N-30D 1 bcgac40872.txt TRP BLUE CHIP GROWTH FUND-ADVISOR CLASS Semiannual Report BLUE CHIP GROWTH FUND - ADVISOR CLASS JUNE 30, 2001 T. ROWE PRICE REPORT HIGHLIGHTS ----------------- BLUE CHIP GROWTH FUND - ADVISOR CLASS ------------------------------------ o Large growth stocks posted mostly negative results in the first half of 2001. o The Blue Chip Growth Fund struggled during this difficult period, but a focus on high-quality stocks helped it outperform its peer group. o Technology stocks contributed most to the fund's decline, while holdings in other sectors were generally mixed. o The market faces challenges, but that will not affect our strategy of investing in quality companies with solid prospects for growth. UPDATES AVAILABLE ----------------- For updates on T. Rowe Price funds following the end of each calendar quarter, please see our Web site at www.troweprice.com. FELLOW SHAREHOLDERS ------------------- Equity markets retreated during the six months ended June 30, as the U.S. economy struggled. Sharp declines in business spending negatively affected corporate earnings, which in turn eroded investor confidence. Despite a recovery in April and May, most market averages declined meaningfully for the period, with the S&P 500 down almost 7%. However, performance was uneven, and large growth companies lagged the averages as investors preferred small-cap, mid-cap, and value stocks. PERFORMANCE COMPARISON ---------------------- Periods Ended 6/30/01 6 Months 12 Months ---------------------------------------------------------- Blue Chip Growth Fund -- Advisor Class -10.44% -18.23% .......................................................... S&P 500 Stock Index -6.70 -14.83 .......................................................... Lipper Large-Cap Growth Funds Average -16.22 -30.71 .......................................................... As shown in the accompanying table, the Advisor Class declined approximately 10% for the first half of 2001 and 18% for the year. These showings modestly trailed the S&P but were superior to the peer group's average. While we are disappointed with any loss for our investors--we are also investors in the fund--we believe we have performed reasonably well given the sharp correction in large growth stocks. The difficult market made careful stock selection even more critical. Our efforts to selectively add high-quality growth companies in out-of-favor sectors have often helped results in the past. However, we must acknowledge (with the humility the market routinely instills) that we were generally wrong in doing this in the technology area. Fortunately, our research helped us in several instances to recognize the magnitude of fundamental problems and reduce positions. In this way, we were able to limit losses and trade into better positioned companies. MARKET ENVIRONMENT ------------------ The U.S. economy formed a poor backdrop to the domestic stock markets in the first half of 2001. GDP grew at just over a 1% annual rate, and industry decelerated as it tried to adjust to excess inventory and weak demand. Unemployment also inched upward, and consumer and corporate spending waned. In this environment, corporate earnings were inconsistent and, at times, disastrous. The Federal Reserve tried to reinvigorate the economy with six cuts in the fed funds rate totaling 275 basis points (two-and-three-quarters percentage points). Fed funds ended the period at 3.75%--a seven-year low. Historically, stocks rise when rates decline as investors anticipate improving business conditions. This time, however, few market segments benefited, primarily small caps that had been ignored by investors and certain value stocks. In a slowing economy, investors seemed concerned that earnings would not grow sufficiently to justify the high prices on growth stocks. The technology and telecommunications sectors continued to implode as companies in these industries contended with overcapacity and reduced technology spending. Poor earnings reports were common: Nortel Networks, for example, announced one of the largest quarterly losses in corporate history. However, a handful of large-cap tech issues, such as Microsoft, bucked the negative trend and posted strong gains. Health care stocks were also disappointing in the last six months. Pharmaceutical shares are usually buoyed by steady demand for drugs during periods of economic weakness, but many leading companies have not been successful recently in securing new drug approval from an increasingly cautious FDA. Despite lower short-term interest rates, utilities and financial services stocks--two rate-sensitive groups that performed well last