Annual Report
Corporate Income Fund
May 31, 1998
T. Rowe Price
REPORT HIGHLIGHTS
Corporate Income Fund
o A strong economy, high consumer confidence, and low
inflation resulted in solid returns for the corporate
bond market.
o High-yield bonds did best over the half year, while
BBB/BB rated bonds matched their performance for the
fiscal year.
o Your fund's 12-month return of 13.96% far surpassed both
the average performance of similar funds and the Lehman
bond index. For the past six months, the fund's return of
4.36% also exceeded the index and its peer group average.
o Strong results were attributed to the fund's focus on
lower-quality bonds within both the investment-grade and
high-yield sectors.
o We anticipate stable to slightly lower rates, which
should benefit shareholders as long as economic growth
does not slow significantly.
Fellow Shareholders
The U.S. economy continued on its path of high employment,
strong consumer confidence, and low inflation through the past
six-month period. This environment was positive for your fund
and for most sectors of the U.S. bond market. Despite
quarter-to-quarter fluctuations in economic data, the Federal
Reserve has not seen a need to change short-term rates for
more than a year.
MARKET ENVIRONMENT
Events in the Far East threatened to slow U.S. economic growth
and continued to roil financial markets. Uncertainty over
attempts to rebuild the South Korean and Thai financial
systems through IMF loans, along with political unrest in
Indonesia, have spilled over to other regions. In Latin
America there has been some negative impact both economically
and politically, putting some downward pressure on Yankee
bonds (non-U.S. issuers of U.S. dollar-denominated bonds),
although they turned in positive results over the past six
months and fiscal year. The U.S. Treasury market has benefited
from a flight to safety as investors wait out the course of
global events.
Interest Rate Levels chart
BBB-Rated Corporate Bond 10-Year
Treasury Note
5/31/97 7.8 6.75
7.67 6.45
7.43 6.11
8/97 7.58 6.38
7.47 6.06
7.41 5.9
11/97 7.43 5.86
7.36 5.74
7.31 5.63
2/98 7.31 5.63
7.31 5.63
7.29 5.75
5/31/98 7.24 5.57
Ten-year Treasury bond yields fell from 6.75% a year ago and
5.86% six months ago to 5.57% at the end of May. (See chart on
this page.) BBB rated corporate bond yields also dropped, but
not nearly as far-slightly more than half a percentage point
over the year. The decline in rates provided excellent returns
in most sectors of the U.S. market. Shorter-term rates also
fell a bit, but were generally more stable as the Federal
Reserve kept monetary policy on hold for the entire year.
Total Return by Credit Quality chart
6-Month Return 12-Month Return
AAA/AA/A 4.68 12.14
BBB 4.75 12.89
BBB/BB 5.46 14.18
BB 5.26 13.01
B 6.38 14.18
During the past six months, B rated corporate bonds posted the
best returns, while higher-quality BBB/BB rated bonds matched
their strong performance over the 12 months ended May 31. The
annual return reflects a pattern of credit upgrades among
lower-quality bonds during the period. (See graph to the
left.) The robust economy with strong corporate earnings
usually benefits high-yield bonds, while declining interest
rates are good for higher-quality securities.
PERFORMANCE REVIEW
Your fund posted excellent results for the fiscal year, far
surpassing the return of the Lehman Aggregate Bond Index and
the average for its peer group. Performance during the past
six months was also good. Results reflected an increase in
share price from $9.81 last May to $10.39 at the end of May
1998, and high income despite falling interest rates.
Performance Comparison
Periods Ended 5/31/98 6 Months 12 Months
_____________________________________________________________
Corporate Income Fund 4.36% 13.96%
Lehman Aggregate
Bond Index 4.09 10.91
Lipper Corporate Debt
BBB Funds Average 4.02 11.31
Our in-house credit research enabled us to buy higher-yielding
bonds with good credit outlooks, many of which enjoyed
upgrades during the year, and also attractive securities in
global markets. In addition, we were able to take advantage of
a correction in Yankee bonds to buy high-quality securities at
low prices. Yankee bonds constituted approximately 33% of the
portfolio at the end of May.
STRATEGY
Overseas turmoil had an overriding influence on our investment
decisions regarding issue, sector, and country
diversification. We made maximum use of lower-credit sectors
in both the investment-grade (BBB and higher) and high-yield
(B and BB) portions of the portfolio. At the same time, we
Quality Diversification pie chart
A-Rated and Above BBB-Rated BB-Rated B-Rated
9 60 21 10
kept our exposure to bonds rated investment-grade by at least
one rating agency above 65%, its lowest allowable limit. The B
sector held steady at 10% of the portfolio, the maximum
allowable limit, and BB bonds constituted 21% of fund
investments.
