-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mp6Pq72UEgDY8QXu0hm2uZkFxMZV4/kZ1DyM9GgGaxxLpKRy/r8rC1sjE2YFmSNc AGYoIdU8PoGiuAQ8OwMXPA== 0000902259-96-000007.txt : 19960806 0000902259-96-000007.hdr.sgml : 19960806 ACCESSION NUMBER: 0000902259-96-000007 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19960805 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRICE T ROWE BLUE CHIP GROWTH FUND INC CENTRAL INDEX KEY: 0000902259 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-30D SEC ACT: 1940 Act SEC FILE NUMBER: 811-07059 FILM NUMBER: 96603515 BUSINESS ADDRESS: STREET 1: C/O T ROWE PRICE ASSOCIATES INC STREET 2: 100 EAST E PRATT ST CITY: BALTIMORE STATE: MD ZIP: 21202 BUSINESS PHONE: 4105472000 N-30D 1 BLUE CHIP GROWTH FUND SEMIANNUAL REPORT ================================================================================ BLUE CHIP FUND SEMIANNUAL REPORT ================================================================================ June 30,1996 - -------------------------------------------------------------------------------- ================================================================================ Report Highlights - -------------------------------------------------------------------------------- *Despite rising interest rates, the stock market posted a solid gain in the first half of 1996, fueled primarily by record inflows into equity mutual funds. *Your fund performed slightly better than its peer group and the S&P 500 over the last six months. For the 12 months ended June 30, it edged out the S&P 500 while significantly outpacing its peer group average. *The fund had good results from pharmaceutical, retailing, and financial stocks, while HMO holdings were a constraint. *Our major purchases during the period were in various industries, including insurance, health care, pharmaceuticals, defense, oil, and telecommunications. *Although stock valuations are undeniably expensive, our outlook remains reasonably favorable. We believe our holdings will provide continued earnings growth. ================================================================================ Fellow Shareholders - -------------------------------------------------------------------------------- Although slowing from last year's robust pace, the stock market posted a solid gain through the first half of 1996. A surprisingly resilient economy and the unprecedented flow of money into equity mutual funds helped stocks overcome a rise in long-term interest rates that sent the bond market into a torpor. ================================================================================ Performance Comparison - -------------------------------------------------------------------------------- Periods Ended 6/30/96 6 Months 12 Months - -------------------------------------------------------------------------------- Blue Chip Growth Fund 11.27% 27.88% S&P 500 10.10 26.00 Lipper Growth Funds Average 10.08 22.20 - -------------------------------------------------------------------------------- For the six months ended June 30, the Blue Chip Growth Fund moderately outperformed its peer group average and the overall stock market as measured by the unmanaged Standard & Poor's 500 Stock Index. For the 12-month period, your fund outpaced the peer group by a wide margin and also held an edge over the S&P 500. ================================================================================ Market Environment - -------------------------------------------------------------------------------- The U.S. stock market continued to advance, fueled by mutual fund inflows, strong earnings at selected companies, and relatively benign inflation. We believe that certain companies will thrive in this environment. While the underlying conditions for stocks continued to be reasonably favorable, the market faces significant challenges in the months ahead. The risk of rising inflation and a related tightening of interest rates by the Federal Reserve has increased. Recent data indicate that the U.S. economy is probably growing above the central bank's comfort level for keeping inflation in check. In particular, the average hourly wage for U.S. workers has increased markedly over the last 12 months. In prior letters, we warned of the potential inflationary effects of poor grain harvests and rising energy prices. Unfortunately, the combination of these factors certainly increases the risk of inflation as well as the likelihood that the Fed will raise short-term interest rates later this year. Long-term interest rates have increased substantially in 1996, perhaps already reflecting some of the increase in inflation risk. Rising rates and poor bond market performance represent a challenge to stocks because corporate earnings must be discounted at a higher rate, and higher yields increase the attractiveness of bonds relative to stocks. Lackluster growth in many foreign economies creates another risk. In particular, many European economies are showing only anemic growth, contributing to a meaningful decline in earnings momentum at many multinational companies. The capital goods and technology areas have been especially hard hit, with companies such as Hewlett-Packard and Motorola recently announcing revenue or earnings shortfalls. ================================================================================ Portfolio Review - -------------------------------------------------------------------------------- Pharmaceutical stocks did well as investors continued to target companies with solid fundamentals and consistent earnings growth. Your fund got strong performance from Pfizer, Johnson & Johnson, American Home Products, and Schering-Plough. Selected manufacturing stocks benefited from the strong economic growth in the U.S. and superb management. GE, AlliedSignal, and Danaher have been held by the fund for several years, and each made significant positive contributions to performance during the last six months. Although many technology stocks were punished recently, our holdings generally produced solid results. Cisco Systems, the leading provider of computer networking equipment, Microsoft, and BMC Software, a leading provider of software for mainframe applications, produced strong earnings growth, reflected in higher stock prices. First Data, the leading processor of credit card transactions, also generated strong gains. Although our consumer products holdings are not duplicating their stellar results of 1995, several stocks contributed positively to fund performance in the first half: PepsiCo, Philip Morris, Eastman Kodak, and Coca-Cola. Similarly, while rising interest rates put a damper on financial stocks, several of our holdings were strong performers, including Citicorp, Chase Manhattan, Travelers Group, NationsBank, and UNUM. After a long slump, retailing stocks rebounded sharply, benefiting our positions in department store giant Federated Department Stores (which owns Macy's, Bloomingdales, Lazarus, and several other leading chains), Kohl's, and Home Depot. On a sour note, our HMO holdings, United HealthCare and PacifiCa re Health Systems, were hurt by higher medical expenses incurred by enrolled plan members and by pricing pressures. Both companies are leaders in their markets and have strong balance sheets and cost management. However, United HealthCare in particular faces significant short-term challenges in adjusting its prices to allow continued profit growth. We are reevaluating our ownership of these stocks given the adverse change in the environment for HMOs. Inother industries, Great Lakes Chemical was weak due to an economic slowdown in Europe. However, the company has tremendous free cash flow, and management is aggressively repurchasing stock. Heinz was a minor disappointment in the first half as an unexpected slowdown in earnings growth caused a pullback in its price. However, the company possesses tremendous brand strength and leadership positions in ketchup and condiments, tuna (Starkist), pet food (Nine Lives), baby food, and potato products (Ore Ida). We believe the company will generate improved results in the next year. During the first half, we made only minor changes to sector diversification, reflecting our philosophy of maintaining low turnover and holding onto core positions as long as their fundamentals remain positive. [Edgar description: sector diversification pie chart as of 6/30/96 Showing: Financial 20%, Energy and Utilities 7%, Consumer Nondurables 23%, Consumer Servies and Cyclicals 11%, Technology 10%, Cap. Equip. and Proc. Ind. 10%, Business Services and Transportation 9%, Reserves 10%.] ================================================================================ Strategy - -------------------------------------------------------------------------------- I would like to discuss some of the largest purchases in your portfolio over the last six months. In our view, ACE Limited, a highly profitable, Bermuda-based reinsurer, is poised for strong earnings growth. National Data is building a leading position in health care and credit card merchant processing, two of our favorite businesses because they generate a high level of recurring revenue. Our new position in the leading U.S. defense company, Lockheed Martin, has already posted solid investment results for the fund. The company's top-notch management and broad array of defense products should help it sustain strong earnings growth regardless of the direction of the economy. W.R. Berkley is a property and casualty insurance company that is using its strong capital to repurchase shares and also build top-quality specialty insurance businesses. Sallie Mae, also an aggressive share repurchaser, is benefiting from solid growth in student lending and the increasing securitization of loans. SBC Communications is a leading regional telephone company whose chief executive, Jack Whitacre, has a reputation for increasing earnings and dividends. After recently acquiring Pactel, the company dominates the southwestern and western U.S. and should capture a hefty portion of telephone service to and from Latin America and Asia. Millipore is a leading provider of water and air filtration products for the medical and electronics industries. Mobil is perhaps the best managed of the major oil companies with a strong dividend growth record and a sharp focus on cutting costs and eliminating low return businesses. American Home Products, a strong first half performer, is well positioned to deliver double-digit earnings gains as it integrates American Cyanamid. Its product pipeline is also underappreciated by investors, in our view. For example, Redux, its