<DOCUMENT>
<TYPE>N-30D
<SEQUENCE>1
<FILENAME>bcg.txt
<DESCRIPTION>TRP BLUE CHIP GROWTH FUND, INC. 6/30/02
<TEXT>
Semiannual Report
June 30, 2002
T. Rowe Price
Blue Chip Growth Portfolio and II Shares
Dear Investor
Market declines are never enjoyable, and this down market is proving to be more
prolonged and significant than the average post-WWII bear market. In particular,
the past six months have been among the most difficult periods for large-cap
growth investing in recent memory. A crisis of confidence - fueled by questions
regarding accounting integrity, corporate ethical lapses, lackluster earnings,
and global terrorism - has hurt stocks and particularly large growth stocks.
Performance Comparison
Periods Ended 6/30/02 6 Months 12 Months
------------------------------------------------------------
Blue Chip Growth
Portfolio shares -16.84% -20.70%
Blue Chip Growth
Portfolio - II shares* - -
S&P 500 Stock Index -13.16 -17.99
Lipper Variable Annuity
Large-Cap Growth Funds Average -18.89 -26.16
*This share class' return since its inception on 4/30/02 is -10.29%.
The steep drop that the portfolio endured during the past six months and year
largely reflects the rapidly worsening environment of the most recent quarter.
It was virtually impossible for a large-cap growth investment strategy to stay
true to its mandate and avoid double-digit losses. While results were below
those of the broad S&P 500, they were somewhat better than for the fund's
growth-specific Lipper benchmark. This does not mitigate the impact of these
losses, and we do not want to sugarcoat them. They are painful for us, as we
know they are for you. However, we remain confident in our strategy, and we
are working diligently to invest for solid long-term performance.
MARKET ENVIRONMENT
Corporate improprieties were the center of attention in the past six months,
as several companies announced accounting irregularities, conflicts of
interest, or SEC investigations. Adelphia, Enron, Xerox, and WorldCom were
notable examples. Fortunately, your fund had no exposure to these (other than
a very small amount of WorldCom sold much above current prices). We did not
avoid the fallout altogether: meaningful positions in Tyco International
declined significantly due to funding concerns and evidence of tax evasion by
the now-former CEO, while our holding in Omnicom declined due to accounting
questions. Moreover, in the post-Enron era, investors have become wary of all
companies with complex accounting arrangements or that have grown via
acquisitions. These qualities tend to be found more commonly among larger
companies, and a number of large growth companies suffered, including leaders
such as GE, AIG, Citigroup, and Merck.
The large growth segment remained among the market's worst performers (a place
it has held for several quarters). However, the crisis of confidence hampered
every sector of the market during the half year. This was the case despite a
fairly consistent stream of positive economic news in the broader economy,
including improved factory orders and strong housing, auto, and retail sales.
Conversely, neither the information technology or telecommunication services
sector has yet recovered from the excessive capital expenditures during the
tech bubble. WorldCom announced that it had misstated expenses (apparently
intentionally) and actually suffered losses for the previous 15 months. The
news helped push the entire telecom sector down more than 40% in 2002.
The health care sector, normally somewhat defensive, had inconsistent
performance, with health care services performing quite well but
pharmaceutical stocks declining sharply. Several large drug companies are
facing patent expirations on blockbuster drugs while also experiencing
difficulty in getting new products approved by the FDA. The financial sector
was also bifurcated: some regional banks and non-market-sensitive stocks held
up reasonably well, but brokers and other market-sensitive stocks did poorly.
Although the concerns regarding accounting integrity and the ongoing threat of
terrorism are formidable obstacles, investors may have become overly
pessimistic. The economic backdrop is favorable and the banking system appears
to be reasonably sound (not always the case in a market crisis such as this).
Inflation and interest rates also are quite supportive of improved equity
performance. Restoring investor confidence in corporate governance and
accounting integrity will take time. However, private sector actions (the
pressures of the capital markets and resultant management actions to improve
disclosure) and some level of increased regulation will improve financial
reporting discipline. One risk is that in their zeal to eliminate impropriety,
political leaders will aggressively implement a number of burdensome
regulations and also vilify American business leaders. This would be ill
advised and is a real risk for the U.S. stock market.
PORTFOLIO REVIEW
As we noted in our last semiannual report, the outlook for earnings is
somewhat uncertain despite a slowly recovering economy. Accordingly, we
continue to pay special attention to earnings prospects, and were disappointed
that companies such as Pfizer, American International Group, and Home Depot
declined despite generating durable, sustainable earnings growth. Investors
are simply skeptical of large, complex companies, even if they have strong
long-term growth records and prospects. We also recognize that a hallmark of
bear markets is that established growth companies can decline significantly,
particularly in the latter stages of the correction.
There were some areas where your fund made money in the first half of 2002.
