<PAGE>
--------------------------------------------------------------------------------
Semiannual Report - Financial Statements
--------------------------------------------------------------------------------
T. ROWE PRICE
TAX-FREE HIGH
YIELD FUND
---------------
AUGUST 31, 2000
---------------
--------------------
PORTFOLIO HIGHLIGHTS
--------------------------------------------------------------------------------
SECTOR DIVERSIFICATION
Percent of Percent of
Net Assets Net Assets
2/29/00 8/31/00
--------------------------------------------------------------------------------
Hospital Revenue 14% 15%
Life Care/Nursing Home Revenue 15 14
Industrial and Pollution Control Revenue 14 12
Nuclear Revenue 11 9
Prerefunded Bonds 8 8
Housing Finance Revenue 6 8
General Obligation - Local 4 6
Solid Waste Revenue 4 4
Lease Revenue 4 4
Escrowed to Maturity 4 4
Dedicated Tax Revenue 3 3
Miscellaneous Revenue 2 3
Ground Transportation Revenue 3 3
Electric Revenue 2 2
Educational Revenue 2 2
All Other 3 2
Other Assets Less Liabilities 1 1
Total 100% 100%
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Unaudited
--------------------
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
6 Months Year
Ended Ended
8/31/00 2/29/00 2/28/99 2/28/98 2/28/97 2/29/96
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period $ 11.21 $ 12.53 $ 12.66 $ 12.12 $ 12.10 $ 11.62
Investment activities
Net investment
income (loss) 0.34 0.66 0.66 0.69 0.70 0.72
Net realized and
unrealized gain (loss) 0.28 (1.32) (0.07) 0.54 0.02 0.48
Total from
investment activities 0.62 (0.66) 0.59 1.23 0.72 1.20
Distributions
Net investment income (0.34) (0.66) (0.66) (0.69) (0.70) (0.72)
Net realized gain -- -- (0.06) -- -- --
Total distributions (0.34) (0.66) (0.72) (0.69) (0.70) (0.72)
NET ASSET VALUE
End of period $ 11.49 $ 11.21 $ 12.53 $ 12.66 $ 12.12 $ 12.10
----------------------------------------------------------------
Ratios/Supplemental Data
Total return. 5.58% (5.41)% 4.80% 10.42% 6.22% 10.62%
Ratio of total expenses to
average net assets 0.73%+ 0.71% 0.71% 0.72% 0.74% 0.75%
Ratio of net investment
income (loss) to average
net assets 5.89%+ 5.54% 5.28% 5.59% 5.86% 6.07%
Portfolio turnover rate 13.7%+ 57.4% 38.9% 24.4% 37.0% 39.3%
Net assets, end of period
(in millions) $ 1,092 $ 1,080 $ 1,357 $ 1,242 $ 1,053 $ 990
</TABLE>
. Total return reflects the rate that an investor would have earned on an
investment in the fund during each period, assuming reinvestment of all
distributions.
+ Annualized
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Unaudited August 31, 2000
----------------------
STATEMENT OF NET ASSETS Par/Shares Value
--------------------------------------------------------------------------------
In thousands
ALABAMA 3.3%
Alexander Special Care Fac. Fin. Auth., Russell Hosp.
6.00%, 12/1/22 $ 3,125 $ 2,658
Baldwin County Eastern Shore Health Care Auth.
Thomas Hosp.
5.75%, 4/1/27 2,500 2,036
6.75%, 4/1/21 1,900 1,768
8.50%, 4/1/16 (Prerefunded 4/1/01+) 4,000 4,169
Columbia Ind. Dev. Board, Alabama Power
VRDN (Currently 4.35%) 7,700 7,700
Courtland IDB
Solid Waste Disposal, Champion Int'l.
5.90%, 2/1/17 8,000 7,699
6.70%, 11/1/29* 1,000 1,017
Mobile, GO
Capital Improvement Warrants
Zero Coupon, 8/15/18 (MBIA Insured) 4,550 1,419
Zero Coupon, 8/15/19 (MBIA Insured) 4,675 1,359
Zero Coupon, 8/15/20 (MBIA Insured) 4,810 1,304
Selma Industrial Dev. Board, International Paper
6.70%, 2/1/18* 2,000 2,079
Shelby County, GO
7.40%, 8/1/07 2,000 2,100
7.70%, 8/1/17 1,000 1,052
Total Alabama (Cost $35,589) 36,360
--------
ALASKA 1.7%
Alaska Housing Fin.
5.875%, 12/1/24 (MBIA Insured) 5,000 5,048
6.10%, 6/1/30 5,000 5,109
6.15%, 6/1/39 8,000 8,188
Total Alaska (Cost $17,577) 18,345
--------
ARIZONA 1.1%
Maricopa County IDA, Victoria Housing, 9.50%, 5/1/23 4,440 4,489
3
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Peoria IDA
Sierra Winds
6.25%, 8/15/14 $ 2,040 $ 1,859
6.25%, 8/15/20 3,500 3,044
6.50%, 8/15/31 1,000 876
Tempe IDA, Friendship Village of Tempe, 6.75%, 12/1/13 1,950 1,880
Total Arizona (Cost $12,553) 12,148
--------
CALIFORNIA 5.4%
East Palo Alto Redev. Agency
Univ. Circle-Gateway
6.50%, 10/1/19 1,000 1,048
6.625%, 10/1/29 1,780 1,862
Foothill / Eastern Transportation Corridor Agency
California Toll Road
Zero Coupon, 1/1/15 (Escrowed to Maturity) 2,500 1,196
Zero Coupon, 1/1/17 (Escrowed to Maturity) 12,265 5,162
Zero Coupon, 1/1/19 (Escrowed to Maturity) 10,000 3,698
Zero Coupon, 1/1/25 (Escrowed to Maturity) 8,000 2,062
Zero Coupon, 1/1/26 (Escrowed to Maturity) 17,500 4,266
Zero Coupon, 1/1/28 (Escrowed to Maturity) 10,000 2,169
Zero Coupon, 1/1/30 (Escrowed to Maturity) 25,000 4,849
Fresno Joint Powers Fin. Auth., 6.55%, 9/2/12 3,000 3,176
Inglewood Redev. Agency, Century Redev.
