<PAGE>
Fellow Shareholders
By virtually every measure, the economy strengthened during the Funds' fiscal
year ended February 28, 1994. Gross domestic product grew at an annual rate of
nearly 1.5% for the first six months of calendar 1993, then surged at an annual
rate of more than 5% in the second half. Unemployment dropped steadily, capacity
utilization rose, and personal income gains were impressive. Based on stronger
spending by consumers on durable goods and housing, and by businesses on fixed
equipment, economic momentum seemed to carry over into early 1994 even though
the Arctic cold snap east of the Rockies and the earthquake in Los Angeles
tended to depress business activity.
The swing in the economy's thrust was reflected in the credit markets.
Perceived weakness in the economy through the autumn of 1993 and the Federal
Reserve's continued easy monetary policy encouraged a substantial decline in
note and bond yields. Between the end of February 1993 and mid-October, the
yield on the Treasury's benchmark 30-year bond dropped more than one full
percentage point, reaching a low of 5.78%. As it became increasingly apparent
that the economy was entering a phase of stronger growth, interest rates began
to rise--a trend that was accelerated by the Fed's announcement of a tightening
in early February. Despite reaching new lows last autumn, short- and
intermediate-term interest rates on taxable notes and bonds actually closed the
Funds' year-end 30 to 75 basis points higher than 12 months earlier, though
long-term Treasury bond yields closed a bit lower.
The tax-exempt sector experienced the same trend in yields. After declining
to 20-year lows in October, municipal yields closed the Funds' fiscal year
higher in every maturity range, with the most significant moves occurring during
the final quarter. From November 30 to February 28, short- and intermediate-term
rates rose about 30 basis points while long-term yields increased approximately
20 basis points.
The municipal market can be volatile during periods of uncertainty, and the
recent past was no exception. Unlike taxable markets, which include individuals,
foreign and domestic corporations, mutual funds, pension funds, and government
entities, the municipal market is now dominated by individual investors. As a
result, tax-exempt securities can be very sensitive to changes in supply and
demand, often becoming overbought or oversold. In September and October 1993,
for example, long-term yields dipped to low levels and prices rose as investors
rapidly increased their tax-free mutual fund holdings. Since October, the
pendulum has swung in the opposite direction, and cash flows into long-term bond
funds have abated. Municipal investors have drifted to the sidelines with a
wait-and-see attitude, and the reduced liquidity in the marketplace has sent
bond prices lower. As a result, our bond funds reflected share-price declines
for the quarter. Our money funds, of course, are managed to maintain a stable
$1.00 per share value.
[GRAPH APPEARS HERE]
Municipal Interest Rate Levels
A line graph compares the yields of the 30-year Prime General Obligation bond,
the five-year Prime General Obligation bond, and the six-month Moody's
Investment Grade 1 Note.
TAX-EXEMPT MONEY FUND
During the past three months, the short-term, tax-exempt money market managed to
post both its lowest and highest interest rates of the fiscal year. As the
quarter began, yields reached record lows amid concerns about massive
reinvestment of proceeds from maturing bonds and coupon payments made on January
1, 1994. By February, however, the focus turned to the Federal Reserve's efforts
to push short-term rates higher. As a result, yields on six-month and one-year
notes fluctuated 70 to 100 basis points in a very short time.
<PAGE>
Assets in the tax-exempt money fund industry expanded by 11% over the
fiscal year to a record $112.7 billion, indicating a strong desire among
investors for principal stability. Much of this cash flow was invested in the
one- to 30-day maturity area as portfolio managers sought to preserve
flexibility in a rising rate environment. This caused yields of very short
maturities to move lower, while maturities of 90 days or more moved higher in
tandem with the general direction of short-term rates.
We kept the Tax-Exempt Money Fund's weighted average maturity at more than
60 days during December and January, but shortened to 55 days by quarter-end.
For most of the Fund's fiscal year, our maturity target was equal to or longer
than the peer group average.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.0 1.9 2.0
Weighted Avg. Maturity (days) 55 61 55
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
This more aggressive posture helped put the Fund's performance in the top
quartile of tax-exempt money funds for both the three and 12 months ended
February 28, 1994.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Exempt Money Fund 0.53% 2.05%
Donoghue's Tax-Free
Money Fund Average* 0.45 1.91
</TABLE>
*Stockbroker and General Purpose Funds.
Over the next quarter, we expect gradually rising rates as the Federal
Reserve continues to move away from the stimulative stance it pursued during the
past five years. Accordingly, Fund shareholders should enjoy moderately higher
returns during the ensuing fiscal year. We expect to maintain your Fund's
weighted average maturity more or less in line with its peer group.
TAX-FREE SHORT-INTERMEDIATE FUND
The short-intermediate municipal market enjoyed a favorable balance of supply
and demand during the fiscal year ended February 28, 1994, as record new
issuance and a growing supply of intermediate, pre-refunded bonds met strong
investor demand. As investors sought out less aggressive, fixed-income
investments, the many new intermediate-term mutual funds were strong buyers in
this range.
Based on our early 1993 forecast for slow economic growth and tame
inflation, your Fund maintained a weighted average maturity of nearly 3.5 years
from March through October, a figure higher than its historical average. We
focused on three- to four-year maturities whose yields were at least a full
percentage point above money market instruments. We also emphasized market
sectors yielding more than usual due to excess supply. Heavy issuance in New
York, California, and Maryland, for example, made the bonds of those high-tax
states attractive relative to other states.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.3 2.3 2.2
Weighted Avg. Maturity (years) 3.4 3.4 3.1
Weighted Avg. Effective
Duration (years) 2.9 2.9 2.7
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
As evidence of a stronger economy began to emerge in late 1993, we began
shortening the Fund's average maturity by selling more vol-atile bonds while at
the same time emphasizing higher-quality bonds. When the Fed tightened on
February 4, 1994, the weighted average maturity stood at 3.1 years and average
credit quality was AA. The sharp yield increase in February eliminated the price
gains made earlier in the past year and reduced the Fund's total return at year-
end. Even so, the Fund's performance slightly exceeded its peer group average
for both the quarter and the year.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Short-Intermediate
Fund 0.61% 3.49%
Lipper Short Municipal
Debt Fund Average 0.59 3.31
</TABLE>
2
<PAGE>
Entering the Fund's new fiscal year, our focus is on improving yield where
possible and keeping price volatility moderate by maintaining a shorter
duration. At present, we think the two-year-maturity range, where prices already
reflect the impact of further tightening by the Fed, looks attractive. In
addition, new legislation subjecting certain discount bonds to ordinary income
taxes increases the appeal of high-coupon, premium bonds, which dovetails with
our more conservative strategy.
TAX-FREE INSURED INTERMEDIATE BOND FUND
The municipal market's record issuance in 1993 included 37% of insured bonds, a
sector that has grown steadily since 1990. Since over half of the supply was
used for advance refundings of older, higher-coupon bonds with call dates within
10 years, the result was a huge increase in the overall supply of intermediate
maturities, many of which were insured. This large issuance resulted in
attractive prices and yields on insured securities for most of 1993, but the
supply also made the sector more vulnerable to downward price pressure when
interest rates rose in February.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.1 2.1 2.1
Weighted Avg. Maturity (years) 8.0 7.9 7.9
Weighted Avg. Effective
Duration (years) 5.3 5.8 5.8
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
We postured the portfolio aggressively for the first six months of the
fiscal year, then started reducing our risk profile in September. Based on our
outlook in early 1993 for slow economic growth and low inflation, we had
maintained the Fund's average maturity at around nine years, near the long end
of its five- to 10-year maturity range as outlined in the prospectus. When signs
of the improving economy began to emerge, we reacted by shortening the weighted
average maturity to approximately 7.5 years and by purchasing bonds less
sensitive to price fluctuations, such as those with higher coupons. We also
sought to take advantage of the excessive supply of bonds issued in high-tax
states and in those with heavy demand for municipal bonds. Typically, bonds
issued by states such as New York, Virginia, Maryland, and Florida trade at
higher prices than those issued by other states. As issuance slows in 1994, we
anticipate that increased demand for these bonds will cause their values to
improve relative to the rest of the market.
Our efforts throughout the year paid off with top quartile performance for
the 12-month period ended February 28, even though the Fund slightly
underperformed its peer group average for the quarter.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Insured Intermediate
Bond Fund 0.49% 5.49%
Lipper Intermediate Municipal
Debt Fund Average 0.54 4.76
</TABLE>
Keeping with our outlook for gradually rising interest rates, we are
continuing to shorten the portfolio's duration. By purchasing bonds in the six-
to seven-year range, we expect to deliver 80% of the yield of a 30-year bond,
with significantly less price fluctuation.
TAX-FREE INCOME FUND
As highlighted in our general overview, the long end of the bond market had
quite a ride over the last 12 months. Our investment strategy during this
turbulent period was marked by two distinct phases. In the spring and summer, we
were aggressive, extending the Fund's average maturity and duration so that
long-term bonds represented 85% to 90% of assets. As autumn began, however,
interest rates dropped to 20-year lows and the economy was showing signs of
accelerating. We concluded that an aggressive Fund posture was no longer
warranted under such conditions and reduced our risk profile by shortening the
portfolio's duration and weighted average maturity. For example, the Fund's
duration during the summer months was eight years or longer and the weighted
average maturity was in the 19 1/2- to 20-year range. From September through
mid-December, however, duration averaged 7 1/2
3
<PAGE>
years and the weighted average maturity was reduced to 18 1/2 years.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 2.5 2.4 2.4
Weighted Avg. Maturity (years) 20.0 18.5 18.0
Weighted Avg. Effective
Duration (years) 7.3 7.6 7.7
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
During the last three months, we continued in a cautious direction as the
strength in the economy became more apparent and after the Federal Reserve
announced in February its first tightening move in five years. We maintained the
high credit quality of the portfolio throughout the fiscal year, believing that
the yield on lower-quality holdings did not adequately compensate for the
additional risks.
