Annual Report
High Yield Fund
May 31, 1998
T. Rowe Price
Report Highlights
High Yield Fund
o Reflecting the strong economy, high-yield bonds led the
U.S. fixed income market for the six months ended May 31.
o Issuance of high-yield bonds continued at a record pace,
ultimately causing digestion problems.
o The fund's 6- and 12-month returns of 6.35% and 14.51%,
respectively, exceeded the First Boston High Yield Index
and the Lipper average of similar funds.
o We focused on noncyclical issues and began to increase
holdings of BB rated issues.
o While the robust economy should support further gains for
high-yield bonds, their supply and demand fundamentals
have weakened, and returns for the balance of 1998 could
be more modest.
Fellow Shareholders
In an almost ideal environment, high-yield bonds and your fund
provided strong returns for the 6- and 12-month periods ended
May 31, 1998. The healthy economy remained the major
underpinning for the market, as yield-conscious investors felt
comfortable buying lower-quality bonds. Nevertheless, after
many months of an exceptionally large number of new issues,
the high-yield bond market recently began to show signs of
fatigue.
Performance Comparison
Periods Ended 5/31/98 6 Months 12 Months
______________________________________________________________
High Yield Fund 6.35% 14.51%
First Boston High Yield Index 5.04 12.26
Lipper High Yield Funds Average5.47 13.29
The fund's attractive returns reflected a rise in share price from $8.43
to $8.85 over the past 12 months combined with substantial and basically
steady income. As shown in the performance table, returns compared well
with the fund's benchmark index and the Lipper High Yield Funds Average.
This advantage was due at least in part to our focus on B rated bonds, a
lack of credit problems, and our avoidance of emerging market bonds, many
of which were hurt by the turmoil in Asia.
Market Environment
During the six months since our last report to you, the economy continued
to provide a virtually perfect backdrop for the high-yield bond
market-solid growth, declining inflation, and further declines in interest
rates. Corporate earnings growth remained respectable, although some
industry sectors and individual companies began to be affected by the
slowdown in Asia. In this environment, corporate bond issuers flocked to
the market, with the number of new high-yield issues thus far in 1998
breaking previous records. For most of the period under review, demand
from a widening array of investors was able to absorb the huge supply. The
large number of corporate consolidations, refinancings, and tender offers
also benefited high-yield bonds, which often received credit upgrades (and
price increases) as a result.
Quality of New High-Yield Issues
Five Months Ended
Rating 1997 1998
BB 38% 18%
B 53 53
CCC 2 9
Not Rated 7 20
Note: Excludes international and split-rated issues.
Source: Bear, Stearns & Co., Inc.
While this rosy scenario continued in January and February of 1998, it
dimmed as the year progressed. Overall economic conditions remained
favorable, but the internal dynamics of the high-yield market
deteriorated. The quality of the deals coming to market steadily declined,
with many more offerings rated CCC or not at all, and fewer in the BB
category, as shown in the table. In addition, demand slackened and the
volume was no longer readily digested. New issues began to be priced at
higher coupons to improve their marketability, and this cast a shadow over
trading of seasoned issues in the secondary market. In May, a generally
positive month for most high-quality bonds, the high-yield market recorded
a slight negative.
Portfolio Review
We made few changes in the fund's sector holdings during the past six
months and continued to emphasize noncyclical areas, as you can see in the
Sector Diversification table following this letter. Telecommunications,
which accounts for over 16% of the high-yield market, remained our largest
exposure at approximately 12% of assets. This industry has been a big
winner for your fund, as telecom-related bonds have followed the lead of
surging telecom stocks. Some of our best performers in this area were
competitive local exchange carriers, known as "clecs," which provide
customized service through fiber optic networks. Two standouts were
Metronet Communications, the only "clec" in Canada, and Colt Telecom, a
similar type of company in Europe. In the wireless sector of the telecom
industry, our major holding Nextel Communications performed well. Other
holdings that contributed to the fund's appreciation included Coleman,
which was purchased by Sunbeam, and Premier Parks, a fast-growing
entertainment company that bought another of our holdings, Six Flags.
Reflecting the methodical and rigorous efforts of our research team, the
fund avoided major problems and, for the second straight year, had no
holdings go into default.
Quality Diversification pie chart
AAA, AA, A, BBB 6%
BB 5%
B 72%
CCC 9%
CC and below 1%
Nonrated (Convertibles and Equities) 7%
Given economic uncertainties arising from the Asian situation and our
concerns about the high-yield market's own fundamentals, we continued to
focus on companies we believe are solid credit risks in businesses that
should be recession-resistant. While B rated issues remained the
overwhelming focus of our holdings, we have begun to upgrade the portfolio
by adding more BB rated bonds. We participated sparingly in the flood of
new offerings, as most did not pass muster with our research analysts.
Most new cash was used to expand existing positions.
Outlook
The high-yield market has had a great run, and your fund has provided
returns of approximately 14% for each of its past two fiscal years. Even
though the economy remains supportive of the high-yield market, at present
we do not see any catalyst for the kind of capital appreciation we have
enjoyed over the past two years. Previous high-yield gains were driven by
falling interest rates and narrowing yield spreads versus high-quality
bonds, but interest rates seem unlikely to decline significantly from
current levels, and yield spreads are already widening. Down the road, we
believe we will see a rise in bond defaults among the weaker issuers who
flooded the market in recent months.
In summary, we are cautious. Our outlook is for positive but more modest
returns in the coming months, with coupon income probably playing a larger
role than price appreciation. We will continue to maintain broad
diversification and careful credit research to reduce the fund's risk
profile. At the same time, we would remind you that this corner of the
bond market is inherently volatile and that higher risk accompanies higher
income.
