UNITED STATES
SECURITIES AND EXCHANGE COMMISSSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-5003
BLUE CHIP VALUE FUND, INC.
(Exact name of registrant as specified in charter)
1225 Seventeenth Street, 26th Floor, Denver, Colorado 80202
-----------------------------------------------------------
(Address of principal executive offices) (Zip code)
W. Bruce McConnel
Drinker Biddle & Reath LLP
One Logan Square
18th & Cherry Streets
Philadelphia, Pennsylvania 19103-6996
-------------------------------------
(Name and address of agent for service)
Registrant's Telephone Number, including Area Code: (303) 623-2577
Date of fiscal year end: December 31
Date of reporting period: June 30, 2003
Form N-CSR is to be used by management investment companies to file reports with
the Commission not later than 10 days after the transmission to stockholders of
any report that is required to be transmitted to stockholders under Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may
use the information provided on Form N-CSR in its regulatory, disclosure review,
inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR,
and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. ss.3507.
Item 1. Reports to Shareholders
The following is a copy of the report to shareholders pursuant to Rule 30e-1
under the Investment Company Act of 1940 (17 CFR 270.30e-1).
--------------------------------------------------------------------------------
[LOGO] Blue Chip
BlueChip Value Fund
Semi-Annual Report
to Stockholders
June 30, 2003
--------------------------------------------------------------------------------
PORTFOLIO MANAGER COMMENTARY
Dear Fellow Stockholders:
Patience was finally rewarded during the first half of our fiscal year as
a dismal winter slump gave way to an extended springtime rally. Although war
fears, decaying business fundamentals and economic uncertainties initially took
their toll, it appears to us that the market later shrugged them off in
anticipation of better times ahead. What fueled this optimism, in our opinion,
was a positive outcome in Iraq coupled with surprisingly strong first-quarter
earnings and nascent signs of economic stability. With hopes raised that
business conditions might soon improve, investor confidence surged.
Against this backdrop, the Blue Chip Value Fund realized an 8.11% gain in
net asset value (NAV) for the six-month period ended June 30, 2003, compared to
an 11.76% advance for its benchmark, the S&P 500 Index. The Fund's market price
entered the year trading at a discount to NAV of more than 5%, and ended the
period trading at a premium of nearly 13%. While our relative NAV performance
was disappointing, we are optimistic about the prospects of our relative returns
going forward. Let us explain.
In the early stages of a market recovery, it appears to us that some
participants are tempted to "bet" on beaten-down or lower-quality companies
whose share prices reflect significant risks, such as excessive debt or
weakening business fundamentals. Another group of investors may choose to
"capture the rally" by "betting" on high volatility or high-beta stocks. Recent
studies support this notion, as the market assumed heightened risk levels during
the first half of 2003, with the lowest-quality companies seemingly outpacing
their higher-quality counterparts. One report in particular, authored by Merrill
Lynch Chief U.S. Strategist Richard Bernstein, calculated that speculative
companies rose 35.5% while stable ones gained only 8.9%. Furthermore, he noted
that valuation spreads between the highest beta stocks and the lowest beta
stocks widened considerably, approaching the peak levels of late 1999 (Source:
U.S. Strategy, Merrill Lynch, July 2003). Despite these higher risk premiums,
the Fund's absolute performance, a product of our disciplined investment
process, held its own during the period. This process evaluates the cash
generation abilities of prospective holdings, the market's valuation of those
free cash flows, and the risks inherent in a company's business outlook and
balance sheet.
2
Given these strict criteria, the Fund generally attempts to screen out
lower-quality and more highly speculative companies. In our view, chasing this
theme would neither be prudent nor desired by our stockholders.
With that in mind, our higher-quality technology holdings failed to keep
pace with the benchmark during the period. Nevertheless, we continue to be
vigilant with respect to valuation and believe our investments have intrinsic
value that is greater than the current market value. Within the financial
sector, our position in home financing giant Freddie Mac came under severe
pressure as the company faced allegations of accounting irregularities and
management turmoil. Although we underestimated the magnitude of its forthcoming
earnings restatement, we still believe that the value of the franchise is
greater than where the stock currently trades. Elsewhere, our holdings in
aerospace and defense contractor General Dynamics Corp. struggled when its
business jet unit experienced revenue and profit difficulties. Likewise,
industrial equipment supplier Parker Hannifin Corp. fell short of expectations
as the prolonged global economic slowdown contributed to softness across all of
its markets.
