- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Semiannual Report
High Yield Fund
- --------------------------------------------------------------------------------
November 30, 1998
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REPORT HIGHLIGHTS
================================================================================
High Yield Fund
* The high-yield bond market sold off sharply in the wake of Russia's
financial crisis and the near collapse of some huge, highly leveraged hedge
funds.
* The fund held up comparatively well, with a virtually flat six-month return
and respectable 12-month return that exceeded fund benchmarks by wide
margins.
* Continuing an approach initiated last spring, we moved the portfolio to a
more defensive posture in terms of credit quality and sector
diversification.
* Telecommunications remained our largest sector, although it is
underweighted compared with industry benchmarks.
* Despite the high-yield market's strong rebound in late fall, we remain
cautious since we expect slower economic growth in 1999. 1
FELLOW SHAREHOLDERS
After enjoying an excellent environment for over two years, the high-yield
bond market was hit hard during the third calendar quarter. Russia's midsummer
financial crisis and default decimated emerging market bonds and also some
highly leveraged hedge funds. Stocks sold off around the world, and investors
fled from lower-quality bonds. Your fund did not escape unscathed but held up
significantly better than its average competitor and overall high-yield indices.
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 11/30/98 6 months 12 months
- -------------------------------------------------------------
High Yield Fund -0.08% 6.27%
First Boston High Yield Index -3.15 1.73
Lipper High Yield Funds Average -4.36 0.91
================================================================================
Our increasingly cautious assessment of the high-yield market in the first
half of 1998 had led us to upgrade the portfolio and largely avoid the
low-quality new issues that were flooding the market. As a result, your fund's
return for the six-month period was only barely in the negative column while the
overall market and average high-yield fund posted substantial losses. Income of
$0.38 per share largely offset the $0.39 decline in share price during this
period. Our tilt to a more conservative posture enabled the fund to preserve
earlier gains, leading to a respectable 6.27% return for the year ended November
30 that surpassed our benchmarks by wide margins.
Market Environment
You might sum up the past six months by saying the chickens came home to
roost. A number of previous trends had made the high-yield market vulnerable to
the kind of destabilizing events that occurred last summer. Chief among these
were the extraordinary amount of money that yield-seeking investors were pouring
into lower-quality investments, particularly CCC and nonrated securities, and
the deteriorating quality of the huge new issue supply. Even though the U.S.
economy continued to grow, which is usually positive for high-yield bonds, the
high-yield market could not survive the collapse of confidence in emerging
markets, the unwinding of leveraged hedge fund positions, and the global "flight
to quality" -- principally to U.S. Treasury securities. Dramatic evidence of the
rush from lower-quality bonds was the jump in the yield spread between
noninvestment-grade bonds and Treasuries to almost six percentage points, as
shown in the chart. By the end of October, the average high-yield bond fund was
posting three-month returns close to -10%, and your fund's return was -6.7% over
that period.
================================================================================
PREPARING FOR THE YEAR 2000
---------------------------
The Year 2000 draws closer every day, and it holds
special meaning beyond the arrival of a new millennium.
The issue for investors is that many computer programs
throughout the world use two digits instead of four to
identify the year and may assume the next century
starts with 1900. If these programs are not modified,
they will not be able to correctly handle the century
change when the year changes from "99" to "00" on
January 1, 2000, and they will no longer be able to
perform necessary functions. The Year 2000 issue
affects all companies and organizations.
<PAGE>
T. Rowe Price has been taking steps to assure that
its computer systems and processes are capable of
functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are
currently being executed.
OUR PLAN OF ACTION
------------------
We began to address these issues several years ago
by requiring that all new systems process and store
four-digit years. We will complete all reprogramming
efforts for the major application systems, including
business applications required to service our customers
and processing infrastructure necessary to ensure the
integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing.
Because we exchange data electronically with customers
and vendors, we are working with them to assess the
adequacy of their own compliance efforts. Our goal is
to ensure the continuation of the same level of service
to all our mutual fund shareholders and clients after
December 31, 1999.
We are asking all vendors and companies we do
business with for a Year 2000 compliance status, with
the expectation that some organizations will not be
able to modify their interface files prior to December
31, 1999. Our goal is to identify any noncompliant
files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical
vendors and companies that claim Year 2000 compliance
to ensure that time-related data and calculations
function properly as we move into the next century.
SMOOTH TRANSITION PLANNED
-------------------------
We believe our programs and initiatives will
provide a smooth transition into the next millennium.
We are assessing all systems providing products or
services to our retail mutual fund shareholders,
retirement plan sponsors, and participants, and we are
taking steps to modify them where necessary for the
Year 2000. Our plan provides time to develop solutions
for all noncompliant systems and data files from
customers or vendors.
The Securities Industry Association (SIA) is
coordinating Year 2000 testing to assure that
securities markets, clearing corporations,
depositories, and third party service providers can
send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta
test of Year 2000 readiness. The test was considered
successful in terms of transactions completed and will
serve as the basis for the SIA's industry-wide
approach. During October 1998, T. Rowe Price completed
its beta test of Year 2000 readiness with the SIA and
is ready for the industry-wide test that is scheduled
for March and April 1999.
For a more detailed discussion of our Year 2000
effort, as well as continuing updates on our progress,
please check our Web site (www.troweprice.com).
================================================================================
<PAGE>
[Edgar description: A line chart showing the yield spread between Treasury
and B/BB rated bonds from 1989 to Nov. 1998.] [Wrap preceding and succeeding
paragraph copy around chart.]
The sell-off persisted through mid-October, when the second of the Federal
Reserve's three interest rate cuts sparked a stock market rally as well as
renewed confidence in the high-yield market. The depressed new issue market
showed signs of life, and investors began to move substantial amounts of money
back into high-yield bond funds. Consequently, high-yield bond prices rose
strongly in November, enabling most funds, including yours, to post returns in
excess of 5% for the month.
PORTFOLIO REVIEW
As the six-month period got under way in June, we continued the strategy
initiated in the late spring of gradually paring the fund's exposure to B rated
debt and adding to our BB rated holdings. While the B category remained our
greatest concentration, it decreased as a percent of assets from about
two-thirds at the beginning of 1998 to just over one-half at the end of
September. At the same time, BB/B (split-rated) and BB bonds increased from
approximately 9% of net assets to a high of almost 23% during this time span. We
largely avoided owning bonds of "deep cyclicals," such as steel companies, which
are directly exposed to domestic or global economic growth cycles. Fund holdings
remained almost exclusively domestic. These moves provided some cushion for the
fund when the decline commenced in August.
However, we continued to have significant exposure to the
telecommunications sector, which, like the deep cyclicals, was badly hurt.
Within this sector, however, our exposure to CCC rated bonds was lower than that
of our typical competitor.
