Annual Report
High Yield
Fund
May 31, 1999
T. Rowe Price
Report Highlights
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High Yield Fund
o The economy's continuing strength favored high-yield bonds, which recovered
some but not all of the ground lost in last year's third quarter sell-off.
o High-yield bonds performed better than high-quality bonds during the six
months ended May 31 but did not escape the negative effects of rising
interest rates.
o The fund's returns were moderate for the 6- and 12-month periods, exceeding
the benchmark index for both periods and the Lipper peer group for the year
but not the past six months.
o We increased holdings in the telecommunications sector and in some cyclical
industries; B rated bonds remained the fund's focus.
o Our outlook is cautious in view of the high-yield market's declining
liquidity, increasing credit problems, and sizable supply.
Fellow Shareholders
After a tough period in the second half of 1998, the high-yield bond market
stabilized and posted the best returns among domestic bonds for the six months
ended May 31. The overall environment for bonds was not particularly favorable
during this period because interest rates rose in the face of
stronger-than-expected economic growth and renewed inflation concerns.
High-quality bonds such as Treasuries fell sharply in price, but declines were
more muted for high-yield bonds, which typically are more sensitive to the
economic cycle than to interest rates.
MARKET RECAP
The first half of the fund's fiscal year-June through November 1998-was
difficult. High-yield bonds performed poorly in the aftermath of a
late-summer global financial crisis that sent investors all over the world
fleeing from higher-risk investments, including low-quality bonds. After
the U.S. Federal Reserve cut key short-term rates three times during the
early fall and also engineered the rescue of a huge, highly leveraged hedge
fund, liquidity was sufficiently restored to revive investor confidence.
When it became apparent toward year-end that the U.S. economy was not only
withstanding global economic weakness but was growing strongly, demand for
high-yield bonds rebounded. Bonds in the telecommunications and media
sectors were particularly strong in the first quarter of this year, taking
their cues from surging stocks in those areas.
As spring wore on, however, the market's tone deteriorated. The economy's
amazing momentum, combined with rising commodity prices and very tight
labor markets, raised fears of an uptick in inflation and possible action
by the Fed to forestall it. Indeed, in May the chairman of the Fed
confirmed a "bias" toward tightening, and the financial markets began to
anticipate a quarter-point increase in the federal funds target rate at the
end of June. Bond markets sold off sharply in May; high-yield bonds held up
comparatively well but did not escape unscathed.
Total Return by Credit Quality
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Periods Ended 5/31/99 6 Months 12 Months
BBB -0.24 2.96
BB 1.96 5.02
B 1.41 -1.23
CCC 5.38 -3.87
Source: Salomon Smith Barney.
For the 12 months ended May 31, the better quality tiers of the high-yield
market (BB and B rated issues) posted the best performance within the
high-yield sector, as shown in the chart. These bonds were the major
beneficiaries of renewed investor interest as the global financial crisis
eased last fall. During the most recent six months, however, the market's
lower-quality tiers (CCC and nonrated) led performance. For both periods,
returns were lower than the average coupon on high-yield bonds, which shows
that the return from income was partially offset by price declines.
PERFORMANCE AND STRATEGY REVIEW
Your fund posted a respectable six-month return of 2.82% that exceeded the
First Boston benchmark index but not the peer group average. The latter gap
was due in part to the fund's moderate exposure to low-rated bonds, which
were the best performers in recent months. For the 12-month period, the
fund's positive 2.73% return outstripped the First Boston index and the
average competitor fund, both of which were in negative territory.
Performance Comparison
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Periods Ended 5/31/99 6 Months 12 Months
---------------------------------------------------------------------------
High Yield Fund 2.82% 2.73%
First Boston High Yield Index 2.53 -0.69
Lipper High Yield Funds Average 3.32 -1.70
For the year as a whole, the fund benefited from our decision last
September to increase exposure to the telecommunications sector. This shift
positioned the fund well for the subsequent surge in that area, especially
in April. Several of these holdings-Metronet Communications and Global
Crossing, for example-also announced mergers, which were profitable for the
fund. In the early months of 1999, we added further to our
telecommunications holdings, bringing total exposure to 21% of net assets
at the end of May. Around this time, we took advantage of the economy's
strength to purchase some bonds of cyclical companies, raising our holdings
in the CCC rated area from 9% six months ago to 12% at period-end. These
bonds also performed well, paralleling the greatly improved showing of
cyclicals in the stock market. The quality of new issues coming to market
declined steadily in recent months, and we were extremely selective in
purchases of these securities. We were fortunate to avoid credit problems
in individual securities, which also contributed favorably to relative
performance.
OUTLOOK
Our outlook is generally cautious. If the economy continues to expand, the
bull market in stocks remains generally intact, and the telecommunications
sector-by far the largest source of high-yield bonds today-continues to
consolidate and prosper, we should see solid returns on high-yield bonds.
On the other hand, we cannot help but note the gradual rise in bond
defaults (although none among portfolio holdings), the relatively large
calendar of offerings coming to market relative to the flow of cash into
the market, and the increasingly choppy performance of stocks. Declining
liquidity is also a concern because it may foreshadow higher volatility. An
increase in interest rates by the Fed would not necessarily be negative for
high-yield bonds unless accompanied by rhetoric suggesting further
tightening to dampen growth. High-yield bonds would be very sensitive to
any fears that the Fed's action might derail the economy.
