-----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, Ti1CjCXgRBgpr6bdHfudYDJPrbQXQ2esxpnBMJEHRQ9iJe4pZHhO6Qi3YfoOKNOf k5BPQg1511l9ETDYOkv2Ww== 0000902259-97-000001.txt : 19970221 0000902259-97-000001.hdr.sgml : 19970221 ACCESSION NUMBER: 0000902259-97-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970211 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: 97524889 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 Annual Report Blue Chip Growth Fund December 31, 1996 T. Rowe Price REPORT HIGHLIGHTS o The stock market had another outstanding year in 1996, fueled by strong corporate earnings and robust cash flows into equity mutual funds. Blue chip stocks led the advance. o For the 6- and 12-month periods ended December 31, the Blue Chip Growth Fund returned 14.82% and 27.75%, respectively. The fund outpaced its Lipper peer group and the overall stock market in both periods. o While performance was good from technology, financial, and consumer products holdings, our positions in Great Lakes Chemical and PepsiCo hampered results in the second half. o Some of our largest purchases over the last six months were in existing holdings such as Mobil, AlliedSignal, and Merck. o While stock valuations are expensive, we remain positive due to the favorable economic environment and good earnings prospects for companies in the portfolio. Fellow Shareholders After pausing during a modest summer correction, the U.S. stock market raced to a strong finish over the last six months to cap another outstanding year. The market was fueled largely by sustained corporate earnings growth and strong cash flows into equity mutual funds. Large-capitalization, blue chip stocks led the advance. Performance Comparison Periods Ended 12/31/96 6 Months 12 Months _________________________________________________________ Blue Chip Growth Fund 14.82% 27.75% S&P 500 11.68 22.96 Lipper Growth Funds Average 8.23 19.24 Your fund, with its emphasis on blue chips, continued to post strong results. For the six months ended December 31, the Blue Chip Growth Fund 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 also outpaced both benchmarks by wide margins. YEAR-END DISTRIBUTIONS The fund's Directors declared an income dividend of $0.14 per share, a short-term capital gain distribution of $0.02, and a long-term capital gain of $0.06, payable December 30 to shareholders of record on December 26. Your check or statement reflecting the total distribution of $0.22 per share was mailed in early January, and Form 1099-DIV reporting the distributions for tax purposes was sent later in the month. The modest capital gain distributions reflect low turnover (buying and selling) of stocks in the fund, which enhances after-tax returns to investors who own the fund in a taxable account. MARKET ENVIRONMENT Following stellar gains in 1995, the U.S. stock market surprised many investors by moving steadily ahead throughout 1996. In fact, the S&P 500's returns of over 37% in 1995 and nearly 23% in 1996 represent one of the best back-to-back advances on record. While we are pleased that your fund excelled in this environment (outpacing the S&P 500 in both years), the market faces significant challenges in the months and years ahead. However, we are cautiously optimistic that many of the positive factors underlying the market will remain in place, namely subdued inflation and interest rates, steady mutual fund inflows, and sustained corporate earnings growth. Long-term interest rates have begun to rise again, piercing 6.75% recently. In past letters, we warned that economic growth might be accelerating above the Federal Reserve's comfort level for keeping inflation at bay. While some data, including strong housing starts, support the possibility of an accelerating economy, other statistics, including those on retail sales, suggest more subdued growth. In our report six months ago, we expressed some concern over the potential inflationary effects of poor grain harvests and rising energy prices. Fortunately, the U.S. grain crop appears to have been strong. Unfortunately, energy prices have been less cooperative, with crude oil rising stubbornly above $25 a barrel and natural gas prices spiking up dramatically. This increase in energy prices must be carefully monitored for its impact on inflation, interest rates, and economic growth. The inconsistent economies of many of our key trading partners is another risk to corporate earnings and the stock market. Japan's economy continues to stagnate under the weight of a sharp decline