ANNUAL REPORT
______________________
HIGH YIELD FUND
______________________
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 distribution only to shareholders and to
others who have received a copy of the prospectus of the T. Rowe Price High
Yield Fund Registration Mark.
<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
After a rocky first half, high-yield bonds rallied on a broad front during
the second half of the fund's fiscal year ended May 31. As a result, the
high-yield bond market and your fund provided solid returns for the 12-month
period. MARKET RECAP Against a background of successive tightenings by the
Federal Reserve, bond yields rose during the first six months of the fund's
fiscal year as investors worried about a pickup in inflation. High-yield bonds
suffered along with Treasury and other high-quality issues even though the
economy's pace was robust, indeed, accelerating, which is usually favorable for
junk bonds. Increasingly attractive yields on virtually risk-free money market
securities provided tough competition, and there were underlying concerns that
the Fed might torpedo the expansion.
The scenario improved sharply in the second half of the fiscal year.
Long-term yields began to fall in November 1994 on expectations of slower
growth. High-yield bond prices rallied along with the Treasury market, buoyed by
lower interest rates, impressive corporate earnings gains, and expectations of a
moderate but sustainable rate of economic growth ("a soft landing"). In
addition, the high-yield market enjoyed positive technical conditions with
increasing demand and an unusually low supply of new issues.
During the final quarter, however, the soft landing hit some unexpected
bumps, muddying the picture for lower-rated bonds. GDP growth slid from a 5.1%
annual rate in the fourth quarter of 1994 to 2.7% in this year's first quarter
and seemed likely to drop much lower in the second. This was unalloyed good news
for the most creditworthy bonds, but raised a caution flag for the
credit-sensitive junk bond market. The market's supply and demand condition also
deteriorated somewhat in late spring. Thus, while high-yield bonds participated
in the spring rally, they lagged their higher-quality brethren for the first
time in four years.
A result of the earlier strong performance was a narrowing of yield spreads
between Treasury and high-yield bonds, as shown in the chart. The closer their
yields, the more these bonds move with Treasuries -- a negative when rates
climbed in 1994 but a positive when they fell in early 1995. Recently, however,
spreads have widened amid uncertainty about the economy, thereby weakening the
high-yield market's linkage with high-quality bonds.
[A 2-line chart showing the yield spread between B and BB-rated bonds and
treasuries from January 31, 1985 to May 31, 1995.]
<PAGE>
PERFORMANCE AND STRATEGY REVIEW
For the fiscal year, the fund's income distribution of $0.76 per share more
than offset a $0.21 price decline to provide a 7.09% total return, slightly
below the average of our peer group. The most recent quarter's performance
(shown on the next page) was respectable in absolute terms but disappointing on
a relative basis, due in part to our more defensive strategy and to credit
problems experienced by certain holdings.
Ever since the Fed began raising interest rates to cool the economy, we
have been realigning the portfolio to perform with less volatility in the
slower-growth environment we
Periods Ended 5/31/95
3 Months 12 Months
---------------------------
High Yield Fund 4.29% 7.09%
Lipper High Yield Fund Average 5.68 7.66
anticipated. During the past year, we increased the number of BB-rated
securities in the portfolio, significantly reduced nonincome-producing holdings,
and increased investments in sectors less vulnerable to economic downturns. This
defensive approach was generally beneficial except in April, when the
lower-quality tier of the junk bond market led the advance.
As you can see in the Sector Diversification table following this report,
the portfolio emphasizes less cyclical industries. To take advantage of the
Canadian cable industry's growth prospects and improving regulatory environment,
we purchased three of the six major operators, doubling our position to 8% of
net assets since February 1995. We maintained considerable exposure to the
health care sector, which has performed well and has good long-term prospects as
the industry consolidates. As part of our strategy to increase the fund's
defensive cast, we added to our energy holdings earlier in the year, because we
like the sector's overall fundamentals. Paper industry investments, some of
which are equities, continued to be rewarding, and we took the opportunity to
lock in some profits.
Amid signs of overcapacity in some areas of the gambling industry, we
gradually trimmed our holdings in that sector from 11% of net assets a year ago
to 6%. Returns on these investments were mixed for the 12-month period; some
rose in price, but others encountered increasing problems and fell sharply in
price. Your fund currently holds six defaulted issues (out of 136 holdings)
composing approximately 2% of net assets. Two of these, Anacomp and
Merry-Go-Round, were purchased after their defaults for their attractive
appreciation prospects. OUTLOOK We feel the high-yield market is at a
crossroads, with its direction depending on the course of the economy over the
next several months. A switch to an easy policy by the Federal Reserve could be
viewed favorably as likely to stimulate growth, or less favorably if seen as
confirming concerns over the possibility of a recession.
