[LOGO] Blue Chip
Value Fund
Quarterly Report
to Stockholders
March 31, 2004
The Investment Adviser's Commentary included in this report contains
certain forward-looking statements about the factors that may affect the
performance of the Fund in the future. These statements are based on Fund
management's predictions and expectations concerning certain future events and
their expected impact on the Fund, such as performance of the economy as a whole
and of specific industry sectors, changes in the levels of interest rates, the
impact of developing world events, and other factors that may influence the
future performance of the Fund. Management believes these forward-looking
statements to be reasonable, although they are inherently uncertain and
difficult to predict. Actual events may cause adjustments in portfolio
management strategies from those currently expected to be employed.
INVESTMENT ADVISER'S COMMENTARY
Dear Fellow Stockholders:
The first quarter of 2004 saw the market continue to rally on solid
economic and market fundamentals, only to surrender some of those gains later in
the quarter. In our opinion, renewed attention was paid to valuation, with the
market rewarding companies that traded at lower multiples relative to their
ability to generate and grow cash flow. However, smaller stocks continued to
outperform larger stocks, a trend we believe may be nearing an end.
Against this backdrop, the Blue Chip Value Fund appreciated 2.51% at net
asset value (NAV) for the three-month period ended March 31, 2004, outperforming
the 1.70% return of its benchmark, the S&P 500 Index. We also draw your
attention to the one-, three- and five-year performance periods, which again
show the Fund's NAV outpacing the S&P 500. Meanwhile, the Fund continued to
trade at a premium to NAV, generally in the 10% to 15% range.
Turning to the portfolio, strong contributions to performance were made by
stocks in the healthcare, consumer staples and energy sectors. Within
healthcare, leading managed care provider Aetna Inc. continued to experience
profitable growth with improving margins, while adding over 1% to the
portfolio's total quarterly performance. Consumer staples standouts included
Tyson Foods, Inc., which moved 36% higher on improving margins in its various
meat businesses, as well as top soybean processor Bunge Ltd., where it appears
to us that increased demand and robust margins pushed the stock up by 22%.
Elsewhere, rising energy prices in addition to firming offshore drilling rates
appear to have boosted Transocean Inc., which advanced 17% during the quarter.
In contrast, it appears to us that generic pharmaceutical giant Mylan
Laboratories Inc. was stung by delays surrounding a new product launch. While
the stock underperformed during the period, in our opinion the depth and
attractiveness of its pipeline continue to suggest meaningful upside. At the
same time, our holding in railroad operator Union Pacific Corp. also
disappointed as harsh winter weather and crew shortages appear to have resulted
in lower cash flow guidance. Nevertheless, in our opinion signs of stronger
volumes and modest price increases should result in better days ahead. Finally,
private mortgage insurer Radian Group, Inc. declined as lower rates and credit
concerns appear to have
3
plagued the company. Despite the short-term setback, we added to the position in
anticipation of higher rates, which we hope could ultimately lead to stronger
long-term cash flows.
Of the 2.51% NAV increase, approximately 0.25% was attributable to the use
of leverage approved by stockholders at last year's annual meeting. During the
quarter, the average balance outstanding under the leverage facility was $8.6
million, representing approximately 5.5% of stockholder assets before leverage.
The Fund currently has a facility in place to leverage up to $15 million or
approximately 10% of assets. We anticipate that the amount of leverage in use
will fluctuate based on the availability of suitable investment opportunities
within the marketplace.
On another note, as disclosed in the Distributions to Stockholders section
of the Notes to Financial Statements, it is possible under certain circumstances
that distributions paid from capital surplus would be classified as taxable
ordinary income rather than non-taxable return of capital due to the use of
capital loss carryforwards. This would result in less favorable tax treatment
for our stockholders. As such, we are actively monitoring the Fund's realized
capital gains in relation to the loss carryforwards in an attempt to maximize
after-tax returns for shareholders.
Looking ahead, in our opinion we see an ongoing migration toward
higher-quality companies with improving returns and visible free cash
generation, believing that they will markedly outperform. We remain confident
that the economy is stable and growing sufficiently to realize the positive
results we anticipate. Perhaps the biggest unknowns are concerns surrounding
terrorism and international unrest, and the challenges posed by a moderating
recovery. However, on balance we remain optimistic regarding the outlook for the
economy and stocks, with an increasingly constructive view of the
higher-quality, larger-cap issues that comprise the Blue Chip Value Fund.
