<PAGE>
- --------------------------------------------------------------------------------
Fellow Shareholders
- --------------------------------------------------------------------------------
In your fund's annual report dated May 31, 1995, we said that the high-yield
bond market faced a crossroads and that continued progress would depend on the
course of the economy. We're happy to say that the economic environment remained
favorable for high-yield bonds, as did the high-yield bond market's supply and
demand fundamentals. Your fund extended its advance during the six months ended
November 30 and recorded double-digit returns for the 12-month period.
The environment was even better for Treasury and other high-quality bonds,
which outpaced the high-yield sector. This is not unusual during periods when
interest rates fall sharply, since rates are not as overwhelming an influence on
high-yield bond prices as they are on high-quality bond prices. In the high-
yield market, the outlook for the economy in general and corporate earnings in
particular is always important if not dominant in this regard. Additionally, the
lag in high-yield bond returns may have reflected the uptick in the default
rate, which fell through mid-1994 and then edged higher -- a typical development
as economic upswings age.
MARKET RECAP
As the fund began its new fiscal year in June, economic growth had slowed
sharply from the torrid pace of the previous six months, prompting the Federal
Reserve to ease in early July. Recession fears spawned by the slowdown caused
some nervousness in the high-yield market during June, but it was soon dispelled
by mounting evidence of the economy's underlying health. Consumer spending
remained firm, and unemployment stayed in the 5.5% zone generally considered
close to full employment. The resumption of solid growth, continued low
inflation, further declines in longer-term interest rates, and rising stock
prices created a positive setting for high-yield bonds.
Technical trends within the high-yield market were also positive on
balance, although bond prices moved in seesaw fashion during the past six
months. The supply of new issues coming to market rose sharply from the first
half of 1995. This jump reflected the increasing appeal of bond issuance versus
bank loans to noninvestment-grade borrowers, because bonds allow them to lock in
attractive rates for many years. In addition, there was a huge rash of deals
from media-related businesses seeking capital to take advantage of changes in
technology and to prepare for the improved regulatory environment they expect.
Many major media companies in the U.S., the U.K., and Canada are rated below
investment grade.
The high-yield market initially retreated in the face of the supply
buildup, but rebounded strongly in September when it became clear that demand
was more than adequate to absorb all but the most risky issues. Sizable inflows
into high-yield bond mutual funds anchored demand, which was also bolstered by
"nontraditional" investors such as equity-
- --------------------------------------------------------------------------------
High-Yield Issuance vs. Cash Flow
- --------------------------------------------------------------------------------
[CHART APPEARS HERE]
A chart showing the monthly high-yield bond new issue supply versus cash inflows
into high-yield bond mutual funds from November 1994 to November 1995.
<PAGE>
oriented mutual funds. Indeed, a Merrill Lynch study conducted in October found
that non-high-yield mutual funds held $22 billion of noninvestment-grade
securities, compared with $55 billion in high-yield bond funds.
The chart on the previous page shows the surge in supply after midyear that
was met by strong demand.
PERFORMANCE AND STRATEGY REVIEW
For the most recent six-month period, your fund's 4.4% return was generated
entirely by net income of $0.36 per share, as share price was essentially flat
(-$0.01). For the 12-month period, appreciation of $0.36 per share combined with
$0.74 of net income provided a 14.68% total return. These results were in line
with our peer group for the longer period but trailed slightly for the six
months.
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended 11/30/95
6 Months 12 Months
----------------------
<S> <C> <C>
High Yield Fund 4.41% 14.68%
Lipper High Yield
Fund Average 4.90 14.72
- --------------------------------------------------------------------------------
</TABLE>
We maintained a slight defensive tilt during the past six months as reports
of the economy's strength tended to vary from month to month, and corporate
earnings, while generally favorable, appeared to be leveling off in some of the
cyclical sectors. The principal portfolio change was an increase in
telecommunications and broadcasting holdings, as shown in the Sector
Diversification table following this letter. Media-related securities are now
the fund's largest exposure, but these holdings are widely diversified both
geographically and by type of business. For instance, we own U.S., Canadian, and
U.K. cable companies and, within the telecommunications sector, companies in
paging, cellular, and the long distance business. To build this position, we
participated in several recent new offerings that included zero coupon bonds. As
a result, our overall allocation to such securities rose to a market weighting
range of 10% to 12%. Unlike the rash of high-risk zeros issued before the 1990
recession, many of these zeros are typically single or double B-rated and, we
believe, should perform well in the stable to lower interest rate environment we
anticipate.