We will continue to maintain our focus on B rated bonds, which should
enable the fund to perform relatively well if the economy slows. Our
emphasis on telecommunications should continue to prove beneficial. After
double-digit returns in 1996 and 1997, the high-yield market seems headed
for a second year of more modest returns, in which income plays the
dominant role. The fund's average annual return for the past three years
was a strong 10%, as shown in the table on page 8, but over the longer run
returns are closer to the fund's average coupon range of 8% or 9%. Returns
of this size can compound nicely for shareholders who are willing to ride
out the occasional but inevitable periods of volatility in the high-yield
market.
Respectfully submitted,
Mark J. Vaselkiv
Chairman of the Investment Advisory Committee
June 21, 1999
T. Rowe Price High Yield Fund
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Portfolio Highlights
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KEY STATISTICS
11/30/98 5/31/99
- --------------------------------------------------------------------------------
Price Per Share $ 8.46 $ 8.32
Dividends Per Share
For 6 months 0.38 0.37
For 12 months 0.76 0.75
Dividend Yield *
For 6 months 8.98% 9.23%
For 12 months 9.13 9.40
30-Day Standardized Yield 9.50 9.39
Weighted Average Maturity (years) 9.0 9.4
Weighted Average Effective Duration (years) 4.4 4.4
Weighted Average Quality ** B B+
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share at the end of the
period.
** Based on T. Rowe Price research.
T. Rowe Price High Yield Fund
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Portfolio Highlights
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TWENTY-FIVE LARGEST HOLDINGS
Percent of
Net Assets
5/31/99
Nextel Communications 2.2%
Cablevision Systems (CSC Holdings) 2.0
Colt Telecom 1.5
Repap New Brunswick 1.4
Plastic Containers 1.2
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Doane Products 1.1
PSINet 1.1
Intermedia Communications 1.1
Nextlink Communications 1.0
Herff Jones 1.0
- --------------------------------------------------------------------------------
Octel 1.0
Premier Parks 1.0
Packaging Corp. of America 1.0
Chancellor Media 0.9
Communications & Power Industries 0.9
- --------------------------------------------------------------------------------
ISG Resources 0.9
Protection One Alarm 0.9
Viatel 0.9
TravelCenters of America 0.9
Courtyards by Marriott II 0.9
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YPF Sociedad Anonima 0.8
United International Holdings 0.8
Coinmach 0.8
Frontiervision 0.8
Citadel Broadcasting 0.8
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Total 26.9%
Note: Table excludes reserves.
T. Rowe Price High Yield Fund
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
11/30/98 5/31/99
- --------------------------------------------------------------------------------
Telecommunications 17% 21%
Cable Operators 8 7
Consumer Products 7 6
Service 5 5
Energy 4 5
Broadcasting 5 4
Gaming 4 4
Health Care 5 4
Specialty Chemicals 2 4
Building Products 2 3
Paper and Paper Products 2 3
Container 3 3
Printing and Publishing 2 3
Manufacturing 3 2
Automobiles and Related 2 2
Supermarkets 2 2
Aerospace and Defense 2 2
Food and Tobacco 3 2
Transportation 2 2
Money Markets Funds* 2 4
All Other 16 10
Other Assets Less Liabilities 2 2
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Total 100% 100%
*See note in financial statements.
T. Rowe Price High Yield Fund
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Performance Comparison
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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
---------------------------------------------------------------------------
As of 5/31/99
First Boston
High Yield Fund High Yield Fund
5/89 10,000 10,000
5/90 9,647 9,328
