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T. Rowe Price
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Annual Report
Blue Chip Growth Fund
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December 31, 1998
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REPORT HIGHLIGHTS
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Blue Chip Growth Fund
* Although global crises prompted significant volatility, blue chip U.S.
companies ended 1998 with strong gains.
* For the 6- and 12-month periods, the Blue Chip Growth Fund provided a
strong absolute return, outperform-ing its peer group and the S&P 500.
* Technology, telecommunications, and pharmaceutical stocks were top
performers, although we achieved gains in many sectors.
* We are concerned by stock valuations, but believe the environment is still
favorable for high-quality companies with durable growth.
<PAGE>
Fellow Shareholders
Stock markets faced numerous challenges in 1998, including economic crises
in Asia, Latin America, and Russia, the disruption of several key financial
markets by hedge fund activity, and the impeachment of President Clinton.
However, the U.S. stock market came roaring back from a substantial midyear
correction to post solid gains. In fact, the Standard & Poor's 500 Stock Index
posted its fourth consecutive calendar-year return exceeding 20%.
================================================================================
Performance Comparison
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Periods Ended 12/31/98 6 Months 12 Months
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Blue Chip Growth Fund 9.69% 28.84%
S&P 500 9.22 28.57
Lipper Growth Funds Average 6.21 22.86
================================================================================
In this volatile but ultimately favorable environment, your fund continued
to perform reasonably well. For both the six and 12 months ended December 31,
1998, it outperformed the Lipper Growth Funds Average by a significant margin
and the unmanaged S&P 500 by a smaller margin, while providing investors a
strong absolute return. We have outperformed the S&P 500 since the fund's
inception on June 30, 1993.
DIVIDEND DISTRIBUTION
On December 15, 1998, your Board of Directors declared an income dividend
of $0.11 per share and a long-term capital gain distribution of $0.39 per share
to shareholders of record on that date. The distribution was paid on December
17. You should already have received your check or statement reflecting this
distribution, as well as Form 1099-DIV summarizing this information for 1998 tax
purposes.
MARKET ENVIRONMENT
The past 12 months were highly dramatic for the equity markets, with a
harsh third quarter correction sandwiched between a solid expansion in the first
half of the year and a strong rally at the end of the year. Although the U.S.
economy remained strong, severe economic problems overseas captured headlines
and heightened volatility. In some Asian economies, the troubles that first
appeared in 1997 worsened, and other events during the summer -- including
Russia's default of its sovereign debt and the collapse of a prominent hedge
fund -- darkened the picture further. Brazil, for example, was only one of
several significant foreign nations faced with daunting economic and political
challenges. Many investors were concerned that sustained instability in Asia and
Latin America could trigger global recession, or at least dampen the economic
growth of their trading partners. While faring better than many higher-risk
investments, blue chip stocks buckled under these pressures as well.
<PAGE>
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Preparing For The Year 2000
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The Year 2000 draws closer every day, and it holds special meaning beyond
the arrival of a new millennium. The issue for investors is that many computer
programs throughout the world use two digits instead of four to identify the
year and may assume the next century starts with 1900. If these programs are not
modified, they will not be able to correctly handle the century change when the
year changes from "99" to "00" on January 1, 2000, and they will no longer be
able to perform necessary functions. The Year 2000 issue affects all companies
and organizations.
T. Rowe Price has been taking steps to assure that its computer systems and
processes are capable of functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are currently being executed.
OUR PLAN OF ACTION
We began to address these issues several years ago by requiring that all
new systems process and store four-digit years. All critical systems have been
reprogrammed (including business applications required to service our customers
and processing infrastructure necessary to ensure the integrity of customer data
and investments), and they are currently being tested. Because we exchange data
electronically with customers and vendors, we are working with them to assess
the adequacy of their own compliance efforts. Our goal is to ensure the
continuation of the same level of service to all our mutual fund shareholders
and clients after December 31, 1999.
We are asking all vendors and companies we do business with for a Year 2000
compliance status, with the expectation that some organizations will not be able
to modify their interface files prior to December 31, 1999. In addition, we are
scheduling tests for critical vendors and companies that claim Year 2000
compliance to ensure that time-related data and calculations function properly
as we move into the next century.
