<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
While high-yield bonds fared somewhat better than high-quality bonds during
the three months ended November 30, they could not withstand the widespread
price declines in the fixed-income markets. Total returns were generally
negative for high-yield bonds despite their high income.
September was a fairly good month, but the high-yield bond market was
unable to sustain upward momentum as investor sentiment was pulled this way
and that. On the one hand, evidence confirming the economy's robust growth
was encouraging for the credit-sensitive high-yield market. On the other
hand, rapid growth led to further tightening by the Federal Reserve, which
had several negative implications for high-yield bonds. For example, the
following concerns were raised: economic growth might slow precipitously,
damaging corporate profits; rising yields on U.S. Treasury bonds could
attract investors away from riskier high-yield bonds; and stock prices,
always a factor in the high-yield bond market, might decline significantly.
- --------------------------------------------------------------------------------
Yield Spreads
- --------------------------------------------------------------------------------
[GRAPH APPEARS HERE]
Line graph for High Yield Fund report (Nov. 30, 1994)
Entitled "Yield Spreads": shows yield spreads between B-Rated
issues and Treasuries and BB-Rated issues and Treasuries from
12/85 through 11/94.
- --------------------------------------------------------------------------------
Although credit quality is usually a more dominant influence than
interest rates on high-yield bonds, lower-rated bonds have become increasingly
vulnerable to rising interest rates as the difference (or spread) has narrowed
between their yields and those of high-quality bonds. In other words, the closer
junk bond yields are to Treasury bond yields, the more they will respond like
Treasury bonds. After four years of outperformance by high-yield bonds, the
spreads between Treasury yields and those on BB- and B-rated bonds (the highest
noninvestment-grade categories) have narrowed to 10-year lows, as shown in the
chart.
PERFORMANCE AND STRATEGY REVIEW
Your Fund's returns as well as those of similar funds reflected the difficult
environment that has prevailed during most of 1994. We lagged our peer group
primarily because of weakness in the hotel and gaming sector as well as
credit problems experienced by a small number of holdings. Two of these are
in the apparel business, which has been hit hard by consumers' focus on
big-ticket, durable goods. The price declines in these issues pointed up a
major difference between the market's psychology this year and last year. A
year ago, investors would have tended to assume that a company with temporary
problems could work out its difficulties as the economy grew. Today, despite
strong economic growth, such companies are, in effect, taken out and shot.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 11/30/94
3 Months 6 Months
----------------------
<S> <C> <C>
High Yield Fund -2.06% -2.50%
Lipper High Yield
Fund Average -1.39 -1.69
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
We continued the generally defensive course set earlier in 1994, seeking
to decrease the Fund's exposure to the higher risk and more volatile sectors of
the market. Toward these ends, we shortened the Fund's duration; reduced our
nonincome-producing investments, paring equities and cutting our foreign
exposure from 8% to 4% of net assets; trimmed holdings in weaker sectors such as
gambling; and maintained a substantial cash position. Holdings of some cyclical
industries were increased, particularly paper and specialty chemicals, which
have performed very well and should have further to run.
LOOKING AHEAD
We do not expect a significant rebound in the high-yield market in the
immediate future. If, as we anticipate, the Fed raises the federal funds rate
further, lower-quality bonds will remain under pressure. The high-yield
market's technical condition is mixed: new supply is unlikely to be a
problem, but demand will remain soft until cash flows into high-yield mutual
funds -- the major investors in this bond sector -- pick up.
With so much of the market now priced at discounts to par, however,
we do feel that much of the risk has been wrung out of the market. Demand
from pension funds and insurance companies is providing some support for
"upper tier" high-yield bonds (rated BB and B). We do not foresee the kind of
economic slowdown that would significantly affect corporate earnings and
raise concerns about high-yield bond issues.
Like the stock market, the high-yield bond market requires investors
to ride out periodic setbacks in order to participate in returns that, in the
past, have provided a substantial premium over higher-quality bonds.
Respectfully submitted,
/s/ Catherine H. Bray
Catherine H. Bray
Chairman of the
Investment Advisory Committee
December 19, 1994
Catherine Bray has been appointed Chairman of the Fund's Investment Advisory
Committee, succeeding Richard S. Swingle, who is pursuing other opportunities
outside T. Rowe Price. Mr. Swingle joined T. Rowe Price in 1976, established
the high-yield bond department, and was the primary portfolio manager of the
Fund from its inception in December 1984. Ms. Bray joined T. Rowe Price in
1989 and has been a member of the Fund's Advisory Committee since that time.