new product for treating obesity, is generating very strong sales growth. ============================= we typically do not sell holdings unless . . . a stock becomes overvalued - ------------------------------ In keeping with our long-term perspective, we typically do not sell holdings unless there is a deterioration in fundamentals or a stock becomes overvalued. We eliminated our position in Viacom due to worsening conditions in its cable television operations and concerns about growth in its Blockbuster subsidiary. Baker Hughes had been a strong performer, resulting in a higher valuation relative to our other energy holdings. Consequently, we eliminated the position at close to its current price. ================================================================================ Outlook - -------------------------------------------------------------------------------- Stock valuations have reached expensive levels, as evidenced by the historically low dividend yield on the S&P 500. Nevertheless, we believe the outlook for U.S. stocks remains reasonably favorable for the following reasons: *While the threat of inflation and the likelihood of a Fed rate hike have increased, these factors should be kept in perspective. We cautioned in prior reports that inflation and interest rate expectations were overly optimistic. They are now perhaps more realistic. A slowing economy or continued market discipline on pricing (such as we have seen in the recent aggressive price cuts in breakfast cereal products) could help keep inflation under control. *Earnings are growing rapidly at many high-quality U.S. companies, and the valuations of selected companies are reasonable. The market correction in July (after the close of the reporting period) is creating the opportunity to buy these stocks at attractive valuations. *Although the dividend yield of the market is relatively low, many companies (particularly U.S. multinationals) are poised for strong dividend growth. Also, many companies continue to emphasize share repurchases versus dividend increases as a more tax-efficient way to return capital to shareholders. Overall, we expect continued earnings growth at many of our holdings regardless of the economic or interest rate environment. As always, we continue to target blue chip companies with leading market positions, seasoned management, and strong financial fundamentals in the belief that they will provide above-average performance. Respectfully submitted, [Signature] Larry J. Puglia President and Chairman of the Investment Advisory Commitee Thomas H. Broadus, Jr. [Signature] Executive Vice President July 17, 1996 ================================================================================ Portfolio Highlights - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS - -------------------------------------------------------------------------------- Percent of Net Assets 6/30/96 - -------------------------------------------------------------------------------- GE ......................................................... 1.5% Freddie Mac ................................................ 1.5 First Data ................................................. 1.5 Travelers Group ............................................ 1.4 Pfizer ..................................................... 1.4 Philip Morris .............................................. 1.4 Kimberly-Clark ............................................. 1.3 AlliedSignal ............................................... 1.3 Great Lakes Chemical ....................................... 1.2 Johnson & Johnson .......................................... 1.2 Eastman Kodak .............................................. 1.1 United HealthCare .......................................... 1.1 Hubbell .................................................... 1.1 Mellon Bank ................................................ 1.1 PepsiCo .................................................... 1.1 Norwest .................................................... 1.1 McDonald's ................................................. 1.1 Danaher .................................................... 1.1 SmithKline Beecham ......................................... 1.1 Disney ..................................................... 1.1 Columbia/HCA Healthcare .................................... 1.1 Procter & Gamble ........................................... 1.0 Ceridian ................................................... 1.0 Vodafone ................................................... 1.0 Corning .................................................... 