Annual Report - Financial Statements
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T. Rowe Price
Tax-Free High
Yield Fund
February 29, 2000
Portfolio Highlights
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SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
8/31/99 2/29/00
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Life Care/Nursing Home Revenue 12% 15%
Hospital Revenue 18 14
Industrial and Pollution Control Revenue 12 14
Nuclear Revenue 11 11
Prerefunded Bonds 7 8
Housing Finance Revenue 8 6
General Obligation - Local 6 4
Lease Revenue 3 4
Escrowed to Maturity 2 4
Solid Waste Revenue 3 4
Dedicated Tax Revenue 4 3
Ground Transportation Revenue 5 3
Electric Revenue 3 2
Miscellaneous Revenue 2 2
General Obligation - State 3 2
Educational Revenue 1 2
All Other 1 1
Other Assets Less Liabilities -1 1
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Total 100% 100%
T. Rowe Price Tax-Free High Yield Fund
Financial Highlights For a share outstanding throughout each period
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Year
Ended
2/29/00 2/28/99 2/28/98 2/28/97 2/29/96
NET ASSET VALUE
Beginning of period $ 12.53 $ 12.66 $ 12.12 $ 12.10 $ 11.62
Investment activities
Net investment
income (loss) 0.66 0.66 0.69 0.70 0.72
Net realized and
unrealized gain (loss) (1.32) (0.07) 0.54 0.02 0.48
Total from
investment activities (0.66) 0.59 1.23 0.72 1.20
Distributions
Net investment income (0.66) (0.66) (0.69) (0.70) (0.72)
Net realized gain -- (0.06) -- -- --
Total distributions (0.66) (0.72) (0.69) (0.70) (0.72)
NET ASSET VALUE
End of period $ 11.21 $ 12.53 $ 12.66 $ 12.12 $ 12.10
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Ratios/Supplemental Data
Total return (diamond) (5.41)% 4.80% 10.42% 6.22% 10.62%
Ratio of total expenses
to average net assets 0.71% 0.71% 0.72% 0.74% 0.75%
Ratio of net investment
income (loss) to average
net assets 5.54% 5.28% 5.59% 5.86% 6.07%
Portfolio turnover rate 57.4% 38.9% 24.4% 37.0% 39.3%
Net assets, end of period
(in millions) $ 1,080 $ 1,357 $ 1,242 $ 1,053 $ 990
(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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
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February 29, 2000
Statement of Net Assets Par/Shares Value
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In thousands
ALABAMA 3.1%
Alexander Special Care Fac.
Fin. Auth., Russell Hosp.
6.00%, 12/1/22 $ 3,250 $ 2,746
Baldwin County Eastern Shore Health Care Auth.
Thomas Hosp.
5.75%, 4/1/27 2,500 2,003
6.75%, 4/1/21 1,900 1,746
8.50%, 4/1/16 (Prerefunded 4/1/01!) 4,000 4,245
Courtland IDB
6.70%, 11/1/29 * 2,000 1,968
Solid Waste Disposal,
Champion Int'l., 5.90%, 2/1/17 8,000 7,342
Marshall County Health Care Auth.
Guntersville-Arab Medical Center
7.00%, 10/1/13 2,100 2,144
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 8/15/18 (MBIA Insured) 4,550 1,372
Zero Coupon, 8/15/19 (MBIA Insured) 4,675 1,314
Zero Coupon, 8/15/20 (MBIA Insured) 4,810 1,260
Mobile Airport Auth., 8.875%, 10/1/15
(Prerefunded 4/1/00!)* 1,853 1,915
Selma IDB, Int'l. Paper, 6.70%, 2/1/18* 2,000 2,015
Shelby County, GO
7.40%, 8/1/07 2,000 2,108
7.70%, 8/1/17 1,000 1,058
Total Alabama (Cost $32,632) 33,236
ALASKA 1.6%
Alaska Housing Fin.
5.875%, 12/1/24 (MBIA Insured) 5,000 4,903
6.10%, 6/1/30 5,000 4,889
6.15%, 6/1/39 8,000 7,813
Total Alaska (Cost $17,576) 17,605
ARIZONA 0.7%
Peoria IDA
Sierra Winds
6.25%, 8/15/14 2,040 1,844
Peoria IDA
Sierra Winds
6.25%, 8/15/20 $ 3,500 $ 3,020
6.50%, 8/15/31 1,000 869
Tempe IDA, Friendship Village of Tempe,
6.75%, 12/1/13 1,950 1,861
Total Arizona (Cost $8,109) 7,594
CALIFORNIA 6.0%
California HFFA, St. Francis Medical Center
5.75%, 10/1/23 (Escrowed to Maturity) 6,515 6,279
East Palo Alto Redev. Agency
Univ. Circle-Gateway
6.50%, 10/1/19 1,000 982
6.625%, 10/1/29 1,780 1,741
Foothill / Eastern Transportation Corridor Agency
Zero Coupon, 1/1/15
(Escrowed to Maturity) 2,500 1,069
Zero Coupon, 1/1/17
(Escrowed to Maturity) 12,265 4,562
Zero Coupon, 1/1/19
(Escrowed to Maturity) 10,000 3,253
Zero Coupon, 1/1/25
(Escrowed to Maturity) 8,000 1,777
Zero Coupon, 1/1/26
(Escrowed to Maturity) 17,500 3,649
Zero Coupon, 1/1/28
(Escrowed to Maturity) 10,000 1,845
Zero Coupon, 1/1/30
(Escrowed to Maturity) 25,000 4,078
Fresno Joint Powers Fin. Auth.,
6.55%, 9/2/12 3,000 3,065
Inglewood Redev. Agency, Century Redev.,
6.125%, 7/1/23 3,440 3,210
Los Angeles County, COP,
Marina del Rey, 6.50%, 7/1/08 3,250 3,383
Los Angeles Regional Airports,
LAX Airport Improvement
5.65%, 8/1/17 * 15,775 13,793
Sacramento City Fin. Auth.,
Convention Center, 6.25%, 1/1/30 10,000 8,982
San Jose Multifamily Housing, Helzer Courts Apartments
6.40%, 12/1/41 * 3,000 2,645
Total California (Cost $63,516) 64,313
COLORADO 1.6%
Colorado Housing Fin. Auth.
8.65%, 8/1/03 325 330
8.70%, 11/1/04 * 790 802
9.00%, 8/1/03 335 339
9.40%, 8/1/03 * 150 152
Denver City & County, Airport System
United Air Lines, 6.875%, 10/1/32 * $ 11,000 $ 10,753
E-470 Public Highway Auth.
Zero Coupon, 9/1/20 (MBIA Insured) 17,420 4,892
Total Colorado (Cost $17,203) 17,268
CONNECTICUT 1.0%
Connecticut Dev. Auth., Mystic Marinelife Aquarium
7.00%, 12/1/27 1,700 1,677
Mashantucket
5.50%, 9/1/28 5,000 4,254
5.75%, 9/1/18 1,000 904
5.75%, 9/1/27 4,000 3,542
Total Connecticut (Cost $11,090) 10,377
DELAWARE 0.9%
Delaware Economic Dev. Auth.
Delmarva Power & Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,616
Peninsula Methodist Homes
8.50%, 5/1/22 330 346
8.50%, 5/1/22 (Prerefunded 5/1/02!) 2,170 2,372
Delaware HFA, Beebe Medical Center,
6.75%, 6/1/14 3,975 3,776
Total Delaware (Cost $8,861) 9,110
DISTRICT OF COLUMBIA 2.1%
Dist. of Columbia, GO
6.53%, 7/1/06 (FSA Insured) 2,375 2,044
6.78%, 7/1/06 (FSA Insured) 7,495 7,169
Dist. of Columbia
American Geophysical Union, 5.875%, 9/1/23 1,750 1,582
James F. Oyster Elementary School Pilot
6.60%, 11/1/15 2,270 2,213
Medlantic Healthcare Group
5.75%, 8/15/26 (MBIA Insured)
(Escrowed to Maturity) 6,000 5,794
Dist. of Columbia
Methodist Home
5.50%, 1/1/11 $ 1,000 $ 873
6.00%, 1/1/20 3,920 3,272
Total District of Columbia (Cost $24,457) 22,947
FLORIDA 3.7%
Brevard County Tourist Dev.
