Semiannual Report - Financial Statements
T. Rowe Price
Tax-Free High
Yield Fund
August 31, 1999
Portfolio Highlights
- --------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/28/99 8/31/99
- --------------------------------------------------------------------------------
Hospital Revenue 15% 18%
Industrial and Pollution Control Revenue 12 12
Life Care/Nursing Home Revenue 8 12
Nuclear Revenue 11 11
Housing Finance Revenue 8 8
Prerefunded Bonds 7 7
General Obligation - Local 8 6
Ground Transportation Revenue 5 5
Dedicated Tax Revenue 6 4
General Obligation - State 3 3
Electric Revenue 2 3
Lease Revenue 4 3
Solid Waste Revenue 2 3
Miscellaneous Revenue 2 2
Escrowed to Maturity 2 2
All Other 4 2
Other Assets Less Liabilities 1 -1
Total 100% 100%
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Unaudited
Financial Highlights For a share outstanding throughout each period
- --------------------------------------------------------------------------------
6 Months Year
Ended Ended
8/31/99 2/28/99 2/28/98 2/28/97 2/29/96 2/28/95
NET ASSET VALUE
Beginning of period $ 12.53 $ 12.66 $ 12.12 $ 12.10 $ 11.62 $ 12.26
Investment activities
Net investment
income 0.33 0.66 0.69 0.70 0.72 0.73
Net realized
and unrealized
gain (loss) (0.66) (0.07) 0.54 0.02 0.48 (0.60)
Total from
investment
activities (0.33) 0.59 1.23 0.72 1.20 0.13
Distributions
Net investment
income (0.33) (0.66) (0.69) (0.70) (0.72) (0.73)
Net realized gain - (0.06) - - - (0.04)
Total distributions (0.33) (0.72) (0.69) (0.70) (0.72) (0.77)
NET ASSET VALUE
End of period $ 11.87 $ 12.53 $ 12.66 $ 12.12 $12.10 $ 11.62
-----------------------------------------------------------
Ratios/Supplemental Data
Total return
(diamond) (2.71)% 4.80% 10.42% 6.22% 10.62% 1.26%
Ratio of total
expenses to
average net assets 0.71%! 0.71% 0.72% 0.74% 0.75 0.79%
Ratio of net investment
income to average
net assets 5.28%! 5.28% 5.59% 5.86% 6.07 6.29%
Portfolio
turnover rate 77.0%! 38.9% 24.4% 37.0% 39.3 59.6%
Net assets,
end of period
(in millions) $ 1,286 $ 1,357 $ 1,242 $ 1,053 $990 $ 874
(diamond) Total return reflects the rate that an investor would have
earned on an investment in the fund during each period, assuming
reinvestment of all distributions.
! Annualized
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1999
Statement of Net Assets Par/Shares Value
- --------------------------------------------------------------------------------
In thousands
ALABAMA 3.4%
Alexander Special Care Fac.
Fin. Auth., Russell Hosp.
6.00%, 12/1/22 $ 3,250 $ 3,109
Baldwin County Eastern Shore Health Care Auth.
Thomas Hosp.
5.75%, 4/1/27 2,500 2,277
6.75%, 4/1/21 1,900 1,957
8.50%, 4/1/16 (Prerefunded 4/1/01!) 4,000 4,329
Columbia Industrial Dev. Board, Alabama Power
VRDN (Currently 2.875%) 9,600 9,600
Courtland IDB, Solid Waste Disposal, Champion Int'l
5.90%, 2/1/17 8,000 7,821
Courtland PCR, Champion Intl., 6.00%, 8/1/29 * 3,000 2,875
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
7.00%, 10/1/13 2,100 2,204
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 8/15/18 (MBIA Insured) 4,550 1,348
Zero Coupon, 8/15/19 (MBIA Insured) 4,675 1,292
Zero Coupon, 8/15/20 (MBIA Insured) 4,810 1,239
Mobile Airport Auth.,
8.875%, 10/1/15 (Prerefunded 4/1/00!) * 1,858 1,963
Shelby County
GO
7.40%, 8/1/07 2,000 2,141
7.70%, 8/1/17 1,000 1,072
West Jefferson IDA, Board Pollution,
VRDN (Currently 3.25%) 1,000 1,000
Total Alabama (Cost $42,106) 44,227
ALASKA 1.3%
Alaska Housing Fin.,
5.875%, 12/1/24 (MBIA Insured) 5,000 5,106
Valdez Marine Terminal
British Petroleum Pipeline, 5.50%, 10/1/28 10,850 10,235
Exxon Pipeline, VRDN (Currently 2.70%) 1,500 1,500
Total Alaska (Cost $16,787) 16,841
ARIZONA 0.6%
Peoria IDA
Sierra Winds
6.25%, 8/15/14 $ 2,040 $ 1,963
6.25%, 8/15/20 3,500 3,309
6.375%, 8/15/29 1,000 944
Tempe IDA, Friendship Village of Tempe,
6.75%, 12/1/13 1,950 1,970
Total Arizona (Cost $8,214) 8,186
CALIFORNIA 5.2%
California HFFA, Daughters of Charity Health Systems
St. Francis Medical Center
5.75%, 10/1/23 (Escrowed to Maturity) 6,515 6,632
Foothill / Eastern Transportation Corridor Agency
California Toll Road
Zero Coupon, 1/1/15 2,500 1,077
Zero Coupon, 1/1/17 12,265 4,661
Zero Coupon, 1/1/19 10,000 3,374
Zero Coupon, 1/1/25 8,000 1,880
Zero Coupon, 1/15/25 (MBIA Insured) 10,000 2,081
Zero Coupon, 1/1/26 17,500 3,863
Zero Coupon, 1/1/28 10,000 1,965
Zero Coupon, 1/1/30 25,000 4,374
Fresno Joint Powers Fin. Auth., 6.55%, 9/2/12 3,000 3,160
Inglewood Redev. Agency, Century Redev.,
6.125%, 7/1/23 3,440 3,464
Los Angeles County, GO, COP, Marina del Rey,
6.50%, 7/1/08 3,250 3,447
Los Angeles Regional Airports
LAX Airport Improvement, 5.65%, 8/1/17 * 15,775 14,803
Sacramento City Fin. Auth., Convention Center,
6.25%, 1/1/30 10,000 9,603
San Jose Multifamily Housing
Helzer Courts Apartments, (144a),
6.40%, 12/1/41 * 3,000 2,877
Total California (Cost $62,434) 67,261
COLORADO 1.5%
Colorado Housing Fin. Auth.
8.65%, 8/1/03 395 406
8.70%, 11/1/04 * 1,015 1,048
Colorado Housing Fin. Auth.
9.00%, 8/1/03 $ 420 $ 430
9.40%, 8/1/03 * 220 226
9.60%, 8/1/01 * 95 97
Denver City and County, Airport System
United Air Lines, 6.875%, 10/1/32 * 11,000 11,403
E-470 Public Highway Auth.
Zero Coupon, 9/1/20 (MBIA Insured) 17,420 5,180
Total Colorado (Cost $17,594) 18,790
CONNECTICUT 0.7%
Connecticut Dev. Auth., Mystic Marinelife Aquarium
7.00%, 12/1/27 1,700 1,745
Mashantucket, Pequot Tribe
5.50%, 9/1/28 3,000 2,749
5.75%, 9/1/27 4,000 3,787
Total Connecticut (Cost $8,533) 8,281
DELAWARE 0.8%
Delaware Economic Dev. Auth.
Delmarva Power and Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,655
Peninsula Methodist Homes
8.50%, 5/1/22 (Prerefunded 5/1/02!) 2,500 2,788
Delaware HFA, Beebe Medical Center, 6.75%, 6/1/14 3,975 4,208
Total Delaware (Cost $8,860) 9,651
DISTRICT OF COLUMBIA 2.1%
Dist. of Columbia
GO
7.15%, 7/1/06 2,375 2,198
7.40%, 7/1/06 (FSA Insured) 12,495 12,785
Dist. of Columbia
American Geophysical Union, 5.875%, 9/1/23 1,750 1,642
Medlantic Health Care Group
5.75%, 8/15/26 (MBIA Insured)(Escrowed to Maturity) 6,000 6,046
District of Columbia
Methodist Home
5.50%, 1/1/11 $ 1,000 $ 935
6.00%, 1/1/20 3,920 3,696
Total District of Columbia (Cost $27,521) 27,302
FLORIDA 3.3%
Brevard County Tourist Dev.
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 1,520 1,599
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 4,105 4,259
Broward Waste Energy, L.P. South
7.95%, 12/1/08 4,165 4,322
Charlotte County, IDR, Beverly Enterprises,
10.00%, 6/1/11 775 840
Collier County IDA, Beverly Enterprises,
10.75%, 3/1/03 1,555 1,689
Dade County, Guaranteed Entitlement
Zero Coupon, 2/1/12 (MBIA Insured) 14,715 7,529
Escambia County, IDR, Beverly Enterprises,
9.80%, 6/1/11 415 437
Florida Board of Ed., GO, Capital Outlay,
5.75%, 6/1/22 7,500 7 ,410
Hernando County, IDR, Beverly Enterprises,
10.00%, 9/1/11 740 808
Jacksonville HFA, Genesis Rehabilitation Hosp.