Sincerely,
/s/ TODGER ANDERSON, CFA
Todger Anderson, CFA
President, Blue Chip Value Fund, Inc.
Chairman, Denver Investment Advisors LLC
4
HOW TO OBTAIN A COPY OF THE FUND'S PROXY VOTING POLICIES
A description of the policies and procedures that are used by the Fund's
investment adviser to vote proxies relating to the Fund's portfolio securities
is available (1) without charge, upon request, by calling (800) 624-4190; (2) on
the Fund's website at www.blu.com and (3) on the Fund's Form N-CSR which is
available on the U.S. Securities and Exchange Commission website at www.sec.gov.
SEND US YOUR E-MAIL ADDRESS
If you would like to receive monthly portfolio composition and
characteristic updates, press releases and financial reports electronically as
soon as they are available, please send an e-mail to blu@denveria.com and
include your name and e-mail address. You will still receive paper copies of any
required communications and reports in the mail. This service is completely
voluntary and you can cancel at any time by contacting us via e-mail at
blu@denveria.com or toll-free at 1-800-624-4190.
5
================================================================================
Sector Diversification in
Comparison to S&P 500 as of March 31, 2004*
================================================================================
Fund S&P 500
--------------------------------------------------------------------------------
Basic Materials 2.7% 2.8%
--------------------------------------------------------------------------------
Capital Goods 6.5% 8.2%
--------------------------------------------------------------------------------
Commercial Services 2.4% 2.6%
--------------------------------------------------------------------------------
Communications 2.2% 6.6%
--------------------------------------------------------------------------------
Consumer Cyclical 13.5% 12.5%
--------------------------------------------------------------------------------
Consumer Staples 6.7% 8.9%
--------------------------------------------------------------------------------
Energy 6.7% 6.0%
--------------------------------------------------------------------------------
Financials 23.2% 20.6%
--------------------------------------------------------------------------------
Medical/Healthcare 21.8% 13.0%
--------------------------------------------------------------------------------
REITs 0.0% 0.4%
--------------------------------------------------------------------------------
Technology 12.5% 14.0%
--------------------------------------------------------------------------------
Transportation 1.7% 1.5%
--------------------------------------------------------------------------------
Utilities 0.0% 2.9%
--------------------------------------------------------------------------------
Short-Term Investments 0.1% --
--------------------------------------------------------------------------------
*Sector diversification percentages are based on the Fund's total investments at
market value. Sector diversification is subject to change and may not be
representative of future investments.
--------------------------------------------------------------------------------
================================================================================
Average Annual Total Returns
as of March 31, 2004
================================================================================
Return 3 Mos. 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Blue Chip
Value Fund NAV 2.51% 36.58% 1.14% 1.61% 11.20%
--------------------------------------------------------------------------------
Blue Chip Market
Value Fund Price 4.23% 59.40% 8.52% 4.39% 11.92%
--------------------------------------------------------------------------------
S&P 500
Index 1.70% 35.13% 0.64% (1.19%) 11.68%
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Share prices will fluctuate,
so that a share may be worth more or less than its original cost when sold.
Total investment return is calculated assuming a purchase of common stock on the
opening of the first day and a sale on the closing of the last day of each
period reported. Dividends and distributions, if any, are assumed for purposes
of this calculation to be reinvested at prices obtained under the Fund's
dividend reinvestment plan. Rights offerings, if any, are assumed for purposes
of this calculation to be fully subscribed under the terms of the rights
offering. Generally, total investment return based on net asset value will be
higher than total investment return based on market value in periods where there
is an increase in the discount or a decrease in the premium of the market value
to the net asset value from the beginning to the end of such periods.
Conversely, total investment return based on the net asset value will be lower
than total investment return based on market value in periods where there is a
decrease in the discount or an increase in the premium of the market value to
the net asset value from the beginning to the end of such periods.