We will maintain this reasonably aggressive quality
distribution as long as the economy seems moderately strong
and fears of a dramatic slowing of exports to the Far East do
not materialize. Should a significant slowdown develop later
this year, we would react with both a credit upgrade in the
U.S. market and a rotation in the Yankee holdings to issuers
with stronger economic fundamentals. Until then, we believe
our overall strategy will continue to serve shareholders well
in the current environment.
OUTLOOK
We believe a period of stable-to-slightly-lower rates may lie
ahead as the economy remains on a positive track, but cools
from its heated performance of 1997 and the first quarter of
1998. We anticipate fluctuations in the yields among various
credit quality bonds, which would continue the pattern of
divergent returns for the various credit sectors.
As events play out in Asia and ripple across to Europe and
Latin America, we will look for opportunities to add value in
appropriate sectors of the market. Barring a dramatic slowdown
in the economy, leading to significant credit concerns and
falling prices for lower-quality bonds-something we do not
expect to occur-corporate securities should continue to
provide sound 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 19, 1998
T. Rowe Price Corporate Income Fund
Portfolio Highlights
______________________________________________________________
__________
Key statistics
11/30/97 5/31/98
______________________________________________________________
__________
Price Per Share $ 10.32 $ 10.39
Dividends Per Share
For 6 months 0.38 0.37
For 12 months 0.75 0.76
Dividend Yield *
For 6 months 7.66% 7.32%
For 12 months 7.81 7.63
Weighted Average Maturity (years) 16.1 16.8
Weighted Average
Effective Duration (years) 6.3 6.3
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
11/30/97 5/31/98
______________________________________________________________
___________
Banking 18% 22%
Finance and Credit 22 17
Industrial 8 13
Container 1 6
Health Care 1 5
Media and Communications - 5
Specialty Chemicals - 4
Consumer Products - 3
Transportation 2 2
Cable Operators 16 2
Retail 1 2
All Other 29 19
Other Assets Less Liabilities 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.
Corporate Income Fund SEC chart
Lipper Corp Debt BBB
LB Aggregate Bond Index Funds
Average CIF-Line
10/31/95 10000 1000010000
5/96 10033 10031 10009
5/97 10867 10974 11045
5/98 12053 12228 12587
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 5/31/98 1 Year Inception Date
Corporate Income Fund 13.96% 9.32% 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
Financial HighlightsFor a share outstanding throughout each period
______________________________________________________________
____________
Year 10/31/95
Ended through
5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 9.81 $ 9.58 $ 10.00
Investment activities
Net investment income 0.75* 0.73* 0.44*
Net realized and
unrealized gain (loss) 0.59 0.23 (0.42)
Total from
investment activities 1.34 0.96 0.02
Distributions
Net investment income (0.76) (0.73) (0.44)
NET ASSET VALUE
End of period $ 10.39 $ 9.81 $ 9.58
_____________________________________
Ratios/Supplemental Data
Total return+ 13.96%* 10.35%* 0.09%*
Ratio of expenses to
average net assets 0.80%* 0.80%* 0.80%*!
Ratio of net investment
income to average
net assets 7.33%* 7.55%* 7.56%*!
Portfolio turnover rate 146.0% 119.5% 70.5%!
Net assets, end of period
(in thousands) $42,829 $20,732 $12,461
+ Total return reflects the rate that an investor would have
earned on an investment in the fund during each period,
assuming reinvestment of all distributions.
* Excludes expenses in excess of a 0.80% voluntary expense
limitation in effect through 5/31/99.
! Annualized.
The accompanying notes are an integral part of these financial
statements.
