Semiannual Report
Corporate
Income
Fund
November 30, 1999
T. ROWE PRICE
REPORT HIGHLIGHTS
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Corporate Income Fund
o Strong economic growth and rising interest rates during the past six months
led to weak returns for bonds and your fund.
o Fund returns for the six-month period slightly trailed the benchmarks, but
12-month results compared favorably.
o The bulk of portfolio holdings did well in a difficult environment.
o We made minor shifts into some commodity industries and increased the
fund's liquidity.
o Corporate bonds look attractive compared with other fixed income sectors,
and our careful selection of individual securities should serve investors
well in 2000.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The U.S. economy continued on its path of high employment, strong growth, and
low inflation. As world economic growth improved and the pool of available
workers in the U.S. continued to shrink, the Federal Reserve raised the federal
funds target rate three times during the past six months in a preemptive strike
against higher inflation. In a generally negative environment characterized by
rising interest rates, corporate bonds and your fund posted weak results.
MARKET ENVIRONMENT
The period ended November 30 was volatile for corporate fixed income
markets as the U.S. economy continued to expand at an above-average rate.
High-yield and split-rated corporate bonds (those rated BBB and BB by
different rating agencies) outperformed higher-quality corporate securities
from April through July, as investors encountered a heavy supply of new
issues for the latter group early in the second quarter. Early concerns
about possible Year 2000 computer problems, as well as a history of
seasonally weak corporate bond performance in the fourth quarter, led to an
increase in new issuance early in the year. Conditions for high-yield bonds
began to deteriorate late in the third quarter. However, your fund's
high-yield holdings contributed positively to six-month performance,
reflecting our strategy of investing in higher-quality bonds within this
sector of the market.
Interest Rate Levels
10-Year BBB-Rated
Treasury Note Corporate Bonds
11/30/98 4.83 7.17
4.70 7.18
4.67 7.11
2/99 5.18 7.33
5.24 7.28
5.26 7.27
5/99 5.56 7.40
5.87 7.48
5.86 7.55
8/99 5.97 7.63
5.92 7.59
6.16 7.61
11/99 6.10 7.65
The environment for investment-grade bonds -particularly for higher-rated
and more liquid issues-took a turn for the better in early September and,
as a result, they outperformed lower-quality, less liquid securities during
the past three months. However, the current sizable yield advantage offered
by lower-quality bonds is once again attracting investors.
PERFORMANCE AND STRATEGY REVIEW
Performance Comparison
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Periods Ended 11/30/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Corporate Income Fund -0.55% -0.02%
Lehman Baa Corporate
Bond Index 0.25 -0.20
Lipper Corporate Debt
BBB Funds Average -0.22 -1.16
We focus on higher-yield areas of the corporate bond market to achieve
attractive income and long-term returns, a strategy that makes the fund
vulnerable to volatility during periods of severe market disruption. As a
result, your fund posted results for the six months ended November 30,
1999, that were slightly behind the Lehman Baa Corporate Bond Index and the
Lipper peer group average. However, fund performance for the 12-month
period outpaced both benchmarks. Six-month results reflected a decline in
the share price from $9.54 at the end of May to $9.15 at the end of
November, a loss that was partly offset by dividend income of $0.34 per
share. For the 12-month period, the $0.69 fall in share price was nearly
offset by dividend income of $0.67 per share, resulting in a slightly
negative total return for the year.
The fund's relative six-month return can be attributed to several factors,
including an overweighting in less liquid bonds that lagged larger
corporate issues and weak performance from our convertible bond holdings.
Early in the period we sold some of our more liquid holdings and invested
the proceeds in higher-yielding securities. We also initiated positions in
convertible preferred securities as their prices fell. Convertibles have
yields comparable to high-yield bonds but offer additional potential for
appreciation if the prices of the underlying equities rise. However, as
those prices continued to decline, our convertible holdings (less than 2%
of net assets) hurt results. We believe that the yields on these securities
are quite attractive and offer protection against further price declines-as
well as good long-term appreciation potential.
We also initiated a small position in several high-yielding stocks in the
electric utility and tobacco sectors. In the case of our tobacco shares
(0.14% of net assets), we believe that current dividend yields and the
potential for future dividend increases make the stocks more alluring than
the bonds of these companies. Our investments in Potomac Electric and
Scottish Power in the electric utility sector (0.3% of assets) reflect our
belief that the equity market has not fully recognized the franchise value
of these companies.
