Semiannual Report - Financial Statements
T. Rowe Price
Tax-Free
High Yield Fund
August 31, 1997
Portfolio Highlights
SECTOR Diversification
Percent ofPercent of
Net AssetsNet Assets
2/28/97 8/31/97
______________________________________________________________
_____
Hospital Revenue 20% 18%
Industrial and Pollution Control Revenue 12 13
Housing Finance Revenue 12 11
Nuclear Revenue 10 11
Prerefunded Bonds 7 8
LifeCare/Nursing Home Revenue 8 8
General Obligation - Local 6 7
Dedicated Tax Revenue 3 4
Lease Revenue 4 4
Ground Transportation Revenue 4 3
Solid Waste Revenue 3 2
Escrowed to Maturity 1 2
Water and Sewer Revenue 2 2
General Obligation - State 3 2
Miscellaneous Revenue 2 2
Electric Revenue 2 2
Other Assets Less Liabilities 1 1
___________________________________________________________________
Total100% 100%
T. Rowe Price Tax-Free High Yield Fund
Unaudited
Financial Highlights
For a share outstanding throughout each period
6 Months Year
Ended Ended
8/31/97 2/28/97 2/29/96 2/28/952/28/94 2/28/93
NET ASSET VALUE
Beginning of
period $ 12.12 $ 12.10 $ 11.62 $ 12.26 $12.33 $11.65
Investment
activities
Net investment
income 0.35 0.70 0.72 0.73 0.74 0.78
Net realized
and unrealized
gain (loss) 0.21 0.02 0.48 (0.60) 0.16 0.78
Total from
investment
activities 0.56 0.72 1.20 0.13 0.90 1.56
Distributions
Net investment
income (0.35) (0.70) (0.72) (0.73) (0.74) (0.78)
Net realized
gain - - - (0.04) (0.23) (0.10)
Total
distributions(0.35) (0.70) (0.72) (0.77) (0.97) (0.88)
NET ASSET VALUE
End of
period $ 12.33 $12.12 $ 12.10 $ 11.62 $12.26 $12.33
Ratios/Supplemental Data
Total return 4.66% 6.22% 10.62% 1.26% 7.49% 13.94%
Ratio of
expenses
to average
net assets 0.73%! 0.74% 0.75% 0.79% 0.79% 0.81%
Ratio of net
investment
income to
average
net assets 5.67%! 5.86% 6.07% 6.29% 5.95% 6.58%
Portfolio
turnover rate28.6%! 37.0% 39.3% 59.6% 59.3% 34.7%
Net assets,
end of period
(in
thousands)$1,126,080$1,053,106$989,534$873,546$941,295$853,185
! Annualized.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
Unaudited
Statement of Net Assets
Par Value
In thousands
ALABAMA 3.4%
Alexander Special Care Fac. Fin.
Auth., Russell Hosp.
6.00%, 12/1/22 $ 3,250 $ 3,293
Baldwin County
Eastern Shore Health Care Auth.,
Thomas Hosp.
6.75%, 4/1/21 1,900 2,042
8.50%, 4/1/16 (Prerefunded 4/1/01!) 4,000 4,598
Courtland IDB, Solid Waste Disposal,
Champion Int'l
5.90%, 2/1/17 8,000 8,154
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
7.00%, 10/1/13 2,100 2,244
10.25%, 10/1/13 6,460 7,005
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 2/15/18 (MBIA Insured) 1,030 281
Zero Coupon, 8/15/18 (MBIA Insured) 4,550 1,200
Zero Coupon, 2/15/19 (MBIA Insured) 905 231
Zero Coupon, 8/15/19 (MBIA Insured) 4,675 1,149
Zero Coupon, 2/15/20 (MBIA Insured) 770 182
Zero Coupon, 8/15/20 (MBIA Insured) 4,810 1,099
Mobile Airport Auth., 8.875%, 10/1/15 * 1,950 2,158
Mobile IDB, Mobile Energy, 6.95%, 1/1/20 1,400 1,522
Shelby County, GO
7.40%, 8/1/07 2,000 2,229
7.70%, 8/1/17 1,000 1,121
Total Alabama (Cost $34,115) 38,508
ALASKA 1.3%
Alaska Housing Fin., 5.875%, 12/1/24
(MBIA Insured) 5,000 5,063
Valdez Marine Terminal, British
Petroleum Pipeline
5.50%, 10/1/28 10,000 9,710
Total Alaska (Cost $14,427) 14,773
ARIZONA 0.2%
Tempe IDA, Friendship Village of
Tempe, 6.75%, 12/1/13 1,950 2,005
Total Arizona (Cost $1,857) 2,005
ARKANSAS 0.3%
Independence County, PCR, Mississippi
Power and Light
VRDN (Currently 7.625%) $ 3,000 $ 3,133
Total Arkansas (Cost $3,000) 3,133
CALIFORNIA 5.3%
California, GO, 5.25%, 10/1/18 (FGIC Insured)2,000 1,943
California HFFA, Daughters of Charity
Health Systems
(St. Francis Medical Center)
5.75%, 10/1/23 (Escrowed to Maturity) 6,515 6,854
California Pollution Control Fin.
Auth., PCR
Canfibre of Riverside, 9.00%, 7/1/19 * 4,000 4,030
Central Coast Water Auth., 5.00%,
10/1/22 (AMBAC Insured) 3,000 2,824
Foothill / Eastern Transportation
Corridor Agency
California Toll Road
Zero Coupon, 1/1/15 2,500 898
Zero Coupon, 1/1/17 12,265 3,903
Zero Coupon, 1/1/19 10,000 2,821
Zero Coupon, 1/1/25 8,000 1,568
Zero Coupon, 1/1/26 17,500 3,232
Zero Coupon, 1/1/28 10,000 1,639
Zero Coupon, 1/1/30 25,000 3,638
Fresno Joint Powers Fin. Auth., 6.55%,
9/2/12 3,000 3,197
Inglewood Redev. Agency, Century
Redev., 6.125%, 7/1/23 3,440 3,509
Los Angeles County, GO
Marina del Rey, COP, 6.50%, 7/1/08 3,250 3,445
TRAN, 4.50%, 6/30/98 5,000 5,027
Los Angeles County Public Works Fin. Auth.
Rowland Heights, 5.50%, 10/1/18
(FSA Insured) 2,750 2,798
Los Angeles Unified School Dist.,
GO, TRAN, 4.50%, 10/1/98 5,000 5,031
San Jose Redev. Agency, Tax Allocation
5.25%, 8/1/16 (MBIA Insured) 4,000 3,861
Total California (Cost $54,856) 60,218
COLORADO 4.6%
Boulder County
Boulder Medical Center
8.625%, 1/1/07 * $ 820 $ 839
8.75%, 1/1/12 * 1,205 1,234
8.875%, 1/1/17 * 1,190 1,218
Longmont United Hosp.
8.20%, 12/1/20 (Prerefunded 12/1/00!) 1,540 1,732
Colorado Housing Fin. Auth.
8.65%, 8/1/03 680 711
8.70%, 11/1/04 * 1,280 1,341
9.00%, 8/1/03 665 692
9.40%, 8/1/03 * 505 527
9.60%, 8/1/01 * 350 367
Denver City and County, Airport System,
United Air Lines
6.875%, 10/1/32 * 11,000 11,739
E-470 Public Highway Auth.
Zero Coupon, 8/31/09
(Prerefunded 8/31/05!) 10,000 5,261
Zero Coupon, 9/1/13 (MBIA Insured) 20,000 8,431
Zero Coupon, 8/31/15
(Prerefunded 8/31/05!) 10,000 3,321
Zero Coupon, 8/31/26
(Prerefunded 8/31/05!) 39,000 5,558
7.00%, 8/31/26 (Prerefunded 8/31/05!) 5,000 5,856
El Paso County, GO, School Dist. No.