SMOOTH TRANSITION PLANNED
We believe our programs and initiatives will provide a smooth transition
into the next millennium. We are assessing all systems providing products or
services to our retail mutual fund shareholders, retirement plan sponsors, and
participants, and we have modified them where necessary for the Year 2000.
<PAGE>
The Securities Industry Association (SIA) is coordinating Year 2000 testing
to assure that securities markets, clearing corporations, depositories, and
third party service providers can send, receive, and process files and
transactions accurately. In late July 1998, the SIA completed a beta test of
Year 2000 readiness. The test was considered successful in terms of transactions
completed and will serve as the basis for the SIA's industry-wide approach.
During October 1998, T. Rowe Price completed its beta test of Year 2000
readiness with the SIA and is ready for the industry-wide test that is scheduled
for March and April 1999.
For a more detailed discussion of our Year 2000 effort, as well as
continuing updates on our progress, please check our Web site
(WWW.TROWEPRICE.COM).
================================================================================
During the worst of the correction, investors questioned the underpinnings
of the long economic expansion in the U.S. and Europe as well as the
earnings-growth potential of many blue chip, multinational companies. They also
feared that economic weakness and a flood of cheap imports (due to the
devaluation of foreign currencies) would result in severe pricing pressure and
deflation in the U.S. There were, in fact, signs of a meaningful deterioration
in pricing power for a number of companies, particularly in the basic industries
and commodities areas.
However, there was also encouraging news during the year, even on the
foreign front. Japan appeared to recognize the severity of its banking and
economic problems and took a much more aggressive approach to stimulating
growth. China's currency remained relatively stable while its economy expanded.
Growth in the U.S. and many European countries appeared to be on sound footing
with low unemployment and solid consumer spending. The Federal Reserve (and
other world monetary authorities) engaged in a pattern of lowering interest
rates, which appeared to promote stability in financial markets and improve the
chances of sustained growth. Finally, earnings at many companies were
surprisingly strong -- even in areas like technology that have been affected by
the Asian crisis.
These positive trends helped restore blue chip stock performance at the end
of the year. The best results were logged by companies with stable growth
characteristics, such as consumer stocks, financials, and pharmaceuticals. The
technology sector also outperformed, and included a remarkable rally in Internet
stocks.
<PAGE>
Portfolio Review
Although your fund has less exposure to the technology sector than its
average peer, our holdings added significantly to performance in the second
half. Our investment in AMERICA ONLINE, initiated in the first half, made a very
strong contribution despite the moderate size of the holding. MICROSOFT, INTEL,
EMC (a leading provider of data storage and software solutions), and CISCO
SYSTEMS performed very well. NOKIA, a leading maker of wireless telephones and
telecommunication equipment, NETWORK ASSOCIATES, a top provider of software used
to detect computer viruses and maintain the security of data networks, and
ORACLE, the leader in database management software, also produced strong gains
for the fund.
Consumer products stocks continued to have a substantial role in the fund
but were not among the portfolio's best performers. Nonetheless, the
introduction of innovative products provided unit growth, pricing flexibility,
and strong revenue and earnings growth at several pharmaceuticals. BRISTOL-MYERS
SQUIBB and PFIZER generated top-tier gains during the past six months, while
WARNER-LAMBERT and SCHERING-PLOUGH also made strong full-year contributions.
We maintained a substantial position in retailing stocks because they have
been relatively unaffected by the Asian crisis and we expect many of them --
discount, food, and drug retailers especially -- to generate earnings growth in
most economic environments. Long-time holdings SAFEWAY, CVS, HOME DEPOT, and
WAL-MART have each produced powerful improvements in same-store sales and
earnings over the past several years and were stellar performers in the second
half of 1998. FRED MEYER, a leading West Coast food retailer, is being acquired
by KROGER, and both holdings produced solid operating and investment results.
[A pie chart based on net assets as of 12/31/98 with the following
segments: Business services and transportation, 15%. Capital equipment, process
industries, and basic materials, 7%. Technology, 13%. Consumer services and
consumer cyclicals, 18%. Financial, 19%. Energy and utilities, 6%. Consumer
nondurables, 18%. Reserves, 4%.]