Quality Diversification
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A-Rated and above BBB-rated BB-Rated B-Rated
32 40 20 8
In September, we purchased the bonds of Rite Aid (0.55% of assets), whose
downward earnings revisions and management shakeup disappointed investors
and resulted in a rating downgrade to below investment grade. While this
investment had a negative effect on performance during the past six months,
we are continuing to hold the securities in the belief that they can
recover some lost ground. The same is true of one of our high-yield
investments, Safelite Glass, which declined significantly after two major
rating agencies lowered their outlook for the company. Again, we are
continuing to maintain our position in these securities until the company's
strategy for recovery becomes clearer.
Other holdings that came under pressure included Waste Management (1% of
assets), Raytheon (2%), Fairfax Financial Holdings (1%), Energy Corporation
of America (0.1%), and Holmes Product Corporation (0.3%), all of which
experienced earnings shortfalls. We view these as solid companies with
temporary problems that offer good prospects over the long term. They
contribute significantly to the fund's income, which benefits shareholders
over time.
Aside from a few weak holdings, the bulk of the portfolio performed quite
well relative to the benchmarks, leading to respectable performance in a
difficult environment during both periods.
Given our outlook for continued U.S. economic expansion, we maintained a
neutral duration relative to the fund's benchmarks over the past six
months. (Duration is a measure of a bond fund's sensitivity to interest
rates. For example, a fund with a duration of six years would fall or rise
about 6% in price in response to a one-percentage-point rise or fall in
interest rates.) Also, anticipating further upward pressure on U.S.
interest rates, we made minor shifts out of financial services and into
some commodity-based industries such as paper and oil services. In
September we raised our reserves, and our intention is to maintain
liquidity into the beginning of 2000.
As always, our overall strategy focuses on fundamental credit analysis of
the companies and sectors in which we invest, which enables us to buy
higher-yielding bonds with stable-to-improving credit outlooks.
OUTLOOK
U.S. consumer demand continues unabated, there are some signs of
inflationary pressure, stocks are highly valued by most historical
measures, and fixed income investors are watching the Fed for clues about
further rate hikes. We expect the Fed to remain vigilant in its fight to
head off inflation before it becomes a problem, but real interest rates are
already high-providing attractive income for investors-and the Fed appears
to be ahead of the inflation curve so far.
Overall, we foresee a lessening of bond market volatility and an
improvement in liquidity compared with 1999. We believe corporate bonds
offer an extremely attractive opportunity for fixed income investors
searching for good long-term total return. Our careful selection of
individual securities based on strong credit fundamentals should serve
shareholders well over time. Thank you for investing with T. Rowe Price.
Respectfully submitted,
Robert M. Rubino
Chairman of the Investment Advisory Committee
December 17, 1999
T. Rowe Price Corporate Income Fund
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Portfolio Highlights
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KEY STATISTICS
5/31/99 11/30/99
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Price Per Share $ 9.54 $ 9.15
Dividends Per Share
For 6 months 0.33 0.34
For 12 months 0.70 0.67
Dividend Yield *
For 6 months 6.97% 7.35%
For 12 months 7.36 7.28
30-Day Standardized Yield 7.40 8.13
Weighted Average Maturity (years) 14.4 13.2
Weighted Average Effective
Duration (years) 6.2 5.8
Weighted Average Quality ** BBB+ BBB+
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share at the end of the
period.
** Based on T. Rowe Price research.
T. Rowe Price Corporate Income Fund
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Portfolio Highlights
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
5/31/99 11/30/99
---------------------------------------------------------------------------
Banking 14% 11%
Energy and Petroleum 8 9
Media and Communications 6 6
Paper and Paper Products 2 5
Cable Operators 2 4
Savings and Loan 8 4
Food and Tobacco 1 4
Long Distance -- 4
Building and Real Estate 2 4
Money Market 3 4
Automobiles and Related 2 3
Wireline Communications -- 3
Electric Utilities 5 3
Asset-Backed 2 3
Aerospace and Defense 3 3
Service 1 2
U.S. Treasury Obligations 3 2
Railroads -- 2
Health Care Services 2 2
Drugs 2 2
Conglomerates -- 2
Insurance 6 2
All Other 27 14
Other Assets Less Liabilities 1 2
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Total 100% 100%
T. Rowe Price Corporate Income Fund
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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 benchmarks, which may include
a broad-based market index and a peer group average or index. Market
indexes do not include expenses, which are deducted from fund returns as
well as mutual fund averages and indexes.
