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     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.

 

 

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INVESTMENT ADVISER’S COMMENTARY

Dear Fellow Stockholders:

     During the first quarter of 2006, we weathered several more Fed interest rate increases and continued geopolitical uncertainty, while the market moved higher. The net asset value of the Blue Chip Value Fund increased by 5.34%, comparing favorably to the S&P 500 which increased 4.21%. The outperformance was again driven by good stock selection across the portfolio, and some continued benefit from the use of leverage.

     During the quarter, the Fund’s stock price declined in relation to the Fund’s net asset value resulting in a discount of 2.87% at the end of the quarter from a premium of 12.28% at the beginning of the quarter. As a general policy, management does not speculate on the reasons for the level and direction of trading in the Fund’s stock but rather focuses on the Fund’s net asset value performance, which represents the underlying value of the Fund’s portfolio. There have been no material changes to the Fund’s investment strategy, its portfolio management team or its managed distribution policy during this time.

     As we have written for several quarters, we continue to overweight energy stocks in the portfolio. We believe that the stocks do not fully reflect the value of the strong cash flows that we expect to continue for some time. This quarter, our overall returns in this sector, led by Marathon Oil and Occidental Petroleum, again outperformed the average energy stock in the S&P 500. The geopolitical issues are clearly placing a certain amount of upward pressure on oil prices. However, we believe the underlying supply/demand dynamics should result in elevated oil prices even without the uncertainties. Therefore, we expect returns on capital for energy companies will remain strong. We continue to monitor the situation and valuations carefully.

     During the first quarter, we also had strong performance in consumer cyclicals, led by Walt Disney. The company’s fourth quarter of 2005, announced during the first quarter, reflected continued solid revenue growth and margin expansion in the resort and theme park group, as well as continued success in the media operations. In addition, our new position in JC Penney performed well. The company’s brand repositioning and sourcing initiatives have led to improved sales and margins. We believe the duration and magnitude of these financial improvements is under-estimated, and expect continued positive stock price performance.

 

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     Norfolk Southern Corp., one of the major east coast railroads, led our out-performance in transportation. Norfolk Southern has consistently executed on plans to gain efficiency in service and costs, and shipping volumes remain strong. The improving free cash flow and returns on capital appear to be driving the stock price higher.

     Offsetting some of our strongest performance was Amgen, a biotechnology company. During the quarter, concerns arose regarding a product being introduced by Roche as a competitor to Enbrel, one of Amgen’s largest products. We believe that the Enbrel patent protection will withstand the challenge. Also in health care, our holding of Boston Scientific performed poorly during the quarter primarily due to the pending acquisition of Guidant. In technology, Intel detracted from performance. Over time, Intel’s superior capital cost advantage together with the ability to earn a higher return on its research and development spending have resulted in a sustained competitive advantage, allowing it to produce high quality chips at lower costs than its peers. Advanced Micro Devices (“AMD”), the main competitor of Intel, took a temporary performance lead in some product areas over the past year. We believe Intel will close this gap with their 2006 product releases, and should begin to regain lost share in early 2007. At the current price, the market appears to be assuming sizeable share losses to AMD for the foreseeable future. We don’t believe this will be the case, therefore we believe Intel’s stock is a compelling value.

     We continue to feel positive about the valuations of large cap stocks, and in particular remain positive on the opportunities we see in the portfolio of stocks we own. We continue to be optimistic about the prospects for the Blue Chip Value Fund for 2006.

 

Sincerely,

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

 

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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.

¹Reflects the cumulative total return using market prices and net asset values as indicated, of an investment made by a stockholder who purchased one share at inception (April 15, 1987) ($10.00 IPO) and then reinvested all distributions through the Fund’s Dividend Reinvestment Plan and fully participated in primary subscription of rights offerings. These returns do not reflect the deduction of taxes that a Fund stockholder would pay on Fund distributions or the sale of Fund shares.

²Reflects the actual market price of one share as it has traded on the NYSE.