Entertainment, media, and telecommunications companies benefited from the
health of the American consumer despite the economic turmoil in certain foreign
economies. Among the best second-half contributors were media giant TIME WARNER,
with its significant cable interests, and MCDONALD'S, which is generating
improved results as it revamps its food delivery systems. Additionally, MCI
WORLDCOM, SBC COMMUNICATIONS (formerly Southwestern Bell), ALLTEL, AIRTOUCH
COMMUNICATIONS, the leading wireless service provider which is in talks to be
acquired by Bell Atlantic/GTE, and AT&T were all solid performers.
Financial stocks were crushed in the second and third quarters. The default
on Russian sovereign debt and the huge related losses suffered by hedge fund
Long-Term Capital Management contributed to a severe loss of liquidity on which
global financial firms depend. However, as investors became more confident that
the challenges were manageable, these stocks bounced back. Institutions with
limited exposure to Asia and powerful fee-generating businesses, which are
relatively insensitive to economic activity, attracted our incremental
investment dollars and fared relatively well overall. In fact, WELLS FARGO,
FREDDIE MAC, BANK OF NEW YORK, and FANNIE MAE each provided major contributions
to performance in the second half.
<PAGE>
Despite the crisis of confidence in the third quarter, certain
manufacturing stocks made steady but potent gains. TYCO INTERNATIONAL, the
leading provider of fire control, security systems, and health care supplies was
a fine performer. DANAHER and GE were also rewarding.
As always, some stocks were disappointing. STARWOOD HOTELS & RESORTS was
our largest loser in the second half. The company is the leading operator of
hotels in the U.S. and appears to be successfully integrating its recent
acquisition of ITT (owner of Sheraton Hotels and Caesar's World gaming).
However, the company's original status as a paired share REIT (real estate
investment trust) had to be changed as legislation challenged many of the tax
advantages of this type of structure. Although the company made this change
successfully, there was some modest slippage in the company's operating earnings
goals. As a result, we reduced our position somewhat despite the stock's
extremely attractive valuation. We want to see that results meet ambitious
projections before making this a larger holding.
Health care services has been a very challenging area. This point was
reinforced in the second half when even many of the "quality" stocks in this
sector performed poorly. HEALTHSOUTH, the leading outpatient care and
rehabilitative services provider, announced that pressure from large commercial
health care plans could hurt 1999 profitability. The company's balance sheet is
strong and its growth record is impressive; our recent communications with
management indicate that pricing problems may affect growth, but should be
manageable. We reduced our position but will hold on to what remains until more
data is available. UNITED HEALTHCARE, a leading HMO, disappointed investors
again with losses in its Medicare business. However, we have seen the company
tighten expense control, retrench from loss-generating businesses, and focus on
rewarding shareholders through share repurchase and other concrete actions.
Consequently, we have increased our holding.
Strategy
Our investment strategy continues to focus on maintaining 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 received
was invested opportunistically in existing holdings. For example, additions to
Freddie Mac, Microsoft, CBS, and ASSOCIATES FIRST CAPITAL were large enough to
be listed among our 10 largest purchases for the past six months.
However, we did establish some major new positions. Bank of New York is one
of the oldest and most profitable banks in the world. With leading positions in
several processing businesses, it generates a relatively high percentage of
profits from recurring revenues and performed very well in 1998.
<PAGE>
We also bought two securities in the face of market skepticism that have
generated strong investment gains to date. HBOC is the leading provider of
software and information processing solutions to health care companies. HBOC is
being acquired by MCKESSON, a major drug distributor. The market has been
doubtful that this combination makes strategic sense. However, both companies
are well managed, and current business prospects are very strong. While it will
take careful coordination to realize their goal of becoming the best resource to
help health care organizations manage information (including patient outcomes
data) more effectively and efficiently, the rewards to the company could be
substantial.
As we noted in our last report, CBS has transformed itself into a leading
provider of radio and television broadcasting services. In particular, the
larger and much more profitable radio broadcasting business has dominant
positions in most leading markets and continues to thrive. The management at CBS
realized that its radio business, consisting of the old Group Westinghouse and
Infinity operations, was its most attractive asset and we bought shares in the
resulting Infinity spin-off.
Outlook
The market continues to face several challenges, including the risk of a
global economic slowdown stemming from problems in Latin America and Asia and
the current impeachment proceedings. While the challenges should not be
underestimated, the overall environment for U.S. equities, including inflation,
interest rates, mutual fund inflows, and corporate earnings, continues to be
positive. On balance, the primary challenge for future stock performance may be
the outstanding gains of the recent past. Stock valuations remain expensive by
all conventional measures, particularly as evidenced by the historically low
dividend yield on the S&P 500.
