Annual Report
U.S. Treasury Funds
May 31, 1996
T. Rowe Price
REPORT HIGHLIGHTS
o The bond market weakened over the last six months due to surprisingly
strong economic growth and inflation concerns, resulting in negative
returns for most bond funds.
o The U.S. Treasury Money Fund produced positive results, and money market
funds generally outperformed bond funds. The fund edged past its
benchmark for the 6- and 12-month periods ended May 31.
o The U.S. Treasury Intermediate Fund posted a loss for the six months
ended May 31, but compared favorably with its benchmark for the 6- and
the 12-month periods.
o Given its higher level of risk, the U.S. Treasury Long-Term Fund also
had poor performance as interest rates rose, lagging its benchmark over
both reporting periods.
o Although there is no immediate urgency for the Fed to tighten, it may
well raise interest rates later in the year. Overall, we expect rates to
stabilize in coming months.
Fellow Shareholders
The powerful bond market rally of 1995 ran out of steam this year due to
surprisingly strong economic growth and renewed concerns about inflation.
Rising interest rates drove bond prices lower, resulting in negative returns
for most bond funds over the last six months. Money market funds generally
outperformed bond funds.
MARKET ENVIRONMENT
Proving once again the capricious nature of Wall Street, bond market
psychology changed almost in the blink of an eye. In December and January,
bond prices continued to rise modestly on the expectation of moderate economic
growth, subdued inflation, and progress toward a balanced budget. With the
economic expansion turning five years old and graying at the temples, some
concerns about a recession surfaced. Inflation remained moderate, prompting
the Federal Reserve to trim the federal funds target by 50 basis points to
5.25%, and the market awaited further easing to prod the sluggish economy.
(One hundred basis points equal one percentage point.) By late January, the
benchmark 30-year Treasury bond yield had dipped to 6%.
As the year progressed, however, it became clear that the economy was stronger
than originally thought, growing at a robust 2.3% in the first calendar
quarter. Payroll employment rose by a healthy 220,000 a month during the first
five months of 1996. Producer inflation picked up due to higher oil and grain
prices. Consumer prices have risen at an annualized rate of 4% so far in 1996.
Chart 1 - Interest Rate Levels
As a result, the bond market reversed course from an expectation of renewed
easing by the Federal Reserve to one of more tightening. By May 31, the
30-year Treasury yield approached 7%, and the 5-year Treasury note hovered at
6.6% - their highest levels in more than a year, as shown in the chart. Money
market rates, such as the 90-day Treasury bill, generally stabilized around
the 5.25% federal funds target.
U.S. TREASURY MONEY FUND
Reflecting the generally downward path of money market interest rates, your
fund's yield fell from 5.2% last November to 4.7% on May 31, closely tracking
the average for its peer group. Money market funds, including yours,
outperformed bond funds over the last six months because they are managed to
maintain a stable share price. Due to the uncertainty over the future
direction of short-term interest rates, we assumed a more conservative posture
compared with other Treasury money funds. The fund ended the period with an
average maturity of 66 days, down from 68 days last November, but still
slightly longer than our competitor funds. Your fund provided favorable
results for both the 6- and 12-month periods ended May 31, slightly ahead of
its peer group average.
PERFORMANCE COMPARISON
Periods Ended 5/31/96 6 Months 12 Months
U.S. Treasury Money Fund 2.43% 5.08%
Lipper Average of U.S. Treasury
Money Market Funds 2.37 5.02
Given the strength of the economy and continuing sporadic evidence of
inflationary pressures, the Fed may well tighten later this year. We are
likely to position the portfolio for moderately higher short-term interest
rates.
U.S. TREASURY INTERMEDIATE FUND
After maintaining an aggressive posture for most of 1995, benefiting from the
strong bond market rally, we adopted a more defensive stance this year in the
face of sharply rising interest rates. The fund's effective duration (a more
precise measure than maturity of its price sensitivity to interest rate
changes) was lowered to 3.7 years in May from 3.9 years last November. Our
shorter duration helped protect the fund's share price as intermediate yields
rose relatively more than long-term yields. (Conversely, when interest rates
fall, we often lengthen duration to enhance the fund's price appreciation.)
PERFORMANCE COMPARISON
Periods Ended 5/31/96 6 Months 12 Months
U.S. Treasury Intermediate Fund - 1.49% 3.52%
Lipper Average of Intermediate
U.S. Treasury Funds - 1.93 3.34
While the fund's return was negative over the most recent six months due to
the weakening bond market, the shorter duration gave it an edge over the
average for similar funds. Relative performance was further helped by our 15%
position in GNMA securities, which held up better than Treasuries and offered
a higher level of income. The fund also compared favorably with its peer group
average over the 12 months ended May 31.