1.0 - -------------------------------------------------------------------------------- Total 29.8% ================================================================================ ================================================================================ Portfolio Highlights - -------------------------------------------------------------------------------- MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 6/30/96 - -------------------------------------------------------------------------------- Ten Largest Purchases Ten Largest Sales ACE Limited * Echlin ** National Data * BankAmerica ** Lockheed Martin * Baker Hughes ** W.R. Berkley * Viacom ** Sallie Mae * Dayton Hudson ** SBC Communications * Varity ** United HealthCare Compaq Computer ** Millipore * Motorola ** Mobil * Imperial Thrift ** American Home Products * Ceridian - -------------------------------------------------------------------------------- * Position added ** Position eliminated ================================================================================ ================================================================================ 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 a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. ================================================================================ 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 6/30/96 1 Year 3 Years Inception Date Blue Chip Growth Fund 27.88% 20.92% 20.92% 6/30/93 - -------------------------------------------------------------------------------- Investment return and principal value represent past performance and will vary. Shares may be worth more or less at redemption than at original purchase. - -------------------------------------------------------------------------------- Unaudited For a share outstanding throughout each period ===================================================================================== Financial Highlights - -------------------------------------------------------------------------------------
6 Months Year 6/30/93 Ended Ended to 6/30/96 12/31/95 12/31/94 12/31/93 NET ASSET VALUE Beginning of period ............ $ 15.09 $ 11.11 $ 11.24 $ 10.00 Investment activities Net investment income .... 0.07 0.16* 0.12* 0.05* Net realized and unrealized gain (loss) ... 1.63 4.05 (0.03) 1.38 Total from investment activities .... 1.70 4.21 0.09 1.43 Distributions Net investment income .... -- (0.15) (0.10) (0.05) Net realized gain ........ -- (0.08) (0.12) (0.14) Total distributions ...... -- (0.23) (0.22) (0.19) NET ASSET VALUE End of period .................. $ 16.79 $ 15.09 $ 11.11 $ 11.24 Ratios/Supplemental Data Total return ................... 11.27%+ 37.90%* 0.80%* 14.32%* Ratio of expenses to average net assets ............. 1.25% 1.25%* 1.25%* 1.25%+* Ratio of net investment income to average net assets ..................... 0.80%+ 1.27%* 1.05%* 0.80%+* Portfolio turnover rate ........ 39.6%+ 38.1% 75.0% 89.0%+ Average commission rate paid$ .. 0.1150 -- -- -- Net assets, end of period (in millions) .................. $ 223 $ 146 $ 39 $ 25 - ------------------------------------------------------------------------------------- * Excludes expenses in excess of a 1.25% voluntary expense limitation in effect through 12/31/96. + Annualized.
- -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. ================================================================================ Unaudited June 30, 1996 ================================================================================ Statement of Net Assets - -------------------------------------------------------------------------------- In thousands Shares/Par Value Common Stocks 89.9% FINANCIAL 19.5% Bank and Trust 7.0% BANC ONE ................................ 27,000 $ 918 Bank of Boston .......................... 22,000 1,089 Chase Manhattan ......................... 30,000 2,119 Citicorp ................................ 24,000 1,983 Fleet Financial Group ................... 24,000 1,044 Mellon Bank ............................. 44,000 2,508 NationsBank ............................. 18,000 1,487 Northern Trust .......................... 14,000 810 Norwest ................................. 70,000 2,441 Wells Fargo ............................. 5,000 1,195 15,594 Insurance 3.9% ACE Limited ............................. 44,000 2,068 American International Group ............ 17,000 1,676 PMI Group ............................... 30,000 1,275 UNUM .................................... 33,000 2,054 W. R. Berkley ........................... 37,000 1,559 8,632 Financial Services 8.6% Aames Financial ........................ 25,000 897 ADVANTA (Class B) ...................... 32,000 1,460 American Express ....................... 44,000 1,963 Associates First Capital * ............. 27,000 1,016 Fannie Mae ............................. 50,000 1,675 Freddie Mac ............................ 40,000 3,420 Green Tree Financial ................... 34,000 1,062 Household International ................ 16,000 1,216 Money Store ............................ 85,000 1,865 Sallie Mae ............................. 21,000 1,554 Travelers Group ........................ 70,500 3,217 19,345 Total Financial 43,571 UTILITIES 1.3% Telephone 1.3% AT&T ....................................... 22,000 $1,364 SBC Communications ......................... 32,000 1,576 Total Utilities 2,940 CONSUMER NONDURABLES 22.2% Beverages 1.9% Coca-Cola .................................. 16,000 782 Panamerican Beverages (Class A) ............ 20,000 895 PepsiCo .................................... 70,000 2,476 4,153 Food Processing 2.2% Heinz ...................................... 70,000 2,126 Ralston Purina ............................. 20,000 1,283 Sara Lee ................................... 44,000 1,424 4,833 Hospital Supplies/Hospital Management 2.9% Boston Scientific * ........................ 33,000 1,485 Columbia/HCA Healthcare .................... 44,000 2,349 Medtronic .................................. 20,000 1,120 Millipore .................................. 