Respectfully submitted,
Mark J. Vaselkiv
Chairman of the Investment Advisory Committee
June 19, 1998
Portfolio Highlights
Key statistics
11/30/97 5/31/98
Price Per Share $8.69 $8.85
Dividends Per Share
For 6 months 0.38 0.39
For 12 months 0.75 0.76
Dividend Yield *
For 6 months 8.93% 8.89%
For 12 months 9.25 9.11
Weighted Average Maturity
(years) 10.0 9.1
Weighted Average
Effective Duration
(years) 4.5 4.2
Weighted Average Quality ** B B
* Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per
share for the same period.
** Based on T. Rowe Price research.
T. Rowe Price High Yield Fund
Portfolio Highlights
TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
5/31/98
Premier Parks 1.4%
Repap New Brunswick 1.3
Revlon 1.2
Starwood Hotels & Resorts 1.2
Nextel Communications 1.2
Keebler 1.1
CSC Holdings 1.1
Colt Telecom 1.1
Herff-Jones 1.1
Communication & Power Industries1.0
AEI Holding 1.0
Doane Products 0.9
Courtyard by Marriott II 0.9
Plastic Containers 0.9
Protection One Alarm 0.9
Maxxam Group Holdings 0.9
Coinmach 0.9
Bally Total Fitness 0.8
Metronet Communications 0.8
Delta Mills 0.8
American Pacific 0.8
Allied Waste 0.8
Energy Corporation of America 0.8
Airplane Pass Through Trust 0.8
Bway 0.8
_____
Total 24.5%
T. Rowe Price High Yield Fund
Portfolio Highlights
SECTOR Diversification
Percent of Percent of
Net Assets Net Assets
11/30/97 5/31/98
Telecommunications 12% 12%
Consumer Products 8 9
Service 8 7
Money Market Funds 4 5
Energy 5 4
Broadcasting 4 4
Manufacturing 3 4
Cable Operators 7 4
Health Care 1 4
Food and Tobacco 4 4
Electronic Components 4 3
Publishing 1 3
Aerospace and Defense 4 3
Gaming 3 3
Building Products 3 3
Textiles and Apparel 2 3
Lodging 1 2
Specialty Chemicals 3 2
Container 2 2
Supermarkets 2 2
Retail 1 2
Paper and Paper Products 1 2
Financial 6 2
Transportation 3 2
Metals and Mining 1 2
Entertainment and Leisure 2 2
All Other 5 4
Other Assets Less Liabilities - 1
____________________________________________________________
Total 100% 100%
T. Rowe Price High Yield Fund
Performance Comparison
This chart shows the value of a hypothetical $10,000 investment in the
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based
average or index. The index return does not reflect expenses, which have
been deducted from the fund's return.
First Boston High Yield
High Yield Index Fund
5/31/88 $ 10,000 $ 10,000
5/31/89 11,040 11,128
5/31/90 10,651 10,380
5/31/91 12,387 11,081
5/31/92 15,755 13,521
5/31/93 18,279 15,954
5/31/94 19,547 16,326
5/31/95 21,700 17,483
5/31/96 23,968 19,067
5/31/97 27,175 21,640
5/31/98 30,505 24,780
Average Annual Compound Total Return
This table shows how the fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a
constant rate.
Periods Ended 5/31/98 1 Year 3 Years 5 Years10 Years
_________________________________________________________________
High Yield Fund 14.51% 12.33% 9.21% 9.50%
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
T. Rowe Price High Yield Fund
Year 3 Months+ Year
Ended Ended Ended
5/31/985/31/975/31/965/31/95 5/31/94 2/28/94
NET ASSET VALUE
Beginning of
period $8.43 $8.13 $8.16 $8.37 $ 9.15 $8.58
Investment activities
Net investment income0.77 0.75 0.73 0.75 0.18 0.81
Net realized and
unrealized gain (loss)0.41 0.30 (0.02) (0.20) (0.78) 0.57
Total from
investment activities1.18 1.05 0.71 0.55 (0.60) 1.38
Distributions
Net investment income(0.76)(0.75)(0.74) (0.76) (0.18) (0.81)
NET ASSET VALUE
End of period $8.85 $8.43 $8.13 $8.16 $ 8.37 $9.15
__________________________________________________
Ratios/Supplemental Data
Total return* 14.51% 13.49% 9.06% 7.09% (6.52)%16.59%
Ratio of expenses to
average net assets 0.81% 0.84% 0.85% 0.88% 0.85%!0.85%
Ratio of net investment
income to average
net assets 8.78% 9.15% 8.89% 9.27% 8.37%! 8.99%
Portfolio turnover
rate 129.6% 111.3% 100.1% 74.2% 62.5%! 107.0%
Net assets, end
of period
(in millions) $1,725 $1,401 $1,229 $1,208 $1,241 $1,624
* Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment of
all distributions and payment of no redemption or account fees.
! Annualized.
