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T. Rowe Price
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Annual Report
Corporate Income Fund
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November 30, 1997
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REPORT HIGHLIGHTS
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CORPORATE INCOME FUND
o The corporate bond market posted strong returns during the past six months,
despite turmoil in many Asian markets.
o Corporate bonds trailed Treasuries in recent weeks as the Asian crisis
fueled a flight to safety in U.S.-backed securities.
o Yourfund's six-month return surpassed both the average performance of
similar funds and the Lehman bond index.
o Relatively strong results were attributed to the fund's focus on
lower-quality bonds within the investment-grade and high-yield sectors.
o We anticipate slightly lower rates, which should benefit corporate bonds as
long as economic growth does not slow significantly as a result of
international woes.
FELLOW SHAREHOLDERS
Despite turmoil in Asian economies, the corporate bond market and your fund
turned in a solid performance during the six months ended November 30, 1997, and
attractive results over the past 12 months. Global stock markets reacted to the
events in Southeast Asia by falling dramatically. Corporate bond prices also
fell, dampening returns for the entire year. The main beneficiary was the U.S.
Treasury market, which surged on an investor flight to safety.
<PAGE>
MARKET ENVIRONMENT
Both high-quality and high-yield bonds were affected negatively in recent
months, as fallout from overbuilding and excess manufacturing capacity in Asia,
along with the takeover of Hong Kong by China, took their toll on the U.S.
market. Uncertainties about the effect lower exports to Asia might have on
corporate profits resulted in widening yield spreads between high-yield bonds
and Treasuries, as the latter outperformed. High-yield bonds usually respond
more like stocks to the underlying strength of the companies that issue them.
[Interest Rate Levels chart showing yields of BBB-rated corporate bonds and
10-year Treasuries from 11/30/96 through 11/30/97]
The 10-year Treasury note yield fell from a peak of 6.79% at the end of
March to 5.86% at your fund's fiscal year-end. The BBB-rated corporate bond
yield also declined, but not as far, from 7.91% in March to 7.43%. (See chart on
this page.) The Federal Reserve remained on hold following its quarter-point
hike in the key fed funds rate in March, when it became apparent that the U.S.
economy was continuing along its ideal path of high employment, high consumer
confidence, and low inflation.
[Graph with five pairs of bars, one for 6- and one for 12-month returns,
for following credit sectors:
Periods Ended 11/30/97 6 Months 12 Months
AAA/AA/A 7.13 7.52
BBB 7.77 8.66
BBB/BB 8.64 11.99
BB 7.36 11.84
B 7.33% 13.61%
Source: Salomon Brothers, Inc.]
During the past six months, BBB/BB corporate bonds posted the best returns,
while lower-quality B-rated bonds were strongest over the 12 months ended
November 30, which is in keeping with the normal risk/return pattern. (See graph
on this page.) The robust economy with strong corporate earnings usually
benefits the high-yield bond sector, while generally declining interest rates
are good for higher-quality securities.
PERFORMANCE REVIEW
An increase in share price from $9.81 last May to $10.32 at the end of
November accounted for more than half of your fund's solid return for the last
six months. Dividend income was responsible for the remainder. The return for
the 12-month period was attributed primarily to income, although a $0.23 per
share increase in net asset value also helped. Results for both periods far
outpaced the average returns for similar funds and for the Lehman Aggregate Bond
Index, as can be seen in the table.
<PAGE>
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Performance Comparison
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Periods Ended 11/30/97 6 Months 12 Months
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Corporate Income Fund 9.21% 10.24%
Lehman Aggregate
Bond Index 6.55 7.55
Lipper Corporate Debt
BBB Funds Average 6.99 7.76
================================================================================
Your fund's strong relative performance reflected our comprehensive use of
in-house research, which enabled us to allocate portfolio holdings among various
credit quality sectors, as shown in the chart on page 3. 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 both our own credit research and our
outlook for the economy and the markets.
