Annual Report - Financial Statements
T. Rowe Price
Tax-Free High Yield Fund
February 28, 1997
Portfolio Highlights
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/96 2/28/97
______________________________________________________________
___
Hospital Revenue 20% 20%
Housing Finance Revenue 13 12
Industrial and Pollution
Control Revenue 11 12
Nuclear Revenue 10 10
Life Care/Nursing Home Revenue 7 8
Prerefunded Bonds 5 7
General Obligation - Local 6 6
Ground Transportation Revenue 7 4
Lease Revenue 4 4
Solid Waste Revenue 3 3
Dedicated Tax Revenue 3 3
General Obligation - State 3 3
Electric Revenue 2 2
Water and Sewer Revenue 1 2
Miscellaneous Revenue 2 2
All Others 3 1
Other Assets Less Liabilities - 1
______________________________________________________________
Total 100% 100%
T. Rowe Price Tax-Free High Yield Fund
For a share outstanding throughout each period
Financial Highlights
Year
Ended
2/28/97 2/29/96 2/28/95 2/28/94 2/28/93
NET ASSET VALUE
Beginning of
period $12.10 $ 11.62 $ 12.26 $12.33 $ 11.65
Investment activities
Net investment
income 0.70 0.72 0.73 0.74 0.78
Net realized and
unrealized gain
(loss) 0.02 0.48 (0.60) 0.16
0.78
Total from
investment
activities 0.72 1.20 0.13 0.90 1.56
Distributions
Net investment
income (0.70) (0.72) (0.73) (0.74) (0.78)
Net realized
gain - - (0.04) (0.23) (0.10)
Total
distributions (0.70) (0.72) (0.77) (0.97) (0.88)
NET ASSET VALUE
End of period $12.12 $ 12.10 $ 11.62 $12.26 $ 12.33
Ratios/Supplemental Data
Total return 6.22% 10.62% 1.26% 7.49% 13.94%
Ratio of expenses to
average net assets 0.74% 0.75% 0.79% 0.79% 0.81%
Ratio of net investment
income to average
net assets 5.86% 6.07% 6.29% 5.95% 6.58%
Portfolio turnover
rate 37.0% 39.3% 59.6% 59.3% 34.7%
Net assets, end
of period
(in
thousands) $1,053,106$989,534 $873,546 $941,295$853,185
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Tax-Free High Yield Fund
February 28, 1997
Statement of Net Assets
Par Value
In thousands
ALABAMA 4.1%
Alabama Special Care Fac.,
Daughters of Charity, St. Vincents
5.00%, 11/1/25 $ 5,000 $ 4,489
Alexander Special Care Fac.
Fin. Auth., Russell Hosp. Corp.
6.00%, 12/1/22 3,250 3,132
Baldwin County
Eastern Shore Health
Care Auth., Thomas Hosp.
6.75%, 4/1/21 1,900 1,961
8.50%, 4/1/16
(Prerefunded 4/1/01!) 4,000 4,650
Courtland IDB, Solid Waste Disposal,
Champion Int'l.
5.90%, 2/1/17 8,000 7,934
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
7.00%, 10/1/13 2,100 2,198
10.25%, 10/1/13 (Crossover
Refunded) 6,615 7,301
Mobile
Capital Improvement Warrants, GO
Zero Coupon, 2/15/18
(MBIA Insured) 1,030 273
Zero Coupon, 8/15/18
(MBIA Insured) 4,550 1,163
Zero Coupon, 2/15/19
(MBIA Insured) 905 223
Zero Coupon, 8/15/19
(MBIA Insured) 4,675 1,113
Zero Coupon, 2/15/20
(MBIA Insured) 770 177
Zero Coupon, 8/15/20
(MBIA Insured) 4,810 1,068
Mobile Airport Auth., 8.875%,
10/1/15 * 2,000 2,218
Mobile IDB, Mobile Energy Services,
6.95%, 1/1/20 1,400 1,485
Shelby County, GO
7.40%, 8/1/07 2,000 2,233
7.70%, 8/1/17 1,000 1,119
Total Alabama (Cost $38,702) 42,737
ALASKA 0.9%
Alaska Housing Fin. Corp.,
5.875%, 12/1/24 (MBIA Insured) 5,000 4,969
Valdez Marine Terminal,
BP Pipeline Inc., 5.50%, 10/1/28 5,000 4,700
Total Alaska (Cost $9,536) 9,669
ARIZONA 0.5%
Maricopa County, PCR,
Public Service Co. of New Mexico
6.30%, 12/1/26 $ 1,500 $ 1,514
Scottsdale IDA
Westminster Village
10.00%, 6/1/07
(Prerefunded 6/1/97!) 1,175 1,229
10.00%, 6/1/17
(Prerefunded 6/1/97!) 750 784
Tempe IDA, Friendship Village of Tempe,
6.75%, 12/1/13 1,950 1,968
Total Arizona (Cost $5,251) 5,495
ARKANSAS 0.3%
Independence County, PCR,
Mississippi Power and Light
7.625%, 7/1/12 3,000 3,146
Total Arkansas (Cost $3,000) 3,146
CALIFORNIA 4.6%
California HFFA, Daughters of
Charity Health Systems
(St. Francis Medical Center)
5.75%, 10/1/23
(Escrowed to Maturity) 6,515 6,685
Foothill / Eastern Transportation
Corridor Agency
California Toll Road
Zero Coupon, 1/1/15 2,500 831
Zero Coupon, 1/1/17 12,265 3,555
Zero Coupon, 1/1/19 10,000 2,542
Zero Coupon, 1/1/25 8,000 1,381
Zero Coupon, 1/1/26 17,500 2,836
Zero Coupon, 1/1/28 10,000 1,425
Zero Coupon, 1/1/30 25,000 3,108
5.00%, 1/1/35 4,000 3,404
Fresno Joint Powers Fin. Auth.,
6.55%, 9/2/12 3,000 3,129
Inglewood Redev. Agency,
Century Redev., 6.125%, 7/1/23 3,440 3,433
Los Angeles County
Marina del Rey, COP, 6.50%, 7/1/08 3,250 3,380
Public Works Fin. Auth.
5.50%, 10/1/18 (FSA Insured) 2,750 2,715
Oakland, COP, VRDN (Currently 3.65%) 2,815 2,815
San Jose Redev. Agency, Tax Allocation
5.25%, 8/1/16 (MBIA Insured) $ 4,000 $ 3,777
Southern California Public
Power Auth., 6.00%, 7/1/12 3,800 3,927
Total California (Cost $45,159) 48,943
COLORADO 4.0%
Arapahoe County Public Highway Auth.
Capital Improvement Trust Fund
Zero Coupon, 8/31/09 10,000 4,740
Zero Coupon, 8/31/15 10,000 2,931
Zero Coupon, 8/31/26 39,000 4,864
7.00%, 8/31/26 5,000 5,512
Boulder County, Longmont United Hosp.
8.20%, 12/1/20
(Prerefunded 12/1/00!) 1,540 1,753
Boulder County, IDR
Boulder Medical Center
8.625%, 1/1/07 * 820 842
8.75%, 1/1/12 * 1,205 1,239
8.875%, 1/1/17 * 1,190 1,223
Colorado Housing Fin. Auth.
8.65%, 8/1/03 740 772
8.70%, 11/1/04 * 1,340 1,400
9.00%, 8/1/03 715 742
9.40%, 8/1/03 * 570 594
9.60%, 8/1/01 * 420 441
Denver City and County,
Airport System, United Airlines
6.875%, 10/1/32 * 11,000 11,532
El Paso County, School Dist. No. 20,
GO, 6.35%, 12/15/06 3,000 3,315
Total Colorado (Cost $38,027) 41,900
DELAWARE 1.1%
Delaware Economic Dev. Auth.
Delmarva Power and Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,778
Delaware Economic Dev. Auth.
Peninsula United Methodist Homes,
8.50%, 5/1/22 $ 2,500 $ 2,680
Delaware HFA, Beebe Medical Center,
6.75%, 6/1/14 3,975 4,109
Wilmington Osteopathic Hosp.