<PAGE>
[Bond returns by quality sectors. A bar chart showing 10-year cumulative returns
on bond rated AAA through CCC, from 1985 through 5/95.]
Based on the pattern of returns on corporate bonds in the last 10 years,
shown in the chart, we see no point now in dipping down in credit quality to
pursue higher income and short-term price appreciation. Rather, we will stick to
our focus on BB-and B-rated bonds, which have performed best over time and
should weather economic changes better than weaker credits.
We believe the Fed may well cut the key federal funds rate in coming months
and that growth will gradually rise to its historical trend of 2% to 2.5% by
year-end. This should be a good environment for high-yield bonds provided supply
and demand conditions do not worsen.
Nevertheless, we want to remind you that this market is vulnerable to both
fact and conjecture about economic growth, either can cause major movements in
cash flows into or out of the market, usually through mutual funds. Thus, prices
can be volatile even in the absence of concrete problems, such as a rise in the
default rate. Since the actual impact of a default is greatly diffused in a
highly diversified fund portfolio, cash flow is a major source of risk in this
market.
Over time, lower-quality bonds have proved rewarding for long-term
investors who can ride out periodic market setbacks, and we see no reason why
this should not be true in the future.
Respectfully submitted,
[signature]
Catherine H. Bray
President and Chairman of the
Investment Advisory Committee
June 19, 1995
<PAGE>
Twenty-Five Largest Holdings
Percent of
Net Assets
--------
National Medical Enterprises 2.2%
Berg Electronics 2.2
Westpoint Stevens 1.9
Coltec Industries 1.9
Owens-Illinois 1.7
Agricultural Minerals and Chemicals 1.7
Container Corporation of America 1.7
IMO Industries 1.7
Solon Automated Services 1.6
President Casinos 1.6
Exide 1.6
Dr. Pepper Bottling 1.6
American Media 1.5
Penn Traffic 1.5
American Standard 1.4
Summit Communications Group 1.4
Maxus Energy 1.4
Fleming Companies 1.4
Continental Cablevision 1.4
Sea Containers 1.4
Silgan 1.4
UCAR Global Enterprises 1.3
Heritage Media 1.3
Gulf Canada Resources 1.3
CF Cable TV 1.3
Total 39.4%
<PAGE>
- --------------------------------------------------------------------------------
Statistical Highlights
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / May 31, 1995
- --------------------------------------------------------------------------------
Key Statistics
Periods Ended
Dividend Yield* 5/31/95
- --------------------------- ---------------
3 Months 9.44%
12 Months 9.82
Dividend Per Share
- ---------------------------
3 Months $0.19
12 Months 0.76
Change in Price Per Share
- ---------------------------
3 Months (From $8.01 to $8.16) $0.15
12 Months (From $8.37 to $8.16) -0.21
* 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.
================================================================================
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
Percent of Net Assets
Range 5/31/94 2/28/95 5/31/95
- --------------------- ------- ------- -------
Short-Term
(0 to 1 Year) 6% 9% 9%
Short Intermediate-
Term (1+ to 5 Years) 7 3 3
Long Intermediate-
Term (5+ to 10 Years) 57 67 75
Long-Term
(over 10 Years) 30 21 13
Weighted Average
Maturity 10.3 yrs. 8.8 yrs. 8.4 yrs.
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
Percent of Net Assets
5/31/94 2/28/95 5/31/95
------- ------- -------
Cable Operators 2% 4% 8%
Energy 3 9 8
Health Care 8 7 7
Paper and Paper Products 7 9 6
Hotels and Gaming 11 7 6
Container 2 5 5
Manufacturing 3 4 5
Building Products 3 3 4
Supermarkets 2 4 4
Specialty Chemicals 5 6 4
Textiles and Apparel 5 4 3
Retail 3 2 3
Telecommunications 3 2 3
Service 2 3 3
Media -- 2 3
Broadcasting 1 1 3
Beverages 3 3 3
Automobiles and Related 2 2 2
Electronic Components 2 2 2
*Sectors representing at least 2% of net assets on 5/31/95.
================================================================================
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
Percent of Net Assets
TRPA Quality Rating* 5/31/94 2/28/95 5/31/95
-------- -------- --------
1 3% 4% 5%
2 2 2 3
3 -- 1 --
4 1 -- --
5 5 20 25
6 69 60 57
7 6 5 4
8 1 -- --
9 2 -- 1
10 2 1 1
Not Rated 9 7 4
Weighted Average 5.4 5.1 5.2
* On a scale of 1 to 10, with Grade 1 representing highest quality.
================================================================================
[Fiscal-Year Performance Comparison line graph for High Yield Fund
annual report (May 31, 1995).]
