Annual Report - Financial Statements
T. Rowe Price
Tax-Free
High Yield Fund
February 28, 1999
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Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/98 2/28/99
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Hospital Revenue 15% 15%
Industrial and Pollution Control Revenue 12 12
Nuclear Revenue 10 11
Life Care/Nursing Home Revenue 8 8
General Obligation - Local 9 8
Housing Finance Revenue 8 8
Prerefunded Bonds 6 7
Dedicated Tax Revenue 4 6
Ground Transportation Revenue 6 5
Lease Revenue 4 4
General Obligation - State 3 3
Escrowed to Maturity 2 2
Miscellaneous Revenue 3 2
Electric Revenue 3 2
Solid Waste Revenue 3 2
Water and Sewer Revenue 1 2
All Other 2 2
Other Assets Less Liabilities 1 1
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Total 100% 100%
T. Rowe Price Tax-Free High Yield Fund
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Financial Highlights For a share outstanding throughout each period
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Year
Ended
2/28/99 2/28/98 2/28/97 2/29/96 2/28/95
NET ASSET VALUE
Beginning of period $ 12.66 $ 12.12 $ 12.10 $ 11.62 $ 12.26
Investment activities
Net investment income 0.66 0.69 0.70 0.72 0.73
Net realized and
unrealized gain (loss) (0.07) 0.54 0.02 0.48 (0.60)
Total from
investment activities 0.59 1.23 0.72 1.20 0.13
Distributions
Net investment income (0.66) (0.69) (0.70) (0.72) (0.73)
Net realized gain (0.06) -- -- -- (0.04)
Total distributions (0.72) (0.69) (0.70) (0.72) (0.77)
NET ASSET VALUE
End of period $ 12.53 $ 12.66 $ 12.12 $ 12.10 $ 11.62
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Ratios/Supplemental Data
Total return* 4.80% 10.42% 6.22% 10.62% 1.26%
Ratio of total expenses
to average net assets 0.71% 0.72% 0.74% 0.75% 0.79%
Ratio of net investment
income to average
net assets 5.28% 5.59% 5.86% 6.07% 6.29%
Portfolio turnover rate 38.9% 24.4% 37.0% 39.3% 59.6%
Net assets, end of
period (in millions) $ 1,357 $ 1,242 $ 1,053 $ 990 $ 874
* 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
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February 28, 1999
Statement of Net Assets Par Value
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In thousands
ALABAMA 2.9%
Alabama Docks Dept., Docks Fac.
5.50%, 10/1/22 (MBIA Insured) $ 3,000 $ 3,143
Alexander Special Care Fac.
Fin. Auth., Russell Hosp.
6.00%, 12/1/22 3,250 3,330
Baldwin County Eastern Shore Health Care Auth.
Thomas Hosp.
5.75%, 4/1/27 2,500 2,486
6.75%, 4/1/21 1,900 2,056
8.50%, 4/1/16 (Prerefunded 4/1/01!) 4,000 4,466
Courtland IDB, Solid Waste
Disposal, Champion Int'l
5.90%, 2/1/17 8,000 8,247
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
7.00%, 10/1/13 2,100 2,251
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 8/15/18 (MBIA Insured) 4,550 1,347
Zero Coupon, 8/15/19 (MBIA Insured) 4,675 1,290
Zero Coupon, 8/15/20 (MBIA Insured) 4,810 1,238
Mobile Airport Auth , 8.875%, 10/1/15 * 1,903 2,027
Shelby County, GO
7.40%, 8/1/07 2,000 2,199
7.70%, 8/1/17 1,000 1,103
West Jefferson IDA, Board Pollution,
VRDN (Currently 3.15%) 3,600 3,600
Total Alabama (Cost $34,925) 38,783
ALASKA 1.5%
Alaska Housing Fin., 5.875%, 12/1/24
(MBIA Insured) 5,000 5,253
Valdez Marine Terminal,
British Petroleum Pipeline
5.50%, 10/1/28 15,000 15,273
Total Alaska (Cost $19,471) 20,526
ARIZONA 0.2%
Tempe IDA, Friendship Village of Tempe,
6.75%, 12/1/1 1,950 2,026
Total Arizona (Cost $1,862) 2,026
ARKANSAS 0.2%
Independence County, PCR,
Mississippi Power and Light
7.625%, 7/1/12 $ 3,000 $ 3,029
Total Arkansas (Cost $3,000) 3,029
CALIFORNIA 4.0%
California HFA, Kaiser Permanente, 5.40%, 5/1/28 5,000 5,062
California HFFA, Daughters of
Charity Health Systems
St. Francis Medical Center
5.75%, 10/1/23 (Escrowed to Maturity) 6,515 6,803
Foothill / Eastern
Transportation Corridor Agency
California Toll Road
Zero Coupon, 1/1/15 2,500 1,110
Zero Coupon, 1/1/17 12,265 4,822
Zero Coupon, 1/1/19 10,000 3,466
Zero Coupon, 1/1/25 8,000 1,995
Zero Coupon, 1/1/26 17,500 4,110
Zero Coupon, 1/1/28 10,000 2,104
Zero Coupon, 1/1/30 25,000 4,708
Fresno Joint Powers Fin. Auth., 6.55%, 9/2/12 3,000 3,257
Inglewood Redev. Agency,
Century Redev., 6.125%, 7/1/23 3,440 3,604
Los Angeles County, GO, COP,
Marina del Rey, 6.50%, 7/1/08 3,250 3,555
Los Angeles County Public Works Fin. Auth.
Rowland Heights, 5.50%, 10/1/18 (FSA Insured) 2,750 2,960
Riverside County Asset Leasing, Riverside Hosp.
Zero Coupon, 6/1/21 (MBIA Insured) 9,000 2,850
San Jose Redev.
Agency, Tax Allocation
5.25%, 8/1/16 (MBIA Insured) 4,000 4,081
Total California (Cost $45,237) 54,487
COLORADO 2.1%
Colorado Housing Fin. Auth.
8.65%, 8/1/03 475 497
8.70%, 11/1/04 * 1,085 1,139
9.00%, 8/1/03 510 530
9.40%, 8/1/03 * 290 303
9.60%, 8/1/01 * 150 156
Denver City and County, Airport System
5.00%, 11/15/25 (FSA Insured) * $ 10,000 $ 9,684
United Air Lines, 6 875%, 10/1/32 * 11,000 11,761
E-470 Public Highway Auth.
Zero Coupon, 9/1/13 (MBIA Insured) 10,000 4,967
Total Colorado (Cost $26,890) 29,037
CONNECTICUT 0.8%
Connecticut Dev. Auth., Mystic Marinelife Aquarium
7.00%, 12/1/27 1,700 1,802
Connecticut Housing Fin. Auth., Mortgage Fin.
5.85%, 11/15/28 * 2,995 3,131
Mashantucket
5.50%, 9/1/28 2,300 2,254
5.75%, 9/1/27 4,000 4,098
Total Connecticut (Cost $10,830) 11,285
DELAWARE 0.7%
Delaware Economic Dev. Auth.
Delmarva Power and Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,724
Peninsula Methodist Homes
8.50%, 5/1/22 (Prerefunded 5/1/02!) 2,500 2,881
Delaware HFA, Beebe Medical Center, 6.75%, 6/1/14 3,975 4,333
Total Delaware (Cost $8,859) 9,938
DISTRICT OF COLUMBIA 2.2%
Dist. of Columbia, GO
5.50%, 6/1/17 (AMBAC Insured) 6,000 6,223
Dist. of Columbia
American Geophysical Union, 5.875%, 9/1/23 1,750 1,775
Medlantic Health Care Group
5.75%, 8/15/26 (MBIA Insured) 6,000 6,510
Washington Convention Center Auth.
4.75%, 10/1/28 (AMBAC Insured) 17,000 15,874
Total District of Columbia (Cost $29,160) 30,382
FLORIDA 2.4%
Brevard County Tourist Dev.