Assoc. of Delaware
Riverside Hosp., 10.20%, 10/1/18
(Prerefunded 10/1/98!) 2,000 2,222
Total Delaware (Cost $10,856) 11,789
DISTRICT OF COLUMBIA 0.8%
Dist. of Columbia
American Geophysical Union,
5.875%, 9/1/23 1,750 1,586
American Univ.,
VRDN (Currently 3.35%) 620 620
Medlantic Health Care Group
5.75%, 8/15/26 (MBIA Insured) 6,000 5,891
Total District of Columbia
(Cost $8,059) 8,097
FLORIDA 2.9%
Brevard County Tourist Dev.,
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 1,520 1,613
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 4,505 4,944
Broward Waste Energy, L.P. South
7.95%, 12/1/08 4,575 5,015
Charlotte County, IDR,
Beverly Enterprises,
10.00%, 6/1/11 910 1,038
Collier County IDA,
Beverly Enterprises, 10.75%,
3/1/03 1,905 2,144
Dade County, Zero Coupon,
2/1/12 (MBIA Insured) 14,715 6,567
Escambia County, IDR,
Beverly Enterprises, 9.80%, 6/1/11 465 519
Hernando County, IDR,
Beverly Enterprises, 10.00%,
9/1/11 870 999
Jacksonville, IDR,
Beverly Enterprises, 9.75%,
10/1/11 900 989
Leon County, IDR,
Beverly Enterprises, 9.80%, 6/1/11 455 503
Manatee County Housing Fin. Auth.,
Capital Appreciation
Zero Coupon, 10/1/15 4,820 701
Orange County IDA,
Beverly Enterprises, 9.25%, 8/1/10 445 498
Santa Rosa County HFA,
Gulf Breeze Hosp., 8.60%, 10/1/02 890 946
St. John's County IDA,
Vicar's Landing, 6.75%, 2/15/12 $ 4,000 $ 4,001
Total Florida (Cost $28,526) 30,477
GEORGIA 1.6%
Coweta County Residential Care Fac.
for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 3,145 3,181
Georgia Municipal Electric Auth.,
6.25%, 1/1/17 4,000 4,274
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16 * 4,445 4,595
7.50%, 1/1/26 * 4,400 4,563
Total Georgia (Cost $16,357) 16,613
HAWAII 0.6%
Hawaii Dept. of Budget and Fin.
Kapi'olani Health Obligated Group
6.20%, 7/1/16 2,000 2,054
6.25%, 7/1/21 4,000 4,114
Total Hawaii (Cost $6,051) 6,168
IDAHO 1.2%
Idaho HFA
Single Family
6.30%, 1/1/24 * 5,000 5,102
7.80%, 1/1/23 * 1,845 1,940
St. Lukes Regional Med. Center
VRDN (Currently 3.45%) 2,700 2,700
Idaho Student Loan Marketing Assoc.,
6.70%, 10/1/07 * 2,500 2,580
Total Idaho (Cost $12,040) 12,322
ILLINOIS 7.3%
Aurora, Dreyer Medical Clinic,
8.75%, 7/1/14 4,385 4,994
Chicago, GO
6.25%, 1/1/15 (AMBAC Insured) $ 3,500 $ 3,808
5.125%, 1/1/16 (FGIC Insured) 7,685 7,203
Chicago-O'Hare Int'l. Airport
American Airlines, 7.875%,
11/1/25 * 2,500 2,714
Special Fac.,
United Airlines, Inc., 8.20%,
5/1/18 2,000 2,164
Illinois HFA
Community Hosp. of Ottawa,
6.85%, 8/15/24 3,775 3,931
Covenant Retirement Community,
7.60%, 12/1/12 2,665 2,872
Glen Oak Medical Center
7.00%, 11/15/19 3,300 3,456
9.50%, 11/15/15 2,100 2,383
Hinsdale Hosp.
7.00%, 11/15/19 5,100 5,342
9.00%, 11/15/15 4,675 5,227
Holy Cross Hosp., 6.75%, 3/1/24 4,000 4,132
Memorial Hosp., 7.25%, 5/1/22 9,500 10,005
Riverside Medical Center,
5.75%, 11/15/20 2,620 2,518
Metropolitan Pier and Exposition Auth.
McCormick Place
Zero Coupon, 12/15/13
(MBIA Insured) 4,000 1,546
Zero Coupon, 6/15/23
(MBIA Insured) 9,300 2,004
Robbins Resource Recovery, 8.375%,
10/15/16 * 10,000 10,448
Southwestern Illinois Dev. Auth.,
Anderson Hosp.
7.00%, 8/15/22 2,500 2,601
Total Illinois (Cost $73,840) 77,348
INDIANA 1.8%
Hammond, Sewage and Solid
Waste Disposal, American Maize
Products, 8.00%, 12/1/24 * 4,000 4,473
Indiana HFFA,
Clarion Health Partners, Inc.,
5.50%, 2/15/16 2,800 2,698
Indianapolis Airport Auth.,
Federal Express Corp.
7.10%, 1/15/17 * 11,000 11,875
Total Indiana (Cost $18,201) 19,046
KENTUCKY 2.6%
Florence Housing Fac.,
Bluegrass RHF Housing, 9.50%, 7/1/17
(Mandatory Tender 7/1/97!) $ 1,870 $ 1,885
Jefferson County,
Louisville Gas and Electric,
7.45%, 6/15/15 4,250 4,651
Jefferson County HFA,
Beverly Enterprises, 9.75%, 8/1/07 830 909
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22 * 6,000 5,877
7.50%, 2/1/12 * 3,600 3,893
7.50%, 2/1/20 * 5,250 5,675
Kentucky Economic Dev. Fin. Auth.,
St. Claire Medical Center
7.125%, 9/1/21
(Prerefunded 9/1/01!) 3,600 4,015
Total Kentucky (Cost $24,656) 26,905
LOUISIANA 3.8%
Lake Charles Harbor and Terminal Dist.
Panhandle Eastern Corp.,
7.75%, 8/15/22 5,000 5,679
Louisiana Offshore Terminal Auth.,
LOOP, 7.60%, 9/1/10 8,500 9,279
Louisiana PFA
IDR, Beverly Enterprises,
8.25%, 9/1/08 1,335 1,465
St. James Place of Baton Rouge,
10.00%, 11/1/21 4,500 5,008
Willis Knighton Medical Center, VRDN
(Currently 3.25%)
(AMBAC Insured) 4,300 4,300
Plaquemines Parish IDB, PCR,
AMAX Inc., 7.25%, 10/1/09 1,280 1,281
Saint Charles Parish,
Louisiana Power and Light
8.00%, 12/1/14 8,000 8,765
West Feliciana Parish, PCR,
Gulf States Utilities
8.00%, 12/1/24 4,000 4,263
Total Louisiana (Cost $37,397) 40,040
MAINE 0.9%
Maine HHEFA, Waterville Osteopathic Hosp.
9.875%, 7/1/13
(Prerefunded 7/1/97!) 4,185 4,397
Maine Housing Auth.,
Mortgage Purchase, 6.45%, 11/15/26
(AMBAC Insured) * 5,000 5,136
Total Maine (Cost $9,259) 9,533
MARYLAND 3.2%
Baltimore County, Stella Maris,
7.50%, 3/1/21 $ 1,000 $ 1,065
Berlin, Atlantic General Hosp.,
8.375%, 6/1/22 1,935 2,004
Gaithersburg Economic Auth.,
Asbury Methodist Home
7.85%, 1/1/20
(Prerefunded 1/1/00!) 2,000 2,221
Maryland CDA
Single Family
Zero Coupon, 4/1/29 * 25,695 2,041
5.95%, 7/1/23 5,000 5,025
7.25%, 4/1/19 2,500 2,630
Maryland Energy Fin. Administration,
Solid Waste Disposal
Hagerstown Fiber Ltd. Partnership,
9.00%, 10/15/16 * 250 90
Maryland HHEFA
Doctor's Community Hosp.,
5.50%, 7/1/24 3,000 2,718
Union Hosp. of Cecil County,
6.70%, 7/1/22 2,725 2,811
Maryland Ind. Dev. Fin. Auth.
