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%.
