Fellow Shareholders
Market Overview
Over the Fund's fiscal year ended February 28, 1994, the economy strengthened
by virtually every measure. While in the first half of calendar 1993 the
economy grew at less than a 1.5% rate, it surged at over a 5% rate in the
second half. The ranks of the unemployed dropped steadily in 1993, capacity
utilization rose regularly, and personal income gains were impressive. Based
on stronger spending by consumers on durable goods and housing and by
businesses on fixed equipment, the economy's momentum seems to be carrying
over into early 1994, though the arctic cold snap east of the Rockies and the
earthquake in Los Angeles tended to depress some measures of business activity
early in the new year.
Perceived weakness in the economy through the autumn of 1993 and the
Federal Reserve's aggressively easy monetary policy encouraged a substantial
decline in note and bond yields. Between the end of February 1993 and
mid-October, the yield on the Treasury's benchmark 30-year bond dropped more
than one full percentage point, reaching a low of 5.78%. As it became
increasingly apparent that the economy was entering a phase of stronger
growth, interest rates began to rise. The movement toward higher rates was
accelerated by the Fed's dramatic announcement of a tightening in early
February. As a result, short- and intermediate-term interest rates ended the
fiscal year 30 to 75 basis points higher than they began it, though long-term
Treasury bond yields were still a bit lower.
Chart 1 - Interest Rate Levels
Money Fund
We entered the final quarter of the Fund's fiscal year in a defensive posture
(i.e., with a short weighted average maturity of 58 days) because of our
belief that the Federal Reserve was no longer biased toward reducing interest
rates. By the time the Federal Reserve acted in February, we had reduced the
weighted average maturity even more, ending the month at 50 days. Other money
market funds followed a similar path.
The major benefit of such a strategy in a rising rate environment is the
fact that the portfolio will turn over more frequently and assets can be
invested at higher and higher rates. Therefore, the return on your investment
in the Fund should improve as these new investments are made.
Intermediate Fund
This portfolio was also positioned defensively as we entered the quarter, and
little change was made in the Fund's weighted average maturity or duration
during the period. On February 28, the maturity stood at about three and
one-half years, toward the low end of its expected three- to seven-year range.
Despite our conservative posture, the share price dropped as interest rates
rose, and the $0.07 decline equaled the $0.07 dividend per share paid for the
quarter. Dividends paid by the Lipper Average of comparable funds were not
enough to offset their principal declines, so the average fund in this
category had a negative return. For the year, the Fund lagged the Lipper
Average because we maintained a shorter maturity in the early months and did
not experience the same price appreciation of the competitor funds.
The major change in the structure of the portfolio was an increase in
assets allocated to mortgage-backed securities. These holdings, which rose
from around 7% at the end of November to the maximum allowable 15% on February
28, continued to represent a well-diversified mix in order to minimize the
possibility of prepayments (which result in losses for the Fund). While these
securities lagged in calendar 1993, we expect them to perform better now that
rates are rising and prepayment risk is declining.
Long-Term Fund
This portfolio's maturity was at the low end of its expected 15- to 20-year
range entering the quarter, was modestly lengthened in December, and then
reduced in February. Even with the relatively short maturity, the Fund's share
price declined by $0.52, only $0.17 of which was offset by dividend income.
The Lipper Average of comparable funds had a similar fate, as its total return
was off slightly more than your Fund's.
Consistent with the portfolio strategy discussed for the Intermediate
Fund, we increased the assets committed to mortgage-backed securities to the
15% allowed, with a goal of minimizing prepayment vulnerability.
Capital Gain Distributions
As you may know, a dividend reflecting a fund's undistributed net gains as of
October 31 must be declared by the end of each calendar year, and a second
distribution is required if the Fund has undistributed net gains as of the
close of its fiscal year. Accordingly, the Intermediate and Long-Term Funds
declared long-term gains of $0.02 and $0.01 per share, respectively, payable
March 31 to shareholders of record March 28. These distributions, which are
reflected on March statements, are taxable for 1994 and will be reported on
Form 1099-DIV mailed in January 1995.
Outlook
Fed Chairman Alan Greenspan has made clear his intention to raise short-term
interest rates from what he termed "abnormally low" levels in order to contain
inflation as the economy approaches full labor and capital utilization over
the next year or two. As the Fed implements this policy, short-term rates will
climb. The reaction in the intermediate- and long-term sectors to the Fed's
tightening in February was decidedly negative, with yields climbing rapidly.
The Fed's most recent hike was greeted more constructively by long-term
investors; in sharp contrast to the reaction in February, bond yields fell on
March 22, the day the Fed announced that the federal funds rate would be
increased another one-quarter of one percent. Since inflation currently does
not look threatening, we believe longer-term bond investors should be
reassured by the Fed's anti-inflation stance, as long as it works, and returns
from money funds will be in an uptrend for the first time in four years.
A cautionary note is appropriate, however, as commodity prices are
moving up, labor markets could start tightening visibly later this year or
early next, and the global economy is strengthening. Depending on how these
factors play out, we look for a modest upward trend in interest rates from
current levels, but the path will be choppy, perhaps even turbulent, as
inflation expectations wax and wane.
We recommend that shareholders review their investment objectives in
light of the change in the Federal Reserve's policy, going into a shorter
maturity mix if money may be needed in the near future or if you are not
comfortable with principal fluctuations. If highest possible income is your
ultimate objective and you are investing for the long term, then a long-term
bond fund would remain more appropriate.