Reflecting our defensive bias, we maintained an overweighted position in
the energy sector, trimmed holdings of some cyclical industries such as
containers and general manufacturing, and changed the mix of our paper industry
securities to reduce equities and increase bonds. Health care was also pared as
we realized gains in that sector.
LOOKING AHEAD
The 1995 bond market rally, one of the strongest on record, followed the 1994
market sell-off, one of the sharpest in history. For the high-yield market, we
expect a continuing favorable environment for the following reasons:
. The combination of stable to declining rates and an attractive yield
spread versus Treasuries should enhance the appeal of high-yield securities and
support inflows into high-yield bond funds;
. Steady growth (though probably slower than the third quarter's 4.2% rate)
and a good stock market (though less ebullient than 1995's) should enable high-
yield bond issuers to maintain or improve their financial strength;
. The market's strong preference for higher-quality borrowers, evidenced by
the stronger returns of double B-rated bonds over single B in recent months,
should provide some insurance against a sharp jump in future defaults. According
to Merrill Lynch, only about 10% of outstanding high-yield bonds (excluding
those in default) were rated below B- as of September 30.
The economic expansion is now over four and a half years old and shows few,
if any, signs of a coming recession. Nevertheless, there are small clouds on the
horizon, particularly the still low but rising default rate. We will remain
vigilant and expect to continue de-emphasizing cyclicals and to maintain the
portfolio's more defensive structure. The bond markets are also vulnerable to
developments in Washington these days, and failure to make
2
<PAGE>
credible progress on federal deficit reduction could have adverse repercussions.
Thus, while the outlook is broadly positive, there could be setbacks, and we
would remind all shareholders that this fund is appropriate for those who can
ride out setbacks to achieve the long-term benefits of high-yield investing.
Respectfully submitted,
/s/ Catherine H. Bray
Catherine H. Bray
President and Chairman of
the Investment Advisory
Committee
December 18, 1995
- --------------------------------------------------------------------------------
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
Periods Ended November 30, 1995
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C>
14.68% 14.13% 9.32%
</TABLE>
- --------------------------------------------------------------------------------
Note: For the above periods ended 9/30/95, the fund's returns were 9.77%,
12.89%, and 9.53%, respectively.
Investment return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Portfolio Highlights
T. Rowe Price High Yield Fund / November 30, 1995
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Twenty-Five Largest Holdings
- --------------------------------------------------------------------------------
November 30, 1995
<TABLE>
<CAPTION>
Percent of
Company Net Assets
- ---------------------------------------------------------- ----------
<S> <C>
Berg Electronics Holdings 2.37%
Arcadian Partners 1.79
Agricultural Minerals and Chemicals 1.78
American Standard 1.73
Exide 1.72
IMO Industries 1.67
Container Corporation of America 1.62
Dr Pepper Bottling 1.59
Coinmach 1.56
IMC Fertilizer Group 1.56
Pathmark Stores 1.55
Young Broadcasting 1.49
Quorum Health Group 1.49
<CAPTION>
Percent of
Company Net Assets
- ---------------------------------------------------------- ----------
<S> <C>
Gulf Canada Resources 1.48%
President Casinos 1.46
Heritage Media 1.32
CF Cable TV 1.31
Paging Network 1.31
Schuller International Group 1.28
Grand Casino 1.26
K & F Industries 1.24
Tesoro Petroleum 1.22
Riverwood International 1.22
Wright Medical Technology 1.22
Alliance Entertainment 1.21
- --------------------------------------------------------------------------------
Total 37.45%
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE>
- --------------------------------------------------------------------------------
Key Statistics
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Periods Ended
Dividend Yield* November 30, 1995
- --------------------------------------------------------------------------------
<S> <C>
6 Months 9.05%
12 Months 9.63
Dividend Per Share
- ---------------------------------------------------------
6 Months $0.36
12 Months 0.74
Change in Price Per Share
- ---------------------------------------------------------
6 Months (From $8.16 to $8.15) -$0.01
12 Months (From $7.79 to $8.15) 0.36
- --------------------------------------------------------------------------------
</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.
- --------------------------------------------------------------------------------
Quality Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
TRPA Quality Rating* 5/31/95 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
1 5% 6%
2 3 1
3 -- --
4 -- --
5 25 24
6 57 58
7 4 5
8 -- 2
9 1 --
10 1 --
Not Rated 4 4
- --------------------------------------------------------------------------------
Weighted Average 5.2 5.3
- --------------------------------------------------------------------------------
</TABLE>
*On a scale of 1 to 10, with Grade 1 representing highest quality.
