<PAGE>
- --------------------------------------------------------------------------------
Annual Report -- Financial Statements
- --------------------------------------------------------------------------------
T. ROWE PRICE
TAX-FREE
HIGH YIELD FUND
-----------------
FEBRUARY 28, 1998
-----------------
- --------------------
PORTFOLIO HIGHLIGHTS
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/97 2/28/98
-----------------------------------------------------------------------------
Hospital Revenue 18% 15%
.............................................................................
Industrial and Pollution Control Revenue 13 12
.............................................................................
Nuclear Revenue 11 10
.............................................................................
Housing Finance Revenue 11 10
.............................................................................
General Obligation - Local 7 8
.............................................................................
Prerefunded Bonds 8 8
.............................................................................
Life Care/Nursing Home Revenue 8 8
.............................................................................
Ground Transportation Revenue 3 5
.............................................................................
Lease Revenue 4 5
.............................................................................
Dedicated Tax Revenue 4 4
.............................................................................
Solid Waste Revenue 2 4
.............................................................................
General Obligation - State 2 3
.............................................................................
Water and Sewer Revenue 2 2
.............................................................................
Escrowed to Maturity 2 2
.............................................................................
Miscellaneous Revenue 2 2
.............................................................................
Electric Revenue 2 2
.............................................................................
Other Assets Less Liabilities 1 0
-----------------------------------------------------------------------------
Total 100% 100%
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
- ---------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
- --------------------------------------------------------------------------------
Year
Ended
2/28/98 2/28/97 2/29/96 2/28/95 2/28/94
NET ASSET VALUE
Beginning of period $ 12.12 $ 12.10 $ 11.62 $ 12.26 $ 12.33
.....................................................
Investment activities
Net investment income 0.69 0.70 0.72 0.73 0.74
Net realized and
unrealized gain (loss) 0.54 0.02 0.48 (0.60) 0.16
.....................................................
Total from
investment activities 1.23 0.72 1.20 0.13 0.90
.....................................................
Distributions
Net investment income (0.69) (0.70) (0.72) (0.73) (0.74)
Net realized gain -- -- -- (0.04) (0.23)
.....................................................
Total distributions (0.69) (0.70) (0.72) (0.77) (0.97)
.....................................................
NET ASSET VALUE
End of period $ 12.66 $ 12.12 $ 12.10 $ 11.62 $ 12.26
-----------------------------------------------------
Ratios/Supplemental Data
Total return 10.42% 6.22% 10.62% 1.26% 7.49%
................................................................................
Ratio of expenses to
average net assets 0.72% 0.74% 0.75% 0.79% 0.79%
................................................................................
Ratio of net investment
income to average
net assets 5.59% 5.86% 6.07% 6.29% 5.95%
................................................................................
Portfolio turnover rate 24.4% 37.0% 39.3% 59.6% 59.3%
................................................................................
Net assets, end of
period (in thousands) $1,241,990 $1,053,106 $989,534 $873,546 $941,295
................................................................................
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
February 28, 1998
- -----------------------
STATEMENT OF NET ASSETS Par Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 3.5%
Alabama Docks Dept., Docks Fac.
5.50%, 10/1/22 (MBIA Insured) ** $ 3,000 $ 3,064
................................................................................
Alexander Special Care Fac. Fin. Auth., Russell Hosp.
6.00%, 12/1/22 3,250 3,395
................................................................................
Baldwin County
Eastern Shore Health Care Auth., Thomas Hosp.
6.75%, 4/1/21 1,900 2,074
.........................................................................
8.50%, 4/1/16 (Prerefunded 4/1/01+) 4,000 4,568
.........................................................................
Courtland IDB, Solid Waste Disposal, Champion Int'l.
5.90%, 2/1/17 8,000 8,423
................................................................................
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
7.00%, 10/1/13 2,100 2,284
.........................................................................
10.25%, 10/1/13 6,460 6,858
.........................................................................
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 2/15/18 (MBIA Insured) 1,030 293
.........................................................................
Zero Coupon, 8/15/18 (MBIA Insured) 4,550 1,251
.........................................................................
Zero Coupon, 2/15/19 (MBIA Insured) 905 240
.........................................................................
Zero Coupon, 8/15/19 (MBIA Insured) 4,675 1,197
.........................................................................
Zero Coupon, 2/15/20 (MBIA Insured) 770 190
.........................................................................
Zero Coupon, 8/15/20 (MBIA Insured) 4,810 1,148
................................................................................
Mobile Airport Auth., 8.875%, 10/1/15 * 1,950 2,152
................................................................................
Mobile IDB, Mobile Energy, 6.95%, 1/1/20 1,400 1,573
................................................................................
Montgomery Special Care Facilities, Baptist Medical Center
5.25%, 5/1/20 (AMBAC Insured) ** 2,000 1,934
................................................................................
Shelby County, GO
7.40%, 8/1/07 2,000 2,235
.........................................................................
7.70%, 8/1/17 1,000 1,122
................................................................................
Total Alabama (Cost $39,071) 44,001
............
ALASKA 1.4%
Alaska Housing Fin., 5.875%, 12/1/24 (MBIA Insured) 5,000 5,209
................................................................................
Alaska Industrial Dev. and Export Auth.
Upper Lynn Canal Regional Power
5.875%, 1/1/32 * 1,600 1,611
................................................................................
3
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Valdez Marine Terminal, British Petroleum Pipeline
5.50%, 10/1/28 $ 10,000 $ 10,067
................................................................................
Total Alaska (Cost $15,999) 16,887
..............
ARIZONA 0.3%
Maricopa County, PCR, Public Sewer
VRDN (Currently 3.65%) 1,200 1,200
................................................................................
Tempe IDA, Friendship Village of Tempe, 6.75%, 12/1/13 1,950 2,036
................................................................................
Total Arizona (Cost $3,059) 3,236
..............
ARKANSAS 0.3%
Independence County, PCR, Mississippi Power and Light
7.625%, 7/1/12 3,000 3,112
................................................................................
Total Arkansas (Cost $3,000) 3,112
..............
CALIFORNIA 5.4%
California HFFA, Daughters of Charity Health Systems
(St. Francis Medical Center)
5.75%, 10/1/23 (Escrowed to Maturity) 6,515 6,821
................................................................................
California Pollution Control Fin. Auth., PCR
Canfibre of Riverside, 9.00%, 7/1/19 * 4,000 4,230
................................................................................
Central Coast Water Auth., 5.00%, 10/1/22 (AMBAC Insured) 3,000 2,929
................................................................................
Foothill / Eastern Transportation Corridor Agency
California Toll Road
Zero Coupon, 1/1/15 2,500 1,016
.........................................................................
Zero Coupon, 1/1/17 12,265 4,453
.........................................................................
Zero Coupon, 1/1/19 10,000 3,247
.........................................................................
Zero Coupon, 1/1/25 8,000 1,879
.........................................................................
Zero Coupon, 1/1/26 17,500 3,894
.........................................................................
Zero Coupon, 1/1/28 10,000 1,998
.........................................................................
Zero Coupon, 1/1/30 25,000 4,483
................................................................................
Fresno Joint Powers Fin. Auth., 6.55%, 9/2/12 3,000 3,262
................................................................................
Inglewood Redev. Agency, Century Redev., 6.125%, 7/1/23 3,440 3,600
................................................................................
Los Angeles County, GO
Marina del Rey, COP, 6.50%, 7/1/08 3,250 3,528
............................................................................
TRAN, 4.50%, 6/30/98 5,000 5,015
................................................................................
4
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Los Angeles County Public Works Fin. Auth.
Rowland Heights, 5.50%, 10/1/18 (FSA Insured) $ 2,750 $ 2,922
................................................................................
Los Angeles County Unified School Dist., GO, TRAN
4.50%, 10/1/98 5,000 5,027
................................................................................
Riverside County Asset Leasing, Riverside Hosp.
Zero Coupon, 6/1/21 (MBIA Insured) 9,000 2,640
................................................................................
San Joaquin Hills Transportation Corridor Agency,
Toll Road Zero Coupon, 1/15/15 (MBIA Insured) 5,000 2,126
................................................................................
San Jose Redev. Agency, Tax Allocation
5.25%, 8/1/16 (MBIA Insured) 4,000 4,044
................................................................................
Total California (Cost $57,995) 67,114
..............
COLORADO 3.4%
Boulder County
Boulder Medical Center
8.625%, 1/1/07 * 820 840
.........................................................................
8.75%, 1/1/12 * 1,205 1,235
.........................................................................
8.875%, 1/1/17 * 1,190 1,220
................................................................................
Colorado Housing Fin. Auth.
8.65%, 8/1/03 620 649
.........................................................................
8.70%, 11/1/04 * 1,220 1,284
.........................................................................
9.00%, 8/1/03 615 641
.........................................................................
9.40%, 8/1/03 * 425 445
.........................................................................
9.60%, 8/1/01 * 280 293
................................................................................