2
<PAGE>
- --------------------------------------------------------------------------------
Statistical Highlights
T. Rowe Price High Yield Fund / November 30, 1994
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Dividend Yield* Periods Ended 11/30/94
- --------------------------------------------------------------------------------
<S> <C>
3 Months 9.32%
6 Months 9.41
Dividend Per Share
- -------------------------------------
3 Months $0.19
6 Months 0.38
Change in Price Per Share
- -------------------------------------
3 Months (From $8.14 to $7.79) -$0.35
6 Months (From $8.37 to $7.79) -0.58
</TABLE>
- --------------------------------------------------------------------------------
* 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.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
TRPA Quality Rating* 8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
1 8% 8%
2 6 4
3 0 0
4 0 0
5 10 11
6 59 59
7 4 5
8 3 1
9 1 0
10 2 3
Not Rated 7 9
- --------------------------------------------------------------------------------
WEIGHTED AVERAGE 4.9 5.0
- --------------------------------------------------------------------------------
</TABLE>
* On a scale of 1 to 10, with Grade 1 representing highest quality.
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
Range 8/31/94 11/30/94
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-Term (0 to 1 Year) 15% 13%
Short Intermediate-
Term (1+ to 5 Years) 4 4
Long Intermediate-
Term (5+ to 10 Years) 55 58
Long Term (Over 10 Years) 26 25
Weighted Average (Years) 9.1 9.0
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
8/31/94 11/30/94
<S> <C> <C>
Paper and Paper Products 7% 10%
Hotels and Gaming 9 7
Health Care 7 6
Specialty Chemicals 3 5
Aerospace and Defense 4 5
Textiles and Apparel 4 5
Foreign 8 4
Container 4 4
Exploration and Production 3 4
Manufacturing 4 4
Telecommunications 3 4
Beverages 3 3
Building Products 3 3
Service 2 3
Specialty Retailers 2 2
Automobiles and Related 2 2
Electronic Components 2 2
</TABLE>
- --------------------------------------------------------------------------------
* Sectors representing at least 2% of net assets on 11/30/94.
3
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets (Amounts in thousands)
T. Rowe Price High Yield Fund / November 30, 1994 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Corporate Bonds & Notes, Common & Preferred Stocks -- 84.2%
- ----------------------------------------------------------------------------------------------------------------------
Face Amount Value
----------------- -----------
<S> <C> <C>
AEROSPACE & DEFENSE -- 5.3%
++ Abex, Common Stock...................................................... 570 shs. $ 3,993
IMO Industries, Sr. Sub. Deb., 12.00%, 11/1/01.......................... $ 22,720 23,146
K & F Industries, Sr. Secured Notes, 11.875%, 12/1/03................... 9,650 9,312
Sr. Sub. Notes, 13.75%, 8/1/01.................................... 9,725 8,850
Tracor, Sr. Sub. Notes, 10.875%, 8/15/01................................ 7,500 7,313
++ Common Stock...................................................... 374 shs. 4,628
++ Tracor Technology Resources, Common Stock............................... 40 shs. 50
57,292
AUTOMOBILES & RELATED -- 2.1%
+++#Borg Warner Automotive, Common Stock, Class A........................... 319 shs. 7,414
Exide, Sr. Notes, 10.75%, 12/15/02...................................... $ 13,250 13,383
Lear Seating, Sr. Sub. Notes, 11.25%, 7/15/00........................... 750 765
Common Stock...................................................... 1 shs. 8
+++ Motor Wheel, Common Stock, Class A...................................... 6 shs. 1,440
23,010
BEVERAGES -- 3.3%
Coca-Cola Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03............... $ 5,200 4,576
Dr Pepper Bottling Holdings, Sr. Disc. Notes, STEP,
Zero Coupon, 2/15/98; 11.625%, 2/15/98-2/15/03.................... 17,850 12,316
+++ Common Stock, Class A................................................ 1,184 shs. 4,736
+++# Common Stock, Class A................................................ 120 shs. 480
++ Dr Pepper/Seven-Up, Common Stock.................................. 266 shs. 6,591
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03................... $ 8,000 7,040
35,739
BROADCASTING -- 1.3%
Spectra Vision, Sr. Sub. Notes, PIK, 12.65%, 12/1/02.................... 26,592 4,255
Young Broadcasting, Gtd. Sr. Sub. Notes, 11.75%, 11/15/04............... 10,250 10,250
14,505
BUILDING PRODUCTS -- 3.1%
++ Acme Holdings, Sr. Notes, 11.75%, 6/1/00................................ 12,000 5,520
Maxxam Group, Sr. Secured Notes, 11.25%, 8/1/03......................... 10,100 9,393
Overhead Door, Sr. Notes, 12.25%, 2/1/00................................ 9,825 10,021
Southdown, Sr. Sub. Notes, 14.00%, 10/15/01............................. 3,575 4,022
Waxman Industries, Sr. Secured Notes, 12.25%, 9/1/98.................... 4,850 4,607
+++ Warrants............................................................ 90 wts. 5
33,568
BUILDING & REAL ESTATE -- 0.0%
++ Gulfstream Housing, Warrants............................................ 30 wts. 3
BUSINESS & OFFICE EQUIPMENT -- 0.3%
