-----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, T1i566StTvb0MUNqGImpx99Ya1HiuOzt2hcqa/HEsb8RRpPHpvtLnqaEmWUy5WKi 6UisVKbl6ce6oKcTBvB+Sg== 0000902259-98-000001.txt : 19980210 0000902259-98-000001.hdr.sgml : 19980210 ACCESSION NUMBER: 0000902259-98-000001 CONFORMED SUBMISSION TYPE: N-30D PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980209 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: SEC FILE NUMBER: 811-07059 FILM NUMBER: 98524797 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 - -------------------------------------------------------------------------------- T. Rowe Price - -------------------------------------------------------------------------------- Annual Report Blue Chip Growth Fund - -------------------------------------------------------------------------------- December 31, 1997 - -------------------------------------------------------------------------------- REPORT HIGHLIGHTS ================================================================================ BLUE CHIP GROWTH FUND * Steady economic growth and moderate inflation helped propel the U.S. stock market to significant gains, despite serious problems in several Asian economies. * The Blue Chip Growth Fund recorded strong gains of 10.46% for the six-month period and 27.56% for the full year, surpassing our peer group average but not the broad market. * Financials, telecommunications, and consumer-oriented stocks made substantial contributions to performance. * Fund purchases were focused on increasing existing positions. * Although valuations are high for many stocks, we continue to see favorable conditions in this market going forward. FELLOW SHAREHOLDERS Building on a potent performance in the first half of 1997, the U.S. stock market generated strong gains over the last six months as solid economic growth and restrained inflation and interest rates continued to provide a fertile backdrop. The market exhibited notable volatility, but this was not entirely unexpected considering that the Dow Jones Industrial Average has returned more than 20% for three years in a row (a record) and the S&P 500 has gained more than 100% over the last three years. ================================================================================ Performance Comparison - -------------------------------------------------------------------------------- Periods Ended 12/31/97 6 Months 12 Months - -------------------------------------------------------------------------------- Blue Chip Growth Fund 10.46% 27.56% S&P 500 10.58 33.36 Lipper Growth Funds Average 9.19 25.30 ================================================================================ In this favorable environment, your fund continued to perform well. For the 6-and 12-month periods ended December 31, the Blue Chip Growth Fund's returns of 10.46% and 27.56%, respectively, outperformed its peer group average and fell short of the unmanaged Standard & Poor's 500 Stock Index. Over the three years ended December 31, 1997, your fund's 124.72% gain outperformed its peer group's 97.08% return by a wide margin and approximated the S&P 500's total return of over 120% (a 31% compounded annual return). YEAR-END DISTRIBUTIONS Your fund's directors declared a year-end dividend of $0.12 per share and a long-term capital gain of $0.02 per share. These distributions were paid on December 30 to shareholders of record on December 26. You should already have received a check or statement reflecting these distributions, as well as your form 1099-DIV reporting them for tax purposes. MARKET ENVIRONMENT In 1997, the U.S. stock market again surprised investors with its consistent strength, while the domestic economy maintained an impressive blend of steady growth and low inflation. Interest rates, mutual fund inflows, and corporate earnings continued to be favorable. Long-term interest rates declined sharply in the second half (falling as low as 5.75% in early 1998). U.S. wholesale prices declined 1.2%, and consumer price gains were benign--even energy prices took a turn for the better, with crude oil recently falling well below $20 per barrel. While this data, along with global trends, may suggest a period of disinflation, corporate profits or stock prices in the U.S. might not suffer. Job growth is very solid with the unemployment rate at 4.7%. Retail sales ended the Christmas season on a strong note. Perhaps most important, U.S. companies continue to improve efficiency and lower costs in ways that could offset some of the pricing pressure. Not all the news was good in the last half of 1997, however. Mounting problems in several Asian economies caused some investors to question the underpinnings of the long economic expansion in the U.S. and the health of many of our trading partners. Specifically, currency devaluations and banking system problems in Korea, Indonesia, Malaysia, Thailand, the Philippines, and Japan caused a sharp slowdown in Asian economic growth and a reassessment of the stability and growth potential for all of Asia. Because some global blue chip companies cannot avoid these concerns, economic growth in the U.S. could be affected. Investors also fear that a general slowdown in economic activity and a flood of cheap imports (due to the devaluation of foreign currencies) could worsen deflation pressures in the U.S. Investors have been particularly concerned about the impact of the Asian challenges on the U.S. multinationals, which compose a significant part of your fund. While the severity and the ultimate effects should not be underestimated, we believe there are reasons to be constructive on the prospects for these companies: * Many multinationals in the pharmaceutical, telecommunications, financial services, and manufacturing sectors generate well below 10% of their earnings from Asian markets. Europe, an important market for many companies, appeared to improve in 1997. * Of the companies with significant exposure to Asia, many have focused their investments in China (which continued to show stability). Also, many U.S. companies are in industries that are somewhat insensitive to changes in economic activity. For example, PROCTER & GAMBLE and KIMBERLY-CLARK do not expect significant changes in demand for personal care products. * Many U.S. multinationals have manufacturing operations in Asia. Thus, they may experience a decline in costs as these economies devalue currencies and prices fall. For example, many technology companies buy and assemble a significant number of components in the region. * U.S.