Equity Income Portfolio - Prudential Financial · Sector Diversification Percent of Net Assets ......

Equity Income Portfolio

June 30, 2007

Semiannual Report

This report is authorized for distribution only tothose who have received a copy of the portfolio’sprospectus.

T. Rowe Price Investment Services, Inc., Distributor.

The views and opinions in this report were current as of June 30, 2007. They are notguarantees of performance or investment results and should not be taken as investmentadvice. Investment decisions reflect a variety of factors, and the managers reserve theright to change their views about individual stocks, sectors, and the markets at any time.As a result, the views expressed should not be relied upon as a forecast of the fund’sfuture investment intent. The report is certified under the Sarbanes-Oxley Act, whichrequires mutual funds and other public companies to affirm that, to the best of theirknowledge, the information in their financial reports is fairly and accurately stated in allmaterial respects.

Table of Contents

Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Manager’s Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Performance and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Financial Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Portfolio of Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Dear InvestorThe first half of 2007 proved to be reasonably rewardingfor shareholders of the Equity Income Portfolio. It wasnot an exciting period, just a period of good solid per-formance, albeit with most of the returns generated inthe second quarter. Equity returns, for the most part,belied the stories appearing in various media outlets.With a continuous barrage of reports about Iraq, resur-gent inflation, higher interest rates, rising energy prices, continued concern over the housing market, and hedgefunds suffering substantial losses from subprime mort-gage investments, the news was not conducive toinspired investor confidence. Against this backdrop,however, equity prices advanced at a reasonable pace.

As shown in the Performance Comparison table, for the six-month period ended June 30, 2007, the EquityIncome Portfolio returned 8.07%, comfortably ahead ofboth the S&P 500 Stock Index and the Lipper VariableAnnuity Underlying Equity Income Funds Average. For the 12-month period, the portfolio’s return of22.38% again surpassed both the broad market and theLipper universe of similar funds. (Performance for thePortfolio-II was lower due to its higher expense ratios.)

Performance ComparisonPeriods Ended 6/30/07 6 Months 12 Months

Equity Income Portfolio 8.07% 22.38%

Equity Income Portfolio–II 7.96 22.14

S&P 500 Stock Index 6.96 20.59

Lipper Variable Annuity Underlying Equity Income Funds Average 7.34 21.03

Dividend DistributionOn June 26, the portfolio’s Board of Directors declared a second-quarter income dividend of $0.11 per share,bringing the total dividend income distributions in thefirst half of 2007 to $0.20. The second-quarter paymentwas paid on June 28 to shareholders of record as of June 26. On March 28, the fund declared a long-termcapital gain distribution of $0.23 per share and a short-term distribution of $0.02.

Portfolio Review

In the first half, our best-performing investments were in the energy, industrial cyclical, and telecommunica-tions sectors. Rising oil prices boosted portfolio holdingsSchlumberger and Royal Dutch Shell. Materials companies such as Alcoa and Vulcan Materials alsoperformed well during the period. Industrial cyclicals,

Sector DiversificationPercent of Net Assets

12/31/06 6/30/07

Financials 17.3% 17.1%

Consumer Discretionary 14.3 13.8

Industrials and Business Services 12.8 12.4

Energy 9.5 11.2

Consumer Staples 8.7 9.7

Health Care 9.2 9.3

Information Technology 7.0 7.1

Telecommunication Services 5.3 5.4

Materials 5.1 5.3

Utilities 4.9 4.7

Other and Reserves 5.9 4.0

Total 100.0% 100.0%

Historical weightings reflect current industry/sector classifications.

Manager’s LetterT. Rowe Price Equity Income Portfolio

1

Highlights

• The equity market was strong during the first half of the year despite the ongoing war in Iraq, resurgent inflation, higherinterest rates, rising energy prices, continued concern over the housing market, and problems in the subprime mortgagemarket.

• The fund’s performance for both the 6- and 12-month periods ended June 30, 2007, exceeded those of its primarybenchmarks.

• In the first half, our best-performing investments were in the energy, industrial cyclical, and telecommunications sectors.

• We would not be surprised to see a consolidation in stock prices over the near term, but we remain encouraged by the relatively healthy global economy and the wide range of appealing investment opportunities in today’s market.

including Honeywell International and CooperIndustries, were positive contributors, as were telecommunications company AT&T and others in the group. We benefited from AstraZeneca’s purchase of MedImmune, and we were fortunate to have a posi-tion in Dow Jones as Rupert Murdoch’s News Corp.proposed a takeover at a very attractive price. (Pleaserefer to our portfolio of investments for a complete list-ing of fund holdings and the amount each represents in the portfolio.)

If there was a common theme to companies whose per-formance was disappointing, it was their connection to the housing sector. Whether a homebuilder (D.R.Horton), a supplier (Masco, Fortune Brands, USG), or a lender (Fannie Mae), continued weakness in theresidential real estate sector was one of the big stories of early 2007. Several of our financial and utilities stocks were relatively weak as long-term interest ratesrose late in the period.

Every now and then we feel it is helpful to provide a brief “refresher course” on our investment approach. Our strategy is to invest primarily in larger-capitalization,undervalued companies with attractive dividend yields,reasonable price/earnings ratios, and the potential for capital appreciation. We are interested in companies that have reasonable prospects for good dividend growth, and this focus on attractive dividend yields and the potential for dividend growth has been a hall-mark of our approach since the fund’s inception in 1985.In many cases, our portfolio companies return capital toinvestors, not only through dividends but also throughstock buyback programs.

For example, in 2006 GE paid dividends to investorstotaling approximately $10.4 billion. In addition, thecompany repurchased about $8.5 billion worth of itsown stock. In total, GE returned almost $19 billion to its shareholders last year. This year, we expect both dividends and stock repurchases to exceed last year’slevels. These are the hallmarks of a financially strong,shareholder-oriented company.