U.S. TREASURY LONG-TERM FUND
The dramatic reversal in bond prices was most keenly felt in long-term
Treasuries. (A bond's sensitivity to interest rate changes increases with its
maturity.) Therefore, as rates rose over the last six months, long-term
Treasuries dropped further in price than shorter maturities. While we reduced
the fund's average maturity to 23.4 years in May from 25.1 years last
November, it remained longer than the average for similar funds. We also
increased our exposure to GNMA securities since we expect them to perform well
in a more stable interest rate environment and since they have shorter
durations than Treasuries. The weakening bond market, coupled with our more
aggressive posture, hurt the fund's absolute and relative performance over the
last 6- and 12-month periods, as shown in the chart.
PERFORMANCE COMPARISON
Periods Ended 5/31/96 6 Months 12 Months
U.S. Treasury Long-Term Fund - 6.94% 1.02%
Lipper Average of General
U.S. Treasury Funds - 3.88 2.43
Nevertheless, we intend to maintain our aggressive posture. While long-term
Treasuries suffer price declines during periods of rising interest rates, they
have produced attractive returns over the long haul due to their higher levels
of income and greater potential for price appreciation when rates fall.
Investors in this fund should be prepared to tolerate volatility in order to
reap the potential long-term rewards of these securities.
Furthermore, we believe long-term rates may plateau at 7.5%. If the Fed raises
short-term rates later this year, the resulting slowdown in the economy could
cause long-term rates to drop back to around 6.5%.
OUTLOOK
The economy has solid momentum, and the pace of first quarter growth suggests
that it will grow at substantially above its long-term trend rate in the
second quarter. Although late in the cycle, the expansion could well continue
for another few years.
Against this backdrop, there is no immediate urgency for the Fed to raise
interest rates (although it may do so later in the year), since the fixed
income markets have already responded with higher rates. Higher bond yields
during the past five months may already reflect much of the news about growth
and inflation.
In this environment, we expect long-term rates to stabilize in a range of 6%
to 7.5%. Intermediate and long-term Treasuries should be able to earn their
coupons under these conditions.
Thank you for your continued confidence in T. Rowe Price.
Respectfully submitted,
Peter Van Dyke
President
June 20, 1996
T. Rowe Price U.S. Treasury Funds
PORTFOLIO HIGHLIGHTS
KEY STATISTICS
11/30/95 5/31/96
U.S. Treasury Money Fund
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.026 0.024
For 12 months 0.051 0.050
Dividend Yield (7-Day Compound) * 5.16% 4.68%
Weighted Average Maturity (days) 68 66
Weighted Average Quality ** First Tier First Tier
U.S. Treasury Intermediate Fund
Price Per Share $ 5.35 $ 5.11
Dividends Per Share
For 6 months 0.16 0.16
For 12 months 0.32 0.33
Dividend Yield *
For 6 months 6.25% 6.16%
For 12 months 6.47 6.30
Weighted Average Maturity (years) 5.0 4.8
Weighted Average Effective Duration (years) 3.9 3.7
Weighted Average Quality *** AAA AAA
U.S. Treasury Long-Term Fund
Price Per Share $ 11.10 $ 10.02
Dividends Per Share
For 6 months 0.32 0.32
For 12 months 0.66 0.65
Dividend Yield *
For 6 months 6.17% 6.05%
For 12 months 6.72 6.20
Weighted Average Maturity (years) 25.1 23.4
Weighted Average Effective Duration (years) 11.4 10.2
Weighted Average Quality *** AAA AAA
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
** All securities purchased in the Money Fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
Note: Investments in the U.S. Treasury Funds are neither insured nor
guaranteed by the U.S. government.
T. Rowe Price U.S. Treasury Funds
PERFORMANCE COMPARISON
These charts show the value of a hypothetical $10,000 investment in each fund
over the past 10 fiscal year periods or since inception (for funds lacking
10-year records). The result is compared with a broad-based average or index.
The index return does not reflect expenses, which have been deducted from the
fund's return.
Chart 2 - U.S. Treasury Money Fund
Chart 3 - U.S. Treasury Intermediate Fund
Chart 4 - U.S. Treasury Long-Term Fund
AVERAGE ANNUAL COMPOUND TOTAL RETURN
This table shows how the fund would have performed each year if its actual (or
cumulative) returns for the periods shown had been earned at a constant rate.
Since Inception
Periods Ended 5/31/96 1 Year 5 Years 10 Years Inception Date
U.S. Treasury
Money Fund 5.08% 3.89% 5.25% 6.10% 6/28/82
U.S. Treasury
Intermediate Fund 3.52 7.02 N.A. 7.66 9/29/89
U.S. Treasury
Long-Term Fund 1.02 8.20 N.A. 8.22 9/29/89
Investment return represents past performance and will vary. Shares of the
bond funds may be worth more or less at redemption than at original purchase.
