- --------------------------------------------------------------------------------
ANNUAL REPORT
- -------------------------------------------------------------------------------
T. Rowe Price
U.S. Treasury Funds
- --------------------------------------------------------------------------------
May 31, 1997
================================================================================
Report Highlights
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o Strong first quarter 1997 economic growth prompted a March decision by the
Federal Reserve to raise interest rates. High-quality bond returns were
lackluster.
o The U.S. Treasury Money Fund returned 2.36% and 4.74% for the 6- and
12-month periods ended May 31, 1997, respectively, outpacing its peer
average by small margins.
o The U.S. Treasury Intermediate Fund finished the six-month period with a
0.53% gain and produced a 6.48% 12-month return. These returns were close
to its peer average.
o The U.S. Treasury Long-Term Fund lost 2.41% for the most recent six months,
below the average general U.S. Treasury fund; the 7.97% gain for the
12-month period was considerably ahead of this average.
o Interest rates may fluctuate in coming months, but the combination of
moderate inflation and moderate economic growth should create a favorable
environment for the bond markets over the long term.
================================================================================
Fellow Shareholders
- --------------------------------------------------------------------------------
<PAGE>
Despite volatility surrounding a March interest rate increase, the bond
markets finished the one-year period about where they began. Bond funds earned
their coupons for the year, despite the rise in interest rates that depressed
six-month returns. Money market funds outperformed most intermediate- and
long-term high-grade bond funds in recent months, but not for the 12-month
period.
MARKET ENVIRONMENT
Over the last six months, the economy developed considerable momentum.
Consumer sentiment, household spending, and employment levels surged. In the
first quarter of 1997, GDP rose at a 5.8% annual rate, roughly double the
economic growth trend rate since the current upturn began in 1991. Against this
background, the Federal Reserve abandoned its patient wait for the economy to
slow on its own, and in late March raised the target for the federal funds rate
from 5.25% to 5.5%.
[INTEREST RATE GRAPH HERE: Interest Rate LevelsNa 3-line chart showing
30-yr Treasury bond, 5-yr Treasury note and 90-day Treasury bill yields from
5/31/96 to 5/31/97.]
This modest change was part of a larger drama, as the bond markets spent
the year adjusting their interest rate expectations to developing news on
inflation and the economy. For example, rates for long bonds backed up toward
7.25% in September 1996 following a period of strong economic growth, but
slipped toward 6.35% in the fall as good news on inflation promoted greater
optimism. (Remember that yields react inversely to investor sentimentNyields
rise because prices are falling in reaction to bad news on inflation, and vice
versa.) As the likelihood of a rate rise by the Fed escalated in 1996's fourth
quarter and the first quarter of 1997, rates climbed again. After the Fed's rate
hike in March, though, the bond market gradually regained its equilibrium in
April, in the absence of clear evidence of accelerating inflation.
Despite these frequent reversals, the bond markets closed the period
virtually where they began a year earlier. The only exception was in the 90-day
Treasury bill market. As the chart on the previous page shows, yields in the
90-day market, which generally track changes ininterest rates, actually declined
late in the period despite the Fed's tightening. This unusual situation came
from an imbalance of supply and demand. In recent months, the federal government
has been paying down Treasury bills as a result of surging tax revenues. The
decline in these bills' availability, at a time when demand for the securities
continued to be strong, drove yields lower.
U.S. TREASURY MONEY FUND
<PAGE>
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 5/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
U.S. Treasury Money Fund 2.36% 4.74%
Lipper U.S. Treasury Money Market Funds Average 2.33 4.71
- --------------------------------------------------------------------------------
Your investment in the U.S. Treasury Money Fund is neither insured nor
guaranteed by the U.S. government.
================================================================================
Your fund posted a strong gain for the six-month period ended May 31, 1997,
relative to longer-term funds and to its peer group. The fund's yield declined
modestly during that time, from 4.79% to 4.73%. Even so, its overall performance
stayed ahead of the average U.S. Treasury money fund as measured by Lipper
Analytical Services for both the 6- and 12-month periods.
The fund's weighted average maturity (WAM) ended the period unchanged, at
65 days. Given the shift toward tightening by the Fed and the relatively high
prices in the Treasury bill market, we tended to keep a somewhat shorter WAM
than the average 100% U.S. Treasury money fund. We maintained the fund's yield
by modestly "barbelling" the portfolio. That is, we kept the bulk of the
portfolio in very short maturities to retain an overall defensive posture, but
selectively added some one-year Treasury bills to the mix. The one-year bills
have been less affected by the government's recent activity and, therefore,
offer better yields.