We also took advantage of the opportunity to buy so-called Yankee bonds
(U.S. dollar-denominated bonds of non-U.S. issuers) at extremely favorable
prices, following their decline during the October turbulence. These investments
paid off handsomely when they rallied in November.
STRATEGY
We continued to make maximum use of lower-quality securities in both the
investment-grade (BBB and higher) and high-yield sectors (BB and B).
Investment-grade bonds composed 73% of the portfolio at the end of November,
while BB and B securities made up the balance, at 17% and 10%, respectively.
[Quality diversification pie chart showing A-rated and above 9%, BBB 61%,
BB 19%, B 10%, Convertible Preferred Stock 1%]
This fairly aggressive quality distribution should continue to serve
shareholders well, as long as the economy remains moderately strong and a
significant slowdown related to Asian woes does not develop. Should a slowdown
occur, we would respond by upgrading credits within both the investment-grade
and high-yield sectors.
Our investment decisions continued to emphasize protection of principal and
level of income, and we used our in-house credit research to find improving
credit situations.
<PAGE>
OUTLOOK
With prospects looking good for a federal budget nearly in balance in1998,
bond markets will be looking toward Washington to get an idea of how any future
surpluses will be handled. A combination of tax cuts and debt reduction would be
regarded favorably, while any attempt to raise spending would have the opposite
effect. In the international arena, we believe that the slowdown in Asian
economic growth and its impact on domestic exports has largely been discounted
by the financial markets.
We anticipate a period of interest rate stability, with slightly lower
rates overall than during recent years. A significant slowdown in economic
growth would be a major concern, since it could lead to credit quality concerns
and lower prices for higher-yielding bonds. However, we do not see that taking
place. Therefore, corporate bonds should continue to provide attractive returns
during the year ahead, in our view.
Thank you for investing with T. Rowe Price.
Respectfully submitted,
/s/
Peter Van Dyke
President and Chairman of the Investment Advisory Committee
December 19, 1997
<PAGE>
T. Rowe Price Corporate Income Fund
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Portfolio Highlights
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Key statistics
5/31/97 11/30/97
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Price Per Share ......................................... $9.81 $10.32
Dividends Per Share
For 6 months ....................................... 0.37 0.38
For 12 months ...................................... 0.73 0.75
Dividend Yield *
For 6 months ....................................... 7.67% 7.66%
For 12 months ...................................... 7.79 7.81
Weighted Average Maturity (years) ....................... 18.3 16.1
Weighted Average Effective Duration (years) ............. 6.6 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.
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
5/31/97 11/30/97
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Finance and Credit ............................... 12% 22%
Banking .......................................... 19 18
Cable Operators .................................. 6 16
Industrial ....................................... -- 8
Savings and Loan ................................. 2 4
Gaming ........................................... 2 3
Electric Utilities ............................... 6 3
Transportation ................................... 1 2
Food and Tobacco ................................. 12 2
All Other ........................................ 38 20
Other Assets Less Liabilities .................... 2 2
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Total ............................................ 100% 100%
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<PAGE>
T. Rowe Price Corporate Income Fund
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Performance Comparison
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[Corporate Income Fund]
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.
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Average Annual Compound Total Return
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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.
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Since Inception
Periods Ended 11/30/97 1 Year Inception Date
Corporate Income Fund 10.24% 9.42% 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.
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<PAGE>
T. Rowe Price Corporate Income Fund
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Unaudited
For a share outstanding throughout each period
Financial Highlights
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6 Months Year 10/31/95
Ended Ended through
11/30/97 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period ............ $ 9.81 $ 9.58 $ 10.00
Investment activities
Net investment income .... 0.38* 0.73* 0.44*
Net realized and
unrealized gain (loss) ... 0.51 0.23 (0.42)
Total from
investment activities .... 0.89 0.96 0.02
Distributions
Net investment income .... (0.38) (0.73) (0.44)
NET ASSET VALUE
End of period .................. $ 10.32 $ 9.81 $ 9.58
Ratios/Supplemental Data
Total return ................... 9.21%* 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 ..................... 7.53%* 7.55%* 7.56%*
Portfolio turnover rate ........ 53.1% 119.5% 70.5%
Net assets, end of period
(in thousands) ................. $ 30,791 $ 20,732 $ 12,461
================================================================================
* 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.
