Annual Report
Corporate
Income
Fund
May 31, 1997
T. Rowe Price
Report Highlights
o The Federal Reserve tightened monetary policy in March as
the economy developed momentum and unemployment fell below
5% for the first time in more than 20 years.
o Most high-quality bonds and the Corporate Income Fund
generated only moderate returns during the six months ended
May 31, 1997, as interest rates rose from last November.
o Your fund's six-month return of 0.95% matched the Lehman
benchmark but surpassed the Lipper average. The 12-month
return of 10.35% significantly exceeded the performance of
both the index and peer group average.
o Fund exposure to lower-quality, higher-yielding bonds
helped achieve desired results, since lower-rated bonds
outperformed high-quality securities as the economy
strengthened.
o Barring a miscalculation by the Fed, we expect economic
growth to moderate, providing a favorable environment for
bonds and the fund.
Fellow Shareholders
Your fund posted a modest return during the six months ended May
31, 1997, as the economy developed considerable momentum and the
Federal Reserve tightened monetary policy for the first time
since 1995. However, despite the strong economy and tight labor
markets, inflation remained subdued and interest rates rose only
to their levels of a year ago. Your fund's solid return for the
past 12 months came primarily from income with some contribution
from capital appreciation.
MARKET ENVIRONMENT
The unemployment rate fell below 5%, its lowest level in more
than two decades. The Fed's objective in raising the key federal
funds rate a quarter-point in March was to avoid a repetition of
the tight labor markets and accelerating inflation of the late
1980s. From a trend rate of approximately 4%, inflation jumped
to 6% even before the rise in oil prices that accompanied Iraq's
invasion of Kuwait in 1990. The longer the Federal Reserve can
contain inflation around 3%, where it has been for most of the
1990s, the longer the current expansion can be expected to last.
Chart 1- Interest Rate Levels chart showing yields
Following the initial shock of the Fed tightening, stocks and
bonds gradually regained their equilibrium once investors
realized that inflation was still under control despite robust
economic growth in recent quarters. Yields on 10-year Treasury
bonds fluctuated between 6% and 7% as the economy first weakened
then strengthened during the past year.
The recent rise in rates had a negative impact on the
high-quality sectors of your fund; however, prices of
lower-quality holdings actually remained stable or improved
somewhat. Solid economic growth enabled the lower-rated
securities (which sometimes respond more like stocks than bonds
to trends in the economy) to outperform higher-quality bonds,
which are more sensitive to changes in interest rates. The
performances of various quality sectors during the past 6- and
12-month periods are shown in the accompanying table.
Graph 2- five pairs of bars, one for 6- and one for 12-month
returns
PERFORMANCE REVIEW
Your fund posted a positive return during the past six months in
a difficult environment for fixed income securities, matching
the return of the Lehman Aggregate Bond Index and exceeding that
of the Lipper Corporate Debt BBB Funds Average.
Performance Comparison
Periods Ended 5/31/97 6 Months 12 Months
_________________________________________________________
Corporate Income Fund 0.95% 10.35%
Lehman Aggregate Bond Index 0.94 8.32
Lipper Corporate Debt
BBB Funds Average 0.58 8.63
Performance during the 12-month period was solid and well ahead
of both the Lehman index and Lipper average for similar funds,
a result of the portfolio's allocation among the various credit
quality categories as shown in the chart on page 3. The fund's
net asset value declined from its level of last November because
of the rise in rates since then, but rose $0.23 from its
year-ago level.
The fund's flexible investment guidelines allow it to invest in
a broad variety of securities in an effort to enhance income and
achieve some capital appreciation. Our weightings among various
sectors of the market reflect our in-house credit research, as
well as our outlook for the economy and the markets.
STRATEGY
We continued to make maximum use of lower-credit quality
securities in the fund, including investment-grade level BBB and
high-yielding BB and B-rated bonds. We maintained the entire
investment-grade sector (BBB and higher) at 70% of the
portfolio, with BBB-rated bonds accounting for 61% of that
total. We kept the B sector at 10%, the maximum level for that
credit rating, and the rest of the portfolio in BB bonds and a
preferred stock.