6.125%, 7/1/23 2,185 2,204
6.125%, 7/1/23 (Prerefunded 7/1/03+) 1,255 1,340
Los Angeles County, COP, Marina del Rey, 6.50%, 7/1/08 3,250 3,446
Los Angeles Regional Airports, LAX Airport Improvement
5.65%, 8/1/17* 10,775 9,680
Sacramento City Fin. Auth., Convention Center
6.25%, 1/1/30 10,000 9,648
San Jose Multifamily Housing, Helzer Courts Apartments
6.40%, 12/1/41* 3,000 2,788
Total California (Cost $52,646) 58,594
--------
COLORADO 1.6%
Colorado Housing Fin. Auth.
8.65%, 8/1/03 270 275
8.70%, 11/1/04* 655 668
4
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Colorado Housing Fin. Auth.
9.00%, 8/1/03 $ 275 $ 279
9.40%, 8/1/03* 120 122
Denver City & County, Airport System
United Air Lines, 6.875%, 10/1/32* 11,000 11,015
E-470 Public Highway Auth.
Zero Coupon, 9/1/20 (MBIA Insured) 17,420 5,617
Total Colorado (Cost $17,082) 17,976
-------
CONNECTICUT 1.0%
Connecticut Dev. Auth., Mystic Marinelife Aquarium
7.00%, 12/1/27 1,350 1,367
Mashantucket Western Pequot Tribe
5.50%, 9/1/28 5,000 4,502
5.75%, 9/1/18 1,000 950
(144a), 5.75%, 9/1/27 4,000 3,725
Total Connecticut (Cost $10,742) 10,544
-------
DELAWARE 0.8%
Delaware Economic Dev. Auth.
Delmarva Power & Light
7.15%, 7/1/18 (FGIC Insured) 2,500 2,598
Peninsula Methodist Homes
8.50%, 5/1/22 330 345
8.50%, 5/1/22 (Prerefunded 5/1/02+) 2,170 2,351
Delaware HFA, Beebe Medical Center, 6.75%, 6/1/14 3,975 3,960
Total Delaware (Cost $8,862) 9,254
-------
DISTRICT OF COLUMBIA 2.2%
Dist. of Columbia, GO
6.34%, 6/1/17 (FSA Insured) 2,375 2,331
6.59%, 6/1/13 (FSA Insured) 4,685 4,960
6.59%, 6/1/14 (FSA Insured) 2,810 2,926
Dist. of Columbia
American Geophysical Union, 5.875%, 9/1/23 1,750 1,638
James F. Oyster Elementary School Pilot
6.60%, 11/1/15 2,270 2,323
5
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Dist. of Columbia
Medlantic Health Care Group
5.75%, 8/15/26 (MBIA Insured)
(Escrowed to Maturity) $ 6,000 $ 6,038
Methodist Home
5.50%, 1/1/11 1,000 899
6.00%, 1/1/20 3,920 3,300
Total District of Columbia (Cost $24,454) 24,415
-------
FLORIDA 3.7%
Brevard County Tourist Dev.
Florida Marlins Spring Training Fac.
6.875%, 3/1/13 1,520 1,534
Broward County Resource Recovery
Broward Waste Energy, L.P. North
7.95%, 12/1/08 3,870 3,994
Broward Waste Energy, L.P. South
7.95%, 12/1/08 3,930 4,056
Charlotte County, IDR, Beverly Enterprises, 10.00%, 6/1/11 730 766
Collier County IDA, Beverly Enterprises, 10.75%, 3/1/03 1,350 1,412
Dade County, Guaranteed Entitlement
Zero Coupon, 2/1/12 (MBIA Insured) 14,215 7,749
Escambia County, IDR, Beverly Enterprises, 9.80%, 6/1/11 395 409
Hernando County, IDR, Beverly Enterprises, 10.00%, 9/1/11 695 734
Jacksonville HFA, Genesis Rehabilitation Hosp.
VRDN (Currently 4.30%) 4,900 4,900
Jacksonville Ind. Dev., Beverly Enterprises, 7.00%, 10/1/11 2,550 2,419
Lee County IDA, Cypress Cove, 6.375%, 10/1/25 2,600 2,292
Leon County, IDR, Beverly Enterprises, 9.80%, 6/1/11 395 409
Orange County HFA
Westminster Community Care
6.50%, 4/1/12 2,525 2,396
6.75%, 4/1/34 2,695 2,390
Orange County IDA, Beverly Enterprises, 9.25%, 8/1/10 375 392
St. John's County IDA, Vicar's Landing, 6.75%, 2/15/12 4,000 3,913
Winter Garden IDA, Beverly Enterprises, 8.75%, 7/1/12 1,000 1,054
Total Florida (Cost $40,527) 40,819
-------
6
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
GEORGIA 2.6%
Americus & Sumter County Hosp. Auth.
Magnolia Manor
6.25%, 5/15/19 $ 1,000 $ 872
6.375%, 5/15/29 3,500 3,014
Athens-Clarke Residential Care Fac. for the Elderly Auth.
Wesley Woods of Athens, 6.375%, 10/1/27 2,500 2,191
Coweta County Residential Care Fac. for the Elderly Auth.
Wesley Woods of Newnan-Peachtree City
8.25%, 10/1/26 3,145 3,369
Municipal Electric Auth. of Georgia
VRDN (Currently 4.15%) (MBIA Insured) 2,500 2,500
6.25%, 1/1/17 4,000 4,347
Rockdale County Dev. Auth.
Solid Waste Disposal, Visy Paper
7.40%, 1/1/16* 4,010 4,101
7.50%, 1/1/26* 3,900 4,003
Savannah Economic Dev. Auth., College of Art & Design
6.80%, 10/1/19 3,430 3,529
Total Georgia (Cost $28,116) 27,926
-------
HAWAII 0.6%
Hawaii Dept. of Budget and Fin.