CORPORATE INCOME FUND
--------------------------------------------------------------------------
As of 11/30/99
Lipper
Corporate Lehman Baa Corporate
Debt BBB Corporate Income
Funds Average Bond Index Fund
10/31/95 10,000 10,000 10,000
11/95 10,170 10,150 10,163
11/96 10,903 10,766 10,941
11/97 11,789 11,579 12,062
11/98 12,570 12,674 12,369
11/99 12,428 12,668 12,367
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.
Since Inception
Periods Ended 11/30/99 1 Year 3 Years Inception Date
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Corporate Income Fund -0.02% 4.17% 5.34% 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
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Unaudited
Financial Highlights For a share outstanding throughout each period
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6 Months Year 10/31/95
Ended Ended Through
11/30/99 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 9.54 $ 10.39 $ 9.81 $ 9.58 $ 10.00
Investment activities
Net investment income 0.34* 0.70* 0.75* 0.73* 0.44*
Net realized and
unrealized gain (loss) (0.39) (0.83) 0.59 0.23 (0.42)
Total from
investment activities (0.05) (0.13) 1.34 0.96 0.02
Distributions
Net investment income (0.34) (0.70) (0.76) (0.73) (0.44)
Net realized gain -- (0.02) -- -- --
Total distributions (0.34) (0.72) (0.76) (0.73) (0.44)
NET ASSET VALUE
End of period $ 9.15 $ 9.54 $ 10.39 $ 9.81 $ 9.58
----------------------------------------------------
Ratios/Supplemental Data
Total return(diamond) (0.55%)* (1.21%)* 13.96%* 10.35%* 0.09%*
Ratio of total expenses
to average net assets 0.80%*! 0.80%* 0.80%* 0.80%* 0.80%*!
Ratio of net investment
income to average
net assets 7.23%*! 7.12%* 7.33%* 7.55%* 7.56%*!
Portfolio turnover rate 78.2%! 140.8% 146.0% 119.5% 70.5%!
Net assets, end of period
(in thousands) $ 52,373 $ 50,822 $ 42,829 $ 20,732 $ 12,461
(diamond) 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 5/31/01.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Corporate Income Fund
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Unaudited November 30, 1999
Statement of Net Assets Par/Shares Value
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In thousands
CORPORATE BONDS AND NOTES 88.5%
Aerospace and Defense 2.6%
Newport News Shipbuilding,
Sr. Notes, 8.625%, 12/1/06 $ 400 $ 401
Raytheon, 5.70%, 11/1/03 1,000 937
1,338
Airlines 1.8%
Atlas Air, ETC, 8.77%, 1/2/11 1,000 959
959
Automobiles and Related 3.4%
Federal-Mogul, 7.875%, 7/1/10 1,000 901
Ford Motor Credit, Sr. Notes,
5.80%, 1/12/09 1,000 901
1,802
Banking 10.6%
Banco Generale, Sr. Sub. Notes,
(144a), 7.70%, 8/1/02 1,500 1,459
Banco Santiago, Sub. Notes,
7.00%, 7/18/07 1,475 1,316
Bank United, MTN, 8.00%, 3/15/09 750 685
Imperial Bank, Sub. Notes, 8.50%, 4/1/09 725 682
MBNA America, Sub. Notes, 6.65%, 7/17/06 500 483
Natexis, (144a), 8.44%, 12/29/49 1,000 938
5,563
Beverages 1.3%
Panamerican Beverages, Sr. Notes,
7.25%, 7/1/09 800 685
685
Broadcasting 0.5%
Chancellor Media
Sr. Notes, 8.00%, 11/1/08 125 125
Sr. Sub. Notes, 8.125%, 12/15/07 125 125
250
Building and Real Estate 2.2%
Regency Centers, 7.40%, 4/1/04 500 480
Rouse, 8.00%, 4/30/09 700 657
1,137
Cable Operators 4.0%
Comcast Cable Communications,
6.20%, 11/15/08 1,000 921
CSC Holdings, Sr. Notes,
7.875%, 12/15/07 500 493
Lenfest Communications, Sr. Sub. Notes,
10.50%, 6/15/06 250 281
Northland Cable Television,