Convex Computer, Conv. Sub. Deb., 6.00%, 3/1/12......................... $ 1,300 813
++ Wang Laboratories, Common Stock......................................... 250 shs. 2,625
3,438
CABLE OPERATORS -- 1.9%
Continental Cablevision, Sr. Deb., 9.00%, 9/1/08........................ $ 5,150 4,558
+++ Peachtree Cable Associates Ltd., Common Stock........................... 10 shs. 170
Summit Communications Group, Sr. Sub. Deb., 10.50%, 4/15/05............. $ 15,675 16,459
</TABLE>
4
<PAGE>
<TABLE>
Face Amount Value
----------------- -----------
<S> <C> <C>
CONGLOMERATES -- 1.7%
Jordan Industries, Sr. Notes, 10.375%, 8/1/03........................... $ 7,200 $ 6,480
Sr. Sub. Disc. Notes, STEP, Zero Coupon,
8/1/98; 11.75%, 8/1/98 - 8/1/05................................. 18,650 9,698
+++ Reeves Industries, Common Stock......................................... 75 shs. 336
+++ Thermadyne Industries, Common Stock..................................... 26 shs. 303
++ Triton Group Limited, Common Stock...................................... 979 shs. 1,469
18,286
CONTAINER -- 4.2%
Owens-Illinois, Sr. Deb., 11.00%, 12/1/03............................... $ 16,490 16,902
Plastic Containers, Sr. Secured Notes, 10.75%, 4/1/01................... 12,300 12,239
Riverwood International, Sr. Sub. Notes, 11.25%, 6/15/02................ 5,750 5,865
Silgan Holdings, Sr. Sub. Notes, 11.75%, 6/15/02........................ 10,000 10,350
45,356
ELECTRONIC COMPONENTS -- 2.1%
+++ Berg Electronics Holdings, Common Stock................................. 740 shs. 3,328
Sr. Exch. Pfd. Stock, PIK, Series E..................................... 755 shs. 19,453
22,781
ENTERTAINMENT & LEISURE -- 0.1%
++ Sam Houston Race Park, Sr. Secured Notes, 11.75%, 7/15/99............... $ 6,000 1,200
+++ Warrants................................................................ 24 wts. 0
1,200
EXPLORATION & PRODUCTION -- 4.0%
++ Argo Petroleum, Sub. Deb., 16.50%, 1/1/02............................... $ 2,000 86
Gulf Canada Resources Ltd., Sr. Sub. Deb., 9.25%, 1/15/04............... 12,080 11,053
Maxus Energy, Sr. Notes, 9.375%, 11/1/03................................ 17,500 15,225
9.875%, 10/15/02.................................................. 5,910 5,142
Plains Resources, Sr. Sub. Notes, 12.00%, 10/1/99....................... 12,000 12,060
43,566
FOOD PROCESSING -- 1.2%
Mafco, Sr. Sub. Notes, 11.875%, 11/15/02................................ 12,750 12,240
++ Rymer Foods, Common Stock............................................... 404 shs. 1,363
13,603
GENERAL MERCHANDISERS -- 0.0%
++* G.C. Murphy, Deb., 7.375%, 1/1/97....................................... $ 2,310 23
+++ Lamonts Apparel, Common Stock........................................... 309 shs. 309
++ Warrants............................................................. 25 wts. 0
332
HEALTH CARE -- 5.9%
Continental Medical Systems, Sr. Sub. Notes, 10.875%, 8/15/02........... $ 15,000 13,275
Hillhaven, Sr. Sub. Notes, 10.125%, 9/1/01.............................. 11,150 11,010
Ornda Healthcorp, Sr. Sub. Notes, 12.25%, 5/15/02....................... 10,000 10,450
Quorum Health Group, Notes, 11.875%, 12/15/02........................... 13,625 14,579
++ The Kendall Company, Rights............................................. 2 rts. 68
++ Warrants, Series A.............................................. 3 wts. 112
++ Series B..................................................... 3 wts. 114
Wright Medical Technology, Sr. Secured Notes, 10.75%, 7/1/00............ $ 14,100 13,818
+++ Warrants............................................................. 4 wts. 762
64,188
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / Statement of Net Assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Bonds & Notes, Common & Preferred Stocks (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount Value
-------------- --------------
<S> <C> <C>
HOTELS & GAMING -- 7.4%
+++# Becker Gaming, Warrants........................................................... 425 wts. $ 425
++ Belle Casinos, 1st Mtg. Notes, (144a), 12.00%, 10/15/00........................... $ 6,650 1,862
++ Warrants....................................................................... 7 wts. 0
++ Capital Gaming International, Promissory Notes, 8/1/95............................ $ 83 42
Sr. Secured Notes, 11.50%, 2/1/01.............................................. 8,300 4,565
+++ Common Stock................................................................... 221 shs. 941
++# Warrants....................................................................... 189 wts. 212
Capitol Queen & Casino, 1st Mtg. Notes, 12.00%, 11/15/00.......................... $ 6,800 5,440
Elsinore, 1st Mtg. Notes, 12.50%, 10/1/00......................................... 19,500 9,214
++ Warrants....................................................................... 795 wts. 159
GNF, 1st Mtg. Notes, 10.625%, 4/1/03.............................................. $ 8,000 4,640
Hemmeter Enterprises, Sr. Secured Notes,
PIK, 12.00%, 12/15/00....................................................... 609 331
PIK Units, (Each unit consists of a $1,000 par Sr.
