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 811-7205

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

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

Eric D. Roiter, 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:	December 31, 2006

Item 1. Reports to Stockholders

Fidelity® Variable Insurance Products:
Aggressive Growth Portfolio

Annual Report

December 31, 2006

(2_fidelity_logos) (Registered_Trademark)

Performance	<Click Here>	How the fund has done over time.
Management's Discussion	<Click Here>	The manager's review of fund performance, strategy and outlook.
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.
Report of Independent Registered Public Accounting Firm	<Click Here>
Trustees and Officers	<Click Here>
Distributions	<Click Here>
Proxy Voting Results	<Click Here>
Board Approval of Investment Advisory Contracts and Management Fees	<Click Here>

To view a fund's proxy voting guidelines and proxy voting record for the 12-month period ended June 30, visit www.fidelity.com/proxyvotingresults or visit the Securities and Exchange Commission's (SEC) web site at 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 Corp. 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 quarterly holdings report, semiannual report, or annual report on Fidelity's web site at http://www.advisor.fidelity.com.

NOT FDIC INSURED· MAY LOSE VALUE· NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

VIP Aggressive Growth Portfolio

Performance: The Bottom Line

Average annual total return reflects the change in the value of an investment, assuming reinvestment of the class' dividend income and capital gains (the profits earned upon the sale of securities that have grown in value) and assuming a constant rate of performance each year. During periods of reimbursement by Fidelity, a fund's total return will be greater than it would be had the reimbursement not occurred. Performance numbers are net of all underlying fund operating expenses, but do not include any insurance charges imposed by your insurance company's separate account. If performance information included the effect of these additional charges, the total returns would have been lower. How a fund did yesterday is no guarantee of how it will do tomorrow.

Average Annual Total Returns

Periods ended December 31, 2006	Past 1 year	Past 5 years	Life of fund ^A
VIP Aggressive Growth - Initial Class	8.53%	4.45%	0.38%
VIP Aggressive Growth - Service Class ^C	8.42%	4.38%	0.38%
VIP Aggressive Growth - Service Class 2 ^D	8.29%	4.14%	0.09%
VIP Aggressive Growth - Investor Class ^B	8.44%	4.39%	0.33%

^A From December 27, 2000.

^B The initial offering of Investor Class shares took place on July 21, 2005. Returns prior to July 21, 2005 are those of Initial Class. If Investor Class's transfer agent fee had been reflected, returns prior to July 21, 2005 would have been lower.

^C Performance for Service Class shares reflects an asset-based service fee (12b-1 fee).

^D Performance for Service Class 2 shares reflects an asset-based service fee (12b-1 fee).

$10,000 Over Life of Fund

Let's say hypothetically that $10,000 was invested in VIP Aggressive Growth Portfolio - Initial Class on December 27, 2000, when the fund started. The chart shows how the value of your investment would have changed, and also shows how the Russell Midcap® Growth Index performed over the same period.

Annual Report

VIP Aggressive Growth Portfolio

Management's Discussion of Fund Performance

Comments from Steven Calhoun, Portfolio Manager of VIP Aggressive Growth Portfolio

U.S. stock markets registered their fourth consecutive year of positive returns in 2006. Among the highlights were the performances of the Dow Jones Industrial Average^SM - a gauge of 30 mega-cap, blue-chip stocks - and the small-cap-oriented Russell 2000® Index, both of which reached new highs. The efforts of the Federal Reserve Board to contain inflation levels also dominated the investment headlines. In all, the Fed hiked short-term interest rates four times, but held rates steady after its June 29 increase, finally pausing after 17 rate hikes over a two-year period. A slowing residential housing market and moderating oil prices - the latter of which hit a record closing high of $77 per barrel in July before falling sharply - also held economic growth in check. For the year overall, the Standard & Poor's 500^SM Index was up 15.79%, the Dow advanced 19.05%, the Russell 2000 Index gained 18.37% and the NASDAQ Composite® Index rose 10.39%.

During the past year, the fund lagged the 10.66% return of the Russell Midcap® Growth Index. (For specific portfolio performance results, please refer to the performance section of this report.) Stock selection in technology and health care was detrimental. St. Jude Medical, a maker of ICDs (implantable cardiac defibrillators) and the fund's largest holding at period end, was its biggest detractor. Product recalls by rival Guidant dampened demand across the entire ICD market. Our results also were hurt by drug stock Telik, which I sold; Cyberonics, a leader in the market for neurostimulation devices; Merge Technologies, a manufacturer of digital X-ray equipment; and Comverse Technology, a maker of communications hardware and software. Conversely, some of the fund's plays in the diversified financials group performed well. Our positioning in materials - mainly agriculture-related stocks - also helped, as did favorable picks and an underweighting in energy, which - along with consumer discretionary - I trimmed. On the other hand, I added substantially to the fund's technology exposure, including some foreign stocks. Our top contributor was IntercontinentalExchange, an energy futures exchange, which benefited from increasing market share and a technological advantage over its primary rival. I sold the stock to lock in profits. Also helping was a fertilizer stock, Potash Corp. of Saskatchewan, along with Indiabulls Financial Services, an India-based banking and brokerage company. In technology, video game hardware and software provider Nintendo was a standout.

The views expressed above reflect those of the portfolio manager(s) only through the end of the period as stated on the cover of this report and do not necessarily represent the views of Fidelity or any other person in the Fidelity organization. Any such views are subject to change at any time based upon market or other conditions and Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.

Annual Report

VIP Aggressive Growth Portfolio

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 (July 1, 2006 to December 31, 2006).

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.

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.

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 July 1, 2006	Ending Account Value December 31, 2006	Expenses Paid During Period* July 1, 2006 to December 31, 2006
Initial Class
Actual	$ 1,000.00	$ 1,117.30	$ 4.80
Hypothetical ^A	$ 1,000.00	$ 1,020.67	$ 4.58
Service Class
Actual	$ 1,000.00	$ 1,116.10	$ 5.33
Hypothetical ^A	$ 1,000.00	$ 1,020.16	$ 5.09
Service Class 2
Actual	$ 1,000.00	$ 1,115.30	$ 6.13
Hypothetical ^A	$ 1,000.00	$ 1,019.41	$ 5.85
Investor Class
Actual	$ 1,000.00	$ 1,116.40	$ 5.60
Hypothetical ^A	$ 1,000.00	$ 1,019.91	$ 5.35

^A5% return per year before expenses

	Annualized Expense Ratio
Initial Class	.90%
Service Class	1.00%
Service Class 2	1.15%
Investor Class	1.05%

Annual Report

VIP Aggressive Growth Portfolio

Investment Changes

Top Ten Stocks as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
St. Jude Medical, Inc.	5.1	3.3
Comverse Technology, Inc.	2.8	1.9
Nintendo Co. Ltd.	2.7	1.0
Marvell Technology Group Ltd.	2.5	0.9
Potash Corp. of Saskatchewan, Inc.	2.4	1.5
Juniper Networks, Inc.	2.3	0.0
ASML Holding NV (NY Shares)	2.1	1.9
PMC-Sierra, Inc.	2.1	1.0
NuVasive, Inc.	2.1	1.5
Monsanto Co.	2.0	1.6
	26.1
Top Five Market Sectors as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
Information Technology	36.4	25.9
Health Care	28.3	28.6
Industrials	8.4	11.5
Materials	7.4	5.5
Energy	5.7	10.5

Asset Allocation (% of fund's net assets)
As of December 31, 2006 *			As of June 30, 2006 **
	Stocks 97.3%			Stocks 97.1%
	Short-Term Investments and Net Other Assets 2.7%			Short-Term Investments and Net Other Assets 2.9%
* Foreign investments		20.7%	** Foreign investments		14.5%

Annual Report

VIP Aggressive Growth Portfolio

Investments December 31, 2006

Showing Percentage of Net Assets

Common Stocks - 97.3%
	Shares		Value (Note 1)
CONSUMER DISCRETIONARY - 4.2%
Hotels, Restaurants & Leisure - 1.0%
Life Time Fitness, Inc. (a)	2,300		$ 111,573
Melco PBL Entertainment (Macau) Ltd. sponsored ADR	5,300		112,678
			224,251
Internet & Catalog Retail - 0.5%
Coldwater Creek, Inc. (a)	4,778		117,157
Leisure Equipment & Products - 0.6%
Marvel Entertainment, Inc. (a)	4,700		126,477
Specialty Retail - 1.6%
Abercrombie & Fitch Co. Class A	5,000		348,150
Williams-Sonoma, Inc.	200		6,288
			354,438
Textiles, Apparel & Luxury Goods - 0.5%
Iconix Brand Group, Inc. (a)	5,776		111,997
TOTAL CONSUMER DISCRETIONARY			934,320
CONSUMER STAPLES - 0.5%
Food Products - 0.5%
Bunge Ltd.	1,598		115,871
ENERGY - 5.7%
Energy Equipment & Services - 1.1%
FMC Technologies, Inc. (a)	3,800		234,194
Oil, Gas & Consumable Fuels - 4.6%
Chesapeake Energy Corp.	7,100		206,255
EOG Resources, Inc.	3,120		194,844
Quicksilver Resources, Inc. (a)	5,100		186,609
Range Resources Corp.	7,650		210,069
Ultra Petroleum Corp. (a)	4,505		215,114
			1,012,891
TOTAL ENERGY			1,247,085
FINANCIALS - 3.6%
Capital Markets - 3.0%
AllianceBernstein Holding LP	1,700		136,680
Greenhill & Co., Inc.	2,200		162,360
Indiabulls Financial Services Ltd.	17,078		255,676
Jefferies Group, Inc.	4,000		107,280
			661,996
Diversified Financial Services - 0.6%
Financial Technology (India) Ltd.	3,089		124,397
TOTAL FINANCIALS			786,393
HEALTH CARE - 28.3%
Biotechnology - 4.6%
Alnylam Pharmaceuticals, Inc. (a)	14,208		304,051
Amylin Pharmaceuticals, Inc. (a)	6,500		234,455

	Shares		Value (Note 1)
Celgene Corp. (a)	4,680		$ 269,240
PDL BioPharma, Inc. (a)	10,600		213,484
			1,021,230
Health Care Equipment & Supplies - 17.9%
ArthroCare Corp. (a)	2,700		107,784
Conceptus, Inc. (a)	5,600		119,224
Cyberonics, Inc. (a)	14,900		307,536
Haemonetics Corp. (a)	2,603		117,187
Hologic, Inc. (a)	4,622		218,528
Immucor, Inc. (a)	3,900		113,997
Intuitive Surgical, Inc. (a)	1,200		115,080
Kyphon, Inc. (a)	5,624		227,210
Mentor Corp.	2,400		117,288
NeuroMetrix, Inc. (a)	5,760		85,882
Northstar Neuroscience, Inc.	7,300		104,974
NuVasive, Inc. (a)	19,481		450,011
PolyMedica Corp.	2,922		118,078
Respironics, Inc. (a)	6,524		246,281
Sirona Dental Systems, Inc.	5,959		229,481
Somanetics Corp. (a)	5,700		130,131
St. Jude Medical, Inc. (a)	30,700		1,122,392
			3,931,064
Health Care Technology - 1.5%
Eclipsys Corp. (a)	10,440		214,646
Merge Technologies, Inc. (a)	16,900		110,864
			325,510
Life Sciences Tools & Services - 1.1%
Ventana Medical Systems, Inc. (a)	5,906		254,135
Pharmaceuticals - 3.2%
Allergan, Inc.	2,397		287,017
Sepracor, Inc. (a)	6,656		409,876
			696,893
TOTAL HEALTH CARE			6,228,832
INDUSTRIALS - 8.4%
Air Freight & Logistics - 0.1%
Panalpina Welttransport Holding AG	180		24,542
Construction & Engineering - 3.2%
Infrasource Services, Inc. (a)	15,900		346,143
Quanta Services, Inc. (a)	18,300		359,961
			706,104
Electrical Equipment - 1.5%
Energy Conversion Devices, Inc. (a)	564		19,165
Neo-Neon Holdings Ltd.	64,000		61,134
Suntech Power Holdings Co. Ltd. sponsored ADR	3,700		125,837
Suzlon Energy Ltd.	4,250		125,703
			331,839
Industrial Conglomerates - 1.0%
McDermott International, Inc. (a)	4,550		231,413
Common Stocks - continued
	Shares		Value (Note 1)
INDUSTRIALS - continued
Machinery - 2.0%
Deere & Co.	4,600		$ 437,322
Marine - 0.1%
Diana Shipping, Inc.	1,300		20,553
Road & Rail - 0.5%
Guangshen Railway Co. Ltd. (H Shares)	146,000		99,482
TOTAL INDUSTRIALS			1,851,255
INFORMATION TECHNOLOGY - 36.4%
Communications Equipment - 6.2%
Adtran, Inc.	10,720		243,344
Comverse Technology, Inc. (a)	29,334		619,241
Juniper Networks, Inc. (a)	26,900		509,486
			1,372,071
Computers & Peripherals - 2.1%
Seagate Technology	8,800		233,200
Sun Microsystems, Inc. (a)	40,800		221,136
			454,336
Internet Software & Services - 1.8%
Bankrate, Inc. (a)	3,982		151,117
ValueClick, Inc. (a)	10,100		238,663
			389,780
IT Services - 3.2%
Cognizant Technology Solutions Corp. Class A (a)	3,100		239,196
Mastercard, Inc. Class A	2,300		226,527
Paychex, Inc.	5,800		229,332
			695,055
Semiconductors & Semiconductor Equipment - 14.4%
Advanced Micro Devices, Inc. (a)	11,700		238,095
ARM Holdings PLC sponsored ADR	31,300		228,490
ASML Holding NV (NY Shares) (a)	18,800		463,044
Broadcom Corp. Class A (a)	13,221		427,171
Integrated Device Technology, Inc. (a)	14,500		224,460
Lam Research Corp. (a)	4,456		225,563
LSI Logic Corp. (a)	1,000		9,000
Marvell Technology Group Ltd. (a)	28,566		548,182
NVIDIA Corp. (a)	6,427		237,863
PMC-Sierra, Inc. (a)	68,836		461,890
Renewable Energy Corp. AS	6,050		110,618
			3,174,376
Software - 8.7%
Electronic Arts, Inc. (a)	8,800		443,168
Hyperion Solutions Corp. (a)	5,761		207,050
Informatica Corp. (a)	16,600		202,686

	Shares		Value (Note 1)
Intuit, Inc. (a)	7,631		$ 232,822
Nintendo Co. Ltd.	2,300		596,976
Wind River Systems, Inc. (a)	22,633		231,988
			1,914,690
TOTAL INFORMATION TECHNOLOGY			8,000,308
MATERIALS - 7.4%
Chemicals - 7.4%
Agrium, Inc.	10,400		325,914
Monsanto Co.	8,526		447,871
Potash Corp. of Saskatchewan, Inc.	3,600		516,528
The Mosaic Co.	15,500		331,080
			1,621,393
TELECOMMUNICATION SERVICES - 2.3%
Diversified Telecommunication Services - 2.3%
Level 3 Communications, Inc. (a)	50,700		283,920
Qwest Communications International, Inc. (a)	26,600		222,642
			506,562
UTILITIES - 0.5%
Independent Power Producers & Energy Traders - 0.5%
Ormat Technologies, Inc.	2,995		110,276
TOTAL COMMON STOCKS (Cost $19,271,858)		21,402,295
Money Market Funds - 0.2%

Fidelity Cash Central Fund, 5.37% (b) (Cost $49,811)	49,811		49,811
TOTAL INVESTMENT PORTFOLIO - 97.5% (Cost $19,321,669)			21,452,106
NET OTHER ASSETS - 2.5%			556,296
NET ASSETS - 100%		$ 22,008,402

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.

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	$ 19,302

Other Information

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

United States of America	79.3%
Canada	4.9%
Bermuda	3.0%
Japan	2.7%
Cayman Islands	2.5%
India	2.3%
Netherlands	2.1%
Panama	1.0%
United Kingdom	1.0%
Others (individually less than 1%)	1.2%
	100.0%

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

Annual Report

VIP Aggressive Growth Portfolio

Financial Statements

Statement of Assets and Liabilities

	December 31, 2006

Assets
Investment in securities, at value - See accompanying schedule: Unaffiliated issuers (cost $19,271,858)	$ 21,402,295
Fidelity Central Funds (cost $49,811)	49,811
Total Investments (cost $19,321,669)		$ 21,452,106
Receivable for investments sold		773,209
Dividends receivable		3,451
Interest receivable		1,458
Prepaid expenses		96
Other receivables		358
Total assets		22,230,678

Liabilities
Payable for investments purchased	$ 144,997
Accrued management fee	13,174
Distribution fees payable	2,359
Other affiliated payables	2,357
Other payables and accrued expenses	59,389
Total liabilities		222,276

Net Assets		$ 22,008,402
Net Assets consist of:
Paid in capital		$ 20,094,865
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions		(201,228)
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies		2,114,765
Net Assets		$ 22,008,402

Statement of Assets and Liabilities - continued

	December 31, 2006

Initial Class: Net Asset Value, offering price and redemption price per share ($6,434,221 ÷ 681,829 shares)		$ 9.44

Service Class: Net Asset Value, offering price and redemption price per share ($1,105,512 ÷ 117,018 shares)		$ 9.45

Service Class 2: Net Asset Value, offering price and redemption price per share ($10,692,210 ÷ 1,150,775 shares)		$ 9.29

Investor Class: Net Asset Value, offering price and redemption price per share ($3,776,459 ÷ 401,418 shares)		$ 9.41

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

Annual Report

VIP Aggressive Growth Portfolio
Financial Statements - continued

Statement of Operations

	Year ended December 31, 2006

Investment Income
Dividends		$ 74,557
Special dividends		50,558
Interest		110
Income from Fidelity Central Funds		19,302
Total income		144,527

Expenses
Management fee	$ 125,204
Transfer agent fees	24,830
Distribution fees	26,238
Accounting fees and expenses	8,393
Custodian fees and expenses	29,855
Independent trustees' compensation	75
Audit	39,625
Legal	2,354
Reports to shareholders	16,099
Miscellaneous	1,746
Total expenses before reductions	274,419
Expense reductions	(62,908)	211,511
Net investment income (loss)		(66,984)
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investment securities:
Unaffiliated issuers (net of foreign taxes of $5,199)	991,284
Foreign currency transactions	2,828
Total net realized gain (loss)		994,112
Change in net unrealized appreciation (depreciation) on: Investment securities (net of increase in deferred foreign taxes of $15,392)	613,591
Assets and liabilities in foreign currencies	17
Total change in net unrealized appreciation (depreciation)		613,608
Net gain (loss)		1,607,720
Net increase (decrease) in net assets resulting from operations		$ 1,540,736

Statement of Changes in Net Assets

	Year ended December 31, 2006	Year ended December 31, 2005
Increase (Decrease) in Net Assets
Operations
Net investment income (loss)	$ (66,984)	$ (55,168)
Net realized gain (loss)	994,112	1,621,548
Change in net unrealized appreciation (depreciation)	613,608	(357,434)
Net increase (decrease) in net assets resulting from operations	1,540,736	1,208,946
Distributions to shareholders from net realized gain	(1,077,928)	(540,605)
Share transactions - net increase (decrease)	2,626,357	7,047,654
Total increase (decrease) in net assets	3,089,165	7,715,995

Net Assets
Beginning of period	18,919,237	11,203,242
End of period (including undistributed net investment income of $0 and undistributed net investment income of $14,866, respectively)	$ 22,008,402	$ 18,919,237

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

VIP Aggressive Growth Portfolio

Financial Highlights - Initial Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 9.15	$ 8.71	$ 7.90	$ 6.05	$ 8.22
Income from Investment Operations
Net investment income (loss)^C	(.02)^F	(.02)^G	(.04)	(.04)	(.06)
Net realized and unrealized gain (loss)	.80	.73	.85	1.89	(2.11)
Total from investment operations	.78	.71	.81	1.85	(2.17)
Distributions from net realized gain	(.49)	(.27)	-	-	-
Net asset value, end of period	$ 9.44	$ 9.15	$ 8.71	$ 7.90	$ 6.05
Total Return^{A, B}	8.53%	8.11%	10.25%	30.58%	(26.40)%
Ratios to Average Net Assets^{D, H}
Expenses before reductions	1.21%	1.28%	1.64%	2.87%	2.51%
Expenses net of fee waivers, if any	.90%	.90%	1.00%	1.26%	1.50%
Expenses net of all reductions	.89%	.82%	.96%	1.20%	1.35%
Net investment income (loss)	(.18)%^F	(.21)%^G	(.53)%	(.62)%	(.85)%
Supplemental Data
Net assets, end of period (000 omitted)	$ 6,434	$ 6,168	$ 1,031	$ 907	$ 689
Portfolio turnover rate^E	200%	242%	91%	150%	460%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^D 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.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.02 per share. Excluding the special dividend, the ratio of net investment income (loss) to average net assets would have been (.43)%.

^G Investment income per share reflects a special dividend which amounted to $.01 per share. Excluding the special dividend, the ratio of net investment income (loss) to average net assets would have been (.28)%.

^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.

Financial Highlights - Service Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 9.16	$ 8.73	$ 7.92	$ 6.07	$ 8.25
Income from Investment Operations
Net investment income (loss)^C	(.03)^F	(.03)^G	(.05)	(.05)	(.07)
Net realized and unrealized gain (loss)	.80	.73	.86	1.90	(2.11)
Total from investment operations	.77	.70	.81	1.85	(2.18)
Distributions from net realized gain	(.48)	(.27)	-	-	-
Net asset value, end of period	$ 9.45	$ 9.16	$ 8.73	$ 7.92	$ 6.07
Total Return^{A, B}	8.42%	7.98%	10.23%	30.48%	(26.42)%
Ratios to Average Net Assets^{D, H}
Expenses before reductions	1.27%	1.44%	1.74%	2.94%	2.56%
Expenses net of fee waivers, if any	1.00%	1.01%	1.10%	1.36%	1.60%
Expenses net of all reductions	.99%	.93%	1.07%	1.30%	1.45%
Net investment income (loss)	(.28)%^F	(.32)%^G	(.63)%	(.72)%	(.96)%
Supplemental Data
Net assets, end of period (000 omitted)	$ 1,106	$ 1,135	$ 1,059	$ 1,026	$ 779
Portfolio turnover rate^E	200%	242%	91%	150%	460%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

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

Annual Report

Financial Highlights - Service Class 2

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 9.01	$ 8.61	$ 7.83	$ 6.01	$ 8.20
Income from Investment Operations
Net investment income (loss)^C	(.04)^F	(.04)^G	(.06)	(.06)	(.08)
Net realized and unrealized gain (loss)	.79	.71	.84	1.88	(2.11)
Total from investment operations	.75	.67	.78	1.82	(2.19)
Distributions from net realized gain	(.47)	(.27)	-	-	-
Net asset value, end of period	$ 9.29	$ 9.01	$ 8.61	$ 7.83	$ 6.01
Total Return^{A, B}	8.29%	7.74%	9.96%	30.28%	(26.71)%
Ratios to Average Net Assets^{D, H}
Expenses before reductions	1.44%	1.60%	1.92%	3.14%	2.74%
Expenses net of fee waivers, if any	1.15%	1.16%	1.25%	1.51%	1.75%
Expenses net of all reductions	1.14%	1.08%	1.21%	1.45%	1.60%
Net investment income (loss)	(.43)%^F	(.47)%^G	(.78)%	(.87)%	(1.11)%
Supplemental Data
Net assets, end of period (000 omitted)	$ 10,692	$ 10,222	$ 9,113	$ 6,873	$ 3,930
Portfolio turnover rate^E	200%	242%	91%	150%	460%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

Financial Highlights - Investor Class

Years ended December 31,	2006	2005^J
Selected Per-Share Data
Net asset value, beginning of period	$ 9.13	$ 8.95
Income from Investment Operations
Net investment income (loss)^E	(.03)^H	(.01)^I
Net realized and unrealized gain (loss)	.80	.46
Total from investment operations	.77	.45
Distributions from net realized gain	(.49)	(.27)
Net asset value, end of period	$ 9.41	$ 9.13
Total Return^{B, C, D}	8.44%	4.99%
Ratios to Average Net Assets^{F, K}
Expenses before reductions	1.35%	1.25%^A
Expenses net of fee waivers, if any	1.05%	1.05%^A
Expenses net of all reductions	1.04%	.97%^A
Net investment income (loss)	(.33)%^H	(.36)%^{A, I}
Supplemental Data
Net assets, end of period (000 omitted)	$ 3,776	$ 1,395
Portfolio turnover rate^G	200%	242%

^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 $.02 per share. Excluding the special dividend, the ratio of net investment income (loss) to average net assets would have been (.58)%.

^I Investment income per share reflects a special dividend which amounted to $.01 per share. Excluding the special dividend, the ratio of net investment income (loss) to average net assets would have been (.43)%.

^J For the period July 21, 2005 (commencement of sale of shares) to December 31, 2005.

^K 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.

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

VIP Aggressive Growth Portfolio

Notes to Financial Statements

For the period ended December 31, 2006

1. Significant Accounting Policies.

VIP Aggressive Growth Portfolio (the Fund) is a fund of Variable Insurance Products Fund III (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.

The Fund may invest in Fidelity Central Funds which are open-end investment companies available to investment companies and other accounts managed by Fidelity Management & Research Company (FMR) and its affiliates. 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. The following summarizes the significant accounting policies of the Fund, which are also consistently followed by the Fidelity Central Funds:

Security Valuation. Investments are valued and net asset value (NAV) per share is calculated (NAV calculation) as of the close of business of the New York Stock Exchange (NYSE), normally 4:00 p.m. Eastern time. Wherever possible, the Fund uses independent pricing services approved by the Board of Trustees to value its investments.

When current market prices or quotations are not readily available or do not accurately reflect fair value, valuations may be determined in accordance with procedures adopted by the Board of Trustees. For example, when developments occur between the close of a market and the close of the NYSE that may materially affect the value of some or all of the securities, or when trading in a security is halted, those securities may be fair valued. Factors used in the determination of fair value may include monitoring news to identify significant market or security specific events such as changes in the value of U.S. securities markets, reviewing developments in foreign markets and evaluating the performance of ADRs, futures contracts and exchange-traded funds. Because the Fund's utilization of fair value pricing depends on market activity, the frequency with which fair value pricing is used can not be predicted and may be utilized to a significant extent. The value of securities used for NAV calculation under fair value pricing may differ from published prices for the same securities.

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. Security transactions, including the Fund's investment activity in the Fidelity Central Funds, are accounted for as of trade date. 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. Large, non-recurring dividends recognized by the Fund are presented separately on the Statement of Operations as "Special Dividends" and the impact of these dividends is presented in the Financial Highlights. Interest income and income distributions from the Fidelity Central Funds are accrued as earned, with any income distributions receivable as of period end included in Interest Receivable on the Statement of Assets and Liabilities. 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.

Annual Report

Notes to Financial Statements - continued

1. Significant Accounting Policies - continued

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 all of its taxable income and realized gains under Subchapter M of the Internal Revenue Code. As a result, no provision for income taxes is required in the accompanying financial statements. 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.

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 foreign currency transactions, certain foreign taxes, net operating losses, and losses deferred due to wash sales.

The tax-basis components of distributable earnings and the federal tax cost as of period end were as follows:

Unrealized appreciation	$ 2,936,304
Unrealized depreciation	(1,159,749)
Net unrealized appreciation (depreciation)	1,776,555
Undistributed ordinary income	59,402
Undistributed long-term capital gain	77,581

Cost for federal income tax purposes	$ 19,675,551

The tax character of distributions paid was as follows:

	December 31, 2006	December 31, 2005
Ordinary Income	$ 359,797	$ -
Long-term Capital Gains	718,131	540,605
Total	$ 1,077,928	$ 540,605

New Accounting Pronouncements. In July 2006, Financial Accounting Standards Board Interpretation No. 48, Accounting for Uncertainty in Income Taxes - an interpretation of FASB Statement 109 (FIN 48), was issued and is effective on the last business day of the semiannual reporting period for fiscal years beginning after December 15, 2006. FIN 48 sets forth a threshold for financial statement recognition, measurement and disclosure of a tax position taken or expected to be taken on a tax return. Management is currently evaluating the impact, if any, the adoption of FIN 48 will have on the Fund's net assets, results of operations and financial statement disclosures.

In addition, in September 2006, Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS 157), was issued and is effective for fiscal years beginning after November 15, 2007. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Management is currently evaluating the impact the adoption of SFAS 157 will have on the Fund's financial statement disclosures.

2. 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.

3. Purchases and Sales of Investments.

Purchases and sales of securities, other than short-term securities, aggregated $41,575,007 and $40,136,896, respectively.

VIP Aggressive Growth Portfolio

4. 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 .35% of the Fund's average net assets and a group fee rate that averaged .27% 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 annual management fee rate was .62% 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 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	$ 1,071
Service Class 2	25,167
	$ 26,238

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 their month end net assets. Investor Class pays a monthly asset-based transfer agent fee of .18% of its month end net assets. The total transfer agent fees paid by each class to FIIOC, including out of pocket expenses, were as follows:

Initial Class	$ 7,155
Service Class	807
Service Class 2	9,269
Investor Class	7,599
	$ 24,830

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

Investments in Fidelity Central Funds. The Fund may invest in Fidelity Central Funds. 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. A complete unaudited list of holdings for each Fidelity Central Fund is available upon request. In addition, the financial statements of the Fidelity Central Funds, which are not covered by the Fund's Report of Independent Registered Public Accounting Firm, are available on the EDGAR Database on the SEC's web site, www.sec.gov, or upon request.

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.

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 $899 for the period.

5. 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 $53 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

6. 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.

Annual Report

Notes to Financial Statements - continued

6. Expense Reductions - continued

The following classes were in reimbursement during the period:

	Expense Limitations	Reimbursement from adviser

Initial Class	.90%	$ 19,413
Service Class	1.00%	2,938
Service Class 2	1.15%	29,348
Investor Class	1.05%	9,015
		$ 60,714

7. 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 67% of the total outstanding shares of the Fund and two otherwise unaffiliated shareholders were the owners of record of 32% of the total outstanding shares of the Fund.

The United States Securities and Exchange Commission ("SEC") is conducting an investigation of FMR (covering the years 2002 to 2004) arising from gifts, gratuities and business entertainment provided by certain brokers to certain individuals who were employed on FMR's domestic equity trading desk during that period. FMR is in discussions with the SEC staff regarding the possible resolution of the matter, but as of period-end no final resolution has been reached.

In December 2006, the Independent Trustees completed their own investigation of the matter with the assistance of independent counsel. The Independent Trustees and FMR agree 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 is worthy of redress. Accordingly, the Independent Trustees have requested and FMR has agreed to pay $42 million to Fidelity mutual funds, plus interest to be determined at the time that payment is made. A method of allocating this payment among the funds has not yet been determined. The total payment to the Fund is not anticipated to have a material impact on the Fund's net assets. In addition, FMR reimbursed related legal expenses which are recorded in the accompanying Statement of Operations as an expense reduction.

8. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

	Years ended December 31,
	2006	2005^A
From net realized gain
Initial Class	$ 324,665	$ 171,838
Service Class	54,317	32,519
Service Class 2	514,729	297,197
Investor Class	184,217	39,051
Total	$ 1,077,928	$ 540,605

^A Distributions for Investor Class are for the period July 21, 2005 (commencement of sale of shares) to December 31, 2005.