Respectfully submitted,
George J. Collins
President
March 28, 1994
Duration as a Guide to Interest Rate Risk
Starting with this report, we've added a new measure to the statistical tables
that more accurately defines a fund's interest rate sensitivity. Unlike
maturity, which merely indicates when the bond repays principal, "duration"
incorporates the cash flows of all interest and principal payments over the
life of the bond to reflect the recovery of your original investment. Future
payments are discounted to reflect their present value. These payments are
then multiplied by the number of years over which they will be received to
produce a value that is expressed in years, i.e., the duration. Effective
duration is an even better measure of a bond's sensitivity to interest rate
changes because it takes into account call features and sinking fund payments
which may shorten a bond's life.
You can multiply the duration by the potential change in interest rates
to estimate the change in principal value. For example, a bond or bond fund
with a duration of five years would rise or fall roughly 5% in price if rates
fell or rose by one percentage point.
Chart 2 - Fiscal-Year Performance Comparison U.S. Treasury Intermediate Fund
Fiscal-Year Performance
Periods ended February 28, 1994
Since Inception
1 Year (9/29/89)
___________ ____________
3.80% 9.25%
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Chart 3 - Fiscal-Year Performance Comparison U.S. Treasury Long-Term Fund
Fiscal-Year Performance
Periods ended February 28, 1994
Since Inception
1 Year (9/29/89)
__________ ____________
5.89% 9.99%
<TABLE>
Maturity, Quality, and Financial Summary - U.S. Treasury Funds
<CAPTION>
Weighted Average Effective Weighted Average
Maturity Duration Quality*
______________ ______________ ______________
<S> <C> <C> <C> <C> <C> <C>
11/30/93 2/28/94 11/30/93 2/28/94 11/30/93 2/28/94
(Days)
Money Fund 58 50 N/A N/A 1.0 1.0
(Years)
Intermediate
Fund 3.6 3.7 3.00 2.98 1.0 1.0
Long-Term
Fund 16.1 16.4 7.71 7.77 1.0 1.0
<CAPTION>
Net Asset Value Dividend Per Share Dividend Yield**
Per Share 3 Months Ended 3 Months Ended
_____________ _______________ _____________
<S> <C> <C> <C> <C> <C> <C>
11/30/93 2/28/94 11/30/93 2/28/94 11/30/93 2/28/94
(Days)
Money Fund $1.00 $1.00 $0.006 $0.006 2.52% 2.53%
(Years)
Intermediate
Fund 5.39 5.32 0.07 0.07 5.30 5.41
Long-Term 10.98 10.46 0.17 0.17 5.92 6.38
Fund
<FN>
* On a T. Rowe Price scale of 1 to 10, with Grade 1 representing the highest quality.
** Dividends earned and reinvested for the periods indicated are annualized and divided by the average
daily net asset values per share for the same period.
</TABLE>
Total Return Comparison - U.S. Treasury Funds
T. Rowe Periods Ended Benchmark Periods Ended
Price Funds 2/28/94 Comparisons 2/28/94
_____________ _________________ _____________ _________________
3 Months 12 Months 3 Months 12 Months
Donoghue's Average
of All U.S.
Treasury
Money Fund 0.62% 2.51% Money Funds* 0.65% 2.58%
Lipper Average
of Intermediate
Intermediate U.S. Government
Fund 0.02 3.80 Funds -0.47 4.27
Lipper Average
of General
Long-Term U.S. Treasury
Fund -0.99 5.89 Funds -1.15 5.74
Calendar-Year Average Annual Compound Total Return - U.S. Treasury Funds
Periods Ended 12/31/93
_________________________________________
1 Year 5 Years 10 Years Since Inception
Money Fund 2.51% 5.35% 6.11% 6.44% (6/82)
Intermediate Fund 7.99 N/A N/A 9.69 (9/89)
Long-Term Fund 12.92 N/A N/A 10.75 (9/89)
* The Donoghue's Average of All U.S. Treasury Money Funds is a weighted
average of 100% U.S. Treasury Funds and the Treasury and Repo Funds.
Income return and principal value represent past performance and will vary.
Shares may be worth more or less at redemption than at original purchase.
Investment Records
Per-Share Data
The following tables show the investment records of one share purchased at the
original offering prices of $1.00 for the Money Fund, $5.00 for the
Intermediate Fund, and $10.00 for the Long-Term Fund. Over the time periods
covered in each table, interest rates have been volatile. The results shown
should not be considered representative of the returns which would be realized
from investments made in the Funds today.
U.S. Treasury Money Fund
Adjusted to Reflect Reinvestment
________________________________
Cumulative Dollars Annual
__________________
Income Return on
Dividend Investment
Fiscal Net Asset Taken In Income Value of __________
Year Ended Value Cash Dividend Investment Total Return
__________ ________ ________ _______ _________ __________
2/28/83* $1.00 $0.06 $0.06 $1.06 5.83%
1984 1.00 0.08 0.15 1.15 8.52
1985 1.00 0.09 0.26 1.26 9.44
1986 1.00 0.07 0.35 1.35 7.14
1987 1.00 0.05 0.42 1.42 5.36
1988 1.00 0.05 0.50 1.50 5.56
1989 1.00 0.07 0.60 1.60 6.85
1990 1.00 0.08 0.73 1.73 8.26
1991 1.00 0.07 0.86 1.86 7.18
1992 1.00 0.05 0.95 1.95 5.06
1993 1.00 0.03 1.01 2.01 2.97
1994 1.00 0.02 1.06 2.06 2.51
Total $0.72
* From inception 6/28/82 to 2/28/83.