U.S. TREASURY INTERMEDIATE FUND
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 5/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
U.S. Treasury Intermediate Fund 0.53% 6.48%
Lipper Average of Intermediate U.S. Treasury Funds 0.11 6.73
================================================================================
Rising interest rates cut into your fund's performance for the six-month
period, although steady dividend payments helped keep overall returns in the
black and ahead of those for the average intermediate U.S. Treasury fund.
Relatively consistent dividend payments also helped the fund achieve a solid
6.48% return for the 12-month period. This gain was pulled below the fund's peer
group average by the prior six month's results, which were addressed in our last
report.
<PAGE>
The temporary yield distortions caused by federal debt paydowns did not
extend to the intermediate-term market during the period. Nonetheless,
undulating interest rates required careful management of your fund's interest
rate sensitivity. After raising the fund's duration earlier in the year when
interest rates were falling, we trimmed it by 0.6 years, to 3.6 years, as rates
rose again in March. (Duration measures a fund's price sensitivity to interest
rate changes. A longer duration enhances a fund's price appreciation when
interest rates fall, while a shorter duration helps limit losses when interest
rates rise.) The fund's 3.6-year duration at the end of May meant that the
fund's share price would rise or fall by 3.6% with each one-percentage-point
decline or rise in interest rates.
The duration shift proved appropriate as it helped the fund post better
returns than its peers for the six-month period. However, shorter-duration bonds
tend to have lower yields, and as a result the fund's current six-month dividend
yield declined modestly from 6.23% to 6.16%. We continued to enhance the fund's
income by maintaining a significant 15% stake in GNMA mortgage-backed
securities. These government-backed instruments have virtually the same credit
characteristics as Treasuries but provide a higher yield.
U.S. TREASURY LONG-TERM FUND
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 5/31/97 6 Months 12 Months
- --------------------------------------------------------------------------------
U.S. Treasury Long-Term Fund -2.41% 7.97%
Lipper Average of General U.S. Treasury Funds -1.16 6.77
================================================================================
While continuing to offer relatively stable income per share, the total
return for the U.S. Treasury Long-Term Fund fluctuated significantly over the
past year as interest rates fell and then rose. The fund's income mitigated but
did not totally offset a price decline during the last six months, resulting in
a negative total return. As shown in the performance table, that decline was
greater than the loss for the average general U.S. Treasury fund, as measured by
Lipper Analytical Services. The fund nonetheless achieved a strong gain for the
full year ended May 31 that outpaced the general Treasury fund average.
Your fund's performance reflects its strategy, which provides a high level
of income and credit protection but can result in pronounced reactions to
interest rate changes. As mentioned, long-term interest rates fluctuated
significantly over the past year, from 7.25% to 6.35% and back again. As
interest rates fell in the first half of the year, this fund made significant
gains. Rising rates in recent months, however, led directly to the fund's loss.
We did not react to this interest rate environment by altering our strategy. At
23.5 years, the fund's weighted average maturity was kept toward the high end of
its range; similarly, the fund's duration closed the period at 10.9 years. These
long-term holdings had attractive income characteristics and helped us to
maintain stable dividend payments despite the variability in rates.
<PAGE>
As with the intermediate fund, we attempted to supplement the fu nd's yield
with a 14% position in mortgage-backed GNMA bonds, near the maximum allowable by
prospectus. In the unfavorable interest rate environment of recent months, the
yield advantage GNMAs typically offer over comparable Treasuries helped cushion
the fund's principal loss. A third of the mortgage position was in
collateralized mortgage obligations (CMOs). These structured securities offered
a combination of good yield, low prepayment risk, and high interest rate
sensitivity. These securities added to the dividend return of the fund and may
provide price appreciation potential should economic growth begin to slow and
interest rates subsequently recede.
Under present economic conditions, interest rates on long-term Treasury
bonds may continue to fluctuate between 6.0% and 7.5%. Investors with multiyear
time horizons who are able to ride out these short-term changes, however, should
benefit from the attractive long-term results the fund's yield advantage should
ultimately produce.
OUTLOOK
Some additional tightening of monetary policy remains a possibility this
year as the Fed tries to dampen the economy's blistering pace. Credit markets
may again be roiled by a higher federal funds rate, and market interest rates
may edge up. But barring a serious miscalculation by the Federal Reserve, we
believe prospects are good for a continuation of moderate inflation and a return
to moderate growthNa favorable environment for debt markets over the long term.