VIP Aggressive Growth Portfolio

9. Share Transactions.

Transactions for each class of shares were as follows:

	Shares		Dollars
	Years ended December 31,		Years ended December 31,
	2006	2005 ^A	2006	2005 ^A
Initial Class
Shares sold	619,484	1,063,075	$ 5,811,098	$ 9,578,096
Reinvestment of distributions	34,261	18,537	324,665	171,838
Shares redeemed	(646,215)	(525,656)	(5,953,927)	(4,765,585)
Net increase (decrease)	7,530	555,956	$ 181,836	$ 4,984,349
Service Class
Shares sold	1,572	14,466	$ 13,506	$ 124,895
Reinvestment of distributions	5,726	3,504	54,317	32,519
Shares redeemed	(14,220)	(15,326)	(132,580)	(141,133)
Net increase (decrease)	(6,922)	2,644	$ (64,757)	$ 16,281
Service Class 2
Shares sold	170,381	237,617	$ 1,549,792	$ 2,014,380
Reinvestment of distributions	55,133	32,552	514,729	297,197
Shares redeemed	(208,785)	(194,170)	(1,917,166)	(1,674,066)
Net increase (decrease)	16,729	75,999	$ 147,355	$ 637,511
Investor Class
Shares sold	447,871	153,237	$ 4,215,413	$ 1,415,178
Reinvestment of distributions	19,497	4,222	184,217	39,051
Shares redeemed	(218,649)	(4,760)	(2,037,707)	(44,716)
Net increase (decrease)	248,719	152,699	$ 2,361,923	$ 1,409,513

^AShare transactions for Investor Class are for the period July 21, 2005 (commencement of sale of shares) to December 31, 2005.

Annual Report

Report of Independent Registered Public Accounting Firm

To the Trustees of Variable Insurance Products Fund III and Shareholders of VIP Aggressive Growth Portfolio:

We have audited the accompanying statement of assets and liabilities of VIP Aggressive Growth Portfolio (the Fund), a fund of Variable Insurance Products Fund III, including the schedule of investments as of December 31, 2006, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of December 31, 2006, by correspondence with the custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of VIP Aggressive Growth Portfolio as of December 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Boston, Massachusetts

February 16, 2007

Annual Report

Trustees and Officers

The Trustees, Member of the Advisory Board, and executive officers of the trust and fund, as applicable, are listed below. The Board of Trustees governs the fund and is responsible for protecting the interests of shareholders. The Trustees are experienced executives who meet periodically throughout the year to oversee the fund's activities, review contractual arrangements with companies that provide services to the fund, and review the fund's performance. Each of the Trustees oversees 348 funds advised by FMR or an affiliate.

The Trustees hold office without limit in time except that (a) any Trustee may resign; (b) any Trustee may be removed by written instrument, signed by at least two-thirds of the number of Trustees prior to such removal; (c) any Trustee who requests to be retired or who has become incapacitated by illness or injury may be retired by written instrument signed by a majority of the other Trustees; and (d) any Trustee may be removed at any special meeting of shareholders by a two-thirds vote of the outstanding voting securities of the trust. Each Trustee who is not an interested person (as defined in the 1940 Act) (Independent Trustee), shall retire not later than the last day of the calendar year in which his or her 72nd birthday occurs. The Independent Trustees may waive this mandatory retirement age policy with respect to individual Trustees. The executive officers and Advisory Board Member hold office without limit in time, except that any officer and Advisory Board Member may resign or may be removed by a vote of a majority of the Trustees at any regular meeting or any special meeting of the Trustees. Except as indicated, each individual has held the office shown or other offices in the same company for the past five years.

The fund's Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-877-208-0098.

Interested Trustees*:

Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.

Name, Age; Principal Occupation
Edward C. Johnson 3d (76)
	Year of Election or Appointment: 1994 Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as President (2006-present), Chief Executive Officer, Chairman, and a Director of FMR Corp.; Chairman and a Director of FMR; Chairman and a Director of Fidelity Research & Analysis Company (FRAC); Chairman and a Director of Fidelity Investments Money Management, Inc.; and Chairman (2001-present) and a Director of FMR Co., Inc. In addition, Mr. Johnson serves as Chairman and Director of Fidelity International Limited (FIL).
Robert L. Reynolds (54)
	Year of Election or Appointment: 2003 Mr. Reynolds is President and a Director of FMR (2005-present), Fidelity Investments Money Management, Inc. (2005-present), and FMR Co., Inc. (2005-present). Mr. Reynolds also serves as Vice Chairman (2006-present), a Director (2003-present), and Chief Operating Officer of FMR Corp. and a Director of Strategic Advisers, Inc. (2005-present). He also serves on the Board at Fidelity Investments Canada, Ltd.

* Trustees have been determined to be "Interested Trustees" by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.

Independent Trustees:

Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205-5235.

Name, Age; Principal Occupation
Dennis J. Dirks (58)
	Year of Election or Appointment: 2005 Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999-2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999-2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999-2003). In addition, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001-2003) and Chief Executive Officer and Board member of the Mortgage-Backed Securities Clearing Corporation (2001-2003). Mr. Dirks also serves as a Trustee and a member of the Finance Committee of Manhattan College (2005-present) and a Trustee and a member of the Finance Committee of AHRC of Nassau County (2006-present).
Albert R. Gamper, Jr. (64)
	Year of Election or Appointment: 2006 Prior to his retirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987-1989; 1999-2001; 2002-2004), Chief Executive Officer (1987-2004), and President (1989-2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001-present), Chairman of the Board of Governors, Rutgers University (2004-present), and Chairman of the Board of Saint Barnabas Health Care System.
George H. Heilmeier (70)
	Year of Election or Appointment: 2004 Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (communication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineering and information technology support for the government), and HRL Laboratories (private research and development, 2004-present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992-2002), Compaq (1994-2002), Automatic Data Processing, Inc. (ADP) (technology-based business outsourcing, 1995-2002), INET Technologies Inc. (telecommunications network surveillance, 2001-2004), and Teletech Holdings (customer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid crystal display, and a member of the Consumer Electronics Hall of Fame.
James H. Keyes (66)
	Year of Election or Appointment: 2007 Prior to his retirement in 2003, Mr. Keyes was Chairman, President, and Chief Executive Officer of Johnson Controls, Inc. (automotive supplier, 1993-2003). He currently serves as a member of the boards of LSI Logic Corporation (semiconductor technologies), Navistar International Corporation (manufacture and sale of trucks, buses, and diesel engines, 2002-present), and Pitney Bowes, Inc. (integrated mail, messaging, and document management solutions).
Marie L. Knowles (60)
	Year of Election or Appointment: 2001 Prior to Ms. Knowles' retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996-2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare service, 2002-present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
Ned C. Lautenbach (62)
	Year of Election or Appointment: 2000 Mr. Lautenbach is Chairman of the Independent Trustees (2006-present). Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Sony Corporation (2006-present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005-present), as well as a member of the Council on Foreign Relations.
Cornelia M. Small (62)
	Year of Election or Appointment: 2005 Ms. Small is a member (2000-present) and Chairperson (2002-present) of the Investment Committee, and a member (2002- present) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999-2000), Director of Global Equity Investments (1996-1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990-1997) and Scudder Kemper Investments (1997-1999). In addition, Ms. Small served as Co-Chair (2000-2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
William S. Stavropoulos (67)
	Year of Election or Appointment: 2002 Mr. Stavropoulos is Chairman Emeritus of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993-2000; 2002-2003), CEO (1995-2000; 2002-2004), and Chairman of the Executive Committee (2000-2004). Currently, he is a Director of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corporation, Maersk Inc. (industrial conglomerate, 2002-present), and Metalmark Capital (private equity investment firm, 2005-present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
Kenneth L. Wolfe (67)
	Year of Election or Appointment: 2005 Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993-2001). He currently serves as a member of the boards of Adelphia Communications Corporation (2003-present), Bausch & Lomb, Inc., and Revlon Inc. (2004-present).

Advisory Board Member and Executive Officers:

Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.

Name, Age; Principal Occupation
Peter S. Lynch (62)
	Year of Election or Appointment: 2003 Member of the Advisory Board of Variable Insurance Products Fund III. Mr. Lynch is Vice Chairman and a Director of FMR, and Vice Chairman (2001-present) and a Director of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990-2003). In addition, he serves as a Trustee of Boston College and as the Chairman of the Inner-City Scholarship Fund.
Kimberley H. Monasterio (43)
	Year of Election or Appointment: 2007 President and Treasurer of VIP Aggressive Growth. Ms. Monasterio also serves as President and Treasurer of other Fidelity funds (2007-present) and is an employee of FMR (2004-present). Previously, Ms. Monasterio served as Deputy Treasurer of the Fidelity funds (2004-2006). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000-2004) and Chief Financial Officer (2002-2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Templeton Services, LLC (2000-2004).
Dwight D. Churchill (53)
	Year of Election or Appointment: 2005 Vice President of VIP Aggressive Growth. Mr. Churchill also serves as Vice President of certain Equity Funds (2005-present). Mr. Churchill is Executive Vice President of FMR (2005-present) and FMR Co., Inc. (2005-present). Previously, Mr. Churchill served as Senior Vice President of Fidelity Investments Money Management, Inc. (2005-2006), Head of Fidelity's Fixed-Income Division (2000-2005), Vice President of Fidelity's Money Market Funds (2000-2005), Vice President of Fidelity's Bond Funds, and Senior Vice President of FMR.
Bruce T. Herring (41)
	Year of Election or Appointment: 2006 Vice President of VIP Aggressive Growth. Mr. Herring also serves as Vice President of certain Equity Funds (2006-present). Mr. Herring is Senior Vice President of FMR (2006-present) and Vice President of FMR Co., Inc. (2001-present). Previously, Mr. Herring served as a portfolio manager for Fidelity U.S. Equity Funds (2001-2005).
Steve Calhoun (35)
	Year of Election or Appointment: 2005 Vice President of VIP Aggressive Growth. Mr. Calhoun also serves as Vice President of other funds advised by FMR. Prior to assuming his current responsibilities, Mr. Calhoun worked as a research analyst and manager. Mr. Calhoun also serves as Vice President of FMR and FMR Co., Inc. (2005).
Eric D. Roiter (58)
	Year of Election or Appointment: 2000 Secretary of VIP Aggressive Growth. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001-present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001-present), Fidelity Research & Analysis Company (2001-present), and Fidelity Investments Money Management, Inc. (2001-present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003-present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998-2005).
Stuart Fross (47)
	Year of Election or Appointment: 2003 Assistant Secretary of VIP Aggressive Growth. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003-present), Vice President and Secretary of FDC (2005-present), and is an employee of FMR.
R. Stephen Ganis (40)
	Year of Election or Appointment: 2006 Anti-Money Laundering (AML) officer of VIP Aggressive Growth. Mr. Ganis also serves as AML officer of other Fidelity funds (2006-present) and FMR Corp. (2003-present). Before joining Fidelity Investments, Mr. Ganis practiced law at Goodwin Procter, LLP (2000-2002).
Joseph B. Hollis (58)
	Year of Election or Appointment: 2006 Chief Financial Officer of VIP Aggressive Growth. Mr. Hollis also serves as Chief Financial Officer of other Fidelity funds. Mr. Hollis is President of Fidelity Pricing and Cash Management Services (FPCMS) (2005-present). Mr. Hollis also serves as President and Director of Fidelity Service Company, Inc. (2006-present). Previously, Mr. Hollis served as Senior Vice President of Cash Management Services (1999-2002) and Investment Management Operations (2002-2005).
Kenneth A. Rathgeber (59)
	Year of Election or Appointment: 2004 Chief Compliance Officer of VIP Aggressive Growth. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004-present) and Executive Vice President of Risk Oversight for Fidelity Investments (2002-present). He is Chief Compliance Officer of FMR (2005-present), FMR Co., Inc. (2005-present), Fidelity Management & Research (U.K.) Inc. (2005-present), Fidelity Research & Analysis Company (2005-present), Fidelity Investments Money Management, Inc. (2005-present), and Strategic Advisers, Inc. (2005-present). Previously, Mr. Rathgeber served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998-2002).
Bryan A. Mehrmann (45)
	Year of Election or Appointment: 2005 Deputy Treasurer of VIP Aggressive Growth. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005-present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998-2004).
Kenneth B. Robins (37)
	Year of Election or Appointment: 2005 Deputy Treasurer of VIP Aggressive Growth. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2004-present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG's department of professional practice (2002-2004) and a Senior Manager (1999-2000). In addition, Mr. Robins served as Assistant Chief Accountant, United States Securities and Exchange Commission (2000-2002).
Robert G. Byrnes (40)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Aggressive Growth. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003-2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice President of the Investment Operations Group (2000-2003).
John H. Costello (60)
	Year of Election or Appointment: 2000 Assistant Treasurer of VIP Aggressive Growth. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
Peter L. Lydecker (52)
	Year of Election or Appointment: 2004 Assistant Treasurer of VIP Aggressive Growth. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
Mark Osterheld (51)
	Year of Election or Appointment: 2002 Assistant Treasurer of VIP Aggressive Growth. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
Gary W. Ryan (48)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Aggressive Growth. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999-2005).
Salvatore Schiavone (41)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Aggressive Growth. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003-2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996-2003).

Annual Report

Distributions

The Board of Trustees of VIP Aggressive Growth Portfolio voted to pay to shareholders of record at the opening of business on record date, the following distributions per share derived from capital gains realized from sales of portfolio securities:

	Pay Date	Record Date	Capital Gains
Initial Class	02/09/07	02/09/07	$0.062
Service Class	02/09/07	02/09/07	$0.062
Service Class	02/09/07	02/09/07	$0.062
Investor Class	02/09/07	02/09/07	$0.062

The fund hereby designates as a capital gain dividend with respect to the taxable year ended December 31, 2006, $744,646, or, if subsequently determined to be different, the net capital gain of such year.

Initial Class, Service Class, Service Class 2 and Investor Class designate 24%, 26%, 28% and 24% of the dividends distributed during the fiscal year as qualifying for the dividends-received deduction for corporate shareholders.

The fund will notify shareholders in January 2007 of amounts for use in preparing 2006 income tax returns.

Annual Report

Proxy Voting Results

A special meeting of the fund's shareholders was held on November 15, 2006. The results of votes taken among shareholders on the proposal 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
Dennis J. Dirks
Affirmative	8,022,573,906.52	96.057
Withheld	329,291,624.43	3.943
TOTAL	8,351,865,530.95	100.000
Albert R. Gamper, Jr.
Affirmative	8,017,939,119.36	96.002
Withheld	333,926,411.59	3.998
TOTAL	8,351,865,530.95	100.000
Robert M. Gates
Affirmative	8,011,581,068.50	95.926
Withheld	340,284,462.45	4.074
TOTAL	8,351,865,530.95	100.000
George H. Heilmeier
Affirmative	8,000,846,196.79	95.797
Withheld	351,019,334.16	4.203
TOTAL	8,351,865,530.95	100.000
Edward C. Johnson 3d
Affirmative	7,992,112,301.22	95.693
Withheld	359,753,229.73	4.307
TOTAL	8,351,865,530.95	100.000
Stephen P. Jonas
Affirmative	8,019,883,742.95	96.025
Withheld	331,981,788.00	3.975
TOTAL	8,351,865,530.95	100.000
James H. Keyes^B
Affirmative	8,015,436,547.06	95.972
Withheld	336,428,983.89	4.028
TOTAL	8,351,865,530.95	100.000
Marie L. Knowles
Affirmative	8,015,361,874.49	95.971
Withheld	336,503,656.46	4.029
TOTAL	8,351,865,530.95	100.000
Ned C. Lautenbach
Affirmative	8,018,503,793.25	96.009
Withheld	333,361,737.70	3.991
TOTAL	8,351,865,530.95	100.000
	# of Votes	% of Votes
William O. McCoy
Affirmative	8,000,170,571.19	95.789
Withheld	351,694,959.76	4.211
TOTAL	8,351,865,530.95	100.000
Robert L. Reynolds
Affirmative	8,020,815,676.67	96.036
Withheld	331,049,854.28	3.964
TOTAL	8,351,865,530.95	100.000
Cornelia M. Small
Affirmative	8.020,146,516.32	96.028
Withheld	331,719,014.63	3.972
TOTAL	8,351,865,530.95	100.000
William S. Stavropoulos
Affirmative	8,009,250,640.78	95.898
Withheld	342,614,890.17	4.102
TOTAL	8,351,865,530.95	100.000
Kenneth L. Wolfe
Affirmative	8,013,187,941.55	95.945
Withheld	338,677,589.40	4.055
TOTAL	8,351,865,530.95	100.000
^A Denotes trust-wide proposal and voting results. ^B Effective on or about January 1, 2007.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees

VIP Aggressive Growth Portfolio

Each year, typically in July, the Board of Trustees, including the Independent Trustees (together, the Board), votes on the renewal of the management contract and sub-advisory agreements (together, the Advisory Contracts) for the fund. The Board, assisted by the advice of fund counsel and Independent Trustees' counsel, requests and considers a broad range of information throughout the year.

The Board meets regularly each month except August and takes into account throughout the year matters bearing on Advisory Contracts. The Board, acting directly and through its separate committees, considers at each of its meetings factors that are relevant to the annual renewal of the fund's Advisory Contracts, including the services and support provided to the fund and its shareholders. At the time of the renewal, the Board had 12 standing committees, each composed of Independent Trustees with varying backgrounds, to which the Board has assigned specific subject matter responsibilities in order to enhance effective decision-making by the Board. Each committee has adopted a written charter outlining the structure and purposes of the committee. One such committee, the Equity Contract Committee, meets periodically as needed throughout the year to consider matters specifically related to the annual renewal of Advisory Contracts. The committee requests and receives information on, and makes recommendations to the Independent Trustees concerning, the approval and annual review of the Advisory Contracts.

At its July 2006 meeting, the Board of Trustees, including the Independent Trustees, unanimously determined to renew the Advisory Contracts for the fund. In reaching its determination, the Board considered all factors it believed relevant, including (i) the nature, extent, and quality of the services to be provided to the fund and its shareholders (including the investment performance of the fund); (ii) the competitiveness of the management fee and total expenses of the fund; (iii) the total costs of the services to be provided by and the profits to be realized by the investment adviser and its affiliates from the relationship with the fund; (iv) the extent to which economies of scale would be realized as the fund grows; and (v) whether fee levels reflect these economies of scale, if any, for the benefit of fund shareholders.

In determining whether to renew the Advisory Contracts for the fund, the Board ultimately reached a determination, with the assistance of fund counsel and Independent Trustees' counsel, that the renewal of the Advisory Contracts and the compensation to be received by Fidelity under the management contract is consistent with Fidelity's fiduciary duty under applicable law. In addition to evaluating the specific factors noted above, the Board, in reaching its determination, is aware that shareholders in the fund have a broad range of investment choices available to them, including a wide choice among mutual funds offered by competitors to Fidelity, and that the fund's shareholders, with the opportunity to review and weigh the disclosure provided by the fund in its prospectus and other public disclosures, have chosen to invest in this fund, managed by Fidelity.

Nature, Extent, and Quality of Services Provided. The Board considered staffing within the investment adviser, FMR, and the sub-advisers (together, the Investment Advisers), including the background of the fund's portfolio manager and the fund's investment objective and discipline. The Independent Trustees also had discussions with senior management of Fidelity's investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.

Resources Dedicated to Investment Management and Support Services. The Board reviewed the size, education, and experience of the Investment Advisers' investment staff, their use of technology, and the Investment Advisers' approach to recruiting, training, and retaining portfolio managers and other research, advisory, and management personnel. The Board considered Fidelity's extensive global research capabilities that enable the Investment Advisers to aggregate data from various sources in an effort to produce positive investment results. The Board noted that Fidelity's analysts have access to a variety of technological tools that enable them to perform both fundamental and quantitative analysis and to specialize in various disciplines. The Board also considered that Fidelity's portfolio managers and analysts have access to daily portfolio attribution that allows for monitoring of a fund's portfolio, as well as an electronic communication system that provides immediate real-time access to research concerning issuers and credit enhancers.

Shareholder and Administrative Services. The Board considered (i) the nature, extent, quality, and cost of administrative, distribution, and shareholder services performed by the Investment Advisers and their affiliates under the Advisory Contracts and under separate agreements covering transfer agency, pricing and bookkeeping, and securities lending services for the fund; (ii) the nature and extent of the Investment Advisers' supervision of third party service providers, principally custodians and subcustodians; and (iii) the resources devoted to, and the record of compliance with, the fund's compliance policies and procedures. The Board reviewed the allocation of fund brokerage, including allocations to brokers affiliated with the Investment Advisers, the use of brokerage commissions to pay fund expenses, and the use of "soft" commission dollars to pay for research services. The Board also considered that Fidelity voluntarily pays for market data out of its own resources.

The Board noted that the growth of fund assets across the complex allows Fidelity to reinvest in the development of services designed to enhance the value or convenience of the Fidelity funds as investment vehicles. These services include 24-hour access to account information and market information through phone representatives and over the Internet, and investor education materials and asset allocation tools.

Investment in a Large Fund Family. The Board considered the benefits to shareholders of investing in a Fidelity fund, including the benefits of investing in a fund that is part of a large family of funds offering a variety of investment disciplines and providing for a large variety of mutual fund investor services. The Board noted that, since the last Advisory Contract renewals in July 2005, Fidelity has taken a number of actions that benefited particular funds, including (i) dedicating additional resources to investment research and to restructure the investment research teams; (ii) voluntarily entering into contractual arrangements with certain brokers pursuant to which Fidelity pays for research products and services separately out of its own resources, rather than bundling with fund commissions; (iii) launching the Fidelity Advantage Class of its five Spartan stock index funds and three Spartan bond index funds, which is a lower-fee class available to shareholders with higher account balances; (iv) contractually agreeing to impose expense limitations on Fidelity U.S. Bond Index Fund and reducing the fund's initial investment minimum; and (v) offering shareholders of each of the Fidelity Institutional Money Market Funds the privilege of exchanging shares of the fund for shares of other Fidelity funds.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees - continued

Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund's absolute investment performance for each class (except Investor Class), as well as the fund's relative investment performance for each class (except Investor Class) measured against (i) a broad-based securities market index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one-, three-, and five-year periods ended December 31, 2005, the cumulative total returns of Service Class 2 and Initial Class of the fund, the cumulative total returns of a broad-based securities market index ("benchmark"), and a range of cumulative total returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objective similar to that of the fund. The returns of Service Class 2 and Initial Class represent the performance of classes with the highest and lowest 12b-1 fees, respectively (not necessarily with the highest and lowest total expenses). (Investor Class of the fund, which has no 12b-1 fee, had less than one year of performance as of December 31, 2005.) The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten numbers noted below each chart correspond to the percentile box and represent the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the class indicated.

VIP Aggressive Growth Portfolio

The Board reviewed the fund's relative investment performance against its Lipper peer group and stated that the performance of Initial Class of the fund was in the third quartile for the one- and five-year periods and the fourth quartile for the three-year period. The Board also stated that the relative investment performance of the fund was lower than its benchmark for all the periods shown. The Board considered that the variations in performance among the fund's classes reflect the variations in class expenses, which result in lower performance for higher expense classes. The Board discussed with FMR actions to be taken by FMR to improve the fund's disappointing performance. The Board also reviewed the fund's relative investment performance against a peer group defined by Morningstar. The Board will continue to closely monitor the performance of the fund in the coming year.

The Board considered that FMR has taken steps to refocus and strengthen equity research, equity portfolio management, and compliance. The Board noted with favor FMR's reorganization of its senior management team in 2005 and FMR's dedication of additional resources to investment research, and participated in the process that led to those changes.

Based on its review, and giving particular weight to the nature and quality of the resources dedicated by the Investment Advisers to maintain and improve relative performance, the Board concluded that the nature, extent, and quality of the services provided to the fund will benefit the fund's shareholders, particularly in light of the Board's view that the fund's shareholders benefit from investing in a fund that is part of a large family of funds offering a variety of investment disciplines and services.

Competitiveness of Management Fee and Total Fund Expenses. The Board considered the fund's management fee and total expenses compared to "mapped groups" of competitive funds and classes. Fidelity creates "mapped groups" by combining similar Lipper investment objective categories that have comparable management fee characteristics. Combining Lipper investment objective categories aids the Board's management fee and total expense comparisons by broadening the competitive group used for comparison and by reducing the number of universes to which various Fidelity funds are compared.

VIP Aggressive Growth Portfolio

The Board considered two proprietary management fee comparisons for the 12-month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the "Total Mapped Group" and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund's standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. "TMG %" represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund's. For example, a TMG % of 11% means that 89% of the funds in the Total Mapped Group had higher management fees than the fund. The "Asset-Size Peer Group" (ASPG) comparison focuses on a fund's standing relative to non-Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile in which the fund's management fee ranked, is also included in the chart and considered by the Board.

VIP Aggressive Growth Portfolio

The Board noted that the fund's management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2005.

Based on its review, the Board concluded that the fund's management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.

In its review of each class's total expenses, the Board considered the fund's management fee as well as other fund or class expenses, as applicable, such as transfer agent fees, pricing and bookkeeping fees, fund-paid 12b-1 fees, and custodial, legal, and audit fees. The Board also noted the effects of any waivers and reimbursements on fees and expenses. As part of its review, the Board also considered current and historical total expenses of each class of the fund compared to competitive fund median expenses. Each class of the fund is compared to those funds and classes in the Total Mapped Group (used by the Board for management fee comparisons) that have a similar sales load structure.

The Board noted that the total expenses of Initial Class ranked below its competitive median for 2005, and the total expenses of each of Investor Class, Service Class, and Service Class 2 ranked above its competitive median for 2005. The Board noted that the fund offers multiple classes, each of which has a different 12b-1 fee structure, and that the multiple structures are intended to offer a range of pricing options for the intermediary market. The Board also noted that the total expenses of the classes vary primarily by the level of their 12b-1 fees, although differences in transfer agent fees may also cause expenses to vary from class to class. The Board considered that Investor Class was above median primarily due to its higher transfer agent fee.

In its review of total expenses, the Board also considered Fidelity fee structures and other information on clients that FMR and its affiliates service in other competitive markets, such as other mutual funds advised or subadvised by FMR or its affiliates, pension plan clients, and other institutional clients.

Based on its review, the Board concluded that the total expenses of each class of the fund were reasonable, although in some cases above the median of the universe presented for comparison, in light of the services that the fund and its shareholders receive and the other factors considered.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees - continued

Costs of the Services and Profitability. The Board considered the revenues earned and the expenses incurred by Fidelity in conducting the business of developing, marketing, distributing, managing, administering and servicing the fund and its shareholders. The Board also considered the level of Fidelity's profits in respect of all the Fidelity funds.

On an annual basis, FMR presents to the Board Fidelity's profitability for the fund. Fidelity calculates the profitability for each fund, as well as aggregate profitability for groups of Fidelity funds and all Fidelity funds, using a series of detailed revenue and cost allocation methodologies which originate with the audited books and records of Fidelity. The Audit Committee of the Board reviews any significant changes from the prior year's methodologies.

PricewaterhouseCoopers LLP (PwC), independent registered accounting firm and auditor to Fidelity and certain Fidelity funds, has been engaged annually by the Board as part of the Board's assessment of the results of Fidelity's profitability analysis. PwC's engagement includes the review and assessment of Fidelity's methodologies used in determining the revenues and expenses attributable to Fidelity's mutual fund business, and completion of agreed-upon procedures surrounding the mathematical accuracy of fund profitability and its conformity to allocation methodologies. After considering PwC's reports issued under the engagement and information provided by Fidelity, the Board believes that while other allocation methods may also be reasonable, Fidelity's profitability methodologies are reasonable in all material respects.

The Board has also reviewed Fidelity's non-fund businesses and any fall-out benefits related to the mutual fund business as well as cases where Fidelity's affiliates may benefit from or be related to the fund's business.

The Board considered the costs of the services provided by and the profits realized by Fidelity in connection with the operation of the fund and determined that the amount of profit is a fair entrepreneurial profit for the management of the fund.

Economies of Scale. The Board considered whether there have been economies of scale in respect of the management of the Fidelity funds, whether the Fidelity funds (including the fund) have appropriately benefited from any such economies of scale, and whether there is potential for realization of any further economies of scale. The Board considered the extent to which the fund will benefit from economies of scale through increased services to the fund, through waivers or reimbursements, or through fee or expense reductions.

The Board recognized that the fund's management contract incorporates a "group fee" structure, which provides for lower fee rates as total fund assets under FMR's management increase, and for higher fee rates as total fund assets under FMR's management decrease. The Board considered that the group fee is designed to deliver the benefits of economies of scale to fund shareholders when total fund assets increase, even if assets of any particular fund are unchanged or have declined, because some portion of Fidelity's costs are attributable to services provided to all Fidelity funds, and all funds benefit if those costs can be allocated among more assets. The Board concluded that, given the group fee structure, fund shareholders will achieve a certain level of economies of scale as assets under FMR's management increase at the fund complex level, regardless of whether Fidelity achieves any such economies of scale.

The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.

Additional Information Requested by the Board. In order to develop fully the factual basis for consideration of the Advisory Contracts, the Board requested additional information on several topics, including (i) Fidelity's fund profitability methodology and profitability trends within certain funds; (ii) portfolio manager compensation; (iii) the extent to which any economies of scale exist and are shared between the funds and Fidelity; (iv) the total expenses of certain funds and classes relative to competitors, including the extent to which the expenses of certain funds have been or could be capped; (v) fund performance trends; and (vi) Fidelity's fee structures, including use of performance fees.

Based on its evaluation of all of the conclusions noted above, and after considering all material factors, the Board ultimately concluded that the advisory fee structures are fair and reasonable, and that the fund's Advisory Contracts should be renewed.

VIP Aggressive Growth Portfolio

Annual 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
(formerly Fidelity Management & Research (Far East) Inc.)

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

JPMorgan Chase Bank
New York, NY

VIPAG-ANN-0207
1.751800.106

Fidelity® Variable Insurance Products:
Balanced Portfolio

Annual Report

December 31, 2006

(2_fidelity_logos) (Registered_Trademark)

Note to Shareholders	<Click Here>	An explanation of the changes to the fund.
Performance	<Click Here>	How the fund has done over time.
Management's Discussion	<Click Here>	The manager's review of fund performance, strategy and outlook.
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.
Report of Independent Registered Public Accounting Firm	<Click Here>
Trustees and Officers	<Click Here>
Distributions	<Click Here>
Proxy Voting Results	<Click Here>
Board Approval of Investment Advisory Contracts and Management Fees	<Click Here>

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 Corp. or an affiliated company.

NOT FDIC INSURED· MAY LOSE VALUE· NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

Note to Shareholders:

On June 23, 2006, Fidelity changed its investment approach for managing the investment-grade bond portion of Fidelity® VIP Balanced Portfolio. Rather than investing solely in individual investment-grade debt securities, the fund now invests nearly all of its assets in the investment-grade sector through its investment in a central fund. Central funds are mutual funds used by this fund and other Fidelity funds as an investment vehicle to gain pooled exposure to a particular market sector - in this case, investment-grade debt. Instead of multiple funds each investing in investment-grade debt securities individually, they can now take advantage of consolidating investments in a single, larger pool of investment-grade debt securities by investing directly in central funds. Shares of the central funds are offered only to other Fidelity mutual funds and accounts; investors cannot directly invest in them. It's important to point out that this change in investment structure does not impact the fund's investment objective or risk profile, only the mechanics of how we manage its investment-grade bond portfolio.

The new approach, though, does change the way this annual report presents the fund's holdings. The Investments section continues to list direct investments of the fund, including each central fund. However, the individual investment-grade debt securities and other investments - - such as swap agreements - held by the fund on June 23 were transferred to VIP Investment Grade Central Fund, so they are no longer directly held and thus not listed. Information on the underlying holdings of the fixed-income central funds is available at advisor.fidelity.com, and the financial statements are available upon request.

If you have any questions, please call Fidelity or the insurance company that issued your policy.

