is comprised of distributions from net investment income of $.038 and distributions from net realized gain of $.065 per share.

Financial Highlights - Investor Class

 

Six months ended June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005 H

Selected Per-Share Data

 

 

 

 

Net asset value, beginning of period

$ 11.15

$ 11.55

$ 9.94

$ 10.00

Income from Investment Operations

 

 

 

 

Net investment income (loss) E

  .02

.04

.02

- J

Net realized and unrealized gain (loss)

  (1.12)

(.32)

1.61

(.06)

Total from investment operations

  (1.10)

(.28)

1.63

(.06)

Distributions from net investment income

  -

(.05)

(.02)

-

Distributions from net realized gain

  -

(.07)

-

-

Total distributions

  -

(.12) K

(.02)

-

Net asset value, end of period

$ 10.05

$ 11.15

$ 11.55

$ 9.94

Total Return B, C, D

  (9.87)%

(2.50)%

16.40%

(.60)%

Ratios to Average Net Assets F, I

 

 

 

 

Expenses before reductions

  1.08% A

1.10%

1.41%

43.46% A

Expenses net of fee waivers, if any

  1.08% A

1.10%

1.15%

1.15% A

Expenses net of all reductions

  1.08% A

1.10%

1.13%

1.15% A

Net investment income (loss)

  .39% A

.35%

.19%

2.35% A

Supplemental Data

 

 

 

 

Net assets, end of period (000 omitted)

$ 20,268

$ 21,872

$ 11,853

$ 1,242

Portfolio turnover rate G

  111% A

113%

47%

0%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H For the period December 27, 2005 (commencement of operations) to December 31, 2005. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or expense offset arrangements and do not represent the amount paid by the class during periods when reimbursements or reductions occur. Expense ratios before reductions for start-up periods may not be representative of longer-term operating periods. 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. J Amount represents less than $.01 per share. K Total distributions of $.12 per share is comprised of distributions from net investment income of $.05 and distributions from net realized gain of $.065 per share.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Notes to Financial Statements

For the period ended June 30, 2008 (Unaudited)

1. Organization.

VIP Disciplined Small Cap Portfolio (the Fund) is a fund of Variable Insurance Products Fund II (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. Investment income, realized and unrealized capital gains and losses, the common expenses of the Fund, and certain fund-level expense reductions, if any, are allocated 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 also differ by class.

2. Investments in Fidelity Central Funds.

The Fund may invest in Fidelity Central Funds, which are open-end investment companies available only to other investment companies and accounts managed by Fidelity Management & Research Company (FMR) and its affiliates. The Fund's Schedule of Investments lists each of the Fidelity Central Funds 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.

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 FMR.

A complete unaudited list of holdings for each Fidelity Central Fund is available upon request or at the SEC's web site at www.sec.gov. In addition, the financial statements of the Fidelity Central Funds are available on the SEC's web site 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, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation. Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of the period. Wherever possible, the Fund uses independent pricing services approved by the Board of Trustees to value its investments.

Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Investments in open-end mutual funds, including the Fidelity Central Funds, are valued at their closing net asset value each business day. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.

When current market prices or quotations are not readily available or reliable, valuations may be determined in good faith in accordance with procedures adopted by the Board of Trustees. Factors used in determining value may include significant market or security specific events, changes in interest rates and credit quality, and developments in foreign markets which are monitored by evaluating the performance of ADRs, futures contracts and exchange-traded funds. The frequency with which these procedures are used cannot be predicted and may be utilized to a significant extent. The value of securities used for net asset value (NAV) calculation under these procedures may differ from published prices for the same securities.

The Fund is subject to the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy under SFAS 157 are described below:

Level 1

Quoted prices in active markets for identical securities.

Level 2

Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

Level 3

Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

Semiannual Report

3. Significant Accounting Policies - continued

Security Valuation - continued

Changes in valuation techniques may result in transfers in or out of an investment's assigned level within the hierarchy.

The aggregate value by input level, as of June 30, 2008, for the Fund's investments 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 pm 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. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The Fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Interest income and distributions from the Fidelity Central Funds are accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities.

Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each Fund in the trust. 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 by distributing substantially all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code and filing its U.S. federal tax return. As a result, no provision for income taxes is required. The Fund is subject to the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48). FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

Distributions are 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 generally accepted accounting principles.

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. Temporary book-tax differences will reverse in a subsequent period.

Book-tax differences are primarily due to futures transactions, partnerships, losses deferred due to futures, excise tax regulations and losses deferred due to wash sales.

The federal tax cost of investments and unrealized appreciation (depreciation) as of period end were as follows:

Unrealized appreciation

$ 2,795,687

 

Unrealized depreciation

(4,155,786)

 

Net unrealized appreciation (depreciation)

(1,360,099)

 

Cost for federal income tax purposes

$ 35,929,539

 

New Accounting Pronouncement. In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161), was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect derivatives have on financial performance. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

4. Operating Policies.

Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the Fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The Fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non-
government securities. Upon settlement date, collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The Fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

4. Operating Policies - continued

Futures Contracts. The Fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund's exposure to the underlying instrument, while selling futures tends to decrease a fund's exposure to the underlying instrument or hedge other fund investments. Upon entering into a futures contract, a fund is required to deposit with a clearing broker, no later than the following business day, an amount ("initial margin") equal to a certain percentage of the face value of the contract. The initial margin may be in the form of cash or securities and is transferred to a segregated account on settlement date. Subsequent payments ("variation margin") are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized gains or losses. Realized gains (losses) are recorded upon the expiration or closing of the futures contract. Securities deposited to meet margin requirements are identified in the Schedule of Investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption "Futures Contracts." This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contract's terms.

5. Purchases and Sales of Investments.

Purchases and sales of securities, other than short-term securities, aggregated $19,874,675 and $21,036,993, respectively.

6. Fees and Other Transactions with Affiliates.

Management Fee. FMR 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 .45% of the Fund's average net assets and a group fee rate that averaged .26% during the period. The group fee rate is based upon the average net assets of all the mutual funds advised by FMR. The group fee rate decreases as assets under management increase and increases as assets under management decrease. For the period, the total annualized management fee rate was .71% of the Fund's average net assets.

Sub-Adviser. Geode Capital Management, LLC (Geode®), serves as sub-adviser for the Fund. Geode provides discretionary investment advisory services to the Fund and is paid by FMR for providing these services.

Distribution and Service Plan. 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 FMR, 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.

For the period, each class paid FDC the following amounts, all of which were re-allowed to insurance companies for the distribution of shares and providing shareholder support services:

Service Class

$ 654

 

Service Class 2

4,649

 

 

$ 5,303

 

Transfer Agent Fees. Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an affiliate of FMR, 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 transfer agent fee, excluding out of pocket expenses, equal to an annual rate of .07% of average net assets. Investor Class pays a monthly asset-based transfer agent fee of .15% of average net assets. Prior to February 1, 2008, Investor Class paid a monthly asset-based transfer agent fee of .18% of average net assets. The total transfer agent fees paid by each class to FIIOC, including out of pocket expenses, were as follows:

Initial Class

$ 5,019

 

Service Class

431

 

Service Class 2

2,398

 

Investor Class

18,365

 

 

$ 26,213

 

Accounting and Security Lending Fees. Fidelity Service Company, Inc. (FSC), an affiliate of FMR, maintains the Fund's accounting records. The accounting fee is based on the level of average net assets for the 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.

Semiannual Report

7. Committed Line of Credit.

The Fund participates with other funds managed by FMR in a $4.2 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 $38 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

8. 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. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Any cash collateral received is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the Fund's Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities. Security lending income is presented in the Statement of Operations as a component of income from Fidelity Central Funds.

9. Expense Reductions.

FMR voluntarily agreed to reimburse each class to the extent annual operating expenses exceeded certain levels of average net assets as noted in the table below. Some expenses, for example interest expense, including commitment fees, are excluded from this reimbursement.

The following classes were in reimbursement during the period:

 

Expense
Limitations

Reimbursement
from adviser

Initial Class

1.00%

$ 798

Service Class 2

1.25%

790

 

 

$ 1,588

In addition, through arrangements with the Fund's custodian, credits realized as a result of uninvested cash balances were used to reduce the Fund's expenses. During the period, these credits reduced the Fund's custody expenses by $152.

10. 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, FMR or its affiliates were the owners of record of 92% of the total outstanding shares of the Fund.

11. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

From net investment income

 

 

Initial Class

$ -

$ 60,095

Service Class

-

6,389

Service Class 2

-

14,067

Investor Class

-

98,331

Total

$ -

$ 178,882

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

11. Distributions to Shareholders - continued

Distributions to shareholders of each class were as follows:

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

From net realized gain

 

 

Initial Class

$ -

$ 65,982

Service Class

-

8,140

Service Class 2

-

20,385

Investor Class

-

116,646

Total

$ -

$ 211,153

12. Share Transactions.

Transactions for each class of shares were as follows:

 

Shares

Dollars

 

Six months ended June 30,
2008

Year ended
December 31,
2007

Six months
ended June 30, 2008

Year ended
December 31,
2007

Initial Class

 

 

 

 

Shares sold

138,854

754,068

$ 1,438,628

$ 8,951,537

Reinvestment of distributions

-

10,950

-

126,077

Shares redeemed

(385,016)

(595,812)

(3,928,849)

(7,176,328)

Net increase (decrease)

(246,162)

169,206

$ (2,490,221)

$ 1,901,286

Service Class

 

 

 

 

Shares sold

-

-

$ -

$ -

Reinvestment of distributions

-

1,263

-

14,529

Shares redeemed

(6,601)

-

(67,198)

-

Net increase (decrease)

(6,601)

1,263

$ (67,198)

$ 14,529

Service Class 2

 

 

 

 

Shares sold

38,343

355,213

$ 394,648

$ 4,361,030

Reinvestment of distributions

-

3,006

-

34,452

Shares redeemed

(66,165)

(111,722)

(685,819)

(1,349,899)

Net increase (decrease)

(27,822)

246,497

$ (291,171)

$ 3,045,583

Investor Class

 

 

 

 

Shares sold

324,990

1,336,558

$ 3,308,039

$ 15,970,668

Reinvestment of distributions

-

18,739

-

214,977

Shares redeemed

(269,632)

(420,620)

(2,763,498)

(4,980,020)

Net increase (decrease)

55,358

934,677

$ 544,541

$ 11,205,625

Semiannual Report

Proxy Voting Results

A special meeting of the fund's shareholders was held on May 14, 2008. The results of votes taken among shareholders on the proposals before them are reported below. Each vote reported represents one dollar of net asset value held on the record date for the meeting.