UnitedHealth Group and Wellpoint Health Networks, leading HMOs, continued to
generate very good earnings and cash flow growth and were the top two
performers in the first half. The health care services area also produced
other major winners, such as pharmaceutical distributor AmerisourceBergen, and
leading hospital chains HCA and Tenet Healthcare. Financial stocks generally
outperformed, although banks, insurance, and consumer finance did much better
than brokers. Wells Fargo, Bank of America, Fifth Third Bancorp, and U.S.
Bancorp are all relatively high-quality banks and each was a top performer.
Progressive, a major provider of auto insurance, continued to be an
outstanding stock for your fund.
Sector Diversification
6/30/02
--------------------------------------------
Consumer Discretionary 13.75%
Consumer Staples 5.17
Energy 3.90
Financials 26.49
Health Care 22.59
Industrials and Business Services 11.87
Information Technology 13.16
Telecommunication Services 1.20
Utilities 0.04
Reserves 0.65
Miscellaneous 1.18
Total 100.00%
Other positive contributors came from various industry sectors but all
possessed strong balance sheets, managements, and growth prospects. Selected
consumer products companies such as Coca-Cola performed well. We were
fortunate in that we increased our position meaningfully (after several years
of being underweight) and captured much of its outperformance. Other winners
included Apollo Group, a leader in post-secondary education; Smith
International, a high-quality oil services firm; long-time holding Danaher, an
industrial company with outstanding free cash flow; and blue chip drug
retailer Walgreen.
A Second Take on Our Misses
The list of first-half losers was extensive. As always, we will try to share
with you whether we think the market's punishment was deserved and perhaps,
more important, whether the future prospects are solid for major problem
holdings. After several years of stellar performance, Tyco International
became a disastrous position. Although we think the extent of the decline has
been overdone, the company gave investors ample reason to lose confidence. We
disliked the company's acquisition of CIT, which contributed to a perceived
funding crisis that ultimately caused Tyco to reverse course and sell CIT. The
CEO also resigned following charges that he evaded taxes on purchases of art.
Although there continues to be various concerns regarding the company, its
core health care, security, and industrial businesses appear to be healthy. In
our view, the sale of CIT and continued strong cash flow generation are strong
positives. If our analyst's earnings projections are reasonable, the stock
could recover quite well.
AOL Time Warner also deserved some of its poor performance. The company had to
lower earnings guidance modestly and incurred costs as it simplified its
partnerships with other media players. However, we believe that the new
management team is improving operations while increasing the transparency of
financial results. While the AOL classic service has growth challenges,
investors are not ascribing much worth to it in the firm's overall valuation,
and any improvement in results could drive strong stock performance. This is a
holding we will continue to monitor carefully.
Longtime holding Citigroup was also a major loser in the first half. Its
investment banking relationships with Enron, Adelphia, and WorldCom, as well
as challenges in its corporate finance, consumer finance, and foreign
operations, topped the list of concerns. These are legitimate issues. However,
Citigroup's valuation is becoming compelling. Continued improvement in the
global economy and capital markets could result in a sharp improvement in
stock performance.
GE also performed very poorly. Investors were concerned about the company's
jet engine and power turbine business as well as its complexity and the
adequacy of its financial disclosures. On balance, we think the company
continues to improve disclosure. However, it has posted mediocre results in
key divisions, including its GE Capital financial segment. Thus, while we will
continue to hold GE, we are not overly enthusiastic about it relative to other
holdings.
Omnicom, a top ad agency, was pummeled along with other media companies.
Omnicom was plagued by a Wall Street Journal article questioning how it
accounted for organic growth and noting large upcoming debt repayments.
However, Omnicom has the best operating results in its industry and has
demonstrated that it has adequate funding to meet its debt obligations. The
company is reasonably valued and should perform well as the economy recovers.
Home Depot declined sharply, but we believe investors will reevaluate the
company more favorably over time. Home Depot is producing same-store-sales
gains somewhat below its largest competitor, Lowe's. This is chiefly because
Home Depot is significantly larger and its store base is more mature (its
stores produce a much higher level of sales per store and profitability).
Also, the new management at Home Depot is emphasizing improved inventory
management, efficiency, and cash flow. The company has been very successful in
these areas and is now able to finance growth internally. While management may
have been a bit too zealous and thus hurt same-store sales, it remains an
outstanding company at an attractive valuation.
Microsoft and Pfizer were also major detractors, but mainly because both are
large holdings. Microsoft was a strong relative performer in the technology
area and Pfizer performed reasonably well versus other pharmaceutical stocks.
In our view, both companies are well positioned to generate very strong
earnings and cash-flow growth.