38,000 1,591 6,545 Pharmaceuticals 7.1% American Home Products ...................... 28,000 1,683 Amgen * ..................................... 17,000 916 Eli Lilly ................................... 16,000 1,040 Johnson & Johnson ........................... 52,000 2,574 Merck ....................................... 17,000 1,099 Pfizer ...................................... 45,000 3,212 Pharmacia & Upjohn .......................... 20,000 888 Schering-Plough ............................. 32,000 2,008 SmithKline Beecham ADR ...................... 44,000 2,392 15,812 Health Care Services 3.1% Apria Healthcare * .......................... 55,000 1,725 Olsten ...................................... 55,000 1,616 PacifiCare Health Systems (Class B) * ....... 17,000 $ 1,154 United HealthCare ........................... 50,000 2,525 7,020 Miscellaneous Consumer Products 5.0% Colgate-Palmolive ........................... 10,000 848 CUC International * ......................... 34,000 1,207 Jones Apparel Group * ....................... 20,000 982 Newell ...................................... 44,000 1,347 Philip Morris ............................... 29,000 3,016 Procter & Gamble ............................ 25,000 2,266 Richfood Holdings ........................... 50,000 1,622 11,288 Total Consumer Nondurables 49,651 CONSUMER SERVICES 9.0% Specialty Merchandisers 5.1% Circuit City Stores ...................... 36,000 1,301 Eckerd * ................................. 70,000 1,584 Federated Department Stores * ............ 57,000 1,945 General Nutrition * ...................... 50,000 872 Home Depot ............................... 38,000 2,052 Kohl's * ................................. 44,000 1,611 Revco * .................................. 44,000 1,051 Tupperware * ............................. 25,000 1,056 11,472 Entertainment and Leisure 2.2% Disney ................................... 38,000 2,389 McDonald's ............................... 52,000 2,431 4,820 Media and Communications 1.7% Catalina Marketing * ..................... 17,000 1,556 Vodafone ADR ............................. 60,000 2,212 3,768 Total Consumer Services 20,060 CONSUMER CYCLICALS 2.5% Automobiles and Related 0.4% Lear * ................................... 22,000 776 776 Miscellaneous Consumer Durables 2.1% Corning .................................. 57,000 $2,187 Eastman Kodak ............................ 33,000 2,566 4,753 Total Consumer Cyclicals 5,529 TECHNOLOGY 10.5% Electronic Components 2.0% Intel .................................... 15,000 1,102 Maxim Integrated Products * .............. 34,000 929 Tyco International ....................... 28,000 1,141 Xilinx * ................................. 40,000 1,267 4,439 Electronic Systems 2.1% ADT ...................................... 65,000 1,227 Hewlett-Packard .......................... 12,500 1,245 Honeywell ................................ 40,000 2,180 4,652 Information Processing 0.9% IBM ...................................... 20,000 1,980 1,980 Office Automation 1.0% Ceridian * ............................... 44,000 2,222 2,222 Specialized Computer 0.2% Silicon Graphics* ........................ 20,000 480 480 Telecommunications Equipment 2.3% 3Com * ...................................... 22,000 1,005 Cisco Systems * ............................. 25,000 1,417 LM Ericsson (Class B) ADR ................... 50,000 1,072 MCI ......................................... 44,000 1,125 Teleport Communications Group (Class A) * ... 24,300 462 5,081 Aerospace and Defense 2.0% AlliedSignal ................................ 50,000 2,856 Lockheed Martin ............................. 21,000 1,764 4,620 Total Technology 23,474 CAPITAL EQUIPMENT 5.7% Electrical Equipment 3.7% Emerson Electric ............................ 21,000 $ 1,898 Exide ....................................... 20,000 485 GE .......................................... 40,000 3,460 Hubbell (Class B) ........................... 38,000 2,517 8,360 Machinery 2.0% Danaher ..................................... 55,000 2,393 Teleflex .................................... 44,000 2,101 4,494 Total Capital Equipment 12,854 BUSINESS SERVICES AND TRANSPORTATION 9.0% Computer Service and Software 7.6% Adobe Systems ................................ 20,000 714 Automatic Data Processing .................... 44,000 1,699 BMC Software * ............................... 24,000 1,431 First Data ................................... 41,753 3,325 Informix * ................................... 40,000 898 Microsoft * .................................. 14,000 1,681 National Data ................................ 50,000 1,712 Oracle Systems * ............................. 32,000 1,262 Reynolds & Reynolds .......................... 25,000 1,331 SunGard Data Systems * ....................... 50,000 2,003 Synopsys * ................................... 24,000 957 17,013 Distribution Services 0.6% Alco Standard ................................ 28,000 1,267 1,267 Miscellaneous Business Services 0.3% Deluxe ....................................... 20,000 710 710 Railroads 0.5% Burlington Northern Santa Fe ................. 14,000 1,132 1,132 Total Business Services and Transportation 20,122 ENERGY 4.5% Energy Service 2.2% BJ Services * ............................. 