Kapiolani Health Obligated Group
6.20%, 7/1/16 2,000 2,024
6.25%, 7/1/21 4,000 4,027
Total Hawaii (Cost $6,048) 6,051
-------
IDAHO 0.3%
Idaho Housing Agency, Single Family, 7.80%, 1/1/23* 860 878
Idaho Student Loan Marketing Assoc., 6.70%, 10/1/07* 2,500 2,546
Total Idaho (Cost $3,356) 3,424
-------
ILLINOIS 5.4%
Aurora, Dreyer Medical Clinic, 8.75%, 7/1/14 3,885 4,059
7
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
<TABLE>
<S> <C> <C>
Chicago O'Hare Int'l. Airport
American Airlines, 7.875%, 11/1/25* $ 2,500 $ 2,556
United Airlines, 5.35%, 9/1/16 2,050 1,794
Illinois Dev. Fin. Auth., Adventist Health, 5.50%, 11/15/20 4,500 3,780
Illinois HFA
Community Hosp. of Ottawa, 6.85%, 8/15/24 5,275 5,290
Covenant Retirement Community, 7.60%, 12/1/12 2,665 2,832
Glen Oaks Medical Center
7.00%, 11/15/19 (Escrowed to Maturity) 3,300 3,578
9.50%, 11/15/15 (Escrowed to Maturity) 1,840 1,896
Hinsdale Hosp.
7.00%, 11/15/19 (Escrowed to Maturity) 5,100 5,537
Holy Cross Hosp., 6.75%, 3/1/24 6,650 5,813
Riverside Health Systems, 6.80%, 11/15/20 2,250 2,327
Riverside Medical Center, 5.75%, 11/15/20 2,620 2,400
Victory Health Services, 5.375%, 8/15/16 5,105 4,554
Metropolitan Pier and Exposition Auth.
McCormick Place
5.25%, 12/15/28 (FGIC Insured) 7,000 6,625
Southwestern Illinois Dev. Auth., Anderson Hosp.
7.00%, 8/15/22 (Prerefunded 8/15/02+) 2,500 2,657
Village of Carol Stream, DuPage County
Windsor Park Manor
7.00%, 12/1/13 2,000 1,967
7.20%, 12/1/14 1,200 1,197
Total Illinois (Cost $59,475) 58,862
-------
INDIANA 2.1%
Goshen, Greencroft Obligation Group, 5.75%, 8/15/28 4,000 3,201
Hammond, Sewage and Solid Waste Disposal
American Maize Products, 8.00%, 12/1/24* 4,000 4,314
Indiana HFFA, Clarian Health Partners
5.50%, 2/15/16 (MBIA Insured) 2,800 2,797
Indiana HFFA, Deaconess Hosp., 5.50%, 3/1/29 3,850 3,408
Indianapolis Airport Auth., Federal Express, 7.10%, 1/15/17* 5,000 5,283
</TABLE>
8
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
<TABLE>
<S> <C> <C>
St. Joseph County Economic Dev., Madison Center
5.45%, 2/15/17 $ 3,400 $ 2,953
5.50%, 2/15/21 1,150 970
Total Indiana (Cost $23,696) 22,926
-------
IOWA 0.2%
Iowa HFA, Wesley Retirement, 6.25%, 2/1/12 2,400 2,246
Total Iowa (Cost $2,400) 2,246
-------
KANSAS 0.2%
Olathe Senior Living Fac., Aberdeen Village, 8.00%, 5/15/30 2,000 2,017
Total Kansas (Cost $1,945) 2,017
-------
KENTUCKY 1.4%
Florence Housing Fac., Bluegrass RHF Housing
7.625%, 5/1/27 (Prerefunded 5/1/07+) 2,500 2,933
Kenton County Airport Board
Delta Airlines
6.125%, 2/1/22* 3,500 3,373
7.50%, 2/1/12* 3,600 3,734
7.50%, 2/1/20* 5,360 5,560
Total Kentucky (Cost $14,525) 15,600
-------
LOUISIANA 3.7%
Lake Charles Harbor & Terminal Dist., Panhandle Eastern
7.75%, 8/15/22 5,000 5,369
Louisiana Local Gov't. Environment Fac., St. James Place
8.00%, 11/1/25 3,330 3,266
Louisiana Offshore Terminal Auth., Deepwater Port
7.60%, 9/1/10 4,050 4,139
Louisiana PFA
IDR, Beverly Enterprises, 8.25%, 9/1/08 1,070 1,117
Pendelton Memorial Methodist Hosp.
5.25%, 6/1/17 4,515 3,469
5.25%, 6/1/28 5,780 4,121
St. James Place of Baton Rouge
10.00%, 11/1/21 (Prerefunded 11/1/01+) 4,500 4,864
Touro Infirmary, 5.625%, 8/15/29 2,750 2,387
</TABLE>
9
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Louisiana PFA
Willis Knighton Medical Center
VRDN (Currently 4.30%)
(AMBAC Insured) $ 5,000 $ 5,000
Plaquemines Parish IDB, PCR, AMAX Nickel
7.25%, 10/1/09 1,280 1,280
West Feliciana Parish, PCR, Entergy Gulf States
5.65%, 9/1/04 5,000 5,035
Total Louisiana (Cost $41,786) 40,047
-------
MARYLAND 3.0%
Berlin, Atlantic General Hosp., 8.375%, 6/1/22 1,830 1,889
Gaithersburg Economic Dev., Asbury Methodist
5.50%, 1/1/15 5,750 5,455
Maryland CDA, Single Family, 7.25%, 4/1/19 2,500 2,552
Maryland Energy Fin. Administration, 7.50%, 9/1/15* 6,000 5,812
Maryland HHEFA, Doctor's Community Hosp., 5.50%, 7/1/24 3,000 2,388
Maryland Ind. Dev. Fin. Auth.
American Association of Blood Banks
7.25%, 8/1/13 2,700 2,760
Maryland-National Capital Park Planning Commission
Little Bennett Golf Fac.
8.25%, 10/1/11 (Prerefunded 10/1/02+) 1,960 2,143
Montgomery County Housing Opportunities Commission
Multifamily, 8.75%, 7/1/27 1,990 2,049
Single Family
Zero Coupon, 7/1/27 4,250 841
Zero Coupon, 7/1/28 9,500 1,798
6.10%, 7/1/27 1,975 1,998
Northeast Maryland Waste Disposal Auth.