PROPOSAL 1

To elect a Board of Trustees.A

 

# of
Votes

% of
Votes

James C. Curvey

Affirmative

754,396,118.13

95.721

Withheld

33,724,400.40

4.279

TOTAL

788,120,518.53

100.000

Dennis J. Dirks

Affirmative

755,765,958.75

95.895

Withheld

32,354,559.78

4.105

TOTAL

788,120,518.53

100.000

Edward C. Johnson 3d

Affirmative

753,714,712.60

95.634

Withheld

34,405,805.93

4.366

TOTAL

788,120,518.53

100.000

Alan J. Lacy

Affirmative

755,539,784.95

95.866

Withheld

32,580,733.58

4.134

TOTAL

788,120,518.53

100.000

Ned C. Lautenbach

Affirmative

755,270,925.90

95.832

Withheld

32,849,592.63

4.168

TOTAL

788,120,518.53

100.000

Joseph Mauriello

Affirmative

755,673,213.30

95.883

Withheld

32,447,305.23

4.117

TOTAL

788,120,518.53

100.000

Cornelia M. Small

Affirmative

755,628,126.83

95.877

Withheld

32,492,391.70

4.123

TOTAL

788,120,518.53

100.000

William S. Stavropoulos

Affirmative

754,899,686.63

95.785

Withheld

33,220,831.90

4.215

TOTAL

788,120,518.53

100.000

David M. Thomas

Affirmative

755,655,877.24

95.881

Withheld

32,464,641.29

4.119

TOTAL

788,120,518.53

100.000

Michael E. Wiley

Affirmative

755,513,012.38

95.863

Withheld

32,607,506.15

4.137

TOTAL

788,120,518.53

100.000

PROPOSAL 2

To amend the Declaration of Trust to reduce the required quorum for future shareholder meetings.A

 

# of
Votes

% of
Votes

Affirmative

637,916,630.61

80.942

Against

98,488,476.51

12.496

Abstain

51,715,411.41

6.562

TOTAL

788,120,518.53

100.000

A Denotes trust-wide proposal and voting results.

Semiannual Report

Investment Adviser

Fidelity Management & Research Company
Boston, MA

Investment Sub-Advisers

Geode Capital Management, LLC

FMR Co., Inc.

General Distributor

Fidelity Distributors Corporation
Boston, MA

Transfer and Service Agents

Fidelity Investments Institutional Operations Company, Inc.
Boston, MA 

Fidelity Service Company, Inc.
Boston, MA 

Custodian

The Northern Trust Company 

VDSC-SANN-0808
1.821007.102

Fidelity® Variable Insurance Products:

Index 500 Portfolio

Semiannual Report

June 30, 2008
(2_fidelity_logos) (Registered_Trademark)

Contents

Shareholder Expense Example

<Click Here>

An example of shareholder expenses.

Investment Changes

<Click Here>

A summary of major shifts in the fund's investments over the past six months.

Investments

<Click Here>

A complete list of the fund's investments with their
market values.

Financial Statements

<Click Here>

Statements of assets and liabilities, operations, and
changes in net assets, as well as financial highlights.

Notes

<Click Here>

Notes to the financial statements.

Proxy Voting Results

<Click Here>

 

To view a fund's proxy voting guidelines and proxy voting record for the 12-month period ended June 30, visit http://www.fidelity.com (search for "proxy voting guidelines") or visit the Securities and Exchange Commission's (SEC) web site at http://www.sec.gov. You may also call 1-877-208-0098 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.

Geode is a registered trademark of Geode Capital Management, LLC.

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.

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 http://www.sec.gov. 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 1-800-SEC-0330. 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 http://www.fidelity.com or http://www.advisor.fidelity.com, as applicable.

NOT FDIC INSURED · MAY LOSE VALUE · NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

Shareholder Expense Example

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, and (2) ongoing costs, including management fees, distribution and/or service (12b-1) fees and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (January 1, 2008 to June 30, 2008).

Actual Expenses

The first line of the accompanying table for each class of the Fund provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000.00 (for example, an $8,600 account value divided by $1,000.00 = 8.6), then multiply the result by the number in the first line for a class of the Fund under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. An annual index fund fee of $10 that is charged once a year may apply for certain accounts with a value of less than $10,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Hypothetical Example for Comparison Purposes

The second line of the accompanying table for each class of the Fund provides information about hypothetical account values and hypothetical expenses based on a Class' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Class' actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. An annual index fund fee of $10 that is charged once a year may apply for certain accounts with a value of less than $10,000. This fee is not included in the table below. If it was, the estimate of expenses you paid during the period would be higher, and your ending account value lower, by this amount. The estimate of expenses does not include any fees or other expenses of any variable annuity or variable life insurance product. If they were, the estimate of expenses you paid during the period would be higher, and your ending account value would be lower. In addition, the Fund, as a shareholder in the underlying Fidelity Central Funds, will indirectly bear its pro rata share of the fees and expenses incurred by the underlying Fidelity Central Funds. These fees and expenses are not included in the Fund's annualized expense ratio used to calculate the expense estimate in the table below.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transaction costs. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds.

 

Beginning
Account Value
January 1, 2008

Ending
Account Value
June 30, 2008

Expenses Paid
During Period*
January 1, 2008 to June 30, 2008

Initial Class

 

 

 

Actual

$ 1,000.00

$ 880.50

$ .47

Hypothetical A

$ 1,000.00

$ 1,024.37

$ .50

Service Class

 

 

 

Actual

$ 1,000.00

$ 880.10

$ .93

Hypothetical A

$ 1,000.00

$ 1,023.87

$ 1.01

Service Class 2

 

 

 

Actual

$ 1,000.00

$ 879.40

$ 1.64

Hypothetical A

$ 1,000.00

$ 1,023.12

$ 1.76

A 5% return per year before expenses

* Expenses are equal to each Class' annualized expense ratio (shown in the table below); multiplied by the average account value over the period, multiplied by 182/366 (to reflect the one-half year period).

 

Annualized
Expense Ratio

Initial Class

.10%

Service Class

.20%

Service Class 2

.35%

Semiannual Report

Investment Changes (Unaudited)

Top Ten Stocks as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Exxon Mobil Corp.

4.0

3.9

General Electric Co.

2.3

2.9

Microsoft Corp.

1.9

2.2

Chevron Corp.

1.8

1.5

AT&T, Inc.

1.7

1.9

Procter & Gamble Co.

1.6

1.7

Johnson & Johnson

1.6

1.5

International Business Machines Corp.

1.4

1.2

Apple, Inc.

1.3

1.3

ConocoPhillips

1.3

1.1

 

18.9

Market Sectors as of June 30, 2008

 

% of fund's
net assets

% of fund's net assets
6 months ago

Information Technology

16.0

16.5

Energy

15.8

12.6

Financials

13.8

17.3

Health Care

11.6

11.8

Industrials

10.8

11.3

Consumer Staples

10.5

10.1

Consumer Discretionary

7.9

8.3

Utilities

3.9

3.5

Materials

3.8

3.3

Telecommunication Services

3.2

3.6

Asset Allocation

To match the Standard & Poor's 500 Index®, the VIP Index 500 portfolio seeks 100% investment exposure to stocks at all times.

Semiannual Report

Investments June 30, 2008 (Unaudited)

Showing Percentage of Net Assets

Common Stocks - 97.3%

Shares

Value

CONSUMER DISCRETIONARY - 7.9%

Auto Components - 0.2%

Johnson Controls, Inc.

128,450

$ 3,683,946

The Goodyear Tire & Rubber Co. (a)

52,072

928,444

 

4,612,390

Automobiles - 0.2%

Ford Motor Co. (a)(d)

485,296

2,334,274

General Motors Corp. (d)

122,548

1,409,302

Harley-Davidson, Inc.

51,204

1,856,657

 

5,600,233

Distributors - 0.1%

Genuine Parts Co.

35,460

1,407,053

Diversified Consumer Services - 0.1%

Apollo Group, Inc. Class A (non-vtg.) (a)

29,868

1,321,958

H&R Block, Inc.

70,429

1,507,181

 

2,829,139

Hotels, Restaurants & Leisure - 1.2%

Carnival Corp. unit

94,542

3,116,104

Darden Restaurants, Inc.

30,314

968,229

International Game Technology

67,015

1,674,035

Marriott International, Inc. Class A

65,047

1,706,833

McDonald's Corp.

245,359

13,794,083

Starbucks Corp. (a)

157,580

2,480,309

Starwood Hotels & Resorts Worldwide, Inc.

40,411

1,619,269

Wendy's International, Inc.

18,972

516,418

Wyndham Worldwide Corp.

38,286

685,702

Yum! Brands, Inc.

102,542

3,598,199

 

30,159,181

Household Durables - 0.4%

Black & Decker Corp.

13,233

761,030

Centex Corp.

26,729

357,367

D.R. Horton, Inc.

59,483

645,391

Fortune Brands, Inc.

33,267

2,076,193

Harman International Industries, Inc.

12,593

521,224

KB Home

16,675

282,308

Leggett & Platt, Inc.

36,003

603,770

Lennar Corp. Class A (d)

30,271

373,544

Newell Rubbermaid, Inc.

59,936

1,006,325

Pulte Homes, Inc.

46,240

445,291

Snap-On, Inc.

12,478

648,981

The Stanley Works

16,967

760,631

Whirlpool Corp.

16,261

1,003,792

 

9,485,847

Internet & Catalog Retail - 0.3%

Amazon.com, Inc. (a)

66,903

4,905,997

Expedia, Inc. (a)

45,232

831,364

IAC/InterActiveCorp (a)

39,224

756,239

 

6,493,600

Leisure Equipment & Products - 0.1%

Eastman Kodak Co. (d)

62,386

900,230

 

Shares

Value

Hasbro, Inc.

30,009

$ 1,071,921

Mattel, Inc.