20, 6.35%, 12/15/06 3,000 3,335
Total Colorado (Cost $46,779) 52,162
CONNECTICUT 0.1%
Connecticut Dev. Auth., Mystic
Marinelife Aquarium
7.00%, 12/1/27 1,700 1,759
Total Connecticut (Cost $1,700) 1,759
DELAWARE 1.1%
Delaware Economic Dev. Auth.
Delmarva Power and Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,754
Delaware Economic Dev. Auth.
Peninsula Methodist Homes
8.50%, 5/1/22 (Prerefunded 5/1/02!) $ 2,500 $ 2,937
Delaware HFA, Beebe Medical Center,
6.75%, 6/1/14 3,975 4,231
Wilmington, Riverside Osteopathic Hosp.
10.20%, 10/1/18 (Prerefunded 10/1/98!) 2,000 2,168
Total Delaware (Cost $10,857) 12,090
DISTRICT OF COLUMBIA 1.2%
Dist. of Columbia, GO
5.50%, 6/1/17 (AMBAC Insured) 6,000 5,949
Dist. of Columbia
American Geophysical Union, 5.875%,
9/1/23 1,750 1,706
Medlantic Health Care Group
5.75%, 8/15/26 (MBIA Insured) 6,000 6,063
Total District of Columbia (Cost $13,231) 13,718
FLORIDA 2.7%
Brevard County Tourist Dev.
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 1,520 1,632
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 4,505 4,908
Broward Waste Energy, L.P. South
7.95%, 12/1/08 4,575 4,981
Charlotte County, IDR, Beverly
Enterprises, 10.00%, 6/1/11 865 986
Collier County IDA, Beverly Enterprises,
10.75%, 3/1/03 1,905 2,190
Dade County, Guaranteed Entitlement
Zero Coupon, 2/1/12 (MBIA Insured) 14,715 6,776
Escambia County, IDR, Beverly
Enterprises, 9.80%, 6/1/11 450 501
Hernando County, IDR, Beverly
Enterprises, 10.00%, 9/1/11 830 953
Jacksonville, IDR, Beverly Enterprises,
9.75%, 10/1/11 865 945
Leon County, IDR, Beverly Enterprises,
9.80%, 6/1/11 445 491
Manatee County Housing Fin. Auth.,
Capital Appreciation
Zero Coupon, 10/1/15 4,085 628
Orange County IDA, IDR, Beverly
Enterprises, 9.25%, 8/1/10 430 482
Santa Rosa County HFA, Gulf Breeze
Hosp., 8.60%, 10/1/02 $ 765 $ 806
St. John's County IDA, Vicar's Landing,
6.75%, 2/15/12 4,000 4,078
Total Florida (Cost $28,313) 30,357
GEORGIA 2.1%
Coweta County Residential Care Fac. for
the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 3,145 3,617
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 (MBIA Insured) 6,500 6,583
6.25%, 1/1/17 4,000 4,329
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16 * 4,390 4,692
7.50%, 1/1/26 * 4,400 4,713
Total Georgia (Cost $22,666) 23,934
HAWAII 1.0%
Hawaii Dept. of Budget and Fin.
Kapi'olani Health Obligated Group
6.20%, 7/1/16 2,000 2,101
6.25%, 7/1/21 4,000 4,206
Hawaii Housing Fin. and Dev., Single
Family, 5.75%, 7/1/30 * 5,000 4,948
Total Hawaii (Cost $11,051) 11,255
IDAHO 0.8%
Idaho HFA
Single Family
6.30%, 1/1/24 * 5,000 5,180
7.80%, 1/1/23 * 1,705 1,801
Idaho Student Loan Marketing Assoc.,
6.70%, 10/1/07 * 2,500 2,624
Total Idaho (Cost $9,200) 9,605
ILLINOIS 9.4%
Aurora, Dreyer Medical Clinic, 8.75%, 7/1/144,275 4,869
Chicago, GO
5.125%, 1/1/16 (FGIC Insured) $ 7,685 $ 7,388
6.25%, 1/1/15 (AMBAC Insured) 3,500 3,878
Chicago, Water, 5.00%, 11/1/25 (FGIC Insured)5,000 4,637
Chicago-O'Hare Int'l. Airport
American Airlines, 7.875%, 11/1/25 * 2,500 2,730
United Airlines, 8.20%, 5/1/18 1,960 2,113
Illinois Dev. Fin. Auth., Palos
Community Hosp.
VRDN (Currently 3.30%) 3,700 3,700
Illinois HFA
Community Hosp. of Ottawa, 6.85%, 8/15/245,275 5,671
Covenant Retirement Community, 7.60%,
12/1/12 2,665 2,935
Glen Oaks Medical Center
7.00%, 11/15/19
(Escrowed to Maturity) 3,300 3,765
9.50%, 11/15/15
(Escrowed to Maturity) 2,100 2,478
Hinsdale Hosp.
7.00%, 11/15/19
(Escrowed to Maturity) 5,100 5,818
9.00%, 11/15/15
(Escrowed to Maturity) 4,675 5,435
Holy Cross Hosp., 6.75%, 3/1/24 4,000 4,221
Loyola Univ. Health
5.00%, 7/1/24 (MBIA Insured) 8,000 7,368
Memorial Hosp., 7.25%, 5/1/22 9,500 10,163
Riverside Medical Center, 5.75%, 11/15/202,620 2,583
Metropolitan Pier and Exposition Auth.
McCormick Place
Zero Coupon, 6/15/11 (FGIC Insured) 5,000 2,398
Zero Coupon, 12/15/13 (MBIA Insured) 4,000 1,652
Zero Coupon, 6/15/18 (MBIA Insured) 5,000 1,566
Zero Coupon, 12/15/18 (MBIA Insured) 9,400 2,864
Zero Coupon, 6/15/22 (MBIA Insured) 11,000 2,716
Zero Coupon, 6/15/23 (MBIA Insured) 17,355 4,042
Southwestern Illinois Dev. Auth.
Anderson Hosp., 7.00%, 8/15/22 2,500 2,660
Solid Waste Disposal, Shell Oil, Wood River
VRDN (Currently 3.80%) * 5,300 5,300
Village of Carol Stream, DuPage County
Windsor Park Manor
7.00%, 12/1/13 $ 2,000 $ 2,026
7.20%, 12/1/14 1,200 1,232
Total Illinois (Cost $99,951) 106,208
INDIANA 1.7%
Hammond, Sewage and Solid Waste Disposal
American Maize Products, 8.00%, 12/1/24 *4,000 4,640
Indiana HFFA, Clarion Health Partners,
5.50%, 2/15/16 2,800 2,758
Indianapolis Airport Auth., Federal
Express, 7.10%, 1/15/17 * 11,000 12,249
Total Indiana (Cost $18,186) 19,647
KENTUCKY 2.5%
Florence Housing Fac., Bluegrass RHF
Housing, 7.625%, 5/1/27 2,500 2,508
Jefferson County, Louisville Gas and
Electric, 7.45%, 6/15/15 4,250 4,632
Jefferson County HFA, Beverly
Enterprises, 9.75%, 8/1/07 800 870
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22 * 6,000 6,085
7.50%, 2/1/12 * 3,600 3,965
7.50%, 2/1/20 * 5,250 5,782
Kentucky Economic Dev. Fin. Auth.