Baltimore Resco Retrofit, 5.00%, 1/1/12* 3,000 2,608
Total Maryland (Cost $32,492) 32,293
-------
MASSACHUSETTS 4.0%
Massachusetts, GO, 7.50%, 6/1/04 2,750 2,951
Massachusetts Bay Transportation Auth., GO
General Transportation
7.00%, 3/1/19 2,500 2,946
7.00%, 3/1/21 2,000 2,355
10
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Massachusetts Dev. Fin. Agency
Boston Univ.
5.375%, 5/15/39 $ 3,000 $ 2,756
5.45%, 5/15/59 2,500 2,306
Ogden Haverhill, 6.70%, 12/1/14* 2,250 2,296
Massachusetts HEFA
Caritas Christi 5.625%, 7/1/20 5,000 4,124
Nichols College, 6.125%, 10/1/29 3,500 3,265
Massachusetts Housing Fin. Agency
Housing Project, 6.375%, 4/1/21 1,925 1,956
Single Family, 6.35%, 6/1/17 1,730 1,765
Massachusetts Ind. Fin. Agency
Bradford College, 5.625%, 11/1/28 6,000 4,918
Nevins Home, 7.875%, 7/1/23 5,110 5,131
Ogden Haverhill, 5.40%, 12/1/11* 3,600 3,416
Massachusetts Water Resources Auth.
5.00%, 3/1/22 (MBIA Insured) 3,500 3,260
Total Massachusetts (Cost $44,145) 43,445
-------
MICHIGAN 2.9%
Dickinson County Economic Dev., Champion Int'l.
5.85%, 10/1/18 4,000 3,840
Flint Hosp. Building Auth., Hurley Medical Center
5.375%, 7/1/28 3,000 2,186
Garden City Hosp. Fin. Auth.
Garden City Hosp.
5.625%, 9/1/10 1,265 1,079
5.75%, 9/1/17 1,500 1,211
Michigan Hosp. Fin. Auth.
Pontiac Osteopathic Hosp., 6.00%, 2/1/24 7,735 6,441
Saratoga Community Hosp.
8.75%, 6/1/10 (Prerefunded 6/1/02+) 3,232 3,462
Michigan State Building Auth., Fac. Program
5.125%, 10/15/15 8,415 8,263
Michigan Strategic Fund
Dow Chemical, VRDN (Currently 4.35%) 1,600 1,600
11
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
In thousands
Michigan Strategic Fund
Waste Management
5.20%, 4/1/10* $ 1,500 $ 1,330
6.625%, 12/1/12* 1,000 1,002
Univ. of Michigan Hosp., VRDN (Currently 4.35%) 1,600 1,600
Total Michigan (Cost $32,476) 32,014
MINNESOTA 0.7%
Minneapolis, Walker Methodist Senior Services
6.00%, 11/15/28 7,500 6,292
Minnesota Housing Fin. Agency, Single Family
6.70%, 1/1/18 1,340 1,378
Total Minnesota (Cost $8,790) 7,670
MISSISSIPPI 1.9%
Harrison County, PCR, E.I. du Pont de Nemours
VRDN (Currently 4.35%) 1,200 1,200
Mississippi Business Fin.
Systems Energy Resources
5.875%, 4/1/22 10,000 9,357
5.90%, 5/1/22 5,675 5,325
Mississippi Home, Single Family, 9.25%, 3/1/12
(FGIC Insured) 102 105
Mississippi Hosp. Equipment & Fac. Auth., Magnolia Hosp.
7.375%, 10/1/21 (Prerefunded 10/1/01+) 3,000 3,147
Warren County, Int'l Paper., 6.75%, 8/1/21* 2,000 2,076
Total Mississippi (Cost $21,714) 21,210
MISSOURI 1.5%
Good Shepherd Nursing Home Dist.
Nursing Home Fac.
5.45%, 8/15/08 1,090 1,010
5.90%, 8/15/23 2,000 1,664
Hannibal IDA, Hannibal Medical Center
9.50%, 3/1/22 (Prerefunded 9/1/01+) 3,650 3,984
Joplin IDA, Tri-State Osteopathic Hosp.
8.25%, 12/15/14 (Prerefunded 12/15/01+) 1,060 1,124
Lee's Summit IDA, John Knox Village, 7.125%, 8/15/12 1,425 1,458
12
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
In thousands
Missouri HEFA, Still Regional Medical Center
7.70%, 2/1/13 (Prerefunded 2/1/02+) $ 4,210 $ 4,441
Newton County IDA, 7.125%, 11/1/08 1,320 1,290
St. Louis Airport, 6.00%, 1/1/04 1,285 1,301
Total Missouri (Cost $15,993) 16,272
MONTANA 0.4%
Montana Board of Housing
7.85%, 10/1/04 (FHA Insured) 440 453
8.40%, 10/1/03* 255 259
8.95%, 10/1/02* 100 101
Single Family, 6.00%, 12/1/29 (GNMA Guaranteed)* 4,000 4,026
Total Montana (Cost $4,795) 4,839
NEBRASKA 1.0%
City of Kearney, Great Platte River Road, 6.75%, 1/1/23 5,000 3,967
Nebraska Investment Fin. Auth.
6.30%, 9/1/20* 6,000 6,195
Single Family
Residual Interest Bond/Inverse Floater
(Currently 10.648%), 9/10/30 (GNMA Guaranteed)* 700 785
Total Nebraska (Cost $11,580) 10,890
NEVADA 2.4%
Clark County, IDR
Nevada Power
5.50%, 10/1/30 3,500 2,959
5.90%, 11/1/32* 15,600 13,941
Southwest Gas
7.30%, 9/1/27 3,000 3,119
7.50%, 9/1/32* 5,000 5,198
Nevada Housing Division
9.35%, 10/1/02 105 106
9.375%, 10/1/00* 10 10
9.45%, 10/1/03* 250 254
9.65%, 10/1/02* 155 158
Total Nevada (Cost $27,125) 25,745
13
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
NEW HAMPSHIRE 0.3%
New Hampshire HHEFA, Catholic Medical Center
8.25%, 7/1/13 $ 3,000 $ 3,034
--------
Total New Hampshire (Cost $2,980) 3,034
--------
NEW JERSEY 3.3%
Camden County Improvement Auth.