VRDN (Currently 2.85%) 1,000 1,000
Jacksonville, IDR
Beverly Enterprises
7.00%, 10/1/11 2,550 2,548
9.75%, 10/1/11 1,195 1,234
Lee County IDA, Cypress Cove, 6.375%, 10/1/25 2,600 2,590
Leon County, IDR, Beverly Enterprises, 9.80%, 6/1/11 415 437
Manatee County Housing Fin. Auth.,
Capital Appreciation
Zero Coupon, 10/1/15 2,138 372
Orange County IDA, Beverly Enterprises,
9.25%, 8/1/10 395 425
Santa Rosa County HFA, Gulf Breeze Hosp.,
8.60%, 10/1/02 485 496
St. John's County IDA, Vicar's Landing,
6.75%, 2/15/12 4,000 4,118
Total Florida (Cost $40,771) 42,113
GEORGIA 2.3%
Americus and Sumter County Hosp. Auth.
Magnolia Manor, 6.375%, 5/15/29 $ 4,500 $ 4,273
Athens-Clarke Residential Care Fac.
for the Elderly Auth.
Wesley Woods of Athens, 6.375%, 10/1/27 2,500 2,412
Coweta County Residential Care Fac.
for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 3,145 3,499
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 (MBIA Insured) 6,500 6,520
6.25%, 1/1/17 4,000 4,240
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16 * 4,145 4,305
7.50%, 1/1/26 * 4,400 4,557
Total Georgia (Cost $29,314) 29,806
HAWAII 0.5%
Hawaii Dept. of Budget and Fin.
Kapiolani Health Obligated Group
6.20%, 7/1/16 2,000 2,058
6.25%, 7/1/21 4,000 4,109
Total Hawaii (Cost $6,049) 6,167
IDAHO 1.0%
Idaho HFA:
Single Family
6.30%, 1/1/24 * 4,840 4,997
7.80%, 1/1/23 * 1,000 1,031
St. Lukes Regional Medical Center
VRDN (Currently 2.95%) 4,300 4,300
Idaho Student Loan Marketing Assoc.,
6.70%, 10/1/07 * 2,500 2,526
Total Idaho (Cost $12,636) 12,854
ILLINOIS 7.4%
Aurora, Dreyer Medical Clinic, 8.75%, 7/1/14 4,025 4,320
Chicago, GO, 6.25%, 1/1/15 (AMBAC Insured) 3,500 3,788
Chicago O'Hare Int'l. Airport
American Airlines, 7.875%, 11/1/25 * $ 2,500 $ 2,624
United Airlines, 5.35%, 9/1/16 3,800 3,484
Illinois Dev. Fin. Auth., Adventist Health,
5.50%, 11/15/20 5,500 5,042
Illinois HFA
Community Hosp. of Ottawa, 6.85%, 8/15/24 5,275 5,591
Covenant Retirement Community, 7.60%, 12/1/12 2,665 2,875
Glen Oaks Medical Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,681
9.50%, 11/15/15 (Escrowed to Maturity) 1,935 2,103
Hinsdale Hosp.
7.00%, 11/15/19 (Escrowed to Maturity) 5,100 5,688
Holy Cross Hosp., 6.75%, 3/1/24 6,650 7,018
Northwest Community Hosp
VRDN (Currently 3.30%) 3,400 3,400
Resurrection Health Care
VRDN (Currently 3.40%) (FSA Insured) 5,000 5,000
TECP, 3.50%, 11/24/99 10,000 10,000
Riverside Medical Center, 5.75%, 11/15/20 2,620 2,444
Victory Health Services, 5.375%, 8/15/16 5,105 4,667
Metropolitan Pier and Exposition Auth.
McCormick Place
Zero Coupon, 6/15/11 (FGIC Insured) 5,000 2,650
Zero Coupon, 6/15/22 (MBIA Insured) 13,455 3,522
Zero Coupon, 6/15/23 (MBIA Insured) 17,355 4,277
5.25%, 12/15/28 (FGIC Insured) 7,000 6,432
Southwestern Illinois Dev. Auth.
Anderson Hosp., 7.00%, 8/15/22 (Prerefunded 8/15/02!) 2,500 2,720
Village of Carol Stream, DuPage County
Windsor Park Manor
7.00%, 12/1/13 2,000 2,063
7.20%, 12/1/14 1,200 1,247
Total Illinois (Cost $92,505) 94,636
INDIANA 2.8%
Goshen, Greencroft Obligation Group,
5.75%, 8/15/28 4,000 3,620
Hammond, Sewage and Solid Waste Disposal
American Maize Products, 8.00%, 12/1/24 * 4,000 4,448
Indiana HFFA
Clarian Health Partners, 5.50%, 2/15/16 $ 2,800 $ 2,703
Deaconess Hosp., 5.50%, 3/1/29 5,000 4,522
Indianapolis Airport Auth., Federal Express,
7.10%, 1/15/17 * 1 1,000 11,872
Jasper County Economic Dev., Georgia Pacific,
5.60%, 4/1/29* 7,000 6 ,381
St. Joseph County Economic Dev.
Madison Center
5.45%, 2/15/17 1,150 1,072
5.50%, 2/15/21 1,000 924
Total Indiana (Cost $36,043) 35,542
IOWA 0.2%
Iowa HFA, Wesley Retirement, 6.25%, 2/1/12 2,400 2,358
Total Iowa (Cost $2,400) 2,358
KENTUCKY 1.8%
Florence Housing Fac., Bluegrass RHF Housing
7.625%, 5/1/27 (Prerefunded 5/1/07!) 2,500 2,941
Jefferson County, Louisville Gas and Electric,
7.45%, 6/15/15 4,250 4,418
Jefferson County HFA, Beverly Enterprises,
5.875%, 5/1/08 1,000 966
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22 * 6,000 5,853
7.50%, 2/1/12 * 3,600 3,819
7.50%, 2/1/20 * 5,250 5,569
Total Kentucky (Cost $21,982) 23,566
LOUISIANA 3.8%
Lake Charles Harbor and Terminal Dist.
Panhandle Eastern, 7.75%, 8/15/22 5,000 5,523
Louisiana Offshore Terminal Auth., Deepwater Port
7.60%, 9/1/10 4,050 4,247
Louisiana PFA
5.625%, 8/15/29 8,000 7,296
IDR, Beverly Enterprises, 8.25%, 9/1/08 1,145 1,228
Louisiana PFA
Pendelton Memorial Methodist Hosp.
5.25%, 6/1/17 $ 4,515 $ 3,951
5.25%, 6/1/28 5,780 4,851
St. James Place of Baton Rouge, 10 00%, 11/1/21 4,500 4,883
Plaquemines Parish IDB, PCR, AMAX, 7.25%, 10/1/09 1,280 1,281
Saint Charles Parish, Louisiana Power and Light
8.00%, 12/1/14 8,000 8,290
West Feliciana Parish, PCR
Gulf States Utilities
5.80%, 12/1/15 4,000 3,777
8.00%, 12/1/24 4,000 4,108
Total Louisiana (Cost $49,995) 49,435
MAINE 0.4%
Maine Housing Auth., Mortgage Purchase
6.45%, 11/15/26 (AMBAC Insured) * 4,350 4,526
Total Maine (Cost $4,350) 4,526
MARYLAND 3.0%
Berlin, Atlantic General Hosp., 8.375%, 6/1/22 1,860 1,962
Gaithersburg Economic Dev., Asbury Methodist
5.50%, 1/1/15 5,000 4,800
Maryland CDA
Single Family
5.95%, 7/1/23 2,780 2,813
7.25%, 4/1/19 2,500 2,585
Maryland HHEFA
Doctor's Community Hosp., 5.50%, 7/1/24 3,000 2,670
Greater Baltimore Medical Center
VRDN (Currently 3.30%) 2,805 2,805
Johns Hopkins Hosp., VRDN (Currently 3.15%) 6,600 6,600
Maryland Ind. Dev. Fin. Auth.
American Association of Blood Banks
7.25%, 8/1/13 2,700 2,818
Associated Catholic Charities, 9.00%, 1/1/10 1,205 1,249
Maryland-National Capital Park and Planning Commission
Little Bennett Golf Fac.
8.25%, 10/1/11 (Prerefunded 10/1/02!) $ 2,060 $ 2,324
Montgomery County Housing Opportunities Commission
Multifamily, Strathmore Court at White Flint
8.75%, 7/1/27 2,000 2,091
Single Family
Zero Coupon, 7/1/27 5,000 999
Zero Coupon, 7/1/28 10,450 2,073
6.10%, 7/1/27 1,975 2,025
7.50%, 7/1/17 270 278
Total Maryland (Cost $37,325) 38,092
MASSACHUSETTS 3.3%
Massachusetts
GO
VRDN (Currently 3.20%) 2,300 2,300
7.50%, 6/1/04 2,750 3,017
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/19 2,500 2,912
7.00%, 3/1/21 2,000 2,333
Massachusetts Dev. Fin. Agency, Boston Univ.