40,000 $ 1,405 Halliburton ............................... 28,000 1,554 Schlumberger .............................. 24,000 2,022 4,981 Integrated Petroleum-Domestic 1.7% Atlantic Richfield ........................ 15,000 1,777 British Petroleum ADR ..................... 18,000 1,924 3,701 Integrated Petroleum - International 0.6% Mobil ..................................... 12,500 1,402 1,402 Total Energy 10,084 PROCESS INDUSTRIES 3.5% Diversified Chemicals 1.0% DuPont .................................... 24,000 1,899 Union Carbide ............................. 10,000 398 2,297 Specialty Chemicals 1.2% Great Lakes Chemical ...................... 42,000 2,614 2,614 Paper and Paper Products 1.3% Kimberly-Clark ............................ 37,000 2,858 2,858 Total Process Industries 7,769 Miscellaneous Common Stock 2.2% 4,819 Total Common Stocks (Cost $163,227) 200,873 Short-Term Investments 11.8% Certificates of Deposit 1.3% Commerzbank, 5.31%, 7/1/96 ................ $3,000,000 3,000 3,000 Commercial Paper 9.1% Asset Securitization Cooperative, 4(2), 5.34%, 7/10/96 ... 3,000,000 2,996 Ciesco, 5.33%, 7/11/96 ................................... 1,000,000 998 Corporate Asset Funding, 4(2), 5.35%, 7/18/96 ............ $2,000,000 $1,995 Den Danske, 5.38%, 8/12/96 ............................... 3,000,000 2,981 Falcon Asset Securitization, 4(2), 5.30%, 7/12/96 ........ 3,000,000 2,995 Investments in Commercial Paper through a joint account, 5.49% - 5.68%, 7/1/96 ....... 2,297,842 2,298 Preferred Receivables Funding, 5.32%, 7/2/96 ............. 2,000,000 2,000 Statoil (Den Norske Stats Oljeselskap), 5.37%, 7/22/96 ... 3,000,000 2,991 Tasmanian Public Finance, 5.10%, 7/15/96 ................. 1,000,000 998 20,252 Medium-Term Notes 1.4% Morgan Stanley Group, VR, 5.613%, 1/31/97 .. 2,000,000 2,001 PHH, VR, 5.414%, 11/12/96 .................. 1,000,000 999 3,000 Total Short-Term Investments (Cost $26,252) 26,252 Total Investments in Securities 101.7% of Net Assets (Cost $189,479) .............................. $ 227,125 Other Assets Less Liabilities ..................................... (3,721) NET ASSETS ........................................................ $ 223,404 Net Assets Consist of: Accumulated net investment income - net of distributions .......... $ 878 Accumulated net realized gain/loss - net of distributions ......... 3,487 Net unrealized gain (loss) ........................................ 37,647 Paid-in-capital applicable to 13,309,184 shares of $0.0001 par value capital stock outstanding; 1,000,000,000 shares authorized .. 181,392 NET ASSETS ........................................................ $ 223,404 NET ASSET VALUE PER SHARE ......................................... $ 16.79 * Non-income producing VR Variable rate 4(2) Commercial paper sold within terms of a private placement memorandum, exempt from registration under section 4.2 of the Securities Act of 1933, as amended, and may be sold only to dealers in that program or other "accredited investors." The accompanying notes are an integral part of these financial statements. Unaudited ================================================================================ Statement of Operations In thousands 6 Months Ended 6/30/96 - -------------------------------------------------------------------------------- Investment Income Income Dividend .................................................... $ 1,157 Interest .................................................... 753 Total income ................................................ 1,910 Expenses Investment management ....................................... 687 Shareholder servicing ....................................... 295 Registration ................................................ 63 Custody and accounting ...................................... 56 Prospectus and shareholder reports .......................... 15 Legal and audit ............................................. 9 Directors ................................................... 5 Miscellaneous ............................................... 7 Reimbursed to Manager ....................................... 30 Total expenses .............................................. 1,167 Net investment income ............................................. 743 Realized and Unrealized Gain/Loss Net realized gain (loss) on Securites ....................... 3,103 Change in net unrealized gain or loss on Securities ......... 14,471 Net realized and unrealized gain (loss) ........................... 17,574 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ............................................ $18,317 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. Unaudited ================================================================================ Statement of Changes in Net Assets In thousands 6 Months Year Ended Ended 6/30/96 12/31/95 Increase (Decrease) in Net Assets Operations Net investment income ........................... $ 743 $ 1,069 Net realized gain (loss) ........................ 3,103 1,484 Change in net unrealized gain or loss ........... 14,471 22,108 Increase (decrease) in net assets from operations 18,317 24,661 Distributions to shareholders Net investment income ........................... -- (1,428) Net realized gain ............................... -- (761) Decrease in net assets from distributions ....... -- (2,189) Capital share transactions * Shares sold ..................................... 