Secured Note, (144a), 12.00%,12/15/00, and 12 warrants)..................... 11 6,244
++ Hollywood Casino, Common Stock, Class A........................................... 538 shs. 2,692
++ Hollywood Park, Common Stock...................................................... 37 shs. 370
President Riverboat Casinos, Sr. Notes, (144a), 13.00%, 9/15/01................... $ 24,225 20,107
+++ Warrants....................................................................... 361 wts. 892
Showboat, 1st Mtg. Bonds, 9.25%, 5/1/08........................................... $ 16,600 13,612
Trump Taj Mahal, 1st Mtg. Bonds, PIK, 11.35%, 11/15/99............................ 14,698 9,038
80,786
MANUFACTURING -- 3.5%
American Standard, Sr. Deb., 11.375%, 5/15/04..................................... 15,750 16,222
Coltec Industries, Sr. Sub. Notes, 10.25%, 4/1/02................................. 15,000 14,700
Sr. Notes, 9.75%, 4/1/00....................................................... 7,515 7,365
38,287
MEDIA & ADVERTISING -- 1.9%
+++* Efficient Market Services, Conv. Pfd. Stock....................................... 364 shs. 6,055
Heritage Media, Sr. Sub. Notes, 11.00%, 10/1/02................................... $ 15,300 14,994
21,049
PAPER & PAPER PRODUCTS -- 9.9%
Container Corporation of America, Sr. Notes, 11.25%, 5/1/04....................... 19,350 19,543
Fort Howard, Jr. Sub. Disc. Deb., 14.125%, 11/1/04................................ 10,000 10,075
Sr. Sub. Notes, 9.00%, 2/1/06.................................................. 10,000 8,425
Gaylord Container, Sr. Notes, 11.50%, 5/15/01..................................... 5,100 5,126
++ Common Stock, Class A.......................................................... 1,638 shs. 14,332
++ Kane Industries, Sr. Sub. Disc. Notes, STEP, Zero Coupon, 8/1/95;
8.00%, 8/1/95 - 2/1/98......................................................... $ 1,050 3
Repap Enterprises, Conv. Notes, 8.50%, 8/1/97..................................... 1,500 1,402
Common Stock................................................................... 1,400 shs. 6,475
Repap Wisconsin, Sr. Secured 2nd Priority Notes, 9.875%, 5/1/06................... $ 11,125 9,401
Stone Container, 1st Mtg. Notes, 10.75%, 10/1/02.................................. 5,500 5,294
Sr. Sub. Deb., 10.75%, 4/1/02.................................................. 17,750 16,552
++ Common Stock................................................................... 700 shs. 11,375
108,003
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Face Amount Value
-------------- --------------
<S> <C> <C>
PETROLEUM -- 0.4%
Ferrellgas, Notes, 10.00%, 8/1/01................................................... $ 5,000 $ 4,850
PRINTING & PUBLISHING -- 1.0%
American Media Operations, Sr. Sub. Notes, 11.625%, 11/15/04........................ 11,000 11,055
+++ New Century Communications, Pfd. Stock.............................................. 124 shs. 124
+++ Warrants, Series A............................................................... 46 wts. 5
+++ Series B...................................................................... 29 wts. 0
11,184
REFINING -- 1.6%
Tesoro Petroleum, Sub. Deb., 12.75%, 3/15/01........................................ $ 17,138 17,309
RESTAURANTS -- 0.4%
Flagstar, Sr. Sub. Deb., 11.25%, 11/1/04............................................ 4,800 3,864
SERVICE -- 2.6%
++ Allied Waste Industries, Common Stock............................................... 150 shs. 666
Anacomp International N.V., Conv. Sub. Deb., 9.00%, 1/15/96......................... $ 1,900 1,833
Protection One Alarm Monitoring, Sr. Sub. Notes, 12.00%, 11/1/03.................... 4,750 4,584
+++ Warrants......................................................................... 133 wts. 607
Solon Automated Services, Sr. Notes, 12.75%, 7/15/01................................ $ 18,750 18,000
Sr. Sub. Notes, 13.75%, 10/15/02................................................. 2,900 2,900
28,590
SPECIALTY CHEMICALS -- 5.4%
Agriculture Minerals and Chemicals, Sr. Notes, 10.75%, 9/30/03...................... 21,450 21,503
IMC Fertilizer Group, Sr. Notes, 9.45%, 12/15/11.................................... 4,600 3,956
10.125%, 6/15/01................................................................. 4,690 4,620
10.75%, 6/15/03.................................................................. 16,750 17,085
Methanex, Sr. Secured 2nd Priority Notes, 8.875%, 11/15/01.......................... 12,000 11,460
58,624
SPECIALTY RETAILERS -- 2.2%
++ Barry's Jewelers, Common Stock...................................................... 194 shs. 1,186