-based financial companies had limited direct lending exposure to Asian economies. Even CITICORP, AMERICAN INTERNATIONAL GROUP, AMERICAN EXPRESS, and MORGAN STANLEY DEAN WITTER DISCOVER, which have meaningful operations in the region, believe that the current dislocation could allow them to take significant market share in certain Asian countries. PORTFOLIO REVIEW Financial stocks performed well as interest rates moderated and investors continued to focus on companies with consistent earnings growth and strong capital generation (which, in many cases, funded significant share repurchases). TRAVELERS GROUP, MELLON BANK, ACE LIMITED, NORWEST, FANNIE MAE, FREDDIE MAC, and U.S. BANCORP were each among the top contributors to performance in the second half and for all of 1997. American Express and SLM HOLDING also made sizable contributions in the first half and to a lesser extent in the second. Consumer products stocks continued to play a key role in the fund's performance. Pharmaceuticals were the standouts, with PFIZER being a top contributor throughout 1997. SCHERING-PLOUGH, BRISTOL-MYERS SQUIBB, ELI LILLY, SMITHKLINE BEECHAM, and MERCK each generated meaningful gains. Procter & Gamble, COLGATE-PALMOLIVE, and PHILIP MORRIS are long-term holdings that benefited fund performance. MEDTRONIC, the leading maker of cardiovascular devices, also did well. Consumer services stocks were among the strongest performers for the fund. In the entertainment area, CARNIVAL and DISNEY were standouts. Media giants TIME WARNER and US WEST MEDIA, with their significant cable interests, and TRIBUNE, with its newspaper and broadcasting operations, were also stellar holdings. In the retailing area, the fund scored solid gains with long-time holdings SAFEWAY, CVS, FEDERATED DEPARTMENT STORES, and HOME DEPOT. H&R BLOCK did very well as the company shed its troubled investment in Compuserve, and its tax preparation and financial consulting businesses thrived. Telecommunications stalwarts AT&T, SBC COMMUNICATIONS, and VODAFONE (a leading provider of international wireless communications services) rose sharply for the year, particularly in the second half. Your fund had less exposure to the technology sector than the average growth fund, but its holdings in this area held up well in a difficult period and added to fund gains. COMPAQ COMPUTER, CISCO SYSTEMS, BMC SOFTWARE, and IBM all benefited returns. [Sector Diversification Pie chart shown here with the following slices -- Business Services & Transportation, 10%; Capital Equipment/Process Industries/Basic Materials, 7%; Technology, 10%; Consumer Services/Consumer Cyclicals, 14%; Financial, 20%; Energy/Utilities, 7%; Consumer Nondurables, 22%; Reserves, 10%] As always, some stocks produced disappointing results. Because 1997 was a volatile year, investors were unusually unforgiving toward stocks with flawed fundamentals or weakened earnings. FIRST DATA, the leading provider of credit card servicing, was our largest loser. Margins contracted more than expected in its core business, and several ancillary businesses did not meet expectations. However, management exited one of these troubled businesses recently and appears to have brought earnings expectations into alignment with more moderate expectations. Although we have allowed this holding to shrink significantly as a percent of assets, we think it will perform reasonably well over time. CORNING, a big winner for the fund previously, pulled back sharply because of concerns regarding optical fiber pricing. Fortunately, we saw some of the problems before they were fully reflected in the stock price and reduced our position. We want more information reassuring us that fiber pricing and profit growth are in line with expectations before we rebuild this now-small position. VENCOR, the leader in acute hospital and nursing care, continued to struggle with Medicare reimbursement issues, and we eliminated it at prices approximately 25% above current levels. UNITED STATES SURGICAL declined as competitive conditions in its core business caused investors to avoid the stock. However, we are constructive on the company's new, innovative products, such as its dominant product offering for spinal care and its cardiovascular products. Therefore, we are cautiously adding to this position. STRATEGY Our investment strategy focuses on maintaining positions in core holdings as long as the fundamentals remain strong and valuations are reasonable. Consequently, much of the substantial cash flow the fund received was invested opportunistically in existing holdings. For example, additions to MICROSOFT, ALLIEDSIGNAL, UNITED HEALTHCARE, Merck, Safeway, and Travelers Group were significant enough to be included in the list of top-10 fund purchases for the past six months. However, we did establish some large new positions, none of which, we think, will be particularly affected by the developments in Asia. Bristol-Myers Squibb has rebuilt its product portfolio while also improving the efficiency of its operations. The company has a particularly strong cardiovascular product portfolio (including new potential blockbuster Avapro). As discussed, United States Surgical has developed some innovative, high margin products that could drive strong profit growth into the next century. FIRST UNION and U.S. Bancorp are both leading U.S. banking companies with top-tier efficiency, product offerings, and credit underwriting. OUTLOOK Stock valuations remain expensive by all conventional measures, particularly as evidenced by the historically low dividend yield on the S&P 500. We are also cautious because the market (and your fund) has generated strong results for several consecutive years, and the problems in Asia certainly have the potential to hurt earnings growth for select multinational companies. However, we realize that sound investing must be driven by the outlook for the general investment environment, future company earnings, and careful selection of stocks. Considering these factors, we believe the outlook for U.S. stocks and your fund remains favorable: * Inflation and interest rate trends are positive. Despite the concerns regarding an economic slowdown and problematic deflation, economic data support the thesis that the economy