--------------------------------------------------------------------------------
6
================================================================================
Market Price Performance History
Since Inception (04/15/87) through March 31, 2004
================================================================================
[DATA BELOW IS REPSRENTED BY A LINE CHART IN THE ORIGINAL REPORT]
Adjusted Marked Value(1) Actual Market Price(2)
10 10
9.5 9.5
7.8 7.75
5.58 5.5
5.87 5.75
6.31 6.13
6.1 5.88
6.28 6
6.73 6.25
7.62 6.88
8.54 7.5
8.2 7
8.13 6.75
8.21 6.63
6.86 5.38
7.86 6
9.28 6.88
9.88 7.13
10.49 7.38
11.4 7.63
11.77 7.88
12.07 7.88
12.18 7.75
12.81 7.75
13.64 8.25
13.78 8.13
14.51 8.25
14.57 7.88
14.1 7.63
12.54 6.75
12.83 6.88
12.65 6.13
13.68 6.63
14.78 7.13
15.88 7.63
17.91 7.63
19.09 8.13
20.04 8.5
21.89 9.25
24.98 9.25
22.92 8.38
27.37 9.75
31.13 10.81
35.11 10.94
38.12 11.88
37.19 11.31
30.52 9.06
35.58 9.75
35.12 9.63
37.9 10.13
35.79 9.31
37.95 8.69
36.04 8.25
37.62 8.38
38.84 8.44
36.75 7.55
34.06 6.79
41.48 8.05
37.75 7.14
41.92 7.56
39.16 7.02
34.89 6.1
28.26 4.8
28.43 4.59
27.31 4.41
36.6 5.77
37.59 5.79
41.77 6.14
43.54 6.4
Annual distribution totals as indicated.(3)
Please Note: line graph points are as of the end of each calendar quarter.
Past performance is no guarantee of future results. Share prices will fluctuate,
so that a share may be worth more or less than its original cost when sold.
(1) Reflects the cumulative total return of an investment made by a stockholder
who purchased one share at inception ($10.00 IPO) and then reinvested all
annual distributions as indicated, and fully participated in primary
subscriptions of rights offerings.
(3) Reflects the actual market price of one share as it has traded on the NYSE.
(3) Annual distribution totals represent actual amounts. The Fund currently
pays 2.5% of its net asset value quarterly; however this policy may be
changed at the discretion of the Fund's Board of Directors.
7
NEWS RELEASE
Date: Thursday, April 1, 2004
BLUE CHIP VALUE FUND DECLARES FIRST QUARTER DISTRIBUTION
DENVER, CO. (April 1, 2004) The Directors of Blue Chip Value Fund, Inc.
have declared a distribution of $0.14 per share. This distribution is payable
April 30, 2004, to stockholders of record April 16, 2004, and will have an
ex-dividend date of April 14, 2004. The Fund currently pays a quarterly
distribution equal to 2.5% of its Net Asset Value, rounded to the nearest penny.
These fixed distributions are not related to the amount of the Fund's net
investment income or net realized capital gains or losses.
Of the total distribution, approximately $0.0002 represents net investment
income and the remaining undesignated portion is paid from capital surplus. If
the Fund's total distributions required by the fixed quarterly payout policy for
the year exceed the Fund's "current and accumulated earnings and profits," the
excess will be treated as non-taxable return of capital, reducing the
stockholder's adjusted cost basis. However, to the extent that current year net
realized gains are offset by capital loss carryforwards, such excess
distributions would be classified as taxable ordinary income rather than
non-taxable return of capital. The actual determination of the source of the
undesignated distributions can be made only at year-end. Shareholders will
receive written notification regarding the components and tax treatment of all
distributions for the calendar year in early 2005.
As of March 31, 2004, the Fund's N.A.V. was $5.72 and the stock closed at
$6.40, a premium of 11.89%.
8
BLUE CHIP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2004 (Unaudited)
ASSETS
Investments at market value $ 160,517,572
(identified cost $142,417,956)
Dividends receivable 176,198
Interest receivable 603
Other assets 9,502
-------------
TOTAL ASSETS 160,703,875
-------------
LIABILITIES
Loan payable to bank 6,343,000
Interest due on loan payable to bank 13,712
Payable for securities purchased 25,351
Advisory fee payable 77,794
Administration fee payable 8,116
Accrued expenses and other liabilities 85,136
-------------
TOTAL LIABILITIES 6,553,109
-------------
NET ASSETS $ 154,150,766
=============
COMPOSITION OF NET ASSETS
Capital stock, at par $ 269,695
Paid-in-capital 146,701,349
Undistributed net investment income 6,697
Accumulated net realized loss (10,926,591)
Net unrealized appreciation on investments 18,099,616
-------------
$ 154,150,766
-------------
SHARES OF COMMON STOCK
OUTSTANDING (100,000,000 shares
authorized at $0.01 par value) 26,969,486
=============
Net asset value per share $ 5.72
=============
See accompanying notes to financial statements.