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 $ 1,520 $ 1,629
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 4,105 4,345
Broward Waste Energy, L.P. South
7.95%, 12/1/08 4,165 4,409
Charlotte County, IDR, Beverly Enterprises,
10.00%, 6/1/11 820 911
Collier County IDA, Beverly Enterprises,
10.75%, 3/1/03 1,555 1,734
Dade County, Guaranteed Entitlement
Zero Coupon, 2/1/12 (MBIA Insured) 14,715 7,723
Escambia County, IDR, Beverly Enterprises,
9.80%, 6/1/11 435 468
Hernando County, IDR, Beverly Enterprises,
10.00%, 9/1/11 785 879
Jacksonville IDR, Beverly Enterprises,
9.75%, 10/1/11 1,195 1,257
Lee County IDA, Cypress Cove, 6.375%, 10/1/25 2,600 2,700
Leon County IDR, Beverly Enterprises,
9.80%, 6/1/11 430 462
Manatee County Housing Fin. Auth.,
Capital Appreciation
Zero Coupon, 10/1/15 2,538 445
Orange County IDA, Beverly Enterprises,
9.25%, 8/1/10 415 456
Santa Rosa County HFA, Gulf Breeze Hosp.,
8.60%, 10/1/02 630 644
St. John's County IDA, Vicar's Landing,
6.75%, 2/15/12 4,000 4,256
Total Florida (Cost $30,089) 32,318
GEORGIA 2.0%
Athens-Clarke Residential Care Fac.
for the Elderly Auth.
Wesley Woods of Athens, 6.375%, 10/1/27 2,500 2,544
Coweta County Residential Care Fac.
for the Elderly Auth. Wesley Woods of
Newnan-Peachtree City 8.25%, 10/1/26 3,145 3,620
Municipal Electric Auth. of Georgia
5.50%, 1/1/20 (MBIA Insured) 6,500 6,950
6.25%, 1/1/17 4,000 4,560
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16 * $ 4,210 $ 4,477
7.50%, 1/1/26 * 4,400 4,668
Total Georgia (Cost $24,957) 26,819
HAWAII 0.5%
Hawaii Dept. of Budget and Fin.
Kapiolani Health Obligated Group
6.20%, 7/1/16 2,000 2,182
6.25%, 7/1/21 4,000 4,349
Total Hawaii (Cost $6,049) 6,531
IDAHO 0.7%
Idaho HFA
Single Family
6.30%, 1/1/24 * 5,000 5,302
7.80%, 1/1/23 * 1,240 1,292
Idaho Student Loan Marketing Assoc.,
6.70%, 10/1/07 * 2,500 2,630
Total Idaho (Cost $8,736) 9,224
ILLINOIS 9.3%
Aurora, Dreyer Med Clinic, 8.75%, 7/1/14 4,155 4,575
Chicago, GO
5.125%, 1/1/16 (FGIC Insured) 7,685 7,763
6.25%, 1/1/15 (AMBAC Insured) 3,500 4,067
Chicago Board of Ed., GO
Chicago School Reform
Zero Coupon, 12/1/13 (AMBAC Insured) 5,000 2,408
Zero Coupon, 12/1/14 (AMBAC Insured) 5,000 2,264
Zero Coupon, 12/1/18 (FGIC Insured) 7,440 2,661
5.25%, 12/1/23 (FGIC Insured) 5,900 6,091
Chicago Water, 5.00%, 11/1/25 (FGIC Insured) 5,000 4,884
Chicago-O'Hare Int'l. Airport,
American Airlines
7.875%, 11/1/25 * 2,500 2,690
Illinois Dev. Fin. Auth., Adventist Health
5.50%, 11/15/20 $ 6,250 $ 6,065
5.50%, 11/15/29 2,000 1,925
Illinois Health Fac. Auth.
Hosp. Sisters Services
5.375%, 6/1/13 (MBIA Insured) 4,000 4,196
5.375%, 6/1/14 (MBIA Insured) 2,500 2,606
Illinois HFA
Centegra Health Systems, 5.25%, 9/1/24 5,325 5,179
Community Hosp. of Ottawa, 6.85%, 8/15/24 5,275 5,746
Covenant Retirement Community, 7.60%, 12/1/12 2,665 2,982
Glen Oaks Med. Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,813
9.50%, 11/15/15 (Escrowed to Maturity) 1,935 2,177
Hinsdale Hosp.
7.00%, 11/15/19 (Escrowed to Maturity) 5,100 5,894
9.00%, 11/15/15 (Escrowed to Maturity) 4,460 4,980
Holy Cross Hosp., 6 75%, 3/1/24 4,000 4,329
Loyola Univ. Health,
5.00%, 7/1/24 (MBIA Insured) 8,000 7,710
Riverside Med. Center, 5.75%, 11/15/20 2,620 2,722
Victory Health Services, 5.375%, 8/15/16 5,105 5,118
Metropolitan Pier and Exposition Auth.
McCormick Place
Zero Coupon, 6/15/11 (FGIC Insured) 5,000 2,800
Zero Coupon, 12/15/13 (MBIA Insured) 4,000 1,937
Zero Coupon, 6/15/22 (MBIA Insured) 13,455 3,995
Zero Coupon, 6/15/23 (MBIA Insured) 17,355 4,885
Zero Coupon, 6/15/25 (MBIA Insured) 12,125 3,065
Southwestern Illinois Dev. Auth.,
Anderson Hosp., 7.00%, 8/15/22 2,500 2,682
Village of Carol Stream, DuPage County
Windsor Park Manor
7.00%, 12/1/13 2,000 2,147
7.20%, 12/1/14 1,200 1,297
Total Illinois (Cost $116,779) 125,653
INDIANA 3.0%
Goshen, Greencroft Obligation Group,
5.75%, 8/15/28 $ 4,000 $ 3,838
Hammond, Sewage and Solid Waste Disposal
American Maize Products, 8.00%, 12/1/24 * 4,000 4,628
Indiana HFFA, Clarian Health Partners,
5.50%, 2/15/16 2,800 2,889
Indianapolis Airport Auth.
Federal Express
5.50%, 5/1/29 * 5,000 4,843
7.10%, 1/15/17 * 11,000 12,313
United Air Lines, 6.50%, 11/15/31 * 5,000 5,360
Indianapolis Gas Utility Distribution System
5.00%, 8/15/24 (AMBAC Insured) 5,000 4,887
St. Joseph County Economic Dev.
Madison Center
5.45%, 2/15/17 1,150 1,140
5.50%, 2/15/21 1,000 991
Total Indiana (Cost $39,368) 40,889
IOWA 0.8%
Iowa Finance Auth., Iowa Health Systems
5.125%, 1/1/28 (MBIA Insured) 9,000 8,873
Iowa HFA, Wesley Retirement, 6.25%, 2/1/12 2,400 2,443
Total Iowa (Cost $11,135) 11,316
KENTUCKY 1.8%
Florence Housing Fac., Bluegrass RHF Housing
7.625%, 5/1/27 2,500 3,078
Jefferson County, Louisville Gas and Electric,
7.45%, 6/15/15 4,250 4,499
Jefferson County HFA, Beverly Enterprises,
9.75%, 8/1/07 770 805
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22 * 6,000 6,124
7.50%, 2/1/12 * 3,600 3,929
7.50%, 2/1/20 * 5,250 5,730
Total Kentucky (Cost $21,746) 24,165
LOUISIANA 3.4%
Calcasieu Parish IDA, Entergy Gulf States,
5.45%, 7/1/10 $ 2,750 $ 2,734
Lake Charles Harbor and Terminal Dist.,
Panhandle Eastern
7.75%, 8/15/22 5,000 5,649
Louisiana Offshore Terminal Auth.,
Deepwater Port
7.60%, 9/1/10 4,050 4,335
Louisiana PFA
IDR, Beverly Enterprises, 8.25%, 9/1/08 1,215 1,332
Pendelton Memorial Methodist Hosp.
5.25%, 6/1/17 4,515 4,301
5.25%, 6/1/28 5,780 5,372
St. James Place of Baton Rouge,
10.00%, 11/1/21 4,500 5,010
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 8,432
West Feliciana Parish, PCR
Gulf States Utilities
5.80%, 12/1/15 4,000 3,995
8.00%, 12/1/24 4,000 4,172
Total Louisiana (Cost $44,959) 46,613
MAINE 0.3%
Maine Housing Auth., Mortgage Purchase
6.45%, 11/15/26 (AMBAC Insured) * 4,350 4,695
Total Maine (Cost $4,350) 4,695
MARYLAND 2.5%
Berlin, Atlantic General Hosp., 8.375%, 6/1/22 1,885 2,029
Gaithersburg Economic Dev., Asbury Methodist,
5.50%, 1/1/15 5,000 5,027
Maryland CDA
Single Family
Zero Coupon, 4/1/29 * 25,695 2,380
5.95%, 7/1/23 3,730 3,967
7.25%, 4/1/19 2,500 2,616
Maryland HHEFA, Doctor's Community Hosp.,
5.50%, 7/1/24 3,000 2,975
Maryland Ind. Dev. Fin. Auth.
American Assoc. of Blood Banks
7.25%, 8/1/13 $ 2,700 $ 2,888
Associated Catholic Charities, 9.00%, 1/1/10 1,205 1,262
Georgetown Bakery Management
9.25%, 9/1/04 1,110 1,148
Maryland-National Capital Park
and Planning Commission
Little Bennett Golf Fac.