5.375%, 5/15/39 5,490 4,942
Massachusetts HEFA
Caritas Christi, 5.625%, 7/1/20 5,000 4,535
Nichols College, 6.125%, 10/1/29 3,500 3,260
Massachusetts Housing Fin. Agency
Housing Project
6.375%, 4/1/21 (AMBAC Insured) 1,950 2,032
Single Family, 6.35%, 6/1/17 1,730 1,788
Massachusetts Ind. Fin. Agency
Bradford College, 5.625%, 11/1/28 N 6,000 5,499
Nevins Home, 7.875%, 7/1/23 5,190 5,556
Ogden Haverhill, 5.40%, 12/1/11 * 4,000 3,849
Total Massachusetts (Cost $42,039) 42,023
MICHIGAN 2.9%
Dickinson County Economic Dev., Champion Int'l
5.85%, 10/1/18 $ 4,000 $ 3,879
Flint Hosp. Building Auth., Hurley Medical Center
5.375%, 7/1/28 5,750 5,033
Garden City Hosp. Fin. Auth.
Garden City Hosp.
5.625%, 9/1/10 1,265 1,184
5.75%, 9/1/17 1,500 1,373
Michigan HDA
6.20%, 6/1/27 * 2,125 2,182
6.50%, 12/1/17 1,155 1,193
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 1,920 2,021
Pontiac Osteopathic Hosp., 6.00%, 2/1/24 7,985 7,417
Saratoga Community Hosp., 8.75%, 6/1/10 3,432 3,814
Michigan State Building Auth., 6.665%, 10/15/16 6,250 5,813
Michigan Strategic Fund
Holland Home
5.75%, 11/15/18 1,600 1,487
5.75%, 11/15/28 2,500 2,271
Total Michigan (Cost $38,163) 37,667
MINNESOTA 0.8%
Minneapolis, Walker Methodist Sr. Services
6.00%, 11/15/28 7,500 7,119
Minnesota Housing Fin. Agency
Single Family
5.45%, 1/1/17 1,300 1,261
6.70%, 1/1/18 1,525 1,590
Total Minnesota (Cost $10,274) 9,970
MISSISSIPPI 2.1%
Mississippi Business Fin., Systems Energy Resources
5.875%, 4/1/22 20,000 18,785
5.90%, 5/1/22 5,000 4,686
Mississippi Home, Single Family,
9.25%, 3/1/12 (FGIC Insured) $ 132 $ 138
Mississippi Hosp. Equipment and Fac. Auth.
Magnolia Hosp., 7.375%, 10/1/21 3,000 3,233
Total Mississippi (Cost $27,907) 26,842
MISSOURI 1.1%
Good Shepherd Nursing Home Dist.
Nursing Home Fac.
5.45%, 8/15/08 1,150 1,105
5.90%, 8/15/23 2,000 1,877
Hannibal IDA, Hannibal Medical Center
9.50%, 3/1/22 (Prerefunded 9/1/01!) 3,750 4,267
Joplin IDA, Tri-State Osteopathic Hosp.,
8.25%, 12/15/14 1,095 1,203
Lee's Summit IDA, John Knox Village,
7.125%, 8/15/12 1,500 1,567
Missouri HEFA, Still Regional Medical Center,
7.70%, 2/1/13 4,250 4,604
Total Missouri (Cost $13,697) 14,623
MONTANA 0.1%
Montana Board of Housing
Sub. Lien
7.85%, 10/1/04 (FHA Guaranteed) 530 553
8.40%, 10/1/03 * 380 389
8.50%, 10/1/02 230 236
8.525%, 10/1/02 (FHA Guaranteed) 200 204
8.95%, 10/1/02 * 210 215
9.20%, 10/1/01 * 120 122
Total Montana (Cost $1,670) 1,719
NEBRASKA 0.8%
City of Kearney, Great Platte River Road,
6.75%, 1/1/23 5,000 4,173
Nebraska Investment Fin. Auth.
Single Family
6.45%, 3/1/28 (GNMA Guaranteed) * 4,515 4,668
Residual Interest Bond / Inverse Floater
(Currently 11.267%), 3/15/22
(GNMA Guaranteed) * 465 491
Nebraska Investment Fin. Auth.
Residual Interest Bond / Inverse Floater
(Currently 11.338%), 9/10/30
(GNMA Guaranteed) * $ 800 $ 859
Total Nebraska (Cost $10,658) 10,191
NEVADA 2.7%
Clark County Passenger Fac., McCarran Int'l. Airport
4.75%, 7/1/22 (MBIA Insured) 7,000 6,044
Clark County, IDR
Nevada Power, 5.90%, 11/1/32 * 19,325 18,405
Southwest Gas
7.30%, 9/1/27 3,000 3,213
7.50%, 9/1/32 * 5,000 5,363
Nevada Housing Division
Single Family Mortgage, 5.60%, 4/1/17 1,000 980
Sub. Lien
9.35%, 10/1/02 160 163
9.375%, 10/1/00 * 50 51
9.45%, 10/1/03 (FHA Guaranteed) * 360 370
9.65%, 10/1/02 * 260 268
Total Nevada (Cost $35,379) 34,857
NEW HAMPSHIRE 0.2%
New Hampshire HHEFA, Catholic Medical Center
8.25%, 7/1/13 3,000 3,065
Total New Hampshire (Cost $2,989) 3,065
NEW JERSEY 2.2%
Camden County Improvement Auth.
Kaighn Point Marine Terminal, 8.00%, 6/1/27 * 4,000 4,332
New Jersey Economic Dev. Auth.
Franciscan Oaks, 5.75%, 10/1/23 1,775 1,686
Kapkowski Road Landfill
6.375%, 4/1/18 2,000 2,019
6.375%, 4/1/31 2,000 2,004
New Jersey Economic Dev. Auth.
Keswick Pines
5.75%, 1/1/24 $ 3,485 $ 3,261
8.75%, 1/1/24 (Prerefunded 1/1/04!) 6,000 7,056
The Evergreens, 6.00%, 10/1/17 1,300 1,298
New Jersey Sports and Exposition Auth., Monmouth Park
8.00%, 1/1/25 (Prerefunded 1/1/05!) 5,250 6,143
Total New Jersey (Cost $25,417) 27,799
NEW MEXICO 0.4%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 2,400 2,432
6.375%, 4/1/22 2,775 2,829
Total New Mexico (Cost $5,175) 5,261
NEW YORK 9.8%
Dormitory Auth. of the State of New York
City Univ.
5.625%, 7/1/16 3,100 3,111
6.00%, 7/1/14 2,730 2,874
State Univ. Ed. Fac
5.25%, 5/15/13 5,000 4,928
5.25%, 5/15/19 5,000 4,758
5.875%, 5/15/17 3,000 3,102
Huntington Housing Auth.
Gurwin Jewish Sr. Residences, 6.00%, 5/1/39 1,140 1,070
Metropolitan Transportation Auth.
Service Contract, 5.50%, 7/1/17 4,000 3,919
New York City
GO
VRDN (Currently 2.85%) 1,000 1,000
5.25%, 8/1/21 15,000 13,896
5.75%, 2/1/14 8,140 8,226
5.875%, 3/15/13 2,750 2,812
6.00%, 2/15/16 2,810 2,847
6.00%, 8/1/17 4,500 4,597
New York City
GO
6.20%, 8/1/07 $ 4,705 $ 5,006
6.20%, 8/1/07 (Prerefunded 8/1/04!) 120 130
6.25%, 8/1/09 7,000 7,513
New York City Health and Hosp.,
Health System Bonds
5.25%, 2/15/17 (AMBAC Insured) 6,000 5,572
New York City Municipal Water Fin. Auth.,
Water and Sewer
5.50%, 6/15/23 5,000 4,820
New York City Transitional Fin. Auth.
VRDN (Currently 2.70%) 1,000 1,000
New York State Energy Research and Dev., PCR
Lilco Project, 5.15%, 3/1/16 (MBIA Insured) 14,000 13,275
Long Island Lighting,
7.15%, 6/1/20 (Prerefunded 6/15/02!) * 2,085 2,267
New York State Mortgage Agency
Homeowner Mortgage
5.90%, 4/1/27 4,000 4,040
6.45%, 10/1/17 2,400 2,512
7.50%, 4/1/26 * 3,000 3,194
New York State Power Auth., TECP, 3.15%, 9/18/99 2,000 2,000
New York State Urban Dev.