Investment Records (Cont'd)
U.S. Treasury Intermediate Fund
With
Dividends
Fiscal Net Capital With and Capital
Year Asset Income Gain Dividends Gains Total
Ended Value Dividends Distributions* Reinvested Reinvested Return
______ _____ _________ ____________ __________ ___________ ________
2/28/90! $4.98 $0.17 $5.15 $5.15 2.97%
1991 5.10 0.40 5.71 5.71 10.92
1992 5.28 0.36 $0.03 6.33 6.37 11.54
1993 5.42 0.32 0.13 6.90 7.12 11.77
1994 5.32 0.29 0.01 7.15 7.39 3.80
_____________________________________________________________________________
Total $1.54 $0.17
* From inception 9/29/89 to 2/28/90.
! Includes short-term capital gain of $0.03 on 3/25/91 and $0.06 on 3/18/92.
U.S. Treasury Long-Term Fund
With
Dividends
Fiscal Net Capital With and Capital
Year Asset Income Gain Dividends Gains Total
Ended Value Dividends Distributions* Reinvested Reinvested Return
______ _____ _________ ____________ __________ ___________ ______
2/28/90! $9.79 $0.35 $10.13 $10.13 1.32%
1991 10.03 0.80 11.27 11.27 11.21
1992 10.39 0.78 12.60 12.60 11.86
1993 10.79 0.70 $0.28 14.00 14.38 14.11
1994 10.46 0.68 0.29 14.44 15.23 5.89
_____________________________________________________________________________
Total $3.31 $0.57
* From inception 9/29/89 to 2/28/90.
! Includes short-term capital gain of $0.02 on 3/18/92, $0.06 on 12/11/92,
$0.02 on 3/29/93 and $0.25 on 12/10/93.
Statement of Net Assets (Amounts in thousands)
T. Rowe Price U.S. Treasury Funds / February 28, 1994
Money Fund
Face Amount Value
___________ _________
U.S. GOVERNMENT OBLIGATIONS - 97.9%
U.S. Treasury Bills, 3.01 - 3.40%, 3/3/94. . . $ 35,416 $ 35,090
3.025 - 3.07%, 3/10/94. . . . . . . . . . . . 41,568 41,217
3.02 - 3.08%, 3/17/94 . . . . . . . . . . . . 19,371 19,154
3.00 - 3.14%, 3/24/94 . . . . . . . . . . . . 39,944 39,783
3.01 - 3.08%, 4/7/94. . . . . . . . . . . . . 11,205 11,037
3.085%, 4/14/94 . . . . . . . . . . . . . . . 10,000 9,843
3.00%, 4/21/94. . . . . . . . . . . . . . . . 50,000 49,586
3.20 - 3.22%, 4/28/94 . . . . . . . . . . . . 13,258 13,072
3.00 - 3.25%, 5/5/94. . . . . . . . . . . . . 28,335 27,997
3.24%, 5/12/94. . . . . . . . . . . . . . . . 4,950 4,910
3.245 - 3.29%, 5/19/94. . . . . . . . . . . . 10,515 10,355
3.255 - 3.355%, 5/26/94 . . . . . . . . . . . 18,644 18,411
3.195%, 6/2/94. . . . . . . . . . . . . . . . 10,000 9,844
3.24%, 6/9/94 . . . . . . . . . . . . . . . . 10,000 9,834
3.245%, 6/16/94 . . . . . . . . . . . . . . . 10,000 9,829
3.20%, 6/23/94. . . . . . . . . . . . . . . . 10,000 9,837
3.205%, 6/30/94 . . . . . . . . . . . . . . . 10,000 9,830
3.255%, 7/14/94 . . . . . . . . . . . . . . . 10,000 9,821
3.15%, 7/21/94. . . . . . . . . . . . . . . . 10,000 9,824
3.135%, 7/28/94 . . . . . . . . . . . . . . . 10,000 9,822
3.20%, 8/4/94 . . . . . . . . . . . . . . . . 10,000 9,822
U.S. Treasury Notes, 5.75 -
8.50%, 3/31/94. . . . . . . . . . . . . . . . 172,130 172,578
7.00%, 4/15/94 - 5/15/94. . . . . . . . . . . 58,657 58,953
Total Investments in Securities - 97.9%
(Cost - $600,833) . . . . . . . . . . . . . . 600,449
Other Assets Less Liabilities - 2.1% . . . . . 13,134
_________
Net Assets Consisting of:
Accumulated net investment income -
net of distributions. . . . . . . . . . . . . 81
Accumulated realized gains/losses -
net of distributions. . . . . . . . . . . . . (3)
Unrealized depreciation of investments . . . . (384)
Paid-in-capital applicable to 613,967,652
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized. . . . . . . . . . . . 613,889
_________
Net Assets - 100.0%. . . . . . . . . . . . . . $ 613,583
_________
_________
Net Asset Value Per Share. . . . . . . . . . . $1.00
_____
_____
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Funds / Statement of Net Assets
Intermediate Fund
Face Amount Value
__________ __________
U.S. GOVERNMENT OBLIGATIONS - 84.7%
U.S. Treasury Notes, 4.125%, 5/31/95 . . . . . $ 4,600 $ 4,590
4.25%, 7/31/95. . . . . . . . . . . . . . . . 3,500 3,492
4.75%, 10/31/98 . . . . . . . . . . . . . . . 1,500 1,451
5.125%, 3/31/98 . . . . . . . . . . . . . . . 5,100 5,047
5.375%, 5/31/98 . . . . . . . . . . . . . . . 2,000 1,993
5.50%, 7/31 - 9/30/97 . . . . . . . . . . . . 8,895 8,971
5.625%, 8/31/97 - 1/31/98 . . . . . . . . . . 7,815 7,902
6.00%, 11/30 - 12/31/97 . . . . . . . . . . . 6,950 7,108
6.25%, 1/31/97. . . . . . . . . . . . . . . . 15,975 16,504
6.375%, 6/30/97 - 1/15/00 . . . . . . . . . . 24,565 25,389
6.75%, 5/31/97. . . . . . . . . . . . . . . . 5,560 5,823
6.875%, 3/31 - 4/30/97. . . . . . . . . . . . 11,705 12,293
7.125%, 10/15/98. . . . . . . . . . . . . . . 24,500 26,073
7.625%, 12/31/94 - 5/31/96. . . . . . . . . . 12,720 13,381
7.875%, 7/31/96 . . . . . . . . . . . . . . . 1,158 1,237
8.50%, 9/30/94 - 7/15/97. . . . . . . . . . . 4,489 4,858