78,340

1,341,181

 

3,313,332

Media - 2.8%

CBS Corp. Class B

147,411

2,873,040

Clear Channel Communications, Inc.

107,770

3,793,504

Comcast Corp. Class A

640,913

12,158,120

E.W. Scripps Co. Class A (f)

19,429

807,081

Gannett Co., Inc.

49,501

1,072,687

Interpublic Group of Companies, Inc. (a)

102,156

878,542

McGraw-Hill Companies, Inc.

69,548

2,790,266

Meredith Corp. (d)

8,012

226,659

News Corp. Class A

498,493

7,497,335

Omnicom Group, Inc.

69,332

3,111,620

The DIRECTV Group, Inc. (a)

153,776

3,984,336

The New York Times Co. Class A (d)

31,122

478,968

The Walt Disney Co.

412,390

12,866,568

Time Warner, Inc.

774,555

11,463,414

Viacom, Inc. Class B (non-vtg.) (a)

136,968

4,183,003

Washington Post Co. Class B

1,258

738,320

 

68,923,463

Multiline Retail - 0.7%

Big Lots, Inc. (a)

17,669

551,980

Dillard's, Inc. Class A (d)

12,384

143,283

Family Dollar Stores, Inc.

30,238

602,946

JCPenney Co., Inc.

48,062

1,744,170

Kohl's Corp. (a)

66,392

2,658,336

Macy's, Inc.

91,015

1,767,511

Nordstrom, Inc.

38,029

1,152,279

Sears Holdings Corp. (a)(d)

15,145

1,115,581

Target Corp.

168,512

7,834,123

 

17,570,209

Specialty Retail - 1.4%

Abercrombie & Fitch Co. Class A

18,813

1,179,199

AutoNation, Inc. (a)

28,984

290,420

AutoZone, Inc. (a)

9,306

1,126,119

Bed Bath & Beyond, Inc. (a)

56,045

1,574,865

Best Buy Co., Inc.

74,874

2,965,010

Gamestop Corp. Class A (a)

35,003

1,414,121

Gap, Inc.

97,158

1,619,624

Home Depot, Inc.

367,331

8,602,892

Limited Brands, Inc.

64,828

1,092,352

Lowe's Companies, Inc.

316,843

6,574,492

Office Depot, Inc. (a)

59,115

646,718

RadioShack Corp.

28,398

348,443

Sherwin-Williams Co.

21,397

982,764

Staples, Inc.

151,978

3,609,478

Tiffany & Co., Inc.

27,268

1,111,171

TJX Companies, Inc.

91,929

2,893,006

 

36,030,674

Common Stocks - continued

Shares

Value

CONSUMER DISCRETIONARY - continued

Textiles, Apparel & Luxury Goods - 0.4%

Coach, Inc. (a)

73,876

$ 2,133,539

Jones Apparel Group, Inc.

18,744

257,730

Liz Claiborne, Inc. (d)

20,517

290,316

NIKE, Inc. Class B

82,121

4,895,233

Polo Ralph Lauren Corp. Class A

12,481

783,557

VF Corp.

18,897

1,345,088

 

9,705,463

TOTAL CONSUMER DISCRETIONARY

196,130,584

CONSUMER STAPLES - 10.5%

Beverages - 2.4%

Anheuser-Busch Companies, Inc.

154,350

9,588,222

Brown-Forman Corp. Class B (non-vtg.)

18,256

1,379,606

Coca-Cola Enterprises, Inc.

62,269

1,077,254

Constellation Brands, Inc. Class A (sub. vtg.) (a)

42,294

839,959

Molson Coors Brewing Co. Class B

30,293

1,645,819

Pepsi Bottling Group, Inc.

29,304

818,168

PepsiCo, Inc.

343,319

21,831,655

The Coca-Cola Co.

432,397

22,475,996

 

59,656,679

Food & Staples Retailing - 2.7%

Costco Wholesale Corp.

93,781

6,577,799

CVS Caremark Corp.

309,399

12,242,918

Kroger Co.

143,208

4,134,415

Safeway, Inc.

94,808

2,706,768

SUPERVALU, Inc.

45,950

1,419,396

Sysco Corp.

130,012

3,576,630

Wal-Mart Stores, Inc.

503,650

28,305,130

Walgreen Co.

214,391

6,969,851

Whole Foods Market, Inc.

30,349

718,968

 

66,651,875

Food Products - 1.5%

Archer Daniels Midland Co.

139,381

4,704,109

Campbell Soup Co.

46,643

1,560,675

ConAgra Foods, Inc.

105,549

2,034,985

Dean Foods Co. (a)

32,889

645,282

General Mills, Inc.

72,521

4,407,101

H.J. Heinz Co.

68,216

3,264,136

Hershey Co.

36,368

1,192,143

Kellogg Co.

54,939

2,638,171

Kraft Foods, Inc. Class A

328,155

9,336,010

McCormick & Co., Inc. (non-vtg.)

27,748

989,494

Sara Lee Corp.

152,884

1,872,829

Tyson Foods, Inc. Class A

59,184

884,209

Wm. Wrigley Jr. Co.

46,471

3,614,514

 

37,143,658

Household Products - 2.2%

Clorox Co.

29,837

1,557,491

 

Shares

Value

Colgate-Palmolive Co.

109,919

$ 7,595,403

Kimberly-Clark Corp.

90,573

5,414,454

Procter & Gamble Co.

660,839

40,185,620

 

54,752,968

Personal Products - 0.2%

Avon Products, Inc.

92,375

3,327,348

Estee Lauder Companies, Inc. Class A

24,758

1,150,009

 

4,477,357

Tobacco - 1.5%

Altria Group, Inc.

453,332

9,320,506

Lorillard, Inc. (a)

37,647

2,603,667

Philip Morris International, Inc.

456,575

22,550,239

Reynolds American, Inc.

37,076

1,730,337

UST, Inc.

32,000

1,747,520

 

37,952,269

TOTAL CONSUMER STAPLES

260,634,806

ENERGY - 15.8%

Energy Equipment & Services - 3.6%

Baker Hughes, Inc.

66,673

5,823,220

BJ Services Co.

63,611

2,031,735

Cameron International Corp. (a)

46,899

2,595,860

ENSCO International, Inc.

31,244

2,522,641

Halliburton Co.

188,831

10,021,261

Nabors Industries Ltd. (a)(d)

60,937

2,999,929

National Oilwell Varco, Inc. (a)

89,868

7,973,089

Noble Corp.

58,175

3,779,048

Rowan Companies, Inc.

24,375

1,139,531

Schlumberger Ltd. (NY Shares)

258,251

27,743,905

Smith International, Inc.

43,485

3,615,343

Transocean, Inc. (a)

69,022

10,518,263

Weatherford International Ltd. (a)

147,101

7,294,739

 

88,058,564

Oil, Gas & Consumable Fuels - 12.2%

Anadarko Petroleum Corp.

101,328

7,583,388

Apache Corp.

72,207

10,036,773

Cabot Oil & Gas Corp.

21,162

1,433,302

Chesapeake Energy Corp.

104,105

6,866,766

Chevron Corp.

447,716

44,382,087

ConocoPhillips

333,873

31,514,272

CONSOL Energy, Inc.

39,562

4,445,582

Devon Energy Corp.

96,575

11,604,452

El Paso Corp.

152,023

3,304,980

EOG Resources, Inc.

53,747

7,051,606

Exxon Mobil Corp.

1,143,691

100,793,479

Hess Corp.

60,819

7,674,750

Marathon Oil Corp.

153,239

7,948,507

Massey Energy Co.

17,424

1,633,500

Murphy Oil Corp.

41,123

4,032,110

Noble Energy, Inc.

37,277

3,748,575

Occidental Petroleum Corp.

177,652

15,963,809

Common Stocks - continued

Shares

Value

ENERGY - continued

Oil, Gas & Consumable Fuels - continued

Peabody Energy Corp.

58,770

$ 5,174,699

Range Resources Corp.

33,445

2,191,985

Southwestern Energy Co. (a)

74,020

3,524,092

Spectra Energy Corp.

137,008

3,937,610

Sunoco, Inc. (d)

25,294

1,029,213

Tesoro Corp. (d)

29,812

589,383

Valero Energy Corp.

114,398

4,710,910

Williams Companies, Inc.

126,499

5,099,175

XTO Energy, Inc.

110,548

7,573,643

 

303,848,648

TOTAL ENERGY

391,907,212

FINANCIALS - 13.8%

Capital Markets - 2.7%

American Capital Strategies Ltd.

43,919

1,043,955

Ameriprise Financial, Inc.

48,086

1,955,658

Bank of New York Mellon Corp.

247,587

9,366,216

Charles Schwab Corp.

201,008

4,128,704

E*TRADE Financial Corp. (a)(d)

102,398

321,530

Federated Investors, Inc. Class B (non-vtg.)

18,757

645,616

Franklin Resources, Inc.

33,769

3,094,929

Goldman Sachs Group, Inc.

85,328

14,923,867

Janus Capital Group, Inc.

31,714

839,470

Legg Mason, Inc.

30,548

1,330,976

Lehman Brothers Holdings, Inc.

150,794

2,987,229

Merrill Lynch & Co., Inc.

213,282

6,763,172

Morgan Stanley

239,652

8,644,248

Northern Trust Corp.

41,455

2,842,569

State Street Corp.

92,346

5,909,221

T. Rowe Price Group, Inc.

56,214

3,174,405

 

67,971,765

Commercial Banks - 2.2%

BB&T Corp.

118,368

2,695,239

Comerica, Inc.

32,575

834,897

Fifth Third Bancorp

124,414

1,266,535

First Horizon National Corp. (d)

40,431

300,402

Huntington Bancshares, Inc.

79,268

457,376

KeyCorp

105,095

1,153,943

M&T Bank Corp. (d)

16,684

1,176,889

Marshall & Ilsley Corp.

56,104

860,074

National City Corp. (d)

164,576

785,028

PNC Financial Services Group, Inc.

74,861

4,274,563

Regions Financial Corp. (d)

150,396

1,640,820

SunTrust Banks, Inc.

76,205

2,760,145

U.S. Bancorp, Delaware

376,758

10,507,781

Wachovia Corp.

