Fees and Expenses of the Fund
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Shareholder fees (fees paid directly from your investment)
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Maximum sales charge (load) imposed on
purchases
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NONE
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Maximum deferred sales charge (load)
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NONE
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Redemption fee (as a percentage of amount redeemed on shares held for 90 days or less)
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2.00%
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Maximum account fee
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$20
a
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Annual fund operating expenses
(expenses that you pay each year
as a
percentage of the value of your investment)
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Management fees
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0.60%
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Distribution and service (12b-1) fees
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0.00%
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Other expenses
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0.07%
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Total annual
fund operating expenses
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0.67%
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a
Subject
to certain exceptions, accounts with a balance of less than $10,000 are charged an annual $20 fee.
Example
This example is intended
to help you compare the cost of investing in the fund with the cost of investing in other mutual funds.
The example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem
all of your shares at the end of those periods. The example also assumes that your investment has a 5%
return each year and that the funds operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs would be:
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1 year
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3 years
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5 years
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10 years
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$68
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$214
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$373
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$835
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Portfolio Turnover
The fund
pays transaction costs, such as commissions, when it buys and sells securities (or turns over
its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result
in higher taxes when fund shares are held in a taxable account. These costs, which are not reflected
in annual fund operating expenses or in the example, affect the funds performance. During the
most recent fiscal year, the funds portfolio turnover rate
was 11.6% of the average value of its portfolio.
Investments, Risks, and Performance
Principal Investment Strategies
The fund invests primarily in long-term municipal securities (securities with maturities of more than
10 years) and its weighted average maturity is expected to normally exceed 10 years. The fund normally
invests a substantial portion of its assets in municipal bonds that are rated noninvestment-grade (BB
and lower, or an equivalent rating) by a major credit rating agency or by T. Rowe Price, known as
junk bonds in the taxable bond market, and may buy bonds in default as long as they do not
exceed 10% of the funds total assets.
Investment decisions reflect the portfolio managers outlook
for interest rates and the economy, as well as the prices, yields, and credit quality of various securities
in which the fund may invest. For example, if interest rates are expected to fall, the fund may purchase
longer-term securities (to the extent consistent with the funds investment program) in an attempt
to seek higher yields and/or capital appreciation. Conversely, if interest rates are expected to rise,
the fund may seek securities with shorter maturities.
Normally, at least 80% of the funds income
will be exempt from federal income taxes. However, up to 20% of the funds income could be derived
from securities subject to the alternative minimum tax.
From time to time, the fund may invest a significant
portion of its assets in sectors with special risks, such as health care, transportation, utilities,
or private activity bonds. The fund may sell holdings for a variety of reasons, such as to adjust the
portfolios average maturity, duration, or overall credit quality, or to shift assets into and out
of higher-yielding or lower-yielding securities or certain sectors.
Principal Risks
As with any mutual fund, there is no guarantee that the fund
will achieve its objective. The funds share price fluctuates, which means you could lose money
by investing in the fund. The principal risks of investing in this fund are summarized as follows:
Active management risk
The fund is subject to the risk that the investment advisers
judgments about the attractiveness, value, or potential appreciation of the funds investments may
prove to be incorrect. If the securities selected and strategies employed by the fund fail to produce
the intended results, the fund could underperform other funds with similar objectives and investment
strategies.
Market risk
This is the risk that the value of securities owned by the fund may go up or down, sometimes rapidly
or unexpectedly, due to factors affecting securities markets generally or particular industries.
Credit risk
This is the risk that
an issuer of a debt security could suffer an adverse change in financial condition that results in a
payment default, security downgrade,
or
inability to meet a financial obligation. Economic downturns often result in reduced levels of taxes
collected and revenues earned for municipalities and a municipal governments pension or health
care related obligations to its employees may exceed its available assets or income. This, in turn, lessens
the financial strength of a municipality and increases the credit risk of the securities it issues.
The
fund is exposed to much greater credit risk than most other municipal bond funds because of its focus
on below investment-grade junk bonds. Municipalities issuing junk bonds are usually
not as strong financially and are more likely to suffer an adverse change in financial condition. As
a result, junk bonds carry a higher risk of default and should be considered speculative.
Interest rate risk
This is the
risk that a rise in interest rates will cause the price of a fixed rate debt security to fall. Generally,
securities with longer maturities and funds with longer weighted average maturities carry greater interest
rate risk.