Correctional Capital Fac., 5.375%, 1/1/25 4,000 3,735
Oneida County IDA
St. Elizabeth Medical Center
5.625%, 12/1/09 1,400 1,349
5.875%, 12/1/29 2,750 2,544
6.00%, 12/1/19 2,520 2,395
Triborough Bridge and Tunnel Auth
General Purpose, 5.25%, 1/1/28 5,000 4,626
Yonkers IDA, Civic Fac., St. Joseph Hosp.,
6.15%, 3/1/15 2,500 2,376
Total New York (Cost $122,001) 125,494
NORTH CAROLINA 0.6%
North Carolina Medical Care Commission
Duke Univ. Health System, 4.75%, 6/1/28 7,140 6,018
Valdese General Hosp.,
8.75%, 10/1/16 (Prerefunded 10/1/01!) 1,950 2,154
Total North Carolina (Cost $8,107) 8,172
NORTH DAKOTA 0.3%
Mercer County, PCR, Basin Electrical Power
7.20%, 6/30/13 (AMBAC Insured) $ 3,500 $ 4,080
Total North Dakota (Cost $4,004) 4,080
OHIO 4.0%
Akron, Municipal Baseball Stadium, COP
Zero Coupon, 12/1/16 2,200 2,076
Cambridge, Guernsey Memorial Hosp.,
8.00%, 12/1/11 1,500 1,590
Cleveland Parking Fac.,
8.10%, 9/15/22 (Prerefunded 9/15/02!) 10,000 11,224
Fairfield Economic Dev. Auth., Beverly Enterprises,
8.50%, 1/1/03 1,895 1,981
Marion County Health Care Fac., United Church Homes
8.875%, 12/1/12 (Prerefunded 12/1/99!) 3,225 3,361
Ohio Air Quality Dev. Auth., PCR
Cleveland Electric, 6.00%, 8/1/20 2,700 2,626
Toledo Edison, 8.00%, 5/15/19 2,750 2,845
Ohio Environmental Improvement
USX Corp., 5.625%, 5/1/29 2,000 1,815
Ohio Housing Fin. Agency
Single Family
Residual Interest Bond / Inverse Floater
(Currently 9.922%), 3/31/31
(GNMA Guaranteed) * 465 501
Ohio Water Dev. Auth., PCR
Cleveland Electric
6.10%, 8/1/20 * 2,600 2,530
7.70%, 8/1/25 2,800 3,077
Toledo Edison
7.55%, 6/1/23 4,500 4,609
8.00%, 10/1/23 * 3,700 4,077
Ohio Water Dev. Auth., Solid Waste Disposal,
Bay Shore Power
5.875%, 9/1/20 * 6,000 5,732
6.625%, 9/1/20 * 3,000 3,114
Total Ohio (Cost $49,302) 51,158
OKLAHOMA 0.9%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp.,
7.30%, 8/1/15 $ 4,300 $ 4,474
Tulsa Municipal Airport
American Airlines
7.375%, 12/1/20 * 2,000 2,085
7.60%, 12/1/30 * 5,240 5,527
Total Oklahoma (Cost $11,480) 12,086
OREGON 0.3%
Clackamas County Hosp. Fac. Auth.
Senior Living Fac. - Mary Woods,
6.625%, 5/15/29 2,500 2,460
Western Generation Agency,
Wauna Cogeneration,
7.25%, 1/1/09 * 1,800 1 ,902
Total Oregon (Cost $4,235) 4,362
PENNSYLVANIA 3.6%
Allegheny County Hosp. Dev. Auth.
St. Francis Medical Center, 5.75%, 5/15/27 2,000 1,826
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 2,400 2,633
Toledo Edison, 7.75%, 5/1/20 2,000 2,205
Berks County IDA, Lutheran Home at Topton
6.875%, 1/1/23 (AMBAC Insured) 5,310 5,595
Bucks County IDA
Health Care Fac.
6.20%, 5/1/19 1,275 1,201
6.30%, 5/1/29 3,225 3,003
Chester County HEFA, Jefferson Health,
5.375%, 5/15/27 3,500 3,167
Lancaster County Hosp. Auth., St. Annes Home
6.60%, 4/1/24 3,200 3,083
Montgomery County Higher Ed. and Health Auth.
Brittany Pointe,
8.50%, 1/1/22 (Prerefunded 1/1/03!) 2,500 2,853
Redeemer Long Term Care and Elder Services
8.00%, 6/1/22 (Prerefunded 6/1/02!) 5,755 6,329
8.20%, 6/1/06 (Prerefunded 6/1/02!) 730 806
Pennsylvania Economic Dev. Fin. Auth.
National Gypsum, 6.25%, 11/1/27 * 5,500 5,383
Pennsylvania Housing Fac. Auth
Residual Interest Bond / Inverse Floater
(Currently 10.066%), 10/1/23 * $ 1,500 $ 1,637
Philadelphia Auth. for Industrial Dev., Health Care Fac.
Baptist Home of Philadelphia, 5.60%, 11/15/28 2,750 2,442
Pauls Run Retirement Community
5.75%, 5/15/18 400 363
5.85%, 5/15/13 1,165 1,098
5.875%, 5/15/28 3,400 3,056
Total Pennsylvania (Cost $45,933) 46,680
RHODE ISLAND 0.5%
Rhode Island Housing and Mortgage Fin.
Residual Interest Bond / Inverse Floater
(Currently 10.509%), 4/1/24 * 1,000 1,089
Homeownership Opportunity, 6.70%, 10/1/14 5,000 5,234
Total Rhode Island (Cost $6,000) 6,323
SOUTH CAROLINA 2.9%
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/08 2,600 1,465
Zero Coupon, 1/1/10 2,900 1,413
Zero Coupon, 1/1/13 5,200 2,237
Zero Coupon, 1/1/20 9,900 2,629
Zero Coupon, 1/1/21 12,300 3,061
Zero Coupon, 1/1/26 6,700 1,188
Zero Coupon, 1/1/31 21,100 2,654
Zero Coupon, 1/1/32 10,000 1,177
Zero Coupon, 1/1/34 7,750 800
Zero Coupon, 1/1/36 10,000 904
Georgetown County, PCR, International Paper
6.25%, 9/1/23 * 2,000 1,994
Piedmont Municipal Power Agency, South Carolina Electric
5.25%, 1/1/15 5,500 4,937
South Carolina Jobs Economic Dev. Auth.
First Mortgage Lutheran Homes
6.625%, 5/1/20 $ 5,500 $ 5,358
6.625%, 5/1/28 2,500 2,411
South Carolina Public Service Auth
5.875%, 1/1/23 (FGIC Insured) 5,000 5,008
Total South Carolina (Cost $41,705) 37,236
SOUTH DAKOTA 0.2%
South Dakota HDA, Homeownership, 6 65%, 5/1/14 2,420 2,534
Total South Dakota (Cost $2,420) 2,534
TENNESSEE 1.9%
Metropolitan Gov't. of Nashville and Davidson Counties
Mur-Ci Homes, 7.75%, 12/1/26 4,615 4,628
Water and Sewer, 7.70%, 1/1/12 (FGIC Insured) 8,750 10,539
Tennessee Housing Dev. Agency
Homeownership
5.70%, 7/1/31 * 9,000 8,667
7.625%, 7/1/22 * 75 78
Total Tennessee (Cost $23,652) 23,912
TEXAS 9.3%
Abilene Health Fac. Dev.
Sears Methodist Retirement
5.875%, 11/15/18 4,750 4,445
5.90%, 11/15/25 2,000 1,847
6.00%, 11/15/29 3,500 3,261
Alliance Airport Auth., American Airlines,
7.00%, 12/1/11 * 3,070 3,324
Amarillo Health Fac. Dev., Sears Panhandle Retirement
7.75%, 8/15/26 4,800 5,710
Bell County Health Fac. Dev., King's Daughter Hosp.
9.25%, 7/1/08 2,630 2,715
Brazos River Auth., Houston Lighting and Power
6.375%, 4/1/12 (MBIA Insured) 10,000 10,649
Dallas County Utility and Reclamation Dist.
5.875%, 2/15/29 (AMBAC Insured) $ 8,000 $ 7,986
Denison Hosp. Auth.
Texoma Medical Center
6.125%, 8/15/27 3,770 3,552
7.10%, 8/15/24 (Prerefunded 8/15/04!) 3,650 3,972
Falls County Jail Fac. Fin., Criminal Detention Center
9.75%, 8/1/09 575 0
Gainesville IDC, GTE Valenite, 8.90%, 5/15/11 * 2,810 2,970
Harris County Health Fac. Dev.
Memorial Hosp.,
7.125%, 6/1/15 (Prerefunded 6/1/02!) 5,000 5,455
Methodist Hosp., VRDN (Currently 3 00%) 8,900 8,900
Saint Luke's Episcopal Hosp.,
VRDN (Currently 3.10%) 9,700 9,700
LaSalle County Jail Fac. Fin.
Criminal Detention Center, 9.75%, 8/1/09 560 0
Matagorda County Navigation Dist., PCR,
Central Power and Light
7.50%, 12/15/14 2,000 2,075
Northwest Texas Independent School Dist., GO,
School Buildings
Zero Coupon, 8/15/32 20,000 2,625
Paris Health Fac. Dev., McCuistion Regional Medical Center
7.60%, 2/1/12 4,500 4,906
Pecos County Jail Fac. Fin., Criminal Detention Center
9.75%, 8/1/09 565 0
San Antonio Electric and Gas
Zero Coupon, 2/1/10 (FGIC Insured) 5,000 2,897
San Saba County Jail Fac. Fin.
Criminal Detention Center, 9.75%, 8/1/09 550 0
Texas, GO
TRAN, 4.50%, 8/31/00 15,000 15,114
Veterans Housing Assistance, 6.25%, 12/1/15 710 720
Tomball Hosp. Auth.
Tomball Regional Hosp.
6.00%, 7/1/19 2,000 1,919
6.00%, 7/1/25 4,000 3,804
6.10%, 7/1/08 5,000 5,043
Tyler Health Fac. Dev.
Mother Frances Hosp.