Respectfully submitted,
/s/
Peter Van Dyke
President
June 19, 1997
<PAGE>
================================================================================
Portfolio Highlights
Key statistics
11/30/96 5/31/97
- --------------------------------------------------------------------------------
U.S. Treasury Money Fund
- --------------------------------------------------------------------------------
Price Per Share .................................. $1.00 $ 1.00
Dividends Per Share
For 6 months ................................. 0.023 0.023
For 12 months ................................ 0.047 0.046
Dividend Yield (7-Day Compound) * ................ 4.79% 4.73%
Weighted Average Maturity (days) ................. 65 65
Weighted Average Quality ** ...................... First Tier First Tier
- --------------------------------------------------------------------------------
U.S. Treasury Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share $ ................................ 5.25 $ 5.12
Dividends Per Share
For 6 months ................................. 0.16 0.16
For 12 months ................................ 0.32 0.31
Dividend Yield *
For 6 months ................................. 6.23% 6.16%
For 12 months ................................ 6.29 6.29
Weighted Average Maturity (years) ................ 4.9 4.6
Weighted Average Effective Duration (years) ...... 3.9 3.6
Weighted Average Quality *** ..................... AAA AAA
================================================================================
(continued on next page)
================================================================================
Portfolio Highlights
Key statistics
11/30/96 5/31/97
- --------------------------------------------------------------------------------
U.S. Treasury Long-Term Fund
- --------------------------------------------------------------------------------
Price Per Share $ ................................ 10.75 $ 10.17
Dividends Per Share
For 6 months ................................. 0.32 0.32
For 12 months ................................ 0.64 0.63
Dividend Yield *
For 6 months ................................. 6.29% 6.30%
For 12 months ................................ 6.26 6.40
Weighted Average Maturity (years) ................ 24.0 23.5
Weighted Average Effective Duration (years) ...... 11.1 10.9
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 not insured or guaranteed by
the U.S. government.
================================================================================
<PAGE>
================================================================================
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.
[SEC chart for U.S. Treasury Money Fund shown here]
[SEC chart for U.S. Treasury Intermediate Fund shown here]
[SEC chart for U.S. Treasury Long-Term Fund shown here]
================================================================================
Average Annual Compound Total Return
- --------------------------------------------------------------------------------
This table shows how each fund would have performed each year if its actual
(or cumulative) returns for the periods shown had been earned at a constant
rate.
================================================================================
Since Inception
Periods Ended 5/31/97 1 Year 5 Years 10 Years Inception Date
- --------------------------------------------------------------------------------
U.S. Treasury Money Fund 4.74% 3.94% 5.21% 6.00% 6/28/82
U.S. Treasury Intermediate Fund 6.48 6.07 - 7.51 9/29/89
U.S. Treasury Long-Term Fund 7.97 7.44 - 8.18 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, nor is the fund insured or
guaranteed by the U.S. government.
================================================================================
<PAGE>
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year 3 Months* Year
Ended Ended Ended
5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
NET ASSET VALUE
Beginning of period ............... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income ......... 0.046 0.050 0.045 0.007 0.025 0.029
Distributions
Net investment income ......... (0.046) (0.050) (0.045) (0.007) (0.025) (0.029)
NET ASSET VALUE
End of period ..................... $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Ratios/Supplemental Data
Total return ...................... 4.74% 5.08% 4.58% 0.73% 2.51% 2.97%
Ratio of expenses to
average net assets ................ 0.56% 0.53% 0.56% 0.57%+ 0.64% 0.65%
Ratio of net investment
income to average
net assets ........................ 4.65% 4.93% 4.51% 2.87%+ 2.48% 2.92%
Net assets, end of period
(in thousands) .................... $ 821,075 $ 760,010 $ 719,215 $ 654,837 $ 613,583 $ 606,153
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
+ Annualized.
* The fund's fiscal year-end was changed to May 31.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year 3 Months* Year
Ended Ended Ended
5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
NET ASSET VALUE
Beginning of period ............... $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42 $ 5.28
Investment activities
Net investment income ......... 0.31 0.33 0.31 0.08 0.29 0.32
Net realized and
unrealized gain (loss) ........ 0.01 (0.14) 0.14 (0.19) (0.09) 0.27
Total from
investment activities ......... 0.32 0.19 0.45 (0.11) 0.20 0.59
Distributions
Net investment income ......... (0.31) (0.33) (0.31) (0.08) (0.29) (0.32)
Net realized gain ............. -- -- -- (0.02) (0.01) (0.13)
Total distributions ........... (0.31) (0.33) (0.31) (0.10) (0.30) (0.45)
NET ASSET VALUE
End of period ..................... $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42
Ratios/Supplemental Data
Total return ...................... 6.48% 3.52% 9.29% (2.16)% 3.80% 11.77%
Ratio of expenses to
average net assets ................ 0.64% 0.65% 0.69% 0.70%+ 0.79% 0.80%
Ratio of net investment
income to average
net assets ........................ 6.11% 6.14% 6.19% 5.78%+ 5.41% 5.98%
Portfolio turnover rate ........... 57.9% 40.7% 81.1% 45.5%+ 20.2% 22.8%
Net assets, end of period
(in thousands) .................... $ 180,609 $ 174,176 $ 172,666 $ 181,231 $ 175,953 $ 163,480
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
+ Annualized.