8.75%, 10/15/97 . . . . . . . . . . . . . . . 2,716 3,025
_____________________________________________________________________________
Total U.S. Government Obligations
(Cost - $145,237) 149,137
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 15.3%
Government National Mortgage Assn.,
I, 6.50%, 8/15 - 10/15/02 . . . . . . . . . . 772 774
7.00%, 7/15 - 9/15/16 . . . . . . . . . . . 2,659 2,669
8.50%, 8/15/04 - 4/15/23. . . . . . . . . . 2,878 3,084
9.50%, 3/15/16 - 7/15/22. . . . . . . . . . 3,897 4,236
10.00%, 1/15 - 12/15/18 . . . . . . . . . . 207 229
10.50%, 2/15 - 11/15/14 . . . . . . . . . . 592 665
11.00%, 12/15/09 - 12/15/19 . . . . . . . . 3,189 3,635
11.50%, 3/15/10 - 11/15/18. . . . . . . . . 4,362 5,027
12.50%, 6/15/10 - 3/15/15 . . . . . . . . . 458 536
II, 9.00%, 10/20/16 . . . . . . . . . . . . . 18 20
10.50%, 12/20/15 - 2/20/16. . . . . . . . . 1,004 1,107
11.00%, 9/20/99 . . . . . . . . . . . . . . 24 26
Midget, I, 9.00%, 9/15/01 - 2/15/06 . . . . . 1,654 1,776
9.50%, 1/15/98 - 12/15/05 . . . . . . . . 1,588 1,709
10.00%, 11/15/00 - 9/15/05. . . . . . . . 468 508
10.50%, 11/15/97 - 10/15/04 . . . . . . . 177 192
11.00%, 8/15/00 . . . . . . . . . . . . . 101 111
11.50%, 4/15/98 - 7/15/00 . . . . . . . . 442 483
II, 11.50%, 12/20/98 - 10/20/00 . . . . . . 74 80
_____________________________________________________________________________
Total U.S. Government Guaranteed Obligations
(Cost - $26,240) 26,867
Total Investments in Securities - 100.0%
(Cost - $171,477) . . . . . . . . . . . . . . $ 176,004
Other Assets Less Liabilities - 0.0% . . . . . (51)
__________
Net Assets Consisting of:
Accumulated net investment income -
net of distributions. . . . . . . . . . . . . $ 203
Accumulated realized gains/losses -
net of distributions. . . . . . . . . . . . . 279
Unrealized appreciation of investments . . . . 4,527
Paid-in-capital applicable to 33,099,714
shares of $0.01 par value capital
stock outstanding; 1,000,000,000 shares
of the Corporation authorized . . . . . . . . 170,944
__________
Net Assets - 100.0%. . . . . . . . . . . . . . $ 175,953
__________
__________
Net Asset Value Per Share. . . . . . . . . . . $5.32
_____
_____
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Funds / Statement of Net Assets
Long-Term Fund
Face Amount Value
___________ __________
U.S. GOVERNMENT OBLIGATIONS - 83.9%
U.S. Treasury Bonds, 6.25%, 8/15/23. . . . . . $ 9,500 $ 8,988
10.00%, 5/15/10 . . . . . . . . . . . . . . . 5,000 6,432
10.375%, 11/15/09 . . . . . . . . . . . . . . 5,000 6,534
11.75%, 11/15/14. . . . . . . . . . . . . . . 4,000 5,995
12.00%, 8/15/13 . . . . . . . . . . . . . . . 5,000 7,505
12.75%, 11/15/10. . . . . . . . . . . . . . . 5,000 7,598
U.S. Treasury Notes, 5.875%, 5/15/95 . . . . . 1,350 1,375
6.375%, 1/15/99. . . . . . . . . . . . . . . 3,000 3,100
_____________________________________________________________________________
Total U.S. Government Obligations
(Cost - $45,144) 47,527
U.S. GOVERNMENT GUARANTEED OBLIGATIONS - 14.7%
Government National Mortgage Assn.,
I, 8.00%, 10/15/16 - 3/15/17. . . . . . . . . 433 460
8.50%, 3/15/17. . . . . . . . . . . . . . . 980 1,051
9.00%, 7/15/16 - 5/15/21. . . . . . . . . . 1,422 1,533
9.50%, 8/15/12 - 10/15/21 . . . . . . . . . 1,067 1,159
10.00%, 1/15/16 - 11/15/17. . . . . . . . . 620 685
10.50%, 1/15/98 - 11/15/17. . . . . . . . . 51 58
11.00%, 12/15/09 - 12/15/15 . . . . . . . . 407 464
11.50%, 10/15/10 - 8/15/15. . . . . . . . . 501 577
II, 11.50%, 1/20/14 - 6/20/15 . . . . . . . . 228 257
Graduated Payment Mortgage, I,
9.25%, 12/15/16 . . . . . . . . . . . . . . 692 719
9.50%, 9/15 - 10/15/09. . . . . . . . . . . 428 450
10.25%, 1/15 - 3/15/18. . . . . . . . . . . 537 576
11.00%, 8/15/10 - 9/15/13 . . . . . . . . . 116 128
11.25%, 11/15/15. . . . . . . . . . . . . . 61 67
11.50%, 2/15 - 6/15/13. . . . . . . . . . . 115 129
_____________________________________________________________________________
Total U.S. Government Guaranteed
Obligations (Cost - $8,039) 8,313
Total Investments in Securities -
98.6% (Cost - $53,183). . . . . . . . . . . . 55,840
Other Assets Less Liabilities - 1.4% . . . . . 792
__________
Net Assets Consisting of:
Accumulated net investment income -
net of distributions. . . . . . . . . . . . . 8
Accumulated realized gains/losses -
net of distributions. . . . . . . . . . . . . 69
Unrealized appreciation of investments . . . . 2,657
Paid-in-capital applicable to 5,413,499
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized. . . . . . . . . . . . 53,898
__________
Net Assets - 100.0%. . . . . . . . . . . . . . $ 56,632
__________
__________
Net Asset Value Per Share. . . . . . . . . . . $10.46
______
______
The accompanying notes are an integral part of these financial statements.