5.40%, 7/1/08 1,315 1,274
5.625%, 7/1/13 4,960 4,671
Total Texas (Cost $116,766) 119,534
UTAH 0.6%
Intermountain Power Agency,
5.75%, 7/1/19 (MBIA Insured) $ 4,000 $ 4,026
Tooele County, PCR, Laidlaw Environmental,
7.55%, 7/1/27 * 2,000 2,127
Utah Housing Fin. Agency
Sub. Lien
6.25%, 7/1/05 135 137
7.50%, 7/1/05 445 465
7.60%, 7/1/05 365 378
7.75%, 7/1/05 400 415
7.75%, 1/1/23 * 50 50
8.55%, 7/1/04 95 98
8.65%, 7/1/04 280 287
8.70%, 7/1/01 5 5
9.25%, 7/1/01 25 26
9.60%, 7/1/02 * 5 5
9.75%, 7/1/02 15 15
9.85%, 7/1/02 * 60 61
Total Utah (Cost $7,691) 8,095
VERMONT 0.1%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
7.45%, 9/1/23 (FGIC Insured) 1,400 1,452
Total Vermont (Cost $1,400) 1,452
VIRGINIA 1.6%
Norfolk Port and Ind. Auth., Henson Aviation
9.625%, 8/1/12 * 680 739
Pocahontas Parkway Assoc.
Capital Appreciation, Toll Road
Zero Coupon, 8/15/10 3,600 1,823
Zero Coupon, 8/15/13 2,800 1,153
Zero Coupon, 8/15/14 3,100 1,189
Zero Coupon, 8/15/15 3,200 1,148
Zero Coupon, 8/15/18 (ACA Insured) 15,000 4,775
Zero Coupon, 8/15/19 4,000 1,093
Pocahontas Parkway Assoc
Capital Appreciation, Toll Road
Zero Coupon, 8/15/22 $ 4,600 $ 1,011
Zero Coupon, 8/15/23 4,700 967
Roanoke IDA
Roanoke Memorial Hosp., Carilion Health System
VRDN (Currently 3.00%) 4,700 4,700
Virginia Beach Dev. Auth., Beverly Enterprises
10.00%, 4/1/10 2,320 2,434
Total Virginia (Cost $22,232) 21,032
WASHINGTON 2.4%
Chelan County Public Utility Dist. #1
Zero Coupon, 6/1/20 (MBIA Insured) 19,350 5,755
Snohomish County Housing Auth.
Millwood Estates Project
5.50%, 6/1/29 3,750 3,496
6.25%, 6/1/29 680 652
Spokane County IDC, Kaiser Aluminum and Chemical
7.60%, 3/1/27 * 2,500 2,654
Washington, GO, 5.70%, 10/1/15 7,500 7,740
Washington Public Power Supply System
Zero Coupon, 7/1/14 (FSA Insured) 6,400 2,780
6.30%, 7/1/12 2,000 2,163
Nuclear Project
5.50%, 7/1/17 5,000 4,867
7.25%, 7/1/09 1,000 1,131
Total Washington (Cost $30,633) 31,238
WISCONSIN 1.2%
Green Bay Redev. Auth. Ind. Dev.,
Fort James Project
5.60%, 5/1/19 * 3,000 2,795
Oconto Falls CDA, Oconto Falls Tissue,
7.75%, 12/1/22 * 2,800 2,885
Wisconsin HEFA
National Regency of New Berlin, 8.00%, 8/15/25 5,970 6,491
Wisconsin HEFA
Waukesha Memorial Hosp.
5.25%, 8/15/19 (AMBAC Insured) $ 3,835 $ 3,579
Total Wisconsin (Cost $15,108) 15,750
WYOMING 1.1%
Sweetwater County, PCR
Idaho Power, VRDN (Currently 2.75%) 1,100 1,100
Solid Waste Disposal, FMC, 6.90%, 9/1/24 * 5,000 5,195
Wyoming CDA, Single Family, 6.70%, 6/1/17 1,395 1,423
Wyoming Community Dev. Auth.
5.70%, 12/1/35 2,700 2,596
5.75%, 12/1/29 * 4,500 4,362
Total Wyoming (Cost $14,177) 14,676
PREFERRED SHARES 0.5%
MuniMae TE Bond Subsidiary, Common Pfd. Shares (Series A)
(144a), 6.875%, 6/30/09 * 6,000 5,989
Total Preferred Stocks (Cost $6,000) 5,989
Total Investments in Securities
100.5% of Net Assets (Cost $1,271,633) $1,293,454
Other Assets Less Liabilities (7,041)
NET ASSETS $1,286,413
------------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 68
Accumulated net realized gain/loss - net of distributions (7,879)
Net unrealized gain (loss) 21,821
Paid-in-capital applicable to 108,352,777 shares of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized 1,272,403
NET ASSETS $1,286,413
NET ASSET VALUE PER SHARE $ 11.87
* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
ACA American Capital Access
AMBAC AMBAC Indemnity Corp.
CDA Community Development Administration
COP Certificates of Participation
FGIC Financial Guaranty Insurance Company
FHA Federal Housing Authority
FSA Financial Security Assurance Corp.
GNMA Government National Mortgage Association
GO General Obligation
HDA Housing Development Authority
HEFA Health & Educational Facility Authority
HFA Health Facility Authority
HFFA Health Facility Financing Authority
HHEFA Health & Higher Educational Facility Authority
IDA Industrial Development Authority
IDB Industrial Development Bond
IDC Industrial Development Corp.
IDR Industrial Development Revenue
MBIA Municipal Bond Investors Assurance Corp.
PCR Pollution Control Revenue
PFA Pollution Facility Authority
TECP Tax-Exempt Commercial Paper
TRAN Tax Revenue Anticipation Note
VRDN Variable Rate Demand Note
144a Security was purchased pursuant to Rule 144a under the Securities
Act of 1933 and may not be resold subject to that rule except to
qualified institutional buyers - total of such securities at
period-end amounts to 0.7% of net assets.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
6 Months
Ended
8/31/99
Investment Income
Interest income $ 40,390
Expenses
Investment management 4,181
Shareholder servicing 408
Custody and accounting 119
Prospectus and shareholder reports 42
Legal and audit 24
Registration 12
Directors 6
Miscellaneous 4
Total expenses 4,796
Expenses paid indirectly (1)
Net expenses 4,795
Net investment income 35,595
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (4,376)
Futures 648
Net realized gain (loss) (3,728)
Change in net unrealized gain or loss on securities (67,499)
Net realized and unrealized gain (loss) (71,227)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (35,632)
----------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
8/31/99 2/28/99
Increase (Decrease) in Net Assets
Operations
Net investment income $35,595 $68,904
Net realized gain (loss) (3,728) 9,608
Change in net unrealized gain or loss (67,499) (17,235)
Increase (decrease) in net assets from operations (35,632) 61,277
Distributions to shareholders
Net investment income (35,595) (68,904)
Net realized gain - (6,383)
Decrease in net assets from distributions (35,595) (75,287)
Capital share transactions*
Shares sold 130,738 303,295
Distributions reinvested 24,660 52,381
Shares redeemed (154,889) (226,525)
Increase (decrease) in
net assets from capital
share transactions 509 129,151
Net Assets
Increase (decrease) during period (70,718) 115,141
Beginning of period 1,357,131 1,241,990
End of period $1,286,413 $1,357,131
---------------------------
*Share information
Shares sold 10,622 24,041
Distributions reinvested 2,015 4,149
Shares redeemed (12,631) (17,959)
Increase (decrease) in shares outstanding 6 10,231
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Unaudited August 31, 1999
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. Dividend income and
distributions to shareholders are recorded by the fund on the ex-dividend
date. Income and capital gain distributions are determined in accordance
with federal income tax regulations and may differ from those determined in
accordance with generally accepted accounting principles. Expenses paid
indirectly reflect credits earned on daily uninvested cash balances at the
custodian, which are used to reduce the fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of the fund are
described more fully in the fund's prospectus and Statement of Additional
Information.
Noninvestment-Grade Debt Securities At August 31, 1999, the fund held
investments in noninvestment-grade debt securities, commonly referred to as
"high-yield" or "junk" bonds. A real or perceived economic downturn or
higher interest rates could adversely affect the liquidity or value, or
both, of such securities because such events could lessen the ability of
issuers to make principal and interest payments.
Other Purchases and sales of portfolio securities, other than short-term
securities, aggregated $497,924,000 and $533,374,000, respectively, for the
six months ended August 31, 1999.
NOTE 3 - FEDERAL INCOME TAXES
No provision for federal income taxes is required since the fund intends to
continue to qualify as a regulated investment company and distribute all of
its income.
At August 31, 1999, the cost of investments for federal income tax purposes
was substantially the same as for financial reporting and totaled
$1,271,633,000. Net unrealized gain aggregated $21,821,000 at period-end,
of which $49,253,000 related to appreciated investments and $27,432,000 to
depreciated investments.
NOTE 4 - RELATED PARTY TRANSACTIONS
The investment management agreement between the fund and T. Rowe Price
Associates, Inc. (the manager) provides for an annual investment management
fee, of which $681,000 was payable at August 31, 1999. The fee is computed
daily and paid monthly, and consists of an individual fund fee equal to
0.30% of average daily net assets and a group fee. The group fee is based
on the combined assets of certain mutual funds sponsored by the manager or
Rowe Price-Fleming International, Inc. (the group). The group fee rate
ranges from 0.48% for the first $1 billion of assets to 0.30% for assets in
excess of $80 billion. At August 31, 1999, and for the six months 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
$377,000 for the six months ended August 31, 1999, of which $69,000 was
payable at period-end.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
"T. Rowe Price Invest with Confidence" (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F59-051 8/31/99
Semiannual Report
Tax-Free Funds
August 31, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Tax-Free Funds
o Strong U.S. economic growth and rising interest rates hurt the bond
market over the past six months.
o All funds posted negative returns over the difficult six-month period,
except for the Tax-Exempt Money Fund and PLUS Class shares, which benefited
from higher short-term rates.
o A common goal across the funds was to improve the dividend yield as rates
rose.
o While rates could trend higher, |municipal bonds continue to offer
attractive after-tax yields at current levels.