Denver City and County, Airport System, United Airlines
6.875%, 10/1/32 * 11,000 12,069
................................................................................
E-470 Public Highway Auth.
Zero Coupon, 8/31/09 (Prerefunded 8/31/05+) 10,000 5,547
.........................................................................
Zero Coupon, 9/1/13 (MBIA Insured) 10,000 4,649
.........................................................................
Zero Coupon, 8/31/15 (Prerefunded 8/31/05+) 10,000 3,501
.........................................................................
Zero Coupon, 8/31/26 (Prerefunded 8/31/05+) 39,000 5,860
................................................................................
El Paso County, GO, School Dist. No. 20, 6.35%, 12/15/06 3,000 3,417
................................................................................
Total Colorado (Cost $35,896) 41,650
..............
5
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
CONNECTICUT 0.8%
Connecticut Dev. Auth., Mystic Marinelife Aquarium
7.00%, 12/1/27 $ 1,700 $ 1,817
................................................................................
Connecticut Housing Fin. Auth., Mortgage Fin.
5.85%, 11/15/28 * 3,000 3,081
................................................................................
Mashantucket Western Pequot Tribe, 5.75%, 9/1/27 4,500 4,599
................................................................................
Total Connecticut (Cost $9,061) 9,497
..............
DELAWARE 1.0%
Delaware Economic Dev. Auth.
Delmarva Power and Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,747
.........................................................................
Peninsula Methodist Homes
8.50%, 5/1/22 (Prerefunded 5/1/02+) 2,500 2,935
................................................................................
Delaware HFA, Beebe Medical Center, 6.75%, 6/1/14 3,975 4,379
................................................................................
Wilmington, Riverside Osteopathic Hosp.
10.20%, 10/1/18 (Prerefunded 10/1/98+) 2,000 2,116
................................................................................
Total Delaware (Cost $10,858) 12,177
..............
DISTRICT OF COLUMBIA 1.1%
Dist. of Columbia
American Geophysical Union, 5.875%, 9/1/23 1,750 1,764
................................................................................
Medlantic Health Care Group
5.75%, 8/15/26 (MBIA Insured) 6,000 6,303
................................................................................
Dist. of Columbia, GO, 5.50%, 6/1/17 (AMBAC Insured) 6,000 6,182
................................................................................
Total District of Columbia (Cost $13,235) 14,249
..............
FLORIDA 4.6%
Brevard County Tourist Dev.
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 1,520 1,649
................................................................................
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 4,315 4,704
.........................................................................
Broward Waste Energy, L.P. South
7.95%, 12/1/08 4,380 4,775
................................................................................
6
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Charlotte County, IDR, Beverly Enterprises,
10.00%, 6/1/11 $ 865 $ 986
................................................................................
Collier County IDA, Beverly Enterprises, 10.75%, 3/1/03 1,740 1,996
................................................................................
Dade County, Guaranteed Entitlement
Zero Coupon, 2/1/12 (MBIA Insured) 14,715 7,203
................................................................................
Escambia County
IDR, Beverly Enterprises, 9.80%, 6/1/11 450 498
............................................................................
PCR, Champion Int'l., 6.90%, 8/1/22 * 5,000 5,607
................................................................................
Florida Board of Ed., GO, Capital Outlay
VRDN (Currently 3.65%) 15,200 15,200
................................................................................
Hernando County, IDR, Beverly Enterprises
10.00%, 9/1/11 830 956
................................................................................
Jacksonville HFA, Hosp. Charity Obligation Group
5.25%, 8/15/27 3,000 2,987
................................................................................
Jacksonville, IDR, Beverly Enterprises, 9.75%, 10/1/11 865 940
................................................................................
Lee County IDA, Cypress Cove, 6.375%, 10/1/25 2,600 2,725
................................................................................
Leon County, IDR, Beverly Enterprises, 9.80%, 6/1/11 445 491
................................................................................
Manatee County Housing Fin. Auth., Capital Appreciation
Zero Coupon, 10/1/15 3,420 561
................................................................................
Orange County IDA, Beverly Enterprises, 9.25%, 8/1/10 430 484
................................................................................
Santa Rosa County HFA, Gulf Breeze Hosp., 8.60%, 10/1/02 765 795
................................................................................
St. John's County IDA, Vicar's Landing, 6.75%, 2/15/12 4,000 4,254
................................................................................
Total Florida (Cost $54,132) 56,811
..............
GEORGIA 2.2%
Athens-Clarke Residential Care Fac., Wesley Woods of Athens
6.375%, 10/1/27 2,500 2,548
................................................................................
Coweta County Residential Care Fac. for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 3,145 3,663
................................................................................
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 (MBIA Insured) 6,500 6,849
.........................................................................
6.25%, 1/1/17 4,000 4,495
................................................................................
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16 * 4,330 4,699
.........................................................................
7.50%, 1/1/26 * 4,400 4,786
................................................................................
Total Georgia (Cost $25,085) 27,040
..............
7
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
HAWAII 0.5%
Hawaii Dept. of Budget and Fin.
Kapiolani Health Obligated Group
6.20%, 7/1/16 $ 2,000 $ 2,157
.........................................................................
6.25%, 7/1/21 4,000 4,302
................................................................................
Total Hawaii (Cost $6,050) 6,459
..............
IDAHO 0.8%
Idaho HFA
Single Family
6.30%, 1/1/24 * 5,000 5,269
.........................................................................
7.80%, 1/1/23 * 1,540 1,623
................................................................................
Idaho Student Loan Marketing Assoc., 6.70%, 10/1/07 * 2,500 2,667
................................................................................
Total Idaho (Cost $9,035) 9,559
..............
ILLINOIS 9.3%
Aurora, Dreyer Medical Clinic, 8.75%, 7/1/14 4,275 4,860
................................................................................
Chicago, GO
5.125%, 1/1/16 (FGIC Insured) 7,685 7,682
.........................................................................
6.25%, 1/1/15 (AMBAC Insured) 3,500 4,024
.........................................................................
Chicago School Reform
Zero Coupon, 12/1/13 (AMBAC Insured) 5,000 2,278
.........................................................................
Zero Coupon, 12/1/14 (AMBAC Insured) 5,000 2,150
................................................................................
Chicago, Water, 5.00%, 11/1/25 (FGIC Insured) 5,000 4,825
................................................................................
Chicago-O'Hare Int'l. Airport
American Airlines, 7.875%, 11/1/25 * 2,500 2,743
............................................................................
United Airlines, 8.20%, 5/1/18 1,960 2,099
................................................................................
Illinois HFA
Community Hosp. of Ottawa, 6.85%, 8/15/24 5,275 5,837
............................................................................
Covenant Retirement Community, 7.60%, 12/1/12 2,665 3,003
............................................................................
Glen Oaks Medical Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,750
.........................................................................
9.50%, 11/15/15 (Escrowed to Maturity) 2,020 2,355
.........................................................................
8
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Illinois HFA
Hinsdale Hosp.
7.00%, 11/15/19 (Escrowed to Maturity) $ 5,100 $ 5,829
.........................................................................
9.00%, 11/15/15 (Escrowed to Maturity) 4,570 5,221
.........................................................................
Holy Cross Hosp., 6.75%, 3/1/24 4,000 4,385
............................................................................
Loyola Univ. Health
5.00%, 7/1/24 (MBIA Insured) 8,000 7,705
.........................................................................
Memorial Hosp., 7.25%, 5/1/22 9,500 10,373
............................................................................
Riverside Medical Center, 5.75%, 11/15/20 2,620 2,679
............................................................................
Victory Health Services, 5.375%, 8/15/16 3,000 2,981
................................................................................
Metropolitan Pier and Exposition Auth.
McCormick Place
Zero Coupon, 6/15/11 (FGIC Insured) 5,000 2,620
.........................................................................
Zero Coupon, 12/15/13 (MBIA Insured) 4,000 1,819
.........................................................................
Zero Coupon, 12/15/19 (MBIA Insured) 5,000 1,605
.........................................................................
Zero Coupon, 6/15/21 (MBIA Insured) 3,385 1,005
.........................................................................
Zero Coupon, 6/15/22 (MBIA Insured) 13,455 3,792
.........................................................................
Zero Coupon, 6/15/23 (MBIA Insured) 17,355 4,643
................................................................................
Robbins Resource Recovery
8.375%, 10/15/10 * 2,000 2,131
.........................................................................
8.375%, 10/15/16 * 7,000 7,458
................................................................................
Southwestern Illinois Dev. Auth., Anderson Hosp.
7.00%, 8/15/22 2,500 2,716
................................................................................
Village of Carol Stream, DuPage County
Windsor Park Manor
7.00%, 12/1/13 2,000 2,150
.........................................................................
7.20%, 12/1/14 1,200 1,300
................................................................................
Total Illinois (Cost $106,242) 116,018
..............
INDIANA 2.4%
Hammond, Sewage and Solid Waste Disposal
American Maize Products, 8.00%, 12/1/24 * 4,000 4,720
................................................................................