<PAGE>
- --------------------------------------------------------------------------------
Average Annual Compound Total Return Periods Ended May 31, 1995
- --------------------------------------------------------------------------------
1 Year 5 Years 10 Years
------- ------- ----------
7.09% 10.99% 9.63%
Note: For the above periods ended 3/31/95, the fund's returns were 1.83%,
10.88%, and 10.03%, respectively. Income return and principal value represent
past performance and will vary. Shares may be worth more or less at redemption
than at original purchase.
================================================================================
- --------------------------------------------------------------------------------
Investment Record T. Rowe Price High Yield Fund
- --------------------------------------------------------------------------------
The table below shows the investment record of one share of the T. Rowe
Price High Yield Fund, purchased at the original offering price of $10.00. Over
this time, interest rates have been volatile. The results shown should not be
considered a representation of the dividend income or capital gain or loss which
may be realized from an investment made in the fund today.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Capital With With Dividends
Fiscal Net Asset Income Gain Dividends and Capital Gains Total
Year Ended Value Dividends Distribution Reinvested Reinvested2 Return
- ------------ ------ ----- -------------- ------ ------ -----
2/28/851 $ 9.99 $ 0.22 - $ 10.21 $ 10.21 1.96%
1986 10.99 1.37 - 12.79 12.79 25.45
1987 11.26 1.28 $0.13 14.71 14.88 16.36
1988 10.21 1.25 0.14 15.03 15.40 3.49
1989 10.24 1.26 - 17.04 17.46 13.37
1990 8.20 1.26 - 15.57 15.96 -8.62
1991 7.13 1.07 - 15.59 15.98 0.12
1992 8.23 0.88 - 20.14 20.65 29.15
1993 8.58 0.82 - 23.15 23.75 14.96
1994 9.15 0.81 - 26.99 27.66 16.59
5/31/943 8.37 0.18 - 25.23 25.85 -6.52
1995 8.16 0.76 - 27.02 27.68 7.09
Total $11.16 $0.27
<FN>
1 From inception 12/31/84 to 2/28/85.
2 Includes short-term capital gain of $0.09 on 3/11/86.
3 Fiscal year-end changed from February 28 to May 31; figures are for three
months from 3/1/94 to 5/31/94.
</FN>
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
- --------------------------------------------------------------------------------
Statement of Net Assets
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund / May 31, 1995
(AMOUNTS IN THOUSANDS)
<S> <C> <C>
Corporate Bonds & Notes -- 84.2%
Amount Value
------- -------
Aerospace & Defense -- 1.7%
K & F Industries, Sr. Secured Notes, 11.875%, 12/1/03 ...................$12,650 $12,903
Tracor, Sr. Sub. Notes, 10.875%, 8/15/01 ................................. 7,500 7,725
20,628
Automobiles & Related -- 1.4%
Exide, Sr. Notes, 10.75%, 12/15/02 .......................................13,250 14,012
Sr. Notes, (144a), 10.00%, 4/15/05 ..................................... 2,250 2,295
16,307
Beverages -- 2.2%
Coca-Cola Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 ................ 5,200 5,083
Dr. Pepper Bottling Holdings, Sr. Disc. Notes, STEP, Zero Coupon,
2/15/98; 11.625%, 2/15/98-2/15/03 ...................................... 7,850 13,566
Texas Bottling Group, Sr. Sub. Notes, 9.00%, 11/15/03 .................... 8,000 7,820
26,469
Broadcasting -- 2.7%
Benedek Broadcasting, Sr. Secured Notes, (144a), 11.875%, 3/1/05 ......... 9,500 9,809
Granite Broadcasting, Sr. Sub. Notes, 10.375%, 5/15/05 ...................10,750 10,804
Spectra Vision, Sr. Sub. Notes, PIK, 12.65%, 12/1/02 .....................28,273 2,545
Young Broadcasting, Gtd. Sr. Sub. Notes, 11.75%, 11/15/04 ................ 8,500 9,307
32,465
Building Products -- 4.2%
*Acme Holdings, Sr. Notes, 11.75%, 6/1/00 ....................................12,000 6,240
Maxxam Group, Sr. Secured Notes, 11.25%, 8/1/03 ..........................15,000 14,550
Overhead Door, Sr. Notes, 12.25%, 2/1/00 ................................. 9,825 10,120
Schuller International Group, Sr. Notes, 10.875%, 12/15/04 ...............14,000 15,365
Southdown, Sr. Sub. Notes, 14.00%, 10/15/01 .............................. 3,575 4,004
50,279
Cable Operators -- 8.1%
Century Communications, 9.50%, 3/1/05 ................................... 12,000 11,880
CF Cable TV, Sr. Secured 2nd Priority Notes, 11.625%, 2/15/05 ........... 14,700 15,655
Continental Cablevision, Sr. Deb., 9.00%, 9/1/08 ........................ 8,150 8,150
Sr. Sub. Deb., 11.00%, 6/1/07 ......................................... 7,500 8,288
People's Choice - TV, Units, (Each unit consists of a $1,000 par Sr.Disc.