- --------------------------------------------------------------------------------
Maturity Diversification
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
Range 5/31/95 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
Short-Term
(0 to 1 Year) 9% 8%
Short Intermediate-Term
(1+ to 5 Years) 3 6
Long Intermediate-Term
(5+ to 10 Years) 75 75
Long-Term
(Over 10 Years) 13 11
Weighted Average 8.4 yrs. 8.4 yrs.
- --------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
Sector Diversification*
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Percent of Net Assets
5/31/95 11/30/95
- --------------------------------------------------------------------------------
<S> <C> <C>
Cable Operators 8% 9%
Energy 8 8
Hotels and Gaming 6 7
Telecommunications 3 7
Broadcasting 3 6
Paper and Paper Products 6 6
Specialty Chemicals 4 5
Health Care 7 5
Manufacturing 5 4
Container 5 4
Service 3 4
Building Products 4 4
Aerospace and Defense 2 4
Supermarkets 4 3
Retail 3 3
Automobiles and Related 2 3
Electronic Components 2 2
- --------------------------------------------------------------------------------
</TABLE>
*Sectors representing at least 2% of net assets on 11/30/95.
4
<PAGE>
- --------------------------------------------------------------------------------
Statement of Net Assets
T. Rowe Price High Yield Fund / November 30, 1995 (Unaudited)
- --------------------------------------------------------------------------------
(amounts in thousands)
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Corporate Bonds and Notes -- 86.7%
- ----------------------------------------------------------------------------------------------------------------------------
AEROSPACE AND DEFENSE -- 3.5%
Communications & Power Industries, Sr. Sub. Notes, (144a),
12.00%, 8/1/05.............................................................. $ 14,355 $ 14,750
K & F Industries, Sr. Secured Notes, 11.875%, 12/1/03.......................... 12,650 13,599
Sr. Sub. Notes, 13.75%, 8/1/01.............................................. 1,500 1,554
Tracor, Sr. Sub. Notes, 10.875%, 8/15/01....................................... 12,000 12,360
42,263
AUTOMOBILES AND RELATED -- 1.4%
Exide, Sr. Notes, 10.00%, 4/15/05.............................................. 2,250 2,419
10.75%, 12/15/02............................................................ 13,250 14,277
16,696
BEVERAGES -- 1.2%
Dr Pepper Bottling Holdings, Sr. Disc. Notes, STEP, Zero Coupon,
2/15/98; 11.625%, 2/15/98 - 2/15/03......................................... 17,850 14,280
BROADCASTING -- 6.3%
Argyle Television, Sr. Sub. Notes, 9.75%, 11/1/05.............................. 12,000 11,820
Benedek Broadcasting, Sr. Secured Notes, (144a), 11.875%, 3/1/05............... 12,900 13,803
Granite Broadcasting, Sr. Sub. Notes, 10.375%, 5/15/05......................... 3,450 3,536
Heritage Media, Sr. Sub. Notes, 11.00%, 10/1/02................................ 15,300 16,103
Sinclair Broadcasting, Sr. Sub. Notes, 10.00%, 9/30/05......................... 12,000 12,240
* Spectra Vision, Sr. Sub. Notes, 12.65%, 12/1/02................................ 28,272 1,696
Young Broadcasting, Gtd. Sr. Sub. Notes, 11.75%, 11/15/04...................... 8,500 9,520
Sr. Sub. Notes, 10.125%, 2/15/05............................................ 8,250 8,704
77,422
BUILDING PRODUCTS -- 3.6%
Maxxam Group, Sr. Secured Notes, 11.25%, 8/1/03................................ 8,000 7,840
Overhead Door, Sr. Notes, 12.25%, 2/1/00....................................... 8,625 8,237
Schuller International Group, Sr. Notes, 10.875%, 12/15/04..................... 14,000 15,627
Southdown, Sr. Sub. Notes, 14.00%, 10/15/01.................................... 11,575 12,733
44,437
BUILDING AND REAL ESTATE -- 0.7%
B.F. Saul REIT, Sr. Secured Notes, 11.625%, 4/1/02............................. 8,000 8,080
CABLE OPERATORS -- 8.9%
Bell Cablemedia, Sr. Disc. Notes, STEP, Zero Coupon, 9/15/00;
11.875%, 9/15/00 - 9/15/05.................................................. 11,000 6,655
CF Cable TV, Sr. Secured 2nd Priority Notes, 11.625%, 2/15/05.................. 14,700 16,023
Continental Cablevision, Sr. Sub. Deb., 11.00%, 6/1/07......................... 7,500 8,344
Fundy Cable Ltd., Sr. Secured 2nd Priority Notes, 11.00%, 11/15/05............. 6,000 6,120
Galaxy Telecom, LP, Sr. Sub. Notes, 12.375%, 10/1/05........................... 12,000 11,820
Lenfest Communications, Sr. Notes, 8.375%, 11/1/05............................. 8,500 8,479
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 12,655
</TABLE>
5
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
Rogers Cablesystems, Sr. Secured Notes, 10.00%, 3/15/05........................ $ 10,000 $ 10,500