Performance in our healthcare-related holdings proved to be a source of
strength. Generic and specialty pharmaceutical names such as Watson
Pharmaceuticals Inc. and Mylan Laboratories Inc. added nicely to the Fund's
returns, while exposure to large-cap drug giants Wyeth, Bristol-Myers Squibb Co.
and Pharmacia Corp. as well as managed health-care leader Aetna Inc. also
contributed to significant outperformance relative to our benchmark. We remained
underrepresented in consumer staples believing that lofty valuations would cause
the sector to trail the market--a decision that added value. At the same time,
we capitalized on a modest overweight in the energy sector as integrated energy
firm ConocoPhillips realized significant cost savings and operational
efficiencies from its August 2002 merger. Strong stock picking in select
exploration and production companies emphasizing North American natural gas also
worked in our favor.
Looking ahead, we remain optimistic that an economic recovery is underway,
and that existing monetary and fiscal stimulus will serve to support that
recovery. Although we are conscious of the need to own stocks that will benefit
from a rebounding economy, we plan to continue to invest in a portfolio of
companies we believe are selling at a discount to their
3
estimated cash flows, even assuming the economic recovery is subdued. Despite
periodic near-term pressures from the investing "crowd", we remain driven by the
belief that investing is a long-term endeavor because we believe fundamentals
prevail in the end.
Sincerely,
/s/ Mark M. Adelmann
Mark M. Adelmann, CFA, CPA
Portfolio Manager and Vice
President
The Portfolio Manager 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.
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.
4
--------------------------------------------------------------------------------
Sector Diversification in Comparison to
S&P 500 as of June 30, 2003*
--------------------------------------------------------------------------------
Fund S&P 500
--------------------------------------------------------------------------------
Basic Materials 2.6% 2.5%
--------------------------------------------------------------------------------
Capital Goods 7.1% 4.7%
--------------------------------------------------------------------------------
Commercial Services 2.5% 2.2%
--------------------------------------------------------------------------------
Communications 4.3% 6.6%
--------------------------------------------------------------------------------
Consumer Cyclical 12.8% 12.4%
--------------------------------------------------------------------------------
Consumer Staples 5.5% 8.9%
--------------------------------------------------------------------------------
Energy 6.3% 5.8%
--------------------------------------------------------------------------------
Financials 21.3% 23.2%
--------------------------------------------------------------------------------
Medical/Healthcare 19.6% 14.6%
--------------------------------------------------------------------------------
REITs 0.0% 0.3%
--------------------------------------------------------------------------------
Technology 13.0% 14.3%
--------------------------------------------------------------------------------
Transportation 1.9% 1.6%
--------------------------------------------------------------------------------
Utilities 1.1% 2.9%
--------------------------------------------------------------------------------
Short-Term Investments and
Net Other Assets/Liabilities 2.0% --
--------------------------------------------------------------------------------
*Sector diversification is subject to change and may not be representative of
future investments.
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Average Annual Total Returns
as of June 30, 2003
--------------------------------------------------------------------------------
Return 6 Mos. 1-Year 3-Year 5-Year 10-Year
--------------------------------------------------------------------------------
Blue Chip
Value Fund NAV 8.11% (5.21%) (4.67%) (2.14%) 9.19%
--------------------------------------------------------------------------------
Blue Chip Market
Value Fund Price 28.73% 4.90% (0.91%) (0.32%) 10.26%
--------------------------------------------------------------------------------
S&P 500
Index 11.75% 0.25% (11.19%) (1.61%) 10.04%
--------------------------------------------------------------------------------
Past performance is no guarantee of future results. Share prices will fluctuate,
so that shares 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.