³Reflects the actual NAV of one share.

⁴Annual 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.

 

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NEWS RELEASE

Date: Monday, April 3, 2006

BLUE CHIP VALUE FUND DECLARES FIRST QUARTER DISTRIBUTION

     DENVER, CO. (April 3, 2006) The Directors of Blue Chip Value Fund, Inc. have declared a distribution of $0.15 per share. This distribution is payable April 28, 2006, to stockholders of record April 13, 2006, and will have an ex-dividend date of April 11, 2006. The Fund currently pays a quarterly distribution equal to 2.5% of its Net Asset Value, rounded to the nearest penny.

     Of the total distribution, approximately $0.0036 represents net investment income and the remaining undesignated portion is paid from capital surplus. If the Fund’s total distributions for the year exceed its net investment income and net realized capital gains for the year, all or a portion of the undesignated distributions may constitute a non-taxable return of capital. As of April 3, 2006, the date of this press release, the undesignated portion of the distribution would include approximately 25.20% from net realized capital gains and 74.80% from paid-in capital. The estimated components of each distribution are likely to change throughout the year. As such, the actual determination of the source of the undesignated distributions can be made only at year-end.

     As of March 31, 2006, the Fund’s N.A.V. was $5.92 and the stock closed at $5.75, a discount of –2.8716%.

 

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BLUE CHIP VALUE FUND, INC.

STATEMENT OF INVESTMENTS
March 31, 2006 (Unaudited)

 

 

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**Denotes non-income producing security

 

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BLUE CHIP VALUE FUND, INC.

STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006 (Unaudited)

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BLUE CHIP VALUE FUND, INC.

STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2006 (Unaudited)

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BLUE CHIP VALUE FUND, INC.

STATEMENTS OF CHANGES IN NET ASSETS

*Unaudited.

See accompanying notes to financial statements.

 

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BLUE CHIP VALUE FUND, INC.

STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 2006 (Unaudited)

Cash Flows from Operating Activities
Net increase in net assets from operations	$             8,221,078
Adjustments to reconcile net increase in net
assets from operations to net cash provided
by operating activities:
Purchase of investment securities		(5,766,843)
Proceeds from disposition of
investment securities		11,292,971
Net sale of short-term investment securities		1,241,427
Proceeds from class-action litigation settlements		11,651
Net realized gain from securities investments		(1,034,187)
Net change in unrealized appreciation
on investments		(7,085,548)
Decrease in dividends and interest receivable		5,819
Increase in other assets		(18,949)
Increase in accrued expenses and payables		1,375
Net cash provided by operating activities		6,868,794
Cash Flows from Financing Activities
Proceeds from bank borrowing		100,000
Repayment of bank borrowing		(3,440,000)
Cash distributions paid		(3,528,794)
Net cash used in financing activities		(6,868,794)
Net increase in cash		0
Cash, beginning balance		0
Cash, ending balance		0
Supplemental disclosure of cash flow information:
Noncash financing activities not included herein consist of
reinvestment of dividends and distributions of $614,694.

See accompanying notes to financial statements.

 

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BLUE CHIP VALUE FUND, INC.

FINANCIAL HIGHLIGHTS

See accompanying notes to financial statements.

*Annualized.

⁽¹⁾Unaudited.

⁽²⁾Amounts 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. Please note that the Fund’s total investment return does not reflect the deduction of taxes that a stockholder would pay on Fund distributions or the sale of Fund shares. 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⁾The ratio of total expenses to average net assets excluding interest expense for the period ended March 31, 2006, was 0.92%. For the years ended December 31, 2005 and 2004, the ratio of total expenses to average net assets excluding interest expense was 0.97% and 0.99% respectively. For all prior years presented, the interest expense if any, was less than 0.01%.

⁽⁵⁾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, 2006 were $5,766,843 and $11,292,971, respectively.