The Fund's performance exceeded its peer group average for the three and 12
months ended February 28, 1994. The narrow margin in the final quarter reflected
our more cautious stance; the Fund's investment posture was in line with that of
the average municipal bond fund. In essence, our earlier aggressiveness enabled
the Fund to outperform its peer group as interest rates declined, while our
neutral posture over the last half of the year resulted in average performance
when rates rose.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free Income Fund 0.47% 5.50%
Lipper General Municipal
Debt Fund Average 0.45 5.24
</TABLE>
TAX-FREE HIGH YIELD FUND
On balance, the Fund's fiscal year was a good one for the high-yield sector of
the municipal bond market though it was subject to the same price volatility
that characterized the entire market for much of the year. Our investment
strategy, while influenced by the same factors that affected our management of
other long-term funds, did not display as significant a shift in investment
posture as those funds, reflecting the strong income orientation of the Tax-Free
High Yield Fund. We did extend the Fund's weighted average maturity to
approximately 21 years and effective duration to 7.4 years based on our outlook
for declining interest rates during the first half of the year. Long-term bonds
during this period represented 88% to 90% of net assets. Beginning in the fall,
we shifted the portfolio to a more neutral stance versus its peer group and
generally held that position into February. Recently, average maturity and
effective duration were extended as we were able to add positions at what we
felt were very attractive levels.
Demand was consistently strong last year for the medium- and lower-quality
bonds that your Fund usually holds. Yield spreads between low- and high-quality
bonds, narrow for the most of the year, widened somewhat during the last quarter
as interest rates rose and issuance increased. During this time, we increased
the Fund's exposure to lower-quality bonds. By year-end, 26% of Fund assets were
invested in below-investment-grade credits (i.e., bonds rated below the BBB
category), up from 22% at the start of the year.
<TABLE>
<CAPTION>
Portfolio Characteristics
Periods Ended
2/28/93 11/30/93 2/28/94
------- -------- -------
<S> <C> <C> <C>
Weighted Avg. Quality* 3.7 3.7 3.8
Weighted Avg. Maturity (years) 21.9 20.9 21.3
Weighted Avg. Effective
Duration (years) 6.7 7.2 7.4
</TABLE>
*On a T. Rowe Price scale of 1 to 10, with Grade 1 representing highest quality.
Your Fund extended its record of favorable performance, finishing in the
top quartile for the 12 months ended February 28, 1994, and exceeding the peer
group average for the last quarter. Over an even longer time horizon, the Fund's
performance has exceeded its peer group average for each of the past six years.
<TABLE>
<CAPTION>
Performance Comparison
Periods Ended 2/28/94
3 Mos. 12 Mos.
------ -------
<S> <C> <C>
Tax-Free High Yield Fund 1.04% 7.49%
Lipper High Yield Municipal
Debt Fund Average 0.84 6.15
</TABLE>
4
<PAGE>
CAPITAL GAIN DISTRIBUTIONS
While the Funds' primary objective is to earn a high level of tax-exempt income
consistent with each portfolio's composition and risk profile, capital gains
will arise in the course of managing the portfolios. A dividend consisting of a
fund's undistributed net gains as of October 31 must be declared by the end of
each calendar year, and a second distribution is required if the fund has
undistributed net gains as of the close of its fiscal year. Accordingly, three
of the municipal bond funds declared capital gain distributions (shown below),
payable March 31 to shareholders of record March 28. Your check or statement
reflecting these distributions was mailed separately. These distributions are
taxable to you for 1994 and will be reported on Form 1099-DIV mailed in January
1995.
<TABLE>
<CAPTION>
Short-Term Long-Term Total
---------- --------- -----
<S> <C> <C> <C>
Tax-Free Insured
Intermediate Bond $0.02 $0.01 $0.03
Tax-Free Income $0.01 $0.03 $0.04
Tax-Free High Yield -- $0.04 $0.04
</TABLE>
OUTLOOK
As the Funds enter a new fiscal year, the bond markets are cautious about a
robust economy as well as a vigilant Federal Reserve Board. Fed Chairman Alan
Greenspan clearly intends to contain inflation by raising short-term interest
rates as the economy approaches full labor and capital utilization over the next
year or two. The Fed's most recent hike was greeted more constructively by long-
term investors; in sharp contrast to the reaction in February, bond yields fell
on March 22, the day the Fed announced that the federal funds rate would be
increased another one-quarter of one percent. Inflation currently does not look
threatening and, if the Fed's strategy works, bond investors may be reassured by
the inflation-fighting stance. Still, commodity prices are moving up, labor
markets could start tightening later this year or early next, and the global
economy continues to strengthen, so the bond market's nervousness is
understandable. On balance, we expect modestly increasing yields though the
course may be choppy in 1994 as inflation expectations wax and wane.
Despite these strong economic fundamentals, the municipal market retains
certain advantages. First, as a result of the sharp sell-off experienced in
recent weeks, yields on securities in many maturities are at attractive levels
relative to comparable taxable issues, appealing to taxpayers in all but the
lowest tax brackets. Second, the projected 30% to 40% decline in new issuance in
1994 should bring supply and demand into better balance and support municipal
prices. Third, tax-advantaged investments and the value they offer should come
into the limelight as high income taxpayers prepare to file their first returns
at the new, higher tax rates.
We encourage all shareholders to make sure their current investments are
consistent with their personal financial objectives. If, as a result of your
review, you want additional information on the funds, our investor service
representatives will be happy to assist you. We look forward to the challenges
and opportunities that await us in the new fiscal year and appreciate your
continued confidence in us.
Respectfully submitted,
/s/ William T. Reynolds
William T. Reynolds
Assistant Director,
Fixed-Income Division
March 25, 1994
Duration as a Guide to Interest Rate Risk
Starting with this report, we've added a new measure to the statistical tables
that more accurately defines a fund's interest rate sensitivity. Unlike
maturity, which merely indicates when the bond repays principal, "duration"
incorporates the cash flows of all interest and principal payments over the life
of the bond to reflect the recovery of your original investment. Future payments
are discounted to reflect their present value. These payments are then
multiplied by the number of years over which they will be received to produce a
value that is expressed in years, i.e., the duration. Effective duration is an
even better measure of a bond's sensitivity to interest rate changes because it
takes into account call features and sinking fund payments which may shorten a
bond's life.
You can multiply the duration by the potential change in interest rates to
estimate the change in principal value. For example, a bond or bond fund with a
duration of five years would rise or fall roughly 5% in price if rates fell or
rose by one percentage point.
5
<PAGE>
<TABLE>
<CAPTION>
Financial Summary
Net Asset Value Dividend Per Share+ Dividend Yield*
Per Share 3 Months Ended 3 Months Ended
--------------------- --------------------- ---------------------
11/30/93 02/28/94 11/30/93 02/28/94 11/30/93 02/28/94
<S> <C> <C> <C> <C> <C> <C>
Tax-Exempt Money $ 1.00 $ 1.00 $0.005 $0.005 2.15% 2.15%
Tax-Free Short-Intermediate 5.34 5.32 0.055 0.053 4.12 4.02
Tax-Free Insured Intermediate Bond 10.68 10.58 0.115 0.115 4.29 4.33
Tax-Free Income 9.92 9.66 0.134 0.131 5.35 5.42
Tax-Free High Yield 12.49 12.26 0.184 0.182 5.87 5.95
</TABLE>
* Dividends earned and reinvested for the periods indicated are annualized and
divided by the average daily net asset values per share for the same period.
+ Taxability of dividends. 100% of the dividends paid for the 12 months ended
2/28/94 were exempt from federal income tax.
<TABLE>
<CAPTION>
Average Annual Compound Total Return
Periods Ended 12/31/93
----------------------------------------------------
1 Year 5 Years 10 Years Since Inception
<S> <C> <C> <C> <C> <C>
Tax-Exempt Money 2.01% 3.94% 4.45% 4.93% (4/81)
Tax-Free Short-Intermediate 6.32 6.63 6.55 6.49 (12/83)
Tax-Free Insured Intermediate Bond 12.66 - - 13.04 (11/92)
Tax-Free Income 12.77 9.85 9.51 7.66 (10/76)
Tax-Free High Yield 12.97 10.36 - 11.00 (3/85)
</TABLE>
[GRAPH APPEARS HERE]
Tax-Free Insured Intermediate Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free Insured Intermediate Fund at its inception (11/30/92) and a
similar investment made concurrently in the Lehman 7-Year G.O. Bond Index. At
2/28/94, the Fund investment would have been worth $11,267 and the Lehman Index
investment would have been worth $10,995.