Indiana Dev. Fin. Auth., Inland Project, 5.75%, 10/1/11 2,500 2,632
................................................................................
Indiana HFFA, Clarian Health Partners, 5.50%, 2/15/16 2,800 2,860
................................................................................
9
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Indianapolis Airport Auth.
Federal Express, 7.10%, 1/15/17 * $ 11,000 $ 12,377
...........................................................................
United Airlines, 6.50%, 11/15/31 * 5,000 5,465
................................................................................
St. Joseph County Economic Dev.
Madison Center
5.45%, 2/15/17 1,150 1,149
........................................................................
5.50%, 2/15/21 1,000 1,000
........................................................................
Total Indiana (Cost $28,261) 30,203
.............
IOWA 0.2%
Iowa HFA, Wesley Retirement, 6.25%, 2/1/12 2,400 2,449
................................................................................
Total Iowa (Cost $2,400) 2,449
.............
KENTUCKY 2.0%
Florence Housing Fac., Bluegrass RHF Housing
7.625%, 5/1/27 2,500 2,727
................................................................................
Jefferson County, Louisville Gas and Electric,
7.45%, 6/15/15 4,250 4,613
................................................................................
Jefferson County HFA, Beverly Enterprises, 9.75%, 8/1/07 800 862
................................................................................
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22 * 6,000 6,186
........................................................................
7.50%, 2/1/12 * 3,600 4,023
........................................................................
7.50%, 2/1/20 * 5,250 5,845
........................................................................
Total Kentucky (Cost $21,766) 24,256
.............
LOUISIANA 2.9%
Lake Charles Harbor and Terminal Dist., Panhandle Eastern
7.75%, 8/15/22 5,000 5,770
................................................................................
Louisiana Offshore Terminal Auth., Deepwater Port
7.60%, 9/1/10 (Prerefunded 9/1/00+) 8,500 9,322
................................................................................
Louisiana PFA
IDR, Beverly Enterprises, 8.25%, 9/1/08 1,280 1,425
...........................................................................
St. James Place of Baton Rouge, 10.00%, 11/1/21 4,500 5,152
...........................................................................
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 8,678
................................................................................
10
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
West Feliciana Parish, PCR, Gulf States Utilities
8.00%, 12/1/24 $ 4,000 $ 4,292
................................................................................
Total Louisiana (Cost $32,980) 35,921
..............
MAINE 0.4%
Maine Housing Auth., Mortgage Purchase
6.45%, 11/15/26 (AMBAC Insured) * 5,000 5,327
................................................................................
Total Maine (Cost $5,000) 5,327
..............
MARYLAND 2.8%
Berlin, Atlantic General Hosp., 8.375%, 6/1/22 1,910 2,094
................................................................................
Gaithersburg Economic Dev., Asbury Methodist,
5.50%, 1/1/15 5,000 5,052
................................................................................
Maryland CDA
Single Family
Zero Coupon, 4/1/29 * 25,695 2,214
.........................................................................
5.95%, 7/1/23 3,730 3,928
.........................................................................
7.25%, 4/1/19 2,500 2,633
................................................................................
Maryland Energy Fin. Admin.
Solid Waste Disposal, Hagerstown
9.00%, 10/15/16 * 250 75
................................................................................
Maryland HHEFA
Doctor's Community Hosp., 5.50%, 7/1/24 3,000 3,027
............................................................................
Union Hosp. of Cecil County, 6.70%, 7/1/22 2,725 2,941
................................................................................
Maryland Ind. Dev. Fin. Auth.
American Assoc. of Blood Banks, 7.25%, 8/1/13 2,700 2,915
............................................................................
Associated Catholic Charities, 9.00%, 1/1/10 1,315 1,419
............................................................................
Georgetown Bakery Management, 9.25%, 9/1/04 * 1,245 1,321
................................................................................
Maryland-National Capital Park and Planning Commission
Little Bennett Golf Fac.
8.25%, 10/1/11 (Prerefunded 10/1/02+) 2,145 2,542
................................................................................
Montgomery County Housing Opportunities Commission
Multifamily, Strathmore Court at White Flint
8.75%, 7/1/27 2,000 2,120
.........................................................................
11
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Montgomery County Housing Opportunities Commission
Single Family
6.10%, 7/1/27 $ 1,975 $ 2,090
.........................................................................
7.50%, 7/1/17 675 711
.........................................................................
Total Maryland (Cost $32,501) 35,082
..............
MASSACHUSETTS 2.3%
Massachusetts, GO, 7.50%, 6/1/04 2,750 3,166
................................................................................
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/19 2,500 3,123
.........................................................................
7.00%, 3/1/21 2,000 2,524
................................................................................
Massachusetts HEFA
Melrose Wakefield Health Care, 6.00%, 7/1/12 1,650 1,779
............................................................................
New England Deaconess Hosp., 7.20%, 4/1/22 3,535 3,916
................................................................................
Massachusetts Housing Fin. Agency
Housing Project
6.375%, 4/1/21 (AMBAC Insured) 1,950 2,061
.........................................................................
Single Family, 6.35%, 6/1/17 1,750 1,863
................................................................................
Massachusetts Ind. Fin. Agency, Nevins Home,
7.875%, 7/1/23 5,335 5,868
................................................................................
Massachusetts Turnpike Auth.
Metropolitan Highway
5.00%, 1/1/27 (MBIA Insured) 2,500 2,418
.........................................................................
Metropolitan Highway Systems
Zero Coupon, 1/1/21 (MBIA Insured) 7,500 2,327
................................................................................
Total Massachusetts (Cost $26,194) 29,045
..............
MICHIGAN 2.2%
Dickinson County, Economic Dev., Champion Int'l.
5.85%, 10/1/18 4,000 4,201
................................................................................
Garden City Hosp. Fin. Auth., Garden City Hosp.
5.75%, 9/1/17 1,500 1,477
................................................................................
Michigan HDA
6.20%, 6/1/27 * 2,500 2,621
.........................................................................
6.50%, 12/1/17 3,520 3,739
................................................................................
12
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 $ 2,000 $ 2,216
............................................................................
Henry Ford Health, 5.25%, 11/15/25 6,000 5,939
............................................................................
Pontiac Osteopathic Hosp., 6.00%, 2/1/24 3,150 3,316
............................................................................
Saratoga Community Hosp., 8.75%, 6/1/10 3,785 4,417
................................................................................
Total Michigan (Cost $24,769) 27,926
..............
MINNESOTA 0.2%
Minnesota Housing Fin. Agency, Single Family,
6.70%, 1/1/18 1,885 2,020
................................................................................
Total Minnesota (Cost $1,885) 2,020
..............
MISSISSIPPI 1.4%
Claiborne County, PCR
Systems Energy Resources
7.30%, 5/1/25 1,100 1,166
.........................................................................
9.50%, 12/1/13 2,000 2,126
.........................................................................
9.875%, 12/1/14 7,800 8,311
................................................................................
Mississippi Home, Single Family
9.25%, 3/1/12 (FGIC Insured) 192 205
................................................................................
Mississippi Hosp. Equipment and Fac. Auth.
Magnolia Hosp., 7.375%, 10/1/21 3,000 3,186
............................................................................
Rush Medical Foundation
6.00%, 1/1/16 800 839
.........................................................................
6.00%, 1/1/22 1,000 1,044
................................................................................
Total Mississippi (Cost $16,168) 16,877
..............
MISSOURI 1.4%
Hannibal IDA, Hannibal Medical Center
9.50%, 3/1/22 (Prerefunded 9/1/01+) 3,750 4,572
................................................................................
Joplin IDA, Tri-State Osteopathic Hosp., 8.25%, 12/15/14 1,125 1,293
................................................................................
Lee's Summit IDA, John Knox Village, 7.125%, 8/15/12 1,500 1,606
................................................................................
Missouri HEFA
Bethesda Health Group, 7.50%, 8/15/12 1,250 1,405
............................................................................
Still Regional Medical Center, 7.70%, 2/1/13 4,250 4,708
................................................................................
Ray County, Ray County Memorial Hosp., 9.625%, 11/15/13 3,200 3,376
................................................................................
Total Missouri (Cost $14,986) 16,960
..............
13
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
MONTANA 0.2%
Montana Board of Housing
Sub. Lien
7.85%, 10/1/04 (FHA Guaranteed) $ 650 $ 692
.........................................................................
8.40%, 10/1/03 * 580 605
.........................................................................
8.50%, 10/1/02 430 449
.........................................................................
8.525%, 10/1/02 (FHA Guaranteed) 380 396
.........................................................................
8.95%, 10/1/02 * 445 465
.........................................................................
9.20%, 10/1/01 * 270 278
................................................................................
Total Montana (Cost $2,755) 2,885
..............