Note, STEP, Zero Coupon, 6/1/00; 13.125%, 6/1/00-6/1/04,
and 1 warrant) ......................................................... 22,700 11,917
Rogers Cablesystems Ltd., Sr. Secured 2nd Priority Notes,
(144a), 10.00%, 3/15/05 ............................................... 12,000 12,180
Summit Communications Group, Sr. Sub. Deb., 10.50%, 4/15/05 ............. 15,675 16,929
Videotron Group Ltd., Sr. Notes, 10.625%, 2/15/05 ....................... 12,100 12,796
97,795
Conglomerates -- 1.9%
Interlake, Sr. Sub. Deb., 12.125%, 3/1/02 ............................... 8,800 8,976
Jordan Industries, Sr. Notes, 10.375%, 8/1/03 ........................... 9,000 8,595
Sr. Sub. Disc. Notes, STEP, Zero Coupon, 8/1/98; 11.75%,
8/1/98-8/1/05 ......................................................... 8,000 4,960
22,531
<PAGE>
Container -- 5.4%
Owens-Illinois, Sr. Deb., 11.00%, 12/1/03 ............................... 18,990 21,031
Plastic Containers, Sr. Secured Notes, 10.75%, 4/1/01 ................... 12,300 12,792
Riverwood International, Sr. Sub. Notes, 11.25%, 6/15/02 ................ 13,900 15,290
Silgan, Sr. Disc. Deb., STEP, Zero Coupon, 6/15/96; 13.25%,
6/15/96-12/15/02 .................................................... 6,250 5,688
Sr. Sub. Notes, 11.75%, 6/15/02 ....................................... 10,000 10,650
65,451
Energy -- 8.1%
Crown Central Petroleum, Sr. Notes, 10.875%, 2/1/05 ..................... 10,000 10,500
Ferrellgas, Sr. Notes, 10.00%, 8/1/01 ................................... 11,000 11,523
Gulf Canada Resources Ltd., Sr. Sub. Deb., 9.25%, 1/15/04 ............... 16,080 15,919
Maxus Energy, Sr. Notes, 9.375%, 11/1/03 ................................ 17,500 16,625
Petroleum Heat and Power, Sub. Deb., 12.25%, 2/1/05 ..................... 10,450 11,155
Plains Resources, Sr. Sub. Notes, 12.00%, 10/1/99 ....................... 12,000 12,480
Rowan Companies, Sr. Notes, 11.875%, 12/1/01 ............................ 4,050 4,334
Tesoro Petroleum, Sub. Deb., 12.75%, 3/15/01 ............................ 15,000 15,300
97,836
Food Processing -- 0.8%
MAFCO, Sr. Sub. Notes, 11.875%, 11/15/02 ................................ 10,000 10,050
Health Care -- 7.0%
Continental Medical Systems, Sr. Sub. Notes, 10.875%, 8/15/02 ........... 7,000 7,280
Hillhaven, Sr. Sub. Notes, 10.125%, 9/1/01 .............................. 11,150 11,596
National Medical Enterprises, Sr. Sub. Notes, 10.125%, 3/1/05 ........... 25,000 26,375
Ornda Healthcorp, Sr. Sub. Notes, 12.25%, 5/15/02 ....................... 10,000 11,000
Quorum Health Group, 11.875%, 12/15/02 .................................. 13,625 14,919
Wright Medical Technology, Sr. Secured Notes, 10.75%, 7/1/00 ............ 14,100 13,959
85,129
Hotels & Gaming -- 5.5%
*Belle Casinos, 1st Mtg. Notes, (144a), 12.00%, 10/15/00 .................... 6,650 2,660
*Capital Gaming International, Promissory Note, 8/1/95 ...................... 83 37
Sr. Secured Notes, 11.50%, 2/1/01 ..................................... 8,300 3,652
Capitol Queen & Casino, 1st Mtg. Notes, 12.00%, 11/15/00 ................ 3,400 2,992
*Elsinore, 1st Mtg. Notes, 12.50%, 10/1/00 .................................. 19,500 9,750
GNF, 1st Mtg. Notes, 10.625%, 4/1/03 .................................... 8,000 6,600
Hemmeter Enterprises, Sr. Secured Notes, PIK, (144a), 12.00%, 12/15/00 .. 1,276 638
PIK Units, (Each unit consists of a $1,000 par Sr. Secured Note,
(144a), 12.00%, 12/15/00, and 12 warrants) .............................. 10,500 5,250
President Casinos, Sr. Notes, 13.00%, 9/15/01 ........................... 20,000 18,600
*Sam Houston Race Park, Sr. Secured Notes, 11.75%, 7/15/99 .................. 6,000 1,500
Showboat, 1st Mtg. Bonds, 9.25%, 5/1/08 ................................. 16,600 15,230
66,909
Manufacturing -- 5.1%
American Standard, Sr. Deb., 11.375%, 5/15/04 ........................... 15,750 17,482
Coltec Industries, Sr. Notes, 9.75%, 4/1/00 ............................. 7,515 7,703
Sr. Sub. Deb., 10.25%, 4/1/02 ......................................... 15,000 15,450
IMO Industries, Sr. Sub. Deb., 12.00%, 11/1/01 .......................... 20,000 20,600
61,235
<PAGE>
Media -- 2.8%
American Media, Sr. Sub. Notes, 11.625%, 11/15/04 ....................... 16,400 17,630
Heritage Media, Sr. Sub. Notes, 11.00%, 10/1/02 ......................... 15,300 15,989
33,619
Metals & Mining -- 1.3%
UCAR Global Enterprises, Sr. Secured Notes, (144a), 12.00%, 1/15/05 ..... 14,900 16,129
Paper & Paper Products -- 5.3%