STRATEGY
Our strategy of seeking high-quality fundamentals is particularly important in
this emotion-driven market. We continue to add to core holdings as long as we
are confident regarding fundamentals and return potential, and we try to be
decisive about weeding out holdings where we believe the return potential
relative to risk is no longer attractive. Additions to existing holdings such
as Texas Instruments, Pharmacia, U.S. Bancorp, and Bank of America were
significant enough to be included in the 10 largest purchases for the past six
months.
However, we did establish four new major positions, all of which we think have
quality balance sheets and profitability. We expect UPS to perform well once
it resolves negotiations with its labor unions. Printer company Lexmark
International has done well relative to other technology stocks since
purchase. While we continue to view Internet-based companies with skepticism,
USA Interactive (parent to online travel company Expedia and Ticketmaster) has
strong management (Barry Diller) and continues to generate attractive
cash-flow growth. Student-loan provider SLM, also known as Sallie Mae,
continues to benefit from strong growth in student enrollment, increasing
lending amounts, and a competitive advantage in loan servicing compared to the
government's direct lending program.
Most stock sales were driven by deteriorating fundamentals or the belief that
other companies in the sector were better positioned. It was somewhat
gratifying that several stocks that were eliminated declined very
significantly after their sale (falling far more than market averages).
Included in this group were contract manufacturer Flextronics, Sprint PCS,
Safeway, media firm Liberty Media, and Electronic Data Systems. The fund's
analysts have played an important role in identifying problems with these
companies before we suffered significant losses.
OUTLOOK
Despite reassurance from the Federal Reserve that the economic recovery is on
target, the markets have not reacted well. However, history tells us that
almost every investment boom has been accompanied by excess investment in
certain sectors and corporate mismanagement. While the problems may be
somewhat more widespread currently, there are many excellent companies run by
competent and honest managements in which we can invest.
Our job in this difficult environment is to invest in such companies at prices
that increase your odds of making solid returns. Lower stock prices can help
us in this endeavor, but we must effectively distinguish between stocks
suffering short-term setbacks and those facing long-term decline.
Market critics have asserted that stock returns could be poor for several
years. On balance, however, we think the outlook is quite good for several
reasons:
1. Earnings growth remains strong at many high-quality U.S. companies.
2. Valuations are now much more reasonable.
3. Many of our holdings generate significant free cash flow.
Shareholder-oriented management will use this cash to repurchase shares or
make value-added acquisitions at advantageous prices.
4. Forces are building to restore investor confidence in U.S. companies. The
U.S. regulatory agencies are heightening their scrutiny, and in the private
sector, the capital markets and responsible management teams are encouraging
better standards for disclosure. We expect that when companies generate solid
results after these measures are undertaken, investors should feel much more
assured.
Respectfully submitted,
Larry J. Puglia
President and chairman of the Investment Advisory Committee
July 26, 2002
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.
Portfolio Highlights
Major Portfolio Changes
Listed in descending order of size
Six Months Ended 6/30/02
TEN LARGEST PURCHASES
----------------------------
Affiliated Computer Services
Texas Instruments
Home Depot
Microsoft
U.S. Bancorp
UPS*
Pharmacia
American International Group
Bank of America
Intel
TEN LARGEST SALES
----------------------------
Exxon Mobil
Flextronics**
ChevronTexaco
Liberty Media**
Freddie Mac
Sprint PCS**
Safeway**
ACE Limited
Electronic Data Systems**
Allergan
-----------------------------
*Position added.
**Position eliminated.
Portfolio Highlights
Twenty-Five Largest Holdings
Percent of
Net Assets
6/30/02
------------------------------------------------
Pfizer 4.0%
Citigroup 3.9
UnitedHealth Group 3.4
Freddie Mac 3.3
Microsoft 3.2
First Data 2.5
GE 2.4
Wyeth 2.3
Viacom 2.2
American International Group 2.2
Johnson & Johnson 1.9
Target 1.7
Wal-Mart 1.7
Home Depot 1.6
Wellpoint Health Networks 1.6
Bank of America 1.6
Concord EFS 1.5
Coca-Cola 1.5
Fannie Mae 1.5
Danaher 1.4
Cisco Systems 1.4
Philip Morris 1.3
Marsh & McLennan 1.2
AOL Time Warner 1.2
Mellon Financial 1.2
------------------------------------------------
Total 51.7%
Note: Table excludes investments in the T. Rowe Price Reserve Investment 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.
Blue Chip Growth Portfolio
<TABLE>
<CAPTION>
<S> <C> <C> <C>
S&P 500 Blue Chip Lipper Variable
As of 6/30/02 Index Growth Portfolio Large-Cap Growth
Shares Funds Average
12/31/2000 10,000 10,000 10,000
06/30/2001 9,330 9,040 8,577
06/30/2002 7,652 7,168 6,362
</TABLE>
Note: Performance for II Class shares will vary from portfolio shares due
to the differing fee structure. See returns table below.