462,730

7,186,197

 

Shares

Value

Wells Fargo & Co.

714,876

$ 16,978,305

Zions Bancorp

23,280

733,087

 

53,611,281

Consumer Finance - 0.6%

American Express Co.

250,746

9,445,602

Capital One Financial Corp.

81,213

3,086,906

Discover Financial Services

103,753

1,366,427

SLM Corp. (a)(d)

101,050

1,955,318

 

15,854,253

Diversified Financial Services - 3.3%

Bank of America Corp.

963,835

23,006,741

CIT Group, Inc.

61,175

416,602

Citigroup, Inc.

1,178,425

19,750,403

CME Group, Inc.

11,800

4,521,642

IntercontinentalExchange, Inc. (a)

15,275

1,741,350

JPMorgan Chase & Co.

747,442

25,644,735

Leucadia National Corp.

38,282

1,796,957

Moody's Corp. (d)

43,963

1,514,086

NYSE Euronext

57,361

2,905,908

 

81,298,424

Insurance - 3.4%

ACE Ltd.

72,060

3,969,785

AFLAC, Inc.

102,890

6,461,492

Allstate Corp.

119,218

5,435,149

American International Group, Inc.

582,003

15,399,799

Aon Corp.

64,661

2,970,526

Assurant, Inc.

20,729

1,367,285

Cincinnati Financial Corp.

35,318

897,077

Genworth Financial, Inc. Class A (non-vtg.)

93,697

1,668,744

Hartford Financial Services Group, Inc.

68,122

4,398,638

Lincoln National Corp.

56,128

2,543,721

Loews Corp. (d)

78,371

3,675,600

Marsh & McLennan Companies, Inc.

110,735

2,940,014

MBIA, Inc. (d)

45,943

201,690

MetLife, Inc.

153,750

8,113,388

Principal Financial Group, Inc.

56,040

2,351,999

Progressive Corp.

146,652

2,745,325

Prudential Financial, Inc.

94,375

5,637,963

SAFECO Corp.

19,462

1,307,068

The Chubb Corp.

79,112

3,877,279

The Travelers Companies, Inc.

130,892

5,680,713

Torchmark Corp.

19,438

1,140,039

Unum Group

74,970

1,533,137

XL Capital Ltd. Class A

38,754

796,782

 

85,113,213

Real Estate Investment Trusts - 1.1%

Apartment Investment & Management Co. Class A

19,425

661,616

AvalonBay Communities, Inc.

16,662

1,485,584

Boston Properties, Inc.

25,910

2,337,600

Developers Diversified Realty Corp.

25,927

899,926

Common Stocks - continued

Shares

Value

FINANCIALS - continued

Real Estate Investment Trusts - continued

Equity Residential (SBI)

58,552

$ 2,240,785

General Growth Properties, Inc.

57,900

2,028,237

HCP, Inc.

50,844

1,617,348

Host Hotels & Resorts, Inc.

113,039

1,542,982

Kimco Realty Corp.

54,916

1,895,700

Plum Creek Timber Co., Inc.

37,038

1,581,893

ProLogis Trust

56,745

3,084,091

Public Storage

26,728

2,159,355

Simon Property Group, Inc.

48,649

4,373,059

Vornado Realty Trust

29,257

2,574,616

 

28,482,792

Real Estate Management & Development - 0.0%

CB Richard Ellis Group, Inc. Class A (a)

37,634

722,573

Thrifts & Mortgage Finance - 0.5%

Countrywide Financial Corp. (d)

126,268

536,639

Fannie Mae (d)

230,379

4,494,694

Freddie Mac

139,987

2,295,787

Hudson City Bancorp, Inc.

112,370

1,874,332

MGIC Investment Corp. (d)

27,071

165,404

Sovereign Bancorp, Inc. (d)

103,702

763,247

Washington Mutual, Inc. (d)

229,190

1,129,907

 

11,260,010

TOTAL FINANCIALS

344,314,311

HEALTH CARE - 11.6%

Biotechnology - 1.4%

Amgen, Inc. (a)

235,656

11,113,537

Biogen Idec, Inc. (a)

63,427

3,544,935

Celgene Corp. (a)

94,346

6,025,879

Genzyme Corp. (a)

57,861

4,167,149

Gilead Sciences, Inc. (a)

199,675

10,572,791

 

35,424,291

Health Care Equipment & Supplies - 2.1%

Baxter International, Inc.

135,800

8,683,052

Becton, Dickinson & Co.

52,830

4,295,079

Boston Scientific Corp. (a)

291,487

3,582,375

C.R. Bard, Inc.

21,489

1,889,958

Covidien Ltd.

108,136

5,178,633

Hospira, Inc. (a)

34,437

1,381,268

Intuitive Surgical, Inc. (a)

8,378

2,257,033

Medtronic, Inc.

243,087

12,579,752

St. Jude Medical, Inc. (a)

73,348

2,998,466

Stryker Corp.

51,699

3,250,833

Varian Medical Systems, Inc. (a)

27,192

1,409,905

Zimmer Holdings, Inc. (a)

50,108

3,409,849

 

50,916,203

Health Care Providers & Services - 1.7%

Aetna, Inc.

104,938

4,253,137

 

Shares

Value

AmerisourceBergen Corp.

34,853

$ 1,393,771

Cardinal Health, Inc.

77,245

3,984,297

CIGNA Corp.

60,784

2,151,146

Coventry Health Care, Inc. (a)

32,829

998,658

Express Scripts, Inc. (a)

54,362

3,409,585

Humana, Inc. (a)

36,627

1,456,656

Laboratory Corp. of America Holdings (a)

24,092

1,677,526

McKesson Corp.

60,019

3,355,662

Medco Health Solutions, Inc. (a)

109,669

5,176,377

Patterson Companies, Inc. (a)(d)

27,998

822,861

Quest Diagnostics, Inc.

34,159

1,655,687

Tenet Healthcare Corp. (a)

103,710

576,628

UnitedHealth Group, Inc.

265,961

6,981,476

WellPoint, Inc. (a)

113,894

5,428,188

 

43,321,655

Health Care Technology - 0.0%

IMS Health, Inc.

39,251

914,548

Life Sciences Tools & Services - 0.4%

Applera Corp. - Applied Biosystems Group

36,508

1,222,288

Millipore Corp. (a)

11,925

809,231

PerkinElmer, Inc.

25,627

713,712

Thermo Fisher Scientific, Inc. (a)

90,524

5,044,903

Waters Corp. (a)

21,668

1,397,586

 

9,187,720

Pharmaceuticals - 6.0%

Abbott Laboratories

334,057

17,694,999

Allergan, Inc.

66,563

3,464,604

Barr Pharmaceuticals, Inc. (a)

23,391

1,054,466

Bristol-Myers Squibb Co.

428,497

8,797,043

Eli Lilly & Co.

214,112

9,883,410

Forest Laboratories, Inc. (a)

65,967

2,291,694

Johnson & Johnson

610,017

39,248,494

King Pharmaceuticals, Inc. (a)

53,382

558,910

Merck & Co., Inc.

464,630

17,511,905

Mylan, Inc. (d)

65,900

795,413

Pfizer, Inc.

1,464,372

25,582,579

Schering-Plough Corp.

350,966

6,910,521

Watson Pharmaceuticals, Inc. (a)

22,607

614,232

Wyeth

288,610

13,841,736

 

148,250,006

TOTAL HEALTH CARE

288,014,423

INDUSTRIALS - 10.8%

Aerospace & Defense - 2.6%

General Dynamics Corp.

86,256

7,262,755

Goodrich Corp.

27,073

1,284,885

Honeywell International, Inc.

160,508

8,070,342

L-3 Communications Holdings, Inc.

26,551

2,412,689

Lockheed Martin Corp.

73,115

7,213,526

Northrop Grumman Corp.

74,041

4,953,343

Common Stocks - continued

Shares

Value

INDUSTRIALS - continued

Aerospace & Defense - continued

Precision Castparts Corp.

30,152

$ 2,905,748

Raytheon Co.

91,562

5,153,109

Rockwell Collins, Inc.

34,794

1,668,720

The Boeing Co.

162,657

10,689,818

United Technologies Corp.

210,656

12,997,475

 

64,612,410

Air Freight & Logistics - 0.9%

C.H. Robinson Worldwide, Inc.

36,942

2,025,899

Expeditors International of Washington, Inc.

46,169

1,985,267

FedEx Corp.

67,115

5,287,991

United Parcel Service, Inc. Class B

220,971

13,583,087

 

22,882,244

Airlines - 0.1%

Southwest Airlines Co.

158,394

2,065,458

Building Products - 0.0%

Masco Corp.

78,292

1,231,533

Commercial Services & Supplies - 0.5%

Allied Waste Industries, Inc. (a)

73,013

921,424

Avery Dennison Corp.

23,048

1,012,499

Cintas Corp.

28,276

749,597

Equifax, Inc.

28,035

942,537

Monster Worldwide, Inc. (a)

26,903

554,471

Pitney Bowes, Inc.

44,931

1,532,147

R.R. Donnelley & Sons Co.

45,954

1,364,374

Robert Half International, Inc.

34,376

823,993

Waste Management, Inc.

106,211

4,005,217

 

11,906,259

Construction & Engineering - 0.2%

Fluor Corp.

19,200

3,572,736

Jacobs Engineering Group, Inc. (a)

26,366

2,127,736

 

5,700,472

Electrical Equipment - 0.5%

Cooper Industries Ltd. Class A

37,666

1,487,807

Emerson Electric Co.

169,003

8,357,198

Rockwell Automation, Inc.

31,764

1,389,040

 

11,234,045

Industrial Conglomerates - 3.0%

3M Co.

152,448

10,608,856

General Electric Co.

2,157,510

57,583,942

Textron, Inc.

53,949

2,585,776

Tyco International Ltd.

104,384

4,179,535

 

74,958,109

Machinery - 1.9%

Caterpillar, Inc.

133,071

9,823,301

Cummins, Inc.

43,966

2,880,652

Danaher Corp.

55,141

4,262,399

Deere & Co.

93,282

6,728,431

Dover Corp.

40,991

1,982,735

 

Shares

Value

Eaton Corp.

35,629

$ 3,027,396

Illinois Tool Works, Inc.