The Money Fund's $1.00 share price is not guaranteed.
T. Rowe Price U.S. Treasury Money Fund
Financial Highlights For a share outstanding throughout each period
Year 3 Months# Year
Ended Ended Ended
5/31/96 5/31/95 5/31/94 2/28/94 2/28/93 2/29/92
NET ASSET VALUE
Beginning of
period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net invest-
ment income 0.050 0.045 0.007 0.025 0.029 0.049
Distributions
Net invest-
ment income (0.050) (0.045) (0.007) (0.025) (0.029) (0.049)
NET ASSET VALUE
End of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Ratios/Supplemental Data
Total return 5.08% 4.58% 0.73% 2.51% 2.97% 5.06%
Ratio of expenses
to average
net assets 0.53% 0.56% 0.57%! 0.64% 0.65% 0.68%
Ratio of net
investment
income to average
net assets 4.93% 4.51% 2.87%! 2.48% 2.92% 4.93%
Net assets,
end of
period (in
thousands) $ 760,010 $719,215 $654,837 $ 613,583 $606,153 $ 562,664
! Annualized.
# The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Year 3 Months# Year
Ended Ended Ended
5/31/96 5/31/95 5/31/94 2/28/94 2/28/93 2/29/92
NET ASSET VALUE
Beginning of
period $ 5.25 $ 5.11 $ 5.32 $ 5.42 $ 5.28 $ 5.10
Investment activities
Net invest-
ment income 0.33 0.31 0.08 0.29 0.32 0.36*
Net realized
and unrealized
gain (loss) (0.14) 0.14 (0.19) (0.09) 0.27 0.21
Total from
investment
activities 0.19 0.45 (0.11) 0.20 0.59 0.57
Distributions
Net invest-
ment income (0.33) (0.31) (0.08) (0.29) (0.32) (0.36)
Net realized
gain - - (0.02) (0.01) (0.13) (0.03)
Total
distributions (0.33) (0.31) (0.10) (0.30) (0.45) (0.39)
NET ASSET VALUE
End of period $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42 $ 5.28
Ratios/Supplemental Data
Total return 3.52% 9.29% (2.16)% 3.80% 11.77% 11.54%*
Ratio of expenses
to average
net assets 0.65% 0.69% 0.70%! 0.79% 0.80% 0.80%*
Ratio of net
investment
income to average
net assets 6.14% 6.19% 5.78%! 5.41% 5.98% 6.80%*
Portfolio
turnover rate 40.7% 81.1% 45.5%! 20.2% 22.8% 91.4%
Net assets,
end of
period (in
thousands) $ 174,176 $172,666 $181,231 $ 175,953 $163,480 $ 123,807
* Excludes expenses in excess of a 0.80% voluntary expense limitation in
effect through 2/28/95.
! Annualized.
# The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
FINANCIAL HIGHLIGHTS For a share outstanding throughout each period
Year 3 Months# Year
Ended Ended Ended
5/31/96 5/31/95 5/31/94 2/28/94 2/28/93 2/29/92
NET ASSET VALUE
Beginning of
period $ 10.54 $ 9.81 $ 10.46 $ 10.79 $ 10.39 $ 10.03
Investment activities
Net invest-
ment income 0.65* 0.68* 0.17* 0.68* 0.70* 0.78*
Net realized and
unrealized
gain (loss) (0.52) 0.73 (0.64) (0.04) 0.68 0.36
Total from
investment
activities 0.13 1.41 (0.47) 0.64 1.38 1.14
Distributions
Net invest-
ment income (0.65) (0.68) (0.17) (0.68) (0.70) (0.78)
Net realized
gain - - (0.01) (0.29) (0.28) -
Total dis-
tributions (0.65) (0.68) (0.18) (0.97) (0.98) (0.78)
NET ASSET VALUE
End of period $ 10.02 $ 10.54 $ 9.81 $ 10.46 $ 10.79 $ 10.39
Ratios/Supplemental Data
Total return 1.02%* 15.24%* (4.50)%* 5.89%* 14.11%* 11.86%*
Ratio of expenses
to average
net assets 0.80%* 0.80%* 0.80%!* 0.80%* 0.80%* 0.80%*
Ratio of net
investment income
to average
net assets 6.05%* 7.05%* 6.75%!* 6.17%* 6.75%* 7.66%*
Portfolio
turnover rate 60.1% 99.3% 246.9%! 59.4% 165.4% 162.4%
Net assets,
end of
period (in
thousands) $ 70,326 $ 65,284 $ 54,237 $ 56,632 $ 64,685 $ 52,926
* Excludes expenses in excess of a 0.80% voluntary expense limitation in
effect through 5/31/97.