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.
Blue Chip Growth Portfolio
Periods Ended 6/30/02
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Since Inception
1 Year Inception Date
--------------------------------------------------------------------
Blue Chip Growth
Portfolio shares -20.70% -19.90% 12/29/00
Blue Chip Growth
Portfolio - II shares - -10.29% 4/30/02
</TABLE>
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Total returns do not include charges imposed by your insurance company's
separate account. If these were included, performance would have been lower.
Financial Highlights
T. Rowe Price Blue Chip Growth Portfolio
Blue Chip Growth shares
Unaudited
For a share outstanding
throughout each period
6 Months 12/29/00
Ended Through
6/30/02 12/31/01
NET ASSET VALUE
Beginning of period $ 8.61 $ 10.00
Investment activities
Net investment income (loss) - 0.01
Net realized and
unrealized gain (loss) (1.45) (1.39)
Total from
investment activities (1.45) (1.38)
Distributions
Net investment income - (0.01)
NET ASSET VALUE
End of period $ 7.16 $ 8.61
------ ------
Ratios/Supplemental Data
Total return(diamond) (16.84)% (13.73)%
Ratio of total expenses to
average net assets 0.85%! 0.85%
Ratio of net investment
income (loss) to average
net assets 0.05%! 0.14%
Portfolio turnover rate 47.3%! 42.2%
Net assets, end of period
(in thousands) $ 5,336 $ 6,030
(diamond) 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.
Financial Highlights
T. Rowe Price Blue Chip Growth Portfolio
Blue Chip Growth - II shares
Unaudited
For a share outstanding
throughout each period
4/30/02
Through
6/30/02
NET ASSET VALUE
Beginning of period $ 8.04
Investment activities
Net realized and
unrealized gain (loss) (0.89)
NET ASSET VALUE
End of period $ 7.15
------
Ratios/Supplemental Data
Total return(diamond) (10.29)%
Ratio of total expenses to
average net assets 1.10%!
Ratio of net investment
income (loss) to average
net assets 0.09%!
Portfolio turnover rate 47.3%!
Net assets, end of period
(in thousands) $ 90
(diamond) 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.
Statement of Net Assets
T. Rowe Price Blue Chip Growth Portfolio
June 30, 2002 (Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
Shares Value
----------------------------------------------------------------------
In thousands
COMMON STOCKS 99.4%
CONSUMER DISCRETIONARY 13.7%
Automobiles 0.5%
Harley-Davidson 500 $ 26
26
Hotels, Restaurants & Leisure 0.4%
Starbucks * 1,000 25
25
Internet & Catalog Retail 0.4%
USA Interactive * 1,000 23
23
Leisure Equipment & Products 0.1%
Mattel 200 4
4
Media 6.3%
AOL Time Warner * 4,400 65
Clear Channel Communications * 1,800 58
Comcast, Class A * 1,750 42
Disney 400 7
Omnicom 890 41
Univision Communications
Class A * 200 6
Viacom, Class B * 2,751 122
341
Multiline Retail 3.8%
Kohl's * 300 21
Target 2,470 94
Wal-Mart 1,660 91
206
Specialty Retail 1.9%
Best Buy * 450 17
Home Depot 2,400 88
105
Textiles, Apparel, & Luxury Goods 0.3%
Nike, Class B 300 16
16
Total Consumer Discretionary 746
CONSUMER STAPLES 5.2%
Beverages 2.7%
Anheuser-Busch 100 5
Coca-Cola 1,450 81
PepsiCo 1,210 58
144
Shares Value
----------------------------------------------------------------------
In thousands
Food & Drug Retailing 0.6%
Sysco 100 $ 3
Walgreen 700 27
30
Household Products 0.6%
Colgate-Palmolive 500 25
Procter & Gamble 100 9
34
Tobacco 1.3%
Philip Morris 1,650 72
72
Total Consumer Staples 280
ENERGY 3.9%
Energy Equipment & Services 2.1%
Baker Hughes 1,370 45
BJ Services * 940 32
Smith International * 500 34
111
Oil & Gas 1.8%
ChevronTexaco 500 44
Exxon Mobil 1,360 56
100
Total Energy 211
FINANCIALS 26.5%
Banks 6.7%
Bank of America 1,200 84
Bank of New York 1,100 37
Fifth Third Bancorp 800 53
Mellon Financial 1,990 63
Northern Trust 400 18
U.S. Bancorp 2,300 54
Wells Fargo 1,140 57
366
Diversified Financials 14.0%
American Express 280 10
Capital One Financial 520 32
Charles Schwab 1,430 16
Citigroup 5,530 214
Fannie Mae 1,100 81
Franklin Resources 600 26
Freddie Mac 2,970 182
Goldman Sachs Group 400 29
Merrill Lynch 800 33
T. Rowe Price Blue Chip Growth Portfolio
June 30, 2002 (Unaudited)
Shares Value
----------------------------------------------------------------------
In thousands
Morgan Stanley 1,120 $ 48
SLM Corporation 300 29
State Street 1,300 58
758
Insurance 5.8%
ACE Limited 710 22
Allstate 200 7
American International Group 1,710 117
Hartford Financial Services Group 700 42