Loehmann's Holdings, Sr. Secured Notes, 10.50%, 10/1/97............................. $ 7,500 7,125
Sr. Sub. Notes, 13.75%, 2/15/99.................................................. 6,000 6,000
+++ Common Stock..................................................................... 476 shs. 452
++ Class B....................................................................... 321 shs. 241
Pfd. Stock, PIK, Series A........................................................ 550 shs. 165
+++ Merry Go Round Enterprises, 5.50%, 7/3/95........................................... $ 10,594 8,793
23,962
SUPERMARKETS -- 1.4%
+++ Grand Union Capital, Sr. Sub. Notes, Zero Coupon, 1/15/07........................... 13,500 68
++ Grand Union Holdings, Pfd. Stock, PIK, Series C..................................... 33 shs. 82
+++ Warrants, Class A................................................................ 1 wts. 1
++ GU Acquisition, Sr. Sub. Notes, 13.00%, 3/2/98...................................... $ 1,200 480
Penn Traffic Company, Sr. Sub. Notes, 9.625%, 4/15/05............................... 14,000 11,935
The Grand Union Company, Sr. Sub. Notes, 12.25%, 7/15/02............................ 7,100 2,733
15,299
TELECOMMUNICATIONS -- 3.5%
Call-Net Enterprises, Sr. Disc. Notes, STEP, Zero Coupon, 12/1/99;
13.25%, 12/1/99 - 12/1/04........................................................ 10,000 5,225
Dial Page, Sr. Notes, 12.25%, 2/15/00............................................... 13,130 12,867
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / Statement of Net Assets
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Corporate Bonds & Notes, Common & Preferred Stocks (cont.)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount Value
-------------- --------------
<S> <C> <C>
Telecommunications (cont.)
+ Mobile Telecommunication Technologies, (144a),
Conv. Pfd. Stock................................................................. 192 shs. $ 4,947
Page America Group, Sr. Sub. Notes, 12.00%, 12/31/03................................ $ 8,000 7,360
++ Common Stock..................................................................... 527 shs. 1,626
+ Conv. Pfd. Stock, Series I....................................................... 20 shs. 1,372
+++ Warrants ..................................................................... 711 wts. 0
Paging Network, Sr. Sub. Notes, 8.875%, 2/1/06...................................... $ 6,000 4,830
38,227
TEXTILES & APPAREL -- 4.8%
Acme Boot, Sr. Notes, 11.50%, 12/15/00.............................................. 9,000 3,780
+++ Common Stock..................................................................... 36 shs. 36
++ Cum. Pfd. Stock, Series B, 12.50%................................................ 4 shs. 836
Dan River, Sr. Sub. Notes, 10.125%, 12/15/03........................................ $ 13,225 11,770
Plaid Clothing Group, Sr. Sub. Notes, 11.00%, 8/1/03................................ 14,275 6,424
Synthetic Industries, Sr. Sub. Deb., 12.75%, 12/1/02................................ 18,725 17,976
Westpoint Stevens, Sr. Notes, 9.375%, 12/15/05...................................... 12,750 11,156
51,978
TRANSPORTATION -- 1.7%
Sea Containers Ltd., Sr. Sub. Deb., Series B, 12.50%, 12/1/04....................... 1,000 1,045
12.50%, 12/1/04.................................................................. 17,200 18,017
19,062
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS & NOTES, COMMON & PREFERRED STOCKS
(COST -- $1,032,925) 919,128
- ----------------------------------------------------------------------------------------------------------------------------
HYBRID INSTRUMENTS -- 0.3%
- ----------------------------------------------------------------------------------------------------------------------------
Bankers Trust Bank Notes, 5.00%, 12/14/94; principal repayment
value is indexed to the spread between Mexican par bonds and
U.S. Treasury Bonds; includes a put option at 65% of
par and a call option at 80% of par (Cost -- $3,504)............................. 4,750 3,444
- ----------------------------------------------------------------------------------------------------------------------------
U.S. $ Denominated Foreign Securities/1/ -- 3.6%
- ----------------------------------------------------------------------------------------------------------------------------
Brazil IDU, FR, 6.062%, 1/1/01...................................................... 3,920 3,307
Brazil New Money Bond, FR, 6.75%, 4/15/09........................................... 2,000 1,305