In September, we viewed the market as oversold and used some of our cash to
pick up bonds that seemed cheap, increasing our B rated holdings. For instance,
we added to our overall holdings in the depressed telecommunications sector,
raising our sector weighting to about 17% -- still underweighted compared with
the average high-yield bond fund. Within that sector, for example, we added to
our position in Nextel, which we think is the "blue chip" of wireless companies.
Telecom bonds subsequently participated strongly in the November rebound. In the
paper sector, we added to our holding in Repap New Brunswick, a coated paper
manufacturer whose bonds had traded down to 50 cents on the dollar and have
since risen to about 78 cents. Two of our best performers during the six months
were Doane Products and Windy Hill Pet Food. These makers of private-label dog
food (for Wal-Mart and other stores) merged with each other. While plenty of our
holdings declined with the market, none experienced major credit difficulties,
for which we credit the efforts of our research analysts.
[Edgar description here: Quality Diversification. Pie chart showing percent
of fund assets by credit rating. [wrap preceding paragraph around pie]
OUTLOOK
Our pleasure at the high-yield market's swift rebound is tempered by our
outlook and by certain market fundamentals. On the plus side, the market seems
technically strong because a lot of money is returning and the flow of new
issues, which dried up during the fall, is still meager. While yield spreads
between high-yield and high-quality bonds have narrowed, they are still wide,
which might suggest that high-yield bonds are cheap. However, the average is
skewed by three industry sectors -- telecommunications, energy, and commodity
producers -- that continue to carry substantial risk premiums. Outside of those,
we think it's hard to make a case for a cheap market in view of the likelihood
of slower economic growth in 1999. Lower growth is bound to be reflected in
declining corporate earnings, but we won't know for certain until next April
when companies report annual results. In the meantime, last fall's hiatus in new
issues created a backlog that will undoubtedly pour into the resurgent market.
Most of these issues are low quality.
<PAGE>
In summary, we see many reasons to remain on the cautious side. We intend
to maintain our widely diversified portfolio, to emphasize cash-paying bonds
rated B or better, and to draw heavily on our research team for guidance. If the
economy slows and the stock market declines again, the high-yield market will
follow suit. We cannot insulate the fund from such broad moves, but we think our
relatively conservative posture may again cushion performance. We would, of
course, be happy to have a stronger-than-expected economy, but we think
long-term high-yield investors should -- as always -- be prepared for the
possibility of bumps in the road ahead.
Respectfully submitted,
[signature]
Mark J. Vaselkiv
Chairman of the Investment Advisory Committee
December 18, 1998
================================================================================
Portfolio Highlights
- --------------------------------------------------------------------------------
Key statistics
5/31/98 11/30/98
------- --------
Price Per Share $ 8.85 $ 8.46
Dividends Per Share
For 6 months 0.39 0.38
For 12 months 0.76 0.76
Dividend Yield *
For 6 months 8.89% 8.98%
For 12 months 9.11 9.13
30-Day Standardized Yield 8.19 9.50
Weighted Average Maturity (years) 9.1 9.0
Weighted Average Effective
Duration (years) 4.2 4.4
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.
- --------------------------------------------------------------------------------
<PAGE>
Portfolio Highlights
================================================================================
TWENTY-FIVE LARGEST HOLDINGS
- --------------------------------------------------------------------------------
Percent of
Net Assets
11/30/98
----------
Cablevision Systems (CSC Holdings) 2.2%
Nextel Communications ............ 2.0
Doane Products ................... 1.6
Colt Telecom ..................... 1.5
Frontiervision ................... 1.4
- --------------------------------------------------------------------------------
Qwest Communications ............. 1.4
Repap New Brunswick .............. 1.3
Plastic Containers ............... 1.2
Herff Jones ...................... 1.1
Metronet Communications .......... 1.0
- --------------------------------------------------------------------------------
Premier Parks .................... 1.0
Communications & Power Industries 1.0
Starwood Hotel and Resort ........ 1.0
HMH Properties ................... 1.0
Marcus Cable ..................... 0.9
- --------------------------------------------------------------------------------
Protection One Alarm ............. 0.9
Courtyard by Marriott II ......... 0.9
Grand Casinos .................... 0.9
ISG Resources .................... 0.9
PSINet ........................... 0.9
- --------------------------------------------------------------------------------
E. Spire Communications .......... 0.9
Coinmach ......................... 0.9
Intertek Finance ................. 0.8
TravelCenters of America ......... 0.8
Energy Corporation of America .... 0.8
Total ............................ 28.3%
====
================================================================================
<PAGE>
Portfolio Highlights
- --------------------
SECTOR Diversification
- ----------------------
Percent of Percent of
Net Assets Net Assets
5/31/98 11/30/98
------- --------
Telecommunications .......... 12% 17%
Cable Operators ............. 4 8
Consumer Products ........... 9 7
Broadcasting ................ 4 5
Health Care ................. 4 5
Service ..................... 7 5
Energy ...................... 4 4
Gaming ...................... 3 4
Lodging ..................... 2 4
Manufacturing ............... 4 3
Food and Tobacco ............ 4 3
Container ................... 2 3
Aerospace and Defense ....... 3 2
Specialty Chemicals ......... 2 2
Automobiles and Related ..... 1 2
Printing and Publishing ..... 3 2
Building Products ........... 3 2
Textiles and Apparel ........ 3 2
Supermarkets ................ 2 2
Transportation .............. 2 2
Paper and Paper Products .... 2 2
Short-Term .................. 5 2
All Other ................... 14 10
Other Assets Less Liabilities 1 2
- --------------------------------------------------------------------------------
Total ....................... 100% 100%
================================================================================
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.
[High Yield Fund SEC Chart Shown here]]
AVERAGE ANNUAL COMPOUND TOTAL RETURN
- ------------------------------------
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original purchase.
- --------------------------------------------------------------------------------
Periods Ended 11/30/98 1 Year 3 Years 5 Years 10 Years
- ------------------------ ------ ------- ------- --------
High Yield Fund 6.27% 10.69% 7.72% 8.73%
- --------------------------------------------------------------------------------
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.
<PAGE>
================================================================================
FINANCIAL HIGHLIGHTS
- --------------------
For a share outstanding throughout each period
----------------------------------------------
Unaudited
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/98 5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94
------------------------------------------------------------------------------------------------
NET ASSET VALUE
Beginning of period ......... $ 8.85 $ 8.43 $ 8.13 $ 8.16 $ 8.37 $ 9.15 $ 8.58
Investment activities
Net investment income ....... 0.38 0.77 0.75 0.73 0.75 0.18 0.81
Net realized and
unrealized gain (loss) ...... (0.39) 0.41 0.30 (0.02) (0.20) (0.78) 0.57
Total from
investment activities ....... (0.01) 1.18 1.05 0.71 0.55 (0.60) 1.38
Distributions
Net investment income (0.38) (0.76) (0.75) (0.74) (0.76) (0.18) (0.81)
NET ASSET VALUE
End of period ............... $ 8.46 $ 8.85 $ 8.43 $ 8.13 $ 8.16 $ 8.37 $ 9.15
Ratios/Supplemental Data
Total returns * ............. (0.08)% 14.51% 13.49% 9.06% 7.09% (6.52)% 16.59%
Ratio of expenses to
average net assets .......... 0.82%+ 0.81% 0.84% 0.85% 0.88% 0.85%+ 0.85%
Ratio of net investment
income to average
net assets .................. 8.80%+ 8.78% 9.15% 8.89% 9.27% 8.37%+ 8.99%
Portfolio turnover rate ..... 95.7%+ 129.6% 111.3% 100.1% 74.2% 62.5%+ 107.0%
Net assets, end of period
(in millions) ............... $ 1,702 $ 1,725 $ 1,401 $ 1,229 $ 1,208 $ 1,241 $ 1,624
</TABLE>
* 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.