Associated Catholic Charities,
9.00%, 1/1/10 1,425 1,552
Economic Dev., American Association of
Blood Banks Fac., 7.25%, 8/1/13 2,700 2,809
Georgetown Bakery Management Corp. Fac.
9.25%, 9/1/04 * 1,365 1,462
Maryland-National Capital Park
and Planning Commission
Little Bennett Golf Fac.,
8.25%, 10/1/11 2,195 2,392
Montgomery County Housing
Opportunities Commission
Multifamily, Strathmore Court
at White Flint
8.75%, 7/1/27 2,000 2,100
Single Family
6.10%, 7/1/27 1,975 2,001
7.50%, 7/1/17 685 722
Total Maryland (Cost $31,833) 33,643
MASSACHUSETTS 2.2%
Massachusetts, GO, 7.50%, 6/1/04 2,750 3,205
Massachusetts Bay Transportation Auth.
General Transportation, GO
7.00%, 3/1/19 2,500 2,965
7.00%, 3/1/21 2,000 2,379
Massachusetts HEFA
Melrose Wakefield Health Care,
6.00%, 7/1/12 $ 1,650 $ 1,662
New England Deaconess Hosp.,
7.20%, 4/1/22 3,535 3,817
Massachusetts Housing Fin. Agency
Housing Project, 6.375%, 4/1/21
(AMBAC Insured) 1,950 2,006
Single Family, 6.35%, 6/1/17 1,750 1,815
Massachusetts Ind. Fin. Agency,
Nevins Home, 7.875%, 7/1/23 5,400 5,600
Total Massachusetts (Cost $21,789) 23,449
MICHIGAN 2.7%
Dickinson County, Economic Dev.,
Champion Int'l.
5.85%, 10/1/18 4,000 3,966
Meridian Economic Dev. Corp.,
Burcham Hills Retirement
Center III, 9.625%, 7/1/19
(Prerefunded 7/1/97!) 2,790 2,928
Michigan, Dow Chemical, VRDN
(Currently 3.50%) 1,500 1,500
Michigan HDA
6.20%, 6/1/27 * 5,000 5,064
6.50%, 12/1/17 3,520 3,659
7.75%, 12/1/19 * 515 519
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 2,000 2,258
Pontiac Osteopathic Hosp.,
6.00%, 2/1/24 3,150 3,035
Saratoga Community Hosp.,
8.75%, 6/1/10 3,900 4,373
Univ. of Michigan Hosp., VRDN
(Currently 3.50%) 1,400 1,400
Total Michigan (Cost $26,533) 28,702
MINNESOTA 0.3%
Minnesota Housing Fin. Agency
Single Family
6.70%, 1/1/18 1,960 2,062
9.00%, 8/1/18 * 1,000 1,030
Total Minnesota (Cost $2,982) 3,092
MISSISSIPPI 1.9%
Adams County, Jefferson
Davis Memorial Hosp.
8.00%, 10/1/16
(Prerefunded 10/1/01!) 3,805 4,400
Claiborne County, PCR
Systems Energy Resources
7.30%, 5/1/25 $ 1,100 $ 1,152
9.50%, 12/1/13 2,000 2,196
9.875%, 12/1/14 7,800 8,595
Mississippi Home Corp., Single Family
9.25%, 3/1/12 (FGIC Insured) 235 252
Mississippi Hosp. Equipment and
Fac. Auth., Magnolia Hosp.
7.375%, 10/1/21 3,000 3,052
Total Mississippi (Cost $18,489) 19,647
MISSOURI 1.6%
Hannibal IDA, Hannibal Medical Center,
9.50%, 3/1/22
(Prerefunded 9/1/01!) 4,000 4,967
Joplin IDA, Tri-State Osteopathic
Hosp. Assoc.
8.25%, 12/15/14 1,155 1,249
Lees Summit IDA, John Knox Village,
7.125%, 8/15/12 1,500 1,590
Missouri HEFA
Bethesda Health Group, 7.50%,
8/15/12 1,250 1,334
Still Regional Medical Center,
7.70%, 2/1/13 4,250 4,584
Ray County, Ray County Memorial
Hosp., 9.625%, 11/15/13 3,200 3,442
Total Missouri (Cost $15,266) 17,166
MONTANA 0.3%
Montana Board of Housing
Subordinate Lien
8.40%, 10/1/03 * 670 695
8.50%, 10/1/02 555 579
8.95%, 10/1/02 * 590 614
9.20%, 10/1/01 * 385 398
7.85%, 10/1/04
(FHA Guaranteed) 715 753
8.525%, 10/1/02
(FHA Guaranteed) 525 545
Total Montana (Cost $3,440) 3,584
NEBRASKA 1.8%
Douglas County Hosp. Auth.,
Immanuel Medical Center
7.00%, 9/1/21 (AMBAC Insured) $ 5,500 $ 6,098
Nebraska Investment Fin. Auth.
Single Family
6.45%, 3/1/28 (GNMA
Guaranteed) * 5,000 5,139
Residual Interest Bond/Inverse Floater
(Currently 11.328%), 3/15/22
(GNMA Guaranteed) * 665 731
Residual Interest Bond/Inverse Floater
(Currently 11.591%), 9/10/30
(GNMA Guaranteed) * 1,400 1,557
Nebraska Public Power Dist.,
Electric, 5.25%, 1/1/22
(MBIA Insured) 6,000 5,689
Total Nebraska (Cost $18,040) 19,214
NEVADA 1.0%
Clark County, IDR
Southwest Gas
7.30%, 9/1/27 3,000 3,232
7.50%, 9/1/32 * 5,000 5,397
Nevada Housing Division
Sub Lien
9.35%, 10/1/02 365 376
9.375%, 10/1/00 * 280 290
9.65%, 10/1/02 * 560 590
9.45%, 10/1/03
(FGIC Insured) * 630 658
Total Nevada (Cost $9,831) 10,543
NEW HAMPSHIRE 0.5%
New Hampshire HHEFA,
Catholic Medical Center
8.25%, 7/1/13 3,000 3,206
New Hampshire Housing Fin. Auth.,
8.625%, 7/1/13 * 1,795 1,858
Total New Hampshire (Cost $4,894) 5,064
NEW JERSEY 1.7%
New Jersey Economic Dev. Auth.
Holt Hauling and Warehouse System
9.75%, 12/15/16 * $ 1,000 $ 1,038
10.25%, 9/15/14 500 521
Keswick Pines, 8.75%, 1/1/24 6,000 6,348
New Jersey HFFA,
Raritan Bay Medical Center,
7.25%, 7/1/27 3,690 3,848
New Jersey Sports and
Exposition Auth., Monmouth Park
8.00%, 1/1/25 5,250 5,793
Total New Jersey (Cost $16,067) 17,548
NEW MEXICO 0.6%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 2,400 2,430
Public Service Co. of New Mexico
San Juan Project, 6.375%,
4/1/22 4,300 4,363
Total New Mexico (Cost $6,700) 6,793
NEW YORK 11.2%
Dormitory Auth. of the State of
New York City Univ.
5.625%, 7/1/16 3,100 3,044
6.00%, 7/1/14 2,730 2,804
State Univ. Ed. Fac.
5.25%, 5/15/13 5,000 4,754
5.25%, 5/15/19 5,000 4,641
5.40%, 5/15/23 5,000 4,587
5.875%, 5/15/17 3,000 3,030
Metropolitan Transportation Auth.
Service Contract
5.50%, 7/1/17 4,000 3,858
7.125%, 7/1/09 4,000 4,372
New York City
GO, 5.875%, 8/15/13 $ 2,000 $ 1,952
GO, 5.75%, 2/1/14 8,140 7,900
GO, 5.875%, 3/15/13 2,750 2,715
GO, 5.875%, 2/1/16 5,000 4,852
GO, 5.875%, 8/15/16 2,435 2,362
GO, 6.00%, 8/1/06 2,000 2,077
GO, 6.00%, 2/15/16 6,000 5,887
GO, 6.20%, 8/1/07 5,000 5,227
GO, 6.25%, 8/1/09 7,000 7,272
GO, 7.625%, 2/1/15 1,035 1,148
GO, 7.625%, 2/1/15
(Prerefunded 1/2/02!) 1,965 2,258
GO, 7.75%, 8/15/15
(Prerefunded 8/15/01!) 2,345 2,689
New York City Housing Dev. Corp.,
Multi-Family Housing
5.50%, 11/1/09 3,600 3,574
New York City IDA,
Solid Waste Disposal, Visy Paper
7.95%, 1/1/28 * 2,000 2,156
New York City Municipal Water Fin.