Sr. Sub. Notes, 10.25%, 11/15/07 250 250
Rogers Cablesystems, Sr. Sub. Deb.,
11.00%, 12/1/15 150 169
2,114
Conglomerates 1.7%
Hutchison Whampoa Finance,
144a), 7.45%, 8/1/17 $ 1,000 $ 896
896
Container 0.8%
Ball, Sr. Notes, 7.75%, 8/1/06 300 292
Consolidated Container, Sr. Notes, (144a)
10.125%, 7/15/09 150 153
445
Drugs 1.7%
Merck, 6.40%, 3/1/28 1,000 899
899
Electric Utilities 3.1%
Alabama Power, Sr. Notes,
5.35%, 11/15/03 1,000 941
Niagara Mohawk, Sr. Notes,
7.75%, 10/1/08 250 253
South Carolina Electric & Gas,
1st Mtg. Bonds,
6.125%, 3/1/09 490 456
1,650
Energy 2.0%
Amerigas Partners, Sr. Notes,
10.125%, 4/15/07 200 204
Energy Corporation of America,
Sr. Sub. Notes, 9.50%, 5/15/07 100 58
Offshore Logistics, Sr. Notes,
7.875%, 1/15/08 100 92
Pride Petroleum Services,
Sr. Notes, 9.375%, 5/1/07 200 199
R B Falcon, Sr. Notes,
9.50%, 12/15/08 500 493
1,046
Entertainment and Leisure 0.2%
Premier Parks, Sr. Notes,
9.75%, 6/15/07 100 99
99
Food/Tobacco 3.8%
Aurora Foods, Sr. Sub. Notes,
9.875%, 2/15/07 100 102
Doane Pet Care, Sr. Sub. Notes,
9.75%, 5/15/07 250 240
Keebler, Sr. Sub. Notes,
10.75%, 7/1/06 250 269
Smithfield Foods, Sr. Sub. Notes,
7.625%, 2/15/08 300 271
UST, Sr. Notes, 7.25%, 6/1/09 1,200 1,120
2,002
Foreign Government 0.5%
Federated Republic of Brazil,
11.625%, 4/15/04 250 239
239
Gaming 1.4%
Harrahs Operating, Gtd. Sr. Sub. Notes,
7.875%, 12/15/05 $ 250 $ 243
Mohegan Tribal Gaming Authority,
Sr. Notes, 8.125%, 1/1/06 250 244
Park Place Entertainment, Sr. Sub. Notes,
7.875%, 12/15/05 250 239
726
Health Care Services 1.8%
Beckman Instruments, Sr. Notes,
(144a), 7.45%, 3/4/08 860 775
Tenet Healthcare, Sr. Notes,
8.00%, 1/15/05 200 193
968
Insurance 1.7%
Fairfax Financial, 8.25%, 10/1/15 500 440
Frank Russell, (144a), 5.625%, 1/15/09 500 446
886
Internet Service Providers 0.6%
PSINet, Sr. Notes, (144a),
10.00%, 2/15/05 300 296
296
Investment Dealers 0.9%
Paine Webber, 6.45%, 12/1/03 500 484
484
Lodging 0.4%
Courtyard by Marriott II, Sr. Notes,
10.75%, 2/1/08 50 48
Red Roof Inns, Sr. Notes,
9.625%, 12/15/03 150 154
202
Media and Communications 5.8%
News America, (144a), 6.75%, 1/9/38 2,000 1,833
Seagrams, Sr. Notes, 6.80%, 12/15/08 1,300 1,231
3,064
Metals and Mining 0.6%
P&L Coal, Sr. Notes, 8.875%, 5/15/08 300 297
297
Miscellaneous Consumer Products 0.8%
Herff Jones, Sr. Sub. Notes,
11.00%, 8/15/05 250 267
Holmes Products, Gtd. Notes,
9.875%, 11/15/07 175 140
407
Paper and Paper Products 5.1%
Bowater, 9.375%, 12/15/21 500 562
Celulosa Arauco Y Constitucion, (144a),
7.50%, 9/15/17 725 626
International Paper,
7.625%, 8/1/04 1,000 1,009
Packaging Corporation of America,
Sr. Sub. Notes
9.625%, 4/1/09 $ 250 $ 258
Repap New Brunswick
Sr. Secured Notes, 11.50%, 6/1/04 200 207
Sr. Secured 1st Priority Notes,
9.00%, 6/1/04 25 25
2,687
Petroleum 7.1%
Conoco, 6.95%, 4/15/29 500 462
PDVSA Finance, 7.50%, 11/15/28 1,200 842
YPF Sociedad Anonima,
10.00%, 11/2/28 2,200 2,400
3,704
Printing and Publishing 0.5%
Hollinger International Publishing,
Gtd. Notes, 9.25%, 3/15/07 250 245
245
Railroads 1.9%
Union Pacific, 7.25%, 11/1/08 1,000 977
977
Restaurants 0.1%
Mrs. Fields, Gtd. Sr. Sub. Notes,
10.125%, 12/1/04 50 41
41
Retail 0.6%
Rite Aid, 7.70%, 2/15/27 500 290
Safelite Glass, Sr. Sub. Notes,
9.875%, 12/15/06 100 5
295
Savings and Loan 3.9%
Bank United, 10.25%, 12/31/26 1,000 910
First Federal Financial,
11.75%, 10/1/04 125 130