Annual Report

VIP Balanced Portfolio

Performance: The Bottom Line

Average Annual Total Returns

Periods ended December 31, 2006	Past 1 year	Past 5 years	Past 10 years
VIP Balanced - Initial Class	11.78%	6.03%	6.61%
VIP Balanced - Service Class^A	11.64%	5.92%	6.49%
VIP Balanced - Service Class 2^B	11.50%	5.75%	6.38%
VIP Balanced - Investor Class^C	11.56%	5.97%	6.58%

^AThe initial offering of Service Class shares took place on November 3, 1997. Performance for Service Class shares reflects an asset-based service fee (12b-1 fee), and returns prior to November 3, 1997 are those of Initial Class and do not include the effects of Service Class' 12b-1 fee. Had Service Class shares' 12b-1 fee been reflected, returns prior to November 3, 1997 would have been lower.

^BThe initial offering of Service Class 2 shares took place on January 12, 2000. Performance for Service Class 2 shares reflects an asset-based service fee (12b-1 fee). Returns from November 3, 1997 through January 12, 2000 are those of Service Class which reflects a different 12b-1 fee. Service Class 2 returns prior to November 3, 1997 are those of Initial Class, and do not include the effects of a 12b-1 fee. Had Service Class 2's 12b-1 fee been reflected, returns prior to January 12, 2000 would have been lower.

^CThe initial offering of Investor Class shares took place on July 21, 2005. Returns prior to July 21, 2005 are those of Initial Class. If Investor Class's transfer agent fee had been reflected, returns prior to July 21, 2005 would have been lower.

$10,000 Over 10 Years

Let's say hypothetically that $10,000 was invested in VIP Balanced Portfolio - Initial Class on December 31, 1996. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor's 500^SM Index (S&P 500®)performed over the same period.

Annual Report

VIP Balanced Portfolio

Management's Discussion of Fund Performance

Comments from Larry Rakers and Ford O'Neil, Co-Portfolio Managers of VIP Balanced Portfolio

During the year, the fund did slightly better than the 11.12% return of the Fidelity Balanced 60/40 Composite Index. (For specific portfolio performance results, please refer to the performance section of this report.) The fund's equity and fixed-income holdings once again outperformed their respective components in the Fidelity Balanced Composite index, and we remained overweighted in stocks and underweighted in investment grade bonds, which helped performance. Versus the S&P 500®, which accounts for 60% of the Composite benchmark, stock selection was especially helpful in information technology and materials, while our picks in energy and financials held back the fund's gains. In the fixed-income subportfolio, our results versus the Lehman Brothers® Aggregate Bond Index, which makes up the other 40% of the Composite index, were helped by both the fund's investment-grade holdings and a small stake in high-yield bonds. The top two equity contributors were semiconductor stocks. A negligible position in poorly performing index component Intel and an overweighted stake in Freescale Semiconductor, which was acquired during the period, boosted our results. Other contributors included Canadian nickel miner Falconbridge, another takeover target, and video game maker Nintendo. On the negative side, not owning major index component Exxon Mobil held back our results because the stock beat the S&P 500. Drilling rig parts manufacturer National-Oilwell Varco further undermined the fund's performance, as did reinsurance provider Scottish Re Group. Among our investment-grade fixed-income holdings, security selection in the corporate sector - particularly within industrials - provided the biggest boost versus the Lehman Brothers index. Secondarily, sector selection had a positive impact, fueled by an emphasis on high-quality, higher-yielding securitized products such as asset-backed securities and collateralized mortgage obligations. Our yield-curve positioning aided performance as well. Conversely, a small stake in Treasury Inflation-Protected Securities - which performed poorly and are not included in the index - curbed the subportfolio's gains. As I mentioned six months ago, in late June I began using a new structure to manage the fund's investment-grade bond assets. This structure uses VIP Investment Grade Central Fund - a mutual fund shared by this and other VIP Portfolios - as a vehicle to invest in this particular sector of the bond market, rather than holding individual securities directly.

Annual Report

VIP Balanced Portfolio

Shareholder Expense Example

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2006 to December 31, 2006).

Actual Expenses

Hypothetical Example for Comparison Purposes

	Beginning Account Value July 1, 2006	Ending Account Value December 31, 2006	Expenses Paid During Period* July 1, 2006 to December 31, 2006
Initial Class
Actual	$ 1,000.00	$ 1,083.90	$ 3.20
Hypothetical^A	$ 1,000.00	$ 1,022.13	$ 3.11
Service Class
Actual	$ 1,000.00	$ 1,082.10	$ 3.78
Hypothetical^A	$ 1,000.00	$ 1,021.58	$ 3.67
Service Class 2
Actual	$ 1,000.00	$ 1,081.90	$ 4.57
Hypothetical^A	$ 1,000.00	$ 1,020.82	$ 4.43
Investor Class
Actual	$ 1,000.00	$ 1,082.60	$ 3.83
Hypothetical^A	$ 1,000.00	$ 1,021.53	$ 3.72

^A5% 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 184/365 (to reflect the one-half year period). The fees and expenses of the underlying Fidelity Central Funds in which the Fund invests are not included in the Fund's annualized expense ratio.

	Annualized Expense Ratio
Initial Class	.61%
Service Class	.72%
Service Class 2	.87%
Investor Class	.73%

Annual Report

VIP Balanced Portfolio

Investment Changes

Top Five Stocks as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
National Oilwell Varco, Inc.	1.7	1.8
General Electric Co.	1.1	1.3
Altria Group, Inc.	1.1	1.0
JPMorgan Chase & Co.	1.1	1.0
Bank of America Corp.	1.0	1.0
	6.0
Top Five Bond Issuers as of December 31, 2006
(with maturities greater than one year)	% of fund's net assets	% of fund's net assets 6 months ago
Fannie Mae	8.0	9.2
U.S. Treasury Obligations	4.6	6.3
Freddie Mac	2.0	1.4
Government National Mortgage Association	0.7	0.2
CS First Boston Mortgage Backed Securities Trust	0.3	0.2
	15.6
Top Five Market Sectors as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
Financials	17.5	15.5
Information Technology	9.3	9.9
Energy	8.4	8.7
Industrials	8.3	8.9
Consumer Discretionary	6.8	6.5

Asset Allocation (% of fund's net assets)
As of December 31, 2006*			As of June 30, 2006**
	Stocks 64.1%			Stocks 65.3%
	Bonds 32.6%			Bonds 30.4%
	Short-Term Investments and Net Other Assets 3.3%			Short-Term Investments and Net Other Assets 4.3%
* Foreign investments		10.8%	** Foreign investments		10.8%

Percentages are adjusted for the effect of futures contracts and swaps, if applicable.

The information in the above tables is based on the combined investments of the fund and its pro-rata share of the investments of Fidelity's fixed-income central funds.

For an unaudited list of holdings for each fixed-income central fund, visit advisor.fidelity.com.

Annual Report

VIP Balanced Portfolio

Investments December 31, 2006

Showing Percentage of Net Assets

Common Stocks - 64.0%
	Shares		Value (Note 1)
CONSUMER DISCRETIONARY - 6.0%
Auto Components - 0.1%
American Axle & Manufacturing Holdings, Inc.	2,800		$ 53,172
Gentex Corp.	17,500		272,300
			325,472
Automobiles - 0.1%
Coachmen Industries, Inc.	13,100		144,100
DaimlerChrysler AG	1,700		104,397
Renault SA	1,100		132,152
			380,649
Diversified Consumer Services - 0.2%
Apollo Group, Inc. Class A (a)	10,700		416,979
Carriage Services, Inc. Class A	12,700		64,643
Service Corp. International	35,900		367,975
Weight Watchers International, Inc.	1,200		63,036
			912,633
Hotels, Restaurants & Leisure - 1.0%
Aristocrat Leisure Ltd.	5,300		66,523
Carnival Corp. unit	6,500		318,825
Gaylord Entertainment Co. (a)	6,000		305,580
Greek Organization of Football Prognostics SA	7,300		282,185
McDonald's Corp.	34,700		1,538,251
OSI Restaurant Partners, Inc.	8,800		344,960
Royal Caribbean Cruises Ltd.	10,300		426,214
Six Flags, Inc.	4,200		22,008
Vail Resorts, Inc. (a)	6,300		282,366
WMS Industries, Inc. (a)	14,000		488,040
Yum! Brands, Inc.	5,200		305,760
			4,380,712
Household Durables - 0.8%
Champion Enterprises, Inc. (a)	11,300		105,768
Cyrela Brazil Realty SA	42,000		400,047
D.R. Horton, Inc.	8,100		214,569
Fortune Brands, Inc.	1,800		153,702
Furniture Brands International, Inc.	8,500		137,955
Interface, Inc. Class A (a)	20,125		286,178
La-Z-Boy, Inc. (e)	18,400		218,408
Leggett & Platt, Inc.	14,459		345,570
Sealy Corp., Inc.	6,900		101,775
Snap-On, Inc.	1,300		61,932
Sony Corp. sponsored ADR	10,900		466,847
Standard Pacific Corp.	7,100		190,209
The Stanley Works	6,500		326,885
Whirlpool Corp.	7,200		597,744
			3,607,589

	Shares		Value (Note 1)
Leisure Equipment & Products - 0.1%
Eastman Kodak Co.	12,400		$ 319,920
MarineMax, Inc. (a)	10,654		276,258
			596,178
Media - 1.8%
Clear Channel Outdoor Holding, Inc. Class A (a)	14,242		397,494
DreamWorks Animation SKG, Inc. Class A (a)	9,000		265,410
EchoStar Communications Corp. Class A (a)	9,342		355,276
Grupo Televisa SA de CV (CPO) sponsored ADR	6,700		180,967
Lamar Advertising Co. Class A (a)	9,800		640,822
Liberty Global, Inc.:
Class A (a)	10,500		306,075
Class C (a)	900		25,200
Live Nation, Inc. (a)	55,020		1,232,448
McGraw-Hill Companies, Inc.	5,400		367,308
Naspers Ltd. Class N sponsored ADR	8,700		208,539
News Corp. Class A	9,000		193,320
NTL, Inc.	22,813		575,800
Omnicom Group, Inc.	2,800		292,712
R.H. Donnelley Corp.	4,600		288,558
Radio One, Inc. Class D (non-vtg.) (a)	9,900		66,726
Salem Communications Corp. Class A	3,091		36,937
Time Warner, Inc.	108,300		2,358,774
Viacom, Inc. Class B (non-vtg.) (a)	5,500		225,665
			8,018,031
Multiline Retail - 0.7%
Family Dollar Stores, Inc.	20,800		610,064
Federated Department Stores, Inc.	14,700		560,511
Fred's, Inc. Class A	19,500		234,780
JCPenney Co., Inc.	5,000		386,800
Saks, Inc.	9,000		160,380
Sears Holdings Corp. (a)	3,400		570,962
Target Corp.	4,100		233,905
Tuesday Morning Corp.	15,986		248,582
			3,005,984
Specialty Retail - 1.1%
Aeropostale, Inc. (a)	8,200		253,134
Best Buy Co., Inc.	3,950		194,301
DCM Japan Holdings Co. Ltd. (a)	25,200		259,303
Eddie Bauer Holdings, Inc. (a)	14,500		131,370
Gamestop Corp. Class B (a)	11,700		640,692
Hibbett Sporting Goods, Inc. (a)	6,200		189,286
Home Depot, Inc.	22,400		899,584
OfficeMax, Inc.	6,700		332,655
Pacific Sunwear of California, Inc. (a)	15,000		293,700
PETsMART, Inc.	13,300		383,838
RadioShack Corp.	17,800		298,684
Sally Beauty Holdings, Inc. (a)	10,520		82,056
Staples, Inc.	16,100		429,870
Common Stocks - continued
	Shares		Value (Note 1)
CONSUMER DISCRETIONARY - continued
Specialty Retail - continued
TJX Companies, Inc.	9,400		$ 268,088
Williams-Sonoma, Inc.	2,200		69,168
			4,725,729
Textiles, Apparel & Luxury Goods - 0.1%
Hanesbrands, Inc. (a)	1,300		30,706
NIKE, Inc. Class B	2,100		207,963
			238,669
TOTAL CONSUMER DISCRETIONARY			26,191,646
CONSUMER STAPLES - 4.1%
Beverages - 0.2%
Anadolu Efes Biracilk Ve Malt Sanyii AS	3,000		92,723
Fomento Economico Mexicano SA de CV sponsored ADR	2,800		324,128
Pernod Ricard SA	200		45,943
Remy Cointreau SA	1,800		116,442
SABMiller PLC	13,800		317,579
			896,815
Food & Staples Retailing - 0.9%
CVS Corp.	23,600		729,476
Kroger Co.	13,700		316,059
Rite Aid Corp.	58,800		319,872
Safeway, Inc.	16,500		570,240
Sysco Corp.	8,200		301,432
Wal-Mart de Mexico SA de CV Series V	54,100		238,163
Wal-Mart Stores, Inc.	27,400		1,265,332
Walgreen Co.	8,600		394,654
			4,135,228
Food Products - 0.7%
Bunge Ltd.	5,000		362,550
Chiquita Brands International, Inc.	16,900		269,893
Corn Products International, Inc.	17,180		593,397
General Mills, Inc.	6,600		380,160
Global Bio-Chem Technology Group Co. Ltd.	290,000		97,682
Groupe Danone	100		15,156
Imperial Sugar Co.	300		7,263
Kellogg Co.	5,500		275,330
Koninklijke Numico NV	1,400		75,317
McCormick & Co., Inc. (non-vtg.)	1,700		65,552
Nestle SA (Reg.)	908		322,543
PAN Fish ASA (a)	15,000		13,713
Smithfield Foods, Inc. (a)	10,900		279,694
Tyson Foods, Inc. Class A	11,500		189,175
			2,947,425
Household Products - 0.8%
Colgate-Palmolive Co.	10,800		704,592
Procter & Gamble Co.	47,240		3,036,115
			3,740,707

	Shares		Value (Note 1)
Personal Products - 0.4%
Alberto-Culver Co.	10,120		$ 217,074
Avon Products, Inc.	31,200		1,030,848
Playtex Products, Inc. (a)	22,700		326,653
			1,574,575
Tobacco - 1.1%
Altria Group, Inc.	54,850		4,707,227
TOTAL CONSUMER STAPLES			18,001,977
ENERGY - 7.3%
Energy Equipment & Services - 4.5%
Baker Hughes, Inc.	11,400		851,124
BJ Services Co.	12,300		360,636
Cameron International Corp. (a)	12,600		668,430
Global Industries Ltd. (a)	11,000		143,440
GlobalSantaFe Corp.	7,000		411,460
Halliburton Co.	73,300		2,275,965
Input/Output, Inc. (a)	900		12,267
Nabors Industries Ltd. (a)	10,300		306,734
National Oilwell Varco, Inc. (a)	119,900		7,335,468
Noble Corp.	6,600		502,590
Pride International, Inc. (a)	109,300		3,280,093
Schlumberger Ltd. (NY Shares)	1,300		82,108
Smith International, Inc.	23,400		961,038
Superior Energy Services, Inc. (a)	6,300		205,884
Transocean, Inc. (a)	4,800		388,272
W-H Energy Services, Inc. (a)	5,600		272,664
Weatherford International Ltd. (a)	41,900		1,751,001
Willbros Group, Inc. (a)(e)	3,000		56,700
			19,865,874
Oil, Gas & Consumable Fuels - 2.8%
Alpha Natural Resources, Inc. (a)	9,300		132,339
Aurora Oil & Gas Corp. (a)	96,913		311,091
Cabot Oil & Gas Corp.	5,500		333,575
Cameco Corp.	300		12,144
Chesapeake Energy Corp.	17,300		502,565
China Coal Energy Co. Ltd. (H Shares)	18,000		11,686
Ellora Energy, Inc. (a)(f)	30,267		363,204
EnCana Corp.	1,800		82,837
Energy Partners Ltd. (a)	8,400		205,128
EOG Resources, Inc.	7,200		449,640
Evergreen Energy, Inc. (a)(e)	16,500		164,175
Foundation Coal Holdings, Inc.	9,100		289,016
Goodrich Petroleum Corp.	5,200		188,136
Helix Energy Solutions Group, Inc. (a)	7,900		247,823
International Coal Group, Inc. (a)	16,700		91,015
Mariner Energy, Inc. (a)	3,100		60,760
Massey Energy Co.	9,400		218,362
Noble Energy, Inc.	3,200		157,024
OMI Corp.	9,600		203,232
Petroleum Development Corp. (a)	4,400		189,420
Petroplus Holdings AG	5,300		321,752
Common Stocks - continued
	Shares		Value (Note 1)
ENERGY - continued
Oil, Gas & Consumable Fuels - continued
Plains Exploration & Production Co. (a)	8,400		$ 399,252
Quicksilver Resources, Inc. (a)	14,500		530,555
Range Resources Corp.	22,950		630,207
Southwestern Energy Co. (a)	15,200		532,760
SXR Uranium One, Inc. (a)	36,400		499,485
Teekay Offshore Partners LP (a)	700		18,452
Tesoro Corp.	1,900		124,963
Ultra Petroleum Corp. (a)	7,700		367,675
Valero Energy Corp.	84,197		4,307,519
Williams Companies, Inc.	10,000		261,200
			12,206,992
TOTAL ENERGY			32,072,866
FINANCIALS - 14.3%
Capital Markets - 1.9%
American Capital Strategies Ltd.	10,200		471,852
Ameriprise Financial, Inc.	1,980		107,910
Bank of New York Co., Inc.	20,900		822,833
Charles Schwab Corp.	1,400		27,076
Cowen Group, Inc.	12,760		269,874
E*TRADE Financial Corp.	42,100		943,882
Franklin Resources, Inc.	1,600		176,272
Goldman Sachs Group, Inc.	2,400		478,440
Investors Financial Services Corp.	4,753		202,811
Lazard Ltd. Class A	14,800		700,632
Lehman Brothers Holdings, Inc.	5,000		390,600
Mellon Financial Corp.	5,200		219,180
Merrill Lynch & Co., Inc.	20,900		1,945,790
Northern Trust Corp.	5,600		339,864
State Street Corp.	7,500		505,800
TD Ameritrade Holding Corp.	800		12,944
Thomas Weisel Partners Group, Inc.	10,938		230,792
UBS AG (Reg.)	8,243		497,300
			8,343,852
Commercial Banks - 2.5%
ABN-AMRO Holding NV sponsored ADR	11,000		352,550
Aozora Bank Ltd.	13,000		50,559
Banco Bilbao Vizcaya Argentaria SA sponsored ADR	23,300		560,598
Banco Nossa Caixa SA	13,900		319,964
Bank of Baroda	2,672		15,905
Barclays PLC	2,700		39,245
Boston Private Financial Holdings, Inc.	8,000		225,680
Colonial Bancgroup, Inc.	17,300		445,302
Erste Bank AG	400		30,681
Hanmi Financial Corp.	13,300		299,649
Industrial & Commercial Bank of China	198,000		122,950
Nara Bancorp, Inc.	8,700		182,004
National Australia Bank Ltd.	13,010		414,369

	Shares		Value (Note 1)
PNC Financial Services Group, Inc.	13,200		$ 977,328
R&G Financial Corp. Class B	29,900		228,735
Societe Generale Series A	1,910		324,275
SVB Financial Group (a)	3,600		167,832
Synovus Financial Corp.	10,200		314,466
UCBH Holdings, Inc.	31,900		560,164
Uniao de Bancos Brasileiros SA (Unibanco) GDR	1,600		148,736
Unicredito Italiano Spa	39,100		342,756
UnionBanCal Corp.	500		30,625
Wachovia Corp.	43,627		2,484,558
Wells Fargo & Co.	56,100		1,994,916
Wilshire Bancorp, Inc.	14,500		275,065
Wintrust Financial Corp.	3,800		182,476
Zions Bancorp	400		32,976
			11,124,364
Consumer Finance - 0.5%
Aiful Corp.	2,700		75,976
American Express Co.	9,700		588,499
Capital One Financial Corp. (e)	10,400		798,928
ORIX Corp.	990		286,480
SLM Corp.	7,900		385,283
			2,135,166
Diversified Financial Services - 3.1%
Bank of America Corp.	83,605		4,463,671
Citigroup, Inc.	51,600		2,874,120
FirstRand Ltd.	52,100		165,090
JPMorgan Chase & Co.	96,000		4,636,800
Kotak Mahindra Bank Ltd. sponsored GDR (f)	10,283		92,886
Moody's Corp.	2,500		172,650
PICO Holdings, Inc. (a)	1,388		48,261
PICO Holdings, Inc. (a)(i)	40,108		1,394,555
			13,848,033
Insurance - 3.1%
ACE Ltd.	20,300		1,229,571
AFLAC, Inc.	12,800		588,800
American International Group, Inc.	58,350		4,181,361
Aspen Insurance Holdings Ltd.	20,100		529,836
Axis Capital Holdings Ltd.	3,300		110,121
Endurance Specialty Holdings Ltd.	5,600		204,848
Fidelity National Financial, Inc. Class A	8,800		210,144
First Mercury Financial Corp.	900		21,168
Hartford Financial Services Group, Inc.	10,900		1,017,079
IPC Holdings Ltd.	6,200		194,990
MBIA, Inc.	2,200		160,732
MetLife, Inc.	12,800		755,328
Montpelier Re Holdings Ltd.	12,400		230,764
Navigators Group, Inc. (a)	3,500		168,630
PartnerRe Ltd.	6,800		483,004
Platinum Underwriters Holdings Ltd.	8,600		266,084
Prudential Financial, Inc.	5,900		506,574
PXRE Group Ltd.	19,800		91,278
Common Stocks - continued
	Shares		Value (Note 1)
FINANCIALS - continued
Insurance - continued
Scottish Re Group Ltd.	52,300		$ 279,282
T&D Holdings, Inc.	6,850		452,831
The St. Paul Travelers Companies, Inc.	15,249		818,719
Universal American Financial Corp. (a)	16,400		305,696
USI Holdings Corp. (a)	13,700		210,432
XL Capital Ltd. Class A	5,700		410,514
			13,427,786
Real Estate Investment Trusts - 1.7%
Alexandria Real Estate Equities, Inc.	1,900		190,760
Annaly Capital Management, Inc.	39,000		542,490
BioMed Realty Trust, Inc.	3,600		102,960
Brandywine Realty Trust (SBI)	1,800		59,850
CapitalSource, Inc.	10,800		294,948
CBL & Associates Properties, Inc.	4,200		182,070
CBRE Realty Finance, Inc.	5,500		86,405
Columbia Equity Trust, Inc.	4,600		87,906
Developers Diversified Realty Corp.	12,400		780,580
Douglas Emmett, Inc.	2,500		66,475
Duke Realty LP	9,500		388,550
Education Realty Trust, Inc.	4,406		65,077
Equity Lifestyle Properties, Inc.	900		48,987
Equity Office Properties Trust	18,700		900,779
Equity One, Inc.	6,300		167,958
Equity Residential (SBI)	3,400		172,550
General Growth Properties, Inc.	7,900		412,617
Health Care Property Investors, Inc.	2,400		88,368
Highwoods Properties, Inc. (SBI)	2,300		93,748
HomeBanc Mortgage Corp., Georgia	17,300		73,179
Host Hotels & Resorts, Inc.	14,277		350,500
Pennsylvania (REIT) (SBI)	3,600		141,768
Potlatch Corp.	1,600		70,112
Public Storage, Inc.	1,800		175,500
Ramco-Gershenson Properties Trust (SBI)	2,100		80,094
Spirit Finance Corp.	4,500		56,115
Tanger Factory Outlet Centers, Inc.	1,500		58,620
United Dominion Realty Trust, Inc. (SBI)	25,900		823,361
Ventas, Inc.	4,800		203,136
Vornado Realty Trust	4,500		546,750
			7,312,213
Real Estate Management & Development - 0.1%
Mitsubishi Estate Co. Ltd.	8,000		206,972
Mitsui Fudosan Co. Ltd.	11,000		268,417
			475,389
Thrifts & Mortgage Finance - 1.4%
Countrywide Financial Corp.	23,100		980,595
Doral Financial Corp.	4,200		12,054
Fannie Mae	27,500		1,633,225
Freddie Mac	23,900		1,622,810
Hudson City Bancorp, Inc.	41,700		578,796

	Shares		Value (Note 1)
MGIC Investment Corp.	3,900		$ 243,906
NetBank, Inc.	73,700		341,968
NewAlliance Bancshares, Inc.	15,500		254,200
Radian Group, Inc.	5,100		274,941
W Holding Co., Inc.	36,500		217,540
			6,160,035
TOTAL FINANCIALS			62,826,838
HEALTH CARE - 6.4%
Biotechnology - 0.9%
Amgen, Inc. (a)	10,700		730,917
Biogen Idec, Inc. (a)	6,300		309,897
Cephalon, Inc. (a)	12,300		866,043
DUSA Pharmaceuticals, Inc. (a)	19,800		85,140
Genentech, Inc. (a)	3,700		300,181
Gilead Sciences, Inc. (a)	4,300		279,199
MannKind Corp. (a)	11,800		194,582
MedImmune, Inc. (a)	12,900		417,573
OSI Pharmaceuticals, Inc. (a)	10,700		374,286
PDL BioPharma, Inc. (a)	6,200		124,868
Solexa, Inc. (a)	12,826		168,662
Vertex Pharmaceuticals, Inc. (a)	4,200		157,164
			4,008,512
Health Care Equipment & Supplies - 1.2%
Advanced Medical Optics, Inc. (a)	9,100		320,320
Alcon, Inc.	3,880		433,668
American Medical Systems Holdings, Inc. (a)	6,300		116,676
ArthroCare Corp. (a)	4,231		168,902
Aspect Medical Systems, Inc. (a)	14,700		276,507
Baxter International, Inc.	27,300		1,266,447
Becton, Dickinson & Co.	3,900		273,585
C.R. Bard, Inc.	7,600		630,572
Cooper Companies, Inc.	13,300		591,850
Dade Behring Holdings, Inc.	4,230		168,396
Hologic, Inc. (a)	400		18,912
Inverness Medical Innovations, Inc. (a)	9,300		359,910
Inverness Medical Innovations, Inc. (a)(i)	6,471		250,428
Respironics, Inc. (a)	8,400		317,100
			5,193,273
Health Care Providers & Services - 1.8%
Acibadem Saglik Hizmetleri AS	21,000		225,503
Brookdale Senior Living, Inc.	6,600		316,800
Cardinal Health, Inc.	3,800		244,834
Caremark Rx, Inc.	7,200		411,192
Community Health Systems, Inc. (a)	3,700		135,124
DaVita, Inc. (a)	5,000		284,400
Health Net, Inc. (a)	19,100		929,406
Humana, Inc. (a)	4,314		238,607
McKesson Corp.	6,600		334,620
Medco Health Solutions, Inc. (a)	12,400		662,656
Common Stocks - continued
	Shares		Value (Note 1)
HEALTH CARE - continued
Health Care Providers & Services - continued
Omnicare, Inc.	12,900		$ 498,327
Sierra Health Services, Inc. (a)	8,400		302,736
Sunrise Senior Living, Inc. (a)	9,000		276,480
United Surgical Partners International, Inc. (a)	13,300		377,055
UnitedHealth Group, Inc.	49,000		2,632,770
			7,870,510
Health Care Technology - 0.3%
Cerner Corp. (a)	7,400		336,700
Eclipsys Corp. (a)	7,600		156,256
Emdeon Corp. (a)	34,800		431,172
IMS Health, Inc.	9,700		266,556
			1,190,684
Life Sciences Tools & Services - 0.3%
Affymetrix, Inc. (a)	9,172		211,506
Charles River Laboratories International, Inc. (a)	16,700		722,275
Pharmaceutical Product Development, Inc.	4,500		144,990
Thermo Fisher Scientific, Inc. (a)	1,400		63,406
Varian, Inc. (a)	4,900		219,471
			1,361,648
Pharmaceuticals - 1.9%
Atherogenics, Inc. (a)	10,800		107,028
Barr Pharmaceuticals, Inc. (a)	8,300		415,996
Endo Pharmaceuticals Holdings, Inc. (a)	10,842		299,022
Johnson & Johnson	34,100		2,251,282
Merck & Co., Inc.	40,700		1,774,520
MGI Pharma, Inc. (a)	19,961		367,482
New River Pharmaceuticals, Inc. (a)	10,400		568,984
Novartis AG sponsored ADR	13,200		758,208
Schering-Plough Corp.	13,400		316,776
Teva Pharmaceutical Industries Ltd. sponsored ADR	18,100		562,548
Wyeth	22,000		1,120,240
			8,542,086
TOTAL HEALTH CARE			28,166,713
INDUSTRIALS - 7.6%
Aerospace & Defense - 1.3%
DRS Technologies, Inc.	7,900		416,172
DynCorp International, Inc. Class A	14,300		226,941
General Dynamics Corp.	14,000		1,040,900
Hexcel Corp. (a)	42,178		734,319
Honeywell International, Inc.	23,600		1,067,664
KBR, Inc.	5,100		133,416
Precision Castparts Corp.	4,550		356,174
Raytheon Co.	10,600		559,680
Raytheon Co. warrants 6/16/11 (a)	200		3,584

	Shares		Value (Note 1)
Rockwell Collins, Inc.	6,300		$ 398,727
Spirit AeroSystems Holdings, Inc. Class A	5,900		197,473
Stanley, Inc.	800		13,528
United Technologies Corp.	11,500		718,980
			5,867,558
Air Freight & Logistics - 0.4%
EGL, Inc. (a)	10,200		303,756
FedEx Corp.	2,700		293,274
Forward Air Corp.	3,700		107,041
United Parcel Service, Inc. Class B	7,500		562,350
UTI Worldwide, Inc.	10,600		316,940
			1,583,361
Airlines - 0.3%
AirTran Holdings, Inc. (a)	60,300		707,922
Frontier Airlines Holdings, Inc. (a)(e)	66,100		489,140
TAM SA (PN) sponsored ADR (ltd. vtg.)	8,100		243,081
			1,440,143
Building Products - 0.1%
Goodman Global, Inc.	6,995		120,314
Masco Corp.	16,200		483,894
			604,208
Commercial Services & Supplies - 0.8%
Administaff, Inc.	4,900		209,573
Allied Waste Industries, Inc.	17,000		208,930
CDI Corp.	5,257		130,899
Cintas Corp.	8,300		329,593
Clean Harbors, Inc. (a)	12,900		624,489
Comsys IT Partners, Inc. (a)	437		8,832
Covanta Holding Corp. (a)	19,300		425,372
Diamond Management & Technology Consultants, Inc.	19,667		244,657
Kforce, Inc. (a)	15,588		189,706
The Brink's Co.	10,700		683,944
Waste Management, Inc.	12,100		444,917
			3,500,912
Construction & Engineering - 1.2%
Chicago Bridge & Iron Co. NV (NY Shares)	35,300		965,102
Fluor Corp.	25,200		2,057,580
Foster Wheeler Ltd. (a)	2,400		132,336
Hyundai Engineering & Construction Co. Ltd. (a)	4,853		297,442
Infrasource Services, Inc. (a)	900		19,593
Shaw Group, Inc. (a)	40,600		1,360,100
Washington Group International, Inc.	7,728		462,057
			5,294,210
Electrical Equipment - 0.1%
ABB Ltd. sponsored ADR	13,600		244,528
Cooper Industries Ltd. Class A	2,000		180,860
GrafTech International Ltd. (a)	12,300		85,116
			510,504
Common Stocks - continued
	Shares		Value (Note 1)
INDUSTRIALS - continued
Industrial Conglomerates - 1.6%
General Electric Co.	128,200		$ 4,770,322
McDermott International, Inc. (a)	11,100		564,546
Smiths Group PLC	1,669		32,410
Tyco International Ltd.	47,100		1,431,840
			6,799,118
Machinery - 0.5%
Atlas Copco AB (B Shares)	10,400		337,263
Briggs & Stratton Corp.	8,500		229,075
Danaher Corp.	3,600		260,784
Deere & Co.	6,600		627,462
Flowserve Corp. (a)	3,900		196,833
Gardner Denver, Inc. (a)	5,100		190,281
Oshkosh Truck Co.	4,400		213,048
			2,054,746
Marine - 0.3%
Alexander & Baldwin, Inc.	21,427		950,073
American Commercial Lines, Inc. (a)	3,000		196,530
			1,146,603
Road & Rail - 0.6%
Burlington Northern Santa Fe Corp.	11,600		856,196
Canadian National Railway Co.	2,900		124,531
CSX Corp.	14,200		488,906
Laidlaw International, Inc.	32,100		976,803
Norfolk Southern Corp.	3,200		160,928
Universal Truckload Services, Inc. (a)	5,460		129,675
YRC Worldwide, Inc. (a)	2,000		75,460
			2,812,499
Trading Companies & Distributors - 0.3%
UAP Holding Corp.	16,600		417,988
WESCO International, Inc. (a)	16,000		940,960
			1,358,948
Transportation Infrastructure - 0.1%
Grupo Aeroportuario del Pacifico SA de CV sponsored ADR	9,100		356,629
TOTAL INDUSTRIALS			33,329,439
INFORMATION TECHNOLOGY - 9.0%
Communications Equipment - 1.0%
Adtran, Inc.	4,900		111,230
Alcatel-Lucent SA sponsored ADR	21,062		299,502
Andrew Corp. (a)	23,100		236,313
Blue Coat Systems, Inc. (a)	10,200		244,290
Comverse Technology, Inc. (a)	2,700		56,997
Dycom Industries, Inc. (a)	32,500		686,400
Harris Corp.	15,400		706,244
Juniper Networks, Inc. (a)	6,200		117,428
MasTec, Inc. (a)	34,200		394,668
Motorola, Inc.	31,200		641,472
Nortel Networks Corp. (a)	12,150		325,945

