-----------------------------------------
[LOGO] BLUE CHIP
VALUE FUND
Quarterly Report
to Stockholders
September 30, 2004
-----------------------------------------
INVESTMENT ADVISER'S COMMENTARY
Dear Fellow Stockholders:
The most notable feature of our portfolio and the stock market for the third
quarter and the year-to-date period is the narrow trading range. The S&P 500 is
up 1.5% year to date, and our portfolio is down 0.81% for the same period. This
has been a period generally characterized by increased corporate earnings and
dividends and interest rates have been stable. Stocks have been getting steadily
cheaper based on earnings. We believe this is because investors are getting
increasingly concerned about the business outlook for next year. There are a
number of reasons for this, and in our opinion, the impact from the rising price
of oil is a main focal point.
As we noted, the overall stock market has remained relatively flat this year,
but particular sectors and/or industries have had big moves. The energy stocks
in our portfolio were up 18% in the third quarter, and 39% for the nine months.
Unfortunately, these gains were offset by negative performance primarily in
healthcare and technology stocks. Not surprisingly, Transocean and Occidental
Petroleum were our best performing stocks for the quarter and nine months.
Likewise, Intel and Mylan Labs were among the worst.
Just before this letter was written, civil charges against several insurance
companies alleging illegal activities were filed. We held one of these companies
in our portfolio--American International Group. Subsequent to the quarter end,
we sold the stock from the portfolio because we believe the company will be
under a cloud for an extended period of time. We have also sold the insurance
broker, Willis Group Holdings, even though it has not been implicated in the
alleged wrong doings.
Our outlook for the fourth quarter and 2005 takes us back to the subject of
energy. We do believe that economic growth will be slower because of higher oil
prices, but we believe growth will be positive in the fourth quarter and for all
of 2005. We believe the stock market has discounted slower economic growth. We
also expect to see a pull back in oil prices as production returns to normal in
the Gulf of Mexico and production is increased in the Middle East. The long-term
picture for oil prices is more difficult to predict. Oil consumption is growing
rapidly in India and China where consumption is 0.7 barrels per person and 1.7
barrels per person per year, respectively, compared to the United States
3
where it is 28 barrels per person per year. Oil production will have to grow
faster over the next few years to keep prices from rising further. Many energy
experts predict this will be difficult to do, but historically we believe these
experts have been too pessimistic.
As year-end approaches, we would like to bring you up to date on the projected
tax status of your Blue Chip Value Fund dividends. First--a reminder--your
dividends were predominantly a return of capital and therefore tax-free last
year. Second, this year we believe the majority of the dividends will be taxed
at the long-term capital gain rate, for most 15%; however, some portion may be
taxed at your higher ordinary income tax rate. The actual determination of the
tax treatment of the Fund's dividends can be made only at year-end. Shareholders
will receive written notification regarding the components and tax treatment of
all distributions in early 2005.
Sincerely,
/s/ Todger Anderson
Todger Anderson, CFA
President, Blue Chip Value Fund, Inc.
Chairman, Denver Investment Advisors LLC
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.
4
HOW TO OBTAIN A COPY OF THE FUND'S
PROXY VOTING POLICIES AND RECORDS
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.
Information regarding how the Fund's investment adviser voted proxies relating
to the Fund's portfolio securities during the most recent 12-month period ended
June 30 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 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 September 30, 2004*
-------------------------------------------------------------
Fund S&P 500
Basic Materials 2.5% 3.0%
-------------------------------------------------------------
Capital Goods 7.6% 9.1%
-------------------------------------------------------------
Commercial Services 3.0% 2.6%
-------------------------------------------------------------
Communications 2.5% 6.9%
-------------------------------------------------------------
Consumer Cyclical 14.6% 12.2%
-------------------------------------------------------------
Consumer Staples 7.9% 8.5%
-------------------------------------------------------------
Energy 8.9% 7.3%
-------------------------------------------------------------
Financials 25.5% 19.9%
-------------------------------------------------------------
Medical/Healthcare 16.8% 12.8%
-------------------------------------------------------------
REITs 0.0% 0.4%
-------------------------------------------------------------
Technology 10.3% 12.6%
-------------------------------------------------------------
Transportation 0.0% 1.7%
-------------------------------------------------------------
Utilities 0.0% 3.0%
-------------------------------------------------------------
Short-Term Investments 0.3% --
-------------------------------------------------------------
* 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.