9
BLUE CHIP VALUE FUND, INC.
STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2004 (Unaudited)
INCOME
Dividends $ 421,665
Interest 1,003
-----------
TOTAL INCOME $ 422,668
-----------
EXPENSES
Investment advisory fee
(Note 3) 229,207
Administrative services fee
(Note 3) 24,203
Interest on outstanding
loan payable 45,968
Legal fees 28,175
Stockholder reporting 26,427
Transfer agent fees 19,322
Directors' fees 17,951
NYSE listing fees 9,973
Audit and tax preparation fees 6,108
Insurance and fidelity bond 3,738
Other 2,493
Custodian fees 2,406
-----------
TOTAL EXPENSES 415,971
-----------
NET INVESTMENT INCOME 6,697
-----------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain on investments 5,045,940
Change in net unrealized appreciation/
depreciation of investments (1,540,397)
-----------
NET GAIN ON INVESTMENTS 3,505,543
-----------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 3,512,240
===========
See accompanying notes to financial statements.
10
BLUE CHIP VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Three For the
Months Ended Year Ended
March 31, December 31,
2004(1) 2003
------------- -------------
Increase/(decrease) in net assets
from operations:
Net investment income $ 6,697 $ 363,532
Net realized gain from
securities transactions 5,045,940 417,452
Change in net unrealized
appreciation or depreciation
of investments (1,540,397) 32,391,284
------------- -------------
3,512,240 33,172,268
------------- -------------
Decrease in net assets
from distributions to
stockholders from:
Net investment income 0 (363,532)
Return of capital 0 (13,273,611)
------------- -------------
0 (13,637,143)
------------- -------------
Increase in net assets from
common stock transactions:
Net asset value of common
stock issued to stockholders
from reinvestment of
dividends (99,692 and
349,244 shares issued,
respectively) 581,503 1,808,988
------------- -------------
581,503 1,808,988
------------- -------------
NET INCREASE IN
NET ASSETS 4,093,743 21,344,113
NET ASSETS
Beginning of period 150,057,023 128,712,910
------------- -------------
End of period $ 154,150,766 $ 150,057,023
============= =============
(1) Unaudited
See accompanying notes to financial statements.
11
BLUE CHIP VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
For the Three
Months Ended
Per Share Data March 31,
(for a share outstanding throughout each period) 2004(1)
-------------
Net asset value - beginning of period $ 5.58
Investment operations
Net investment income 0.00(2)
Net gain (loss) on investments 0.14
--------
Total from investment operations 0.14
--------
Distributions
From net investment income --
From net realized gains on investments --
Return of capital --
--------
Total distributions 0.00(5)
--------
Capital Share Transactions
Dilutive effects of rights offerings --
Offering costs charged to paid in capital --
--------
Total capital share transactions --
Net asset value, end of period $ 5.72
========
Per share market value, end of period $ 6.40
========
Total investment return(3) based on:
Market Value 4.2%
Net Asset Value 2.5%
Ratios/Supplemental data:
Ratio of operating expenses to average net assets 0.96%*
Ratio of total expenses to average net assets 1.08%*
Ratio of net investment income to average net assets 0.02%*
Ratio of total distributions to average net assets 0.00%(5)
Portfolio turnover rate(4) 17.78%
Net assets - end of period (in thousands) $154,151
See accompanying notes to financial statements.
* Annualized.
(1) Unaudited.
(2) Amount is less than $.005 per share.