86,001

4,085,908

Ingersoll-Rand Co. Ltd. Class A

68,789

2,574,772

ITT Corp.

39,326

2,490,516

Manitowoc Co., Inc.

28,143

915,492

PACCAR, Inc.

79,039

3,306,201

Pall Corp.

25,948

1,029,617

Parker Hannifin Corp.

36,306

2,589,344

Terex Corp. (a)

21,711

1,115,294

 

46,812,058

Road & Rail - 1.1%

Burlington Northern Santa Fe Corp.

63,463

6,339,319

CSX Corp.

87,641

5,504,731

Norfolk Southern Corp.

81,335

5,097,264

Ryder System, Inc.

12,445

857,212

Union Pacific Corp.

111,853

8,444,902

 

26,243,428

Trading Companies & Distributors - 0.0%

W.W. Grainger, Inc.

14,076

1,151,417

TOTAL INDUSTRIALS

268,797,433

INFORMATION TECHNOLOGY - 16.0%

Communications Equipment - 2.4%

Ciena Corp. (a)

19,515

452,163

Cisco Systems, Inc. (a)

1,278,640

29,741,166

Corning, Inc.

340,898

7,857,699

JDS Uniphase Corp. (a)

49,748

565,137

Juniper Networks, Inc. (a)

113,629

2,520,291

Motorola, Inc.

488,159

3,583,087

QUALCOMM, Inc.

350,376

15,546,183

Tellabs, Inc. (a)

86,024

400,012

 

60,665,738

Computers & Peripherals - 4.6%

Apple, Inc. (a)

190,833

31,953,078

Dell, Inc. (a)

437,448

9,571,362

EMC Corp. (a)

447,468

6,573,305

Hewlett-Packard Co.

533,823

23,600,315

International Business Machines Corp.

297,299

35,238,850

Lexmark International, Inc. Class A (a)

20,607

688,892

NetApp, Inc. (a)

74,358

1,610,594

QLogic Corp. (a)

28,695

418,660

SanDisk Corp. (a)

48,646

909,680

Sun Microsystems, Inc. (a)

169,223

1,841,146

Teradata Corp. (a)

38,898

900,100

 

113,305,982

Electronic Equipment & Instruments - 0.3%

Agilent Technologies, Inc. (a)

77,947

2,770,236

Jabil Circuit, Inc.

45,276

742,979

Molex, Inc.

30,135

735,595

Tyco Electronics Ltd.

103,471

3,706,331

 

7,955,141

Common Stocks - continued

Shares

Value

INFORMATION TECHNOLOGY - continued

Internet Software & Services - 1.7%

Akamai Technologies, Inc. (a)

36,416

$ 1,266,913

eBay, Inc. (a)

239,273

6,539,331

Google, Inc. Class A (sub. vtg.) (a)

50,310

26,484,190

VeriSign, Inc. (a)

42,146

1,593,119

Yahoo!, Inc. (a)

297,809

6,152,734

 

42,036,287

IT Services - 0.9%

Affiliated Computer Services, Inc. Class A (a)

20,864

1,116,015

Automatic Data Processing, Inc.

112,215

4,701,809

Cognizant Technology Solutions Corp. Class A (a)

62,531

2,032,883

Computer Sciences Corp. (a)

32,715

1,532,371

Convergys Corp. (a)

26,746

397,446

Electronic Data Systems Corp.

108,841

2,681,842

Fidelity National Information Services, Inc.

37,167

1,371,834

Fiserv, Inc. (a)

35,485

1,609,954

Paychex, Inc.

69,422

2,171,520

The Western Union Co.

160,172

3,959,452

Total System Services, Inc.

42,899

953,216

Unisys Corp. (a)

77,113

304,596

 

22,832,938

Office Electronics - 0.1%

Xerox Corp.

194,622

2,639,074

Semiconductors & Semiconductor Equipment - 2.5%

Advanced Micro Devices, Inc. (a)(d)

131,302

765,491

Altera Corp.

64,892

1,343,264

Analog Devices, Inc.

62,799

1,995,124

Applied Materials, Inc.

293,396

5,600,930

Broadcom Corp. Class A (a)

96,813

2,642,027

Intel Corp.

1,239,864

26,632,279

KLA-Tencor Corp.

36,811

1,498,576

Linear Technology Corp. (d)

48,024

1,564,142

LSI Corp. (a)(d)

137,980

847,197

MEMC Electronic Materials, Inc. (a)

49,296

3,033,676

Microchip Technology, Inc. (d)

40,035

1,222,669

Micron Technology, Inc. (a)

164,688

988,128

National Semiconductor Corp.

46,720

959,629

Novellus Systems, Inc. (a)(d)

21,615

458,022

NVIDIA Corp. (a)

120,075

2,247,804

Teradyne, Inc. (a)

37,139

411,129

Texas Instruments, Inc.

286,315

8,062,630

Xilinx, Inc.

60,448

1,526,312

 

61,799,029

Software - 3.5%

Adobe Systems, Inc. (a)

115,117

4,534,459

Autodesk, Inc. (a)

48,475

1,638,940

BMC Software, Inc. (a)

41,344

1,488,384

 

Shares

Value

CA, Inc.

84,511

$ 1,951,359

Citrix Systems, Inc. (a)

39,728

1,168,400

Compuware Corp. (a)

56,637

540,317

Electronic Arts, Inc. (a)

68,923

3,062,249

Intuit, Inc. (a)

69,485

1,915,701

Microsoft Corp.

1,733,695

47,693,949

Novell, Inc. (a)

76,597

451,156

Oracle Corp. (a)

858,613

18,030,873

Symantec Corp. (a)

181,850

3,518,798

 

85,994,585

TOTAL INFORMATION TECHNOLOGY

397,228,774

MATERIALS - 3.8%

Chemicals - 2.0%

Air Products & Chemicals, Inc.

45,599

4,507,917

Ashland, Inc.

12,124

584,377

Dow Chemical Co.

201,396

7,030,734

E.I. du Pont de Nemours & Co.

194,964

8,362,006

Eastman Chemical Co.

16,502

1,136,328

Ecolab, Inc.

37,984

1,632,932

Hercules, Inc.

24,484

414,514

International Flavors & Fragrances, Inc.

17,425

680,621

Monsanto Co.

118,785

15,019,175

PPG Industries, Inc.

35,520

2,037,782

Praxair, Inc.

67,777

6,387,304

Rohm & Haas Co.

27,151

1,260,892

Sigma Aldrich Corp.

27,904

1,502,909

 

50,557,491

Construction Materials - 0.1%

Vulcan Materials Co. (d)

23,690

1,416,188

Containers & Packaging - 0.1%

Ball Corp.

21,164

1,010,369

Bemis Co., Inc.

21,570

483,599

Pactiv Corp. (a)

28,309

601,000

Sealed Air Corp.

34,664

658,963

 

2,753,931

Metals & Mining - 1.4%

AK Steel Holding Corp.

24,230

1,671,870

Alcoa, Inc.

176,430

6,284,437

Allegheny Technologies, Inc.

21,884

1,297,284

Freeport-McMoRan Copper & Gold, Inc. Class B

82,951

9,721,028

Newmont Mining Corp.

98,277

5,126,128

Nucor Corp.

67,872

5,068,002

Titanium Metals Corp.

21,160

296,028

United States Steel Corp.

25,480

4,708,194

 

34,172,971

Paper & Forest Products - 0.2%

International Paper Co.

92,562

2,156,695

Common Stocks - continued

Shares

Value

MATERIALS - continued

Paper & Forest Products - continued

MeadWestvaco Corp.

37,604

$ 896,479

Weyerhaeuser Co.

45,728

2,338,530

 

5,391,704

TOTAL MATERIALS

94,292,285

TELECOMMUNICATION SERVICES - 3.2%

Diversified Telecommunication Services - 2.8%

AT&T, Inc.

1,285,970

43,324,329

CenturyTel, Inc.

22,825

812,342

Citizens Communications Co.

70,184

795,887

Embarq Corp.

31,937

1,509,662

Qwest Communications International, Inc.

329,347

1,294,334

Verizon Communications, Inc.

617,038

21,843,145

Windstream Corp.

96,818

1,194,734

 

70,774,433

Wireless Telecommunication Services - 0.4%

American Tower Corp. Class A (a)

85,841

3,626,782

Sprint Nextel Corp.

617,119

5,862,631

 

9,489,413

TOTAL TELECOMMUNICATION SERVICES

80,263,846

UTILITIES - 3.9%

Electric Utilities - 2.3%

Allegheny Energy, Inc.

36,372

1,822,601

American Electric Power Co., Inc.

86,927

3,497,073

Duke Energy Corp.

273,734

4,757,497

Edison International

70,524

3,623,523

Entergy Corp.

41,452

4,994,137

Exelon Corp.

141,996

12,773,960

FirstEnergy Corp.

65,983

5,432,380

FPL Group, Inc.

88,340

5,793,337

Pepco Holdings, Inc.

43,593

1,118,160

Pinnacle West Capital Corp.

21,783

670,263

PPL Corp.

80,746

4,220,593

Progress Energy, Inc.

56,565

2,366,114

Southern Co.

166,068

5,799,095

 

56,868,733

Gas Utilities - 0.1%

Nicor, Inc.

9,770

416,104

Questar Corp.

37,509

2,664,639

 

3,080,743

Independent Power Producers & Energy Traders - 0.3%

AES Corp. (a)

145,418

2,793,480

Constellation Energy Group, Inc.

38,612

3,170,045

Dynegy, Inc. Class A (a)

107,545

919,510

 

6,883,035

 

Shares

Value

Multi-Utilities - 1.2%

Ameren Corp.

45,342

$ 1,914,793

CenterPoint Energy, Inc.

71,055

1,140,433

CMS Energy Corp.

48,764

726,584

Consolidated Edison, Inc.

59,014

2,306,857

Dominion Resources, Inc.

125,111

5,941,521

DTE Energy Co.

35,315

1,498,769

Integrys Energy Group, Inc.

16,543

840,881

NiSource, Inc.

59,354

1,063,624

PG&E Corp.

77,331

3,069,267

Public Service Enterprise Group, Inc.