================================================================================
<PAGE>
STATEMENT OF NET ASSETS
Unaudited November 30, 1998
T. Rowe Price High Yield Fund
Par/Shares Value
In thousands
CORPORATE BONDS AND NOTES 89.0%
- ------------------------- -----
Advertising 0.5%
- ----------- ----
American Business Information, Sr. Sub. Notes, (144a)
9.50%, 6/15/08 .............................. $ 4,450 $ 3,738
Outdoor Communications, Sr. Sub. Notes, 9.25%, 8/15 . 5,000 5,300
9,038
Aerospace and Defense 2.5%
Communications & Power Industries
Sr. Sub. Notes, 12.00%, 8/1/05 .............. 15,900 16,814
Dyncorp, Sr. Sub. Notes, 9.50%, 3/1/07 .............. 10,625 10,625
L 3 Communications, Sr. Sub. Notes, 10.375%, 5/1/07 . 9,300 10,230
Pacific Aerospace & Electronics
Sr. Sub. Notes, (144a), 11.25%, 8/1/05 ...... 5,750 4,830
42,499
------
Automobiles and Related 2.4%
- ----------------------------
Advance Stores, Sr. Sub. Notes, (144a), 10.25%, 4/15/08 10,700 10,968
Federal-Mogul, Sr. Notes, 7.75%, 7/1/06 ............. 12,000 11,942
MSX International, Sr. Sub. Notes, (144a),
11.375%, 1/15/08 ............................... 10,600 10,229
Trident Automotive PLC
Sr. Sub. Notes, (144a), 10.00%, 12/15/05 .... 7,000 7,105
40,244
------
Broadcasting 3.9%
- ------------ ----
Azteca Holdings, Sr. Secured Notes, 11.00%, 6/15/02 . 2,800 2,464
Benedek Broadcasting, Sr. Notes, 11.875%, 3/1/05 .... 9,900 10,791
CBS Radio, Sub. Deb., 11.375%, 1/15/09 .............. 7,633 8,892
Chancellor Media, Sr. Sub. Notes, 9.375%, 10/1/04 ... 9,500 9,904
Citadel Broadcasting, Sr. Sub. Notes, (144a),
9.25%, 11/15/08 ................................ 2,850 2,957
Jacor Communications, Sr. Sub. Notes, 8.00%, 2/15/10 5,625 5,906
LIN Holdings, Sr. Disc. Notes, STEP, 0%, 3/1/08 ..... 3,400 2,363
Muzak, Gtd. Sr. Notes, 10.00%, 10/1/03 .............. 10,200 10,633
Radio Unica, Sr. Disc. Notes, (144a), STEP, 0%, 8/1/06 4,750 2,518
Sinclair Broadcast Group, Sr. Sub. Notes,
8.75%, 12/15/07 ................................ 3,750 3,788
TV Azteca, Gtd. Sr. Notes, 10.50%, 2/15/07 .......... 6,600 5,874
66,090
<PAGE>
------
Building Products 2.1%
- ----------------- ----
American Builders & Contractors Supply
Sr. Sub. Notes, 10.625%, 5/15/07 ............ 12,000 11,460
Associated Materials, Sr. Sub. Notes, 9.25%, 3/1/08 . 2,650 2,650
Building Materials, Sr. Notes, 7.75%, 7/15/05 ....... $ 6,250 $ 6,203
Falcon Building Products, Sr. Sub. Disc
Notes, STEP 0%, 6/15/07 ....................... 2,270 1,294
ISG Resources, Sr. Sub. Notes, 10.00%, 4/15/08 ...... 14,750 14,824
36,431
------
Building and Real Estate 0.3%
- ------------------------ ----
LNR Property, Sr. Sub. Notes, (144a), 9.375%, 3/15/08 5,000 4,750
4,750
-----
Cable Operators 6.2%
- --------------------
Adelphia Communications, Sr. Notes, 9.875%, 3/1/07 .. 5,750 6,339
Classic Cable, Sr. Sub. Notes, (144a), 9.875%, 8/1/08 5,000 5,225
Classic Communications, Units
(Each Unit consists of $1,000 par
Sr. Disc. Note, (144a), STEP, 0%, 8/1/09
and 3 Warrants) ............................. 3,000 1,807
CSC Holdings, Sr. Deb., 7.625%, 7/15/18 ............. 13,500 13,494
Falcon Holding Group, Sr. Disc. Notes, STEP
0%, 4/15/10 ......................... 5,375 3,729
Frontiervision
Sr. Disc. Notes, STEP, 0%, 9/15/07 .......... 17,850 14,994
Sr. Notes, 11.00%, 10/15/06 ................. 8,300 9,337
Fundy Cable, Sr. Secured 2nd Priority Notes,
11.00%, 11/15/05 ............................... 5,700 6,099
Marcus Cable
Sr. Disc. Notes, STEP
0%, 8/1/04 .......................... 3,000 2,985
0%, 12/15/05 ........................ 13,655 12,904
Mediacom Capital, Sr. Notes, (144a), 8.50%, 4/15/08 . 8,150 8,354
Northland Cable Television, Sr. Sub. Notes,
10.25%, 11/15/07 12,000 12,720
United International Holdings, Sr. Disc. Notes, STEP
0%, 2/15/08 ......................... 12,975 7,623
105,610
-------
Conglomerates 0.5%
- ------------------
ICF Kaiser International, Sr. Notes, 13.00%, 12/31/03 9,100 9,009
9,009
-----
Consumer Products 7.2%
- ----------------------
American Safety Razor, Sr. Notes, 9.875%, 8/1/05 .... 12,000 11,880
Anchor Advanced, Sr. Notes, 11.75%, 4/1/04 .......... 10,400 11,336
Ballys Health & Tennis, Sr. Sub. Notes,
9.875%, 10/15/07 9,100 9,009
Chattem, Sr. Sub. Notes, 12.75%, 6/15/04 ............ $ 4,840 $ 5,336
Doane Products, Sr. Sub. Notes, (144a), 9.75%, 5/15/07 26,587 27,252
Hedstrom Holdings
Sr. Disc. Notes, STEP, 0%, 6/1/09 ........... 2,100 1,152
Sr. Notes, 10.00%, 6/1/07 ................... 4,250 3,570
Herff Jones, Sr. Sub. Notes, 11.00%, 8/15/05 ........ 17,175 18,721
Holmes Products, Gtd. Notes, 9.875%, 11/15/07 ....... 9,750 9,360
Keebler, Sr. Sub. Notes, 10.75%, 7/1/06 ............. 9,500 10,687
Purina Mills, Sr. Sub. Notes, (144a), 9.00%, 3/15/10 8,750 9,012
Revlon Consumer Products, Sr. Sub. Notes, 8.625%, 2/1/08 3,950 3,911
<PAGE>
121,226
-------
Container 2.7%
- --------------
Applied Extrusion Technology, Sr. Notes, 11.50%, 4/1/02 5,575 5,798
Ball, Sr. Notes, (144a), 7.75%, 8/1/06 .............. 7,000 7,350
Bway, Sr. Sub. Notes, 10.25%, 4/15/07 ............... 12,000 12,780
Plastic Containers, Sr. Secured Notes, 10.00%, 12/15/06 19,140 20,097
46,025
------
Electric Utilities 0.6%
- -----------------------
Niagara Mohawk
Sr. Disc. Notes, STEP, 0%, 7/1/10 ........... 8,000 6,098
Sr. Notes, 7.75%, 10/1/08 ................... 4,000 4,318
10,416
------
Electronic Components 0.5%
- ---------------------------
Fairchild Semiconductor, Sr. Sub. Notes,