	Shares		Value (Note 1)
Powerwave Technologies, Inc. (a)	10,700		$ 69,015
QUALCOMM, Inc.	8,500		321,215
			4,210,719
Computers & Peripherals - 1.3%
Electronics for Imaging, Inc. (a)	15,000		398,700
Hewlett-Packard Co.	27,200		1,120,368
Hutchinson Technology, Inc. (a)	5,500		129,635
Imation Corp.	3,800		176,434
Intermec, Inc. (a)	13,454		326,529
International Business Machines Corp.	1,800		174,870
NCR Corp. (a)	17,000		726,920
Seagate Technology	92,327		2,446,666
Sun Microsystems, Inc. (a)	61,900		335,498
			5,835,620
Electronic Equipment & Instruments - 1.2%
Agilent Technologies, Inc. (a)	18,200		634,270
Amphenol Corp. Class A	12,100		751,168
Avnet, Inc. (a)	14,600		372,738
CPI International, Inc.	2,100		31,500
Flextronics International Ltd. (a)	92,000		1,056,160
FLIR Systems, Inc. (a)	8,459		269,250
Ingram Micro, Inc. Class A (a)	25,700		524,537
Jabil Circuit, Inc.	6,100		149,755
Molex, Inc.	8,400		265,692
Solectron Corp. (a)	206,000		663,320
Symbol Technologies, Inc.	11,500		171,810
Tektronix, Inc.	11,600		338,372
			5,228,572
Internet Software & Services - 0.5%
aQuantive, Inc. (a)	4,000		98,640
Google, Inc. Class A (sub. vtg.) (a)	2,560		1,178,829
ValueClick, Inc. (a)	5,400		127,602
VeriSign, Inc. (a)	8,500		204,425
Yahoo!, Inc. (a)	29,500		753,430
			2,362,926
IT Services - 0.3%
First Data Corp.	14,000		357,280
Paychex, Inc.	6,500		257,010
Satyam Computer Services Ltd. sponsored ADR	12,600		302,526
SI International, Inc. (a)	3,400		110,228
The Western Union Co.	12,600		282,492
Unisys Corp. (a)	9,800		76,832
			1,386,368
Office Electronics - 0.2%
Xerox Corp. (a)	44,700		757,665
Semiconductors & Semiconductor Equipment - 3.0%
Agere Systems, Inc. (a)	12,100		231,957
Altera Corp. (a)	7,500		147,600
AMIS Holdings, Inc. (a)	28,000		295,960
Analog Devices, Inc.	17,300		568,651
Applied Micro Circuits Corp. (a)	42,700		152,012
Common Stocks - continued
	Shares		Value (Note 1)
INFORMATION TECHNOLOGY - continued
Semiconductors & Semiconductor Equipment - continued
ASAT Holdings Ltd. warrants 7/24/11 (a)	48		$ 230
ASML Holding NV (NY Shares) (a)	25,900		637,917
Atmel Corp. (a)	34,500		208,725
ATMI, Inc. (a)	23,043		703,503
Axcelis Technologies, Inc. (a)	68,500		399,355
Credence Systems Corp. (a)	62,057		322,696
Cymer, Inc. (a)	7,900		347,205
Cypress Semiconductor Corp. (a)	35,000		590,450
DSP Group, Inc. (a)	11,600		251,720
Entegris, Inc. (a)	15,600		168,792
Exar Corp. (a)	4,500		58,500
Fairchild Semiconductor International, Inc. (a)	42,800		719,468
Hittite Microwave Corp. (a)	8,860		286,355
Integrated Device Technology, Inc. (a)	26,600		411,768
Intel Corp.	20,200		409,050
Intersil Corp. Class A	35,500		849,160
Linear Technology Corp.	7,700		233,464
LTX Corp. (a)	56,000		313,600
Maxim Integrated Products, Inc.	19,000		581,780
Microchip Technology, Inc.	15,900		519,930
Microsemi Corp. (a)	13,000		255,450
National Semiconductor Corp.	44,000		998,800
PMC-Sierra, Inc. (a)	20,200		135,542
Renewable Energy Corp. AS	5,800		106,047
Rudolph Technologies, Inc. (a)	23,076		367,370
Samsung Electronics Co. Ltd.	1,210		797,559
Spansion, Inc. Class A	24,000		356,640
Teradyne, Inc. (a)	15,500		231,880
Verigy Ltd.	3,654		64,859
Xilinx, Inc.	14,700		350,007
			13,074,002
Software - 1.5%
Amdocs Ltd. (a)	5,400		209,250
BEA Systems, Inc. (a)	29,150		366,707
Cognos, Inc. (a)	11,900		505,274
Fair, Isaac & Co., Inc.	12,100		491,865
Hyperion Solutions Corp. (a)	10,600		380,964
Macrovision Corp. (a)	5,306		149,948
Microsoft Corp.	52,600		1,570,636
Nintendo Co. Ltd.	4,900		1,271,819
Opsware, Inc. (a)	26,031		229,593
Parametric Technology Corp. (a)	8,100		145,962
Quest Software, Inc. (a)	11,600		169,940
Symantec Corp. (a)	18,305		381,659

	Shares		Value (Note 1)
Take-Two Interactive Software, Inc. (a)	33,176		$ 589,206
Wind River Systems, Inc. (a)	25,000		256,250
			6,719,073
TOTAL INFORMATION TECHNOLOGY			39,574,945
MATERIALS - 4.0%
Chemicals - 1.3%
Air Products & Chemicals, Inc.	3,600		253,008
Arkema sponsored ADR (a)	5,800		296,670
Ashland, Inc.	11,700		809,406
Celanese Corp. Class A	31,200		807,456
Chemtura Corp.	70,900		682,767
Cytec Industries, Inc.	8,600		485,986
FMC Corp.	4,400		336,820
Israel Chemicals Ltd.	58,600		366,359
Monsanto Co.	17,400		914,022
The Mosaic Co.	44,400		948,384
			5,900,878
Construction Materials - 0.1%
Texas Industries, Inc. (e)	7,000		449,610
Containers & Packaging - 0.2%
Owens-Illinois, Inc.	21,300		392,985
Smurfit-Stone Container Corp. (a)	25,802		272,469
			665,454
Metals & Mining - 2.3%
Agnico-Eagle Mines Ltd.	400		16,497
Alcoa, Inc.	39,200		1,176,392
Allegheny Technologies, Inc.	10,800		979,344
Aquarius Platinum Ltd. (Australia)	7,100		156,821
Carpenter Technology Corp.	5,400		553,608
Compass Minerals International, Inc.	13,200		416,592
Goldcorp, Inc.	22,100		627,557
IPSCO, Inc.	2,900		272,223
Meridian Gold, Inc. (a)	34,300		953,987
Mittal Steel Co. NV Class A (NY Shares)	3,600		151,848
Oregon Steel Mills, Inc. (a)	8,797		549,021
Phelps Dodge Corp.	5,348		640,263
Reliance Steel & Aluminum Co.	7,700		303,226
Stillwater Mining Co. (a)	24,800		309,752
Sumitomo Metal Industries Ltd.	18,000		78,169
Teck Cominco Ltd. Class B (sub. vtg.)	6,400		482,470
Titanium Metals Corp.	89,618		2,644,627
			10,312,397
Paper & Forest Products - 0.1%
Louisiana-Pacific Corp.	2,700		58,131
Weyerhaeuser Co.	4,800		339,120
			397,251
TOTAL MATERIALS			17,725,590
Common Stocks - continued
	Shares		Value (Note 1)
TELECOMMUNICATION SERVICES - 2.8%
Diversified Telecommunication Services - 2.4%
AT&T, Inc.	79,370		$ 2,837,478
BellSouth Corp.	76,400		3,599,204
Cogent Communications Group, Inc. (a)	8,900		144,358
Covad Communications Group, Inc. (a)	257,200		354,936
Telenor ASA sponsored ADR	4,300		242,649
Time Warner Telecom, Inc. Class A (sub. vtg.) (a)	1,800		35,874
Verizon Communications, Inc.	84,000		3,128,160
			10,342,659
Wireless Telecommunication Services - 0.4%
America Movil SA de CV Series L sponsored ADR	6,300		284,886
American Tower Corp. Class A (a)	16,670		621,458
Crown Castle International Corp. (a)	10,900		352,070
DigitalGlobe, Inc. (a)(f)	163		408
NII Holdings, Inc. (a)	7,400		476,856
Vivo Participacoes SA (PN) sponsored ADR	52,000		213,200
			1,948,878
TOTAL TELECOMMUNICATION SERVICES			12,291,537
UTILITIES - 2.5%
Electric Utilities - 0.9%
Ceske Energeticke Zavody AS	100		4,608
DPL, Inc.	10,600		294,468
E.ON AG	2,700		366,039
Edison International	8,700		395,676
Entergy Corp.	10,100		932,432
Exelon Corp.	8,956		554,287
FPL Group, Inc.	10,900		593,178
PPL Corp.	15,900		569,856
Reliant Energy, Inc. (a)	12,400		176,204
			3,886,748
Gas Utilities - 0.1%
Equitable Resources, Inc.	9,300		388,275
Independent Power Producers & Energy Traders - 1.0%
AES Corp. (a)	88,200		1,943,928
Constellation Energy Group, Inc.	3,000		206,610
Mirant Corp. (a)	10,900		344,113
NRG Energy, Inc.	8,500		476,085
TXU Corp.	32,200		1,745,562
			4,716,298
Multi-Utilities - 0.5%
CMS Energy Corp. (a)	37,300		622,910
Dominion Resources, Inc.	8,200		687,488
PG&E Corp.	6,200		293,446

	Shares		Value (Note 1)
Public Service Enterprise Group, Inc.	7,200		$ 477,936
RWE AG	700		77,166
			2,158,946
TOTAL UTILITIES			11,150,267
TOTAL COMMON STOCKS (Cost $239,866,254)		281,331,818
Convertible Preferred Stocks - 0.1%

FINANCIALS - 0.1%
Insurance - 0.1%
Platinum Underwriters Holdings Ltd. Series A, 6.00%	4,400		134,112
XL Capital Ltd. 6.50%	8,800		206,888
			341,000
INFORMATION TECHNOLOGY - 0.0%
Semiconductors & Semiconductor Equipment - 0.0%
ASAT Holdings Ltd. 13.00% (a)	48		409
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $331,242)		341,409

Corporate Bonds - 1.7%
	Principal Amount
Convertible Bonds - 0.2%
CONSUMER DISCRETIONARY - 0.0%
Automobiles - 0.0%
Ford Motor Co. 4.25% 12/15/36	$ 130,000		139,139
ENERGY - 0.1%
Oil, Gas & Consumable Fuels - 0.1%
McMoRan Exploration Co. 6% 7/2/08	260,000		311,254
HEALTH CARE - 0.1%
Biotechnology - 0.0%
MannKind Corp. 3.75% 12/15/13	90,000		92,982
Pharmaceuticals - 0.1%
New River Pharmaceuticals, Inc. 3.5% 8/1/13 (f)	180,000		309,186
TOTAL HEALTH CARE			402,168
TOTAL CONVERTIBLE BONDS			852,561
Corporate Bonds - continued
	Principal Amount		Value (Note 1)
Nonconvertible Bonds - 1.5%
CONSUMER DISCRETIONARY - 0.3%
Auto Components - 0.0%
The Goodyear Tire & Rubber Co.:
8.625% 12/1/11 (f)	$ 10,000		$ 10,325
9% 7/1/15	20,000		20,950
			31,275
Automobiles - 0.0%
General Motors Corp. 8.375% 7/15/33	30,000		27,675
Diversified Consumer Services - 0.0%
Carriage Services, Inc. 7.875% 1/15/15	50,000		48,813
Education Management LLC/Education Management Finance Corp. 8.75% 6/1/14 (f)	20,000		20,700
			69,513
Hotels, Restaurants & Leisure - 0.1%
Carrols Corp. 9% 1/15/13	80,000		81,600
MGM Mirage, Inc. 5.875% 2/27/14	70,000		64,575
Six Flags, Inc. 9.625% 6/1/14	15,000		13,913
Trump Entertainment Resorts Holdings LP 8.5% 6/1/15	5,000		4,988
			165,076
Leisure Equipment & Products - 0.0%
Riddell Bell Holdings, Inc. 8.375% 10/1/12	15,000		14,850
Media - 0.1%
Cablevision Systems Corp. 9.87% 4/1/09 (g)	50,000		52,438
Charter Communications Holdings II LLC/Charter Communications Holdings II Capital Corp. Series B, 10.25% 9/15/10	30,000		31,463
Charter Communications Operating LLC/Charter Communications Operating Capital Corp. 8% 4/30/12 (f)	80,000		82,200
CSC Holdings, Inc. 7.625% 4/1/11	40,000		40,900
Dex Media West LLC/Dex Media West Finance Co. 9.875% 8/15/13	39,000		42,510
EchoStar Communications Corp. 7.125% 2/1/16	40,000		39,952
MediMedia USA, Inc. 11.375% 11/15/14 (f)	10,000		10,475
Nielsen Finance LLC/Co. 10% 8/1/14 (f)	50,000		54,000
PanAmSat Corp. 9% 6/15/16 (f)	50,000		52,938
Paxson Communications Corp.:
8.6238% 1/15/12 (f)(g)	65,000		65,975

	Principal Amount		Value (Note 1)
11.6238% 1/15/13 (f)(g)	$ 30,000		$ 30,300
The Reader's Digest Association, Inc. 6.5% 3/1/11	25,000		25,656
			528,807
Specialty Retail - 0.1%
Asbury Automotive Group, Inc. 8% 3/15/14	60,000		60,750
AutoNation, Inc. 7.3738% 4/15/13 (g)	10,000		10,038
GNC Parent Corp. 12.14% 12/1/11 pay-in-kind (f)(g)	30,000		30,000
GSC Holdings Corp./Gamestop, Inc. 8% 10/1/12	20,000		20,900
Sally Holdings LLC:
9.25% 11/15/14 (f)	20,000		20,450
10.5% 11/15/16 (f)	20,000		20,450
Sonic Automotive, Inc. 8.625% 8/15/13	110,000		113,300
United Auto Group, Inc. 7.75% 12/15/16 (f)	30,000		30,038
			305,926
Textiles, Apparel & Luxury Goods - 0.0%
Hanesbrands, Inc. 8.735% 12/15/14 (f)(g)	20,000		20,325
TOTAL CONSUMER DISCRETIONARY			1,163,447
CONSUMER STAPLES - 0.0%
Food & Staples Retailing - 0.0%
Jean Coutu Group, Inc. 7.625% 8/1/12	15,000		15,750
Rite Aid Corp.:
6.875% 8/15/13	5,000		4,375
7.7% 2/15/27	30,000		24,600
			44,725
Food Products - 0.0%
National Beef Packing Co. LLC/National Beef Finance Corp. 10.5% 8/1/11	40,000		41,900
Swift & Co. 10.125% 10/1/09	40,000		40,800
			82,700
Tobacco - 0.0%
Reynolds American, Inc. 7.625% 6/1/16	30,000		32,100
TOTAL CONSUMER STAPLES			159,525
ENERGY - 0.1%
Energy Equipment & Services - 0.0%
Complete Production Services, Inc. 8% 12/15/16 (f)	30,000		30,675
Hornbeck Offshore Services, Inc. 6.125% 12/1/14	20,000		19,100
			49,775
Corporate Bonds - continued
	Principal Amount		Value (Note 1)
Nonconvertible Bonds - continued
ENERGY - continued
Oil, Gas & Consumable Fuels - 0.1%
Chesapeake Energy Corp.:
6.5% 8/15/17	$ 15,000		$ 14,606
6.625% 1/15/16	5,000		4,988
7.5% 6/15/14	40,000		41,600
El Paso Corp.:
7.625% 9/1/08	10,000		10,268
7.75% 6/15/10	35,000		36,767
7.875% 6/15/12	85,000		89,463
Massey Energy Co. 6.875% 12/15/13	40,000		37,600
Petrohawk Energy Corp. 9.125% 7/15/13	30,000		31,350
Plains All American Pipeline LP 6.65% 1/15/37 (f)	165,000		167,521
Pogo Producing Co.:
6.625% 3/15/15	30,000		28,650
7.875% 5/1/13	15,000		15,225
Range Resources Corp. 7.375% 7/15/13	20,000		20,400
Tennessee Gas Pipeline Co.:
7% 10/15/28	15,000		15,810
8.375% 6/15/32	10,000		11,913
Williams Partners LP/Williams Partners Finance Corp. 7.25% 2/1/17 (f)	30,000		30,600
			556,761
TOTAL ENERGY			606,536
FINANCIALS - 0.2%
Capital Markets - 0.0%
Janus Capital Group, Inc. 5.875% 9/15/11	52,000		52,329
Consumer Finance - 0.1%
Ford Motor Credit Co.:
6.315% 3/21/07 (g)	20,000		19,976
7% 10/1/13	45,000		42,975
9.75% 9/15/10 (f)	10,000		10,625
9.8238% 4/15/12 (g)	20,000		21,325
9.875% 8/10/11	115,000		122,995
General Motors Acceptance Corp.:
6.75% 12/1/14	75,000		77,250
6.875% 9/15/11	35,000		35,875
6.875% 8/28/12	15,000		15,402
8% 11/1/31	25,000		28,625
GMAC LLC 6% 12/15/11	30,000		29,775
			404,823

	Principal Amount		Value (Note 1)
Diversified Financial Services - 0.0%
Hilcorp Energy I LP/Hilcorp Finance Co. 9% 6/1/16 (f)	$ 20,000		$ 21,100
Real Estate Investment Trusts - 0.1%
Host Hotels & Resorts LP 6.875% 11/1/14 (f)	60,000		60,975
Mack-Cali Realty LP 7.25% 3/15/09	55,000		56,797
Rouse Co. LP/TRC, Inc. 6.75% 5/1/13 (f)	50,000		50,990
Simon Property Group LP 7.75% 1/20/11	30,000		32,507
Ventas Realty LP:
6.5% 6/1/16	30,000		30,413
6.75% 4/1/17	20,000		20,500
			252,182
TOTAL FINANCIALS			730,434
HEALTH CARE - 0.0%
Health Care Providers & Services - 0.0%
DaVita, Inc. 7.25% 3/15/15	40,000		40,700
HCA, Inc.:
9.125% 11/15/14 (f)	30,000		32,025
9.25% 11/15/16 (f)	65,000		69,469
IASIS Healthcare LLC/IASIS Capital Corp. 8.75% 6/15/14	25,000		25,281
Skilled Healthcare Group, Inc. 11% 1/15/14 (f)	20,000		22,000
Tenet Healthcare Corp. 9.875% 7/1/14	45,000		45,900
			235,375
INDUSTRIALS - 0.2%
Aerospace & Defense - 0.1%
Bombardier, Inc. 8% 11/15/14 (f)	140,000		143,150
Airlines - 0.0%
AMR Corp. 9% 8/1/12	30,000		32,064
Delta Air Lines, Inc. 8.3% 12/15/29 (d)	115,000		77,050
			109,114
Commercial Services & Supplies - 0.1%
Allied Security Escrow Corp. 11.375% 7/15/11	20,000		20,400
Allied Waste North America, Inc.:
7.125% 5/15/16	30,000		29,700
8.5% 12/1/08	60,000		63,150
Cenveo Corp. 7.875% 12/1/13	70,000		67,200
Corrections Corp. of America 6.75% 1/31/14	20,000		20,150
Hydrochem Industrial Services, Inc. 9.25% 2/15/13 (f)	25,000		25,375
Corporate Bonds - continued
	Principal Amount		Value (Note 1)
Nonconvertible Bonds - continued
INDUSTRIALS - continued
Commercial Services & Supplies - continued
IKON Office Solutions, Inc. 7.75% 9/15/15	$ 10,000		$ 10,438
Rental Service Co. 9.5% 12/1/14 (f)	20,000		20,600
			257,013
Marine - 0.0%
American Commercial Lines LLC/ACL Finance Corp. 9.5% 2/15/15	68,000		75,480
Navios Maritime Holdings, Inc. 9.5% 12/15/14 (f)	30,000		30,075
			105,555
Road & Rail - 0.0%
Avis Budget Car Rental LLC/Avis Budget Finance, Inc.:
7.625% 5/15/14 (f)	20,000		19,400
7.8738% 5/15/14 (f)(g)	10,000		9,675
Hertz Corp.:
8.875% 1/1/14 (f)	30,000		31,500
10.5% 1/1/16 (f)	15,000		16,425
			77,000
Trading Companies & Distributors - 0.0%
Ashtead Capital, Inc. 9% 8/15/16 (f)	20,000		21,350
H&E Equipment Services, Inc. 8.375% 7/15/16	20,000		20,950
Penhall International Corp. 12% 8/1/14 (f)	20,000		21,700
			64,000
TOTAL INDUSTRIALS			755,832
INFORMATION TECHNOLOGY - 0.2%
Communications Equipment - 0.1%
L-3 Communications Corp. 6.125% 1/15/14	95,000		93,100
Nortel Networks Corp.:
9.6238% 7/15/11 (f)(g)	30,000		31,613
10.125% 7/15/13 (f)	30,000		32,475
10.75% 7/15/16 (f)	30,000		32,775
			189,963
Computers & Peripherals - 0.0%
Seagate Technology HDD Holdings 6.8% 10/1/16	30,000		30,000
Electronic Equipment & Instruments - 0.0%
NXP BV 9.5% 10/15/15 (f)	75,000		77,063

	Principal Amount		Value (Note 1)
Sanmina-SCI Corp. 8.125% 3/1/16	$ 20,000		$ 19,200
Solectron Global Finance Ltd. 8% 3/15/16	10,000		10,100
			106,363
IT Services - 0.0%
Iron Mountain, Inc. 6.625% 1/1/16	15,000		14,325
SunGard Data Systems, Inc.:
9.125% 8/15/13	50,000		52,500
9.9725% 8/15/13 (g)	30,000		31,050
			97,875
Office Electronics - 0.0%
Xerox Capital Trust I 8% 2/1/27	70,000		71,750
Xerox Corp. 7.125% 6/15/10	25,000		26,281
			98,031
Semiconductors & Semiconductor Equipment - 0.1%
Amkor Technology, Inc. 9.25% 6/1/16	30,000		29,325
Avago Technologies Finance Ltd. 10.125% 12/1/13 (f)	40,000		42,100
Freescale Semiconductor, Inc.:
8.875% 12/15/14 (f)	30,000		29,964
9.125% 12/15/14 pay-in-kind (f)	40,000		39,752
9.25% 12/15/14 (f)(g)	40,000		39,652
10.125% 12/15/16 (f)	30,000		30,039
MagnaChip Semiconductor SA/MagnaChip Semiconductor Finance Co. 6.875% 12/15/11	25,000		21,000
			231,832
Software - 0.0%
Activant Solutions, Inc. 9.5% 5/1/16 (f)	20,000		18,500
Serena Software, Inc. 10.375% 3/15/16	30,000		31,875
			50,375
TOTAL INFORMATION TECHNOLOGY			804,439
MATERIALS - 0.1%
Chemicals - 0.1%
BCP Crystal U.S. Holdings Corp. 9.625% 6/15/14	62,000		68,510
Lyondell Chemical Co. 8.25% 9/15/16	20,000		20,925
Momentive Performance Materials, Inc.:
9.75% 12/1/14 (f)	60,000		60,075
10.125% 12/1/14 (f)	30,000		30,300
Phibro Animal Health Corp. 10% 8/1/13 (f)	20,000		20,750
			200,560
Corporate Bonds - continued
	Principal Amount		Value (Note 1)
Nonconvertible Bonds - continued
MATERIALS - continued
Containers & Packaging - 0.0%
Owens-Brockway Glass Container, Inc.:
7.75% 5/15/11	$ 50,000		$ 51,625
8.75% 11/15/12	25,000		26,500
			78,125
Metals & Mining - 0.0%
FMG Finance Property Ltd.:
10% 9/1/13 (f)	20,000		20,600
10.625% 9/1/16 (f)	30,000		32,100
Novelis, Inc. 8.25% 2/15/15 (f)(g)	20,000		19,000
PNA Group, Inc. 10.75% 9/1/16 (f)	10,000		10,350
			82,050
Paper & Forest Products - 0.0%
Georgia-Pacific Corp.:
7% 1/15/15 (f)	25,000		25,093
8.125% 5/15/11	120,000		125,700
			150,793
TOTAL MATERIALS			511,528
TELECOMMUNICATION SERVICES - 0.2%
Diversified Telecommunication Services - 0.1%
Intelsat Ltd. 9.25% 6/15/16 (f)	80,000		85,400
Level 3 Financing, Inc. 9.25% 11/1/14 (f)	70,000		71,225
NTL Cable PLC 9.125% 8/15/16	20,000		21,050
Qwest Capital Funding, Inc. 7% 8/3/09	60,000		60,900
Qwest Corp.:
8.61% 6/15/13 (g)	90,000		97,497
8.875% 3/15/12	45,000		50,119
Telecom Italia Capital SA 7.2% 7/18/36	95,000		99,248
Wind Acquisition Finance SA 10.75% 12/1/15 (f)	20,000		22,950
Windstream Corp.:
8.125% 8/1/13 (f)	15,000		16,257
8.625% 8/1/16 (f)	40,000		43,900
			568,546

	Principal Amount		Value (Note 1)
Wireless Telecommunication Services - 0.1%
Centennial Cellular Operating Co./Centennial Communications Corp. 10.125% 6/15/13	$ 25,000		$ 27,030
Centennial Communications Corp. 10% 1/1/13	20,000		21,250
Cricket Communications, Inc. 9.375% 11/1/14 (f)	60,000		63,150
DirecTV Holdings LLC/DirecTV Financing, Inc. 6.375% 6/15/15	20,000		19,150
Intelsat Subsidiary Holding Co. Ltd. 10.4844% 1/15/12 (g)	70,000		70,613
Rogers Communications, Inc.:
6.375% 3/1/14	115,000		117,013
8.485% 12/15/10 (g)	50,000		51,125
			369,331
TOTAL TELECOMMUNICATION SERVICES			937,877
UTILITIES - 0.2%
Electric Utilities - 0.0%
Mirant Americas Generation LLC 8.3% 5/1/11	50,000		51,125
Gas Utilities - 0.0%
Dynegy Holdings, Inc. 8.375% 5/1/16	15,000		15,788
Sonat, Inc. 6.625% 2/1/08	65,000		65,163
			80,951
Independent Power Producers & Energy Traders - 0.1%
AES Corp.:
8.75% 5/15/13 (f)	115,000		123,050
9.5% 6/1/09	59,000		63,130
Mirant North America LLC 7.375% 12/31/13	20,000		20,350
NRG Energy, Inc.:
7.25% 2/1/14	50,000		50,375
7.375% 2/1/16	65,000		65,244
7.375% 1/15/17	65,000		65,000
			387,149
Multi-Utilities - 0.1%
CMS Energy Corp.:
8.5% 4/15/11	85,000		92,013
8.9% 7/15/08	125,000		130,313
			222,326
TOTAL UTILITIES			741,551
TOTAL NONCONVERTIBLE BONDS			6,646,544
TOTAL CORPORATE BONDS (Cost $7,145,328)		7,499,105

Fixed-Income Funds - 28.8%
	Shares		Value (Note 1)
Fidelity VIP Investment Grade Central Fund (h) (Cost $126,821,710)	1,227,395		$ 126,409,386
Money Market Funds - 5.5%

Fidelity Cash Central Fund, 5.37% (b)	23,090,342		23,090,342
Fidelity Securities Lending Cash Central Fund, 5.38% (b)(c)	1,238,158		1,238,158
TOTAL MONEY MARKET FUNDS (Cost $24,328,500)		24,328,500

TOTAL INVESTMENT PORTFOLIO - 100.1%

(Cost $398,493,034)

439,910,218

NET OTHER ASSETS - (0.1)%

(454,758)

NET ASSETS - 100%

$ 439,455,460

Legend

(a) Non-income producing

(d) Non-income producing - Issuer is in default.

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

(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 $3,067,223 or 0.7% of net assets.

(g) The coupon rate shown on floating or adjustable rate securities represents the rate at period end.

(h) Affiliated fund that is available only to investment companies and other accounts managed by Fidelity Investments. A complete unaudited list of holdings for each Fidelity Central Fund, as of the Investing Fund's report date, is available upon request or at advisor.fidelity.com. The reports are located just after the Investing Fund's financial statements and quarterly reports but are not part of the financial statements or quarterly reports. In addition, each Fidelity Central Fund's financial statements, which are not covered by the investing fund's Report of Independent Registered Public Accounting Firm, are available on the EDGAR Database on the SEC's web site, www.sec.gov, or upon request.

(i) 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 $1,644,983 or 0.4% of net assets.

Additional information on each holding is as follows:

Security	Acquisition Date	Acquisition Cost
Inverness Medical Innovations, Inc.	2/8/06	$ 157,957
PICO Holdings, Inc.	5/5/06	$ 1,203,240

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	$ 698,795
Fidelity Securities Lending Cash Central Fund	19,845
Fidelity Ultra-Short Central Fund	382,950
Fidelity VIP Investment Grade Central Fund	3,306,363
Total	$ 4,407,953

Additional information regarding the Fund's fiscal year to date purchases and sales, including the ownership percentage, of the non Money Market Central Funds is as follows:

Fund	Value, beginning of period	Purchases	Sales Proceeds	Value, end of period	% ownership, end of period
Fidelity Ultra-Short Central Fund	$ 14,495,499	$ 5,000,462	$ 19,493,750	$ -	0.0%
Fidelity VIP Investment Grade Central Fund	-	123,202,628*	-	126,409,386	4.5%
Total	$ 14,495,499	$ 128,203,090	$ 19,493,750	$ 126,409,386

* $92,915,128 represents the value of shares received through in-kind contributions.

Other Information

The composition of credit quality ratings as a percentage of net assets is as follows (ratings are unaudited):

U.S.Government and U.S.Government Agency Obligations	15.7%
AAA,AA,A	7.8%
BBB	5.3%
BB	1.0%
B	0.6%
CCC,CC,C	0.1%
Not Rated	0.5%
Equities	64.1%
Short-Term Investments and Net Other Assets	4.9%
	100.0%

We have used ratings from Moody's Investors Services, Inc. Where Moody's ratings are not available, we have used S&P ratings.