is growing at a moderate pace. * Earnings growth is very strong at many high-quality U.S. companies, and the valuations of selected companies remain reasonable. * Top-notch, entrepreneurial management and sound business models have been the hallmarks of many of our holdings. Through careful management of costs and proper incentives, these management teams improved the competitiveness of their businesses as well as the durability and predictability of earnings. * Many of our holdings have generated significant amounts of free cash flow. Shareholder-oriented management can be trusted to use this cash to repurchase shares or make acquisitions in a manner which often enhances stock performance over time. This may prove to be particularly advantageous if a challenging environment causes stock weakness, allowing opportunistic share repurchases or acquisitions. We invest your money with the knowledge that the stock market will not always go up. We believe we can enhance returns and lower risk over time by investing in all-season growth companies that can generate earnings growth regardless of the economic or interest rate environment, and by striving to buy such companies at reasonable valuations. As always, we seek out blue chip companies with leading market positions, seasoned management, and strong financial fundamentals because we believe they will provide superior investment results over time. We appreciate your continued support in this endeavor. Respectfully submitted, /s/ Larry J. Puglia President and Chairman of the Investment Advisory Committee /s/ Thomas H. Broadus, Jr. Executive Vice President January 22, 1998 T. Rowe Price Blue Chip Growth Fund ================================================================================ Portfolio Highlights - -------------------------------------------------------------------------------- TWENTY-FIVE LARGEST HOLDINGS Percent of Net Assets 12/31/97 - -------------------------------------------------------------------------------- Travelers Group 1.4% AlliedSignal ................................................ 1.3 Merck ....................................................... 1.3 Fannie Mae .................................................. 1.2 Pfizer ...................................................... 1.2 - -------------------------------------------------------------------------------- Tyco International .......................................... 1.2 Mellon Bank ................................................. 1.1 Safeway ..................................................... 1.1 Freddie Mac ................................................. 1.1 Philip Morris ............................................... 1.1 - -------------------------------------------------------------------------------- SBC Communications .......................................... 1.1 ACE Limited ................................................. 1.1 GE .......................................................... 1.1 Disney ...................................................... 1.1 Cendant ..................................................... 1.0 - -------------------------------------------------------------------------------- Microsoft ................................................... 1.0 Norwest ..................................................... 1.0 American Express ............................................ 1.0 Citicorp .................................................... 1.0 Bristol-Myers Squibb ........................................ 1.0 - -------------------------------------------------------------------------------- Danaher ..................................................... 0.9 Travelers Property Casualty ................................. 0.9 Mobil ....................................................... 0.9 Chase Manhattan ............................................. 0.9 Sara Lee .................................................... 0.9 - -------------------------------------------------------------------------------- Total ....................................................... 26.9% ================================================================================ T. Rowe Price Blue Chip Growth Fund ================================================================================ Portfolio Highlights - -------------------------------------------------------------------------------- MAJOR PORTFOLIO CHANGES Listed in descending order of size 6 Months Ended 12/31/97 Ten Largest Purchases - -------------------------------------------------------------------------------- Bristol-Myers Squibb * United States Surgical * First Union * Microsoft U.S. Bancorp * AlliedSignal United HealthCare Merck Safeway Travelers Group Ten Largest Sales - -------------------------------------------------------------------------------- Altera ** 3Com ** Vencor ** Xilinx ** Columbia/HCA Healthcare ** Eastman Kodak ** Cincinnati Bell ** Money Store Corning American Stores * 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. [Blue Chip Growth Fund SEC graph shown here] ================================================================================ 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 12/31/97 1 Year 3 Years Inception Date - -------------------------------------------------------------------------------- Blue Chip Growth Fund 27.56% 30.98% 23.53% 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 ================================================================================ For a share outstanding throughout each period ==================================================================================================================================== Financial Highlights - ------------------------------------------------------------------------------------------------------------------------------------