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 1,520 1,531
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 3,870 3,995
Broward Waste Energy, L.P. South
7.95%, 12/1/08 3,930 4,057
Charlotte County, IDR,
Beverly Enterprises, 10.00%, 6/1/11 775 822
Collier County IDA, Beverly Enterprises,
10.75%, 3/1/03 1,350 1,433
Dade County, Guaranteed Entitlement
Zero Coupon, 2/1/12 (MBIA Insured) 14,215 7,190
Escambia County, IDR,
Beverly Enterprises, 9.80%, 6/1/11 415 430
Florida Board of Ed., GO,
Capital Outlay, 5.75%, 6/1/22 5,400 5,300
Hernando County, IDR,
Beverly Enterprises, 10.00%, 9/1/11 740 790
Jacksonville Ind. Dev.,
Beverly Enterprises, 7.00%, 10/1/11 2,550 2,407
Lee County IDA,
Cypress Cove, 6.375%, 10/1/25 2,600 2,253
Leon County, IDR,
Beverly Enterprises, 9.80%, 6/1/11 415 430
Manatee County Housing Fin. Auth.,
Capital Appreciation
Zero Coupon, 10/1/15 1,498 261
Orange County HFA
Westminster Community Care
6.50%, 4/1/12 2,525 2,381
6.75%, 4/1/34 2,695 2,371
Orange County IDA,
Beverly Enterprises, 9.25%, 8/1/10 395 417
St. John's County IDA,
Vicar's Landing, 6.75%, 2/15/12 4,000 3,876
Total Florida (Cost $40,171) 39,944
GEORGIA 2.6%
Americus & Sumter County Hosp. Auth.
Magnolia Manor
6.25%, 5/15/19 $ 1,000 $ 860
6.375%, 5/15/29 3,500 2,963
Athens-Clarke Residential Care Fac. Auth.
Wesley Woods of Athens, 6.375%, 10/1/27 2,500 2,161
Coweta County Residential Care Fac. Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 3,145 3,361
Municipal Electric Auth. of Georgia,
6.25%, 1/1/17 4,000 4,174
Putnam County Dev. Auth., PCR, Georgia Power Plant
VRDN (Currently 3.85%) 3,000 3,000
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16 * 4,080 4,151
7.50%, 1/1/26 * 4,400 4,486
Savannah Economic Dev. Auth.,
College of Art & Design
6.80%, 10/1/19 3,430 3,371
Total Georgia (Cost $29,193) 28,527
HAWAII 0.5%
Hawaii Dept. of Budget and Fin.
Kapiolani Health Obligated Group
6.20%, 7/1/16 2,000 1,961
6.25%, 7/1/21 4,000 3,827
Total Hawaii (Cost $6,048) 5,788
IDAHO 0.7%
Idaho HFA
Single Family, 7.80%, 1/1/23 * 875 895
St. Lukes Regional Medical Center
VRDN (Currently 3.85%) 1,260 1,260
Idaho Student Loan Marketing Assoc.,
6.70%, 10/1/07 * 2,500 2,475
Power County, PCR, 6.45%, 8/1/32 * 3,580 3,385
Total Idaho (Cost $8,067) 8,015
ILLINOIS 5.3%
Aurora, Dreyer Medical Clinic,
8.75%, 7/1/14 $ 4,025 $ 4,236
Chicago O'Hare Int'l. Airport
American Airlines, 7.875%, 11/1/25 * 2,500 2,566
United Airlines, 5.35%, 9/1/16 2,800 2,396
Illinois Dev. Fin. Auth.,
Adventist Health, 5.50%, 11/15/20 4,500 3,576
Illinois HFA
Community Hosp. of Ottawa, 6.85%, 8/15/24 5,275 5,244
Covenant Retirement Community, 7.60%, 12/1/12 2,665 2,830
Glen Oaks Medical Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,593
9.50%, 11/15/15 (Escrowed to Maturity) 1,840 1,946
Hinsdale Hosp.
7.00%, 11/15/19 (Escrowed to Maturity) 5,100 5,553
Holy Cross Hosp., 6.75%, 3/1/24 6,650 6,347
Riverside Medical Center, 5.75%, 11/15/20 2,620 2,290
Victory Health Services, 5.375%, 8/15/16 5,105 4,348
Metropolitan Pier and Exposition Auth.
McCormick Place
5.25%, 12/15/28 (FGIC Insured) 7,000 6,120
Southwestern Illinois Dev. Auth., Anderson Hosp.
7.00%, 8/15/22 (Prerefunded 8/15/02!) 2,500 2,661
Village of Carol Stream, DuPage County
Windsor Park Manor
7.00%, 12/1/13 2,000 1,947
7.20%, 12/1/14 1,200 1,186
Total Illinois (Cost $58,121) 56,839
INDIANA 2.2%
Goshen, Greencroft Obligation Group,
5.75%, 8/15/28 4,000 3,154
Hammond, Sewage and Solid Waste Disposal
American Maize Products, 8.00%, 12/1/24 * 4,000 4,304
Indiana Dev. Fin. Auth., 6.25%, 7/15/30 2,350 2,137
Indiana HFA, Clarian Health Partners
5.50%, 2/15/16 (MBIA Insured) 2,800 2,645
Indiana HFFA, Deaconess Hosp., 5.50%, 3/1/29 5,000 4,149
Indianapolis Airport Auth.,
Federal Express, 7.10%, 1/15/17 * 5,000 5,136
St. Joseph County Economic Dev.
Madison Center
5.45%, 2/15/17 $ 1,150 $ 953
5.50%, 2/15/21 1,150 927
Total Indiana (Cost $25,233) 23,405
IOWA 0.2%
Iowa HFA, Wesley Retirement, 6.25%, 2/1/12 2,400 2,221
Total Iowa (Cost $2,400) 2,221
KENTUCKY 2.1%
Florence Housing Fac., Bluegrass RHF Housing
7.625%, 5/1/27 (Prerefunded 5/1/07!) 2,500 2,864
Jefferson County,
Louisville Gas & Electric, 7.45%, 6/15/15 4,250 4,361
Jefferson County HFA,
Beverly Enterprises, 5.875%, 5/1/08 940 868
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22 * 6,000 5,497
7.50%, 2/1/12 * 3,600 3,699
7.50%, 2/1/20 * 5,360 5,479
Total Kentucky (Cost $22,042) 22,768
LOUISIANA 3.9%
Lake Charles Harbor & Terminal Dist.,
Panhandle Eastern
7.75%, 8/15/22 5,000 5,375
Louisiana Local Gov't. Environment Fac.,
St. James Place
8.00%, 11/1/25 4,880 4,675
Louisiana Offshore Terminal Auth.,
Deepwater Port
7.60%, 9/1/10 4,050 4,186
Louisiana PFA
IDR, Beverly Enterprises, 8.25%, 9/1/08 1,145 1,194
Pendelton Memorial Methodist Hosp.
5.25%, 6/1/17 4,515 3,415
5.25%, 6/1/28 5,780 4,058
St. James Place of Baton Rouge, 10.00%, 11/1/21
(Prerefunded 11/1/01!) 4,500 4,958
Louisiana Public Fac. Auth.,
5.625%, 8/15/29 $ 3,500 $ 2,776
Plaquemines Parish IDB, PCR,
7.25%, 10/1/09 1,280 1,280
West Feliciana Parish
6.60%, 9/1/28 5,000 4,638
PCR, Entergy Gulf States, 5.65%, 9/1/28 5,000 4,954
Total Louisiana (Cost $44,138) 41,509
MARYLAND 2.6%
Berlin, Atlantic General Hosp.,
8.375%, 6/1/22 1,860 1,921
Gaithersburg Economic Dev.,
Asbury Methodist, 5.50%, 1/1/15 5,000 4,436
Maryland CDA, Single Family,
7.25%, 4/1/19 2,500 2,548
Maryland Energy Fin. Administration,
7.50%, 9/1/15 * 6,000 5,818
Maryland HHEFA, Doctor's Community Hosp.,
5.50%, 7/1/24 3,000 2,300
Maryland Ind. Dev. Fin. Auth.
American Association of Blood Banks
7.25%, 8/1/13 2,700 2,743
Maryland-National Capital Park Planning Commission
Little Bennett Golf Fac.