Distributions of investments by country of issue, as a percentage of total net assets, is as follows:

United States of America	89.2%
Cayman Islands	1.4%
Canada	1.3%
United Kingdom	1.1%
Others (individually less than 1%)	7.0%
	100.0%

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

VIP Balanced Portfolio

VIP Balanced Portfolio

Financial Statements

Statement of Assets and Liabilities

	December 31, 2006

Assets
Investment in securities, at value (including securities loaned of $1,194,065) - See accompanying schedule: Unaffiliated issuers (cost $247,342,824)	$ 289,172,332
Fidelity Central Funds (cost $151,150,210)	150,737,886
Total Investments (cost $398,493,034)		$ 439,910,218
Cash		36,988
Foreign currency held at value (cost $7,582)		7,578
Receivable for investments sold		1,174,027
Dividends receivable		193,462
Interest receivable		234,228
Distributions receivable from Fidelity Central Funds		797,420
Prepaid expenses		1,889
Other receivables		30,203
Total assets		442,386,013

Liabilities
Payable for investments purchased	$ 1,343,934
Payable for fund shares redeemed	21,813
Accrued management fee	150,789
Distribution fees payable	12,717
Other affiliated payables	51,706
Other payables and accrued expenses	111,436
Collateral on securities loaned, at value	1,238,158
Total liabilities		2,930,553

Net Assets		$ 439,455,460
Net Assets consist of:
Paid in capital		$ 372,402,554
Undistributed net investment income		8,419,486
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions		17,213,180
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies		41,420,240
Net Assets		$ 439,455,460

Statement of Assets and Liabilities - continued

	December 31, 2006

Initial Class: Net Asset Value, offering price and redemption price per share ($281,593,823 ÷ 18,010,432 shares)		$ 15.64

Service Class: Net Asset Value, offering price and redemption price per share ($14,247,084 ÷ 915,992 shares)		$ 15.55

Service Class 2: Net Asset Value, offering price and redemption price per share ($56,138,755 ÷ 3,631,452 shares)		$ 15.46

Investor Class: Net Asset Value, offering price and redemption price per share ($87,475,798 ÷ 5,609,554 shares)		$ 15.59

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

Annual Report

VIP Balanced Portfolio
Financial Statements - continued

Statement of Operations

	Year ended December 31, 2006

Investment Income
Dividends		$ 3,768,861
Interest		2,629,648
Income from Fidelity Central Funds		4,407,953
Total income		10,806,462

Expenses
Management fee	$ 1,611,736
Transfer agent fees	334,261
Distribution fees	127,635
Accounting and security lending fees	203,111
Custodian fees and expenses	169,434
Independent trustees' compensation	1,415
Audit	49,244
Legal	8,295
Miscellaneous	52,566
Total expenses before reductions	2,557,697
Expense reductions	(89,444)	2,468,253
Net investment income (loss)		8,338,209
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investment securities:
Unaffiliated issuers (net of foreign taxes of $12,478)	17,669,837
Fidelity Central Funds	(6,583)
Foreign currency transactions	(11,300)
Swap agreements	(73,248)
Capital gain distributions from Fidelity Central Funds	122,739
Total net realized gain (loss)		17,701,445
Change in net unrealized appreciation (depreciation) on: Investment securities (net of decrease in deferred foreign taxes of $5,622)	17,388,495
Assets and liabilities in foreign currencies	114
Swap agreements	(38,099)
Total change in net unrealized appreciation (depreciation)		17,350,510
Net gain (loss)		35,051,955
Net increase (decrease) in net assets resulting from operations		$ 43,390,164

Statement of Changes in Net Assets

	Year ended December 31, 2006	Year ended December 31, 2005
Increase (Decrease) in Net Assets
Operations
Net investment income (loss)	$ 8,338,209	$ 7,312,973
Net realized gain (loss)	17,701,445	23,482,739
Change in net unrealized appreciation (depreciation)	17,350,510	(12,127,419)
Net increase (decrease) in net assets resulting from operations	43,390,164	18,668,293
Distributions to shareholders from net investment income	(7,200,897)	(8,716,691)
Distributions to shareholders from net realized gain	(11,938,214)	(241,563)
Total distributions	(19,139,111)	(8,958,254)
Share transactions - net increase (decrease)	65,831,764	(9,761,182)
Total increase (decrease) in net assets	90,082,817	(51,143)

Net Assets
Beginning of period	349,372,643	349,423,786
End of period (including undistributed net investment income of $8,419,486 and undistributed net investment income of $7,582,792, respectively)	$ 439,455,460	$ 349,372,643

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

VIP Balanced Portfolio

Financial Highlights - Initial Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 14.78	$ 14.35	$ 13.88	$ 12.16	$ 13.72
Income from Investment Operations
Net investment income (loss)^C	.33	.31	.36^F	.30	.36
Net realized and unrealized gain (loss)	1.34	.50	.39	1.78	(1.53)
Total from investment operations	1.67	.81	.75	2.08	(1.17)
Distributions from net investment income	(.31)	(.37)	(.28)	(.36)	(.39)
Distributions from net realized gain	(.50)	(.01)	-	-	-
Total distributions	(.81)	(.38)	(.28)	(.36)	(.39)
Net asset value, end of period	$ 15.64	$ 14.78	$ 14.35	$ 13.88	$ 12.16
Total Return^{A, B}	11.78%	5.77%	5.47%	17.72%	(8.72)%
Ratios to Average Net Assets^{D, G}
Expenses before reductions	.61%	.58%	.56%	.59%	.57%
Expenses net of fee waivers, if any	.61%	.58%	.56%	.59%	.57%
Expenses net of all reductions	.59%	.54%	.56%	.58%	.55%
Net investment income (loss)	2.20%	2.22%	2.60%	2.32%	2.84%
Supplemental Data
Net assets, end of period (000 omitted)	$ 281,594	$ 276,343	$ 291,176	$ 295,656	$ 235,064
Portfolio turnover rate^E	55%	140%	74%	102%	134%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.03 per share.

^G 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

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 14.70	$ 14.28	$ 13.81	$ 12.11	$ 13.66
Income from Investment Operations
Net investment income (loss)^C	.31	.30	.34^F	.28	.34
Net realized and unrealized gain (loss)	1.33	.48	.40	1.77	(1.51)
Total from investment operations	1.64	.78	.74	2.05	(1.17)
Distributions from net investment income	(.29)	(.35)	(.27)	(.35)	(.38)
Distributions from net realized gain	(.50)	(.01)	-	-	-
Total distributions	(.79)	(.36)	(.27)	(.35)	(.38)
Net asset value, end of period	$ 15.55	$ 14.70	$ 14.28	$ 13.81	$ 12.11
Total Return^{A, B}	11.64%	5.61%	5.42%	17.53%	(8.75)%
Ratios to Average Net Assets^{D, G}
Expenses before reductions	.72%	.68%	.67%	.69%	.67%
Expenses net of fee waivers, if any	.72%	.68%	.67%	.69%	.67%
Expenses net of all reductions	.69%	.65%	.67%	.68%	.65%
Net investment income (loss)	2.09%	2.12%	2.50%	2.22%	2.74%
Supplemental Data
Net assets, end of period (000 omitted)	$ 14,247	$ 18,181	$ 21,228	$ 21,903	$ 20,019
Portfolio turnover rate^E	55%	140%	74%	102%	134%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.03 per share.

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

Annual Report

Financial Highlights - Service Class 2

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 14.62	$ 14.20	$ 13.75	$ 12.05	$ 13.61
Income from Investment Operations
Net investment income (loss)^C	.28	.27	.32^F	.26	.32
Net realized and unrealized gain (loss)	1.33	.50	.38	1.77	(1.51)
Total from investment operations	1.61	.77	.70	2.03	(1.19)
Distributions from net investment income	(.27)	(.34)	(.25)	(.33)	(.37)
Distributions from net realized gain	(.50)	(.01)	-	-	-
Total distributions	(.77)	(.35)	(.25)	(.33)	(.37)
Net asset value, end of period	$ 15.46	$ 14.62	$ 14.20	$ 13.75	$ 12.05
Total Return^{A, B}	11.50%	5.53%	5.15%	17.41%	(8.93)%
Ratios to Average Net Assets^{D, G}
Expenses before reductions	.87%	.83%	.82%	.84%	.83%
Expenses net of fee waivers, if any	.87%	.83%	.82%	.84%	.83%
Expenses net of all reductions	.84%	.80%	.82%	.84%	.81%
Net investment income (loss)	1.94%	1.95%	2.35%	2.06%	2.58%
Supplemental Data
Net assets, end of period (000 omitted)	$ 56,139	$ 40,716	$ 37,020	$ 29,485	$ 18,577
Portfolio turnover rate^E	55%	140%	74%	102%	134%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.03 per share.

Financial Highlights - Investor Class

Years ended December 31,	2006	2005^H
Selected Per-Share Data
Net asset value, beginning of period	$ 14.77	$ 13.96
Income from Investment Operations
Net investment income (loss)^E	.31	.11
Net realized and unrealized gain (loss)	1.32	.70
Total from investment operations	1.63	.81
Distributions from net investment income	(.31)	-
Distributions from net realized gain	(.50)	-
Total distributions	(.81)	-
Net asset value, end of period	$ 15.59	$ 14.77
Total Return^{B, C, D}	11.56%	5.80%
Ratios to Average Net Assets^{F, I}
Expenses before reductions	.73%	.76%^A
Expenses net of fee waivers, if any	.73%	.76%^A
Expenses net of all reductions	.71%	.73%^A
Net investment income (loss)	2.07%	1.73%^A
Supplemental Data
Net assets, end of period (000 omitted)	$ 87,476	$ 14,133
Portfolio turnover rate^G	55%	140%

^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.

^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-erm 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.

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

VIP Balanced Portfolio

Notes to Financial Statements

For the period ended December 31, 2006

1. Significant Accounting Policies.

VIP Balanced Portfolio (the Fund) is a fund of Variable Insurance Products Fund III (the trust) (referred to in this report as VIP Balanced Portfolio) 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.

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. Debt securities, including restricted securities, for which quotations are readily available, are valued by independent pricing services or by dealers who make markets in such securities. Pricing services consider yield or price of bonds of comparable quality, coupon, maturity and type as well as dealer supplied prices. 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.

Investment Transactions and Income. Security transactions, including the Fund's investment activity in the Fidelity Central Funds, are accounted for as of trade date. 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 income and capital gain distributions from the Fidelity Central Funds are accrued as earned, with any distributions receivable as of period end included in Distributions receivable from Fidelity Central Funds on the Statement of Assets and Liabilities. 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. Debt obligations may be placed on non-accrual

Annual Report

Notes to Financial Statements - continued

1. Significant Accounting Policies - continued

Investment Transactions and Income - continued

status and related interest income may be reduced by ceasing current accruals and writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed from non-accrual status when the issuer resumes interest payments or when collectibility of interest is reasonably assured.

Book-tax differences are primarily due to swap agreements, foreign currency transactions, market discount, partnerships, financing transactions, passive foreign investment companies (PFIC) and losses deferred due to wash sales.

The tax-basis components of distributable earnings and the federal tax cost as of period end were as follows:

Unrealized appreciation	$ 52,342,255
Unrealized depreciation	(7,581,313)
Net unrealized appreciation (depreciation)	44,760,942
Undistributed ordinary income	19,761,814
Undistributed long-term capital gain	6,131,355

Cost for federal income tax purposes	$ 395,149,276

The tax character of distributions paid was as follows:

	December 31, 2006	December 31, 2005
Ordinary Income	$ 7,200,897	$ 8,958,254
Long-term Capital Gains	11,938,214	-
Total	$ 19,139,111	$ 8,958,254

2. Operating Policies.

VIP Balanced Portfolio

2. Operating Policies - continued

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.

Swap Agreements. The Fund may invest in swaps for the purpose of managing its exposure to interest rate, credit or market risk.

Interest rate swaps are agreements to exchange cash flows periodically based on a notional principal amount, for example, the exchange of fixed rate interest payments for floating rate interest payments. Periodic payments received or made by the Fund are recorded in the accompanying Statement of Operations as realized gains or losses, respectively. The primary risk associated with interest rate swaps is that unfavorable changes in the fluctuation of interest rates could adversely impact a fund.

Total return swaps are agreements to exchange the return generated by one instrument or index for the return generated by another instrument, for example, the agreement to pay interest in exchange for a market-linked return based on a notional amount. To the extent the total return of the index exceeds the offsetting interest obligation, a fund will receive a payment from the counterparty. To the extent it is less, a fund will make a payment to the counterparty. Periodic payments received or made by the Fund are recorded in the accompanying Statement of Operations as realized gains or losses, respectively.

Credit default swaps involve the exchange of a fixed rate premium for protection against the loss in value of an underlying debt instrument in the event of a defined credit event (such as payment default or bankruptcy). Under the terms of the swap, one party acts as a "guarantor" receiving a periodic payment that is a fixed percentage applied to a notional principal amount. In return the party agrees to purchase the notional amount of the underlying instrument, at par, if a credit event occurs during the term of the swap. The Fund may enter into credit default swaps in which either it or its counterparty act as guarantors. By acting as the guarantor of a swap, a fund assumes the market and credit risk of the underlying instrument including liquidity and loss of value. Periodic payments and premiums received or made by the Fund are recorded in the accompanying Statement of Operations as realized gains or losses, respectively.

Swaps are marked-to-market daily based on dealer-supplied valuations and changes in value are recorded as unrealized appreciation (depreciation). Gains or losses are realized upon early termination of the swap agreement. Collateral, in the form of cash or securities, may be required to be held in segregated accounts with a fund's custodian in compliance with swap contracts.

Mortgage Dollar Rolls. To earn additional income, the Fund may employ trading strategies which involve the sale and simultaneous agreement to repurchase similar securities ("mortgage dollar rolls") or the purchase and simultaneous agreement to sell similar securities ("reverse mortgage dollar rolls"). The securities traded are mortgage securities and bear the same interest rate but may be collateralized by different pools of mortgages. During the period between the sale and repurchase in a mortgage dollar roll transaction, a fund will not be entitled to receive interest and principal payments on the securities sold but will invest the proceeds of the sale in other securities which may enhance the yield and total return. In addition, the difference between the sale price and the future purchase price is recorded as an adjustment to investment income. During the period between the purchase and subsequent sale in a reverse mortgage dollar roll transaction a fund is entitled to interest and principal payments on the securities purchased. The price differential between the purchase and sale is recorded as an adjustment to investment income. Losses may arise due to changes in the value of the securities or if the counterparty does not perform under the terms of the agreement. If the counterparty files for bankruptcy or becomes insolvent, a fund's right to repurchase or sell securities may be limited.

3. Purchases and Sales of Investments.

Purchases and sales of securities (including non Money Market Central Funds), other than short-term securities, U.S. government securities, and in-kind transactions aggregated $210,295,165 and $178,316,993, respectively.

4. 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 .15% of the Fund's average net assets and a group fee rate that averaged .27% 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 annual management fee rate was .42% of the Fund's average net assets.

Annual Report

Notes to Financial Statements - continued

4. Fees and Other Transactions with Affiliates - 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	$ 16,148
Service Class 2	111,487
	$ 127,635

Initial Class	$ 190,266
Service Class	12,384
Service Class 2	33,457
Investor Class	98,154
	$ 334,261

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.

Investments in Fidelity Central Funds. The Fund may invest in Fidelity Central Funds. 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. A complete unaudited list of holdings for each Fidelity Central Fund is available upon request or, for each non Money Market Central Fund, at advisor.fidelity.com. The reports are located just after the Fund's financial statements and quarterly reports but are not part of the financial statements or quarterly reports. In addition, the financial statements of the Fidelity Central Funds, which are not covered by the Fund's Report of Independent Registered Public Accounting Firm, are available on the EDGAR Database on the SEC's web site, www.sec.gov, or upon request.

Based on their investment objective, each Fidelity Central Fund may invest or participate in various investment vehicles or strategies that are similar to those of the Fund. These strategies are consistent with the investment objectives of the Fund and may involve certain economic risks which may cause a decline in value of each of the Fidelity Central Funds and thus a decline in the value of the Fund. The Money Market Central Funds seek preservation of capital and current income and are managed by Fidelity Investments Money Management, Inc. (FIMM), an affiliate of FMR. The following summarizes the Fund's investment in each Fidelity Fixed-Income Central Fund.

Central Fund

Investment
Advisor

Investment
Objective

Investment
Practices

Fidelity Ultra-Short Central Fund

(FIMM)

Seeks to obtain a high level of current income consistent with preservation of capital by investing in U.S. dollar denominated money market and investment-grade debt securities.

Futures

Repurchase Agreements

Restricted Securities

Swap Agreements

VIP Investment Grade Central Fund

(FIMM)

Seeks a high level of current income by normally investing in investment-grade debt securities and repurchase agreements

Delayed Delivery &
When Issued Securities

Mortgage Dollar Rolls

Repurchase Agreements

Restricted Securities

Swap Agreements

On June 23, 2006 the Fund completed a non-taxable exchange of securities with a value, including accrued interest, of $92,915,128 (which included $3,741,821 of unrealized depreciation) in exchange for 929,151 shares (each then valued at $100.00 per share) of the Fidelity VIP Investment Grade Central Fund, an affiliated entity. This is considered a non-taxable exchange for federal income tax purposes, with no gain or loss recognized by the Fund or its shareholders.

VIP Balanced Portfolio

4. Fees and Other Transactions with Affiliates - continued

5. 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 $1,014 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

6. 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 $19,845.

7. Expense Reductions.

8. Other.

At the end of the period, FMR or its affiliates were the owners of record of 71% of the total outstanding shares of the Fund and one otherwise unaffiliated shareholder was the owner of record of 12% of the total outstanding shares of the Fund.

In December 2006, the Independent Trustees completed their own investigation of the matter with the assistance of independent counsel. The Independent Trustees and FMR agree 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 is worthy of redress. Accordingly, the Independent Trustees have requested and FMR has agreed to pay $42 million to Fidelity mutual funds, plus interest to be determined at the time that payment is made. A method of allocating this payment among the funds has not yet been determined. The total payment to the Fund is not anticipated to have a material impact on the Fund's net assets. In addition, FMR has reimbursed related legal expenses which are recorded in the accompanying Statement of Operations as an expense reduction.

Annual Report

Notes to Financial Statements - continued

9. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

	Years ended December 31,
	2006	2005
From net investment income
Initial Class	$ 5,648,168	$ 7,331,284
Service Class	346,499	507,567
Service Class 2	759,239	877,840
Investor Class	446,991	-
Total	$ 7,200,897	$ 8,716,691
From net realized gain
Initial Class	$ 9,229,031	$ 200,857
Service Class	599,479	14,502
Service Class 2	1,395,661	26,204
Investor Class	714,043	-
Total	$ 11,938,214	$ 241,563

10. Share Transactions.

Transactions for each class of shares were as follows:

	Shares		Dollars
	Years ended December 31,		Years ended December 31,
	2006	2005^A	2006	2005^A
Initial Class
Shares sold	1,241,550	1,236,357	$ 18,332,029	$ 17,375,383
Reinvestment of distributions	1,039,636	539,938	14,877,199	7,532,140
Shares redeemed	(2,970,279)	(3,374,047)	(43,945,090)	(47,380,600)
Net increase (decrease)	(689,093)	(1,597,752)	$ (10,735,862)	$ (22,473,077)
Service Class
Shares sold	12,787	21,835	$ 183,548	$ 304,769
Reinvestment of distributions	66,384	37,586	945,978	522,069
Shares redeemed	(399,681)	(309,945)	(5,859,260)	(4,318,560)
Net increase (decrease)	(320,510)	(250,524)	$ (4,729,734)	$ (3,491,722)
Service Class 2
Shares sold	3,031,190	692,036	$ 44,688,943	$ 9,651,143
Reinvestment of distributions	151,860	65,368	2,154,900	904,044
Shares redeemed	(2,335,926)	(579,257)	(34,243,751)	(8,109,967)
Net increase (decrease)	847,124	178,147	$ 12,600,092	$ 2,445,220
Investor Class
Shares sold	4,881,408	966,823	$ 72,088,001	$ 13,896,815
Reinvestment of distributions	81,248	-	1,161,034	-
Shares redeemed	(310,216)	(9,709)	(4,551,767)	(138,418)
Net increase (decrease)	4,652,440	957,114	$ 68,697,268	$ 13,758,397

^A Share transactions for Investor Class are for the period July 21, 2005 (commencement of sale of shares) to December 31, 2005.

VIP Balanced Portfolio

Report of Independent Registered Public Accounting Firm

To the Trustees of Variable Insurance Products Fund III and Shareholders of VIP Balanced Portfolio:

We have audited the accompanying statement of assets and liabilities of VIP Balanced Portfolio (the Fund), a fund of Variable Insurance Products Fund III, including the schedule of investments as of December 31, 2006, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of VIP Balanced Portfolio as of December 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP

Boston, Massachusetts

February 22, 2007

Annual Report

Trustees and Officers

The fund's Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-877-208-0098.

Interested Trustees*:

Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.

Name, Age; Principal Occupation
Edward C. Johnson 3d (76)
	Year of Election or Appointment: 1994 Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as President (2006-present), Chief Executive Officer, Chairman, and a Director of FMR Corp.; Chairman and a Director of FMR; Chairman and a Director of Fidelity Research & Analysis Company (FRAC); Chairman and a Director of Fidelity Investments Money Management, Inc.; and Chairman (2001-present) and a Director of FMR Co., Inc. In addition, Mr. Johnson serves as Chairman and Director of Fidelity International Limited (FIL).
Robert L. Reynolds (54)
	Year of Election or Appointment: 2003 Mr. Reynolds is President and a Director of FMR (2005-present), Fidelity Investments Money Management, Inc. (2005-present), and FMR Co., Inc. (2005-present). Mr. Reynolds also serves as Vice Chairman (2006-present), a Director (2003-present), and Chief Operating Officer of FMR Corp. and a Director of Strategic Advisers, Inc. (2005-present). He also serves on the Board at Fidelity Investments Canada, Ltd.

* Trustees have been determined to be "Interested Trustees" by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.

Independent Trustees:

Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205-5235.

Name, Age; Principal Occupation
Dennis J. Dirks (58)
	Year of Election or Appointment: 2005 Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999-2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999-2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999-2003). In addition, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001-2003) and Chief Executive Officer and Board member of the Mortgage-Backed Securities Clearing Corporation (2001-2003). Mr. Dirks also serves as a Trustee and a member of the Finance Committee of Manhattan College (2005-present) and a Trustee and a member of the Finance Committee of AHRC of Nassau County (2006-present).
Albert R. Gamper, Jr. (64)
	Year of Election or Appointment: 2006 Prior to his retirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987-1989; 1999-2001; 2002-2004), Chief Executive Officer (1987-2004), and President (1989-2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001-present), Chairman of the Board of Governors, Rutgers University (2004-present), and Chairman of the Board of Saint Barnabas Health Care System.
George H. Heilmeier (70)
	Year of Election or Appointment: 2004 Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (communication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineering and information technology support for the government), and HRL Laboratories (private research and development, 2004-present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992-2002), Compaq (1994-2002), Automatic Data Processing, Inc. (ADP) (technology-based business outsourcing, 1995-2002), INET Technologies Inc. (telecommunications network surveillance, 2001-2004), and Teletech Holdings (customer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid crystal display, and a member of the Consumer Electronics Hall of Fame.
James H. Keyes (66)
	Year of Election or Appointment: 2007 Prior to his retirement in 2003, Mr. Keyes was Chairman, President, and Chief Executive Officer of Johnson Controls, Inc. (automotive supplier, 1993-2003). He currently serves as a member of the boards of LSI Logic Corporation (semiconductor technologies), Navistar International Corporation (manufacture and sale of trucks, buses, and diesel engines, 2002-present), and Pitney Bowes, Inc. (integrated mail, messaging, and document management solutions).
Marie L. Knowles (60)
	Year of Election or Appointment: 2001 Prior to Ms. Knowles' retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996-2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare service, 2002-present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
Ned C. Lautenbach (62)
	Year of Election or Appointment: 2000 Mr. Lautenbach is Chairman of the Independent Trustees (2006-present). Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Sony Corporation (2006-present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005-present), as well as a member of the Council on Foreign Relations.
Cornelia M. Small (62)
	Year of Election or Appointment: 2005 Ms. Small is a member (2000-present) and Chairperson (2002-present) of the Investment Committee, and a member (2002-present) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999-2000), Director of Global Equity Investments (1996-1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990-1997) and Scudder Kemper Investments (1997-1999). In addition, Ms. Small served as Co-Chair (2000-2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
William S. Stavropoulos (67)
	Year of Election or Appointment: 2002 Mr. Stavropoulos is Chairman Emeritus of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993-2000; 2002-2003), CEO (1995-2000; 2002-2004), and Chairman of the Executive Committee (2000-2004). Currently, he is a Director of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corporation, Maersk Inc. (industrial conglomerate, 2002-present), and Metalmark Capital (private equity investment firm, 2005-present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
Kenneth L. Wolfe (67)
	Year of Election or Appointment: 2005 Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993-2001). He currently serves as a member of the boards of Adelphia Communications Corporation (2003-present), Bausch & Lomb, Inc., and Revlon Inc. (2004-present).

Advisory Board Member and Executive Officers:

Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.

Name, Age; Principal Occupation
Peter S. Lynch (62)
	Year of Election or Appointment: 2003 Member of the Advisory Board of Variable Insurance Products Fund III. Mr. Lynch is Vice Chairman and a Director of FMR, and Vice Chairman (2001-present) and a Director of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990-2003). In addition, he serves as a Trustee of Boston College and as the Chairman of the Inner-City Scholarship Fund.
Kimberley H. Monasterio (43)
	Year of Election or Appointment: 2007 President and Treasurer of VIP Balanced. Ms. Monasterio also serves as President and Treasurer of other Fidelity funds (2007-present) and is an employee of FMR (2004-present). Previously, Ms. Monasterio served as Deputy Treasurer of the Fidelity funds (2004-2006). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000-2004) and Chief Financial Officer (2002-2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Templeton Services, LLC (2000-2004).
Dwight D. Churchill (53)
	Year of Election or Appointment: 2005 Vice President of VIP Balanced. Mr. Churchill also serves as Vice President of certain Equity Funds (2005-present). Mr. Churchill is Executive Vice President of FMR (2005-present) and FMR Co., Inc. (2005-present). Previously, Mr. Churchill served as Senior Vice President of Fidelity Investments Money Management, Inc. (2005-2006), Head of Fidelity's Fixed-Income Division (2000-2005), Vice President of Fidelity's Money Market Funds (2000-2005), Vice President of Fidelity's Bond Funds, and Senior Vice President of FMR.
Boyce I. Greer (50)
	Year of Election or Appointment: 2005 Vice President of VIP Balanced. Mr. Greer also serves as Vice President of certain Equity Funds (2005-present), certain Asset Allocation Funds (2005-present), Fixed-Income Funds (2006-present), and Money Market Funds (2006-present). Mr. Greer is also a Trustee of other investment companies advised by FMR (2003-present). He is an Executive Vice President of FMR (2005-present) and FMR Co., Inc. (2005-present), and Senior Vice President of Fidelity Investments Money Management, Inc. (2006-present). Previously, Mr. Greer served as a Director and Managing Director of Strategic Advisers, Inc. (2002-2005), and Executive Vice President (2000-2002) and Money Market Group Leader (1997-2002) of the Fidelity Investments Fixed Income Division. He also served as Vice President of Fidelity's Money Market Funds (1997-2002), Senior Vice President of FMR (1997-2002), and Vice President of FIMM (1998-2002).
Bruce T. Herring (41)
	Year of Election or Appointment: 2006 Vice President of VIP Balanced. Mr. Herring also serves as Vice President of certain Equity Funds (2006-present). Mr. Herring is Senior Vice President of FMR (2006-present) and Vice President of FMR Co., Inc. (2001-present). Previously, Mr. Herring served as a portfolio manager for Fidelity U.S. Equity Funds (2001-2005).
David L. Murphy (58)
	Year of Election or Appointment: 2005 Vice President of VIP Balanced. Mr. Murphy also serves as Vice President of Fidelity's Money Market Funds (2002-present), certain Asset Allocation Funds (2003-present), Fixed-Income Funds (2005-present), and Balanced Funds (2005-present). He serves as Senior Vice President (2000-present) and Head (2004-present) of the Fidelity Investments Fixed Income Division. Mr. Murphy is also a Senior Vice President of Fidelity Investments Money Management, Inc. (2003-present) and an Executive Vice President of FMR (2005-present). Previously, Mr. Murphy served as Money Market Group Leader (2002-2004), Bond Group Leader (2000-2002), and Vice President of Fidelity's Taxable Bond Funds (2000-2002) and Fidelity's Municipal Bond Funds (2001-2002).
Thomas J. Silvia (45)
	Year of Election or Appointment: 2005 Vice President of VIP Balanced. Mr. Silvia also serves as Vice President of Fidelity's Fixed-Income Funds (2005-present), certain Balanced Funds (2005-present), certain Asset Allocation Funds (2005-present), and Senior Vice President and Bond Group Leader of the Fidelity Investments Fixed-Income Division (2005-present). Previously, Mr. Silvia served as Director of Fidelity's Taxable Bond portfolio managers (2002-2004) and a portfolio manager in the Bond Group (1997-2004).
Ford O'Neil (44)
	Year of Election or Appointment: 2001 Vice President of VIP Balanced. Mr. O'Neil also serves as Vice President of other funds advised by FMR. Prior to assuming his current responsibilities, Mr. O'Neil worked as a research analyst and portfolio manager.
Lawrence Rakers (43)
	Year of Election or Appointment: 2005 Vice President of VIP Balanced. Mr. Rakers also serves as Vice President of other funds advised by FMR. Prior to assuming his current responsibilities, Mr. Rakers worked as a research analyst and portfolio manager. Mr. Rakers also serves as Vice President of FMR and FMR Co., Inc. (2002).
Eric D. Roiter (58)
	Year of Election or Appointment: 1998 Secretary of VIP Balanced. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001-present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001-present), Fidelity Research & Analysis Company (2001-present), and Fidelity Investments Money Management, Inc. (2001-present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003-present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998-2005).
Stuart Fross (47)
	Year of Election or Appointment: 2003 Assistant Secretary of VIP Balanced. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003-present), Vice President and Secretary of FDC (2005-present), and is an employee of FMR.
R. Stephen Ganis (40)
	Year of Election or Appointment: 2006 Anti-Money Laundering (AML) officer of VIP Balanced. Mr. Ganis also serves as AML officer of other Fidelity funds (2006-present) and FMR Corp. (2003-present). Before joining Fidelity Investments, Mr. Ganis practiced law at Goodwin Procter, LLP (2000-2002).
Joseph B. Hollis (58)
	Year of Election or Appointment: 2006 Chief Financial Officer of VIP Balanced. Mr. Hollis also serves as Chief Financial Officer of other Fidelity funds. Mr. Hollis is President of Fidelity Pricing and Cash Management Services (FPCMS) (2005-present). Mr. Hollis also serves as President and Director of Fidelity Service Company, Inc. (2006-present). Previously, Mr. Hollis served as Senior Vice President of Cash Management Services (1999-2002) and Investment Management Operations (2002-2005).
Kenneth A. Rathgeber (59)
	Year of Election or Appointment: 2004 Chief Compliance Officer of VIP Balanced. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004-present) and Executive Vice President of Risk Oversight for Fidelity Investments (2002-present). He is Chief Compliance Officer of FMR (2005-present), FMR Co., Inc. (2005-present), Fidelity Management & Research (U.K.) Inc. (2005-present), Fidelity Research & Analysis Company (2005-present), Fidelity Investments Money Management, Inc. (2005-present), and Strategic Advisers, Inc. (2005-present). Previously, Mr. Rathgeber served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998-2002).
Bryan A. Mehrmann (45)
	Year of Election or Appointment: 2005 Deputy Treasurer of VIP Balanced. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005-present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998-2004).
Kenneth B. Robins (37)
	Year of Election or Appointment: 2005 Deputy Treasurer of VIP Balanced. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2004-present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG's department of professional practice (2002-2004) and a Senior Manager (1999-2000). In addition, Mr. Robins served as Assistant Chief Accountant, United States Securities and Exchange Commission (2000-2002).
Robert G. Byrnes (40)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Balanced. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003-2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice President of the Investment Operations Group (2000-2003).
John H. Costello (60)
	Year of Election or Appointment: 1995 Assistant Treasurer of VIP Balanced. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
Peter L. Lydecker (52)
	Year of Election or Appointment: 2004 Assistant Treasurer of VIP Balanced. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
Mark Osterheld (51)
	Year of Election or Appointment: 2002 Assistant Treasurer of VIP Balanced. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
Gary W. Ryan (48)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Balanced. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999-2005).
Salvatore Schiavone (41)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Balanced. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003-2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996-2003).