Year 6/30/93 Ended Through 12/31/97 12/31/96 12/31/95 12/31/94 12/31/93 NET ASSET VALUE Beginning of period ........................ $ 19.06 $ 15.09 $ 11.11 $11.24 $10.00 Investment activities Net investment income .............. 0.13 0.14 0.16* 0.12* 0.05* Net realized and unrealized gain (loss) ............. 5.12 4.05 4.05 (0.03) 1.38 Total from investment activities .............. 5.25 4.19 4.21 0.09 1.43 Distributions Net investment income .............. (0.12) (0.14) (0.15) (0.10) (0.05) Net realized gain .................. (0.02) (0.08) (0.08) (0.12) (0.14) Total distributions ................ (0.14) (0.22) (0.23) (0.22) (0.19) NET ASSET VALUE End of period .............................. $ 24.17 $ 19.06 $ 15.09 $11.11 $11.24 Ratios/Supplemental Data Total return ............................... 27.56% 27.75% 37.90%* 0.80%* 14.32%* Ratio of expenses to average net assets ......................... 0.95% 1.12% 1.25%* 1.25%* 1.25%*+ Ratio of net investment income to average net assets ................................. 0.86% 0.87% 1.27%* 1.05%* 0.80%*+ Portfolio turnover rate .................... 23.7% 26.3% 38.1% 75.0% 89.0%+ Average commission rate paid .................................. $ 0.0537 $ 0.0544 - - - Net assets, end of period (in millions) .............................. $ 2,345 $ 540 $ 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. T. Rowe Price Blue Chip Growth Fund ================================================================================ December 31, 1997 ================================================================================ Portfolio of Investments - -------------------------------------------------------------------------------- Shares/Par Value In thousands Common Stocks 89.8% FINANCIAL 19.4% Bank and Trust 8.4% BANC ONE .............................................. 380,000 $ 20,639 BankBoston ............................................ 170,000 15,969 Chase Manhattan ....................................... 200,000 21,900 Citicorp .............................................. 182,000 23,012 First Union ........................................... 350,000 17,937 Mellon Bank ........................................... 444,000 26,917 Mercantile Bancorporation ............................. 89,000 5,473 NationsBank ........................................... 226,000 13,744 Norwest ............................................... 617,000 23,832 U.S. Bancorp .......................................... 178,000 19,925 Wells Fargo ........................................... 21,000 7,128 196,476 Insurance 4.2% ACE Limited ........................................... 266,000 25,669 American International Group .......................... 75,000 8,156 EXEL .................................................. 200,000 12,675 Mid Ocean Limited ..................................... 220,000 11,935 St. Paul Companies .................................... 127,000 10,422 Travelers Property Casualty (Class A) ................. 500,000 22,000 UNUM .................................................. 170,000 9,244 100,101 Financial Services 6.8% American Express ...................................... 266,000 23,740 Associates First Capital (Class A) .................... 25,000 1,778 Fannie Mae ............................................ 493,000 28,132 Freddie Mac ........................................... 625,000 26,211 Household International ............................... 137,000 17,476 Money Store ........................................... 100,000 2,100 Morgan Stanley Dean Witter Discover ................... 92,000 5,440 SLM Holding ........................................... 127,000 17,669 The CIT Group (Class A) * ............................. 100,000 3,225 Travelers Group ....................................... 617,499 33,268 159,039 Total Financial ....................................... 455,616 UTILITIES 2.2% Telephone Services 2.2% ALLTEL ................................................ 250,000 $ 10,265 AT&T .................................................. 275,000 16,844 SBC Communications .................................... 352,000 25,784 Total Utilities ....................................... 52,893 CONSUMER NONDURABLES 21.3% Cosmetics 0.1% Gillette ............................................. 37,000 3,716 3,716 Beverages 0.8% PepsiCo ............................................... 500,000 18,219 18,219 Food Processing 3.2% Cadbury Schweppes (GBP) ............................... 700,000 7,065 Dean Foods ............................................ 100,000 5,950 Heinz ................................................. 181,000 9,197 Hershey Foods ......................................... 124,000 7,680 Interstate Bakeries ................................... 140,000 5,232 Nabisco Holdings (Class A) ............................ 230,000 11,141 Ralston Purina ........................................ 100,000 9,294 Sara Lee .............................................. 370,000 20,836 76,395 Hospital Supplies/Hospital Management 3.3% Abbott Laboratories ................................... 127,000 8,327 Baxter International .................................. 100,000 5,044 Boston Scientific * ................................... 190,000 8,716 HealthSouth * ......................................... 460,000 12,765 Medtronic ............................................. 210,000 10,986 St. Jude Medical * .................................... 140,000 4,270 Tenet Healthcare * .................................... 355,000 11,759 United States Surgical ................................ 500,000 14,656 76,523 Pharmaceuticals 7.5% American Home Products ................................ 250,000 19,125 Bristol-Myers Squibb .................................. 241,000 22,805 Eli Lilly ............................................. 110,000 7,659 Johnson & Johnson ..................................... 304,000 20,026 Merck ................................................. 284,000 30,175 Pfizer ................................................ 370,000 27,588 Schering-Plough ....................................... 275,000 17,084 SmithKline Beecham ADR ................................ 280,000 14,402 Warner-Lambert ........................................ 130,000 16,120 174,984 Health Care Services 0.8% United HealthCare ..................................... 370,000 $ 18,384 18,384 Miscellaneous Consumer Products 5.6% Colgate-Palmolive ..................................... 232,000 17,052 Mattel ................................................ 465,000 17,321 Newell ................................................ 255,000 10,837 Philip Morris ......................................... 575,000 26,055 Procter & Gamble ...................................... 140,000 11,174 Service Corp. International ........................... 500,000 18,469 Stanley Works ......................................... 160,000 7,550 Textron ............................................... 