5/91 11,220 9,958
5/92 14,270 12,150
5/93 16,556 14,336
5/94 17,705 14,671
5/95 19,655 15,711
5/96 21,709 17,135
5/97 24,614 19,447
5/98 27,631 22,268
5/99 27,439 22,877
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 5/31/99 1 Year 3 Years 5 Years 10 Years
---------------------------------------------------------------------------
High Yield Fund 2.73% 10.11% 9.29% 8.63%
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
- --------------------------------------------------------------------------------
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
5/31/99 5/31/98 5/31/97 5/31/96 5/31/95
NET ASSET VALUE
Beginning of period $ 8.85 $ 8.43 $ 8.13 $ 8.16 $8.37
Investment activities
Net investment income 0.75 0.77 0.75 0.73 0.75
Net realized and
unrealized gain (loss) (0.53) 0.41 0.30 (0.02) (0.20)
Total from
investment activities 0.22 1.18 1.05 0.71 0.55
Distributions
Net investment income (0.75) (0.76) (0.75) (0.74) (0.76)
NET ASSET VALUE
End of period $ 8.32 $ 8.85 $ 8.43 $ 8.13 $ 8.16
----------------------------------------------------
Ratios/Supplemental Data
Total return# 2.73% 14.51% 13.49% 9.06% 7.09%
Ratio of total expenses to
average net assets 0.82% 0.81% 0.84% 0.85% 0.88
Ratio of net investment
income to average
net assets 8.93% 8.78% 9.15% 8.89% 9.27
Portfolio turnover rate 95.6% 129.6% 111.3% 100.1% 74.2%
Net assets, end of period
(in millions) $ 1,776 $ 1,725 $ 1,401 $ 1,229 $1 ,208
# 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price High Yield Fund
- --------------------------------------------------------------------------------
May 31, 1999
Statement of Net Assets Par/Shares Value
- --------------------------------------------------------------------------------
In thousands
CORPORATE BONDS AND NOTES 82.3%
Advertising 0.5%
American Business Info., Sr. Sub. Notes,
9.50%, 6/15/08 $ 4,450 $ 4,094
Outdoor Communications, Sr. Sub. Notes,
9.25%, 8/15/07 5,000 5,250
9,344
Aerospace and Defense 2.0%
Communications & Power Industries,
Sr. Sub. Notes
12.00%, 8/1/05 15,900 16,337
Dunlop Standard Aerospace Holdings,
Sr. Notes, (144a)
11.875%, 5/15/09 4,825 4,801
Dyncorp, Sr. Sub. Notes,
9.50%, 3/1/07 10,625 10,625
IT Group, Sr. Sub. Notes, (144a),
11.25%, 4/1/09 3,450 3,416
35,179
Automobiles and Related 2.4%
Advance Stores, Sr. Sub. Notes,
10.25%, 4/15/08 10,700 10,700
Dura Operating, 9.00%, 5/1/09 (EUR) 8,000 8,340
Hayes Lemmerz International, Sr. Sub. Notes
8.25%, 12/15/08 4,300 4,171
MSX International, Sr. Sub. Notes,
11.375%, 1/15/08 10,600 10,388
Trident Automotive PLC, Sr. Sub. Notes,
10.00%, 12/15/05 7,800 8,814
42,413
Broadcasting 2.1%
Chancellor Media
Sr. Notes, (144a), 8.00%, 11/1/08 9,200 9,154
Sr. Sub. Notes
8.125%, 12/15/07 1,750 1,715
8.75%, 6/15/07 2,850 2,879
9.00%, 10/1/08 2,950 3,053
Citadel Broadcasting, Sr. Sub. Notes,
9.25%, 11/15/08 4,650 4,906
Cumulus Media, Sr. Sub. Notes,
10.375%, 7/1/08 4,700 5,017
Jacor Communications, Sr. Sub. Notes,
8.00%, 2/15/10 5,625 5,808
Radio Unica, Sr. Disc. Notes, STEP,
0%, 8/1/06 7,600 4,408
36,940
Building Products 2.6%
American Builders & Contractors Supply, Sr. Sub. Notes
10.625%, 5/15/07 12,000 11,280
Associated Materials, Sr. Sub. Notes,
9.25%, 3/1/08 2,650 2,703
Building Materials
Sr. Notes
7.75%, 7/15/05 $ 6,250 $ 5,922
8.00%, 10/15/07 750 712
Falcon Building Products,
Sr. Sub. Disc. Notes, STEP
0%, 6/15/07 6,270 4,076
ISG Resources, Sr. Sub. Notes,
10.00%, 4/15/08 15,500 15,849
Panolam Industries, Sr. Sub. Notes, (144a),
11.50%, 2/15/09 4,800 5,016
45,558
Building and Real Estate 0.3%
LNR Property, Sr. Sub. Notes,
9.375%, 3/15/08 5,000 4,750
4,750
Cable Operators 6.2%
Adelphia Communications
Sr. Notes
7.875%, 5/1/09 4,250 4,027
9.875%, 3/1/07 5,750 6,066
Charter Commerce Holdings LLC,
Sr. Disc. Notes, STEP
0%, 4/1/11 15,775 9,741
Classic Cable, Sr. Sub. Notes, (144a),