The vast majority of our portfolio holdings pay dividends, although there are a handful of exceptionsinvolving turnaround situations. Our policy is to analyzeeach company to determine whether we can benefit from the market’s propensity for overreacting in theshort run to both good and bad news. There is a con-trarian element in our approach, and we are believers in the historical “reversion to the mean” (i.e., a return to long-term norms) in terms of both investor sentimentand market valuations.

In reflecting on our investment approach, a review of theMajor Portfolio Changes table is illustrative. Among ourlargest purchases, both Yahoo! and Procter & Gamble(P&G) are companies whose stock prices have struggledover the last year or so. Yahoo! is a less-traditional invest-ment for the fund than P&G, but we believe both pur-chases represent investments in strong companies wherepessimistic assessments of their prospects are somewhatunjustified. Several of the companies we sold, such asTyco International, Morgan Stanley, and Eaton, hadoutperformed to the point where we felt much of the so-called “easy money” had been made. In the wake of takeover proposals, we also sold our investment inMedImmune and a portion of our Tribune holding. We like to remind shareholders that, when we sell astock, it is almost always because of its valuation ratherthan a comment on the quality of the company.

OutlookMost financial market developments in the first half of the year were positive, and stocks provided healthyreturns in virtually all markets. The most noticeablestress on the system has been in the residential realestate sector, with continued weakness in new housingactivity and widespread concern over the subprimemortgage market. Corporate earnings growth was generally better than we would have guessed six monthsago, and the large number of merger and acquisitiondeals, private-equity transactions, and the high level ofstock purchase activity provided strong support for theequity market.

Financial ProfileEquity Income S&P 500

As of 6/30/07 Portfolio Stock Index

Average Company Yield 2.3% 1.8%

Price/Book Ratio 3.1X 3.3X

Price/Earnings Ratio (Based on next 12 months’ estimated earnings) 15.1X 15.2X

Historical Beta (Based on monthly returns for five years) 0.96 1.00

Sources: Bloomberg and IBES. Forecasts are in no way indicative offuture investment returns.

2

Given the market’s strong advance, particularly over the last few months, we would not be surprised to seesome consolidation over the near term. Nonetheless, weare encouraged by the relatively healthy global economyand the wide range of appealing investment opportuni-ties present in today’s market. We believe that qualitycompanies are currently selling at attractive prices, andour objective is to identify stocks with good valuations,reasonable upside potential, and relatively limited risk.

As always, we appreciate your continued confidence and support.

Respectfully submitted,

Brian C. RogersPresident of the fund and chairman of its InvestmentAdvisory Committee

July 20, 2007

The committee chairman has day-to-day responsibility formanaging the portfolio and works with committee membersin developing and executing the fund’s investment program.

Supplement to Prospectus Dated May 1, 2007 Erratum

Effective May 1, 2007, the fund’s operating policy thatsets forth the percentage of the fund’s “total bond assets”that may be invested in noninvestment-grade securitiesis hereby corrected to remove the word “bond” and referto “total assets” instead.

Risks of Investing in the FundValue investors seek to invest in companies whose stockprices are low in relation to their real worth or futureprospects. By identifying companies whose stocks arecurrently out of favor or misunderstood, value investorshope to realize significant appreciation as other investorsrecognize the stock’s intrinsic value and the price risesaccordingly. The value approach carries the risk that themarket will not recognize a security’s intrinsic value fora long time, or that a stock judged to be undervaluedmay actually be appropriately priced.

GlossaryLipper index: An index of mutual fund performancereturns for specified periods in defined categories astracked by Lipper Inc.

Price/earnings ratio: Calculated by dividing a stock’smarket value per share by the company’s earnings pershare for the past 12 months or by expected earnings for the coming year.

S&P 500 Stock Index: A market cap-weighted index of 500 widely held stocks often used as a proxy for the overall stock market. Performance is reported on a total return basis.

3

T. Rowe Price Equity Income Portfolio

4

Portfolio Highlights

Twenty-Five Largest HoldingsPercent ofNet Assets

6/30/07

GE 3.1%

JPMorgan Chase 2.3

Chevron 2.1

ExxonMobil 2.0

AT&T 2.0

Microsoft 1.6

Royal Dutch Shell 1.6

Merck 1.5

International Paper 1.5

3M 1.5

Marsh & McLennan 1.4

Eli Lilly 1.3

Time Warner 1.2

American International Group 1.2

Hess 1.2

Pfizer 1.1

Colgate-Palmolive 1.1

Mellon Financial 1.1

Union Pacific 1.1

Anheuser-Busch 1.1

Citigroup 1.1

Johnson & Johnson 1.0

Wyeth 1.0

Coca-Cola 1.0

U.S. Bancorp 1.0

Total 36.1%

Note: Table excludes investments in the T. Rowe Price Reserve InvestmentFund.


5

Six Months Ended 6/30/07Listed in descending order of size

LARGEST PURCHASES

Amgen*

Yahoo!*

Gannett

Procter & Gamble*

Kraft Foods*

U.S. Bancorp

3M

Progressive Corporation*

BJ Services*

Statoil ASA*

LARGEST SALES

Morgan Stanley**

Tyco International**

IBM

MedImmune**

Tribune

Honeywell International

Eaton**

Cisco Systems**

Pall

Schering-Plough**

12 Months Ended 6/30/07

LARGEST PURCHASES

3M*

U.S. Bancorp*

Amgen*

Gannett*

Masco*

Yahoo!*

Bed Bath & Beyond*

Illinois Tool Works*

Citigroup

Procter & Gamble*

* Position added** Position eliminated

LARGEST SALES

Morgan Stanley**

Comcast**

Cisco Systems**

IBM

Tyco International**

MedImmune**

Bank of America**

Tribune

Honeywell International

Deere**

Major Portfolio Changes

Portfolio Highlights

Performance and ExpensesT. Rowe Price Equity Income Portfolio

6

Average Annual Compound Total ReturnSince

Inception Periods Ended 6/30/07 1 Year 5 Years 10 Years 4/30/02

Equity Income Portfolio 22.38% 11.68% 9.32% –

Equity Income Portfolio–II 22.14 11.40 – 9.84%

Current performance may be higher or lower than the quoted past per-formance, which cannot guarantee future results. Share price, principalvalue, and return will vary, and you may have a gain or loss when yousell your shares. For the most recent month-end performance informa-tion, please visit our Web site (troweprice.com) or contact a T. RowePrice representative at 1-800-469-5304.