+ The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price High Yield Fund
May 31, 1998
Statement of Net Assets
Par/Shares Value
In thousands
CORPORATE BONDS AND NOTES 85.9%
Advertising 0.3%
Outdoor Communications,
Sr. Sub. Notes, 9.25%, 8/15/07$ 5,000 $ 5,100
5,100
Aerospace & Defense 2.8%
Communications & Power Industries
Sr. Sub. Notes, 12.00%, 8/1/05 15,900 17,808
Dyncorp, Sr. Sub. Notes, 9.50%, 3/1/07 10,625 10,904
L 3 Communications,
Sr. Sub. Notes, 10.375%, 5/1/07 9,300 10,277
Stellex Industries,
Sr. Sub. Notes, 9.50%, 11/1/07 8,675 8,588
47,577
Automobiles and Related 1.2%
Advance Stores,
Sr. Sub. Notes, (144a),
10.25%, 4/15/08 7,725 7,957
Diamond Triumph Automotive,
Sr. Notes, (144a)9.25%, 4/1/08 5,600 5,684
Trident Automotive PLC
Sr. Sub. Notes, (144a), 10.00%,
12/15/05 7,000 7,630
21,271
Broadcasting 2.7%
Azteca Holdings,
Sr. Secured Notes, 11.00%, 6/15/02 2,800 2,849
Benedek Broadcasting,
Sr. Notes, 11.875%, 3/1/05 9,900 11,137
Chancellor Radio Broadcasting
Sr. Sub. Notes, (144a),
8.125%, 12/15/07 4,750 4,750
Muzak, Gtd. Sr. Notes, 10.00%, 10/1/03 10,200 10,608
Sinclair Broadcast Group,
Sr. Sub. Notes, 8.75%, 12/15/07 11,050 11,216
TV Azteca, Gtd. Sr. Notes, 10.50%, 2/15/076,600 6,782
47,342
Building Products 2.6%
American Builders & Contractors Supply
Sr. Sub. Notes, 10.625%, 5/15/07 7,775 7,950
Falcon Building Products
Gtd. Sr. Sub. Notes, 9.50%, 6/15/074,500 4,590
JTM Industries,
Sr. Sub. Notes, (144a),
10.00%, 4/15/08 11,075 11,324
Maxxam Group Holdings
Sr. Notes, 11.25%, 8/1/03 5,500 5,803
Sr. Secured Notes, 12.00%, 8/1/03 8,500 9,201
Werner Holdings,
Sr. Sub. Notes, (144a),
10.00%, 11/15/07 5,250 5,460
44,328
Building and Real Estate 0.3%
LNR Property, Sr. Sub. Notes,
(144a), 9.375%, 3/15/08 $ 5,000 $ 5,025
5,025
Cable Operators 3.2%
Falcon Holding Group,
Sr. Disc. Deb., (144a), STEP
Zero Coupon, 4/15/10 5,375 3,346
Frontiervision, Sr. Sub. Notes,
11.00%, 10/15/06 6,400 7,104
Frontiervision Operating Partners,
Sr. Disc. Notes, STEP
Zero Coupon, 9/15/07 5,000 3,863
Fundy Cable, Sr. Secured
2nd Priority Notes 11.00%, 11/15/0510,000 11,000
Mediacom Capital, Sr. Notes,
(144a), 8.50%, 4/15/08 5,800 5,698
Northland Cable Television,
Sr. Sub. Notes, 10.25%, 11/15/07 12,000 12,690
TeleWest PLC, Sr. Deb., 9.625%, 10/1/06 2,275 2,389
UIH Australia Pacific, Sr. Disc. Notes,
STEP Zero Coupon, 5/15/06 4,940 3,409
United International Holdings,
Sr. Disc. Notes, STEP
Zero Coupon, 2/15/08 8,100 5,042
54,541
Conglomerates 0.6%
ICF Kaiser International,
Sr. Notes, 13.00%, 12/31/03 9,100 10,056
10,056
Consumer Products 8.6%
American Safety Razor,
Sr. Notes, 9.875%, 8/1/05 12,000 12,900
Bally Total Fitness,
Sr. Sub. Notes, 9.875%, 10/15/07 14,000 14,560
Chattem, Sr. Sub. Notes, 12.75%, 6/15/049,840 11,095
Doane Products, Sr. Notes, 10.625%, 3/1/0615,000 16,275
Hedstrom Holdings
Sr. Disc. Notes, STEP,
Zero Coupon, 6/1/09 4,050 2,516
Sr. Sub. Notes, 10.00%, 6/1/07 7,100 7,277
Herff Jones,
Sr. Sub. Notes, 11.00%, 8/15/05 17,175 18,807
Holmes Products,
Gtd. Notes, 9.875%, 11/15/07 8,000 8,200
Keebler, Sr. Sub. Notes, 10.75%, 7/1/0614,500 16,494
Purina Mills,
Sr. Sub. Notes, (144a),
9.00%, 3/15/10 9,875 10,196
Revlon Consumer Products,
Sr. Sub. Notes, 8.625%, 2/1/08 9,950 9,875
Revlon Worldwide, Sr. Secured Disc. Notes
Zero Coupon, 3/15/01 15,000 11,587
Windy Hill Pet Food,
Sr. Sub. Notes, 9.75%, 5/15/07$ 8,275 $ 8,937
148,719
Container 2.1%
Applied Extrusion Technology,
Sr. Notes, 11.50%, 4/1/02 3,850 4,081
Bway, Sr. Sub. Notes, 10.25%, 4/15/07 12,000 13,080
Furon, Sr. Sub. Notes,
(144a), 8.125%, 3/1/08 3,000 2,970
Plastic Containers,
Sr. Secured Notes, 10.00%, 12/15/0614,795 16,053
36,184
Electronic Components 3.0%
Celestica International,
Gtd. Sr. Sub. Notes,
10.50%, 12/31/06 8,350 9,164
DII Group, Sr. Sub. Notes, 8.50%, 9/15/0711,800 11,682
Fairchild Semiconductor,
Sr. Sub. Notes, 10.125%, 3/15/07 6,000 6,210
Hadco, Sr. Sub. Notes, (144a),
9.50%, 6/15/08 7,150 7,168
MCMS, Sr. Sub. Notes, (144a),
9.75%, 3/1/08 9,250 9,065
Viasystems, Sr. Sub. Notes,
9.75%, 6/1/07 8,150 8,496
51,785
Energy 4.1%
Bellwether Exploration,
Sr. Sub. Notes, 10.875%, 4/1/07 7,400 7,844
Benton Oil & Gas
Sr. Notes
9.375%, 11/1/07 3,000 2,940
11.625%, 5/1/03 2,420 2,553
Energy Corporation of America, Sr.