TeleWest, Sr. Deb., 9.625%, 10/1/06............................................ 6,000 5,992
Videotron Group, Sr. Notes, 10.625%, 2/15/05................................... 12,100 12,796
Videotron Holdings, Sr. Disc. Notes, STEP, Zero Coupon, 8/15/00;
11.00%, 8/15/00 - 8/15/05................................................... 5,000 2,950
Wireless One, Units, (Each unit consists of a $1,000 par Sr. Bond,
13.00%, 10/15/03, and 3 warrants)........................................... 6,225 6,412
108,746
CONGLOMERATES -- 1.7%
Interlake, Sr. Sub. Deb., 12.125%, 3/1/02...................................... 8,800 8,184
Jordan Industries, Sr. Notes, 10.375%, 8/1/03.................................. 9,000 7,650
Sr. Sub. Disc. Notes, STEP, Zero Coupon, 8/1/98; 11.75%,
8/1/98 - 8/1/05.......................................................... 8,000 4,520
20,354
CONTAINER -- 4.1%
Plastic Containers, Sr. Secured Notes, 10.75%, 4/1/01.......................... 12,300 12,853
Portola Packaging, Sr. Notes, 10.75%, 10/1/05.................................. 12,000 12,345
Riverwood International, Sr. Sub. Notes, 11.25%, 6/15/02....................... 13,900 14,908
Silgan, Sr. Sub. Notes, 11.75%, 6/15/02........................................ 10,000 10,600
50,706
ENERGY -- 8.3%
Crown Central Petroleum, Sr. Notes, 10.875%, 2/1/05............................ 3,750 3,919
Gulf Canada Resources Ltd., Sr. Sub. Deb., 9.625%, 7/1/05...................... 17,600 18,128
Maxus Energy, Sr. Notes, 9.375%, 11/1/03....................................... 12,000 11,640
Petroleum Heat and Power, Sub. Deb., 12.25%, 2/1/05............................ 10,900 12,017
Plains Resources, Sr. Sub. Notes, 12.00%, 10/1/99.............................. 12,000 12,450
Rowan Companies, Sr. Notes, 11.875%, 12/1/01................................... 13,750 14,816
Tesoro Petroleum, Sub. Deb., 12.75%, 3/15/01................................... 14,750 14,971
Trans Texas Gas, Sr. Secured Notes, 11.50%, 6/15/02............................ 13,100 13,526
101,467
FOOD/TOBACCO -- 0.9%
MAFCO, Sr. Sub. Notes, 11.875%, 11/15/02....................................... 11,000 11,385
HEALTH CARE -- 4.5%
IVAC, Sr. Notes, 9.25%, 12/1/02................................................ 11,610 11,784
Quorum Health Group, 8.75%, 11/1/05............................................ 3,000 3,022
11.875%, 12/15/02........................................................... 13,625 15,141
Tenet Healthcare, Sr. Notes, 8.625%, 12/1/03................................... 10,500 10,868
Wright Medical Technology, Sr. Secured Notes, 10.75%, 7/1/00................... 14,100 14,241
55,056
HOTELS AND GAMING -- 7.0%
Bally's Park Place, Gtd. 1st Mtg. Notes, 9.25%, 3/15/04........................ 10,500 10,474
* Belle Casinos, 1st Mtg. Notes, (144a), 12.00%, 10/15/00........................ 6,650 2,660
*+ Capital Gaming International, Promissory Note, Zero Coupon,
8/1/96...................................................................... 83 8
*+ Capitol Queen & Casino, 1st Mtg. Notes, 12.00%, 11/15/00....................... 3,400 2,720
*+ Elsinore, 1st Mtg. Notes, 12.50%, 10/1/00...................................... 19,500 8,775
</TABLE>
6
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
GNF, 1st Mtg. Notes, 10.625%, 4/1/03........................................... $ 8,000 $ 7,040
Grand Casino, 1st Mtg. Notes, 10.125%, 12/1/03................................. 15,020 15,395
Hammons (J.Q.) Hotels, 1st Mtg. Notes, 8.875%, 2/15/04......................... 4,200 4,032
President Casinos, Sr. Notes, 13.00%, 9/15/01.................................. 20,000 17,600
Rio Hotel & Casino, Sr. Sub. Notes, (144a), 10.625%, 7/15/05................... 10,250 10,250
Showboat, 1st Mtg. Bonds, 9.25%, 5/1/08........................................ 6,600 6,567
85,521
MANUFACTURING -- 4.4%
American Standard, Sr. Deb., 11.375%, 5/15/04.................................. 10,750 11,852
Sr. Sub. Disc. Deb., STEP, Zero Coupon, 6/1/98; 10.50%,
6/1/98 - 6/1/05.......................................................... 11,000 9,254
Coltec Industries, Sr. Sub. Deb., 10.25%, 4/1/02............................... 12,000 12,300
IMO Industries, Sr. Sub. Deb., 12.00%, 11/1/01................................. 20,000 20,400
53,806
MISCELLANEOUS CONSUMER NONDURABLES -- 1.1%
Herff Jones, Sr. Sub. Notes, (144a), 11.00%, 8/15/05........................... 12,250 12,893
MISCELLANEOUS CONSUMER PRODUCTS -- 1.1%
International Semi-Tech, Sr. Disc. Notes, STEP, Zero Coupon,
8/15/00; 11.50%, 8/15/00 - 8/15/03.......................................... 26,000 13,390
PAPER AND PAPER PRODUCTS -- 5.8%
APP International Finance, Gtd. Secured Notes, 11.75%, 10/1/05................. 14,250 13,822