St. Claire Medical Center
7.125%, 9/1/21 (Prerefunded 9/1/01!) 3,600 4,009
Total Kentucky (Cost $25,261) 27,851
LOUISIANA 3.2%
Lake Charles Harbor and Terminal Dist.,
Panhandle Eastern
7.75%, 8/15/22 5,000 5,711
Louisiana Offshore Terminal Auth.,
LOOP, 7.60%, 9/1/10 8,500 9,284
Louisiana PFA
Beverly Enterprises, 8.25%, 9/1/08 1,280 1,415
St. James Place of Baton Rouge,
10.00%, 11/1/21 4,500 5,045
Plaquemines Parish IDB, PCR, AMAX,
7.25%, 10/1/09 1,280 1,282
Saint Charles Parish, Louisiana Power and Light
8.00%, 12/1/14 8,000 8,732
West Feliciana Parish, PCR, Gulf States
Utilities
8.00%, 12/1/24 $ 4,000 $ 4,277
Total Louisiana (Cost $33,011) 35,746
MAINE 0.5%
Maine Housing Auth., Mortgage Purchase
6.45%, 11/15/26 (AMBAC Insured) * 5,000 5,252
Total Maine (Cost $5,000) 5,252
MARYLAND 3.2%
Berlin, Atlantic General Hosp., 8.375%, 6/1/221,910 2,042
Gaithersburg Economic Auth., Asbury Methodist Home
7.85%, 1/1/20 (Prerefunded 1/1/00!) 2,000 2,190
Maryland CDA, Single Family
Zero Coupon, 4/1/29 * 25,695 2,118
5.95%, 7/1/23 5,000 5,103
7.25%, 4/1/19 2,500 2,632
Maryland Energy Fin. Administration
Solid Waste Disposal, Hagerstown
9.00%, 10/15/16 * 250 75
Maryland HHEFA
Doctor's Community Hosp., 5.50%, 7/1/24 3,000 2,841
Union Hosp. of Cecil County, 6.70%, 7/1/222,725 2,870
Maryland Ind. Dev. Fin. Auth.
Associated Catholic Charities, 9.00%, 1/1/101,425 1,546
American Association of Blood Banks
7.25%, 8/1/13 2,700 2,860
Georgetown Bakery Management
9.25%, 9/1/04 * 1,245 1,328
Maryland-National Capital Park and
Planning Commission
GO, BAN, Prince George's County
VRDN (Currently 3.75%), 8/1/02 3,000 3,000
Little Bennett Golf Fac., 8.25%, 10/1/11 2,195 2,410
Montgomery County Housing Opportunities
Commission Multifamily, Strathmore
Court at White Flint
8.75%, 7/1/27 2,000 2,108
Montgomery County Housing Opportunities Commission
Single Family
6.10%, 7/1/27 $ 1,975 $ 2,038
7.50%, 7/1/17 675 712
Total Maryland (Cost $33,775) 35,873
MASSACHUSETTS 2.1%
Massachusetts, GO, 7.50%, 6/1/04 2,750 3,192
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/19 2,500 3,002
7.00%, 3/1/21 2,000 2,417
Massachusetts HEFA
Melrose Wakefield Health Care, 6.00%, 7/1/121,650 1,690
New England Deaconess Hosp., 7.20%, 4/1/223,535 3,833
Massachusetts Housing Fin. Agency
Housing Project
6.375%, 4/1/21 (AMBAC Insured) 1,950 2,035
Single Family, 6.35%, 6/1/17 1,750 1,835
Massachusetts Ind. Fin. Agency, Nevins
Home, 7.875%, 7/1/23 5,335 5,632
Total Massachusetts (Cost $21,720) 23,636
MICHIGAN 2.7%
Dickinson County, Economic Dev.,
Champion Int'l
5.85%, 10/1/18 4,000 4,048
Michigan, Dow Chemical, VRDN (Currently 3.75%)5,020 5,020
Michigan HDA
6.20%, 6/1/27 * 2,500 2,579
6.50%, 12/1/17 3,520 3,702
7.75%, 12/1/19 * 195 197
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 2,000 2,223
Henry Ford Health, 5.25%, 11/15/25 6,000 5,720
Pontiac Osteopathic Hosp., 6.00%, 2/1/24 3,150 3,172
Saratoga Community Hosp., 8.75%, 6/1/10 3,785 4,263
Total Michigan (Cost $28,501) 30,924
MINNESOTA 0.2%
Minnesota Housing Fin. Agency, Single
Family, 6.70%, 1/1/18 $ 1,900 $ 2,018
Total Minnesota (Cost $1,900) 2,018
MISSISSIPPI 2.2%
Adams County, Jefferson Davis Memorial Hosp.
8.00%, 10/1/16 (Prerefunded 10/1/01!) 3,805 4,370
Claiborne County, PCR
Systems Energy Resources
7.30%, 5/1/25 1,100 1,162
9.50%, 12/1/13 2,000 2,165
9.875%, 12/1/14 7,800 8,457
Mississippi Business Fin., Solid Waste
Disposal
VRDN (Currently 3.80%) * 3,300 3,300
Mississippi Home, Single Family, 9.25%,
3/1/12 (FGIC Insured) 217 232
Mississippi Hosp. Equipment and Fac. Auth.
Magnolia Hosp., 7.375%, 10/1/21 3,000 3,148
Rush Medical Foundation
6.00%, 1/1/16 800 798
6.00%, 1/1/22 1,000 990
Total Mississippi (Cost $23,463) 24,622
MISSOURI 2.0%
Hannibal IDA, Hannibal Medical Center
9.50%, 3/1/22 (Prerefunded 9/1/01!) 4,000 4,909
Joplin IDA, Tri-State Osteopathic Hosp.,
8.25%, 12/15/14 1,155 1,274
Lees Summit IDA, John Knox Village,
7.125%, 8/15/12 1,500 1,600
Missouri Environmental Improvement and
Energy Resources Auth., Union Electric
3.775%, 12/1/20 5,000 5,000
Missouri HEFA
Bethesda Health Group, 7.50%, 8/15/12 1,250 1,393
Still Regional Medical Center, 7.70%,
2/1/13 4,250 4,619
Ray County, Ray County Memorial Hosp.,
9.625%, 11/15/13 3,200 3,412
Total Missouri (Cost $20,264) 22,207
MONTANA 0.3%
Montana Board of Housing
Sub. Lien
7.85%, 10/1/04 (FHA Guaranteed) $ 685 $ 724
8.40%, 10/1/03 * 630 655
8.50%, 10/1/02 495 516
8.525%, 10/1/02 (FHA Guaranteed) 455 473
8.95%, 10/1/02 * 520 542
9.20%, 10/1/01 * 325 336
Total Montana (Cost $3,110) 3,246
NEBRASKA 1.7%
Douglas County Hosp. Auth., Immanuel
Medical Center
7.00%, 9/1/21 (AMBAC Insured) 5,500 6,121
Nebraska Investment Fin. Auth.
Single Family
6.45%, 3/1/28 (GNMA Guaranteed) * 4,985 5,246
Residual Interest Bond / Inverse Floater
(Currently 11.135%), 3/15/22
(GNMA Guaranteed) * 665 737
Residual Interest Bond / Inverse Floater
(Currently 11.328%), 9/10/30
(GNMA Guaranteed) * 1,400 1,577
Nebraska Public Power Dist., Electric
5.25%, 1/1/22 (MBIA Insured) 6,000 5,776
Total Nebraska (Cost $18,027) 19,457
NEVADA 0.9%
Clark County, IDR
Southwest Gas
7.30%, 9/1/27 3,000 3,308
7.50%, 9/1/32 * 5,000 5,553
Nevada Housing Division
Sub. Lien
9.35%, 10/1/02 320 330
9.375%, 10/1/00 * 235 243
Nevada Housing Division
Sub. Lien
9.45%, 10/1/03 (FGIC Insured) * $ 590 $ 618
9.65%, 10/1/02 * 505 532
Total Nevada (Cost $9,646) 10,584
NEW HAMPSHIRE 0.3%
New Hampshire HHEFA, Catholic Medical Center
8.25%, 7/1/13 3,000 3,193
Total New Hampshire (Cost $3,032) 3,193
NEW JERSEY 1.7%
Camden County Improvement Auth.