Statement of Operations
T. Rowe Price U.S. Treasury Funds / Year Ended February 28, 1994
Amounts in Thousands
______________________________
Money Intermediate Long-Term
Fund Fund Fund
_______ _________ _________
INVESTMENT INCOME
Interest income. . . . . . . . . . . . . . $ 18,672 $ 10,570 $ 4,224
Expenses
Investment management fees. . . . . . . 2,084 755 180
Shareholder servicing fees &
expenses. . . . . . . . . . . . . . . . 1,418 390 138
Custodian and accounting fees &
expenses. . . . . . . . . . . . . . . . 139 113 92
Prospectus & shareholder reports. . . . 70 18 11
Registration fees & expenses. . . . . . 43 34 31
Legal & auditing fees . . . . . . . . . 25 10 10
Directors' fees & expenses. . . . . . . 14 8 7
Miscellaneous . . . . . . . . . . . . . 18 17 16
________ ________ ________
Total expenses. . . . . . . . . . . . . 3,811 1,345 485
________ ________ ________
Net investment income. . . . . . . . . . . 14,861 9,225 3,739
________ ________ ________
REALIZED AND UNREALIZED GAIN (LOSS)
ON INVESTMENTS
Net realized gain. . . . . . . . . . . . . 24 579 1,368
Change in unrealized appreciation or
depreciation. . . . . . . . . . . . . . (532) (3,700) (1,562)
________ ________ ________
Net loss on investments. . . . . . . . . . (508) (3,121) (194)
________ ________ ________
INCREASE IN NET ASSETS FROM OPERATIONS . . $ 14,353 $ 6,104 $ 3,545
________ ________ ________
________ ________ ________
The accompanying notes are an integral part of these financial statements.
<TABLE>
Statement of Changes in Net Assets
T. Rowe Price U.S. Treasury Funds
<CAPTION>
Amounts in Thousands
______________________________________________________________________________
Money Fund Intermediate Fund Long-Term Fund
_____________________ _____________________ _____________________
Year Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28, Feb. 28, Feb. 28,
1994 1993 1994 1993 1994 1993
_________ _________ _________ _________ _________ _________
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
NET ASSETS
Operations
Net investment income . . . .$ 14,861 $ 17,640 $ 9,225 $ 8,462 $ 3,739 $ 3,897
Net realized gain on
investments . . . . . . . . . 24 44 579 131 1,368 1,432
Change in unrealized
appreciation or
depreciation of
investments . . . . . . . . . (532) 66 (3,700) 6,977 (1,562) 2,352
________ ________ ________ ________ ________ ________
Increase in net assets
from operations . . . . . . . 14,353 17,750 6,104 15,570 3,545 7,681
________ ________ ________ ________ ________ ________
Distributions to Shareholders
Net investment income . . . . (14,861) (17,640) (9,030) (8,462) (3,739) (3,897)
Net realized gain on
investments . . . . . . . . . - - (495) (2,901) (1,532) (1,583)
________ ________ ________ ________ ________ ________
Decrease in net assets
from distributions
to shareholders . . . . . . . (14,861) (17,640) (9,525) (11,363) (5,271) (5,480)
________ ________ ________ ________ ________ ________
Capital share transactions*
Sold. . . . . . . . . . . . . 789,286 811,189 81,914 104,549 30,146 50,544
Distributions
reinvested. . . . . . . . . . 13,619 15,975 7,837 9,498 4,571 4,784
Redeemed. . . . . . . . . . .(794,967) (783,785) (73,857) (78,581) (41,044) (45,770)
________ ________ ________ ________ ________ ________
Increase (decrease) in
net assets from capital
share transactions. . . . . . 7,938 43,379 15,894 35,466 (6,327) 9,558
________ ________ ________ ________ ________ ________
Total increase (decrease). . . 7,430 43,379 12,473 39,673 (8,053) 11,759
NET ASSETS
Beginning of year . . . . . . 606,153 562,664 163,480 123,80 764,685 52,926
________ ________ ________ ________ _______ _______
End of year . . . . . . . . .$613,583 $606,153 $175,953 $163,480 $56,632 $64,685
________ ________ ________ ________ _______ _______
________ ________ ________ ________ _______ _______
*Share transactions
Sold . . . . . . . . . . . 789,286 shs. 811,190 shs. 15,131 shs. 19,831 shs. 2,758 shs. 4,961 shs.