NEBRASKA 1.6%
Douglas County Hosp. Auth., Immanuel Medical Center
7.00%, 9/1/21 (AMBAC Insured)
(Prerefunded 9/1/01+) 5,500 6,118
................................................................................
Nebraska Investment Fin. Auth.
Single Family
6.45%, 3/1/28 (GNMA Guaranteed) * 4,870 5,193
.........................................................................
Residual Interest Bond / Inverse Floater
(Currently 11.318%), 3/15/22
(GNMA Guaranteed) * 665 736
.........................................................................
Residual Interest Bond / Inverse Floater
(Currently 11.53%), 9/10/30
(GNMA Guaranteed) * 1,300 1,464
................................................................................
Nebraska Public Power Dist., Electric
5.25%, 1/1/22 (MBIA Insured) 6,000 6,007
................................................................................
Total Nebraska (Cost $17,815) 19,518
..............
NEVADA 1.2%
Clark County, IDR
Nevada Power, 5.50%, 10/1/30 3,000 3,013
............................................................................
Southwest Gas
7.30%, 9/1/27 3,000 3,331
.........................................................................
7.50%, 9/1/32 * 5,000 5,588
................................................................................
Clark County, PCR, Nevada Power, 5.30%, 10/1/11 1,800 1,804
................................................................................
14
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Nevada Housing Division
Sub. Lien
9.35%, 10/1/02 $ 275 $ 284
.........................................................................
9.375%, 10/1/00 * 190 196
.........................................................................
9.45%, 10/1/03 (FHA Guaranteed) * 555 582
.........................................................................
9.65%, 10/1/02 * 455 480
................................................................................
Total Nevada (Cost $14,264) 15,278
..............
NEW HAMPSHIRE 0.3%
New Hampshire HHEFA, Catholic Medical Center
8.25%, 7/1/13 3,000 3,170
................................................................................
Total New Hampshire (Cost $3,022) 3,170
..............
NEW JERSEY 2.6%
Camden County Improvement Auth.
Kaighn Point Marine Terminal, 8.00%, 6/1/27 * 4,000 4,312
................................................................................
New Jersey Economic Dev. Auth.
Franciscan Oaks, 5.75%, 10/1/23 1,775 1,795
................................................................................
Keswick Pines
5.60%, 1/1/12 1,100 1,095
.........................................................................
5.75%, 1/1/24 2,125 2,118
.........................................................................
8.75%, 1/1/24 6,000 7,435
.........................................................................
The Evergreens, 6.00%, 10/1/17 1,300 1,338
................................................................................
New Jersey HFFA, Raritan Bay Medical Center,
7.25%, 7/1/27 2,290 2,481
................................................................................
New Jersey Sports and Exposition Auth., Monmouth Park
8.00%, 1/1/25 5,250 5,997
................................................................................
Union County Utilities Auth.
Solid Waste
7.10%, 6/15/06 * 440 442
.........................................................................
7.15%, 6/15/09 * 2,380 2,384
.........................................................................
7.20%, 6/15/14 * 3,200 3,205
................................................................................
Total New Jersey (Cost $29,508) 32,602
..............
NEW MEXICO 0.6%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 2,400 2,599
.........................................................................
15
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Farmington, PCR
Public Service Co. of New Mexico
6.375%, 4/1/22 $ 4,300 $ 4,683
................................................................................
Total New Mexico (Cost $6,700) 7,282
..............
NEW YORK 12.1%
Dormitory Auth. of the State of New York
City Univ.
5.25%, 7/1/17 5,000 4,957
.........................................................................
5.625%, 7/1/16 3,100 3,300
.........................................................................
6.00%, 7/1/14 2,730 3,039
.........................................................................
Jamaica Hospital
5.20%, 2/15/15 2,680 2,655
.........................................................................
5.20%, 2/15/16 1,700 1,682
.........................................................................
State Univ. Ed. Fac.
5.25%, 5/15/13 5,000 5,208
.........................................................................
5.25%, 5/15/19 5,000 5,142
.........................................................................
5.875%, 5/15/17 3,000 3,333
................................................................................
Metropolitan Transportation Auth.
Service Contract
5.50%, 7/1/17 4,000 4,200
.........................................................................
7.125%, 7/1/09 4,000 4,471
................................................................................
New York City, GO
5.125%, 8/1/11 6,000 6,040
.........................................................................
5.25%, 8/1/14 5,000 5,017
.........................................................................
5.25%, 8/1/21 10,000 9,867
.........................................................................
5.75%, 2/1/14 8,140 8,496
.........................................................................
5.875%, 3/15/13 2,750 2,909
.........................................................................
6.00%, 8/1/06 2,000 2,173
.........................................................................
6.00%, 2/15/16 6,000 6,352
.........................................................................
6.00%, 8/1/17 4,500 4,811
.........................................................................
6.20%, 8/1/07 5,000 5,473
.........................................................................
6.25%, 8/1/09 7,000 7,803
................................................................................
New York City Housing Dev., Multi-Family Housing
5.50%, 11/1/09 3,600 3,721
................................................................................
New York City Municipal Water Fin. Auth., Water and Sewer
5.50%, 6/15/23 5,000 5,102
................................................................................
16
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
New York State Energy Research and Dev. Auth., PCR
Long Island Lighting, 7.15%, 6/1/20 * $ 8,000 $ 8,722
............................................................................
Rochester Gas and Electric
5.95%, 9/1/33 (MBIA Insured) * ** 4,000 4,234
................................................................................
New York State Local Gov't. Assistance
5.00%, 4/1/21 (AMBAC Insured) 2,500 2,436
................................................................................
New York State Mortgage Agency
Homeowner
5.90%, 4/1/27 4,000 4,209
.........................................................................
6.45%, 10/1/17 2,400 2,586
.........................................................................
7.50%, 4/1/26 * 3,000 3,269
................................................................................
New York State Thruway Auth., VRDN (Currently 4.05%) 400 400
................................................................................
New York State Urban Dev.
Correctional Capital Fac.
5.00%, 1/1/13 6,000 5,862
.........................................................................
5.25%, 1/1/21 5,500 5,413
.........................................................................
5.375%, 1/1/25 4,000 4,001
.........................................................................
State Fac., 5.60%, 4/1/15 3,000 3,135
................................................................................
Total New York (Cost $137,572) 150,018
..............
NORTH CAROLINA 0.2%
North Carolina Medical Care Commission, Valdese
General Hosp. 8.75%, 10/1/16 1,995 2,266
................................................................................
Total North Carolina (Cost $1,965) 2,266
..............
NORTH DAKOTA 0.3%
Mercer County, PCR, Basin Electrical Power
7.20%, 6/30/13 (AMBAC Insured) 3,500 4,322
................................................................................
Total North Dakota (Cost $4,039) 4,322
..............
OHIO 4.7%
Akron, Municipal Baseball Stadium, COP
Zero Coupon, 12/1/16 2,200 1,940
................................................................................
Cambridge, Guernsey Memorial Hosp., 8.00%, 12/1/11 1,500 1,674
................................................................................
Cleveland Airport, Continental Airlines, 5.70%,
12/1/19 * ** 4,000 3,964
................................................................................
Cleveland Parking Fac., 8.10%, 9/15/22 (Prerefunded
9/15/02+) 10,000 11,770
................................................................................
17
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Dayton, Special Fac., Emery Air Freight, 6.05%, 10/1/09 $2,500 $ 2,714
................................................................................
Fairfield Economic Dev. Auth., Beverly Enterprises
8.50%, 1/1/03 2,370 2,586
................................................................................
Marion County Health Care Fac., United Church Homes
8.875%, 12/1/12 (Prerefunded 12/1/99+) 3,225 3,587
................................................................................
Montgomery County Health Care Fac., Friendship Village
6.25%, 2/1/22 2,900 2,960
................................................................................
Montgomery County Hosp. Fac.
Grandview Hosp. and Medical Center
5.50%, 12/1/10 1,300 1,336
.........................................................................
5.65%, 12/1/12 500 513
................................................................................
Ohio Air Quality Dev. Auth., PCR
Cleveland Electric, 6.00%, 8/1/20 2,700 2,827
............................................................................
Toledo Edison, 8.00%, 5/15/19 2,750 2,950
................................................................................
Ohio Housing Fin. Agency
Residential Mortgage, 5.75%, 9/1/28 * 4,400 4,531
............................................................................
Single Family
Residual Interest Bond / Inverse Floater
(Currently 9.831%), 3/31/31 (GNMA Guaranteed) * 565 636
................................................................................
Ohio Water Dev. Auth., PCR
Cleveland Electric
6.10%, 8/1/20 * 2,600 2,726
.........................................................................
7.70%, 8/1/25 2,800 3,239
.........................................................................
Toledo Edison
7.55%, 6/1/23 4,500 4,746
.........................................................................
8.00%, 10/1/23 * 3,700 4,271
.........................................................................
Total Ohio (Cost $54,080) 58,970
..............
OKLAHOMA 1.9%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp., 7.30%, 8/1/15 4,300 4,672
................................................................................