UPDATES AVAILABLE
For updates on the fund following the end of each calendar quarter, please see
our Web site www.troweprice.com.
Fellow Shareholders
The U.S. economy's above-average growth during the six months ended August
31 was good for consumers but not so good for bond investors. Interest
rates rose throughout the period as investors worried about a buildup in
inflationary pressures and the possibility-which became an actuality-of
monetary tightening by the Federal Reserve. As a result, declines in
taxable and municipal bond prices led to meager or negative returns on most
longer-term bond funds for the period. The tax-free bond funds were not
immune to this trend.
MARKET ENVIRONMENT
For Municipal Bond and Notes Yields
- --------------------------------------------------------------------------------
30-Year AAA 5-Year AAA 1-Year Moody's
General Obligations General Obligations Investment Grade 1 Note
8/98 4.93 3.85 3.5
4.82 3.7 3.3
4.92 3.7 2.95
11/98 4.89 3.75 3.05
4.94 3.75 3.05
4.87 3.65 2.95
2/99 4.99 3.78 3
5.04 3.83 3.15
5.08 3.85 3.2
5/99 5.16 4 3.2
5.33 4.33 3.5
5.41 4.3 3.55
8/99 5.6 4.4 3.75
Source: T. Rowe Price Associates.
The U. S. economy continued its robust growth, driven by exuberant consumer
spending. Although broad measures of inflation did not rise appreciably,
tight labor markets, low unemployment, and a rebound in energy prices
raised fears of a buildup in inflationary pressures. The fixed income
markets reacted nervously to these developments as well as to the increased
likelihood of action by the Federal Reserve. Indeed, as summer approached,
Fed Chairman Alan Greenspan served clear warning that the central bank
would act to preempt a rise in inflation. Actions soon followed words as
the Fed raised key short-term interest rates on June 30 and again on August
24, pushing the federal funds target rate up a total of 50 basis points
(one-half of a percentage point) to 5.25%. With these moves the Fed
effectively rescinded two of its three rate reductions last fall, when it
had moved swiftly to ease a global financial crisis. Signs of recovery in
many Asian and Latin American nations most affected by that crisis helped
push the U.S. dollar lower and interest rates higher.
Market Changes Spell Higher Tax-Free Yields
- --------------------------------------------------------------------------------
Structural changes are taking place in the fixed income markets resulting
in higher tax-free yields for investors.
The chart below tracks the yield on 30-year, AAA general obligation
municipal bonds as a percentage of long-term Treasury bond yields since
1981. Historically, the yield on these municipal bonds has averaged about
85% of the Treasury yield. This discount reflected both the tax benefit of
municipals and uncertainty about future tax laws. Investors in the 31%
federal tax bracket, for example, keep only 69% of their income from
taxable bonds. Therefore, they would logically be attracted to high-quality
municipal bonds offering 85% or more of the prevailing Treasury yield.
The sharp spike in municipal yields in 1986 reflects the tax reform debate,
which posed a threat to municipal bonds' federal tax exemption.
Accordingly, municipal bond yields reached parity with Treasury yields.
However, when the Tax Reform Act of 1986 left the tax benefit intact,
municipal bond prices rose sharply until yields had fallen to more normal
levels.
Recently, different forces have been at work that go beyond the impact of
1998's global financial crisis. At that time, shaky world markets prompted
foreign investors (who have no need for U.S. tax-exempt bonds) to buy
Treasuries, and Treasury yields plunged to near parity with municipals.
Since then, Treasury yields have returned to pre-crisis levels, but
municipal yields are again unusually high at about 94% of Treasury yields.
According to Mary Miller, director of the T. Rowe Price municipal bond
department, the current relationship is "illogical from a tax standpoint"
but unlikely to change soon.
For one thing, the supply of Treasury debt is shrinking due to the federal
budget surplus, while outstanding municipal supply continues to grow. In
addition, the supply of taxable bonds outside of Treasuries-including
corporate, asset-backed and mortgage-backed bonds-has also risen, and this
has created more competition in the market. As a result, even as tax-exempt
yields have risen in relation to Treasury yields over the past two years,
they have fallen in relation to the yields on other high-quality taxable
bonds.
Over time, income makes up the vast majority of a bond investor's total
return. Therefore, these developments have given investors the opportunity
to earn higher-than-expected tax-free income with little or no sacrifice of
credit quality.
For Municipal/Treasury Yield Ratio
- --------------------------------------------------------------------------------
Treasury Ratio Treasury Average
79 84.5
78.4 84.5
'81 83.2 84.5
81.6 84.5
86.6 84.5
86.3 84.5
93.3 84.5
88.4 84.5
87.6 84.5
89.2 84.5
88.3 84.5
86.3 84.5
86.6 84.5
84.8 84.5
'82 82.1 84.5
85.5 84.5
86.3 84.5
91.9 84.5
86.5 84.5
84.1 84.5
81.9 84.5
83.7 84.5
81.4 84.5
84.9 84.5
81.9 84.5
78.8 84.5
'83 78.4 84.5
80.1 84.5
79.7 84.5
81 84.5
78.7 84.5
78.3 84.5
77.6 84.5
76.1 84.5
75.5 84.5
76.5 84.5
76.3 84.5
75.9 84.5
'84 77.6 84.5
80.4 84.5
85.1 84.5
84 84.5
83.7 84.5
79.3 84.5
79.2 84.5
80.4 84.5
79.4 84.5
80.1 84.5
80.4 84.5
82.5 84.5
'85 84.5 84.5
87.2 84.5
83.7 84.5
83.4 84.5
88 84.5
81 84.5
81.5 84.5
89.4 84.5
93.1 84.5
97.3 84.5
100.9 84.5
97 84.5
'86 93.1 84.5
89.5 84.5
87.3 84.5
87.8 84.5
87.6 84.5
85.6 84.5
86.4 84.5
86.1 84.5
90.8 84.5
89.2 84.5
90 84.5
85.5 84.5
'87 83.6 84.5
86.3 84.5
89.2 84.5
86.3 84.5
84.6 84.5
86.2 84.5
88.3 84.5
88.1 84.5
83.4 84.5
83.7 84.5
85.9 84.5
82.5 84.5
'88 81.7 84.5
83 84.5
81.9 84.5
82.2 84.5
82.3 84.5
79.9 84.5
81.2 84.5
83.1 84.5
81.3 84.5
81.4 84.5
85.3 84.5
85.9 84.5
'89 85.4 84.5
87.4 84.5
90.4 84.5
87.5 84.5
85.9 84.5
83.5 84.5
82 84.5
83 84.5
81.8 84.5
81.6 84.5
84.5 84.5
82.7 84.5
'90 80.7 84.5
81 84.5
80.9 84.5
82.2 84.5
85 84.5
83.5 84.5
83.7 84.5
84.3 84.5
83.2 84.5
82.3 84.5
82.7 84.5
82.2 84.5
'91 83.2 84.5
84.6 84.5
82.9 84.5
83.2 84.5
86.6 84.5
84.5 84.5
83.5 84.5
82.9 84.5
80.9 84.5
81.7 84.5
80.4 84.5
79.1 84.5
'92 82.4 84.5
84 84.5
84.7 84.5
81.7 84.5
82.5 84.5
83.4 84.5
79.8 84.5
83.8 84.5
81.5 84.5
81.7 84.5
81.7 84.5
83.8 84.5
'93 87 84.5
86.3 84.5
87.1 84.5
85.7 84.5
82 84.5
83.4 84.5
84.1 84.5
86.8 84.5
84.1 84.5
81.5 84.5
82.8 84.5
81.9 84.5
'94 81.9 84.5
81.3 84.5
81.7 84.5
84.4 84.5
83.8 84.5
80.5 84.5
80.0 84.5
80.1 84.5
81.8 84.5
84.8 84.5
89.1 84.5
86 84.5
'95 87.9 84.5
89.5 84.5
88.5 84.5
87.2 84.5
87.5 84.5
87.1 84.5
84.4 84.5
85.6 84.5
84.1 84.5
84.4 84.5
83.4 84.5
81.8 84.5
'96 80.9 84.5
80.1 84.5
82.8 84.5
84.2 84.5
82.2 84.5
81.8 84.5
80.9 84.5
81 84.5
80.7 84.5
79.6 84.5
80.4 84.5
81.8 84.5
'97 81 84.5
82 84.5
85 84.5
85.7 84.5
84.8 84.5
86.2 84.5
85.8 84.5
86.5 84.5
87.4 84.5
87.1 84.5
89.7 84.5
89.2 84.5
'98 93.8 84.5
97.3 84.5
95.6 84.5
96.3 84.5
97.4 84.5
95.5 84.5
89.5 84.5
89.7 84.5
89.8 84.5
88.5 84.5
89.2 84.5
88.5 84.5
8/99 92.3 84.5
Source: Municipal Market Data
Interest rates rose across all maturities, with the bellwether 30-year
Treasury bond rising from near 5% at the beginning of the year to over 6%
for the first time since mid-1998. Short-term yields rose a bit more than
intermediate and long-term bond yields over the period, creating a flatter
yield curve-a typical occurrence when the Fed is actively raising
short-term rates. Municipal market interest rates also rose throughout the
period, as shown in the chart on page 1, but not as much as those on
taxable bonds. Municipals were helped by strong seasonal demand in July
through the reinvestment of proceeds from maturing bonds and other
cashflows. Thus, for much of the past six months, overall returns on
municipals compared favorably with their taxable counterparts, although
both were modest at best.