Auth., Water and Sewer
5.50%, 6/15/23 5,000 4,760
New York State Energy Research
and Dev. Auth.
Electric Fac., Long Island Lighting
6.90%, 8/1/22 * 2,500 2,650
7.15%, 6/1/20 * 8,000 8,553
New York State Mortgage Agency
Homeowner
Zero Coupon, 4/1/20 11,800 1,953
5.90%, 4/1/27 4,000 4,037
6.45%, 10/1/17 2,400 2,549
7.50%, 4/1/26 * 3,000 3,244
New York State Urban Dev. Corp.
5.25%, 1/1/21 4,000 3,594
State Fac., 5.60%, 4/1/15 3,000 2,939
Total New York (Cost $111,647) 117,438
NORTH CAROLINA 0.2%
North Carolina Medical Care Commission
Valdese General Hosp.,
8.75%, 10/1/16 $ 2,035 $ 2,324
Total North Carolina (Cost $2,004) 2,324
NORTH DAKOTA 0.4%
Mercer County, PCR, Electrical Power Coop.
Antelope Valley Station, 7.20%, 6/30/13
(AMBAC Insured) 3,500 4,148
Total North Dakota (Cost $4,061) 4,148
OHIO 4.0%
Akron, Municipal Baseball Stadium, COP,
STEP Zero Coupon, 12/1/16 2,200 1,654
Cambridge, Guernsey Memorial Hosp.,
8.00%, 12/1/11 1,500 1,650
Cleveland Parking Fac., 8.10%, 9/15/22
(Prerefunded 9/15/02!) 10,000 11,861
Dayton, Special Fac.,
Emery Air Freight Corp.,
6.05%, 10/1/09 2,500 2,559
Fairfield EDA, Beverly Enterprises,
8.50%, 1/1/03 2,775 3,010
Marion County Health Care Fac.,
United Church Homes
8.875%, 12/1/12
(Prerefunded 12/1/99!) 3,225 3,691
Ohio Air Quality Dev. Auth.,
PCR, Toledo Edison
8.00%, 5/15/19 2,750 2,909
Ohio Housing Fin. Agency,
Single Family, Residual Interest
Bond/Inverse Floater
(Currently 9.971%), 3/31/31
(GNMA Guaranteed) * 740 808
Ohio Water Dev. Auth., PCR
Cleveland Electric
7.70%, 8/1/25 2,800 3,031
9.75%, 11/1/22 * 2,000 2,045
Toledo Edison
7.55%, 6/1/23 4,500 4,682
8.00%, 10/1/23 * 3,700 4,034
Total Ohio (Cost $38,309) 41,934
OKLAHOMA 2.6%
Jackson County Memorial Hosp. Auth.,
Jackson County
Memorial Hosp., 7.30%, 8/1/15 $ 4,300 $ 4,376
LeFlore County Hosp. Auth.,
Eastern Oklahoma Medical
Center, 9.40%, 5/1/06 2,000 2,141
Norman Regional Hosp. Auth.,
5.50%, 9/1/11 (MBIA Insured) 4,110 4,120
Oklahoma County IDA,
Epworth Villa, 10.25%, 4/1/19 2,900 3,139
Tulsa Municipal Airport
American Airlines
7.375%, 12/1/20 * 2,000 2,132
7.60%, 12/1/30 * 5,240 5,666
Washington County Medical Auth.,
Jane Phillips Episcopal
Hosp., 8.50%, 11/1/10
(Prerefunded 5/1/99!) 5,200 5,752
Total Oklahoma (Cost $25,654) 27,326
OREGON 0.2%
Western Generation Agency,
Wauna Cogeneration
7.25%, 1/1/09 * 2,000 2,104
Total Oregon (Cost $1,992) 2,104
PENNSYLVANIA 3.0%
Allegheny County Hosp. Dev. Auth.,
Rehabilitation Institute
of Pittsburgh, 7.00%, 6/1/22 2,000 2,088
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 1,400 1,516
Toledo Edison, 7.75%, 5/1/20 2,000 2,188
Berks County IDA, Lutheran Home at Topton,
6.875%, 1/1/23 5,000 5,027
Blair County Hosp. Auth., Mercy Hosp.,
8.125%, 2/1/14
(Prerefunded 2/1/99!) 2,700 2,950
Clarion IDA Health Fac.,
Beverly Enterprises, 10.125%,
5/1/07 830 910
Greene County IDA,
Greene Health Care Assoc.
Beverly Enterprises,
6.875%, 3/1/13 2,430 2,448
Montgomery County Higher Ed. and Health Auth.
Brittany Pointe, 8.50%, 1/1/22
(Prerefunded 1/1/03!) 2,500 3,006
Montgomery County Higher Ed. and Health Auth.
Redeemer Long Term Care and Elder Services
8.00%, 6/1/22 $ 5,755 $ 5,996
8.20%, 6/1/06 880 933
Pennsylvania HEFA, Medical
College of Pennsylvania
8.375%, 3/1/11
(Prerefunded 3/1/99!) 2,200 2,422
Pennsylvania Housing Fac. Auth.,
Residual Interest Bond/Inverse
Floater (Currently 10.157%),
10/3/23 * 1,500 1,637
Total Pennsylvania (Cost $28,964) 31,121
PUERTO RICO 0.8%
Puerto Rico Commonwealth,
Highway and Transportation Auth.
5.50%, 7/1/15 6,000 5,958
Puerto Rico Infrastructure Fin. Auth.,
7.50%, 7/1/09 2,365 2,512
Total Puerto Rico (Cost $8,061) 8,470
RHODE ISLAND 1.4%
Rhode Island Health and Ed. Building Corp.
Lifespan Obligation Group, 5.25%, 5/15/26
(MBIA Insured) 2,000 1,828
Rhode Island Hosp., Residual Interest
Bond/Inverse Floater (Currently 9.968%)
8/15/21 (FGIC Insured) 1,000 1,231
Rhode Island Housing and Mortgage Fin. Corp.
8.05%, 4/1/22 * 5,000 5,247
Residual Interest Bond/Inverse Floater
(Currently 10.439%), 4/1/24 * 1,000 1,089
Homeownership Opportunity, 6.70%,
10/1/14 5,000 5,253
Total Rhode Island (Cost $13,801) 14,648
SOUTH DAKOTA 0.3%
South Dakota HDA, Homeownership,
6.65%, 5/1/14 2,500 2,619
Total South Dakota (Cost $2,500) 2,619
TENNESSEE 1.5%
Metropolitan Gov't. of Nashville
and Davidson Counties
Mur Ci Homes, 7.75%, 12/1/26 4,700 4,610
Metropolitan Gov't. of Nashville
and Davidson Counties
Water and Sewer, STEP, Zero Coupon,
1/1/12 (FGIC Insured) $ 8,750 $ 9,577
Tennessee Housing Dev. Agency,
7.625%, 7/1/22 * 1,900 2,005
Total Tennessee (Cost $16,007) 16,192
TEXAS 7.8%
Alliance Airport Auth., American Airlines,
7.00%, 12/1/11 * 3,000 3,326
Amarillo Health Fac. Corp.,
Sears Panhandle Retirement
7.75%, 8/15/26 4,800 4,829
Bell County Health Fac. Dev. Corp.,
King's Daughter Hosp.