LeFlore County Hosp. Auth.
Eastern Oklahoma Medical Center
9.40%, 5/1/06 (Prerefunded 5/1/99+) 2,000 2,166
................................................................................
18
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Oklahoma County IDA, Epworth Villa
10.25%, 4/1/19 (Prerefunded 4/1/99+) $ 2,900 $ 3,154
................................................................................
Tulsa Municipal Airport
American Airlines
7.375%, 12/1/20 * 2,000 2,180
.........................................................................
7.60%, 12/1/30 * 5,240 5,788
................................................................................
Washington County Medical Auth.
Jane Phillips Episcopal Hosp.
8.50%, 11/1/10 (Prerefunded 5/1/99+) 5,200 5,577
................................................................................
Total Oklahoma (Cost $21,625) 23,537
..............
OREGON 0.2%
Western Generation Agency, Wauna Cogeneration
7.25%, 1/1/09 * 1,900 2,077
................................................................................
Total Oregon (Cost $1,893) 2,077
..............
PENNSYLVANIA 2.6%
Allegheny County Hosp. Dev. Auth.
Rehabilitation Institute of Pittsburgh, 7.00%, 6/1/22 2,000 2,250
............................................................................
St. Francis Medical Center, 5.75%, 5/15/27 2,000 2,067
................................................................................
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 1,400 1,603
............................................................................
Toledo Edison, 7.75%, 5/1/20 2,000 2,327
................................................................................
Berks County IDA, Lutheran Home at Topton, 6.875%, 1/1/23 5,000 5,353
................................................................................
Blair County Hosp. Auth., Mercy Hosp.
8.125%, 2/1/14 (Prerefunded 2/1/99+) 2,700 2,860
................................................................................
Clarion IDA Health Fac., Beverly Enterprises,
10.125%, 5/1/07 800 862
................................................................................
Greene County IDA, Greene Health Care Assoc.
Beverly Enterprises, 6.875%, 3/1/13 2,430 2,469
................................................................................
Montgomery County Higher Ed. and Health Auth.
Brittany Pointe, 8.50%, 1/1/22 (Prerefunded 1/1/03+) 2,500 2,998
............................................................................
Redeemer Long Term Care and Elder Services
8.00%, 6/1/22 5,755 6,640
.........................................................................
8.20%, 6/1/06 880 1,022
................................................................................
19
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Pennsylvania Housing Fac. Auth.
Residual Interest Bond / Inverse Floater
(Currently 10.005%), 10/1/23 * $ 1,500 $ 1,716
................................................................................
Total Pennsylvania (Cost $28,669) 32,167
..............
PUERTO RICO 0.5%
Puerto Rico Highway and Transportation Auth.,
5.50%, 7/1/15 6,000 6,359
................................................................................
Total Puerto Rico (Cost $5,640) 6,359
..............
RHODE ISLAND 1.0%
Rhode Island Health and Ed. Building, Rhode Island Hosp.
Residual Interest Bond / Inverse Floater
(Currently 9.918%), 8/15/21
(FGIC Insured) (Escrowed to Maturity) 1,000 1,220
................................................................................
Rhode Island Housing and Mortgage Fin.
8.05%, 4/1/22 * 5,000 5,252
.........................................................................
Residual Interest Bond / Inverse Floater
(Currently 10.316%), 4/1/24 * 1,000 1,134
.........................................................................
Homeownership Opportunity, 6.70%, 10/1/14 5,000 5,381
................................................................................
Total Rhode Island (Cost $11,975) 12,987
..............
SOUTH CAROLINA 2.4%
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/08 2,600 1,433
.........................................................................
Zero Coupon, 1/1/10 2,900 1,417
.........................................................................
Zero Coupon, 1/1/12 2,800 1,212
.........................................................................
Zero Coupon, 1/1/13 2,925 1,291
.........................................................................
Zero Coupon, 1/1/20 9,900 2,858
.........................................................................
Zero Coupon, 1/1/21 12,300 3,354
.........................................................................
Zero Coupon, 1/1/26 6,700 1,356
.........................................................................
Zero Coupon, 1/1/31 21,100 3,183
.........................................................................
Zero Coupon, 1/1/32 10,000 1,424
.........................................................................
Zero Coupon, 1/1/34 7,750 983
.........................................................................
Zero Coupon, 1/1/36 10,000 1,131
.........................................................................
5.25%, 1/1/23 5,000 4,762
................................................................................
20
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
South Carolina Public Service Auth.
5.875%, 1/1/23 (FGIC Insured) $ 5,000 $ 5,353
................................................................................
Total South Carolina (Cost $29,621) 29,757
..............
SOUTH DAKOTA 0.2%
South Dakota HDA, Homeownership, 6.65%, 5/1/14 2,500 2,679
................................................................................
Total South Dakota (Cost $2,500) 2,679
................................................................................
TENNESSEE 1.5%
Metropolitan Gov't. of Nashville and Davidson Counties
Mur-Ci Homes, 7.75%, 12/1/26 4,660 4,852
............................................................................
Water and Sewer, Zero Coupon, 1/1/12 (FGIC Insured) 8,750 10,744
................................................................................
Tennessee Housing Dev. Agency
7.625%, 7/1/22 * 1,900 2,021
.........................................................................
Homeownership, Zero Coupon, 7/1/17 * 3,000 1,003
................................................................................
Total Tennessee (Cost $17,417) 18,620
..............
TEXAS 6.8%
Alliance Airport Auth., American Airlines, 7.00%,
12/1/11 * 3,000 3,571
................................................................................
Amarillo Health Fac., Sears Panhandle Retirement
7.75%, 8/15/26 4,800 5,411
................................................................................
Bell County Health Fac. Dev., King's Daughter Hosp.
9.25%, 7/1/08 2,995 3,223
................................................................................
Bexar County Health Fac. Dev., Baptist Health
5.25%, 11/15/31 (MBIA Insured) 5,000 4,976
................................................................................
Brazos River Auth., Houston Lighting and Power
6.375%, 4/1/12 (MBIA Insured) 10,000 10,999
................................................................................
Denison Hosp. Auth., Texoma Medical Center, 7.10%,
8/15/24 3,650 4,089
................................................................................
Gainesville IDC, GTE Valenite, 8.90%, 5/15/11 * 3,060 3,343
................................................................................
Gulf Coast Waste Disposal Auth.
Houston Lighting and Power, FR
(Currently 5.10%), 6/1/98 5,000 5,000
................................................................................
Harris County, Toll Road
6.375%, 8/15/24 (MBIA Insured)
(Prerefunded 8/15/04+) 2,500 2,839
................................................................................
21
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Harris County Health Fac. Dev.
Memorial Hosp
7.125%, 6/1/15 (Prerefunded 6/1/02+) $ 5,000 $ 5,673
................................................................................
Methodist Hosp., VRDN (Currently 3.65%) 1,000 1,000
................................................................................
Houston Water and Sewer Systems
Municipal Security Trust
VRDN (Currently 3.50%) (FGIC Insured) 3,000 3,000
.........................................................................
VRDN (Currently 3.55%) 2,200 2,200
................................................................................
Matagorda County Navigation Dist., PCR
Central Power and Light, 7.50%, 12/15/14 2,000 2,163
................................................................................
Northwest Texas Independent School Dist., GO
School Buildings, Zero Coupon, 8/15/32 20,000 2,556
................................................................................
Paris Health Fac. Dev., McCuistion Regional
Medical Center 7.60%, 2/1/12 4,500 5,120
................................................................................
Plano Health Fac. Dev., Texas Health Resources
5.00%, 2/15/22 (MBIA Insured) 5,000 4,837
................................................................................
San Antonio Electric and Gas
Zero Coupon, 2/1/10 (FGIC Insured) 5,000 2,823
................................................................................
Texas, GO, Veterans Housing Assistance, 6.25%, 12/1/15 1,660 1,719
................................................................................
Tomball Hosp. Auth., Tomball Regional Hosp.,
6.10%, 7/1/08 5,000 5,250
................................................................................
Tyler Health Fac. Dev.
Mother Frances Hosp.
5.40%, 7/1/08 1,315 1,330
.........................................................................
5.625%, 7/1/13 3,280 3,301
................................................................................
Total Texas (Cost $77,163) 84,423
.............
UTAH 0.9%
Intermountain Power Agency
5.25%, 7/1/14 1,220 1,256
.........................................................................
5.75%, 7/1/19 (MBIA Insured) 4,000 4,254
................................................................................
Tooele County, PCR, Laidlaw Environmental, 7.55%,
7/1/27 * 2,000 2,214
................................................................................
Utah Housing Fin. Agency
Sub. Lien
6.25%, 7/1/05 360 375
.........................................................................
7.50%, 7/1/05 645 689
.........................................................................
7.60%, 7/1/05 640 677
.........................................................................
22
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
Utah Housing Fin. Agency
Sub. Lien
7.75%, 7/1/05 $ 660 $ 699
.........................................................................