In August, however, this trend reversed. A heavy supply of corporate bonds
in the market pushed up their yields and attracted "crossover"
institutional buyers-those who buy either corporate or municipal bonds
depending on their after-tax yields. The drop in demand for municipals from
these institutional investors (some of whom also sold municipals from their
portfolios), combined with a reluctance by dealers to add to their bond
inventories, created a weak market tone. Municipal yields rose to their
highest level of the past year. After outperforming taxable bonds through
July, municipals lost ground in August, and their performance fell more in
line with taxable securities for the entire six-month period.
TAX-EXEMPT MONEY FUND AND PLUS SHARES
Performance Comparison
- --------------------------------------------------------------------------------
Since Inception*
Periods Ended 8/31/99 6 Months 12 Months (PLUS Shares)
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund 1.38% 2.78% -
Tax-Exempt Money Fund
PLUS Shares 1.31 - 2.06%
Lipper Tax-Exempt Money
Market Funds Average 1.29 2.63 2.14
*11/1/98
Tax-Exempt Money Fund PLUS Shares
- --------------------------------------------------------------------------------
Starting November 1, 1998, we created a new class of shares called The
Tax-Exempt Money - PLUS Class. The share class is offered as part of our new
Asset Manager Account, which incorporates a number of additional services, such
as unlimited checkwriting and a debit card. Both the Tax-Exempt Money Fund and
Tax-Exempt Money - PLUS are based on the same portfolio, and as such will be
reported on together in future annual and semiannual reports. However,
performance will differ because the classes of shares have different expense
ratios. Tax-Exempt Money - PLUS will have no impact on the expenses, share
price, or yield of the original Tax-Exempt Money Fund.
Note: To request a prospectus for any T. Rowe Price fund, please call
1-800-638-5660. Read the prospectus carefully before investing.
The Tax-Exempt Money Fund's results were comfortably ahead of its Lipper
peer group average for both the 6- and 12-month periods ended August 31,
1999. The six-month return for the Tax-Exempt Money Fund PLUS shares was
slightly ahead of the Lipper average, but its return since inception on
November 1, 1998, trailed Lipper by eight basis points, a reflection of the
PLUS shares' higher expenses that accompany their additional services.
During the past six months, short-term tax-exempt yields moved higher as
the Federal Reserve lifted the federal funds rate twice, as mentioned. On
August 31 yields in the 30- to 90-day range were 50 basis points higher
than six months earlier while 6- and 12-month rates were up 75 basis
points. Additionally, later in the reporting period the short-term
tax-exempt yield curve grew noticeably steeper as one-year securities
yielded 65 basis points more than one- to seven-day maturities. This
contrasted with a difference of 15 basis points on February 28.
We took advantage of these changes by maintaining a longer-than-average
weighted average maturity (WAM) throughout the period. On February 28, the
WAM was 53 days compared with 42 days for the peer group average. From
March through May, we recognized opportunity in the slope of the yield
curve and extended maturity as much as 25 to 28 days beyond that of our
competitors. As we approached summer, we allowed our average maturity to
drift down closer to the average. This more neutral posture coincided well
with the beginning of the seasonal increase in new note issuance and the
Fed's tighter monetary stance. Now that the Fed has raised rates twice, we
intend to modestly lengthen our weighted average maturity, although not as
much as earlier in the year. On August 31, the WAM was 54 days, four days
longer than the peer group average.
Growth in money market fund assets slowed markedly so far in 1999.
Tax-exempt funds, which total $192.8 billion, increased by only 2.7%, the
lowest rate of increase in six years. However, this slow growth in demand
has been well balanced by manageable supply. While tax-exempt industry
assets were up approximately $5 billion, supply of new issues for the year
is higher by only $1.7 billion.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund -0.07% 2.32%
Lipper Short-Intermediate
Municipal Debt Funds Average -0.55 1.52
During the past six months, against a backdrop of rising interest rates,
dividend income largely offset the drop in the fund's net asset value,
resulting in only a small loss for the period. For the 12 months ended
August 31, the fund posted a respectable gain in a difficult environment.
Performance in both periods surpassed the average for the fund's Lipper
peer group, a result of the fund's low expenses, our duration strategy, and
credit research. (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.)
While the duration at the end of August was unchanged at 3.0 years from six
months earlier, it varied between 2.8 and 3.2 years in the interim. As
rates moved higher, we initially extended duration in May in anticipation
of a slowdown in second quarter growth. When the slowdown failed to
materialize, we moved back to a neutral position then shortened again as
prices rose in July. Heavy Treasury, corporate, and municipal issuance in
August caused intermediate and long-term tax-exempt rates to rise to their
highest levels of the year-levels not seen since 1997. Recently, we have
begun to extend duration because of the higher rates, good valuations (see
story on page 2), investor demand, and the prospects for lower issuance
through the rest of 1999.
Our sector diversification experienced some changes primarily due to our
efforts to extend duration rather than to any shift in opinion about the
credit quality or relative value of individual securities. Our allocation
to shorter prerefunded securities declined while exposure to longer
maturities, including nuclear revenue and state general obligation bonds,
increased. These sector adjustments resulted in a moderate decline in the
fund's overall credit quality from AA to AA-, based on our in-house
research.
TAX-FREE INTERMEDIATE BOND FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund -1.85% 0.36%
Lipper Intermediate
Municipal Debt Funds Average -1.87 0.25
Your fund suffered along with other intermediate- and longer-term bond
funds during the six months ended August 31 and provided a negative return
that was slightly ahead of the Lipper average for similar funds. For the
12-month period, the fund posted a small gain that again surpassed the
competitor average as dividend income of $0.48 overcame the drop in net
asset value. Our relatively favorable results were largely due to the
fund's low expenses and our management of duration. (See Tax-Free
Short-Intermediate Fund report for an explanation of the effect duration
has on bond fund prices when interest rates rise or fall.)
At the end of August, the portfolio's duration was 5.1 years, down from 5.4
years six months earlier. At different times during the course of the
reporting period, we lengthened or shortened when we thought it appropriate
to take advantage of fluctuations in the market. Our focus in a period of
generally rising rates was to improve the fund's dividend yield and to make
opportunistic purchases of attractively valued bonds that would serve as
core holdings. The fund's overall credit rating remained stable at AA,
based on our in-house rating system, and higher using the ratings from
national rating agencies.
We also made some changes in our allocation to various sectors. Primary
among them were sharp increases in state general obligation and dedicated
tax revenue bonds, which we believe will perform better than other types of
securities in the current economic environment. We also have recently begun
to reduce the fund's allocation to hospital securities because of cutbacks
in Medicare reimbursement payments, which could adversely affect the
sector.
TAX-FREE INCOME FUND
In a difficult environment for bonds, the fund's returns were negative for
the 6- and 12-month periods. However, they were better than the average
returns for our competition due to the fund's below-average expenses and
our investment strategy. Dividend income, which was steady in both periods,
partly offset the decline in net asset value.
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Income Fund -2.99% -1.14%
Lipper General Municipal
Debt Funds Average -3.34 -1.63
Our portfolio management strategy changed as the market reversed course
from the bond market rally that occurred in the second half of 1998. For
most of the past six months, we targeted a neutral duration of 7.5 years
after pursuing a more aggressive posture in the prior six months. (Duration
is a better measure of sensitivity to interest rate movements than the
average maturity of the portfolio.) We accomplished this by raising cash
reserves modestly from 1% to 2% of assets last year to between 3% and 4%
this year. We also sold some of our lower-coupon, longer-maturity bonds to
buy others with more defensive characteristics, such as higher coupons and
shorter durations.
In August, when long-term municipal rates rose to their highest level of
the past 12 months, a number of bonds in the portfolio that had been
trading to their shorter call dates began trading to maturity. As a result,
fund duration extended almost half a year to just under eight years. At the
same time, the fund's weighted average maturity was at its shortest point
of the last 10 years. With rates at their current levels, we expect to see
little further extension of duration in the portfolio and will continue to
target a neutral posture. During the summer, we sold bonds with losses and
reinvested the proceeds in new bonds with higher yields. This action helps
lift the portfolio's dividend yield to shareholders and allows us to use a
capital loss to offset any recognized capital gains.
One reason why we did not become more defensive in our investment posture
is the attractiveness of municipal bonds relative to taxable alternatives.
For the past year, long-term AAA rated municipal bond yields have ranged
between 87% and 98% of comparable Treasury yields, well above the long-term
average of 85%. At times both lower-rated and insured bonds have yielded
much more than Treasuries. While this appears to be a reaction to current
supply-and-demand factors (see story on page 2), it gave us reason to be
more optimistic about the municipal market.
Our credit exposure is little changed from six months ago except for a
reduction in the hospital sector from 15% to 12% of assets, a reflection of
its poor financial performance. We increased our holdings of state general
obligation debt from 5% to 7% in recognition of the benefits of enhanced
tax revenues due to the strong economy. Overall, the fund's average credit
quality was AA- at the end of August, based on T. Rowe Price research, and
slightly higher based on national agency ratings.