Bulgaria FLIRB, STEP, (144a), 2.00%, 7/28/12........................................ 10,816 2,366
Bulgaria IAB, FR, 6.062%, 7/28/11................................................... 2,000 867
(144a), 6.062%, 7/28/11.......................................................... 6,828 2,962
Kingdom of Morocco, FR, 6.125%, 1/1/09.............................................. 16,500 11,426
Poland Discount Bonds, FR, (144a), 6.812%, 10/27/24................................. 7,936 5,883
Poland PDI Bonds, FR, (144a), 3.25%, 10/27/14....................................... 5,360 2,412
Poland RSTA, STEP, (144a), 2.75%, 10/27/24.......................................... 13,129 4,858
Republic of Argentina, FR, 6.50%, 3/31/05........................................... 5,000 3,544
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL U.S. $ DENOMINATED FOREIGN SECURITIES (COST -- $44,412) 38,930
</TABLE>
8
<PAGE>
- -------------------------------------------------------------------------------
Non-U.S. $ Denominated Foreign Securities/2/ -- 0.4%
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Face Amount Value
-------------- --------------
<S> <C> <C>
++ Vnesheconombank Syndicated, Non-performing Loans.................................... ECU 5,500 $ 1,781
++ Non-performing Loans............................................................. ATS 32,415 781
++ Non-performing Loans............................................................. FRF 30,750 1,522
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL NON-U.S. $ DENOMINATED FOREIGN SECURITIES (COST -- $5,744) 4,084
- ----------------------------------------------------------------------------------------------------------------------------
Commercial Paper -- 8.5%
- ----------------------------------------------------------------------------------------------------------------------------
Albertson's, 5.50%, 12/1/94......................................................... $ 2,115 2,111
Caisse des Depots et Consignations, 4(2), 5.50%, 12/19/94........................... 10,000 9,956
Corporate Asset Funding, 5.08%, 12/5/94............................................. 1,000 992
Dover, 4(2), 5.52%, 12/15/94........................................................ 10,000 9,956
Exxon Imperial, 4(2), 5.50%, 12/16/94............................................... 10,225 10,179
Harvard University, 5.75%, 12/1/94.................................................. 24,568 24,564
ITT Hartford Group, 4(2), 5.52%, 12/6/94............................................ 1,300 1,298
Koch Industries, 5.75%, 12/1/94..................................................... 3,000 3,000
Mobil Australia Finance, 4(2), 5.00%, 12/1/94....................................... 3,966 3,951
PNC Funding, 5.50%, 12/8/94......................................................... 3,540 3,529
Preferred Receivables Funding, 5.50%, 12/12/94...................................... 4,000 3,987
Reed Elsevier, 4(2), 5.70%, 1/6/95.................................................. 5,000 4,958
Sysco, 4(2), 5.70%, 1/4/95.......................................................... 10,000 9,921
Wal-Mart Stores, 5.47%, 12/1/94..................................................... 570 569
Walt Disney, 5.65%, 12/1/94......................................................... 3,659 3,658
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST -- $92,645) 92,629
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 97.0% (COST -- $1,179,230)........................... 1,058,215
- ----------------------------------------------------------------------------------------------------------------------------
Other Assets Less Liabilities -- 3.0%................................................... 32,558
-----------
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of distributions................................ 3,928
Accumulated realized gains/losses - net of distributions................................ (165,738)
Net unrealized loss..................................................................... (121,118)
Paid-in-capital applicable to 140,021,519 shares of $0.01 par value capital
stock outstanding; 1,000,000,000 shares authorized.................................... 1,373,701
---------
NET ASSETS -- 100.0%.................................................................... $1,090,773
==========
NET ASSET VALUE PER SHARE............................................................... $7.79
=====
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
/1/ Marketable securities (payable in U.S. dollars) issued or guaranteed by a
foreign government or community.