This table shows how the portfolio would have performed each year if its actual (or cumulative) returns for the periods shown had been earnedat a constant rate. Average annual total return figures include changes in principal value, reinvested dividends, and capital gain distributions.Total returns do not include charges imposed by your insurance com-pany’s separate account. If these were included, performance would havebeen lower. When assessing performance, investors should consider bothshort- and long-term returns.

Equity Income Portfolio

Note: Performance for II Class shares will vary due to the differing fee structure. See return table below.

Equity Income PortfolioS&P 500 Stock IndexLipper Variable Annuity Underlying Equity Income Funds Average

As of6/30/07________$24,386$19,906$22,254

10,000

14,000

18,000

22,000

26,000

$30,000

6/076/066/056/046/036/026/016/006/996/986/97

Growth of $10,000This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periodsor since inception (for funds lacking 10-year records). Theresult is compared with benchmarks, which may include a broad-based market index and a peer group average orindex. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes.

Fund Expense ExampleAs a mutual fund shareholder, you may incur two types of costs: (1) transac-tion costs, such as redemption fees or sales loads, and (2) ongoing costs,including management fees, distribution and service (12b-1) fees, and otherfund expenses. The following example is intended to help you understandyour ongoing costs (in dollars) of investing in the fund and to comparethese costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the begin-ning of the most recent six-month period and held for the entire period.

Shares of the fund are currently offered only through certain insurance companies as an investment medium for both variable annuity contracts and variable life insurance policies. Please note that the fund has twoclasses of shares: the original share class and II Class. II Class shares aresold through financial intermediaries, which are compensated for distribu-tion, shareholder servicing, and/or certain administrative services under aBoard-approved Rule 12b-1 plan.

Actual ExpensesThe first line of the following table (“Actual”) provides information aboutactual account values and actual expenses. You may use the information inthis line, together with your account balance, to estimate the expenses thatyou paid over the period. Simply divide your account value by $1,000 (forexample, an $8,600 account value divided by $1,000 = 8.6), then multiplythe result by the number in the first line under the heading “Expenses PaidDuring Period” to estimate the expenses you paid on your account duringthis period.

Hypothetical Example for Comparison PurposesThe information on the second line of the table (“Hypothetical”) is based on hypothetical account values and expenses derived from the fund’s actualexpense ratio and an assumed 5% per year rate of return before expenses(not the fund’s actual return). You may compare the ongoing costs of invest-ing in the fund with other funds by contrasting this 5% hypothetical exam-ple and the 5% hypothetical examples that appear in the shareholder reportsof the other funds. The hypothetical account values and expenses may notbe used to estimate the actual ending account balance or expenses you paidfor the period.

You should also be aware that the expenses shown in the table highlightonly your ongoing costs and do not reflect any transaction costs, such asredemption fees or sales loads. Therefore, the second line of the table isuseful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. To the extent a fundcharges transaction costs, however, the total cost of owning that fund is higher.


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T. Rowe Price Equity Income PortfolioExpenses

Beginning Ending Paid DuringAccount Account Period*

Value Value 1/1/07 to 1/1/07 6/30/07 6/30/07

Equity Income PortfolioActual $1,000.00 $1,080.70 $4.39

Hypothetical (assumes 5% return before expenses) 1,000.00 1,020.58 4.26

Equity Income Portfolio–IIActual 1,000.00 1,079.60 5.67

Hypothetical (assumes 5% return before expenses) 1,000.00 1,019.34 5.51

* Expenses are equal to the fund’s annualized expense ratio for the six-month period, multiplied by the average account value over the period,multiplied by the number of days in the most recent fiscal half year(181) divided by the days in the year (365) to reflect the half-yearperiod. The annualized expense ratio of the Equity Income Portfolio was 0.85%; the Equity Income Portfolio–II was 1.10%.

Financial HighlightsT. Rowe Price Equity Income Portfolio(Unaudited)

Equity Income Class

For a share outstanding throughout each period

6 Months Ended

6/30/07‡

Year Ended

12/31/06‡ 12/31/05‡ 12/31/04 12/31/03 12/31/02 NET ASSET VALUE Beginning of period $ 24.84 $ 21.79 $ 22.34 $ 20.19 $ 16.36 $ 19.17 Investment activities

Net investment income 0.20 0.37 0.35 0.32 0.30 0.29 Net realized and unrealized gain (loss) 1.78 3.72 0.52 2.65 3.83 (2.79) Total from investment activities 1.98 4.09 0.87 2.97 4.13 (2.50)

Distributions

Net investment income (0.20) (0.37) (0.35) (0.33) (0.30) (0.29) Net realized gain (0.25) (0.67) (1.07) (0.49) – (0.02) Total distributions (0.45) (1.04) (1.42) (0.82) (0.30) (0.31)

NET ASSET VALUE End of period $ 26.37 $ 24.84 $ 21.79 $ 22.34 $ 20.19 $ 16.36 Ratios/Supplemental Data Total return^ 8.07% 18.97% 3.92% 14.92% 25.50% (13.12)% Ratio of total expenses to average net assets 0.85%† 0.85% 0.85% 0.85% 0.85% 0.85% Ratio of net investment income to average net assets 1.58%† 1.60% 1.57% 1.57%+ 1.73% 1.66% Portfolio turnover rate 21.8%† 22.2% 17.3% 17.1% 12.7% 17.1% Net assets, end of period (in millions) $ 1,461 $ 1,410 $ 1,434 $ 1,316 $ 1,051 $ 753 ‡ Per share amounts calculated using average shares outstanding method. ^ Total return reflects the rate that an investor would have earned on an investment in the fund during

each period, assuming reinvestment of all distributions. † Annualized + Includes the effect of a one-time special dividend (0.12% of average net assets) that is not expected to

recur.