<TABLE>
<CAPTION>
Fiscal-Year Performance
Periods Ended 2/28/94
-------------------------------
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Short-Intermediate 3.49% 6.46% 6.39%
Insured Intermediate
Bond* 5.49 - -
Income 5.50 9.38 9.14
High Yield** 7.49 9.87 -
</TABLE>
* Since inception 11/92: 10.05%
** Since inception 3/85: 10.71%
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
6
<PAGE>
[GRAPH APPEARS HERE]
Tax-Free Short-Intermediate Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free Short-Intermediate Fund at its inception (12/23/83) and a
similar investment made concurrently in the Lehman 3 Year Bond Index. At
2/28/94, the Fund investment would have been worth $17,243 and the Lehman Index
investment would have been worth $18,473.
[GRAPH APPEARS HERE]
Tax-Free Income Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made ten years earlier in both the Tax-Free Income Fund and the Lehman Municipal
Bond Index. At 2/28/94, the Fund investment would have been worth $23,986, the
Lehman Index investment would have been worth $27,680.
[GRAPH APPEARS HERE]
Tax-Free High-Yield Fund Performance Comparison
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the Tax-Free High-Yield Fund at its inception (3/1/85) and a similar
investment made concurrently in the Lehman Revenue Bond Index. At 2/28/94, the
Fund investment would have been worth $24,982 and the Lehman Index investment
would have been worth $26,711.
7
<PAGE>
ANNUAL REPORT
FOR YIELD, PRICE, LAST TRANSACTION, T. Rowe Price
AND CURRENT BALANCE, 24 HOURS, -------------
7 DAYS A WEEK, CALL: TAX-FREE FUNDS
1-800-638-2587 toll free
625-7676 Baltimore area
FEBRUARY 28, 1994
FOR ASSISTANCE WITH YOUR EXISTING
FUND ACCOUNT, CALL:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. ROWE PRICE
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distri-
bution only to shareholders and to
others who have received a copy of
the prospectus of the T. Rowe Price
Tax-Free Funds.
T. Rowe Price
Invest With Confidence(R)
TFF
<PAGE>
T. Rowe Price
TAX-FREE HIGH YIELD FUND
February 28, 1994
Investment Record
The table below shows the investment record of one share of the T. Rowe Price
Tax-Free High Yield Fund, purchased at the original offering price of $10.00.
Over this time, interest rates have been volatile. The results shown should not
be considered a representation of the dividend income or capital gain or loss
which may be realized from an investment made in the Fund today.
<TABLE>
<CAPTION>
====================================================================================================================================
With Dividends
Fiscal Capital With and Capital
Year Net Asset Income Gain Dividends Gains Total
Ended Value Dividends Distributions/2/ Reinvested Reinvested Return
--------- ----------- ----------- ----------------- ------------ ---------------- --------
<S> <C> <C> <C> <C> <C> <C>
2/28/86/1/ $11.43 $0.87 $ -- $12.42 $12.42 24.24%
1987 12.21 0.87 -- 14.29 14.29 15.04
1988 11.19 0.83 0.25 14.12 14.41 0.83
1989 11.25 0.83 -- 15.28 15.60 8.27
1990 11.39 0.84 0.06 16.66 17.09 9.54
1991 11.40 0.83 0.03 17.93 18.45 7.93
1992 11.65 0.81 0.10 19.65 20.40 10.56
1993 12.33 0.78 0.10 22.21 23.24 13.94
1994 12.26 0.74 0.23 23.43 24.98 7.49
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL $ 7.40 $0.77
====================================================================================================================================
</TABLE>
/1/ From inception 3/1/85 to 2/28/86.
/2/ Includes short-term capital gains of $0.04 on 12/11/91; $0.01 on 3/18/92;
$0.04 on 12/11/92; $0.02 on 3/29/93;$0.12 on 12/10/93.
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Sector Diversification / February 28, 1994
<TABLE>
<CAPTION>
Percent of
Net Assets
------------
<S> <C>
Hospital Revenue 25%
Housing Finance Revenue 11
Nuclear Revenue 9
Life Care/Nursing Home Revenue 8
Industrial & Pollution
Control Revenue 8
Solid Waste Revenue 6
Lease Revenue 5
Pre-Refunded Bonds 5
Ground Transportation Revenue 4
General Obligation-Local 4%
Air & Sea Transportation
Revenue 3
General Obligation-State 2
Miscellaneous Revenue 2
Educational Revenue 1
Dedicated Tax Revenue 1
Electric Revenue 1
Water & Sewer Revenue 1
Other Assets less Liabilities 4
===================================================================
</TABLE>
T.Rowe Price Tax-Free High Yield Fund
Statement of Net Assets/February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
ALABAMA -- 2.5%
Baldwin County Eastern Shore Hosp. Auth., Thomas Hosp., 8.50%, 4/1/16................. $ 4,000 $ 4,600
Marshall County Health Care Auth., Guntersville-Arab Medical Center,
7.00%, 10/1/13....................................................................... 2,100 2,220
10.25%, 10/1/13...................................................................... 6,750 8,211
Mobile, Capital Improvement Warrants, GO, (MBIA Insured),
Zero Coupon, 2/15/18................................................................. 1,030 223
Zero Coupon, 8/15/18................................................................. 4,550 951
Zero Coupon, 2/15/19................................................................. 905 183
Zero Coupon, 8/15/19................................................................. 4,675 911
Zero Coupon, 2/15/20................................................................. 770 145
Zero Coupon, 8/15/20................................................................. 4,810 874
Mobile Airport Auth., 8.875%, 10/1/15 *............................................... 2,000 2,260
Shelby County, GO, (MBIA Insured), 7.40%, 8/1/07...................................... 2,000 2,172
7.70%, 8/1/17........................................................................ 1,000 1,088
- -----------------------------------------------------------------------------------------------------------------------------------
ALASKA -- 0.6%
Valdez Marine Terminal, Pipelines Inc., 5.65%, 12/1/28................................ 6,000 5,770
- -----------------------------------------------------------------------------------------------------------------------------------
ARIZONA -- 0.9%
Arizona Student Loan Acquisition Auth., Student Loan, 7.125%, 12/1/04................. 1,500 1,530
Scottsdale IDA, Westminster Village, 10.00%, 6/1/07................................... 1,330 1,490
10.00%, 3/1/17....................................................................... 750 842
Tempe IDA, Friendship Village of Tempe, 6.75%, 12/1/13................................ 5,000 4,689
- -----------------------------------------------------------------------------------------------------------------------------------
ARKANSAS -- 1.5%
Independence County PCR, Arkansas Power & Light, 6.25%, 1/1/21........................ 2,000 2,036
Mississippi Power & Light, 7.625%, 7/1/12............................................ 3,000 3,304
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
ARKANSAS (cont'd)
Little Rock Health Fac. Board, Baptist Medical Center, 7.00%, 10/1/17................. $ 2,600 $ 2,858
Maricopa County PCR, Palo Verde, 6.375%, 8/15/23...................................... 3,200 3,200
Union County Hosp., Union Medical Center, 8.00%, 10/1/00.............................. 2,285 2,344
- -----------------------------------------------------------------------------------------------------------------------------------
CALIFORNIA -- 4.6%
California HFFA, St. Francis Medical Center, 5.75%, 10/1/23........................... 6,515 6,460
California Statewide Communities Dev. Auth., Childrens Hosp. of Los Angeles,
(MBIA Insured), 5.00%, 12/1/23....................................................... 1,000 891
Inglewood Redev. Agency, Century Redev., 6.125%, 7/1/23............................... 3,440 3,337
Los Angeles County, Marina del Rey, COP, 6.25%, 7/1/03................................ 4,000 4,113
6.50%, 7/1/08........................................................................ 3,250 3,374
Oakland, COP, VRDN (Currently 2.75%).................................................. 1,000 1,000
San Joaquin Hills Transportation Corridor Agency, Toll Road,
Zero Coupon, 1/1/03.................................................................. 5,600 2,819
Zero Coupon, 1/1/10.................................................................. 13,100 3,664
Zero Coupon, 1/1/23.................................................................. 18,000 2,507
Zero Coupon, 1/1/25.................................................................. 25,000 3,037
Zero Coupon, 1/1/28.................................................................. 15,000 896
7.00%, 1/1/30........................................................................ 4,825 4,935
6.75%, 1/1/32........................................................................ 2,000 2,048
5.00%, 1/1/33........................................................................ 5,000 3,907
- -----------------------------------------------------------------------------------------------------------------------------------
COLORADO -- 4.7%
Boulder County, Longmont United Hosp., 8.20%, 12/1/20
(Pre-refunded 12/1/00+)............................................................. 1,540 1,864
Boulder County IDR, Boulder Medical Center, 8.625%, 1/1/07 *.......................... 820 906
8.75%, 1/1/12 *...................................................................... 1,205 1,335
8.875%, 1/1/17 *..................................................................... 1,190 1,323
Colorado HFA, Bethesda Psychealth System, 9.125%, 9/1/17.............................. 3,000 3,247
Colorado Housing Fin. Auth., 9.60%, 8/1/01 *.......................................... 860 948
8.65%, 8/1/03........................................................................ 1,040 1,090
9.00%, 8/1/03........................................................................ 1,040 1,108
9.40%, 8/1/03 *...................................................................... 905 947
8.70%, 11/1/04 *..................................................................... 1,660 1,738
Denver City & County, Airport System, 6.75%, 11/15/22 *............................... 4,000 4,151
8.75%, 11/15/23 *.................................................................. 3,500 4,131
7.25%, 11/15/25.................................................................... 7,500 8,185
United Air Lines, 6.875%, 10/1/32 *.................................................. 4,580 4,699
Sisters of Charity of Leavenworth Health Services, 5.00%, 12/1/23.................... 4,000 3,622
El Paso County, School Dist. No. 20, GO, TAN, 6.35%, 12/15/06......................... 3,000 3,187
Westminster, Special Assessment Bonds, 9.25%, 12/1/02................................. 1,475 1,545
- -----------------------------------------------------------------------------------------------------------------------------------
DELAWARE -- 1.5%
Delaware Economic Dev. Auth., Delmarva Power & Light, (FGIC Insured),
7.15%, 7/1/18...................................................................... 2,500 2,825
Peninsula United Methodist Homes, 8.50%, 5/1/22...................................... 2,500 2,727