--------------------------------------------------------------------------------
5
--------------------------------------------------------------------------------
Market Price Performance History Since
Inception (04/15/87) through June 30, 2003
--------------------------------------------------------------------------------
[The following table was depicted as a Line Graph in the Printed Material]
Adjusted Market Price(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
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 shares 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. Please note the
distribution total for 2003 is for six months ended June 30, 2003. 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.
6
BLUE CHIP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (Unaudited)
ASSETS
Investments at market value $ 137,428,001
(identified cost $138,011,160)
Dividends receivable 119,873
Interest receivable 3,139
Other assets 41,101
-------------
TOTAL ASSETS 137,592,114
-------------
LIABILITIES
Payable for securities purchased 817,305
Advisory fee payable 69,424
Administration fee payable 7,945
Accrued expenses and other liabilities 36,010
-------------
TOTAL LIABILITIES 930,684
-------------
NET ASSETS $ 136,661,430
=============
COMPOSITION OF NET ASSETS
Capital stock, at par $ 266,779
Paid-in-capital 158,331,918
Undistributed net investment income 61,083
Accumulated net realized loss (18,614,638)
Net unrealized depreciation on investments (583,159)
Undesignated distributions (2,800,553)
-------------
$ 136,661,430
=============
SHARES OF COMMON STOCK
OUTSTANDING (100,000,000 shares
authorized at $0.01 par value) 26,677,937
=============
Net asset value per share $ 5.12
=============
See accompanying notes to financial statements.
7
BLUE CHIP VALUE FUND, INC.
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (Unaudited)
INCOME
Dividends $ 851,411
Interest 30,155
----------
TOTAL INCOME $ 881,566
--------------
EXPENSES
Investment advisory fee
(Note 3) 392,958
Administrative services fee
(Note 3) 44,949
Stockholder reporting 70,500
Legal fees 67,500
Transfer agent fees 36,382
Directors' fees 35,734
NYSE listing fees 19,338
Audit and tax preparation fees 12,165
Insurance and fidelity bond 5,510
Custodian fees 4,786
Other 4,357
----------
TOTAL EXPENSES 694,179
--------------
NET INVESTMENT INCOME 187,387
--------------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized loss on investments (2,224,655)
Change in net unrealized appreciation
or depreciation of investments 12,168,112
--------------
NET GAIN ON INVESTMENTS 9,943,457
--------------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ 10,130,844
==============
See accompanying notes to financial statements.
8
BLUE CHIP VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Six For the
Months Ended Year Ended
June 30, December 31,
2003(1) 2002
------------- -------------
Increase/(decrease) in net
assets from operations:
Net investment income $ 187,387 $ 930,340
Net realized loss from
securities transactions (2,224,655) (16,214,221)
Change in net unrealized
appreciation or depreciation
of investments 12,168,112 (21,320,777)
------------- -------------
10,130,844 (36,604,658)
------------- -------------
Decrease in net assets
from distributions to
stockholders from:
Net investment income (126,304) (930,340)
Return of capital 0 (13,857,137)
Undesignated (Note 1) (2,800,553) 0
------------- -------------
(2,926,857) (14,787,477)
------------- -------------
Increase in net assets from
common stock transactions:
Proceeds from the sale of
0 and 5,262,771 shares
respectively, net of offering
expenses (Note 4) 0 32,797,247
Net asset value of common
stock issued to stockholders
from reinvestment of
dividends (157,387 and
295,323 shares issued,
respectively) 744,533 1,790,086
------------- -------------
744,533 34,587,333
------------- -------------
NET INCREASE/(DECREASE)
IN NET ASSETS 7,948,520 (16,804,802)
NET ASSETS
Beginning of period 128,712,910 145,517,712
------------- -------------
End of period (including
$61,083 and $0 of
undistributed net
investment income,
respectively) $ 136,661,430 $ 128,712,910
============= =============
See accompanying notes to financial statements.
(1) Unaudited.