We realize that sound investing must be driven by the outlook for the
general investment environment, anticipated company earnings, and careful
selection of stocks at reasonable valuations. Considering these factors, we
believe the outlook for U.S. stocks and your fund remains favorable:
* Despite the concerns regarding a slowdown and possible 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.
* Many of the most attractive companies in our universe have topnotch,
entrepreneurial management and sound business models. Through careful
management of costs and proper incentives, many of these management teams
have improved the competitiveness of their businesses and improved the
durability and predictability of earnings.
<PAGE>
* Many of our holdings generate 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 that often enhances
stock performance over time. This may prove to be particularly advantageous
if a challenging environment depresses stock values or opens the door for
potential acquisitions.
The stock market will not always go up, but we believe we can enhance
returns and lower risk over time by investing in companies that can generate
earnings growth regardless of the economic or interest rate environment, and by
buying them at reasonable valuations. As always, we strive to own blue chip
companies with leading market positions, seasoned management, and strong
financial fundamentals because we believe they will provide superior investment
results. We appreciate your continued support in this endeavor.
Respectfully submitted,
/s/
Larry J. Puglia
President and Chairman of the Investment Advisory Committee
January 23, 1999
<PAGE>
T. Rowe Price Blue Chip Growth Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
12/31/98
MCI WorldCom .............................................. 2.4%
Tyco International ........................................ 2.3
Freddie Mac ............................................... 2.2
Citigroup ................................................. 2.1
Microsoft ................................................. 2.0
Wells Fargo ............................................... 1.8
Bristol-Myers Squibb ...................................... 1.7
Danaher ................................................... 1.5
Safeway ................................................... 1.5
Fannie Mae ................................................ 1.4
Time Warner ............................................... 1.4
Pfizer .................................................... 1.4
Warner-Lambert ............................................ 1.3
Merck ..................................................... 1.3
GE ........................................................ 1.3
Intel ..................................................... 1.2
AlliedSignal .............................................. 1.2
Philip Morris ............................................. 1.2
Waste Management .......................................... 1.2
America Online ............................................ 1.2
SBC Communications ........................................ 1.2
Network Associates ........................................ 1.1
CVS ....................................................... 1.1
First Union ............................................... 1.1
Mobil ..................................................... 1.0
Total ..................................................... 37.1%
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<PAGE>
T. Rowe Price Blue Chip Growth Fund
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================================================================================
Portfolio Highlights
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MAJOR PORTFOLIO CHANGES
Listed in descending order of size
6 Months Ended 12/31/98
Ten Largest Purchases
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Bank of New York *
HBO *
Infinity Broadcasting *
Saks *
Freddie Mac
Microsoft
Fox Entertainment Group *
CBS
Associates First Capital
McKesson *
Ten Largest Sales
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Tellabs
U.S. Bancorp
Bank One
BankBoston **
SLM Holdings **
National City
Honeywell **
Biogen
Abbott Laboratories **
Washington Mutual **
* Position added
** Position eliminated
================================================================================
<PAGE>
T. Rowe Price Blue Chip Growth Fund
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================================================================================
Performance Comparison
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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
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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 12/31/98 1 Year 3 Years 5 Years Inception Date
Blue Chip Growth Fund 28.84% 28.05% 23.89% 24.48% 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.