10.125%, 3/15/07 3,075 3,014
MCMS, Sr. Sub. Notes, 9.75%, 3/1/08 ................. 1,795 1,436
Viasystems, Sr. Sub. Notes, 9.75%, 6/1/07 ........... 4,150 4,067
8,517
-----
Energy 4.1%
- -------------
Bellwether Exploration, Sr. Sub. Notes, 10.875%, 4/1/07 10,900 11,009
Benton Oil & Gas, Sr. Notes, 9.375%, 11/1/07 ........ 3,000 1,500
Canadian Forest Oil, Sr. Sub. Notes, 8.75%, 9/15/07 . 2,850 2,765
Energy Corporation of America, Sr. Sub. Notes,
9.50%, 5/15/07 13,375 12,840
Flores & Rucks, Sr. Sub. Notes, 9.75%, 10/1/06 ...... 6,850 7,329
Kelley Oil & Gas, Sr. Sub. Notes, 10.375%, 10/15/06 . 8,625 6,555
Lomak Petroleum, Sr. Sub. Notes, 8.75%, 1/15/07 ..... 5,700 5,372
Plains Resources, Sr. Sub. Notes, 10.25%, 3/15/06 ... 12,185 12,794
Rutherford Moran Oil, Sr. Sub. Notes, 10.75%, 10/1/04 7,000 5,600
Universal Compression, Sr. Disc. Notes, STEP,
0%, 2/15/08 6,000 3,570
69,334
Entertainment and Leisure 1.3%
- ------------------------------
Cinemark USA
Sr. Sub. Notes
8.50%, 8/1/08 ....................... $ 2,000 $ 1,990
9.625%, 8/1/08 ...................... 2,000 2,095
Loews Cineplex Entertainment, Sr. Sub. Notes, (144a)
8.875%, 8/1/08 ...................... 1,925 1,990
Premier Parks, Sr. Disc. Notes, STEP, 0%, 4/1/08 .... 3,150 2,158
Six Flags Entertainment, Sr. Notes, 8.875%, 4/1/06 .. 1,325 1,379
Six Flags Theme Parks, Sr. Sub. Disc. Notes,
12.25%, 6/115/05 12,100 13,431
23,043
<PAGE>
------
Financial 0.9%
- ---------------
Bank United, Trust Pfd. Securities, 10.25%, 12/31/26 7,500 7,650
First Federal Financial, 11.75%, 10/1/04 ............ 2,200 2,288
Ocwen Capital Trust I, 10.875%, 8/1/27 .............. 3,950 2,982
Ocwen Financial, Sr. Notes, 11.875%, 10/1/03 ........ 3,400 2,958
15,878
------
Food and Tobacco 2.9%
- ----------------------
Archibald Candy, Sr. Secured Notes, 10.25%, 7/1/04 .. 8,500 8,670
B&G Foods, Sr. Sub. Notes, 9.625%, 8/1/07 ........... 12,000 11,940
Del Monte Foods, Sr. Disc. Notes, STEP, 0%, 12/15/07 2,925 2,048
Eagle Family Foods, Sr. Sub. Notes, (144a),
8.75%, 1/15/08........................ 5,000 4,688
International Home Foods, Gtd. Sr. Sub. Notes
10.375%, 11/1/06 ..................... 10,850 11,772
Smithfield Foods, Sr. Sub. Notes, (144a),
7.625%, 2/15/08 ...................... 4,625 4,648
Southern Foods, Sr. Sub. Notes, (144a), 9.875%, 9/1/07 5,500 5,747
49,513
------
Gaming 3.7%
- ------------
Argosy Gaming, Sub. Notes, 12.00%, 6/1/01 ........... 3,850 3,874
Boyd Gaming, Sr. Sub. Notes, 9.50%, 7/15/07 ......... 5,000 4,900
Casino America, Sr. Notes, 12.50%, 8/1/03 ........... 4,750 5,273
Eldorado Resorts, Sr. Sub. Notes, 10.50%, 8/15/06 ... 6,000 6,240
Grand Casinos
Sr. Sub. Notes
9.00%, 10/15/04 ..................... 3,900 4,231
10.125%, 12/1/03 .................... 9,800 10,723
Players International, Sr. Notes, 10.875%, 4/15/05 .. 8,700 9,331
Rio Hotel & Casino, Sr. Sub. Notes, 10.625%, 7/15/05 $ 9,570 $10,407
Venetian Casino Resort, Mtg. Notes, 12.25%, 11/15/04 8,100 7,776
62,755
------
Health Care 4.9%
- -----------------
Alliance Imaging, Sr. Sub. Notes, 9.625%, 12/15/05 .. 8,000 7,840
Dade International, Sr. Sub. Notes, 11.125%, 5/1/06 . 9,500 10,450
Fresenius Med Care Capital Trust II, 7.875%, 2/1/08 . 1,000 1,005
Genesis Health Ventures
Sr. Sub. Notes
9.25%, 10/1/06 ...................... 7,475 7,288
9.75%, 6/15/05 ...................... 900 900
Hudson Respiratory Care, Sr. Sub. Notes, 9.125%, 4/15/08 3,150 2,394
Integrated Health Services, Sr. Sub. Notes
9.50%, 9/15/07 ...................... 5,315 5,249
(144a), 9.25%, 1/15/08 ...................... 5,200 5,018
Kinetic Concepts, Sr. Sub. Notes, 9.625%, 11/1/07 ... 7,650 7,363
Mariner Post Acute Network, Sr. Sub. Notes, 9.50%,
11/1/07............................... 4,500 3,668
Owens & Minor, Sr. Sub. Notes, 10.875%, 6/1/06 ...... 10,000 10,725
Quest Diagnostic, Gtd. Sr. Sub. Notes, 10.75%, 12/15/06 8,750 9,712
Tenet Healthcare
Sr. Sub. Notes, (144a), 8.125%, 12/1/08 ..... 8,000 8,280
Sub. Exch. Notes, 6.00%, 12/1/05 ............ 5,000 4,188
84,080
------
<PAGE>
Lodging 3.5%
- -------------
Courtyard by Marriott II, Sr. Secured Notes,
10.75%, 2/1/08 ....................... 14,700 15,361
HMH Properties, Sr. Notes, 7.875%, 8/1/08 ........... 16,950 16,611
ITT, Sr. Deb., 7.375%, 11/15/15 ..................... 3,300 2,869
Red Roof Inns, Sr. Notes, 9.625%, 12/15/03 .......... 8,350 8,580
Starwood Hotel & Resort, Sr. Secured Notes, VR
8.299%, 2/23/03 + ................... 16,875 16,622
60,043
------
Manufacturing 3.4%
- -------------------
Clark Material Handling, Sr. Notes, 10.75%, 11/15/06 5,000 5,088
Goss Graphic Systems, Sr. Sub. Notes, 12.00%, 10/15/06 1,095 1,040
Grove Holdings, Sr. Disc. Deb., (144a), STEP, 0%, 5/1/09 2,850 1,340
Grove Worldwide, Sr. Sub. Notes, (144a), 9.25%, 5/1/08 6,800 6,460
Hawk, Sr. Notes, 10.25%, 12/1/03 .................... 10,629 11,267
HCC Industries, Sr. Sub. Notes, 10.75%, 5/15/07 $ ... 12,250 $11,882
International Wire, Sr. Sub. Notes, 11.75%, 6/1/05 .. 10,752 11,236
Key Components, Sr. Notes, (144a), 10.50%, 6/1/08 ... 2,000 1,880
Paragon Corporate Holdings, Sr. Notes, (144a),
9.625%, 4/1/08 ..................... 8,450 7,098
57,291
------
Metals and Mining 1.4%
- ----------------------
AEI Holding, Sr. Notes, (144a), 10.00%, 11/15/07 .... 10,510 10,825
International Utility Structures, Sr. Sub. Notes,
10 75%, 2/1/08 ....................... 3,000 2,790
P&L Coal Holdings, Sr. Notes, (144a), 8.875%, 5/15/08 4,750 4,893
Republic Engineered Steels, 1st Mtg. Notes,