9.875%, 8/1/08 5,000 5,275
Classic Communications,
Sr. Disc. Notes, (144a), STEP
0%, 8/1/09 3,000 1,995
Coaxial LLC, Sr. Disc. Notes, STEP,
0%, 8/15/08 7,700 5,159
CSC Holdings, Sr. Deb.,
7.625%, 7/15/18 8,000 7,766
Falcon Holding Group, Sr. Disc. Notes, STEP,
0%, 4/15/10 12,050 8,405
Frontiervision
Sr. Disc. Notes, STEP, 0%, 9/15/07 10,850 9,412
Sr. Notes, 11.00%, 10/15/06 4,200 4,652
Fundy Cable, Sr. Secured 2nd Priority Notes,
11.00%, 11/15/05 2,000 2,190
International Cabletel, Sr. Disc. Notes, STEP,
0%, 2/1/06 5,800 4,988
Northland Cable Television, Sr. Sub. Notes,
10.25%, 11/15/07 12,000 12,690
NTL Communications
Sr. Disc. Notes, STEP
0%, 4/1/08 1,900 1,263
0%, 4/15/09 (GBP) 11,500 10,642
Telewest Communications,
Sr. Disc. Notes, (144a), STEP
0%, 4/15/09 2,500 1,625
United International Holdings,
Sr. Disc. Notes, STEP
0%, 2/15/08 $ 22,380 $ 14,715
110,611
Conglomerates 0.5%
ICF Kaiser International, Sr. Notes,
13.00%, 12/31/03 9,100 8,873
8,873
Consumer Products 5.9%
American Safety Razor, Sr. Notes,
9.875%, 8/1/05 12,000 12,120
Bally Total Fitness, Sr. Sub. Notes,
9.875%, 10/15/07 10,500 10,264
Doane Pet Care, Sr. Sub. Notes,
9.75%, 5/15/07 18,985 19,460
Hedstrom Holdings, Sr. Disc. Notes, STEP,
0%, 6/1/09 2,100 921
Herff Jones, Sr. Sub. Notes,
11.00%, 8/15/05 17,190 18,522
Holmes Products
Sr. Sub. Notes, (144a),
9.875%, 11/15/07 2,150 2,118
Gtd. Notes, 9.875%, 11/15/07 8,250 8,126
Luigino's, Sr. Sub. Notes, (144a),
10.00%, 2/1/06 5,400 5,373
Purina Mills, Sr. Sub. Notes,
9.00%, 3/15/10 13,500 10,665
Revlon Consumer Products
Sr. Notes, 8.125%, 2/1/06 5,000 4,950
Sr. Sub. Notes, 8.625%, 2/1/08 8,100 7,736
Sleepmaster LLC, Sr. Sub. Notes, (144a),
11.00%, 5/15/09 3,800 3,838
104,093
Container 2.8%
Anchor Advanced, Sr. Notes,
11.75%, 4/1/04 10,500 10,763
Applied Extrusion Technology, Sr. Notes,
11.50%, 4/1/02 5,575 5,728
BWAY, Sr. Sub. Notes,
10.25%, 4/15/07 12,000 12,420
Plastic Containers, Sr. Secured Notes,
10.00%, 12/15/06 19,140 21,643
50,554
Electronic Components 1.2%
Amkor Technology, Sr. Notes, (144a),
9.25%, 5/1/06 5,200 5,070
Fairchild Semiconductor, Sr. Sub. Notes,
10.125%, 3/15/07 3,075 3,075
Viasystems, Sr. Sub. Notes,
9.75%, 6/1/07 5,500 4,813
Vantive, Sub. Conv. Notes, (144a),
4.75%, 9/1/02 2,000 1,475
Wesco Distribution, Sr. Sub. Notes,
9.125%, 6/1/08 7,000 7,052
21,485
Energy 5.0%
Bellwether Exploration, Sr. Sub. Notes,
10.875%, 4/1/07 10,900 10,137
Canadian Forest Oil, Sr. Sub. Notes,
8.75%, 9/15/07 2,850 2,764
Comstock Resources, Sr. Notes, (144a),
11.25%, 5/1/07 $ 11,525 $ 11,640
Energy Corporation of America, Sr. Sub. Notes
9.50%, 5/15/07 13,375 12,439
Flores & Rucks, Sr. Sub. Notes,
9.75%, 10/1/06 6,850 7,158
Forest Oil, Sr. Sub. Notes,
10.50%, 1/15/06 4,800 4,896
Lomak Petroleum, Sr. Sub. Notes,
8.75%, 1/15/07 2,900 2,422
PDVSA Finance, 7.50%, 11/15/28 8,700 6,575
Plains Resources, Sr. Sub. Notes,
10.25%, 3/15/06 12,185 12,551
Universal Compression, Sr. Disc. Notes, STEP,
0%, 2/15/08 6,000 3,810
YPF Sociedad Anonima,
10.00%, 11/2/28 13,325 15,021
89,413
Entertainment and Leisure 1.1%
Cinemark USA, Sr. Sub. Notes,
8.50%, 8/1/08 2,250 2,183
Premier Parks, Sr. Disc. Notes, STEP,
0%, 4/1/08 12,000 8,220
Six Flags Entertainment, Sr. Notes,
8.875%, 4/1/06 1,325 1,338
Six Flags Theme Parks,
Sr. Sub. Disc. Notes, STEP
6/15/05 7,400 8,269
20,010
Financial 0.7%
Bank United, 10.25%, 12/31/26 7,500 7,350
Euronet Services,
12.375%, 7/1/06 (EUR) 10,500 2,155
First Federal Financial,
11.75%, 10/1/04 2,200 2,310
11,815
Food and Tobacco 1.9%
B&G Foods, Sr. Sub. Notes,
9.625%, 8/1/07 12,000 11,760
International Home Foods, Gtd.
Sr. Sub. Notes
10.375%, 11/1/06 11,000 11,715
Smithfield Foods, Sr. Sub. Notes,
7.625%, 2/15/08 4,975 4,602
Southern Foods, Sr. Sub. Notes,
9.875%, 9/1/07 5,500 5,665
33,742
Gaming 4.1%
Argosy Gaming, Sub. Notes,
12.00%, 6/1/01 3,850 3,965