110,070

5,055,515

Sempra Energy

54,189

3,058,969

TECO Energy, Inc.

45,620

980,374

Xcel Energy, Inc.

93,262

1,871,768

 

29,469,355

TOTAL UTILITIES

96,301,866

TOTAL COMMON STOCKS

(Cost $1,440,143,786)

2,417,885,540

U.S. Treasury Obligations - 0.2%

 

Principal Amount

 

U.S. Treasury Bills, yield at date of purchase 1.78% 9/25/08 (e)
(Cost $4,978,612)

$ 5,000,000

4,979,395

Money Market Funds - 1.4%

Shares

 

Fidelity Cash Central Fund, 2.38% (b)

2,081,518

2,081,518

Fidelity Securities Lending Cash Central Fund, 2.39% (b)(c)

33,577,710

33,577,710

TOTAL MONEY MARKET FUNDS

(Cost $35,659,228)

35,659,228

TOTAL INVESTMENT PORTFOLIO - 98.9%

(Cost $1,480,781,626)

2,458,524,163

NET OTHER ASSETS - 1.1%

27,176,266

NET ASSETS - 100%

$ 2,485,700,429

Futures Contracts

Expiration Date

Underlying Face Amount at Value

Unrealized Appreciation/
(Depreciation)

Purchased

Equity Index Contracts

227 S&P 500 Index Contracts

Sept. 2008

$ 72,702,425

$ (471,180)

 

The face value of futures purchased as a percentage of net assets - 2.9%.

Legend

(a) Non-income producing

(b) Affiliated fund that is 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.

(c) Investment made with cash collateral received from securities on loan.

(d) Security or a portion of the security is on loan at period end.

(e) Security or a portion of the security was pledged to cover margin requirements for futures contracts. At the period end, the value of securities pledged amounted to $4,979,395.

(f) The security is subject to a forward commitment to sell.

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

$ 371,885

Fidelity Securities Lending Cash Central Fund

241,577

Total

$ 613,462

Other Information

The following is a summary of the inputs used, as of June 30, 2008, involving the Fund's assets carried at 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 in the table below, please refer to the Security 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

$ 2,458,524,163

$ 2,453,544,768

$ 4,979,395

$ -

Other Financial Instruments*

$ (471,180)

$ (471,180)

$ -

$ -

* Other financial instruments include Futures Contracts.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Statements

Statement of Assets and Liabilities

 

June 30, 2008 (Unaudited)

 

 

 

Assets

Investment in securities, at value (including securities loaned of $32,244,220) - See accompanying schedule:

Unaffiliated issuers (cost $1,445,122,398)

$ 2,422,864,935

 

Fidelity Central Funds (cost $35,659,228)

35,659,228

 

Total Investments (cost $1,480,781,626)

 

$ 2,458,524,163

Commitment to sell securities on a when-issued basis

(38,375)

Receivable for securities sold on a when-issued basis

39,229

854

Receivable for investments sold

64,157,900

Cash

14,982

Receivable for fund shares sold

991,114

Dividends receivable

3,304,680

Distributions receivable from Fidelity Central Funds

70,600

Receivable for daily variation on futures contracts

61,927

Other receivables

69,147

Total assets

2,527,195,367

 

 

 

Liabilities

Payable for investments purchased

$ 1,671,507

Payable for fund shares redeemed

5,929,226

Accrued management fee

218,021

Distribution fees payable

56,118

Other affiliated payables

278

Other payables and accrued expenses

42,078

Collateral on securities loaned, at value

33,577,710

Total liabilities

41,494,938

 

 

 

Net Assets

$ 2,485,700,429

Net Assets consist of:

 

Paid in capital

$ 1,441,354,608

Undistributed net investment income

26,177,677

Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions

40,895,933

Net unrealized appreciation (depreciation) on investments

977,272,211

Net Assets

$ 2,485,700,429

Statement of Assets and Liabilities - continued

 

June 30, 2008 (Unaudited)

 

 

 

Initial Class:
Net Asset Value, offering price and redemption price per share ($2,214,237,566 ÷ 15,485,555 shares)

$ 142.99

 

 

 

Service Class:
Net Asset Value, offering price and redemption price per share ($33,875,358 ÷ 237,571 shares)

$ 142.59

 

 

 

Service Class 2:
Net Asset Value, offering price and redemption price per share ($237,587,505 ÷ 1,676,405 shares)

$ 141.72

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Statements - continued

Statement of Operations

Six months ended June 30, 2008 (Unaudited)

 

 

 

Investment Income

 

 

Dividends

 

$ 27,218,254

Interest

 

31,001

Income from Fidelity Central Funds

 

613,462

Total income

 

27,862,717

 

 

 

Expenses

Management fee

$ 1,333,766

Distribution fees

332,770

Independent trustees' compensation

5,832

Miscellaneous

2,765

Total expenses before reductions

1,675,133

Expense reductions

(2,634)

1,672,499

Net investment income (loss)

26,190,218

Realized and Unrealized Gain (Loss)

Net realized gain (loss) on:

Investment securities:

 

 

Unaffiliated issuers

48,887,191

Foreign currency transactions

(132)

Futures contracts

(5,690,725)

Total net realized gain (loss)

 

43,196,334

Change in net unrealized appreciation (depreciation) on:

Investment securities

(414,661,551)

Futures contracts

(402,612)

When issued commitments

1,087

 

Total change in net unrealized appreciation (depreciation)

 

(415,063,076)

Net gain (loss)

(371,866,742)

Net increase (decrease) in net assets resulting from operations

$ (345,676,524)

Statement of Changes in Net Assets

 

Six months ended
June 30, 2008
(Unaudited)

Year ended
December 31,
2007

Increase (Decrease) in Net Assets

 

 

Operations

 

 

Net investment income (loss)

$ 26,190,218

$ 56,825,073

Net realized gain (loss)

43,196,334

114,062,453

Change in net unrealized appreciation (depreciation)

(415,063,076)

(3,876,648)

Net increase (decrease) in net assets resulting from operations

(345,676,524)

167,010,878

Distributions to shareholders from net investment income

(175,694)

(108,107,708)

Distributions to shareholders from net realized gain

(26,002,696)

-

Total distributions

(26,178,390)

(108,107,708)

Share transactions - net increase (decrease)

(78,064,546)

(158,666,814)

Total increase (decrease) in net assets

(449,919,460)

(99,763,644)

 

 

 

Net Assets

Beginning of period

2,935,619,889

3,035,383,533

End of period (including undistributed net investment income of $26,177,677 and undistributed net investment income of $163,153, respectively)

$ 2,485,700,429

$ 2,935,619,889

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Initial Class

 

Six months ended
June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 164.03

$ 161.36

$ 141.88

$ 137.76

$ 126.13

$ 99.92

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  1.51

3.11

2.71

2.36

2.18 H

1.63

Net realized and unrealized gain (loss)

  (21.06)

5.59

19.26

4.15

11.10

26.18

Total from investment operations

  (19.55)

8.70

21.97

6.51

13.28

27.81

Distributions from net investment income

  (.01)

(6.03)

(2.49)

(2.39)

(1.65)

(1.60)

Distributions from net realized gain

  (1.48)

-

-

-

-

-

Total distributions

  (1.49)

(6.03)

(2.49)

(2.39)

(1.65)

(1.60)

Net asset value, end of period

$ 142.99

$ 164.03

$ 161.36

$ 141.88

$ 137.76

$ 126.13

Total Return B, C, D

  (11.95)%

5.45%

15.73%

4.82%

10.62%

28.41%

Ratios to Average Net Assets F, I

 

 

 

 

 

 

Expenses before reductions

  .10% A

.10%

.10%

.14%

.35%

.34%

Expenses net of fee waivers, if any

  .10% A

.10%

.10%

.13%

.28%

.28%

Expenses net of all reductions

  .10% A

.10%

.10%

.13%

.28%

.28%

Net investment income (loss)

  1.99% A

1.86%

1.83%

1.73%

1.71%

1.50%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 2,214,238

$ 2,626,891

$ 2,780,085

$ 2,641,527

$ 2,778,226

$ 3,031,540

Portfolio turnover rate G

  4% A

5%

6%

7%

5%

6%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Investment income per share reflects a special dividend which amounted to $.36 per share. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class.

Financial Highlights - Service Class

 

Six months ended
June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 163.66

$ 160.88

$ 141.48

$ 137.41

$ 125.86

$ 99.74

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  1.43

2.93

2.55

2.22

2.05 H

1.54

Net realized and unrealized gain (loss)

  (21.01)

5.58

19.22

4.14

11.07

26.11

Total from investment operations

  (19.58)

8.51

21.77

6.36

13.12

27.65

Distributions from net investment income

  (.01)

(5.73)

(2.37)

(2.29)

(1.57)

(1.53)

Distributions from net realized gain

  (1.48)

-

-

-

-

-

Total distributions

  (1.49)

(5.73)

(2.37)

(2.29)

(1.57)

(1.53)

Net asset value, end of period

$ 142.59

$ 163.66

$ 160.88

$ 141.48

$ 137.41

$ 125.86

Total Return B, C, D

  (11.99)%

5.34%

15.61%

4.71%

10.51%

28.27%

Ratios to Average Net Assets F, I

 

 

 

 

 

 

Expenses before reductions

  .20% A

.20%

.20%

.24%

.47%

.46%

Expenses net of fee waivers, if any

  .20% A

.20%

.20%

.23%

.38%

.38%

Expenses net of all reductions

  .20% A

.20%

.20%

.23%

.38%

.38%

Net investment income (loss)

  1.89% A

1.76%

1.73%

1.63%

1.61%

1.40%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 33,875

$ 38,960

$ 35,953

$ 27,178

$ 23,216

$ 15,404

Portfolio turnover rate G

  4% A

5%

6%

7%

5%

6%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Investment income per share reflects a special dividend which amounted to $.36 per share. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Financial Highlights - Service Class 2

 

Six months ended
June 30, 2008
Years ended December 31,
 
(Unaudited)
2007
2006
2005
2004
2003

Selected Per-Share Data

 

 

 

 

 

 

Net asset value, beginning of period

$ 162.79

$ 159.90

$ 140.68

$ 136.71

$ 125.31

$ 99.29

Income from Investment Operations

 

 