9.875%, 12/15/01 .................... 4,800 4,848
23,356
------
Paper and Paper Products 1.7%
- -----------------------------
Repap New Brunswick
Sr. Notes, 10.625%, 4/15/05 ................. 24,600 19,557
Sr. Secured 1st Priority Notes, 9.00%, 6/1/04 3,300 3,267
Riverwood International
Sr. Notes
10.25%, 4/1/06 ...................... 850 861
10.625%, 8/1/07 ..................... 4,800 4,908
28,593
------
<PAGE>
Printing and Publishing 2.1%
- ----------------------------
American Lawyer Media
Sr. Disc. Notes, (144a), STEP, 0%, 12/15/08 . 3,275 2,063
Hollinger International Publishing, Gtd. Notes,
9.25%, 3/15/07 ...................... 9,900 10,519
Liberty Group, Sr. Sub. Notes, (144a), 9.375%, 2/1/08 5,750 5,635
Sun Media
Sr. Sub. Notes
9.50%, 2/15/07 ...................... 4,275 4,670
9.50%, 5/15/07 ...................... 2,925 3,196
Transwestern Holdings, Sr. Disc. Notes, STEP,
0%, 11/15/08 ..................... 9,450 6,261
Transwestern Publishing, Sr. Sub. Notes,
9.625%, 11/15/07 ..................... 3,900 4,085
36,429
------
Restaurants 1.2%
- ------------------
Ameriserve Food Distribution, Gtd. Sr. Sub. Notes
8.875%, 10/15/06 .................... 8,750 8,312
Krystal, Sr. Notes, 10.25%, 10/1/07 ................. 5,000 5,100
Mrs. Fields, Gtd. Sr. Sub. Notes, (144a),
10.125%, 12/1/04 ..................... 7,100 6,461
19,873
------
Retail 1.2%
- ------------
MTS, Sr. Sub. Notes, 9.375%, 5/1/05 ................. $ 3,925 $ 3,817
Nine West, Sr. Notes, 8.375%, 8/15/05 ............... 8,250 8,044
Safelite Glass, Sr. Sub. Notes, (144a), 9.875%, 12/15/06 9,250 9,065
20,926
------
Service 4.7%
- -------------
AP Holdings, Sr. Disc. Notes, STEP, 0%, 3/15/08 ..... 4,300 2,279
APCOA, Sr. Sub. Notes, 9.25%, 3/15/08 ............... 10,000 9,300
Coinmach, Sr. Sub. Notes, 11.75%, 11/15/05 .......... 13,275 14,536
DecisionOne, Sr. Sub. Notes, 9.75%, 8/1/07 .......... 3,735 1,681
Host Marriott Travel, Sr. Notes, 9.50%, 5/15/05 ..... 12,200 12,780
Intertek Finance, Sr. Sub. Notes, 10.25%, 11/1/06 ... 13,750 13,784
Protection One Alarm
Gtd. Sr. Disc. Notes
13.625%, 6/30/05 .................... 7,735 8,818
(144a), 7.375%, 8/15/05 ..................... 4,750 4,836
Rural/Metro, Sr. Notes, 7.875%, 3/15/08 ............. 12,350 11,486
79,500
------
Specialty Chemicals 2.5%
- ------------------------
American Pacific, Sr. Notes, (144a), 9.25%, 3/1/05 .. 11,000 10,890
Koppers Industry, Sr. Sub. Notes, 9.875%, 12/1/07 ... 11,025 10,694
Octel, Sr. Notes, 10.00%, 5/1/06 .................... 9,950 10,348
Sovereign Speciality, Sr. Sub. Notes, (144a),
9.50%, 8/1/07..................... 10,000 9,950
41,882
------
<PAGE>
Supermarkets 1.9%
- -----------------
Jitney-Jungle Stores
Sr. Sub. Notes
10.375%, 9/15/07 .................... 4,125 4,208
12.00%, 3/1/06 ...................... 7,530 8,452
Shoppers Food Warehouse, Sr. Notes, 9.75%, 6/15/04 .. 7,500 8,156
The Pantry, Sr. Sub. Notes, 10.25%, 10/15/07 ........ 11,000 11,495
32,311
------
Telecommunications 14.7%
- ------------------------
21st Century Telecom, Sr. Disc. Notes, STEP, 0%, 2/15/08 3,600 1,512
Clearnet Communications, Sr. Disc. Notes, STEP,
0%, 12/15/05.......................... 4,300 3,763
Colt Telecom
Sr. Disc. Notes, STEP, 0%, 12/15/06 ......... 17,000 14,492
Sr. Notes (DEM), 8.875%, 11/30/07 ........... 10,401 6,499
Comcast Cellular, Sr. Notes, 9.50%, 5/1/07 .......... $ 1,800 $ 1,940
E. Spire Communications
Sr. Disc. Notes, (144a), STEP, 0%, 7/1/08 ... 16,800 8,400
Sr. Notes, 13.75%, 7/15/07 .................. 1,900 2,071
GST Equipment, Sr. Notes, 13.25%, 5/1/07 ............ 3,000 3,105
ICG Services, Sr. Disc. Notes, STEP, 0%, 9/15/05 .... 15,000 12,258
Intercel, Sr. Disc. Notes, STEP, 0%, 2/1/06 ......... 7,750 5,849
Intermedia Communications of Florida
Sr. Disc. Notes, STEP, 0%, 7/15/07 .......... 8,225 5,840
Mastec, Sr. Sub. Notes, (144a), 7.75%, 2/1/08 ....... 10,250 9,866
Metromedia Fiber, Sr. Notes, (144a), 10.00%, 11/15/08 6,000 6,240
Metronet Communications
Sr. Disc. Notes, STEP
0%, 11/1/07 ......................... 6,200 4,154
0%, 6/15/08 ......................... 6,350 3,937
Sr. Notes, 12.00%, 8/15/07 .................. 8,250 9,178
Microcell Telecommunications
Sr. Disc. Notes, STEP, 0%, 6/1/06 ........... 10,575 8,037
Nextel Communications
Sr. Disc. Notes, STEP
0%, 8/15/04 ......................... 11,500 11,298
0%, 10/31/07 ........................ 9,050 5,747
0%, 2/15/08 ......................... 12,650 7,780
Nextlink Communications, Sr. Notes, 12.50%, 4/15/06 . 9,375 10,312
Page America Group, PIK, 15.00%, 12/31/98 *+++* ..... 9,800 6,753
Pegasus Communications
Sr. Notes
9.625%, 10/15/05 .................... 1,950 1,950
9.75%, 12/1/06 ...................... 4,900 4,802
Premiere Technologies, Sub. Conv. Notes, 5.75%, 7/1/04 6,000 2,928
Price Communications Wireless, Sr. Notes, (144a)
9.125%, 12/15/06 .................... 9,850 10,244
PSINet
Sr. Notes, (144a)
10.00%, 2/15/05 ..................... 4,200 4,253
11.50%, 11/1/08 ..................... 9,900 10,543
<PAGE>
Qwest Communications
Sr. Disc. Notes, STEP, 0%, 10/15/07 ......... 10,185 7,919
Sr. Notes, (144a), 7.50%, 11/1/08 ........... 15,000 15,337
RSL Communications, Sr. Notes, (144a), 12.00%, 11/1/08 $ 8,700 $ 9,157
Satelites Mexicanos, Sr. Notes, (144a), 10.125%, 11/1/04 4,700 3,995
Sitel, Sr. Sub. Notes, 9.25%, 3/15/06 ............... 6,000 5,100
Teligent
Sr. Disc. Notes, STEP, 0%, 3/1/08 ........... 10,550 5,486
Sr. Notes, 11.50%, 12/1/07 .................. 950 902