* The fund's fiscal year-end was changed to May 31.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Year 3 Months^ Year
Ended Ended Ended
5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
NET ASSET VALUE
Beginning of period ............... $ 10.02 $ 10.54 $ 9.81 $ 10.46 $ 10.79 $ 10.39
Investment activities
Net investment income ......... 0.63 0.65* 0.68* 0.17* 0.68* 0.70*
Net realized and
unrealized gain (loss) ........ 0.15 (0.52) 0.73 (0.64) (0.04) 0.68
Total from
investment activities ......... 0.78 0.13 1.41 (0.47) 0.64 1.38
Distributions
Net investment income ......... (0.63) (0.65) (0.68) (0.17) (0.68) (0.70)
Net realized gain ............. -- -- -- (0.01) (0.29) (0.28)
Total distributions ........... (0.63) (0.65) (0.68) (0.18) (0.97) (0.98)
NET ASSET VALUE
End of period ..................... $ 10.17 $ 10.02 $ 10.54 $ 9.81 $ 10.46 $ 10.79
Ratios/Supplemental Data
Total return ...................... 7.97% 1.02%* 15.24%* (4.50)%* 5.89%* 14.11%*
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 ........................ 6.22% 6.05%* 7.05%* 6.75%*+ 6.17%* 6.75%*
Portfolio turnover rate ........... 67.6% 60.1% 99.3% 246.9%+ 59.4% 165.4%
Net assets, end of period
(in thousands) .................... $ 71,263 $ 70,326 $ 65,284 $ 54,237 $ 56,632 $ 64,685
====================================================================================================================================
<FN>
* 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.
</FN>
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Money Fund
- --------------------------------------------------------------------------------
Portfolio of Investments
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT OBLIGATIONS 97.5%
U.S. Treasury Obligations 97.5%
U.S. Treasury Bills
4.00%, 6/5/97 ............................ $ 30,028 $ 30,015
4.42%, 6/26/97 ........................... 75,000 74,770
4.45%, 7/10/97 ........................... 2,304 2,293
4.55%, 7/17/97 ........................... 25,000 24,858
4.60%, 6/19 - 7/10/97 .................... 3,074 3,064
4.61%, 7/10/97 ........................... 10,000 9,950
4.70%, 6/19/97 ........................... 1,606 1,602
4.72%, 6/26/97 ........................... 25,000 24,918
4.905%, 6/5/97 ........................... 13,824 13,816
4.96%, 6/12 - 7/24/97 .................... 23,120 23,067
5.38%, 3/5/98 ............................ 5,000 4,793
U.S. Treasury Notes
5.125%, 4/30/98 .......................... 10,000 9,914
5.50%, 7/31 - 9/30/97 .................... 95,000 95,020
5.625%, 6/30/97 .......................... 105,000 105,058
5.75%, 9/30/97 ........................... 25,000 25,025
5.875%, 7/31/97 - 4/30/98 ................ 181,000 181,169
6.50%, 8/15/97 ........................... 80,000 80,181
7.875%, 4/15/98 .......................... 10,000 10,147
8.50%, 7/15/97 ........................... 20,500 20,576
8.625%, 8/15/97 .......................... 40,000 40,258
8.75%, 10/15/97 .......................... 20,000 20,232
Total U.S. Government Obligations (Cost .......... $800,726) 800,726
Total Investments in Securities
97.5% of Net Assets (Cost $800,726) .............. 800,726
Other Assets Less Liabilities .................... 20,349
NET ASSETS ....................................... $821,075
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Money Fund
- --------------------------------------------------------------------------------
Statement of Assets and Liabilities
- --------------------------------------------------------------------------------
In thousands
Assets
Investments in securities, at value (Cost $800,726) ............. $800,726
Receivable for investment securities sold ....................... 50,000
Other assets .................................................... 24,027
Total assets .................................................... 874,753
Liabilities
Payable for investment securities purchased ..................... 50,392
Other liabilities ............................................... 3,286
Total liabilities ............................................... 53,678
NET ASSETS ...................................................... $821,075
Net Assets Consist of:
Accumulated net investment income -
net of distributions ............................................ $ 81
Accumulated net realized gain/loss -
net of distributions ............................................ 140
Paid-in-capital applicable to
820,933,186 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares
of the Corporation authorized ................................... 820,854
NET ASSETS ...................................................... $821,075
NET ASSET VALUE PER SHARE ....................................... $ 1.00
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Intermediate Fund
- --------------------------------------------------------------------------------
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT OBLIGATIONS 80.4%
U.S. Treasury Obligations 80.4%
U.S. Treasury Notes
5.75%, 8/15/03 ........................... $ 3,600 $ 3,454
5.875%, 1/31/99 - 2/15/04 ................ 2,650 2,572
6.25%, 8/31/00 - 2/15/03 ................. 63,695 62,874
6.375%, 1/15/00 - 8/15/02 ................ 36,540 36,520
6.50%, 8/31/01 ........................... 5,000 5,002
6.625%, 4/30/02 .......................... 3,500 3,515
6.75%, 4/30/00 ........................... 2,175 2,197
7.25%, 5/15/04 ........................... 3,300 3,418
7.50%, 11/15/01 .......................... 11,305 11,736
7.75%, 11/30/99 .......................... 5,500 5,681
7.875%, 8/15/01 .......................... 7,850 8,246
Total U.S. Government Obligations (Cost $145,203) 145,215
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 15.0%
U.S. Government Guaranteed Obligations 15.0%
Government National Mortgage Assn.