Distributions
reinvested . . . . . . . . 13,619 15,975 1,448 1,824 420 317
Redeemed . . . . . . . . .(794,967) (783,785) (13,645) (14,949) (3,758) (4,377)
_________ _________ _________ _________ _________ _________
Increase (decrease)
in net assets from
capital share
transactions . . . . . . . 7,938 43,380 2,934 6,706 (580) 901
_________ _________ _________ _________ _________ _________
_________ _________ _________ _________ _________ _________
<FN>
The accompanying notes are an integral part of these financial statements.
</TABLE>
Notes to Financial Statements
Note 1 - Significant Accounting Policies
T. Rowe Price U.S. Treasury Funds, Inc. (the Corporation) is registered under
the Investment Company Act of 1940. The U.S. Treasury Money Fund (the Money
Fund), the U.S. Treasury Intermediate Fund (the Intermediate Fund) and the
U.S. Treasury Long-Term Fund (the Long-Term Fund), diversified, open-end
management investment companies, are the three portfolios established by the
Corporation.
A) Security valuation - Except for certain securities held by the Money Fund
with remaining maturities of 60 days or less, securities are valued based upon
market quotations. When market quotations are not readily available, these
securities are valued at a representative bid price or yield equivalent as
quoted by dealers who make markets in such securities. Securities held by the
Money Fund with remaining maturities of 60 days or less are valued at
amortized cost.
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.
B) Premiums and Discounts - Premiums and discounts on debt securities are
amortized for both financial and tax reporting purposes.
C) 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 an 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
which may differ from generally accepted accounting principles.
D) Accounting Change - Effective as of the beginning of the year, the Fund
adopted a recently issued accounting standard related to shareholder
distributions. This change resulted in a reclassification to paid-in-capital
of permanent differences between tax and financial reporting of net investment
income and net realized gains/losses. The cumulative effect as of February 28,
1993, was as follows:
Money Intermediate- Long-Term
Fund Term Fund Fund
_______ __________ __________
Accumulated $81,000 - -
net investment
income - net of
distributions
Accumulated - $26,000 $26,000
realized gains/
losses - net of
distributions
Paid-in-capital (81,000) (26,000) (26,000)
The results of operations, shareholder distributions and net assets were not
affected by this change.
Note 2 - Financial Instruments
As a part of their investment program, the Intermediate and Long-Term Funds
loan their portfolio securities to brokers. The nature and risk of these loans
and the reasons for using them are set forth more fully in the Funds'
Prospectus and Statement of Additional Information. Although risk is mitigated
by obtaining collateral, each Fund could experience a delay in recovering
their securities and possibly incur a capital loss if the borrower fails to
return them. At February 28, 1994, the market value of securities on loan to
brokers for the Intermediate and Long-Term Funds were $37,763,000 and
$14,938,000, respectively, for which the Funds had collateral of $38,609,000
and $15,515,000, consisting of cash and U.S. Treasury securities.
Purchases and sales of U.S. Government securities, other than
short-term, for the year ended February 28, 1994, were as follows:
Intermediate Long-Term
Fund Fund
___________ ___________
U.S. Government
Purchases $52,943,000 34,800,000
Sales 34,083,000 40,527,000
Note 3 - Federal Income Taxes
No provision for federal income taxes is required since each Fund intends to
continue to qualify as a regulated investment company and distribute all of
its taxable income. The Money Fund has unused realized capital loss
carryforwards for federal income tax purposes of $3,000 at February 28, 1994,
which expire in 1998.
At February 28, 1994, the aggregate cost of investments for the Money,
Intermediate and Long-Term Funds for federal income tax and financial
reporting purposes was $600,833,000, $171,477,000, and $53,183,000,
respectively. Net unrealized appreciation (depreciation) was as follows:
Money Intermediate Long-Term
Fund Fund Fund
__________ __________ __________
Appreciated
Investments $ 4,000 $4,963,000 $3,539,000
Depreciated
Investments (388,000) (436,000) (882,000)
_________ __________ __________
Net Unrealized
Appreciation
(Depreciation) $(384,000) $4,527,000 $2,657,000
_________ __________ __________
_________ __________ __________
Note 4 - Related Party Transactions
The investment management agreement between each Fund and T. Rowe Price
Associates, Inc. (the Manager) provides for an annual investment management
fee, computed daily and paid monthly, consisting of an Individual Fund Fee
equal to 0.05% of average daily net assets for the Intermediate and Long-Term
Funds and a Group Fee. The Money Fund does not have an Individual Fund Fee,
only 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 0.31% for assets in excess of $34 billion. The effective
annual Group Fee rate at February 28, 1994, was 0.34%, and for the year then
ended was 0.35%. Each Fund pays a pro rata portion of the Group Fee based on
the ratio of each Fund's net assets to those of the Group.
Intermediate and Long-Term Funds:
Under the terms of the investment management agreement, the Manager is
required to bear any expenses through February 28, 1995, which would cause
each Fund's ratio of expenses to average net assets to exceed 0.80%.