Chart 3- Quality diversification pie chart
Our investment decisions continued to emphasize protection of
principal and level of income while using our in-house credit
research to find improving credit situations. We foresee some
slowing in economic growth but do not anticipate a slowdown
significant enough to trigger lower prices for lower-rated
bonds. Therefore, we intend to continue our relatively
aggressive quality allocation as long as the economy seems
moderately strong. If a more serious slowdown develops later in
the year, we would most likely upgrade credit slightly by
reducing exposure to B-rated in favor of BB-rated bonds, and to
BBB in favor of A and AA-rated issues.
OUTLOOK
Some additional tightening of monetary policy remains a
possibility as the Fed attempts to rein in the robust pace of
the economy. The credit markets could be roiled again by a
higher federal funds rate, with interest rates rising over the
short term in anticipation of further rate hikes.
However, barring a serious miscalculation by the Federal
Reserve, the prospect is good for a continuation of subdued
inflation and a return to moderate economic growth, which would
provide a favorable environment for the fixed income markets
over the long term. Fiscal policy in Washington will also affect
interest rate volatility. A possible balanced budget agreement,
however watered down, should help reduce downward pressure on
bond prices.
In this type of environment, corporate securities should
continue to provide attractive investment returns in the months
ahead.
Thank you for investing with T. Rowe Price.
Respectfully submitted,
Peter Van Dyke
President and Chairman of the Investment Advisory Committee
June 20, 1997
T. Rowe Price Corporate Income Fund
Portfolio Highlights
Key statistics
11/30/96 5/31/97
__________________________________________________________
Price Per Share $ 10.09 $ 9.81
Dividends Per Share
For 6 months 0.36 0.37
For 12 months 0.74 0.73
Dividend Yield *
For 6 months 7.62% 7.67%
For 12 months 7.70 7.79
Weighted Average Maturity
(years) 13.9 18.3
Weighted Average Effective
Duration (years) 6.0 6.6
Weighted Average Quality ** BBB BBB
* Dividends earned and reinvested for the periods indicated
are annualized and divided by the average daily net asset
values per share for the same period.
** Based on T. Rowe Price research.
T. Rowe Price Corporate Income Fund
Portfolio Highlights
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
11/30/96 5/31/97
__________________________________________________________
Banking 4% 19%
Finance and Credit 6 12
Food and Tobacco 2 12
Cable Operators 2 6
Entertainment and Leisure 5 6
Electric Utilities 15 6
Lodging 4 6
Insurance 6 5
Textiles and Apparel 2 3
Service 2 3
Commercial Paper 1 3
Gaming 2 2
Energy 10 2
All Other 37 13
Other Assets Less Liabilities 2 2
__________________________________________________________
Total 100% 100%
T. Rowe Price Corporate Income Fund
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment
in the fund over the past 10 fiscal year periods or since
inception (for funds lacking 10-year records). The result is
compared with a broad-based average or index. The index return
does not reflect expenses, which have been deducted from the
fund's return.
Chart 4 - Performance Comparison
A line chart showing the cumulative growth of $10,000 invested
in the CIF Fund over the past 10 years
Average Annual Compound Total Return
This table shows how the fund would have performed each year if
its actual (or cumulative) returns for the periods shown had
been earned at a constant rate.
Since Inception
Periods Ended 5/31/97 1 Year Inception Date
__________________________________________________________
Corporate Income Fund 10.35% 6.48% 10/31/95
Investment return and principal value represent past performance
and will vary. Shares may be worth more or less at redemption
than at original purchase.
T. Rowe Price Corporate Income Fund
For a share outstanding throughout each period
Financial Highlights
Year 10/31/95
Ended to
5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 9.58 $ 10.00
Investment activities
Net investment income 0.73* 0.44*
Net realized and
unrealized gain (loss) 0.23 (0.42)
Total from
investment activities 0.96 0.02
Distributions
Net investment income (0.73) (0.44)
NET ASSET VALUE
End of period $ 9.81 $ 9.58
_____________________
Ratios/Supplemental Data
Total return 10.35%* 0.09%*
Ratio of expenses to
average net assets 0.80%* 0.80%*!
Ratio of net investment
income to average
net assets 7.55%* 7.56%*!
Portfolio turnover rate 119.5% 70.5%!
Net assets, end of period
(in thousands) $ 20,732 $ 12,461
* Excludes expenses in excess of a 0.80% voluntary expense
limitation in effect through 5/31/97.
! Annualized.