Sub. Notes
9.50%, 5/15/07 13,375 13,224
Flores & Rucks,
Sr. Sub. Notes, 9.75%, 10/1/06 6,850 7,501
Kelley Oil & Gas,
Sr. Sub. Notes, 10.375%, 10/15/06 8,625 8,884
Plains Resources,
Sr. Sub. Notes, 10.25%, 3/15/06 12,185 13,038
Rutherford Moran Oil,
Sr. Sub. Notes, 10.75%, 10/1/04 9,525 10,239
Universal Compression,
Sr. Disc. Notes, (144a), STEP
Zero Coupon, 2/15/08 6,000 3,795
70,018
Entertainment and Leisure 1.3%
Hollywood Theaters,
Sr. Sub. Notes, 10.625%, 8/1/07 2,900 3,074
Premier Parks, Sr. Disc. Notes, STEP
Zero Coupon, 4/1/08 3,500 2,231
Six Flags Entertainment,
Gtd. Sr. Notes, 8.875%, 4/1/06 3,325 3,358
Six Flags Theme Parks,
Sr. Sub. Disc. Notes, STEP
Zero Coupon, 6/15/05 12,100 13,658
22,321
Financial 1.4%
Bank United, Trust Pfd.
Securities, 10.25%, 12/31/26 $ 7,500 $ 8,081
First Federal Financial, 11.75%, 10/1/042,200 2,475
Ocwen Capital Trust I, 10.875%, 8/1/27 3,950 4,306
Ocwen Financial, Sr. Notes, 11.875%,
10/1/03 4,800 5,472
Resource America, Sr. Notes, 12.00%, 8/1/043,000 3,210
23,544
Food and Tobacco 3.7%
Ameriserve Food Distribution,
Sr. Sub. Notes 10.125%, 7/15/07 12,275 13,011
Archibald Candy, Sr. Secured Notes,
10.25%, 7/1/04 8,500 9,052
B&G Foods, Sr. Sub. Notes, 9.625%, 8/1/079,195 9,356
Del Monte Foods,
Sr. Disc. Notes, (144a), STEP
Zero Coupon, 12/15/07 10,200 6,630
Eagle Family Foods,
Sr. Sub. Notes, (144a), 8.75%, 1/15/085,000 4,875
International Home Foods,
Gtd. Sr. Sub. Notes 10.375%, 11/1/065,450 5,995
Smithfield Foods,
Sr. Sub. Notes, (144a),
7.625%, 2/15/08 4,625 4,637
Southern Foods Group,
Sr. Sub. Notes, (144a)
9.875%, 9/1/07 10,500 10,815
64,371
Gaming 2.6%
Casino America,
Sr. Notes, 12.50%, 8/1/03 4,750 5,344
Eldorado Resorts,
Sr. Sub. Notes, 10.50%, 8/15/06 6,000 6,600
Grand Casino,
1st Mtg. Notes, 10.125%, 12/1/03 5,100 5,508
Hard Rock Hotel,
Sr. Sub. Notes, (144a), 9.25%, 4/1/056,000 6,120
Horseshoe Gaming,
Sr. Sub. Notes, 9.375%, 6/15/07 9,850 10,490
Rio Hotel & Casino,
Sr. Sub. Notes, 10.625%, 7/15/05 9,570 10,336
44,398
Health Care 3.8%
Alliance Imaging,
Sr. Sub. Notes, 9.625%, 12/15/05 8,000 8,280
Dade International,
Sr. Sub. Notes, 11.125%, 5/1/06 9,500 10,759
Genesis Health Ventures,
Sr. Sub. Notes, 9.25%, 10/1/06 3,975 3,995
Hudson Respiratory Care,
Sr. Sub. Notes, (144a)
9.125%, 4/15/08 6,000 6,045
Integrated Health Services,
Sr. Sub. Notes, 9.50%, 9/15/07 6,000 6,225
Kinetic Concepts,
Sr. Sub. Notes, 9.625%, 11/1/07 5,850 5,938
Oxford Health Plans,
Sr. Notes, (144a), 11.00%, 5/15/05 3,800 3,876
Paragon Health Network,
Sr. Sub. Disc. Notes, STEP
Zero Coupon, 11/1/07 $ 8,150 $ 5,297
Quest Diagnostic, Gtd. Sr. Sub. Notes,
10.75%, 12/15/06 8,750 9,800
Sun Healthcare Group,
Sr. Sub. Notes, (144a), 9.50%, 7/1/074,850 4,874
65,089
Lodging 2.5%
Courtyard by Marriott II,
Sr. Secured Notes, 10.75%, 2/1/08 14,550 16,059
Red Roof Inns, Sr. Notes, 9.625%, 12/15/034,850 5,020
Starwood Hotels & Resorts,
Sr. Secured Notes, VR 7.898%, 2/23/0321,250 21,250
42,329
Manufacturing 4.3%
AMTROL, Sr. Sub. Notes, 10.625%,
12/31/06 6,625 6,791
Columbus McKinnon,
Sr. Sub. Notes, (144a), 8.50%, 4/1/088,375 8,291
Goss Graphic Systems,
Sr. Sub. Notes, 12.00%, 10/15/06 7,470 7,937
Grove Holdings, Sr. Disc. Deb.,
(144a), STEP
Zero Coupon, 5/1/09 2,850 1,667
Grove Worldwide,
Sr. Sub. Notes, (144a),
9.25%, 5/1/08 3,800 3,800
Hawk, Sr. Notes, 10.25%, 12/1/03 8,450 9,147
HCC Industries, Sr. Sub. Notes,
10.75%, 5/15/07 12,250 12,985
International Wire
Sr. Sub. Notes
11.75%, 6/1/05 8,652 9,517
Key Components, Sr. Notes,
(144a), 10.50%, 6/1/08 2,000 2,005
Numatics, Sr. Sub. Notes,
(144a), 9.625%, 4/1/08 4,000 4,070
Paragon Corporate Holdings,
Sr. Notes, (144a)
9.625%, 4/1/08 8,450 8,112
74,322
Metals and Mining 1.6%
AEI Holding, Sr. Notes,
(144a), 10.00%, 11/15/07 17,410 17,453
International Utility Structures,
Sr. Sub. Notes, (144a)
10.75%, 2/1/08 3,000 3,090
P&L Coal Holdings, Sr. Notes,
(144a), 8.875%, 5/15/08 6,750 6,919
27,462
Paper and Paper Products 1.9%
Repap New Brunswick
Sr. Secured 1st Priority Notes,
(144a)9.00%, 6/1/04 7,400 7,483
Sr. Notes, 10.625%, 4/15/05 13,750 14,094