! Annualized.
# The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Money Fund
May 31, 1996
STATEMENT OF NET ASSETS Par Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 99.3%
U.S. Treasury Obligations 99.3%
U.S. Treasury Bills
4.905%, 6/6 - 6/27/96 $ 18,363 $ 18,308
4.915%, 6/6/96 3,019 3,017
4.96%, 7/11/96 25,000 24,862
4.965%, 6/13/96 20,000 19,967
4.97%, 6/6/96 7,940 7,935
4.975%, 6/20 - 8/1/96 50,000 49,753
5.00%, 6/6/96 18,646 18,633
5.005%, 6/20 - 8/8/96 35,636 35,323
5.02%, 6/20/96 30,000 29,920
5.025%, 6/20/96 30,664 30,583
5.03%, 6/20 - 9/19/96 27,693 27,570
5.035%, 6/27 - 8/29/96 102,000 101,303
5.04%, 8/22 - 10/17/96 24,190 23,810
5.045%, 10/10/96 10,000 9,816
5.05%, 9/19 - 10/3/96 21,336 20,967
5.055%, 8/22/96 10,000 9,885
5.065%, 9/19/96 3,061 3,014
5.09%, 11/7/96 20,000 19,550
5.135%, 11/29/96 10,000 9,742
U.S. Treasury Notes
4.375%, 8/15/96 20,000 19,973
6.00%, 6/30/96 30,000 30,019
6.125%, 7/31/96 30,000 30,048
6.25%, 8/31/96 20,000 20,038
6.50%, 9/30/96 20,000 20,086
6.875%, 10/31/96 25,000 25,154
7.25%, 11/15/96 20,000 20,162
7.875%, 7/15 - 7/31/96 105,000 105,402
8.00%, 10/15/96 20,000 20,190
Total Investments in Securities
99.3% of Net Assets (Cost $755,030) $ 755,030
Other Assets Less Liabilities 4,980
NET ASSETS $ 760,010
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 81
Accumulated net realized gain/loss - net of distributions 124
Paid-in-capital applicable to 759,883,966 shares of $0.01
par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 759,805
NET ASSETS $ 760,010
NET ASSET VALUE PER SHARE $ 1.00
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
May 31, 1996
STATEMENT OF NET ASSETS Par Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 83.8%
U.S. Treasury Obligations 83.8%
U.S. Treasury Bills
4.65%, 6/6/96 $ 500 $ 499
4.80%, 6/6/96 4,500 4,497
4.97%, 6/6/96 500 500
5.00%, 6/13/96 4,000 3,993
U.S. Treasury Notes
4.75%, 2/15/97 225 224
5.75%, 8/15/03 1,680 1,582
6.25%, 2/15/03 29,810 29,013
6.375%, 1/15/00 - 8/15/02 31,550 31,295
6.75%, 4/30/00 3,875 3,898
6.875%, 7/31 - 8/31/99 4,210 4,254
7.125%, 9/30/99 720 733
7.50%, 10/31/99 - 5/15/02 39,275 40,721
7.75%, 11/30/99 6,000 6,224
7.875%, 8/15/01 7,850 8,260
8.25%, 7/15/98 9,920 10,301
_____________________________________________________________________________
Total U.S. Government Obligations (Cost $145,935) 145,994
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 15.0%
U.S. Government Guaranteed Obligations 15.0%
Government National Mortgage Assn.