Kaighn Point Marine Terminal, 8.00%, 6/1/27* 4,000 3,877
Gloucester County Improvement Auth.
Waste Management, 6.85%, 12/1/09 1,000 1,039
New Jersey Economic Dev. Auth.
Continental Airlines, 6.25%, 9/15/19* 9,500 9,024
Franciscan Oaks, 5.75%, 10/1/23 1,775 1,461
Kapkowski Road Landfill
6.375%, 4/1/18 2,000 1,982
6.375%, 4/1/31 2,000 1,951
Keswick Pines
5.75%, 1/1/24 3,885 3,108
8.75%, 1/1/24 (Prerefunded 1/1/04+) 5,925 6,770
The Evergreens, 6.00%, 10/1/17 1,300 1,126
New Jersey Sports & Exposition Auth., Monmouth Park
8.00%, 1/1/25 (Prerefunded 1/1/05+) 5,250 6,066
--------
Total New Jersey (Cost $36,051) 36,404
--------
NEW YORK 8.0%
Dormitory Auth. of the State of New York
City Univ.
5.625%, 7/1/16 3,100 3,197
6.00%, 7/1/14 2,730 2,923
Dept. of Health, 5.50%, 7/1/25 (MBIA Insured) 3,500 3,430
Mount Sinai Health, 6.50%, 7/1/25 3,750 3,955
State Univ. Ed. Fac.
5.25%, 5/15/13 5,000 5,126
5.25%, 5/15/19 5,000 4,976
5.875%, 5/15/17 3,000 3,182
Huntington Housing Auth. Gurwin Jewish Senior Residences
6.00%, 5/1/39 1,140 922
14
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Metropolitan Transportation Auth., Service Contract
5.50%, 7/1/17 $ 4,000 $ 4,039
New York City, GO
5.75%, 2/1/14 8,140 8,397
5.875%, 3/15/13 2,750 2,878
6.00%, 2/15/16 2,810 2,902
6.00%, 8/1/17 2,500 2,600
6.20%, 8/1/07 4,705 5,012
6.20%, 8/1/07 (Prerefunded 8/1/04+) 120 130
6.25%, 8/1/09 7,000 7,578
New York City Health & Hosp., Health System Bonds
5.25%, 2/15/17 6,000 5,671
New York City Municipal Water Fin. Auth., Water and Sewer
5.50%, 6/15/23 5,000 4,898
New York State Mortgage Agency, Homeowner Mortgage
5.90%, 4/1/27 4,000 4,047
Oneida County IDA
St. Elizabeth Medical Center
5.625%, 12/1/09 1,400 1,298
5.875%, 12/1/29 2,750 2,231
6.00%, 12/1/19 2,520 2,149
Suffolk County IDA
7.25%, 11/1/28 2,000 2,001
Jeffersons Ferry, 7.20%, 11/1/19 1,250 1,251
Yonkers IDA, Civic Fac., St. Joseph Hosp., 6.15%, 3/1/15 2,500 2,217
---------
Total New York (Cost $82,677) 87,010
---------
NORTH CAROLINA 0.8%
North Carolina Eastern Municipal Power Agency
6.75%, 1/1/26 3,000 3,096
North Carolina Medical Care Commission, Valdese
General Hosp.
8.75%, 10/1/16 (Prerefunded 10/1/01+) 1,905 2,026
North Carolina Municipal Power Agency
5.90%, 1/1/03 1,000 1,019
6.375%, 1/1/13 3,000 3,123
---------
Total North Carolina (Cost $8,859) 9,264
---------
15
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
NORTH DAKOTA 0.6%
Grand Forks Health Care, Altru Health Systems
7.125%, 8/15/24 $ 2,000 $ 2,000
Mercer County, PCR, Basin Electric Power
7.20%, 6/30/13 (AMBAC Insured) 3,500 4,152
Total North Dakota (Cost $5,962) 6,152
OHIO 3.8%
Akron, Municipal Baseball Stadium, COP
Zero Coupon, 12/1/16 2,200 2,154
Cambridge, Guernsey Memorial Hosp., 8.00%, 12/1/11 1,500 1,553
Cleveland Parking Fac., 8.10%, 9/15/22
(Prerefunded 9/15/02+) 10,000 10,888
Fairfield Economic Dev. Auth., Beverly Enterprises
8.50%, 1/1/03 1,415 1,447
Montgomery County
Catholic Health Initiatives, 6.00%, 12/1/19 3,500 3,561
Kettering Medical Center, 6.75%, 4/1/18 2,100 2,115
Ohio Air Quality Dev. Auth., PCR
Cleveland Electric, 6.00%, 8/1/20 2,700 2,542
Ohio Housing Fin. Agency, Single Family
Residual Interest Bond/Inverse Floater
(Currently 9.162% ), 3/31/31 (GNMA Guaranteed) 465 489
Ohio Water Dev. Auth.
Bay Shore Power
5.375%, 9/1/02* 2,800 2,743
5.875%, 9/1/20* 6,000 4,819
Cleveland Electric, PCR
6.10%, 8/1/20* 2,600 2,465
7.70%, 8/1/25 2,800 2,984
Toledo Edison, 8.00%, 10/1/23* 3,700 3,957
---------
Total Ohio (Cost $41,497) 41,717
---------
OKLAHOMA 1.3%
Jackson County Memorial Hosp. Auth.