Container Corporation of America, Sr. Notes, 11.25%, 5/1/04.................... 19,350 19,834
Repap New Brunswick, 1st Priority Sr. Secured Notes, 9.875%,
7/15/00..................................................................... 5,000 5,075
Repap Wisconsin, 2nd Priority Sr. Secured Notes, 9.875%, 5/1/06................ 9,125 8,760
SD Warren, Sr. Sub. Notes, 12.00%, 12/15/04.................................... 11,000 12,155
Stone Container, Sr. Sub. Deb., 10.75%, 4/1/02................................. 12,000 11,820
71,466
RETAIL -- 2.5%
Federated Department Stores, Sr. Notes, 8.125%, 10/15/02....................... 12,850 12,914
Loehmann's Holdings, Sr. Secured Notes, 10.50%, 10/1/97........................ 7,500 7,500
*+ Merry Go Round Enterprises, 5.50%, 7/3/97...................................... 10,594 3,178
Southland, 2nd Priority Sr. Sub. Deb., 4.50%, 6/15/04.......................... 9,500 7,327
30,919
SERVICE -- 3.5%
Alliance Entertainment, Sr. Sub. Notes, 11.25%, 7/15/05........................ 15,000 14,850
* Anacomp, Sr. Sub. Notes, 15.00%, 11/1/00....................................... 7,750 5,115
* Anacomp International N.V., Conv. Sub. Deb., 9.00%, 1/15/96.................... 1,900 703
Coinmach, Sr. Notes, (144a), 11.75%, 11/15/05.................................. 18,945 19,087
Protection One Alarm, Sr. Sub. Disc. Notes, STEP, Zero Coupon,
6/30/98; 13.625%, 6/30/98 - 6/30/05......................................... 4,500 3,589
43,344
SPECIALTY CHEMICALS -- 5.1%
Agricultural Minerals and Chemicals, Sr. Notes, 10.75%, 9/30/03................ 20,000 21,800
Arcadian Partners, LP, Sr. Notes, 10.75%, 5/1/05............................... 20,000 21,900
IMC Fertilizer Group, Sr. Notes, 9.45%, 12/15/11............................... 17,895 19,058
62,758
</TABLE>
7
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
SUPERMARKETS -- 2.8%
Fleming Companies, Sr. Notes, 10.625%, 12/15/01................................ $ 5,900 $ 6,107
Pathmark Stores, Jr. Sub. Defd. Notes, STEP, Zero Coupon, 11/1/99;
10.75%, 11/1/99 - 11/1/03................................................... 10,000 5,750
Sr. Sub. Notes, 9.625%, 5/1/03.............................................. 14,205 13,246
Penn Traffic, Sr. Notes, 8.625%, 12/15/03...................................... 10,000 8,550
33,653
TELECOMMUNICATIONS -- 6.2%
American Communication Services, Units, (Each unit consists of a
$1,000 par Sr. Disc. Note, (144a), STEP, Zero Coupon, 11/1/00;
13.00%, 11/1/00 - 11/1/05, and 1 warrant)................................... 12,000 6,450
Call-Net Enterprises, Sr. Disc. Notes, STEP, Zero Coupon, 12/1/99;
13.25%, 12/1/99 - 12/1/04................................................... 17,850 12,629
Mobilemedia Communications, 9.375%, 11/1/07.................................... 2,250 2,267
Sr. Sub. Defd. Notes, STEP, Zero Coupon, 12/1/98; 10.50%,
12/1/98 - 12/1/03........................................................ 7,500 5,700
+ Page America Group, PIK, 15.00%, 12/31/96...................................... 8,600 6,342
Paging Network, Sr. Sub. Notes, 10.125%, 8/1/07................................ 15,000 15,994
PriCellular Wireless, Sr. Sub. Disc. Notes, STEP, Zero Coupon,
10/1/98; 12.25%, 10/1/98 - 10/1/03.......................................... 18,525 14,079
Pronet, Sr. Sub. Notes, 11.875%, 6/15/05....................................... 12,000 12,960
76,421
TEXTILES AND APPAREL -- 1.2%
Dan River, Sr. Sub. Notes, 10.125%, 12/15/03................................... 13,225 12,564
* Plaid Clothing Group, Sr. Sub. Notes, 11.00%, 8/1/03........................... 8,650 1,643
14,207
TRANSPORTATION -- 0.9%
Sea Containers Ltd., Sr. Sub. Deb., 12.50%, 12/1/04............................ 10,250 11,070
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL CORPORATE BONDS AND NOTES (COST $1,091,340)....................................... 1,060,340
- ----------------------------------------------------------------------------------------------------------------------------
Equity and Convertible Securities -- 6.0%
- ----------------------------------------------------------------------------------------------------------------------------
AUTOMOBILES AND RELATED -- 1.2%
#+ Borg-Warner Security, Common Stock............................................. 319 shs 9,448
Exide, Common Stock............................................................ 95 4,346
#*+ Motor Wheel, Common Stock, Class A............................................. 1 750
14,544
BEVERAGES -- 0.4%
*+ Dr Pepper Bottling Holdings, Common Stock, Class A............................. 958 3,832
#*+ Common Stock, Class A.......................................................... 346 1,384
5,216
BUSINESS AND OFFICE EQUIPMENT -- 0.1%