year--were mostly lower in the last six months. Utilities struggled in the wake of California's energy crisis, while several segments of the financial sector, notably brokerages and asset managers, were hurt by the market's sharp decline. PORTFOLIO REVIEW ---------------- In general, we were disappointed at the size of losses coming from our technology holdings despite efforts to limit the damage. CISCO SYSTEMS, CORNING, ORACLE, NOKIA, JUNIPER NETWORKS, and NORTEL NETWORKS were major losers. We sharply reduced or eliminated holdings in several of these companies at prices very substantially above current levels. This was particularly true in the networking and optical area, where stock declines exceeded 90% in some cases. Clearly, however, we could have been even more decisive in selling or avoiding certain investments in the first place. However, when we reviewed winners and losers for the past six and 12 months, we were surprised that there were several technology-related stocks among the fund's winners. MICROSOFT and AOL TIME WARNER were the largest positive contributors to first-half performance. DELL COMPUTER, ADOBE SYSTEMS (the top maker of software for formatting and printing documents), APPLIED MATERIALS and KLA-TENCOR (both leaders in semiconductor manufacturing equipment), and VERISIGN (the dominant registrar and registry for Internet names and a leader in Internet security services) were also major positive contributors to performance. ------------------------------------------------------------------------- The following table was depicted as a pie chart in the printed material. SECURITY DIVERSIFICATION ------------------------ Business Services and Transportation 11% Capital Equipment 5% Technology 11% Consumer Services 15% Financial 25% Energy and Utilities 9% Consumer Nondurables 23% Reserves 1% One way we tried to sidestep the carnage in technology was to focus on high-quality data processing companies. This yielded positive results for the fund. FIRST DATA, a longtime holding and the leading processor of credit card transactions and Western Union money transfers, was our third-largest positive contributor. CONCORD EFS, the foremost processor of debit card and automatic teller network transactions, continued to generate very strong revenue and earnings growth, as well as good investment performance. Media was one area in which most of our investments worked. Media giants CLEAR CHANNEL COMMUNICATIONs (the largest radio operator in the world) and VIACOM (owner of CBS, Nickelodeon, MTV, Paramount, and significant radio broadcasting assets) produced solid investment results. Employment search firm TMP WORLDWIDE and publisher MCGRAW-HILL also were winners in the first half of 2001. Despite the concerns about a slowdown in advertising, longtime holding OMNICOM (a top advertising services agency) also generated strong fundamental and investment results. Your fund had more exposure to the financial services sector than the average growth fund, and these holdings performed inconsistently in 2001 after helping us generate very strong relative performance in calendar 2000. PROGRESSIVE, a leading provider of nonstandard auto insurance, CITIGROUP, and FIFTH THIRD BANCORP were each strong performers. However, AMERICAN EXPRESS and STATE STREET stumbled as earnings growth was hurt by slowing corporate travel and the lack- luster investing environment. We remain committed to financials in general because we think they should generate solid earnings gains in a sluggish economy. In fact, their earnings could be particularly strong relative to other large-cap companies. However, we are less confident of AmEx's near-term prospects and have reduced our position moderately. .............................................. We remain committed to financials in general because we think ... their earnings could be particularly strong relative to other large-cap companies. .............................................. Health care was another area in which growth prospects appeared good but investment results were mixed. UNITEDHEALTH GROUP was our top stock in the second half of 2000 and a solid performer for the full year. We also established modest positions in FOREST LABORATORIES, KING PHARMACEUTICALS, AND CARDINAL HEALTH in the first half of this year, and each performed well. However, the stock of WATERS CORPORATION (maker of equipment used in drug discovery and a major winner for the fund in the past) was crushed after the company noted some slowing in its business. PFIZER (our second-largest holding), SCHERING-PLOUGH, and MERCK were each disappointing. We eliminated an already small position in