================================================================================
<PAGE>
T. Rowe Price Blue Chip Growth Fund
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<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
Year
Ended
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ...................... $ 24.17 $ 19.06 $ 15.09 $ 11.11 $11.24
Investment activities
Net investment income ............ 0.11 0.13 0.14 0.16* 0.12*
Net realized and
unrealized gain (loss) ........... 6.82 5.12 4.05 4.05 (0.03)
Total from
investment activities ............ 6.93 5.25 4.19 4.21 0.09
Distributions
Net investment income ............ (0.11) (0.12) (0.14) (0.15) (0.10)
Net realized gain ................ (0.39) (0.02) (0.08) (0.08) (0.12)
Total distributions .............. (0.50) (0.14) (0.22) (0.23) (0.22)
NET ASSET VALUE
End of period ............................ $ 30.60 $ 24.17 $ 19.06 $ 15.09 $11.11
Ratios/Supplemental Data
Total return^ ............................ 28.84% 27.56% 27.75% 37.90%* 0.80%*
Ratio of expenses to
average net assets ....................... 0.91% 0.95% 1.12% 1.25%* 1.25%*
Ratio of net investment
income to average
net assets ............................... 0.43% 0.86% 0.87% 1.27%* 1.05%*
Portfolio turnover rate .................. 34.5% 23.7% 26.3% 38.1% 75.0%
Net assets, end of period
(in millions) ............................ $ 4,330 $ 2,345 $ 540 $ 146 $ 39
<FN>
^ Total return reflects the rate that an investor would have earned on an investment in the fund during each period, assuming
reinvestment of all distributions.
* Excludes expenses in excess of a 1.25% voluntary expense limitation in effect through 12/31/96. 12
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Blue Chip Growth Fund
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December 31, 1998
================================================================================
Statement of Net Assets
Shares Value
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In thousands
Common Stocks 96.5%
FINANCIAL 18.3%
Bank and Trust 9.1%
Bank of New York ................................. 1,100,000 $ 44,275
Bank One ......................................... 300,000 15,319
BankAmerica ...................................... 650,000 39,081
Chase Manhattan .................................. 430,000 29,267
Citigroup ........................................ 1,810,499 89,620
First Union ...................................... 750,000 45,609
Mellon Bank ...................................... 565,000 38,844
National City .................................... 50,000 3,625
State Street ..................................... 70,000 4,869
U.S. Bancorp ..................................... 170,000 6,035
Wells Fargo ...................................... 1,925,000 76,880
393,424
Insurance 3.1%
ACE Limited ...................................... 1,000,000 34,438
Allstate ......................................... 250,000 9,656
American International Group ..................... 64,000 6,184
EXEL (Class A) ................................... 560,300 42,022
Travelers Property Casualty (Class A) ............ 590,000 18,290
UNUM ............................................. 380,000 22,183
132,773
Financial Services 6.1%
American Express ................................. 271,000 27,710
Associates First Capital (Class A) ............... 770,000 32,629
Capital One Financial ............................ 214,000 24,610
Fannie Mae ....................................... 809,000 59,866
Freddie Mac ...................................... 1,450,000 93,434
Household International .......................... 130,000 5,151
Morgan Stanley Dean Witter ....................... 226,000 16,046
Providian Financial .............................. 75,000 5,625
265,071
Total Financial .................................. 791,268
<PAGE>
UTILITIES 3.2%
Telephone Services 3.2%
ALLTEL ........................................... 590,000 $35,289
AT&T ............................................. 380,000 28,595
GTE .............................................. 236,000 15,340
SBC Communications ............................... 932,000 49,979
Telebras ADR * ................................... 100,000 7,269
Total Utilities .................................. 136,472
CONSUMER NONDURABLES 18.1%
Cosmetics 0.3%
Gillette ......................................... 300,000 14,494
14,494
Beverages 0.8%
Coca-Cola ........................................ 100,000 6,687
PepsiCo .......................................... 740,000 30,294
36,981
Food Processing 1.6%
Campbell ......................................... 235,000 12,925
General Mills .................................... 50,000 3,888
Heinz ............................................ 235,000 13,307
Ralston Purina ................................... 300,000 9,712
Sara Lee ......................................... 1,010,000 28,469
68,301
Hospital Supplies/Hospital Management 1.4%
Arterial Vascular Engineering * .................. 160,000 8,385
Guidant .......................................... 200,000 22,050
HealthSouth * .................................... 1,000,000 15,437
Medtronic ........................................ 110,000 8,168
Steris * ......................................... 200,000 5,688
59,728
Pharmaceuticals 9.6%
American Home Products ........................... 662,000 37,279
Biogen * ......................................... 303,700 25,188
Bristol-Myers Squibb ............................. 545,000 72,928
Eli Lilly ........................................ 356,000 31,640
Johnson & Johnson ................................ 350,000 29,356
Merck ............................................ 376,000 $ 55,530