* Wang Laboratories, Common Stock................................................ 60 1,065
CABLE OPERATORS -- 0.0%
#*+ Peachtree Cable Associates Ltd., Common Stock.................................. 10 170
</TABLE>
8
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
CONGLOMERATES -- 0.0%
#*+ Reeves Industries, Common Stock................................................ 75 shs $ 336
ELECTRONIC COMPONENTS -- 2.4%
#*+ Berg Electronics Holdings, Common Stock, (144a)................................ 740 4,807
Sr. Exch. Pfd. Stock, PIK, Series E......................................... 862 24,128
28,935
FOOD PROCESSING -- 0.0%
* Rymer Foods, Common Stock...................................................... 401 275
HEALTH CARE -- 0.0%
#*+ Wright Medical Technology, Warrants............................................ 38 wts 628
HOTELS AND GAMING -- 0.3%
#*+ Becker Gaming, Warrants........................................................ 425 212
* Belle Casinos, Warrants........................................................ 7 0
#*+ Capital Gaming International, Common Stock..................................... 221 shs 138
#*+ Warrants....................................................................... 189 wts 18
#*+ Elsinore, Warrants............................................................. 1,039 208
* Hollywood Casino, Common Stock, Class A........................................ 538 shs 2,826
#*+ President Casinos, Warrants, (144a)............................................ 214 wts 214
*+ Warrants, (144a)............................................................... 147 0
3,616
PAPER AND PAPER PRODUCTS -- 0.3%
* Repap Enterprises, Common Stock................................................ 690 shs 3,795
RETAIL -- 0.1%
* Lamonts Apparel, Common Stock.................................................. 250 3
#*+ Loehmann's Holdings, Common Stock.............................................. 476 476
* Common Stock, Class B....................................................... 321 482
Pfd. Stock, PIK, Series A................................................... 606 121
1,082
SERVICE -- 0.6%
++#*+ Efficient Market Services, Conv. Pfd. Stock.................................... 364 6,055
* Protection One, Common Stock................................................... 80 778
6,833
TELECOMMUNICATIONS -- 0.6%
Mobile Telecommunication Technologies, Conv. Pfd. Stock, (144a)................ 187 6,408
#*+ Page America Group, Common Stock............................................... 557 198
#*+ Warrants.................................................................... 711 wts 0
#*+ Conv. Pfd. Stock, Series I.................................................. 20 shs 159
6,765
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL EQUITY AND CONVERTIBLE SECURITIES (COST $62,212).................................. 73,260
</TABLE>
9
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Amount Value
---------- ----------
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Commercial Paper -- 4.5%
- ----------------------------------------------------------------------------------------------------------------------------
BellSouth Telecommunications, 5.70%, 12/4/95................................... $ 10,000 $ 9,978
Canadian Wheat Board, 5.60%, 2/15/96........................................... 10,000 9,812
Chubb Capital, 5.75%, 12/5/95.................................................. 5,000 4,988
Dresdner U.S. Finance, 5.77%, 12/5/95.......................................... 25,000 24,967
Hewlett Packard, 5.65%, 1/18/96................................................ 4,110 4,050
Investments in Commercial Paper through a joint account,
5.90 - 5.93%, 12/1/95....................................................... 326 326
KFW International Finance, 5.67%, 12/8/95...................................... 1,000 992
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL COMMERCIAL PAPER (COST $55,126)................................................... 55,113
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES -- 97.2% OF NET ASSETS (COST $1,208,678)................ 1,188,713
- ----------------------------------------------------------------------------------------------------------------------------
OTHER ASSETS LESS LIABILITIES........................................................... 34,015
----------
<CAPTION>
Value
----------
<S> <C> <C>
NET ASSETS CONSIST OF:
Accumulated net investment income - net of distributions................................ $ 1,843
Accumulated net realized gain/loss - net of distributions............................... (215,395)
Net unrealized gain (loss).............................................................. (19,965)