The accompanying notes are an integral part of these financial statements.

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Financial HighlightsT. Rowe Price Equity Income Portfolio(Unaudited)

Equity Income-II Class

For a share outstanding throughout each period

6 Months Ended

6/30/07‡

Year Ended

12/31/06‡ 12/31/05‡ 12/31/04 12/31/03

4/30/02 Through 12/31/02

NET ASSET VALUE Beginning of period $ 24.80 $ 21.76 $ 22.31 $ 20.17 $ 16.35 $ 19.43 Investment activities

Net investment income 0.17 0.32 0.30 0.27 0.24 0.21 Net realized and unrealized gain (loss) 1.78 3.70 0.52 2.64 3.84 (3.08) Total from investment activities 1.95 4.02 0.82 2.91 4.08 (2.87)

Distributions

Net investment income (0.17) (0.31) (0.30) (0.28) (0.26) (0.21) Net realized gain (0.25) (0.67) (1.07) (0.49) – – Total distributions (0.42) (0.98) (1.37) (0.77) (0.26) (0.21)

NET ASSET VALUE End of period $ 26.33 $ 24.80 $ 21.76 $ 22.31 $ 20.17 $ 16.35 Ratios/Supplemental Data Total return^ 7.96% 18.65% 3.69% 14.62% 25.17% (14.79)% Ratio of total expenses to average net assets 1.10%† 1.10% 1.10% 1.10% 1.10% 1.10%† Ratio of net investment income to average net assets 1.33%† 1.37% 1.34% 1.40%+ 1.54% 2.15%† Portfolio turnover rate 21.8%† 22.2% 17.3% 17.1% 12.7% 17.1% Net assets, end of period (in thousands) $ 711,352 $ 587,926 $ 353,245 $ 176,049 $ 56,676 $ 672 ‡ Per share amounts calculated using average shares outstanding method. ^ Total return reflects the rate that an investor would have earned on an investment in the fund during

each period, assuming reinvestment of all distributions † Annualized + Includes the effect of a one-time special dividend (0.16% of average net assets) that is not expected to

recur.


9

Portfolio of Investments †

T. Rowe Price Equity Income PortfolioJune 30, 2007 (Unaudited)

Shares/$ Par Value(Cost and value in $ 000s)