Riverwood International
Sr. Notes 10.25%, 4/1/06 $ 6,700 $ 6,901
10.625%, 8/1/07 4,800 5,046
33,524
Printing and Publishing 2.6%
American Lawyers Media Holdings
Sr. Disc. Notes, (144a), STEP
Zero Coupon, 12/15/08 5,275 3,402
Sr. Sub. Notes, (144a),
9.75%, 12/15/07 5,000 5,200
Hollinger International Publishing,
Gtd. Notes, 9.25%, 3/15/07 8,000 8,360
Liberty Group, Sr. Sub. Notes,
(144a), 9.375%, 2/1/08 5,750 5,887
Sun Media
Sub. Notes
9.50%, 2/15/07 4,875 5,192
9.50%, 5/15/07 2,925 3,100
Transwestern Holdings, Sr. Disc. Notes, STEP
Zero Coupon, 11/15/08 9,450 6,379
Transwestern Publishing,
Sr. Sub. Notes, 9.625%, 11/15/07 3,900 4,076
Ziff Davis, Sr. Sub. Notes, 8.50%, 5/1/084,000 4,030
45,626
Restaurants 0.7%
Krystal, Sr. Notes, 10.25%, 10/1/07 5,000 5,100
Mrs. Fields Original, Gtd.
Sr. Notes, (144a), 10.125%, 12/1/047,100 6,976
12,076
Retail 2.0%
Finlay Fine Jewelry,
Sr. Notes, 8.375%, 5/1/08 10,000 10,075
MTS, Sr. Sub. Notes, (144a), 9.375%, 5/1/055,400 5,373
Nine West Group, Sr. Notes,
(144a), 8.375%, 8/15/05 8,250 8,085
Safelite Glass, Sr. Sub. Notes,
(144a), 9.875%, 12/15/06 10,000 10,600
34,133
Service 7.0%
Allied Waste, Sr. Sub. Notes,
10.25%, 12/1/06 8,625 9,509
Allied Waste Industries, Sr. Disc.
Notes, STEP Zero Coupon, 6/1/07 5,250 3,859
AP Holdings, Sr. Disc. Notes, (144a),
STEP Zero Coupon, 3/15/08 4,300 2,623
APCOA, Sr. Sub. Notes,
(144a), 9.25%, 3/15/08 10,000 10,000
Coinmach, Sr. Sub. Notes,
11.75%, 11/15/05 $ 13,275 $ 14,768
DecisionOne, Sr. Sub. Notes,
9.75%, 8/1/07 7,150 6,793
Host Marriott Travel,
Sr. Notes, 9.50%, 5/15/05 9,000 9,518
Intertek Finance,
Sr. Sub. Notes, 10.25%, 11/1/06 12,005 12,725
Loomis Fargo & Company,
Sr. Sub. Notes, 10.00%, 1/15/04 4,000 4,040
Mastec, Sr. Sub. Notes,
(144a), 7.75%, 2/1/08 9,000 8,550
MSX International,
Sr. Sub. Notes,
(144a), 11.375%, 1/15/08 10,600 11,024
Protection One Alarm,
Gtd. Sr. Disc. Notes, STEP
Zero Coupon, 6/30/05 11,900 13,536
Rural/Metro, Sr. Notes,
(144a), 7.875%, 3/15/08 7,350 7,368
Sitel, Sr. Sub. Notes,
(144a), 9.25%, 3/15/06 6,000 6,120
120,433
Specialty Chemicals 2.3%
American Pacific, Sr. Notes,
(144a), 9.25%, 3/1/05 13,000 13,422
Koppers Industry,
Sr. Sub. Notes, 9.875%, 12/1/07 7,125 7,339
Octel Developments PLC,
Sr. Notes, (144a), 10.00%, 5/1/06 8,950 9,140
Sovereign Specialty Chemicals,
Sr. Sub. Notes, (144a)9.50%, 8/1/0710,000 10,400
40,301
Supermarkets 2.0%
Community Distributors,
Sr. Notes, 10.25%, 10/15/04 3,800 3,952
Jitney-Jungle Stores,
Sr. Sub. Notes, 10.375%, 9/15/07 10,500 10,999
Shoppers Food Warehouse,
Sr. Notes, 9.75%, 6/15/04 10,000 10,950
The Pantry, Sr. Sub. Notes,
10.25%, 10/15/07 8,650 8,953
34,854
Telecommunications 10.7%
21st Century Telecom Group,
Sr. Disc. Notes, (144a), STEP
Zero Coupon, 2/15/08 10,375 5,940
Allegiance Telecom, Sr. Notes,
(144a), STEP
Zero Coupon, 2/15/08 12,600 6,930
Call-Net Enterprises, Sr. Disc. Notes, STEP
Zero Coupon, 8/15/07 3,000 2,130
Colt Telecom
Sr. Notes, (DEM), 8.875%, 11/30/0710,401 6,354
Units, (Each Unit consists of a
$1,000 par Sr. Disc. Note, STEP,
Zero Coupon, 12/15/06 and 1 Warrant)12,300 12,484
FirstWorld Communications, Units
(Each Unit consists of a $1,000 par
Sr. Note, (144a), STEP, Zero Coupon,
4/15/08 and 1 Warrant) $ 10,500 $ 5,224
Globalstar
Sr. Notes, 11.375%, 2/15/04 3,325 3,284
Sr. Notes, (144a), 11.50%, 6/1/05 2,850 2,814
ICG Holdings, Sr. Disc. Notes,
STEP, Zero Coupon, 9/15/05 6,850 5,840
ICG Services, Sr. Disc. Notes,
(144a), STEP Zero Coupon, 5/1/08 6,250 3,750
Intermedia Communications of Florida
Sr. Disc. Notes, STEP
Zero Coupon, 5/15/06 2,850 2,330
Zero Coupon, 7/15/07 5,375 3,951
IXC Communications, Sr. Sub. Notes,
(144a), 9.00%, 4/15/08 3,725 3,683
KMC Telecom Holdings, Units
(Each Unit consists of a $1,000 par
Sr. Disc. Note, (144a), STEP,
Zero Coupon, 2/15/08 and 1 Warrant)4,850 2,910
Level 3 Communications,
Sr. Notes, (144a), 9.125%, 5/1/08 3,000 2,914
Metronet Communications
Sr. Disc. Notes, STEP,
Zero Coupon, 11/1/07 6,200 4,185
Sr. Notes, 12.00%, 8/15/07 8,250 9,487
Microcell Telecommunications
Sr. Disc. Notes, (CAD), STEP