Golden State Holdings, Sr. Notes,
7.125%, 8/1/05 1,100 1,004
2,044
Service 2.5%
Coinmach, Sr. Sub. Notes,
11.75%, 11/15/05 250 259
Host Marriott Travel, Sr. Notes,
9.50%, 5/15/05 150 156
Intertek Finance, Sr. Sub. Notes,
10.25%, 11/1/06 75 71
Mastec, Sr. Sub. Notes,
7.75%, 2/1/08 250 235
Waste Management, STEP,
7.70%, 10/1/02 600 566
1,287
Specialty Chemicals 1.2%
American Pacific, Sr. Notes,
9.25%, 3/1/05 $ 250 $ 251
ISP Holdings, Sr. Notes,
9.75%, 2/15/02 200 202
Octel, Sr. Notes, 10.00%, 5/1/06 200 199
652
Textiles and Apparel 0.7%
Westpoint Stevens, Sr. Notes,
7.875%, 6/15/08 400 374
374
Transportation (excluding Rail Road) 1.5%
Allied Holdings, Gtd. Sr. Sub. Notes,
8.625%, 10/1/07 125 109
Stena, Sr. Notes, 10.50%, 12/15/05 200 186
TravelCenters of America,
Sr. Sub. Notes, 10.25%, 4/1/07 250 245
Westinghouse Air Brake, Sr. Notes,
9.375%, 6/15/05 250 248
788
Wireless Communications 1.4%
Nextel Communications, Sr. Disc. Notes, STEP
0%, 2/15/08 250 180
Rogers Cantel
Sr. Deb., 9.75%, 6/1/16 125 141
Sr. Secured Deb., 9.375%, 6/1/08 125 133
Voicestream Wire, Sr. Notes, (144a),
10.375%, 11/15/09 250 261
715
Wireline Communications 7.8%
Bellsouth Telecommunications,
6.375%, 6/1/28 500 431
Intermedia Communications,
Sr. Notes, 9.50%, 3/1/09 250 238
Metronet Communications,
Sr. Disc. Notes, STEP
0%, 6/15/08 400 314
Nextlink Communications,
Sr. Disc. Notes, STEP
0%, 6/1/09 350 210
Qwest Communications International,
Sr. Notes, 7.25%, 11/1/08 500 489
Sprint Capital, Sr. Notes,
6.875%, 11/15/28 1,000 908
Williams Communications Group,
Sr. Notes, 10.875%, 10/1/09 500 521
WorldCom, Sr. Notes,
6.25%, 8/15/03 1,000 980
4,091
Total Corporate Bonds and Notes (Cost $48,500) 46,354
ASSET-BACKED SECURITIES 1.6%
MBNA America, (144a), 6.75%, 3/15/08 $ 900 $ 836
Total Asset-Backed Securities (Cost $498) 836
U.S. GOVERNMENT OBLIGATIONS 2.0%
U.S. Treasury Obligations 2.0%
U.S. Treasury Bonds, 5.25%, 2/15/29 675 573
U.S. Treasury Inflation-Indexed Notes,
3.375%, 1/15/07 530 504
Total U.S. Government Obligations (Cost $1,085) 1,077
EQUITY AND CONVERTIBLE SECURITIES 1.9%
Building and Real Estate 1.4%
Crescent Real Estate Equities,
REIT, Cv. Pfd., (Series A), 6.75% 9 125
Equity Residential Properties Trust,
REIT, Cv. Pfd., 7.25% 9 175
Kimco Realty, REIT, Cv. Pfd. 6 121
Reckson Associates Realty, Cv. Pfd.,
(Series A), 7.625% 16 323
744
Electric Utilities 0.3%
Potomac Electric Power, Common 4 103
Scottish Power ADR, Common 2 57
160
Miscellaneous Consumer Products 0.2%
Philip Morris, Common 2 39
UST, Common 1 37
76
Total Equity and Convertible Securities (Cost $1,099) 980
CONVERTIBLE BONDS 0.6%
Hospital Supplies/Hospital Management 0.2%
Omnicare, Sub. Notes, 5.00%, 12/1/07 150 104
104
Services 0.2%
Waste Management, 4.00%, 2/1/02 125 105
105
Retail 0.2%
Rite Aid, 5.25%, 9/15/02 $ 175 $ 88
88
Total Convertible Bonds (Cost $332) 297
MONEY MARKET FUNDS 5%
Reserve Investment Fund, 5.65% # 1,842 1,842
Total Money Market Funds (Cost $1,842) 1,842
Total Investments in Securities
98.1% of Net Assets (Cost $53,356) $ 51,386
Futures Contracts
Contract Unrealized
Expiration Value Gain Loss)
Short, 5 March 2000 10-Year
U.S. Treasury contracts,
$1,000,000 par of Merck
bonds pledged as initial
margin 3/00 $ (487) $ 1
Net payments (receipts)
of variation margin to date (2)
Variation margin receivable
(payable) on open futures contracts (1)
Other Assets Less Liabilities 988
NET ASSETS $ 52,373