9
BLUE CHIP VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
For the Six
Months Ended
Per Share Data June 30,
(for a share outstanding throughout each period) 2003(1)
------------
Net asset value - beginning of period $ 4.85
Investment operations
Net investment income 0.01
Net gain (loss) on investments 0.37
-----------
Total from investment operations 0.38
-----------
Distributions
From net investment income (0.01)
From net realized gains on investments --
Return of capital --
Undesignated (0.10)
-----------
Total distributions (0.11)
-----------
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 $ 5.12
===========
Per share market value, end of period $ 5.77
===========
Total investment return(2) based on:
Net Asset Value 8.1%
Market Value 28.7%
Ratios/Supplemental data:
Ratios of expenses to average net assets 1.09%*
Ratio of net investment income to average net assets 0.29%*
Ratio of total distributions to average net assets 2.28%
Portfolio turnover rate(3) 26.95%
Net assets - end of period (in thousands) $ 136,661
See accompanying notes to financial statements.
* Annualized.
(1) Unaudited.
(2) 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
10
For the year ended December 31,
-------------------------------------------------------------------------------
2002 2001 2000 1999 1998
----------- ----------- ----------- ----------- -----------
$ 6.94 $ 8.17 $ 9.09 $ 10.25 $ 9.76
0.04 0.04 0.05 0.03 0.05
(1.40) (0.29) (0.08) 0.49 1.62
----------- ----------- ----------- ----------- -----------
(1.36) (0.25) (0.03) 0.52 1.67
----------- ----------- ----------- ----------- -----------
(0.04) (0.04) (0.05) (0.03) (0.05)
-- (0.36) (0.84) (1.65) (1.08)
(0.52) (0.34) -- -- --
-- -- -- -- --
----------- ----------- ----------- ----------- -----------
(0.56) (0.74) (0.89) (1.68) (1.13)
----------- ----------- ----------- ----------- -----------
(0.16) (0.23) -- -- (0.04)
(0.01) (0.01) -- -- (0.01)
----------- ----------- ----------- ----------- -----------
(0.17) (0.24) -- -- (0.05)
----------- ----------- ----------- ----------- -----------
$ 4.85 $ 6.94 $ 8.17 $ 9.09 $ 10.25
=========== =========== =========== =========== ===========
$ 4.59 $ 7.56 $ 7.55 $ 8.69 $ 9.75
=========== =========== =========== =========== ===========
(20.6%) (3.0%) 0.2% 6.2% 17.6%
(32.2%) 14.1% (3.2%) 6.7% 1.3%
0.93% 0.91% 0.88% 0.85% 0.94%
0.64% 0.56% 0.63% 0.32% 0.56%
10.15% 10.21% 10.46% 16.86% 11.62%
65.86% 73.30% 127.55% 54.24% 76.02%
$ 128,713 $ 145,517 $ 140,863 $ 153,002 $ 171,512
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.
(3) 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
six months ended June 30, 2003 were $33,283,577 and $35,028,346,
respectively.
11
BLUE CHIP VALUE FUND, INC.
STATEMENT OF INVESTMENTS
June 30, 2003 (Unaudited)
Market
Shares Cost Value
--------- --------- ---------
COMMON STOCKS - 97.98%
BASIC MATERIALS - 2.56%
Forestry & Paper - 2.56%
Bowater Inc. 93,500 $ 4,423,466 $ 3,501,575
TOTAL BASIC MATERIALS 4,423,466 3,501,575
------------------------------------------------------------------------------
CAPITAL GOODS - 7.15%
Aerospace & Defense - 4.24%
General Dynamics Corp. 34,800 2,461,195 2,523,000
Raytheon Co. 99,500 3,429,852 3,267,580
----------- -----------
5,891,047 5,790,580
Electrical Equipment - 2.91%
Parker Hannifin Corp. 94,800 4,519,195 3,980,652
TOTAL CAPITAL GOODS 10,410,242 9,771,232
------------------------------------------------------------------------------
COMMERCIAL SERVICES - 2.51%
Business Products & Services - 2.51%
Accenture Ltd.* 189,600 4,227,692 3,429,864
TOTAL COMMERCIAL
SERVICES 4,227,692 3,429,864
------------------------------------------------------------------------------
COMMUNICATIONS - 4.28%
Telecomm Service Providers - 4.28%
ALLTEL Corp. 66,100 3,347,105 3,187,342