T. Rowe price Corporate Income Fund
______________________________________________________________
___________
May 31, 1998
Statement of Net Assets Par/Shares Value
______________________________________________________________
___________
In thousands
CORPORATE BONDS AND NOTES 96.8%
Aerospace and Defense 1.1%
Coltec Industries, Sr. Notes,
(144a), 7.50%, 4/15/08 $ 250 $ 250
Newport News Shipbuilding, Sr. Notes,
8.625%, 12/1/06 200 210
460
Banking 21.8%
Banco Generale, Sr. Sub. Notes,
(144a), 7.70%, 8/1/02 1,500 1,464
Bank United, 8.875%, 5/1/07 1,500 1,642
IBJ Preferred Capital, (144a), 8.79%, 12/29/49 3,000
2,658
Riggs Capital Trust, (144a), 8.625%, 12/31/26 1,500
1,615
SB Treasury, (144a), 9.40%, 12/29/49 2,000 1,953
9,332
Broadcasting 1.8%
Chancellor Radio Broadcasting Sr. Sub. Notes,
(144a), 8.125%, 12/15/07 250 250
Muzak, Gtd. Sr. Notes,
10.00%, 10/1/03 265 275
TV Azteca, Gtd. Sr. Notes,
10.50%, 2/15/07 250 257
782
Building Products 0.5%
Building Materials Corporation of America
Sr. Notes, 8.625%, 12/15/06 200 206
206
Cable Operators 2.2%
CSC Holdings, Sr. Notes,
7.875%, 12/15/07 200 206
Fundy Cable, Sr. Secured 2nd Priority Notes,
11.00%, 11/15/05 250 275
Lenfest Communications, Sr. Sub. Notes,
10.50%, 6/15/06 250 284
Rogers Cablesystems, Sr. Sub. Deb.,
11.00%, 12/1/15 150 172
937
Consumer Products 2.8%
American Safety Razor, Sr. Notes,
9.875%, 8/1/05 150 161
Doane Products, Sr. Notes,
10.625%, 3/1/06 225 244
Herff Jones, Sr. Sub. Notes,
11.00%, 8/15/05 250 274
Holmes Products, Gtd. Notes,
9.875%, 11/15/07 200 205
Purina Mills, Sr. Sub. Notes, (144a),
9.00%, 3/15/10 100 103
Revlon Consumer Products, Sr. Sub.
Notes, 8.625%, 2/1/08 200 199
1,186
Container 5.6%
Owens Illinois, Sr. Deb.,
7.80%, 5/15/18 $ 2,000 $2,031
Plastic Containers, Sr. Secured Notes,
10.00%, 12/15/06 150 163
Silgan Holdings, Sr. Sub. Deb.,
9.00%, 6/1/09 200 207
2,401
Energy 1.0%
Amerigas Partners L.P., Sr. Notes,
10.125%, 4/15/07 200 214
Energy Corporation of America, Sr. Sub.
Notes, 9.50%, 5/15/07 100 99
Offshore Logistics, (144a),
7.875%, 1/15/08 100 99
412
Energy Services 0.5%
Pride Petroleum Services, Sr. Notes,
9.375%, 5/1/07 200 215
215
Entertainment and Leisure 0.3%
Six Flags Theme Parks, Sr. Sub.
Disc. Notes, STEP
Zero Coupon, 6/15/05 100 113
113
Finance and Credit 16.6%
Bay View Capital, Sub. Notes,
9.125%, 8/15/07 325 335
Contifinancial, Sr. Notes,
8.125%, 4/1/08 2,000 2,036
Fairfax Financial Holdings,
8.25%, 10/1/15 1,500 1,667
Hutchison Whampoa Finance, (144a),
6.95%, 8/1/07 3,000 2,786
Ocwen Capital Trust I, 10.875%, 8/1/27 250 272
7,096
Food and Tobacco 0.9%
Archibald Candy, Sr. Secured Notes,
10.25%, 7/1/04 225 240
Aurora Foods, Sr. Sub. Notes,
9.875%, 2/15/07 100 106
Smithfield Foods, Sr. Sub. Notes,
(144a), 7.625%, 2/15/08 50 50
396
Gaming 1.7%
Boyd Gaming, Sr. Sub. Notes,
9.50%, 7/15/07 100 105
Grand Casino, 1st Mtg. Notes,
10.125%, 12/1/03 300 324
Horseshoe Gaming, Sr. Sub. Notes,
9.375%, 6/15/07 100 106
Rio Hotel & Casino, Sr. Sub. Notes,
10.625%, 7/15/05 200 216
751
Health Care 5.5%
Beckman Instruments, Sr. Notes,
(144a), 7.45%, 3/4/08 2,000 2,022
Quest Diagnostics, Gtd. Sr. Sub. Notes,
10.75%, 12/15/06 100 112
Tenet Healthcare, Sr. Sub. Notes,
8.625%, 1/15/07 $ 200 $ 205
2,339
Industrials 13.3%
Viacom, Sr. Deb.,
7.625%, 1/15/16 1,500 1,595
YPF Sociedad Anonima,
7.75%, 8/27/07 4,000 4,103
5,698
Lodging 0.5%
Courtyard by Marriott II, Sr.