Merck after expected growth was again reduced. Elsewhere in the portfolio, there were winners and losers in miscellaneous areas. Major winners included PHILIP MORRIS, where we have patiently kept a meaningful position. CHEVRON, GE, and SPRINT PCS also advanced. However, even as Sprint was rallying, VODAFONE, the largest wireless phone operator in the world, proved a bitter disappointment. SAFEWAY, COCA-COLA, AUTOMATIC DATA PROCESSING, and oil services giant BAKER HUGHES were also large losers. These declines were perplexing, since each company produced relatively good corporate results, and several operate in industries that are not economically sensitive. All have been maintained as holdings because we are confident they will perform better in the future. STRATEGY -------- Our investment strategy continues to focus on maintaining positions in core holdings as long as the fundamentals remain strong and the valuations are reasonable. Consequently, new assets were primarily invested opportunistically in existing holdings. However, we did establish three new positions in our top-10 purchases. Our largest was Fifth Third Bancorp, a leading Midwestern bank with over 20 consecutive years of double-digit earnings growth. The bank has significant investments in processing businesses and an outstanding sales and credit culture. ABBOTT LABORATORIES was another major purchase. This health care giant has one of the most consistent earnings and dividend growth records among S&P 500 companies. The stock began to perform better as investors recognized an improving product pipeline. Earnings growth should also accelerate as its diagnostics business recovers from FDA sanctions. TMP Worldwide was our eighth-largest purchase. TMP is the operator of Monster.com, the largest online employment search and services site. The company is solidly profitable and generates substantial cash flow. It should benefit from expansion in employment search via the Internet, as well as profitable employment services contracts with many Fortune 1000 companies. There were several notable sales in the past year. We eliminated SOLECTROn and STILWELL FINANCIAL because we noted deteriorating earnings growth and because we could invest in comparable companies with better growth prospects. Fannie Mae was trimmed recently at a profit to help reduce our large combined position in mortgage agencies FANNIE MAE and FREDDIE MAC. CVS, BANK OF NEW YORK, and DANAHER each experienced some fundamental slowing, with CVS suffering the most unexpected and disappointing deterioration. In all three cases (but particularly in the case of CVS) we were able to make substantial sales at prices well above current levels. OUTLOOK ------- The economic picture for the rest of the year remains challenging. However, we are most concerned with the outlook for corporate earnings, which is less certain than we would like. On balance, we feel that companies capable of generating consistent, sustained earnings growth, such as financials and health care firms, should appear attractive in an environment where only a few companies are able to report strong earnings growth. Our holdings in these areas have performed inconsistently in 2001, but they could excel over time. Aside from the slowing economy's effect on corporate earnings, the most serious challenge to continued stock gains may be high valuations. Even some presumably out-of-favor sectors are not cheap by absolute historical standards. However, we believe the outlook for U.S. stocks and your fund remains positive: o Inflation and interest rate levels are favorable. o Earnings growth is strong at selected high-quality companies, and valuations are much more reasonable than they were just six months ago. o Our favored blue chip holdings continue to benefit from top-notch, entrepreneurial management and sound business models. Through careful management of costs and proper incentives, many of these management teams have improved competitiveness and the durability and predictability of earnings. o Many of our holdings generate significant free cash flow. High-quality management teams can use this cash to repurchase shares or make acquisitions when challenging economic conditions weaken rivals. We appreciate your continued support. Respectfully submitted, /s/ Larry J. Puglia President and chairman of the fund's Investment Advisory Committee July 19, 2001 The committee chairman has day-to-day responsibility for managing the portfolio and works with committee members in developing and executing the fund's investment program. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 6/30/01 ------------------------------------------------------------------------------ Citigroup 4.2% Pfizer 3.8 GE 3.8 Freddie Mac 3.5 Microsoft 2.9 .............................................................................. AOL Time Warner 2.7 First Data 2.1 Exxon Mobil 2.0 UnitedHealth Group 2.0 Viacom 2.0 .............................................................................. Philip Morris 1.9 American Home Products 1.9 Johnson & Johnson 1.8 Fannie Mae 1.7 Chevron 1.5 .............................................................................. Mellon Financial 1.4 Baxter International 1.3 Safeway 1.3 Clear Channel Communications 1.3 PepsiCo 1.3 .............................................................................. Marsh & McLennan 1.2 ACE Limited 1.2 Cisco Systems 1.2 American International Group 1.1 Providian Financial 1.1 .............................................................................. Total 50.2% Note: Table excludes reserves. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- PORTFOLIO HIGHLIGHTS MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 6/30/01 TEN LARGEST PURCHASES --------------------- Fifth Third Bancorp * VeriSign Sprint PCS Concord EFS Abbott Laboratories * American International Group Johnson & Johnson TMP Worldwide * EMC First Data TEN LARGEST SALES ----------------- Merck ** Fannie Mae Solectron ** Corning CVS Capital One Financial Bank of New York Stilwell Financial ** Danaher Microsoft * Position added ** Position eliminated T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- PERFORMANCE COMPARISON ---------------------- This chart shows the value of a hypothetical $10,000 investment in the fund over the past 10 fiscal year periods or since inception (for funds lacking 10-year records). The result is compared with benchmarks, which may include a broad-based market index and a peer group average or index. Market indexes do not include expenses, which are deducted from fund returns as well as mutual fund averages and indexes. The following table was depicted as a line graph in the printed material. Blue Chip Growth S&P 500 Index Fund-Advisory Class ------------- ------------------- 3/31/00 10000 10000 6/30/00 9734 10060 6/30/01 8290 8226 AVERAGE ANNUAL COMPOUND TOTAL RETURN ------------------------------------ This table shows how the fund would have performed each year if its actual (or cumulative) returns for the periods shown had been earned at a constant rate. Since Inception Periods Ended 6/30/01 1 Year Inception Date -------------------------------------------------------------------------------- Blue Chip Growth Fund -- Advisor Class -18.23% -14.48% 3/31/00 ................................................................................ Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. Returns do not reflect taxes that the shareholder may pay on fund distributions or the redemption of fund shares. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- Unaudited For a share outstanding throughout each period FINANCIAL HIGHLIGHTS -------------------- BLUE CHIP GROWTH ADVISOR SHARES ------------------------------- 6 Months 3/31/00 Ended Through 6/30/01 12/31/00 NET ASSET VALUE Beginning of period $ 33.91 $ 38.63 .............................................................................. Investment activities Net investment income (loss) 0.01 0.02* Net realized and unrealized gain (loss) (3.55) (3.12) .............................................................................. Total from investment activities (3.54) (3.10) .............................................................................. Distributions Net realized gain - (1.62) .............................................................................. NET ASSET VALUE End of period $ 30.37 $ 33.91 RATIOS/SUPPLEMENTAL DATA Total return* (10.44)% (8.15)% .............................................................................. Ratio of total expenses to average net assets 0.83%+ 0.69%+ .............................................................................. Ratio of net investment income (loss) to average net assets 0.12%+ 0.25%+ .............................................................................. Portfolio turnover rate 50.7%+ 50.9%+ Net assets, end of period (in thousands) $ 449,269 $ 2,831 .............................................................................. * The amount presented is calculated pursuant to a methodology prescribed by the Securities and Exchange Commission for a share outstanding throughout the period. The per-share amounts for the investment activities of the Advisor Class may be inconsistent with the aggregate amounts presented elsewhere in the