8.25%, 10/1/11 (Prerefunded 10/1/02!) 1,960 2,154
Montgomery County Housing Opportunities Commission
Multifamily, 8.75%, 7/1/27 1,995 2,039
Single Family
Zero Coupon, 7/1/27 4,250 776
Zero Coupon, 7/1/28 9,500 1,656
6.10%, 7/1/27 1,975 1,975
7.50%, 7/1/17 105 107
Total Maryland (Cost $29,396) 28,473
MASSACHUSETTS 3.9%
Massachusetts, GO, 7.50%, 6/1/04 2,750 2,953
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/19 2,500 2,829
7.00%, 3/1/21 2,000 2,260
Massachusetts Dev. Fin. Agency
Boston Univ., 5.375%, 5/15/39 5,490 4,582
Ogden Haverhill, 6.70%, 12/1/14 * 2,250 2,261
Massachusetts HEFA
5.625%, 7/1/20 $ 5,000 $ 3,858
Caritas Christi, 5.75%, 7/1/28 500 377
Nichols College, 6.125%, 10/1/29 3,500 3,076
Massachusetts Housing Fin. Agency
Housing Project 6.375%, 4/1/21 1,925 1,934
Single Family, 6.35%, 6/1/17 1,730 1,748
Massachusetts Ind. Fin. Agency
Bradford College, 5.625%, 11/1/28 6,000 4,649
Nevins Home, 7.875%, 7/1/23 5,190 5,179
Ogden Haverhill, 5.40%, 12/1/11 * 3,600 3,201
Massachusetts Water Resources Auth.
5.00%, 3/1/22 (MBIA Insured) 3,500 3,022
Total Massachusetts (Cost $44,835) 41,929
MICHIGAN 2.7%
Dickinson County Economic Dev., Champion Int'l.
5.85%, 10/1/18 4,000 3,626
Flint Hosp. Building Auth., Hurley Medical Center
5.375%, 7/1/28 3,000 2,124
Garden City Hosp. Fin. Auth.
Garden City Hosp.
5.625%, 9/1/10 1,265 1,080
5.75%, 9/1/17 1,500 1,213
Michigan HDA, 6.50%, 12/1/17 100 101
Michigan Hosp. Fin. Auth.
Bay Medical Center, 8.25%, 7/1/12 1,920 1,983
Pontiac Osteopathic Hosp., 6.00%, 2/1/24 7,735 6,285
Saratoga Community Hosp., 8.75%, 6/1/10
(Prerefunded 6/1/02!) 3,432 3,716
Michigan State Building Auth.,
Fac. Program, 5.125%, 10/15/15 8,415 7,797
Michigan Strategic Fund,
Waste Management, 5.20%, 4/1/10 * 1,500 1,270
Total Michigan (Cost $30,482) 29,195
MINNESOTA 0.7%
Minneapolis, Walker Methodist Senior Services
6.00%, 11/15/28 7,500 6,074
Minnesota Housing Fin. Agency, Single Family
6.70%, 1/1/18 $ 1,430 $ 1,461
Total Minnesota (Cost $8,880) 7,535
MISSISSIPPI 2.5%
Mississippi Business Fin.
5.90%, 5/1/22 5,675 4,919
Systems Energy Resources, 5.875%, 4/1/22 20,000 17,208
Mississippi Home, Single Family,
9.25%, 3/1/12 (FGIC Insured) 117 121
Mississippi Hosp. Equipment & Fac. Auth.,
Magnolia Hosp.
7.375%, 10/1/21 (Prerefunded 10/1/01!) 3,000 3,176
Warren County, Int'l. Paper, 6.75%, 8/1/21 * 2,000 2,015
Total Mississippi (Cost $30,470) 27,439
MISSOURI 1.4%
Good Shepherd Nursing Home Dist.
Nursing Home Fac.
5.45%, 8/15/08 1,150 1,054
5.90%, 8/15/23 2,000 1,641
Hannibal IDA, Hannibal Medical Center
9.50%, 3/1/22 (Prerefunded 9/1/01!) 3,650 4,057
Joplin IDA, Tri-State Osteopathic Hosp.
8.25%, 12/15/14 (Prerefunded 12/15/01!) 1,060 1,140
Lee's Summit IDA, John Knox Village,
7.125%, 8/15/12 1,500 1,535
Missouri HEFA, Still Regional Medical Center
7.70%, 2/1/13 (Prerefunded 2/1/02!) 4,210 4,466
Newton County IDA, 7.125%, 11/1/08 1,320 1,267
Total Missouri (Cost $14,841) 15,160
MONTANA 0.1%
Montana Board of Housing
7.85%, 10/1/04 (FHA Insured) 485 497
8.40%, 10/1/03 * 310 314
8.50%, 10/1/02 175 177
8.525%, 10/1/02 (FHA Insured)) 150 151
8.95%, 10/1/02 * 140 142
Total Montana (Cost $1,260) 1,281
NEBRASKA 0.5%
City of Kearney, Great Platte River Road,
6.75%, 1/1/23 $ 5,000 $ 3,998
Nebraska Investment Fin. Auth.
Single Family
Residual Interest Bond / Inverse Floater
(Currently 10.983%), 3/15/22
(GNMA Guaranteed) * 465 484
Residual Interest Bond / Inverse Floater
(Currently 11.236%), 9/10/30
(GNMA Guaranteed) * 700 738
Total Nebraska (Cost $6,044) 5,220
NEVADA 2.4%
Clark County, IDR
Nevada Power
5.50%, 10/1/30 3,500 2,834
5.90%, 11/1/32 * 15,600 13,283
Southwest Gas
7.30%, 9/1/27 3,000 3,134
7.50%, 9/1/32 * 5,000 5,194
Nevada Housing Division
9.35%, 10/1/02 130 131
9.375%, 10/1/00 * 30 30
9.45%, 10/1/03 (FHA Insured) * 305 309
9.65%, 10/1/02 * 210 214
Single Family Mortgage, 5.60%, 4/1/17 1,000 951
Total Nevada (Cost $28,282) 26,080
NEW HAMPSHIRE 0.3%
New Hampshire HHEFA, Catholic Medical Center,
8.25%, 7/1/13 3,000 3,064
Total New Hampshire (Cost $2,985) 3,064
NEW JERSEY 3.8%
Camden County Improvement Auth.
Kaighn Point Marine Terminal, 8.00%, 6/1/27 * 4,000 4,170
Gloucester County Improvement Auth.
Waste Management, 6.85%, 12/01/09 $ 1,000 $ 1,005
New Jersey Economic Dev. Auth.
Continental Airlines,
6.25%, 9/15/19 (FSA Insured) * 15,000 13,737
Franciscan Oaks, 5.75%, 10/1/23 1,775 1,424
Kapkowski Road Landfill
6.375%, 4/1/18 2,000 1,914
6.375%, 4/1/31 2,000 1,873
Keswick Pines
5.75%, 1/1/24 3,885 3,063
8.75%, 1/1/24 (Prerefunded 1/1/04!) 5,925 6,778
The Evergreens, 6.00%, 10/1/17 1,300 1,115
New Jersey Sports & Exposition Auth.,
Monmouth Park
8.00%, 1/1/25 (Prerefunded 1/1/05!) 5,250 5,992
Total New Jersey (Cost $41,462) 41,071
NEW MEXICO 0.4%
Farmington, PCR, 6.30%, 12/1/16 4,800 4,614
Total New Mexico (Cost $4,761) 4,614
NEW YORK 8.2%
Dormitory Auth. of the State of New York
City Univ.
5.625%, 7/1/16 3,100 3,049
6.00%, 7/1/14 2,730 2,810
Dept. of Health, 5.50%, 7/1/25 (MBIA Insured) 3,500 3,213
State Univ. Ed. Fac.
5.25%, 5/15/13 5,000 4,815
5.25%, 5/15/19 5,000 4,560
5.875%, 5/15/17 3,000 3,014
Huntington Housing Auth.