/2/ Denominated in foreign currency.
++ Non-income Producing
+ Private Placement
* Security valued by the Fund's Board of Directors.
# Restricted as to the resale of the security.
9
<PAGE>
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / Statement of Net Assets
- --------------------------------------------------------------------------------
FLIRB - Front Loaded Interest Reduction Bond
FR - Floating Rate
IAB - Interest Arrears Bond
IDU - Interest Due & Unpaid
PDI - Past Due Interest
PIK - Paid in Kind
RSTA - Revolving Short-Term Trade Agreement
STEP - Stepped Coupon Bond
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.
4(2) - Commercial Paper sold within terms of a private placement
memorandum, exempt from registration under section 4.2 of the
Securities Act of 1933, as amended, and may be sold only to dealers
in that program or other "accredited investors."
(ATS) - Austrian schilling denominated
(ECU) - European currency unit denominated
(FRF) - French franc denominated
The accompanying notes are an integral part of these financial statements.
10
<PAGE>
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / Six Months Ended November 30, 1994 (Unaudited)
<TABLE>
<CAPTION>
INVESTMENT INCOME Amounts in Thousands
-----------------------------
<S> <C> <C>
Interest & dividend income.............................................................. $ 59,710
Expenses
Investment management fees............................................................ $ 3,804
Shareholder servicing fees & expenses................................................. 1,039
Custodian and accounting fees & expenses.............................................. 171
Proxy & annual meeting expenses....................................................... 57
Prospectus & shareholder reports...................................................... 47
Registration fees & expenses.......................................................... 30
Legal & auditing fees................................................................. 26
Directors' fees & expenses............................................................ 13
Miscellaneous expenses................................................................ 15
---------
Total expenses........................................................................ 5,202
--------
Net investment income................................................................... 54,508
REALIZED AND UNREALIZED LOSS
Net realized loss
Securities............................................................................ (34,760)
Currencies and forward currency exchange contracts.................................... (1,473)
---------
Net realized loss..................................................................... (36,233)
Change in net unrealized gain or loss................................................... (48,095)
---------
Net loss................................................................................ (84,328)
--------
DECREASE IN NET ASSETS FROM OPERATIONS.................................................. $(29,820)
========
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
11
<PAGE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund (Unaudited)
<TABLE>
<CAPTION>
Six Three Year
Months Ended Months Ended Ended
Nov. 30, 1994 May 31, 1994++ Feb. 28, 1994
------------- -------------- -------------
Amounts in Thousands
---------------------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income............................................. $ 54,508 $ 28,427 $ 146,561
Net realized gain (loss).......................................... (36,233) (5,945) 84,438
Change in net unrealized gain or loss............................. (48,095) (119,580) 13,959
---------- ---------- ----------
Increase (decrease) in net assets from operations................. (29,820) (97,098) 244,958
---------- ---------- ----------
Distributions to shareholders
Net investment income............................................. (54,568) (28,787) (146,027)
---------- ---------- ----------
Capital share transactions/1/
Sold.............................................................. 89,288 65,217 706,868
Distributions reinvested.......................................... 42,955 22,300 117,658
Redeemed.......................................................... (198,600) (344,528) (703,713)
Redemption fees................................................... 238 406 --
---------- ---------- ----------
Increase (decrease) in net assets from capital
share transactions............................................. (66,119) (256,605) 120,813
---------- ---------- ----------
Total increase (decrease)........................................... (150,507) (382,490) 219,744
NET ASSETS
Beginning of period............................................... 1,241,280 1,623,770 1,404,026
---------- ---------- ----------
End of period..................................................... $1,090,773 $1,241,280 $1,623,770
========== ========== ==========
- ---------------------------------------------------------------------------------------------------------------------------------
/1/Share transactions
Sold............................................................. 10,905 shs. 7,539 shs. 78,966 shs.
Distributions reinvested......................................... 5,314 2,626 13,001
Redeemed......................................................... (24,443) (39,312) (78,166)
------- ------- -------
Increase (decrease) in shares outstanding........................ (8,224) shs. (29,147) shs. 13,801 shs.
======= ======= =======
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The Fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / November 30, 1994 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price High Yield Fund (the Fund) is registered under the Investment
Company Act of 1940 as a diversified, open-end management investment company.
A) Security valuation - Debt securities are generally traded in the
over-the-counter market. Investments in securities with remaining 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 remaining maturities 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 are valued at the last bid price.
For purposes of determining the Fund's net asset value per share, the
U.S. dollar value of all assets and liabilities initially expressed in
foreign currencies is determined by using the mean of the bid and offer
prices of such currencies against U.S. dollars quoted by a major bank.