I
6.00%, 12/15/08 - 3/15/11 1,002 947
6.50%, 8/15 - 10/15/02 467 441
7.00%, 7/15 - 9/15/16 2,150 2,081
7.50%, 6/15/08 - 11/15/17 3,638 3,623
8.00%, 2/15/08 - 10/15/25 3,476 3,514
8.50%, 8/15/04 - 4/15/23 2,061 2,149
9.00%, 10/15/02 - 10/15/05 682 715
9.50%, 12/15/24 - 5/15/25 2,001 2,134
10.00%, 8/15/19 255 280
10.50%, 2/15 - 11/15/14 379 415
11.00%, 12/15/09 - 12/15/19 $ 1,720 $ 1,907
11.50%, 3/15/10 - 11/15/18 3,286 3,697
12.50%, 1/15/11 - 3/15/15 325 377
II
9.00%, 10/20/16 14 15
9.50%, 1/20 - 11/20/25 620 655
10.50%, 12/20/15 - 6/20/19 1,298 1,433
11.00%, 9/20/99 14 16
GPM, I, 11.00%, 9/15/10 215 240
Midget, I
9.50%, 1/15/98 - 12/15/05 757 805
10.00%, 11/15/00 - 9/15/05 308 326
10.50%, 11/15/97 - 9/15/04 72 76
11.00%, 8/15/00 53 55
11.50%, 4/15/98 - 7/15/00 205 215
Midget, II, 11.50%, 12/20/98 - 10/20/00 32 34
Total U.S. Government Mortgage-Backed Securities
_____________________________________________________________________________
(Cost $26,225) 26,150
Total Investments in Securities
98.8% of Net Assets (Cost $172,160) $ 172,144
Other Assets Less Liabilities 2,032
NET ASSETS $ 174,176
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 250
Accumulated net realized gain/loss - net of distributions (2,510)
Net unrealized gain (loss) (16)
Paid-in-capital applicable to 34,074,872 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 176,452
NET ASSETS $ 174,176
NET ASSET VALUE PER SHARE $ 5.11
GPM Graduated Payment Mortgage
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
May 31, 1996
Statement of Net Assets Par Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 89.2%
U.S. Treasury Obligations 89.2%
U.S. Treasury Bonds
6.00%, 2/15/26 $ 6,000 $ 5,258
6.25%, 8/15/23 12,500 11,152
6.875%, 8/15/25 4,400 4,301
7.125%, 2/15/23 13,000 12,935
7.50%, 11/15/24 12,000 12,525
7.625%, 2/15/25 6,000 6,367
11.25%, 2/15/15 4,225 6,002
U.S. Treasury Notes
6.625%, 3/31/97 3,765 3,791
7.25%, 11/15/96 385 388
_____________________________________________________________________________
Total U.S. Government Obligations (Cost $62,590) 62,719
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 12.1%
U.S. Government Guaranteed Obligations 12.1%
Government National Mortgage Assn.
I
6.50%, 12/15/23 479 443
8.00%, 10/15/16 - 3/15/17 304 310
9.00%, 7/15/16 - 5/15/21 1,050 1,110
9.50%, 8/15/09 72 78
10.00%, 12/15/17 - 8/15/19 581 636
10.50%, 1/15/98 - 7/15/19 532 584
11.50%, 10/15/10 - 8/15/15 276 310
GPM, I
9.25%, 12/15/16 593 621
9.50%, 9/15 - 10/15/09 327 350
10.25%, 1/15 - 3/15/18 173 190
11.00%, 8/15 - 9/15/10 11 12
11.25%, 11/15/15 23 26
11.50%, 2/15 - 6/15/13 55 63
REMIC
6.50%, 10/16/24 2,000 1,696
Interest Only, 8.00%, 6/16/23** 1,464 269
TBA, I
6.00%, 9/15/23 $ 1,000 $ 898
7.00%, 7/15/20 1,000 952
Total U.S. Government Mortgage-Backed Securities
_____________________________________________________________________________
(Cost $8,460) 8,548
Total Investments in Securities
101.3% of Net Assets (Cost $71,050) $ 71,267
Other Assets Less Liabilities (941)
NET ASSETS $ 70,326
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 12
Accumulated net realized gain/loss - net of distributions (675)
Net unrealized gain (loss) 217
Paid-in-capital applicable to 7,015,180 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the Corporation authorized 70,772
NET ASSETS $ 70,326
NET ASSET VALUE PER SHARE $ 10.02
** For Interest Only securities, amount represents notional principal,
on which the fund receives interest.