9.25%, 7/1/08 3,155 3,451
Brazos River Auth.,
Houston Lighting and Power
6.375%, 4/1/12 (MBIA Insured) 10,000 10,744
Denison Hosp. Auth.,
Texoma Medical Center,
7.10%, 8/15/24 3,650 3,852
Gainesville IDC, GTE Valenite Corp.,
8.90%, 5/15/11 * 3,170 3,439
Gulf Coast Waste Disposal Auth.,
Houston Lighting and Power
Floating Rate
(Currently 4.95%) 6/1/98 5,000 5,000
Harris County, Toll Road,
6.375%, 8/15/24 (MBIA Insured) 2,500 2,719
Harris County Health Fac. Dev. Corp.
Memorial Hosp., 7.125%, 6/1/15
(Prerefunded 6/1/02!) 5,000 5,686
Methodist Hosp., VRDN
(Currently 3.45%) 2,700 2,700
Texas Medical Center, 7.375%, 5/15/20
(MBIA Insured)
(Prerefunded 5/15/00!) 2,350 2,606
Houston, Water and Sewer,
5.375%, 12/1/27 (FGIC Insured) 5,000 4,765
Matagorda County Navigation Dist., PCR,
Central Power and Light,
7.50%, 12/15/14 2,000 2,198
Northwest Texas Independent School Dist.,
School Buildings
GO, Zero Coupon, 8/15/32 20,000 2,168
Paris Health Fac. Dev. Corp.,
McCuistion Regional
Medical Center, 7.60%, 2/1/12 4,500 4,817
San Antonio Electric and Gas
Zero Coupon, 2/1/10
(FGIC Insured) 5,000 2,505
Texas
GO, TRAN, 4.75%, 8/29/97 $10,000 $10,056
Veterans Housing Assistance, GO
6.25%, 12/1/15 2,110 2,153
Tomball Hosp. Auth.,
Tomball Regional Hosp.,
6.10%, 7/1/08 5,000 5,063
Total Texas (Cost $77,112) 82,077
UTAH 1.0%
Intermountain Power Agency
5.25%, 7/1/14 1,000 972
Power Supply, 5.75%, 7/1/19
(MBIA Insured)** 4,000 3,980
Utah Housing Fin. Agency
Sub Lien
6.25%, 7/1/05 520 532
7.50%, 7/1/05 780 823
7.60%, 7/1/05 775 812
7.75%, 7/1/05 800 840
7.75%, 1/1/23 * 315 329
8.40%, 7/1/08 * 145 150
8.55%, 7/1/04 255 264
8.65%, 7/1/04 610 632
8.70%, 7/1/01 135 139
9.00%, 1/1/19 * 410 428
9.25%, 7/1/01 175 182
9.30%, 7/1/00 * 45 46
9.60%, 7/1/02 * 35 36
9.75%, 7/1/02 60 61
9.85%, 7/1/02 * 150 154
9.875%, 1/1/99 * 50 51
10.50%, 1/1/99 * 45 45
10.625%, 7/1/99 * 45 45
Total Utah (Cost $10,099) 10,521
VERMONT 0.1%
Vermont Ed. and Health Buildings
Fin. Agency, Medical Center
Hosp. of Vermont,
7.45%, 9/1/23 (FGIC Insured) 1,400 1,490
Total Vermont (Cost $1,400) 1,490
VIRGINIA 2.4%
Chesapeake Bay Bridge and
Tunnel Commission
5.00%, 7/1/22 (MBIA Insured) $ 5,920 $ 5,397
Fredericksburg IDA,
Medicorp Health System
5.25%, 6/15/23 (AMBAC Insured) 2,500 2,338
Henrico County IDA,
Bon Secours Health System
(Maryview Hosp.), 7.50%, 9/1/11 1,730 1,934
Norfolk Port and Ind. Auth.,
Henson Aviation, 9.625%, 8/1/12 * 830 932
Peninsula Port Auth.,
Shell Oil, VRDN (Currently 3.50%) 800 800
Roanoke IDA, Roanoke Memorial Hosp.,
Carilion Health System
VRDN (Currently 3.25%) 4,500 4,500
Virginia HDA
Zero Coupon, 7/1/29 * 830 73
7.10%, 1/1/22 4,000 4,164
7.10%, 1/1/25 5,000 5,199
Total Virginia (Cost $24,616) 25,337
WASHINGTON 1.8%
Washington, GO, 5.70%, 10/1/15 7,500 7,753
Washington HFA
Fred Hutchinson Cancer Research Center
VRDN (Currently 3.45%) 4,260 4,260
Sisters of Providence, VRDN
(Currently 3.50%) 1,190 1,190
Washington Public Power Supply
6.30%, 7/1/12 2,000 2,152
7.25%, 7/1/09 1,000 1,158
Zero Coupon, 7/1/14
(FSA Insured) 6,400 2,366
Total Washington (Cost $17,773) 18,879
WEST VIRGINIA 0.3%
Marshall County, PCR, Mountaineer Carbon
VRDN (Currently 3.45%) 1,400 1,400
West Virginia Hosp. Fin. Auth.,
West Virginia Univ. Hosp.
Residual Interest Bond/Inverse Floater
(Currently 9.52%), 1/1/18
(MBIA Insured) $ 2,000 $ 2,091
Total West Virginia (Cost $3,400) 3,491
WISCONSIN 2.2%
Wisconsin HEFA
National Regency of New Berlin,
8.00%, 8/15/25 6,000 6,166
Sinai Samaritan Medical Center
5.875%, 8/15/26 (MBIA Insured) 3,500 3,497
Wisconsin HFA, Villa Clement,
8.75%, 6/1/12 1,500 1,503
Wisconsin HHEFA, Meriter Hosp., Inc.
6.00%, 12/1/26 (MBIA Insured) 6,000 6,060
Wisconsin Housing and Economic Dev. Auth.
7.75%, 9/1/17 3,945 4,067
8.00%, 3/1/21 * 1,540 1,574
Total Wisconsin (Cost $22,216) 22,867
WYOMING 1.1%
Sweetwater County, PCR
Pacificorp, VRDN (Currently 3.45%)
(AMBAC Insured) 2,000 2,000
Solid Waste Disposal, FMC Corp.,
6.90%, 9/1/24 * 5,000 5,326
Uinta County, PCR, Chevron, VRDN
(Currently 3.50%) 700 700
Wyoming CDA, Single Family,
6.70%, 6/1/17 3,320 3,471
Total Wyoming (Cost $10,502) 11,497
Total Investments in Securities
99.1% of Net Assets (Cost $980,899) $1,043,156
Other Assets Less Liabilities 9,950
NET ASSETS $1,053,106
__________
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 67
Accumulated net realized gain/loss -
net of distributions (12,72)
Net unrealized gain (loss) 62,257
Paid-in-capital applicable to 86,903,971
shares of $0.01 par value capital
stock outstanding; 1,000,000,000
shares authorized 1,003,509
NET ASSETS $1,053,106
__________
NET ASSET VALUE PER SHARE $ 12.12
________
* Interest subject to alternative minimum tax
** When-issued security
! Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
CDA Community Development Administration
COP Certificates of Participation
EDA Educational Development Authority
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GNMA Government National Mortgage Association
GO General Obligation
HDA Housing Development Authority
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
HFFA Health Facility Financing Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
IDB Industrial Development Bond
IDC Industrial Development Corp.
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Public Facility Authority
STEP Stepped coupon bond
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Tax-Free High Yield Fund
Statement of Operations
In thousands
Year
Ended
2/28/97
Investment Income
Interest income $66,218
Expenses
Investment management 6,309
Shareholder servicing 728
Custody and accounting 242
Registration 60
Prospectus and shareholder reports 38
Directors 15
Legal and audit 14
Miscellaneous 18
Total expenses 7,424
Net investment income 58,794
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 452
Futures (1,462)
Net realized gain (loss) (1,010)
Change in net unrealized gain or
loss on securities 2,979
Net realized and unrealized gain (loss) 1,969
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $60,763
________
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Tax-Free High Yield Fund
Statement of Changes in Net Assets
In thousands
Year
Ended
2/28/97 2/29/96
Increase (Decrease) in Net Assets
Operations
Net investment income $ 58,794 $ 56,650
Net realized gain (loss) (1,010) 5,145
Change in net unrealized
gain or loss 2,979 32,000
Increase (decrease) in net assets
from operations 60,763 93,795
Distributions to shareholders
Net investment income (58,787) (56,650)
Capital share transactions *
Shares sold 265,794 261,013
Distributions reinvested 40,553 39,048
Shares redeemed (244,751) (221,218)
Increase (decrease) in net
assets from capital
share transactions 61,596 78,843
Net Assets
Increase (decrease) during period 63,572 115,988
Beginning of period 989,534 873,546
End of period $1,053,106 $ 989,534
_____________________
*Share information
Shares sold 22,238 21,873
Distributions reinvested 3,390 3,271
Shares redeemed (20,497) (18,562)
Increase (decrease)
in shares outstanding 5,131 6,582
The accompanying notes are an integral part of these financial
statements.