-------------------------------------------------------------
6
--------------------------------------------------------------------------------
Average Annual Total Returns
as of September 30, 2004
--------------------------------------------------------------------------------
Since
Return YTD 1-Year 3-Year 5-Year 10-Year Inception
--------------------------------------------------------------------------------
Blue Chip
Value Fund -
NAV (0.81%) 11.11% 2.99% 1.18% 10.24% 7.96%
--------------------------------------------------------------------------------
Blue Chip
Value Fund -
Market Price 4.80% 16.46% 5.05% 4.10% 13.05% 8.82%
--------------------------------------------------------------------------------
S&P 500
Index 1.50% 13.86% 4.04% (1.31%) 11.09% 10.54%
--------------------------------------------------------------------------------
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.
--------------------------------------------------------------------------------
7
--------------------------------------------------------------------------------
Market Price Performance History
Since Inception (04/15/87) through September 30, 2004
--------------------------------------------------------------------------------
[TABULAR REPRESENTATION OF LINE CHART]
Adjusted Actual
Market Market
Value(1) Price(2)
-------- --------
10 10
9.5 9.5
7.8 7.75
'87 5.58 5.5
5.87 5.75
6.31 6.13
6.1 5.88
'88 6.28 6
6.73 6.25
7.62 6.88
8.54 7.5
'89 8.2 7
8.13 6.75
8.21 6.63
6.86 5.38
'90 7.86 6
9.28 6.88
9.88 7.13
10.49 7.38
'91 11.4 7.63
11.77 7.88
12.07 7.88
12.18 7.75
'92 12.81 7.75
13.64 8.25
13.78 8.13
14.51 8.25
'93 14.57 7.88
14.1 7.63
12.54 6.75
12.83 6.88
'94 12.65 6.13
13.68 6.63
14.78 7.13
15.88 7.63
'95 17.91 7.63
19.09 8.13
20.04 8.5
21.89 9.25
'96 24.98 9.25
22.92 8.38
27.37 9.75
31.13 10.81
'97 35.11 10.94
38.12 11.88
37.19 11.31
30.52 9.06
'98 35.58 9.75
35.12 9.63
37.9 10.13
35.79 9.31
'99 37.95 8.69
36.04 8.25
37.62 8.38
38.84 8.44
'00 36.75 7.55
34.06 6.79
41.48 8.05
37.75 7.14
'01 41.92 7.56
39.16 7.02
34.89 6.1
28.26 4.8
'02 28.43 4.59
27.31 4.41
36.6 5.77
37.59 5.79
'03 41.77 6.14
43.54 6.4
44.04 6.61
'04 43.07 6.15
Annual Distribution totals
as indicated.(3)
8
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. Please note the
distribution total for 2004 is for nine months ended September 30, 2004. 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.
9
NEWS RELEASE
BLUE CHIP VALUE FUND DECLARES THIRD
QUARTER DISTRIBUTION
DENVER, CO. (October 1, 2004) The Directors of Blue Chip Value Fund, Inc.
have declared a distribution of $0.13 per share. This distribution is payable
October 29, 2004, to stockholders of record October 15, 2004, and will have an
ex-dividend date of October 12, 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 $0.0026 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 September 30, 2004, the Fund's N.A.V. was $5.29 and the stock closed
at $6.15, a premium of 16.257%.
10
BLUE CHIP VALUE FUND, INC.
STATEMENT OF ASSETS AND LIABILITIES
September 30, 2004 (Unaudited)
ASSETS
Investments at market value $150,575,165
(identified cost $141,838,072)
Dividends receivable 202,079
Interest receivable 454
Other assets 11,224
------------
TOTAL ASSETS 150,788,922
------------
LIABILITIES
Loan payable to bank (Note 4) 6,825,000
Interest due on loan payable to bank 15,269
Payable for securities purchased 77,290
Advisory fee payable 70,837
Administration fee payable 7,628
Accrued expenses and other liabilities 85,080
------------
TOTAL LIABILITIES 7,081,104
------------
NET ASSETS $143,707,818
============
COMPOSITION OF NET ASSETS
Capital stock, at par $ 271,535
Paid-in-capital 147,826,223
Undistributed net investment income 69,382
Accumulated net realized loss (5,651,799)
Net unrealized appreciation on investments 8,737,093
Undesignated distributions (Note 1) (7,544,616)
------------
$143,707,818
------------
SHARES OF COMMON STOCK
OUTSTANDING (100,000,000 shares
authorized at $0.01 par value) 27,153,526
============
Net asset value per share $ 5.29
============
See accompanying notes to financial statements.
11
BLUE CHIP VALUE FUND, INC.