Annual Report

Distributions

The Board of Trustees of VIP III Balanced Portfolio voted to pay to shareholders of record at the opening of business on record date, the following distributions per share derived from capital gains realized from sales of portfolio securities, and dividends derived from net investment income:

	Pay Date	Record Date	Dividends	Capital Gains
Initial Class	02/09/07	02/09/07	$.294	$.62
Service Class	02/09/07	02/09/07	$.272	$.62
Service Class 2	02/09/07	02/09/07	$.267	$.62
Investor Class	02/09/07	02/09/07	$.289	$.62

The fund hereby designates as a capital gain dividend with respect to the taxable year ended December 31, 2006, $6,314,078, or, if subsequently determined to be different, the net capital gain of such year.

A total of 10.34% of the dividends distributed during the fiscal year was derived from interest on U.S. Government securities which is generally exempt from state income tax.

Initial Class designates 39%; Service Class designates 41%; Service Class 2 designates 44%; and Investor Class designates 38% of the dividends distributed in February 2006 as qualifying for the dividends-received deduction for corporate shareholders.

The fund will notify shareholders in January 2007 of amounts for use in preparing 2006 income tax returns.

Annual Report

Proxy Voting Results

PROPOSAL 1
To elect a Board of Trustees. ^A
	# of Votes	% of Votes
Dennis J. Dirks
Affirmative	8,022,573,906.52	96.057
Withheld	329,291,624.43	3.943
TOTAL	8,351,865,530.95	100.000
Albert R. Gamper, Jr.
Affirmative	8,017,939,119.36	96.002
Withheld	333,926,411.59	3.998
TOTAL	8,351,865,530.95	100.000
Robert M. Gates
Affirmative	8,011,581,068.50	95.926
Withheld	340,284,462.45	4.074
TOTAL	8,351,865,530.95	100.000
George H. Heilmeier
Affirmative	8,000,846,196.79	95.797
Withheld	351,019,334.16	4.203
TOTAL	8,351,865,530.95	100.000
Edward C. Johnson 3d
Affirmative	7,992,112,301.22	95.693
Withheld	359,753,229.73	4.307
TOTAL	8,351,865,530.95	100.000
Stephen P. Jonas
Affirmative	8,019,883,742.95	96.025
Withheld	331,981,788.00	3.975
TOTAL	8,351,865,530.95	100.000
James H. Keyes^B
Affirmative	8,015,436,547.06	95.972
Withheld	336,428,983.89	4.028
TOTAL	8,351,865,530.95	100.000
Marie L. Knowles
Affirmative	8,015,361,874.49	95.971
Withheld	336,503,656.46	4.029
TOTAL	8,351,865,530.95	100.000
Ned C. Lautenbach
Affirmative	8,018,503,793.25	96.009
Withheld	333,361,737.70	3.991
TOTAL	8,351,865,530.95	100.000
	# of Votes	% of Votes
William O. McCoy
Affirmative	8,000,170,571.19	95.789
Withheld	351,694,959.76	4.211
TOTAL	8,351,865,530.95	100.000
Robert L. Reynolds
Affirmative	8,020,815,676.67	96.036
Withheld	331,049,854.28	3.964
TOTAL	8,351,865,530.95	100.000
Cornelia M. Small
Affirmative	8.020,146,516.32	96.028
Withheld	331,719,014.63	3.972
TOTAL	8,351,865,530.95	100.000
William S. Stavropoulos
Affirmative	8,009,250,640.78	95.898
Withheld	342,614,890.17	4.102
TOTAL	8,351,865,530.95	100.000
Kenneth L. Wolfe
Affirmative	8,013,187,941.55	95.945
Withheld	338,677,589.40	4.055
TOTAL	8,351,865,530.95	100.000
^A Denotes trust-wide proposal and voting results. ^B Effective on or about January 1, 2007.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees

VIP Balanced Portfolio

Nature, Extent, and Quality of Services Provided. The Board considered staffing within the investment adviser, FMR, and the sub-advisers (together, the Investment Advisers), including the backgrounds of the fund's portfolio managers and the fund's investment objective and discipline. The Independent Trustees also had discussions with senior management of Fidelity's investment operations and investment groups. The Board considered the structure of the portfolio manager compensation program and whether this structure provides appropriate incentives.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees - continued

Investment Performance and Compliance. The Board considered whether the fund has operated within its investment objective, as well as its record of compliance with its investment restrictions. It also reviewed the fund's absolute investment performance for each class (except Investor Class), as well as the fund's relative investment performance for each class (except Investor Class) measured against (i) a proprietary custom index, and (ii) a peer group of mutual funds deemed appropriate by the Board over multiple periods. The following charts considered by the Board show, over the one-, three-, and five-year periods ended December 31, 2005, the cumulative total returns of Service Class 2 and Initial Class of the fund, the cumulative total returns of a proprietary custom index ("benchmark"), and a range of cumulative total returns of a peer group of mutual funds identified by Lipper Inc. as having an investment objective similar to that of the fund. The returns of Service Class 2 and Initial Class represent the performance of classes with the highest and lowest 12b-1 fees, respectively (not necessarily with the highest and lowest total expenses). (Investor Class of the fund, which has no 12b-1 fee, had less than one year of performance as of December 31, 2005.) The box within each chart shows the 25th percentile return (bottom of box) and the 75th percentile return (top of box) of the Lipper peer group. Returns shown above the box are in the first quartile and returns shown below the box are in the fourth quartile. The percentage beaten numbers noted below each chart correspond to the percentile box and represent the percentage of funds in the Lipper peer group whose performance was equal to or lower than that of the class indicated. The fund's proprietary custom index is an index developed by FMR that represents the performance of the fund's general investment categories in both equity and bond securities.

VIP Balanced Portfolio

The Board reviewed the fund's relative investment performance against its Lipper peer group and stated that the performance of Initial Class of the fund was in the second quartile for the one- and five-year periods and the fourth quartile for the three-year period. The Board also stated that the relative investment performance of the fund was lower than its benchmark for the three- and five-year periods, although the cumulative total return of Initial Class of the fund compared favorably to its benchmark for the one-year period. The Board considered that the variations in performance among the fund's classes reflect the variations in class expenses, which result in lower performance for higher expense classes.

VIP Balanced Portfolio

The Board considered two proprietary management fee comparisons for the 12-month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the "Total Mapped Group" and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund's standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. "TMG %" represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund's. For example, a TMG % of 7% means that 93% of the funds in the Total Mapped Group had higher management fees than the fund. The "Asset-Size Peer Group" (ASPG) comparison focuses on a fund's standing relative to non-Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile in which the fund's management fee ranked, is also included in the chart and considered by the Board.

VIP Balanced Portfolio

The Board noted that the fund's management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2005.

Based on its review, the Board concluded that the fund's management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.

The Board noted that the total expenses of each class ranked below its competitive median for 2005.

Based on its review, the Board concluded that the total expenses of each class of the fund were reasonable in light of the services that the fund and its shareholders receive and the other factors considered.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees - continued

The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.

VIP Balanced Portfolio

Investment Adviser

Fidelity Management & Research Company
Boston, MA

Investment Sub-Advisers

FMR Co., Inc.

Fidelity Investments Money Management, Inc.

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

Fidelity Research & Analysis Company
(formerly Fidelity Management & Research (Far East) Inc.)

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 Co., Inc.
Boston, MA

Fidelity Service Company, Inc.
Boston, MA

Custodian

JPMorgan Chase Bank
New York, NY

VIPBAL-ANN-0207
1.540208.109

Fidelity® Variable Insurance Products:
Dynamic Capital Appreciation Portfolio

Annual Report

December 31, 2006

(2_fidelity_logos) (Registered_Trademark)

Performance	<Click Here>	How the fund has done over time.
Management's Discussion	<Click Here>	The manager's review of fund performance, strategy and outlook.
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.
Report of Independent Registered Public Accounting Firm	<Click Here>
Trustees and Officers	<Click Here>
Distributions	<Click Here>
Proxy Voting Results	<Click Here>
Board Approval of Investment Advisory Contracts and Management Fees	<Click Here>

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 Corp. or an affiliated company.

NOT FDIC INSURED· MAY LOSE VALUE· NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Semiannual Report

VIP Dynamic Capital Appreciation Portfolio

Performance: The Bottom Line

Average Annual Total Returns

Periods ended December 31, 2006	Past 1 year	Past 5 years	Life of fund ^A
VIP Dynamic Capital Appreciation - Initial Class	13.97%	10.27%	-0.07%
VIP Dynamic Capital Appreciation - Service Class ^B	13.99%	10.16%	-0.18%
VIP Dynamic Capital Appreciation - Service Class 2 ^C	13.81%	9.94%	-0.33%
VIP Dynamic Capital Appreciation - Investor Class ^D	13.87%	10.25%	-0.08%

^A From September 25, 2000.

^BPerformance for Service Class shares reflects an asset-based service fee (12b-1 fee).

^CPerformance for Service Class 2 shares reflects an asset-based service fee (12b-1 fee).

^DThe initial offering of Investor Class shares took place on July 21, 2005. Returns prior to July 21, 2005 are those of Initial Class. If Investor Class's transfer agent fee had been reflected, returns prior to July 21, 2005 would have been lower.

$10,000 Over Life of Fund

Let's say hypothetically that $10,000 was invested in VIP Dynamic Capital Appreciation Portfolio - Initial Class on September 25, 2000, when the fund started. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor's 500^SM Index performed over the same period.

Annual Report

VIP Dynamic Capital Appreciation Portfolio

Management's Discussion of Fund Performance

Comments from Fergus Shiel, Portfolio Manager of VIP Dynamic Capital Appreciation Portfolio

In 2006, the fund trailed the S&P 500®. (For specific portfolio performance results, please refer to the performance section of this report.) Some of the weaker performing stocks were in information technology, a sector I substantially reduced during the period. Versus the index, our results in technology suffered because of both unfavorable stock selection and an overweighting of the sector. Untimely picks in energy and health care also undermined performance. The fund was especially hurt by its positioning in stocks with market capitalizations of $50 billion and above - in other words, the very largest stocks. Not owning two major index components, energy giant Exxon Mobil and network equipment maker Cisco Systems, was counterproductive, as both stocks handily beat the S&P 500. Other detractors included personal computer chip maker Advanced Micro Devices, cellular handset maker Motorola and Career Education, a for-profit education company. I sold both Advanced Micro Devices and Career Education during the year. Conversely, stock selection in industrials and materials boosted performance. Allegheny Technologies, a maker of the titanium alloys used in commercial aircraft manufacturing, was a key contributor. A strong production cycle in the aerospace industry enabled the stock to post a triple-digit gain. Media stock Walt Disney, the fund's largest holding at period end, also helped, along with Switzerland-based ABB, a provider of power and automation equipment for utility and industrial customers, and teen clothing retailer American Eagle Outfitters. ABB was one of a number of foreign stocks I bought, which in part explains the large drop in the fund's cash position.

Annual Report

VIP Dynamic Capital Appreciation Portfolio

Shareholder Expense Example

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2006 to December 31, 2006).

Actual Expenses

Hypothetical Example for Comparison Purposes

	Beginning Account Value July 1, 2006	Ending Account Value December 31, 2006	Expenses Paid During Period* July 1, 2006 to December 31, 2006
Initial Class
Actual	$ 1,000.00	$ 1,080.40	$ 3.99
Hypothetical ^A	$ 1,000.00	$ 1,021.37	$ 3.87
Service Class
Actual	$ 1,000.00	$ 1,081.20	$ 4.51
Hypothetical ^A	$ 1,000.00	$ 1,020.87	$ 4.38
Service Class 2
Actual	$ 1,000.00	$ 1,080.20	$ 5.45
Hypothetical ^A	$ 1,000.00	$ 1,019.96	$ 5.30
Investor Class
Actual	$ 1,000.00	$ 1,080.70	$ 4.67
Hypothetical ^A	$ 1,000.00	$ 1,020.72	$ 4.53

^A5% return per year before expenses

	Annualized Expense Ratio
Initial Class	.76%
Service Class	.86%
Service Class 2	1.04%
Investor Class	.89%

Annual Report

VIP Dynamic Capital Appreciation Portfolio

Investment Changes

Top Ten Stocks as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
The Walt Disney Co.	4.6	4.4
Monsanto Co.	3.3	1.2
Qwest Communications International, Inc.	3.2	2.2
Biogen Idec, Inc.	3.2	1.8
Morgan Stanley	3.1	0.2
General Electric Co.	3.0	1.4
Abercrombie & Fitch Co. Class A	2.6	1.8
Burlington Northern Santa Fe Corp.	2.5	1.4
Goldman Sachs Group, Inc.	2.4	0.0
Norfolk Southern Corp.	2.2	1.8
	30.1
Top Five Market Sectors as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
Industrials	21.5	20.6
Consumer Discretionary	19.2	18.6
Information Technology	14.6	11.8
Health Care	12.0	9.7
Financials	11.9	3.9

Asset Allocation (% of fund's net assets)
As of December 31, 2006 *			As of June 30, 2006 **
	Stocks 99.0%			Stocks 93.9%
	Short-Term Investments and Net Other Assets 1.0%			Short-Term Investments and Net Other Assets 6.1%
* Foreign investments		20.8%	** Foreign investments		9.1%

Annual Report

VIP Dynamic Capital Appreciation Portfolio

Investments December 31, 2006

Showing Percentage of Net Assets

Common Stocks - 99.0%
	Shares		Value (Note 1)
CONSUMER DISCRETIONARY - 19.2%
Automobiles - 0.4%
Fiat Spa (a)	21,126		$ 403,520
Diversified Consumer Services - 0.2%
Corinthian Colleges, Inc. (a)	18,842		256,816
Hotels, Restaurants & Leisure - 2.6%
Accor SA	19,500		1,511,167
Ambassadors Group, Inc.	3,183		96,604
Las Vegas Sands Corp. (a)	6,200		554,776
Six Flags, Inc.	40,400		211,696
Wynn Resorts Ltd.	3,691		346,400
			2,720,643
Household Durables - 2.0%
Whirlpool Corp.	25,494		2,116,512
Media - 6.6%
Dow Jones & Co., Inc.	26,800		1,018,400
EchoStar Communications Corp. Class A (a)	2,300		87,469
Mediacom Communications Corp. Class A (a)	18,776		150,959
Pearson PLC	36,700		554,545
The McClatchy Co. Class A	2,300		99,590
The Walt Disney Co.	142,900		4,897,184
Viacom, Inc. Class B (non-vtg.) (a)	6,100		250,283
			7,058,430
Multiline Retail - 2.3%
Federated Department Stores, Inc.	8,000		305,040
Saks, Inc.	8,800		156,816
Sears Holdings Corp. (a)	4,633		778,020
Target Corp.	21,900		1,249,395
			2,489,271
Specialty Retail - 4.2%
Abercrombie & Fitch Co. Class A	39,200		2,729,496
American Eagle Outfitters, Inc.	32,656		1,019,194
Gymboree Corp. (a)	13,700		522,792
Wet Seal, Inc. Class A (a)	26,400		176,088
			4,447,570
Textiles, Apparel & Luxury Goods - 0.9%
Deckers Outdoor Corp. (a)	11,200		671,440
Wolverine World Wide, Inc.	9,000		256,680
			928,120
TOTAL CONSUMER DISCRETIONARY			20,420,882
CONSUMER STAPLES - 2.0%
Food & Staples Retailing - 1.2%
Tesco PLC	33,200		263,022
Wal-Mart Stores, Inc.	17,496		807,965
Whole Foods Market, Inc.	4,700		220,571
			1,291,558

	Shares		Value (Note 1)
Tobacco - 0.8%
Reynolds American, Inc.	12,900		$ 844,563
TOTAL CONSUMER STAPLES			2,136,121
FINANCIALS - 11.9%
Capital Markets - 8.5%
E*TRADE Financial Corp.	28,300		634,486
Goldman Sachs Group, Inc.	12,800		2,551,680
Jefferies Group, Inc.	30,201		809,991
Man Group PLC	101,230		1,036,425
Morgan Stanley	40,700		3,314,201
UBS AG (NY Shares)	10,800		651,564
			8,998,347
Commercial Banks - 0.8%
Barclays PLC Sponsored ADR	15,200		883,728
Consumer Finance - 1.9%
American Express Co.	33,500		2,032,445
Diversified Financial Services - 0.6%
Deutsche Boerse AG	3,300		607,406
Thrifts & Mortgage Finance - 0.1%
Clayton Holdings, Inc.	7,200		134,712
TOTAL FINANCIALS			12,656,638
HEALTH CARE - 12.0%
Biotechnology - 4.6%
Biogen Idec, Inc. (a)	68,655		3,377,139
Genentech, Inc. (a)	12,500		1,014,125
MedImmune, Inc. (a)	15,400		498,498
			4,889,762
Health Care Equipment & Supplies - 0.5%
Baxter International, Inc.	11,100		514,929
Health Care Providers & Services - 1.5%
Brookdale Senior Living, Inc.	15,580		747,840
UnitedHealth Group, Inc.	3,400		182,682
VCA Antech, Inc. (a)	22,500		724,275
			1,654,797
Pharmaceuticals - 5.4%
Elan Corp. PLC sponsored ADR (a)	113,745		1,677,739
Johnson & Johnson	28,800		1,901,376
Merck & Co., Inc.	46,299		2,018,636
Pfizer, Inc.	6,800		176,120
			5,773,871
TOTAL HEALTH CARE			12,833,359
INDUSTRIALS - 21.5%
Aerospace & Defense - 0.7%
General Dynamics Corp.	2,700		200,745
Goodrich Corp.	7,200		327,960
Common Stocks - continued
	Shares		Value (Note 1)
INDUSTRIALS - continued
Aerospace & Defense - continued
Hexcel Corp. (a)	6,700		$ 116,647
Teledyne Technologies, Inc. (a)	1,238		49,681
			695,033
Airlines - 2.5%
AMR Corp. (a)	46,700		1,411,741
Ryanair Holdings PLC sponsored ADR (a)	14,200		1,157,300
US Airways Group, Inc. (a)	2,600		140,010
			2,709,051
Building Products - 0.1%
Kingspan Group PLC (Ireland)	4,100		108,635
Commercial Services & Supplies - 1.1%
Fuel Tech, Inc. (a)	15,135		372,926
RPS Group PLC	12,200		64,515
Stericycle, Inc. (a)	9,392		709,096
			1,146,537
Construction & Engineering - 0.3%
Foster Wheeler Ltd. (a)	5,100		281,214
Electrical Equipment - 4.2%
ABB Ltd. sponsored ADR	76,400		1,373,672
Alstom SA (a)	15,000		2,033,768
Rockwell Automation, Inc.	6,517		398,058
Schneider Electric SA	6,400		710,584
			4,516,082
Industrial Conglomerates - 4.4%
General Electric Co.	85,400		3,177,734
McDermott International, Inc. (a)	29,150		1,482,569
			4,660,303
Machinery - 3.1%
Deere & Co.	22,860		2,173,300
Flow International Corp. (a)	25,049		276,040
Flowserve Corp. (a)	8,700		439,089
Invensys PLC (a)	76,700		413,483
			3,301,912
Road & Rail - 4.7%
Burlington Northern Santa Fe Corp.	35,750		2,638,708
Norfolk Southern Corp.	47,642		2,395,916
			5,034,624
Trading Companies & Distributors - 0.4%
WESCO International, Inc. (a)	7,900		464,599
TOTAL INDUSTRIALS			22,917,990
INFORMATION TECHNOLOGY - 14.6%
Communications Equipment - 3.6%
Harris Corp.	2,900		132,994
Motorola, Inc.	92,200		1,895,632

	Shares		Value (Note 1)
Research In Motion Ltd. (a)	12,700		$ 1,622,806
Sycamore Networks, Inc. (a)	54,100		203,416
			3,854,848
Computers & Peripherals - 2.8%
Apple Computer, Inc. (a)	19,100		1,620,444
Dell, Inc. (a)	27,400		687,466
Diebold, Inc.	16,000		745,600
			3,053,510
Electronic Equipment & Instruments - 0.3%
Daktronics, Inc.	5,987		220,621
Maxwell Technologies, Inc. (a)	5,550		77,423
			298,044
Internet Software & Services - 4.9%
Akamai Technologies, Inc. (a)	16,000		849,920
DealerTrack Holdings, Inc.	20,842		613,172
Equinix, Inc. (a)	6,200		468,844
Google, Inc. Class A (sub. vtg.) (a)	4,100		1,887,968
RealNetworks, Inc. (a)	41,211		450,848
The Knot, Inc. (a)	4,260		111,782
ValueClick, Inc. (a)	18,900		446,607
VeriSign, Inc. (a)	15,300		367,965
			5,197,106
Semiconductors & Semiconductor Equipment - 0.8%
Broadcom Corp. Class A (a)	26,094		843,097
Software - 2.2%
Activision, Inc. (a)	29,500		508,580
Autodesk, Inc. (a)	5,008		202,624
BEA Systems, Inc. (a)	15,400		193,732
Electronic Arts, Inc. (a)	23,700		1,193,532
Salesforce.com, Inc. (a)	6,800		247,860
			2,346,328
TOTAL INFORMATION TECHNOLOGY			15,592,933
MATERIALS - 8.4%
Chemicals - 6.5%
Agrium, Inc.	11,400		357,252
Ecolab, Inc.	12,600		569,520
Monsanto Co.	65,700		3,451,221
Potash Corp. of Saskatchewan, Inc.	6,800		975,664
Rhodia SA	84,100		293,116
Syngenta AG sponsored ADR	25,900		961,926
The Mosaic Co.	16,600		354,576
			6,963,275
Metals & Mining - 1.7%
Allegheny Technologies, Inc.	14,960		1,356,573
Titanium Metals Corp.	14,747		435,184
			1,791,757
Common Stocks - continued
	Shares		Value (Note 1)
MATERIALS - continued
Paper & Forest Products - 0.2%
Weyerhaeuser Co.	3,300		$ 233,145
TOTAL MATERIALS			8,988,177
TELECOMMUNICATION SERVICES - 8.5%
Diversified Telecommunication Services - 5.0%
Cbeyond, Inc. (a)	3,800		116,242
France Telecom SA	34,900		966,730
Level 3 Communications, Inc. (a)	139,700		782,320
Qwest Communications International, Inc. (a)	411,700		3,445,929
			5,311,221
Wireless Telecommunication Services - 3.5%
American Tower Corp. Class A (a)	56,500		2,106,320
Centennial Communications Corp. Class A	42,618		306,423
China Mobile (Hong Kong) Ltd. sponsored ADR	19,400		838,468
Dobson Communications Corp. Class A	57,900		504,309
			3,755,520
TOTAL TELECOMMUNICATION SERVICES			9,066,741
UTILITIES - 0.9%
Independent Power Producers & Energy Traders - 0.9%
EDF Energies Nouvelles SA	5,005		265,031
International Power PLC	92,200		689,358
			954,389
TOTAL COMMON STOCKS (Cost $89,602,408)		105,567,230
Money Market Funds - 0.0%
	Shares		Value (Note 1)
Fidelity Cash Central Fund, 5.37% (b) (Cost $56,903)	56,903		$ 56,903
TOTAL INVESTMENT PORTFOLIO - 99.0% (Cost $89,659,311)			105,624,133
NET OTHER ASSETS - 1.0%			1,019,676
NET ASSETS - 100%		$ 106,643,809

Legend

(a) Non-income producing

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	$ 311,667
Fidelity Securities Lending Cash Central Fund	22,914
Total	$ 334,581

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

United States of America	79.2%
France	5.4%
United Kingdom	3.6%
Switzerland	2.8%
Ireland	2.8%
Canada	2.7%
Panama	1.4%
Others (individually less than 1%)	2.1%
	100.0%

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

Annual Report

VIP Dynamic Capital Appreciation Portfolio

Financial Statements

Statement of Assets and Liabilities

	December 31, 2006

Assets
Investment in securities, at value - See accompanying schedule: Unaffiliated issuers (cost $89,602,408)	$ 105,567,230
Fidelity Central Funds (cost $56,903)	56,903
Total Investments (cost $89,659,311)		$ 105,624,133
Receivable for investments sold		1,069,194
Receivable for fund shares sold		537
Dividends receivable		143,551
Interest receivable		3,540
Prepaid expenses		565
Other receivables		4,208
Total assets		106,845,728

Liabilities
Payable for investments purchased	$ 85,078
Payable for fund shares redeemed	287
Accrued management fee	50,349
Distribution fees payable	5,007
Other affiliated payables	11,710
Other payables and accrued expenses	49,488
Total liabilities		201,919

Net Assets		$ 106,643,809
Net Assets consist of:
Paid in capital		$ 89,535,132
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions		1,143,849
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies		15,964,828
Net Assets		$ 106,643,809

Statement of Assets and Liabilities - continued

	December 31, 2006

Initial Class: Net Asset Value, offering price and redemption price per share ($59,549,233 ÷ 6,195,287 shares)		$ 9.61

Service Class: Net Asset Value, offering price and redemption price per share ($910,378 ÷ 95,256 shares)		$ 9.56

Service Class 2: Net Asset Value, offering price and redemption price per share ($23,720,025 ÷ 2,503,344 shares)		$ 9.48

Investor Class: Net Asset Value, offering price and redemption price per share ($22,464,173 ÷ 2,337,254 shares)		$ 9.61

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

Annual Report

VIP Dynamic Capital Appreciation Portfolio
Financial Statements - continued

Statement of Operations

	Year ended December 31, 2006

Investment Income
Dividends		$ 995,886
Interest		21
Income from Fidelity Central Funds		334,581
Total income		1,330,488

Expenses
Management fee	$ 602,746
Transfer agent fees	102,035
Distribution fees	55,401
Accounting and security lending fees	46,422
Custodian fees and expenses	42,528
Independent trustees' compensation	387
Audit	43,447
Legal	2,984
Miscellaneous	18,319
Total expenses before reductions	914,269
Expense reductions	(12,108)	902,161
Net investment income (loss)		428,327
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investment securities:
Unaffiliated issuers	4,962,767
Foreign currency transactions	2,116
Total net realized gain (loss)		4,964,883
Change in net unrealized appreciation (depreciation) on: Investment securities	6,045,710
Assets and liabilities in foreign currencies	1
Total change in net unrealized appreciation (depreciation)		6,045,711
Net gain (loss)		11,010,594
Net increase (decrease) in net assets resulting from operations		$ 11,438,921

Statement of Changes in Net Assets

	Year ended December 31, 2006	Year ended December 31, 2005
Increase (Decrease) in Net Assets
Operations
Net investment income (loss)	$ 428,327	$ 50,888
Net realized gain (loss)	4,964,883	2,863,677
Change in net unrealized appreciation (depreciation)	6,045,711	5,412,479
Net increase (decrease) in net assets resulting from operations	11,438,921	8,327,044
Distributions to shareholders from net investment income	(477,277)	-
Distributions to shareholders from net realized gain	(2,812,139)	-
Total distributions	(3,289,416)	-
Share transactions - net increase (decrease)	14,557,067	42,552,762
Total increase (decrease) in net assets	22,706,572	50,879,806

Net Assets
Beginning of period	83,937,237	33,057,431
End of period (including undistributed net investment income of $0 and undistributed net investment income of $42,097, respectively)	$ 106,643,809	$ 83,937,237

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

VIP Dynamic Capital Appreciation Portfolio

Financial Highlights - Initial Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 8.71	$ 7.19	$ 7.09	$ 5.65	$ 6.10
Income from Investment Operations
Net investment income (loss)^C	.04	.02^F	(.03)^G	(.02)	.02
Net realized and unrealized gain (loss)	1.17	1.50	.13	1.46	(.46)
Total from investment operations	1.21	1.52	.10	1.44	(.44)
Distributions from net investment income	(.05)	-	-	-	(.01)
Distributions from net realized gain	(.26)	-	-	-	-
Total distributions	(.31)	-	-	-	(.01)
Net asset value, end of period	$ 9.61	$ 8.71	$ 7.19	$ 7.09	$ 5.65
Total Return^{A, B}	13.97%	21.14%	1.41%	25.49%	(7.21)%
Ratios to Average Net Assets^{D, H}
Expenses before reductions	.78%	.88%	.98%	1.83%	2.64%
Expenses net of fee waivers, if any	.78%	.85%	.98%	1.06%	1.50%
Expenses net of all reductions	.77%	.76%	.91%	.96%	1.38%
Net investment income (loss)	.48%	.21%^F	(.48)%^G	(.30)%	.32%
Supplemental Data
Net assets, end of period (000 omitted)	$ 59,549	$ 57,609	$ 19,486	$ 16,684	$ 719
Portfolio turnover rate^E	161%	201%	226%	307%	349%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects an in-kind dividend received in a corporate reorganization which amounted to $.01 per share. Excluding this dividend, the ratio of net investment income (loss) to average net assets would have been .07%.

^G Investment income per share reflects an in-kind dividend received in a corporate reorganization which amounted to $0.00 per share. Excluding this dividend, the ratio of net investment income (loss) to average net assets would have been (.52)%.

Financial Highlights - Service Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 8.65	$ 7.15	$ 7.06	$ 5.64	$ 6.09
Income from Investment Operations
Net investment income (loss)^C	.04	.01^F	(.04)^G	(.04)	.01
Net realized and unrealized gain (loss)	1.17	1.49	.13	1.46	(.45)
Total from investment operations	1.21	1.50	.09	1.42	(.44)
Distributions from net investment income	(.04)	-	-	-	(.01)
Distributions from net realized gain	(.26)	-	-	-	-
Total distributions	(.30)	-	-	-	(.01)
Net asset value, end of period	$ 9.56	$ 8.65	$ 7.15	$ 7.06	$ 5.64
Total Return^{A, B}	13.99%	20.98%	1.27%	25.18%	(7.22)%
Ratios to Average Net Assets^{D, H}
Expenses before reductions	.88%	.99%	1.07%	1.92%	2.61%
Expenses net of fee waivers, if any	.88%	.96%	1.07%	1.38%	1.60%
Expenses net of all reductions	.87%	.88%	1.00%	1.29%	1.48%
Net investment income (loss)	.38%	.11%^F	(.57)%^G	(.63)%	.22%
Supplemental Data
Net assets, end of period (000 omitted)	$ 910	$ 879	$ 644	$ 852	$ 773
Portfolio turnover rate^E	161%	201%	226%	307%	349%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

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

Annual Report

Fund Name
Financial Statements - continued

Financial Highlights - Service Class 2

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 8.58	$ 7.11	$ 7.02	$ 5.62	$ 6.09
Income from Investment Operations
Net investment income (loss)^C	.02	-^{F, I}	(.05)^G	(.05)	-^I
Net realized and unrealized gain (loss)	1.16	1.47	.14	1.45	(.46)
Total from investment operations	1.18	1.47	.09	1.40	(.46)
Distributions from net investment income	(.02)	-	-	-	(.01)
Distributions from net realized gain	(.26)	-	-	-	-
Total distributions	(.28)	-	-	-	(.01)
Net asset value, end of period	$ 9.48	$ 8.58	$ 7.11	$ 7.02	$ 5.62
Total Return^{A, B}	13.81%	20.68%	1.28%	24.91%	(7.55)%
Ratios to Average Net Assets^{D, H}
Expenses before reductions	1.05%	1.18%	1.26%	2.10%	2.79%
Expenses net of fee waivers, if any	1.05%	1.11%	1.25%	1.51%	1.75%
Expenses net of all reductions	1.04%	1.03%	1.17%	1.41%	1.63%
Net investment income (loss)	.21%	(.04)%^F	(.74)%^G	(.75)%	.07%
Supplemental Data
Net assets, end of period (000 omitted)	$ 23,720	$ 18,208	$ 12,928	$ 10,772	$ 6,209
Portfolio turnover rate^E	161%	201%	226%	307%	349%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^I Amount represents less than $.01 per share.