in real estate and stock market values. Several European economies, including Germany, are also still struggling. These key countries must grow more consistently to provide the foreign demand needed to support strong earnings growth at some U.S. multinationals. On the other hand, a strong, synchronized boom in major world economies would probably put pressure on inflation, interest rates, and, ultimately, stock valuations. PORTFOLIO REVIEW Although your fund has less exposure to the technology sector than the average growth fund, our holdings in this sector performed well. IBM, Intel, Cisco Systems, 3Com, Microsoft, and BMC Software were strong throughout the year, and several posted stellar gains in the second half. We bought many of these stocks (particularly IBM) when they were out of favor. Financial stocks enjoyed another strong year as investors again focused on companies with consistent earnings growth and strong capital generation (funding significant share repurchases). Travelers Group, Freddie Mac, Chase Manhattan, Norwest, Citicorp, and Mellon Bank each generated meaningful contributions to performance. Consumer products stocks continued to play a strong role in the fund's performance. Pfizer, SmithKline Beecham, Procter & Gamble, Philip Morris, Kimberly-Clark, Heinz, and Merck are long-term holdings that have maintained strong earnings progress. Medtronic and Boston Scientific, leading makers of products for cardiovascular applications and other medical procedures, posted powerful earnings gains and strong stock performance. Interstate Bakeries, the top producer of baked goods in the U.S., including the Wonderbread and Hostess brands, has appreciated over 50% since we purchased the stock in the third quarter. Consumer products stocks continued to play a strong role. . . Manufacturing stocks were steady performers, including GE, AlliedSignal, Danaher, Corning, DuPont, and Honeywell. Energy stocks also made notable contributions to the fund, particularly British Petroleum, Cooper Cameron, and Schlumberger. Each appreciated sharply in the second half as rising energy prices and better cost management sparked improved profitability. We also found some sound investments in the struggling retail sector, getting good results from drug-store holdings Revco and Eckerd. Eckerd's stock price received an additional boost with the recent announcement of its acquisition by J.C. Penney. Supermarket giant Safeway also contributed significantly to performance. As always, some of our holdings were disappointing, including our relatively small position in AT&T as the company's earnings suffered from intense competition in the long distance telephone market. Although we bought more shares after the stock declined sharply, our position remains very modest. We are looking for more evidence that AT&T's new management can implement the strategy needed to deal with heightened competition. Longtime holding PepsiCo also stumbled badly when its South American beverage division experienced significant operating and financial problems. Contrary to our usual strategy of buying more shares of good companies when bad news drives down their stock prices, we did not initially add to our position in PepsiCo. Recently, after meeting with the company, we have become somewhat more confident that it can solve its problems and have begun to purchase shares opportunistically. Great Lakes Chemical continues to be a vexing holding. Profitability has deteriorated in several business lines. However, the company remains solidly profitable overall and is buying back stock aggressively. We will meet with management in the next several weeks and decide whether we want to add to our modest position. STRATEGY Our philosophy is to maintain positions in core holdings as long as the fundamentals remain strong and the valuations are reasonable. Consequently, much of the substantial cash flow the fund has received continues to be invested in existing holdings. For example, additions to Mobil, AlliedSignal, ACE Limited, and Merck were significant enough to be included in the fund's ten largest purchases for the past six months (as shown in the table following this letter). However, we did add some new positions. Crown Cork & Seal, a leading packaging company with a reputation for quality and tight cost control, recently purchased Carnaud, a major European firm that specializes in beverage, food, and pharmaceutical packaging. Crown Cork has moved quickly and efficiently to assimilate Carnaud and pay down debt. While the