T. Rowe Price Tax-Free High Yield Fund
February 28, 1997
Notes to Financial Statements
Note 1 - Significant Accounting Policies
T. Rowe Price Tax-Free 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 March 1, 1985.
Valuation Debt securities are generally traded in the
over-the-counter market. Investments in securities 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.
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.
Premiums and Discounts Premiums and original issue
discounts on municipal securities are amortized 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.
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. Distributions to shareholders are
recorded by the fund on the ex-dividend date. Income and
capital gain distributions are determined in accordance with
federal income tax regulations and may differ from those
determined in accordance with generally accepted accounting
principles.
Note 2 - Investment Transactions
Consistent with its investment objective, the fund engages
in the following practices to manage exposure to certain
risks or enhance performance. The investment objective,
policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement
of Additional Information.
Noninvestment-Grade Debt Securities At February 28, 1997,
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 $421,265,000 and
$350,540,000, respectively, for the year ended February 28,
1997.
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. The
fund has unused realized capital loss carryforwards for
federal income tax purposes of $11,338,000, of which
$11,104,000 expires in 2003, $135,000 in 2004, and $99,000
in 2005. 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, the following reclassifications were made
during the year ended February 28, 1997. The results of
operations and net assets were not affected by the
reclassifications.
______________________________________________________
Undistributed net investment income $ 9,000
Undistributed net realized gain (30,000)
Paid-in-capital 21,000
At February 28, 1997, the aggregate cost of investments for
federal income tax and financial reporting purposes was
$980,899,000, and net unrealized gain aggregated
$62,257,000, of which $63,465,000 related to appreciated
investments and $1,208,000 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 $506,000 was
payable at February 28, 1997. 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 0.305% for
assets in excess of $50 billion. At February 28, 1997, and
for the year then ended, the effective annual group fee rate
was 0.33%. 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 a wholly owned subsidiary 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. The fund incurred expenses pursuant to these related
party agreements totaling approximately $653,000 for the
year ended February 28, 1997, of which $63,000 was payable
at period-end.
T. Rowe Price Tax-Free High Yield Fund
Report of Independent Accountants
To the Shareholders and Board of Directors
of T. Rowe Price Tax-Free High Yield Fund, Inc.
We have audited the accompanying statement of net assets of
T. Rowe Price Tax-Free High Yield Fund, Inc. as of February
28, 1997, 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, 1997, by correspondence with the custodian. 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, Inc. as of February 28, 1997, the results
of its operations, the 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 L.L.P.
Baltimore, Maryland
March 19, 1997
T. Rowe Price Shareholder Services
Investment Services And Information
Knowledgeable Service Representatives
By Phone 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
Account Services
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your
distributions.
Automated 24-Hour Services Including Tele*Access(registered
trademark) and T. Rowe Price OnLine.
Discount Brokerage*
Individual Investments Stocks, bonds, options, precious metals,
and other securities at a savings over regular commission rates.
Investment Information
Combined Statement Overview of your T. Rowe Price accounts.
Shareholder Reports Fund managers' reviews of their strategies
and results.
T. Rowe Price Report Quarterly investment newsletter discussing
markets and financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund
results.
Insights Educational reports on investment strategies and
financial markets.
Investment Guides Asset Mix Worksheet, College Planning Kit,
Personal Strategy Planner, Retirees Financial Guide, and
Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
T. Rowe Price Mutual Funds
STOCK FUNDS
DOMESTIC
Balanced
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
OTC**
Science & Technology
Small-Cap Value*
Spectrum Growth
Value
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
California Tax-Free Bond
Florida Insured
Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Insured
Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond
Virginia Tax-Free Bond
INTERNATIONAL/GLOBAL
Global Government Bond
Emerging Markets Bond
International Bond
MONEY MARKET FUNDS
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Personal Strategy Income
Personal Strategy Balanced
Personal Strategy Growth
T. Rowe Price No-Load
Variable Annuity
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
*Closed to new investors.
**Effective May 1, 1997, the fund's name will change to
Small-Cap Stock.
Please call for a prospectus. Read it carefully before you
invest or send money.
The T. Rowe Price No-Load Variable Annuity [V6021] is issued by
Security Benefit Life Insurance Company. In New York, it
[FSB201(11-96)] is issued by First Security Benefit Life
Insurance Company of New York, White Plains, NY.
T. Rowe Price refers to the underlying portfolios' investment
managers and the distributors, T. Rowe Price Investment
Services, Inc., T. Rowe Price Insurance Agency, Inc., and T.
Rowe Price Insurance Agency of Texas, Inc. The Security Benefit
Group of Companies and the T. Rowe Price companies are not
affiliated. The variable annuity may not be available in all
states. The contract has limitations. Call a representative for
costs and complete details of the coverage.
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
625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Tax-Free High
Yield Fund(registered trademark).
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor.
RPRTTFH 2/28/97
THE SHAREHOLDER LETTER AND REPORT FOR THE COMBINED TAX-FREE
FUNDS IS ATTACHED HERE BY ACCESSING THE FOLLOWING:
Annual Report
Tax-Free
Funds
February 28, 1997
T. Rowe Price
Report Highlights
o Interest rates ended the fiscal year slightly higher than a year ago,
resulting in moderate returns for municipal bond investors.
o Municipal bonds outperformed Treasuries during most of the year.
o All five funds generated greater returns than their peer group averages
during the year ended February 28.
o Your funds relied to a great extent on credit research and sector
selection to enhance returns. Tax-exempt high-yield securities were
particularly good performers.
o With the economy showing ongoing strength and the Federal Reserve
indicating a bias toward tighter monetary policy, our outlook is
somewhat cautious for the coming months.
Fellow Shareholders
The municipal bond market and your funds generated moderate returns during
the fiscal year ended February 28, 1997. Interest rates fluctuated during the
year and ended slightly higher than where they started at the end of last
February. The U.S. economy was characterized by modest wage inflation with
low unemployment, prompting the Federal Reserve to leave monetary policy
unchanged since January 1996.
MARKET ENVIRONMENT
Much of the movement in interest rates reflected the market's anticipation
of action or inaction by the Federal Reserve. The fiscal year began with
interest rates rising due to signs of both stronger growth and the
realization that balanced budget legislation would not be passed in 1996. As
market expectations for a tightening in monetary policy grew throughout the
first half, rates continued to increase. The long-term Treasury bond yield
remained in a trading range between 6.75% and 7.20% during the third quarter.
Intermediate and long-term rates then reversed course and fell through
November as it became evident that the economy was slowing in the third
quarter and the Federal Reserve was not going to raise rates. Another uptick
in rates took place late in 1996 as investors once again perceived strength
in the economy and anticipated possible tightening by the Federal Reserve.
Chart 1 - Municipal Bond and Yield Notes line chart
In the municipal market, rates came full circle over the year, rising about
45 basis points (100 basis points equal one percent) during the first six
months before settling slightly above year-ago levels. Long-term high-grade
general obligation bonds yielded 5.50% on February 28, 1997, versus 5.75% on
August 31, 1996, and 5.45% a year ago. Five-year high-grade bonds were 20
basis points higher in yield than in February 1996. One-year note rates
traded within a 70-basis-point range during the year, ending at 3.70%
compared with 3.25% a year ago.