financial statements for the fund, due to the partial year of operations for the Advisor Class and the timing of sales and redemptions of shares in relation to fluctuating market values for the investment portfolio. ** 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 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- Unaudited June 30, 2001 STATEMENT OF NET ASSETS Shares Value In thousands COMMON STOCKS 98.7% FINANCIAL 24.3% Bank and Trust 5.9% Bank of America 590,000 $ 35,418 Bank of New York 1,240,000 59,520 Fifth Third Bancorp 970,000 58,249 J.P. Morgan Chase 500,000 22,300 Mellon Financial 2,170,000 99,820 State Street 1,400,000 69,286 Wells Fargo 1,450,000 67,323 411,916 Insurance 5.0% ACE Limited 2,120,000 82,871 American International Group 935,000 80,410 Hartford Financial Services Group 730,000 49,932 Loews 250,000 16,108 Marsh & McLennan 830,000 83,830 Progressive 290,000 39,205 352,356 Financial Services 13.4% American Express 1,000,000 38,800 Capital One Financial 640,000 38,400 Charles Schwab 1,000,000 15,300 Citigroup 5,500,000 290,620 Fannie Mae 1,360,000 115,804 Franklin Resources 400,000 18,308 Freddie Mac 3,490,000 244,300 Goldman Sachs Group 300,000 25,740 Household International 130,000 8,671 Lehman Brothers 100,000 7,775 Morgan Stanley Dean Witter 845,000 54,274 Providian Financial 1,330,000 78,736 936,728 Total Financial 1,701,000 UTILITIES 2.1% Telephone 1.9% Sprint PCS * 2,900,000 $ 70,035 Vodafone ADR 2,950,000 65,932 135,967 Electric Utilities 0.2% Duke Energy 275,000 10,728 10,728 Total Utilities 146,695 CONSUMER NONDURABLES 23.2% Beverages 2.3% Coca-Cola 1,540,000 69,300 PepsiCo 2,000,000 88,400 157,700 Hospital Supplies/Hospital Management 2.7% Abbott Laboratories 910,000 43,689 Baxter International 1,900,000 93,100 HCA-Healthcare 770,000 34,796 Medtronic 340,000 15,644 187,229 Pharmaceuticals 12.8% Allergan 680,000 58,140 American Home Products 2,250,000 131,490 Amgen * 590,000 35,801 Forest Laboratories * 220,000 15,620 Genentech * 640,000 35,264 IDEC Pharmaceuticals * 500,000 33,845 Johnson & Johnson 2,450,000 122,500 King Pharmaceuticals * 430,000 23,113 MedImmune * 1,200,000 56,640 Pfizer 6,650,000 266,332 Pharmacia 1,500,000 68,925 Schering-Plough 1,300,000 47,112 894,782 HEALTH CARE SERVICES 3.5% CIGNA 300,000 $ 28,746 Laboratory Corp. of America * 200,000 15,380 UnitedHealth Group 2,230,000 137,703 Wellpoint Health Networks * 680,000 64,083 245,912 Miscellaneous Consumer Products 1.9% Philip Morris 2,660,000 134,995 134,995 Total Consumer Nondurables 1,620,618 CONSUMER SERVICES 14.7% General Merchandisers 1.8% Target 1,400,000 48,440 Wal-Mart 1,600,000 78,080 126,520 Specialty Merchandisers 3.5% CVS 500,000 19,300 Home Depot 1,450,000 67,498 Kroger * 2,750,000 68,750 Safeway * 1,900,000 91,200 246,748 Entertainment and Leisure 0.3% MGM Grand * 640,000 19,174 19,174 Media and Communications 9.1% AOL Time Warner * 3,610,000 191,330 AT&T Liberty Media (Class A) * 2,200,000 38,478 Clear Channel Communications * 1,450,000 90,915 Comcast (Class A Special) * 1,360,000 59,024 Crown Castle International * 950,000 15,580 Fox Entertainment Group (Class A) * 790,000 22,041 McGraw-Hill 575,000 38,036 TMP Worldwide * 770,000 46,200 Viacom (Class B) * 2,660,000 137,655 639,259 Total Consumer Services 1,031,701 TECHNOLOGY 10.3% Electronic Components 3.2% Altera * 890,000 $ 25,810 Analog Devices * 1,300,000 56,225 EMC * 1,300,000 37,765 Intel 820,000 23,985 LSI Logic * 100,000 1,880 Maxim Integrated Products * 1,100,000 48,631 Qlogic * 100,000 6,445 Texas Instruments 250,000 7,875 Xilinx * 400,000 16,496 225,112 Electronic Systems 2.9% Applied Materials * 875,000 42,963 Dell Computer * 1,150,000 30,073 Flextronics International * 2,950,000 77,024 KLA-Tencor * 300,000 17,541 Waters Corporation * 1,225,000 33,822 201,423 Information Processing 0.1% IBM 82,000 9,266 9,266 Specialized Computer 0.2% Sun Microsystems * 300,000 4,716 Symbol Technologies 500,000 11,100 15,816 Telecommunications 2.4% Cisco Systems * 4,460,000 81,172 Corning 250,000 4,177 Nokia ADR 2,200,000 48,488 QUALCOMM * 520,000 30,410 164,247 Aerospace and Defense 0.6% Honeywell International 640,000 22,394 United Technologies 250,000 18,315 40,709 E-Commerce 0.9% VeriSign * 1,060,000 $ 63,610 63,610 Total Technology 720,183 CAPITAL EQUIPMENT 5.0% Electrical Equipment 4.8% GE 5,450,000 265,688 Tyco International 1,270,000 69,215 334,903 Machinery 0.2% Danaher 300,000 16,800 16,800 Total Capital Equipment 351,703 BUSINESS SERVICES AND TRANSPORTATION 10.1% Computer Service and Software 7.7% Adobe Systems 700,000 32,900 Automatic Data Processing 1,000,000 49,700 First Data 2,250,000 144,562 Juniper