packaging business is very competitive, we believe the company is well positioned to generate strong earnings and cash flow gains. Chart 1 - Sector Diversification Mid Ocean Limited is a high-quality, Bermuda-based reinsurer with consistently strong earnings and cash flow growth. Manage-ment's confidence in the strength of the business was underscored by a recent dividend increase of more than 80%. The stock now yields well over 5%, more than twice the overall stock market level. Warnaco Group is a leading maker of women's and men's garments. Its Olga and Warner bras have been profitable brands for many years, and its Calvin Klein and Chaps by Ralph Lauren product lines are also selling well. Warnaco generates strong cash flow and recently announced a major repurchase of shares. It remains to be seen whether this enhances shareholder value. Travelers/Aetna is a leading property casualty company spun off from Travelers (which retains majority ownership). Travelers/Aetna has a unique opportunity to attain more market share by leveraging its strong position with Fortune 500 companies and by acquiring competitors. We have been impressed in the past by management's rapid improvement in the Travelers insurance businesses, and it is well ahead of key milestones in integrating Aetna's property and casualty operations. H & R Block, a highly profitable tax and information processing company, has been hampered by problems at Compuserve, its on-line data services business. Management has taken strong action to stem losses at Compuserve and will probably sell the business. The tax operations are generating very profitable growth, and management has launched several new products and services (including financial planning) that are showing promising results. Stock valuations remain expensive. . . Among our largest sales over the last six months, we eliminated our position in Atlantic Richfield after it hit our price target, redeploying the proceeds into British Petroleum and Mobil. We also pared our holding in Ceridian, the nation's second-largest payroll processor, due to a slowdown in one of its key businesses, information processing for the gaming industry. OUTLOOK Stock valuations remain expensive, particularly as evidenced by the historically low dividend yield on the S&P 500. We are also wary because the market and your fund have generated strong results for two consecutive years. However, sound investing must be driven by the outlook for the general investment environment and future company earnings. We believe the outlook remains favorable for several reasons: o As noted in the midyear report, the threat of inflation and interest rate hikes are real but should be kept in perspective. Data suggests that the economy is still growing at a moderate pace. Equally important, the market's expectations for at least a moderate increase in inflation are now perhaps more realistic. o Earnings growth continues to be very strong at many blue chip U.S. companies, and the valuations of selected companies remain reasonable. o We are particularly impressed by the high-caliber, entrepreneurial management at many of our holdings. Through careful control of costs and proper employee incentives, many of these management teams have improved the competitiveness of their companies as well as the predictability of their earnings. o Many of our holdings generate significant amounts of free cash flow. Top-flight management can be trusted to use this cash to repurchase shares or make prudent acquisitions, both of which may enhance shareholder value over time. We continue to target "all season" growth companies, those capable of sustained earnings increases regardless of the economic or interest rate environment. As always, we strive to find blue chip companies with leading market positions, seasoned managements, and strong financial fundamentals. We appreciate your continued confidence and also want to welcome our new shareholders. Respectfully submitted, Larry J. Puglia President and Chairman of the Investment Advisory Committee Thomas H. Broadus, Jr. Executive Vice President January 20, 1997 Sticking To Your Game Plan Chart 2 - Time Reduces Volatility of Market Returns In our report to you one year ago, we mentioned the possibility of a modest decline in stock prices. In fact, from May to July 1996, the broad market (as measured by the Standard & Poor's 500 Stock Index) fell around 7%. However, the bull market resumed its charge to post a robust 23% gain for the year. Some believe the market is poised for a significant