 

 

 

 

Net investment income (loss) E

  1.31

2.67

2.32

2.01

1.85 H

1.37

Net realized and unrealized gain (loss)

  (20.89)

5.54

19.11

4.11

11.01

26.03

Total from investment operations

  (19.58)

8.21

21.43

6.12

12.86

27.40

Distributions from net investment income

  (.01)

(5.32)

(2.21)

(2.15)

(1.46)

(1.38)

Distributions from net realized gain

  (1.48)

-

-

-

-

-

Total distributions

  (1.49)

(5.32)

(2.21)

(2.15)

(1.46)

(1.38)

Net asset value, end of period

$ 141.72

$ 162.79

$ 159.90

$ 140.68

$ 136.71

$ 125.31

Total Return B, C, D

  (12.06)%

5.17%

15.44%

4.55%

10.34%

28.09%

Ratios to Average Net Assets F, I

 

 

 

 

 

 

Expenses before reductions

  .35% A

.35%

.35%

.39%

.61%

.60%

Expenses net of fee waivers, if any

  .35% A

.35%

.35%

.38%

.53%

.53%

Expenses net of all reductions

  .35% A

.35%

.35%

.38%

.53%

.53%

Net investment income (loss)

  1.74% A

1.61%

1.58%

1.48%

1.46%

1.25%

Supplemental Data

 

 

 

 

 

 

Net assets, end of period (000 omitted)

$ 237,588

$ 269,769

$ 219,346

$ 156,295

$ 106,051

$ 64,844

Portfolio turnover rate G

  4% A

5%

6%

7%

5%

6%

A Annualized B Total returns for periods of less than one year are not annualized. C Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown. D Total returns would have been lower had certain expenses not been reduced during the periods shown. E Calculated based on average shares outstanding during the period. F Fees and expenses of the 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. G Amount does not include the portfolio activity of any underlying Fidelity Central Funds. H Investment income per share reflects a special dividend which amounted to $.36 per share. I Expense ratios reflect operating expenses of the class. Expenses before reductions do not reflect amounts reimbursed by the investment adviser or reductions from brokerage service arrangements or other 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 brokerage service arrangements or other expense offset arrangements. Expenses net of all reductions represent the net expenses paid by the class.

See accompanying notes which are an integral part of the financial statements.

Semiannual Report

Notes to Financial Statements

For the period ended June 30, 2008 (Unaudited)

1. Organization.

VIP Index 500 Portfolio (the Fund) is a fund of Variable Insurance Products Fund II (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, and Service Class 2 shares. All classes have equal rights and voting privileges, except for matters affecting a single class. Investment income, realized and unrealized capital gains and losses, the common expenses of the Fund, and certain fund-level expense reductions, if any, are allocated 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 distribution and service plan fees incurred. Certain expense reductions also differ by class.

2. Investments in Fidelity Central Funds.

The Fund may invest in Fidelity Central Funds, which are open-end investment companies available only to other investment companies and accounts managed by Fidelity Management & Research Company (FMR) and its affiliates. The Fund's Schedule of Investments lists each of the Fidelity Central Funds 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.

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 FMR.

A complete unaudited list of holdings for each Fidelity Central Fund is available upon request or at the SEC's web site at www.sec.gov. In addition, the financial statements of the Fidelity Central Funds are available on the SEC's web site 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, which require management to make certain estimates and assumptions at the date of the financial statements. Actual results could differ from those estimates. The following summarizes the significant accounting policies of the Fund:

Security Valuation. Investments are valued as of 4:00 p.m. Eastern time on the last calendar day of the period. Wherever possible, the Fund uses independent pricing services approved by the Board of Trustees to value its investments.

Equity securities, including restricted securities, for which market quotations are readily available, are valued at the last reported sale price or official closing price as reported by an independent pricing service on the primary market or exchange on which they are traded. In the event there were no sales during the day or closing prices are not available, securities are valued at the last quoted bid price. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they are traded. Investments in open-end mutual funds, including the Fidelity Central Funds, are valued at their closing net asset value each business day. Short-term securities with remaining maturities of sixty days or less for which quotations are not readily available are valued at amortized cost, which approximates value.

When current market prices or quotations are not readily available or reliable, valuations may be determined in good faith in accordance with procedures adopted by the Board of Trustees. Factors used in determining value may include significant market or security specific events, changes in interest rates and credit quality, and developments in foreign markets which are monitored by evaluating the performance of ADRs, futures contracts and exchange-traded funds. The frequency with which these procedures are used cannot be predicted and may be utilized to a significant extent. The value of securities used for net asset value (NAV) calculation under these procedures may differ from published prices for the same securities.

The Fund is subject to the provisions of Statement of Financial Accounting Standards No. 157, "Fair Value Measurements" (SFAS 157), effective with the beginning of the Fund's fiscal year. SFAS 157 establishes a hierarchy that prioritizes the inputs to valuation techniques giving the highest priority to readily available unadjusted quoted prices in active markets for identical assets (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements) when market prices are not readily available or reliable. The three levels of the hierarchy under SFAS 157 are described below:

Level 1

Quoted prices in active markets for identical securities.

Level 2

Prices determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

Level 3

Prices determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used. Unobservable inputs reflect the Fund's own assumptions about the factors market participants would use in pricing an investment, and would be based on the best information available.

Changes in valuation techniques may result in transfers in or out of an investment's assigned level within the hierarchy.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

3. Significant Accounting Policies - continued

Security Valuation - continued

The aggregate value by input level, as of June 30, 2008, for the Fund's investments is included at the end of the Fund's Schedule of Investments.

Foreign Currency. The Fund uses foreign currency contracts to facilitate transactions in foreign-denominated securities. Losses from these transactions may arise from changes in the value of the foreign currency or if the counterparties do not perform under the contracts' terms.

Foreign-denominated assets, including investment securities, and liabilities are translated into U.S. dollars at the exchange rate at period end. Purchases and sales of investment securities, income and dividends received and expenses denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.

The effects of exchange rate fluctuations on investments are included with the net realized and unrealized gain (loss) on investment securities. Other foreign currency transactions resulting in realized and unrealized gain (loss) are disclosed separately.

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 and may include proceeds received from litigation. Dividend income is recorded on the ex-dividend date, except for certain dividends from foreign securities where the ex-dividend date may have passed, which are recorded as soon as the Fund is informed of the ex-dividend date. Non-cash dividends included in dividend income, if any, are recorded at the fair market value of the securities received. Distributions received on securities that represent a return of capital or capital gain are recorded as a reduction of cost of investments and/or as a realized gain. The Fund estimates the components of distributions received that may be considered return of capital distributions or capital gain distributions. Interest income and distributions from the Fidelity Central Funds are accrued as earned. Interest income includes coupon interest and amortization of premium and accretion of discount on debt securities. Investment income is recorded net of foreign taxes withheld where recovery of such taxes is uncertain.

Expenses. Most expenses of the trust can be directly attributed to a fund. Expenses which cannot be directly attributed are apportioned among each Fund in the trust. Expense estimates are accrued in the period to which they relate and adjustments are made when actual amounts are known.

Deferred Trustee Compensation. Under a Deferred Compensation Plan (the Plan), independent Trustees must defer receipt of a portion of, and may elect to defer receipt of an additional portion of, their annual compensation. Deferred amounts are invested in a cross-section of Fidelity funds, are marked-to-market and remain in the Fund until distributed in accordance with the Plan. The investment of deferred amounts and the offsetting payable to the Trustees are included in the accompanying Statement of Assets and Liabilities.

Income Tax Information and Distributions to Shareholders. Each year, the Fund intends to qualify as a regulated investment company by distributing substantially all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code and filing its U.S. federal tax return. As a result, no provision for income taxes is required. The Fund is subject to the provisions of FASB Interpretation No. 48, Accounting for Uncertainties in Income Taxes (FIN 48). FIN 48 sets forth a minimum threshold for financial statement recognition of the benefit of a tax position taken or expected to be taken in a tax return. The implementation of FIN 48 did not result in any unrecognized tax benefits in the accompanying financial statements. Each of the Fund's federal tax returns for the prior three fiscal years remains subject to examination by the Internal Revenue Service.

Distributions are 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 generally accepted accounting principles.

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. Temporary book-tax differences will reverse in a subsequent period.

Book-tax differences are primarily due to futures transactions, deferred trustees compensation, capital loss carryforwards and losses deferred due to wash sales.

The federal tax cost of investments and unrealized appreciation (depreciation) as of period end were as follows:

Unrealized appreciation

$ 1,180,927,265

 

Unrealized depreciation

(209,133,470)

 

Net unrealized appreciation (depreciation)

$ 971,793,795

 

Cost for federal income tax purposes

$ 1,486,730,368

 

New Accounting Pronouncement. In March 2008, Statement of Financial Accounting Standards No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS 161), was issued and is effective for fiscal years beginning after November 15, 2008. SFAS 161 requires enhanced disclosures to provide information about the reasons the Fund invests in derivative instruments, the accounting treatment and the effect

Semiannual Report

3. Significant Accounting Policies - continued

New Accounting Pronouncement - continued

derivatives have on financial performance. Management is currently evaluating the impact the adoption of SFAS 161 will have on the Fund's financial statement disclosures.

4. Operating Policies.

Repurchase Agreements. FMR has received an Exemptive Order from the Securities and Exchange Commission (the SEC) which permits the Fund and other affiliated entities of FMR to transfer uninvested cash balances into joint trading accounts which are then invested in repurchase agreements. The Fund may also invest directly with institutions in repurchase agreements. Repurchase agreements are collateralized by government or non-government securities. Upon settlement date, collateral is held in segregated accounts with custodian banks and may be obtained in the event of a default of the counterparty. The Fund monitors, on a daily basis, the value of the collateral to ensure it is at least equal to the principal amount of the repurchase agreement (including accrued interest). In the event of a default by the counterparty, realization of the collateral proceeds could be delayed, during which time the value of the collateral may decline.