BellSouth Corp. 99,800 3,723,365 2,657,674
----------- -----------
7,070,470 5,845,016
TOTAL COMMUNICATIONS 7,070,470 5,845,016
------------------------------------------------------------------------------
CONSUMER CYCLICAL - 12.81%
Clothing & Accessories - 2.36%
TJX Companies Inc. 171,300 2,590,532 3,227,292
General Merchandise - 2.58%
Target Corp. 93,300 3,209,526 3,530,472
Hotels & Gaming - 3.05%
Starwood Hotels &
Resorts Inc. 145,600 4,472,957 4,162,704
Publishing & Media - 4.82%
Dow Jones &
Company Inc. 62,800 3,396,231 2,702,284
Viacom Inc. - Class B* 58,800 2,889,801 2,567,208
Walt Disney Co. 66,800 1,393,508 1,319,300
----------- -----------
7,679,540 6,588,792
TOTAL CONSUMER CYCLICAL 17,952,555 17,509,260
------------------------------------------------------------------------------
12
Market
Shares Cost Value
--------- --------- ---------
CONSUMER STAPLES - 5.51%
Food & Agricultural Products - 5.51%
Bunge Ltd. 123,800 $ 2,963,252 $ 3,540,680
Kraft Foods Inc. 83,500 2,627,196 2,717,925
Sara Lee Corp. 67,400 1,321,225 1,267,794
----------- -----------
6,911,673 7,526,399
TOTAL CONSUMER STAPLES 6,911,673 7,526,399
------------------------------------------------------------------------------
ENERGY - 6.35%
Exploration & Production - 2.05%
Devon Energy Corp. 52,412 2,528,822 2,798,822
Integrated Oils - 2.79%
ConocoPhillips 69,519 3,961,318 3,809,641
Oil Services - 1.51%
Transocean Inc.* 94,300 2,171,769 2,071,771
TOTAL ENERGY 8,661,909 8,680,234
------------------------------------------------------------------------------
FINANCIALS - 21.35%
Integrated Financial Services - 2.74%
Citigroup Inc. 87,500 3,751,033 3,745,000
Life & Health Insurance - 2.00%
Nationwide Financial
Services - Class A 42,200 1,747,900 1,371,500
Principal Financial Group 42,500 1,149,789 1,370,625
----------- -----------
2,897,689 2,742,125
Money Center Banks - 1.02%
Bank of America Corp. 17,600 1,191,759 1,390,928
Property Casualty Insurance - 10.49%
Allstate Corp. 68,300 2,455,295 2,434,895
AMBAC Financial
Group Inc. 46,200 2,518,371 3,060,750
American
International Group 45,600 2,943,285 2,516,208
Radian Group Inc. 97,300 3,402,595 3,566,045
Travelers Property and
Casualty Corp. 173,800 2,512,932 2,763,420
----------- -----------
13,832,478 14,341,318
Regional Banks - 1.44%
SouthTrust Corp. 72,200 1,649,525 1,963,840
Securities & Asset Management - 2.00%
Goldman Sachs Group Inc. 13,600 919,330 1,139,000
Lehman Brothers
Holdings Inc. 24,000 1,379,233 1,595,520
----------- -----------
2,298,563 2,734,520
Specialty Finance - 1.66%
Freddie Mac 44,600 2,825,903 2,264,342
TOTAL FINANCIALS 28,446,950 29,182,073
------------------------------------------------------------------------------
13
Market
Shares Cost Value
--------- --------- ---------
MEDICAL - HEALTHCARE - 19.55%
Healthcare Services - 6.25%
Aetna Inc. 60,900 $ 2,675,986 $ 3,666,180
Caremark RX Inc.* 60,100 1,393,635 1,543,368
Omnicare Inc. 98,819 2,408,501 3,339,094
----------- -----------
6,478,122 8,548,642
Pharmaceuticals - 13.30%
Bristol-Myers Squibb Co. 86,380 3,495,709 2,345,217
King
Pharmaceuticals Inc.* 183,300 2,314,437 2,705,508
Mylan Laboratories Inc. 93,600 2,713,945 3,254,472
Pfizer Inc. 154,560 4,311,411 5,278,224
Watson
Pharmaceuticals Inc.* 44,200 1,269,685 1,784,354
Wyeth 61,600 2,181,344 2,805,880
----------- -----------
16,286,531 18,173,655
TOTAL MEDICAL -
HEALTHCARE 22,764,653 26,722,297
------------------------------------------------------------------------------
TECHNOLOGY - 12.96%
Computer Software - 3.08%
Microsoft Corp. 164,200 5,018,589 4,205,162
Electronic Equipment - 1.88%
American Power
Conversion* 164,600 2,291,097 2,566,114
IT Services - 0.96%
Computer
Sciences Corp.* 34,500 1,431,602 1,315,140
Semiconductors - 5.00%
Intel Corp. 168,200 4,798,360 3,495,869
National