John Hancock Financial Services 100 3
Marsh & McLennan 700 68
Progressive Corporation 500 29
XL Capital, Class A 300 25
313
Total Financials 1,437
HEALTH CARE 22.6%
Biotechnology 1.1%
Amgen * 700 29
IDEC Pharmaceuticals * 180 6
MedImmune * 1,000 27
62
Health Care Equipment & Supplies 1.8%
Baxter International 1,300 58
Guidant * 300 9
Medtronic 640 27
Waters Corporation * 100 3
97
Health Care Providers & Services 8.3%
AmerisourceBergen 700 53
Cardinal Health 525 32
HCA 900 43
Laboratory Corporation of America * 660 30
Tenet Healthcare * 300 22
UnitedHealth Group 2,000 183
Wellpoint Health Networks * 1,100 86
449
Pharmaceuticals 11.4%
Abbott Laboratories 1,400 53
Allergan 300 20
Biovail * 500 14
Eli Lilly 300 17
Forest Laboratories * 200 14
Johnson & Johnson 2,000 105
Shares Value
----------------------------------------------------------------------
In thousands
King Pharmaceuticals * 100 $ 2
Pfizer 6,230 218
Pharmacia 1,070 40
Schering-Plough 490 12
Wyeth 2,400 123
618
Total Health Care 1,226
INDUSTRIALS & BUSINESS SERVICES 11.9%
Aerospace & Defense 0.3%
General Dynamics 100 11
Honeywell International 200 7
18
Air Freight & Logistics 0.7%
UPS, Class B 600 37
37
Commercial Services & Supplies 6.3%
Apollo Group, Class A * 1,100 43
Automatic Data Processing 880 38
Cendant * 2,100 33
Concord EFS * 2,700 82
First Data 3,680 137
Paychex 100 3
Waste Management 100 3
339
Industrial Conglomerates 3.2%
3M 70 9
GE 4,470 130
Tyco International 2,630 35
174
Machinery 1.4%
Danaher 1,150 76
76
Total Industrials & Business Services 644
INFORMATION TECHNOLOGY 13.2%
Communications Equipment 2.7%
Brocade Communications Systems * 300 5
Cisco Systems * 5,450 76
Motorola 800 12
Nokia ADR 1,270 18
QUALCOMM * 1,200 33
144
T. Rowe Price Blue Chip Growth Portfolio
June 30, 2002 (Unaudited)
Shares Value
----------------------------------------------------------------------
In thousands
Computers & Peripherals 1.6%
Dell Computer * 1,730 $ 45
IBM 200 15
Lexmark International, Class A * 500 27
87
IT Consulting & Services 1.1%
Affiliated Computer Services
Class A * 1,300 62
62
Semiconductor Equipment & Products 4.1%
Analog Devices * 1,100 33
Applied Materials * 1,520 29
Intel 1,900 35
KLA-Tencor * 300 13
Linear Technology 100 3
Maxim Integrated Products * 1,400 54
QLogic * 300 11
Texas Instruments 1,600 38
Xilinx * 240 5
221
Software 3.7%
Adobe Systems 200 6
Electronic Arts * 100 7
Microsoft * 3,210 175
Siebel Systems * 70 1
VERITAS Software * 600 12
201
Total Information Technology 715
TELECOMMUNICATION SERVICES 1.2%
Diversified Telecommunication Services 0.1%
Verizon Communications 100 4
4
Wireless Telecommunication Services 1.1%
Vodafone ADR 4,530 62
62
Total Telecommunication Services 66
Shares Value
----------------------------------------------------------------------
In thousands
UTILITIES 0.0%
Gas Utilities 0.0%
El Paso Corporation 100 $ 2
Total Utilities 2
Total Miscellaneous Common Stocks 1.2% 64
Total Common Stocks (Cost $6,172) 5,391
SHORT-TERM INVESTMENTS 1.1%
Money Market Fund 1.1%
T. Rowe Price Reserve Investment
Fund, 1.95% # 62,082 62
Total Short-Term Investments (Cost $62) 62
Total Investments in Securities
100.5% of Net Assets (Cost $6,234) $ 5,453
Other Assets Less Liabilities (27)
NET ASSETS $ 5,426
-------
Net Assets Consist of:
Undistributed net investment income (loss) $ 1
Undistributed net realized gain (loss) (776)
Net unrealized gain (loss) (781)
Paid-in-capital applicable to
757,960 shares of $0.0001 par
value capital stock outstanding;
1,000,000,000 shares of the
Corporation authorized 6,982
NET ASSETS $ 5,426
-------
NET ASSET VALUE PER SHARE
Blue Chip Growth shares
($5,336,553/745,413 shares outstanding) $ 7.16
Blue Chip Growth - II shares
($89,734/12,547 shares outstanding) $ 7.15
</TABLE>
# Seven-day yield
* Non-income producing
ADR American Depository Receipts
Statement of Operations
T. Rowe Price Blue Chip Growth Portfolio
In thousands
Unaudited
6 Months
Ended
6/30/02
Investment Income (Loss)
Income
Dividend $ 25
Interest 1
Total income 26
Investment management and
administrative expense 25
Net investment income (loss) 1
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (271)
Change in net unrealized gain (loss)
on securities (803)
Net realized and unrealized gain (loss) (1,074)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (1,073)
---------
The accompanying notes are an integral part of these financial statements.