Jackson County Memorial Hosp., 7.30%, 8/1/15 4,300 4,014
16
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
In thousands
Tulsa Municipal Airport Trust
American Airlines
6.25%, 6/1/20 $ 2,750 $ 2,713
7.375%, 12/1/20* 2,000 2,044
7.60%, 12/1/30* 5,240 5,392
Total Oklahoma (Cost $14,008) 14,163
OREGON 0.2%
Western Generation Agency, Wauna Cogeneration
7.25%, 1/1/09* 1,700 1,755
Total Oregon (Cost $1,695) 1,755
PENNSYLVANIA 4.7%
Allegheny County Hosp. Dev. Auth
St. Francis Medical Center, 5.75%, 5/15/27 2,000 1,461
West Penn. Allegheny Health System, 9.25%, 11/15/30 2,000 1,880
Beaver County IDA, PCR
Cleveland Electric, 7.625%, 5/1/25 2,400 2,556
Toledo Edison
4.85%, 6/1/04 1,800 1,746
7.75%, 5/1/20 2,000 2,147
Berks County IDA, Lutheran Home at Topton
6.875%, 1/1/23 (AMBAC Insured) 5,310 5,527
Bucks County IDA
Chandler Hall
6.20%, 5/1/19 1,275 1,116
6.30%, 5/1/29 8,475 7,310
Lancaster County Hosp. Auth., St. Annes Home
6.60%, 4/1/24 3,200 2,882
Montgomery County HHEFA
Holy Redeemer
8.00%, 6/1/22 (Prerefunded 6/1/02+) 5,755 6,137
8.20%, 6/1/06 (Prerefunded 6/1/02+) 650 695
Brittany Pointe, 8.50%, 1/1/22 (Prerefunded 1/1/03+) 2,500 2,771
Philadelphia Geriatric Center
7.00%, 12/1/12 3,360 3,289
7.25%, 12/1/19 2,500 2,402
7.375%, 12/1/33 1,900 1,855
17
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
In thousands
Pennsylvania Housing Fac. Agency
Residual Interest Bond/Inverse Floater
(Currently 9.255%), 10/1/23*
(GNMA Guaranteed) $ 1,500 $ 1,596
Philadelphia Auth. for Ind. Dev., Health Care Fac
Baptist Home of Philadelphia
5.60%, 11/15/28 1,750 1,389
Pauls Run Retirement Community
5.75%, 5/15/18 1,400 1,158
5.85%, 5/15/13 1,165 1,034
5.875%,5/15/28 3,400 2,732
-------
Total Pennsylvania (Cost $52,782) 51,683
-------
PUERTO RICO 0.2%
Puerto Rico Ind. Tourist, Ed., Medical & Environmental Fac
AES Cogen Fac., 6.625%, 6/1/26* 2,000 2,085
-------
Total Puerto Rico (Cost $1,994) 2,085
-------
RHODE ISLAND 0.6%
Rhode Island Housing & Mortgage Fin
Residual Interest Bond/Inverse Floater
(Currently 9.455%), 4/1/24*
(GNMA Guanteed) 1,000 1,065
6.70%, 10/1/14 5,000 5,161
-------
Total Rhode Island (Cost $6,000) 6,226
-------
SOUTH CAROLINA 3.4%
Connector 2000 Assoc.
Greenville Toll Road
Zero Coupon, 1/1/08 2,600 1,447
Zero Coupon, 1/1/10 2,900 1,377
Zero Coupon, 1/1/13 5,200 2,075
Zero Coupon, 1/1/20 9,900 2,302
Zero Coupon, 1/1/21 12,300 2,652
Zero Coupon, 1/1/24 8,500 1,445
Zero Coupon, 1/1/26 6,700 971
Zero Coupon, 1/1/31 21,100 2,090
Georgetown County, Int'l Paper Company, 6.25%, 9/1/23* 2,000 2,000
18
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
In thousands
Piedmont Municipal Power Agency
5.25%, 1/1/15 $ 1,500 $ 1,326
5.25%, 1/1/21 1,000 852
5.75%, 1/1/24 5,000 4,563
Richland County PCR, Union Camp
6.55%, 11/1/20 500 505
6.625%, 5/1/22 3,405 3,454
South Carolina Jobs Economic Dev. Auth
Lutheran Homes, 6.625%, 5/1/20 5,500 5,208
South Carolina Public Service Auth
5.875%, 1/1/23 (FGIC Insured) 5,000 5,102
---------
Total South Carolina (Cost $42,790) 37,369
---------
SOUTH DAKOTA 0.2%
South Dakota HDA, Homeownership, 6.65%, 5/1/14 2,375 2,453
---------
Total South Dakota (Cost $2,375) 2,453
---------
TENNESSEE 0.4%
Metropolitan Gov't. of Nashville & Davidson Counties
Mur-Ci Homes, 7.75%, 12/1/26 4,565 4,315
---------
Total Tennessee (Cost $4,440) 4,315
---------
TEXAS 8.3%
Abilene Health Fac. Dev.
Sears Methodist Retirement
5.875%, 11/15/18 4,750 4,011
5.90%, 11/15/25 2,750 2,263
6.00%, 11/15/29 3,500 2,885
Alliance Airport Auth., American Airlines, 7.00%, 12/1/11* 3,070 3,328
Amarillo Health Fac. Dev., Sears Panhandle Retirement
7.75%, 8/15/26 (Prerefunded 8/15/06+) 4,800 5,667
Arlington Independent School Dist., GO, 5.00%, 2/15/24 6,000 5,533
Bell County Health Fac. Dev., King's Daughter Hosp
9.25%, 7/1/08 2,425 2,478
19
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Brazos River Auth., Houston Lighting & Power
6.375%, 4/1/12 (MBIA Insured) $10,000 $10,533
Dallas-Fort Worth Int'l Airport Fac. Improvement
American Airlines, 5.95%, 11/1/03* 2,500 2,508
Denison Hosp. Auth.
Texoma Medical Center
6.125%, 8/15/27 3,770 3,063
7.10%, 8/15/24 2,405 2,325
7.10%, 8/15/24 (Prerefunded 8/15/04+) 1,245 1,373
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 2,922
Harris County Health Fac. Dev., Memorial Hosp.
7.125%, 6/1/15 (Prerefunded 6/1/02+) 5,000 5,296
LaSalle County Jail Fac. Fin., Criminal Detention Center
9.75%, 8/1/09 560 0
Matagorda County Navigation Dist., 5.20%, 11/1/02 3,000 2,990
North Central Health Fac. Dev., 7.25%, 11/15/19 3,000 2,945
Paris Health Fac. Dev., McCuistion Regional Medical Center
7.60%, 2/1/12 (Prerefunded 2/1/02+) 4,290 4,545
Pecos County Jail Fac. Fin., Criminal Detention Center
9.75%, 8/1/09 565 0
San Saba County Jail Fac. Fin., Criminal Detention Center
9.75%, 8/1/09 550 0
Texas, GO
VRDN (Currently 4.45%) 10,000 10,000
Veterans Housing Assistance, 6.25%, 12/1/15 275 276
Tomball Hosp. Auth.