Paid-in-capital applicable to 150,040,986 shares of $0.01 par value capital
stock outstanding; 1,000,000,000 shares authorized................................... 1,456,245
----------
NET ASSETS.............................................................................. $1,222,728
==========
NET ASSET VALUE PER SHARE............................................................... $8.15
=====
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Private Placement
* Non-income producing
# Securities contain some restrictions as to public resale -- total of such
securities at period-end amounts to 2.06% of net assets.
++ Security valued by the Fund's Board of Directors
PIK Payment-in-Kind
REIT Real Estate Investment Trust
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 -- total of such securities at period-end amounts to
7.47% of net assets.
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, 1995 (Unaudited)
(in thousands)
<TABLE>
<S> <C>
INVESTMENT INCOME
Interest and dividend income...................................... $58,041
-------
Expenses
Investment management........................................... 3,848
Shareholder servicing........................................... 1,051
Custody and accounting.......................................... 144
Prospectus and shareholder reports.............................. 41
Registration.................................................... 23
Legal and audit................................................. 17
Directors....................................................... 8
Miscellaneous................................................... 12
-------
Total expenses.................................................. 5,144
-------
Net investment income............................................. 52,897
-------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on securities............................ (4,760)
Change in net unrealized gain or loss on securities............... 3,021
-------
Net realized and unrealized gain (loss)........................... (1,739)
-------
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS................. $51,158
=======
- --------------------------------------------------------------------------------
</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)
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended Year Ended
November 30, 1995 May 31, 1995
----------------- ------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS FROM
Operations
Net investment income............................................................. $ 52,897 $ 106,297
Net realized gain (loss).......................................................... (4,760) (81,130)
Change in net unrealized gain or loss............................................. 3,021 50,037
---------- ----------
Increase (decrease) in net assets from operations................................. 51,158 75,204
---------- ----------
Distributions to shareholders
Net investment income............................................................. (53,615) (107,724)
---------- ----------
Capital share transactions*
Shares sold....................................................................... 105,254 254,210
Distributions reinvested.......................................................... 43,016 82,742
Shares redeemed................................................................... (131,663) (337,573)
Redemption fees received.......................................................... 103 336
---------- ----------
Increase (decrease) in net assets from capital share transactions................. 16,710 (285)
---------- ----------
Increase (decrease) in net assets................................................... 14,253 (32,805)
NET ASSETS
Beginning of period................................................................. 1,208,475 1,241,280
---------- ----------
End of period....................................................................... $1,222,728 $1,208,475
========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
*Share information
Shares sold....................................................................... 12,896 31,611
Distributions reinvested.......................................................... 5,270 10,308
Shares redeemed................................................................... (16,141) (42,148)
---------- ----------
Increase (decrease) in shares outstanding......................................... 2,025 (229)
========== ==========
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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, 1995 (Unaudited)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price High Yield Fund, Inc., (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.