118,000 7,375 Unifi ................................................. 271,000 11,026 Unilever N.V. ADR ..................................... 70,000 4,371 131,230 Total Consumer Nondurables ............................ 499,451 CONSUMER SERVICES 11.5% General Merchandisers 2.2% Dayton Hudson ......................................... 65,000 4,388 J.C. Penney ........................................... 100,000 6,031 Neiman-Marcus * ....................................... 300,000 9,075 Wal-Mart .............................................. 395,000 15,578 Warnaco Group (Class A) ............................... 500,000 15,687 50,759 Specialty Merchandisers 4.1% American Stores ....................................... 250,000 5,141 CVS ................................................... 304,262 19,492 Federated Department Stores * ......................... 275,000 11,842 General Nutrition * ................................... 350,000 11,878 Home Depot ............................................ 230,000 13,541 Kohl's * .............................................. 100,000 6,812 McKesson .............................................. 20,000 2,164 Safeway * ............................................. 420,000 26,565 97,435 Entertainment and Leisure 2.2% Carnival ADR (Class A) ................................ 347,000 19,215 Disney ................................................ 250,000 24,766 McDonald's ............................................ 150,000 7,162 51,143 Media and Communications 3.0% R.R. Donnelly ......................................... 100,000 $ 3,725 Time Warner ........................................... 295,000 18,290 Tribune ............................................... 310,000 19,298 U S WEST Media * ...................................... 370,000 10,684 Valassis Communications * ............................. 200,000 7,400 Vodafone ADR .......................................... 150,000 10,875 70,272 Total Consumer Services ............................... 269,609 CONSUMER CYCLICALS 2.6% Automobiles and Related 0.4% SPX ................................................... 130,000 8,970 8,970 Building and Real Estate 1.1% Patriot American Hospitality, REIT .................... 274,999 7,923 Starwood Lodging, REIT ................................ 300,400 17,386 25,309 Miscellaneous Consumer Durables 1.1% Corning ............................................... 170,000 6,311 Masco ................................................. 257,000 13,075 Sony ADR .............................................. 77,000 6,988 26,374 Total Consumer Cyclicals .............................. 60,653 TECHNOLOGY 10.1% Electronic Components 2.0% EMC * ................................................. 220,000 6,036 Intel ................................................. 200,000 14,044 Linear Technology ..................................... 133,000 7,656 Maxim Integrated Products * ........................... 266,000 9,194 Motorola .............................................. 150,000 8,559 45,489 Electronic Systems 1.7% Hewlett-Packard ....................................... 220,000 13,750 Honeywell ............................................. 226,000 15,481 KLA Instruments * ..................................... 82,000 3,165 Nokia ADR ............................................. 107,000 7,490 39,886 Information Processing 1.8% COMPAQ Computer ....................................... 280,000 15,802 Dell Computer * ....................................... 95,000 7,983 IBM ................................................... 181,000 18,926 42,711 Office Automation 0.3% Xerox ................................................. 100,000 $ 7,381 7,381 Specialized Computer 0.2% Sun Microsystems * .................................... 100,000 3,994 3,994 Telecommunications Equipment 2.0% Cisco Systems * ....................................... 315,000 17,581 Lucent Technologies ................................... 50,000 3,994 MCI ................................................... 375,000 16,066 WorldCom .............................................. 320,000 9,690 47,331 Aerospace and Defense 2.1% AlliedSignal .......................................... 790,700 30,788 Boeing ................................................ 75,000 3,670 Lockheed Martin ....................................... 127,000 12,510 Raytheon Company (Class B) ............................ 50,000 2,525 49,493 Total Technology ...................................... 236,285 CAPITAL EQUIPMENT 4.3% Electrical Equipment 2.7% GE .................................................... 338,000 24,801 Hubbell (Class B) ..................................... 200,000 9,863 Tyco International .................................... 610,784 27,523 62,187 Machinery 1.6% Danaher ............................................... 350,000 22,093 Teleflex .............................................. 425,000 16,044 38,137 Total Capital Equipment ............................... 100,324 BUSINESS SERVICES AND TRANSPORTATION 9.3% Computer Service and Software 5.3% Automatic Data Processing ............................. 304,000 18,658 BMC Software * ........................................ 280,000 18,358 First Data ............................................ 610,106 17,846 Galileo International ................................. 170,000 4,696 Microsoft * ........................................... 188,000 24,293 National Data ......................................... 100,000 3,613 Oracle * .............................................. 200,000 4,456 Parametric Technology * ............................... 266,000 12,585 SunGard Data Systems * ................................ 340,000 10,540 Synopsys * ............................................ 210,000 7,494 122,539 Distribution Services 0.3% JP Foodservice * ...................................... 200,620 $ 7,410 7,410 Environmental 0.5% USA Waste Services * .................................. 310,000 12,167 12,167 Miscellaneous Business Services 2.6% Cendant * ............................................. 710,825 24,435 Corporate Express * ................................... 315,650 4,074 H&R Block ............................................. 340,000 15,236 Omnicom ............................................... 274,000 11,611 Wallace Computer Services ............................. 140,000 5,442 60,798 Railroads 0.6% Burlington Northern Santa Fe .......................... 