8.25%, 10/1/11 (Prerefunded 10/1/02!) 2,060 2,404
Montgomery County Housin
Opportunities Commission Multifamily,
Strathmore Court at White Flint
8.75%, 7/1/27 2,000 2,136
Single Family
Zero Coupon, 7/1/28 12,000 2,466
6.10%, 7/1/27 1,975 2,104
7.50%, 7/1/17 670 698
Total Maryland (Cost $31,936) 34,100
MASSACHUSETTS 2.7%
Massachusetts, GO, 7.50%, 6/1/04 2,750 3,127
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/19 2,500 3,103
7.00%, 3/1/21 2,000 2,488
Massachusetts HEFA, 5.625%, 7/1/20 5,000 4,899
Massachusetts Housing Fin. Agency
Housing Project
6.375%, 4/1/21 (AMBAC Insured) 1,950 2,082
Single Family, 6.35%, 6/1/17 1,750 1,872
Massachusetts Ind. Fin. Agency
Bradford College, 5 625%, 11/1/28 6,000 6,053
Nevins Home, 7.875%, 7/1/23 5,265 5,768
Ogden Haverhill, 5.40%, 12/1/11 * 4,000 4,121
Massachusetts Turnpike Auth.
Metropolitan Highway Systems
Zero Coupon, 1/1/21 (MBIA Insured) 7,500 2,459
Total Massachusetts (Cost $33,409) 35,972
MICHIGAN 3.4%
Dickinson County Economic Dev.,
Champion Int'l
5.85%, 10/1/18 $ 4,000 $ 4,107
Flint Hosp. Building Auth., Hurley Med. Center
5.375%, 7/1/28 5,135 4,781
Garden City Hosp. Fin. Auth.
Garden City Hosp.
5.625%, 9/1/10 1,265 1,250
5.75%, 9/1/17 1,500 1,478
Michigan HDA
5.30%, 10/1/37 * 3,520 3,497
6.20%, 6/1/27 * 2,255 2,403
6.50%, 12/1/17 2,380 2,534
Michigan Hosp. Fin. Auth.
Bay Med. Center, 8.25%, 7/1/12 2,000 2,162
Henry Ford Health, 5.25%, 11/15/25 6,000 5,974
Pontiac Osteopathic Hosp., 6.00%, 2/1/24 3,150 3,221
Saratoga Community Hosp., 8.75%, 6/1/10 3,617 4,157
Michigan State Building Auth., 6.905%, 10/15/16 6,250 6,606
Michigan Strategic Fund
Holland Home
5.75%, 11/15/18 1,600 1,575
5.75%, 11/15/28 2,500 2,434
Univ. of Michigan Hosp., VRDN (Currently 3.20%) 200 200
Total Michigan (Cost $43,774) 46,379
MINNESOTA 0.8%
Minneapolis, Walker Methodist Senior Services
6.00%, 11/15/28 8,250 8,325
Minnesota Housing Fin. Agency, Single Family
6.70%, 1/1/18 1,790 1,917
Total Minnesota (Cost $9,990) 10,242
MISSISSIPPI 1.9%
Claiborne County, PCR
Systems Energy Resources
7.30%, 5/1/25 1,100 1,152
9.50%, 12/1/13 1,595 1,648
Mississippi Business Finance,
Systems Energy Resources
5.875%, 4/1/22 $ 20,000 $ 19,901
Mississippi Home, Single Family,
9.25%, 3/1/12 (FGIC Insured) 157 167
Mississippi Hosp. Equipment and
Fac. Auth., Magnolia Hosp.
7.375%, 10/1/21 3,000 3,330
Total Mississippi (Cost $25,643) 26,198
MISSOURI 1.1%
Good Shepherd Nursing Home Dist.
Nursing Home Fac.
5.45%, 8/15/08 1,175 1,169
5.90%, 8/15/23 2,000 2,001
Hannibal IDA, Hannibal Med. Center
9.50%, 3/1/22 (Prerefunded 9/1/01!) 3,750 4,421
Joplin IDA, Tri-State Osteopathic Hosp.,
8.25%, 12/15/14 1,095 1,244
Lee's Summit IDA, John Knox Village,
7.125%, 8/15/12 1,500 1,595
Missouri HEFA, Still Regional Med. Center,
7.70%, 2/1/13 4,250 4,736
Total Missouri (Cost $13,724) 15,166
MONTANA 0.2%
Montana Board of Housing
Subordinate Lien
7.85%, 10/1/04 (FHA Guaranteed) 575 612
8.40%, 10/1/03 * 445 463
8.50%, 10/1/02 295 307
8.525%, 10/1/02 (FHA Guaranteed) 260 270
8.95%, 10/1/02 * 290 302
9.20%, 10/1/01 * 165 168
Total Montana (Cost $2,030) 2,122
NEBRASKA 0.9%
City of Kearney, Great Platte River Road,
6.75%, 1/1/23 5,000 4,767
Nebraska Investment Fin. Auth.
Single Family
6.45%, 3/1/28 (GNMA Guaranteed) * 4,730 5,066
Residual Interest Bond / Inverse Floater
(Currently 11.724%), 3/15/22
(GNMA Guaranteed) * 565 611
Nebraska Investment Fin. Auth.
Single Family
Residual Interest Bond / Inverse Floater
(Currently 11.895%), 9/10/30
(GNMA Guaranteed) * $ 1,000 $ 1,100
Total Nebraska (Cost $11,171) 11,544
NEVADA 1.4%
Clark County Passenger Fac.,
McCarran Int'l. Airport
4.75%, 7/1/22 (MBIA Insured) 6,000 5,723
Clark County, IDR
Nevada Power, 5.50%, 10/1/30 3,000 2,969
Southwest Gas
7.30%, 9/1/27 3,000 3,310
7.50%, 9/1/32 * 5,000 5,520
Nevada Housing Division
Sub Lien
9.35%, 10/1/02 200 206
9.375%, 10/1/00 * 90 92
9.45%, 10/1/03 (FHA Guaranteed) * 430 451
9.65%, 10/1/02 * 330 346
Total Nevada (Cost $17,715) 18,617
NEW HAMPSHIRE 0.2%
New Hampshire HHEFA, Catholic Medical Center,
8.25%, 7/1/13 3,000 3,089
Total New Hampshire (Cost $2,999) 3,089
NEW JERSEY 2.2%
Camden County Improvement Auth.
Kaighn Point Marine Terminal, 8.00%, 6/1/27 * 4,000 4,456
New Jersey Economic Dev. Auth.
Franciscan Oaks, 5.75%, 10/1/23 1,775 1,742
Kapkowski Road Landfill
6.375%, 4/1/18 2,000 2,066
6.375%, 4/1/31 2,000 2,057
New Jersey Economic Dev. Auth.
Keswick Pines
5.60%, 1/1/12 $ 1,100 $ 1,087
5.75%, 1/1/24 3,810 3,712
8.75%, 1/1/24 6,000 7,346
The Evergreens, 6.00%, 10/1/17 1,300 1,352
New Jersey Sports and Exposition Auth.
Monmouth Park
8.00%, 1/1/25 5,250 6,397
Total New Jersey (Cost $26,876) 30,215
NEW MEXICO 0.4%
Farmington, PCR
Public Service Co. of New Mexico
6.30%, 12/1/16 2,400 2,545
6.375%, 4/1/22 2,775 2,963
Total New Mexico (Cost $5,175) 5,508
NEW YORK 11.2%
Dormitory Auth. of the State of New York
City Univ.
5.25%, 7/1/17 5,000 5,029
5.625%, 7/1/16 3,100 3,334
6.00%, 7/1/14 2,730 3,093
State Univ. Ed. Fac.
5.25%, 5/15/13 5,000 5,282
5.25%, 5/15/19 5,000 5,145
5.875%, 5/15/17 3,000 3,326
Long Island Power Auth.,
7.43%, 12/1/15 (FSA Insured) 5,000 5,120
Metropolitan Transportation Auth.
Service Contract
5.50%, 7/1/17 4,000 4,253
7.125%, 7/1/09 4,000 4,447
New York City, GO
5.25%, 8/1/21 15,000 15,119
5.75%, 2/1/14 8,140 8,709
5.875%, 3/15/13 2,750 2,982
6.00%, 8/1/06 2,000 2,198
New York City, GO
6.00%, 2/15/16 $ 2,810 $ 3,059
6.00%, 8/1/17 4,500 4,904
6.20%, 8/1/07 4,705 5,194
6.20%, 8/1/07 (Prerefunded 8/1/04!) 120 135
6.25%, 8/1/09 7,000 7,903
7.46%, 8/1/15 5,500 5,585
New York City Municipal Water Fin. Auth.,
Water and Sewer
5.50%, 6/15/23 6,000 6,144
New York City Transitional Fin. Auth.,
5.125%, 11/15/14 7,500 7,745
New York State Energy Research and Dev.