Gurwin Jewish Senior Residences,
6.00%, 5/1/39 1,140 928
Metropolitan Transportation Auth., Service Contract
5.50%, 7/1/17 4,000 3,853
New York City, GO
5.75%, 2/1/14 8,140 8,101
5.875%, 3/15/13 2,750 2,774
New York City, GO
6.00%, 2/15/16 $ 2,810 $ 2,816
6.00%, 8/1/17 2,500 2,507
6.20%, 8/1/07 4,705 4,899
6.20%, 8/1/07 (Prerefunded 8/1/04!) 120 127
6.25%, 8/1/09 7,000 7,364
New York City Health & Hosp., Health System Bonds
5.25%, 2/15/17 (AMBAC Insured) 6,000 5,320
New York City Municipal Water Fin. Auth.,
Water and Sewer
5.50%, 6/15/23 5,000 4,606
New York State Energy Research & Dev. Auth.,
Lilco Project
5.15%, 3/1/16 (MBIA Insured) 10,000 9,131
New York State Mortgage Agency,
Homeowner Mortgage
5.90%, 4/1/27 4,000 3,868
Oneida County IDA
St. Elizabeth Medical Center
5.625%, 12/1/09 1,400 1,264
5.875%, 12/1/29 2,750 2,199
6.00%, 12/1/19 2,520 2,120
Suffolk County IDA
7.25%, 11/1/28 2,000 1,916
Jeffersons Ferry, 7.20%, 11/1/19 1,250 1,204
Yonkers IDA, Civic Fac.,
St. Joseph Hosp., 6.15%, 3/1/15 2,500 2,189
Total New York (Cost $88,604) 88,647
NORTH CAROLINA 0.9%
North Carolina Eastern Municipal Power Agency,
6.75%, 1/1/26 3,000 3,022
North Carolina Medical Care Commission,
Valdese General Hosp.
8.75%, 10/1/16 (Prerefunded 10/1/01!) 1,905 2,056
North Carolina Municipal Power Agency
6.375%, 1/1/13 3,000 3,022
Catawba Electric, 5.90%, 1/1/03 1,000 1,009
Total North Carolina (Cost $8,860) 9,109
NORTH DAKOTA 0.4%
Mercer County, PCR, Basin Electrical Power
7.20%, 6/30/13 (AMBAC Insured) 3,500 4,007
Total North Dakota (Cost $3,992) 4,007
OHIO 3.7%
Akron, Municipal Baseball Stadium, COP
Zero Coupon, 12/1/16 $ 2,200 $ 1,968
Cambridge, Guernsey Memorial Hosp.,
8.00%, 12/1/11 1,500 1,560
Cleveland Parking Fac., 8.10%, 9/15/22
(Prerefunded 9/15/02!) 10,000 10,940
Fairfield Economic Dev. Auth.,
Beverly Enterprises, 8.50%, 1/1/03 1,415 1,452
Montgomery County Hosp., Kettering Medical Center
6.75%, 4/1/18 2,100 1,978
Ohio Air Quality Dev. Auth., PCR
Cleveland Electric, 6.00%, 8/1/20 2,700 2,414
Toledo Edison, 8.00%, 5/15/19 2,750 2,812
Ohio Housing Fin. Agency, Single Family
Residual Interest Bond / Inverse Floater
(Currently 9.628%), 3/31/31
(GNMA Guaranteed)* 465 491
Ohio Water Dev. Auth., PCR
Bay Shore Power
5.875%, 9/1/20 * 6,000 4,875
5.375%, 9/1/02 * 2,800 2,735
Cleveland Electric
6.10%, 8/1/20 * 2,600 2,310
7.70%, 8/1/25 2,800 2,956
Toledo Edison, 8.00%, 10/1/23 * 3,700 3,935
Total Ohio (Cost $40,684) 40,426
OKLAHOMA 1.1%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp., 7.30%, 8/1/15 4,300 4,072
Tulsa Municipal Airport
American Airlines
7.375%, 12/1/20 * 2,000 2,029
7.60%, 12/1/30 * 5,240 5,353
Total Oklahoma (Cost $11,480) 11,454
OREGON 0.2%
Western Generation Agency, Wauna Cogeneration
7.25%, 1/1/09 * $ 1,700 $ 1,745
Total Oregon (Cost $1,694) 1,745
PENNSYLVANIA 5.1%
Allegheny County Hosp. Dev. Auth.,
St. Francis Medical Center
5.75%, 5/15/27 2,000 1,573
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 2,400 2,525
Toledo Edison, 7.75%, 5/1/20 2,000 2,116
Berks County IDA, Lutheran Home at Topton
6.875%, 1/1/23 (AMBAC Insured) 5,310 5,504
Bucks County IDA
Health Care Fac.
6.20%, 5/1/19 1,275 1,102
6.30%, 5/1/29 8,475 7,207
Chester County HEFA,
Jefferson Health, 5.375%, 5/15/27 2,500 2,029
Lancaster County Hosp. Auth.,
St. Annes Home, 6.60%, 4/1/24 3,200 2,850
Montgomery County HHEFA
Philadelphia Geriatric Center
7.00%, 12/1/12 3,360 3,263
7.25%, 12/1/19 2,500 2,379
7.375%, 12/1/33 1,900 1,777
Montgomery County Higher Ed. & Health Auth.
8.00%, 6/1/22 (Prerefunded 6/1/02!) 5,755 6,174
8.20%, 6/1/06 (Prerefunded 6/1/02!) 730 786
Brittany Pointe, 8.50%, 1/1/22
(Prerefunded 1/1/03!) 2,500 2,779
Pennsylvania Economic Dev. Fin. Auth., National Gypsum
6.25%, 11/1/27 * 5,500 4,985
Pennsylvania Housing Fin. Agency
Residual Interest Bond / Inverse Floater
(Currently 9.961%), 10/3/23
(GNMA Guaranteed) * 1,500 1,605
Philadelphia Auth. for Ind. Dev., Health Care Fac.
Baptist Home of Philadelphia
5.60%, 11/15/28 1,750 1,336
Philadelphia Auth. for Ind. Dev., Health Care Fac.
Pauls Run Retirement Community
5.75%, 5/15/18 $ 1,400 $ 1,148
5.85%, 5/15/13 1,165 1,025
5.875%, 5/15/28 3,400 2,709
Total Pennsylvania (Cost $57,052) 54,872
RHODE ISLAND 0.6%
Rhode Island Housing & Mortgage Fin.
Residual Interest Bond / Inverse Floater
(Currently 9.961%), 4/1/24
(GNMA Guaranteed) * 1,000 1,069
Homeownership Opportunity, 6.70%, 10/1/14 5,000 5,125
Total Rhode Island (Cost $6,000) 6,194
SOUTH CAROLINA 3.2%
Connector 2000 Assoc.
Toll Road
Zero Coupon, 1/1/08 2,600 1,367
Zero Coupon, 1/1/10 2,900 1,294
Zero Coupon, 1/1/13 5,200 1,930
Zero Coupon, 1/1/20 9,900 2,121
Zero Coupon, 1/1/21 12,300 2,438
Zero Coupon, 1/1/24 8,500 1,319
Zero Coupon, 1/1/26 6,700 878
Zero Coupon, 1/1/31 21,100 1,867
Georgetown County, Int'l. Paper,
6.25%, 9/1/23 * 2,000 1,879
Piedmont Municipal Power Agency
5.25%, 1/1/15 1,500 1,282
5.25%, 1/1/21 1,000 811
5.75%, 1/1/24 5,000 4,244
Richland County PCR, Union Camp,
6.625%, 5/1/22 3,505 3,515
South Carolina Jobs Economic Dev. Auth.
First Mortgage Lutheran Homes, 6.625%, 5/1/20 5,500 5,171
South Carolina Public Service Auth.
5.875%, 1/1/23 (FGIC Insured) 5,000 4,892
Total South Carolina (Cost $41,810) 35,008
SOUTH DAKOTA 0.2%
South Dakota HDA, Homeownership,
6.65%, 5/1/14 $ 2,375 $ 2,435
Total South Dakota (Cost $2,375) 2,435
TENNESSEE 0.9%
Metropolitan Gov't. of Nashville & Davidson Counties
6.00%, 11/15/30 6,000 5,741
Mur-Ci Homes, 7.75%, 12/1/26 4,565 4,272
Total Tennessee (Cost $10,212) 10,013
TEXAS 8.0%
Abilene Health Fac. Dev.
5.875%, 11/15/18 3,750 3,132
5.90%, 11/15/25 2,000 1,626
Sears Methodist Retirement
5.875%, 11/15/18 1,000 835
6.00%, 11/15/29 3,500 2,861
Alliance Airport Auth.,
American Airlines, 7.00%, 12/1/11 * 3,070 3,225
Amarillo Health Fac. Dev.,
Sears Panhandle Retirement
7.75%, 8/15/26 (Prerefunded 8/15/06!) 4,800 5,550
Bell County Health Fac. Dev., King's Daughter Hosp.
9.25%, 7/1/08 2,630 2,714
Brazos River Auth., Houston Lighting & Power
6.375%, 4/1/12 (MBIA Insured) 10,000 10,509
Denison Hosp. Auth.