Pfizer ........................................... 470,000 58,956
Pharmacia & Upjohn ............................... 115,000 6,512
Schering-Plough .................................. 750,000 41,437
Warner-Lambert ................................... 775,000 58,270
417,096
Health Care Services 0.8%
United HealthCare ................................ 764,000 32,900
32,900
<PAGE>
Miscellaneous Consumer Products 3.6%
Colgate-Palmolive ................................ 250,000 23,219
Hasbro ........................................... 680,000 24,565
Newell ........................................... 415,000 17,119
Philip Morris .................................... 985,000 52,697
Procter & Gamble ................................. 250,000 22,828
Service Corp. International ...................... 370,000 14,083
154,511
Total Consumer Nondurables ....................... 784,011
CONSUMER SERVICES 15.3%
General Merchandisers 3.2%
Dayton Hudson .................................... 150,000 8,138
Fred Meyer * ..................................... 750,000 45,187
Saks * ........................................... 845,000 26,670
Wal-Mart ......................................... 520,000 42,348
Warnaco Group (Class A) .......................... 700,000 17,675
140,018
Specialty Merchandisers 4.8%
CVS .............................................. 830,524 45,679
Home Depot ....................................... 575,000 35,183
Kroger * ......................................... 220,000 13,310
McKesson ......................................... 250,000 19,765
Rite Aid ......................................... 575,000 28,498
Safeway * ........................................ 1,042,000 63,497
205,932
Entertainment and Leisure 2.1%
Carnival (Class A) ............................... 575,000 27,600
Disney ........................................... 400,000 12,000
McDonald's ....................................... 430,000 $32,949
US WEST Media * .................................. 400,000 18,800
91,349
Media and Communications 5.2%
CBS .............................................. 1,300,000 42,575
Chancellor Media * ............................... 170,000 8,134
Clear Channel Communications * ................... 300,000 16,350
Fox Entertainment Group * ........................ 880,000 22,165
Infinity Broadcasting * .......................... 1,365,700 37,386
Time Warner ...................................... 950,000 58,959
Tribune .......................................... 475,000 31,350
Valassis Communications * ........................ 200,000 10,325
227,244
Total Consumer Services .......................... 664,543
CONSUMER CYCLICALS 2.2%
Automobiles and Related 0.7%
Federal-Mogul .................................... 370,000 22,015
SPX * ............................................ 115,000 7,705
29,720
<PAGE>
Building and Real Estate 0.9%
Crescent Real Estate Equities, REIT .............. 650,000 14,950
Starwood Hotels & Resorts, REIT .................. 1,060,000 24,049
38,999
Miscellaneous Consumer Durables 0.6%
Masco ............................................ 890,000 25,587
25,587
Total Consumer Cyclicals ......................... 94,306
TECHNOLOGY 13.2%
Electronic Components 3.7%
EMC * ............................................ 415,000 35,275
Intel ............................................ 449,000 53,220
Linear Technology ................................ 150,000 13,430
Maxim Integrated Products * ...................... 500,000 21,828
Texas Instruments ................................ 210,000 17,968
Xilinx * ......................................... 310,000 20,179
161,900
Electronic Systems 1.5%
Hewlett-Packard .................................. 370,000 $25,276
Nokia ADR ........................................ 325,000 39,142
64,418
Information Processing 1.3%
COMPAQ Computer .................................. 325,000 13,630
Dell Computer * .................................. 271,000 19,842
IBM .............................................. 121,000 22,355
55,827
Office Automation 0.4%
Ceridian * ....................................... 250,000 17,453
17,453
Specialized Computer 0.4%
Sun Microsystems * ............................... 220,000 18,824
18,824
Telecommunications Equipment 4.4%
AirTouch Communications * ........................ 475,000 34,260
Cisco Systems * .................................. 475,000 44,101
Lucent Technologies .............................. 34,000 3,740
MCI WorldCom * ................................... 1,436,633 103,123
Tellabs * ........................................ 100,000 6,856
192,080
Aerospace and Defense 1.5%
AlliedSignal ..................................... 1,200,000 53,175
Raytheon (Class B) ............................... 190,000 10,117
63,292
Total Technology ................................. 573,794
<PAGE>
CAPITAL EQUIPMENT 5.5%
Electrical Equipment 3.6%
GE ............................................... 541,000 55,215
Tyco International ............................... 1,346,331 101,564
156,779
Machinery 1.9%
Danaher .......................................... 1,180,000 64,089
Teleflex ......................................... 400,000 18,250
82,339
Total Capital Equipment .......................... 239,118
BUSINESS SERVICES AND
TRANSPORTATION 15.2%
Computer Service and Software 10.6%
Adobe Systems .................................... 100,000 $ 4,681
America Online ................................... 325,000 50,050
Ascend Communications * .......................... 160,000 10,525
Automatic Data Processing ........................ 430,000 34,481
BMC Software * ................................... 770,000 34,337