Municipal securities
risk
The fund will be highly impacted by events tied to the overall municipal securities markets,
which can be very volatile and significantly affected by unfavorable legislative or political developments
and adverse changes in the financial conditions of municipal securities issuers and the economy. Income
from municipal securities held by the fund could be declared taxable because of changes in tax laws or
interpretations by taxing authorities, or noncompliant conduct of a municipal security issuer. In addition,
a portion of the funds otherwise tax-exempt dividends may be taxable to those shareholders subject
to the alternative minimum tax.
Certain sectors of the municipal bond market have special risks
that can impact such sectors more significantly than the market as a whole. For example, health care
can be hurt by rising expenses and dependency on third party reimbursements, transportation can be impacted
by declining revenues or unexpectedly high construction costs, utilities are subject to governmental
rate regulation, and private activity bonds rely on project revenues and the creditworthiness of the
corporate user as opposed to governmental support.
Liquidity risk
This is the risk that the fund may not be able to sell a holding
in a timely manner at a desired price. The secondary market for certain municipal bonds tends to be less
developed and liquid than many other securities markets, which may adversely affect the funds ability
to sell such municipal bonds at attractive prices.
Performance
The bar chart showing calendar year returns and the average annual
total returns table indicate risk by illustrating how much returns can differ from one year to the next
and how fund performance compares with that of a comparable market index. The funds past performance
(before and after taxes) is not necessarily an indication of future performance.
The fund can also experience
short-term performance swings, as shown by the best and worst calendar quarter returns during the years
depicted.
The funds
return for the three months ended 3/31/13 was 1.27%.
In addition, the average annual total returns
table shows hypothetical after-tax returns to suggest how taxes paid by a shareholder may influence returns.
After-tax returns are calculated using the historical highest individual federal marginal income tax
rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investors
tax situation and may differ from those shown. After-tax returns shown are not relevant to investors
who hold their fund shares through tax-deferred arrangements, such as a 401(k) account or individual
retirement account.
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Average
Annual Total Returns
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Periods
ended
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December 31, 2012
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1 Year
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5 Years
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10 Years
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Tax-Free High Yield Fund
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Returns before taxes
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13.65
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%
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6.22
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%
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5.65
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%
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Returns after taxes on distributions
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13.64
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6.21
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5.65
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Returns after taxes on distributions
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and sale of fund shares
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10.53
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6.02
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5.56
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Barclays 65% High-Grade/35%
High-Yield Index (reflects no deduction for fees, expenses, or taxes)
a
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10.63
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6.07
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5.84
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Barclays Municipal Revenue Bond Index (reflects no deduction for
fees, expenses, or taxes)
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7.76
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6.10
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5.35
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Lipper
High Yield Municipal Debt Funds Average
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14.13
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4.79
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4.83
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a
The
funds investment adviser believes the Barclays 65% High Grade/35% High-Yield Index is more representative
of the funds investment program.
Updated performance information is available through troweprice.com or may be obtained
by calling 1-800-225-5132
.
Investment Adviser
T. Rowe Price Associates, Inc. (T. Rowe Price)
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Portfolio Manager
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Title
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Managed Fund Since
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Joined Investment
Adviser
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James M. Murphy
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Chairman of Investment
Advisory Committee
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2002
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2000
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Purchase
and Sale of Fund Shares
The funds investment minimums generally are as follows (if you hold shares through
a financial intermediary, the intermediary may impose different investment minimums):
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Type of Account
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Minimum
initial purchase
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Minimum subsequent
purchase
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Individual
retirement accounts, small business retirement plan accounts, and Uniform Gifts to Minors Act or Uniform
Transfers to Minors Act accounts
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$1,000
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$100
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All other accounts
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2,500
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100
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You
may purchase, redeem, or exchange shares of the fund on any day the New York Stock Exchange is open for
business by accessing your account online at troweprice.com, by calling 1-800-225-5132, or by written
request. If you hold shares through a financial intermediary, you must purchase, redeem, and exchange
shares through your intermediary.
Tax Information
The fund declares dividends
daily and pays them on the first business day of each month. Any capital gains are declared and paid
annually, usually in December. The fund intends to distribute tax-exempt income. However, a portion of
the funds distributions may be subject to federal income taxes or the alternative minimum tax.
A redemption or exchange of fund shares, and any capital gains distributed by the fund, may be taxable.
Payments to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the
fund through a broker-dealer or other financial intermediary (such as a bank), the fund and its related
companies may pay the intermediary for the sale of fund shares and related services. These payments may
create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment. Ask your salesperson or visit your financial intermediarys
website for more information.
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T. Rowe Price
Associates, Inc.
100 East Pratt Street
Baltimore, MD 21202
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F59-045
7/1/13
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