I
6.50%, 8/15 - 10/15/02 ................... 341 340
7.00%, 7/15 - 9/15/16 .................... 1,930 1,911
7.50%, 2/15/16 - 11/15/17 ................ 1,612 1,631
8.00%, 2/15/08 - 10/15/25 ................ 3,148 3,235
8.50%, 8/15/04 - 4/15/23 ................. 1,752 1,829
9.00%, 5/15/16 - 11/15/25 ................ 184 196
9.50%, 12/15/24 - 5/15/25 ................ 1,404 1,513
10.00%, 8/15/19 .......................... 194 214
10.50%, 2/15 - 11/15/14 .................. 352 388
11.00%, 12/15/09 - 12/15/19 .............. 1,296 1,453
11.50%, 3/15/10 - 11/15/18 ............... 2,599 2,955
12.50%, 10/15/13 - 3/15/15 ............... 259 303
<PAGE>
Government National Mortgage Assn
II
8.50%, 10/20/26 $ ........................ 2,750 $ 2,840
9.00%, 10/20/16 - 2/20/27 ................ 426 446
9.50%, 1/20 - 11/20/25 ................... 394 421
10.50%, 1/20/16 - 6/20/19 ................ 1,021 1,115
GPM, I, 11.00%, 9/15/10 ...................... 186 205
Midget, I
6.00%, 12/15/08 - 3/15/11 ................ 934 898
7.50%, 10/15/07 - 12/15/10 ............... 2,025 2,059
9.00%, 5/15/01 - 10/15/05 ................ 1,876 1,957
9.50%, 1/15/98 - 12/15/05 ................ 550 573
10.00%, 11/15/00 - 9/15/05 ............... 247 261
10.50%, 11/15/97 - 9/15/04 ............... 58 63
11.00%, 8/15/00 .......................... 26 28
11.50%, 4/15/98 - 7/15/00 ................ 143 152
Midget, II
11.00%, 9/20/99 .......................... 9 9
11.50%, 12/20/98 - 10/20/00 .............. 20 21
Total U.S. Government Mortgage-Backed Securities (Cost $26,857) 27,016
REPURCHASE AGREEMENTS^ 3.3%
Investments in Repurchase Agreements through a Joint Account
5.35%, 6/2/97 ........................... 5,998 5,998
Total Repurchase Agreements (Cost ................ $ 5,998) 5,998
Total Investments in Securities
98.7% of Net Assets (Cost ........................ $178,058) $178,229
Other Assets Less Liabilities .................... 2,380
NET ASSETS ....................................... $180,609
Net Assets Consist of:
Accumulated net investment income -
net of distributions ............................. $ (917)
Accumulated net realized gain/loss -
net of distributions ............................. (1,309)
Net unrealized gain (loss) ....................... 171
Paid-in-capital applicable to 35,253,283
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares
of the Corporation authorized .................... 182,664
NET ASSETS ....................................... $180,609
NET ASSET VALUE PER SHARE ........................ $ 5.12
^ Fully collateralized by U.S. government securities
GPM Graduated Payment Mortgage
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Long-Term Fund
- --------------------------------------------------------------------------------
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
- --------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT OBLIGATIONS 85.0%
U.S. Treasury Obligations 85.0%
U.S. Treasury Bonds
6.25%, 8/15/23 ........................... $ 17,000 $ 15,483
6.625%, 2/15/27 .......................... 1,500 1,445
6.875%, 8/15/25 .......................... 2,800 2,765
7.125%, 2/15/23 .......................... 17,000 17,239
7.50%, 11/15/24 .......................... 11,000 11,686
7.625%, 2/15/25 .......................... 6,500 7,007
9.25%, 2/15/16 ........................... 4,000 4,943
Total U.S. Government Obligations (Cost .......... $ 59,077) 60,568
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 13.8%
U.S. Government Guaranteed Obligations 13.8%
Government National Mortgage Assn.