Coral Group, Sr. Sub. Notes,
10.00%, 2/15/09 (GBP) 2,500 3,966
Eldorado Resorts, Sr. Sub. Notes,
10.50%, 8/15/06 6,000 6,225
Harrahs Operating, Gtd. Sr. Sub. Notes,
7.875%, 12/15/05 5,000 4,900
Hollywood Park
Sr. Sub. Notes
9.25%, 2/15/07 7,675 7,723
9.50%, 8/1/07 2,325 2,337
Horseshoe Gaming
Sr. Sub. Notes
8.625%, 5/15/09 $ 6,800 $ 6,647
9.375%, 6/15/07 6,950 7,089
Isle of Capri Casinos,
Sr. Sub. Notes, (144a),
8.75%, 4/15/09 3,800 3,572
Mohegan Tribal Gaming, Sr. Notes, (144a),
8.125%, 1/1/06 10,300 10,171
Park Place Entertainment, Sr. Sub. Notes,
7.875%, 12/15/05 6,750 6,480
Players International, Sr. Notes,
10.875%, 4/15/05 3,850 4,057
Venetian Casino Resort
Sr. Sub. Notes, 10.00%, 11/15/05 4,800 4,608
Mtg. Notes, 12.25%, 11/15/04 1,450 1,464
73,204
Health Care 4.2%
Alliance Imaging, Sr. Sub. Notes,
9.625%, 12/15/05 9,900 9,702
Dade International, Sr. Sub. Notes,
11.125%, 5/1/06 7,500 7,800
Fresenius Medical Care Capital Trust
7.875%, 2/1/08 2,500 2,388
9.00%, 12/1/06 6,500 6,565
Hudson Respiratory Care, Sr. Sub. Notes,
9.125%, 4/15/08 5,050 4,343
Kinetic Concepts, Sr. Sub. Notes,
9.625%, 11/1/07 7,650 7,114
King Pharmucuticals, Sr. Sub. Notes, (144a),
10.75%, 2/15/09 10,200 10,608
Lifepoint Hospitals, Sr. Sub. Notes,
10.75%, 5/15/09 6,850 6,970
Mariner Post Acute Network
Sr. Sub. Disc. Notes,
Zero Coupon, 11/1/07 8,100 1,539
Sr. Sub. Notes, 9.50%, 11/1/07 3,000 915
Quest Diagnostics, Gtd. Sr. Sub. Notes,
10.75%, 12/15/06 3,900 4,504
Tenet Healthcare, Sub. Exch. Notes,
6.00%, 12/1/05 5,000 4,200
Triad Hospitals, Sr. Sub. Notes, (144a),
11.00%, 5/15/09 7,600 7,752
74,400
Lodging 1.3%
Courtyard by Marriott II, Sr. Secured Notes,
10.75%, 2/1/08 14,700 15,104
Red Roof Inns, Sr. Notes,
9.625%, 12/15/03 8,350 8,434
23,538
Manufacturing 2.4%
Hawk, Sr. Notes, 10.25%, 12/1/03 10,629 10,948
HCC Industries, Sr. Sub. Notes,
10.75%, 5/15/07 9,025 8,664
International Wire, Sr. Sub. Notes,
11.75%, 6/1/05 12,302 12,794
Paragon Corporate Holdings, Sr. Notes,
9.625%, 4/1/08 $ 8,450 $ 4,816
Precision Partners, Sr. Sub. Notes,
12.00%, 3/15/09 5,800 5,684
42,906
Metals and Mining 0.2%
International Utility Structures,
Sr. Sub. Notes, 10.75%, 2/1/08 4,000 4,040
4,040
Paper and Paper Products 2.9%
Packaging Corporation of America,
Sr. Sub. Notes, (144a)
9.625%, 4/1/09 15,000 15,262
Repap New Brunswick
Sr. Notes, 10.625%, 4/15/05 18,800 15,792
Sr. Secured 1st Priority Notes, (144a)
9.00%, 6/1/04 750 705
11.50%, 6/1/04 9,050 9,140
Riverwood International
Sr. Notes
10.25%, 4/1/06 1,875 1,894
10.625%, 8/1/07 2,875 2,961
Sr. Sub. Notes, 10.875%, 4/1/08 5,700 5,558
51,312
Printing and Publishing 2.3%
Hollinger International Publishing, Gtd. Notes,
9.25%, 3/15/07 9,900 10,246
Liberty Group, Sr. Sub. Notes,
9.375%, 2/1/08 5,750 5,577
MailWell, Sr. Sub. Notes, (144a),
8.75%, 12/15/08 5,000 5,025
Sun Media
Sr. Sub. Notes
9.50%, 2/15/07 4,275 4,531
9.50%, 5/15/07 2,925 3,101
Transwestern Holdings, Sr. Disc. Notes, STEP,
0%, 11/15/08 9,450 6,804
Transwestern Publishing, Sr. Sub. Notes,
9.625%, 11/15/07 3,900 3,959
World Color Press, Sr. Sub. Notes,
7.75%, 2/15/09 2,400 2,292
41,535
Restaurants 0.5%
Ameriserve Food Distribution, Gtd.
Sr. Sub. Notes
8.875%, 10/15/06 7,725 7,184
Mrs. Fields, Gtd. Sr. Sub. Notes,
10.125%, 12/1/04 2,250 2,115
9,299
Retail 1.0%
Nine West, Sr. Notes,
8.375%, 8/15/05 $ 8,000 $ 8,320
Safelite Glass, Sr. Sub. Notes,
9.875%, 12/15/06 9,600 8,904
17,224
Service 4.6%
AP Holdings, Sr. Disc. Notes, STEP,
0%, 3/15/08 4,300 2,386
APCOA, Sr. Sub. Notes,
9.25%, 3/15/08 6,700 6,164
Coinmach, Sr. Sub. Notes,
11.75%, 11/15/05 13,275 14,602
Global Imaging Systems,
Sr. Sub. Notes, (144a)
10.75%, 2/15/07 8,000 7,920
Group Maintenance America,
Sr. Sub. Notes, (144a)
9.75%, 1/15/09 11,650 11,766
Host Marriott Travel, Sr. Notes,
9.50%, 5/15/05 12,300 12,792
Intertek Finance, Sr. Sub. Notes,