</TABLE>
3
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
DELAWARE (cont'd)
Delaware HFA, Beebe Medical Center, 8.50%, 6/1/16..................................... $ 5,600 $ 6,430
Wilmington Osteopathic Hosp. Assoc. of Delaware, Riverside Hosp.,
10.20%, 10/1/18 (Pre-refunded 10/1/98+).............................................. 2,000 2,515
- -----------------------------------------------------------------------------------------------------------------------------------
DISTRICT OF COLUMBIA -- 0.2%
Dist. of Columbia, America Geophysical, GO, 5.875%, 9/1/23............................ 1,750 1,671
- -----------------------------------------------------------------------------------------------------------------------------------
FLORIDA -- 3.4%
Brevard County Tourist Dev., Florida Marlins Spring Training Fac.,
6.875%, 3/1/13....................................................................... 1,520 1,612
Broward County Resource Recovery, Broward Waste Energy (L.P. North),
7.95%, 12/1/08..................................................................... 4,970 5,651
S E S Broward (L.P. South), 7.95%, 12/1/08........................................... 4,055 4,611
Charlotte County IDR, Beverly Enterprises, 10.00%, 6/1/11............................. 1,000 1,180
Collier County IDA, Beverly Enterprises, 10.75%, 3/1/03............................... 940 1,124
Escambia County IDR, Beverly Enterprises, 9.80%, 6/1/11............................... 500 577
Florida Municipal Power Agency, (AMBAC Insured), VRDN (Currently 2.60%)............... 1,000 1,000
Florida State, Board of Ed. (Public Ed. Capital Outlay), GO, 6.70%, 6/1/22............ 2,000 2,173
Hernando County IDR, Beverly Enterprises, 10.00%, 9/1/11.............................. 1,000 1,187
Jacksonville IDR, Beverly Enterprises, 9.75%, 10/1/11................................. 1,000 1,144
Leon County IDR, Beverly Enterprises, 9.80%, 6/1/11................................... 500 578
Manatee County Housing Fin. Auth., Zero Coupon, 10/1/15............................... 13,535 1,466
Orange County HFA, RHA/Princeton Hosp., 9.00%, 7/1/21................................. 2,000 2,227
Orange County IDA, Beverly Enterprises, 9.25%, 8/1/10................................. 485 549
Santa Rosa County HFA, Gulf Breeze Hosp., 8.60%, 10/1/02.............................. 1,000 1,138
6.20%, 10/1/14....................................................................... 2,000 2,011
St. Johns County IDA, Vicar's Landing, 6.75%, 2/15/12................................. 4,000 3,910
- -----------------------------------------------------------------------------------------------------------------------------------
GEORGIA -- 2.4%
Fulco Hosp. Auth., Georgia Baptist Health Care System, RAN, 6.25%, 9/1/13............. 8,000 8,267
Fulton County Water & Sewage, (FGIC Insured), VRDN (Currently 2.60%).................. 1,260 1,260
Georgia State, GO, VRDN (Currently 2.55%)............................................. 3,500 3,500
Rockdale County Dev. Auth., Solid Waste Disposal, Visy Paper, Inc.,
7.50%, 1/1/26 *...................................................................... 9,875 9,912
- -----------------------------------------------------------------------------------------------------------------------------------
GUAM -- 0.3%
Guam Airport Auth., 6.50%, 10/1/23.................................................... 2,250 2,360
- -----------------------------------------------------------------------------------------------------------------------------------
IDAHO -- 1.2%
Gem County PCR, Boise Cascade, 1/5/97, Floating Rate (Currently 3.96%)................ 500 495
Idaho Housing Agency, 7.80%, 1/1/23 *................................................. 2,500 2,715
6.75%, 7/1/23 *...................................................................... 3,835 3,939
Idaho Student Loan Marketing Assoc., 6.70%, 10/1/07 *................................. 4,000 4,077
- -----------------------------------------------------------------------------------------------------------------------------------
ILLINOIS -- 4.7%
Aurora, Dreyer Medical Clinic, 8.75%, 7/1/14.......................................... 4,485 5,216
Illinois HFA, Covenant Retirement Community, 7.60%, 12/1/12........................... 2,665 2,907
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
ILLINOIS (cont'd)
Illinois HFA (cont'd)
Glen Oak Medical Center, 9.50%, 11/15/15............................................. $ 2,300 $ 2,791
7.00%, 11/15/19.................................................................... 2,500 2,739
Hinsdale Health System, 9.00%, 11/15/15.............................................. 4,930 5,848
Memorial Hosp., 7.25%, 5/1/22........................................................ 5,500 5,875
Morris Hosp., 6.125%, 12/1/23........................................................ 4,400 4,228
Resurrection Health Care System, VRDN (Currently 2.30%).............................. 4,655 4,655
Wabash General Hosp. Dist. (Wabash General Hosp.), 11.35%, 9/1/05.................... 1,850 2,081
Illinois Student Assistance Commission, Student Loan Revenue,
6.65%, 3/1/08 *..................................................................... 2,000 2,103
Metropolitan Pier and Exposition Auth., McCormick Place Expansion,
(FGIC Insured), Zero Coupon, 6/15/20................................................ 5,000 1,050
Zero Coupon, 6/15/21............................................................... 11,000 2,178
Southwestern Dev. Auth., Anderson Hosp., 7.00%, 8/15/22............................... 2,500 2,631
- -----------------------------------------------------------------------------------------------------------------------------------
INDIANA -- 0.6%
Evansville Hosp. Auth., Daughters of Charity Health Systems
(St. Mary's Medical Center), 10.125%, 11/1/15........................................ 5,000 5,562
- -----------------------------------------------------------------------------------------------------------------------------------
KANSAS -- 0.2%
Burlington PCR, Kansas City Power & Light Company,
VRDN (Currently 2.44%)............................................................... 1,950 1,950
- -----------------------------------------------------------------------------------------------------------------------------------
KENTUCKY -- 1.9%
Florence Housing Fac., Bluegrass RHF Housing, 9.50%, 7/1/17........................... 1,985 2,055
Jefferson County, Louisville Gas and Electric, 7.45%, 6/15/15......................... 4,250 4,831
Jefferson County HFA, Beverly Enterprises, 9.75%, 8/1/07.............................. 935 1,081
Kentucky Dev. Fin. Auth., Berea Hosp., 8.375%, 7/1/12................................. 2,935 3,113
St. Claire Medical Center, 7.125%, 9/1/21............................................ 3,600 3,985
Kentucky Turnpike Auth., Roads Revitalization, (FGIC Insured),
Zero Coupon, 1/1/10.................................................................. 7,000 2,856
- -----------------------------------------------------------------------------------------------------------------------------------
LOUISIANA -- 2.6%
Louisiana Offshore Terminal Auth., LOOP, 7.60%, 9/1/10................................ 8,500 9,555
Louisiana PFA, IDR, Beverly Enterprises, 8.25%, 9/1/08................................ 1,465 1,585
St. James Place of Baton Rouge, 10.00%, 11/1/21...................................... 4,500 5,169
Parish of St. Charles, Louisiana Power & Light, 8.00%, 12/1/14........................ 4,500 5,176
Solid Waste Disposal Revenue, 7.00%, 12/1/22......................................... 1,750 1,900
Plaquemines Parish IDB, AMAX Inc., 7.25%, 10/1/09..................................... 1,280 1,296
- -----------------------------------------------------------------------------------------------------------------------------------
MAINE -- 0.6%
Maine HHEFA, Waterville Osteopathic Hosp.,
9.875%, 7/1/13 (Pre-refunded 7/1/97+)............................................... 4,445 5,242
- -----------------------------------------------------------------------------------------------------------------------------------
MARYLAND -- 3.8%
Baltimore County, Stella Maris, 7.50%, 3/1/21......................................... 1,000 1,101
Berlin, Atlantic General Hosp., 8.375%, 6/1/22........................................ 2,000 2,153
Gaithersburg, First Mortgage Economic Dev. (Asbury Methodist Home),
7.85%, 1/1/20 (Pre-refunded 1/1/00+)................................................. 2,000 2,357
</TABLE>
5
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
MARYLAND (cont'd)
Housing Opportunities Commission of Montgomery County, 7.50%, 7/1/17.................. $ 815 $ 873
Maryland Community Dev. Administration, 7.25%, 4/1/19................................. 2,500 2,686
6.80%, 4/1/24........................................................................ 6,385 6,595
Zero Coupon, 4/1/29 *................................................................ 25,695 1,722
Maryland HHEFA, Doctor's Community Hosp.,
8.75%, 7/1/22 (Pre-refunded 7/1/00+)............................................... 3,000 3,715
Pooled Loan Program, VRDN (Currently 2.50%).......................................... 700 700
Union Hosp. of Cecil County, 6.70%, 7/1/22........................................... 2,725 2,851
Univ. of Maryland Medical System, (FGIC Insured), 7.00%, 7/1/22...................... 1,625 1,989
Maryland IDA, Economic Dev., American Association of Blood Banks,
7.25%, 8/1/13...................................................................... 2,700 2,711
Associated Catholic Charities, 9.00%, 1/1/10......................................... 1,725 1,969
Maryland Ind. Dev. Fin. Auth., Economic Dev.,
Georgetown Bakery Management Corp. Fac., 9.25%, 9/1/04 *............................. 1,670 1,859
Maryland-National Capital Park & Planning Commission,
Little Bennett Golf Fac., 8.25%, 10/1/11............................................. 2,380 2,738
- -----------------------------------------------------------------------------------------------------------------------------------
MASSACHUSETTS -- 2.2%
Commonwealth of Massachusetts, GO, 7.50%, 6/1/04...................................... 2,750 3,282
Massachusetts Bay Transportation Auth., General Transportation System, GO,
7.00%, 3/1/21........................................................................ 2,000 2,344
Massachusetts HEFA, New England Deaconess Hosp., 7.20%, 4/1/22........................ 3,535 3,927
Massachusetts HFA, Capital Asset Pool, (MBIA Insured),
6.375%, 4/1/21...................................................................... 2,000 2,036
Massachusetts Ind. Fin. Agency, Nevins Home, 7.875%, 7/1/23........................... 5,515 5,498
New England Memorial Hosp., 8.875%, 7/1/13 (Pre-refunded 7/1/98+).................... 2,850 3,403
- -----------------------------------------------------------------------------------------------------------------------------------
MICHIGAN -- 3.4%
Economic Dev. Corp. of the Charter Township of Meridian,
Burcham Hills Retirement Center III, 9.625%, 7/1/19.................................. 2,865 3,243