(3) Past performance is no guarantee of future results. Share price will
fluctuate, so that a share may be worth more or less than its original cost
when sold. Total investment return is calculated assuming a purchase of
common stock on the opening of the first day and a sale on the closing of
the last day of each period reported. Dividends and distributions, if any,
are assumed for purposes of this calculation to be reinvested at prices
obtained under the Fund's dividend reinvestment plan. Rights offerings, if
any, are assumed for purposes of this calculation to be fully subscribed
under the terms of the rights offering. Generally, total investment return
based on net asset value will be higher than total investment return based
on market value in periods where there is an increase in the discount or a
decrease in the premium of the
12
For the year ended December 31,
----------------------------------------------------------------
2003 2002 2001 2000 1999
-------- -------- -------- -------- --------
$ 4.85 $ 6.94 $ 8.17 $ 9.09 $ 10.25
0.01 0.04 0.04 0.05 0.03
1.23 (1.40) (0.29) (0.08) 0.49
-------- -------- -------- -------- --------
1.24 (1.36) (0.25) (0.03) 0.52
-------- -------- -------- -------- --------
(0.01) (0.04) (0.04) (0.05) (0.03)
-- -- (0.36) (0.84) (1.65)
(0.50) (0.52) (0.34) -- --
-------- -------- -------- -------- --------
(0.51) (0.56) (0.74) (0.89) (1.68)
-------- -------- -------- -------- --------
-- (0.16) (0.23) -- --
-- (0.01) (0.01) -- --
-------- -------- -------- -------- --------
-- (0.17) (0.24) -- --
-------- -------- -------- -------- --------
$ 5.58 $ 4.85 $ 6.94 $ 8.17 $ 9.09
======== ======== ======== ======== ========
$ 6.14 $ 4.59 $ 7.56 $ 7.55 $ 8.69
======== ======== ======== ======== ========
46.9% (32.2%) 14.1% (3.2%) 6.7%
26.4% (20.6%) (3.0%) 0.2% 6.2%
1.13% 0.93% 0.91% 0.88% 0.85%
1.13% 0.93% 0.91% 0.88% 0.85%
0.27% 0.64% 0.56% 0.63% 0.32%
10.07% 10.15% 10.21% 10.46% 16.86%
52.58% 65.86% 73.30% 127.55% 54.24%
$150,057 $128,713 $145,517 $140,863 $153,002
market value to the net asset value from the beginning to the end of such
periods. Conversely, total investment return based on the net asset value
will be lower than total investment return based on market value in periods
where there is a decrease in the discount or an increase in the premium of
the market value to the net asset value from the beginning to the end of
such periods.
(4) A portfolio turnover rate is the percentage computed by taking the lesser
of purchases or sales of portfolio securities (excluding short-term
investments) for a year and dividing it by the monthly average of the
market value of the portfolio securities during the year. Purchases and
sales of investment securities (excluding short-term securities) for the
three months ended March 31, 2004 were $28,829,472 and $30,623,919,
respectively.
(5) Due to the timing of the quarterly ex-distribution dates, no distribution
is recorded during the three months ended March 31, 2004. Please see Note 5
concerning details for the April 2004 distribution.
13
BLUE CHIP VALUE FUND, INC.
STATEMENT OF INVESTMENTS
March 31, 2004 (Unaudited)
Market
Shares Cost Value
------ ----------- -----------
COMMON STOCKS - 104.02%
BASIC MATERIALS - 2.80%
Forestry & Paper - 2.80%
Bowater Inc. 99,100 $ 4,676,588 $ 4,323,733
TOTAL BASIC MATERIALS 4,676,588 4,323,733
--------------------------------------------------------------------------------
CAPITAL GOODS - 6.72%
Aerospace & Defense - 3.04%
General Dynamics Corp. 28,600 2,227,919 2,554,838
Raytheon Co. 67,800 2,340,069 2,124,852
----------- -----------
4,567,988 4,679,690
Industrial Products - 3.68%
Parker Hannifin Corp. 100,500 4,847,686 5,678,250
TOTAL CAPITAL GOODS 9,415,674 10,357,940
--------------------------------------------------------------------------------
COMMERCIAL SERVICES - 2.55%
IT Services - 2.55%
Computer Sciences Corp.* 97,300 3,942,978 3,924,109
TOTAL COMMERCIAL SERVICES 3,942,978 3,924,109
--------------------------------------------------------------------------------
COMMUNICATIONS - 2.25%
Telecomm Service Providers - 2.25%
ALLTEL Corp. 69,600 3,507,230 3,472,344
TOTAL COMMUNICATIONS 3,507,230 3,472,344
--------------------------------------------------------------------------------
CONSUMER CYCLICAL - 14.08%
Clothing & Accessories - 2.87%
TJX Companies Inc. 180,300 2,785,187 4,428,168
General Merchandise - 2.87%
Target Corp.+ 98,200 3,396,619 4,422,928
Hotels & Gaming - 1.66%
Starwood Hotels & Resorts
Worldwide Inc. 63,200 1,831,324 2,559,600