Municipals provided higher returns than long-term Treasuries throughout most
of the fiscal year, as concerns regarding tax reform and flat tax legislation
diminished. As a result, long-term municipal yields were 81% of the yield on
comparable Treasuries on February 28, a level that benefits investors in
brackets above 19%, whereas a year ago with the ratio at 87%, investors in
brackets upwards of 13% benefited from municipals.
Lower-quality bonds performed well as the spread between their yields and
those of higher-rated bonds narrowed, resulting in good price appreciation.
The narrowing yield spread between different quality bonds reflected a solid
economy with no immediate concern about recession and also the growing number
of insured bonds in the market, which shrunk the supply of higher-yielding
bonds.
New issuance in both the long- and short-term markets increased in 1996 for
the first time since 1993, reflecting healthier state and local economies,
a backlog of borrowing needs, and less resistance from the voters to new
bond-financed projects. The increased supply was well received by investors
after two years of declining issuance.
TAX-EXEMPT MONEY FUND
Our longer maturity strategy resulted in attractive returns, helping your
fund outperform its peer group during both the 6- and 12-month periods ended
February 28, 1997.
Chart 2- Performance Comparison
Periods Ended 2/28/976 Months 12 Months
____________________________________________________________
Tax-Exempt Money Fund1.51% 3.05%
Lipper Tax-Exempt Money
Market Funds Average1.45 2.91
Despite last year's stable monetary policy, the yields of 6- and 12-month
municipal notes managed to vacillate in a range of 70 basis points. At the
end of the fiscal year, yields of 1- to 30-day maturities were little changed
from a year ago, but yields on 60-day to 1-year maturities were 20 to 50
basis points higher.
Your fund ended the fiscal year with a weighted average maturity of 58 days,
shorter than the 65 days of a year earlier and 66 days at the end of August.
By comparison, the weighted average maturity for our peer group at the end
of February was only 46 days. Lending support to our modestly longer maturity
posture was the robust demand generated by cash inflows to tax-exempt money
funds, which expanded to a record $147 billion. An additional $12 billion in
new cash inflows more than offset a $5 billion increase in the supply of new
issues.
We emphasized longer maturities throughout the year, since we felt reasonably
confident that the Federal Reserve would wait for more concrete evidence of
rising inflation before raising the federal funds rate. We took advantage of
the upwardly sloping yield curve by concentrating more on 6- and 12-month
municipal notes, which provided an average of 40 basis points more yield than
shorter maturities. We also reduced the percentage of variable rate
securities in the portfolio. We will carefully consider recent remarks by
Chairman Greenspan about a possible preemptive move against inflation (see
the Outlook section) as we set our maturity strategy in coming months.
TAX-FREE SHORT-INTERMEDIATE FUND
Duration management and credit research helped your fund outperform the
average for similar funds during both the 6- and 12- month periods ended
February 28.
Chart 3- Performance Comparison
Periods Ended 2/28/97 6 Months 12 Months
_____________________________________________________
Tax-Free Short-
Intermediate Fund 3.13% 4.02%
Lipper Short-Intermediate
Debt Funds Average 3.07 3.72
The threat of higher short-term interest rates early in the year prompted us
to keep duration (a measure of a fund's sensitivity to changes in interest
rates) around 2.6 years, near the short end of our usual range. However, as
we moved into the third quarter, signs of slower growth began to emerge,
causing yields on five-year maturities to fall from 4.65% in early September
to 4.15% in early December. We extended the fund's duration to about 3.0
years, gaining some but not all of the price appreciation in the rally.
Recently, we reduced duration to 2.8 years because of the decreasing
likelihood of further increases in bond prices.
While our timing on duration was modestly successful, we were able to enhance
performance with credit research and sector selection. The prolonged strength
of the economy improved the financial condition of many municipal issuers.
Last year, Standard & Poor's upgraded credit ratings on more than three times
as many issues as it downgraded. As a result, lower-rated securities
outperformed higher-rated AAA issues, narrowing the yield differential
between them. We had positioned the fund to take advantage of this phenomenon
in both 1995 and 1996 by increasing fund exposure to lower-rated states such
as Massachusetts, Louisiana, New York, and Pennsylvania. We also purchased
financially sound hospital revenue bonds, which we think will benefit from
demographic changes.
Two sectors we continued to underweight are municipally owned electric
utilities and housing bonds. In many cases, municipal utilities sell
high-cost nuclear power, and deregulation of the industry should allow
low-cost providers to compete more effectively. As a result, many local
utilities were downgraded last year by Moody's and Standard & Poor's.
We avoided short-term housing bonds primarily because of their structure, not
because of creditworthiness. Housing bonds are issued at par, while we prefer
higher-yielding bonds at premium prices. If interest rates should rise, the
prices of short-term par bonds tend to fall faster than bonds trading at a
premium with the same duration.
TAX-FREE INSURED INTERMEDIATE BOND FUND
A combination of higher yield, credit management, and a lower fund expense
ratio enabled your fund to match the average return of similar funds over the
six-month period and slightly surpass it over 12 months.
Chart 4- Performance Comparison
Periods Ended 2/28/97 6 Months 12 Months
_____________________________________________________
Tax-Free Insured
Intermediate Bond Fund 4.00% 4.19%
Lipper Intermediate
Municipal Debt Funds Average 3.98 4.14
Interest rates over the past 12 months have been confined to a relatively
tighter trading range than in recent years. Yields on 10-year AAA-rated
securities ranged between 4.65% and 5.30% since early March, a 65-basis-point
range compared with 100 basis points a year ago and 155 two years earlier.
The recent tighter range limited returns that could be reaped from duration
management, which generated mixed results over the 6- and 12-month periods.
In the first half, our short posture contributed positively to performance
as interest rates moved higher. We gave back some of these gains in the
second half, as rates turned lower in September while we remained slightly
cautious.
Lower volatility rendered credit research and sector selection increasingly
important in our effort to outperform our peer group. We focused on
undervalued securities within the insured market. Even though two different
issues may carry insurance from the same company, the marketplace sometimes
values them differently. For instance, Denver International Airport is rated
BBB by Moody's and Standard & Poor's. While insurance earns the bonds a AAA
rating from both agencies, the marketplace usually values bonds lower,
according to their underlying rating. Early in the year we increased the
fund's exposure to the Denver Airport bonds because we believed they
represented good value versus other insured bonds.
TAX-FREE INCOME FUND
Overall, it was a year of modest returns for long-term bonds. In this
environment, your fund matched the average performance of its peer group
during the past six months and exceeded it over the year.
Chart 5- Performance Comparison
Periods Ended 2/28/97 6 Months 12 Months
_____________________________________________________
Tax-Free Income Fund 4.80% 4.81%
Lipper General Municipal
Debt Funds Average 4.79 4.51
During much of the year, we kept the fund's duration within a narrow range.
We felt that interest rates were likely to fluctuate more modestly than
during the two prior years, providing few opportunities for aggressive shifts
in strategy. As a result, the fund's duration remained close to 7.5 years for
most of 1996. We increased it slightly in the third quarter but then returned
to a more conservative position near the end of the fiscal year.
With municipal yields flirting with their lows of the past two decades, we
felt there was little chance of a strong rise in bond prices and further rate
declines. Therefore, we focused more on enhancing the portfolio's yield where
we could. This strategy included holding on to older, higher-yielding bonds
and identifying suitable high-yield securities, which performed well in 1996.
Going forward, the opportunity for further price appreciation from
lower-quality bonds seems limited, leading us to be more selective in
considering them.
Bonds insured by third parties began to look more attractive as the amount
of insured new issues rose during the year. Twelve months ago, the yields of
insured municipal bonds were only 10 to 15 basis points higher than those of
high-quality general obligation bonds; by year-end this spread was closer to
25 basis points, making the yields on insured bonds relatively appealing.
We will continue to focus on income enhancement, maintain duration closer to
the low end of our neutral range, and wait for opportunities to extend
maturities. The municipal market's stronger performance relative to taxable
securities during the first two months of the year, combined with a growing
new issues calendar for March, suggests that we will be able to invest at
higher yield levels in coming months.