I
6.50%, 12/15/23 .............................. 416 398
8.00%, 10/15/16 - 3/15/17 .................... 279 288
8.50%, 5/15 - 6/15/26 ........................ 1,834 1,904
9.00%, 7/15/16 - 5/15/21 ..................... 890 951
9.50%, 8/15/09 ............................... 62 67
10.00%, 12/15/17 - 8/15/19 ................... 453 499
10.50%, 5/15/13 - 7/15/19 .................... 374 413
11.50%, 10/15/10 - 8/15/15 ................... 216 246
Midget, I, 10.50%, 1/15/98 ....................... 1 1
REMIC
6.50%, 10/16/24 .............................. 2,000 1,784
7.00%, 5/16/24 ............................... 2,000 1,870
Interest Only, 8.00%, 6/16/23** .............. 1,025 185
TBA, Project Loan, I, 7.65%, 6/1/32 .............. 1,200 1,210
Total U.S. Government Mortgage-Backed
Securities (Cost $9,666) ........................ 9,816
<PAGE>
REPURCHASE AGREEMENTS^ 1.4%
Investments in Repurchase Agreements
through a Joint Account
5.35%, 6/2/97 ............................ 1,024 1,024
Total Repurchase Agreements (Cost ................ $ 1,024) 1,024
Total Investments in Securities
100.2% of Net Assets (Cost ....................... $ 69,767) $ 71,408
Other Assets Less Liabilities .................... (145)
NET ASSETS ....................................... $ 71,263
Net Assets Consist of:
Accumulated net investment income -
net of distributions ............................. $ 12
Accumulated net realized gain/loss -
net of distributions ............................. (805)
Net unrealized gain (loss) ....................... 1,641
Paid-in-capital applicable to 7,004,921
shares of $0.01 par value capital
stock outstanding; 1,000,000,000 shares
of the Corporation authorized .................... 70,415
NET ASSETS ....................................... $ 71,263
NET ASSET VALUE PER SHARE ........................ $ 10.17
** For Interest Only securities, par represents notional principal, on which
the fund receives interest
^ Fully collateralized by U.S. government securities
REMIC Real Estate Mortgage Investment Conduit
TBA To be announced security purchased on a forward commitment basis; the
aggregate liability for securities purchased under such agreements totaled
$1,212,000 at 5/31/97.
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
- --------------------------------------------------------------------------------
Money Intermediate Long-Term
Fund Fund Fund
- --------------------------------------------------------------------------------
Year Year Year
Ended Ended Ended
5/31/97 5/31/97 5/31/97
- --------------------------------------------------------------------------------
Investment Income
Interest income ................. $ 41,034 $ 12,384 $ 5,096
Expenses
Investment management ....... 2,585 694 276
Shareholder servicing ....... 1,565 298 151
Custody and accounting ...... 123 109 89
Prospectus and shareholder report 69 21 10
Registration ................ 59 27 27
Legal and audit ............. 15 14 14
Directors ................... 9 6 9
Miscellaneous ............... 9 5 5
Total expenses .............. 4,434 1,174 581
Net investment income ........... 36,600 11,210 4,515
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securitie 16 (129) (130)
Change in net unrealized gain or loss
on securities ............... -- 187 1,424
Net realized and unrealized gain (los 16 58 1,294
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS .......... $ 36,616 $ 11,268 $ 5,809
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Money Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
In thousands
Year
Ended
5/31/97 5/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income .................... $ 36,600 $ 36,792
Net realized gain (loss) ................. 16 66
Change in net unrealized gain or loss .... -- 61
Increase (decrease) in net assets
from operations .......................... 36,616 36,919
Distributions to shareholders
Net investment income .................... (36,600) (36,792)
Capital share transactions *
Shares sold .............................. 2,298,880 1,183,840
Distributions reinvested ................. 35,238 35,150
Shares redeemed .......................... (2,273,069) (1,178,322)
Increase (decrease) in net
assets from capital
share transactions ....................... 61,049 40,668
Net Assets
Increase (decrease) during period ............ 61,065 40,795
Beginning of period .......................... 760,010 719,215
End of period ................................ $ 821,075 $ 760,010
*Share information
Shares sold .............................. 2,298,880 1,183,840
Distributions reinvested ................. 35,238 35,150
Shares redeemed .......................... (2,273,069) (1,178,322)
Increase (decrease) in
shares outstanding ....................... 61,049 40,668
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Intermediate Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
In thousands
Year
Ended
5/31/97 5/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income .................. $ 11,210 $ 10,871
Net realized gain (loss) ............... (129) (14)