Container Corporation of America, Sr. Notes, 11.25%, 5/1/04 ............. 19,350 20,704
Repap New Brunswick, 1st Priority Sr. Secured Notes, 9.875%, 7/15/00 .... 5,000 5,210
Repap Wisconsin, 2nd Priority Sr. Secured Notes, 9.875%, 5/1/06 ......... 11,125 10,903
SD Warren Company, Sr. Sub. Notes, (144a), 12.00%, 12/15/04 ............. 11,000 12,045
Stone Container, Sr. Sub. Deb., 10.75%, 4/1/02 .......................... 15,000 15,375
64,237
Restaurants -- 0.8%
Flagstar, Sr. Notes, 10.75%, 9/15/01 .................................... 8,000 7,400
10.875%, 12/1/02 ...................................................... 3,000 2,775
10,175
Retail -- 2.8%
Federated Department Stores, Sr. Notes, 10.00%, 2/15/01 ................. 11,300 12,147
*G.C. Murphy, Deb., 7.375%, 1/1/97 .......................................... 2,310 23
Loehmann's Holdings, Sr. Secured Notes, 10.50%, 10/1/97 ................. 7,500 7,200
*Merry Go Round Enterprises, 5.50%, 7/3/95 .................................. 10,594 8,158
Southland, 2nd Priority Sr. Sub. Deb., 4.50%, 6/15/04 ................... 9,500 6,484
34,012
Service -- 2.2%
*Anacomp, Sr. Sub. Notes, 15.00%, 11/1/00 .................................... 10,000 6,500
*Anacomp International N.V., Conv. Sub. Deb., 9.00%, 1/15/96 ................. 1,900 855
Solon Automated Services, Sr. Notes, 12.75%, 7/15/01 ..................... 17,200 16,856
Sr. Sub. Notes, 13.75%, 10/15/02 ....................................... 2,900 2,871
27,082
Specialty Chemicals -- 3.9%
Agriculture Minerals and Chemicals, Sr. Notes, 10.75%, 9/30/03 ........... 20,000 20,850
Arcadian, Sr. Notes, 10.75%, 5/1/05 ...................................... 11,025 11,246
IMC Fertilizer Group, Sr. Notes, 9.45%, 12/15/11 ......................... 4,600 4,698
10.125%, 6/15/01 ....................................................... 4,690 5,018
10.75%, 6/15/03 ........................................................ 5,250 5,696
47,508
Supermarkets -- 4.1%
Fleming Companies, Sr. Notes, 10.625%, 12/15/01 .......................... 15,750 16,597
Pathmark Stores, Jr. Sub. Defd. Notes, STEP, Zero Coupon, 11/1/99;
10.75%, 11/1/99-11/1/03 ............................................ 5,000 2,937
Sr. Sub. Notes, 9.625%, 5/1/03 ......................................... 12,830 12,445
Penn Traffic Company, Sr. Sub. Notes, 9.625%, 4/15/05 .................... 18,700 17,555
49,534
Telecommunications -- 2.3%
Call-Net Enterprises, Sr. Disc. Notes, STEP, Zero Coupon, 12/1/99;
13.25%, 12/1/99-12/1/04 ................................................ 16,850 9,963
In-Flight Phone, Units, (Each unit consists of a $1,000 par Sr. Disc.Note,
(144a), STEP, Zero Coupon, 5/15/98; 14.00%, 5/15/98-5/15/02,
and 1 warrant) ......................................................... 7,500 4,837
Page America Group, Sr. Sub. Notes, 12.00%, 12/31/03 ..................... 8,000 6,840
Paging Network, Sr. Sub. Notes, 8.875%, 2/1/06 ........................... 6,000 5,535
27,175
<PAGE>
Textiles & Apparel -- 3.2%
Dan River, Sr. Sub. Notes, 10.125%, 12/15/03 ............................. 13,225 13,225
Plaid Clothing Group, Sr. Sub. Notes, 11.00%, 8/1/03 ..................... 8,650 2,509
Westpoint Stevens, Sr. Notes, 8.75%, 12/15/01 ............................ 10,850 10,714
9.375%, 12/15/05 ....................................................... 12,750 12,495
38,943
Transportation -- 1.4%
Sea Containers Ltd., Sr. Sub. Deb., 12.50%, 12/1/04 ...................... 15,000 16,425
TOTAL CORPORATE BONDS & NOTES (COST $1,053,969) 1,017,923
Aerospace & Defense --0.3%
*Abex, Common Stock .......................................................... 380 shs. 3,132
Automobiles & Related -- 1.0%
*+ Borg Warner Automotive, Common Stock, Class A ............................ 319 8,052
Exide, Common Stock ...................................................... 80 2,898
*+ Motor Wheel, Common Stock, Class A ....................................... 6 750
11,700
Beverages -- 0.4%
*Dr. Pepper Bottling Holdings, Common Stock, Class A ......................... 1,304 5,215
Business & Office Equipment -- 0.3%
*Wang Laboratories, Common Stock ............................................. 292 3,795
Cable Operators -- 0.0%
*+ Peachtree Cable Associates Ltd., Common Stock ............................ 10 170
Conglomerates -- 0.0%
*+ Reeves Industries, Common Stock .......................................... 75 shs. $ 337
*Thermadyne Holdings, Common Stock ........................................... 5 76
413
Electronic Components -- 2.2%