Delayed Delivery Transactions and When-Issued Securities. The Fund may purchase or sell securities on a delayed delivery or when-issued basis. Payment and delivery may take place after the customary settlement period for that security. The price of the underlying securities and the date when the securities will be delivered and paid for are fixed at the time the transaction is negotiated. During the time a delayed delivery sell is outstanding, the contract is marked-to-market daily and equivalent deliverable securities are held for the transaction. Losses may arise due to changes in the value of the underlying securities or if the counterparty does not perform under the contract's terms, or if the issuer does not issue the securities due to political, economic, or other factors.

Futures Contracts. The Fund may use futures contracts to manage its exposure to the stock market. Buying futures tends to increase a fund's exposure to the underlying instrument, while selling futures tends to decrease a fund's exposure to the underlying instrument or hedge other fund investments. Upon entering into a futures contract, a fund is required to deposit with a clearing broker, no later than the following business day, an amount ("initial margin") equal to a certain percentage of the face value of the contract. The initial margin may be in the form of cash or securities and is transferred to a segregated account on settlement date. Subsequent payments ("variation margin") are made or received by a fund depending on the daily fluctuations in the value of the futures contract and are accounted for as unrealized gains or losses. Realized gains (losses) are recorded upon the expiration or closing of the futures contract. Securities deposited to meet margin requirements are identified in the Schedule of Investments. Futures contracts involve, to varying degrees, risk of loss in excess of any futures variation margin reflected in the Statement of Assets and Liabilities. The underlying face amount at value of any open futures contracts at period end is shown in the Schedule of Investments under the caption "Futures Contracts." This amount reflects each contract's exposure to the underlying instrument at period end. Losses may arise from changes in the value of the underlying instruments or if the counterparties do not perform under the contract's terms.

5. Purchases and Sales of Investments.

Purchases and sales of securities, other than short-term securities, aggregated $49,904,223 and $151,740,917, respectively.

6. Fees and Other Transactions with Affiliates.

Management Fee. FMR and its affiliates provide the Fund with investment management related services for which the Fund pays a monthly management fee that is based on an annual rate of .10% of the Fund's average net assets. Under the management contract, FMR pays all other fund-level expenses, except the compensation of the independent Trustees and certain other expenses such as interest expense, including commitment fees. In addition, under an expense contract, FMR pays all class-level expenses except distribution and service fees so that total expenses do not exceed .10% of each class' average net assets plus the distribution and service fee applicable to each class, with certain exceptions.

Sub-Adviser. Geode Capital Management, LLC (Geode), serves as sub-adviser for the Fund. Geode provides discretionary investment advisory services to the Fund and is paid by FMR for providing these services.

Distribution and Service Plan. 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 FMR, 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.

Semiannual Report

Notes to Financial Statements (Unaudited) - continued

6. Fees and Other Transactions with Affiliates - continued

Distribution and Service Plan - continued

For the period, each class paid FDC the following amounts, all of which were re-allowed to insurance companies for the distribution of shares and providing shareholder support services:

Service Class

$ 17,921

 

Service Class 2

314,849

 

 

$ 332,770

 

Transfer Agent Fees. Fidelity Investments Institutional Operations Company, Inc. (FIIOC), an affiliate of FMR, is the Fund's transfer, dividend disbursing, and shareholder servicing agent. Under the expense contract, the classes do not pay transfer agent fees.

7. Committed Line of Credit.

The Fund participates with other funds managed by FMR in a $4.2 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 $2,765 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

8. 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. If the borrower defaults on its obligation to return the securities loaned because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities loaned or in gaining access to the collateral. Any cash collateral received is invested in the Fidelity Securities Lending Cash Central Fund. The value of loaned securities and cash collateral at period end are disclosed on the Fund's Statement of Assets and Liabilities. Security lending income represents the income earned on investing cash collateral, less fees and expenses associated with the loan, plus any premium payments that may be received on the loan of certain types of securities. Security lending income is presented in the Statement of Operations as a component of income from Fidelity Central Funds. Net income from lending portfolio securities during the period amounted to $241,577.

9. Expense Reductions.

Through arrangements with the Fund's custodian, credits realized as a result of uninvested cash balances were used to reduce the Fund's expenses. During the period, these credits reduced the Fund's expenses by $2,634.

10. 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, FMR or its affiliates were the owners of record of 33% of the total outstanding shares of the Fund.

11. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

From net investment income

 

 

Initial Class

$ 157,172

$ 98,701,755

Service Class

2,344

1,313,126

Service Class 2

16,178

8,092,827

Total

$ 175,694

$ 108,107,708

Semiannual Report

11. Distributions to Shareholders - continued

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

From net realized gain

 

 

Initial Class

$ 23,261,499

$ -

Service Class

346,810

-

Service Class 2

2,394,387

-

Total

$ 26,002,696

$ -

12. Share Transactions.

Transactions for each class of shares were as follows:

 

Shares

Dollars

 

Six months ended
June 30,
2008

Year ended
December 31,
2007

Six months ended
June 30,
2008

Year ended
December 31,
2007

Initial Class

 

 

 

 

Shares sold

482,381

1,192,701

$ 72,639,130

$ 198,536,108

Reinvestment of distributions

158,792

604,881

23,418,671

98,701,755

Shares redeemed

(1,170,766)

(3,011,503)

(177,195,272)

(505,647,301)

Net increase (decrease)

(529,593)

(1,213,921)

$ (81,137,471)

$ (208,409,438)

Service Class

 

 

 

 

Shares sold

15,456

43,025

$ 2,336,707

$ 7,154,147

Reinvestment of distributions

2,373

8,059

349,154

1,313,126

Shares redeemed

(18,317)

(36,502)

(2,771,867)

(6,053,068)

Net increase (decrease)

(488)

14,582

$ (86,006)

$ 2,414,205

Service Class 2

 

 

 

 

Shares sold

240,277

551,964

$ 35,965,623

$ 91,589,415

Reinvestment of distributions

16,475

49,901

2,410,565

8,092,827

Shares redeemed

(237,477)

(316,540)

(35,217,257)

(52,353,823)

Net increase (decrease)

19,275

285,325

$ 3,158,931

$ 47,328,419

Semiannual Report

Proxy Voting Results

A special meeting of the fund's shareholders was held on May 14, 2008. The results of votes taken among shareholders on the proposals before them are reported below. Each vote reported represents one dollar of net asset value held on the record date for the meeting.

PROPOSAL 1

To elect a Board of Trustees.A

 

# of
Votes

% of
Votes

James C. Curvey

Affirmative

754,396,118.13

95.721

Withheld

33,724,400.40

4.279

TOTAL

788,120,518.53

100.000

Dennis J. Dirks

Affirmative

755,765,958.75

95.895

Withheld

32,354,559.78

4.105

TOTAL

788,120,518.53

100.000

Edward C. Johnson 3d

Affirmative

753,714,712.60

95.634

Withheld

34,405,805.93

4.366

TOTAL

788,120,518.53

100.000

Alan J. Lacy

Affirmative

755,539,784.95

95.866

Withheld

32,580,733.58

4.134

TOTAL

788,120,518.53

100.000

Ned C. Lautenbach

Affirmative

755,270,925.90

95.832

Withheld

32,849,592.63

4.168

TOTAL

788,120,518.53

100.000

Joseph Mauriello

Affirmative

755,673,213.30

95.883

Withheld

32,447,305.23

4.117

TOTAL

788,120,518.53

100.000

Cornelia M. Small

Affirmative

755,628,126.83

95.877

Withheld

32,492,391.70

4.123

TOTAL

788,120,518.53

100.000

William S. Stavropoulos

Affirmative

754,899,686.63

95.785

Withheld

33,220,831.90

4.215

TOTAL

788,120,518.53

100.000

David M. Thomas

Affirmative

755,655,877.24

95.881

Withheld

32,464,641.29

4.119

TOTAL

788,120,518.53

100.000

Michael E. Wiley

Affirmative

755,513,012.38

95.863

Withheld

32,607,506.15

4.137

TOTAL

788,120,518.53

100.000

PROPOSAL 2

To amend the Declaration of Trust to reduce the required quorum for future shareholder meetings.A

 

# of
Votes

% of
Votes

Affirmative

637,916,630.61

80.942

Against

98,488,476.51

12.496

Abstain

51,715,411.41

6.562

TOTAL

788,120,518.53

100.000

A Denotes trust-wide proposal and voting results.

Semiannual Report

Investment Adviser

Fidelity Management & Research Company
Boston, MA

Investment Sub-Advisers

FMR Co., Inc.

Geode Capital Management, LLC

General Distributor

Fidelity Distributors Corporation
Boston, MA

Transfer and Service Agents

Fidelity Investments Institutional Operations Company, Inc.
Boston, MA 

Fidelity Service Company, Inc.
Boston, MA 

Custodian

Mellon Bank, N.A.
Pittsburgh, PA 

VIPIDX-SANN-0808
1.705630.110

Item 2. Code of Ethics

Not applicable.

Item 3. Audit Committee Financial Expert

Not applicable.

Item 4. Principal Accountant Fees and Services

Not applicable.

Item 5. Audit Committee of Listed Registrants

Not applicable.

Item 6. Investments

(a) Not applicable.

(b) Not applicable

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies

Not applicable.

Item 8. Portfolio Managers of Closed-End Management Investment Companies

Not applicable.

Item 9. Purchase of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers

Not applicable.

Item 10. Submission of Matters to a Vote of Security Holders

There were no material changes to the procedures by which shareholders may recommend nominees to the Variable Insurance Products Fund II's Board of Trustees.

Item 11. Controls and Procedures

(a)(i) The President and Treasurer and the Chief Financial Officer have concluded that the Variable Insurance Products Fund II's (the "Trust") disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act) provide reasonable assurances that material information relating to the Trust is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing date of this report.

(a)(ii) There was no change in the Trust's internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Trust's internal control over financial reporting.

Item 12. Exhibits

(a)

(1)

Not applicable.

(a)

(2)

Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.

(a)

(3)

Not applicable.

(b)

 

Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Variable Insurance Products Fund II

By:

/s/ Kenneth B. Robins

 

Kenneth B. Robins

 

President and Treasurer

 

 

Date:

August 25, 2008

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By:

/s/ Kenneth B. Robins

 

Kenneth B. Robins

 

President and Treasurer

 

 

Date:

August 25, 2008

By:

/s/Christine Reynolds

 

Christine Reynolds

 

Chief Financial Officer

 

 

Date:

August 25, 2008