GPM Graduated Payment Mortgage
REMIC Real Estate Mortgage Investment Conduit
TBA To Be Announced security was purchased on a forward commitment basis;
the aggregate liability for securities purchased under such
agreements totaled $1,884,000 at 5/31/96.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Funds
STATEMENT OF OPERATIONS
In thousands Money Fund Intermediate Long-Term
Fund Fund
Year Year Year
Ended Ended Ended
5/31/96 5/31/96 5/31/96
Investment Income
Interest income $ 40,738 $ 12,026 $ 4,524
Expenses
Investment management 2,507 684 240
Shareholder servicing 1,165 283 141
Custody and accounting 131 119 94
Registration 61 32 26
Prospectus and
shareholder reports 47 16 7
Directors 11 6 6
Legal and audit 11 10 11
Miscellaneous 13 5 4
Total expenses 3,946 1,155 529
Net investment income 36,792 10,871 3,995
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
on securities 66 (14) 1,166
Change in net unrealized gain or loss
on securities 61 (4,800) (5,395)
Net realized and unrealized
gain (loss) 127 (4,814) (4,229)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 36,919 $ 6,057 $ (234)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Money Fund
STATEMENT OF CHANGES IN NET ASSETS
In thousands
Year Year
Ended Ended
5/31/96 5/31/95
Increase (Decrease) in Net Assets
Operations
Net investment income $ 36,792 $ 30,800
Net realized gain (loss) 66 58
Change in net unrealized gain or loss 61 148
Increase (decrease) in net assets
from operations 36,919 31,006
Distributions to shareholders
Net investment income (36,792) (30,800)
Capital share transactions*
Shares sold 1,183,840 1,001,307
Distributions reinvested 35,150 28,102
Shares redeemed (1,178,322) (965,237)
Increase (decrease) in net assets
from capital share transactions 40,668 64,172
Net Assets
Increase (decrease) during period 40,795 64,378
Beginning of period 719,215 654,837
End of period $ 760,010 $ 719,215
*Share information
Shares sold 1,183,840 1,001,307
Distributions reinvested 35,150 28,102
Shares redeemed (1,178,322) (965,237)
Increase (decrease) in shares
outstanding 40,668 64,172
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
STATEMENT OF CHANGES IN NET ASSETS
In thousands
Year Year
Ended Ended
5/31/96 5/31/95
Increase (Decrease) in Net Assets
Operations
Net investment income $ 10,871 $ 10,579
Net realized gain (loss) (14) (2,131)
Change in net unrealized gain or loss (4,800) 6,381
Increase (decrease) in net assets
from operations 6,057 14,829
Distributions to shareholders
Net investment income (10,871) (10,579)
Capital share transactions*
Shares sold 56,067 59,454
Distributions reinvested 9,045 8,775
Shares redeemed (58,788) (81,044)
Increase (decrease) in net assets
from capital share transactions 6,324 (12,815)
Net Assets
Increase (decrease) during period 1,510 (8,565)
Beginning of period 172,666 181,231
End of period $ 174,176 $ 172,666
*Share information
Shares sold 10,638 11,761
Distributions reinvested 1,718 1,732
Shares redeemed (11,161) (16,055)
Increase (decrease) in
shares outstanding 1,195 (2,562)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
STATEMENT OF CHANGES IN NET ASSETS
In thousands
Year Year
Ended Ended
5/31/96 5/31/95
Increase (Decrease) in Net Assets
Operations
Net investment income $ 3,995 $ 4,005
Net realized gain (loss) 1,166 (1,278)
Change in net unrealized gain or loss (5,395) 5,910
Increase (decrease) in net assets
from operations (234) 8,637
Distributions to shareholders
Net investment income (3,995) (4,005)
Capital share transactions*
Shares sold 54,802 40,731
Distributions reinvested 3,312 3,344
Shares redeemed (48,843) (37,660)
Increase (decrease) in net assets
from capital share transactions 9,271 6,415
Net Assets
Increase (decrease) during period 5,042 11,047
Beginning of period 65,284 54,237
End of period $ 70,326 $ 65,284
*Share information
Shares sold 5,095 4,225
Distributions reinvested 312 345
Shares redeemed (4,589) (3,903)
Increase (decrease) in
shares outstanding 818 667
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Funds
May 31, 1996
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 and commenced operations on June 28, 1982, September 29, 1989, and
September 29, 1989, respectively.
Valuation Except for securities held by the Money Fund, 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 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
each fund, as authorized by the Board of Directors.
Premiums and Discounts Premiums and discounts on debt securities, other than
mortgage-backed securities, are amortized for both financial reporting and tax
purposes. Premiums and discounts on mortgage-backed securities are recognized
upon principal repayment 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 each fund on the ex-dividend date. Income and capital gain
distributions are determined in accordance with federal income tax regulations
and may differ from those determined in accordance with generally accepted
accounting principles.
Note 2 - Investment Transactions
Consistent with their investment objectives, the funds engage in the following
practices to manage exposure to certain risks or enhance performance. The
investment objective, policies, program, and risk factors of each fund are
described more fully in each fund's prospectus and Statement of Additional
Information.
Securities Lending To earn additional income, the Intermediate and Long-Term
Funds lend securities to approved brokers. At May 31, 1996, the market value
of securities on loan by the Intermediate and Long-Term Funds was $17,219,000
and $7,774,000, respectively, which was fully collateralized with cash.
Although the risk is mitigated by the collateral, each fund could experience a
delay in recovering its securities and a possible loss of income or value if
the borrower fails to return them.