STATEMENT OF OPERATIONS
For the Nine Months Ended September 30, 2004 (Unaudited)
INCOME
Dividends (net of foreign
withholding taxes of $3,322) $ 1,341,846
Interest 5,051
-----------
TOTAL INCOME $ 1,346,897
-----------
EXPENSES
Investment advisory fee
(Note 3) 669,717
Administrative services fee
(Note 3) 71,853
Interest on outstanding
loan payable 145,566
Legal fees 119,781
Stockholder reporting 79,572
Transfer agent fees 58,178
Directors' fees 47,164
Audit and tax preparation fees 20,438
NYSE listing fees 19,631
Insurance and fidelity bond 11,256
Other 7,508
Custodian fees 7,245
-----------
TOTAL EXPENSES 1,257,909
-----------
NET INVESTMENT INCOME 88,988
-----------
REALIZED AND UNREALIZED
GAIN/(LOSS) ON INVESTMENTS
Net realized gain on investments 10,320,732
Change in net unrealized appreciation/
depreciation of investments (10,902,920)
-----------
NET LOSS ON INVESTMENTS (582,188)
-----------
NET DECREASE IN NET ASSETS
RESULTING FROM OPERATIONS $ (493,200)
===========
See accompanying notes to financial statements.
12
BLUE CHIP VALUE FUND, INC.
STATEMENTS OF CHANGES IN NET ASSETS
For the Nine For the
Months Ended Year Ended
September 30, December 31,
2004* 2003
------------- -------------
Increase/(decrease) in net
assets from operations:
Net investment income $ 88,988 $ 363,532
Net realized gain from
securities transactions 10,320,732 417,452
Change in net unrealized
appreciation or depreciation
of investments (10,902,920) 32,391,284
------------ ------------
(493,200) 33,172,268
------------ ------------
Decrease in net assets
from distributions to
stockholders from:
Net investment income (19,606) (363,532)
Return of capital 0 (13,273,611)
Undesignated (Note 1) (7,544,616) 0
------------ ------------
(7,564,222) (13,637,143)
------------ ------------
Increase in net assets from
common stock transactions:
Net asset value of common
stock issued to stockholders
from reinvestment of
dividends (283,732 and
349,244 shares issued,
respectively) 1,708,217 1,808,988
------------ ------------
1,708,217 1,808,988
------------ ------------
NET INCREASE/(DECREASE)
IN NET ASSETS (6,349,205) 21,344,113
NET ASSETS
Beginning of period 150,057,023 128,712,910
------------ ------------
End of period $143,707,818 $150,057,023
============ ============
*Unaudited
See accompanying notes to financial statements.
13
BLUE CHIP VALUE FUND, INC.
FINANCIAL HIGHLIGHTS
For the Nine
Months Ended
Per Share Data September 30,
(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 (0.01)
--------
Total from investment operations (0.01)
--------
Distributions --
From net investment income (0.00)(2)
From net realized gains on investments --
Return of capital --
Undesignated (0.28)
--------
Total distributions (0.28)
--------
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 $ 5.29
========
Per share market value, end of period $ 6.15
========
Total investment return(3)based on:
Market Value 4.8%
Net Asset Value (0.8)%
Ratios/Supplemental data:
Ratio of operating expenses to average net assets 1.00%*
Ratio of total expenses to average net assets 1.13%*
Ratio of net investment income to average net assets 0.08%*
Ratio of total distributions to average net assets 5.08%(5)
Portfolio turnover rate(4) 38.27%
Net assets - end of period (in thousands) $143,708
See accompanying notes to financial statements.
* 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,
14
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
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 nine months
ended September 30, 2004 were $60,003,502 and $67,933,146, respectively.
(5) Due to the timing of quarterly ex-distribution dates, only two quarterly
distributions were recorded during the nine months ended September 30, 2004.
Please see Note 5 concerning details for the October 2004 distribution.
15
BLUE CHIP VALUE FUND, INC.