Auth., PCR
5.15%, 3/1/16 14,000 13,922
New York State Energy Research and Dev.
Auth. Electric Fac.
Long Island Lighting, 7.15%, 6/1/20 * 8.000 8,771
New York State Mortgage Agency
Homeowner Mortgage
5.90%, 4/1/27 4,000 4,235
6.45%, 10/1/17 2,400 2,584
7.50%, 4/1/26 * 3,000 3,267
New York State Urban Dev.
Correctional Capital Fac., 5.375%, 1/1/25 4,000 4,066
State Fac., 5.60%, 4/1/15 3,000 3,232
Yonkers IDA, Civic Fac., St. Joseph Hosp.,
6.15%, 3/1/15 2,500 2,499
Total New York (Cost $138,730) 151,282
NORTH CAROLINA 0.2%
North Carolina Med. Care Commission,
Valdese General Hosp.
8.75%, 10/1/16 1,950 2,231
Total North Carolina (Cost $1,921) 2,231
NORTH DAKOTA 0.5%
Burleigh County Health Care, Medcenter One
5.00%, 5/1/04 (MBIA Insured) 2,500 2,616
Mercer County, PCR, Basin Electrical Power
7.20%, 6/30/13 (AMBAC Insured) 3,500 4,372
Total North Dakota (Cost $6,579) 6,988
OHIO 4.7%
Akron, Municipal Baseball Stadium, COP
Zero Coupon, 12/1/16 $ 2,200 $ 2,152
Cambridge, Guernsey Memorial Hosp.,
8.00%, 12/1/11 1,500 1,636
Clermont County, Mercy Health System
VRDN (Currently 2.95%) 5,300 5,300
Cleveland Parking Fac., 8.10%, 9/15/22
(Prerefunded 9/15/02!) 10,000 11,602
Fairfield Economic Dev. Auth.,
Beverly Enterprises, 8.50%, 1/1/03 1,895 2,021
Marion County Health Care Fac.,
United Church Homes
8.875%, 12/1/12 (Prerefunded 12/1/99!) 3,225 3,458
Montgomery County Hosp. Fac.
Grandview Hosp. and Med. Center
5.50%, 12/1/10 1,300 1,246
5.65%, 12/1/12 400 381
Ohio Air Quality Dev. Auth., PCR
Cleveland Electric, 6.00%, 8/1/20 2,700 2,732
Toledo Edison, 8.00%, 5/15/19 2,750 2,893
Ohio Housing Fin. Agency
Residential Mortgage
5.25%, 9/1/30 * 2,000 1,991
5.75%, 9/1/28 * 4,375 4,528
Single Family
Residual Interest Bond / Inverse Floater
(Currently 10.247%), 3/31/31
(GNMA Guaranteed) * 565 628
Ohio Water Dev. Auth., PCR
Cleveland Electric
6.10%, 8/1/20 * 2,600 2,628
7.70%, 8/1/25 2,800 3,192
Toledo Edison
7.55%, 6/1/23 4,500 4,666
8.00%, 10/1/23 * 3,700 4,199
Ohio Water Dev. Auth., Solid Waste Disposal,
Bay Shore Power
5.875%, 9/1/20 * 8,000 8,159
Total Ohio (Cost $59,561) 63,412
OKLAHOMA 1.1%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp., 7.30%, 8/1/15 $ 4,300 $ 4,634
LeFlore County Hosp. Auth.
Eastern Oklahoma Medical Center
9.40%, 5/1/06 (Prerefunded 5/1/99!) 2,000 2,062
Tulsa Municipal Airport
American Airlines
7.375%, 12/1/20 * 2,000 2,140
7.60%, 12/1/30 * 5,240 5,686
Total Oklahoma (Cost $13,480) 14,522
OREGON 0.1%
Western Generation Agency, Wauna Cogeneration
7.25%, 1/1/09 * 1,800 1,945
Total Oregon (Cost $1,794) 1,945
PENNSYLVANIA 3.6%
Allegheny County Hosp. Dev. Auth.,
St. Francis Med. Center
5.75%, 5/15/27 2,000 2,065
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 2,400 2,717
Toledo Edison, 7.75%, 5/1/20 2,000 2,293
Berks County IDA, Lutheran Home
at Topton, 6.875%, 1/1/23 5,000 5,444
Clarion IDA Health Fac., Beverly Enterprises,
10.125%, 5/1/07 735 763
Geisinger Auth. Pennsylvania Health Systems,
3.25%, 8/15/28 6,775 6,775
Montgomery County Higher Ed.
and Health Auth. Brittany Pointe,
8.50%, 1/1/22 (Prerefunded 1/1/03!) 2,500 2,961
Redeemer Long Term Care and Elder Services
8.00%, 6/1/22 5,755 6,537
8.20%, 6/1/06 810 925
Pennsylvania, GO, 5 00%, 8/1/15 11,610 11,751
Pennsylvania Housing Fac. Auth.
Residual Interest Bond / Inverse Floater
(Currently 10.37%), 10/1/23 * 1,500 1,686
Philadelphia Auth. for Industrial Dev.,
Health Care Fac.
Baptist Home of Philadelphia
5.60%, 11/15/28 $ 2,750 $ 2,633
Pauls Run Retirement Community
5.875%, 5/15/28 1,750 1,719
Total Pennsylvania (Cost $45,385) 48,269
PUERTO RICO 0.5%
Puerto Rico Highway and Transportation Auth.,
5.50%, 7/1/15 6,000 6,465
Total Puerto Rico (Cost $5,643) 6,465
RHODE ISLAND 0.6%
Rhode Island Health and Ed. Building,
Rhode Island Hosp. Residual Interest Bond /
Inverse Floater (Currently 10.333%), 8/15/21
(FGIC Insured) (Escrowed to Maturity) 1,000 1,184
Rhode Island Housing and Mortgage Fin.
Residual Interest Bond / Inverse Floater
(Currently 10.833%), 4/1/24 * 1,000 1,121
Homeownership Opportunity, 6.70%, 10/1/14 5,000 5,378
Total Rhode Island (Cost $7,000) 7,683
SOUTH CAROLINA 2.2%
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/08 2,600 1,488
Zero Coupon, 1/1/10 2,900 1,450
Zero Coupon, 1/1/12 1,350 589
Zero Coupon, 1/1/13 5,200 2,331
Zero Coupon, 1/1/20 9,900 2,840
Zero Coupon, 1/1/21 12,300 3,324
Zero Coupon, 1/1/26 6,700 1,325
Zero Coupon, 1/1/31 21,100 3,037
Zero Coupon, 1/1/32 10,000 1,354
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/34 $ 7,750 $ 929
Zero Coupon, 1/1/36 10,000 1,062
Piedmont Municipal Power Agency,
South Carolina Electric
5.25%, 1/1/15 5,500 5,373
South Carolina Public Service Auth.
5.875%, 1/1/23 (FGIC Insured) 5,000 5,383
Total South Carolina (Cost $31,809) 30,485
SOUTH DAKOTA 0.2%
South Dakota HDA, Homeownership, 6.65%, 5/1/14 2,475 2,663
Total South Dakota (Cost $2,475) 2,663
TENNESSEE 1.3%
Metropolitan Gov't. of Nashville
and Davidson Counties
Mur-Ci Homes, 7.75%, 12/1/26 4,615 4,791
Water and Sewer, 7.70%, 1/1/12 (FGIC Insured) 8,750 11,260
Tennessee Housing Dev. Agency, 7.625%, 7/1/22 * 1,900 2,010
Total Tennessee (Cost $16,790) 18,061
TEXAS 8.3%
Abilene Health Fac. Dev.
5.875%, 11/15/18 3,750 3,652
5.90%, 11/15/25 2,000 1,933
Sears Methodist Retirement
5.875%, 11/15/18 1,000 972
6.00%, 11/15/29 2,500 2,441
Alliance Airport Auth.
American Airlines, 7.00%, 12/1/11 * 3,070 3,615
Federal Express, 6.375%, 4/1/21 * 8,500 9,188
Amarillo Health Fac. Dev.,
Sears Panhandle Retirement
7.75%, 8/15/26 4,800 5,992
Bell County Health Fac. Dev.,
King's Daughter Hosp.