Other Purchases and sales of U.S. government securities, excluding short-term
securities, for the year ended May 31, 1996, were as follows:
Intermediate Long-Term
Fund Fund
U.S. government securities
Purchases $70,760,000 $ 45,934,000
Sales 72,913,000 38,899,000
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 Intermediate Fund has unused realized capital loss
carryforwards for federal income tax purposes of $1,458,000, of which $156,000
expires in 2003 and $1,302,000 in 2004. The Long-Term Fund has an unused
realized capital loss carryforward for federal income tax purposes of
$161,000, which expires in 2003. Capital loss carryforwards utilized in 1996
for the Long-Term Fund amounted to $1,553,000. Each fund intends to retain
gains realized in future periods that may be offset by available capital loss
carryforwards.
At May 31, 1996, the aggregate cost of investments for the Money,
Intermediate, and Long-Term Funds for federal income tax and financial
reporting purposes was $755,030,000, $172,160,000, and $71,050,000,
respectively. For the Money Fund, amortized cost is equivalent to value; and
for the Intermediate and Long-Term Funds, net unrealized gain (loss) on
investments was as follows:
Intermediate Long-Term
Fund Fund
Appreciated investments $ 2,199,000 $ 1,853,000
Depreciated investments (2,215,000) (1,636,000)
Net unrealized gain (loss) $ (16,000) $ 217,000
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, of which $213,000, $56,000, and $21,000 was payable at May 31, 1996 by
the Money, Intermediate, and Long-Term Funds, respectively. The fee is
computed daily and paid monthly, and consists 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 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 0.305% for assets in excess of $50 billion. At May 31, 1996, and for
the year then ended, the effective annual group fee rate was 0.33% and 0.34%,
respectively. Each fund pays a pro rata share of the group fee based on the
ratio of its net assets to those of the group.
Under the terms of the investment management agreement, the manager is
required to bear any expenses through May 31, 1997, which would cause the
Long-Term Fund's ratio of expenses to average net assets to exceed 0.80%.
Thereafter, through May 31, 1999, the Long-Term Fund is required to reimburse
the manager for these expenses, provided that average net assets have grown or
expenses have declined sufficiently to allow reimbursement without causing the
fund's ratio of expenses to average net assets to exceed 0.80%. Pursuant to
this agreement, $15,000 of management fees were not accrued by the Long-Term
Fund for the year ended May 31, 1996 and $8,000 of unaccrued fees from the
prior period remain subject to reimbursement. Additionally, $147,000 of
unaccrued management fees related to a previous agreement are subject to
reimbursement through February 28, 1997.
In addition, each fund has entered into agreements with the manager and two
wholly owned subsidiaries of the manager, pursuant to which each fund receives
certain other services. The manager computes the daily share price and
maintains the financial records of each fund. T. Rowe Price Services, Inc., is
each fund's transfer and dividend disbursing agent and provides shareholder
and administrative services to the funds. T. Rowe Price Retirement Plan
Services, Inc., provides subaccounting and recordkeeping services for certain
retirement accounts invested in each fund. The Money, Intermediate, and
Long-Term Funds incurred expenses pursuant to these related party agreements
totaling approximately $1,056,000, $297,000, and $175,000, respectively, for
the year ended May 31, 1996, of which $13,000, $27,000, and $18,000,
respectively, were payable at period-end.
T. Rowe Price U.S. Treasury Funds
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
T. Rowe Price U.S. Treasury Funds, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
U.S. Treasury Money Fund, U.S. Treasury Intermediate Fund, and U.S. Treasury
Long-Term Fund (constituting T. Rowe Price U.S. Treasury Funds, Inc.,
hereafter referred to as the "Funds") at May 31, 1996, and the results of
their operations, the changes in their net assets, and the financial
highlights for each of the two years ended May 31, 1996 for the U.S. Treasury
Intermediate Fund and U.S. Treasury Long-Term Fund and for each of the fiscal
periods presented for the U.S. Treasury Money Fund, in conformity with
generally accepted accounting principles. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Funds' 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 May 31, 1996 by
correspondence with the custodian and brokers, provide a reasonable basis for
the opinion expressed above. The financial statements of the U.S. Treasury
Intermediate Fund and the U.S. Treasury Long-Term Fund for the fiscal periods
presented prior to the year ended May 31, 1995 were audited by other
independent accountants whose report dated June 17, 1994 expressed an
unqualified opinion on hose statements.
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 19, 1996
During fiscal year 1995, Price Waterhouse LLP succeeded Coopers & Lybrand
L.L.P. as independent accountants for the U.S. Treasury Intermediate and the
U.S. Treasury Long-Term Funds, a decision that was approved by the funds'
Board of Directors. During the last two fiscal years, the funds have received
unqualified opinions and have had no disagreements with Coopers & Lybrand
L.L.P. or reportable events that caused the change.
T. ROWE PRICE SHAREHOLDER SERVICES
To help shareholders monitor their current investments and make decisions that
accurately reflect their financial goals, T. Rowe Price offers a wide variety
of information and services - at no extra cost.