Economic Dev. Corp. of the County of Midland, Midland Cogeneration Project,
9.50%, 7/23/09 *..................................................................... 6,000 6,755
Michigan State HDA, 7.75%, 12/1/19 *.................................................. 1,175 1,256
Michigan State Hosp. Fin. Auth., Bay Medical Center, 8.25%, 7/1/12.................... 2,000 2,253
Daughters of Charity Health Systems (St. Mary's Hosp.), 10.00%, 11/1/15.............. 1,490 1,654
Detroit Medical Center, 5.50%, 8/15/23............................................... 3,000 2,809
Pontiac Osteopathic Hosp., 6.00%, 2/1/24............................................. 4,000 3,834
Saratoga Community Hosp., 8.75%, 6/1/10.............................................. 2,900 3,174
Sisters of Mercy Health Corp., 7.50%, 2/15/18........................................ 1,650 1,938
Monroe County PCR, Detroit Edison, 10.125%, 9/1/05 *.................................. 920 1,021
Waterford Township Economic Dev., Canterbury Health Care, Inc.,
8.375%, 7/1/23....................................................................... 4,000 4,155
- -----------------------------------------------------------------------------------------------------------------------------------
MINNESOTA -- 0.2%
Minnesota Housing Fin. Agency, 9.00%, 8/1/18 *........................................ 1,000 1,075
Rochester Health Care Fac., Mayo Foundation/Mayo Medical Center,
VRDN (Currently 2.60%)............................................................... 800 800
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
MISSISSIPPI -- 2.3%
Adams County, Jefferson Davis Memorial Hosp., 8.00%, 10/1/16.......................... $ 3,805 $ 4,309
Claiborne County PCR, Systems Energy Resources, 9.50%, 12/1/13........................ 2,000 2,383
9.875%, 12/1/14...................................................................... 7,500 9,090
Mississippi Home Corp., (FGIC Insured), 9.25%, 3/1/12................................. 450 488
Mississippi Hosp. Equipment & Fac. Auth., Magnolia Hosp., 7.375%, 10/1/21............. 3,000 3,310
Rush Memorial Foundation, 8.75%, 1/1/16............................................... 2,000 2,356
Mississippi HFC, 10.50%, 12/1/04...................................................... 70 72
- -----------------------------------------------------------------------------------------------------------------------------------
MISSOURI -- 1.6%
Hannibal IDA, Hannibal Medical Center, 9.50%, 3/1/22.................................. 4,000 4,738
Joplin IDA, Tri-State Osteopathic Hosp. Assoc., 8.25%, 12/15/14....................... 2,500 2,842
Lees Summit IDA, John Knox Village, 7.125%, 8/15/12................................... 1,500 1,617
Missouri HEFA, Still Regional Medical Center, 7.70%, 2/1/13........................... 2,250 2,485
Ray County, Ray County Memorial Hosp., 9.625%, 11/15/13............................... 3,200 3,633
- -----------------------------------------------------------------------------------------------------------------------------------
MONTANA -- 1.7%
Montana Board of Housing, (FHA Insured), 9.20%, 10/1/01 *............................. 750 809
8.50%, 10/1/02....................................................................... 905 952
8.525%, 10/1/02...................................................................... 880 928
8.95%, 10/1/02 *..................................................................... 900 973
8.40%, 10/1/03 *..................................................................... 935 972
7.85%, 10/1/04....................................................................... 920 954
Montana Board of Investments, Yellowstone Energy Limited Partnership,
7.00%, 12/31/19 *.................................................................... 10,000 10,184
- -----------------------------------------------------------------------------------------------------------------------------------
NEBRASKA -- 1.6%
Hosp. Auth. No. 1 of Douglas County, Immanuel Medical Center,
(AMBAC Insured), 7.00%, 9/1/21....................................................... 5,500 6,176
Nebraska Higher Ed., Loan Program, 6.45%, 6/1/18 *.................................... 5,000 5,136
Nebraska Investment Fin. Auth., (GNMA Insured), RIB, 3/15/22
(Currently 12.372%) *................................................................ 1,000 1,139
RIB, 9/10/30 (Currently 12.657%) *................................................... 1,900 2,192
- -----------------------------------------------------------------------------------------------------------------------------------
NEVADA -- 0.8%
Clark County IDR, Southwest Gas Corp., 6.50%, 12/1/33 *............................... 3,000 3,014
Nevada Housing Division, Sub Lien, 9.375%, 10/1/00 *.................................. 820 885
9.35%, 10/1/02 *..................................................................... 670 692
9.65%, 10/1/02 *..................................................................... 855 944
5.85%, 10/1/15....................................................................... 1,575 1,563
(FGIC Insured), 9.45%, 10/1/03 *..................................................... 805 870
- -----------------------------------------------------------------------------------------------------------------------------------
NEW HAMPSHIRE -- 0.5%
New Hampshire HHEFA, Catholic Medical Center,
8.25%, 7/1/13........................................................................ 2,000 2,260
New Hampshire Housing Fin. Auth., 8.625%, 7/1/13 *.................................... 2,095 2,238
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
NEW JERSEY -- 1.3%
Atlantic City Utilities Auth., 7.125%, 3/1/16......................................... $ 4,575 $ 4,807
New Jersey Economic Dev. Auth., Holt Hauling & Warehouse System,
10.25%, 9/15/14...................................................................... 500 566
9.75%, 12/15/16 *.................................................................... 1,000 1,151
Keswick Pines Project, 8.75%, 1/1/24.................................................. 6,000 5,868
- -----------------------------------------------------------------------------------------------------------------------------------
NEW MEXICO -- 0.4%
Chaves County, Eastern New Mexico Medical Center,
8.625%, 12/1/19 (Pre-refunded 12/1/99+)............................................. 3,000 3,669
- -----------------------------------------------------------------------------------------------------------------------------------
NEW YORK -- 8.1%
Babylon IDA, Babylon Community Waste Management,
7.875%, 7/1/06 (Pre-refunded 7/1/99+).............................................. 1,000 1,175
Babylon Recycling Center, 8.875%, 3/1/11 *........................................... 1,950 1,657
Ogden Martin Systems, 8.50%, 1/1/19.................................................. 1,015 1,156
Dormitory Auth. of the State of New York, City Univ., 5.75%, 7/1/13................... 3,750 3,745
5.75%, 7/1/18...................................................................... 3,000 2,965
Dept. of Health of the State of New York, 5.50%, 7/1/20.............................. 4,000 3,772
State Univ., 5.40%, 5/15/23.......................................................... 5,000 4,614
Metropolitan Transportation Auth., 7.125%, 7/1/09..................................... 4,000 4,515
6.50%, 7/1/16........................................................................ 4,800 5,208
5.50%, 7/1/17........................................................................ 3,500 3,362
New York City, GO, 7.50%, 2/1/02...................................................... 1,000 1,123
5.75%, 8/15/10....................................................................... 2,045 1,984
7.625%, 2/1/15....................................................................... 3,000 3,438
7.75%, 8/15/15....................................................................... 2,500 2,885
7.00%, 2/1/18........................................................................ 8,000 8,807
RAN, 3.50%, 6/30/94.................................................................. 7,030 7,045
New York City Municipal Water Fin. Auth., Water and Sewer System,
5.50%, 6/15/19....................................................................... 3,905 3,760
New York State Mortgage Agency, Capital Appreciation Home Ownership,
Zero Coupon, 4/1/20.................................................................. 12,315 1,626
New York State Urban Dev. Corp., 5.25%, 1/1/21........................................ 5,900 5,342
Correctional Fac., Zero Coupon, 1/1/08............................................... 5,000 2,206
Syracuse IDA, Parking Fac., 7.70%, 6/1/15 (Pre-refunded 6/1/99+)...................... 1,000 1,163
Triborough Bridge and Tunnel Auth., 6.125%, 1/1/21.................................... 4,000 4,325
- -----------------------------------------------------------------------------------------------------------------------------------
NORTH CAROLINA -- 0.9%
North Carolina Eastern Municipal Power Agency, 6.00%, 1/1/22.......................... 4,750 4,830
North Carolina Medical Care Commission, Stanley Memorial Hosp.,
7.80%, 10/1/19..................................................................... 1,000 1,122
Valdese General Hosp., 8.75%, 10/1/16................................................ 2,140 2,331
- -----------------------------------------------------------------------------------------------------------------------------------
OHIO -- 4.1%
Cambridge, Guernsey Memorial Hosp., 8.00%, 12/1/11.................................... 1,500 1,712
Cleveland Parking Fac., 8.10%, 9/15/22................................................ 12,000 13,349
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
OHIO (cont'd)
Marion County Health Care Fac., United Church Homes,
8.875%, 12/1/12 (Pre-refunded 12/1/99+).............................................. $ 3,225 $ 4,001
Middleburg Heights, Southwest General Hosp., 7.20%, 8/15/19........................... 2,000 2,243
Ohio Air Quality Dev. Auth. PCR, Toledo Edison, 8.00%, 5/15/19 *...................... 2,000 2,181
5.95%, 5/15/29....................................................................... 3,000 2,897
Ohio Housing Fin. Agency, 11.375%, 8/1/10............................................. 165 172
RIB, 3/31/31 (Currently 11.139%) *................................................... 750 828
Ohio Water Dev. Auth. PCR, Cleveland Electric, 9.75%, 11/1/22 *....................... 2,000 2,334
Toledo Edison, 7.40%, 11/1/22 *...................................................... 6,000 6,339
7.55%, 6/1/23...................................................................... 2,500 2,661
- -----------------------------------------------------------------------------------------------------------------------------------
OKLAHOMA -- 2.6%
LeFlore County Hosp. Auth., Eastern Oklahoma Medical Center,
9.40%, 5/1/06........................................................................ 2,000 2,211
Oklahoma County IDA, Epworth Villa, 10.25%, 4/1/19.................................... 3,000 3,314
Oklahoma Dev. Fin. Auth., Solid Waste Disposal Fac.