121,000 11,246 Norfolk Southern ...................................... 100,000 3,081 14,327 Total Business Services and Transportation ............ 217,241 ENERGY 4.4% Energy Services 1.5% BJ Services * ......................................... 92,000 6,618 Camco International ................................... 55,000 3,503 Cooper Cameron * ...................................... 200,000 12,200 Halliburton ........................................... 225,000 11,686 34,007 Integrated Petroleum-Domestic 1.6% Atlantic Richfield .................................... 150,000 12,019 British Petroleum ADR ................................. 181,000 14,423 USX-Marathon .......................................... 350,000 11,813 38,255 Integrated Petroleum - International 1.3% Mobil ................................................. 304,000 21,945 Texaco ................................................ 160,000 8,700 30,645 Total Energy .......................................... 102,907 PROCESS INDUSTRIES 2.3% Diversified Chemicals 1.0% DuPont ................................................ 150,000 9,009 Hercules .............................................. 176,000 8,811 Olin .................................................. 115,000 5,391 23,211 Specialty Chemicals 0.7% Great Lakes Chemical .................................. 235,000 $ 10,546 Sigma Aldrich ......................................... 150,000 5,944 16,490 Paper and Paper Products 0.6% Kimberly-Clark ........................................ 304,000 14,991 14,991 Total Process Industries .............................. 54,692 BASIC MATERIALS 0.6% Mining 0.3% Newmont Mining ........................................ 250,000 7,344 7,344 Miscellaneous Materials 0.3% Crown Cork & Seal ..................................... 140,000 7,017 7,017 Total Basic Materials 14,361 Total Miscellaneous Common Stocks 1.8% ............... 42,038 Total Common Stocks (Cost $1,717,306) ................ 2,106,070 Short-Term Investments 7.1% Medium-Term Notes 0.2% Morgan Stanley Group, VR 6.176%, 5/18/98 ..............$ 5,000,000 5,005 5,005 Money Market Funds 6.9% Reserve Investment Fund, 5.84%#+ 160,552,672 160,552 160,552 Total Short-Term Investments (Cost $165,557) ......... 165,557 Total Investments in Securities 96.9% of Net Assets (Cost $1,882,863) ................. $ 2,271,627 Other Assets Less Liabilities ......................... 72,928 NET ASSETS ............................................ $ 2,344,555 # Seven-day yield + Affiliated Company * Non-income producing ADR American Depository Receipt REIT Real Estate Investment Trust VR Variable rate GBP British sterling The accompanying notes are an integral part of these financial statements. T. Rowe Price Blue Chip Growth Fund ================================================================================ December 31, 1997 ================================================================================ Statement of Assets and Liabilities - -------------------------------------------------------------------------------- In thousands Assets Investments in securities, at value Affiliated companies (cost $160,552) .................. $ 160,552 Other companies (cost $1,722,311) ..................... 2,111,075 Total investments in securities ....................... 2,271,627 Other assets .................................................. 104,473 Total assets .................................................. 2,376,100 Liabilities Total liabilities ............................................. 31,545 NET ASSETS .................................................... $ 2,344,555 Net Assets Consist of: Accumulated net investment income - net of distributions ...... $ 793 Accumulated net realized gain/loss - net of distributions ..... (3,882) Net unrealized gain (loss) .................................... 388,764 Paid-in-capital applicable to 97,019,961 shares of $0.0001 par value capital stock outstanding; 1,000,000,000 shares authorized ............................... 1,958,880 NET ASSETS .................................................... $ 2,344,555 NET ASSET VALUE PER SHARE ..................................... $ 24.17 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 12/31/97 Investment Income Income Dividend ............................................... $ 16,317 Interest ............................................... 8,857 Total income ........................................... 25,174 Expenses Investment management .................................. 8,706 Shareholder servicing .................................. 3,509 Registration ........................................... 554 Prospectus and shareholder reports ..................... 235 Custody and accounting ................................. 162 Legal and audit ........................................ 14 Directors .............................................. 11 Miscellaneous .......................................... 28 Total expenses ......................................... 13,219 Net investment income .......................................... 11,955 Realized and Unrealized Gain (Loss) Net realized gain (loss) on Securities ............................................. (4,267) Futures ................................................ 385 Foreign currency transactions .......................... (18) Net realized gain (loss) ............................... (3,900) Change in net unrealized gain or loss .......................... 303,584 Net realized and unrealized gain (loss) on securities .......... 299,684 INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS ......................................... $ 311,639 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 12/31/97 12/31/96 Increase (Decrease) in Net Assets Operations Net investment income ...................................................... $ 11,955 $ 2,414 Net realized gain (loss) ................................................... (3,900) 4,994 Change in net unrealized gain or loss ...................................... 303,584 62,004 Increase (decrease) in net assets from operations .......................... 311,639 69,412 Distributions to shareholders Net investment income ...................................................... (11,113) (3,801) Net realized gain .......................................................... (1,852) (2,192) Decrease in net assets from distributions .................................. (12,965) (5,993) Capital share transactions * Shares sold ................................................................ 