Statement of Changes in Net Assets
T. Rowe Price Blue Chip Growth Portfolio
In thousands
Unaudited
<TABLE>
<CAPTION>
<S> <C> <C>
6 Months Year
Ended Ended
6/30/02 12/31/02
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 1 $ 6
Net realized gain (loss) (271) (505)
Change in net unrealized gain (loss) (803) 22
Increase (decrease) in net assets
from operations (1,073) (477)
Distributions to shareholders
Net investment income
Blue Chip Growth shares - (6)
Capital share transactions *
Shares sold
Blue Chip Growth shares 1,005 7,574
Blue Chip Growth - II shares 100 -
Distributions reinvested
Blue Chip Growth shares - 7
Shares redeemed
Blue Chip Growth shares (636) (1,068)
Increase (decrease) in net assets
from capital share transactions 469 6,513
Net Assets
Increase (decrease) during period (604) 6,030
Beginning of period 6,030 -
End of period $ 5,426 $ 6,030
------- -------
*Share information
Shares sold
Blue Chip Growth shares 122 826
Blue Chip Growth - II shares 13 -
Distributions reinvested
Blue Chip Growth shares - 1
Shares redeemed
Blue Chip Growth shares (77) (127)
Increase (decrease) in shares
outstanding 58 700
</TABLE>
The accompanying notes are an integral part of these financial statements.
Notes to Financial Statements
T. Rowe Price Blue Chip Growth Portfolio
June 30, 2002 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Equity Series, Inc. (the corporation) is registered under the
Investment Company Act of 1940. The Blue Chip Growth Portfolio (the fund) is a
diversified, open-end management investment company and is one of the
portfolios established by the corporation. The fund seeks to provide long-term
capital growth; income is a secondary objective. 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. The fund has two classes of shares: Blue Chip Growth Portfolio,
offered since December 29, 2000, and Blue Chip Growth Portfolio - II, which
was first offered on April 30, 2002. Blue Chip Growth - II 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
accounting principles generally accepted in the United States of America,
which require the use of estimates made by fund management.
Valuation - Equity securities listed or regularly traded on a securities
exchange or in the over-the-counter market are valued at the last quoted sale
price, or official closing price for certain markets, 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 are valued at the mean of the latest bid and ask prices. Other equity
securities are valued at a price within the limits of the latest bid and ask
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.
Blue Chip Growth - II 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. Management and administrative fee expense, 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, if any, are declared and paid by the fund, typically on an
annual basis.
Currency Translation - Assets and liabilities denominated in foreign
currencies are translated into U.S. dollar values each day at the prevailing
exchange rate, using the mean of the bid and ask prices of such currencies
against U.S. dollars quoted by a major bank. Purchases and sales of
securities, income, and expenses are translated into U.S. dollars at the
prevailing exchange rate on the dates of such transactions. The effect of
changes in foreign exchange rates on realized and unrealized security gains
and losses is reflected as a component of such gains and losses.
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $1,968,000 and $1,352,000, respectively, for the six months ended
June 30, 2002.
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 to
shareholders all of its taxable income and capital gains. Federal income tax
regulations differ from generally accepted accounting principles; therefore,
distributions determined in accordance with tax regulations may differ in
amount or character from net investment income and realized gains for
financial reporting purposes. Financial reporting records are adjusted for
permanent book/tax differences to reflect tax character. Temporary differences
are not adjusted. 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, 2002.