COMMON STOCKS 95.8%

Consumer Discretionary 13.6%

Automobiles 0.3%

Ford Motor 619,400 5,835

5,835

Distributors 0.5%

Genuine Parts 223,250 11,073

11,073

Diversified Consumer Services 0.7%

H&R Block 678,000 15,845

15,845

Household Durables 2.6%

D. R. Horton 360,900 7,193

Fortune Brands 206,100 16,977

Newell Rubbermaid 615,500 18,114

Sony (JPY) 268,300 13,755

56,039

Leisure Equipment & Products 1.4%

Eastman Kodak 546,100 15,198

Mattel 609,200 15,406

30,604

Media 6.4%

CBS, Class B 468,700 15,617

Citadel Broadcasting 40,924 264

Disney 532,900 18,193

Dow Jones 377,500 21,687

Gannett 320,500 17,612

New York Times, Class A 720,100 18,291

Time Warner 1,231,100 25,902

Tribune 319,448 9,392

Viacom, Class B (1) 313,500 13,051

140,009

Specialty Retail 1.7%

Bed Bath & Beyond (1) 361,900 13,025

GAP 213,900 4,085

Home Depot 499,900 19,671

36,781

Total Consumer Discretionary 296,186

Consumer Staples 9.7%

Beverages 2.4%

Anheuser-Busch 440,400 22,971

Brown-Forman, Class B 86,100 6,292

Coca-Cola 420,800 22,012

51,275

Food & Staples Retailing 1.2%

Sysco 154,500 5,097

Wal-Mart 417,500 20,086

25,183

Food Products 2.7%

Archer-Daniels-Midland 172,400 5,705

Campbell Soup 265,300 10,296

General Mills 292,400 17,082

Hershey Foods 84,200 4,262

Kraft Foods, Class A 384,400 13,550

McCormick 206,900 7,900

58,795

Household Products 2.3%

Colgate-Palmolive 376,000 24,384

Kimberly-Clark 191,100 12,783

Procter & Gamble 213,700 13,076

50,243

Personal Products 0.7%

Avon 446,800 16,420

16,420

Tobacco 0.4%

UST 163,200 8,765

8,765

Total Consumer Staples 210,681

10

Energy 11.2%

Energy Equipment & Services 1.3%

BJ Services 335,000 9,527

Schlumberger 215,500 18,305

27,832

Oil, Gas & Consumable Fuels 9.9%

Anadarko Petroleum 323,200 16,803

BP, ADR 236,196 17,039

Chevron 531,552 44,778

ExxonMobil 526,922 44,198

Hess 425,100 25,064

Murphy Oil 282,400 16,786

Royal Dutch Shell, ADR Class A 420,600 34,153

Spectra Energy 323,250 8,391

Statoil ASA (NOK) 296,700 9,185

216,397

Total Energy 244,229

Financials 17.1%

Capital Markets 3.2%

Charles Schwab 992,500 20,366

Legg Mason 77,600 7,634

Mellon Financial 543,000 23,892

State Street 236,300 16,163

68,055

Commercial Banks 3.6%

Fifth Third Bancorp 538,700 21,424

National City 295,300 9,840

Royal Bank of Scotland (GBP) 166,700 2,106

SunTrust 186,400 15,982

U.S. Bancorp 667,900 22,007

Wells Fargo 203,320 7,151

78,510

Consumer Finance 0.2%

Capital One Financial 44,200 3,467

3,467

Diversified Financial Services 3.3%

Citigroup 445,464 22,848

JPMorgan Chase 1,012,241 49,043

71,891

Insurance 6.0%

American International Group 365,000 25,561

Chubb 158,400 8,576

Genworth Financial Class A 110,100 3,788

Lincoln National 279,047 19,798

Marsh & McLennan 1,012,800 31,275

Progressive Corporation 445,700 10,666

The Travelers Companies 326,546 17,470

Unum Group 515,400 13,457

130,591

Thrifts & Mortgage Finance 0.8%

Countrywide Financial 214,700 7,804

Fannie Mae 157,200 10,270

18,074

Total Financials 370,588

Health Care 9.3%

Biotechnology 0.8%

Amgen (1) 340,500 18,827

18,827

Health Care Equipment & Supplies 1.0%

Baxter International 257,600 14,513

Boston Scientific (1) 456,700 7,006

21,519

Pharmaceuticals 7.5%

Abbott Laboratories 271,000 14,512

Bristol Myers Squibb 563,700 17,790

Eli Lilly 495,600 27,694

Johnson & Johnson 363,900 22,424

Merck 672,700 33,500

Pfizer 954,600 24,409

11




Wyeth 388,500 22,277

162,606

Total Health Care 202,952

Industrials & Business Services 12.4%

Aerospace & Defense 1.5%

Honeywell International 321,500 18,094

Raytheon 256,200 13,807

31,901

Air Freight & Logistics 0.3%

UPS, Class B 84,300 6,154

6,154

Airlines 0.3%

Southwest Airlines 434,000 6,471

6,471

Building Products 1.0%

Masco 616,000 17,537

USG (1) 87,700 4,301

21,838

Commercial Services & Supplies 1.4%

Avery Dennison 246,000 16,354

Waste Management 335,472 13,100

29,454

Electrical Equipment 0.5%

Cooper Industries, Class A 203,534 11,620

11,620

Industrial Conglomerates 4.5%

3M 366,300 31,791

GE 1,746,300 66,848

98,639

Machinery 1.6%

Illinois Tool Works 298,700 16,187

Ingersoll-Rand, Class A 213,900 11,726

Pall 171,700 7,896

35,809

Road & Rail 1.3%

Norfolk Southern 86,200 4,532

Union Pacific 199,500 22,972

27,504

Total Industrials & Business Services 269,390

Information Technology 7.1%

Communications Equipment 1.4%

Motorola 593,900 10,512

Nokia, ADR 680,300 19,123

29,635

Computers & Peripherals 1.4%

Dell (1) 699,800 19,979

IBM 86,000 9,052

29,031

Internet Software & Services 0.7%

Yahoo! (1) 583,400 15,828

15,828

IT Services 0.4%

Computer Sciences (1) 147,100 8,701

8,701

Semiconductor & Semiconductor Equipment 1.6%

Analog Devices 443,400 16,689

Applied Materials 385,800 7,666

Intel 427,600 10,160

34,515

Software 1.6%

Microsoft 1,202,400 35,435

35,435

Total Information Technology 153,145

Materials 5.3%

Chemicals 1.8%

Chemtura 53,577 595

DuPont 417,800 21,241

International Flavors & Fragrances 339,300 17,691

39,527

12




13





Construction Materials 0.8%

Vulcan Materials 147,600 16,906

16,906

Metals & Mining 0.7%

Alcoa 374,900 15,195

15,195

Paper & Forest Products 2.0%

International Paper 845,953 33,034

MeadWestvaco 314,600 11,112

44,146

Total Materials 115,774

Telecommunication Services 5.4%

Diversified Telecommunication Services 4.0%

AT&T 1,030,636 42,772

Qwest Communications International (1) 2,129,000 20,651

Verizon Communications 488,342 20,105

Windstream 276,988 4,088

87,616

Wireless Telecommunication Services 1.4%

Alltel 187,700 12,679

Sprint Nextel 813,200 16,842

29,521

Total Telecommunication Services 117,137

Utilities 4.7%

Electric Utilities 3.0%

Duke Energy 591,700 10,828

Entergy 202,600 21,749

FirstEnergy 202,420 13,103

Pinnacle West Capital 151,800 6,049

Progress Energy 295,000 13,449

65,178

Multi-Utilities 1.7%

Ameren 63,900 3,132

NiSource 855,400 17,715

Teco Energy 239,100 4,108

XCEL Energy 523,600 10,718

35,673

Total Utilities 100,851

Total Common Stocks (Cost $1,629,552) 2,080,933

CONVERTIBLE BONDS 0.1%

Ford Motor 4.25%, 12/15/36 2,521,000 3,175

Total Convertible Bonds (Cost $2,521) 3,175

SHORT-TERM INVESTMENTS 4.5%

Money Market Funds 4.5%

T. Rowe Price Reserve Investment Fund 5.37% (2)(3) 97,892,770 97,893

Total Short-Term Investments (Cost $97,893) 97,893

Total Investments in Securities

100.4% of Net Assets (Cost $1,729,966) $ 2,182,001

† Denominated in U.S. dollars unless otherwise noted.(1) Non-income producing (2) Seven-day yield (3) Affiliated company – see Note 4

ADR American Depository Receipts GBP British Pound JPY Japanese Yen

NOK Norwegian Krone

Statement of Assets and LiabilitiesT. Rowe Price Equity Income PortfolioJune 30, 2007 (Unaudited)(In thousands except shares and per share amounts)

Assets Investments in securities, at value

Non-affiliated companies (cost $1,632,073) $ 2,084,108 Affiliated companies (cost $97,893) 97,893

Total investments in securities 2,182,001 Receivable for investment securities sold 6,512 Dividends and interest receivable 3,375 Receivable for shares sold 1,043 Cash 11 Other assets 48

Total assets 2,192,990 Liabilities Payable for investment securities purchased 10,172 Payable for shares redeemed 8,306 Due to affiliates 1,734

Total liabilities 20,212 NET ASSETS $ 2,172,778 Net Assets Consist of: Undistributed net investment income $ 347 Undistributed net realized gain 54,635 Net unrealized gain 452,039 Paid-in capital applicable to 82,430,837 shares of $0.0001 par value capital stock outstanding; 1,000,000,000 shares of the Corporation authorized 1,665,757 NET ASSETS $ 2,172,778 NET ASSET VALUE PER SHARE Equity Income Class ($1,461,426,426 / 55,411,083 shares outstanding) $ 26.37 Equity Income - II Class ($711,351,895 / 27,019,754 shares outstanding) $ 26.33