Networks * 10,000 311 Microsoft * 2,800,000 204,400 Oracle * 1,600,000 30,400 Peregrine Systems * 200,000 5,800 Siebel Systems * 730,000 34,237 VERITAS Software * 550,000 36,592 538,902 Distribution Services 0.3% Cardinal Health 250,000 17,250 17,250 Miscellaneous Business Services 2.1% Concord EFS * 1,400,000 72,814 Omnicom 590,000 50,740 Waste Management 820,000 25,272 148,826 Total Business Services and Transportation 704,978 ENERGY 6.9% Energy Services 1.5% Baker Hughes 2,000,000 $ 67,000 BJ Services * 910,000 25,826 Transocean Sedco Forex 370,000 15,262 108,088 Integrated Petroleum-Domestic 0.6% Amerada Hess 500,000 40,400 40,400 Integrated Petroleum - International 4.5% BP 640,000 31,904 Chevron 1,150,000 104,075 Exxon Mobil 1,600,000 139,760 Royal Dutch Petroleum ADR 665,000 38,750 314,489 Gas & Gas Transmission 0.3% El Paso 370,000 19,440 19,440 Total Energy 482,417 Total Miscellaneous Common Stocks 2.1% 143,903 Total Common Stocks (Cost $5,825,626) 6,903,198 SHORT-TERM INVESTMENTS 1.6% Money Market Funds 1.6% T. Rowe Price Reserve Investment Fund, 4.34% # 109,653,276 109,653 Total Short-Term Investments (Cost $109,653) 109,653 Total Investments in Securities 100.3% of Net Assets (Cost $5,935,279) $ 7,012,851 Other Assets Less Liabilities (17,554) NET ASSETS $ 6,995,297 Net Assets Consist of: Accumulated net investment income - net of distributions $ (3,500) Accumulated net realized gain/loss - net of distributions (266,016) Net unrealized gain (loss) 1,077,572 Paid-in-capital applicable to 230,795,768 shares of $0.0001 par value capital stock outstanding; 1,000,000,000 shares authorized 6,187,241 NET ASSETS $ 6,995,297 NET ASSET VALUE PER SHARE ------------------------- Blue Chip Growth shares ($6,546,027,464/216,005,007 shares outstanding) $ 30.30 Blue Chip Advisor Class shares ($449,269,100/14,790,761 shares outstanding) $ 30.37 # Seven-day yield * Non-income producing ADR American Depository Receipt The accompanying notes are an integral part of these financial statements. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- Unaudited STATEMENT OF OPERATIONS In thousands 6 Months Ended 6/30/01 Investment Income (Loss) Income Dividend $ 26,522 Interest 2,678 Total income 29,200 Expenses Investment management 20,848 Shareholder servicing Blue Chip Growth shares 11,203 Blue Chip Growth Advisor Class shares 29 Prospectus and shareholder reports Blue Chip Growth shares 202 Blue Chip Growth Advisor Class shares - Registration 146 Custody and accounting 145 Distributions-Blue Chip Advisor Class shares 107 Directors 14 Legal and audit 13 Total expenses 32,707 Expenses paid indirectly (7) Net expenses 32,700 Net investment income (loss) (3,500) REALIZED AND UNREALIZED GAIN (LOSS) ----------------------------------- Net realized gain (loss) Securities (231,853) Foreign currency transactions (60) Net realized gain (loss) (231,913) Change in net unrealized gain or loss on securities (526,836) Net realized and unrealized gain (loss) (758,749) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (762,249) The accompanying notes are an integral part of these financial statements. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- Unaudited STATEMENT OF CHANGES IN NET ASSETS In thousands 6 Months Year Ended Ended 6/30/01 12/31/00 Increase (Decrease) in Net Assets Operations Net investment income (loss) $ (3,500) $ (6,351) Net realized gain (loss) (231,913) 212,509 Change in net unrealized gain or loss (526,836) (441,404) Increase (decrease) in net assets from operations (762,249) (235,246) Distributions to shareholders Net realized gain Blue Chip Growth shares - (334,278) Blue Chip Growth Advisor Class shares - (118) Decrease in net assets from distributions - (334,396) Capital share transactions * Shares sold Blue Chip Growth shares 894,886 2,591,854 Blue Chip Growth Advisor Class shares 460,167 3,403 Distributions reinvested Blue Chip Growth shares - 326,573 Blue Chip Growth Advisor Class shares - 13 Shares redeemed Blue Chip Fund shares (709,501) (1,944,981) Blue Chip Growth Advisor Class shares (3,903) (286) Increase (decrease) in net assets from capital share transactions 641,649 976,576 Net Assets Increase (decrease) during period (120,600) 406,934 Beginning of period 7,115,897 6,708,963 ............................................................................... End of period $6,995,297 $ 7,115,897 *Share information Shares sold Blue Chip Growth shares 28,843 69,458 Blue Chip Growth Advisor Class shares 14,831 92 Distributions reinvested Blue Chip Growth shares - 9,357 Blue Chip Growth Advisor Class shares - - Shares redeemed Blue Chip Growth shares (22,976) (53,270) Blue Chip Growth