*+ Berg Electronics Holdings, Common Stock .................................. 740 3,698
Sr. Exch. Pfd. Stock, PIK, Series E .................................... 807 22,591
26,289
Food Processing -- 0.1%
*Rymer Foods, Common Stock ................................................... 401 701
Health Care -- 0.0%
*+ Wright Medical Technology, Warrants ...................................... 38 wts. 628
Hotels & Gaming -- 0.6%
*+ Becker Gaming, Warrants .................................................. 425 212
*Belle Casinos, Warrants ..................................................... 7 0
*+ Capital Gaming International, Common Stock ...............................221 shs. 325
*+ Warrants .................................................................189 wts 118
*+ Elsinore, Warrants .......................................................1,039 208
*Hollywood Casino, Common Stock, Class A .....................................538 shs. 5,114
*+ President Casinos, Warrants ..............................................214 wts. 856
*Warrants ....................................................................147 0
*Sam Houston Race Park, Warrants .............................................24 0
6,833
<PAGE>
Paper & Paper Products -- 0.9%
*Gaylord Container, Common Stock, Class A ....................................590 shs. 5,494
*Repap Enterprises, Common Stock .............................................690 4,873
10,367
Retail -- 0.1%
*Barry's Jewelers, Common Stock ..............................................173 499
*+ Lamonts Apparel, Common Stock ............................................250 156
*+ Loehmann's Holdings, Common Stock ........................................476 452
*Common Stock, Class B .......................................................321 65
Pfd. Stock, PIK, Series A ..............................................577 173
1,345
Service -- 0.6%
*Allied Waste Industries, Common Stock .......................................150 900
*+ Efficient Market Services, Conv. Pfd. Stock ..............................364 6,055
*Protection One Alarm Monitoring, Warrants ...................................133 wts. 650
7,605
Telecommunications -- 0.6%
Mobile Telecommunication Technologies, (144a), Conv. Pfd Stock ........ 187 shs. 6,003
*+ Page America Group, Common Stock ...................................... 527 813
*+ Warrants .............................................................. 711 wts 0
Conv. Pfd. Stock, Series I .......................................... 20 shs. 686
7,502
TOTAL EQUITY & CONVERTIBLE SECURITIES (COST ............................... $72,629 85,695
Certificates of Deposit -- 1.2%
NBD Bank, N.A., 6.02%, 6/29/95 .......................................... 10,000 10,000
Societe Generale, 6.06%, 8/3/95 ......................................... 5,000 5,000
TOTAL CERTIFICATES OF DEPOSIT (COST $15,000) .............................. 15,000
Commercial Paper -- 4.1%
Alliance & Leicester, 6.05%, 7/12/95 .................................... 4,300 4,233
Becton Dickinson, 6.12%, 6/1/95 ......................................... 1,720 1,720
BMW U.S. Capital, 5.95%, 6/1/95 ......................................... 1,000 998
Commerzbank, 6.00%, 7/28/95 ............................................. 2,900 2,855
Corporate Asset Funding, 6.10%, 6/1/95 .................................. 5,012 5,011
Koch Industries, 6.15%, 6/1/95 .......................................... 6,645 6,644
Preferred Receivables Funding, 5.98-6.00%, 6/22/95 ...................... 4,000 3,960
President & Fellows Harvard College, 6.15%, 6/1/95 ...................... 12,040 12,038
Prudential Funding, 6.00%, 7/3/95 ....................................... 5,000 4,947
Reed Elsevier, 5.95%, 6/19/95 ........................................... 3,783 3,756
U.S. West Communications, 6.05%, 6/2/95 ................................. 339 339
Warner Lambert, 5.95%, 7/19/95 .......................................... 2,400 2,379
TOTAL COMMERCIAL PAPER (COST $48,886) ..................................... 48,880
TOTAL INVESTMENTS IN SECURITIES -- 96.6% OF NET ASSETS (COST $1,190,484) .1,167,498
OTHER ASSETS LESS LIABILITIES ............................................ 40,977
<PAGE>
NET ASSETS CONSIST OF: ................................................... Value
-----------
Accumulated net investment income - net of distributions .................. 2,561
Accumulated net realized gain/loss - net of distributions ................. (210,635)
Net unrealized gain (loss) ................................................ (22,986)