Tomball Regional Hosp.
6.00%, 7/1/19 2,000 1,794
6.00%, 7/1/25 3,750 3,279
6.10%, 7/1/08 5,000 4,856
Tyler Health Fac. Dev.
Mother Frances Hosp.
5.40%, 7/1/08 1,315 1,240
5.625%, 7/1/13 4,960 4,369
---------
Total Texas (Cost $91,033) 90,479
---------
20
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
In thousands
UTAH 0.1%
Tooele County, PCR, Laidlaw Environmental
7.55%, 7/1/27* $2,000 $ 77
Utah Housing Fin. Agency
6.25%, 7/1/05 70 71
7.50%, 7/1/05 335 345
7.60%, 7/1/05 280 286
7.75%, 7/1/05 295 302
7.75%, 1/1/23* 30 31
8.55%, 7/1/04 75 76
8.65%, 7/1/04 180 183
9.25%, 7/1/01 10 10
9.60%, 7/1/02* 5 5
9.75%, 7/1/02 5 5
9.85%, 7/1/02* 30 30
Total Utah (Cost $3,315) 1,421
VERMONT 0.1%
Vermont Ed. and Health Buildings Fin. Agency
Medical Center Hosp. of Vermont
6.25%, 9/1/23 (FGIC Insured) 1,400 1,439
Total Vermont (Cost $1,400) 1,439
VIRGINIA 2.1%
Charles County Ind. Dev., Waste Management
4.875%, 2/1/09* 5,000 4,402
Fairfax County Economic Dev. Auth.
Greenspring Retirement Community
7.50%, 10/1/29 2,500 2,545
Fairfax County IDA, Inova Health, VRDN (Currently 4.20%) 4,400 4,400
Norfolk Port & Ind. Auth., Henson Aviation, 9.625%, 8/1/12* 620 659
Pocahontas Parkway Assoc.
Zero Coupon, 8/15/10 3,600 1,756
Zero Coupon, 8/15/13 2,800 1,090
Zero Coupon, 8/15/14 3,100 1,122
Zero Coupon, 8/15/15 3,200 1,073
21
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
Pocahontas Parkway Assoc.
Zero Coupon, 8/15/17 $ 2,095 $ 602
Zero Coupon, 8/15/19 4,000 984
Zero Coupon, 8/15/22 4,600 896
Zero Coupon, 8/15/23 4,700 850
Virginia Beach Dev. Auth., Beverly Enterprises
10.00%, 4/1/10 2,200 2,270
-------
Total Virginia (Cost $24,279) 22,649
-------
WASHINGTON 2.2%
Snohomish County Housing Auth
Millwood Estates Project
5.50%, 6/1/29 3,750 3,427
6.25%, 6/1/29 680 638
Washington, GO, 5.70%, 10/1/15 7,500 7,896
Washington HFA
Fred Hutchinson Cancer Research Center
VRDN (Currently 4.35%) 1,300 1,300
Sisters of Providence, VRDN (Currently 4.35%) 500 500
Washington Public Power Supply System
Zero Coupon, 7/1/14 (FSA Insured) 6,400 3,038
6.30%, 7/1/12 2,000 2,215
7.25%, 7/1/09 1,000 1,132
Bonneville Power Administration, VRDN (Currently 4.25%) 4,200 4,200
-------
Total Washington (Cost $23,220) 24,346
-------
WEST VIRGINIA 0.5%
West Virginia Hosp. Fin. Auth., Oak Hill Hosp., 6.75%, 9/1/22 5,000 5,141
-------
Total West Virginia (Cost $4,921) 5,141
-------
WISCONSIN 1.1%
Green Bay Redev. Auth., Fort James Corp., 5.60%, 5/1/19* 3,000 2,777
Oconto Falls CDA, Oconto Falls Tissue, 7.75%, 12/1/22* 2,800 2,683
Wisconsin HEFA, National Regency of New Berlin
8.00%, 8/15/25 5,920 6,175
-------
Total Wisconsin (Cost $11,575) 11,635
-------
22
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Par/Shares Value
--------------------------------------------------------------------------------
In thousands
WYOMING 1.1%
Sweetwater County, PCR
FMC Corp.
6.90%, 9/1/24* $ 5,000 $ 5,061
7.00%, 6/1/24* 2,785 2,831
Wyoming CDA
5.70%, 12/1/35 2,700 2,625
Single Family, 6.70%, 6/1/17 980 984
-------
Total Wyoming (Cost $10,981) 11,501
-------
PREFERRED STOCK 0.5%
MuniMae TE Bond Subsidiary Cum. Pfd. Shares (Series A)
(144a), 6.875%, 6/30/09* 6,000 5,982
-------
Total Preferred Stocks (Cost $6,000) 5,982
-------
23
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
-------------------------------------------------------------------------------------------------------
In thousands
<S> <C>
Total Investments in Securities
98.9% of Net Assets (Cost $1,081,323) $ 1,080,155
Futures Contracts
In thousands
<CAPTION>
Contract Unrealized
Expiration Value Gain (Loss)
---------- ----- -----------
<S> <C> <C> <C>
Short, 100 Bond Buyer 40 Muni Bond Index
contracts $310,000 par of Baldwin County
Eastern Shore Health Care Auth. Bonds
pledged as initial margin 9/00 $ (9,991) $ (311)
Net payments (receipts) of variation
margin to date 261
----------
Variation margin receivable
(payable) on open futures contracts (50)
Other Assets Less Liabilities 11,513
-----------
NET ASSETS $ 1,091,618
-----------
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 97
Accumulated net realized gain/loss - net of distributions (27,779)
Net unrealized gain (loss) (1,479)
Paid-in-capital applicable to shares 95,027,418 of $0.01 par
value capital stock outstanding; 1,000,000,000 shares authorized 1,120,779
-----------
NET ASSETS $ 1,091,618
-----------
NET ASSET VALUE PER SHARE $ 11.49
-----------
</TABLE>
* 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
0.9% 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.