1,862,992 423,555 Distributions reinvested ................................................... 12,659 5,800 Shares redeemed ............................................................ (369,444) (101,053) Increase (decrease) in net assets from capital share transactions ......................................................... 1,506,207 328,302 Net equalization ................................................................... -- 1,499 Net Assets Increase (decrease) during period .................................................. 1,804,881 393,220 Beginning of period ................................................................ 539,674 146,454 End of period ...................................................................... $ 2,344,555 $ 539,674 *Share information Shares sold ................................................................ 85,107 24,262 Distributions reinvested ................................................... 535 302 Shares redeemed ............................................................ (16,932) (5,958) Increase (decrease) in shares outstanding .................................. 68,710 18,606
The accompanying notes are an integral part of these financial statements. T. Rowe Price Blue Chip Growth Fund ================================================================================ December 31, 1997 ================================================================================ NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES T. Rowe Price Blue Chip Growth Fund, Inc. (the fund) is registered under the Investment Company Act of 1940 as a diversified, open-end management investment company and commenced operations on June 30, 1993. The accompanying financial statements are prepared in accordance with generally accepted accounting principles for the investment company industry; these principles may require the use of estimates by fund management. VALUATION Equity securities listed or regularly traded on a securities exchange are valued at the last quoted sales price on the day 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 amortized cost which, when combined with accrued interest, approximates 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. For purposes of determining the fund's net asset value per share, the U.S. dollar value of all assets and liabilities initially expressed in foreign currencies is determined by using the mean of the bid and offer prices of such currencies against U.S. dollars quoted by a major bank. 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. AFFILIATED COMPANIES As defined by the Investment Company Act of 1940, an affiliated company is one in which the fund owns at least 5% of the outstanding voting securities. CURRENCY TRANSLATION Assets and liabilities are translated into U.S. dollars at the prevailing exchange rate at the end of the reporting period. Purchases and sales of securities and 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. 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. Effective January 1, 1997, the fund discontinued its practice of equalization. The results of operations and net assets were not affected by this change. NOTE 2 - INVESTMENT TRANSACTIONS Purchases and sales of portfolio securities, other than short-term securities, aggregated $1,616,244,000 and $293,845,000, respectively, for the year ended December 31, 1997. 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. The fund has unused realized capital loss carryforwards for federal income tax purposes of $2,275,000, which expire in 2005. The fund intends to retain gains realized in future periods that may be offset by available capital loss carryforwards. 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, 1997. The results of operations and net assets were not affected by the increases/(decreases) to these accounts. ================================================================================ Undistributed net investment income $(49,000) Undistributed net realized gain 60,000 Paid-in-capital (11,000) - -------------------------------------------------------------------------------- At December 31, 1997, the aggregate cost of investments for federal income tax and financial reporting purposes was $1,882,863,000, and net unrealized gain aggregated $388,764,000, of which $412,386,000 related to appreciated investments and $23,622,000 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 $1,165,000 was payable at December 31, 1997. 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 0.30% for assets in excess of $80 billion. The effective annual group fee rate was 0.32% at December 31, 1997, and 0.33% for the year then ended. The fund pays a pro-rata share of the group fee based on the ratio of its net assets to those of the group. 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. (TRPS) 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 $2,721,000 for the year ended December 31, 1997, of which $278,000 was payable at period-end. Additionally, the fund is one of several T. Rowe Price-sponsored mutual funds (underlying funds) in which the T. Rowe Price Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the underlying funds for the purpose of exercising management or control. Expenses associated with the operation of Spectrum are borne by each underlying fund to the extent of estimated savings to it and in proportion to the average daily value of its shares owned by Spectrum, pursuant to special servicing agreements between and among Spectrum, the underlying funds, T. Rowe Price, and, in the case of T. Rowe Price Spectrum International, Rowe Price-Fleming International. Spectrum Growth Fund held approximately 13.0% of the outstanding shares of the Blue Chip Growth Fund at December 31, 1997. For the year then ended, the fund was allocated $118,000 of Spectrum expenses. The fund may invest in the Reserve Investment Fund and Government Reserve Investment Fund (collectively, the Reserve Funds), open-end management investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds are offered as cash management options only to mutual funds and other accounts managed by T. Rowe Price and 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 year ended December 31, 1997, totaled $3,187,000 and are reflected as interest income in the accompanying Statement of Operations. 