Publishing & Media - 5.38%
Dow Jones & Company Inc. 50,700 2,714,743 2,429,037
Viacom Inc. - Class B 61,300 2,993,401 2,403,573
Walt Disney Co. 138,800 2,967,594 3,468,612
----------- -----------
8,675,738 8,301,222
Restaurants - 1.30%
Darden Restaurants Inc. 80,600 2,001,891 1,998,074
TOTAL CONSUMER CYCLICAL 18,690,759 21,709,992
--------------------------------------------------------------------------------
14
Market
Shares Cost Value
------ ----------- -----------
CONSUMER STAPLES - 6.92%
Food & Agricultural Products - 6.92%
Bunge Ltd. 82,100 $ 1,976,770 $ 3,302,062
Kraft Foods Inc.+ 87,100 2,741,790 2,788,071
Tyson Foods Inc. 254,000 2,988,679 4,584,700
----------- -----------
7,707,239 10,674,833
TOTAL CONSUMER STAPLES 7,707,239 10,674,833
--------------------------------------------------------------------------------
ENERGY - 6.94%
Exploration & Production - 2.63%
Devon Energy Corp. 69,612 3,374,412 4,047,938
Integrated Oils - 2.82%
Occidental
Petroleum Corp. 94,400 4,183,712 4,347,120
Oil Services - 1.49%
Transocean Inc.* 82,400 1,704,136 2,298,136
TOTAL ENERGY 9,262,260 10,693,194
--------------------------------------------------------------------------------
FINANCIALS - 24.20%
Insurance & Real Estate Brokers - 2.48%
Willis Group
Holdings Ltd. 102,800 2,969,098 3,824,160
Integrated Financial Services - 3.33%
Citigroup Inc.+ 99,400 4,306,929 5,138,980
Property Casualty Insurance - 11.32%
Allstate Corp. 71,900 2,605,776 3,268,574
AMBAC Financial
Group Inc. 47,500 2,608,731 3,504,550
American
International Group+ 47,900 3,089,795 3,417,665
Radian Group Inc. 98,100 3,855,772 4,179,060
Travelers Property &
Casualty Corp.+ 179,300 2,601,208 3,074,995
----------- -----------
14,761,282 17,444,844
Securities & Asset Management - 4.72%
Goldman Sachs Group Inc. 23,400 2,063,344 2,441,790
Lehman Brothers
Holdings Inc. 28,500 1,760,490 2,361,795
Merrill Lynch &
Company Inc. 41,500 2,306,225 2,471,740
----------- -----------
6,130,059 7,275,325
Specialty Finance - 2.35%
Freddie Mac 61,300 3,752,653 3,620,378
TOTAL FINANCIALS 31,920,021 37,303,687
--------------------------------------------------------------------------------
15
Market
Shares Cost Value
------ ------------ ------------
MEDICAL - HEALTHCARE - 22.71%
Healthcare Services - 6.40%
Aetna Inc. 54,400 $ 3,097,444 $ 4,880,768
Pacificare Health
Systems Inc.* 125,900 4,737,238 4,979,345
------------ ------------
7,834,682 9,860,113
Pharmaceuticals - 16.31%
Abbott Laboratories 73,500 3,219,353 3,020,850
Amgen Inc.* 53,500 3,219,407 3,112,095
Barr Pharmaceuticals Inc.* 63,000 3,064,654 2,891,700
Mylan Laboratories Inc.+ 217,100 4,388,645 4,934,683
Pfizer Inc.+ 166,260 4,713,657 5,827,413
Teva Pharmaceutical
Industries Ltd. 38,900 2,529,165 2,466,649
Wyeth 77,000 2,786,350 2,891,350
------------ ------------
23,921,231 25,144,740
TOTAL MEDICAL -
HEALTHCARE 31,755,913 35,004,853
-------------------------------------------------------------------------------
TECHNOLOGY - 13.04%
Computer Software - 5.76%
Microsoft Corp. 172,400 5,240,231 4,304,828
Network Associates Inc.* 101,400 1,646,754 1,825,200
Verisign Inc.* 165,500 2,749,989 2,745,645
------------ ------------
9,636,974 8,875,673
Electronic Equipment - 1.20%
American Power
Conversion 80,700 1,067,339 1,856,907
Semiconductors - 5.00%
Altera Corp.* 101,600 2,481,038 2,077,720
Intel Corp.+ 144,300 3,584,797 3,924,960
National
Semiconductor Corp.* 38,300 744,624 1,701,669
------------ ------------
6,810,459 7,704,349
Technology Resellers - Distributors - 1.08%
Tech Data Corp.* 40,600 1,129,578 1,662,164
TOTAL TECHNOLOGY 18,644,350 20,099,093
-------------------------------------------------------------------------------
TRANSPORTATION - 1.81%
Railroads - 1.81%
Union Pacific Corp. 46,600 2,728,762 2,787,612
TOTAL TRANSPORTATION 2,728,762 2,787,612
-------------------------------------------------------------------------------
TOTAL COMMON STOCKS 142,251,774 160,351,390
-------------------------------------------------------------------------------
16
Market
Shares Cost Value
------ ------------ ------------
SHORT-TERM INVESTMENTS - 0.11%
Goldman Sachs Financial
Square Prime Obligations
Fund - FST Shares 166,182 166,182
TOTAL SHORT-TERM
INVESTMENTS 166,182 166,182
-------------------------------------------------------------------------------
TOTAL
INVESTMENTS 104.13% $142,417,956 $160,517,572
Liabilities in Excess
of Other Assets (4.13%) (6,366,806)
------- ------------
NET ASSETS 100.00% $154,150,766
======= ============
* Denotes non-income producing security.