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Corporate Income Fund
May 31, 1997
Portfolio of Investments
Par/Shares Value
In thousands
CORPORATE BONDS AND NOTES 94.1%
Banking 18.9%
Greenpoint Capital Trust I,
(144a), 9.10%, 6/1/27 $ 1,000 $ 1,008
Provident Capital Trust I,
Gtd. Bonds, (144a)
8.60%, 12/1/26 1,000 973
Riggs Capital Trust, (144a),
8.625%, 12/31/26 1,000 969
Union Planters Capital Trust,
Gtd. Bonds, (144a)
8.20%, 12/15/26 1,000 960
3,910
Beverages 1.1%
TLC Beatrice International
Holdings, Sr. Secured Notes
11.50%, 10/1/05 200 222
222
Broadcasting 1.0%
TV Azteca, Gtd. Sr. Notes, (144a),
10.50%, 2/15/07 200 205
205
Building Products 0.8%
Associated Materials, Sr. Sub. Notes,
11.50%, 8/15/03 154 163
163
Cable Operators 5.9%
Comcast Cable Communications,
(144a), 8.50%, 5/1/27 1,000 1,035
Fundy Cable, Sr. Secured 2nd
Priority Notes
11.00%, 11/15/05 25 27
Rogers Cablesystems, Sr. Sub.
Deb., 11.00%, 12/1/15 150 161
1,223
Chemicals 1.3%
Agricultural Minerals and
Chemicals, Sr. Notes
10.75%, 9/30/03 250 267
267
Consumer Nondurables 1.4%
American Safety Razor, Sr.
Notes, 9.875%, 8/1/05 150 157
Doane Products, Sr. Notes, 10.625%,
3/1/06 125 133
290
Container 0.7%
Plastic Containers, Sr. Secured
Notes, (144a)
10.00%, 12/15/06 150 156
156
Electric Utilities 5.7%
El Paso Electric, 1st Mtg. Notes,
8.90%, 2/1/06 $ 150 $ 158
Long Island Lighting, Gen. & Ref.
Bonds, 9.75%, 5/1/21 1,000 1,029
1,187
Energy 2.1%
Amerigas Partners L.P., Sr. Notes,
10.125%, 4/15/07 200 210
Energy Corporation of America,
Sr. Sub. Notes, (144a)
9.50%, 5/15/07 100 100
Rowan Companies, Sr. Notes,
11.875%, 12/1/01 113 121
431
Energy Services 1.0%
Pride Petroleum Services, Sr.
Notes, 9.375%, 5/1/07 200 209
209
Entertainment and Leisure 5.8%
Time Warner, Sr. Notes, 7.75%,
6/15/05 1,000 1,009
United Artists Theatre
Circuit, PTC, 9.30%, 7/1/15 197 190
1,199
Finance and Credit 12.0%
Fairfax Financial Holdings, 8.25%,
10/1/15 1,000 1,013
USF&G Capital II, Gtd. Notes, 8.47%,
1/10/27 1,500 1,483
2,496
Food and Tobacco 12.0%
Consolidated Cigar, Sr. Sub. Notes,
10.50%, 3/1/03 150 158
Keebler, Sr. Sub. Notes, (144a),
10.75%, 7/1/06 175 194
MAFCO, Sr. Sub. Notes,
11.875%, 11/15/02 50 54
RJR Nabisco, 9.25%, 8/15/13 2,000 2,073
2,479
Gaming 2.4%
Grand Casinos, 1st Mtg. Notes,
10.125%, 12/1/03 150 156
Showboat, 1st Mtg. Bonds,
9.25%, 5/1/08 200 205
Trump Atlantic City Associates,
1st Mtg. Notes
11.25%, 5/1/06 145 142
503
Health Care 1.0%
Tenet Healthcare, Sr. Sub. Notes,
8.625%, 1/15/07 200 202
202
Insurance 4.5%
Principal Mutual, (144a),
7.875%, 3/1/24 1,000 945
945
Lodging 5.7%
Courtyard by Marriott II, Sr.