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 assets and liabilities, including the portfolio of investments, 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, 1997, 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, 1997 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 21, 1998 T. Rowe Price Blue Chip Growth Fund ================================================================================ Tax Information (Unaudited) for the Tax Year Ended 12/31/97 - -------------------------------------------------------------------------------- We are providing this information as required by the Internal Revenue Code. The amounts shown may differ from those elsewhere in this report because of differences between tax and financial reporting requirements. The fund's distributions to shareholders included: * $1,623,000 from long-term capital gains; of which $1,623,000 was subject to the 28% rate gains category. For corporate shareholders, 100% of the fund's distributed income qualified for the dividends-received deduction. - -------------------------------------------------------------------------------- T. Rowe Price Shareholder Services ================================================================================ INVESTMENT SERVICES AND INFORMATION KNOWLEDGEABLE SERVICE REPRESENTATIVES BY PHONE 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET. IN PERSON Available in T. Rowe Price Investor Centers. ACCOUNT SERVICES CHECKING Available on most fixed income funds ($500 minimum). AUTOMATIC INVESTING From your bank account or paycheck. AUTOMATIC WITHDRAWAL Scheduled, automatic redemptions. DISTRIBUTION OPTIONS Reinvest all, some, or none of your distributions. AUTOMATED 24-HOUR SERVICES Including Tele*AccessRegistration Mark and T. Rowe Price OnLine. DISCOUNT BROKERAGE* INDIVIDUAL INVESTMENTS Stocks, bonds, options, precious metals, and other securities at a savings over regular commission rates. INVESTMENT INFORMATION COMBINED STATEMENT Overview of your T. Rowe Price accounts. SHAREHOLDER REPORTS Fund managers' reviews of their strategies and results. T. ROWE PRICE REPORT Quarterly investment newsletter discussing markets and financial strategies. PERFORMANCE UPDATE Quarterly review of all T. Rowe Price fund results. INSIGHTS Educational reports on investment strategies and financial markets. INVESTMENT GUIDES Asset Mix Worksheet, College Planning Kit, Diversifying Overseas: A Guide to International Investing, Personal Strategy Planner, Retirees Financial Guide, and Retirement Planning Kit. * A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC. T. Rowe Price Mutual Funds ================================================================================ STOCK FUNDS - -------------------------------------------------------------------------------- DOMESTIC Blue Chip Growth Capital Appreciation Capital Opportunity Diversified Small-Cap Growth Dividend Growth Equity Income Equity Index 500 Extended Equity Market Index Financial Services Growth & Income Growth Stock Health Sciences Media & Telecommunications* Mid-Cap Growth Mid-Cap Value New America Growth New Era New Horizons** Real Estate Science & Technology Small-Cap Stock Small-Cap Value** Spectrum Growth Total Equity Market Index Value INTERNATIONAL/GLOBAL Emerging Markets Stock European Stock Global Stock International Discovery International Stock Japan Latin America New Asia Spectrum International BOND FUNDS - -------------------------------------------------------------------------------- DOMESTIC TAXABLE Corporate Income GNMA High Yield New Income Short-Term Bond Short-Term U.S. Government Spectrum Income Summit GNMA Summit Limited-Term Bond U.S. Treasury Intermediate U.S. Treasury Long-Term DOMESTIC TAX-FREE California Tax-Free Bond Florida Insured Intermediate Tax-Free Georgia Tax-Free Bond Maryland Short-Term Tax-Free Bond Maryland Tax-Free Bond New Jersey Tax-Free Bond New York Tax-Free Bond Summit Municipal Income Summit Municipal Intermediate Tax-Free High Yield Tax-Free Income Tax-Free Insured Intermediate Bond Tax-Free Short-Intermediate Virginia Short-Term Tax-Free Bond Virginia Tax-Free Bond INTERNATIONAL/GLOBAL Emerging Markets Bond Global Government Bond International Bond MONEY MARKET FUNDS - -------------------------------------------------------------------------------- TAXABLE Prime Reserve Summit Cash Reserves U.S. Treasury Money TAX-FREE California Tax-Free Money New York Tax-Free Money Summit Municipal Money Market Tax-Exempt Money BLENDED ASSET FUNDS - -------------------------------------------------------------------------------- Balanced Personal Strategy Balanced Personal Strategy Growth Personal Strategy Income Tax-Efficient Balanced T. ROWE PRICE NO-LOAD VARIABLE ANNUITY - -------------------------------------------------------------------------------- Equity Income Portfolio International Stock Portfolio Limited-Term Bond Portfolio Mid-Cap Growth Portfolio New America Growth Portfolio Personal Strategy Balanced Portfolio Prime Reserve Portfolio * Formerly the closed-end New Age Media Fund. Converted to open-end status on 7/28/97. ** Closed to new investors. Please call for a prospectus. Read it carefully before you invest or send money. The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by First Security Benefit Life Insurance Company of New York, White Plains, NY. T. Rowe Price refers to the underlying portfolios' investment managers and the distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security Benefit Group of Companies and the T. Rowe Price companies are not affiliated. The variable annuity may not be available in all states. The contract has limitations. Call a representative for costs and complete details of the coverage. FOR YIELD, PRICE, LAST TRANSACTION, CURRENT BALANCE, OR TO CONDUCT TRANSACTIONS, 24 HOURS, 7 DAYS A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]: 1-800-638-2587 toll free FOR ASSISTANCE WITH YOUR EXISTING FUND ACCOUNT, CALL: Shareholder Service Center 1-800-225-5132 toll free 410-625-6500 Baltimore area TO OPEN A DISCOUNT BROKERAGE ACCOUNT OR OBTAIN INFORMATION, CALL: 1-800-638-5660 toll free INTERNET ADDRESS: 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 T. Rowe Price Investment Services, Inc., Distributor. F93-050 12/31/97 -----END PRIVACY-ENHANCED MESSAGE-----