+ A portion of the shares held in this security are pledged as collateral for
the borrowings under the loan agreement.
17
BLUE CHIP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2004 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Blue Chip Value Fund, Inc. (the "Fund") is registered under the Investment
Company Act of 1940, as amended, as a diversified, closed-end management
investment company.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements.
Security Valuation - All securities of the Fund are valued as of the close of
regular trading on the New York Stock Exchange ("NYSE"), currently 4:00 p.m.
(Eastern Time), on each day that the NYSE is open. Listed securities are
generally valued at the last sales price as of the close of regular trading on
the NYSE. Securities traded on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") are generally valued at the NASDAQ Official
Closing Price ("NOCP"). In the absence of sales and NOCP, such securities are
valued at the mean of the bid and asked prices.
Securities having a remaining maturity of 60 days or less are valued at
amortized cost which approximates market value.
When market quotations are not readily available or when events occur that
make established valuation methods unreliable, securities of the Fund may be
valued at fair value determined in good faith by or under the direction of the
Board of Directors.
Investment Transactions - Investment transactions are accounted for on the date
the investments are purchased or sold (trade date). Realized gains and losses
from investment transactions and unrealized appreciation and depreciation of
investments are determined on the first-in, first-out basis for both financial
statement and federal income tax purposes. Dividend income is recorded on the
ex-dividend date. Interest income, which includes interest earned on money
market funds, is accrued and recorded daily.
Federal Income Taxes - The Fund intends to comply with the requirements of the
Internal Revenue Code that are applicable to regulated investment companies and
to distribute all of its taxable income to its stockholders. Therefore, no
provision has been made for federal income taxes.
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As of December 31, 2003, the Fund had available for federal income tax
purposes unused capital loss carryforwards as follows:
Expiring
2010 $ 15,484,833
2011 45,245
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Total $ 15,530,078
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The Fund intends to elect to defer to its fiscal year ending December 31,
2004, approximately $35,000 of losses recognized during the period November 1,
2003 to December 31, 2003, which will expire in 2012 if unutilized.
The tax character of the distributions paid was as follows:
Three Months Ended Year Ended
March 31, December 31,
2004 2003
----------- -----------
Distributions paid from:
Ordinary income $ -- $ 363,532
Long-term capital gain -- --
Return of capital -- 13,273,611
----------- -----------
Total $ -- $13,637,143
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As of March 31, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed net investment income $ 6,697
Accumulated net realized loss (10,518,960)
Net unrealized appreciation 17,691,985
------------
Total $ 7,179,722
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The difference between book basis and tax basis is attributable to the tax
deferral of losses on wash sales.
Distributions to Stockholders - Distributions to stockholders are recorded on
the ex-dividend date.
The Fund currently maintains a "managed distribution policy" which
distributes at least 2.5% of its net asset value quarterly to its stockholders.
These fixed distributions are not related to the amount of the Fund's net
investment income or net realized capital gains or losses and will be classified
to conform to the tax reporting requirements of the Internal Revenue Code. If
the Fund's total distributions required by the fixed quarterly payout policy for
the year exceed the Fund's "current and accumulated earnings and profits," the
excess will be treated as non-taxable return of capital, reducing the
stockholder's adjusted basis in his or her shares.
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Although capital loss carryforwards may offset any current year net realized
capital gains, such amounts do not reduce the Fund's "current earnings and
profits." Therefore, to the extent that current year net realized capital gains
are offset by capital loss carryforwards, such excess distributions would be
classified as taxable ordinary income rather than non-taxable return of capital.