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.
B) Currency translation - Foreign currency amounts are translated into U.S.
dollars at prevailing exchange rates as follows: assets and liabilities at
the rate of exchange at the end of the respective period, purchases and sales
of securities and income and expenses at the rate of exchange prevailing on
the dates of such transactions.
C) 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 an 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 which may differ from generally accepted accounting
principles.
NOTE 2 - PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term and U.S.
Government securities, aggregated $356,318,000 and $491,588,000,
respectively, for the six months ended November 30, 1994.
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 $130,610,000 at May 31, 1994, which expire
in 1998 through 2002.
At November 30, 1994, the aggregate cost of investments for federal
income tax and financial reporting purposes was $1,179,230,000 and net
unrealized loss aggregated $121,015,000, of which $40,077,000 related to
appreciated investments and $161,092,000 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 0.30% 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%
13
<PAGE>
- --------------------------------------------------------------------------------
Notes to Financial Statements (cont'd)
- --------------------------------------------------------------------------------
for the first $1 billion of assets to 0.31% for assets in excess of $34 billion.
The effective annual Group Fee rate at November 30, 1994, and for the six months
then ended was 0.34%. The Fund pays a pro rata portion of the Group Fee based on
the ratio of the Fund's net assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services,
Inc. (RPS) are wholly owned subsidiaries of the Manager. TRPS provides
transfer and dividend disbursing agent functions and shareholder services for
all accounts. RPS provides subaccounting and recordkeeping services for
certain retirement accounts invested in the Fund. The Manager, under a
separate agreement, calculates the daily share price and maintains the
financial records of the Fund. The Fund is one of several T. Rowe Price
mutual funds (the Underlying Funds) in which the T. Rowe Price Spectrum
Income Fund (Spectrum) invests. In accordance with an Agreement between
Spectrum, the Underlying Funds, the Manager and TRPS, expenses from the
operation of Spectrum are borne by the Underlying Funds based on each
Underlying Fund's proportionate share of assets owned by Spectrum. For the
six months ended November 30, 1994, the Fund incurred fees totalling
approximately $922,000, for these services provided by related parties. At
November 30, 1994, investment management and service fees payable were
$779,000.
14
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
----------------------------------------------------------------------------------
Six Three
Months Months Year ended
Ended Ended ---------------------------------------------------------
Nov. 30, May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1994++ 1994 1993 1992 1991 1990
--------- -------- -------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD...................... $8.37 $9.15 $8.58 $8.23 $7.13 $8.20 $10.24
------ ------ ------ ------ ------ ------ -------
Investment Activities
Net investment income.................... 0.40 0.18 0.81 0.82 0.88 1.07 1.26
Net realized and unrealized
gain (loss)............................ (0.60) (0.78) 0.57 0.35 1.10 (1.07) (2.04)
------ ------ ------ ------ ------ ------ -------
Total from Investment Activities......... (0.20) (0.60) 1.38 1.17 1.98 0.00 (0.78)
Distributions
Net investment income.................... (0.38) (0.18) (0.81) (0.82) (0.88) (1.07) (1.26)
------ ------ ------ ------ ------ ------ -------
NET ASSET VALUE,
END OF PERIOD............................. $7.79 $8.37 $9.15 $8.58 $8.23 $7.13 $ 8.20
====== ====== ====== ====== ====== ====== =======
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total Return................................. (2.50)% (6.52)% 16.59% 14.96% 29.15% 0.12% (8.62)%
Ratio of Expenses to Average
Net Assets............................... 0.88%+ 0.85%+ 0.85% 0.89% 0.97% 1.03% 1.02%
Ratio of Net Investment Income
to Average Net Assets.................... 9.22%+ 8.37%+ 8.99% 9.85% 11.22% 14.02% 13.01%
Portfolio Turnover Rate...................... 67.0%+ 62.5%+ 107.0% 104.4% 58.9% 82.6% 65.6%
Net Assets, End of Period
(in millions)............................ $1,091 $1,241 $1,624 $1,404 $1,108 $556 $660
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
++ The Fund's fiscal year-end was changed to May 31.
+ Annualized.
15
<PAGE>
- ------------------------------------------------------------------------------
SEMIANNUAL REPORT
- ------------------------------------------------------------------------------
T. ROWE PRICE
- -------------
HIGH YIELD FUND
NOVEMBER 30, 1994
FOR YIELD, PRICE, LAST TRANSACTION,
AND CURRENT BALANCE, 24 HOURS,
7 DAYS A WEEK, CALL:
1-800-638-2587 toll free
625-7676 Baltimore area
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
High Yield Fund(R).
T. Rowe Price
Invest With Confidence(R)
HYF