24
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
----------------------------------------------------------------------------
Unaudited August 31, 2000
------------------------
STATEMENT OF OPERATIONS
----------------------------------------------------------------------------
In thousands
6 Months
Ended
8/31/00
Investment Income (Loss)
Interest income $ 35,903
------------
Expenses
Investment management 3,335
Shareholder servicing 447
Custody and accounting 99
Prospectus and shareholder reports 60
Legal and audit 17
Registration 14
Directors 5
Miscellaneous 6
------------
Total expenses 3,983
Expenses paid indirectly (1)
------------
Net expenses 3,982
------------
Net investment income (loss) 31,921
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Securities (5,396)
Futures 35
------------
Net realized gain (loss) (5,361)
------------
Change in net unrealized gain or loss
Securities 32,114
Futures (311)
------------
Change in net unrealized gain or loss 31,803
------------
Net realized and unrealized gain (loss) 26,442
------------
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 58,363
------------
The accompanying notes are an integral part of these financial statements.
25
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Unaudited August 31, 2000
----------------------------------
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
8/31/00 2/29/00
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 31,921 $ 69,782
Net realized gain (loss) (5,361) (18,192)
Change in net unrealized gain or loss 31,803 (122,602)
--------------------------
Increase (decrease) in net assets from operations 58,363 (71,012)
--------------------------
Distributions to shareholders
Net investment income (31,967) (69,782)
--------------------------
Capital share transactions*
Shares sold 73,710 205,028
Distributions reinvested 21,520 47,976
Shares redeemed (110,000) (389,349)
--------------------------
Increase (decrease) in net assets from capital
share transactions (14,770) (136,345)
--------------------------
Net Assets
Increase (decrease) during period 11,626 (277,139)
Beginning of period 1,079,992 1,357,131
--------------------------
End of period $ 1,091,618 $ 1,079,992
--------------------------
*Share information
Shares sold 6,527 17,120
Distributions reinvested 1,902 4,059
Shares redeemed (9,765) (33,163)
--------------------------
Increase (decrease) in shares outstanding (1,336) (11,984)
The accompanying notes are an integral part of these financial statements.
26
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
Unaudited August 31, 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 fund
seeks a high level of income exempt from federal income taxes by investing
primarily in long-term low- to upper-medium-grade municipal securities.
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. Financial
futures contracts are valued at closing settlement prices.
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 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. Payments ("variation margin") made or recieved by the fund
to settle the daily fluctuations in the value of futures contracts are
recorded as unrealized gains or losses until the contracts are closed.
Unrealized gains and losses on futures contracts are included in Change in
net unrealized gain or loss in the accompanying financial statements.
27
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T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
NOTE 2 - INVESTMENT TRANSACTIONS
Consistent with its investment objective, the fund engages in the
following practices to manage exposure to certain risks or enhance
performance. The investment objective, policies, program, and risk factors
of the fund are described more fully in the fund's prospectus and
Statement of Additional Information.
Noninvestment-Grade Debt Securities At August 31, 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 $70,723,000 and $115,971,000, respectively, for the
six months ended August 31, 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 had capital loss
carryforwards for federal income tax purposes of $12,470,000, all of which
expires in 2008.
At August 31, 2000, the cost of investments for federal income tax
purposes was substanially the same as for financial reporting and totaled
$1,081,323,000. Net unrealized loss aggregated $1,168,000 at period-end of
which $42,788,000 related to appreciated investments and $43,956,000 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 $567,000 was payable at August 31, 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 T. Rowe Price International, Inc. (the group). The group fee
rate ranges from 0.48% for
28
<PAGE>
T. ROWE PRICE TAX-FREE HIGH YIELD FUND
--------------------------------------------------------------------------------
the first $1 billion of assets to 0.295% for assets in excess of $120
billion. At August 31, 2000, 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 $319,000 for the six months ended August 31, 2000, of which
$70,000 was payable at period-end.
29
<PAGE>
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(R)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 July 2000 survey for representative-assisted stock
trades. Services vary by firm, and commissions may vary depending
on size of order.
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T. ROWE PRICE MUTUAL FUNDS
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STOCK FUNDS
Domestic
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Developing Technologies
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index 500
Extended Equity Market Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock
Small-Cap Value
Spectrum Growth
Tax-Efficient Growth
Total Equity Market Index
Value
International/Global
Emerging Europe & Mediterranean
Emerging Markets Stock
European Stock
Global Stock
Global Technology
International Discovery*
International Growth & Income
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
Domestic Taxable
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government*
Spectrum Income
Summit GNMA
Summit Limited-Term Bond*
U.S. Treasury Intermediate
U.S. Treasury Long-Term
Domestic Tax-Free
California Tax-Free Bond
Florida Intermediate Tax-Free
Georgia Tax-Free Bond
Maryland Short-Term
Tax-Free Bond
Maryland Tax-Free Bond
New Jersey Tax-Free Bond
New York Tax-Free Bond
Summit Municipal Income
Summit Municipal Intermediate
Tax-Free High Yield
Tax-Free Income
Tax-Free Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term
Tax-Free Bond*
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Bond*
International Bond
MONEY MARKET FUNDS+
Taxable
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
Tax-Free
California Tax-Free Money
New York Tax-Free Money
Summit Municipal
Money Market
Tax-Exempt Money
BLENDED ASSET FUNDS
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD
VARIABLE ANNUITY
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
+ Investments in the funds are not insured or guaranteed by the FDIC or any
other government agency. Although the funds seek to preserve the value of your
investment at $1.00 per share, it is possible to lose money by investing in the
funds.
Please call for a prospectus, which contains complete information, including
fees and expenses. 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.
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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
For the hearing impaired, call:
1-800-367-0763
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.
[LOGO OF T.ROWE PRICE]
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site.
Baltimore Area
Downtown - new address
105 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 Investment Services, Inc., Distributor. F59-051 8/31/00