9.25%, 7/1/08 2,820 2,939
Brazos River Auth., Houston Lighting and Power
6.375%, 4/1/12 (MBIA Insured) 10,000 10,974
Denison Hosp. Auth.
Texoma Med. Center
6.125%, 8/15/27 $ 3,770 $ 3,902
7.10%, 8/15/24 (Prerefunded 8/15/04!) 3,650 4,107
Gainesville IDC, GTE Valenite, 8.90%, 5/15/11 * 2,940 3,156
Harris County, IDC, Shell Oil Project,
VRDN (Currently 3.20%) 2,900 2,900
Harris County Health Fac. Dev., Memorial Hosp.
7.125%, 6/1/15 (Prerefunded 6/1/02!) 5,000 5,599
Harris County Texas Health Fac. Dev.
Saint Lukes Episcopal Hosp.,
VRDN (Currently 3.35%) 1,900 1,900
Houston Airport System, 5.70%, 7/15/29 * 5,000 4,964
Houston Independent School Dist., GO
Zero Coupon, 2/15/13 10,000 4,982
4.75%, 2/15/26 10,000 9,448
Matagorda County Navigation Dist., PCR,
Central Power and Light
7.50%, 12/15/14 2,000 2,108
Northwest Texas Independent School Dist.,
GO, School Buildings
Zero Coupon, 8/15/32 20,000 2,705
Paris Health Fac. Dev., McCuistion
Regional Med. Center
7.60%, 2/1/12 4,500 5,049
Plano Health Fac. Dev., Texas Health Resources
5.00%, 2/15/22 (MBIA Insured) 5,000 4,867
San Antonio Electric and Gas
Zero Coupon, 2/1/10 (FGIC Insured) 5,000 3,038
Texas, GO, Veterans Housing Assistance,
6.25%, 12/1/15 960 998
Tomball Hosp. Auth., Tomball Regional Hosp.,
6.10%, 7/1/08 5,000 5,201
Tyler Health Fac. Dev.
Mother Frances Hosp.
5.40%, 7/1/08 1,315 1,332
5.625%, 7/1/13 4,960 4,992
Total Texas (Cost $106,711) 112,954
UTAH 1.0%
Intermountain Power Agency
5.25%, 7/1/14 (MBIA Insured) 5,000 5,177
5.75%, 7/1/19 (MBIA Insured) 4,000 4,267
Tooele County, PCR, Laidlaw Environmental,
7.55%, 7/1/27 * $ 2,000 $ 2,193
Utah Housing Fin. Agency
Sub Lien
6.25%, 7/1/05 200 209
7.50%, 7/1/05 510 545
7.60%, 7/1/05 455 482
7.75%, 7/1/05 495 525
7.75%, 1/1/23 * 80 82
8.40%, 7/1/08 * 20 21
8.55%, 7/1/04 115 120
8.65%, 7/1/04 340 356
8.70%, 7/1/01 25 26
9.25%, 7/1/01 45 46
9.30%, 7/1/00 * 5 5
9.60%, 7/1/02 * 5 5
9.75%, 7/1/02 20 20
9.85%, 7/1/02 * 70 72
Total Utah (Cost $13,315) 14,151
VERMONT 0.1%
Vermont Ed. and Health Buildings Fin. Agency
Med. Center Hosp. of Vermont
7.45%, 9/1/23 (FGIC Insured) 1,400 1,552
Total Vermont (Cost $1,400) 1,552
VIRGINIA 1.8%
Goochland County IDA, Nekoosa Packaging,
5.65%, 12/1/25 * 4,215 4,208
Norfolk Port and Ind. Auth., Henson Aviation,
9.625%, 8/1/12 * 710 788
Pocahontas Parkway Assoc.
Capital Appreciation
Zero Coupon, 8/15/13 2,800 1,200
Zero Coupon, 8/15/14 3,100 1,246
Zero Coupon, 8/15/15 3,200 1,207
Zero Coupon, 8/15/19 4,000 1,169
Zero Coupon, 8/15/22 4,600 1,103
Zero Coupon, 8/15/23 4,700 1,060
Pocahontas Parkway Assoc.
Toll Road Revenue
Zero Coupon, 8/15/10 $ 3,600 $ 1,868
Zero Coupon, 8/15/18 15,000 5,073
Roanoke IDA, Roanoke Memorial Hosp.,
Carilion Health System
VRDN (Currently 3.25%) 3,000 3,000
Virginia Beach Dev. Auth.,
Beverly Enterprises, 10.00%, 4/1/10 2,320 2,486
Total Virginia (Cost $24,394) 24,408
WASHINGTON 2.4%
Central Puget Sound Washington Regional Transit
Sales Tax and Motor, 5.25%, 2/1/21 (FGIC Insured) 5,000 5,199
Spokane County IDC, Kaiser Aluminum and Chemical
7.60%, 3/1/27 * 2,500 2,734
Washington, GO, 5.70%, 10/1/15 7,500 8,293
Washington Public Power Supply System
Zero Coupon, 7/1/14 (FSA Insured) 6,400 2,990
6.30%, 7/1/12 2,000 2,315
Nuclear Project
5.50%, 7/1/17 5,000 5,019
7.25%, 7/1/09 1,000 1,190
Washington State HFA, Fred Hutchinson
Cancer Research Center
VRDN (Currently 3.60%) 5,400 5,400
Total Washington (Cost $30,750) 33,140
WEST VIRGINIA 0.5%
West Virginia, GO, State Road,
4.50%, 6/1/23 (FGIC Insured) 7,500 6,936
Total West Virginia (Cost $6,781) 6,936
WISCONSIN 1.5%
Nekoosa, Nekoosa Papers, 5.50%, 7/1/14 5,000 5,015
Oconto Falls CDA, Oconto Falls Tissue,
7.75%, 12/1/22 2,800 2,977
Wisconsin HEFA
National Regency of New Berlin,
8.00%, 8/15/25 6,000 6,733
Waukesha Memorial Hosp.
5.25%, 8/15/19 (AMBAC Insured) 3,835 3,866
Wisconsin Housing and Economic Dev. Auth.
7.75%, 9/1/17 $ 1,190 $ 1,235
8.00%, 3/1/21 430 439
Total Wisconsin (Cost $18,804) 20,265
WYOMING 1.0%
Kemmerer County, PCR, Exxon,
VRDN (Currently 3.15%) 2,000 2,000
Sweetwater County, PCR,
Solid Waste Disposal, FMC Corp.
6.90%, 9/1/24 * 5,000 5,468
Wyoming CDA
5.85%, 6/1/28 * 4,090 4,232
Single Family, 6.70%, 6/1/17 1,810 1,910
Total Wyoming (Cost $12,404) 13,610
Total Investments in Securities
99.3% of Net Assets (Cost $1,258,570) $1,347,890
Other Assets Less Liabilities 9,241
NET ASSETS $1,357,131
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 68
Accumulated net realized gain/loss -
net of distributions (4,151)
Net unrealized gain (loss) 89,320
Paid-in-capital applicable to 108,346,790
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized 1,271,894
NET ASSETS $1,357,131
----------
NET ASSET VALUE PER SHARE $ 12.53
----------
* Interest subject to alternative minimum tax
! 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
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
VRDN Variable Rate Demand Note
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Year
Ended
2/28/99
---------
Investment Income
Interest income $ 78,221
Expenses
Investment management 8,119
Shareholder servicing 788
Custody and accounting 233
Registration 85
Prospectus and shareholder reports 69
Legal and audit 16
Directors 11
Miscellaneous 9
Total expenses 9,330
Expenses paid indirectly (13)
Net expenses 9,317
Net investment income 68,904
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities 9,146
Futures 462
Net realized gain (loss) 9,608
Change in net unrealized
gain or loss on securities (17,235)
Net realized and unrealized gain (loss) (7,627)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 61,277
---------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
In thousands
Year
Ended
2/28/99 2/28/98
Increase (Decrease) in Net Assets
Operations
Net investment income $ 68,904 $ 63,062
Net realized gain (loss) 9,608 5,076
Change in net unrealized
gain or loss (17,235) 44,298
Increase (decrease) in net
assets from operations 61,277 112,436
Distributions to shareholders
Net investment income (68,904) (63,062)
Net realized gain (6,383) --
Decrease in net assets
from distributions (75,287) (63,062)
Capital share transactions*
Shares sold 303,295 306,000
Distributions reinvested 52,381 43,119
Shares redeemed (226,525) (209,609)
Increase (decrease) in
net assets from capital
share transactions 129,151 139,510
Net Assets
Increase (decrease) during period 115,141 188,884
Beginning of period 1,241,990 1,053,106
End of period $1,357,131 $1,241,990
-----------------------
*Share information
Shares sold 24,041 24,772
Distributions reinvested 4,149 3,484
Shares redeemed (17,959) (17,044)
Increase (decrease) in
shares outstanding 10,231 11,212
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
February 28, 1999
T. Rowe Price Tax-Free High Yield Fund
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. Expenses paid indirectly reflect
credits earned on daily, uninvested cash balances at the custodian, 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 February 28, 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 $603,393,000 and $498,461,000, respectively, for the
year ended February 28, 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. The fund utilized capital loss carryforwards of $5,834,000 in
1999.