Financial Highlights - Investor Class

Years ended December 31,	2006	2005^H
Selected Per-Share Data
Net asset value, beginning of period	$ 8.71	$ 7.89
Income from Investment Operations
Net investment income (loss)^E	.03	-^J
Net realized and unrealized gain (loss)	1.17	.82
Total from investment operations	1.20	.82
Distributions from net investment income	(.04)	-
Distributions from net realized gain	(.26)	-
Total distributions	(.30)	-
Net asset value, end of period	$ 9.61	$ 8.71
Total Return^{B, C, D}	13.87%	10.39%
Ratios to Average Net Assets^{F, I}
Expenses before reductions	.90%	1.04%^A
Expenses net of fee waivers, if any	.90%	1.00%^A
Expenses net of all reductions	.89%	.92%^A
Net investment income (loss)	.36%	.02%^A
Supplemental Data
Net assets, end of period (000 omitted)	$ 22,464	$ 7,241
Portfolio turnover rate^G	161%	201%

^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.

^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.

VIP Dynamic Capital Appreciation Portfolio

Notes to Financial Statements

For the period ended December 31, 2006

1. Significant Accounting Policies.

VIP Dynamic Capital Appreciation Portfolio (the Fund) is a fund of Variable Insurance Products Fund III (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.

Investment Transactions and Income. Security transactions, including the Fund's investment activity in the Fidelity Central Funds, are accounted for as of trade date. 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 income distributions from the Fidelity Central Funds are accrued as earned, with any income distributions receivable as of period end included in Interest Receivable on the Statement of Assets and Liabilities. 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.

Annual Report

Notes to Financial Statements - continued

1. Significant Accounting Policies - continued

Book-tax differences are primarily due to foreign currency transactions, capital loss carryforwards and losses deferred due to wash sales.

The tax-basis components of distributable earnings and the federal tax cost as of period end were as follows:

Unrealized appreciation	$ 16,619,243
Unrealized depreciation	(817,575)
Net unrealized appreciation (depreciation)	15,801,668
Undistributed ordinary income	596,505
Undistributed long-term capital gain	710,505

Cost for federal income tax purposes	$ 89,822,465

The tax character of distributions paid was as follows:

	December 31, 2006
Ordinary Income	$ 477,277
Long-term Capital Gains	2,812,139
Total	$ 3,289,416

2. Operating Policies.

VIP Dynamic Capital Appreciation Portfolio

3. Purchases and Sales of Investments.

Purchases and sales of securities, other than short-term securities, aggregated $179,735,210 and $161,697,791, respectively.

4. 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 .27% 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 annual management fee rate was .56% of the Fund'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	$ 878
Service Class 2	54,523
	$ 55,401

Initial Class	$ 46,061
Service Class	594
Service Class 2	19,997
Investor Class	35,383
	$ 102,035

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.

5. 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 $261 and is reflected in Miscellaneous Expense on the Statement of Operations. During the period, there were no borrowings on this line of credit.

Annual Report

Notes to Financial Statements - continued

6. 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. At period end, there were no security loans outstanding. 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 $22,914.

7. Expense Reductions.

8. Other.

At the end of the period, FMR or its affiliates were the owners of record of 77% of the total outstanding shares of the Fund.

In December 2006, the Independent Trustees completed their own investigation of the matter with the assistance of independent counsel. The Independent Trustees and FMR agree 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 is worthy of redress. Accordingly, the Independent Trustees have requested and FMR has agreed to pay $42 million to Fidelity mutual funds, plus interest to be determined at the time that payment is made. A method of allocating this payment among the funds has not yet been determined. The total payment to the Fund is not anticipated to have a material impact on the Fund's net assets. In addition, FMR reimbursed related legal expenses which are recorded in accompanying Statement of Operations as an expense reduction.

9. Distributions to Shareholders.

Distributions to shareholders of each class were as follows:

	Years ended December 31,
	2006	2005
From net investment income
Initial Class	$ 328,647	$ -
Service Class	3,418	-
Service Class 2	53,279	-
Investor Class	91,933	-
Total	$ 477,277	$ -
From net realized gain
Initial Class	$ 1,564,621	$ -
Service Class	24,015	-
Service Class 2	629,659	-
Investor Class	593,844	-
Total	$ 2,812,139	$ -

VIP Dynamic Capital Appreciation Portfolio

10. Share Transactions.

Transactions for each class of shares were as follows:

	Shares		Dollars
	Years ended December 31,		Years ended December 31,
	2006	2005 ^A	2006	2005 ^A
Initial Class
Shares sold	2,831,511	5,315,043	$ 26,393,812	$ 43,123,464
Reinvestment of distributions	199,398	-	1,893,269	-
Shares redeemed	(3,451,889)	(1,408,625)	(31,710,043)	(10,370,197)
Net increase (decrease)	(420,980)	3,906,418	$ (3,422,962)	$ 32,753,267
Service Class
Shares sold	23,129	28,508	$ 212,077	$ 222,823
Reinvestment of distributions	2,903	-	27,433	-
Shares redeemed	(32,340)	(16,924)	(293,400)	(129,062)
Net increase (decrease)	(6,308)	11,584	$ (53,890)	$ 93,761
Service Class 2
Shares sold	1,371,579	836,551	$ 12,518,023	$ 6,641,312
Reinvestment of distributions	72,886	-	682,938	-
Shares redeemed	(1,062,736)	(533,808)	(9,658,688)	(3,950,252)
Net increase (decrease)	381,729	302,743	$ 3,542,273	$ 2,691,060
Investor Class
Shares sold	3,161,489	836,455	$ 29,326,508	$ 7,057,993
Reinvestment of distributions	72,152	-	685,776	-
Shares redeemed	(1,727,937)	(4,905)	(15,520,638)	(43,319)
Net increase (decrease)	1,505,704	831,550	$ 14,491,646	$ 7,014,674

^AShare transactions for Investor Class are for the period July 21, 2005 (commencement of sale of shares) to December 31, 2005.

Annual Report

Report of Independent Registered Public Accounting Firm

To the Trustees of Variable Insurance Products Fund III and Shareholders of VIP Dynamic Capital Appreciation Portfolio:

We have audited the accompanying statement of assets and liabilities of VIP Dynamic Capital Appreciation Portfolio (the Fund), a fund of Variable Insurance Products Fund III, including the schedule of investments as of December 31, 2006, and the related statement of operations for the year then ended, the statement of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of VIP Dynamic Capital Appreciation Portfolio as of December 31, 2006, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and its financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

DELOITTE & TOUCHE LLP

Boston, Massachusetts

February 13, 2007

Annual Report

Trustees and Officers

The fund's Statement of Additional Information (SAI) includes more information about the Trustees. To request a free copy, call Fidelity at 1-877-208-0098.

Interested Trustees*:

Correspondence intended for each Trustee who is an interested person may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.

Name, Age; Principal Occupation
Edward C. Johnson 3d (76)
	Year of Election or Appointment: 1994 Mr. Johnson is Chairman of the Board of Trustees. Mr. Johnson serves as President (2006-present), Chief Executive Officer, Chairman, and a Director of FMR Corp.; Chairman and a Director of FMR; Chairman and a Director of Fidelity Research & Analysis Company (FRAC); Chairman and a Director of Fidelity Investments Money Management, Inc.; and Chairman (2001-present) and a Director of FMR Co., Inc. In addition, Mr. Johnson serves as Chairman and Director of Fidelity International Limited (FIL).
Robert L. Reynolds (54)
	Year of Election or Appointment: 2003 Mr. Reynolds is President and a Director of FMR (2005-present), Fidelity Investments Money Management, Inc. (2005-present), and FMR Co., Inc. (2005-present). Mr. Reynolds also serves as Vice Chairman (2006-present), a Director (2003-present), and Chief Operating Officer of FMR Corp. and a Director of Strategic Advisers, Inc. (2005-present). He also serves on the Board at Fidelity Investments Canada, Ltd.

* Trustees have been determined to be "Interested Trustees" by virtue of, among other things, their affiliation with the trust or various entities under common control with FMR.

Independent Trustees:

Correspondence intended for each Independent Trustee (that is, the Trustees other than the Interested Trustees) may be sent to Fidelity Investments, P.O. Box 55235, Boston, Massachusetts 02205-5235.

Name, Age; Principal Occupation
Dennis J. Dirks (58)
	Year of Election or Appointment: 2005 Prior to his retirement in May 2003, Mr. Dirks was Chief Operating Officer and a member of the Board of The Depository Trust & Clearing Corporation (DTCC) (1999-2003). He also served as President, Chief Operating Officer, and Board member of The Depository Trust Company (DTC) (1999-2003) and President and Board member of the National Securities Clearing Corporation (NSCC) (1999-2003). In addition, Mr. Dirks served as Chief Executive Officer and Board member of the Government Securities Clearing Corporation (2001-2003) and Chief Executive Officer and Board member of the Mortgage-Backed Securities Clearing Corporation (2001-2003). Mr. Dirks also serves as a Trustee and a member of the Finance Committee of Manhattan College (2005-present) and a Trustee and a member of the Finance Committee of AHRC of Nassau County (2006-present).
Albert R. Gamper, Jr. (64)
	Year of Election or Appointment: 2006 Prior to his retirement in December 2004, Mr. Gamper served as Chairman of the Board of CIT Group Inc. (commercial finance). During his tenure with CIT Group Inc. Mr. Gamper served in numerous senior management positions, including Chairman (1987-1989; 1999-2001; 2002-2004), Chief Executive Officer (1987-2004), and President (1989-2002). He currently serves as a member of the Board of Directors of Public Service Enterprise Group (utilities, 2001-present), Chairman of the Board of Governors, Rutgers University (2004-present), and Chairman of the Board of Saint Barnabas Health Care System.
George H. Heilmeier (70)
	Year of Election or Appointment: 2004 Dr. Heilmeier is Chairman Emeritus of Telcordia Technologies (communication software and systems), where prior to his retirement, he served as company Chairman and Chief Executive Officer. He currently serves on the Boards of Directors of The Mitre Corporation (systems engineering and information technology support for the government), and HRL Laboratories (private research and development, 2004-present). He is Chairman of the General Motors Science & Technology Advisory Board and a Life Fellow of the Institute of Electrical and Electronics Engineers (IEEE). Dr. Heilmeier is a member of the Defense Science Board and the National Security Agency Advisory Board. He is also a member of the National Academy of Engineering, the American Academy of Arts and Sciences, and the Board of Overseers of the School of Engineering and Applied Science of the University of Pennsylvania. Previously, Dr. Heilmeier served as a Director of TRW Inc. (automotive, space, defense, and information technology, 1992-2002), Compaq (1994-2002), Automatic Data Processing, Inc. (ADP) (technology-based business outsourcing, 1995-2002), INET Technologies Inc. (telecommunications network surveillance, 2001-2004), and Teletech Holdings (customer management services). He is the recipient of the 2005 Kyoto Prize in Advanced Technology for his invention of the liquid crystal display, and a member of the Consumer Electronics Hall of Fame.
James H. Keyes (66)
	Year of Election or Appointment: 2007 Prior to his retirement in 2003, Mr. Keyes was Chairman, President, and Chief Executive Officer of Johnson Controls, Inc. (automotive supplier, 1993-2003). He currently serves as a member of the boards of LSI Logic Corporation (semiconductor technologies), Navistar International Corporation (manufacture and sale of trucks, buses, and diesel engines, 2002-present), and Pitney Bowes, Inc. (integrated mail, messaging, and document management solutions).
Marie L. Knowles (60)
	Year of Election or Appointment: 2001 Prior to Ms. Knowles' retirement in June 2000, she served as Executive Vice President and Chief Financial Officer of Atlantic Richfield Company (ARCO) (diversified energy, 1996-2000). From 1993 to 1996, she was a Senior Vice President of ARCO and President of ARCO Transportation Company. She served as a Director of ARCO from 1996 to 1998. She currently serves as a Director of Phelps Dodge Corporation (copper mining and manufacturing) and McKesson Corporation (healthcare service, 2002-present). Ms. Knowles is a Trustee of the Brookings Institution and the Catalina Island Conservancy and also serves as a member of the Advisory Board for the School of Engineering of the University of Southern California.
Ned C. Lautenbach (62)
	Year of Election or Appointment: 2000 Mr. Lautenbach is Chairman of the Independent Trustees (2006-present). Mr. Lautenbach has been a partner of Clayton, Dubilier & Rice, Inc. (private equity investment firm) since September 1998. Previously, Mr. Lautenbach was with the International Business Machines Corporation (IBM) from 1968 until his retirement in 1998. Mr. Lautenbach serves as a Director of Sony Corporation (2006-present) and Eaton Corporation (diversified industrial) as well as the Philharmonic Center for the Arts in Naples, Florida. He also is a member of the Board of Trustees of Fairfield University (2005-present), as well as a member of the Council on Foreign Relations.
Cornelia M. Small (62)
	Year of Election or Appointment: 2005 Ms. Small is a member (2000-present) and Chairperson (2002-present) of the Investment Committee, and a member (2002- present) of the Board of Trustees of Smith College. Previously, she served as Chief Investment Officer (1999-2000), Director of Global Equity Investments (1996-1999), and a member of the Board of Directors of Scudder, Stevens & Clark (1990-1997) and Scudder Kemper Investments (1997-1999). In addition, Ms. Small served as Co-Chair (2000-2003) of the Annual Fund for the Fletcher School of Law and Diplomacy.
William S. Stavropoulos (67)
	Year of Election or Appointment: 2002 Mr. Stavropoulos is Chairman Emeritus of the Board of Directors of The Dow Chemical Company. Since joining The Dow Chemical Company in 1967, Mr. Stavropoulos served in numerous senior management positions, including President (1993-2000; 2002-2003), CEO (1995-2000; 2002-2004), and Chairman of the Executive Committee (2000-2004). Currently, he is a Director of NCR Corporation (data warehousing and technology solutions), BellSouth Corporation (telecommunications), Chemical Financial Corporation, Maersk Inc. (industrial conglomerate, 2002-present), and Metalmark Capital (private equity investment firm, 2005-present). He also serves as a member of the Board of Trustees of the American Enterprise Institute for Public Policy Research. In addition, Mr. Stavropoulos is a member of The Business Council, J.P. Morgan International Council and the University of Notre Dame Advisory Council for the College of Science.
Kenneth L. Wolfe (67)
	Year of Election or Appointment: 2005 Prior to his retirement in 2001, Mr. Wolfe was Chairman and Chief Executive Officer of Hershey Foods Corporation (1993-2001). He currently serves as a member of the boards of Adelphia Communications Corporation (2003-present), Bausch & Lomb, Inc., and Revlon Inc. (2004-present).

Advisory Board Member and Executive Officers:

Correspondence intended for each executive officer and Mr. Lynch may be sent to Fidelity Investments, 82 Devonshire Street, Boston, Massachusetts 02109.

Name, Age; Principal Occupation
Peter S. Lynch (62)
	Year of Election or Appointment: 2003 Member of the Advisory Board of Variable Insurance products III. Mr. Lynch is Vice Chairman and a Director of FMR, and Vice Chairman (2001-present) and a Director of FMR Co., Inc. Previously, Mr. Lynch served as a Trustee of the Fidelity funds (1990-2003). In addition, he serves as a Trustee of Boston College and as the Chairman of the Inner-City Scholarship Fund.
Kimberley H. Monasterio (43)
	Year of Election or Appointment: 2007 President and Treasurer of VIP Dynamic Capital Appreciation. Ms. Monasterio also serves as President and Treasurer of other Fidelity funds (2007-present) and is an employee of FMR (2004-present). Previously, Ms. Monasterio served as Deputy Treasurer of the Fidelity funds (2004-2006). Before joining Fidelity Investments, Ms. Monasterio served as Treasurer (2000-2004) and Chief Financial Officer (2002-2004) of the Franklin Templeton Funds and Senior Vice President of Franklin Templeton Services, LLC (2000-2004).
Philip L. Bullen (47)
	Year of Election or Appointment: 2006 Vice President of VIP Dynamic Capital Appreciation. Mr. Bullen also serves as Vice President of certain Equity Funds (2006- present). Mr. Bullen is Senior Vice President of FMR (2001-present) and FMR Co., Inc. (2001-present). Previously, Mr. Bullen served as President and a Director of Fidelity Research & Analysis Company (2001-2005), President and a Director of Fidelity Management & Research (U.K.) Inc. (2002-2006), and a Director of Strategic Advisers, Inc. (2002-2005).
Dwight D. Churchill (53)
	Year of Election or Appointment: 2005 Vice President of VIP Dynamic Capital Appreciation. Mr. Churchill also serves as Vice President of certain Equity Funds (2005-present). Mr. Churchill is Executive Vice President of FMR (2005-present) and FMR Co., Inc. (2005-present). Previously, Mr. Churchill served as Senior Vice President of Fidelity Investments Money Management, Inc. (2005-2006), Head of Fidelity's Fixed-Income Division (2000-2005), Vice President of Fidelity's Money Market Funds (2000-2005), Vice President of Fidelity's Bond Funds, and Senior Vice President of FMR.
J. Fergus Shiel (49)
	Year of Election or Appointment: 2005 Vice President of VIP Dynamic Capital Appreciation. Mr. Shiel also serves as Vice President of other funds advised by FMR. Prior to assuming his current responsibilities, Mr. Shiel worked as a research analyst and portfolio manager until leaving the firm in May 2003 to run his own investment firm. Mr. Shiel returned to Fidelity Investments as a portfolio manager in September 2005. Mr. Shiel also serves as Vice President of FMR and FMR Co., Inc. (2006).
Eric D. Roiter (58)
	Year of Election or Appointment: 2000 Secretary of VIP Dynamic Capital Appreciation. He also serves as Secretary of other Fidelity funds; Vice President, General Counsel, and Secretary of FMR Co., Inc. (2001-present) and FMR; Assistant Secretary of Fidelity Management & Research (U.K.) Inc. (2001-present), Fidelity Research & Analysis Company (2001-present), and Fidelity Investments Money Management, Inc. (2001-present). Mr. Roiter is an Adjunct Member, Faculty of Law, at Boston College Law School (2003-present). Previously, Mr. Roiter served as Vice President and Secretary of Fidelity Distributors Corporation (FDC) (1998-2005).
Stuart Fross (47)
	Year of Election or Appointment: 2003 Assistant Secretary of VIP Dynamic Capital Appreciation. Mr. Fross also serves as Assistant Secretary of other Fidelity funds (2003-present), Vice President and Secretary of FDC (2005-present), and is an employee of FMR.
R. Stephen Ganis (40)
	Year of Election or Appointment: 2006 Anti-Money Laundering (AML) officer of VIP Dynamic Capital Appreciation. Mr. Ganis also serves as AML officer of other Fidelity funds (2006-present) and FMR Corp. (2003-present). Before joining Fidelity Investments, Mr. Ganis practiced law at Goodwin Procter, LLP (2000-2002).
Joseph B. Hollis (58)
	Year of Election or Appointment: 2006 Chief Financial Officer of VIP Dynamic Capital Appreciation. Mr. Hollis also serves as Chief Financial Officer of other Fidelity funds. Mr. Hollis is President of Fidelity Pricing and Cash Management Services (FPCMS) (2005-present). Mr. Hollis also serves as President and Director of Fidelity Service Company, Inc. (2006-present). Previously, Mr. Hollis served as Senior Vice President of Cash Management Services (1999-2002) and Investment Management Operations (2002-2005).
Kenneth A. Rathgeber (59)
	Year of Election or Appointment: 2004 Chief Compliance Officer of VIP Dynamic Capital Appreciation. Mr. Rathgeber also serves as Chief Compliance Officer of other Fidelity funds (2004-present) and Executive Vice President of Risk Oversight for Fidelity Investments (2002-present). He is Chief Compliance Officer of FMR (2005-present), FMR Co., Inc. (2005-present), Fidelity Management & Research (U.K.) Inc. (2005-present), Fidelity Research & Analysis Company (2005-present), Fidelity Investments Money Management, Inc. (2005- present), and Strategic Advisers, Inc. (2005-present). Previously, Mr. Rathgeber served as Executive Vice President and Chief Operating Officer for Fidelity Investments Institutional Services Company, Inc. (1998-2002).
Bryan A. Mehrmann (45)
	Year of Election or Appointment: 2005 Deputy Treasurer of VIP Dynamic Capital Appreciation. Mr. Mehrmann also serves as Deputy Treasurer of other Fidelity funds (2005-present) and is an employee of FMR. Previously, Mr. Mehrmann served as Vice President of Fidelity Investments Institutional Services Group (FIIS)/Fidelity Investments Institutional Operations Corporation, Inc. (FIIOC) Client Services (1998-2004).
Kenneth B. Robins (37)
	Year of Election or Appointment: 2005 Deputy Treasurer of VIP Dynamic Capital Appreciation. Mr. Robins also serves as Deputy Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2004-present). Before joining Fidelity Investments, Mr. Robins worked at KPMG LLP, where he was a partner in KPMG's department of professional practice (2002-2004) and a Senior Manager (1999-2000). In addition, Mr. Robins served as Assistant Chief Accountant, United States Securities and Exchange Commission (2000-2002).
Robert G. Byrnes (40)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Dynamic Capital Appreciation. Mr. Byrnes also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Previously, Mr. Byrnes served as Vice President of FPCMS (2003-2005). Before joining Fidelity Investments, Mr. Byrnes worked at Deutsche Asset Management where he served as Vice President of the Investment Operations Group (2000-2003).
John H. Costello (60)
	Year of Election or Appointment: 2000 Assistant Treasurer of VIP Dynamic Capital Appreciation. Mr. Costello also serves as Assistant Treasurer of other Fidelity funds and is an employee of FMR.
Peter L. Lydecker (52)
	Year of Election or Appointment: 2004 Assistant Treasurer of VIP Dynamic Capital Appreciation. Mr. Lydecker also serves as Assistant Treasurer of other Fidelity funds (2004) and is an employee of FMR.
Mark Osterheld (51)
	Year of Election or Appointment: 2002 Assistant Treasurer of VIP Dynamic Capital Appreciation. Mr. Osterheld also serves as Assistant Treasurer of other Fidelity funds (2002) and is an employee of FMR.
Gary W. Ryan (48)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Dynamic Capital Appreciation. Mr. Ryan also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Previously, Mr. Ryan served as Vice President of Fund Reporting in FPCMS (1999-2005).
Salvatore Schiavone (41)
	Year of Election or Appointment: 2005 Assistant Treasurer of VIP Dynamic Capital Appreciation. Mr. Schiavone also serves as Assistant Treasurer of other Fidelity funds (2005-present) and is an employee of FMR (2005-present). Before joining Fidelity Investments, Mr. Schiavone worked at Deutsche Asset Management, where he most recently served as Assistant Treasurer (2003-2005) of the Scudder Funds and Vice President and Head of Fund Reporting (1996-2003).

Annual Report

Distributions

The Board of Trustees of VIP Dynamic Capital Appreciation Portfolio voted to pay to shareholders of record at the opening of business on record date, the following distributions per share derived from capital gains realized from sales of portfolio securities:

	Pay Date	Record Date	Capital Gains
Initial Class	02/09/07	02/09/07	$.12
Service Class	02/09/07	02/09/07	$.12
Service Class 2	02/09/07	02/09/07	$.12
Investor Class	02/09/07	02/09/07	$.12

The fund hereby designates as a capital gain dividend with respect to the taxable year ended December 31, 2006, $3,522,644 or, if subsequently determined to be different, the net capital gain of such year.

Initial Class designates 35% and 100% and Investor Class designates 40% and 100% of the dividends distributed in February and December, respectively during the fiscal year as qualifying for the dividends received-deduction for corporate shareholders.

Service Class and Service Class 2 designate 100% of the dividends distributed during the fiscal year as qualifying for the dividends-received deduction for corporate shareholders.

The fund will notify shareholders in January 2007 of amounts for use in preparing 2006 income tax returns.

Annual Report

Proxy Voting Results

PROPOSAL 1
To elect a Board of Trustees. ^A
	# of Votes	% of Votes
Dennis J. Dirks
Affirmative	8,022,573,906.52	96.057
Withheld	329,291,624.43	3.943
TOTAL	8,351,865,530.95	100.000
Albert R. Gamper, Jr.
Affirmative	8,017,939,119.36	96.002
Withheld	333,926,411.59	3.998
TOTAL	8,351,865,530.95	100.000
Robert M. Gates
Affirmative	8,011,581,068.50	95.926
Withheld	340,284,462.45	4.074
TOTAL	8,351,865,530.95	100.000
George H. Heilmeier
Affirmative	8,000,846,196.79	95.797
Withheld	351,019,334.16	4.203
TOTAL	8,351,865,530.95	100.000
Edward C. Johnson 3d
Affirmative	7,992,112,301.22	95.693
Withheld	359,753,229.73	4.307
TOTAL	8,351,865,530.95	100.000
Stephen P. Jonas
Affirmative	8,019,883,742.95	96.025
Withheld	331,981,788.00	3.975
TOTAL	8,351,865,530.95	100.000
James H. Keyes^B
Affirmative	8,015,436,547.06	95.972
Withheld	336,428,983.89	4.028
TOTAL	8,351,865,530.95	100.000
Marie L. Knowles
Affirmative	8,015,361,874.49	95.971
Withheld	336,503,656.46	4.029
TOTAL	8,351,865,530.95	100.000
Ned C. Lautenbach
Affirmative	8,018,503,793.25	96.009
Withheld	333,361,737.70	3.991
TOTAL	8,351,865,530.95	100.000
	# of Votes	% of Votes
William O. McCoy
Affirmative	8,000,170,571.19	95.789
Withheld	351,694,959.76	4.211
TOTAL	8,351,865,530.95	100.000
Robert L. Reynolds
Affirmative	8,020,815,676.67	96.036
Withheld	331,049,854.28	3.964
TOTAL	8,351,865,530.95	100.000
Cornelia M. Small
Affirmative	8.020,146,516.32	96.028
Withheld	331,719,014.63	3.972
TOTAL	8,351,865,530.95	100.000
William S. Stavropoulos
Affirmative	8,009,250,640.78	95.898
Withheld	342,614,890.17	4.102
TOTAL	8,351,865,530.95	100.000
Kenneth L. Wolfe
Affirmative	8,013,187,941.55	95.945
Withheld	338,677,589.40	4.055
TOTAL	8,351,865,530.95	100.000
^A Denotes trust-wide proposal and voting results. ^B Effective on or about January 1, 2007.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees

VIP Dynamic Capital Appreciation Portfolio

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees - continued

VIP Dynamic Capital Appreciation Portfolio

The Board reviewed the fund's relative investment performance against its Lipper peer group and stated that the performance of Initial Class of the fund was in the first quartile for the one-year period, the third quartile for the three-year period, and the second quartile for the five-year period. The Board also stated that the relative investment performance of Initial Class of the fund compared favorably to its benchmark for the one- and three-year periods, although the fund's five-year cumulative total return was lower than its benchmark. The Board considered that the variations in performance among the fund's classes reflect the variations in class expenses, which result in lower performance for higher expense classes. The Board also reviewed the fund's relative investment performance against a customized peer group based on a combination of categories defined by Morningstar.

VIP Dynamic Capital Appreciation Portfolio

The Board considered two proprietary management fee comparisons for the 12-month periods shown in the chart below. The group of Lipper funds used by the Board for management fee comparisons is referred to below as the "Total Mapped Group" and, for the reasons explained above, is broader than the Lipper peer group used by the Board for performance comparisons. The Total Mapped Group comparison focuses on a fund's standing relative to the total universe of comparable funds available to investors, in terms of gross management fees before expense reimbursements or caps. "TMG %" represents the percentage of funds in the Total Mapped Group that had management fees that were lower than the fund's. For example, a TMG % of 6% means that 94% of the funds in the Total Mapped Group had higher management fees than the fund. The "Asset-Size Peer Group" (ASPG) comparison focuses on a fund's standing relative to non-Fidelity funds similar in size to the fund within the Total Mapped Group. The ASPG represents at least 15% of the funds in the Total Mapped Group with comparable asset size and management fee characteristics, subject to a minimum of 50 funds (or all funds in the Total Mapped Group if fewer than 50). Additional information, such as the ASPG quartile in which the fund's management fee ranked, is also included in the chart and considered by the Board.

VIP Dynamic Capital Appreciation Portfolio

The Board noted that the fund's management fee ranked below the median of its Total Mapped Group and below the median of its ASPG for 2005.

Based on its review, the Board concluded that the fund's management fee was fair and reasonable in light of the services that the fund receives and the other factors considered.

The Board noted that the total expenses of each of Initial Class and Service Class ranked below its competitive median for 2005, and the total expenses of each of Investor Class and Service Class 2 ranked above its competitive median for 2005. The Board noted that the fund offers multiple classes, each of which has a different 12b-1 fee structure, and that the multiple structures are intended to offer a range of pricing options for the intermediary market. The Board also noted that the total expenses of the classes vary primarily by the level of their 12b-1 fees, although differences in transfer agent fees may also cause expenses to vary from class to class. The Board considered that Investor Class was above median primarily due to its higher transfer agent fee.

Annual Report

Board Approval of Investment Advisory Contracts and Management Fees - continued

The Board further concluded that any potential economies of scale are being shared between fund shareholders and Fidelity in an appropriate manner.

VIP Dynamic Capital Appreciation Portfolio

Annual 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
(formerly Fidelity Management & Research (Far East) Inc.)

Fidelity Investments Japan Limited

Fidelity International Investment Advisors

Fidelity International Investment Advisors (U.K.) Limited

General Distributor

Fidelity Distributors Corporation
Boston, MA

Transfer Agent

Fidelity Investments Institutional Operations Company, Inc.
Boston, MA

Service Agent

Fidelity Service Company, Inc.
Boston, MA

Custodian

State Street Bank and Trust Company
Quincy, MA

VIPDCA-ANN-0207
1.751799.106

Fidelity® Variable Insurance Products:

Growth & Income Portfolio

Annual Report

December 31, 2006

(2_fidelity_logos) (Registered_Trademark)

Performance	<Click Here>	How the fund has done over time.
Management's Discussion	<Click Here>	The manager's review of fund performance, strategy and outlook.
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.
Report of Independent Registered Public Accounting Firm	<Click Here>
Trustees and Officers	<Click Here>
Distributions	<Click Here>
Proxy Voting Results	<Click Here>
Board Approval of Investment Advisory Contracts and Management Fees	<Click Here>

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 Corp. or an affiliated company.

NOT FDIC INSURED· MAY LOSE VALUE· NO BANK GUARANTEE

Neither the fund nor Fidelity Distributors Corporation is a bank.

Portfolio

VIP Growth & Income Portfolio

Performance: The Bottom Line

Average Annual Total Returns

Periods ended December 31, 2006	Past 1 year	Past 5 years	Past 10 years
VIP Growth & Income - Initial Class	13.18%	5.87%	7.97%
VIP Growth & Income - Service Class^A	13.01%	5.76%	7.86%
VIP Growth & Income - Service Class 2 ^B	12.86%	5.60%	7.74%
VIP Growth & Income - Investor Class ^C	12.95%	5.82%	7.94%

^AThe initial offering of Service Class shares took place on November 3, 1997. Performance for Service Class shares reflects an asset based distribution fee (12b-1 fee), and returns prior to November 3, 1997 are those of Initial Class and do not include the effects of Service Class' 12b-1 fee. Had Service Class shares' 12b-1 fee been reflected, returns prior to November 3, 1997 would have been lower.