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) Premiums and Discounts - Premiums on high-yield debt securities, other than
PIK and STEP bonds, are recognized upon disposition of the security as gain or
loss for both financial reporting and tax purposes. Market discounts are
recognized upon disposition of the security as gain or loss for financial
reporting purposes and as ordinary income for tax purposes. Original issue
discounts, and all premiums and discounts on PIK and STEP bonds, are amortized
for both financial reporting and tax purposes.
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 the identified cost basis. Dividend income and distributions to
shareholders are recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with federal income tax
regulations and may differ from those determined in accordance with generally
accepted accounting principles.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks and enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
A) Noninvestment-Grade Debt Securities - At November 30, 1995, the fund held
investments in noninvestment-grade debt securities, commonly referred to as
"high-yield" or "junk" bonds. A real or perceived economic downturn or higher
interest rates could adversely affect the liquidity or value, or both, of such
securities because such events could lessen the ability of issuers to make
principal and interest payments.
B) Commercial Paper Joint Account - The fund, and other affiliated funds, may
transfer uninvested cash into a commercial paper joint account, the daily
aggregate balance of which is invested in high-grade commercial paper. All
securities purchased by the joint account satisfy the fund's criteria as to
quality, yield, and liquidity.
C) Other - Purchases and sales of portfolio securities, other than short-term
securities, aggregated $490,383,000 and $464,085,000, respectively, for the six
months ended November 30, 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
13
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
fund has unused realized capital loss carryforwards for federal income tax
purposes of $171,834,000, of which $83,409,000 expires 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 November 30, 1995, the aggregate cost of investments for federal income
tax and financial reporting purposes was $1,208,678,000 and net unrealized loss
aggregated $19,965,000, of which $60,723,000 related to appreciated investments
and $80,688,000 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 $636,000 was payable at November 30, 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
November 30, 1995 and for the six months 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.
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 (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 $1,021,000 for the six months
ended November 30, 1995, of which $212,000 was payable at period-end.
14
<PAGE>
- --------------------------------------------------------------------------------
Financial Highlights
- --------------------------------------------------------------------------------
T. Rowe Price High Yield Fund (Unaudited)
<TABLE>
<CAPTION>
For a share outstanding throughout each period
-----------------------------------------------------------------------------------
Three
Six Months Year Months Year Ended
Ended Ended Ended
Nov. 30, May 31, May 31, Feb. 28, Feb. 28, Feb. 29, Feb. 28,
1995 1995 1994++ 1994 1993 1992 1991
---------- ------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD....... $ 8.16 $ 8.37 $ 9.15 $ 8.58 $ 8.23 $ 7.13 $ 8.20
------ ------ ------ ------ ------ ------ ------
Investment Activities
Net investment income................... 0.36 0.75 0.18 0.81 0.82 0.88 1.07
Net realized and unrealized
gain (loss).......................... (0.01) (0.20) (0.78) 0.57 0.35 1.10 (1.07)
------ ------ ------ ------ ------ ------ ------
Total from investment activities........ 0.35 0.55 (0.60) 1.38 1.17 1.98 --
------ ------ ------ ------ ------ ------ ------
Distributions
Net investment income................... (0.36) (0.76) (0.18) (0.81) (0.82) (0.88) (1.07)
------ ------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF PERIOD............. $ 8.15 $ 8.16 $ 8.37 $ 9.15 $ 8.58 $ 8.23 $ 7.13
====== ====== ====== ====== ====== ====== ======
- ---------------------------------------------------------------------------------------------------------------------------------
RATIOS/SUPPLEMENTAL DATA
Total return............................... 4.41% 7.09% (6.52)% 16.59% 14.96% 29.15% 0.12%
Ratio of expenses to average net assets.... 0.85%+ 0.88% 0.85%+ 0.85% 0.89% 0.97% 1.03%
Ratio of net investment income
to average net assets................... 8.77%+ 9.27% 8.37%+ 8.99% 9.85% 11.22% 14.02%
Portfolio turnover rate.................... 83.5%+ 74.2% 62.5%+ 107.0% 104.4% 58.9% 82.6%
Net assets, end of period (in millions).... $1,223 $1,208 $1,241 $1,624 $1,404 $1,108 $556
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
+ Annualized.
++ The fund's fiscal year-end was changed to May 31.
15
<PAGE>
- --------------------------------------------------------------------------------
SEMIANNUAL REPORT
- --------------------------------------------------------------------------------
T. Rowe Price
- -------------
HIGH YIELD FUND
NOVEMBER 30, 1995
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./(R)/
Invest With Confidence/(R)/ [LOGO APPEARS HERE]
T. Rowe Price
HYF