In this situation, the Fund's Board of Directors would consider that factor,
among others, in determining whether to retain, alter or eliminate the "managed
distribution policy." The Fund's distribution policy may be changed at the
discretion of the Fund's Board of Directors. At this time, the Board of
Directors has no plans to change the current policy.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the financial statements and disclosures made in the accompanying
notes to the financial statements. Actual results could differ from those
estimates.
2. UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS (TAX BASIS)
As of March 31, 2004:
Gross appreciation (excess of value over tax cost) $ 22,400,873
Gross depreciation (excess of tax cost over value) (4,708,888)
------------
Net unrealized appreciation $ 17,691,985
------------
Cost of investments for income tax purposes $142,825,587
============
3. INVESTMENT ADVISORY AND ADMINISTRATION SERVICES
The Fund has an Investment Advisory Agreement with Denver Investment
Advisors LLC ("DIA"), whereby a management fee is paid to DIA based on an annual
rate of 0.65% of the Fund's average weekly net assets up to $100,000,000 and
0.50% of the Fund's average weekly net assets in excess of $100,000,000. The
management fee is paid monthly based on the average of the net assets of the
Fund computed as of the last business day the New York Stock Exchange is open
each week. Certain officers and directors of the Fund are also officers of DIA.
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ALPS Mutual Funds Services, Inc. ("ALPS") and DIA serve as the Fund's
co-administrators. The Administrative Agreement includes the Fund's
administrative and fund accounting services. The administrative services fee is
based on an annual rate for ALPS and DIA, respectively, of 0.08% and 0.01% of
the Funds average daily net assets up to $75,000,000, 0.04%, and 0.005% of the
Funds average daily net assets between $75,000,000 and $125,000,000, and 0.02%
and 0.005% of the Funds average daily net assets in excess of $125,000,000. The
administrative service fee is paid monthly.
4. LOAN OUTSTANDING
On November 12, 2003 an agreement with Custodial Trust Company of Bear
Stearns was reached, in which the Fund may borrow from the Custodial Trust
Company an aggregate amount of up to the lesser of $15,000,000 or the maximum
amount the Fund is permitted to borrow under the Investment Company Act of 1940.
The borrowings under the Custodial Trust Company loan are secured by pledging a
portion of the Fund's portfolio securities as collateral. The initial value of
the portfolio securities pledged must equal twice the amount of the loan
outstanding. As of March 31, 2004 the Fund had a loan payable in the amount of
$6,343,000 with a daily interest rate of 2.09%, which represents 30-day LIBOR
plus 1.00%. The amount of the loan represented 3.95% of the Fund's total assets
as of March 31, 2004.
5. SUBSEQUENT EVENTS
The Fund declared a distribution of $0.14 per share on April 1, 2004. The
distribution was payable on April 30, 2004. Of the total distribution,
approximately $0.0002 represents net investment income and the remaining portion
is currently undesignated until the actual determination of the source can be
made at year-end.
Robert J. Greenebaum, a Director of the Fund since 1988, has retired from
the Board of Directors effective May 11, 2004.
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BOARD OF DIRECTORS
Kenneth V. Penland, Chairman
Todger Anderson, Director
Lee W. Mather, Jr, Director
Gary P. McDaniel, Director
Richard C. Schulte, Director
Roberta M. Wilson, Director
OFFICERS
Kenneth V. Penland, Chairman
Todger Anderson, President
Mark M. Adelmann, Vice President
Joan Ohlbaum Swirsky, Secretary
Jasper R. Frontz, Treasurer
Investment Adviser/Co-Administrator
Denver Investment Advisors LLC
1225 17th Street, 26th Floor
Denver, CO 80202
(303) 312-5100
Stockholder Relations
Margaret R. Jurado
(800) 624-4190 (303) 312-5100
e-mail: blu@denveria.com
Custodian
Bank of New York
One Wall Street
New York, NY 10286
Co-Administrator
ALPS Mutual Funds Services, Inc.
1625 Broadway, Suite 2200
Denver, CO 80202
Transfer Agent
Dividend Reinvestment Plan Agent
(Questions regarding your Account)
Mellon Investor Services, LLC
Overpeck Centre
85 Challenger Road
Ridgefield Park, NJ 07660
(800) 288-9541
www.melloninvestor.com
NYSE Symbol--BLU
[LOGO] BLUE CHIP
VALUE FUND
www.blu.com