Thereafter, each Fund is required to reimburse the Manager for these expenses,
provided average net assets have grown or expenses have declined sufficiently
so as not to cause the Fund's ratio of expenses to average net assets to
exceed 0.80% in any month, and that no such reimbursement shall be made to the
Manager after February 28, 1997. Pursuant to this agreement, $61,000 of
management fees were not accrued for the Long- Term Fund for the year ended
February 28, 1994. Additionally, $303,000 of unaccrued fees from the prior
period for the Long-Term Fund are subject to reimbursement through February
28, 1995. Pursuant to this agreement, $77,000 of unaccrued 1993 fees for the
Intermediate Fund, representing the entire unaccrued balance, were reimbursed
to the Manager during the year ended February 28, 1994.
All Funds:
T. Rowe Price Services, Inc. (TRPS) and Retirement Plan Services, Inc. (RPS)
are wholly owned subsidiaries of the Manager. TRPS provides transfer and
dividend disbursing agent functions and shareholder services for all accounts.
RPS provides subaccounting and recordkeeping services for certain retirement
accounts invested in the Fund. The Manager, under a separate agreement,
calculates the daily share price and maintains the financial records of the
Fund. For the year ended February 28, 1994, the Money, Intermediate and
Long-Term Funds incurred fees totalling approximately $1,276,000, $382,000 and
$176,000, respectively, for these services provided by related parties. At
February 28, 1994, investment management and service fees payable were
$307,000, $99,000 and $19,000, respectively.
<TABLE>
Financial Highlights
T. Rowe Price U.S. Treasury Funds
Money Fund
<CAPTION>
For a share outstanding throughout each year ended
__________________________________________________
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
__________________________________________________
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF YEAR . . . . . . . . . $1.000 $1.000 $1.000 $1.000 $1.000
_______ _______ _______ _______ _______
Investment Activities
Net investment income . . . . . . . .025 .029 .049 .070 .080
Distributions
Net investment income . . . . . . . (.025) (.029) (.049) (.070) (.080)
_______ _______ _______ _______ _______
NET ASSET VALUE, END OF YEAR . . . . $1.000 $1.000 $1.000 $1.000 $1.000
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . . . . 2.51% 2.97% 5.06% 7.19% 8.26%
Ratio of Expenses to Average
Net Assets. . . . . . . . . . . . . 0.64% 0.65% 0.68% 0.75% 0.85%
Ratio of Net Investment Income
to Average Net Assets . . . . . . . 2.48% 2.92% 4.93% 6.91% 7.95%
Net Assets, End of Year
(in thousands). . . . . . . . . . .$613,583 $606,153 $562,664 $578,362 $361,013
Number of Shareholder Accounts,
End of Year . . . . . . . . . . . . 19,000 19,000 20,000 21,000 16,000
</TABLE>
<TABLE>
Financial Highlights
T. Rowe Price U.S. Treasury Funds
Intermediate Fund
<CAPTION>
For a share outstanding throughout each period
__________________________________________________________
Sept. 29, 1989
Year Ended (Commencement of
_______________________________________ Operations) to
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
__________________________________________________________
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD . . . . . . $5.42 $5.28 $5.10 $4.98 $5.00
_______ _______ _______ _______ _______
Investment Activities
Net investment income . . . . . 0.29 0.32 0.36* 0.40* 0.17*
Net realized and unrealized
gain (loss) . . . . . . . . . . (0.09) 0.27 0.21 0.12 (0.02)
_______ _______ _______ _______ _______
Total from Investment
Activities. . . . . . . . . . . 0.20 0.59 0.57 0.52 0.15
_______ _______ _______ _______ _______
Distributions
Net investment income . . . . . (0.29) (0.32) (0.36) (0.40) (0.17)
Net realized gain . . . . . . . (0.01) (0.13) (0.03) - -
_______ _______ _______ _______ _______
Total Distributions. . . . . . . (0.30) (0.45) (0.39) (0.40) (0.17)
_______ _______ _______ _______ _______
NET ASSET VALUE, END OF PERIOD . $5.32 $5.42 $5.28 $5.10 $4.98
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . . 3.80% 11.77% 11.54% 10.92% 2.97%
Ratio of Expenses to
Average Net Assets. . . . . . . 0.79% 0.80% 0.80%* 0.80%* 0.80%!*
Ratio of Net Investment Income
to Average Net Assets . . . . . 5.41% 5.98% 6.80% 7.71% 8.13%!
Portfolio Turnover Rate. . . . . 20.2% 22.8% 91.4% 174.8% 194.6%!
Net Assets, End of Period
(in thousands). . . . . . . . .$175,953 $163,480 $123,807 $68,341 $10,917
Number of Shareholder Accounts,
End of Period . . . . . . . . . 7,000 7,000 5,000 3,000 1,000
<FN>
! Annualized.
* Excludes expenses in excess of a 0.80% voluntary expense limitation in effect through February 28, 1995.