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Statement of OperationsT. Rowe Price Equity Income Portfolio(Unaudited)($ 000s)

6 Months

Ended 6/30/07

Investment Income (Loss) Income

Dividend $ 25,047 Interest 152 Securities lending 72 Total income 25,271

Expenses Investment management and administrative expense 8,848 Rule 12b-1 fees - Equity Income-II Class 804 Total expenses 9,652

Net investment income 15,619 Realized and Unrealized Gain (Loss) Net realized gain (loss)

Securities 54,931 Foreign currency transactions (22) Net realized gain 54,909

Change in net unrealized gain (loss) Securities 91,570 Other assets and liabilities denominated in foreign currencies 1 Change in net unrealized gain 91,571

Net realized and unrealized gain 146,480 INCREASE IN NET ASSETS FROM OPERATIONS $ 162,099


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Statement of Changes in Net AssetsT. Rowe Price Equity Income Portfolio(Unaudited)($ 000s)

6 Months

Ended 6/30/07

Year Ended

12/31/06Increase (Decrease) in Net Assets Operations

Net investment income $ 15,619 $ 28,195 Net realized gain 54,909 134,210 Change in net unrealized gain 91,571 161,496 Increase in net assets from operations 162,099 323,901

Distributions to shareholders

Net investment income Equity Income Class (11,152) (21,199) Equity Income-II Class (4,432) (6,374)

Net realized gain Equity Income Class (14,039) (37,959) Equity Income-II Class (6,282) (14,916)

Decrease in net assets from distributions (35,905) (80,448) Capital share transactions*

Shares sold Equity Income Class 73,827 149,951 Equity Income-II Class 122,972 232,724

Distributions reinvested Equity Income Class 25,190 59,152 Equity Income-II Class 10,713 21,291

Shares redeemed Equity Income Class (135,003) (415,924) Equity Income-II Class (49,015) (79,902)

Increase (decrease) in net assets from capital share transactions 48,684 (32,708) Net Assets Increase during period 174,878 210,745 Beginning of period 1,997,900 1,787,155 End of period $ 2,172,778 $ 1,997,900 Undistributed net investment income 347 312 *Share information

Shares sold Equity Income Class 2,892 6,472 Equity Income-II Class 4,812 10,010

Distributions reinvested Equity Income Class 1,004 2,456 Equity Income-II Class 428 879

Shares redeemed Equity Income Class (5,241) (17,963) Equity Income-II Class (1,926) (3,417)

Increase (decrease) in shares outstanding 1,969 (1,563)


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Notes to Financial StatementsT. Rowe Price Equity Income PortfolioJune 30, 2007 (Unaudited)

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

T. Rowe Price Equity Series, Inc. (the corporation), isregistered under the Investment Company Act of 1940(the 1940 Act). The Equity Income Portfolio (the fund)is a diversified, open-end management investment com-pany and is one portfolio established by the corporation.The fund seeks to provide substantial dividend incomeas well as long-term growth of capital through invest-ments in the common stocks of established companies.Shares of the fund are currently offered only throughcertain insurance companies as an investment mediumfor both variable annuity contracts and variable lifeinsurance policies. The fund has two classes of shares:the Equity Income Portfolio original share class (EquityIncome Class), offered since March 31, 1994, and Equity Income–II (Equity Income-II Class), offered sinceApril 30, 2002. Equity Income–II Class shares are soldthrough financial intermediaries, which it compensatesfor distribution, shareholder servicing, and/or certainadministrative services under a Board-approved Rule12b-1 plan. Each class has exclusive voting rights onmatters related solely to that class, separate voting rights on matters that relate to both classes, and, in all other respects, the same rights and obligations as the other class.

The accompanying financial statements were prepared inaccordance with accounting principles generally acceptedin the United States of America, which require the use ofestimates made by fund management. Fund managementbelieves that estimates and security valuations are appro-priate; however, actual results may differ from those estimates, and the security valuations reflected in thefinancial statements may differ from the value the fundultimately realizes upon sale of the securities.

Valuation The fund values its investments and com-putes its net asset value per share at the close of the New York Stock Exchange (NYSE), normally 4 p.m. ET, each day that the NYSE is open for business. Equitysecurities listed or regularly traded on a securitiesexchange or in the over-the-counter (OTC) market arevalued at the last quoted sale price or, for certain mar-kets, the official closing price at the time the valuationsare made, except for OTC Bulletin Board securities,which are valued at the mean of the latest bid and askedprices. A security that is listed or traded on more thanone exchange is valued at the quotation on the exchangedetermined to be the primary market for such security.Listed securities not traded on a particular day are val-ued at the mean of the latest bid and asked prices for

domestic securities and the last quoted sale price forinternational securities.

Debt securities are generally traded in the over-the-counter market. Securities with original maturities of one year or more are valued at prices furnished by dealers who make markets in such securities or by anindependent pricing service, which considers yield orprice of bonds of comparable quality, coupon, maturity,and type, as well as prices quoted by dealers who makemarkets in such securities. Securities with original matu-rities of less than one year are valued at amortized costin local currency, which approximates fair value whencombined with accrued interest.

Investments in mutual funds are valued at the mutualfund’s closing net asset value per share on the day of valuation.

Other investments, including restricted securities, and those for which the above valuation procedures are inappropriate or are deemed not to reflect fair valueare stated at fair value as determined in good faith by the T. Rowe Price Valuation Committee, established by the fund’s Board of Directors.