Paid-in-capital applicable to 148,016,418 shares of $0.01 par value capital
stock outstanding; 1,000,000,000 shares authorized ...................... 1,439,535
-----------
NET ASSETS ................................................................ 1,208,475
-----------
-----------
NET ASSET VALUE PER SHARE ................................................. $ 8.16
<FN>
*Non-income Producing
Private Placement
Security valued by the Fund's Board of Directors.
+Restricted as to the resale of the security.
PIK - Paid in Kind
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.
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
<PAGE>
Statement of Operations
T. Rowe Price High Yield Fund / Year Ended May 31, 1995
(IN THOUSANDS)
INVESTMENT INCOME
Interest and dividend income ................................... $ 116,368
----------
Expenses
Investment management ........................................ 7,367
Shareholder servicing ........................................ 2,046
Custody and accounting ....................................... 311
Prospectus and shareholder reports ........................... 115
Proxy and annual meeting ..................................... 74
Registration ................................................. 59
Legal and audit .............................................. 51
Directors .................................................... 21
Miscellaneous ................................................ 27
----------
Total expenses ............................................... 10,071
----------
Net investment income .......................................... 106,297
----------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Securities ................................................... (79,865)
Options ...................................................... 66
Foreign currency transactions ................................ (1,331)
----------
Net realized gain (loss) ..................................... (81,130)
----------
Change in net unrealized gain or loss on:
Securities ................................................... 48,758
Other assets and liabilities denominated in foreign currencies 1,279
----------
Change in net unrealized gain or loss ........................ 50,037
----------
Net realized and unrealized gain (loss) ........................ (31,093)
----------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS .............. $ 75,204
----------
----------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
<TABLE>
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
T. Rowe Price High Yield Fund
(IN THOUSANDS)
<S> <C> <C> <C>
Three
Year Ended Months Ended Year Ended
May 31, 1995 May 31, 1994 Feb. 28, 1994
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income ........................... $ 106,297 $ 28,427 $ 146,561
Net realized gain (loss) ........................ (81,130) (5,945) 84,438
Change in net unrealized gain or loss ........... 50,037 (119,580) 13,959
----------- ----------- -----------
Increase (decrease) in net assets from operations 75,204 (97,098) 244,958
----------- ----------- -----------
Distributions to shareholders
Net investment income ........................... (107,724) (28,787) (146,027)
----------- ----------- -----------
Capital share transactions*
Shares sold ..................................... 254,210 65,217 706,868
Distributions reinvested ........................ 82,742 22,300 117,658
Shares redeemed ................................. (337,573) (344,528) (703,713)
Redemption fees received ........................ 336 406 --
----------- ----------- -----------
Increase (decrease) in net assets from capital
share transactions ............................ (285) (256,605) 120,813
----------- ----------- -----------
Increase (decrease) in net assets ................. (32,805) (382,490) 219,744
NET ASSETS
Beginning of period ............................... 1,241,280 1,623,770 1,404,026
----------- ----------- -----------
End of period ..................................... $ 1,208,475 $ 1,241,280 $ 1,623,770
=========== =========== ===========
*Share information
Shares sold ..................................... 31,611 7,539 78,966
Distributions reinvested ........................ 10,308 2,626 13,001
Shares redeemed ................................. (42,148) (39,312) (78,166)
----------- ----------- -----------
Increase (decrease) in shares outstanding ....... (229) (29,147) 13,801
=========== =========== ===========
The fund's fiscal year-end was changed to May 31.