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, 1999. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
---------------------------------------------------------------------------
Undistributed net investment income $ 2,000
Undistributed net realized gain 307,000
Paid-in-capital (309,000)
At February 28, 1999, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,258,570,000. Net unrealized gain aggregated $89,320,000 at period-end,
of which $93,270,000 related to appreciated investments and $3,950,000 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 $647,000 was payable at February 28, 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 February 28, 1999, 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
$730,000 for the year ended February 28, 1999, of which $66,000 was payable
at period-end.
Tax Information (Unaudited) for the Tax Year Ended 2/28/99
- --------------------------------------------------------------------------------
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 distributions to shareholders included:
o $6,383,000 from long-term capital gains, subject to the 20% rate gains
category,
o $68,407,000 which qualified as exempt-interest dividends.
- --------------------------------------------------------------------------------
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Report of Independent Accountants
- --------------------------------------------------------------------------------
To the Board of Directors and Shareholders of
T. Rowe Price Tax-Free High Yield Fund, Inc.
In our opinion, the accompanying statement of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position
of T. Rowe Price Tax-Free High Yield Fund, Inc. (the "Fund") at February
28, 1999, and the results of its operations, the changes in its net assets
and the financial highlights for each of the fiscal periods presented, in
conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which
included confirmation of securities at February 28, 1999 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 17, 1999
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 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
4200 West Cypress St.
10th Floor
Tampa, FL 33607
Invest WithConfidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. F59-050 2/28/99
Annual Report
Tax-Free
Funds
February 28, 1999
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Tax-Free Funds
o Municipal bonds were relatively unscathed by the turmoil in other fixed
income markets and were less volatile than Treasuries.
o The Tax-Exempt Money, Tax-Free Short-Intermediate, Tax-Free Intermediate
Bond, Tax-Free Income, and Tax-Free High Yield Funds outpaced their
respective Lipper benchmarks for both the 6- and 12-month periods.
o The funds' good performances were due primarily to management decisions and
low fund expenses.
o All funds benefited from their longer relative maturities and durations
when interest rates fell, and also from careful credit selection.
o We expect continued low inflation and slowing economic growth to benefit
municipal securities, which still carry attractive yields relative to other
fixed income investments.
Fellow Shareholders
The fixed income markets and your funds generated good returns for the 6- and
12-month periods ended February 28, 1999. The Tax-Exempt Money, Tax-Free
Short-Intermediate, Tax-Free Intermediate Bond, Tax-Free Income, and Tax-Free
High Yield Funds surpassed their respective benchmarks in both periods, a
reflection of our management decisions and below-average expenses.
Municipal bonds moved through the past year relatively unscathed by the turmoil
that hit other fixed income markets. The municipal market was far less volatile
than the Treasury market, which benefited from a massive flight to quality that
drove 30-year yields to a record low of 4.72% in October from 5.92% last
February. Municipal yields also fell, but the decline was more muted as
long-term rates dropped to 4.64% in October from 5.08% last February. As a
result, municipal yields approached parity with Treasury yields especially in
longer maturities, an unusual event in a year when major tax reform was not
under discussion.
MARKET ENVIRONMENT
Municipal Bond and Note Yields
- --------------------------------------------------------------------------------
30-Year AAA 5-Year AAA 1-Year Moody's
General General Investment
Obligation Obligation Grade 1Note
2/28/98 5.08 4.05 3.60
5.13 4.10 3.65
5.20 4.30 3.85
5/98 5.05 4.10 3.75
5.05 4.10 3.60
5.10 4.10 3.70
8/98 4.93 3.85 3.50
4.82 3.70 3.30
4.92 3.70 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 3.00
Source: T. Rowe Price Associates
Major economic developments here and overseas during the fiscal year affected
the fixed income markets. In the first half, many economists expected the global
turmoil to have a negative impact on the U.S. economy, causing interest rates to
fall. Russia's debt default last summer created havoc in many markets, leading
to a global liquidity crisis that contributed to the flight to U.S. Treasuries.
In response, the Federal Reserve cut short-term rates three times last fall to
cushion the domestic economy from weakness abroad and restore investor
confidence. In December, yields began to move up following signs of
stronger-than-expected U.S. growth and a growing sense that the global liquidity
crisis had abated. Robust GDP growth of 6.1% in the fourth quarter added fuel to
the fire, and by the end of February 30-year Treasury yields were nearly 100
basis points (one percentage point) higher than in October. Municipal yields
also rose but, once again, they were far less volatile.
Lower-quality municipal bonds also escaped major damage. In response to the
liquidity crisis, the taxable markets-including corporate, mortgage, and
emerging market bonds-came under severe pressure in the third quarter, and
differences in yield between high- and low-quality bonds (yield spreads) widened
abruptly. Lower-quality, high-yield municipals experienced only a modest
widening in yield spreads, mainly because of limited supply in this area of the
market and less sensitivity to global events. While high-yield returns suffered
modestly, this followed several years of above-average returns.
Overall, municipal yields did not change significantly from February 1998 to
February 1999 except for one-year rates, as can be seen in the chart on page 1.
In the money market area, solid cash flow and the lowest level of new issuance
in nine years led to lower yields. A steeper yield curve resulted as money
market and short-term bonds reacted to the Federal Reserve's rate cuts and to
strong demand, while long-term rates were more affected by heavy bond sales.
During the past six months, intermediate-term bonds turned in the best
performance. For the calendar year, new bond issuance reached $284 billion, up
29% from 1997, a level surpassed only in 1993.
High Ratings for Risk-Adjusted Returns
- --------------------------------------------------------------------------------
The four bond funds received a high Morningstar Rating(trademark) for their
risk-adjusted performance, which reflects the degree of volatility experienced
in earning a particular return. (Money funds are not rated.) As of February 28,
1999, the Tax-Free High Yield Fund had five stars overall, and the Tax- Free
Short-Intermediate Fund, Tax-Free Intermediate Bond Fund, and Tax-Free Income
Fund all received four stars. The top 10% of the funds in each investment
category receive five stars, the next 22.5% receive four stars, and the next 35%
receive three stars. The funds were rated among 1,576, 1,109, and 369 municipal
fixed income funds for the 3-, 5-, and 10-year periods ended February 28, 1999,
respectively. Of course, past trends may not continue.
Morningstar proprietary ratings reflect historical risk-adjusted performance as
of 2/28/99 and may change monthly. Ratings are calculated from the funds' 3-,
5-, and 10-year average annual returns in excess of 90-day Treasury bill returns
with appropriate fee adjustments and a risk factor that reflects fund
performance below 90-day Treasury bill returns. The Tax-Free High Yield Fund
received 5 stars for the 3-, 5-, and 10-year periods; Tax-Free Income 4 stars
for the 3- and 5- year periods and 3 stars for the 10-year period; Tax-Free
Intermediate Bond 3 and 4 stars for the 3- and 5-year periods; and Tax-Free
Short-Intermediate 4, 5, and 4 stars for the 3-, 5-, and 10-year periods,
respectively.
As mentioned, each fund was in the lowest expense quartile (25%) of its Lipper
category as of February 28. For a discussion of the new Tax-Exempt Money Fund
PLUS Class shares, see the shaded box on page 4.
TAX-EXEMPT MONEY FUND AND PLUS SHARES
Performance Comparison
- --------------------------------------------------------------------------------
Since Inception*
Periods Ended 2/28/99 6 Months 12 Months (PLUS Shares)
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund 1.38% 2.97% -
Tax-Exempt Money Fund
PLUS Class - - 0.74%
Lipper Tax-Exempt Money
Market Funds Average 1.31 2.81 0.82
*11/1/98
The Tax-Exempt Money Fund posted good results relative to its peer group average
for both the 6- and 12-month periods ended February 28. Since its inception on
November 1, 1998, the Tax-Exempt Money Fund PLUS shares returned 0.74%, behind
the return of the Lipper average due to the higher expenses that accompany their
additional services.