Most foreign markets close before the close of trading on the NYSE. If the fund determines that developmentsbetween the close of a foreign market and the close of the NYSE will, in its judgment, materially affect thevalue of some or all of its portfolio securities, which in turn will affect the fund’s share price, the fund willadjust the previous closing prices to reflect the fair value of the securities as of the close of the NYSE, asdetermined in good faith by the T. Rowe Price ValuationCommittee, established by the fund’s Board of Directors.A fund may also fair value securities in other situations,such as when a particular foreign market is closed butthe fund is open. In deciding whether to make fair value adjustments, the fund reviews a variety of factors,including developments in foreign markets, the perfor-mance of U.S. securities markets, and the performanceof instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. Thefund uses outside pricing services to provide it withclosing market prices and information used for adjustingthose prices. The fund cannot predict when and howoften it will use closing prices and when it will adjustthose prices to reflect fair value. As a means of evaluat-ing its fair value process, the fund routinely comparesclosing market prices, the next day’s opening prices inthe same markets, and adjusted prices.


Currency Translation Assets, including investments,and liabilities denominated in foreign currencies aretranslated into U.S. dollar values each day at the prevail-ing exchange rate, using the mean of the bid and askedprices of such currencies against U.S. dollars as quotedby a major bank. Purchases and sales of securities,income, and expenses are translated into U.S. dollars atthe prevailing exchange rate on the date of the transac-tion. The effect of changes in foreign currency exchangerates on realized and unrealized security gains and lossesis reflected as a component of security gains and losses.

Class Accounting Equity Income–II pays distribution,shareholder servicing, and/or certain administrativeexpenses in the form of Rule 12b-1 fees, in an amountnot exceeding 0.25% of the class’s average daily netassets. Management and administrative fee expenses,investment income, and realized and unrealized gainsand losses are allocated to the classes based upon therelative daily net assets of each class.

Rebates Subject to best execution, the fund may direct certain security trades to brokers who have agreedto rebate a portion of the related brokerage commissionto the fund in cash. Commission rebates are reflected asrealized gain on securities in the accompanying financialstatements and totaled $5,000 for the six months endedJune 30, 2007.

Investment Transactions, Investment Income, andDistributions Income and expenses are recorded on the accrual basis. Premiums and discounts on debt securities are amortized for financial reporting purposes.Dividends received from mutual fund investments arereflected as dividend income; capital gain distributionsare reflected as realized gain/loss. Dividend income and capital gain distributions are recorded on the ex-dividend date. Any income tax-related interest andpenalties would be classified as income tax expense.Investment transactions are accounted for on the tradedate. Realized gains and losses are reported on the identified cost basis. Distributions to shareholders arerecorded on the ex-dividend date. Income distributionsare declared and paid by each class on a quarterly basis.Capital gain distributions, if any, are declared and paidby the fund, typically on an annual basis.

New Accounting Pronouncements Effective June 29,2007, the fund adopted Financial Accounting StandardsBoard (“FASB”) Interpretation No. 48 (“FIN 48”),Accounting for Uncertainty in Income Taxes, a clarificationof FASB Statement No. 109, Accounting for Income Taxes.

FIN 48 establishes financial accounting and disclosurerequirements for recognition and measurement of taxpositions taken or expected to be taken on an incometax return. The adoption of FIN 48 had no impact onthe fund’s net assets or results of operations.

In September 2006, the FASB released the Statement of Financial Accounting Standard No. 157 (“FAS 157”),Fair Value Measurements. FAS 157 clarifies the defini-tion of fair value and establishes the framework for measuring fair value, as well as proper disclosure of this methodology in the financial statements. It will beeffective for the fund’s fiscal year beginning January 1,2008. Management is evaluating the effects of FAS 157;however, it is not expected to have a material impact on the fund’s net assets or results of operations.

NOTE 2 - INVESTMENT TRANSACTIONS

Consistent with its investment objective, the fundengages in the following practices to manage exposure to certain risks or to enhance performance. The invest-ment objective, policies, program, and risk factors of the fund are described more fully in the fund’s prospec-tus and Statement of Additional Information.

Securities Lending The fund lends its securities toapproved brokers to earn additional income. It receivesas collateral cash and U.S. government securities valuedat 102% to 105% of the value of the securities on loan.Cash collateral is invested in a money market pooledtrust managed by the fund’s lending agent in accordancewith investment guidelines approved by fund manage-ment. Collateral is maintained over the life of the loan in an amount not less than the value of loaned securities,as determined at the close of fund business each day;any additional collateral required due to changes insecurity values is delivered to the fund the next businessday. Although risk is mitigated by the collateral, thefund could experience a delay in recovering its securitiesand a possible loss of income or value if the borrowerfails to return the securities. Securities lending revenuerecognized by the fund consists of earnings on investedcollateral and borrowing fees, net of any rebates to theborrower and compensation to the lending agent. AtJune 30, 2007, there were no securities on loan.

Other Purchases and sales of portfolio securities, otherthan short-term securities, aggregated $274,270,000 and$216,618,000, respectively, for the six months endedJune 30, 2007.

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NOTE 3 - FEDERAL INCOME TAXES

No provision for federal income taxes is required sincethe fund intends to continue to qualify as a regulatedinvestment company under Subchapter M of the InternalRevenue Code and distribute to shareholders all of itstaxable income and gains. Federal income tax regulationsdiffer from generally accepted accounting principles;therefore, distributions determined in accordance withtax regulations may differ in amount or character fromnet investment income and realized gains for financialreporting purposes. Financial reporting records areadjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The amount and character of tax-basis distributions and composition of net assets are finalized at fiscal year-end; accordingly, tax-basis balances have not been determined as of June 30, 2007.

At June 30, 2007, the cost of investments for federalincome tax purposes was $1,729,966,000. Net unreal-ized gain aggregated $452,039,000 at period-end, ofwhich $476,712,000 related to appreciated investmentsand $24,673,000 related to depreciated investments.

NOTE 4 - RELATED PARTY TRANSACTIONS

The fund is managed by T. Rowe Price Associates, Inc. (the manager or Price Associates), a wholly ownedsubsidiary of T. Rowe Price Group, Inc. The investmentmanagement and administrative agreement between the fund and the manager provides for an all-inclusiveannual fee equal to 0.85% of the fund’s average daily net assets. The fee is computed daily and paid monthly.The agreement provides that investment management,shareholder servicing, transfer agency, accounting, custody services, and directors’ fees and expenses areprovided to the fund, and interest, taxes, brokeragecommissions, and extraordinary expenses are paiddirectly by the fund.