Advisor Class shares (124) (8) ............................................................................... Increase (decrease) in shares outstanding 20,574 25,629 The accompanying notes are an integral part of these financial statements. T. ROWE PRICE BLUE CHIP GROWTH FUND -------------------------------------------------------------------------------- Unaudited June 30, 2001 NOTES TO FINANCIAL STATEMENTS ----------------------------- Note 1 - Significant Accounting Policies T. Rowe Price Blue Chip Growth Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. The fund seeks to provide long-term capital growth; income is a secondary objective. The fund has two classes of shares--Blue Chip Growth, offered since June 30, 1993, and Blue Chip Growth Advisor Class, first offered on March 31, 2000. Blue Chip Growth Advisor Class sells its shares only through financial intermediaries, which it compensates for distribution and certain administrative services under a Board-approved Rule 12b-1 plan. Each class has exclusive voting rights on matters 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 in accordance with generally accepted accounting principles, which require the use of estimates made by fund management. Valuation Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price at the time the valuations are made. A security that is listed or traded on more than one exchange is valued at the quotation on the exchange determined to be the primary market for such security. Listed securities not traded on a particular day and securities regularly traded in the over-the-counter market are valued at the mean of the latest bid and asked prices. Other equity securities are valued at a price within the limits of the latest bid and asked prices deemed by the Board of Directors, or by persons delegated by the Board, best to reflect fair value. Investments in mutual funds are valued at the closing net asset value per share of the mutual fund on the day of valuation. Assets and liabilities for which the above valuation procedures are inappropriate or are deemed not to reflect fair value are stated at fair value as determined in good faith by or under the supervision of the officers of the fund, as authorized by the Board of Directors. Class Accounting The Blue Chip Growth Advisor Class pays distribution and administrative expenses, in the form of Rule 12b-1 fees, in an amount not exceeding 0.25% of the class's average net assets. Shareholder servicing, prospectus, and shareholder report expenses are charged directly to the class to which they relate. Expenses common to both classes, investment income, and realized and unrealized gains and losses are allocated to the classes based upon the relative daily net assets of each class. Income distributions are declared and paid by each class on an annual basis. Capital gain distributions are declared and paid by the fund on an annual basis. Other Income and expenses are recorded on the accrual basis. Investment transactions are accounted for on the trade date. Realized gains and losses are reported on the identified cost basis. Dividend income and distributions to shareholders are recorded by the fund on the ex-dividend date. Income and capital gain distri-butions are determined in accordance with federal income tax regulations and may differ from net investment income and realized gains determined in accordance with generally accepted accounting principles. Expenses paid indirectly reflect credits earned on daily uninvested cash balances at the custodian and are used to reduce the fund's custody charges. NOTE 2 - INVESTMENT TRANSACTIONS Purchases and sales of portfolio securities, other than short-term securities, aggregated $2,264,932,000 and $1,719,884,000, respectively, for the six months ended June 30, 2001. NOTE 3 - FEDERAL INCOME TAXES No provision for federal income taxes is required since the fund intends to continue to qualify as a regulated investment company and distribute all of its taxable income. At June 30, 2001, the cost of investments for federal income tax purposes was substantially the same as for financial reporting and totaled $5,935,279,000. Net unrealized gain aggregated $1,077,572,000 at period-end, of which $1,374,495,000 related to appreciated investments and $296,923,000 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 owned subsidiary of T. Rowe Price Group. The investment management agreement between the fund and the manager provides for an annual investment management fee, of which $3,395,000 was payable at June 30, 2001. The fee is computed daily and paid monthly, and of an individual fund fee equal to 0.30% of average daily net