Three consecutive easings in the fall by the Federal Reserve, amounting to a
total of 75 basis points, set the tone for the short-term tax-exempt market. At
the end of the fiscal year, the one-year yield was 60 basis points lower than it
was a year earlier, with most of the move occurring in the last six months.
Tax-Exempt Money Fund PLUS Class
- --------------------------------------------------------------------------------
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.
Money market funds benefited from the volatility in other markets. As investors
shifted assets to safer havens, total money fund assets ballooned to a record
$1.4 trillion, an increase of 26% during the fiscal year. However, tax-exempt
money funds expanded at half the rate of the total industry-a result of reduced
demand due to lower tax-exempt money yields versus comparable taxable yields.
The improved financial condition of many municipalities, along with low
long-term rates, drastically reduced the short-term borrowing needs of issuers.
Annual municipal note issuance dipped to its lowest level since 1989. Reduced
supply and steady demand kept rates low versus taxable alternatives, which meant
that the tax-exempt money market appealed mostly to investors in high tax
brackets.
Throughout the fiscal year, we maintained a fairly long weighted average
maturity-53 days at the end of February, which was 11 days longer than our peer
group average. We continue to believe that the imbalance between supply and
demand in our specific market, combined with a stable monetary policy and
possible further easing by the Fed if economic growth slows later in the year,
supports our more aggressive stance.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Short-Intermediate Fund 2.39% 4.90%
Lipper Short-Intermediate
Municipal Debt Funds Average 2.08 4.43
Your fund posted solid results that surpassed the Lipper Short-Intermediate
Municipal Debt Funds Average for both the 6- and 12-month periods ended February
28, 1999. Maintaining a slightly longer duration and a low expense ratio
enhanced returns. (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.)
Our duration strategy reflected several factors: the absence of any inflationary
pressures, the global demand for U.S. Treasuries resulting from problems
overseas, and the exceptional value offered in the municipal market due to
imbalances in supply and demand. Our long position was rewarded in the fall when
the Federal Reserve cut short-term interest rates. As economic growth in the
fourth quarter exceeded expectations and global turmoil subsided, Treasury
yields began to rise. Maturities within five years, which had been yielding less
than the federal funds rate, rose above the fed funds rate and resulted in a
positively sloped yield curve. This shift reflected the change in investor focus
from the global crisis to an accommodative Fed and a potential pickup in
inflation.
Nevertheless, we maintained our relatively long duration even as Treasury yields
were rising from their October lows. Municipal yields had not fallen as far and
looked exceptionally attractive. In addition, we anticipated increasing demand
for municipals and a drop in supply over the holiday season; supply has remained
below expectations during the first two months of 1999.
Recently, relative yields have moved closer to historic averages as municipals
outperformed Treasuries. While we had a fairly long duration at the end of the
period, we have since been reducing it. However, we expect to take advantage of
any increase in yields to extend it again, since we anticipate continued low
inflation and interest rates in the months ahead.
TAX-FREE INTERMEDIATE BOND FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Intermediate Bond Fund 2.26% 5.37%
Lipper Intermediate
Municipal Debt Funds Average 2.15 5.05
Your fund posted good returns and outperformed the Lipper Intermediate Municipal
Debt Funds Average for both the 6- and 12-month periods. Our duration strategy
over the past six months was similar to that of the Tax-Free Short-Intermediate
Fund (see report on that fund for an explanation). As short-term rates fell more
than long-term rates, short bonds appreciated while longer bonds actually
depreciated, but the changes were modest. Five-year general obligation (GO)
yields were down seven basis points while 30-year GO yields rose six, which
meant that a fund's return was largely determined by its position along the
yield curve. In our case, we favored five-year bonds because we thought 10-year
maturities were overvalued, and the steepening yield curve was beneficial to
five-year maturities. Since the yield curve has recently begun to steepen even
further, we anticipate buying bonds with longer maturities and have begun to
favor 10-year bonds.
At the annual shareholders meeting in October, we received approval to remove
the insurance requirement for the fund and changed the fund's name to reflect
the new policy. We will continue to hold 95% of assets rated AAA or AA by at
least one national rating organization (Standard & Poor's, Moody's, or a similar
service), and up to 5% may be rated A at the time of purchase. We believe this
will allow for more prudent diversification among a variety of high-quality
issuers.
Our current strategy is to reduce exposure to insured bonds over time in a
manner that neither reduces income nor results in significant realized capital
gains. We sold three insured credits-hospital, solid-waste facility, and
start-up toll road securities-primarily because they allowed us to reach our
duration goals and we considered them overvalued compared with other bonds.
TAX-FREE INCOME FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Income Fund 1.91% 5.48%
Lipper General Municipal
Debt Funds Average 1.76 4.88
The fund had several goals for the past year: managing exposure to interest
rates with steady, gradual shifts in duration; preserving tax-free income as
lower rates and maturing older, higher-yielding bonds eroded the fund's yield;
and seeking good diversification among issuers and bond insurers in the
portfolio. The strategy along with low expenses paid off, and performance
surpassed the Lipper average for both periods shown in the table.
The fund's duration (defined in the Tax-Free Short-Intermediate Fund section),
which was extended last June to a more aggressive range, was reduced to neutral
in January. Recent concerns about continued economic strength and a shift in the
Federal Reserve's position, from a bias toward easing to a neutral stance, drove
our strategy. We were also aware that, historically, the first quarter has often
not been strong for municipal bonds as supply starts to grow and demand weakens
in anticipation of tax-payment season.
The fund's credit quality remains high at an overall level of AA-. A year ago we
regretted not having more exposure to lower-quality bonds, which had performed
well in a strong economy. However, this sector did not do as well in the past
year, and we saw a modest widening of yield spreads between lower- and
higher-rated bonds. As this trend continues, we are looking for opportunities to
add some lower-rated securities to the portfolio.
During the past six months, we reduced our exposure to hospital bonds and
increased our holdings of general obligation bonds. The hospital industry is
suffering from cost recovery pressures, while tax-supported debt is benefiting
from the strong economy. As always, we are seeking good diversification among
solid credits. While the insurance industry continues to penetrate the municipal
bond market (more than 50% of new issues were insured in 1998), we are also
focused on diversifying exposure among the bond insurers.
TAX-FREE HIGH YIELD FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/28/99 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund 1.57% 4.80%
Lipper High Yield Municipal
Debt Funds Average 1.46 4.51
The municipal high-yield market trailed the higher-quality market from the
summer of 1998 through the end of February. Total returns were still positive,
however, unlike those of our counterparts in the corporate bond market.
Performance for the year was bolstered by our strategy of steadily increasing
duration (see the report for the Tax-Free Short-Intermediate Fund for an
explanation of duration) to benefit from the drop in interest rates, and the
fund surpassed the average performance of its Lipper peer group in both periods.
Quality Diversification
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund
AAA AA A BBB BB and below
6 25 21 26 22
Based on net assets as of 2/28/99.
Moderate returns in this sector of the municipal market have presented an
opportunity for investors. Compared with our peers, we have been underweighted
in below-investment-grade bonds and can now add selectively to our favorite
issuers at a time when yield spreads are wider than they have been during the
past two to three years. Currently, these holdings represent about 22% of total
assets, and the percentage should rise gradually. We are focusing specifically
on the long-term care, education, and corporate-backed sectors for new purchases
that should benefit from a strong domestic economy.
We are closely watching developments in the hospital sector as it comes under
pressure from increased competition and general overcapacity. Our percentage of
hospital holdings is among the lowest in the fund's history, and we will look to
increase it as opportunities unfold. Our overall strategy is designed to
increase the tax-free yield of the fund in a prudent manner.
Taxable vs. Tax-Exempt Yields
- --------------------------------------------------------------------------------
As of 2/28/99
Treasury Yield Treasury Yield Tax-Exempt
After Paying After Paying AAA General
Income Taxes Income Taxes Obligation
of 31% of 36% Yield
1 Yr 3.34 3.10 2.95
5 Yr 3.59 3.33 3.78
10 Yr 3.64 3.38 4.20
30 Yr 3.85 3.57 4.99
Source: T. Rowe Price Associates
OUTLOOK
Despite the economy's strong momentum from the fourth quarter of 1998 through
the early part of this year, we expect a decline in growth toward a more modest
and sustainable level later this year. We also believe the forces sustaining low
inflation are still in place. The Federal Reserve appears to have adopted a
neutral monetary bias in the belief that the economy contains an equal measure
of upside and downside risks.