<PAGE>
T. Rowe Price Corporate Income Fund
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Unaudited November 30, 1997
Statement of Net Assets Par Value
In thousands
CORPORATE BONDS AND NOTES 94.6%
Aerospace and Defense 0.4%
United Defense Industries, Sr. Sub. Notes, (144a)
8.75%, 11/15/07 $ ........................... 125 $ 123
123
Banking 18.3%
Banco Generale, Sr. Sub. Notes, (144a), 7.70%, 8/1/02 ....... 1,500 1,426
Bank United, 8.875%, 5/1/07 ................................. 1,000 1,071
MBNA Capital I, 8.278%, 12/1/26 ............................. 1,500 1,549
Riggs Capital Trust, (144a), 8.625%, 12/31/26 ............... 1,500 1,594
5,640
Broadcasting 1.6%
Muzak, Gtd. Sr. Notes, 10.00%, 10/1/03 ...................... 265 278
TV Azteca, Gtd. Sr. Notes, 10.50%, 2/15/07 .................. 200 208
486
Building Products 0.5%
Associated Materials, Sr. Sub. Notes, 11.50%, 8/15/03 ....... 154 164
164
Cable Operators 16.3%
Comcast Cable Communications, 8.50%, 5/1/27 ................. 1,000 1,139
Fundy Cable, Sr. Secured 2nd Priority Notes, 11.00%, 11/15/05 25 27
Lenfest Communications, Sr. Sub. Notes, 10.50%, 6/15/06 ..... 250 274
Rogers Cablesystems, Sr. Sub. Deb., 11.00%, 12/1/15 ......... 150 169
TCI Communications, Deb. Notes, 8.75%, 8/1/15 ............... 3,000 3,409
5,018
Chemicals 0.9%
Agricultural Minerals and Chemicals, Sr. Notes, 10.75%, 9/30/03 250 269
269
Consumer Products 1.0%
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 ............ 150 160
Doane Products, Sr. Notes, 10.625%, 3/1/06 .................. 125 134
294
<PAGE>
Container 0.5%
Plastic Containers, Sr. Secured Notes, 10.00%, 12/15/06 ..... 150 159
159
Electric Utilities 3.3%
Long Island Lighting, Gen. Ref. Bonds, 9.75%, 5/1/21 ........ 1,000 1,021
1,021
Energy 1.0%
Amerigas Partners L.P., Sr. Notes, 10.125%, 4/15/07 ......... $ 200 $ 215
Energy Corporation of America, Sr. Sub. Notes, 9.50%, 5/15/07 100 100
315
Energy Services 0.7%
Pride Petroleum Services, Sr. Notes, 9.375%, 5/1/07 ......... 200 214
214
Entertainment and Leisure 0.6%
United Artists Theatre Circuit, PTC, 9.30%, 7/1/15 .......... 195 195
195
Finance and Credit 21.6%
Bay View Capital, Sub. Notes, 9.125%, 8/15/07 ............... 125 129
Fairfax Financial Holdings, 8.25%, 10/1/15 .................. 1,000 1,096
Farmers Insurance, Surplus Notes, (144a), 8.625%, 5/1/24 .... 1,000 1,136
Hutchison Whampoa Finance, (144a), 6.95%, 8/1/07 ............ 3,000 2,926
Ocwen Capital Trust I, 10.875%, 8/1/27 ...................... 300 321
USF&G Capital II, Gtd. Notes, 8.47%, 1/10/27 ................ 1,000 1,054
6,662
Food Processing 0.5%
Mrs. Fields Original, Gtd. Sr. Notes, (144a), 10.125%, 12/1/04 150 151
151
Food and Tobacco 2.1%
Ameriserve Food, Sr. Sub. Notes, (144a), 10.125%, 7/15/07 ... 125 130
Archibald Candy, Sr. Secured Notes, 10.25%, 7/1/04 .......... 125 131
Aurora Foods, Sr. Sub. Notes, 9.875%, 2/15/07 ............... 100 105
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 ..................... 250 281
647
Gaming 3.4%
Grand Casino, 1st Mtg. Notes, 10.125%, 12/1/03 .............. 250 266
Horseshoe Gaming, Sr. Sub. Notes, 9.375%, 6/15/07 ........... 100 103
Rio Hotel & Casino, Sr. Sub. Notes, 10.625%, 7/15/05 ........ 200 217