assets and a group fee. The group fee is based on the combined assets of certain mutual funds sponsored by Price Associates (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.295% for assets in excess of $120 billion. At June 30, 2001, and for the six months then ended, the effective annual group fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. The manager has agreed to bear any expenses through December 31, 2001, which would cause Blue Chip Growth Advisor Class's ratio of total expenses to average net assets to exceed 1.05%. Thereafter, through December 31, 2003, Blue Chip Growth Advisor Class is required to reimburse the manager for these expenses, provided that its average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing its ratio of total expenses to average net assets to exceed 1.05%. In addition, the fund has entered into agreements with Price Associates and two wholly owned subsidiaries of Price Associates, pursuant to which the fund receives certain other services. Price Associates computes the daily share price and maintains the financial records of the fund. T. Rowe Price Services, Inc. is the fund's transfer and dividend disbursing agent and provides shareholder and administrative services to the fund. T. Rowe Price Retirement Plan Services, Inc. provides subaccounting and recordkeeping services for certain retirement accounts invested in the fund. The fund incurred expenses pursuant to these related party agreements totaling approximately $9,311,000 for the six months ended June 30, 2001, of which $1,668,000 was payable at period end. Additionally, the fund is one of several mutual funds sponsored by Price Associates (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the underlying funds for the purpose of exercising management or control. Expenses associated with the operation of Spectrum are borne by each underlying fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by Spectrum, pursuant to special servicing agreements between and among Spectrum, the underlying funds, Price Associates, and, in the case of T. Rowe Price Spectrum International, T. Rowe Price International. Spectrum Growth Fund held approximately 3.4% of the outstanding shares of the Blue Chip Growth Fund at June 30, 2001. For the six months then ended, the fund was allocated $303,000 of Spectrum expenses, $100,000 of which was payable at period end. The fund may invest in the T. Rowe Price Reserve Investment Fund and T. Rowe Price Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by Price Associates. The Reserve Funds are offered as cash management options only to mutual funds and other accounts sponsored by Price Associates, and are not available to the public. The Reserve Funds pay no investment management fees. Distributions from the Reserve Funds to the fund for the six months ended June 30, 2001, totaled $2,676,000 and are reflected as interest income in the accompanying Statement of Operations. ================================================================================ FOR FUND AND ACCOUNT INFORMATION OR TO CONDUCT TRANSACTIONS, 24 HOURS, 7 DAYS A WEEK By touch-tone telephone TELE*ACCESS 1-800-638-2587 By Account Access on the Internet WWW.TROWEPRICE.COM/ACCESS FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL: Shareholder Service Center 1-800-225-5132 TO OPEN A BROKERAGE ACCOUNT OR OBTAIN INFORMATION, CALL: 1-800-638-5660 FOR THE HEARING IMPAIRED, CALL: 1-800-367-0763 INTERNET ADDRESS: www.troweprice.com PLAN ACCOUNT LINES FOR RETIREMENT PLAN PARTICIPANTS: The appropriate 800 number appears on your retirement account statement. T. Rowe Price Associates 100 East Pratt Street Baltimore, Maryland 21202 This report is authorized for distribution only to shareholders and to others who have received a copy of the prospectus appropriate to the fund or funds covered in this report. INVESTOR CENTERS: For directions, call 1-800-225-5132 or visit our Web site at www.troweprice.com/investorcenters BALTIMORE AREA Downtown 105 East Lombard Street OWINGS MILLS Three Financial Center 4515 Painters Mill Road BOSTON AREA 386 Washington Street Wellesley CHICAGO AREA 1900 Spring Road, Suite 104 Oak Brook COLORADO SPRINGS 2260 Briargate Parkway LOS ANGELES AREA Warner Center 21800 Oxnard Street, Suite 270 Woodland Hills NEW JERSEY/NEW YORK AREA 51 JFK Parkway, 1st Floor Short Hills, New Jersey SAN FRANCISCO AREA 1990 North California Boulevard, Suite 100 Walnut Creek TAMPA 4200 West Cypress Street 10th Floor WASHINGTON, D.C., AREA Downtown 900 17th Street N.W. Farragut Square TYSONS CORNER 1600 Tysons Boulevard Suite 150 T. Rowe Price Investment Services, Inc., Distributor. E293-051 6/30/01