Secured Notes, 10.75%, 2/1/08 50 55
Red Roof Inns, Sr. Notes,
9.625%, 12/15/03 150 155
210
Media and Communications 4.6%
News America, (144a),
6.75%, 1/9/38 2,000 1,985
1,985
Metals and Mining 1.7%
AEI Holding, Sr. Notes,
(144a), 10.00%, 11/15/07 300 301
P&L Coal Holdings, Sr. Notes,
(144a), 8.875%, 5/15/08 425 435
736
Printing and Publishing 0.6%
Hollinger International Publishing,
Gtd. Notes, 9.25%, 3/15/07 250 261
261
Restaurants 0.3%
Mrs. Fields Original, Gtd. Sr. Notes,
(144a), 10.125%, 12/1/04 150 147
147
Retail 2.1%
Finlay Fine Jewelry, Sr. Notes,
8.375%, 5/1/08 500 504
Safelite Glass, Sr. Sub. Notes,
(144a), 9.875%, 12/15/06 150 159
Specialty Retailers, Sr. Notes,
8.50%, 7/15/05 250 258
921
Savings and Loan 0.4%
ML Capital Trust, Gtd. Notes,
9.875%, 3/1/27 150 175
175
Service 1.8%
Coinmach, Sr. Sub. Notes,
11.75%, 11/15/05 250 278
Host Marriott Travel, Sr. Notes,
9.50%, 5/15/05 150 159
Intertek Finance, Sr. Sub. Notes,
10.25%, 11/1/06 75 79
Rural/Metro, Sr. Notes,
(144a), 7.875%, 3/15/08 250 251
767
Specialty Chemicals 3.5%
American Pacific, Sr. Notes,
(144a), 9.25%, 3/1/05 $ 250 $ 258
ISP Holdings, Sr. Notes,
9.75%, 2/15/02 200 211
Sociedad Quimira Y Minera,
(144a), 7.70%, 9/15/06 1,000 1,037
1,506
Supermarkets 0.6%
Fred Meyer, 7.45%, 3/1/08 250 251
251
Telecommunications 1.4%
Intermedia Communications, Sr. Notes,
8.50%, 1/15/08 250 251
Mastec, Sr. Sub. Notes,
(144a), 7.75%, 2/1/08 250 237
PSI Net, Sr. Notes,
(144a), 10.00%, 2/15/05 100 102
590
Telephone 0.6%
Flag Ltd., Sr. Notes, (144a),
8.25%, 1/30/08 250 254
254
Textiles and Apparel 0.7%
J. P. Stevens, Deb.,
9.00%, 3/1/17 100 104
Westpoint Stevens, Sr. Notes,
8.75%, 12/15/01 200 211
315
Transportation 2.4%
Allied Holdings, Gtd. Sr. Sub. Notes,
8.625%, 10/1/07 250 253
International Shipholding, Sr. Notes,
7.75%, 10/15/07 250 244
Sea Containers Ltd., Sr. Sub. Deb.,
12.50%, 12/1/04 250 280
Stena AB, Sr. Notes,
8.75%, 6/15/07 250 251
1,028
Total Corporate Bonds and Notes (Cost $41,274) 4
1
,
4
7
0
ASSET-BACKED SECURITIES 0.7%
Airlines 0.7%
Airplane Pass Through Trust,
10.875%, 3/15/19 250 275
Total Asset-Backed Securities (Cost $273) 275
U.S. GOVERNMENT OBLIGATIONS 0.2%
U.S. Treasury Bills, 5.14%, 6/11/98 $ 100 $ 100
Total U.S. Government Obligations (Cost $100) 100
MONEY MARKET FUNDS 1.8%
Reserve Investment Fund, 5.67% # 774 774
Total Money Market Funds (Cost $774) 774
Total Investments in Securities
99.5% of Net Assets (Cost $42,421) $42,619
Other Assets Less Liabilities 210
NET ASSETS $42,829
Net Assets Consist of:
Accumulated net investment income - net of distributions $
2
8
Accumulated net realized gain/loss - net of distributions 8
6
8
Net unrealized gain (loss) 198
Paid-in-capital applicable to 4,122,146
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 41,735
NET ASSETS $42,829
NET ASSET VALUE PER SHARE $10.39
# Seven-day yield
STEP Stepped Coupon Bond
for which the
interest rate will
adjust on specified
future dates.
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
period-end amounts
to 43.0% of net
assets.