Secured Notes, 10.75%, 2/1/08 $ 50 $ 54
La Quinta Inns, MTN, 7.27%, 2/26/07 1,000 969
Red Roof Inns, Sr. Notes,
9.625%, 12/15/03 150 155
1,178
Manufacturing 0.8%
American Standard, Deb.,
9.25%, 12/1/16 155 162
162
Paper and Paper Products 1.0%
Container Corporation of America
Sr. Notes
9.75%, 4/1/03 100 105
11.25%, 5/1/04 100 108
213
Retail 0.8%
Safelite Glass, Sr. Sub. Notes,
(144a), 9.875%, 12/15/06 150 159
159
Savings and Loan 1.2%
BF Saul REIT, Sr. Secured Notes,
11.625%, 4/1/02 100 107
ML Capital Trust, Gtd. Notes,
(144a), 9.875%, 3/1/27 150 148
255
Service 2.8%
Coinmach, Sr. Notes, 11.75%, 11/15/05 200 221
Host Marriott Travel Plazas, Sr.
Notes, 9.50%, 5/15/05 150 157
Intertek Finance, Sr. Sub. Notes,
(144a), 10.25%, 11/1/06 75 78
Loomis, Fargo & Co., Sr. Sub.
Notes, (144a)
10.00%, 1/15/04 125 129
585
Textiles and Apparel 3.0%
Dominion Textile USA, Gtd. Sr.
Notes, 9.25%, 4/1/06 200 207
Tultex, Sr. Notes, (144a), 9.625%,
4/15/07 200 211
Westpoint Stevens, Sr. Notes,
8.75%, 12/15/01 200 205
623
Transportation 1.2%
Delta Air Lines, ETC, 10.00%, 5/17/10 146 175
Sea Containers Ltd., Sr. Sub.
Deb., 12.50%, 12/1/04 70 78
253
Total Corporate Bonds and
Notes (Cost $19,649) 19,515
EQUITY AND CONVERTIBLE SECURITIES 0.6%
Savings and Loan 0.6%
California Federal Bank,
Pfd. Stock $ 1 $ 112
Total Equity and Convertible
Securities (Cost $117) 112
ASSET-BACKED SECURITIES 0.5%
Airlines 0.5%
Airplane Pass Through Trust,
10.875%, 3/15/19 100 112
Total Asset-Backed Securities
(Cost $101) 112
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 0.4%
U.S. Government Guaranteed Obligations 0.4%
Government National Mortgage Assn.
I, 9.50%, 8/15/16 55 60
II, 10.50%, 2/20/19 19 21
Total U.S. Government Mortgage-Backed
Securities (Cost $80) 81
COMMERCIAL PAPER 2.6%
Investments in Commercial Paper
through a Joint Account
5.60 - 5.69%, 6/2/97 547 547
Total Commercial Paper (Cost $547) 547
Total Investments in Securities
98.2% of Net Assets (Cost $20,494) $ 20,367
Other Assets Less Liabilities 365
NET ASSETS $ 20,732
_________
In thousands
ETC Equipment Trust Certificate
MTN Medium Term Note
PTC Pass-through Certificate
REIT Real Estate Investment Trust
144a Security was purchased pursuant to Rule 144a under the
Securities Act of 1933 and may not be resold subject to
that rule except to qualified institutional buyers -
total of such securities at year-end amounts to 35.1%
of net assets.
The accompanying notes are an integral part of these financial
statements.