Zero Coupon, 10/15/07 5,000 2,194
Sr. Disc. Notes, STEP,
Zero Coupon, 6/1/06 13,000 9,620
Nextel Communications
Sr. Disc. Notes, STEP
Zero Coupon, 8/15/04 9,900 9,578
Zero Coupon, 9/15/07 4,600 3,059
Zero Coupon, 10/31/07 7,350 4,741
Nextlink Communications,
Sr. Notes, 12.50%, 4/15/06 9,125 10,402
Omnipoint, Sr. Notes, 11.625%, 8/15/06 3,850 4,120
Page America Group, PIK,
15.00%, 6/30/98 *!+ @ 9,800 9,177
PSI Net, Sr. Notes, (144a), 10.00%, 2/15/059,300 9,439
Qwest Communications, Sr. Disc. Notes, STEP
Zero Coupon, 10/15/07 8,075 5,955
Satelites Mexicanos,
Sr. Notes, (144a),
10.125%, 11/1/04 $ 4,700 $ 4,677
Sprint Spectrum,
Sr. Notes, 11.00%, 8/15/06 7,000 8,067
Startec Global Communications, Units
(Each Unit consists of a $1,000 par
Sr. Note, (144a), 12.00%, 5/15/08
and 1 Warrant) 6,725 6,725
Triton PCS, Sr. Sub. Disc. Notes,
(144a), STEP Zero Coupon, 5/1/08 3,850 2,300
Verio, Sr. Notes, (144a), 10.375%, 4/1/054,400 4,576
Vialog, Sr. Notes, 12.75%, 11/15/01 2,425 2,534
Viatel, Units
(Each Unit consists of a $1,000 par
Sr. Disc. Note, STEP, Zero Coupon, 4/15/08
and .49 Shares of Pfd. Stock) 5,800 3,451
184,825
Textiles and Apparel 2.3%
Anvil Knitwear, Sr. Notes, 10.875%, 3/15/074,750 4,869
Delta Mills, Sr. Notes, 9.625%, 9/1/07 13,500 13,837
Dyersburg, Sr. Sub. Notes, 9.75%, 9/1/077,450 7,692
Glenoit, Sr. Sub. Notes, 11.00%, 4/15/075,700 6,113
J.P. Stevens, Deb., 9.00%, 3/1/17 6,828 7,084
Plaid Clothing Group,
Sr. Sub. Notes, 11.00%, 8/1/03 * 8,650 11
39,606
Transportation 1.7%
Clark Materials Handling,
Sr. Notes, 10.75%, 11/15/06 4,000 4,280
Greyhound Lines, Sr. Notes, 11.50%, 4/15/076,750 7,493
Stena AB, Sr. Notes, 8.75%, 6/15/07 7,000 7,035
TravelCenters of America,
Sr. Sub. Notes, 10.25%, 4/1/07 10,750 11,314
30,122
Total Corporate Bonds and Notes
(Cost $1,447,551) 1,481,282
EQUITY AND CONVERTIBLE SECURITIES 7.3%
Automobiles and Related 0.0%
Hayes Wheels International,
Warrants, 7/1/03 * 18 291
291
Beverages 0.7%
Dr Pepper Bottling Holdings,
Common Stock, (Class A) *!@ 397 12,294
12,294
Broadcasting 1.6%
American Radio Systems,
PIK, Exch. Pfd. Stock $ 76 $ 9,007
Capstar Broadcasting Partners,
PIK, Sr. Exch. Pfd. Stock 71 8,346
Citadel Broadcasting, Exch. Pfd. Stock 48 6,026
Spanish Broadcasting System
PIK, Sr. Exch. Pfd. Stock 3 3,599
Warrants, 6/30/99 * 3 615
27,593
Building and Real Estate 0.1%
Camden Property Trust, REIT, Common Stock 50 1,528
1,528
Cable Operators 1.1%
CSC Holdings
PIK, Pfd. Stock, (Series H) 35 4,156
PIK, Pfd. Stock, (Series M) 129 14,835
Peachtree Cable Associates Ltd.,
Common Stock *!@ 10 170
Time Warner, Common Stock 1 60
UIH Australia Pacific,
Warrants, 5/15/06* 5 18
Wireless One, Warrants 10/19/00 * 19 -
19,239
Conglomerates 0.0%
ICF Kaiser International,
Warrants, 12/31/99 * 37 37
37
Consumer Products 0.2%
Hedstrom Holdings, Common Stock * 246 307
Keebler Foods, Common Stock * 100 2,906
3,213
Electronic Components 0.1%
MCMS, Sr. Exch. Pfd. Stock, (144a) 20 1,980
1,980
Energy 0.3%
Clark USA, PIK, Cum. Sr. Exch. Pfd. Stock 50 5,324
5,324
Entertainment and Leisure 0.3%
Premier Parks
Common Stock * 40 2,125
Conv. Pfd. Stock 38 2,048
4,173
Financial 0.4%
Bay View Capital Trust, Common Stock$ 50 $ 1,611
Imperial Credit Commercial
Mortgage Investment,
REIT Common Stock 193 2,672
River Holding, PIK, Exch. Pfd. Stock 20 2,000
6,283
Gaming 0.0%
Becker Gaming, Warrants, 11/15/00 *!@ 425 106
Hollywood Casino, Common Stock, (Class A) *93 181
President Casinos,
Warrants, (144a), 9/30/99 *!@ 214 11
298
Health Care 0.0%
Wright Medical Technology,
Warrants, 6/30/03 *!@ 38 381
381
Metals and Mining 0.1%
International Utility Structures
Common Stock, (CAD) * 25 75
Pfd. Stock 1 1,105
1,180
Printing and Publishing 0.2%
Primedia, Exch. Pfd. Stock, (144a) 40 3,960
3,960
Retail 0.0%
Lamonts Apparel
Common Stock * 3 2
Warrants, 1/31/08 *+ 1 1
3
Service 0.2%
Efficient Market Services,
Conv. Pfd. Stock *!+@ 364 480
Protection One, Common Stock 200 2,081
2,561
Specialty Chemicals 0.1%
Furon, Common Stock 150 2,391
2,391
Telecommunications 1.7%
Allegiance Telecom, Warrants, 2/3/08 * 13 -