Texoma Medical Center
6.125%, 8/15/27 3,770 3,088
7.10%, 8/15/24 2,405 2,460
7.10%, 8/15/24 (Prerefunded 8/15/04!) 1,245 1,273
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 2,936
Harris County Health Fac. Dev.
Memorial Hosp., 7.125%, 6/1/15
(Prerefunded 6/1/02!) 5,000 5,300
Methodist Hosp., VRDN (Currently 3.80%) 5,500 5,500
St. Lukes Episcopal Hosp., VRDN
(Currently 3.75%) 6,250 6,250
LaSalle County Jail Fac. Fin.,
Criminal Detention Center
9.75%, 8/1/09 $ 560 $ 0
Matagorda County Navigation Dist.
5.2%, 11/1/02 3,000 2,957
North Central Health Fac. Dev.,
7.25%, 11/15/19 3,000 2,767
Paris Health Fac. Dev.,
McCuistion Regional Medical Center
7.60%, 2/1/12 (Prerefunded 2/1/02!) 4,290 4,574
Pecos County Jail Fac. Fin.,
Criminal Detention Center
9.75%, 8/1/09 565 0
San Antonio Electric & Gas
Zero Coupon, 2/1/10 (FGIC Insured) 5,000 2,885
San Saba County Jail Fac. Fin.,
Criminal Detention Center
9.75%, 8/1/09 550 0
Texas, GO, Veterans Housing Assistance,
6.25%, 12/1/15 480 474
Tomball Hosp. Auth.
Tomball Regional Hosp.
6.00%, 7/1/19 2,000 1,747
6.00%, 7/1/25 4,000 3,395
6.10%, 7/1/08 5,000 4,815
Tyler Health Fac. Dev.
Mother Frances Hosp.
5.40%, 7/1/08 1,315 1,209
5.625%, 7/1/13 4,960 4,301
Total Texas (Cost $88,013) 86,383
UTAH 0.3%
Tooele County, PCR, Laidlaw Environmental,
7.55%, 7/1/27 * 2,000 1,999
Utah Housing Fin. Agency
6.25%, 7/1/05 95 95
7.50%, 7/1/05 390 400
7.60%, 7/1/05 310 315
7.75%, 7/1/05 340 346
7.75%, 1/1/23 * 40 41
8.55%, 7/1/04 85 86
8.65%, 7/1/04 220 222
9.25%, 7/1/01 15 15
9.60%, 7/1/02 * 5 5
Utah Housing Fin. Agency
9.75%, 7/1/02 $ 10 $ 10
9.85%, 7/1/02 * 40 40
Total Utah (Cost $3,550) 3,574
VERMONT 0.1%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
6.25%, 9/1/23 (FGIC Insured) 1,400 1,407
Total Vermont (Cost $1,400) 1,407
VIRGINIA 2.2%
Fairfax County Economic Dev. Auth.
Greenspring Retirement Community
7.25%, 10/1/19 2,500 2,348
7.50%, 10/1/29 4,500 4,290
Norfolk Port & Ind. Auth.,
Henson Aviation, 9.625%, 8/1/12 * 650 695
Pocahontas Parkway Assoc.
Zero Coupon, 8/15/10 3,600 1,663
Zero Coupon, 8/15/13 2,800 1,023
Zero Coupon, 8/15/14 3,100 1,051
Zero Coupon, 8/15/15 3,200 1,007
Zero Coupon, 8/15/17 2,595 683
Zero Coupon, 8/15/18 12,500 3,529
Zero Coupon, 8/15/19 4,000 916
Zero Coupon, 8/15/22 4,600 830
Zero Coupon, 8/15/23 4,700 786
Virginia Beach Dev. Auth.
Beverly Enterprises, 10.00%, 4/1/10 2,320 2,394
Westminster Canterbury, 7.25%, 11/1/32 2,500 2,411
Total Virginia (Cost $26,912) 23,626
WASHINGTON 2.0%
Snohomish County Housing Auth.
Millwood Estates Project
5.50%, 6/1/29 3,750 3,279
Snohomish County Housing Auth.
Millwood Estates Project
6.25%, 6/1/29 $ 680 $ 615
Spokane County IDC,
Kaiser Aluminum & Chemical
7.60%, 3/1/27 * 2,500 2,585
Washington, GO, 5.70%, 10/1/15 7,500 7,569
Washington HFA, Fred Hutchinson
Cancer Research Center
VRDN (Currently 3.90%) 1,300 1,300
Washington Public Power Supply System
Zero Coupon, 7/1/14 (FSA Insured) 6,400 2,746
6.30%, 7/1/12 2,000 2,120
7.25%, 7/1/09 1,000 1,103
Total Washington (Cost $20,936) 21,317
WISCONSIN 1.1%
Green Bay Redev. IDA, 5.60%, 5/1/19 * 3,000 2,586
Oconto Falls CDA,
Oconto Falls Tissue, 7.75%, 12/1/22 * 2,800 2,784
Wisconsin HEFA, National Regency of New Berlin
8.00%, 8/15/25 5,970 6,208
Total Wisconsin (Cost $11,623) 11,578
WYOMING 0.8%
Sweetwater County, PCR,
Solid Waste Disposal, FMC Corp.
6.90%, 9/1/24 * 5,000 4,948
Wyoming CDA
5.70%, 12/1/35 2,700 2,501
Single family, 6.70%, 6/1/17 1,145 1,159
Total Wyoming (Cost $8,327) 8,608
PREFERRED SHARES 0.5%
MuniMae TE Bond Subsidiary Cum.
Pfd. Shares (Series A)
(144a), 6.875%, 6/30/09 * 6,000 5,867
Total Preferred Stocks (Cost $6,000) 5,867
Total Investments in Securities
99.0% of Net Assets (Cost $1,102,079) $1,068,797
Other Assets Less Liabilities 11,195
NET ASSETS $1,079,992
----------
Net Assets Consist of:
Accumulated net investment income
- - net of distributions $ 143
Accumulated net realized gain/loss
- - net of distributions (22,418)
Net unrealized gain (loss) (33,282)
Paid-in-capital applicable to 96,363,408
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares authorized 1,135,549
NET ASSETS $1,079,992
----------
NET ASSET VALUE PER SHARE $ 11.21
----------
* Interest subject to alternative minimum tax
! Used in determining portfolio maturity
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
0.5% of net assets.
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
2/29/00
Investment Income (Loss)
Interest income $ 78,741
Expenses
Investment management 7,823
Shareholder servicing 769
Custody and accounting 219
Prospectus and shareholder reports 80
Legal and audit 31
Registration 20
Directors 10
Miscellaneous 9
Total expenses 8,961
Expenses paid indirectly (2)
Net expenses 8,959
Net investment income (loss) 69,782
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (18,883)
Futures 691
Net realized gain (loss) (18,192)
Change in net unrealized gain or loss on securities (122,602)
Net realized and unrealized gain (loss) (140,794)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ (71,012)
----------
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
2/29/00 2/28/99
Increase (Decrease) in Net Assets
Operations
Net investment
income (loss) $ 69,782 $ 68,904
Net realized gain (loss) (18,192) 9,608
Change in net unrealized
gain or loss (122,602) (17,235)
Increase (decrease) in net
assets from operations (71,012) 61,277
Distributions to shareholders
Net investment income (69,782) (68,904)
Net realized gain -- (6,383)
Decrease in net assets
from distributions (69,782) (75,287)
Capital share transactions*
Shares sold 205,028 303,295
Distributions reinvested 47,976 52,381
Shares redeemed (389,349) (226,525)
Increase (decrease) in net
assets from capital
share transactions (136,345) 129,151
Net Assets
Increase (decrease) during period (277,139) 115,141
Beginning of period 1,357,131 1,241,990
End of period $1,079,992 $1,357,131
*Share information
Shares sold 17,120 24,041
Distributions reinvested 4,059 4,149
Shares redeemed (33,163) (17,959)
Increase (decrease) in
shares outstanding (11,984) 10,231
The accompanying notes are an integral part of these financial statements.
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
February 29, 2000
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 and 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 February 29, 2000, 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 $696,343,000 and $815,138,000, respectively, for the
year ended February 29, 2000.
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. As of February 29, 2000, the fund has capital loss
carryforwards for federal income tax purposes of 12,470,000, all of which
expires in 2008. The fund intends to retain gains realized in future
periods that may be offset by available capital loss carryforwards.