downturn. We do not expect a major drop in stock prices in 1997, although another modest pullback is possible. On balance, we expect stocks to advance at a much slower pace. How should you prepare for a potential market pullback? As always, our advice is to diversify your investments and focus on the long term. If you've implemented a sound investment strategy, stay the course. Stocks have historically overcome periods of volatility to provide better returns than most other investments. Market corrections can even have a silver lining because they result in good buying opportunities. Furthermore, the volatility of stock market returns has diminished significantly over longer time frames. The chart shows the best and worst annualized returns on stocks over various rolling time periods between 1950 and 1996. (For instance, there were 37 rolling 10-year periods: 1950-1960, 1951-1961, etc.) Investors who held stocks for only one year could have had as much as a 52.6% gain, or as little as a 26.5% loss - a spread of 79 percentage points. However, investors who held stocks for 10-year periods or longer always overcame interim volatility to post gains for the entire period. In addition, a well-diversified portfolio can weather volatility better than a more concentrated portfolio over the long term and particularly during market corrections. For example, during last summer's correction, small-company stocks fell nearly 16% while large-company issues dropped 7.3%. However, a portfolio diversified among large U.S. companies (30% of assets), small U.S. companies (15%), foreign companies (15%), intermediate-term Treasury bonds (30%), and Treasury bills (10%) would have lost a smaller 5.2% of its value.1 Above all, remember that investing is a long-distance race, not a sprint. 1 Ned Davis Research. T. Rowe Price Blue Chip Growth Fund Portfolio Highlights TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 12/31/96 ___________________________________________________________ Freddie Mac 1.4% AlliedSignal 1.3 ACE Limited 1.2 Travelers Group 1.2 Pfizer 1.2 ___________________________________________________________ GE 1.2 Philip Morris 1.1 Danaher 1.1 Mellon Bank 1.1 Corning 1.1 ___________________________________________________________ Mobil 1.1 British Petroleum 1.0 Kimberly-Clark 1.0 First Data 1.0 Chase Manhattan 1.0 ___________________________________________________________ Norwest 1.0 Hubbell 1.0 BMC Software 1.0 Johnson & Johnson 1.0 Crown Cork & Seal 1.0 ___________________________________________________________ IBM 1.0 Columbia/HCA Healthcare 0.9 Merck 0.9 Mid Ocean Limited 0.9 Teleflex 0.9 ___________________________________________________________ Total 26.6% T. Rowe Price Blue Chip Growth Fund Portfolio Highlights MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 12/31/1996 Ten Largest Purchases _______________________ Crown Cork & Seal* Mid Ocean Limited* Safeway* Mobil Warnaco Group* AlliedSignal ACE Limited Merck Travelers/Aetna Property Casualty* H&R Block* Ten Largest Sales _______________________ Atlantic Richfield** Eckerd Ceridian Millipore Smith International** Olsten** Xerox** Associates First Capital** Union Carbide** Hercules** * 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 a broad-based average or index. The index return does not reflect expenses, which have been deducted from the fund's return. Chart 3 - Performance Comparison 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 12/31/96 1 Year 3 Years Inception Date _____________________________________________________________ Blue Chip Growth Fund 27.75% 21.10% 22.41% 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. T. Rowe Price Blue Chip Growth Fund Financial Highlights For a share outstanding throughout each period Year 6/30/93 Ended to 12/31/96 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 0.14 0.16* 0.12* 0.05* Net realized and unrealized gain (loss) 4.05 4.05 (0.03) 1.38 Total from investment activities 4.19 4.21 0.09 1.43 Distributions Net investment income (0.14) (0.15) (0.10) (0.05) Net realized gain (0.08) (0.08) (0.12) (0.14) Total distributions (0.22) (0.23) (0.22) (0.19) NET ASSET VALUE End of period $ 19.06 $ 15.09 $ 11.11 $ 11.24 ______________________________________ Ratios/Supplemental Data Total return 27.75% 37.90%* 0.80%* 14.32%* Ratio of expenses to average net assets 1.12% 1.25%* 1.25%* 1.25%*! Ratio of net investment income to average net assets 0.87% 1.27%* 1.05%* 0.80%*! Portfolio turnover rate 26.3% 38.1% 75.0% 89.0%! Average commission rate paid $ 0.0884 - - - Net assets, end of period (in thousands) $539,674 $146,454 $38,978 $24,651 * 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. T. Rowe Price Blue Chip Growth Fund December 31, 1996 T. Rowe Price Blue Chip Growth Fund Statement of Net Assets Shares/Par Value In thousands Common Stocks 89.8% FINANCIAL 19.6% Bank and Trust 6.5% BANC ONE 44,000 $ 1,892 Bank of Boston 40,000 2,570 Chase Manhattan 61,000 5,444 Citicorp 45,000 4,635 KeyCorp 31,000 1,566 Mellon Bank 82,000 5,822 NationsBank 34,000 3,323 Northern Trust 50,000 1,816 Norwest 125,000 5,437 Wells Fargo 10,000 2,698 35,203 Insurance 5.2% ACE Limited 110,000 6,614 American International Group 25,000 2,706 Mid Ocean Limited 95,000 4,987 PMI Group 55,000 3,046 Travelers/Aetna Property Casualty (Class A) 120,000 4,245 UNUM 52,000 3,757 W. R. Berkley 50,000 2,553 27,908 Financial Services 7.9% Aames Financial 75,000 2,691 ADVANTA (Class B) 25,000 1,020 American Express 82,000 4,633 Fannie Mae 120,000 4,470 Freddie Mac 68,000 7,489 Green Tree Financial 55,000 2,124 H&R Block 125,000 3,625 Household International 25,000 2,306 Money Store 110,000 3,053 Sallie Mae 48,000 4,470 Travelers Group 144,333 6,549 42,430 Total Financial 105,541 UTILITIES 1.8% Telephone Services 1.8% ALLTEL 80,000 $ 2,510 AT&T 55,000 2,393 SBC Communications 91,000 4,709 Total Utilities 9,612 CONSUMER NONDURABLES 20.3% Beverages 0.7% Coca-Cola 16,000 842 PepsiCo 100,000 2,925 3,767 Food Processing 3.8% General Mills 28,000 1,775 Heinz 100,000 3,575 Interstate Bakeries 70,000 3,439 McCormick 100,000 2,356 Nabisco Holdings (Class A) 75,000 2,916 Ralston Purina 35,000 2,568 Sara Lee 110,000 4,097 20,726 Hospital Supplies/Hospital Management 3.2% Boston Scientific * 67,000 4,020 Columbia/HCA Healthcare 125,000 5,094 Medtronic 50,000 3,400 Millipore 25,000 1,034 Vencor * 110,000 3,479 17,027 Pharmaceuticals 6.7% American Home Products 65,000 3,811 Amgen * 40,000 2,177 Eli Lilly 35,000 2,555 Johnson & Johnson 107,000 5,323 Merck 64,000 5,072 Pfizer 79,000 6,547 Schering-Plough 52,000 3,367 SmithKline Beecham ADR 66,000 4,488 Warner-Lambert 38,000 $ 2,850 36,190 Health Care Services 1.4% Apria Healthcare * 100,000 1,875 PacifiCare Health Systems (Class B) * 42,000 3,575 United HealthCare 50,000 2,250 7,700 Miscellaneous Consumer Products 4.5% Colgate-Palmolive 10,000 922 CUC International * 120,000 2,850 Jones Apparel Group * 85,000 3,177 Newell 100,000 3,150 Philip Morris 54,000 6,082 Procter & Gamble 40,000 4,300 Richfood Holdings 154,600 3,749 24,230 Total Consumer Nondurables 109,640 CONSUMER SERVICES 10.4% General Merchandisers 0.9% Warnaco Group (Class A) 155,000 4,592 4,592 Specialty Merchandisers 5.6% American Stores 65,000 2,657 Circuit City Stores 25,000 753 Eckerd * 15,646 501 Federated Department Stores * 110,000 3,754 General Nutrition * 160,000 2,720 Home Depot 50,000 2,506 Kohl's * 75,000 2,944 Revco * 110,000 4,070 Safeway * 110,000 4,702 Staples * 75,000 1,355 Tupperware 82,000 4,397 30,359 Entertainment and Leisure 2.6% Carnival (Class A) 100,000 3,300 Disney 70,000 4,874 ITT * 47,000 $ 2,038 McDonald's 85,000 3,846 14,058 Media and Communications 1.3% Catalina Marketing * 37,000 2,040 Time Warner 67,000 2,512 Vodafone ADR 60,000 2,483 7,035 Total Consumer Services 56,044 CONSUMER CYCLICALS 2.5% Automobiles and Related 0.2% Lear * 25,000 853 853 Miscellaneous Consumer Durables 2.3% Corning 125,000 5,781 Eastman Kodak 55,000 4,414 Masco 65,000 2,340 12,535 Total Consumer Cyclicals 13,388 TECHNOLOGY 9.1% Electronic Components 1.8% Intel 33,000 4,321 Linear Technology 27,000 1,184 Maxim Integrated Products * 55,000 2,382 Xilinx * 55,000 2,025 9,912 Electronic Systems 1.5% ADT* 150,000 3,431 Hewlett-Packard 31,000 1,558 Honeywell 47,000 3,090 8,079 Information Processing 0.9% IBM 34,000 5,134 5,134 Office Automation 0.3% Ceridian * 40,000 $ 1,620 1,620 Specialized Computer 0.2% Silicon Graphics * 50,000 1,275 1,275 Telecommunications Equipment 2.4% 3Com * 59,000 4,326 Cisco Systems * 54,000 3,439 LM Ericsson (Class B) ADR 55,000 1,660 MCI 100,000 3,269 12,694 Aerospace and Defense 2.0% AlliedSignal 104,000 6,968 Lockheed Martin 40,000 3,660 10,628 Total Technology 49,342 CAPITAL EQUIPMENT 5.4% Electrical Equipment 3.4% Emerson Electric 33,000 3,193 GE 66,000 6,526 Hubbell (Class B) 125,000 5,406 Tyco International 64,000 3,384 18,509 Machinery 2.0% Danaher 125,000 5,828 Teleflex 95,000 4,952 10,780 Total Capital Equipment 29,289 BUSINESS SERVICES AND TRANSPORTATION 9.3% Computer Service and Software 6.9% Adobe Systems 40,000 1,498 Ascend