</TABLE>
The accompanying notes are an integral part of these financial statements.
- --------------------------------------------------------------------------------
<PAGE>
Notes to Financial Statements
T. Rowe Price High Yield Fund / May 31, 1995
================================================================================
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)
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 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 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 - Assets
and liabilities are translated into U.S. dollars at the prevailing exchange rate
at the end of the reporting period. Purchases and sales of securities and income
and expenses are translated into U.S. dollars at the prevailing exchange rate on
the dates of such transactions. The effect of changes in foreign exchange rates
on realized and unrealized security gains and losses is reflected as a component
of such gains and losses. C) Premiums and Discounts - Premiums and discounts on
high yield debt securities, other than PIK and STEP bonds, are included in the
gain or loss recorded on disposition of the securities for both financial and
tax reporting purposes. Premiums and discounts on PIK and STEP bonds are
amortized for both financial and tax reporting purposes. D) 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
and may differ from those determined in accordance with generally accepted
accounting principles.
<PAGE>
================================================================================
NOTE 2 - INVESTMENT TRANSACTIONS
================================================================================
Purchases and sales of portfolio securities, other than short-term
securities, aggregated $778,903,000 and $831,420,000, respectively, for the year
ended May 31, 1995.
================================================================================
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 $171,834,000, $83,409,000 of which expire in
1998, $40,436,000 in 1999, and $47,989,000 thereafter through 2003. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At May 31, 1995, the aggregate cost of investments for federal income tax
and financial reporting purposes was $1,190,484,000 and net unrealized loss
aggregated $22,986,000, of which $64,908,000 related to appreciated investments
and $87,894,000 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,
of which $653,000 was payable at May 31, 1995. The fee is computed daily and
paid monthly, and consists 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% for the
first $1 billion of assets to 0.31% for assets in excess of $34 billion. At May
31, 1995, and for the year then ended, the effective annual Group Fee rate was
0.34%. 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>
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. (TRPS) 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. Additionally, 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 among 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. The fund incurred expenses
pursuant to these related party agreements totaling approximately $1,932,000 for
the year ended May 31, 1995, of which $198,000 was payable at year-end.
<PAGE>
Financial Highlights
T. Rowe Price High Yield Fund
<TABLE>
For a share outstanding throughout each period
<S> <C> <C> <C> <C> <C> <C>
Three
Months Year ended
Year ended ended
May 31, May 31, Feb 28, Feb 28, Feb 29, Feb 28,
1995 1994 1994 1993 1992 1991
-------- -------- ------- -------- -------- -------
NET ASSET VALUE, BEGINNING OF PERIOD ...... $ 8.37 $ 9.15 $ 8.58 $ 8.23 $ 7.13 $ 8.20
------- ------- ------- ------- ------- -------
Investment Activities
Net investment income ................... 0.75 0.18 0.81 0.82 0.88 1.07
Net realized and unrealized gain (loss) . (0.20) (0.78) 0.57 0.35 1.10 (1.07)
------- ------- ------- ------- ------- -------
Total from Investment Activities ........ 0.55 (0.60) 1.38 1.17 1.98 --
------- ------- ------- ------- ------- -------
Distributions
Net investment income ................... (0.76) (0.18) (0.81) (0.82) (0.88) (1.07)
------- ------- ------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD ............ $ 8.16 $ 8.37 $ 9.15 $ 8.58 $ 8.23 $ 7.13
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
RATIOS/SUPPLEMENTAL DATA
Total Return .............................. 7.09% (6.52)% 16.59% 14.96% 29.15% 0.12%
Ratio of Expenses to Average Net Assets ... 0.88% 0.85% 0.85% 0.89% 0.97% 1.03%
Ratio of Net Investment Income
to Average Net Assets ................... 9.27% 8.37% 8.99% 9.85% 11.22% 14.02%
Portfolio Turnover Rate ................... 74.2% 62.5% 107.0% 104.4% 58.9% 82.6%
Net Assets, End of Period (in millions) ... $1,208 $1,241 $1,624 $1,404 $1,108 $ 556
<FN>
Annualized.
The fund's fiscal year-end was changed to May 31.
</FN>
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and Shareholders of the
T. Rowe Price High Yield Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the selected per share
data and information (which appears under the heading "Financial Highlights")
present fairly, in all material respects, the financial position of the T. Rowe
Price High Yield Fund, Inc. at May 31, 1995, and the results of its operations,
the changes in its net assets and the selected per share data and information
for each of the fiscal periods presented, in conformity with generally accepted
accounting principles. These financial statements and selected per share data
and information (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit, which included confirmation of securities at May 31, 1995 by
correspondence with custodians and brokers and, where appropriate, the
application of alternative auditing procedures for unsettled security
transactions, provides a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 19, 1995