7.75%, 1/1/23 * 195 204
.........................................................................
8.40%, 7/1/08 * 85 89
.........................................................................
8.55%, 7/1/04 165 172
.........................................................................
8.65%, 7/1/04 480 502
.........................................................................
8.70%, 7/1/01 80 82
.........................................................................
9.00%, 1/1/19 * 235 249
.........................................................................
9.25%, 7/1/01 110 114
.........................................................................
9.30%, 7/1/00 * 25 26
.........................................................................
9.60%, 7/1/02 * 15 15
.........................................................................
9.75%, 7/1/02 30 31
.........................................................................
9.85%, 7/1/02 * 90 93
.........................................................................
9.875%, 1/1/99 * 10 10
.........................................................................
10.50%, 1/1/99 * 10 10
.........................................................................
10.625%, 7/1/99 * 15 15
................................................................................
Total Utah (Cost $10,810) 11,776
.............
VERMONT 0.1%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
7.45%, 9/1/23 (FGIC Insured) 1,400 1,543
................................................................................
Total Vermont (Cost $1,400) 1,543
.............
VIRGINIA 1.3%
Chesapeake Bay Bridge and Tunnel Commission
5.00%, 7/1/22 (MBIA Insured) 5,920 5,757
................................................................................
Norfolk Port and Ind. Auth., Henson Aviation,
9.625%, 8/1/12 * 770 873
................................................................................
Roanoke IDA
Carilion Health, VRDN (Currently 3.70%) 1,100 1,100
............................................................................
Roanoke Memorial Hosp., Carilion Health System
VRDN (Currently 3.35%) 1,000 1,000
................................................................................
Virginia HDA
Zero Coupon, 7/1/29 * 830 78
................................................................................
7.10%, 1/1/22 2,250 2,359
................................................................................
7.10%, 1/1/25 5,000 5,242
................................................................................
Total Virginia (Cost $15,500) 16,409
.............
23
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
WASHINGTON 1.4%
Spokane County IDC, Kaiser Aluminum and Chemical
7.60%, 3/1/27 * $ 2,500 $ 2,825
................................................................................
Washington, GO, 5.70%, 10/1/15 7,500 8,211
................................................................................
Washington Public Power Supply System
Zero Coupon, 7/1/14 (FSA Insured) 6,400 2,766
................................................................................
6.30%, 7/1/12 2,000 2,277
.........................................................................
Nuclear Project, 7.25%, 7/1/09 1,000 1,208
................................................................................
Total Washington (Cost $14,964) 17,287
.............
WEST VIRGINIA 0.2%
West Virginia Hosp. Fin. Auth., West Virginia Univ. Hosp.
Residual Interest Bond / Inverse Floater
(Currently 9.20%), 1/1/18 (MBIA Insured) 2,000 2,250
................................................................................
Total West Virginia (Cost $2,000) 2,250
.............
WISCONSIN 1.6%
Oconto Falls CDA, Oconto Falls Tissue, 7.75%, 12/1/22 * 2,800 2,920
................................................................................
Wisconsin HEFA
National Regency of New Berlin, 8.00%, 8/15/25 6,000 6,810
............................................................................
Waukesha Memorial Hosp.
5.25%, 8/15/19 (AMBAC Insured) 3,835 3,820
................................................................................
Wisconsin HFA, Villa Clement, 8.75%, 6/1/12 1,460 1,464
................................................................................
Wisconsin Housing and Economic Dev. Auth.
7.75%, 9/1/17 3,725 3,888
.........................................................................
8.00%, 3/1/21 * 935 959
................................................................................
Total Wisconsin (Cost $18,217) 19,861
.............
WYOMING 1.0%
Sweetwater County, PCR, Solid Waste Disposal, FMC
6.90%, 9/1/24 * 5,000 5,604
.........................................................................
Wyoming CDA
5.85%, 6/1/28 * 3,800 3,905
.........................................................................
Single Family, 6.70%, 6/1/17 2,645 2,806
................................................................................
Total Wyoming (Cost $10,937) 12,315
.............
24
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Value
- --------------------------------------------------------------------------------
In thousands
Total Investments in Securities
100.2% of Net Assets (Cost $1,137,679) $ 1,244,234
Other Assets Less Liabilities (2,244)
.............
NET ASSETS $ 1,241,990
-------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 66
Accumulated net realized gain/loss - net of distributions (7,683)
Net unrealized gain (loss) 106,555
Paid-in-capital applicable to 98,115,739 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized 1,143,052
.............
NET ASSETS $ 1,241,990
-------------
NET ASSET VALUE PER SHARE $ 12.66
-------------
* 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
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FR Floating Rate
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
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
25
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
- -----------------------
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98
Investment Income
Interest income $ 71,175
.............
Expenses
Investment management 7,051
Shareholder servicing 660
Custody and accounting 188
Registration 95
Prospectus and shareholder reports 70
Directors 16
Legal and audit 11
Miscellaneous 22
.............
Total expenses 8,113
.............
Net investment income 63,062
.............
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 6,038
Futures (962)
.............
Net realized gain (loss) 5,076
Change in net unrealized gain or loss on securities 44,298
.............
Net realized and unrealized gain (loss) 49,374
.............
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 112,436
-------------
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/98 2/28/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 63,062 $ 58,794
Net realized gain (loss) 5,076 (1,010)
Change in net unrealized gain or loss 44,298 2,979
.............................
Increase (decrease) in net assets from operations 112,436 60,763
.............................
Distributions to shareholders
Net investment income (63,062) (58,787)
..............................
Capital share transactions *
Shares sold 306,000 265,794
Distributions reinvested 43,119 40,553
Shares redeemed (209,609) (244,751)
..............................
Increase (decrease) in net assets from capital
share transactions 139,510 61,596
..............................
Net Assets
Increase (decrease) during period 188,884 63,572
Beginning of period 1,053,106 989,534
..............................
End of period $1,241,990 $ 1,053,106
------------------------------
* Share information
Shares sold 24,772 22,238
Distributions reinvested 3,484 3,390
Shares redeemed (17,044) (20,497)
..............................
Increase (decrease) in shares outstanding 11,212 5,131
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
February 28, 1998
- --------------------------------------------------------------------------------
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.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company
industry; these principles may require the use of estimates by fund
management.
Valuation Debt securities are generally traded in the over-the-counter
market. Investments in securities 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.
28
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
Noninvestment-Grade Debt Securities At February 28, 1998, the fund held
investments in noninvestment-grade debt securities, commonly referred to
as "high-yield" or "junk" bonds. A real or perceived economic downturn or
higher interest rates could adversely affect the liquidity or value, or
both, of such securities because such events could lessen the ability of
issuers to make principal and interest payments.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $422,226,000 and $264,888,000, respectively, for
the year ended February 28, 1998.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends
to continue to qualify as a regulated investment company and distribute
all of its income. The fund has unused realized capital loss carryforwards
for federal income tax purposes of $5,834,000, of which $5,600,000 expires
in 2003, $135,000 in 2004, and $99,000 in 2005. Capital loss carryforwards
utilized in fiscal 1998 amounted to $5,054,000. 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, 1998. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
- --------------------------------------------------------------------------------
Undistributed net investment income $ (1,000)
Undistributed net realized gain (32,000)
Paid-in-capital 33,000
At February 28, 1998, the aggregate cost of investments for federal income
tax and financial reporting purposes was $1,137,679,000, and net
unrealized gain aggregated $106,555,000, of which $107,552,000 related to
appreciated investments and $997,000 to depreciated investments.
29
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
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 $591,000 was payable at February 28, 1998. The
fee is computed daily and paid monthly, and consists of an individual fund
fee equal to 0.30% of average daily net assets and a group fee. The group
fee is based on the combined assets of certain mutual funds sponsored by
the manager or Rowe Price-Fleming International, Inc. (the group). The
group fee rate ranges from 0.48% for the first $1 billion of assets to
0.30% for assets in excess of $80 billion. At February 28, 1998, and for
the year then ended, the effective annual group fee rate was 0.32%. The
fund pays a pro-rata share of the group fee based on the ratio of its net
assets to those of the group.
In addition, the fund has entered into agreements with the manager and 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 $627,000 for the year ended February 28, 1998, of which
$53,000 was payable at period-end.
- --------------------------------------------------------------------------------
TAX INFORMATION (UNAUDITED) FOR THE TAX YEAR ENDED 2/28/98
- --------------------------------------------------------------------------------
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The fund's dividend income included $62,466,000 which qualified as
exempt-interest dividends.
- --------------------------------------------------------------------------------
30
<PAGE>
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, 1998, 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, 1998, by
correspondence with the custodian and the brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position
of T. Rowe Price Tax-Free High Yield Fund, Inc. as of February 28, 1998,
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 18, 1998
31
<PAGE>
For yield, price, last transaction, current balance, or to conduct transactions,
24 hours, 7 days a week, call Tele*Access(R): 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.