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Corporate Income Fund
Statement of Operations
______________________________________________________________
____________
In thousands
Year
Ended
5/31/98
Investment Income
Interest and dividend income $2,549
Expenses
Custody and accounting 98
Shareholder servicing 61
Registration 39
Legal and audit 16
Prospectus and shareholder reports 16
Organization 10
Directors 7
Miscellaneous 4
Total expenses 251
Net investment income 2,298
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 1,132
Futures (87)
Net realized gain (loss) 1,045
Change in net unrealized gain or loss on securities 325
Net realized and unrealized gain (loss) 1,370
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $3,668
_______
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
Ended
5/31/98 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $2,298 $1,206
Net realized gain (loss) 1,045 (150)
Change in net unrealized gain or loss 325 440
Increase (decrease) in net assets
from operations 3,668 1,496
Distributions to shareholders
Net investment income (2,301) (1,203)
Capital share transactions*
Shares sold 32,456 14,903
Distributions reinvested 1,448 798
Shares redeemed (13,174) (7,723)
Increase (decrease) in net assets
from capital share transactions 20,730 7,978
Net Assets
Increase (decrease) during period 22,097 8,271
Beginning of period 20,732 12,461
End of period $42,829 $20,732
___________________
*Share information
Shares sold 3,146 1,522
Distributions reinvested 141 81
Shares redeemed (1,277) (792)
Increase (decrease) in shares outstanding 2,010
811
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Corporate Income Fund
May 31, 1998
Notes to Financial Statements
______________________________________________________________
___________
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.
The accompanying financial statements are prepared in
accordance with generally accepted accounting principles
for the investment company industry; these principles may
require the use of estimates by fund management.
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.
Investments in mutual funds are valued at the closing net
asset value per share of the mutual fund on the day of
valuation.
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 are amortized for both financial reporting and
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, 1998, 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.
Other Purchases and sales of portfolio securities, other
than short-term and U.S. government securities, aggregated
$64,704,000 and $44,133,000, respectively, for the year
ended May 31, 1998. Sales of U.S. government securities
aggregated $80,000, for the year ended May 31, 1998.
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. At May 31, 1998, the fund had no unused realized
capital loss carryforwards for federal income tax purposes.
Capital loss carryforwards utilized in 1998 amounted to
$101,000.
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, 1998. The results of
operations and net assets were not affected by the
increases/(decreases) to these accounts.
___________________________________________________________
___________
Undistributed net investment income $10,000
Paid-in-capital (10,000)
At May 31, 1998, the aggregate cost of investments for
federal income tax and financial reporting purposes was
$42,421,000, and net unrealized gain aggregated $198,000,
of which $600,000 related to appreciated investments and
$402,000 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, 1998, and for
the year then ended, the effective annual group fee rate
was 0.32%. 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,
1999, which would cause the fund's ratio of expenses to
average net assets to exceed 0.80%. Thereafter, through May
31, 2001, 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, $148,000 of management fees were not accrued by
the fund for the year ended May 31, 1998, and $1,000 of
other expenses were borne by the manager. Additionally,
$261,000 of unaccrued fees and expenses related to a
previous expense limitation 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 $118,000 for the year
ended May 31, 1998, of which $11,000 was payable at
period-end.
The fund may invest in the Reserve Investment Fund and
Government Reserve Investment Fund (collectively, the
Reserve Funds), open-end management investment companies
managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds
and other accounts managed by T. Rowe Price and its
affiliates and are not available to the public. The Reserve
Funds pay no investment management fees. Distributions from
the Reserve Funds to the fund for the year ended May 31,
1998, totaled $36,000 and are reflected as interest income
in the accompanying Statement of Operations.
T. Rowe Price Corporate Income Fund
Tax Information (unaudited) for the Tax Year Ended 5/31/1998
We are providing this information as required by the
Internal Revenue Code. The amounts shown may differ from
those elsewhere in this report because of differences
between tax and financial reporting requirements.
For corporate shareholders, $3,000 of the fund's
distributed income qualified for the dividends-received
deduction.
T. Rowe Price Corporate Income Fund
Report of Independent Accountants
______________________________________________________________
____________
To the Board of Directors and Shareholders of
T. Rowe Price Corporate Income Fund, Inc.
In our opinion, the accompanying statement of net assets
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,
1998, 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, 1998, 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 17, 1998
T. Rowe Price Shareholder Services
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday
from 8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5
p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500
minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your
distributions.
Automated 24-Hour Services Including
Tele*Access(registered trademark) and the T. Rowe Price Web
site on the Internet. Address: www.troweprice.com
DISCOUNT BROKERAGE*
Individual Investments Stocks, bonds, options, precious
metals, and other securities at a savings over regular
commission rates.
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T.
Rowe Price.
Shareholder Reports Fund managers' reviews of their
strategies and results.
T. Rowe Price Report Quarterly investment newsletter
discussing markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price
fund results.
Insights Educational reports on investment strategies and
financial markets.
Investment Guides Asset Mix Worksheet, College Planning
Kit, Diversifying Overseas: A Guide to International
Investing, Personal Strategy Planner, Retirees Financial
Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
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 5/31/98