Showboat, 1st Mtg. Bonds, 9.25%, 5/1/08 ..................... 250 261
Trump Atlantic City, 1st Mtg. Notes, 11.25%, 5/1/06 ......... 200 198
1,045
<PAGE>
Health Care 1.0%
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 .............. 100 111
Tenet Healthcare, Sr. Sub. Notes, 8.625%, 1/15/07 ........... 200 204
315
Industrials 7.8%
Viacom, Sr. Deb., 7.625%, 1/15/16 ........................... $1,000 $ 978
YPF Sociedad Anonima, 7.75%, 8/27/07 ........................ 1,400 1,413
2,391
Lodging 1.4%
Courtyard by Marriott II, Sr. Secured Notes, 10.75%, 2/1/08 50 54
HMH Properties, Sr. Notes, 8.875%, 7/15/07 ................ 200 206
Red Roof Inns, Sr. Notes, 9.625%, 12/15/03 ................ 150 155
415
Manufacturing 0.5%
American Standard, Deb., 9.25%, 12/1/16 ................... 155 161
161
Paper and Paper Products 0.4%
Container Corporation of America, Sr. Notes, 9.75%, 4/1/03 100 108
108
Printing and Publishing 0.3%
Sun Media, Sr. Sub. Notes, 9.50%, 2/15/07 ................. 100 106
106
Retail 1.4%
Safelite Glass, Sr. Sub. Notes, (144a), 9.875%, 12/15/06 .. 150 164
Specialty Retailers, Sr. Notes, 8.50%, 7/15/05 ............ 250 255
419
Savings and Loan 4.4%
B.F. Saul, REIT, Sr. Secured Notes, 11.625%, 4/1/02 ....... 100 107
Greenpoint Capital Trust I, Gtd. Notes, 9.10%, 6/1/27 ..... 1,000 1,088
ML Capital Trust, Gtd. Notes, 9.875%, 3/1/27 .............. 150 169
1,364
Service 1.7%
Coinmach, Sr. Sub. Notes, 11.75%, 11/15/05 ................ 250 276
Host Marriott Travel Plazas, Sr. Notes, 9.50%, 5/15/05 .... 150 158
Intertek Finance, Sr. Sub. Notes, 10.25%, 11/1/06 ......... 75 79
513
Textiles and Apparel 0.7%
Westpoint Stevens, Sr. Notes, 8.75%, 12/15/01 ............. 200 208
208
<PAGE>
Transportation 2.3%
Delta Air Lines, ETC, 10.00%, 5/17/10 ..................... 146 185
Sea Containers Ltd., Sr. Sub. Deb., 12.50%, 12/1/04 ....... 250 282
Stena AB, Sr. Notes, 8.75%, 6/15/07 ....................... $ 250 $ 251
718
Total Corporate Bonds and Notes (Cost $28,233) 29,121
ASSET-BACKED SECURITIES 0.9%
Airlines 0.9%
Airplane Pass Through Trust, 10.875%, 3/15/19 ............. 250 281
Total Asset-Backed Securities (Cost ....................... $ 273) 281
MONEY MARKET FUNDS 1.8%
Reserve Investment Fund, 5.71% # .......................... 545 545
Total Money Market Funds (Cost ............................ $ 545) 545
U.S. Government Obligations 0.3%
U.S. Treasury Obligations 0.3%
U.S. Treasury Bills, 4.97%, 12/11/97 ...................... 100 100
Total U.S. Government Obligations (Cost $ 100)........... 100
Total Investments in Securities
97.6% of Net Assets (Cost $29,151) ....................... $30,047
Futures Contracts
In thousands
Contract Unrealized
Expiration Value Gain (Loss)
---------- -------- -----------
Short, 8 U.S. 30 Year Treasury contracts,
$20,000 of U.S. Treasury Bills pledged as
initial margin 12/97 $(954) $ (51)
Net payments (receipts) of variation
margin to date 50
Variation margin receivable
(payable) on open futures contracts (1)
Other Assets Less Liabilities 745
NET ASSETS $ 30,791
# Seven-day yield
ETC Equipment Trust Certificate
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 period-end amounts to
24.8% of net assets.