For tax purposes, the fund has elected to treat net capital losses realized
between November 1 and December 31 of each year as occurring on the first day
of the following tax year; consequently, $53,000 of realized losses recognized
for financial reporting purposes in 2001 were recognized for tax purposes on
January 1, 2002. Further, the fund intends to retain realized gains to the
extent of available capital loss carryforwards. As of December 31, 2001, the
fund had $452,000 of unused capital loss carryforwards, of which $452,000
expire in 2009
At June 30, 2002, the cost of investments for federal income tax purposes was
substantially the same as for financial reporting and totaled $6,234,000. Net
unrealized loss aggregated $781,000 at period-end, of which $244,000 related
to appreciated investments and $1,025,000 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 owned subsidiary of T. Rowe Price Group. The investment
management and administrative agreement between the fund and the manager
provides for an all-inclusive annual 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, and custody services are provided to the fund, and interest,
taxes, brokerage commissions, directors' fees and expenses, and extraordinary
expenses are paid directly by the fund. At June 30, 2002, $18,000 was payable
under the agreement.
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 managed by Price Associates and/or its affiliates, 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, 2002, totaled $1,000 and are reflected as interest income in the
accompanying Statement of Operations.
T. Rowe Price Blue Chip Growth Portfolio
About the Portfolio's Directors and Officers
Your portfolio is governed by a Board of Directors that meets regularly to
review investments, performance, expenses, and other business matters, and is
responsible for protecting the interests of shareholders. The majority of the
portfolio's directors are independent of T. Rowe Price Associates, Inc. ("T.
Rowe Price"); "inside" directors are officers of T. Rowe Price. The Board of
Directors elects the portfolio's officers, who are listed in the final table.
The business address of each director and officer is 100 East Pratt Street,
Baltimore, MD 21202.
Independent Directors
Name
(Date of Birth) Principal Occupation(s) During Past 5 Years and
Year Elected* Other Directorships of Public Companies
Calvin W. Burnett, Ph.D. President, Coppin State College; Director,
(3/16/32) Provident Bank of Maryland
2001
Anthony W. Deering Director, Chairman of the Board, President, and
(1/28/45) Chief Executive Officer, The Rouse Company, real
2001 estate developers
Donald W. Dick, Jr. Principal, EuroCapital Advisors, LLC, an
(1/27/43) acquisition and management advisory firm
1994
David K. Fagin Director, Dayton Mining Corp. (6/98 to present),
(4/9/38) Golden Star Resources Ltd., and Canyon Resources
1994 Corp. (5/00 to present); Chairman and President,
Nye Corp.
F. Pierce Linaweaver President, F. Pierce Linaweaver & Associates,
(8/22/34) Inc., consulting environmental and civil engineers
2001
Hanne M. Merriman Retail Business Consultant; Director, Ann Taylor
(11/16/41) Stores Corp., Ameren Corp., Finlay Enterprises,
1994 Inc., The Rouse Company, and US Airways Group, Inc.
John G. Schreiber Owner/President, Centaur Capital Partners, Inc., a
(10/21/46) real estate investment company; Senior Advisor and
2001 Partner, Blackstone Real Estate Advisors, L.P.;
Director, AMLI Residential Properties Trust, Host
Marriott Corp., and The Rouse Company
Hubert D. Vos Owner/President, Stonington Capital Corp., a
(8/2/33) private investment company
1994
Paul M. Wythes Founding Partner, Sutter Hill Ventures, a venture
(6/23/33) capital limited partnership, providing equity
1994 capital to young high-technology companies
throughout the United States; Director, Teltone
Corp.
* Each independent director oversees 98 T. Rowe Price portfolios and serves
until the election of a successor.
T. Rowe Price Blue Chip Growth PortfolioInside Directors
Name
(Date of Birth)
Year Elected*
[Number of T. Rowe
Price Portfolios Principal Occupation(s) During Past 5 Years and
Overseen] Other Directorships of Public Companies
John H. Laporte Director, T. Rowe Price Group, Inc.; Vice
(7/26/45) President, T. Rowe Price
1994
[15]
James S. Riepe Director and Vice President, T. Rowe Price; Vice
(6/25/43) Chairman of the Board, Director, and Vice
1994 President, T. Rowe Price Group, Inc.; Chairman
[98] of the Board and Director, T. Rowe Price Global
Asset Management Limited, T. Rowe Price Investment
Services, Inc., T. Rowe Price Retirement Plan
Services, Inc., and T. Rowe Price Services, Inc.;
Chairman of the Board, Director, President, and
Trust Officer, T. Rowe Price Trust Company;
Director, T. Rowe Price International, Inc., and
T. Rowe Price Global Investment Services Limited;
Vice President, Equity Series
M. David Testa Vice Chairman of the Board, Chief Investment
(4/22/44) Officer, Director, and Vice President, T. Rowe
1994 Price Group, Inc.; Chief Investment Officer,
[98] Director, and Vice President, T. Rowe Price;
Chairman and Director, T. Rowe Price Global Asset
Management Limited; Vice President and Director,
T. Rowe Price Trust Company; Director, T. Rowe
Price Global Investment Services Limited and
T. Rowe Price International, Inc.; President,
Equity Series
*Each inside director serves until the election of a successor.