The
T. Rowe Price Corporate Income Fund
May 31, 1997
Statement of Assets and Liabilities
In thousands
Assets
Investments in securities, at
value (cost $20,494) $ 20,367
Receivable for investment
securities sold 2,171
Other assets 561
Total assets 23,099
Liabilities
Payable for investment securities
purchased 2,209
Other liabilities 158
Total liabilities 2,367
NET ASSETS $ 20,732
_________
Net Assets Consist of:
Accumulated net investment income
- net of distributions $ 21
Accumulated net realized gain/loss -
net of distributions (177)
Net unrealized gain (loss) (127)
Paid-in-capital applicable to 2,112,250
shares of $0.0001 par value capital
stock outstanding; 1,000,000,000
shares authorized 21,015
NET ASSETS $ 20,732
_________
NET ASSET VALUE PER SHARE $ 9.81
_________
T. Rowe Price Corporate Income Fund
Statement of Operations
In thousands
Year
Ended
5/31/97
Investment Income
Interest and dividend income $ 1,333
Expenses
Custody and accounting 99
Shareholder servicing 52
Registration 34
Legal and audit 19
Organization 10
Prospectus and shareholder reports 8
Directors 7
Miscellaneous 4
Reimbursed by manager (106)
Total expenses 127
Net investment income 1,206
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities (150)
Change in net unrealized gain or
loss on securities 440
Net realized and unrealized gain (loss) 290
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 1,496
_________
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Corporate Income Fund
Statement of Changes in Net Assets
In thousands
Year 10/31/95
Ended to
5/31/97 5/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,206 $ 309
Net realized gain (loss) (150) (27)
Change in net unrealized
gain or loss 440 (567)
Increase (decrease) in net
assets from operations 1,496 (285)
Distributions to shareholders
Net investment income (1,203) (307)
Capital share transactions*
Shares sold 14,903 14,825
Distributions reinvested 798 257
Shares redeemed (7,723) (2,129)
Increase (decrease) in net
assets from capital
share transactions 7,978 12,953
Net Assets
Increase (decrease) during period 8,271 12,361
Beginning of period 12,461 100
End of period $ 20,732 $ 12,461
____________________
*Share information
Shares sold 1,522 1,483
Distributions reinvested 81 26
Shares redeemed (792) (218)
Increase (decrease) in shares
outstanding 811 1,291
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Corporate Income Fund
May 31, 1997
Notes to Financial Statements
T. Rowe Price Corporate Income Fund
Note 1 - Significant Accounting Policies
T. Rowe Price Corporate Income Fund, Inc. (the fund) is
registered under the Investment Company Act of 1940 as a
diversified, open-end management investment company and
commenced operations on October 31, 1995.
Valuation Debt securities are generally traded in the
over-the-counter market. Investments in securities originally
issued with maturities of one year or more are stated at fair
value as furnished by dealers who make markets in such
securities or by an independent pricing service, which considers
yield or price of bonds of comparable quality, coupon, maturity,
and type, as well as prices quoted by dealers who make markets
in such securities. Securities with original maturities of less
than one year are stated at fair value, which is determined by
using a matrix system that establishes a value for each security
based on money market yields.
Equity securities listed or regularly traded on a securities
exchange are valued at the last quoted sales price on the day
the valuations are made. A security which is listed or traded on
more than one exchange is valued at the quotation on the
exchange determined to be the primary market for such security.
Listed securities not traded on a particular day and securities
regularly traded in the over-the-counter market are valued at
the mean of the latest bid and asked prices. Other equity
securities are valued at a price within the limits of the latest
bid and asked prices deemed by the Board of Directors, or by
persons delegated by the Board, best to reflect fair value.
Assets and liabilities for which the above valuation procedures
are inappropriate or are deemed not to reflect fair value are
stated at fair value as determined in good faith by or under the
supervision of the officers of the fund, as authorized by the
Board of Directors.
Premiums and Discounts Premiums and discounts on debt
securities, other than mortgage-backed securities, are amortized
for both financial reporting and tax purposes.
Premiums and discounts on mortgage-backed securities are
recognized upon principal repayment as gain or loss for
financial reporting purposes and as ordinary income for tax
purposes.
Other Income and expenses are recorded on the accrual basis.
Investment transactions are accounted for on the trade date.
Realized gains and losses are reported on the identified cost
basis. Dividend income and distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and capital
gain distributions are determined in accordance with federal
income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles.
Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages in
the following practices to manage exposure to certain risks or
enhance performance. The investment objective, policies,
program, and risk factors of the fund are described more fully
in the fund's prospectus and Statement of Additional
Information.
Noninvestment-Grade Debt Securities At May 31, 1997, the fund
held investments in noninvestment-grade debt securities,
commonly referred to as "high-yield" or "junk" bonds. A real or
perceived economic downturn or higher interest rates could
adversely affect the liquidity or value, or both, of such
securities because such events could lessen the ability of
issuers to make principal and interest payments.
Commercial Paper Joint Account The fund, and other affiliated
funds, may transfer uninvested cash into a commercial paper
joint account, the daily aggregate balance of which is invested
in high-grade commercial paper. All securities purchased by the
joint account satisfy the fund's criteria as to quality, yield,
and liquidity.
Other Purchases and sales of portfolio securities, other than
short-term and U.S. government securities, aggregated
$26,025,000 and $18,261,000, respectively, for the year ended
May 31, 1997.
