---

 

 

     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 2005 was lackluster except for energy stocks. In this environment, the Blue Chip Value Fund’s net asset value was down 2.08%, modestly outperforming our benchmark, the S&P 500, which was down 2.15%. We divide the S&P 500 into 13 sectors. Nine of the 13 sectors had negative returns. The best performing sector was energy—which was up 17.8%. By comparison, the energy stocks in our portfolio were up 21%.

We continue to believe that energy stocks with strong cash flows, excellent returns on capital and long-duration reinvestment opportunities are undervalued. As a result, we remain overweight in energy. Our best energy holdings during the quarter were Occidental Petroleum, Transocean, and Marathon Oil. Occidental continues to have record profits and cash flows in both its oil and chemicals businesses, and it appears to be allocating excess capital from its chemicals businesses to higher return oil exploration prospects around the world. Transocean is a leading provider of offshore drilling platforms. Its fees are high and appear to be going higher as energy companies accelerate drilling. Marathon Oil’s stock price bounced back from fourth quarter weakness as it appears the stock market again focused on the significant free cash flow generation from the company and its new exploration projects. During the quarter we sold a portion of Occidental and Marathon to fund a new position in XTO Energy. In our opinion, XTO has a history of creating value through savvy acquisitions of under-priced reserves.

We added two other new stocks to the portfolio during the quarter—General Electric and First Data Corporation. General Electric is widely regarded as one of the best-run companies in the world. In our opinion, management’s shift out of some slower growth financial businesses and into faster growing industrial businesses should improve GE’s return on invested capital. GE recently completed an additional sale of its interest in Genworth—a life insurance operation—and redeployed a portion of the proceeds in its acquisition of Ionics—a water filtration company. Our other new holding—First Data Corporation—is a world leader in the electronic processing of financial transactions for credit and debit cards. Our analysis suggests the company has good long-term free cash flow growth prospects that are not reflected in the share price.

 

3

   

---

 

 

Detracting from portfolio performance during the quarter were Computer Sciences and Parker Hannifen. It seems that market response to the near-term earnings dilution from Computer Sciences’ sale of assets caused concern during the quarter. However, we remain confident in its plans to redeploy the proceeds consistent with our cash flow forecasts, and we are encouraged by continued improvement in business prospects. In our opinion, Parker Hannifen, an industrial and aerospace machinery manufacturer, suffered during the quarter as the rate of improvement in margins and sales began to slow, partially due to the auto production slowdown. While we continue to believe the market underestimates Parker Hannifen’s ability to sustain strong free cash flow, we are monitoring developments closely.

We expect the stock market may be a bit more volatile than normal as the economy adjusts to interest-rates hikes and higher energy costs. We find the fact that long-term interest rates have remained relatively flat encouraging. This suggests to us that inflation is under control, which in our opinion is good for stock prices. We continue to see ample opportunities in companies with strong levels of free cash flow where opportunities for value creating investment are present at valuations we believe are attractive. This leaves us optimistic that the market will see better days ahead.

I note with pleasure that in April we made our 72nd distribution to shareholders since the Fund’s inception in the spring of 1987. In the months ahead we will be working hard to continue to identify a portfolio of sound, higher quality companies with strong cash flow fundamentals at attractive valuations.

Sincerely,

Todger Anderson, CFA
President, Blue Chip Value Fund, Inc.
Chairman, Denver Investment Advisors LLC

 

4

---

 

 

 

5

---

 

 

 

6

---

 

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.

² 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: Friday, April 1, 2005

BLUE CHIP VALUE FUND DECLARES FIRST QUARTER DISTRIBUTION

DENVER, CO. (April 1, 2005) The Directors of Blue Chip Value Fund, Inc. have declared a distribution of $0.14 per share. This distribution is payable April 29, 2005, to stockholders of record April 15, 2005, and will have an ex-dividend date of April 13, 2005. 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 $0.0029 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. The final 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 2006.

As of March 31, 2005, the Fund’s N.A.V. was $5.64 and the stock closed at $6.65, a premium of 17.9078%.

 

8

---

 

 

9

---

 

10

---

 

11

---

 

 12

---

 

13

---

 

14

---

 

15

---

 

16

---

 

*Annualized.

⁽¹⁾Unaudited.

⁽²⁾Amount is less than $.005 per share.

⁽³⁾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.

⁽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, 2005 were $7,465,786 and $9,289,291, respectively.

⁽⁵⁾Due to the timing of quarterly ex-distribution dates, no quarterly distribution was recorded during the three months ended March 31, 2005. Please see Note 5 concerning details for the April 2005 distribution.

 

17

---

 

BLUE CHIP VALUE FUND, INC.

NOTES TO FINANCIAL STATEMENTS

March 31, 2005 (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 investment are determined on the “specific identification” 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.

18

---

 

    During the year ended December 31, 2004, the Fund used capital loss carryforwards of $15,530,078.

    The tax character of the distributions paid was as follows:

     As of March 31, 2005 the components of distributable earnings on a tax basis was as follows:

     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. 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 are classified as taxable ordinary income rather than non-taxable return of capital. See Federal Income Taxes discussion above. 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.

 

 19

---

 

 

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)

3. INVESTMENT ADVISORY AND ADMINISTRATION SERVICES AND OTHER RELATED PARTY TRANSACTIONS

     The Fund has an Investment Advisory Agreement with Denver Investment Advisors LLC (“DenverIA”), whereby a management fee is paid to DenverIA 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 a director are also officers of DenverIA.

     ALPS Mutual Funds Services, Inc. (“ALPS”) and DenverIA serve as the Fund’s co-administrators. The Administrative Agreement includes the Fund’s administrative and fund accounting services. The administrative services fee was based on an annual rate for ALPS and DenverIA, respectively, of 0.0835% 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.

20

---

 

 

     Effective October 1, 2004, the Directors appointed a Chief Compliance Officer who is also Treasurer of the Fund and an employee of DenverIA. The Directors agreed to reimburse DenverIA a portion of his compensation for his services as the Fund’s Chief Compliance Officer.

4. LOAN OUTSTANDING

     On November 12, 2003 an agreement with Custodial Trust Company, an affiliate 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 interest rate resets monthly at 30-day LIBOR plus 1.00%. 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.

Details of the loan outstanding are as follows:

5. SUBSEQUENT EVENTS

     The Fund declared a distribution of $0.14 per share on April 1, 2005. The distribution will be payable on April 29, 2005. Of the total distribution, approximately $0.0029 represents net investment income and the remaining portion is currently undesignated until the actual determination of the source can be made at year-end.

21

---