Verio
Sr. Notes
10.375%, 4/1/05 ..................... 2,725 2,739
(144a), 11.25%, 12/1/08 ..................... 7,700 8,008
Viatel
Sr. Disc. Notes
11.25%, 4/15/08 ..................... 4,900 4,900
STEP, 0%, 4/15/08 ........................... 5,800 3,335
250,629
-------
Textiles and Apparel 1.8%
- --------------------------
Delta Mills, Sr. Notes, 9.625%, 9/1/07 .............. 10,600 10,547
Dyersburg, Sr. Sub. Notes, 9.75%, 9/1/07 ............ 10,100 9,292
Glenoit, Sr. Sub. Notes, 11.00%, 4/15/07 ............ 3,000 2,865
Plaid Clothing Group, Sr. Sub. Notes, 11.00%, 8/1/03 * 8,650 0
Westpoint Stevens, Sr. Notes, 7.875%, 6/15/08 ....... 7,450 7,674
30,378
------
Transportation 1.7%
- --------------------
Greyhound Lines, Sr. Notes, 11.50%, 4/15/07 ......... 6,750 7,762
Stena, Sr. Notes, 10.50%, 12/15/05 .................. 7,000 7,280
TravelCenters of America, Sr. Sub. Notes, 10.25%, 4/1/07 13,500 13,635
28,677
Total Corporate Bonds and Notes (Cost $1,526,816) 1,514,346
=========
EQUITY AND CONVERTIBLE SECURITIES 7.7%
- --------------------------------------
Automobiles and Related 0.0%
- ----------------------------
Hayes Wheels International, Warrants, 7/1/03 * ...... 18 264
264
---
Beverages 0.7%
- ----------------
Dr Pepper Bottling Holdings, Common Stock (Class A) *+^ 397 11,897
11,897
------
Broadcasting 1.5%
- ------------------
Capstar Broadcasting, PIK, Sr. Exch. Pfd. Stock ..... 96 $11,473
Citadel Broadcasting, PIK, Exch. Pfd. Stock ......... 52 6,141
Cumulus Media, PIK, Exch. Pfd. Stock (Series A) ..... 4 4,400
Spanish Broadcasting System
PIK, Sr. Exch. Pfd. Stock ................... 4 3,700
Warrants, 6/30/99 * ......................... 3 615
26,329
------
<PAGE>
Building and Real Estate 0.1%
- -----------------------------
Camden Property Trust, REIT, Common Stock ........... 50 1,284
1,284
-----
Cable Operators 1.4%
- --------------------
CSC Holdings
PIK, Pfd. Stock (Series H) .................. 38 4,338
PIK, Pfd. Stock (Series M) .................. 173 19,547
Peachtree Cable Associates Ltd., Common Stock *+ .... 10 170
Time Warner, Common Stock ........................... 1 81
UIH Australia Pacific, Warrants, 5/15/06 * .......... 5 12
Wireless One, Warrants, 10/19/00 * .................. 19 0
24,148
------
Containers 0.2%
- ----------------
Furon, Common Stock ................................. 150 2,578
2,578
-----
Conglomerates 0.0%
- ------------------
ICF Kaiser International, Warrants, 12/31/99 * ...... 37 0
0
-
Consumer Products 0.0%
- -----------------------
Hedstrom Holdings, Common Stock ..................... 246 246
246
Electronic Computers 0.2%
- --------------------------
MCMS, PIK, Exch. Pfd. Stock (144a) .................. 21 1,342
Wang Laboratories, Common Stock * ................... 60 1,534
2,876
-----
Energy 0.3%
- -------------
Clark USA, PIK, Cum. Sr. Exch. Pfd. Stock ........... 53 4,250
4,250
-----
Gaming 0.0%
- -----------
Becker Gaming, Warrants, 11/15/00 *+ ................ 425 106
Hollywood Casino, Common Stock (Class A) * .......... 93 $ 126
Isle of Capri Casinos, Common Stock ................. 24 76
President Casinos, Warrants, (144a), 9/30/99 *+^ .... 214 11
319
---
Health Care 0.0%
Wright Medical Technology, Warrants, 6/30/03 *+ ..... 38 0
0
-
Metals and Mining 0.1%
International Utility Structures
Common Stock (CAD) * ........................ 25 57
PIK, Pfd. Stock ............................. 1 990
1,047
-----
<PAGE>
Printing and Publishing 0.2%
Primedia, Exch. Pfd. Stock (Series G) (144a) ........ 30 2,880
2,880
-----
Retail 0.0%
Lamonts Apparel
Common Stock * .............................. 3 1
Warrants, 1/31/08 * ......................... 1 1
2
-
Service 0.1%
Efficient Market Services, Conv. Pfd. Stock *+=^..... 364 480
Protection One, Common Stock * ...................... 200 1,925
2,405
-----
Telecommunications 2.7%
- ------------------------
Allegiance Telecom, Warrants, 2/3/08 * .............. 8 16
Clearnet Communications, Warrants, 9/15/05 * ........ 57 370
Colt Telecom, Warrants, 12/15/06 * .................. 12 4,522
Concentric Network, PIK, Exch. Pfd. Stock (Series B) 3 2,137
E. Spire Communications
PIK, Jr. Red. Pfd. Stock .................... 44 2,837
Warrants, 11/1/05 * ......................... 12 1,320
Global Crossing Holdings, PIK, Exch. Pfd. Stock (144a) 57 5,729
Globalstar, Warrants, (144a), 2/15/04 * ............. 7 399
Intermedia Communications of Florida
PIK, Exch. Pfd. Stock ....................... 49 5,008
Warrants, 6/1/00 * .......................... 2 92
Metronet Communications, Warrants, 8/15/07 * ........ 8 $ 296
Microcell Telecommunications, Warrants, (144a), 6/15/06 33 431
Nextel Communications
Common Stock * .............................. 12 262
PIK, Exch. Pfd. Stock ....................... 29 3,041
PIK, Exch. Pfd. Stock (Series E) ............ 6 5,430
Page America Group
Common Stock *+++ ........................... 1,109 109
Conv. Pfd. Stock (Series I) *+++ ............ 20 208
Warrants *+++ ............................... 711 0
Pegasus Communications, PIK, Exch. Pfd. Stock ....... 5 4,808
Powertel, Warrants, 2/1/06 * ........................ 64 448
RSL Commincations, Warrants, (144a), 11/15/06 * ..... 3 285
Rural Cellular, PIK, Sr. Exch. Pfd. Stock ........... 9 8,605
Viatel, PIK, Exch. Pfd Stock (Series A) ............. 5 160
46,513
------
<PAGE>
Textiles and Apparel 0.2%
- -------------------------
Anvil Holdings, PIK, Sr. Exch. Pfd. Stock (Series B) 177 3,549
3,549