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since the fund
intends to continue to qualify as a regulated investment company
and distribute all of its taxable income. The fund has unused
realized capital loss carryforwards for federal income tax
purposes of $101,000, which expire in 2005. The fund intends to
retain gains realized in future periods that may be offset by
available capital loss carryforwards.
In order for the fund's capital accounts and distributions to
shareholders to reflect the tax character of certain
transactions, the following reclassifications were made during
the year ended May 31, 1997. The results of operations and net
assets were not affected by the reclassifications.
Undistributed net investment income $ 10,000
Paid-in-capital (10,000)
At May 31, 1997, the aggregate cost of investments for federal
income tax and financial reporting purposes was $20,494,000, and
net unrealized loss aggregated $127,000, of which $220,000
related to appreciated investments and $347,000 to depreciated
investments.
Note 4 - Related Party Transactions
The investment management agreement between the fund and T. Rowe
Price Associates, Inc. (the manager) provides for an annual
investment management fee, computed daily and paid monthly,
consisting of an individual fund fee equal to 0.15% of average
daily net assets and a group fee. The group fee is based on the
combined assets of certain mutual funds sponsored by the manager
or Rowe Price-Fleming International, Inc. (the group). The group
fee rate ranges from 0.48% for the first $1 billion of assets to
0.30% for assets in excess of $80 billion. At May 31, 1997, and
for the year then ended, the effective annual group fee rate was
0.33%. The fund pays a pro-rata share of the group fee based on
the ratio of its net assets to those of the group.
Under the terms of the investment management agreement, the
manager is required to bear any expenses through May 31, 1997,
which would cause the fund's ratio of expenses to average net
assets to exceed 0.80%. Thereafter, through May 31, 1999, the
fund is required to reimburse the manager for these expenses,
provided that average net assets have grown or expenses have
declined sufficiently to allow reimbursement without causing the
fund's ratio of expenses to average net assets to exceed 0.80%.
Pursuant to this agreement, $76,000 of management fees were not
accrued by the fund for the year ended May 31, 1997, and
$106,000 of other expenses were borne by the manager.
Additionally, $79,000 of unaccrued fees and expenses related to
a prior period are subject to reimbursement through May 31,
1999.
In addition, the fund has entered into agreements with the
manager and two wholly owned subsidiaries of the manager,
pursuant to which the fund receives certain other services. The
manager computes the daily share price and maintains the
financial records of the fund. T. Rowe Price Services, Inc., is
the fund's transfer and dividend disbursing agent and provides
shareholder and administrative services to the fund. T. Rowe
Price Retirement Plan Services, Inc., provides subaccounting and
recordkeeping services for certain retirement accounts invested
in the fund. The fund incurred expenses pursuant to these
related party agreements totaling approximately $110,000 for the
year ended May 31, 1997, of which $10,000 was payable at
period-end.
T. Rowe Price Corporate Income Fund
Report of Independent Accountants
T. Rowe Price Shareholder Services
To the Board of Directors and Shareholders of
T. Rowe Price Corporate Income Fund, Inc.
In our opinion, the accompanying statement of assets and
liabilities, including the portfolio of investments, and the
related statements of operations and of changes in net assets
and the financial highlights present fairly, in all material
respects, the financial position of T. Rowe Price Corporate
Income Fund, Inc. (the "Fund") at May 31, 1997, and the results
of its operations, the changes in its net assets and the
financial highlights for each of the fiscal periods presented,
in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of
the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the
overall financial statement presentation. We believe that our
audits, which included confirmation of securities at May 31,
1997 by correspondence with the custodian and, where
appropriate, the application of alternative auditing procedures
for unsettled security transactions, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 18, 1997
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a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Corporate Income Fund.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor.
F03-050 5/31/97
CHART 1 - Interest Rate Levels chart showing yields of BBB-rated
corporate bonds and 10-year Treasuries from 5/31/96 through
5/31/97
CHART 2 - insert graph with five pairs of bars, one for 6- and
one for 12-month returns, for following credit sectors (sample
attached)
CHART 3 - Quality diversification pie chart showing A-rated and
above 9%, BBB 61%, BB 19%, B 10%, Convertible Preferred Stock 1%
Chart 4 - Performance Comparison
A line chart showing the cumulative growth of $10,000 invested
in the CIF Fund over the past 10 years (or from inception for
funds lacking 10-year histories) compared with $10,000 invested
in a broad-based index or average over the same period.