Kaighn Point Marine Terminal
8.00%, 6/1/27 * 4,000 4,080
New Jersey Economic Dev. Auth.,
Keswick Pines
8.75%, 1/1/24 6,000 6,524
New Jersey HFFA, Raritan Bay Medical
Center, 7.25%, 7/1/27 2,290 2,432
New Jersey Sports and Exposition Auth.,
Monmouth Park
8.00%, 1/1/25 5,250 5,868
Total New Jersey (Cost $17,206) 18,904
NEW MEXICO 0.6%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 2,400 2,490
6.375%, 4/1/22 4,300 4,472
Total New Mexico (Cost $6,700) 6,962
NEW YORK 10.1%
Dormitory Auth. of the State of New York
City Univ.
5.625%, 7/1/16 3,100 3,159
6.00%, 7/1/14 2,730 2,925
State Univ. Ed. Fac.
5.25%, 5/15/13 5,000 4,880
Dormitory Auth. of the State of New York
State Univ. Ed. Fac.
5.25%, 5/15/19 $ 5,000 $ 4,842
5.40%, 5/15/23 3,810 3,641
5.875%, 5/15/17 3,000 3,153
Metropolitan Transportation Auth.
Service Contract
5.50%, 7/1/17 4,000 4,019
7.125%, 7/1/09 4,000 4,409
New York City, GO
5.75%, 2/1/14 8,140 8,197
5.875%, 3/15/13 2,750 2,810
6.00%, 8/1/06 2,000 2,125
6.00%, 2/15/16 6,000 6,148
6.00%, 8/1/17 4,500 4,627
6.20%, 8/1/07 5,000 5,349
6.25%, 8/1/09 7,000 7,502
7.75%, 8/15/15 (Prerefunded 8/15/01!) 2,345 2,667
New York City Housing Dev., Multi-Family
Housing
5.50%, 11/1/09 3,600 3,670
New York City Municipal Water Fin. Auth.,
Water and Sewer
5.50%, 6/15/23 5,000 4,938
New York State Energy Research and
Dev. Auth. Long Island Lighting,
7.15%, 6/1/20 * 8,000 8,619
New York State Local Government Assistance
5.00%, 4/1/21 (AMBAC Insured) 5,000 4,672
New York State Mortgage Agency
Homeowner
5.90%, 4/1/27 4,000 4,089
6.45%, 10/1/17 2,400 2,557
7.50%, 4/1/26 * 3,000 3,249
New York State Urban Dev.
5.25%, 1/1/21 5,500 5,169
Correctional Capital Fac., 5.375%, 1/1/254,000 3,800
State Fac., 5.60%, 4/1/15 3,000 3,050
Total New York (Cost $106,182) 114,266
NORTH CAROLINA 0.2%
North Carolina Medical Care Commission
Valdese General Hosp., 8.75%, 10/1/16 $ 2,035 $ 2,315
Total North Carolina (Cost $2,004) 2,315
NORTH DAKOTA 0.8%
Grand Forks Health Care, ALTRU Health
5.625%, 8/15/27 (MBIA Insured) 5,000 5,011
Mercer County, PCR, Basin Electrical Power
7.20%, 6/30/13 (AMBAC Insured) 3,500 4,225
Total North Dakota (Cost $8,975) 9,236
OHIO 5.0%
Akron, Municipal Baseball Stadium, COP
Zero Coupon, 12/1/16 2,200 1,807
Cambridge, Guernsey Memorial Hosp., 8.00%,
12/1/11 1,500 1,658
Cleveland Parking Fac., 8.10%, 9/15/22
(Prerefunded 9/15/02!) 10,000 11,757
Dayton, Special Fac., Emery Air Freight,
6.05%, 10/1/09 2,500 2,614
Fairfield Economic Dev. Auth., Beverly
Enterprises
8.50%, 1/1/03 2,775 3,024
Franklin County Hosp., U.S. Health, VRDN
(Currently 3.35%) 4,100 4,100
Marion County Health Care Fac., United
Church Homes
8.875%, 12/1/12
(Prerefunded 12/1/99!) 3,225 3,630
Ohio Air Quality Dev. Auth., PCR
Cleveland Electric, 6.00%, 8/1/20 2,700 2,717
Toledo Edison, 8.00%, 5/15/19 2,750 2,939
Ohio Housing Fin. Agency
Residential Mortgage, 5.75%, 9/1/28 * 4,400 4,369
Single Family
Residual Interest Bond / Inverse Floater
(Currently 9.751%), 3/31/31
(GNMA Guaranteed) * 690 769
Ohio Water Dev. Auth., PCR
Cleveland Electric
6.10%, 8/1/20 * 2,600 2,610
Ohio Water Dev. Auth., PCR
Cleveland Electric
7.70%, 8/1/25 $ 2,800 $ 3,150
9.75%, 11/1/22 * 2,000 2,019
Toledo Edison
7.55%, 6/1/23 4,500 4,733
8.00%, 10/1/23 * 3,700 4,169
Total Ohio (Cost $52,084) 56,065
OKLAHOMA 2.1%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp.,
7.30%, 8/1/15 4,300 4,459
LeFlore County Hosp. Auth.
Eastern Oklahoma Medical Center,
9.40%, 5/1/06 2,000 2,129
Oklahoma County IDA, Epworth Villa
10.25%, 4/1/19 (Prerefunded 4/1/99!) 2,900 3,219
Tulsa Municipal Airport
American Airlines
7.375%, 12/1/20 * 2,000 2,162
7.60%, 12/1/30 * 5,240 5,736
Washington County Medical Auth.
Jane Phillips Episcopal Hosp.
8.50%, 11/1/10 (Prerefunded 5/1/99!) 5,200 5,653
Total Oklahoma (Cost $21,635) 23,358
OREGON 0.2%
Western Generation Agency, Wauna Cogeneration
7.25%, 1/1/09 * 2,000 2,141
Total Oregon (Cost $1,992) 2,141
PENNSYLVANIA 3.0%
Allegheny County Hosp. Dev. Auth.
Rehabilitation Institute of Pittsburgh
7.00%, 6/1/22 2,000 2,133
St. Francis Medical Center, 5.75%, 5/15/272,000 1,983
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 1,400 1,565
Beaver County IDA, PCR
Toledo Edison, 7.75%, 5/1/20 $ 2,000 $ 2,261
Berks County IDA, Lutheran Home at
Topton, 6.875%, 1/1/23 5,000 5,199
Blair County Hosp. Auth., Mercy Hosp.
8.125%, 2/1/14 (Prerefunded 2/1/99!) 2,700 2,898
Clarion IDA, IDR, Health Fac., Beverly
Enterprises
10.125%, 5/1/07 800 873
Greene County IDA, Greene Health Care Assoc.
Beverly Enterprises, 6.875%, 3/1/13 2,430 2,462
Montgomery County Higher Ed. and Health Auth.
Brittany Pointe
8.50%, 1/1/22 (Prerefunded 1/1/03!) 2,500 2,986
Redeemer Long Term Care and Elder Services
8.00%, 6/1/22 5,755 6,174
8.20%, 6/1/06 880 941
Pennsylvania HEFA, Medical College of
Pennsylvania
8.375%, 3/1/11 (Prerefunded 3/1/99!) 2,200 2,379
Pennsylvania Housing Fac. Auth.
Residual Interest Bond / Inverse Floater
(Currently 9.812%), 10/1/23 * 1,500 1,712
Total Pennsylvania (Cost $30,852) 33,566
PUERTO RICO 0.8%
Puerto Rico Highway and Transportation
Auth., 5.50%, 7/1/15 6,000 6,040
Puerto Rico Infrastructure Fin. Auth.,
7.50%, 7/1/09 2,365 2,482
Total Puerto Rico (Cost $8,058) 8,522
RHODE ISLAND 1.1%
Rhode Island Health and Ed. Building
Rhode Island Hosp.
Residual Interest Bond / Inverse Floater
(Currently 9.816%), 8/15/21
(FGIC Insured) 1,000 1,207
Rhode Island Housing and Mortgage Fin.