Total Equity and Convertible Securities (Cost $126,854) 130,587
- ------------------------------------------------------- -------
Money Market Funds 1.8%
Reserve Investment Fund, 5.34% # .................... 31,871 31,871
Total Money Market Funds (Cost $31,871) 31,871
- ------------------------------ -------- ------
Total Investments in Securities
98.5% of Net Assets (Cost $1,685,541) $1,676,804
- --------------------------------------------------------------------------
Other Assets Less Liabilities ....................... 24,936
- --------------------------------------------------------------------------
NET ASSETS .......................................... $1,701,740
================================================================================
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 1,928
- --------------------------------------------------------------------------
Accumulated net realized gain/loss - net of distribution (159,994)
- ---------------------------------------------------------------------------
Net unrealized gain (loss) .......................... (8,737)
- ---------------------------------------------------------------------------
Paid-in-capital applicable to 201,245,438 shares of $0.01 par
value capital stock outstanding; 1,000,000,000
shares authorized 1,868,543
- --------------------------------------------------------------------------
NET ASSETS .......................................... $1,701,740
- --------------------------------------------------------------------------
NET ASSET VALUE PER SHARE $ 8.46
- --------------------------------------------------------------------------
+ Private Placement
* Non-income producing
++ Security valued by the Fund's Board of Directors
^ Security contains some restictions as to public resale - total of such
securities at period-end amounts to 1.1% of net assets
# Seven-day yield
CAD Canadian dollar
DEM German deutschmark
PIK Payment-in-Kind
REIT Real Estate Investment Trust
STEP Stepped Coupon Bond for which the interest rate will adjust on
specified future date
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 18.5% of net assets. 12 In thousands 12 Par/Shares Value 12
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
STATEMENT OF OPERATIONS
In thousands
Unaudited
6 Months
Ended
11/30/98
--------
Investment Income
Income
Interest .......................................... $ 74,668
Dividend .......................................... 5,382
Total income ...................................... 80,050
Expenses
Investment management ............................. 5,181
Shareholder servicing ............................. 1,420
Custody and accounting ............................ 88
Prospectus and shareholder reports ................ 54
Proxy and annual meeting .......................... 22
Registration ...................................... 20
Legal and audit ................................... 13
Directors ......................................... 5
Miscellaneous ..................................... 5
Total expenses .................................... 6,808
Net investment income ..................................... 73,242
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities ........................................ (24,294)
Foreign currency transactions ..................... 335
Net realized gain (loss) ....................... (23,959)
Change in net unrealized gain or loss on securities .... (53,205)
Net realized and unrealized gain (loss) ................... (77,164)
INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ (3,922)
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
In thousands
Unaudited
T. Rowe Price High
Yield Fund
6 Months Year
Ended Ended
11/30/98 5/31/98
-------- -------
Increase (Decrease) in Net Assets
Operations
Net investment income ........................... $ 73,242 $ 138,102
Net realized gain (loss) ........................ (23,959) 60,611
Change in net unrealized gain or loss ........... (53,205) 11,632
Increase (decrease) in net assets from operations (3,922) 210,345
Distributions to shareholders
Net investment income ........................... (73,374) (137,504)
Capital share transactions *
Shares sold ..................................... 192,474 383,723
Distributions reinvested ........................ 60,622 112,470
Shares redeemed ................................. (198,880) (245,938)
Redemption fees received ........................ 245 160
Increase (decrease) in net assets from capital
share transactions .............................. 54,461 250,415
Net Assets
Increase (decrease) during period ................... (22,835) 323,256
Beginning of period ................................. 1,724,575 1,401,319
End of period ....................................... $ 1,701,740 $ 1,724,575
* Share information
Shares sold ................................. 22,858 43,796
Distributions reinvested .................... 7,176 12,824
Shares redeemed ............................. (23,611) (28,057)
Increase (decrease) in shares outstanding ... 6,423 28,563
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
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 with original maturities of one year or more
are stated at fair value as furnished by dealers who make markets in such
securities or by an independent pricing service, which considers yield or price
of bonds of comparable quality, coupon, maturity, and type, as well as prices
quoted by dealers who make markets in such securities.