Computer Associates .............................. 130,000 5,541
Compuware * ...................................... 250,000 19,523
First Data ....................................... 820,106 25,987
Galileo International ............................ 500,700 21,780
HBO .............................................. 1,210,000 34,750
Microsoft * ...................................... 626,000 86,721
Network Associates * ............................. 700,000 46,441
Oracle * ......................................... 590,000 25,462
Parametric Technology * .......................... 1,580,000 25,675
Sterling Commerce * .............................. 415,000 18,675
SunGard Data Systems * ........................... 350,000 13,891
458,520
Distribution Services 0.6%
Cardinal Health .................................. 150,630 11,429
U.S. Foodservice * ............................... 340,620 16,690
28,119
Environmental 0.2%
Rentokil Group (GBP) ............................. 900,000 6,786
6,786
Miscellaneous Business Services 3.1%
Cendant * ........................................ 700,000 13,344
Equifax .......................................... 340,000 11,624
H&R Block ........................................ 470,000 21,150
Omnicom .......................................... 610,000 35,380
Waste Management ................................. 1,090,000 50,821
132,319
<PAGE>
Railroads 0.7%
Burlington Northern Santa Fe ..................... 380,000 12,825
Norfolk Southern ................................. 610,000 19,329
32,154
Total Business Services and Transportation ....... 657,898
ENERGY 2.7%
Energy Services 0.5%
Halliburton ...................................... 600,000 $17,775
Schlumberger ..................................... 100,000 4,613
22,388
Integrated Petroleum-Domestic 0.7%
British Petroleum ADR ............................ 220,000 20,900
USX-Marathon ..................................... 340,000 10,243
31,143
Integrated Petroleum - International 1.5%
Chevron .......................................... 200,000 16,587
Mobil ............................................ 520,000 45,305
61,892
Total Energy ..................................... 115,423
PROCESS INDUSTRIES 1.4%
Specialty Chemicals 0.3%
Great Lakes Chemical ............................. 300,000 12,000
12,000
Paper and Paper Products 1.1%
Fort James ....................................... 470,000 18,800
Kimberly-Clark ................................... 520,000 28,340
47,140
Total Process Industries ......................... 59,140
MISCELLANEOUS 1.4%
Berkshire Hathaway (Class A) * ................... 250 17,500
Other Miscellaneous .............................. 43,584
Total Miscellaneous .............................. 61,084
Total Common Stocks (Cost $3,033,681) ............ 4,177,057
Short-Term Investments 3.2%
Money Market Funds 3.2%
Reserve Investment Fund, 5.42% # ................. 140,222,718 140,223
Total Short-Term Investments (Cost $140,223) ..... 140,223
Total Investments in Securities
99.7% of Net Assets (Cost $3,173,904) ............ $ 4,317,280
Other Assets Less Liabilities .................... 12,854
<PAGE>
NET ASSETS ....................................... $ 4,330,134
Net Assets Consist of:
Accumulated net realized gain/loss - net of distributions $ 8,507
Net unrealized gain (loss) 1,143,376
Paid-in-capital applicable to 141,517,395 shares of $0.0001 par
value capital stock outstanding; 1,000,000,000 shares authorized 3,178,251
NET ASSETS ....................................... $ 4,330,134
NET ASSET VALUE PER SHARE ........................ $ 30.60
# Seven-day yield
* Non-income producing
ADR American Depository Receipt
REIT Real Estate Investment Trust
GBP British sterling
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Blue Chip Growth Fund
- --------------------------------------------------------------------------------
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
12/31/98
Investment Income
Income
Dividend ................................................ $ 32,524
Interest ................................................ 10,481
Total income ............................................ 43,005
Expenses
Investment management ................................... 19,869
Shareholder servicing ................................... 8,197
Registration ............................................ 487
Prospectus and shareholder reports ...................... 305
Custody and accounting .................................. 182
Legal and audit ......................................... 14
Directors ............................................... 14
Miscellaneous ........................................... 28
Total expenses .......................................... 29,096
Net investment income ........................................... 13,909
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities .......................... 66,217
Change in net unrealized gain or loss on securities ............. 754,612
Net realized and unrealized gain (loss) ......................... 820,829
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS .......................................... $834,738
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Blue Chip Growth Fund
- --------------------------------------------------------------------------------
<TABLE>
====================================================================================================================================
Statement of Changes in Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
In thousands
<CAPTION>
Year
Ended
12/31/98 12/31/97
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income .................................................... $ 13,909 $ 11,955