Knowledgeable Service Representatives
By Phone Shareholder service representatives are 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.
Call 1-800-225-5132 to speak directly with a representative who will be able
to assist you with your accounts.
In Person Visit one of our Investor Center locations to meet with a
representative who will be able to assist you with your accounts. You can also
drop off applications or obtain prospectuses and other literature.
Automated 24-Hour Services
Tele*Access(registered trademark) Call 1-800-638-2587 to obtain information
such as account balance, date and amount of your last transaction, latest
dividend payment, and fund prices and yields. Additionally, you can request
prospectuses, statements, new account and tax forms; reorder checks; and
initiate purchase, redemption, and exchange orders for identically registered
accounts.
T. Rowe Price OnLine Through a personal computer via dial-up modem, you can
replicate all the services available on Tele*Access.
Account Services
Checking Write checks for $500 or more on any money market and most bond fund
accounts (except the High Yield and Emerging Markets Bond Funds).
Automatic Investing Build your account over time by investing directly from
your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to move investments systematically from one
fund account to another, such as from a money fund to a stock fund. A low $50
minimum makes it easy to get started.
Automatic Withdrawal If you need money from your fund account on a regular
basis, you can establish scheduled, automatic redemptions.
Dividend and Capital Gains Payment Options Reinvest all or some of your
distributions, or take them in cash. We give you maximum flexibility and
convenience.
Discount Brokerage
Investments Available You can trade stocks, bonds, options, precious metals,
and other securities at a substantial savings over regular commission rates.
To Open an Account Call a shareholder service representative at
1-800-225-5132.
Investment Information
Combined Statement A comprehensive overview of your T. Rowe Price accounts is
provided. The summary page gives you earnings by tax category, provides total
portfolio value, and lists your investments by type - stock, bond, and money
market. Detail pages itemize account transactions by fund.
Shareholder Reports Portfolio managers review the performance of the funds in
plain language and discuss T. Rowe Price's economic outlook.
The T. Rowe Price Report This is a quarterly newsletter with relevant
articles on market trends, personal financial planning, and T. Rowe Price's
economic perspective.
Performance Update This quarterly report reviews recent market developments
and provides comprehensive performance information for each T. Rowe Price
fund.
Insights This library of information includes reports on mutual fund tax
issues, investment strategies, and financial markets.
Detailed Investment Guides Our widely acclaimed Asset Mix Worksheet, College
Planning Kit, Personal Strategy Planner, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk for PC use) help you determine
and reach your investment goals.
T. ROWE PRICE MUTUAL FUNDS
Stock Funds
Domestic
Balanced
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Dividend Growth
Equity Income
Equity Index
Growth & Income
Growth Stock
Health Sciences
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
OTC
Science & Technology
Small-Cap Value*
Spectrum Growth
Value
International/Global
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
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 Insured 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 Insured Intermediate Bond
Tax-Free Short-Intermediate
Virginia Short-Term Tax-Free Bond
Virginia Tax-Free Bond
International/Global
Emerging Markets Bond
Global Government Bond
International Bond
Short-Term Global Income
Money Market
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
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
T. Rowe Price No-Load Variable Annuity
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
*Closed to new investors.
For yield, price, last transaction, and current balance, 24 hours, 7 days a
week, call:
1-800-638-2587 toll free
For assistance with your existing fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
625-6500 Baltimore area
T. Rowe Price
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for distribution only to shareholders and to others
who have received a copy of the prospectus of the T. Rowe Price U.S. Treasury
Funds.
Invest With Confidence(registered trademark)
T. Rowe Price
T. Rowe Price Investment Services, Inc., Distributor RPRTUSC 5/31/96
Chart 1 - Interest Rate Levels - A 3-line chart showing interest rate levels
on the 90-day T-bill, the 5-year T-note, and 30-year T-bond from 5/31/95 to
5/31/96.
Chart 2 - U.S. Treasury Money Fund - A line chart showing the cumulative
growth of $10,000 invested in the U.S. Treasury Money Fund over the past 10
years compared with $10,000 invested in a broad-based average over the same
period.
Chart 3 - U.S. Treasury Intermediate Fund - A line chart showing the
cumulative growth of $10,000 invested in the U.S. Treasury Intermediate Fund
since inception (9/29/89) compared with $10,000 invested in a broad-based
index over the same period.
Chart 4 - U.S. Treasury Long-Term Fund - A line chart showing the cumulative
growth of $10,000 invested in the U.S. Treasury Long-Term Fund since inception
(9/29/89) compared with $10,000 invested in a broad-based index over the same
period.