98,675 117,768 Distributions reinvested ........................ -- 2,073 Shares redeemed ................................. (40,142) (35,383) Increase (decrease) in net assets from capital share transactions .............................. 58,533 84,458 Net equalization ................................ 100 546 Net Assets Increase (decrease) during period ..................... 76,950 107,476 Beginning of period ................................... 146,454 38,978 End of period ......................................... $ 223,404 $146,454 *Share information Shares sold ..................................... 6,144 8,666 Distributions reinvested ........................ -- 138 Shares redeemed ................................. (2,539) (2,609) Increase (decrease) in shares outstanding ....... 3,605 6,195 - -------------------------------------------------------------------------------- The accompanying notes are an integral part of these financial statements. Unaudited June 30, 1996 ================================================================================ Notes to Financial Statements - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Blue Chip Growth Fund (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company. 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 which 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 that are not traded on a particular day and securities that are 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. Short-term debt securities are valued at their cost which, when combined with accured interest, approximates fair value. 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. 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 distributions are determined in accordance with federal income tax regulations and may differ from those determined in accordance with generally accepted accounting principles. The fund follows the practice of equalization under which undistributed net investment income per share is unaffected by fund shares sold or redeemed. NOTE 2 - INVESTMENT TRANSACTIONS Commercial Paper Joint Account The fund, and other affiliated funds, may transfer uninvested cash into a commercial paper joint account, the daily aggregate balance of which is invested in high-grade commercial paper. All securities purchased by the joint account satisfy the fund's criteria as to quality, yield, and liquidity. Other Purchases and sales of portfolio securities, other than short-term securities, aggregated $91,632,000 and $32,097,000, respectively, for the six months ended June 30, 1996. 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, 1996, the aggregate cost of investments for federal income tax and financial reporting purposes was $189,479,000, and net unrealized gain aggregated $37,646,000, of which $38,289,000 related to appreciated investments and $643,000 to depreciated investments. NOTE 4 - RELATED PARTY TRANSACTIONS The investment management agreement between the fund and T. Rowe Price Associates, Inc. (the manager) provides for an annual investment management fee, of which $140,000 was payable at June 30, 1996. The fee is computed daily and paid monthly, and consists 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 the manager or Rowe Price-Fleming International, Inc. (the group). The group fee rate ranges from 0.48% for the first $1 billion of assets to 0.305% for assets in excess of $50 billion. At June 30, 1996, and for the six months then ended, the effective annual group fee rate was 0.33% and .34% respectively. The fund pays a pro rata share of the group fee based on the ratio of its net assets to those of the group. Under the terms of the investment management agreement, the manager is required to bear any expenses through December 31, 1996, which would cause the fund's ratio of expenses to average net assets to exceed 1.25%. Thereafter, through December 31, 1998, the fund is required to reimburse the manager for these expenses, provided that average net assets have grown or expenses have declined sufficiently to allow reimbursement without causing the fund's ratio of expenses to average net assets to exceed 1.25%. Pursuant to a previous agreement, $126,000 of unaccrued 1993-1994 fees and expenses were repaid during the six months ended June 30, 1996. Additionally, $87,000 of unaccrued management fees related to a previous expense limitation are subject to reimbursement through December 31, 1996. In addition, the fund has entered into agreements with the manager and two wholly owned subsidiaries of the manager, pursuant to which the fund receives certain other services. The manager 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 $260,000 for the six months ended June 30, 1996, of which $38,000 was payable at period-end. For yield, price, last transaction, and current balance, 24 hours, 7 days a week, call: 1-800-638-2587 toll free For assistance with your existing fund account, call: Shareholder Service Center 1-800-225-5132 toll free 625-6500 Baltimore area T. Rowe Price 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 of the T. Rowe Price Blue Chip Growth Fund. T. Rowe Price Investment Services, Inc., Distributor RPRTBCG 6/30/96 -----END PRIVACY-ENHANCED MESSAGE-----