STATEMENT OF INVESTMENTS
September 30, 2004 (Unaudited)
Market
Shares Cost Value
------- ----------- -----------
COMMON STOCKS - 104.47%
BASIC MATERIALS - 2.63%
Forestry & Paper - 2.63%
Bowater Inc. 99,100 $ 4,676,588 $ 3,784,629
TOTAL BASIC MATERIALS 4,676,588 3,784,629
---------------------------------------------------------------------
CAPITAL GOODS - 7.94%
Aerospace & Defense - 3.82%
General Dynamics Corp. 28,600 2,227,919 2,920,060
Raytheon Co. 67,800 2,340,069 2,575,044
----------- -----------
4,567,988 5,495,104
Industrial Products - 4.12%
Parker Hannifin Corp. 100,500 4,847,686 5,915,430
TOTAL CAPITAL GOODS 9,415,674 11,410,534
---------------------------------------------------------------------
COMMERCIAL SERVICES - 3.19%
IT Services - 3.19%
Computer Sciences Corp.* 97,300 3,942,978 4,582,830
TOTAL COMMERCIAL SERVICES 3,942,978 4,582,830
---------------------------------------------------------------------
COMMUNICATIONS - 2.66%
Telecomm Service Providers - 2.66%
ALLTEL Corp. 69,600 3,507,230 3,821,736
TOTAL COMMUNICATIONS 3,507,230 3,821,736
---------------------------------------------------------------------
CONSUMER CYCLICAL - 15.29%
Clothing & Accessories - 2.77%
TJX Companies Inc. 180,300 2,785,187 3,973,812
Consumer Services - 1.04%
Cendant Corp. 69,300 1,597,365 1,496,880
General Merchandise - 3.09%
Target Corp.+ 98,200 3,396,619 4,443,550
Hotels & Gaming - 2.04%
Starwood Hotels & Resorts
Worldwide Inc. 63,200 1,831,324 2,933,744
Publishing & Media - 5.04%
Dow Jones & Company Inc. 50,700 2,714,743 2,058,927
Viacom Inc. - Class B 61,300 2,993,401 2,057,228
Walt Disney Co. 138,800 2,967,594 3,129,940
----------- -----------
8,675,738 7,246,095
Restaurants - 1.31%
Darden Restaurants Inc. 80,600 2,001,891 1,879,592
TOTAL CONSUMER CYCLICAL 20,288,124 21,973,673
---------------------------------------------------------------------
16
Market
Shares Cost Value
------- ----------- -----------
CONSUMER STAPLES - 8.27%
Food & Agricultural Products - 6.55%
Bunge Ltd. 64,500 $ 1,553,092 $ 2,578,710
Kraft Foods Inc.+ 87,100 2,741,790 2,762,812
Tyson Foods Inc. 254,000 2,988,679 4,069,080
----------- -----------
7,283,561 9,410,602
Home Products - 1.72%
Colgate Palmolive Co. 54,700 3,171,659 2,471,346
TOTAL CONSUMER STAPLES 10,455,220 11,881,948
---------------------------------------------------------------------
ENERGY - 9.31%
Integrated Oils - 7.26%
Marathon Oil Corp. 83,900 3,039,749 3,463,392
Occidental
Petroleum Corp. 88,200 4,010,819 4,933,026
Suncor Energy Inc. 63,500 1,621,187 2,032,635
----------- -----------
8,671,755 10,429,053
Oil Services - 2.05%
Transocean Inc.* 82,400 1,704,136 2,948,272
TOTAL ENERGY 10,375,891 13,377,325
---------------------------------------------------------------------
FINANCIALS - 26.77%
Insurance & Real Estate Brokers - 2.30%
Willis Group
Holdings Ltd. 88,500 2,558,672 3,309,900
Integrated Financial Services - 3.64%
Citigroup Inc.+ 118,700 5,155,075 5,237,044
Property Casualty Insurance - 6.76%
Allstate Corp. 71,900 2,605,775 3,450,481
AMBAC Financial
Group Inc. 19,100 1,060,642 1,527,045
American
International Group+ 40,600 2,615,595 2,760,394
Radian Group Inc. 42,600 1,855,940 1,969,398
----------- -----------
8,137,952 9,707,318
Regional Banks - 1.59%
US Bancorp 78,900 2,264,067 2,280,210
Securities & Asset Management - 7.05%
Goldman Sachs
Group Inc.+ 38,600 3,560,484 3,599,064
Lehman Brothers
Holdings Inc. 37,100 2,426,560 2,957,612
Merrill Lynch &
Company Inc.+ 71,900 4,031,147 3,574,868
----------- -----------
10,018,191 10,131,544
Specialty Finance - 4.22%
Freddie Mac+ 47,300 2,985,116 3,085,852
MBNA Corp. 118,300 2,982,458 2,981,160
----------- -----------
5,967,574 6,067,012
17
Market
Shares Cost Value
------- ------------ ------------
Thrifts - 1.21%
Washington Mutual Inc. 44,300 $ 1,689,646 $ 1,731,244
TOTAL FINANCIALS 35,791,177 38,464,272
---------------------------------------------------------------------
MEDICAL - HEALTHCARE - 17.62%
Drugs & Healthcare Products - 1.76%
Medtronic Inc. 48,800 2,419,130 2,532,720
Healthcare Services - 3.21%
Pacificare Health
Systems Inc.* 125,900 4,737,238 4,620,530
Pharmaceuticals - 12.65%
Abbott Laboratories+ 73,500 3,011,705 3,113,460
Amgen Inc.* 85,200 5,025,543 4,829,136
Barr Pharmaceuticals Inc.* 63,000 3,064,654 2,610,090
Pfizer Inc.+ 166,260 4,713,657 5,087,556
Teva Pharmaceutical
Industries Ltd. 97,600 3,179,199 2,532,720
----------- -----------
18,994,758 18,172,962
TOTAL MEDICAL -
HEALTHCARE 26,151,126 25,326,212
---------------------------------------------------------------------
TECHNOLOGY - 10.79%
Computer Software - 5.95%
Microsoft Corp.+ 172,400 5,240,231 4,766,860
Verisign Inc.* 190,400 3,180,807 3,785,152
----------- -----------