<PAGE>
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Corporate Income Fund
================================================================================
Unaudited November 30, 1997
Statement of Assets and Liabilities
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In thousands
Assets
Investments in securities, at value (cost $29,151) ................ $30,047
Receivable for investment securities sold ......................... 1,050
Other assets ...................................................... 918
Total assets ...................................................... 32,015
Liabilities
Payable for investment securities purchased ....................... 1,078
Other liabilities ................................................. 146
Total liabilities ................................................. 1,224
NET ASSETS ........................................................ $30,791
Net Assets Consist of:
Accumulated net investment income - net of distributions .......... $ 21
Accumulated net realized gain/loss - net of distributions ......... 58
Net unrealized gain (loss) ........................................ 845
Paid-in-capital applicable to 2,983,870 shares of
$0.0001 par value capital stock outstanding;
1,000,000,000 shares authorized ................................... 29,867
NET ASSETS ........................................................ $30,791
NET ASSET VALUE PER SHARE ......................................... $ 10.32
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Corporate Income Fund
================================================================================
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
11/30/97
Investment Income
Interest and dividend income .................................. $ 1,056
Expenses
Custody and accounting .................................. 48
Shareholder servicing ................................... 25
Registration ............................................ 18
Legal and audit ......................................... 8
Prospectus and shareholder reports ...................... 4
Directors ............................................... 4
Miscellaneous ........................................... 7
Reimbursed by manager ................................... (13)
Total expenses .......................................... 101
Net investment income ......................................... 955
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities .............................................. 269
Futures ................................................. (34)
Net realized gain (loss) ................................ 235
Change in net unrealized gain or loss
Securities .............................................. 1,023
Futures ................................................. (51)
Change in net unrealized gain or loss ................... 972
Net realized and unrealized gain (loss) ....................... 1,207
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ........................................ $ 2,162
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Corporate Income Fund
================================================================================
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/97 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income ................... $ 955 $ 1,206
Net realized gain (loss) ................ 235 (150)
Change in net unrealized gain or loss ... 972 440
Increase (decrease) in net assets
from operations ......................... 2,162 1,496
Distributions to shareholders
Net investment income ................... (955) (1,203)
Capital share transactions *
Shares sold ............................. 12,780 14,903
Distributions reinvested ................ 585 798
Shares redeemed ......................... (4,513) (7,723)
Increase (decrease) in net assets from
capital share transactions .............. 8,852 7,978
Net Assets
Increase (decrease) during period ............. 10,059 8,271
Beginning of period ........................... 20,732 12,461
End of period ................................. $ 30,791 $ 20,732
*Share information
Shares sold ............................. 1,259 1,522
Distributions reinvested ................ 58 81
Shares redeemed ......................... (445) (792)
Increase (decrease) in shares outstanding 872 811
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price Corporate Income Fund
================================================================================
Unaudited November 30, 1997
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. Financial futures contracts are valued at closing
settlement prices.
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.
<PAGE>
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 November 30, 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.