Clearnet Communications,
Warrants, 9/15/05 * 57 512
E. Spire Communications
PIK, Jr. Red. Pfd. Stock $ 41 $ 4,673
Warrants, 11/1/05 * 12 1,332
Globalstar, Warrants, (144a), 2/15/04 * 7 931
Intermedia Communications of Florida
PIK, Exch. Pfd. Stock 46 5,483
Warrants, 6/1/00 * 2 142
Metronet Communications, Warrants, 8/15/07 *8 313
Microcell Telecommunications
Warrants, (144a), 6/15/06 * 33 548
Nextel Communications
Common Stock * 12 286
PIK, Exch. Pfd. Stock 28 3,102
Page America Group
Common Stock *!+@ 1,109 147
Warrants *!+@ 711 -
Conv. Pfd. Stock, (Series I) *!+@ 20 284
Pegasus Communications,
PIK, Exch. Pfd. Stock 6 7,311
Powertel, Warrants, 2/1/06 * 64 576
RSL Commincations, Warrants,
(144a), 11/15/06 * 3 273
Rural Cellular, PIK, Sr. Exch. Pfd. Stock 4 3,828
Vialog, Warrants, 11/15/01 * 2 146
29,887
Textiles and Apparel 0.2%
Anvil Holdings, PIK,
Sr. Exch. Pfd. Stock, (Series B) 166 4,161
4,161
Total Equity and Convertible
Securities (Cost $117,180) 126,777
ASSET-BACKED SECURITIES 0.8%
Airlines 0.8%
Airplane Pass Through Trust,
10.875%, 3/15/19 11,955 13,180
Total Asset-Backed
Securities (Cost $12,040) 13,180
Money Market Funds 5.0%
Reserve Investment Fund, 5.67% # 86,728 86,728
Total Money Market Funds (Cost $86,728) 86,728
Total Investments in Securities
99.0% of Net Assets (Cost $1,663,499) $1,707,967
Other Assets Less Liabilities 16,608
NET ASSETS $1,724,575
___________
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 2,060
Accumulated net realized gain/loss -
net of distributions (136,035)
Net unrealized gain (loss) 44,468
Paid-in-capital applicable to
194,821,913 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares authorized 1,814,082
NET ASSETS $1,724,575
____________
NET ASSET VALUE PER SHARE $ 8.85
____________
! Private Placement
* Non-income producing
+ Security valued by the Fund'sBoard of Directors
# Seven-day yield
CAD Canadian dollar
DEM German deutschemark
PIK Payment-in-Kind
REIT Real Estate Investment Trust
STEP Stepped Coupon Bond for which the interest rate will adjust on
specified future dates.
VR Variable Rate
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 22.9% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price High Yield Fund
Statement of Operations
In thousands
Year
Ended
5/31/98
Investment Income
Income
Interest income $ 141,439
Dividend income 9,325
Total income 150,764
Expenses
Investment management 9,797
Shareholder servicing 2,398
Custody and accounting 177
Prospectus and shareholder reports 164
Registration 41
Legal and audit 32
Directors 17
Miscellaneous 36
Total expenses 12,662
Net investment income 138,102
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 60,999
Foreign currency transactions (388)
Net realized gain (loss) 60,611
Change in net unrealized gain or
loss on securities 11,632
Net realized and unrealized gain (loss)72,243
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 210,345
_______
The accompanying notes are an integral part of these financial statements.
T. Rowe Price High Yield Fund
Statement of Changes in Net Assets
In thousands
Year
Ended
5/31/98 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 138,102 $ 119,566
Net realized gain (loss) 60,611 (4,192)
Change in net unrealized gain or loss11,632 49,415
Increase (decrease) in net assets
from operations 210,345 164,789
Distributions to shareholders
Net investment income (137,504) (119,015)
Capital share transactions*
Shares sold 383,723 273,226
Distributions reinvested 112,470 95,950
Shares redeemed (245,938) (242,907)
Redemption fees received 160 152
Increase (decrease) in net
assets from capital
share transactions 250,415 126,421
Net Assets
Increase (decrease) during period 323,256 172,195
Beginning of period 1,401,319 1,229,124
End of period $1,724,575 $1,401,319
_________ _________
*Share information
Shares sold 43,796 33,021
Distributions reinvested 12,824 11,597
Shares redeemed (28,057) (29,450)
Increase (decrease) in
shares outstanding 28,563 15,168
The accompanying notes are an integral part of these financial statements.