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
[LOGO OF T. ROWE PRICE APPEARS HERE]
T. Rowe Price Investment Services, Inc., Distributor. F59-050 2/28/98
32
Annual Report
Tax-Free
Funds
February 28, 1998
T. Rowe Price
Report Highlights
Tax-Free Funds
o All five funds posted better returns than their peer
group averages for the 6- and 12-month periods ended
February 28, 1998.
o Municipal bonds performed well during both periods,
buoyed by subdued inflation and a flight to the quality
of U.S. bonds following the Asian financial crisis.
o Municipal credit ratings improved significantly due to
continuing economic growth. Yield spreads between higher-
and lower-quality bonds narrowed to record lows,
providing an extra boost to the high-yield sector.
o We expect slower economic growth and continued low
inflation in 1998, which bodes well for municipal bond
investors.
Fellow Shareholders
The bond market and your funds enjoyed good returns during the
past 6- and 12-month periods, fueled by low inflation and
credit upgrades due to strong economic growth. In the
aftermath of the currency crises in Southeast Asia, domestic
bonds, including municipals, benefited from a flight to the
relative stability of U.S. fixed income markets.
MARKET ENVIRONMENT
During the six months ended February 28, 1998, municipal bond
prices rose and yields declined, with yields on long-term
AAA-rated bonds falling about 27 basis points (100 basis
points equal one percent) from the end of August. Intermediate
yields fell in tandem with long-term rates, but short-term
rates fell less sharply. As a result, the yield curve
flattened throughout most of the past six months, causing
long-term bonds to outperform shorter maturities.
Municipal Bond and Note Yields
1-Year Moody's
30-Year AAA 5-Year AAA Investment Grade
General Obligation General Obligation 1 Note
2/28/97 5.5 4.4 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
8/97 5.35 4.35 3.85
5.25 4.2 3.8
5.23 4.15 3.8
11/97 5.18 4.2 3.85
5.03 4.1 3.85
5 4 3.65
2/28/98 5.08 4.05 3.6
The major influence on rates was (and continues to be) moderate inflation
in the U.S. Consumer prices increased only slightly, and producer prices
actually declined over the last 12 months. The Federal Reserve has left
short-term interest rates unchanged since March 1997 despite strong
economic growth. Shortly after the hike in the federal funds rate last
spring, yields had risen in anticipation of further Fed tightening, but
low inflation and the events in Asia have put the Fed on hold.
The municipal market also benefited from the positive impact of subdued
inflation on all fixed income investments. However, municipals
underperformed Treasuries as issuers rushed to the market to take
advantage of low borrowing costs, driving up supply. Issuance rose 20% in
1997, and supply so far in 1998 is the highest ever for the first two
months of the year. Strong economic growth boosted the financial condition
of municipal governments, resulting in improving municipal credits. Rating
upgrades exceeded downgrades by a seven-to-one margin. The difference
between the yields of higher- and lower-quality bonds narrowed,
contributing to good returns from lower-quality bonds.
TAX-EXEMPT MONEY FUND
Our longer-maturity strategy resulted in relatively good returns and
enabled your fund to outperform its peer group during both the 6- and
12-month periods ended February 28, 1998.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Exempt Money Fund 1.60% 3.24%
Lipper Tax-Exempt Money
Market Funds Average 1.52 3.09
The fund ended its fiscal year with a weighted average maturity of 59
days, close to where it was at the end of February and August of 1997.
This maturity was significantly longer than the peer group average of 43
days, and it ranged from 10 to 20 days longer than the competition
throughout the last six months. Our longer maturity posture was warranted
by both a stable U.S. monetary policy and strong cash flows into the
short-term tax-exempt sector. Your fund's increased holdings in six-month
to one-year maturities provided an additional average yield of 10 to 20
basis points.
Short-term tax-exempt yields closed the fiscal year at 3.50% for six-month
and 3.60% for one-year maturities. These yields were 20 and 25 basis
points lower, respectively, than the yields that prevailed on August 31,
but only five to 10 basis points lower than a year ago. All in all, the
rate environment has been remarkably docile in the short end of the yield
curve, and most of the move toward lower yields took place during the
first two months of 1998.
The supply of new short-term issues increased more than 10% in 1997 to
almost $46 billion, the largest yearly volume since 1993. More important,
however, was the increase in tax-exempt money fund assets, which rose
almost $25 billion to a record $172.3 billion. As investors have become
more willing to accept a lower rate of return for stability of principal,
money funds across the board have benefited. This is best evidenced by the
assets of all money funds, both tax-exempt and taxable, which surpassed
the $l trillion milestone in 1997 and reached $1.124 trillion on February
28, 1998.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Short-
Intermediate Fund 3.08% 5.28%
Lipper Short-Intermediate
Debt Funds Average 2.91 5.14
Your fund posted solid returns and outperformed the Lipper
Short-Intermediate Debt Funds Average over both the 6- and 12-month
periods ended February 28, 1998. Returns were enhanced by an extension of
duration, a low expense ratio, and a narrowing of yields between higher-
and lower-quality bonds. (Duration is a measure of a bond fund's
sensitivity to interest rates. 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.)
At the end of August the fund's duration was 2.8 years, which we
considered a neutral posture. In September, Treasury yields began to fall
and new issuance of municipal bonds increased. This additional supply kept
municipal yields from falling as fast as Treasury yields and improved the
relative attractiveness of tax-exempt bonds. At that time, we considered
municipal yields appealing enough to extend duration to a more aggressive
3.1 years. When municipal yields continued to drop into January, we
shortened the fund's duration slightly to 3.0 years, where it stood at the
end of the reporting period.
Also helping performance was the improving credit quality of many
municipal issuers. As a result, more than 10% of fund holdings enjoyed
credit upgrades during the past 12 months.
TAX-FREE INSURED INTERMEDIATE BOND FUND
Intermediate-term bonds generated strong returns over the last 12 months,
a combination of good capital appreciation and coupon income. Fund results
were ahead of the Lipper Intermediate Municipal Debt Funds Average for
both the 6- and 12-month periods ended February 28, 1998. The fund's
superior performance relative to its peers occurred in the second half of
the fiscal year as we extended duration. (For an explanation of duration,
see the report for the Tax-Free Short-Intermediate Fund.) Also
contributing to the strong results was the fund's low expense ratio.
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free Insured
Intermediate Bond Fund 4.39% 7.31%
Lipper Intermediate
Municipal Debt Funds Average 4.07 7.10
During the first six months, we had adopted a slightly defensive duration
posture that caused us to lag our peer group. When bond prices fell and
yields moved higher in August and September, we took advantage of the
opportunity to move from a defensive to a neutral posture. The heavy
supply of new municipal bond issuance caused Treasuries to outperform
municipals in late 1997, resulting in narrower spreads between tax-exempt
and taxable yields. Municipal bonds grew more attractive relative to
taxable securities, and we extended duration further. As prices continued
to rally into January, we trimmed duration once again to 5.5 years at the
end of February. The continuing growth of insured bonds added to the
municipal market's appeal, as insured securities approached 50% of all new
issues in 1997.
We also adopted a "barbell" structure for part of the portfolio, which
consists of shorter- and longer-term securities together producing an
intermediate duration with a higher yield. The combination of the two
securities appreciates in value faster than a single bond with an
intermediate-term duration.
TAX-FREE INCOME FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
___________________________________________________________________
Tax-Free Income Fund 5.18% 9.37%
Lipper General Municipal
Debt Funds Average 4.99 9.12
Long-term national municipal bond funds performed well over the past year
with total returns above 9% as long-term interest rates ended about 40
basis points lower than a year ago. This compares with an average annual
return closer to 7% for these funds over the last five years. Your fund's
results exceeded those of its Lipper peer group average for the 6- and
12-month periods ended February 28, 1998.
The Tax-Free Income Fund surpassed the average for its peers due to
several factors. First, we extended duration in the second half of the
fund's fiscal year as we put more cash to work in the long end of the
market. Second, we followed a "barbelled" maturity strategy to take
advantage of a flattening yield curve with long rates falling while
short-term rates were little changed. This meant holding fewer
intermediate-term bonds that did not appreciate as much as long-term
securities. The duration of the fund (see Tax-Free Short-Intermediate Fund
section for an explanation) was slightly shorter at the end of February as
more bonds traded to their call dates. To mitigate this effect, we
continued to overweight noncallable bonds among maturities longer than 10
years. Finally, we tried to enhance the yield by holding older premium
bonds with higher coupons, while deploying new cash into more
price-sensitive lower-coupon bonds.
While the fund's portfolio structure produced good returns, in retrospect
we should have invested in more lower-quality bonds to participate further
in the spread tightening of the past year. We were pleased that many of
our larger lower-rated positions performed well and were upgraded during
the year.