FUTURES CONTRACTS At November 30, 1997, the fund was a party to futures
contracts, which provide for the future sale by one party and purchase by
another of a specified amount of a specific financial instrument at an agreed
upon price, date, time, and place. Risks arise from possible illiquidity of the
futures market and from movements in security values and interest rates.
OTHER Purchases and sales of portfolio securities, other than short-term
securities, aggregated $21,248,000 and $12,949,000, respectively, for the six
months ended November 30, 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.
At November 30, 1997, the aggregate cost of investments for federal income
tax and financial reporting purposes was $29,151,000, and net unrealized gain
aggregated $896,000, of which $967,000 related to appreciated investments and
$71,000 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 November 30, 1997, and for the six months 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.
<PAGE>
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, $60,000 of
management fees were not accrued by the fund for the six months ended November
30, 1997, and $13,000 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 $53,000 for the six months ended
November 30, 1997, of which $10,000 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 six months ended November 30, 1997, totaled
$13,000 and are reflected as interest income in the accompanying Statement of
Operations.
<PAGE>
T. Rowe Price Shareholder Services
================================================================================
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE Shareholder service representatives are available from 8
a.m. to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5
p.m. ET on weekends. Call 1-800-225-5132 to speak directly with a
representative who will be able to assist you with your accounts.
IN PERSON Visit one of our investor center locations to meet with
a representative who will be able to assist you with your
accounts. You can also drop off applications or obtain
prospectuses and other literature at these centers.
AUTOMATED 24-HOUR SERVICES
TELE*ACCESS [Registration Mark] Call 1-800-638-2587 to obtain
information such as account balance, date and amount of your last
transaction, latest dividend payment, fund prices, and yields.
Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to
initiate purchase, redemption, and exchange orders for
identically registered accounts.
T.ROWE PRICE ONLINE Through a personal computer via dial-up
modem, you can replicate all the services available on
Tele*Access plus conduct transactions in your Discount Brokerage
and Variable Annuity accounts.
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and
most bond fund accounts (except the High Yield and Emerging
Markets Bond Funds).
AUTOMATIC INVESTING Build your account over time by investing
directly from your bank account or paycheck with Automatic Asset
Builder. Additionally, Automatic Exchange enables you to set up
systematic investments from one fund account into another, such
as from a money fund into a stock fund. A $50 minimum makes it
easy to get started.
<PAGE>
AUTOMATIC WITHDRAWAL If you need money from your fund account on
a regular basis, you can establish scheduled, automatic
redemptions.
DIVIDEND AND CAPITAL GAINS PAYMENT OPTIONS Reinvest all or some
of your distributions, or take them in cash. We give you maximum
flexibility and convenience.
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options,
precious metals, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for
more information.
INVESTMENT INFORMATION
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price
accounts is provided. The summary page gives you earnings by tax
category, provides total portfolio value, and lists your
investments by type-stock, bond, and money market. Detail pages
itemize account transactions by fund.
SHAREHOLDER REPORTS Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic
outlook.
T. ROWE PRICE REPORT This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T.
Rowe Price's economic perspective.
PERFORMANCE UPDATE This quarterly report reviews recent market
develop- ments and provides comprehensive performance information
for every T. Rowe Price fund.
INSIGHTS This library of information includes reports on mutual
fund tax issues, investment strategies, and financial markets.
DETAILED INVESTMENT GUIDES Our widely acclaimed Asset Mix
Worksheet, College Planning Kit, Diversifying Overseas: A Guide
to International Investing, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk for PC use) can
help you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
T. Rowe Price Mutual Funds
================================================================================
STOCK FUNDS
- --------------------------------------------------------------------------------
DOMESTIC
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock**
Small-Cap Value*
Spectrum Growth
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
BOND FUNDS
- --------------------------------------------------------------------------------
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
California Tax-Free Bond
Florida Insured Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
Emerging Markets Bond
Global Government Bond
International Bond
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
<PAGE>
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
- --------------------------------------------------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
** Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access [Registration Mark]:
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. F03-051 11/30/97