Communications * 27,000 1,677 Automatic Data Processing 79,000 3,387 BMC Software * 130,000 $ 5,403 Electronic Data Systems 58,000 2,509 First Data 150,506 5,493 Informix * 65,000 1,328 Microsoft * 32,000 2,646 National Data 55,000 2,393 Oracle * 70,000 2,918 Reynolds & Reynolds 120,000 3,120 SunGard Data Systems * 79,000 3,150 Synopsys * 40,000 1,840 37,362 Distribution Services 0.9% Alco Standard 87,000 4,492 4,492 Environmental 0.4% USA Waste Services * 70,000 2,231 2,231 Miscellaneous Business Services 0.5% Wallace Computer 75,000 2,588 2,588 Railroads 0.6% Burlington Northern Santa Fe 38,000 3,282 3,282 Total Business Services and Transportation 49,955 ENERGY 3.7% Energy Services 1.5% BJ Services * 50,000 2,550 Halliburton 64,000 3,856 Schlumberger 19,000 1,897 8,303 Integrated Petroleum - Domestic 1.1% British Petroleum ADR 40,000 5,655 5,655 Integrated Petroleum - International 1.1% Mobil 47,000 5,746 5,746 Total Energy 19,704 PROCESS INDUSTRIES 3.0% Diversified Chemicals 0.7% DuPont 40,000 $ 3,775 3,775 Specialty Chemicals 1.0% A. Schulman 100,000 2,463 Great Lakes Chemical 70,000 3,272 5,735 Paper and Paper Products 1.3% Kimberly-Clark 58,000 5,524 Willamette Industries 19,000 1,323 6,847 Total Process Industries 16,357 BASIC MATERIALS 1.6% Metals 0.3% Nucor 30,000 1,530 1,530 Mining 0.3% Newmont Mining 40,000 1,790 1,790 Miscellaneous Materials 1.0% Crown Cork & Seal 95,000 5,166 5,166 Total Basic Materials 8,486 Miscellaneous Common Stocks 3.1% 16,997 Total Common Stocks (Cost $399,175) 484,355 Short-Term Investments 10.7% Commercial Paper 10.3% Beta Finance, 4(2), 5.30%, 2/21/97 $ 4,000,000 3,970 BHF Finance (Delaware), 5.30%, 4/11/97 5,000,000 4,926 Ciesco, 5.35%, 2/12/97 5,000,000 4,969 Delaware Funding, 4(2), 5.33% - 5.35%, 2/7 - 2/28/97 9,425,000 9,361 Investments in Commercial Paper through a joint account 6.75% - 7.10%, 1/2/97 12,345,872 12,344 Island Finance Puerto Rico, 5.47%, 1/9/97 $ 5,000,000 $ 4,994 Kingdom of Sweden, 5.39%, 1/10/97 3,000,000 2,996 Korea Development Bank, 5.33%, 2/27/97 4,000,000 3,966 Merrill Lynch & Co., 5.34%, 1/24/97 3,000,000 2,990 Preferred Receivables Funding, 5.33%, 1/13/97 5,430,000 5,420 55,936 Medium-Term Notes 0.4% Morgan Stanley Group, VR, 5.656%, 1/31/97 2,000,000 2,001 2,001 Total Short-Term Investments (Cost $57,937) 57,937 Total Investments in Securities 100.5% of Net Assets (Cost $457,112) $ 542,292 Other Assets Less Liabilities (2,618) NET ASSETS $ 539,674 ____________ Net Assets Consist of: Accumulated net realized gain/ loss - net of distributions $ 1,810 Net unrealized gain (loss) 85,180 Paid-in-capital applicable to 28,309,556 shares of $0.0001 par value capital stock outstanding; 1,000,000,000 shares authorized 452,684 NET ASSETS $ 539,674 ____________ NET ASSET VALUE PER SHARE $ 19.06 ____________ * 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. T. Rowe Price Blue Chip Growth Fund Statement of Operations In thousands Year Ended 12/31/96 Investment Income Income Dividend $ 3,557 Interest 1,947 Total income 5,504 Expenses Investment management 1,924 Shareholder servicing 754 Registration 169 Custody and accounting 123 Prospectus and shareholder reports 51 Legal and audit 15 Directors 9 Miscellaneous 15 Reimbursed to Manager 30 Total expenses 3,090 Net investment income 2,414 Realized and Unrealized Gain (Loss) Net realized gain (loss) on securities 4,994 Change in net unrealized gain or loss on securities 62,004 Net realized and unrealized gain (loss) 66,998 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 69,412 ____________ The accompanying notes are an integral part of these financial statements. T. Rowe Price Blue Chip Growth Fund Statement of Changes in Net Assets In thousands Year Ended 12/31/96 12/31/95 Increase (Decrease) in Net Assets Operations Net investment income $ 2,414 $ 1,069 Net realized gain (loss) 4,994 1,484 Change in net unrealized gain or loss 62,004 22,108 Increase (decrease) in net assets from operations 69,412 24,661 Distributions to shareholders Net investment income (3,801) (1,428) Net realized gain (2,192) (761) Decrease in net assets from distributions (5,993) (2,189) Capital share transactions* Shares sold 423,555 117,768 Distributions reinvested 5,800 2,073 Shares redeemed (101,053) (35,383) Increase (decrease) in net assets from capital share transactions 328,302 84,458 Net equalization 1,499 546 Net Assets Increase (decrease) during period 393,220 107,476 Beginning of period 146,454 38,978 End of period $ 539,674 $ 146,454 ________________________ *Share information Shares sold 24,262 8,666 Distributions reinvested 302 138 Shares redeemed (5,958) (2,609) Increase (decrease) in shares outstanding 18,606 6,195 The accompanying notes are an integral part of these financial statements. T. Rowe Price Blue Chip Growth Fund December 31, 1996 Notes to Financial Statements T. Rowe Price Blue Chip Growth Fund 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 and commenced operations on June 30, 1993. 