⁽⁶⁾Due to the timing of quarterly ex-distribution dates, no quarterly distribution was recorded during the three months ended March 31, 2006. Please see Note 5 concerning details for the April 2006 distribution.

 

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BLUE CHIP VALUE FUND, INC.

FINANCIAL HIGHLIGHTS (Continued)

See accompanying notes to financial statements.

*Annualized.

⁽¹⁾Unaudited.

⁽²⁾Amounts 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. Please note that the Fund’s total investment return does not reflect the deduction of taxes that a stockholder would pay on Fund distributions or the sale of Fund shares. 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⁾The ratio of total expenses to average net assets excluding interest expense for the period ended March 31, 2006, was 0.92%. For the years ended December 31, 2005 and 2004, the ratio of total expenses to average net assets excluding interest expense was 0.97% and 0.99% respectively. For all prior years presented, the interest expense if any, was less than 0.01%.

⁽⁵⁾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, 2006 were $5,766,843 and $11,292,971, respectively.

⁽⁶⁾Due to the timing of quarterly ex-distribution dates, no quarterly distribution was recorded during the three months ended March 31, 2006. Please see Note 5 concerning details for the April 2006 distribution.

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BLUE CHIP VALUE FUND, INC.

NOTES TO FINANCIAL STATEMENTS
March 31, 2006 (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. Factors which may be considered when determining the fair value of a security include (a) the fundamental data relating to the investment; (b) an evaluation of the forces which influence the market in which the security is sold, including the liquidity and depth of the market; (c) the market value at date of purchase; (d) information as to any transactions or offers with respect to the security or comparable securities; and (e) any other relevant matters.

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 “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.

 

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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.

The tax character of the distributions paid was as follows:

 

   As of March 31, 2006 the components of distributable earnings on a tax basis were as follows:

     The difference between book basis and tax basis is attributable to the tax deferral of losses on wash sales and post-October losses.

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.

     Denver Investment Advisors LLC (“DenverIA”) generally seeks to minimize realized capital gain distributions without generating capital loss carryforwards. As such, 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.”

 

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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)

3. INVESTMENT ADVISORY AND ADMINISTRATION SERVICES

     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 of the Fund 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 is based on an annual rate for ALPS and DenverIA, respectively, of 0.0835% and 0.01% of the Fund’s average daily net assets up to $75,000,000, 0.04%, and 0.005% of the Fund’s average daily net assets between $75,000,000 and $125,000,000, and 0.02% and 0.005% of the Fund’s average daily net assets in excess of $125,000,000 plus certain out-of-pocket expenses. The administrative service fee is paid monthly.

 

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     Effective February 7, 2006, the administrative services fee for ALPS was increased to an annual rate of 0.0855% of the Fund’s average daily net assets up to $75,000,000. The remaining breakpoint fee schedule is unchanged.

     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 that the Fund would reimburse DenverIA a portion of his compensation for his services as the Fund’s Chief Compliance Officer.

4. LOAN OUTSTANDING

     On December 6, 2005, an agreement with The Bank of New York (“BONY”) was reached, in which the Fund may borrow 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 daily at overnight Federal Funds Rate plus 0.825%. The borrowings under the BONY loan are secured by a perfected security interest on all of the Fund’s assets.

Details of the loan outstanding are as follows:

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5. SUBSEQUENT EVENT

     The Fund declared a distribution of $0.15 per share on April 3, 2006. The distribution will be payable on April 28, 2006. Of the total distribution, approximately $0.0036 represents net investment income and the remaining undesignated portion is paid from capital surplus. If the Fund’s total distributions for the year exceed its net investment income and net realized capital gains for the year, all or a portion of the undesignated distributions may constitute a non-taxable return of capital. As of April 3, 2006, the undesignated portion of the distribution would include approximately 25.20% from net realized capital gains and 74.80% from paid-in capital. The estimated components of each distribution are likely to change throughout the year. As such, the actual determination of the source of the undesignated distributions can be made only at year-end.

 

 

 

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