8.05%, 4/1/22 * 5,000 5,258
Rhode Island Housing and Mortgage Fin.
Residual Interest Bond / Inverse Floater
(Currently 10.266%), 4/1/24 * $ 1,000 $ 1,123
Homeownership Opportunity, 6.70%, 10/1/145,000 5,318
Total Rhode Island (Cost $11,975) 12,906
SOUTH DAKOTA 0.5%
South Dakota HDA, Homeownership, 6.65%, 5/1/142,500 2,659
South Dakota HEFA, Sioux Valley Hosp.
VRDN (Currently 3.40%) 2,500 2,500
Total South Dakota (Cost $5,000) 5,159
TENNESSEE 1.5%
Metropolitan Gov't. of Nashville and
Davidson Counties
Mur-Ci Homes, 7.75%, 12/1/26 4,700 4,800
Water and Sewer, STEP
Zero Coupon, 1/1/12 (FGIC Insured) 8,750 10,006
Tennessee Housing Dev. Agency, 7.625%, 7/1/22 *1,900 2,019
Total Tennessee (Cost $16,240) 16,825
TEXAS 6.7%
Alliance Airport Auth., American Airlines,
7.00%, 12/1/11 * 3,000 3,436
Amarillo Health Fac., Sears Panhandle
Retirement
7.75%, 8/15/26 4,800 4,990
Bell County Health Fac. Dev., King's
Daughter Hosp.
9.25%, 7/1/08 2,995 3,257
Brazos River Auth., Houston Lighting and
Power
6.375%, 4/1/12 (MBIA Insured) 10,000 10,884
Denison Hosp. Auth., Texoma Medical
Center, 7.10%, 8/15/24 3,650 3,962
Gainesville IDC, GTE Valenite, 8.90%, 5/15/11 *3,060 3,334
Gulf Coast Waste Disposal Auth.
Houston Lighting and Power, Floating Rate
(Currently 5.10%), 6/1/98 5,000 5,000
Harris County, Toll Road, 6.375%, 8/15/24
(MBIA Insured) 2,500 2,796
Harris County Health Fac. Dev.
Memorial Hosp.
7.125%, 6/1/15 (Prerefunded 6/1/02!)$ 5,000 $ 5,639
Methodist Hosp., VRDN (Currently 3.70%) 8,300 8,300
Texas Medical Center
7.375%, 5/15/20 (MBIA Insured)
(Prerefunded 5/15/00!) 2,350 2,577
Matagorda County Navigation Dist., PCR
Central Power and Light, 7.50%, 12/15/14 2,000 2,191
Northwest Texas Independent School Dist., GO
School Buildings, Zero Coupon, 8/15/32 20,000 2,357
Paris Health Fac. Dev., McCuistion Regional
Medical Center
7.60%, 2/1/12 4,500 4,892
San Antonio Electric and Gas
Zero Coupon, 2/1/10 (FGIC Insured) 5,000 2,598
Texas, GO, Veterans Housing Assistance,
6.25%, 12/1/15 1,950 2,002
Tomball Hosp. Auth., Tomball Regional
Hosp., 6.10%, 7/1/08 5,000 5,136
Trinity River Auth., PCR, Texas
Utilities Electric
VRDN (Currently 3.70%)
(AMBAC Insured) * 1,700 1,700
Total Texas (Cost $69,367) 75,051
UTAH 1.1%
Intermountain Power Agency
5.25%, 7/1/14 1,000 999
5.75%, 7/1/19 (MBIA Insured) 4,000 4,082
Tooele County, PCR, Laidlaw Environmental,
7.55%, 7/1/27 * 2,000 2,058
Utah Housing Fin. Agency
Sub. Lien
6.25%, 7/1/05 455 469
7.50%, 7/1/05 710 755
7.60%, 7/1/05 720 758
7.75%, 7/1/05 730 770
7.75%, 1/1/23 * 280 292
8.40%, 7/1/08 * 115 119
8.55%, 7/1/04 225 234
Utah Housing Fin. Agency
Sub. Lien
8.65%, 7/1/04 $ 550 $ 572
8.70%, 7/1/01 110 113
9.00%, 1/1/19 * 335 352
9.25%, 7/1/01 135 140
9.30%, 7/1/00 * 35 36
9.60%, 7/1/02 * 25 26
9.75%, 7/1/02 45 46
9.85%, 7/1/02 * 120 123
9.875%, 1/1/99 * 30 31
10.50%, 1/1/99 * 25 25
10.625%, 7/1/99 * 35 35
Total Utah (Cost $11,426) 12,035
VERMONT 0.1%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
7.45%, 9/1/23 (FGIC Insured) 1,400 1,496
Total Vermont (Cost $1,400) 1,496
VIRGINIA 1.5%
Chesapeake Bay Bridge and Tunnel Commission
5.00%, 7/1/22 (MBIA Insured) 5,920 5,544
Norfolk Port and Ind. Auth., Henson
Aviation, 9.625%, 8/1/12 * 800 903
Roanoke IDA, Roanoke Memorial Hosp.
Carilion Health System, VRDN
(Currently 3.25%) 2,545 2,545
Virginia HDA
Zero Coupon, 7/1/29 * 830 75
7.10%, 1/1/22 2,250 2,374
7.10%, 1/1/25 5,000 5,275
Total Virginia (Cost $15,970) 16,716
WASHINGTON 1.5%
Spokane County IDC, Kaiser Aluminum and Chemical
7.60%, 3/1/27 * 2,500 2,641
Washington, GO, 5.70%, 10/1/15 $ 7,500 $ 7,891
Washington Public Power Supply System
Zero Coupon, 7/1/14 (FSA Insured) 6,400 2,525
6.30%, 7/1/12 2,000 2,180
7.25%, 7/1/09 1,000 1,172
Total Washington (Cost $14,893) 16,409
WEST VIRGINIA 0.2%
West Virginia Hosp. Fin. Auth.
West Virginia Univ. Hosp.
Residual Interest Bond / Inverse Floater
(Currently 9.40%), 1/1/18
(MBIA Insured) 2,000 2,129
Total West Virginia (Cost $2,000) 2,129
WISCONSIN 1.8%
Wisconsin HEFA
National Regency of New Berlin,
8.00%, 8/15/25 6,000 6,426
Sinai Samaritan Medical Center
5.875%, 8/15/26 (MBIA Insured) 3,500 3,569
Waukesha Memorial Hosp.
5.25%, 8/15/19 (AMBAC Insured) 3,835 3,657
Wisconsin HFA, Villa Clement, 8.75%, 6/1/12 1,460 1,464
Wisconsin Housing and Economic Dev. Auth.
7.75%, 9/1/17 3,820 3,944
8.00%, 3/1/21 * 935 962
Total Wisconsin (Cost $18,930) 20,022
WYOMING 1.2%
Converse County, PCR, Pacificorp
VRDN (Currently 3.70%)
(AMBAC Insured) 1,200 1,200
Sweetwater County, PCR, Solid Waste
Disposal, FMC
6.90%, 9/1/24 * 5,000 5,468
Wyoming CDA
5.85%, 6/1/28 * $ 3,800 $ 3,799
Single Family, 6.70%, 6/1/17 3,015 3,178
Total Wyoming (Cost $12,507) 13,645
Total Investments in Securities
98.7% of Net Assets (Cost $1,032,295) $1,111,709
Other Assets Less Liabilities 14,371
NET ASSETS $1,126,080
___________
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 67
Accumulated net realized gain/loss -
net of distributions (10,829)
Net unrealized gain (loss) 79,414
Paid-in-capital applicable to 91,314,711
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized 1,057,428
NET ASSETS $1,126,080
___________
NET ASSET VALUE PER SHARE $ 12.33
___________
* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
AMBAC AMBAC Indemnity Corp.