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 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. Short-term debt securities are valued at their amortized cost which, when combined with accrued 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. Premiums and Discounts Premiums and discounts on debt securities are amortized for both financial reporting and tax purposes. 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 $358,851,000 and $65,252,000, respectively, for the year ended December 31, 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. In order for the fund's capital accounts and distributions to shareholders to reflect the tax character of certain transactions, the following reclassifications were made during the year ended December 31, 1996. The results of operations and net assets were not affected by the reclassifications. Undistributed net investment income $ (112,000) Undistributed net realized gain (1,376,000) Paid-in-capital 1,488,000 At December 31, 1996, the aggregate cost of investments for federal income tax and financial reporting purposes was $457,112,000, and net unrealized gain aggregated $85,180,000, of which $88,241,000 related to appreciated investments and $3,061,000 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 $276,000 was payable at December 31, 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 December 31, 1996, and for the year then ended, the effective annual group fee rate was 0.33%. 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 this and a previous agreement, $214,000 of unaccrued 1993-1995 fees and expenses were repaid during the year ended 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 $634,000 for the year ended December 31, 1996, of which $71,000 was payable at period-end. T. Rowe Price Blue Chip Growth Fund Report of Independent Accountants To the Board of Directors and Shareholders of T. Rowe Price Blue Chip Growth Fund, Inc. In our opinion, the accompanying statement of net assets and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of T. Rowe Price Blue Chip Growth Fund, Inc. (the "Fund") at December 31, 1996, and the results of its operations, the changes in its net assets and the financial highlights for each of the fiscal periods presented, in conformity with generally accepted accounting principles. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 1996 by correspondence with custodians and, where appropriate, the application of alternative auditing procedures for unsettled security transactions, provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP Baltimore, Maryland January 20, 1997 For yield, price, last transaction, current balance, or to conduct transactions, 24 hours, 7 days a week, call Tele*Access(registered trademark): 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 To open a Discount Brokerage account or obtain information, call: 1-800-638-5660 toll free Internet address: http://www.troweprice.com 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 of the T. Rowe Price Blue Chip Growth Fund. Investor Centers: 101 East Lombard St. Baltimore, MD 21202 T. Rowe Price Financial Center 10090 Red Run Blvd. Owings Mills, MD 21117 Farragut Square 900 17th Street, N.W. Washington, D.C. 20006 ARCO Tower 31st Floor 515 South Flower St. Los Angeles, CA 90071 4200 West Cypress St. 10th Floor Tampa, FL 33607 Invest With Confidence(registered trademark) T. Rowe Price T. Rowe Price Investment Services, Inc., Distributor. RPRTBCG 12/31/96 Chart 1 - Sector Diversification - A pie chart showing sector diversification on 12/31/96. Chart 2 - Time Reduces Volatility of Market Returns - An 8-bar chart showing best and worst annualized total returns of stocks for various rolling time periods between 1950 and 1996. Chart 3 - Performance Comparison - Sector Diversification pie chart showing Consumer Nondurables 20%, Financial 19%, Consumer Services/Consumer Cyclicals 14%, Business Services and Transportation 10%, Capital Equipment/Process Industries/Basic Materials 10%, Technology 10%, Reserves 10%, Energy and Utilities 7%. -----END PRIVACY-ENHANCED MESSAGE-----