Semiconductor Corp.* 67,500 1,278,794 1,331,100
Xilinx Inc.* 79,500 2,117,355 2,012,145
----------- -----------
8,194,509 6,839,114
Technology Resellers - Distributors - 2.04%
Tech Data Corp.* 104,200 2,822,347 2,783,182
TOTAL TECHNOLOGY 19,758,144 17,708,712
------------------------------------------------------------------------------
TRANSPORTATION - 1.87%
Railroads - 1.87%
Union Pacific Corp. 44,000 2,552,640 2,552,880
TOTAL TRANSPORTATION 2,552,640 2,552,880
------------------------------------------------------------------------------
14
Market
Shares Cost Value
--------- --------- ---------
UTILITIES - 1.08%
Electric - Gas Utilities - 1.08%
Exelon Corp. 24,600 $ 1,303,633 $ 1,471,326
TOTAL UTILITIES 1,303,633 1,471,326
------------------------------------------------------------------------------
TOTAL COMMON STOCKS 134,484,027 133,900,868
------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS - 2.58%
Goldman Sachs Financial
Square Prime Obligations
Fund - FST Shares 3,527,133 3,527,133
TOTAL SHORT-TERM
INVESTMENTS 3,527,133 3,527,133
------------------------------------------------------------------------------
TOTAL
INVESTMENTS 100.56% 138,011,160 137,428,001
Liabilities in Excess of
Other Assets (0.56%) (766,571)
------ ------------
NET ASSETS 100.00% $136,661,430
====== ============
* Denotes non-income producing security.
15
BLUE CHIP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (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.
16
The Fund had available for federal income tax purposes unused capital loss
carryovers of approximately $15,485,000, which will expire in 2010.
The Fund intends to elect to defer to its fiscal year ending December 31,
2003, approximately $468,000 of losses recognized during the period November 1,
2002 to December 31, 2002, which will expire in 2011 if unutilized.
The tax character of the distributions paid was as follows:
Six Months Ended Year Ended
June 30, December 31,
2003 2002
--------------------------------------------------------------------------------
Distributions paid from:
Ordinary income $ 126,304 $ 930,340
Long-term capital gain 0 0
Undesignated 2,800,553 0
Return of capital 0 13,857,137
----------- ------------
Total $ 2,926,857 $ 14,787,477
=========== ============
As of June 30, 2003, the components of distributable earnings on a tax
basis was as follows:
Undistributed net investment income $ 61,083
Accumulated net realized loss (18,177,084)
Net unrealized depreciation (1,020,713)
Undesignated distributions (2,800,553)
------------
Total $(21,937,267)
============
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. Distributions are classified to conform to the tax
reporting requirements of the Internal Revenue Code. If the Fund's total
distributions for the year (exclusive of long-term capital gains dividends)
exceed its net investment income and short-term capital gains for such year, all
or a portion of such undesignated distributions may constitute a non-taxable
return of capital. Management currently believes it is likely that all of the
undesignated portion will be a non-taxable return of capital, however the actual
determination of the source of the undesignated distributions can be made only
at year-end.
The Fund distributes at least 2.5% of its net asset value quarterly to its
stockholders.
17
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United Stated 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 June 30, 2003:
Gross appreciation (excess of value over tax cost) $ 10,858,668
Gross depreciation (excess of tax cost over value) (11,879,381)
-------------
Net unrealized appreciation $ (1,020,713)
-------------
Cost of investments for income tax purposes $ 138,448,714
=============
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.