(Midway Environmental Management), 9.50%, 9/1/99 *................................... 645 671
9.50%, 9/1/15 *.................................................................... 3,105 3,262
Trustees of the Tulsa Municipal Airport, American Airlines, 9.375%, 6/1/04............ 3,120 3,399
7.375%, 12/1/20 *.................................................................... 5,000 5,302
Washington County Medical Auth., Jane Phillips Episcopal-Memorial
Medical Center, 8.50%, 11/1/10....................................................... 5,200 5,859
- -----------------------------------------------------------------------------------------------------------------------------------
PENNSYLVANIA -- 4.8%
Allegheny County Hosp. Dev. Auth., Health and Ed. Rehabilitation
Institute of Pittsburgh, (MBIA Insured), 7.00%, 6/1/22.............................. 2,000 2,118
Beaver County IDA, Beaver Valley Power, 13.00%, 9/15/03............................... 480 478
Beaver County PCR, Toledo Edison, 12.25%, 9/15/15..................................... 1,000 1,125
Berks County IDA, Lutheran Home, 6.875%, 1/1/23....................................... 5,000 5,104
Blair County Hosp. Auth., Mercy Hosp., 8.125%, 2/1/14................................. 2,700 2,984
Butler County IDA, Herr-Voss, 8.60%, 11/1/99 *........................................ 720 758
Clarion IDA Health Fac., Beverly Enterprises, 10.125%, 5/1/07......................... 900 1,046
Delaware County Auth., Mercy Health Corp. of Southeastern Pennsylvania
Obligated Group, (ConnieLee Insured), 6.00%, 11/15/07............................... 4,000 3,963
Delaware County IDA, (United Parcel Service), GO, VRDN (Currently 2.30%).............. 800 800
Erie County IDA, Beverly Enterprises, 6.875%, 10/1/02................................. 550 557
Greene County IDA, Beverly Enterprises, 6.875%, 3/1/13................................ 2,430 2,452
Montgomery County Higher Ed. and Health Auth., Brittany Pointe,
8.50%, 1/1/22...................................................................... 2,500 2,714
Redeemer Long Term Care & Elder Services, 8.20%, 6/1/06.............................. 965 1,035
8.00%, 6/1/22...................................................................... 5,755 6,112
Pennsylvania Higher Ed. Fac. Auth., Medical College of Pennsylvania,
8.375%, 3/1/11....................................................................... 2,200 2,476
Pennsylvania Housing Fac. Auth., RIB, 10/1/23 (Currently 11.212%) *................... 1,500 1,654
Schuylkill County IDA, Schuylkill Energy Resources, Inc., 6.50%, 1/1/10 *............. 10,000 9,969
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
PUERTO RICO -- 1.8%
Puerto Rico Housing Bank and Fin. Agency, Loan Insurance Claims,
4.375%, 12/1/97...................................................................... $ 5,000 $ 4,971
Puerto Rico Ind., Med., Higher Ed. & Environmental Pollution Control Fac. Fin.
Auth, Catholic Univ. of Puerto Rico, 9.375%, 12/1/07
(Pre-refunded 12/1/97+)............................................................ 7,635 9,158
Puerto Rico Infrastructure Fin. Auth., 7.50%, 7/1/09.................................. 2,365 2,654
- -----------------------------------------------------------------------------------------------------------------------------------
RHODE ISLAND -- 0.8%
Rhode Island Health & Ed. Building Corp., Rhode Island Hosp., (FGIC Insured),
RIB, 8/15/21 (Currently 10.932%)..................................................... 1,000 1,189
Rhode Island Housing & Mortgage Fin. Corp., 8.05%, 4/1/22 *........................... 5,000 5,481
RIB, 4/1/24 (Currently 11.33%) *..................................................... 1,000 1,111
- -----------------------------------------------------------------------------------------------------------------------------------
SOUTH CAROLINA -- 0.8%
Piedmont Municipal Power Agency, (MBIA Insured), 5.375%, 1/1/25....................... 8,300 7,921
South Carolina Housing Auth., 9.375%, 7/1/16.......................................... 35 36
- ----------------------------------------------------------------------------------------------------------------------------------
SOUTH DAKOTA -- 0.5%
South Dakota Building Auth., 7.50%, 12/1/16........................................... 4,400 4,793
- ----------------------------------------------------------------------------------------------------------------------------------
TENNESSEE -- 1.6%
Health & Ed. Fac. Board of the Metropolitan Gov't. of Nashville and Davidson
County, Metropolitan Nashville Teachers' Nursing Fac., 10.25%, 10/1/19............... 2,250 2,002
Memphis Shelby County Airport Auth., Federal Express, 6.75%, 9/1/12................... 4,000 4,212
Tennessee Housing Dev. Agency, 10.625%, 7/1/04........................................ 90 93
5.90%, 7/1/18........................................................................ 1,000 994
7.625%, 7/1/22 *..................................................................... 1,900 2,028
5.95%, 7/1/28........................................................................ 6,000 5,930
- -----------------------------------------------------------------------------------------------------------------------------------
TEXAS -- 7.0%
Alliance Airport Auth., American Airlines, 7.00%, 12/1/11 *........................... 3,500 3,810
Bell County Health Fac. Dev. Corp., King's Daughter Hosp., 9.25%, 7/1/08.............. 3,575 4,222
Brazos River Auth., Houston Lighting & Power, 8.25%, 5/1/15........................... 2,000 2,250
Texas Utilities, 8.25%, 12/1/16 *.................................................... 1,000 1,115
9.875%, 10/1/17 *.................................................................. 2,130 2,521
Dallas-Fort Worth Int'l. Airport Fac. Improvement, American Airlines,
7.25%, 11/1/30 *..................................................................... 5,000 5,289
Gainesville IDC, GTE Valenite, 8.90%, 5/15/11 *....................................... 3,445 3,869
Gulf Coast Waste Disposal Auth., Houston Lighting & Power, 6/1/98,
Floating Rate (Currently 3.60%)...................................................... 5,000 4,862
Harris County Health Fac. Dev. Corp., Memorial Hosp., 7.125%, 6/1/15.................. 2,500 2,813
St. Luke's Episcopal Hosp., VRDN (Currently 2.30%)................................... 1,200 1,200
Texas Medical Center, (MBIA Insured), 7.375%, 5/15/20................................ 2,350 2,674
Matagorda County Navigation Dist. Number One PCR, Central Power & Light,
7.50%, 12/15/14...................................................................... 2,000 2,250
6.00%, 7/1/28........................................................................ 2,590 2,609
Paris Health Fac. Dev. Corp., McCuistion Regional Medical Center,
7.60%, 2/1/12........................................................................ 4,500 4,942
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
TEXAS (cont'd)
Texas State Veterans, GO, 6.00%, 12/1/12 *............................................ $ 3,650 $ 3,699
6.80%, 12/1/23 *................................................................... 4,000 4,084
Tomball Hosp. Auth., Tomball Regional Hosp., 6.125%, 7/1/23........................... 10,000 9,548
Weslaco Health Fac. Dev. Corp., Knapp Medical Center,
10.375%, 6/1/16 (Pre-refunded 6/1/98+)............................................... 3,500 4,325
- -----------------------------------------------------------------------------------------------------------------------------------
UTAH -- 2.2%
Davis County, Solid Waste Management & Energy Recovery Special Service
Dist., 6.125%, 6/15/09............................................................... 6,000 6,016
Utah Housing Fin. Agency, 8.55%, 7/1/04............................................... 540 564
8.65%, 7/1/04...................................................................... 885 920
7.50%, 7/1/05...................................................................... 1,000 989
7.60%, 7/1/05...................................................................... 1,040 1,056
7.75%, 7/1/05...................................................................... 1,040 1,050
Sub Lien, 10.50%, 1/1/99 *........................................................... 565 633
10.625%, 1/1/99 *.................................................................. 500 568
9.875%, 7/1/99 *................................................................... 365 400
9.30%, 7/1/00 *.................................................................... 340 368
8.70%, 7/1/01...................................................................... 645 680
9.25%, 7/1/01...................................................................... 715 775
9.60%, 7/1/02*..................................................................... 295 323
9.75%, 7/1/02...................................................................... 495 553
9.85%, 7/1/02 *.................................................................... 795 887
6.25%, 7/1/05...................................................................... 1,095 1,092
8.40%, 7/1/08 *.................................................................... 615 663
9.00%, 1/1/19 *.................................................................... 1,435 1,757
7.75%, 1/1/23 *.................................................................... 965 1,052
- -----------------------------------------------------------------------------------------------------------------------------------
VERMONT -- 0.2%
Vermont Ed. and Health Buildings Fin. Agency, Medical Center Hosp. of Vermont,
(FGIC Insured), RIB, 9/1/23 (Currently 7.45%)....................................... 1,400 1,536