Change in net unrealized gain or loss .. 187 (4,800)
Increase (decrease) in net assets
from operations ........................ 11,268 6,057
Distributions to shareholders
Net investment income .................. (11,195) (10,871)
Tax return of capital .................. (15) --
Decrease in net assets from
distributions .......................... (11,210) (10,871)
Capital share transactions *
Shares sold ............................ 89,735 56,067
Distributions reinvested ............... 8,985 9,045
Shares redeemed ........................ (92,345) (58,788)
Increase (decrease) in net assets
from capital share transactions ........ 6,375 6,324
Net Assets
Increase (decrease) during period .......... 6,433 1,510
Beginning of period ........................ 174,176 172,666
End of period .............................. $180,609 $174,176
*Share information
Shares sold ............................ 17,454 10,638
Distributions reinvested ............... 1,746 1,718
Shares redeemed ........................ (18,022) (11,161)
Increase (decrease) in
shares outstanding ..................... 1,178 1,195
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
T. Rowe Price U.S. Treasury Long-Term Fund
- --------------------------------------------------------------------------------
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/97 5/31/96
Increase (Decrease) in Net Assets
Operations
Net investment income .............................. $ 4,515 $ 3,995
Net realized gain (loss) ........................... (130) 1,166
Change in net unrealized gain or loss .............. 1,424 (5,395)
Increase (decrease) in net assets from operations .. 5,809 (234)
Distributions to shareholders
Net investment income .............................. (4,515) (3,995)
Capital share transactions *
Shares sold ........................................ 28,170 54,802
Distributions reinvested ........................... 3,826 3,312
Shares redeemed .................................... (32,353) (48,843)
Increase (decrease) in net assets from capital
share transactions ................................. (357) 9,271
Net Assets
Increase (decrease) during period ...................... 937 5,042
Beginning of period .................................... 70,326 65,284
End of period .......................................... $ 71,263 $ 70,326
*Share information
Shares sold ........................................ 2,775 5,095
Distributions reinvested ........................... 375 312
Shares redeemed .................................... (3,160) (4,589)
Increase (decrease) in shares outstanding .......... (10) 818
The accompanying notes are an integral part of these financial statements.
<PAGE>
================================================================================
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 that
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.
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.
REPURCHASE AGREEMENTS The Intermediate and Long-Term Funds, and other
affiliated funds, may transfer uninvested cash into a joint account, the daily
aggregate balance of which is invested in one or more overnight repurchase
agreements. All repurchase agreements purchased by the joint account satisfy
each fund's criteria as to quality, yield, and liquidity and are fully
collaterallized by U.S. government securities. Collateral is in the possession
of each fund's custodian and is evaluated daily to ensure that its market value
exceeds the delivery value of the repurchase agreements at maturity. Although
risk is mitigated by the collateral, each fund could experience a delay in
recovering its value and a possible loss of income or value if the counterparty
fails to perform in accordance with the terms of agreement.
<PAGE>
OTHER Purchases and sales of U.S. government securities, excluding
short-term securities, for the year ended May 31, 1997, were as follows:
================================================================================
Intermediate Long-Term
Fund Fund
- --------------------------------------------------------------------------------
U.S. government securities
Purchases $111,367,000 $49,545,000
Sales 101,489,000 47,439,000
================================================================================
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 $1,309,000, of which $7,000
expires in 2003, and $1,302,000 in 2004. Capital loss carryforwards utilized by
Intermediate Fund in 1997 amounted to $149,000. The Long-Term Fund has unused
realized capital loss carryforwards for federal income tax purposes of $591,000,
of which $162,000 expires in 2003, and $429,000 in 2005. Each fund intends to
retain gains realized in future periods that may be offset by available capital
loss carryforwards.
In order for the Intermediate Fund's capital accounts and distributions to
shareholders to reflect the tax character of certain transactions, the following
reclassifications were made during the year ended May 31, 1997. The results of
operations and net assets were not affected by the reclassifications.