10.25%, 11/1/06 11,750 11,398
Protection One Alarm
Gtd. Sr. Disc. Notes, 13.625%, 6/30/05 7,750 8,603
Sr. Notes, 7.375%, 8/15/05 4,750 4,616
Sr. Sub. Notes, (144a), 8.125%, 1/15/09 1,125 1,069
81,316
Specialty Chemicals 3.5%
American Pacific, Sr. Notes,
9.25%, 3/1/05 13,000 13,390
Koppers Industry, Sr. Sub. Notes,
9.875%, 12/1/07 11,425 11,425
Lyondell Chemical, Sr. Sub. Notes,
10.875%, 5/1/09 7,850 8,007
Octel, Sr. Notes, 10.00%, 5/1/06 17,980 18,429
Sovereign Speciality, Sr. Sub. Notes,
9.50%, 8/1/07 10,000 10,150
61,401
Supermarkets 2.2%
Jitney-Jungle Stores
Sr. Sub. Notes
10.375%, 9/15/07 8,000 5,840
12.00%, 3/1/06 4,500 4,500
Pathmark Stores, Sr. Disc. Notes, STEP,
0%, 11/1/03 6,100 6,009
Shoppers Food Warehouse, Sr. Notes,
9.75%, 6/15/04 11,650 11,941
The Pantry, Sr. Sub. Notes,
10.25%, 10/15/07 11,000 11,220
39,510
Telecommunications 15.6%
21st Century Telecom, Sr. Disc. Notes, STEP,
0%, 2/15/08 $ 12,200 $ 5,612
Alaska Communications Holdings, Sr. Sub. Notes
9.375%, 5/15/09 7,000 6,947
American Cellular, Sr. Notes,
10.50%, 5/15/08 6,000 6,240
Centennial Cellular, Sr. Sub. Notes, (144a),
10.75%, 12/15/08 10,150 10,607
Clearnet Communications
Sr. Disc. Notes, STEP
0%, 12/15/05 2,850 2,622
0%, 5/1/09 9,750 5,167
Colt Telecom
Sr. Disc. Notes, STEP, 0%, 12/15/06 17,000 13,940
Sr. Notes, 8.875%, 11/30/07 (EUR) 9,401 5,236
Covad Communications, Sr. Disc. Notes,
Zero Coupon, 3/15/08 5,000 2,725
Dolphin Telecom, Sr. Disc. Notes,
Zero Coupon, 6/1/08 2,900 1,494
E. Spire, Sr. Disc. Notes, STEP,
0%, 7/1/08 7,000 2,800
Exodus Communications, Sr. Notes,
11.25%, 7/1/08 3,850 3,908
GST Equipment, Sr. Notes,
13.25%, 5/1/07 3,000 3,225
GST Telecom, Sr. Disc. Notes, (144a), STEP,
0%, 5/1/08 9,600 5,616
ICG Services, Sr. Disc. Notes, STEP,
0%, 9/15/05 7,000 6,266
Intercel, Sr. Disc. Notes, STEP,
0%, 2/1/06 9,535 7,975
Intermedia Communications
Sr. Disc. Notes, STEP, 0%, 7/15/07 5,000 3,613
Sr. Sub. Notes, STEP, 0%, 3/1/09 12,750 7,331
KMC Telecom, Sr. Disc. Notes, STEP,
0%, 2/15/08 12,500 6,687
Mastec, Sr. Sub. Notes,
7.75%, 2/1/08 10,250 9,840
Metromedia Fiber, Sr. Notes, (144a),
10.00%, 11/15/08 7,675 7,944
Metronet Communications, Sr. Disc. Notes, STEP,
0%, 11/1/07 2,950 2,338
Microcell Telecommunications,
Sr. Disc. Notes, STEP
0%, 6/1/06 6,000 4,740
Nextel Communications, Sr. Disc. Notes, STEP,
0%, 10/31/07 1,000 675
Nextel Partners, Sr. Disc. Notes, (144a), STEP,
0%, 2/1/09 11,100 5,994
Nextlink Communications
Sr. Disc. Notes, STEP
0%, 4/15/08 5,900 3,452
0%, 6/1/09 9,550 5,276
Nextlink Communications
Sr. Notes, 12.50%, 4/15/06 $ 5,000 $ 5,350
Orbital Imaging, Sr. Notes, (144a),
11.625%, 3/1/05 3,400 3,264
Page America Group, PIK,
15.00%, 6/30/99 !*+@ 9,800 4,446
Pegasus Communications, Sr. Notes
9.625%, 10/15/05 2,950 3,009
9.75%, 12/1/06 4,900 5,035
Premiere Technologies, Sub. Notes,
5.75%, 7/1/04 6,000 4,800
Price Communication Cellular, Sr. Notes,
11.25%, 8/15/08 7,000 7,280
Price Communications Wireless, Sr. Notes,
9.125%, 12/15/06 3,150 3,276
PSINet
Sr. Notes
(144a), 10.00%, 2/15/05 4,200 4,221
11.50%, 11/1/08 9,900 10,444
Rhythms Netconnections
Sr. Disc. Notes, STEP, 0%, 5/15/08 4,750 2,518
Sr. Notes, (144a), 12.75%, 4/15/09 3,850 3,658
Rogers Cantel, Sr. Secured Deb.,
9.375%, 6/1/08 8,200 8,631
RSL Communications, Sr. Notes,
12.00%, 11/1/08 8,700 9,135
Satelites Mexicanos, Sr. Notes,
10.125%, 11/1/04 4,700 3,760
Sitel, Sr. Sub. Notes,
9.25%, 3/15/06 6,000 5,430
Splitrock Services, Sr. Notes,
11.75%, 7/15/08 2,000 1,900
Telecorp PCS, Sr. Disc. Notes, (144a), STEP,
0%, 4/15/09 7,700 3,966
Telei Europe BV, Units
(Each Unit consists of a $1,000 par
Sr. Note, (144a), 13.00%, 5/15/09 and 1 Warrant) 2,350 2,374
Teligent, Sr. Notes, 11.50%, 12/1/07 6,150 6,058
Triton PCS, Sr. Sub. Disc. Notes, STEP,
0%, 5/1/08 15,375 9,225
Verio, Sr. Notes, (144a),
11.25%, 12/1/08 7,700 8,123
Viatel