BAN Bond Anticipation Note
CDA Community Development Administration
COP Certificates of Participation
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 note for which the interest rate will adjust on
specified future dates.
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
Unaudited
Statement of Operations
In thousands
6 Months
Ended
8/31/97
Investment Income
Interest income $ 34,790
Expenses
Investment management 3,404
Shareholder servicing 359
Custody and accounting 92
Registration 34
Prospectus and shareholder reports 31
Directors 8
Legal and audit 5
Miscellaneous 15
Total expenses 3,948
Net investment income 30,842
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 2,471
Futures (573)
Net realized gain (loss) 1,898
Change in net unrealized gain or loss on securities 17,157
Net realized and unrealized gain (loss) 19,055
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 49,897
___________
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
Unaudited
Statement of Changes in Net Assets
In thousands
6 Months Year
Ended Ended
8/31/97 2/28/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 30,842 $ 58,794
Net realized gain (loss) 1,898 (1,010)
Change in net unrealized gain
or loss 17,157 2,979
Increase (decrease) in net assets
from operations 49,897 60,763
Distributions to shareholders
Net investment income (30,842) (58,787)
Capital share transactions*
Shares sold 152,082 265,794
Distributions reinvested 20,963 40,553
Shares redeemed (119,126) (244,751)
Increase (decrease) in net assets
from capital
share transactions 53,919 61,596
Net Assets
Increase (decrease) during period 72,974 63,572
Beginning of period 1,053,106 989,534
End of period $1,126,080$1,053,106
_______________________
*Share information
Shares sold 12,526 22,238
Distributions reinvested 1,721 3,390
Shares redeemed (9,836) (20,497)
Increase (decrease) in shares outstanding4,411 5,131
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
Unaudited
August 31, 1997
Notes to Financial Statements
T. Rowe Price Tax-Free High Yield Fund
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 August 31, 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 $183,735,000 and $146,379,000, respectively, for the
six months ended August 31, 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.
At August 31, 1997, the aggregate cost of investments for federal income tax
and financial reporting purposes was $1,032,295,000, and net unrealized gain
aggregated $79,414,000, of which $80,796,000 related to appreciated
investments and $1,382,000 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 $593,000 was payable at August 31, 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 0.30% for assets in excess of $80
billion. At August 31, 1997, and for the six months then ended, the effective
annual group fee rates were 0.32% and 0.33%, respectively. 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 $333,000 for the six
months ended August 31, 1997, of which $65,000 was payable at period-end.
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, Diversifying
Overseas: A Guide to International Investing, 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
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Science & Technology
Small-Cap Stock**
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
Emerging Markets Bond
Global Government 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
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. Rowe Price No-Load
Variable Annuity
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
*Closed to new investors.
**Formerly the OTC Fund.
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.
T. Rowe Price Discount Brokerage
Discount Brokerage
A Division of T. Rowe Price Investment Services, Inc., Member NASD/SIPC
This low-cost service gives you the opportunity to easily consolidate all
your investments with one company. Through T. Rowe Price Discount Brokerage,
you can buy and sell individual securities-stocks, bonds, options, and
others-at considerable commission savings over full-service brokers.* We also
provide a wide range of services, including:
Automated Telephone and Computer Services You can enter trades, access
quotes, and review account information 24 hours a day, seven days a week. Any
trades executed through these programs save you an additional 10% on
commissions.**
Investor Information A variety of informative reports, such as our Brokerage
Insights series, S&P Market Month newsletter, and select stock reports, can
help you better evaluate economic trends and investment opportunities.
Dividend Reinvestment Service Virtually all stocks held in customer accounts
are eligible for this service, free of charge.
*Based on a February 1997 telephone survey that compared our commission rates
on stock transactions of various sizes with those of other full-service and
discount brokerages. Commission rates will vary based on size and nature of
trades. Services vary by firm. For additional information concerning our
commission rates and services, call 1-800-638-5660.
**Discount applies to our current commission schedule; subject to our $35
minimum commission.
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access(registered trademark):
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price 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
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Tampa, FL 33607
Invest With Confidence (registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
F59-051 8/31/97
THE SHAREHOLDER LETTER AND REPORT FOR THE COMBINED TAX-FREE FUNDS ARE
ATTACHED HERE BY ACCESSING THE FOLLOWING:
Semiannual Report
Tax-Free
Funds
August 31, 1997
T. Rowe Price
Report Highlights
Tax-Free Funds
o Municipal bonds outperformed Treasuries during most of the
past six months. Inflation remained subdued despite strong
economic growth.
o The spreads between yields on higher- and lower-quality
bonds continued to narrow, resulting in stronger relative
performance for the lower-quality sector of the market.
o All five funds generated modest to good returns for the six
months ended August 31.
o Your funds relied to a great extent on credit research,
yield curve positioning, and duration management to enhance
returns.
o Despite strong economic growth, we believe the environment
is still favorable for fixed income investors due to low
inflation and fiscal restraint.
Fellow Shareholders
The municipal bond market and your funds generated attractive
returns during the six months ended August 31, 1997. Strong
economic growth in the first quarter of 1997 led the Federal
Reserve to raise the federal funds target rate a quarter-point
to 5.50% in March because of concerns that inflation might
accelerate. However, despite robust economic growth, the Fed has
left rates unchanged since March as inflation remained subdued.
MARKET ENVIRONMENT
Interest rates fluctuated as the market wrestled with a
conflicting combination of strong economic growth and declining
inflation. Both money market and longer-term bond yields began
rising before the March rate hike and continued to rise for a
short time afterward in anticipation of further tightening.
However, excellent news on inflation and progress on controlling
the federal budget deficit diminished fears of further rate
increases. Short-term taxable rates subsequently fell in
mid-April to their earlier levels. Long-term taxable bond yields
also began to fall in the late spring after climbing above 7% in
April. The 30-year Treasury bond yield averaged just over 6.50%
in July and August and 6.80% for the past six months, almost
identical to its average over the two preceding years.
Long-term municipal interest rates followed a similar pattern,
rising in March, peaking in April, then falling in late June and
July when data signaled an economic slowdown. Rates reversed in
August as stronger-than-expected economic data changed the
outlook for the third quarter. Municipal bonds outperformed
Treasuries throughout most of the period except for June when
the highest monthly supply in four years overwhelmed demand. The
yield on long-term AAA GO bonds began the six-month period at
5.50% and ranged between 5.75% and 5.15% before settling at
5.35% at the end of August. Five-year AAA GO yields were 4.40%
six months ago and finished at 4.35%, while one-year notes ended
higher at 3.85%, up from 3.70% last February. Overall, both the
municipal and Treasury yield curves flattened as short-term
rates rose modestly in anticipation of further Fed tightening
and long-term rates trended lower on positive inflation news.
Municipal Bond and Note Yields chart
30-Yr AAA 5-Yr AAA 1-Yr Moody
8/31/96 5.75 4.55 3.9
5.55 4.5 3.85
5.5 4.4 3.7
11/96 5.35 4.2 3.7
5.45 4.35 3.6
5.55 4.45 3.7
2/97 5.5 4.35 3.7
5.75 4.75 3.9
5.6 4.8 3.95
5/97 5.5 4.55 3.9
5.45 4.4 3.85
5.15 4.15 3.85
8/31/97 5.35 4.35 3.85
High-yield bonds were the best-performing sector of the tax-free
market, as their yields fell further than those of
investment-grade bonds. While all sectors benefited from an
expanding economy, the impact was strongest on BBB and
lower-rated securities since their issuers' financial condition
had the most room for improvement. This trend was evidenced by
reports from Moody's and Standard & Poor's that upgrades
exceeded downgrades by more than three to one. Expanding use of
insurance on municipal bonds has resulted in a reduced supply of
A rated and BBB rated bonds, which also contributed to the
strength of lower-quality bonds.