Vermont Housing Fin. Agency, 8.70%, 12/1/06 *......................................... 310 315
- -----------------------------------------------------------------------------------------------------------------------------------
VIRGINIA -- 2.6%
Fairfax County IDA, Fairfax Hosp. System, VRDN (Currently 2.50%)...................... 3,900 3,900
Henrico County IDA, Bon Secours Health System (Maryview Hosp.),
7.50%, 9/1/11........................................................................ 1,885 2,207
Norfolk Port & Ind. Auth., Henson Aviation, 9.625%, 8/1/12 *.......................... 1,010 1,193
Peninsula Ports Auth., Dominion Terminal, 7.375%, 6/1/20.............................. 4,450 4,828
Virginia HDA, 7.10%, 1/1/22........................................................... 4,000 4,325
7.10%, 1/1/25...................................................................... 5,000 5,396
Zero Coupon, 7/1/29 *.............................................................. 37,865 2,541
- -----------------------------------------------------------------------------------------------------------------------------------
WASHINGTON -- 1.8%
Port Bellingham IDR, Alumax, 9.50%, 12/1/02........................................... 3,200 3,385
</TABLE>
11
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
--------------------------------
Face Amount Value
----------- ---------
<S> <C> <C>
WASHINGTON (cont'd)
Washington Public Power Supply System, Bonneville Power Administration,
VRDN (Currently 2.45%)............................................................... $ 1,000 $ 1,000
7.25%, 7/1/09...................................................................... 1,000 1,167
6.30%, 7/1/12...................................................................... 2,000 2,145
Zero Coupon, 7/1/17................................................................ 8,500 2,072
(MBIA Insured), 5.70%, 7/1/17...................................................... 7,500 7,423
- -----------------------------------------------------------------------------------------------------------------------------------
WEST VIRGINIA -- 0.5%
Berkeley County Building Commission, City Hosp., 6.50%, 11/1/22....................... 2,000 2,110
West Virginia Hosp. Fin. Auth., West Virginia Univ. Hosp., (MBIA Insured),
RIB, 1/1/18 (Currently 9.70%)........................................................ 2,000 2,152
- -----------------------------------------------------------------------------------------------------------------------------------
WISCONSIN -- 1.2%
Wisconsin HFA, Villa Clement, 8.75%, 6/1/12........................................... 1,500 1,544
Wisconsin Housing and Economic Dev. Auth., 7.75%, 9/1/17.............................. 4,460 4,937
8.00%, 3/1/21 *...................................................................... 4,480 4,781
- -----------------------------------------------------------------------------------------------------------------------------------
WYOMING -- 0.5%
Wyoming Community Dev. Auth., 6.00%, 6/1/23........................................... 5,000 4,931
===================================================================================================================================
TOTAL INVESTMENTS IN SECURITIES -- 96.2% (COST -- $846,626)........................... 905,270
===================================================================================================================================
Other Assets Less Liabilities -- 3.8%................................................. 36,025
-------
NET ASSETS CONSISTING OF:
Accumulated net investment income - net of distributions.............................. 40
Accumulated realized gains/losses - net of distributions.............................. 2,417
Unrealized appreciation of investments................................................ 58,644
Paid-in-capital applicable to 76,785,234 shares of $.01 par value capital
stock outstanding; 1,000,000,000 shares authorized.................................. 880,194
--------
NET ASSETS -- 100.0%.................................................................. $941,295
=======
NET ASSET VALUE PER SHARE............................................................. $12.26
=======
</TABLE>
* - Interest subject to alternative minimum tax
+ - Used in determining portfolio maturity
AMBAC - American Municipal Bond Assurance Corporation
COP - Certificates of Participation
FGIC - Financial Guaranty Insurance Company
FHA - Federal Housing Authority
GNMA - Government National Mortgage Association
GO - General Obligation
HDA - Housing Development Authority
HEFA - Health & Educational Facility Authority
HFA - Health Facility Authority
HFC - Housing Finance Corporation
HFFA - Health Facility Finance Authority
HHEFA - Health & Higher Educational Facility Authority
IDA - Industrial Development Authority
IDB - Industrial Development Board
IDC - Industrial Development Corporation
IDR - Industrial Development Revenue
MBIA - Municipal Bond Insurance Association
PFA - Public Finance Authority
PCR - Pollution Control Revenue
RAN - Revenue Anticipation Note
RIB - Residual Interest Bond
TAN - Tax Anticipation Note
VRDN - Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Operations / Year Ended February 28, 1994
<TABLE>
<CAPTION>
Amounts in Thousands
----------------------
<S> <C>
INVESTMENT INCOME
Interest income........................................... $62,005
Expenses
Investment management fees.............................. $ 5,954
Shareholder servicing fees & expenses................... 767
Custodian and accounting fees & expenses................ 269
Legal & auditing fees................................... 98
Registration fees & expenses............................ 95
Prospectus & shareholder reports........................ 63
Directors' fees & expenses.............................. 18
Miscellaneous........................................... 20
-------
Total expenses.......................................... 7,284
-------
Net investment income..................................... 54,721
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Securities.............................................. 18,060
Options................................................. (254)
Futures................................................. (422)
-------
Net realized gain....................................... 17,384
Change in unrealized appreciation or depreciation......... (6,992)
-------
Net gain on investments................................... 10,392
-------
INCREASE IN NET ASSETS FROM OPERATIONS.................... $65,113
=======
========================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Amounts in Thousands
----------------------------------------------
Year Ended Year Ended
Feb. 28, 1994 Feb. 28, 1993
--------------------- ---------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
Operations
Net investment income................................................... $ 54,721 $ 47,195
Net realized gain on investments........................................ 17,384 7,678
Change in unrealized appreciation or depreciation of investments........ (6,992) 41,828
--------- ---------
Increase in net assets from operations.................................. 65,113 96,701
--------- ---------
Distributions to shareholders
Net investment income................................................... (54,721) (47,195)
Net realized gain on investments........................................ (17,058) (6,040)
--------- ---------
Decrease in net assets from distributions to shareholders............... (71,779) (53,235)
--------- ---------
Capital share transactions
Sold 28,847 and 30,582 shares........................................... 358,379 363,328
Distributions reinvested of 4,275 and 3,300 shares...................... 53,067 39,238
Redeemed 25,510 and 18,253 shares....................................... (316,670) (216,724)
--------- ---------
Increase in net assets from capital share transactions.................. 94,776 185,842
--------- ---------
Total increase............................................................ 88,110 229,308
NET ASSETS
Beginning of year....................................................... 853,185 623,877
--------- ---------
End of year............................................................. $ 941,295 $ 853,185
========= =========
====================================================================================================================================
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Notes to Financial Statements / February 28, 1994
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Tax-Free High Yield Fund (the Fund) is registered under the
Investment Company Act of 1940 as a diversified, open-end management investment
company.
A) Security valuation - Debt securities are generally traded in the over-the-
counter market. Investments in securities with remaining maturities of one year
or more are stated at fair value as furnished by dealers who make markets in
such securities or by an independent pricing service, which considers yield or
price of bonds of comparable quality, coupon, maturity, and type, as well as
prices quoted by dealers who make markets in such securities. Securities with
remaining maturities 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. Financial futures contracts and options on
futures contracts are valued at closing settlement prices.
Assets and liabilities for which the above valuation procedures are
inappropriate or are deemed not to reflect fair value are stated at fair value
as determined in good faith by, or under the supervision of, the officers of the
Fund, as authorized by the Board of Directors.