So far this year, a decreasing supply of municipal issues combined with strong
demand has helped move tax-exempt yields into more normal relationships with
taxable yields. While Treasury yields across maturities have risen 50 to 60
basis points since the beginning of 1999, municipal yields were mostly
unchanged. The chart on the previous page shows the after-tax yield on Treasury
securities as of February 28, 1999, after paying federal income taxes at various
levels. Overall, municipal securities are still appealing relative to other
fixed income securities, and we are optimistic about their outlook for the rest
of the year.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
March 19, 1999
- --------------------------------------------------------------------------------
Change in Management
C. Stephen Wolfe stepped down as manager of the Tax-Free High Yield Fund on
March 1, 1999, to devote himself full-time to research on high-yield securities.
He remains a member of the fund's Investment Advisory Committee. William F.
Snider, associate portfolio manager of this fund, has been appointed chairman of
the Tax-Free High Yield Fund's Investment Advisory Committee. He and Patricia S.
Deford will be co-managers of the fund responsible for day-to-day management of
the portfolio. Mr. Snider joined T. Rowe Price in 1991 and also serves as
portfolio manager of the New York and New Jersey Tax-Free Bond Funds. Ms.
Deford, who joined T. Rowe Price in 1990, served as research director for the
firm's municipal department and is vice president of all tax-free funds. Other
members of the fund's Investment Advisory Committee include Konstantine B.
Mallas, Mary J. Miller, William T. Reynolds, and Arthur S. Varnado.
The preceding updates the Tax-Free Funds prospectus of July 1, 1998.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/98 2/28/99
Tax-Exempt Money Fund
- --------------------------------------------------------------------------------
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.016 0.014
For 12 months 0.032 0.029
Dividend Yield (7-Day Compound) * 2.98% 2.54%
Weighted Average Maturity (days) 59 53
Weighted Average Quality ** First Tier First Tier
Tax-Exempt Money Fund PLUS Class Shares
- --------------------------------------------------------------------------------
Price Per Share $ -- $ 1.00
Dividends Per Share
For 6 months -- 0.007!
For 12 months -- --
Dividend Yield (7-Day Compound) * -- 2.07%
Weighted Average Maturity (days) -- 53
Weighted Average Quality ** -- First Tier
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
x 8/31/98 2/28/99
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.39 $ 5.39
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.22 0.22
Dividend Yield*
For 6 months 4.13% 4.07%
For 12 months 4.24 4.12
30-Day Standardized Yield 3.59 3.16
Weighted Average Maturity (years) 4.4 4.0
Weighted Average Effective Duration (years) 2.9 3.0
Weighted Average Quality *** AA AA
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.13 $ 11.13
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.39% 4.39%
For 12 months 4.49 4.42
30-Day Standardized Yield 3.78 3.36
Weighted Average Maturity (years) 8.8 8.5
Weighted Average Effective Duration (years) 5.6 5.4
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/98 2/28/99
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 10.03 $ 9.94
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.51 0.50
Dividend Yield *
For 6 months 5.15% 5.13%
For 12 months 5.31 5.19
30-Day Standardized Yield 4.35 4.11
Weighted Average Maturity (years) 17.1 16.1
Weighted Average Effective Duration (years) 7.6 7.3
Weighted Average Quality *** AA- AA-
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 12.72 $ 12.53
Dividends Per Share
For 6 months 0.34 0.33
For 12 months 0.68 0.66
Dividend Yield *
For 6 months 5.38% 5.34%
For 12 months 5.55 5.45
30-Day Standardized Yield 4.59 4.46
Weighted Average Maturity (years) 19.4 19.3
Weighted Average Effective Duration (years) 7.3 7.6
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.
! Dividends for the period 11/1/98 to 2/28/99.
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
These charts show the value of a hypothetical $10,000 investment in each fund
over the past 10 fiscal year periods or since inception (for funds lacking 10-
year records). The result is compared with a broad-based average or index. The
index return does not reflect expenses, which have been deducted from the fund's
return.
TAX-EXEMPT MONEY FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Tax-Exempt
Money Market Tax-Exempt
Funds Average Money Fund
2/28/89 10,000 10,000
2/90 10,591 10,587
2/91 11,162 11,139
2/92 11,598 11,550
2/93 11,878 11,823
2/94 12,105 12,065
2/95 12,414 12,383
2/96 12,828 12,802
2/97 13,204 13,193
2/98 13,613 13,620
2/99 13,999 14,024
TAX-FREE SHORT-INTERMEDIATE FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper Short- Tax-Free
Lehman Intermediate Short-
3-Year Go Municipal Debt Intermediate
Bond Index Funds Average Fund
2/28/89 10,000 10,000 10,000
2/90 10,806 10,750 10,736
2/91 11,710 11,572 11,494
2/92 12,665 12,459 12,291
2/93 13,764 13,548 13,214
2/94 14,243 14,043 13,675
2/95 14,616 14,360 14,073
2/96 15,793 15,376 15,040
2/97 16,520 16,010 15,645
2/98 17,403 16,839 16,470
2/99 18,322 17,626 17,277
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
TAX-FREE INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman Intermediate
7-Year Municipal Tax-Free
Municipal Debt Funds Intermediate
Bond Index Average Bond Fund
11/30/92 10,000 10,000 10,000
2/93 10,542 10,537 10,681
2/94 11,008 11,034 11,267
2/95 11,277 11,250 11,566
2/96 12,434 12,276 12,672
2/97 13,050 12,824 13,204
2/98 14,043 13,778 14,168
2/99 14,880 14,500 14,929
TAX-FREE INCOME FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman General
Municipal Municipal Tax-Free
Bond Debt Funds Income
Index Average Fund
2/28/89 10,000 10,000 10,000
2/90 11,026 10,888 10,815
2/91 12,042 11,781 11,724
2/92 13,245 12,984 12,916
2/93 15,068 14,845 14,838
2/94 15,902 15,654 15,654
2/95 16,202 15,791 15,951
2/96 17,991 17,387 17,595
2/97 18,982 18,217 18,441
2/98 20,717 19,932 21,070
2/99 21,991 20,950 21,275
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
TAX-FREE HIGH YIELD FUND
- --------------------------------------------------------------------------------
As of 2/28/99
Lipper
Lehman High Yield
Revenue Municipal Tax-Free
Bond Debt Funds High Yield
Index Average Fund
2/28/89 10,000 10,000 10,000
2/90 11,076 10,865 10,954
2/91 12,095 11,479 11,823
2/92 13,397 12,669 13,072
2/93 15,345 14,205 14,895
2/94 16,306 15,145 16,010
2/95 16,557 15,372 16,212
2/96 18,434 16,977 17,935
2/97 19,522 17,935 19,051
2/98 21,424 19,799 21,036
2/99 22,707 20,704 22,046
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 2/28/99 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 2.97% 3.05% 3.44% - 4/8/81
Tax-Exempt Money PLUS - - - 0.74% 11/1/98
Tax-Free
Short-Intermediate 4.90 4.79 5.62 - 12/23/83
Tax-Free
Intermediate Bond 5.37 5.79 - 6.63 11/30/92
Tax-Free Income 5.48 6.33 7.84 - 10/26/76
Tax-Free High Yield 4.80 6.61 8.23 - 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 Tax-Free Funds
- --------------------------------------------------------------------------------
Annual Meeting Results
The Tax-Free Intermediate Bond Fund held an annual meeting on October 15, 1998,
to elect directors of the fund, to amend the fund's investment objectives, and
to ratify the Board of Directors' selection of PricewaterhouseCoopers LLP as the
fund's independent accountants.
The results of voting were as follows (by number of shares):
For nominees to the Board of
Directors for the Tax-Free
Intermediate Bond Fund:
Calvin W. Burnett
In favor: 6,264,176.601
Withheld: 107,241.379
Anthony W. Deering
In favor: 6,282,061.082
Withheld: 89,356.898
F. Pierce Linaweaver
In favor: 6,269,403.700
Withheld: 102,014.280
William T. Reynolds
In favor: 6,282,440.529
Withheld: 88,977.451
James S. Riepe
In favor: 6,280,032.546
Withheld: 91,385.434
John G. Schreiber
In favor: 6,280,776.004
Withheld: 90,641.976
M. David Testa
In favor: 6,282,440.529
Withheld: 88,977.451
For PricewaterhouseCoopers LLP
as independent accountants:
In favor: 6,209,652.143
Withheld: 63,094.092
Abstained: 98,671.745
Amendment for investment objec-
tives to remove the requirement
that total assets be invested
primarily in insured bonds:
In favor: 4,892,656.486
Against: 851,482.266
Abstained: 434,617.228
Broker Non-Votes: 192,662.000
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
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To open a 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
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10th Floor
Tampa, FL 33607
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor. C03-050 2/28/99