Net realized gain (loss) ................................................. 66,217 (3,900)
Change in net unrealized gain or loss .................................... 754,612 303,584
Increase (decrease) in net assets from operations ........................ 834,738 311,639
Distributions to shareholders
Net investment income .................................................... (15,078) (11,113)
Net realized gain ........................................................ (53,457) (1,852)
Decrease in net assets from distributions ................................ (68,535) (12,965)
Capital share transactions *
Shares sold .............................................................. 1,971,557 1,862,992
Distributions reinvested ................................................. 67,284 12,659
Shares redeemed .......................................................... (819,465) (369,444)
Increase (decrease) in net assets from capital
share transactions ....................................................... 1,219,376 1,506,207
Net Assets
Increase (decrease) during period ................................................ 1,985,579 1,804,881
Beginning of period .............................................................. 2,344,555 539,674
End of period .................................................................... $ 4,330,134 $ 2,344,555
*Share information
Shares sold .............................................................. 72,851 85,107
Distributions reinvested ................................................. 2,377 535
Shares redeemed .......................................................... (30,731) (16,932)
Increase (decrease) in shares outstanding ................................ 44,497 68,710
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Blue Chip Growth Fund
- --------------------------------------------------------------------------------
December 31, 1998
================================================================================
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.
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.
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.
<PAGE>
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.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $2,289,298,000 and $1,039,135,000, respectively, for the
year ended December 31, 1998.
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 utilized capital loss carryforwards of $2,275,000 in
1998.
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, 1998. The results
of operations and net assets were not affected by the increases/(decreases) to
these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ 376,000
Undistributed net realized gain (371,000)
Paid-in-capital (5,000)
At December 31, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$3,173,904,000. Net unrealized gain aggregated $1,143,376,000 at period end, of
which $1,221,928,000 related to appreciated investments and $78,552,000 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 $2,137,000 was payable at December 31, 1998. 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. At
December 31, 1998, and for the year then ended, the effective annual group fee
rate was 0.32% . The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
<PAGE>
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 $5,805,000 for the year ended
December 31, 1998, of which $576,000 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 8.3% of the outstanding shares of the Blue Chip Growth Fund at
December 31, 1998. For the year then ended, the fund was allocated $826,000 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, 1998, totaled
$10,357,000 and are reflected as interest income in the accompanying Statement
of Operations.
During the year ended December 31, 1998, the fund, in the ordinary course
of business, placed security purchase and sale orders aggregating $3,443,000
with certain affiliates of the manager and paid commissions of $3,000 related
thereto.
<PAGE>
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, 1998, 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, 1998 by
correspondence with custodians, provide a reasonable basis for the opinion
expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 21, 1999
<PAGE>
T. Rowe Price Blue Chip Growth Fund
- --------------------------------------------------------------------------------
================================================================================
Tax Information (Unaudited) for the Tax Year Ended 12/31/98
- --------------------------------------------------------------------------------
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 $53,828,000 from
long-term capital gains, subject to the 20% rate gains category.
For corporate shareholders, $13,914,000 of the fund's distributed income
and short-term capital gains qualified for the dividends-received deduction.
================================================================================
<PAGE>
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*Access [Registration Mark]
and the T. Rowe Price Web site on the Internet. Address:
www.troweprice.com
BROKERAGE SERVICES*
INDIVIDUAL INVESTMENTS Stocks, bonds, options, precious metals, and
other securities at a savings over full-service commission rates.
INVESTMENT INFORMATION
COMBINED STATEMENT Overview of all your accounts with T. Rowe Price.
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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.#
<PAGE>
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 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 12/31/98