^BThe initial offering of Service Class 2 shares took place on January 12, 2000. Performance for Service Class 2 shares reflects an asset based distribution fee (12b-1 fee). Returns from November 3, 1997 to January 12, 2000 are those of Service Class which reflect a different 12b-1 fee. Service Class 2 returns prior to November 3, 1997 are those of the Initial Class and do not include the effects of a 12b-1 fee. Had Service Class 2's 12b-1 fee been reflected, returns prior to January 12, 2000 would have been lower.

^CThe initial offering of Investor Class shares took place on July 21, 2005. Returns prior to July 21, 2005 are those of Initial Class.If Investor Class's transfer agent fee had been reflected, returns prior to July 21, 2005 would have been lower.

$10,000 Life of Fund

Let's say hypothetically that $10,000 was invested in VIP Growth & Income Portfolio - Initial Class on December 31, 1996, when the fund started. The chart shows how the value of your investment would have changed, and also shows how the Standard & Poor's 500^SM Index performed over the same period.

Annual Report

VIP Growth & Income Portfolio

Management's Discussion of Fund Performance

Comments from James Catudal, Portfolio Manager of VIP Growth & Income Portfolio

U.S. stock markets registered their fourth consecutive year of positive returns in 2006. Among the highlights were the performances of the Dow Jones Industrial Average^SM- a gauge of 30 mega-cap, blue-chip stocks - and the small-cap-oriented Russell 2000® Index, both of which reached new highs. The efforts of the Federal Reserve Board to contain inflation levels also dominated the investment headlines. In all, the Fed hiked short-term interest rates four times, but held rates steady after its June 29 increase, finally pausing after 17 rate hikes over a two-year period. A slowing residential housing market and moderating oil prices - the latter of which hit a record closing high of $77 per barrel in July before falling sharply - also held economic growth in check. For the year overall, the Standard & Poor's 500^SM Index was up 15.79%, the Dow advanced 19.05%, the Russell 2000 Index gained 18.37% and the NASDAQ Composite® Index rose 10.39%.

For the 12 months ending December 31, 2006, VIP Growth & Income Portfolio trailed the S&P 500®. (For specific portfolio performance results, please refer to the performance section of this report.) The primary factors in the fund's underperformance relative to the index were weak stock selection in health care and unfavorable positioning within the financials sector. In health care, the fund favored lifescience/biotechnology stocks and services companies, including health maintenance organizations (HMOs), over the large pharmaceutical companies, which performed comparatively well. In financials, underweighting diversified financials detracted from results versus the index. These negative influences were partially offset by good stock selection in the information technology and industrials sectors. Among my health care holdings, HMO UnitedHealth Group was a particular disappointment. Its share price fell hard after a controversy over the backdating of stock options led to the resignation of the company's chief executive officer. Other health care investments that held back results included Affymetrix, PDL BioPharma and Invitrogen - stocks not represented in the S&P 500. The two top contributors were industrials companies McDermott International and Aviall. McDermott gained as its Babcock & Wilcox division emerged from bankruptcy protection after resolving asbestos liability issues and then started contributing to earnings. Aerospace parts distributor Aviall, which I subsequently sold, rose in price when it received a buyout proposal from Boeing. Another notable contributor was Canada's Research In Motion, which gained on the popularity of its BlackBerry messaging devices. None of these contributors were included in the benchmark.

Annual Report

VIP Growth & Income Portfolio

Shareholder Expense Example

The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (July 1, 2006 to December 31, 2006).

Actual Expenses

Hypothetical Example for Comparison Purposes

	Beginning Account Value July 1, 2006	Ending Account Value December 31, 2006	Expenses Paid During Period* July 1, 2006 to December 31, 2006
Initial Class
Actual	$ 1,000.00	$ 1,112.50	$ 3.25
Hypothetical^A	$ 1,000.00	$ 1,022.13	$ 3.11
Service Class
Actual	$ 1,000.00	$ 1,112.60	$ 3.78
Hypothetical^A	$ 1,000.00	$ 1,021.63	$ 3.62
Service Class 2
Actual	$ 1,000.00	$ 1,111.40	$ 4.58
Hypothetical^A	$ 1,000.00	$ 1,020.87	$ 4.38
Investor Class
Actual	$ 1,000.00	$ 1,112.10	$ 3.89
Hypothetical^A	$ 1,000.00	$ 1,021.53	$ 3.72

^A5% return per year before expenses

	Annualized Expense Ratio
Initial Class	.61%
Service Class	.71%
Service Class 2	.86%
Investor Class	.73%

Annual Report

VIP Growth & Income Portfolio

Investment Changes

Top Ten Stocks as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
General Electric Co.	5.0	4.9
American International Group, Inc.	4.1	3.4
Microsoft Corp.	3.5	3.0
Procter & Gamble Co.	2.5	1.3
Exxon Mobil Corp.	2.5	2.9
Cisco Systems, Inc.	1.9	1.5
Altria Group, Inc.	1.6	1.4
AT&T, Inc.	1.5	1.2
Bank of America Corp.	1.4	2.4
Google, Inc. Class A (sub. vtg.)	1.3	1.6
	25.3
Top Five Market Sectors as of December 31, 2006
	% of fund's net assets	% of fund's net assets 6 months ago
Financials	23.6	21.0
Information Technology	20.6	18.7
Health Care	13.5	14.0
Industrials	11.6	14.4
Energy	9.5	9.8

Asset Allocation (% of fund's net assets)
As of December 31, 2006 *			As of June 30, 2006 **
	Stocks 97.9%			Stocks 97.8%
	Short-Term Investments and Net Other Assets 2.1%			Short-Term Investments and Net Other Assets 2.2%
* Foreign investments		11.1%	** Foreign investments		9.8%

Annual Report

VIP Growth & Income Portfolio

Investments December 31, 2006

Showing Percentage of Net Assets

Common Stocks - 97.9%
	Shares		Value (Note 1)
CONSUMER DISCRETIONARY - 6.6%
Hotels, Restaurants & Leisure - 0.6%
Jamba, Inc. (a)(d)	398,700		$ 4,014,909
Starbucks Corp. (a)	129,900		4,601,058
			8,615,967
Household Durables - 0.8%
Koninklijke Philips Electronics NV (NY Shares)	119,200		4,479,536
Sony Corp. sponsored ADR	99,800		4,274,434
Whirlpool Corp.	42,200		3,503,444
			12,257,414
Media - 1.8%
E.W. Scripps Co. Class A	57,900		2,891,526
News Corp. Class B	342,700		7,628,502
Time Warner, Inc.	800,600		17,437,068
			27,957,096
Multiline Retail - 1.0%
Target Corp.	270,000		15,403,500
Specialty Retail - 2.1%
Best Buy Co., Inc.	104,600		5,145,274
Esprit Holdings Ltd.	318,500		3,556,269
Lowe's Companies, Inc.	126,800		3,949,820
PETsMART, Inc.	74,000		2,135,640
Staples, Inc.	336,302		8,979,263
Tiffany & Co., Inc.	70,100		2,750,724
TJX Companies, Inc.	195,500		5,575,660
			32,092,650
Textiles, Apparel & Luxury Goods - 0.3%
Liz Claiborne, Inc.	87,000		3,781,020
TOTAL CONSUMER DISCRETIONARY			100,107,647
CONSUMER STAPLES - 7.1%
Beverages - 0.6%
Molson Coors Brewing Co. Class B	73,600		5,625,984
PepsiCo, Inc.	55,400		3,465,270
			9,091,254
Food & Staples Retailing - 0.6%
CVS Corp.	139,500		4,311,945
Safeway, Inc.	152,600		5,273,856
			9,585,801
Food Products - 0.9%
Nestle SA sponsored ADR	147,000		13,083,000
Household Products - 3.4%
Colgate-Palmolive Co.	202,500		13,211,100
Procter & Gamble Co.	583,100		37,475,837
			50,686,937
Tobacco - 1.6%
Altria Group, Inc.	288,660		24,772,801
TOTAL CONSUMER STAPLES			107,219,793

	Shares		Value (Note 1)
ENERGY - 9.5%
Energy Equipment & Services - 5.7%
Baker Hughes, Inc.	109,600		$ 8,182,736
Cameron International Corp. (a)	320,500		17,002,525
Diamond Offshore Drilling, Inc.	71,900		5,747,686
Halliburton Co.	643,617		19,984,308
Nabors Industries Ltd. (a)	190,100		5,661,178
Schlumberger Ltd. (NY Shares)	319,700		20,192,252
Smith International, Inc.	238,700		9,803,409
			86,574,094
Oil, Gas & Consumable Fuels - 3.8%
Exxon Mobil Corp.	486,100		37,249,843
Peabody Energy Corp.	124,600		5,035,086
Petroplus Holdings AG	18,850		1,144,346
Plains Exploration & Production Co. (a)	139,100		6,611,423
Ultra Petroleum Corp. (a)	39,890		1,904,748
Valero Energy Corp.	121,900		6,236,404
			58,181,850
TOTAL ENERGY			144,755,944
FINANCIALS - 23.6%
Capital Markets - 4.4%
Ameriprise Financial, Inc.	147,200		8,022,400
Charles Schwab Corp.	445,300		8,612,102
E*TRADE Financial Corp.	206,400		4,627,488
Franklin Resources, Inc.	63,800		7,028,846
Goldman Sachs Group, Inc.	41,700		8,312,895
Investors Financial Services Corp.	146,800		6,263,956
Lehman Brothers Holdings, Inc.	40,600		3,171,672
State Street Corp.	242,500		16,354,200
UBS AG (NY Shares)	76,600		4,621,278
			67,014,837
Commercial Banks - 3.9%
Commerce Bancorp, Inc., New Jersey (d)	93,000		3,280,110
Mizuho Financial Group, Inc.	531		3,791,264
PNC Financial Services Group, Inc.	102,200		7,566,888
Standard Chartered PLC (United Kingdom)	306,657		8,960,998
Sumitomo Mitsui Financial Group, Inc.	372		3,812,180
U.S. Bancorp, Delaware	229,400		8,301,986
Wachovia Corp.	176,670		10,061,357
Wells Fargo & Co.	368,090		13,089,280
			58,864,063
Consumer Finance - 0.7%
American Express Co.	154,700		9,385,649
Capital One Financial Corp. (d)	26,400		2,028,048
			11,413,697
Common Stocks - continued
	Shares		Value (Note 1)
FINANCIALS - continued
Diversified Financial Services - 2.4%
Bank of America Corp.	415,400		$ 22,178,206
Citigroup, Inc.	269,000		14,983,300
			37,161,506
Insurance - 10.5%
ACE Ltd.	163,200		9,885,024
AFLAC, Inc.	119,100		5,478,600
American International Group, Inc.	879,305		63,010,996
Berkshire Hathaway, Inc. Class A (a)	123		13,528,770
Endurance Specialty Holdings Ltd.	59,300		2,169,194
Everest Re Group Ltd.	94,400		9,261,584
Fidelity National Financial, Inc. Class A	186,100		4,444,068
Hartford Financial Services Group, Inc.	135,500		12,643,505
Lincoln National Corp.	104,900		6,965,360
National Financial Partners Corp.	143,500		6,309,695
PartnerRe Ltd.	78,900		5,604,267
Prudential Financial, Inc.	142,900		12,269,394
W.R. Berkley Corp.	228,900		7,899,339
			159,469,796
Real Estate Investment Trusts - 0.4%
Equity Residential (SBI)	56,000		2,842,000
Vornado Realty Trust	21,000		2,551,500
			5,393,500
Real Estate Management & Development - 0.3%
Mitsui Fudosan Co. Ltd.	154,000		3,757,833
Move, Inc.	173,600		956,536
			4,714,369
Thrifts & Mortgage Finance - 1.0%
Countrywide Financial Corp.	44,600		1,893,270
Hudson City Bancorp, Inc.	445,200		6,179,376
People's Bank, Connecticut	117,700		5,251,774
Washington Mutual, Inc.	34,800		1,583,052
			14,907,472
TOTAL FINANCIALS			358,939,240
HEALTH CARE - 13.5%
Biotechnology - 2.7%
Amgen, Inc. (a)	98,410		6,722,387
Biogen Idec, Inc. (a)	165,000		8,116,350
Celgene Corp. (a)	66,500		3,825,745
Cephalon, Inc. (a)	53,800		3,788,058
Genentech, Inc. (a)	31,300		2,539,369
Gilead Sciences, Inc. (a)	117,700		7,642,261
MedImmune, Inc. (a)	172,000		5,567,640
PDL BioPharma, Inc. (a)	145,400		2,928,356
			41,130,166
Health Care Equipment & Supplies - 2.7%
Alcon, Inc.	18,400		2,056,568
Baxter International, Inc.	230,800		10,706,812

	Shares		Value (Note 1)
Becton, Dickinson & Co.	124,400		$ 8,726,660
C.R. Bard, Inc.	82,500		6,845,025
Cooper Companies, Inc.	95,368		4,243,876
DJO, Inc. (a)	142,900		6,118,978
St. Jude Medical, Inc. (a)	62,670		2,291,215
			40,989,134
Health Care Providers & Services - 2.4%
Brookdale Senior Living, Inc.	39,000		1,872,000
Cardinal Health, Inc.	67,600		4,355,468
Health Net, Inc. (a)	141,800		6,899,988
Healthways, Inc. (a)	8,800		419,848
Henry Schein, Inc. (a)	149,500		7,322,510
I-trax, Inc. (a)	230,600		714,860
Medco Health Solutions, Inc. (a)	84,900		4,537,056
Sierra Health Services, Inc. (a)	92,500		3,333,700
UnitedHealth Group, Inc.	144,300		7,753,239
			37,208,669
Health Care Technology - 0.2%
IMS Health, Inc.	99,100		2,723,268
Life Sciences Tools & Services - 0.9%
Affymetrix, Inc. (a)	70,100		1,616,506
Invitrogen Corp. (a)	142,000		8,035,780
Millipore Corp. (a)	62,300		4,149,180
			13,801,466
Pharmaceuticals - 4.6%
Allergan, Inc.	46,100		5,520,014
Johnson & Johnson	284,700		18,795,894
Merck & Co., Inc.	302,500		13,189,000
Novartis AG sponsored ADR	110,900		6,370,096
Pfizer, Inc.	256,700		6,648,530
Roche Holding AG (participation certificate)	46,297		8,298,859
Wyeth	214,500		10,922,340
			69,744,733
TOTAL HEALTH CARE			205,597,436
INDUSTRIALS - 11.6%
Aerospace & Defense - 2.5%
EDO Corp.	130,294		3,093,180
General Dynamics Corp.	77,400		5,754,690
Honeywell International, Inc.	232,600		10,522,824
KBR, Inc.	8,600		224,976
United Technologies Corp.	300,500		18,787,260
			38,382,930
Air Freight & Logistics - 0.5%
FedEx Corp.	18,000		1,955,160
United Parcel Service, Inc. Class B	68,400		5,128,632
			7,083,792
Common Stocks - continued
	Shares		Value (Note 1)
INDUSTRIALS - continued
Airlines - 0.6%
AMR Corp. (a)	88,600		$ 2,678,378
UAL Corp. (a)	136,700		6,014,800
			8,693,178
Electrical Equipment - 0.6%
Evergreen Solar, Inc. (a)	201,200		1,523,084
Suntech Power Holdings Co. Ltd. sponsored ADR	111,500		3,792,115
Vestas Wind Systems AS (a)	82,600		3,491,325
			8,806,524
Industrial Conglomerates - 6.0%
General Electric Co.	2,039,500		75,889,793
McDermott International, Inc. (a)	309,250		15,728,455
			91,618,248
Machinery - 0.6%
Danaher Corp.	52,500		3,803,100
Deere & Co.	55,600		5,285,892
			9,088,992
Road & Rail - 0.8%
Laidlaw International, Inc.	189,500		5,766,485
Landstar System, Inc.	99,300		3,791,274
Norfolk Southern Corp.	61,800		3,107,922
			12,665,681
TOTAL INDUSTRIALS			176,339,345
INFORMATION TECHNOLOGY - 20.6%
Communications Equipment - 4.8%
Adtran, Inc.	49,100		1,114,570
Alcatel-Lucent SA sponsored ADR	433,100		6,158,682
Cisco Systems, Inc. (a)	1,035,600		28,302,948
Comverse Technology, Inc. (a)	204,765		4,322,589
Corning, Inc. (a)	213,500		3,994,585
Harris Corp.	109,800		5,035,428
Juniper Networks, Inc. (a)	165,400		3,132,676
Motorola, Inc.	140,700		2,892,792
Nortel Networks Corp. (a)	137,530		3,689,484
QUALCOMM, Inc.	262,700		9,927,433
Research In Motion Ltd. (a)	33,600		4,293,408
			72,864,595
Computers & Peripherals - 3.4%
Apple Computer, Inc. (a)	184,000		15,610,560
Dell, Inc. (a)	96,000		2,408,640
EMC Corp. (a)	478,800		6,320,160
Hewlett-Packard Co.	470,700		19,388,133
Network Appliance, Inc. (a)	115,200		4,525,056
Sun Microsystems, Inc. (a)	516,600		2,799,972
			51,052,521

	Shares		Value (Note 1)
Electronic Equipment & Instruments - 0.7%
Agilent Technologies, Inc. (a)	300,814		$ 10,483,368
Internet Software & Services - 1.6%
eBay, Inc. (a)	27,377		823,226
Google, Inc. Class A (sub. vtg.) (a)	44,300		20,399,264
Yahoo!, Inc. (a)	85,600		2,186,224
			23,408,714
IT Services - 1.0%
First Data Corp.	231,000		5,895,120
Paychex, Inc.	162,100		6,409,434
The Western Union Co.	143,100		3,208,302
			15,512,856
Semiconductors & Semiconductor Equipment - 3.9%
Analog Devices, Inc.	111,600		3,668,292
Applied Materials, Inc.	856,600		15,804,270
ARM Holdings PLC sponsored ADR	205,000		1,496,500
ASML Holding NV (NY Shares) (a)	62,200		1,531,986
Broadcom Corp. Class A (a)	91,900		2,969,289
Fairchild Semiconductor International, Inc. (a)	240,000		4,034,400
FormFactor, Inc. (a)	88,500		3,296,625
Intersil Corp. Class A	193,600		4,630,912
Lam Research Corp. (a)	4,900		248,038
Linear Technology Corp.	117,400		3,559,568
Microchip Technology, Inc.	133,700		4,371,990
National Semiconductor Corp.	296,300		6,726,010
Samsung Electronics Co. Ltd.	4,840		3,190,237
Verigy Ltd.	74,134		1,315,879
Xilinx, Inc.	126,800		3,019,108
			59,863,104
Software - 5.2%
Adobe Systems, Inc. (a)	210,200		8,643,424
Cognos, Inc. (a)	122,200		5,188,612
Microsoft Corp.	1,776,500		53,046,290
Oracle Corp. (a)	371,000		6,358,940
Quest Software, Inc. (a)	219,100		3,209,815
Symantec Corp. (a)	154,000		3,210,900
			79,657,981
TOTAL INFORMATION TECHNOLOGY			312,843,139
MATERIALS - 2.1%
Chemicals - 1.2%
Ashland, Inc.	34,500		2,386,710
Monsanto Co.	139,720		7,339,492
Praxair, Inc.	152,800		9,065,624
			18,791,826
Containers & Packaging - 0.4%
Owens-Illinois, Inc.	155,400		2,867,130
Smurfit-Stone Container Corp. (a)	237,700		2,510,112
			5,377,242
Common Stocks - continued
	Shares		Value (Note 1)
MATERIALS - continued
Metals & Mining - 0.5%
Alcoa, Inc.	42,000		$ 1,260,420
Meridian Gold, Inc. (a)	120,260		3,344,796
Titanium Metals Corp.	115,460		3,407,225
			8,012,441
TOTAL MATERIALS			32,181,509
TELECOMMUNICATION SERVICES - 2.7%
Diversified Telecommunication Services - 2.3%
AT&T, Inc.	622,600		22,257,950
Level 3 Communications, Inc. (a)	471,500		2,640,400
Qwest Communications International, Inc. (a)	440,800		3,689,496
Verizon Communications, Inc.	174,600		6,502,104
			35,089,950
Wireless Telecommunication Services - 0.4%
American Tower Corp. Class A (a)	162,000		6,039,360
TOTAL TELECOMMUNICATION SERVICES			41,129,310
UTILITIES - 0.6%
Electric Utilities - 0.4%
Exelon Corp.	102,500		6,343,725
Independent Power Producers & Energy Traders - 0.2%
TXU Corp.	55,200		2,992,392
TOTAL UTILITIES			9,336,117
TOTAL COMMON STOCKS (Cost $1,269,437,788)		1,488,449,480
Money Market Funds - 2.4%
	Shares		Value (Note 1)
Fidelity Cash Central Fund, 5.37% (b)	32,099,297		$ 32,099,297
Fidelity Securities Lending Cash Central Fund, 5.38% (b)(c)	4,586,475		4,586,475
TOTAL MONEY MARKET FUNDS (Cost $36,685,772)		36,685,772
TOTAL INVESTMENT PORTFOLIO - 100.3% (Cost $1,306,123,560)			1,525,135,252
NET OTHER ASSETS - (0.3)%			(4,022,644)
NET ASSETS - 100%		$ 1,521,112,608

Legend

(a) Non-income producing

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

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	$ 2,669,172
Fidelity Securities Lending Cash Central Fund	169,348
Total	$ 2,838,520

Other Information

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

United States of America	88.9%
Switzerland	2.4%
Netherlands Antilles	1.3%
Canada	1.1%
Bermuda	1.1%
Panama	1.0%
Japan	1.0%
Cayman Islands	1.0%
Others (individually less than 1%)	2.2%
	100.0%

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

VIP Growth & Income Portfolio

VIP Growth & Income Portfolio

Financial Statements

Statement of Assets and Liabilities

	December 31, 2006
Assets
Investment in securities, at value (including securities loaned of $4,483,091) - See accompanying schedule: Unaffiliated issuers (cost $1,269,437,788)	$ 1,488,449,480
Fidelity Central Funds (cost $36,685,772)	36,685,772
Total Investments (cost $1,306,123,560)		$ 1,525,135,252
Cash		14,825
Receivable for fund shares sold		8,717
Dividends receivable		1,700,745
Interest receivable		125,351
Prepaid expenses		7,701
Other receivables		18,517
Total assets		1,527,011,108

Liabilities
Payable for fund shares redeemed	$ 129,657
Accrued management fee	590,479
Distribution fees payable	166,604
Other affiliated payables	129,529
Other payables and accrued expenses	295,756
Collateral on securities loaned, at value	4,586,475
Total liabilities		5,898,500

Net Assets		$ 1,521,112,608
Net Assets consist of:
Paid in capital		$ 1,233,430,989
Undistributed net investment income		13,489,068
Accumulated undistributed net realized gain (loss) on investments and foreign currency transactions		55,180,863
Net unrealized appreciation (depreciation) on investments and assets and liabilities in foreign currencies		219,011,688
Net Assets		$ 1,521,112,608

Statement of Assets and Liabilities - continued

	December 31, 2006
Initial Class: Net Asset Value, offering price and redemption price per share ($465,375,056 ÷ 28,877,128 shares)		$ 16.12

Service Class: Net Asset Value, offering price and redemption price per share ($375,774,876 ÷ 23,477,986 shares)		$ 16.01

Service Class 2: Net Asset Value, offering price and redemption price per share ($645,359,588 ÷ 40,701,936 shares)		$ 15.86

Investor Class: Net Asset Value, offering price and redemption price per share ($34,603,088 ÷ 2,152,993 shares)		$ 16.07

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

Annual Report

VIP Growth & Income Portfolio
Financial Statements - continued

Statement of Operations

	Year ended December 31, 2006

Investment Income
Dividends		$ 22,081,211
Interest		1,533
Income from Fidelity Central Funds (including $169,348 from security lending)		2,838,520
Total income		24,921,264

Expenses
Management fee	$ 7,369,711
Transfer agent fees	1,107,649
Distribution fees	1,935,332
Accounting and security lending fees	523,190
Custodian fees and expenses	51,481
Independent trustees' compensation	5,932
Audit	56,412
Legal	12,121
Interest	1,190
Miscellaneous	347,009
Total expenses before reductions	11,410,027
Expense reductions	(50,813)	11,359,214
Net investment income (loss)		13,562,050
Realized and Unrealized Gain (Loss) Net realized gain (loss) on:
Investment securities:
Unaffiliated issuers	59,358,575
Foreign currency transactions	370
Total net realized gain (loss)		59,358,945
Change in net unrealized appreciation (depreciation) on: Investment securities	120,807,373
Assets and liabilities in foreign currencies	(4)
Total change in net unrealized appreciation (depreciation)		120,807,369
Net gain (loss)		180,166,314
Net increase (decrease) in net assets resulting from operations		$ 193,728,364

Statement of Changes in Net Assets

	Year ended December 31, 2006	Year ended December 31, 2005
Increase (Decrease) in Net Assets
Operations
Net investment income (loss)	$ 13,562,050	$ 13,322,605
Net realized gain (loss)	59,358,945	199,886,436
Change in net unrealized appreciation (depreciation)	120,807,369	(101,373,471)
Net increase (decrease) in net assets resulting from operations	193,728,364	111,835,570
Distributions to shareholders from net investment income	(13,053,684)	(22,706,700)
Distributions to shareholders from net realized gain	(41,055,466)	-
Total distributions	(54,109,150)	(22,706,700)
Share transactions - net increase (decrease)	(215,486,550)	(123,504,452)
Total increase (decrease) in net assets	(75,867,336)	(34,375,582)

Net Assets
Beginning of period	1,596,979,944	1,631,355,526
End of period (including undistributed net investment income of $13,489,068 and undistributed net investment income of $13,071,943, respectively)	$ 1,521,112,608	$ 1,596,979,944

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

VIP Growth & Income Portfolio

Financial Highlights - Initial Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 14.75	$ 13.91	$ 13.26	$ 10.86	$ 13.19
Income from Investment Operations
Net investment income (loss) ^C	.15	.13	.21 ^F	.12	.15
Net realized and unrealized gain (loss)	1.74	.92	.56	2.42	(2.32)
Total from investment operations	1.89	1.05	.77	2.54	(2.17)
Distributions from net investment income	(.14)	(.21)	(.12)	(.14)	(.16)
Distributions from net realized gain	(.38)	-	-	-	-
Total distributions	(.52)	(.21)	(.12)	(.14)	(.16)
Net asset value, end of period	$ 16.12	$ 14.75	$ 13.91	$ 13.26	$ 10.86
Total Return ^{A, B}	13.18%	7.63%	5.80%	23.77%	(16.61)%
Ratios to Average Net Assets ^{D, G}
Expenses before reductions	.60%	.59%	.60%	.59%	.59%
Expenses net of fee waivers, if any	.60%	.59%	.60%	.59%	.59%
Expenses net of all reductions	.59%	.54%	.60%	.59%	.58%
Net investment income (loss)	.98%	.97%	1.58%	1.02%	1.30%
Supplemental Data
Net assets, end of period (000 omitted)	$ 465,375	$ 606,102	$ 704,460	$ 785,494	$ 638,124
Portfolio turnover rate ^E	109%	206%	23%	25%	43%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.05 per share.

Financial Highlights - Service Class

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 14.66	$ 13.83	$ 13.18	$ 10.80	$ 13.12
Income from Investment Operations
Net investment income (loss) ^C	.13	.12	.19 ^F	.11	.14
Net realized and unrealized gain (loss)	1.72	.91	.57	2.40	(2.31)
Total from investment operations	1.85	1.03	.76	2.51	(2.17)
Distributions from net investment income	(.12)	(.20)	(.11)	(.13)	(.15)
Distributions from net realized gain	(.38)	-	-	-	-
Total distributions	(.50)	(.20)	(.11)	(.13)	(.15)
Net asset value, end of period	$ 16.01	$ 14.66	$ 13.83	$ 13.18	$ 10.80
Total Return ^{A, B}	13.01%	7.53%	5.75%	23.60%	(16.69)%
Ratios to Average Net Assets ^{D, G}
Expenses before reductions	.70%	.69%	.70%	.69%	.69%
Expenses net of fee waivers, if any	.70%	.69%	.70%	.69%	.69%
Expenses net of all reductions	.69%	.64%	.70%	.69%	.68%
Net investment income (loss)	.88%	.87%	1.48%	.92%	1.20%
Supplemental Data
Net assets, end of period (000 omitted)	$ 375,775	$ 384,527	$ 401,392	$ 357,585	$ 250,160
Portfolio turnover rate ^E	109%	206%	23%	25%	43%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.05 per share.

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

Annual Report

Financial Highlights - Service Class 2

Years ended December 31,	2006	2005	2004	2003	2002
Selected Per-Share Data
Net asset value, beginning of period	$ 14.53	$ 13.71	$ 13.09	$ 10.73	$ 13.07
Income from Investment Operations
Net investment income (loss) ^C	.11	.10	.17 ^F	.09	.12
Net realized and unrealized gain (loss)	1.71	.90	.55	2.39	(2.30)
Total from investment operations	1.82	1.00	.72	2.48	(2.18)
Distributions from net investment income	(.11)	(.18)	(.10)	(.12)	(.16)
Distributions from net realized gain	(.38)	-	-	-	-
Total distributions	(.49)	(.18)	(.10)	(.12)	(.16)
Net asset value, end of period	$ 15.86	$ 14.53	$ 13.71	$ 13.09	$ 10.73
Total Return ^{A, B}	12.86%	7.40%	5.52%	23.44%	(16.84) %
Ratios to Average Net Assets ^{D, G}
Expenses before reductions	.85%	.84%	.85%	.85%	.85%
Expenses net of fee waivers, if any	.85%	.84%	.85%	.85%	.85%
Expenses net of all reductions	.84%	.79%	.85%	.84%	.84%
Net investment income (loss)	.73%	.70%	1.33%	.76%	1.05%
Supplemental Data
Net assets, end of period (000 omitted)	$ 645,360	$ 596,787	$ 525,504	$ 341,989	$ 140,890
Portfolio turnover rate ^E	109%	206%	23%	25%	43%

^A Total returns do not reflect charges attributable to your insurance company's separate account. Inclusion of these charges would reduce the total returns shown.

^B Total returns would have been lower had certain expenses not been reduced during the periods shown.

^C Calculated based on average shares outstanding during the period.

^E Amount does not include the portfolio activity of any underlying Fidelity Central Funds.

^F Investment income per share reflects a special dividend which amounted to $.05 per share.

Financial Highlights - Investor Class

Years ended December 31,	2006	2005 ^H
Selected Per-Share Data
Net asset value, beginning of period	$ 14.74	$ 13.64
Income from Investment Operations
Net investment income (loss) ^E	.13	.03
Net realized and unrealized gain (loss)	1.72	1.07
Total from investment operations	1.85	1.10
Distributions from net investment income	(.14)	-
Distributions from net realized gain	(.38)	-
Total distributions	(.52)	-
Net asset value, end of period	$ 16.07	$ 14.74
Total Return ^{B, C, D}	12.95%	8.06%
Ratios to Average Net Assets ^{F, I}
Expenses before reductions	.73%	.78% ^A
Expenses net of fee waivers, if any	.73%	.78% ^A
Expenses net of all reductions	.72%	.72% ^A
Net investment income (loss)	.85%	.49% ^A
Supplemental Data
Net assets, end of period (000 omitted)	$ 34,603	$ 9,564
Portfolio turnover rate ^G	109%	206%