================================================================================
Undistributed net investment income $(1,182,000)
Undistributed net realized gain 1,330,000
Paid-in-capital (148,000)
================================================================================
At May 31, 1997, the aggregate cost of investments for the Money,
Intermediate, and Long-Term Funds for federal income tax and financial reporting
purposes was $800,726,000, $178,058,000, and $69,767,000, 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 $ 1,366,000 $ 2,077,000
Depreciated investments (1,195,000) (436,000)
Net unrealized gain (loss) $ 171,000 $ 1,641,000
================================================================================
<PAGE>
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 $225,000, $57,000, and $23,000 were payable at May 31, 1997 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 0.30% for assets in
excess of $80 billion. At May 31, 1997, and for the year then ended, the
effective annual group fee rate was 0.33%. 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, $22,000 of unaccrued management fees from the prior period remain
subject to reimbursement through May 31, 1999.
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 $1,390,000, $300,000, and $178,000, respectively, for the year
ended May 31, 1997, of which $115,000, $27,000 and $18,000, respectively, were
payable at period-end.
<PAGE>
================================================================================
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 (for U.S.
Treasury Intermediate Fund and U.S. Treasury Long-Term Fund) and the
accompanying statement of assets and liabilities, including the portfolio of
investments (for U.S. Treasury Money Fund), 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, 1997, the results of each of their operations for the
year then ended, the changes in each of their net assets for each of the two
years in the period ended May 31, 1997 and the financial highlights for each of
the three years in the period ended May 31, 1997 for U.S. Treasury Intermediate
Fund and U.S. Treasury Long-Term Fund and for each of the fiscal periods
presented for 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, 1997 by correspondence with the custodians
and brokers and, where appropriate, the application of alternative auditing
procedures for unsettled security transactions, provide a reasonable basis for
the opinion expressed above. The financial statements of U.S. Treasury
Intermediate Fund and 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
those statements.
PRICE WATERHOUSE LLP
Baltimore, Maryland
June 18, 1997
<PAGE>
================================================================================
T. Rowe Price Shareholder Services
- --------------------------------------------------------------------------------
Investment Services And Information
- --------------------------------------------------------------------------------
Knowledgeable Service Representatives
BY PHONE 1-800-225-5132 Available Monday through Friday from
8 a.m. to 10 p.m. ET and weekends from 8:30 a.m. to 5 p.m. ET.
IN PERSON Available in T. Rowe Price Investor Centers.
Account Services
CHECKING Available on most fixed income funds ($500 minimum).
AUTOMATIC INVESTING From your bank account or paycheck.
AUTOMATIC WITHDRAWAL Scheduled, automatic redemptions.
DISTRIBUTION OPTIONS Reinvest all, some, or none of your distributions.
AUTOMATED 24-HOUR SERVICES Including Tele*Access [Registration Mark] and
T. Rowe Price OnLine.
Discount Brokerage*
INDIVIDUAL INVESTMENTS Stocks, bonds, options, precious metals, and other
securities at a savings over regular commission rates.
Investment Information
COMBINED STATEMENT Overview of your T. Rowe Price accounts.
SHAREHOLDER REPORTS Fund managers' reviews of their strategies and results.
T. ROWE PRICE REPORT Quarterly investment newsletter discussing markets and
financial strategies.
PERFORMANCE UPDATE Quarterly review of all T. Rowe Price fund results.
INSIGHTS Educational reports on investment strategies and
financial markets.
INVESTMENT GUIDES Asset Mix Worksheet, College Planning Kit, Diversifying
Overseas: A Guide to International Investing, Personal Strategy Planner,
Retirees Financial Guide, and Retirement Planning Kit.
*A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
<PAGE>
For yield, price, last transaction,
current balance, or to conduct
transactions, 24 hours, 7 days
a week, call Tele*Access [Registration Mark]:
1-800-638-2587 toll free
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132 toll free
410-625-6500 Baltimore area
To open a Discount Brokerage
account or obtain information,
call: 1-800-638-5660 toll free
Internet address:
www.troweprice.com
T. Rowe Price Associates
100 East Pratt Street
Baltimore, Maryland 21202
This report is authorized for
distribution only to shareholders
and to others who have received
a copy of the prospectus of the
T. Rowe Price U.S. Treasury Finds.
Investor Centers:
101 East Lombard St.
Baltimore, MD 21202
T. Rowe Price
Financial Center
10090 Red Run Blvd.
Owings Mills, MD 21117
Farragut Square
900 17th Street, N.W.
Washington, D.C. 20006
ARCO Tower
31st Floor
515 South Flower St.
Los Angeles, CA 90071
4200 West Cypress St.
10th Floor
Tampa, FL 33607
T. Rowe Price Investment Services, Inc., Distributor. C07-050 5/31/97