In order for the fund's capital accounts and distributions to shareholders
to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended February 29, 2000. The
results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
---------------------------------------------------------------------------
Undistributed net investment income $75,000
Undistributed net realized gain (75,000)
At February 29, 2000, the cost of investments for federal income tax
purposes was substantially the same as for financial reporting and totaled
$1,102,079,000. Net unrealized loss aggregated $33,282,000 at period-end,
of which $28,543,000 related to appreciated investments and $61,825,000 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 $528,000 was payable at February 29, 2000. 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 0.295% for
assets in excess of $120 billion. At February 29, 2000, 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
$731,000 for the year ended February 29, 2000, of which $77,000 was payable
at period-end.
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
29, 2000, 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 accounting principles generally accepted in the United
States. 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 auditing standards generally accepted in the
United States, 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 29, 2000, by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 17, 2000
T. Rowe Price Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 2/29/00
- --------------------------------------------------------------------------------
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 $70,138,000 which qualified as
exempt-interest dividends.
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 September 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 Confindence (registered trademark)
T. Rowe Price Investment Services, Inc., Distributor. F59-050 2/29/00
Annual Report
Tax-Free Funds
February 29, 2000
T. Rowe Price
Report Highlights
- --------------------------------------------------------------------------------
Tax-Free Funds
o Interest rates rose and bond prices fell as the Fed tightened monetary
policy to constrain inflationary pressures.
o Money market funds benefited from rising rates, but the longer-term funds
were generally weaker in a difficult environment.
o A combination of duration and credit strategies helped boost the funds'
dividend yields as we positioned the portfolios for the year ahead.
o Municipal yields are currently very attractive compared with the yields
on similar taxable alternatives.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The Federal Reserve raised the federal funds rate three times in 1999 and
twice so far in 2000 in a continuing effort to slow economic growth to a
pace that will constrain inflationary pressures. As a result of a powerful
economy and higher interest rates, many intermediate and longer-term funds
posted weak returns during the past 6- and 12-month periods, although the
tone of the market began to improve early this year. Only money market
funds benefited from rising short-term rates.
MARKET ENVIRONMENT
Municipal Bond and Note Yields
- --------------------------------------------------------------------------------
30 Year AAA 5-Year AAA 1-Year Moody's
General Obligation General Obligation Investment Grade 1 Note
02/28/99 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
5.7 4.43 3.75
5.89 4.58 3.95
11/99 5.87 4.53 3.95
5.93 4.68 4.1
6.03 4.9 4.1
2/29/00 5.9 4.94 4.2
Source: T. Rowe Price Associates
The Fed has drawn a clear line in the sand in the face of a persistently
strong economy, which surged more than 6% in the second half of 1999. By
early 2000, it was evident that domestic demand was not slowing
sufficiently to temper the powerful economy, which has been augmented by a
recovery in U.S. exports and by increased government spending made possible
by soaring tax receipts. In this environment, Fed Chairman Alan Greenspan
left no room for doubt that the Fed will remain diligent in its fight to
contain inflation.
Interest rates and municipal bond yields trended upward in response to the
Fed's hikes in key short-term rates. After outperforming taxable bonds
during the first half of 1999, municipals lost ground in the second half as
lower-quality tax-exempt securities, in particular, did poorly. Year-end
was particularly challenging for municipal bond funds due to a confluence
of events. Municipals began to weaken when some buyers fled into
higher-yielding corporate bonds, which flooded the market in the third
quarter. In the fourth quarter, normally strong demand from investors waned
because of competition from the surging stock market and from selling to
realize tax losses at year-end. Redemptions from municipal bond funds
increased as a result of these factors. One factor that aided municipals in
1999 was the relatively light supply of new issues, which was down 21% from
the previous year.
The funds' fiscal year ended on a positive note, however, as prices climbed
and long-term municipal yields fell in February along with longer-term
Treasury yields. The rally in bond prices began when the Treasury announced
its intention to reduce debt further through the purchase of Treasury
bonds. The proposed reduction in federal debt sent shock waves through the
bond market as investors scrambled to discern which maturities would be
affected most and searched for alternative securities. The Treasury's
buyback program led to an inversion of the yield curve, as two-year
Treasury yields rose above 30-year yields. The municipal yield curve,
however, maintained a positive slope, and the sharp drop in long-term
Treasury yields has made similar municipal yields attractive in comparison.
TAX-EXEMPT MONEY FUND AND PLUS SHARES
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/29/00 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund 1.54% 2.94%
Tax-Exempt Money Fund
PLUS Class 1.46 2.79
Lipper Tax-Exempt Money
Market Funds Average 1.46 2.77
The Tax-Exempt Money Fund's results surpassed those of the Lipper peer
group average for both the 6- and 12-month periods ended February 29, 2000.
The six-month return for the Tax-Exempt Money Fund PLUS shares was in line
with the Lipper average, while the 12-month return was slightly ahead of
Lipper despite the PLUS shares' higher expenses that accompany their
additional services.
During the past six months, the Federal Reserve raised key short-term
interest rates three times following two earlier rate hikes, for a total of
125 basis points (100 basis points equal one percentage point). As would be
expected, tax-exempt money market yields moved higher by a similar amount.
For the entire fiscal year, 30- to 90-day rates rose about 100 basis
points, while six-month and one-year note rates climbed 115 and 120 basis
points to 4.05% and 4.20%, respectively.
The short-term municipal yield curve steepened during the 12-month period,
as six-month and one-year yields rose more than shorter-term yields. A year
ago, this was not the case. For the six months ended February 1999,
overnight and weekly securities offered the same average return as a
one-year security, so performance was not necessarily influenced by the
maturity structure of the portfolio. At the end of February 2000, overnight
and weekly investments averaged 3.49% over the previous six months while
one-year notes averaged 3.98%, a difference of 49 basis points.
These changes in money market yields benefited performance relative to our
peer group. While the portfolio's maturity remained fairly constant during
the year, our competitors have allowed their maturities to shorten,
enabling us to provide a higher yield than the average for our peer group.
We expect the Federal Reserve to apply gradual, but persistent, pressure to
the fed funds rate until economic growth slows to an acceptable level. It
is the Fed's gradual approach that has kept us so far from shortening our
maturity. We believe we can earn the additional income that the yield curve
offers without a quick pickup in rates, and we expect to increase our yield
as the move to higher interest rates unfolds in a measured fashion.
TAX-FREE SHORT-INTERMEDIATE FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/29/00 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Short-
Intermediate Fund 0.74% 0.67%
Lipper Short-Intermediate
Municipal Debt Funds Average 0.35 -0.39
Your fund managed to provide modest positive returns for the 6- and
12-month periods ended February 29, 2000, in an environment characterized
by falling prices and rising yields for all but the shortest maturities.
Fund results exceeded the Lipper Short-Intermediate Municipal Debt Funds
Average in both periods, largely because of our duration and credit
strategy and the fund's low expenses.
Earlier in the fund's fiscal year, we had maintained a conservative
duration to protect the portfolio against rising rates. In November, we
took advantage of an opportunity to extend the fund's duration when the
yield on 10-year municipal bonds approached 5.25%. (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.) Bond prices rallied
shortly afterward, and rates moved lower in December, at which time we took
the opportunity to shorten duration to a neutral position. In January,
rates on 10-year securities rose to 5.25%, and we lengthened once again.
More recently, with interest rates falling, we have been maintaining an
above-average duration because of the value we see in the market despite
the Fed's bias toward a tighter monetary policy. Ten-year municipal yields
are as high as they have been since 1994 and are extremely attractive in
both absolute and relative terms compared with similar Treasuries.
We had been overweighting sectors of the market that offer more yield to
take advantage of improving credit ratings. For example, we began to focus
on New York bonds about four years ago when the state started to benefit
from strength in the financial industry, and we currently hold about 18% of
fund assets in various New York issues-three times the amount of our
next-largest state allocation. Many of these securities were upgraded as
New York's economy improved. In addition, we focused on uninsured bonds in
three areas: electric/ nuclear revenue, lease-backed, and industrial
revenue/pollution control. All three sectors offer incremental yield and
improving fundamentals. Conversely, we have been underweighted in insured
and prerefunded bonds, which do not provide the yields we find in the other
areas.
Our goal was to raise the portfolio's yield by swapping securities for
others with higher yields. The six-month dividend yield rose from 4.03% to
4.22% over the past six months-equal to a taxable yield of 6.59% for
someone in the 36% income tax bracket.