Officers
Name (Date of Birth)
Position(s) Held
With Fund Principal Occupations
Brian W.H. Berghuis, Vice President, T. Rowe Price and T. Rowe Price
10/12/58 Group, Inc.
Executive Vice President,
Equity Series
Stephen W. Boesel Vice President, T. Rowe Price, T. Rowe Price
(12/28/44) Group, Inc., and T. Rowe Price Trust Company
Vice President,
Equity Series
Joseph A. Carrier Vice President, T. Rowe Price, T. Rowe Price
(12/30/60) Group, Inc., and T. Rowe Price Investment
Treasurer, Equity Series
Services, Inc.
Arthur B. Cecil III Vice President, T. Rowe Price and T. Rowe Price
(9/15/42) Group, Inc.
Vice President,
Equity Series
Giri Devulapally Vice President, T. Rowe Price and T. Rowe Price
(11/18/67) Group, Inc.
Vice President,
Equity Series
Anna M. Dopkin, 9/5/67 Vice President, T. Rowe Price and T. Rowe Price
Vice President, Group, Inc.
Equity Series
Robert N. Gensler Vice President, T. Rowe Price and T. Rowe Price
(10/18/57) Group, Inc.
Vice President,
Equity Series
Eric M. Gerster Vice President, T. Rowe Price and T. Rowe Price
(3/23/71) Group, Inc.
Vice President,
Equity Series
Henry H. Hopkins Director and Vice President, T. Rowe Price Group,
(12/23/42) Inc.; Vice President, T. Rowe Price, T. Rowe Price
Vice President, International, Inc., and T. Rowe Price Retirement
Equity Series Plan Services, Inc.; Vice President and Director,
T. Rowe Price Investment Services, Inc., T. Rowe
Price Services, Inc., and T. Rowe Price Trust
Company
T. Rowe Price Blue Chip Growth Portfolio
Officers (continued)
Name (Date of Birth)
Title and Fund(s) Served Principal Occupations
Kris H. Jenner (2/5/62) Vice President, T. Rowe Price and T. Rowe Price
Executive Vice President, Group, Inc.
Equity Series
J. Jeffrey Lang (1/10/62) Vice President, T. Rowe Price and T. Rowe Price
Vice President, Trust Company
Equity Series
John D. Linehan (1/21/65) Vice President, T. Rowe Price, T. Rowe Price
Vice President, Group, Inc., and T. Rowe Price International, Inc.
Equity Series
Patricia B. Lippert Assistant Vice President, T. Rowe Price and
(1/12/53) T. Rowe Price Investment Services, Inc.
Secretary, Equity Series
David S. Middleton Vice President, T. Rowe Price, T. Rowe Price Group,
(1/18/56) Inc., and T. Rowe Price Trust Company
Controller, Equity Series
Joseph Milano (9/14/72) Vice President, T. Rowe Price and T. Rowe Price
Vice President, Group, Inc.
Equity Series
Larry J. Puglia, CFA Vice President, T. Rowe Price and T. Rowe Price
(8/25/60) Group, Inc.
Executive Vice President,
Equity Series
Brian C. Rogers Director and Vice President, T. Rowe Price Group,
(6/27/55) Inc.; Vice President, T. Rowe Price and T. Rowe
Executive Vice President, Price Trust Company
Equity Series
Robert W. Smith Vice President, T. Rowe Price, T. Rowe Price
(4/11/61) Group, Inc., and T. Rowe Price International, Inc.
Vice President,
Equity Series
Michael F. Sola Vice President, T. Rowe Price and T. Rowe Price
(7/21/69) Group, Inc.
Vice President,
Equity Series
William J. Stromberg, Vice President, T. Rowe Price and T. Rowe Price
CFA (3/10/60) Group, Inc.
Vice President,
Equity Series
John F. Wakeman Vice President, T. Rowe Price and T. Rowe Price
(11/25/62) Group, Inc.
Vice President,
Equity Series
Richard T. Whitney Vice President, T. Rowe Price, T. Rowe Price
(5/7/58) Group, Inc., T. Rowe Price Trust Company, and
Executive Vice President, T. Rowe Price International, Inc.
Equity Series
R. Candler Young Assistant Vice President, T. Rowe Price
(9/28/71)
Vice President,
Equity Series
Unless otherwise noted, officers have been employees of T. Rowe Price or T. Rowe
Price International for at least five years.
This report is authorized for distribution only to those who have received a
copy of the portfolio's prospectus.
T. Rowe Price, Invest With Confidence
100 East Pratt Street
Baltimore, MD 21202
T. Rowe Price Investment Services, Inc., Distributor
TRP594 (6/02)
K15-232 6/30/02
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