----------
Net Assets Consist of:
Accumulated net investment income
- - net of distributions $ 59
Accumulated net realized gain/loss
- - net of distributions (3,174)
Net unrealized gain (loss) (1,969)
Paid-in-capital applicable to 5,721,831
shares of $0.0001 par value capital stock
outstanding; 1,000,000,000 shares authorized 57,457
NET ASSETS $ 52,373
----------
NET ASSET VALUE PER SHARE $ 9.15
----------
# Seven-day yield
ADR American Depository Receipt
ETC Equipment Trust Certificate
MTN Medium Term Note
REIT Real Estate Investment Trust
STEP Stepped coupon note for which the interest rate will adjust on specified
future date(s).
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
16.27% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Corporate Income Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
11/30/99
Investment Income
Interest and dividend income $ 2,019
Expenses
Investment management 58
Shareholder servicing 58
Custody and accounting 49
Prospectus and shareholder reports 12
Registration 10
Legal and audit 9
Directors 3
Miscellaneous 2
Total expenses 201
Expenses paid indirectly (1)
Net expenses 200
Net investment income 1,819
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (1,044)
Futures (7)
Net realized gain (loss) (1,051)
Change in net unrealized gain or loss
Securities (977)
Futures 1
Change in net unrealized gain or loss (976)
Net realized and unrealized gain (loss) (2,027)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (208)
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Corporate Income Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/99 5/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income $ 1,819 $ 3,662
Net realized gain (loss) (1,051) (2,881)
Change in net
unrealized gain or loss (976) (1,191)
Increase (decrease) in net
assets from operations (208) (410)
Distributions to shareholders
Net investment income (1,820) (3,654)
Net realized gain -- (110)
Decrease in net assets
from distributions (1,820) (3,764)
Capital share transactions *
Shares sold 16,706 44,593
Distributions reinvested 1,145 2,468
Shares redeemed (14,272) (34,894)
Increase (decrease) in
net assets from capital
share transactions 3,579 12,167
Net Assets
Increase (decrease) during period 1,551 7,993
Beginning of period 50,822 42,829
End of period $ 52,373 $ 50,822
-----------------------
*Share information
Shares sold 1,802 4,525
Distributions reinvested 124 252
Shares redeemed (1,533) (3,570)
Increase (decrease) in
shares outstanding 393 1,207
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Corporate Income Fund
- --------------------------------------------------------------------------------
Unaudited November 30, 1999
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 with original 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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. 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. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian, which are used to reduce the fund's custody charges. Payments
("variation margin") made or received by the fund to settle the daily
fluctuations in the value of futures contracts are recorded as unrealized
gains or losses until the contracts are closed. Unrealized gains and losses
on futures contracts are included in Change in net unrealized gain or loss
in the accompanying financial statements.