The fund may invest in the T. Rowe Price ReserveInvestment Fund and the T. Rowe Price GovernmentReserve Investment Fund (collectively, the T. Rowe Price Reserve Investment Funds), open-end managementinvestment companies managed by Price Associates and affiliates of the fund. The T. Rowe Price ReserveInvestment Funds are offered as cash managementoptions to mutual funds, trusts, and other accountsmanaged by Price Associates and/or its affiliates, and are not available for direct purchase by members of thepublic. The T. Rowe Price Reserve Investment Funds

pay no investment management fees. During the sixmonths ended June 30, 2007, dividend income from the T. Rowe Price Reserve Investment Funds totaled$2,772,000, and the value of shares of the T. Rowe Price Reserve Investment Funds held at June 30, 2007,and December 31, 2006, was $97,893,000 and$113,452,000, respectively.

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2020

Information on Proxy Voting Policies, Procedures, and Records

A description of the policies and procedures used by T. Rowe Price funds and portfolios to determine how to vote proxiesrelating to portfolio securities is available in each fund’s Statement of Additional Information, which you may request bycalling 1-800-225-5132 or by accessing the SEC’s Web site, www.sec.gov. The description of our proxy voting policies and procedures is also available on our Web site, www.troweprice.com. To access it, click on the words “Company Info” at the top of our homepage for individual investors. Then, in the window that appears, click on the “Proxy Voting Policy”navigation button in the top left corner.

Each fund’s most recent annual proxy voting record is available on our Web site and through the SEC’s Web site. Toaccess it through our Web site, follow the directions above, then click on the words “Proxy Voting Record” at the bottomof the Proxy Voting Policy page.


How to Obtain Quarterly Portfolio Holdings

The fund files a complete schedule of portfolio holdings with the Securities and Exchange Commission for the first andthird quarters of each fiscal year on Form N-Q. The fund’s Form N-Q is available electronically on the SEC’s Web site(www.sec.gov); hard copies may be reviewed and copied at the SEC’s Public Reference Room, 450 Fifth St. N.W.,Washington, DC 20549. For more information on the Public Reference Room, call 1-800-SEC-0330.

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Approval of Investment Management Agreement

On March 7, 2007, the fund’s Board of Directors (Board) unanimously approved the investment advisory contract(Contract) between the fund and its investment manager, T. Rowe Price Associates, Inc. (Manager). The Board considereda variety of factors in connection with its review of the Contract, also taking into account information provided by theManager during the course of the year, as discussed below:

Services Provided by the ManagerThe Board considered the nature, quality, and extent of the services provided to the fund by the Manager. These servicesincluded, but were not limited to, management of the fund’s portfolio and a variety of related activities, as well as financialand administrative services, reporting, and communications. The Board also reviewed the background and experience ofthe Manager’s senior management team and investment personnel involved in the management of the fund. The Boardconcluded that it was satisfied with the nature, quality, and extent of the services provided by the Manager.

Investment Performance of the Fund The Board reviewed the fund’s average annual total return over the 1-, 3-, 5-, and 10-year periods as well as the fund’syear-by-year returns and compared these returns with previously agreed upon comparable performance measures andmarket data, including those supplied by Lipper and Morningstar, which are independent providers of mutual fund data.On the basis of this evaluation and the Board’s ongoing review of investment results, the Board concluded that the fund’sperformance was satisfactory.

Costs, Benefits, Profits, and Economies of ScaleThe Board reviewed detailed information regarding the revenues received by the Manager under the Contract and otherbenefits that the Manager (and its affiliates) may have realized from its relationship with the fund, including researchreceived under “soft dollar” agreements. The Board noted that soft dollars were not used to pay for third-party, non-broker research. The Board also received information on the estimated costs incurred and profits realized by the Managerand its affiliates from advising T. Rowe Price mutual funds, as well as estimates of the gross profits realized from managingthe fund in particular. The Board concluded that the Manager’s profits were reasonable in light of the services provided tothe fund. The Board also considered whether the fund or other funds benefit under the fee levels set forth in the Contractfrom any economies of scale realized by the Manager. The Board noted that, under the Contract, the fund pays theManager a single fee based on the fund’s assets and the Manager, in turn, pays all expenses of the fund, with certainexceptions. The Board concluded that, based on the profitability data it reviewed and consistent with this single-fee structure, the Contract provided for a reasonable sharing of benefits from any economies of scale with the fund.

FeesThe Board reviewed the fund’s single-fee structure and compared the rate with fees and expenses of other comparable fundsbased on information and data supplied by Lipper. The information provided to the Board indicated that the fund’s single-fee rate was above the median management fee rate for comparable funds but below the median expense ratio for compara-ble funds. The Board also reviewed the expense ratio of the fund’s Class II share class, which pays a 12b-1 fee in addition tothe single fee, and compared this expense ratio with the fees and expenses of comparable funds. The information providedto the Board indicated that the expense ratio for the Class II shares was below the median expense ratio for comparablefunds. The Board also reviewed the fee schedules for comparable privately managed accounts of the Manager and its affili-ates. Management informed the Board that the Manager’s responsibilities for privately managed accounts are more limitedthan its responsibilities for the fund and other T. Rowe Price mutual funds that it or its affiliates advise. On the basis of theinformation provided, the Board concluded that the fees paid by the fund under the Contract were reasonable.

Approval of the ContractAs noted, the Board approved the continuation of the Contract. No single factor was considered in isolation or to be deter-minative to the decision. Rather, the Board concluded, in light of a weighting and balancing of all factors considered, thatit was in the best interests of the fund to approve the continuation of the Contract, including the fees to be charged forservices thereunder.


E300-051 8/07

100 East Pratt StreetBaltimore, MD 21202

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