The Taxpayer Relief Act of 1997 contained positive news for
municipal bonds, maintaining favorable tax treatment for
corporations that purchase municipals and eliminating the cap on
the amount of outstanding tax-exempt debt permitted for
non-hospital organizations. Also, the reduction in the capital
gains rate should be favorable for long-term investors. However,
the bill did not raise the income thresholds for the alternative
minimum tax, which would have reduced the number of taxpayers
subject to it, as was widely expected.
TAX-EXEMPT MONEY FUND
Performance Comparison
Periods Ended 8/31/97 6 Months 12 Months
___________________________________________________________
Tax-Exempt Money Fund 1.61% 3.14%
Lipper Tax-Exempt Money
Market Funds Average 1.54 3.01
Our longer-maturity strategy resulted in good returns, enabling
your fund to outperform its peer group during both the 6- and
12-month periods ended August 31, 1997.
The tax-exempt short-term market was fairly stable during the
past six months. Despite the hike in the federal funds rate,
short-term interest rates moved only modestly higher in a calm,
measured fashion. The yield on one-year securities closed the
period 15 basis points (100 basis points equal one percent)
higher than at the end of February and fluctuated within a range
of only 25 basis points.
During the past six months, tax-exempt money fund assets
expanded to a record $154.2 billion, while new issuance of
short-term securities fell 13.3%, or $4.2 billion, from last
year's volume through August. Strong demand, coupled with
contracting supply, helped keep potentially wide yield movements
at bay.
Your fund ended the period with a weighted average maturity of
60 days, close to the 58 days at the end of February. Our
maturity posture was longer than our peer group average of 49
days, as it has been for the last six months. This strategy
enabled us to take advantage of the positively sloped short-term
yield curve, as the difference between overnight and one-year
yields averaged 33 basis points from the end of February through
the end of August.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
Periods Ended 8/31/97 6 Months 12 Months
____________________________________________________________
Tax-Free Short-Intermediate Fund 2.13% 5.33%
Lipper Short-Intermediate
Debt Funds Average 2.17 5.25
Your fund performed roughly in line with the average for its
peer group during the past 6- and 12-month periods, as shown in
the table. Fund exposure to lower-rated bonds enhanced results,
while its slightly shorter duration in June and July detracted
from performance. (For example, a fund with a duration of three
years would fall or rise about 3% in price in response to a one
percentage point rise or fall in interest rates.)
Returns over the last six months were roughly equal to the
coupon earned on a five-year AAA general obligation bond. Yield
spreads between higher- and lower-quality bonds continued to
tighten, causing the latter to outperform the former.
We maintained a slightly defensive posture toward interest rate
risk throughout the period, after shortening duration to 2.8
years from about 3.0 years in January. Through mid-April, as
five-year AAA general obligation yields rose from their February
lows to 4.85%, our defensive posture proved valid. We then began
to extend duration slightly to take advantage of higher yields.
Initial signs of a second quarter economic slowdown began to
emerge, and bond prices started to rise, pushing yields lower.
We began to take profits in June, a bit early as it turned out
since the rally continued into July, driving five-year
high-grade bond yields back down to their February lows. The
fund maintained its conservative posture through August,
performing well relative to its peers.
One effect of the economic expansion was an upgrade in the
credit quality of many issuers. We continued to increase our
allocation to lower-rated issuers whose credit outlook seemed
favorable. New York State lease-backed debt was our largest
exposure to BBB rated securities at the end of August (5.4% of
assets). In line with our expectations, these bonds were
recently upgraded by Standard & Poor's. The favorable outlook
for these bonds caused the yield differential between them and
higher-rated securities to be cut in half since our last
purchase in March. Overall, municipal credit quality should
continue to improve until economic growth slows significantly.
TAX-FREE INSURED INTERMEDIATE BOND FUND
Your fund's defensive duration restrained performance over the
past six and 12 months, resulting in returns that were solid but
slightly lagged the peer group average, as shown in the table.
Performance Comparison
Periods Ended 8/31/97 6 Months 12 Months
______________________________________________________________
Tax-Free Insured Intermediate
Bond Fund 2.79% 6.91%
Lipper Intermediate
Municipal Debt Funds Average 2.89 7.03
The fund's duration was maintained at a neutral to somewhat
defensive level between 5.3 and 5.5 years throughout the past
six months (see page 3 for an explanation of duration). We
entered the period with a relatively short duration, which
reduced fund exposure to interest rate risk; we had shortened
the fund's duration in February from 5.6 years to 5.3 years
since we considered the risk to be increasing. This moderate
shortening helped fund performance during the early part of the
period but proved to be too conservative over the longer run.
Asset allocation along the yield curve made a significant
contribution to performance. Early in the period, intermediate
yields rose (and prices fell) more than longer-term yields,
producing a flattening of the yield curve in response to a
stronger economy and the Fed's tighter monetary policy. Then, as
the economy appeared to slow in the second quarter, intermediate
yields fell further than long-term yields, causing the yield
curve to steepen once again.
The market share of new issues carrying insurance continued to
increase. Through August, insured bonds accounted for 51% of new
municipal issuance compared with 46% in 1996 and 34% in 1992.
This increase is primarily due to the generally rising credit
quality of municipal bond issuers who have benefited from the
current economic expansion. As credit quality increases, more
issuers qualify for insurance. Nevertheless, we continue our
practice of reviewing the credit quality of each issue as though
it were uninsured.
TAX-FREE INCOME FUND
During the past six months, returns were strong for high-quality
long-term bonds. In this environment, your fund outperformed the
average returns for its peer group during both the 6- and
12-month periods shown in the table.
Performance Comparison
Periods Ended 8/31/97 6 Months 12 Months
_____________________________________________________________
Tax-Free Income Fund 3.99% 8.98%
Lipper General Municipal
Debt Funds Average 3.87 8.83
Long-term interest rates moved in a range of about 70 basis
points during the past six months, with medium-quality yields
briefly rising near 6.00% and declining to 5.30%.
We kept the fund's duration within a neutral band during the
period,since we did not expect a break outside the trading range
(see page 3 for an explanation of duration). We also shifted the
portfolio to a slightly more "barbelled" maturity structure by
increasing weightings in bonds with maturities beyond 10 years
and shorter than five years, which enabled performance to
benefit from a flattening yield curve. Compared with six months
ago, the fund's weighted average maturity was slightly longer
but its effective duration was slightly shorter, as lower rates
caused more bonds in the portfolio to trade to shorter call
dates.
Lower-quality investments were good performers over the past six
months as some of their issuers enjoyed credit upgrades.
Exposure to BBB and lower-rated investments was trimmed at the
end of August, after we took some profits when yield spreads
narrowed and increased our weighting in A rated securities. We
will continue to add selectively to lower-quality bonds with
positive credit outlooks.
Our goals over the past six months were to maintain or improve
the fund's yield, to look for ways to add value through credit
research, and to lower exposure to the 5- through 10-year
maturity range. Recently, we bought lower-coupon bonds selling
at a discount (below par) for their potential price
appreciation, and also higher-coupon bonds selling at a premium
(above par) for their income. The flatter yield curve created
some relative value in shorter-term bonds, which prompted us to
purchase some one- and two-year maturities.
TAX-FREE HIGH YIELD FUND
Your fund's robust returns exceeded those of its peer group
average for both the 6- and 12-month periods ended August 31, as
shown in the following table.
Performance Comparison
Periods Ended 8/31/97 6 Months 12 Months
___________________________________________________________
Tax-Free High Yield Fund 4.66% 10.28%
Lipper High Yield Municipal
Debt Funds Average 4.46 9.68
In our last report we mentioned that we expected the high-yield
segment of the market to maintain its narrow yield spreads
versus higher-quality bonds; since then, these spreads have
narrowed even further due to strong demand and lower high-yield
issuance. As the yield gap narrowed, high-yield bonds
outperformed higher-quality bonds on a relative basis. A prime
example of this was the trading activity in general obligation
bonds issued by New York City. Long a benchmark in the BBB
category, New York GO bonds were trading at yields 80 basis
points higher than those of AAA municipals of similar
maturities. That differential declined over the past year to
only 40 basis points. This type of relative performance occurred
generally throughout the high-yield sector.