TAX-FREE INTERMEDIATE BOND FUND
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/29/00 6 Months 12 Months
Tax-Free Intermediate
Bond Fund 0.49% -1.37%
Lipper Intermediate
Municipal Debt Funds Average -0.05 -1.92
The fund's returns surpassed the Lipper Intermediate Municipal Debt Funds
Average in both periods but were negative for the fiscal year due to rising
interest rates. The better performance compared with the benchmark was
primarily attributable to our duration strategy and to relatively low fund
expenses.
In a generally negative environment for fixed income securities over the
past six months, we maintained the duration of the portfolio in a range
nearly half a year shorter than during the previous six months. (See the
report on the Tax-Free Short-Intermediate Fund for an explanation of the
effect duration has on bond funds when interest rates rise or fall.) In a
favorable environment, when bond prices are rising and rates falling, we
would ordinarily attempt to keep duration longer.
Earlier in the period, we had adopted a so-called "barbell" maturity
structure, with positions in cash equivalents and longer maturities, which
protects the portfolio against rising interest rates. Recently, we have
begun to unwind it in favor of a "laddered" structure with maturities
ranging between five and 12 years, since this area of the yield curve
provides a higher yield than the barbell structure. We accomplished this
shift by using cash reserves, as well as the proceeds from selling 20-year
bonds, to increase our holdings of 10-year bonds without significantly
changing the fund's overall duration.
Since we received approval to drop the fund's insurance requirement in
December 1998, we have been gradually reducing exposure to this sector,
from more than 80% a year ago to 64% at the end of February. We replaced
these securities largely with state general obligation and dedicated-tax
bonds, which carry high credit ratings. We have been particularly
overweighted in Massachusetts general obligations, whose credit out-look
has been improving, and in bonds issued by Chicago, which have recently
been upgraded.
We focused on raising the portfolio's income by trading into new securities
with higher yields. The fund's dividend yield for the past six months rose
from 4.45% last August to 4.66% at the end of February, which is equivalent
to a taxable yield of 7.28% for someone in the 36% income tax bracket.
TAX-FREE INCOME FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/29/00 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free Income Fund -0.44% -3.42%
Lipper General Municipal
Debt Funds Average -1.31 -4.58
In a weak environment for bonds, your fund provided negative returns but
surpassed its peer group average in both periods through a combination of
our investment strategy, credit profile, and low expenses. In the first
half of the fund's fiscal year, we focused on maintaining a neutral
duration and buying bonds with more defensive characteristics. (See the
report on the Tax-Free Short-Intermediate Fund for an explanation of the
effect duration has on bond funds when interest rates rise or fall.) During
the past six months, as interest rates rose more sharply, we took
additional steps to manage the portfolio's interest rate exposure and take
advantage of the higher yields available in the marketplace. The fund's
six-month dividend yield rose from 5.28% to 5.51% since the end of
August-equivalent to a taxable yield of 8.61% for an investor in the 36%
income tax bracket.
The fund's weighted average maturity ranged between 15.5 and just over 16
years during the past six months, its shortest position in 10 years. We
accomplished this by underweighting bonds with maturities longer than 20
years and overweighting bonds in the 10- to 20-year range. We also raised
cash levels in August in anticipation of higher liquidity needs toward
year-end, which proved to be an accurate forecast. As a result, we were
able to weather higher-than-normal redemptions from November to January
without having to sell securities into a weak market.
We also focused on raising the portfolio's income by swapping bonds with
losses for new securities with higher yields. These losses are useful,
since they can be carried forward to offset capital gains. A year ago we
were concerned about preserving the portfolio's income as interest rates
fell, but the latter part of 1999 offered an opportunity to increase the
dividend yield.
From a credit perspective, the fund benefited from less exposure to
lower-rated bonds that performed poorly in the last six months as their
yield premiums widened relative to higher-quality yields. At year-end, our
overall credit sector allocation was little changed with a modest reduction
in hospital revenue bonds that continued to be under pressure. Our
weighting in BBB and lower-rated bonds may rise in coming months, since
they offer significantly higher yields in return for taking on greater
credit risk.
As rates continued to rise in January, we grew a bit more optimistic about
prospects for the municipal market. Long-term yields well above 6%, which
exceeded taxable Treasury yields on some days, looked attractive in an
environment of 2% to 2.5% inflation, particularly when compared with
taxable alternatives. The municipal new issues calendar is light, and some
year-end selling pressures appear to have abated. We took advantage of the
higher yields on long-term bonds and were pleased to see the market
strengthen in February. We are not out of the woods as far as the Fed's
tighter monetary policy is concerned, but so far it seems to be having more
of an impact on short-term securities.
TAX-FREE HIGH YIELD FUND
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 2/29/00 6 Months 12 Months
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund -2.77% -5.41%
Lipper High Yield Municipal
Debt Funds Average -2.90 -4.75
The fund's fiscal year was characterized by two different periods for
tax-exempt high-yield investors, neither one favorable for investors.
High-yield bonds posted negative returns during the first six months but
outperformed investment-grade municipals. The past six months, however,
found our segment of the market lagging greatly. Our relatively low
allocation to lower-grade bonds helped us versus the competition during the
six months ended February 29, and the fund pulled ahead of the Lipper High
Yield Municipal Debt Funds Average. We lagged for the year as a whole since
the fund carried a longer duration and we were underweighted during the
first half when high-yield securities did better. In recent months, we have
been taking advantage of lower prices by adding to lower-grade bonds, and
we believe this strategy is beginning to bear fruit.
The high-yield market was hurt due to waning investor interest because of
the high yields available in AAA bonds, increased supply at year-end, and
heavy redemptions from November through January. Your fund was fairly well
positioned entering the second half with higher-than-normal cash reserves
and an ability to add lower-quality bonds as prices fell.
Quality Diversification
- --------------------------------------------------------------------------------
Tax Free High Yield Fund
Percent
AAA 8
AA 15
A 17
BBB 28
BB and Below 32
Our below investment-grade holdings represented 32% of fund assets on
February 29, 2000, compared with 22% a year ago, while exposure to BBB
securities was 28%, up from 26%. (See accompanying chart.) We reduced the
portfolio's component of hospital bonds to below 15%, where we intend to
keep it until we see signs of financial recovery in this troubled sector.
We increased our exposure to long-term care and corporate-backed holdings
to around 15% as part of our longer-term goal of holding approximately 40%
of the fund in below investment-grade and 25%-30% in BBB securities. In
addition, we reduced the fund's sensitivity to interest rates in
anticipation of further tightening by the Fed.
Many new holdings offer attractive yields, and we intend to add additional
bonds in the education, housing, and transportation sectors in coming
months. These strategies have contributed to an increase in the fund's
dividend yield to more than 6%, up from a bit over 5.5% six months ago. (A
tax-exempt yield of 6% is equivalent to a taxable yield of 9.38% for
investors in the 36% income tax bracket.) We remain confident that the
outlook for this segment of the municipal market is brighter following a
difficult period through most of last year.
OUTLOOK
The economy has yet to show signs of slowing to a level the Fed would
prefer. Rather, available economic data suggest that real GDP growth could
approach 5% in the first quarter of 2000. Except for soaring oil and some
other commodity prices, overall inflation remains in check. However, the
strong pace of economic growth is straining the supply of both labor and
products. Cost pressures have been mounting, and the Fed is concerned that
they will be reflected in higher inflation. As long as accelerating
inflation remains a threat, the Fed is likely to move short-term rates
higher in the months ahead.
Municipal prices have built up some momentum after their February gains.
Light municipal supply continues to benefit our segment of the fixed income
market, and there has been a slight pickup in cash flows into municipal
bond funds. Any slowdown in economic growth as a result of Fed tightening
should bode well for the overall bond market. Yields on municipal bonds are
extremely attractive compared with yields in the taxable market.
Respectfully submitted,
Mary J. Miller
Director
Municipal Bond Department
March 24, 2000
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/99 2/29/00
- --------------------------------------------------------------------------------
Tax-Exempt Money Fund
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.014 0.015
For 12 months 0.027 0.029
Dividend Yield (7-Day Compound) * 2.80% 3.41%
Weighted Average Maturity (days) 54 55
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 0.013 0.015
For 12 months -- 0.028
Dividend Yield (7-Day Compound) * 2.67% 3.22%
Weighted Average Maturity (days) 54 55
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)
- --------------------------------------------------------------------------------
Change in Management
Effective April 1, 2000, Mary J. Miller became Chairman of the Investment
Advisory Committee for the Tax-Free High Yield Fund, responsible for its
day-to-day management. Ms. Miller is Director of the Municipal Bond Department
and has been a member of the fund's advisory committee since its 1985 inception.