TAX-FREE HIGH YIELD FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 8/31/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund -2.71% -1.18%
Lipper High Yield Municipal
Debt Funds Average -1.95 -0.49
Against a backdrop of sharply rising interest rates during the past six
months, municipal tax-exempt bonds fared poorly along with other fixed
income securities. Your fund posted negative returns for the 6- and
12-month periods ended August 31 and trailed the average returns for the
Lipper universe of competing funds.
Factors that contributed to the fund's relatively weak results included our
longer duration and our exposure to high-quality bonds, which were more
adversely affected by rising rates than lower-rated securities. Low-quality
securities turned in a better performance because of their higher coupon
and shorter call date structure; as the economy showed continued strength,
so did the financial prospects of many high-yield bonds. Since we are
somewhat underweighted in them, our relative performance suffered.
At the end of August, the fund's duration stood at 8.2 years up from 7.6
years at the end of February. Much of this extension occurred late in the
period as our holdings with shorter call dates began trading to their final
maturity. The biggest changes occurred within the BBB and lower segment of
the portfolio as we have added holdings and extended our duration within
them. In our effort to take advantage of the recent upturn in yields, we
increased below-investment-grade issues to 25% of the fund, up from 22% six
months ago. Yields on new low-quality issues range between 6.5% and 7.5%,
levels we find attractive for long-term investments. The fund's weighted
average quality was A-, based on our in-house rating system.
For Quality Diversification
- --------------------------------------------------------------------------------
Tax-Free High-Yield Fund
AAA AA A BBB BB and below
5 24 19 27 25
Based on net assets of 8/31/99
We added to positions in sectors of the market that have declined and now
offer attractive yields, including corporate-backed municipals. This
strategy should enable us to increase the fund's average coupon and
dividend yield. We have continued to add to our holdings in long-term
healthcare while reducing exposure to uninsured hospitals, which is
currently at its lowest level of portfolio assets in several years. (The
increase in these bonds shown in the Sector Diversification table after
this letter reflects additions in very high-quality money market holdings
for liquidity purposes.)
OUTLOOK
Interest rates could move higher in coming months because of persistent
strength in the domestic economy and recovery overseas. The Fed is keeping
a close eye on inflationary pressures, particularly in the labor markets,
and could tighten another 25 basis points if it intends to move the federal
funds rate back to its level of a year ago. However, the Fed is also
interested in maintaining a liquid and orderly market as we approach the
end of the year and the transition to 2000, which could serve to moderate
future rate increases. At the same time, it is important to recognize that
the increase in rates so far this year could be enough to slow certain
sectors of the economy. At present, we are focusing on the higher yields
available in the marketplace and on the current appeal of tax-free
municipal bonds relative to taxable securities.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
September 24, 1999
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
2/28/99 8/31/99
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Price Per Share $1.00 $1.00
Dividends Per Share
For 6 months 0.014 0.014
For 12 months 0.029 0.027
Dividend Yield (7-Day Compound) * 2.54% 2.80%
Weighted Average Maturity (days) 53 54
Weighted Average Quality ** First Tier First Tier
Tax-Exempt Money Fund PLUS Shares
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.007! 0.013
For 12 months -- --
Dividend Yield (7-Day Compound) * 2.07 2.67%
Weighted Average Maturity (days) 53 54
Weighted Average Quality ** First Tier First Tier
To request a prospectus for any T. Rowe Price fund, please call 1-800-638-5660.
Read the prospectus carefully before investing.
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
2/28/99 8/31/99
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.39 $ 5.27
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.21
Dividend Yield *
For 6 months 4.07% 4.03%
For 12 months 4.12 4.14
30-Day Standardized Yield 3.16 3.97
Weighted Average Maturity (years) 4.0 4.2
Weighted Average Effective Duration (years) 3.0 3.0
Weighted Average Quality *** AA AA-
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.13 $ 10.65
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.39% 4.45%
For 12 months 4.42 4.56
30-Day Standardized Yield 3.36 4.16
Weighted Average Maturity (years) 8.5 7.3
Weighted Average Effective Duration (years) 5.4 5.1
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
KEY STATISTICS
2/28/99 8/31/99
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 9.94 $ 9.39
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.50 0.50
Dividend Yield *
For 6 months 5.13% 5.28%
For 12 months 5.19 5.42
30-Day Standardized Yield 4.11 4.81
Weighted Average Maturity (years) 16.1 15.5
Weighted Average Effective Duration (years) 7.3 7.7
Weighted Average Quality *** AA- AA-
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 12.53 $ 11.87
Dividends Per Share
For 6 months 0.33 0.33
For 12 months 0.66 0.65
Dividend Yield *
For 6 months 5.34% 5.52%
For 12 months 5.45 5.65
30-Day Standardized Yield 4.46 5.10
Weighted Average Maturity (years) 19.3 18.4
Weighted Average Effective Duration (years) 7.6 8.2
Weighted Average Quality *** A- A-
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value at the end of the 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. ! Dividends for the period 11/1/98 to
2/28/99.
# Dividends for the period 11/1/98 to 2/28/98.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in the funds
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Lipper TEM
8/89 10000 10000
8/90 10557 10548
8/91 10911 11014
8/92 11254 11343
8/93 11487 11579
8/94 11719 11832
8/95 12096 12220
8/96 12472 12606
8/97 12851 13003
8/98 13245 13418
8/99 13596 13791
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFS
8/89 10000 10000 10000
8/90 10659 10617 10642
8/91 11600 11525 11427
8/92 12619 12454 12237
8/93 13450 13398 13030
8/94 13798 13597 13313
8/95 14742 14434 14096
8/96 15321 14942 14637
8/97 16173 15766 15417
8/98 17105 16617 16281
8/99 17603 16935 16658
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Lehman Lipper TII
11/30/92 10000 10000 10000
8/93 10883 10909 11103
8/94 11037 11036 11308
8/95 12007 11843 12212
8/96 12475 12355 12696
8/97 13446 13271 13572
8/98 14471 14248 14599
8/99 14688 14303 14652
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFI
8/89 10000 10000 10000
8/90 10642 10485 10530
8/91 11897 11726 11721
8/92 13225 13066 13087
8/93 14838 14680 14857
8/94 14859 14553 14739
8/95 16176 15655 15934
8/96 17024 16438 16802
8/97 18598 17947 18311
8/98 20207 19477 19934
8/99 20308 19190 19707
For Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFH
8/89 10000 10000 10000
8/90 10659 10461 10699
8/91 11993 11474 11847
8/92 13409 12644 13203
8/93 15157 14056 14945
8/94 15134 14162 15059
8/95 16480 15264 16232
8/96 17442 16124 17179
8/97 19154 17718 18944
8/98 20856 19263 20624
8/99 20944 19180 20380
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.
Since Inception
Periods Ended 8/31/99 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 2.78% 3.11% 3.27% -- 4/8/81
Tax-Exempt Money PLUS - - - 2.06% 11/1/98
Tax-Free Short-Intermediate 2.32 4.59 5.24 - 12/23/83
Tax-Free Intermediate Bond 0.36 5.32 - 5.82 11/30/92
Tax-Free Income -1.14 5.98 7.02 - 10/26/76
Tax-Free High Yield -1.18 6.24 7.38 - 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.
Investments in the Money Fund and PLUS Class shares are not insured or
guaranteed by the FDIC or any other government agency. Although they seek to
preserve the value of your investment at $1.00 per share, it is possible to lose
money by investing in the fund and PLUS Class shares.
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
KNOWLEDGEABLE SERVICE REPRESENTATIVES
By Phone 1-800-225-5132 Available Monday through Friday from 8 a.m. to 10
p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
In Person Available in T. Rowe Price Investor Centers.
ACCOUNT SERVICES
Checking Available on most fixed income funds ($500 minimum).
Automatic Investing From your bank account or paycheck.
Automatic Withdrawal Scheduled, automatic redemptions.
Distribution Options Reinvest all, some, or none of your distributions.
Automated 24-Hour Services Including Tele*Access(registered trademark) and
the T. Rowe Price Web site on the Internet. Address: www.troweprice.com
BROKERAGE SERVICES*
Individual Investments Stocks, bonds, options, precious metals, and other
securities at a savings over full-service commission rates.**
INVESTMENT INFORMATION
Combined Statement Overview of all your accounts with T. Rowe Price.
Shareholder Reports Fund managers' reviews of their strategies and results.
T. Rowe Price Report Quarterly investment newsletter discussing markets and
financial strategies.
Performance Update Quarterly review of all T. Rowe Price fund results.
Insights Educational reports on investment strategies and financial
markets.
Investment Guides Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
* T. Rowe Price Brokerage is a division of T. Rowe Price Investment
Services, Inc., Member NASD/SIPC.
** Based on a January 1999 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending on
size of order.
T. Rowe Price Mutual Funds
- --------------------------------------------------------------------------------
STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free**
Georgia Tax-Free Bond
Maryland Short-Term Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond***
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond
International Bond
MONEY MARKET FUNDS!
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors. ** Formerly named Florida Insured Intermediate
Tax-Free. *** Formerly named Tax-Free Insured Intermediate Bond.
! Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
funds.
Please call for a prospectus. Read it carefully before investing.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
"T. Rowe Price Invest with Confidence" (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. C03-051 8/31/99