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.
<PAGE>
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 November 30, 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 $846,174,000 and $757,847,000,
respectively, for the six months ended November 30, 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. As of May 31, 1998, the fund had 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. The fund
intends to retain gains realized in future periods that may be offset by
available capital loss carryforwards.
At November 30, 1998, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,685,541,000. Net unrealized loss aggregated $8,737,000 at period end, of
which $58,735,000 related to appreciated investments and $67,472,000 to
depreciated investments.
<PAGE>
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 $837,000 was payable at November 30, 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
November 30, 1998, and for the six months then ended, the effective annual group
fee rate was 0.32%. The fund pays a pro-rata share of the group fee based on the
ratio of its net assets to those of the group.
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 $803,000 for the six months
ended November 30, 1998, of which $164,000 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 28.9% of the outstanding shares of the High Yield Fund at November
30, 1998. For the six months then ended, the fund was allocated $544,000 of
Spectrum expenses, $105,000 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 six months ended November 30, 1998, totaled
$1,999,000 and are reflected as interest income in the accompanying Statement of
Operations. 26
================================================================================
<PAGE>
INVESTMENT SERVICES AND INFORMATION
- -----------------------------------
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE Shareholder service representatives are available from 8 a.m. to
10 p.m. ET Monday through Friday and from 8:30 a.m. to 5 p.m. ET on weekends.
Call 1-800-225-5132 to speak directly with a representative who will be able to
assist you with your accounts.
IN PERSON Visit one of our investor center locations to meet with a
representative who will be able to assist you with your accounts. You can also
drop off applications or obtain prospectuses and other literature at these
centers.
AUTOMATED 24-HOUR SERVICES
TELE*ACCESS(registration mark) Call 1-800-638-2587 to obtain information
such as account balance, date and amount of your last transaction, latest
dividend payment, fund prices, and yields. Additionally, you have the ability to
request prospectuses, statements, and account and tax forms; to reorder checks;
and to initiate purchase, redemption, and exchange orders for identically
registered accounts.
INTERNET. T. ROWE PRICE WEB SITE: WWW.TROWEPRICE.COM All the information
and services available on Tele*Access are available on our Web site, including
transactions in your fund and Discount Brokerage accounts (with preauthorized
access).
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield and Emerging Markets Bond Funds).
AUTOMATIC INVESTING Build your account over time by investing directly from
your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to set up systematic investments from one fund
account into another, such as from a money fund into a stock fund. A $50 minimum
makes it easy to get started.
AUTOMATIC WITHDRAWAL If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
DIVIDEND AND CAPITAL GAINS Payment Options Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options, precious
metals, mutual funds, and other securities at a savings over regular commission
rates.
TO OPEN AN ACCOUNT CALL a shareholder service representative for more
information.
<PAGE>
INVESTMENT INFORMATION
COMBINED STATEMENT A comprehensive overview of your T. Rowe Price accounts
is provided. The summary page gives you earnings by tax category, provides total
portfolio value, and lists your investments by type. Detail pages itemize
account transactions.
SHAREHOLDER REPORTS Portfolio managers review the performance of the funds
in plain language and discuss T. Rowe Price's economic outlook.
T. ROWE PRICE REPORT This is a quarterly newsletter with relevant articles
on market trends, personal financial planning, and T. Rowe Price's economic
perspective.
PERFORMANCE UPDATE This quarterly report reviews recent market develop-
ments and provides comprehensive performance information for every T. Rowe Price
fund.
INSIGHTS This library of information includes reports on mutual fund tax
issues, investment strategies, and financial markets. Detailed Investment Guides
Our widely acclaimed Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk or CD-ROM for PC use) can help
you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
================================================================================
<PAGE>
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
- --------------------------------------------------------------------------------
DOMESTIC
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500*
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons**
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Total Equity Market Index
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
<PAGE>
BOND FUNDS
- --------------------------------------------------------------------------------
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
California Tax-Free Bond
Florida Intermediate Tax-Free***
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond+
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
Emerging Markets Bond
Global Bond++
International Bond
MONEY MARKET FUNDS+++
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
<PAGE>
BLENDED ASSET FUNDS
- --------------------------------------------------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Formerly named Equity Index.
** Closed to new investors.
*** Formerly named Florida Insured Intermediate Tax-Free.
+ Formerly named Tax-Free Insured Intermediate Bond.
++ Formerly named Global Government Bond.
+++ Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by SECURITY
BENEFIT LIFE INSURANCE COMPANY. In New York, it [#FSB201(11-96)] is issued by
FIRST SECURITY BENEFIT LIFE INSURANCE COMPANY of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
<PAGE>
T. Rowe Price High Yield Fund
- -----------------------------
The High Yield Fund held an annual meeting on
October 15, 1998, to elect directors of the fund
and to ratify the Board of Directors' selection of
PricewaterhouseCoopers L.L.P. as the fund's
independent accountants. The results of voting
were as follows (by number of shares):
For nominees to the Board of Directors for
the High Yield Fund:
Calvin W. Burnett
In favor: 111,023,155.055
Withheld: 3,312,941.685
Anthony W. Deering
In favor: 111,612,755.867
Withheld: 2,723,340.873
F. Pierce Linaweaver
In favor: 111,188,611.087
Withheld: 3,147,485.653
William T. Reynolds
In favor: 111,797,540.284
Withheld: 2,538,556.456
James S. Riepe
In favor: 111,767,299.634
Withheld: 2,568,797.106
John G. Schreiber
In favor: 111,737,973.605
Withheld: 2,598,123.135
M. David Testa
In favor: 111,765,178.967
Withheld: 2,570,917.773
For PricewaterhouseCoopers L.L.P.
as independent accountants:
In favor: 111,191,634.328
Withheld: 1,100,519.336
Abstained: 2,043,943.076
==================================================
<PAGE>
FOR YIELD, PRICE, LAST TRANSACTION,
CURRENT BALANCE, OR TO CONDUCT
TRANSACTIONS, 24 HOURS, 7 DAYS
A WEEK, CALL TELE*ACCESS [REGISTRATION MARK]:
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. (registration mark)
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. F57-051 11/31/98