TAX-FREE HIGH YIELD FUND
Performance Comparison
Periods Ended 2/28/98 6 Months 12 Months
__________________________________________________________________
Tax-Free High Yield Fund 5.51% 10.42%
Lipper High Yield Municipal
Debt Funds Average 5.39 10.13
The high-yield sector was the best-performing part of the municipal bond
market last year, buoyed by narrowing differences in yields between
higher- and lower-quality bonds. The yield spread declined to a record low
level during the period. Within this environment, the Tax-Free High Yield
Fund generated strong returns and outperformed the average of similar
funds for both the fiscal year and most recent six months. The fund's
return over the past 10 years is also well ahead of the average for
competing funds.
The narrowing of credit quality yield spreads was the dominant theme of
the municipal high-yield market last year, since tighter spreads enhance
the price performance of lower-quality bonds versus higher-quality
securities. Much of the tightening occurred during the first half of the
year, with spreads stabilizing at the lower level over the second half. To
illustrate, consider the yield spread difference between our municipal
high-yield index with an average rating of BB+ versus one composed of
bonds with an average AA rating. Since January 1995, the spread between
these two indices has moved from 130 basis points to only 30 basis points.
The principal forces that could reverse this trend, such as a recession
and heavy high-yield issuance, do not appear likely at present. Thus, we
expect the difference between yields of lower- and higher-quality to
remain narrow.
Quality Diversification
Tax-Free High Yield Fund
AAA AA A BBB BB and Below
4% 26% 20% 27% 23%
While this compression of yield spreads has generally reduced our
enthusiasm for lower-quality bonds, we are nevertheless able to find
issues to our liking. Over the past six months, the fund's exposure to
below-investment-grade bonds rose from 19% to 23% of net assets. Our
weighting in bonds rated BBB fell from 32% to 27% due to an upgrade of the
fund's largest holding, New York City general obligation bonds.
New York City's rating upgrade illustrates a broader trend: while the
fund's average credit quality is little changed from a year ago, nearly
12% of holdings were upgraded by at least one rating agency last year.
Fund performance during the past six and 12 months benefited from its
higher noninvestment-grade exposure, low expense ratio, the ratings
upgrades discussed, and a modest extension of duration. (For an
explanation of duration, see the report for the Tax-Free
Short-Intermediate Fund.) We began the recent six-month period with a
duration of 7.0 years and ended at 7.2 years as interest rates rose in
February. The fund's weighted average maturity hovered around 19 years,
and cash levels averaged about 3%.
OUTLOOK
The problems in Asia could affect the U.S. economy and slice a bit off
1998 growth, but the so-called Asian flu does not appear serious enough to
precipitate a downturn while domestic consumer demand remains healthy. The
recent Congressional testimony of Federal Reserve officials suggests that
the Fed will leave monetary policy unchanged until it fully appraises the
impact of Asia's problems on the U.S. economy.
Municipal bonds produced good results over the last 12 months despite the
steady growth of new issuance. However, we ended the year with a slightly
more cautious view. A surge in issuance in the first quarter of 1998 meant
we were paid to be patient as yields rose from their lows in mid-January.
Municipal bonds look attractive compared with taxable alternatives, which
could represent an opportunity to buy bonds at higher yields.
We anticipate slower economic growth in 1998, continued low inflation, and
stable monetary policy, all of which should be favorable for the municipal
bond market.
Respectfully submitted,
Mary J. Miller
Director, Municipal Bond Department
March 20, 1998
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Exempt Money Fund
_____________________________________________________________________
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.016
For 12 months 0.031 0.032
Dividend Yield (7-Day Compound) * 3.04% 3.03%
Weighted Average Maturity (days) 60 59
Weighted Average Quality ** First Tier First Tier
Tax-Free Short-Intermediate Fund
_______________________________________________________________________
Price Per Share $ 5.33 $ 5.37
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield *
For 6 months 4.27% 4.28%
For 12 months 4.37 4.32
Capital Gain Distribution (long
term, paid 12/30/97) - $ 0.01
Weighted Average Maturity (years) 3.8 4.1
Weighted Average Effective
Duration (years) 2.8 3.0
Weighted Average Quality *** AA- AA
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free Insured Intermediate Bond Fund
_______________________________________________________________________
Price Per Share $ 10.86 $ 11.06
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.44% 4.49%
For 12 months 4.56 4.52
Capital Gain Distribution (paid 12/30/97)
Short-Term - $ 0.02
Long-Term - 0.01
Weighted Average Maturity (years) 8.5 8.4
Weighted Average Effective Duration
(years) 5.4 5.5
Weighted Average Quality *** AA AA
Tax-Free Income Fund
______________________________________________________________________
Price Per Share $ 9.71 $ 9.95
Dividends Per Share
For 6 months 0.26 0.26
For 12 months 0.52 0.52
Dividend Yield *
For 6 months 5.40% 5.33%
For 12 months 5.51 5.44
Weighted Average Maturity (years) 17.4 17.1
Weighted Average Effective
Duration (years) 7.5 7.4
Weighted Average Quality *** AA- AA-
T. Rowe Price Tax-Free Funds
Portfolio Highlights
Key statistics
8/31/97 2/28/98
Tax-Free High Yield Fund
______________________________________________________________________
Price Per Share $ 12.33 $ 12.66
Dividends Per Share
For 6 months 0.35 0.34
For 12 months 0.70 0.69
Dividend Yield *
For 6 months 5.74% 5.57%
For 12 months 5.92 5.74
Weighted Average Maturity (years) 18.7 18.9
Weighted Average Effective Duration
(years) 7.0 7.2
Weighted Average Quality *** A- 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 2/28/98
SinceInception
1 Year 5 Years 10 Years Inception Date
______________________________________________________________________
Tax-Exempt Money 3.24% 2.87% 3.65% - 4/8/81
Tax-Free Short-
Intermediate 5.28 4.50 5.44 -12/23/83
Tax-Free Insured
Intermediate
Bond 7.31 5.81 - 6.87%11/30/92
Tax-Free Income 9.37 6.33 7.70 -10/26/76
Tax-Free High
Yield 10.42 7.15 8.58 - 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 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 each fund's return.
Tax-Exempt Money Fund
As of 2/28/98
Lipper Tax-Exempt
Money Market Tax-Exempt
Fund Index Money Fund
2/88 $10,000$ 10,000
2/89 10,500 10,508
2/90 11,120 11,125
2/91 11,719 11,705
2/92 12,176 12,138
2/93 12,470 12,424
2/94 12,707 12,679
2/95 13,030 13,012
2/96 13,464 13,453
2/97 13,858 13,864
2/98 14,296 14,312
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Short-Intermediate Fund
As of 2/28/98
Lehman 3-Year Lipper Short- Tax-Free
GO Bond Intermediate Short-Intermediate
Index Debt Funds Average Fund
2/88 $10,000 $ 10,000 $10,000
2/89 10,261 10,389 10,314
2/90 11,088 11,183 11,073
2/91 12,016 12,038 11,855
2/92 12,996 12,989 12,677
2/93 14,124 14,182 13,629
2/94 14,615 14,731 14,105
2/95 14,998 15,040 14,515
2/96 16,206 16,130 15,512
2/97 16,952 16,808 16,136
2/98 17,857 17,720 16,987
Tax-Free Insured Intermediate Bond Fund
As of 2/28/98
Lehman 7-Year Lipper Intermediate Tax-Free
Municipal Municipal Debt Insured Intermediate
Bond Index Funds Average Bond Fund
11/30/92 $10,000 $ 10,000 $10,000
2/93 10,542 10,540 10,681
2/94 11,008 11,038 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,278 12,672
2/97 13,050 12,816 13,204
2/98 14,043 13,767 14,168
T. Rowe Price Tax-Free Funds
Performance Comparison
Tax-Free Income Fund
As of 2/28/98
Lehman Lipper General
Municipal Municipal Debt Tax-Free
Bond Index Funds Average Income Fund
2/88 $10,000 $10,000 $10,000
2/89 10,621 10,693 10,411
2/90 11,710 11,642 11,259
2/91 12,790 12,599 12,205
2/92 14,067 13,882 13,447
2/93 16,003 15,871 15,447
2/94 16,890 16,738 16,297
2/95 17,208 16,867 16,606
2/96 19,109 18,560 18,318
2/97 20,161 19,440 19,199
2/98 22,004 21,268 20,998
Tax-Free High Yield Fund
As of 2/28/98
Lipper High Yield Tax-Free
Lehman Revenue Municipal Debt High Yield
Bond Index Funds Average Fund
2/88 $10,000 $10,000 $10,000
2/89 10,805 10,798 10,827
2/90 11,968 11,741 11,861
2/91 13,069 12,420 12,801
2/92 14,475 13,706 14,154
2/93 16,580 15,373 16,127
2/94 17,619 16,374 17,335
2/95 17,890 16,615 17,554
2/96 19,918 18,354 19,419
2/97 21,093 19,370 20,627
2/98 23,149 21,661 22,776
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 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
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor.
C03-050 2/28/98