She has been with T. Rowe Price since 1983. She succeeds William F. Snider, who
has left T. Rowe Price to pursue new opportunities.
This updates the portfolio management section of the Tax-Free Funds prospectus
dated July 1, 1999.
T. Rowe Price Tax-Free Funds
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/99 2/29/00
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ 5.27 $ 5.20
Dividends Per Share
For 6 months 0.11 0.11
For 12 months 0.21 0.21
Dividend Yield *
For 6 months 4.03% 4.22%
For 12 months 4.14 4.19
30-Day Standardized Yield 3.97 4.48
Weighted Average Maturity (years) 4.2 4.3
Weighted Average Effective Duration (years) 3.0 3.1
Weighted Average Quality *** AA- AA-
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Price Per Share $ 10.65 $ 10.46
Dividends Per Share
For 6 months 0.24 0.24
For 12 months 0.48 0.48
Dividend Yield *
For 6 months 4.45% 4.66%
For 12 months 4.56 4.64
30-Day Standardized Yield 4.16 4.61
Weighted Average Maturity (years) 7.3 8.0
Weighted Average Effective Duration (years) 5.1 5.5
Weighted Average Quality *** AA AA
(continued on next page)
T. Rowe Price Tax-Free Funds
Portfolio Highlights
- --------------------------------------------------------------------------------
KEY STATISTICS
8/31/99 2/29/00
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Price Per Share $ 9.39 $ 9.10
Dividends Per Share
For 6 months 0.25 0.25
For 12 months 0.50 0.49
Dividend Yield *
For 6 months 5.28% 5.51%
For 12 months 5.42 5.55
30-Day Standardized Yield 4.81 5.23
Weighted Average Maturity (years) 15.5 16.1
Weighted Average Effective Duration (years) 7.7 8.2
Weighted Average Quality *** AA- AA-
Tax-Free High Yield Fund
- --------------------------------------------------------------------------------
Price Per Share $ 11.87 $ 11.21
Dividends Per Share
For 6 months 0.33 0.33
For 12 months 0.65 0.66
Dividend Yield *
For 6 months 5.52% 6.02%
For 12 months 5.65 6.01
30-Day Standardized Yield 5.10 5.85
Weighted Average Maturity (years) 18.4 18.7
Weighted Average Effective Duration (years) 8.2 8.6
Weighted Average Quality *** A- BBB+
* 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.
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 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.
Tax-Exempt Money Shares
- --------------------------------------------------------------------------------
Lipper TEMF
2/90 10.000 10.000
2/91 10.541 10.522
2/92 10.955 10.910
2/93 11.221 11.167
2/94 11.436 11.397
2/95 11.729 11.697
2/96 12.117 12.093
2/97 12.473 12.462
2/98 12.861 12.865
2/99 13.227 13.247
2/00 13.594 13.637
Tax-Exempt Money Plus Shares
- --------------------------------------------------------------------------------
Lipper TEM+-Line TEM+Area
10/31/98 10000 10000 10000
2/99 10083 10074 10074
2/00 10365 10355 10355
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
Tax-Free Short-Intermediate Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFS
2/90 10.000 10.000 10.000
2/91 10.837 10.780 10.706
2/92 11.720 11.631 11.449
2/93 12.738 12.704 12.308
2/94 13.181 13.172 12.738
2/95 13.527 13.448 13.109
2/96 14.616 14.434 14.009
2/97 15.288 15.025 14.572
2/98 16.105 15.843 15.341
2/99 16.956 16.582 16.093
2/00 17.197 16.602 16.200
Tax-Free Intermediate Bond Fund
- --------------------------------------------------------------------------------
Lehman Lipper TII
11/30/92 10.000 10.000 10.000
2/93 10.542 10.544 10.681
2/94 11.008 11.045 11.267
2/95 11.277 11.272 11.566
2/96 12.434 12.305 12.672
2/97 13.050 12.862 13.204
2/98 14.043 13.830 14.168
2/99 14.880 14.562 14.929
2/00 14.753 14.318 14.724
Tax-Free Income Fund
- --------------------------------------------------------------------------------
Lehman Lipper TFI
2/90 10.000 10.000 10.000
2/91 10.922 10.818 10.840
2/92 12.013 11.922 11.943
2/93 13.666 13.620 13.719
2/94 14.423 14.361 14.474
2/95 14.695 14.491 14.749
2/96 16.318 15.957 16.269
2/97 17.217 16.717 17.051
2/98 18.790 18.284 18.650
2/99 19.946 19.219 19.672
2/00 19.530 18.368 18.999
T. Rowe Price Tax-Free Funds
- --------------------------------------------------------------------------------
Performance Comparison
- --------------------------------------------------------------------------------
Tax-Free High Yield Fund
Lehman Lipper TFH
2/90 10.000 10.000 10.000
2/91 10.920 10.561 10.793
2/92 12.095 11.659 11.933
2/93 13.853 13.079 13.597
2/94 14.721 13.938 14.615
2/95 14.948 14.152 14.800
2/96 16.643 15.633 16.372
2/97 17.625 16.513 17.391
2/98 19.342 18.239 19.203
2/99 20.500 19.064 20.125
2/00 20.000 18.205 19.037
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 2/29/00 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
Tax-Exempt Money 2.94% 3.12% 3.15% - 4/8/81
Tax-Exempt Money PLUS 2.79 - - 2.67% 11/1/98
Tax-Free Short-Intermediate 0.67 4.33 4.94 - 12/23/83
Tax-Free Intermediate Bond -1.37 4.95 - 5.48 11/30/92
Tax-Free Income -3.42 5.20 6.63 - 10/26/76
Tax-Free High Yield -5.41 5.16 6.65 - 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.
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Automatic Investing From your bank account or paycheck.
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Individual Investments Stocks, bonds, options, precious metals, and other
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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
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Services, Inc., Member NASD/SIPC.
** Based on a September 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
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Equity Index 500
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! 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
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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.
T. Rowe Price Advisory Services and Retirement Resources
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Advisory Services, Retirement Resources
T. Rowe Price is your full-service retirement specialist. We have developed
unique advisory services that can help you meet the most difficult
retirement challenges. Our broad array of retirement plans is suitable for
individuals, the self-employed, small businesses, corporations, and
nonprofit organizations. We also provide recordkeeping, communications, and
investment management services, and our educational materials, self-help
planning guides, and software tools are recognized as among the industry's
best. For information or to request literature, call us at 1-800-638-5660,
or visit our Web site at www.troweprice.com.
ADVISORY SERVICES
T. Rowe Price Retirement Income ManagerSM helps retirees or those within
two years of retirement determine how much income they can take in
retirement. The program uses extensive statistical analysis and the input
of financial planning professionals to suggest an income plan that best
meets your objectives.
T. Rowe Price Rollover Investment Service offers asset allocation advice to
those planning a major change in their qualified retirement plans, such as
a 401(k) rollover from a previous employer or an IRA transfer
RETIREMENT RESOURCES AT T. ROWE PRICE
Traditional, Roth, and Rollover IRAs
SEP-IRA and SIMPLE IRA
Profit Sharing
Money Purchase Pension
"Paired" Plans (Money Purchase
Pension and Profit Sharing Plans)
401(k) and 403(b)
457 Deferred Compensation
Planning and Informational Guides
Minimum Required Distributions Guide
Retirement Planning Kit
Retirees Financial Guide
Tax Considerations for Investors
Insights Reports
The Challenge of Preparing for Retirement
Financial Planning After Retirement
The Roth IRA: A Review
Software Packages
T. Rowe Price Retirement Planning
AnalyzerTM CD-ROM or diskette $19.95.
To order, please call
1-800-541-5760. Also available
on the Internet for $9.95.
T. Rowe Price Variable Annuity AnalyzerTM
CD-ROM or diskette, free. To order,
please call 1-800-469-5304.
T. Rowe Price Immediate Variable
Annuity (Income Account)
Investment Kits
We will be happy to send you one of our easy-to-follow investment kits when
you are ready to invest in any T. Rowe Price retirement vehicle, including
IRAs, qualified plans, small-business plans, or our no-load variable
annuities.
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. C03-050 2/29/00