This ongoing contraction in yields affected the manner in which
we managed the fund-specifically, it dampened our interest in
buying lower-quality bonds. Over the past six months, we allowed
fund exposure to below-investment-grade bonds to fall from 23%
to 20% of net assets, principally through upgrades and
refinancings. We remain buyers of lower-quality bonds when the
returns appear reasonable, keeping in mind our goal of providing
the highest yields possible. However, we will not take
significant risks when the rewards do not appear to be
commensurate. As a result, we do not expect to materially
increase our exposure to lower-quality bonds until the yield
relationships improve.
Quality diversification pie chart on 8/31/97
AAA 7%
AA 27%
A 15%
BBB 31%
BB and Below 20%
We began the six-month period with a duration of 7.2 years, which was neutral
at the time. We shortened it to 6.8 years through most of the period, which
developed into a modestly long position versus our peer group, whose
durations fell even more. At the end of August, duration stood at 7.0 years,
the weighted average maturity at 18.7 years, and fund cash levels were near
5%.
OUTLOOK
The municipal market is facing a pickup in supply in coming months, as
issuers line up to borrow over both the short and long term. Interest rates
have stayed within the narrow range established over the past two years, with
relatively low volatility, and remain attractive for issuers.
Given the high level of consumer and business confidence, we expect the
economy to continue to perform well, although not quite as well as in the
first half of the year. The Federal Reserve has expressed uncertainty about
why inflation has remained so low at this stage of the expansion and is
maintaining a bias toward tightening in an effort to keep inflation in check.
Until signs of accelerating inflation appear, there is little reason for us
to adopt a defensive posture in the funds. The overall environment for fixed
income investors is still favorable, due to continuing low inflation and
fiscal restraint despite above-trend economic growth.
Respectfully submitted,
Mary J. Miller
Director, Municipal Bond Department
September 19, 1997
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key Statistics
2/28/97 8/31/97
Tax-Exempt Money Fund
_______________________________________________________________________
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.015 0.016
For 12 months 0.030 0.031
Dividend Yield (7-Day Compound) * 3.02% 3.04%
Weighted Average Maturity (days) 58 60
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
_______________________________________________________________________
Price Per Share $ 5.35 $ 5.33
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.23 0.22
Dividend Yield *
For 6 months 4.37% 4.27%
For 12 months 4.39 4.37
Weighted Average Maturity (years) 3.6 3.8
Weighted Average Effective Duration (years) 2.8 2.8
Weighted Average Quality *** AA AA-
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key Statistics
2/28/97 8/31/97
Tax-Free Insured Intermediate Bond Fund
_______________________________________________________________________
Price Per Share $10.80 $ 10.86
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.58% 4.44%
For 12 months 4.56 4.56
Weighted Average Maturity (years) 7.4 8.5
Weighted Average Effective Duration (years) 5.3 5.4
Weighted Average Quality *** AA AA
Tax-Free Income Fund
_______________________________________________________________________
Price Per Share $ 9.59 $ 9.71
Dividends Per Share
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 5.48% 5.40%
For 12 months 5.54 5.51
Weighted Average Maturity (years) 17.0 17.4
Weighted Average Effective Duration (years) 7.7 7.5
Weighted Average Quality *** AA- AA-
Portfolio Highlights
Key Statistics
2/28/97 8/31/97
Tax-Free High Yield Fund
_______________________________________________________________________
Price Per Share $12.12 $ 12.33
Dividends Per Share
For 6 months 0.35 0.35
For 12 months 0.70 0.70
Dividend Yield *
For 6 months 5.94% 5.74%
For 12 months 6.02 5.92
Weighted Average Maturity (years) 19.1 18.7
Weighted Average Effective Duration (years) 7.2 7.0
Weighted Average Quality *** BBB+ A-
* 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
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 Inception
8/31/97 1 Year 5 Years 10 Years Inception Date
_____________________________________________________________________
Tax-Exempt Money3.14% 2.77% 3.72% - 4/8/81
Tax-Free Short-
Intermediate 5.33 4.73 5.45 - 12/23/83
Tax-Free Insured
Intermediate
Bond 6.91 - - 6.64% 11/30/92
Tax-Free Income 8.98 6.95 7.51 - 10/26/76
Tax-Free High
Yield10.28 7.49 8.39 - 3/1/85
Investment returns represent past performance and will vary. Shares of the
bond funds may be worth more or less at redemption than at original purchase.
The Money Fund's $1.00 share price is not guaranteed, nor is the fund insured
or guaranteed by the U.S. government.
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.
Tax-Exempt Money Fund SEC Chart
Lipper Tax-Exempt T. Rowe Price
Money Market Tax-Exempt
Funds Index Money Fund
8/31/87 $ 10,000 $ 10,000
8/88 10,458 10,470
8/89 11,066 11,086
8/90 11,679 11,694
8/91 12,227 12,211
8/92 12,610 12,575
8/93 12,867 12,838
8/94 13,124 13,118
8/95 13,543 13,547
8/96 13,956 13,976
8/97 $ 14,380 $ 14,416
Tax-Free High Yield Fund SEC Chart
Lipper High Yield T. Rowe Price
Lehman Revenue Municipal Debt High Yield
Bond Index Funds Average Fund
8/31/87 $ 10,000 $ 10,000 $10,000
8/88 10,854 10,714 10,671
8/89 12,191 11,940 11,811
8/90 12,995 12,568 12,637
8/91 14,620 13,851 13,993
8/92 16,347 15,301 15,595
8/93 18,477 17,071 17,652
8/94 18,449 17,252 17,787
8/95 20,091 18,585 19,172
8/96 21,264 19,584 20,290
8/97 $ 23,350 $ 21,465 $22,376
Tax-Free Income Fund SEC Chart
Lipper General T. Rowe Price
Lehman Municipal Municipal Debt Tax-Free
Bond Index Funds Average Income Fund
8/31/87 $10,000 $10,000 $ 10,000
8/88 10,688 10,684 10,472
8/89 11,862 11,888 11,263
8/90 12,623 12,447 11,860
8/91 14,111 13,923 13,201
8/92 15,687 15,507 14,740
8/93 17,601 17,421 16,733
8/94 17,626 17,250 16,600
8/95 19,188 18,556 17,945
8/96 20,193 19,467 18,924
8/97 $22,060 $21,257 $ 20,623
Tax-Free Short-Intermediate Fund SEC Chart
Lipper Short- T. Rowe Price
Lehman 3-Year Intermediate Debt Tax-Free Short-
GO Bond Index Funds Average Intermediate Fund
8/31/87 $ 10,000 $10,000 $ 10,000
8/88 10,417 10,514 10,431
8/89 11,112 11,196 11,026
8/90 11,844 11,901 11,734
8/91 12,891 12,892 12,599
8/92 14,023 13,919 13,492
8/93 14,947 14,949 14,367
8/94 15,333 15,228 14,679
8/95 16,381 16,126 15,542
8/96 17,026 16,728 16,139
8/97 $ 17,972 $17,647 $ 16,999
Tax-Free Insured Intermediate Fund SEC chart
Lipper Intermediate Tax-Free
Lehman 7-Year GO Municipal Debt Insured Intermediate
Bond Index Funds Average Bond Fund
11/30/92 $ 10,000 $ 10,000 $ 10,000
8/93 10,900 10,892 11,103
8/94 11,022 11,011 11,308
8/95 12,008 11,810 12,212
8/96 12,499 12,300 12,696
8/97 $ 13,489 $ 13,191 $ 13,572
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T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
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and to others who have received
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T. Rowe Price Investment Services, Inc., Distributor.
C03-051 8/31/97