TAX-FREE HIGH YIELD FUND
The Tax-Free High Yield Fund outperformed its peer group over both the fiscal
year and the most recent six-month period. It has exceeded the average
performance of similar funds for the past nine fiscal years.
Chart 6- Performance Comparison
Periods Ended 2/28/97 6 Months 12 Months
_____________________________________________________
Tax-Free High Yield Fund 5.37% 6.22%
Lipper High Yield Municipal
Debt Funds Average 4.98 5.27
Opportunistic credit selection dominated fund performance last year,
enhancing returns in three important ways. First, several individual holdings
boosted fund returns by outperforming the market because of improved credit
standing and refinancings. Key issues in this category included
investor-owned utility and hospital revenue bonds. Second, the selective sale
of securities and avoidance of certain sectors, such as specialized solid
waste and paper recycling bonds, meant we were able to avoid significant
credit problems. Finally, the fund was a beneficiary of yet another year of
narrowing yield spreads, with lower-quality bonds significantly outperforming
many higher-quality issues.
Your fund's concentration in below-investment-grade holdings fell steadily
last year, from 28% to 23% of net assets. This move reflected a combination
of factors, including ratings upgrades, refinancings, and a continuing
selective approach when considering new issues. However, positions in the BBB
category rose slightly to 34% of net assets. Absent a recession or a large
market sell-off, we expect yield differences between securities of different
credit ratings to remain tight. Another factor contributing to the narrow
yield spreads was the increasing market share of bond insurance, shrinking
the supply of uninsured lower-rated bonds. As a result, we are being
selective in our purchases of lower-quality bonds and do not expect a
material change in your fund's average credit quality, which was BBB+ at the
end of February.
Chart 7- Quality Diversification pie
We managed duration and the weighted average maturity within a narrow range,
with duration remaining between 7.0 and 7.4 years. Your fund was slightly
defensive versus its peer group early in the year, which was a plus in a down
market. We lengthened maturities modestly during much of the second half,
maintaining a weighted average maturity of 19 years and a cash level of about
3%. At the end of February, your fund could be characterized as being fairly
neutral versus its peer group.
OUTLOOK
The economy is in its sixth year of expansion, and while it has exhibited few
signs of inflationary pressure, the Federal Reserve remains on alert. Fed
chairman Alan Greenspan stated in recent testimony to the Senate Banking
Committee that the Fed cannot rule out a preemptive tightening in monetary
policy before signs of actual higher inflation become evident.
We expect economic growth and inflation to remain moderate throughout the
rest of 1997, with no evidence of recession visible to date. Consumer and
business sentiment remain high, inventories are not excessive, and
availability of credit is ample. The Federal Reserve, as indicated, could
push the fed funds rate higher to keep prices in check, but we believe any
increase will be small since short-term rates are well above the recent trend
rate of inflation. This was not the case in 1994, when the Fed was forced to
move aggressively.
The supply of municipal bonds should increase over the near term, possibly
exerting some downward pressure on bond prices if demand does not increase
commensurately. Given our expectation that interest rates will move in a
relatively narrow channel, we would regard higher rates as an opportunity to
provide additional yield in the funds. Overall, however, we do not expect to
see a significant move in bond prices in the months ahead. As in the past
year, the returns from municipal securities should come primarily from
income.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
March 21, 1997
T. Rowe Price Tax-Free Funds
Portfolio Highlights
KEY STATISTICS
8/31/96 2/28/97
Tax-Exempt Money Fund
_____________________________________________________
Price Per Share $ 1.00 $ 1.00
Dividends Per Share!
For 6 months 0.015 0.015
For 12 months 0.031 0.030
Dividend Yield
(7-Day Compound) * 3.06% 3.02%
Weighted Average
Maturity (days) 66 58
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
_____________________________________________________
Price Per Share $ 5.30 $ 5.35
Dividends Per Share!
For 6 months 0.12 0.11
For 12 months 0.23 0.23
Dividend Yield *
For 6 months 4.32% 4.37%
For 12 months 4.40 4.39
Weighted Average Maturity
(years) 3.2 3.6
Weighted Average Effective
Duration (years) 2.6 2.8
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/96 2/28/97
Tax-Free Insured Intermediate Bond Fund
_____________________________________________________
Price Per Share $ 10.62$ 10.80
Dividends Per Share!
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.44% 4.58%
For 12 months 4.51 4.56
Weighted Average
Maturity (years) 7.7 7.4
Weighted Average Effective
Duration (years) 5.6 5.3
Weighted Average Quality *** AA AA
Tax-Free Income Fund
Price Per Share $ 9.40 $ 9.59
Dividends Per Share!
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 5.44% 5.48%
For 12 months 5.52 5.54
Weighted Average
Maturity (years) 17.0 17.0
Weighted Average Effective
Duration (years) 7.5 7.7
Weighted Average Quality *** AA- AA-
Key statistics
8/31/962/28/97
Tax-Free High Yield Fund
_____________________________________________________
Price Per Share $ 11.84 $ 12.12
Dividends Per Share!
For 6 months 0.35 0.35
For 12 months 0.71 0.70
Dividend Yield *
For 6 months 5.92% 5.94%
For 12 months 6.05 6.02
Weighted Average
Maturity (years) 19.4 19.1
Weighted Average Effective
Duration (years) 7.1 7.2
Weighted Average Quality *** BBB+ BBB+
! Taxability of dividends: 100% of the dividends paid for the 12 months
ended 2/28/97 were exempt from federal income tax.
* 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.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
T. Rowe Price Tax-Free Funds
Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each 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.
Chart 8 - Tax Exempt Money Fund line chart
Chart 9 - Tax-Free Short-Intermediate Fund line chart
Chart 10 - Tax-Free Insured Intermediate Bond Fund line chart
Chart 11 - Tax-Free Income Fund line chart
Chart 12 - Tax-Free High Yield Fund line chart
Average Annual Compound Total Return
This table shows how each 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 Since Incep-
2/28/97 1 5 10 Incep- tion
Year Years Years tion Date
_________________________________________________________
Tax-Exempt Money 3.05% 2.70% 3.77% - 4/8/81
Tax-Free Short-
Intermediate 4.02 4.94 5.13 - 12/23/83
Tax-Free Insured
Intermediate Bond 4.19 - - 6.76% 11/30/92
Tax-Free Income 4.81 7.38 6.40 - 10/26/76
Tax-Free High Yield 6.22 7.82 7.60 - 3/1/85
Investment return and principal value represent past performance and will
vary. Shares may be worth more or less at redemption than at original
purchase.
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
625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
http://www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price Tax-Free Funds.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor.
RPRTTFF 2/28/97
Chart 1- yield line chart showing 30-year AAA GO, 5-year AAA GO, and 1-year
MIG1 note from 2/29/96 through 2/28/97
Chart 7 - quality diversification pie chart showing AAA 4%, AA 26%, A 13%,
BBB 34%, and BB and Below 23% on 2/28/97
Chart 8 - Tax Exempt Money Fund line chart showing the cumulative growth of
$10,000 invested in the TEM Fund over the past 10 years (or from inception
for funds lacking 10-year histories) compared with $10,000 invested in a
broad-based index or average over the same period.
Chart 9 - Tax-Free Short-Intermediate Fund line chart showing the cumulative
growth of $10,000 invested in the TEM Fund over the past 10 years (or from
inception for funds lacking 10-year histories) compared with $10,000 invested
in a broad-based index or average over the same period.
Chart 10 - Tax-Free Insured Intermediate Bond Fund line chart showing the
cumulative growth of $10,000 invested in the TEM Fund over the past 10 years
(or from inception for funds lacking 10-year histories) compared with $10,000
invested in a broad-based index or average over the same period.
Chart 11 - Tax-Free Income Fund line chart showing the cumulative growth of
$10,000 invested in the TEM Fund over the past 10 years (or from inception
for funds lacking 10-year histories) compared with $10,000 invested in a
broad-based index or average over the same period.
Chart 12 - Tax-Free High Yield Fund line chart showing the cumulative growth
of $10,000 invested in the TEM Fund over the past 10 years (or from inception
for funds lacking 10-year histories) compared with $10,000 invested in a
broad-based index or average over the same period.