Sr. Disc. Notes, STEP, 0%, 4/15/08 10,600 6,731
Sr. Notes, (144a), 11.50%, 3/15/09 6,700 6,901
277,805
Textiles and Apparel 0.6%
Delta Mills, Sr. Notes, 9.625%, 9/1/07 6,375 6,534
Dyersburg, Sr. Sub. Notes, 9.75%, 9/1/07 7,450 3,651
10,185
Transportation 1.7%
Greyhound Lines, Sr. Notes,
11.50%, 4/15/07 $ 6,750 $ 7,627
Stena, Sr. Notes, 10.50%, 12/15/05 6,000 5,955
TravelCenters of America, Sr. Sub. Notes,
10.25%, 4/1/07 15,150 15,453
29,035
Total Corporate Bonds and Notes (Cost $1,497,676) 1,461,490
EQUITY AND CONVERTIBLE SECURITIES 11.1%
Automobiles and Related 0.0%
Hayes Wheels International, Warrants, 7/1/03 * 18 264
264
Beverages 0.6%
Dr. Pepper Bottling Holdings,
Common Stock (Class A) *!@ 397 11,154
11,154
Broadcasting 2.3%
Capstar Broadcasting, PIK,
Sr. Exch. Pfd. Stock 101 11,959
Citadel Broadcasting, PIK, Pfd. Stock 74 8,968
Cumulus Media, PIK,
Exch. Pfd. Stock (Series A) 4 4,792
Sinclair Capital, Pfd. Stock
(Series B) 87 9,428
Spanish Broadcasting System
PIK, Sr. Exch. Pfd. Stock 4 4,208
Warrants, 6/30/99 * 3 615
39,970
Building and Real Estate 0.0%
Camden Property Trust, REIT, Common Stock 8 230
230
Cable Operators 1.5%
CSC Holdings
PIK, Pfd. Stock (Series H) 40 4,577
PIK, Pfd. Stock (Series M) 199 22,991
Classic Communications,
Common Stock, (144a) 9 150
Peachtree Cable Associates Ltd.,
Common Stock *!@ 10 170
Time Warner, Common Stock 2 104
UIH Australia Pacific, Warrants, 5/15/06 * 5 20
Wireless One, Warrants, 10/19/00 * 19 0
28,012
Conglomerates 0.0%
ICF Kaiser International,
Warrants, 12/31/99 * 37 $ 0
0
Consumer Products 0.0%
Hedstrom Holdings, Common Stock * 246 246
246
Energy 0.2%
Clark USA, PIK, Cum. Sr. Exch. Pfd. Stock 56 3,651
3,651
Gaming 0.2%
Becker Gaming, Warrants, 11/15/00 *!@ 425 106
Hollywood Casino, Common Stock (Class A) * 93 153
Isle of Capri Casinos, Common Stock 395 2,783
President Casinos, Warrants, (144a),
9/30/99 *!@ 214 11
3,053
Health Care 0.0%
Wright Medical Technology, Warrants,
6/30/03 *!@ 38 0
0
Metals and Mining 0.3%
International Utility Structures
Common Stock (CAD) 25 66
PIK, Pfd. Stock 1 1,373
PIK, Exch. Pfd. Stock 4 4,248
5,687
Paper and Paper Products 0.1%
Packaging Corporation of America,
Sr. Exch. Pfd. Stock, (144a) 212,153 2,153
Printing and Publishing 0.2%
Primedia, Exch. Pfd. Stock (Series G) 30 2,850
2,850
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 0
Protection One Alarm,
Common Stock * 250 1,375
1,375
Telecommunications 5.5%
Allegiance Telecom, Warrants, 2/3/08 * 8 $ 54
Clearnet Communications,
Warrants, 9/15/05 * 66 529
Colt Telecom, Warrants, (144a),
12/15/06 * 12 7,772
Dobson Communications, PIK,
Sr. Exch. Pfd. Stock, (144a) 7 6,510
E. Spire Communications
PIK, Jr. Red. Pfd. Stock 66 3,390
Warrants, 11/1/05 * 12 1,332
Global Crossing Holdings,
Sr. Exch. Pfd. Stock 39 4,301
Globalstar, Warrants, (144a),
2/15/04 * 7 333
Intermedia Communications of Florida
PIK, Exch. Pfd. Stock 71 7,646
Warrants, 6/1/00 * 2 181
KMC Telecom, Warrants, (144a),
1/31/08 * 5 12
Metronet Communications, Warrants,
8/15/07 * 8 648
Microcell Telecommunications, Warrants,
(144a), 6/15/06 * 33 480
Nextel Communications
Common Stock * 12 448
PIK, Exch. Pfd. Stock 151 16,498
PIK, Exch. Pfd. Stock (Series E) 15 14,972
Nextlink Communications,
Sr. Exch. Pfd. Stock 91 4,550
Northpoint Communications Holding,
Common Stock* 10 437
Omnipoint, Common Stock * 235 4,090
PSINet (Series C), Conv. Pfd. Stock 96 4,512
Page America Group
Common Stock *!+@ 1,109 72
Conv. Pfd. Stock (Series I) *!+@ 20 137
Pegasus Communications,
PIK, Exch. Pfd. Stock 5 5,524
Powertel, Warrants, 2/1/06 * 64 448
RSL Commincations, Warrants,
(144a), 11/15/06 * 3 285
Rural Cellular, PIK,
Sr. Exch. Pfd. Stock 10 9,671
Splitrock Services, Warrants, (144a),
7/31/08 * 2 160
Viatel, Common Stock * 44 1,957
96,949
Textiles and Apparel 0.1%
Anvil Holdings, PIK, Sr. Exch. Pfd.