T. Rowe Price High Yield Fund
May 31, 1998
Notes to Financial Statements
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 and commenced operations on December 31, 1984.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities originally issued with maturities of one
year or more are stated at fair value as furnished by dealers who make
markets in such securities or by an independent pricing service, which
considers yield or price of bonds of comparable quality, coupon, maturity,
and type, as well as prices quoted by dealers who make markets in such
securities. Securities with original maturities of less than one year are
stated at fair value, which is determined by using a matrix system that
establishes a value for each security based on money market yields.
Equity securities listed or regularly traded on a securities exchange are
valued at the last quoted sales price on the day the valuations are made.
A security which is listed or traded on more than one exchange is valued
at the quotation on the exchange determined to be the primary market for
such security. Listed securities not traded on a particular day and
securities regularly traded in the over-the-counter market are valued at
the mean of the latest bid and asked prices. Other equity securities are
valued at a price within the limits of the latest bid and asked prices
deemed by the Board of Directors, or by persons delegated by the Board,
best to reflect fair value.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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.
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.
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.
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 or enhance
performance. The investment objective, policies, program, and risk factors
of the fund are described more fully in the fund's prospectus and
Statement of Additional Information.
Noninvestment-Grade Debt Securities At May 31, 1998, 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.
Other Purchases and sales of portfolio securities, other than short-term
and U.S. government securities, aggregated $2,086,246,000 and
$1,872,436,000, respectively, for the year ended May 31, 1998. Purchases
and sales of U.S. government securities aggregated $79,791,000 and
$79,400,000, respectively, for the year ended May 31, 1998.
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 $144,842,000, of which
$39,796,000 expires in 1999, $6,571,000 in 2002, and $98,475,000
thereafter through 2005. Capital loss carryforwards utilized in 1998
amounted to $60,500,000. The fund intends to retain gains realized in
future periods that may be offset by available capital loss carryforwards.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, primarily the
expiration of capital loss carryforwards, the following reclassifications
were made during the year ended May 31, 1998. The results of operations
and net assets were not affected by the increases/(decreases) to these
accounts.
Undistributed net realized gain$27,551,000
Paid-in-capital (27,551,000)
At May 31, 1998, the aggregate cost of investments for federal income tax
and financial reporting purposes was $1,663,499,000, and net unrealized
gain aggregated $44,468,000, of which $74,246,000 related to appreciated
investments and $29,778,000 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 $905,000 was payable at May 31, 1998. 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 0.30% for
assets in excess of $80 billion. At May 31, 1998, and for the year then
ended, the effective annual group fee rate was 0.32%. The fund pays a
pro-rata share of the group fee based on the ratio of its net assets to
those of the group.
In addition, the fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which the fund
receives certain other services. The manager computes the daily share
price and maintains the financial records of the fund. T. Rowe Price
Services, Inc., is the fund's transfer and dividend disbursing agent and
provides shareholder and administrative services to the fund. T. Rowe
Price Retirement Plan Services, Inc., provides subaccounting and
recordkeeping services for certain retirement accounts invested in the
fund. The fund incurred expenses pursuant to these related party
agreements totaling approximately $1,400,000 for the year ended May 31,
1998, of which $155,000 was payable at period-end.
Additionally, the fund is one of several T. Rowe Price-sponsored mutual
funds (underlying funds) in which the T. Rowe Price Spectrum Funds
(Spectrum) may invest. Spectrum does not invest in the underlying funds
for the purpose of exercising management or control. Expenses associated
with the operation of Spectrum are borne by each underlying fund to the
extent of estimated savings to it and in proportion to the average daily
value of its shares owned by Spectrum, pursuant to special servicing
agreements between and among Spectrum, the underlying funds, T. Rowe
Price, and, in the case of T. Rowe Price Spectrum International, Rowe
Price-Fleming International. Spectrum Income Fund held approximately 26.3%
of the outstanding shares of the High Yield Fund at May 31, 1998. For the
year then ended, the fund was allocated $901,000 of Spectrum expenses,
$69,000 of which was payable at period-end.
The fund may invest in the Reserve Investment Fund and Government Reserve
Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve
Funds are offered as cash management options only to mutual funds and
other accounts managed by T. Rowe Price and its affiliates and are not
available to the public. The Reserve Funds pay no investment management
fees. Distributions from the Reserve Funds to the fund for the year ended
May 31, 1998, totaled $2,047,000 and are reflected as interest income in
the accompanying Statement of Operations.
T. Rowe Price High Yield Fund
Tax Information (Unaudited) for the Tax Year Ended 5/31/98
T. Rowe Price High Yield Fund
We are providing this information as required by the Internal Revenue
Code. The amounts shown may differ from those elsewhere in this report
because of differences between tax and financial reporting requirements.
For corporate shareholders, $8,416,000 of the fund's distributed income
qualified for the dividends-received deduction.
Report of Independent Accountants
To the Board of Directors and Shareholders of 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 financial
highlights present fairly, in all material respects, the financial
position of T. Rowe Price High Yield Fund, Inc. (the "Fund") at May 31,
1998, and the results of its operations, the changes in its net assets and
the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (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 audits, which included confirmation of securities at May 31, 1998, by
correspondence with custodians and, where appropriate, the application of
alternative auditing procedures for unsettled security transactions,
provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 17, 1998
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price High Yield Fund.(registered trademark)
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor.F57-050 5/31/98