8,421,038 8,552,012
Semiconductors - 4.84%
Altera Corp.* 191,400 4,351,041 3,745,698
Intel Corp.+ 159,900 4,015,283 3,207,594
----------- -----------
8,366,324 6,953,292
TOTAL TECHNOLOGY 16,787,362 15,505,304
---------------------------------------------------------------------
TOTAL COMMON STOCKS 141,391,370 150,128,463
---------------------------------------------------------------------
18
Market
Shares Cost Value
------- ------------ ------------
SHORT-TERM INVESTMENTS - 0.31%
Goldman Sachs Financial
Square Prime Obligations
Fund - FST Shares $ 446,702 $ 446,702
TOTAL SHORT-TERM
INVESTMENTS 446,702 446,702
---------------------------------------------------------------------
TOTAL
INVESTMENTS 104.78% $141,838,072 $150,575,165
Liabilities in Excess
of Other Assets (4.78%) (6,867,347)
------- ------------
NET ASSETS 100.00% $143,707,818
======= ============
* 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.
19
BLUE CHIP VALUE FUND, INC.
NOTES TO FINANCIAL STATEMENTS
September 30, 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). Effective July 1, 2004, the
Fund changed its accounting method for realized gains and losses from investment
transactions and unrealized appreciation and depreciation of investment from a
"first-in, first-out" basis to a "specific identification" basis. This change
was 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
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of its taxable income to its stockholders. Therefore, no provision has been made
for federal income taxes.
As of September 30, 2004, the Fund had available for federal income tax
purposes unused capital loss carryforwards as follows:
Expiring
2010 $ 15,484,833
2011 45,245
------------
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:
Nine Months Ended Year Ended
September 30, December 31,
2004 2003
------------------ ------------
Distributions paid from:
Ordinary income $ 19,606 $ 363,532
Long-term capital gain -- --
Return of capital -- 13,273,611
Undesignated 7,544,616 --
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Total $7,564,222 $13,637,143
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The tax character of the distribution paid as "undesignated" will be
determined at the fiscal year ending December 31, 2004.
As of September 30, 2004 the components of distributable earnings on a tax
basis was as follows:
Undistributed net investment income $ 69,382
Accumulated net realized loss (5,244,168)
Net unrealized appreciation 8,329,462
-----------
Total $ 3,154,676
===========
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
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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 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 September 30, 2004:
Gross appreciation (excess of value over tax cost) $ 16,382,750
Gross depreciation (excess of tax cost over value) (8,053,288)
------------
Net unrealized appreciation $ 8,329,462
------------
Cost of investments for income tax purposes $142,245,703
============
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
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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. For the period January 1, 2004 to
September 28, 2004, the administrative services fee was based on an annual rate
for ALPS and DenverIA, 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. Effective September
29, 2004, the administrative fee for ALPS changed to 0.0835% of the Fund's
average daily net assets up to $75,000,000. The administrative services fee at
the remaining breakpoints remained the same. 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 September 30, 2004, the Fund had a loan payable in the amount
of $6,825,000 with a current daily annualized interest rate of 2.8325%, which
represents 30-day LIBOR plus 1.00%. The amount of the loan represented 4.53% of
the Fund's total assets as of September 30, 2004.
5. SUBSEQUENT EVENTS
The Fund declared a distribution of $0.13 per share on October 1, 2004. The
distribution was payable on October 29, 2004. Of the total distribution,
approximately $0.0026 represents net investment income and the remaining portion
is currently undesignated until the actual determination of the source can be
made at year-end.
In an attempt to achieve more favorable tax treatment of the Fund's
distributions for its shareholders, the Fund realized approximately $18 million
in additional capital gain subsequent to quarter end.
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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, Chief
Compliance Officer
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
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