Stock (Series B) 189 946
946
Total Equity and Convertible Securities
(Cost $180,198) 196,542
MONEY MARKET FUNDS 4.3%
Reserve Investment Fund, 4.96% # 77,132 $ 77,132
Total Money Market Funds (Cost $77,132) 77,132
Total Investments in Securities
97.7% of Net Assets (Cost $1,755,006) $1,735,164
Other Assets Less Liabilities 40,390
NET ASSETS $1,775,554
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 2,895
Accumulated net realized gain/loss -
net of distributions (138,715)
Net unrealized gain (loss) (19,842)
Paid-in-capital applicable to 213,418,707
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized 1,931,216
NET ASSETS $1,775,554
----------
NET ASSET VALUE PER SHARE $ 8.32
----------
! Private Placement
* Non-income producing
+ Securities valued by the Fund's Board of Directors
@ Securities contain some restrictions as to public resale-total of such
securities at period-end amounts to 0.9% of net assets.
# Seven-day yield
CAD Canadian dollar
EUR Euro Dollar
GBP Great Britain pound
PIK Payment-in-Kind
REIT Real Estate Investment Trust
STEP Stepped coupon note for which the interest rate will adjust on specified
future date(s).
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
12.1% 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
5/31/99
Investment Income
Income
Interest $153,018
Dividend 13,250
Total income 166,268
Expenses
Investment management 10,598
Shareholder servicing 2,899
Custody and accounting 261
Prospectus and shareholder reports 134
Proxy and annual meeting 56
Registration 38
Legal and audit 21
Directors 11
Miscellaneous 32
Total expenses 14,050
Expenses paid indirectly (82)
Net expenses 13,968
Net investment income 152,300
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (42,844)
Foreign currency transactions 368
Net realized gain (loss) (42,476)
Change in net unrealized gain or loss on securities (64,310)
Net realized and unrealized gain (loss) (106,786)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $45,514
-------
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
5/31/99 5/31/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 152,300 $ 138,102
Net realized gain (loss) (42,476) 60,611
Change in net
unrealized gain or loss (64,310) 11,632
Increase (decrease) in net
assets from operations 45,514 210,345
Distributions to shareholders
Net investment income (151,465) (137,504)
Capital share transactions*
Shares sold 397,369 383,723
Distributions reinvested 125,023 112,470
Shares redeemed (365,860) (245,938)
Redemption fees received 398 160
Increase (decrease) in net
assets from capital
share transactions 156,930 250,415
Net Assets
Increase (decrease) during period 50,979 323,256
Beginning of period 1,724,575 1,401,319
End of period $1,775,554 $1,724,575
-----------------------
*Share information
Shares sold 47,202 43,796
Distributions reinvested 14,826 12,824
Shares redeemed (43,431) (28,057)
Increase (decrease) in
shares outstanding 18,597 28,563
The accompanying notes are an integral part of these financial statements.
T. Rowe Price High Yield Fund
- --------------------------------------------------------------------------------
May 31, 1999
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 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.
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. Expenses paid
indirectly reflect credits earned on daily, uninvested cash balances at the
custodian, used to reduce the fund's custody credits.
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, 1999, 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
securities, aggregated $1,671,944,000 and $1,558,926,000, respectively, for
the year ended May 31, 1999.
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, 1999, the fund has capital loss
carryforwards for federal income tax purposes of $124,824,000, of which
$6,571,000 expires in 2002, $40,450,000 in 2003, and $77,803,000 thereafter
through 2007. 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, 1999. The results of operations and
net assets were not affected by the increases/(decreases) to these
accounts.
---------------------------------------------------------------------------
Undistributed net realized gain $ 39,796,000
Paid-in-capital (39,796,000)
At May 31, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$1,755,006,000. Net unrealized loss aggregated $19,842,000 at period-end,
of which $53,549,000 related to appreciated investments and $73,391,000 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 $942,000 was payable at May 31, 1999. 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, 1999, 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 $1,609,000 for the year ended May 31, 1999, of which $170,000
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 30.3% of the
outstanding shares of the fund at May 31, 1999. For the year then ended,
the fund was allocated $1,154,000 of Spectrum expenses, $93,000 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,
1999, totaled $3,452,000 and are reflected as interest income in the
accompanying Statement of Operations.
Tax Information (Unaudited) for the Tax Year Ended 5/31/99
- --------------------------------------------------------------------------------
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, $12,891,000 of the fund's distributed income and
qualified for the dividends-received deduction.
T. Rowe Price High Yield Fund
- --------------------------------------------------------------------------------
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, 1999, 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, 1999 by correspondence with
custodians, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
June 17, 1999
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 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 appropriate
to the fund or funds covered in this
report.
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
4200 West Cypress St.
10th Floor
Tampa, FL 33607
4410 ArrowsWest Drive
Colorado Springs, CO 80907
Warner Center Plaza 5
Mezzanine Level
21800 Oxnard Street, Suite 270
Woodland Hills, CA 91367
Investment With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F57-050 5/31/99