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, 1999, 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, 1999, 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 $21,404,000 and $18,751,000, respectively, for the
six months ended November 30, 1999.
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 capital loss carryforwards for federal
income tax purposes of $815,000, all of which expires in 2007. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At November 30, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$53,356,000. Net unrealized loss aggregated $1,970,000 at period-end, of
which $419,000 related to appreciated investments and $2,389,000 to
depreciated investments.
NOTE4 - 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, of which $13,000 was payable at November 30, 1999. The fee is computed
daily and paid monthly, and consists 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 0.295% for assets
in excess of $120 billion. At November 30, 1999, 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.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through May 31, 2001, which would cause the
fund's ratio of total expenses to average net assets to exceed 0.80%.
Thereafter, through May 31, 2003, 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 total 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, 1999. Additionally, $320,000
of fees and expenses related to a previous expense limitation are subject
to reimbursement through May 31, 2001.
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 $85,000 for the six months ended November 30, 1999, of which
$18,000 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, 1999, totaled $52,000 and are reflected as interest income in
the accompanying Statement of Operations.
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
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service 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.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment Services,
Inc., Member NASD/SIPC.
** Based on a September 1999 survey for representative-assisted stock trades.
Services vary by firm, and commissions may vary depending on size of order.
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 500
Extended Equity Market 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
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
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 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 Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEYMARKET FUNDS!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
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
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.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of
your investment at $1.00 per share, it is possible to lose money by
investing in the funds.
Please call for a prospectus. Read it carefully before investing.
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.
T. Rowe Price Retirement Plans and Resources
- --------------------------------------------------------------------------------
Retirement Plans and Resources
We recognize that saving for retirement is the number one investment goal
for most Americans. We can help you meet your retirement needs, whether you
are starting an IRA or designing a retirement program for your employees.
T. Rowe Price offers an assortment of retirement plans for individuals, the
self-employed, small businesses, corporations, and nonprofit organizations.
We provide recordkeeping, communications, and investment management
services, as well as a variety of educational materials, self-help planning
guides, and software tools to help you choose and implement a retirement
plan appropriate for you. For information or to request literature, call us
at 1-800-638-5660.
IRAs AND QUALIFIED PLANS
Traditional IRA
Roth IRA
Rollover IRA
SEP-IRA
SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase Pension and Profit Sharing Plans)
401(k)
403(b)
457 Deferred Compensation
RETIREMENT RESOURCES AT T. ROWE PRICE
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Investment Kits
The IRA Investing Kit
Roth IRA Conversion Kit
Rollover IRA Kit
The T. Rowe Price SIMPLE IRA Plan Kit
The T. Rowe Price SEP-IRA Plan
The Simplified Keogh Plan(registered trademark) From T. Rowe Price
The T. Rowe Price 401(k) Century Plan(registered trademark) (for small
businesses)
Money Purchase Pension/Profit Sharing Plan Kit
Investing for Retirement in Your 403(b) Account
The T. Rowe Price No-Load Variable Annuity Information Kit
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning Analyzer(registered trademark) CD-ROM or
diskette $19.95. To order, please call 1-800-541-5760. Also available on
the Internet for $9.95.
T. Rowe Price Variable Annuity Analyzer(registered trademark) CD-ROM or
diskette, free. To order, please call 1-800-469-5304.
Many of these resources are also available for viewing or ordering on the
Internet at www.troweprice.com.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the
Internet www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
"T. Rowe Price, Invest With Confidence" (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F03-051 11/30/99