</TABLE>
<TABLE>
Financial Highlights
T. Rowe Price U.S. Treasury Funds
Long-Term Fund
<CAPTION>
For a share outstanding throughout each period
__________________________________________________________
Sept. 29, 1989
Year Ended (Commencement of
_______________________________________ Operations) to
Feb. 28, Feb. 28, Feb. 29, Feb. 28, Feb. 28,
1994 1993 1992 1991 1990
__________________________________________________________
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE,
BEGINNING OF PERIOD . . . . . . $10.79 $10.39 $10.03 $9.79 $10.00
_______ _______ _______ _______ _______
Investment Activities
Net investment income . . . . . 0.68* 0.70* 0.78* 0.80* 0.35*
Net realized and unrealized
gain (loss) . . . . . . . . . . (0.04) 0.68** 0.36 0.24 (0.21)
_______ _______ _______ _______ _______
Total from Investment
Activities. . . . . . . . . . . 0.64 1.38 1.14 1.04 0.14
_______ _______ _______ _______ _______
Distributions
Net investment income . . . . . (0.68) (0.70) (0.78) (0.80) (0.35)
Net realized gain . . . . . . . (0.29) (0.28)** - - -
_______ _______ _______ _______ _______
Total Distributions. . . . . . . (0.97) (0.98) (0.78) (0.80) (0.35)
_______ _______ _______ _______ _______
NET ASSET VALUE, END OF PERIOD . $10.46 $10.79 $10.39 $10.03 $9.79
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
RATIOS/SUPPLEMENTAL DATA
Total Return . . . . . . . . . . 5.89% 14.11% 11.86% 11.21% 1.28%
Ratio of Expenses to
Average Net Assets. . . . . . . 0.80%* 0.80%* 0.80%* 0.80%* 0.80%!*
Ratio of Net Investment Income
to Average Net Assets . . . . . 6.17% 6.75% 7.66% 8.01% 8.23%!
Portfolio Turnover Rate. . . . . 59.4% 165.4% 162.4% 158.5% 316.1%!
Net Assets, End of Period
(in thousands). . . . . . . . . $56,632 $64,685 $52,926 $43,260 $11,204
Number of Shareholder Accounts,
End of Period . . . . . . . . . 3,000 3,000 3,000 3,000 1,000
<FN>
! Annualized.
* Excludes expenses in excess of a 0.80% voluntary expense limitation in effect through February 28,
1995.
** Reflects a $0.07 per share reclassification between line items.
</TABLE>
Report of Independent Accountants
To the Board of Directors of T. Rowe Price U.S. Treasury Funds, Inc. and
Shareholders of T. Rowe Price U.S. Treasury Money 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 selected per
share data and information (which appears under the heading "Financial
Highlights") present fairly, in all material respects, the financial position
of T. Rowe Price U.S. Treasury Money Fund, Inc. (one of the portfolios
constituting the T. Rowe Price U.S. Treasury Funds, Inc., hereafter referred
to as the "Fund") at February 28, 1994, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in
the period then ended and the selected per share data and information for each
of the five years in the period then ended, in conformity with generally
accepted accounting principles. These financial statements and selected per
share data and information (hereafter referred to as "financial statements")
are the responsibility of the Fund's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits, which included confirmation of
securities at February 28, 1994 by correspondence with custodians and, where
appropriate, the application of alternative auditing procedures for unsettled
security transactions, provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE
Baltimore, Maryland
March 17, 1994
Report of Independent Accountants
To the Board of Directors of T. Rowe Price U.S. Treasury Funds, Inc. and
Shareholders of T. Rowe Price U.S. Treasury Intermediate Fund and
T. Rowe Price U.S. Treasury Long-Term Fund
We have audited the accompanying statements of net assets of the T. Rowe
Price U.S. Treasury Intermediate Fund and the T. Rowe Price U.S. Treasury
Long-Term Fund (two of the portfolios comprising the T. Rowe Price U.S.
Treasury Funds, Inc.) as of February 28, 1994, and the related statements of
operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the four years in the period then ended and for the
period September 29, 1989 (commencement of operations) to February 28, 1990.
These financial statements and financial highlights are the responsibility of
the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of investments
owned as of February 28, 1994, by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the financial
position of T. Rowe Price U.S. Treasury Intermediate Fund and T. Rowe Price
U.S. Treasury Long-Term Fund as of February 28, 1994, the results of their
operations, changes in their net assets and financial highlights for each of
the respective periods stated in the first paragraph in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND
Baltimore, Maryland
March 17, 1994
Officers and Directors
George J. Collins, President/Director
Charles P. Smith, Executive Vice President/Director
Peter Van Dyke, Executive Vice President/Director
Edward A. Wiese, Executive Vice President
Robert P. Black, Director
Calvin W. Burnett, Director
Anthony W. Deering, Director
F. Pierce Linaweaver, Director
James S. Riepe, Vice President/Director
John Sagan, Director
John G. Schreiber, Director
Paul W. Boltz, Vice President
Robert P. Campbell, Vice President
Henry H. Hopkins, Vice President
Veena A. Kutler, Vice President
Heather R. Landon, Vice President
James M. McDonald, Vice President
Joan R. Potee, Vice President
Lenora V. Hornung, Secretary
Carmen F. Deyesu, Treasurer
David S. Middleton, Controller
Chart 1 - Interest Rate Levels
A three line chart showing
yields on a 30-Year Treasury Bond ranged from 6.79% to 6.68%,
yields on a 5-Year Treasury Note ranged from 5.09% to 5.60%, and
yields on a 90-Day Treasury Bill ranged from 2.97% to 3.33%,
for the period 3/5/93 through 2/25/94.
Chart 2 - Fiscal-Year Performance Comparison U.S. Treasury Intermediate Fund
A line graph compares the 2/28/94 value of a hypothetical $10,000 investment
made in the U.S. Treasury Intermediate Fund at its inception (9/29/89) and a
similar investment made concurrently in the Salomon 1-7 Year Treasury Index.
At 2/28/94, the Fund investment would have been worth $14,781 and the Salomon
Index investment would have been worth $14,740.
Chart 3 - Fiscal-Year Performance Comparison U.S. Treasury Long-Term Fund
A line graph compares the 2/28/94 value of a hypothetical $10,00 investment
made in the U.S. Treasury Long-Term Fund at its inception (9/29/89) and a
similar investment made concurrently in would have been worth $15,229 and the
Salomon Index investment would have been worth $15,303.