Effective September 1, 1999, ALPS Mutual Funds Services, Inc. ("ALPS") and
DIA entered into an Administrative Agreement to 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 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. The
administrative services fee is paid monthly.
4. ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of the Fund (the "Annual Meeting") was
held May 20, 2003 pursuant to notice
18
given to all stockholders of record at the close of business on March 14, 2003.
At the Annual Meeting, stockholders were asked to approve the following:
Proposal 1.
To elect two Class III directors, Kenneth V. Penland and Roberta M.
Wilson, to serve until the Annual Meeting in the year 2006. The number of shares
voting for the election of Mr. Penland was 14,632,422 and the number of shares
withholding authority was 1,178,300. The number of shares voting for the
election of Ms. Wilson was 14,615,164 and the number of shares withholding
authority was 1,195,558.
The name of each other director whose term of office continued after the
Annual Meeting was Todger Anderson, Gary P. McDaniel, Robert J. Greenebaum, Lee
W. Mather, Jr. and Richard C. Schulte.
Proposal 2.
To approve an amendment to the Fund's Articles of Incorporation to permit
the Fund to issue additional classes of stock, including preferred stock. The
number of shares voting for the proposal was 11,660,910, the number of shares
voting against the proposal was 3,585,886 and the number of shares abstaining on
the proposal was 505,290. The number of shares needed to approve the proposal
was 13,303,894 so the proposal was not approved.
Proposal 3.
To approve the elimination of the Fund's fundamental policy that restricts
its ability to purchase securities on margin. The number of shares voting for
the proposal was 10,764,964, the number of shares voting against the proposal
was 4,372,860 and the number of shares abstaining on the proposal was 614,262.
The number of shares needed to approve the proposal was 10,553,898 so the
proposal was approved.
Proposal 4.
To approve an amendment to the Fund's investment advisory agreement
between the Fund and Denver Investment Advisors LLC to increase the advisory fee
payable to Denver Investment Advisors LLC by authorizing it to be compensated on
the assets of the Fund related to debt. The number of shares voting for the
proposal was 9,993,905, the number of shares voting against the proposal was
4,831,328 and the number of shares abstaining on the proposal was 926,853. The
number of shares needed to approve the proposal was 10,553,898 so the proposal
was not approved.
19
--------------------------------------------------------------------------------
BOARD OF DIRECTORS
Kenneth V. Penland, Chairman
Todger Anderson, Director
Robert J. Greenebaum, 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
W. Bruce McConnel, 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
BlueChip Value Fund
www.blu.com
--------------------------------------------------------------------------------
Item 2. Code of Ethics
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
Item 3. Audit Committee Financial Expert
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
Item 4. Principal Accountant Fees and Services
Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
Item 5. Audit Committee of Listed Registrants. Not Applicable.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies
To be provided with the registrant's filing of its annual report on Form N-CSR.
Item 8. [Reserved]
Item 9. Controls and Procedures
(a) The registrant's principal executive officer and principal financial
officer have concluded that the registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment Company
Act of 1940, as amended) are effective based on their evaluation of
these controls and procedures as of a date within 90 days of the filing
date of this document.
(b) There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) during the registrant's last fiscal half-year (the
registrant's second fiscal half-year in the case of an annual report)
that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting.
Item 10. Exhibits
(a)(1) Form N-CSR disclosure requirement not yet effective with respect to the
registrant.
(a)(2) The certifications required by Rule 30a-2 of the Investment Company Act
of 1940, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
are attached hereto as EX- 99.CERT.
(b) Attached hereto as Exhibit 99.906CERT are the certifications pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
BLUE CHIP VALUE FUND, INC.
By: /s/Todger Anderson
---------------------------------
Todger Anderson
President/Chief Executive Officer
Date: August 29, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934 and
the Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/Todger Anderson
---------------------------------
Todger Anderson
President/Chief Executive Officer
Date: August 29, 2003
By: /s/Jasper Frontz
---------------------------------
Jasper Frontz
Treasurer/Chief Financial Officer
Date: August 29, 2003