B) Premiums and Discounts - Premiums on municipal securities are amortized for
both financial and tax reporting purposes. Discounts, other than original
issue, are not amortized for financial reporting purposes.
C) Other - Income and expenses are recorded on the accrual basis. Investment
transactions are accounted for on the trade date. Realized gains and losses are
reported on an identified cost basis. 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 which may differ
from generally accepted accounting principles. Payments ("variation margin")
made or received by the Fund, dependent on the daily fluctuations in the value
of the futures contracts, are recorded as unrealized gains or losses until the
contracts are closed.
D) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to paid-in-capital of
permanent differences between tax and financial reporting of net investment
income and net realized gains/losses. The cumulative effect of this change as
of February 28, 1993, increased Accumulated net investment income - net of
distributions by $40,000, increased Accumulated net realized gains/losses - net
of distributions by $20,000 and decreased Paid-in-capital by $60,000. The
results of operations, shareholder distributions and net assets were not
affected by this change.
NOTE 2 - PORTFOLIO TRANSACTIONS
Purchases and sales of portfolio securities, other than short-term securities,
aggregated $571,245,000 and $517,573,000, respectively, for the year ended
February 28, 1994.
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
income.
At February 28, 1994, the aggregate cost of investments for federal income
tax and financial reporting purposes was $846,626,000 and net unrealized
appreciation aggregated $58,644,000, of which $63,624,000 related to appreciated
investments and $4,980,000 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,
computed daily and paid monthly, consisting of an Individual Fund Fee equal to
0.30% of average
15
<PAGE>
Notes to Financial Statements (cont'd)
daily net assets and a Group Fee. The Group Fee is based on the combined assets
of certain mutual funds sponsored by the Manager or Rowe Price-Fleming
International, Inc. (the Group). The Group Fee rate ranges from 0.48% for the
first $1 billion of assets to 0.31% for assets in excess of $34 billion. The
effective annual Group Fee rate at February 28, 1994, was 0.34%, and for the
year then ended was 0.35%. The Fund pays a pro rata portion of the Group Fee
based on the ratio of the Fund's net assets to those of the Group.
T. Rowe Price Services, Inc. (TRPS) is a wholly owned subsidiary of the
Manager. TRPS provides transfer and dividend disbursing agent functions and
shareholder services for all accounts. The Manager, under a separate agreement,
calculates the daily share price and maintains the financial records of the
Fund. For the year ended February 28, 1994, the Fund incurred fees totalling
approximately $684,000 for these services provided by related parties. At
February 28, 1994, investment management and service fees payable were
$534,000.
16
<PAGE>
T. Rowe Price Tax-Free High Yield Fund
Financial Highlights
<TABLE>
<CAPTION>
For a share outstanding throughout each year ended
-------------------------------------------------------------------------------
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR................ $ 12.33 $ 11.65 $ 11.40 $ 11.39 $ 11.25
--------- --------- --------- --------- ---------
Investment Activities
Net investment income........................... 0.74 0.78 0.81 0.83 0.84
Net realized and unrealized gain................ 0.16 0.78 0.35 0.04 0.20
--------- --------- --------- --------- ---------
Total from Investment Activities.................. 0.90 1.56 1.16 0.87 1.04
--------- --------- --------- --------- ---------
Distributions
Net investment income........................... (0.74) (0.78) (0.81) (0.83) (0.84)
Net realized gain............................... (0.23) (0.10) (0.10) (0.03) (0.06)
--------- --------- --------- --------- ---------
Total Distributions............................... (0.97) (0.88) (0.91) (0.86) (0.90)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR...................... $ 12.26 $ 12.33 $ 11.65 $ 11.40 $ 11.39
========= ========= ========= ========= =========
===================================================================================================================================
RATIOS/SUPPLEMENTAL DATA
Total Return...................................... 7.49% 13.94% 10.56% 7.93% 9.54%
Ratio of Expenses to Average Net Assets........... 0.79% 0.81% 0.83% 0.85% 0.88%
Ratio of Net Investment Income
to Average Net Assets........................... 5.95% 6.58% 7.01% 7.30% 7.38%
Portfolio Turnover Rate........................... 59.3% 34.7% 51.0% 51.2% 72.4%
Net Assets, End of Year (in thousands)............ $941,295 $853,185 $623,877 $505,025 $443,372
Number of Shareholder Accounts,
End of Year..................................... 26,000 23,000 20,000 17,000 17,000
===================================================================================================================================
</TABLE>
17
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors of
T. Rowe Price Tax-Free High Yield Fund
We have audited the accompanying statement of net assets of T. Rowe Price
Tax-Free High Yield Fund as of February 28, 1994, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the five years in the period then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
February 28, 1994, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of T.
Rowe Price Tax-Free High Yield Fund as of February 28, 1994, the results of its
operations, changes in its net assets and financial highlights for each of the
respective periods stated in the first paragraph in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND
Baltimore, Maryland
March 17, 1994
18
<PAGE>
Officers and Directors
George J. Collins, Chairman
William T. Reynolds, President/Director
C. Stephen Wolfe II, Executive Vice President
Calvin W. Burnett, Director
Anthony W. Deering, Director
F. Pierce Linaweaver, Director
James S. Riepe, Vice President/Director
John Sagan, Director
John G. Schreiber, Director
Janet G. Albright, Vice President
Patrice L. Berchtenbreiter, Vice President
Michael P. Buckley, Vice President
Patricia S. Deford, Vice President
Charles B. Hill, Vice President
Charles O. Holland, Vice President
Henry H. Hopkins, Vice President
Mary J. Miller, Vice President
Allen P. Richman, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
T. Rowe Price No-Load Mutual Funds
STABILITY CONSERVATIVE GROWTH
Prime Reserve Balanced
Summit Cash Reserves Capital Appreciation
U.S. Treasury Money Dividend Growth
California Tax-Free Money Equity Income
New York Tax-Free Money Growth & Income
Summit Municipal Spectrum Growth
Money Market
Tax-Exempt Money GROWTH
Blue Chip Growth
CONSERVATIVE INCOME European Stock
Adjustable Rate Growth Stock
U.S. Government International Stock
Short-Term Bond Japan
Short-Term Global Income Mid-Cap Growth
Summit Limited-Term Bond New Era
U.S. Treasury Intermediate Small-Cap Value
Florida Insured
Intermediate Tax-Free AGGRESSIVE GROWTH
Maryland Short-Term International Discovery
Tax-Free Bond Latin America
Summit Municipal New America Growth
Intermediate New Asia
Tax-Free Insured Intermediate Bond New Horizons
Tax-Free Short-Intermediate
OTC
INCOME Science & Technology
Global Government Bond
GNMA
New Income
Spectrum Income
Summit GNMA
U.S. Treasury Long-Term
California Tax-Free Bond
Georgia Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Tax-Free Income
Virginia Tax-Free Bond
AGGRESSIVE INCOME
High Yield
International Bond
Tax-Free High Yield
Call if you want to know about any T. Rowe Price fund. We'll send you a
prospectus with more complete information, including management fees and other
expenses. Read it carefully before you invest or send money.
19
<PAGE>
Shareholder Services
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety of
information and services--at no extra cost.
TELEPHONE SERVICES
ACCESS YOUR ACCOUNT 24 HOURS A DAY BY CALLING 1-800-638-2587.
Tele*Access(R)--Gives you your account balance, date and amount of your
last transaction, latest dividend payment, and fund prices and yields. Also,
lets you purchase, exchange, or redeem shares.
SHAREHOLDER SERVICE REPRESENTATIVES ARE AVAILABLE FROM 8:30 A.M. TO 10:00 P.M.,
MONDAY-FRIDAY, AND SATURDAY FROM 9:00 A.M. TO 5:00 P.M., E.T. CALL
1-800-225-5132.
Shareholder Service Center--Call to exchange shares or move money between
your bank and fund accounts.
ACCOUNT SERVICES
Checking--Write checks for $500 or more on any money market and most bond
fund accounts.
Automatic Investing--Build your account over time by investing directly
from your bank account or paycheck. A low, $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.
INVESTMENT INFORMATION
Combined Statement--A comprehensive overview of your T. Rowe Price
accounts. The summary page gives your earnings by tax category, provides total
portfolio value, and lists your investments by type--stock, bond, and money
market. Detail pages itemize account transactions by fund.
Quarterly Shareholder Reports--Portfolio managers review the performance of
the funds in plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report--A quarterly newsletter with relevant articles on
market trends, personal financial planning, and T. Rowe Price's economic
perspective.
Insights--A library of information that includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides--Our widely acclaimed Asset Mix Worksheet,
College Planning Kit, Retirees Financial Guide, and Retirement Planning Kit
(also available on disk for PC use) and Guide to Risk-Adjusted Performance can
help you determine and reach your investment goals.
DISCOUNT BROKERAGE
Trade stocks, bonds, options, and precious metals at substantial savings over
full-cost brokers.
Tele*Trade--Call this automated phone service after business hours to
place your orders.
Fax*Trade--Buy and sell by simply faxing your order.
Tele*Quote--Provides 24-hour access to stock and option quotes.
Money Fund Sweep Feature--Buy and sell securities and have your "sweep"
account automatically debited or credited. Dividend and interest payments are
credited daily.
If you have questions or would like to add a service to your account, please
call
20
