- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Annual Report
U.S. Treasury Funds
- --------------------------------------------------------------------------------
November 30, 1997
- --------------------------------------------------------------------------------
REPORT HIGHLIGHTS
================================================================================
U.S. Treasury Funds
o The Treasury yield curve flattened, with longer-term interest rates falling
while money market rates were steady to slightly higher.
o The U.S. Treasury Money Fund's six-month return was in line with its peer
group average.
o By extending duration modestly, the U.S. Treasury Intermediate Fund posted
a solid six-month return, although slightly behind its Lipper peer group
average.
o The U.S. Treasury Long-Term Fund's aggressive interest rate stance led to a
superior six-month return.
o We believe the outlook for bonds is favorable if inflation remains subdued.
FELLOW SHAREHOLDERS
Reversing the pattern of the preceding six months, interest rates fell and
prices of Treasury bonds rose significantly during the six months ended November
30, 1997. Inflation remained subdued despite strong economic growth, and
currency turmoil in the emerging markets increased demand for more-stable U.S.
Treasury bonds. In this environment, the U.S. Treasury Funds performed well,
with the strongest returns coming from the longer-term funds.
MARKET ENVIRONMENT
At the time of our last report six months ago, the possibility of inflation
was a significant concern to the bond market. A March 1997 interest rate hike by
the Federal Reserve, intended to curb economic growth, crowned a period of
rising rates, with yields on 30-year Treasury bonds briefly topping 7% in April.
In the six months ended November 30, however, the economy performed well-gross
domestic product continued to grow at a more than 3% annualized rate-but
inflation, unexpectedly, seemed to decelerate.
[Place Interest Rate Levels chart here. Edgar description: chart showing
interest rates for the 30-year Treasury bond, 5-Year Treasury note, and 90-Day
Treasury bill 11/30/96 through 11/30/97.]
A bond rally in April, and a subsequent easing of inflation fears, allowed
yields to fall (and prices to rise) on most fixed income instruments. A strong
dollar, which makes imports cheaper, helped keep inflation in check. In
addition, a currency crisis emanating from Southeast Asia drove global investors
to invest more heavily in U.S. Treasuries, largely because of their dollar
exposure. Stock market losses in the wake of the crisis also boosted demand for
Treasuries.
<PAGE>
Longer-term securities showed noticeably greater gains than shorter-term
bonds and money market securities, with the interest rate on 30-year Treasuries
falling nearly a full percentage point, to 6.08% on November 30. As a result,
the yield curve flattened considerably. The difference in yields between 30-year
Treasury bonds and 90-day Treasury bills narrowed from 196 basis points six
months ago to 93 basis points at November 30 (100 basis points equal one
percentage point).
U.S. TREASURY MONEY FUND
Despite the interest rate hike in March and the sharp bond rally late in
the period, 90-day Treasury bill rates varied only a small amount throughout the
year. Since May 31, 1997, rates on the 90-day Treasury bill rose by a modest 12
basis points, most of which can be accounted for by a rebound from a brief yield
decline caused by a sharp drop of new issuance in May. That supply imbalance was
temporary; however, with the improving budget deficit, the supply of U.S.
Treasury bills is not expected to return to the levels of prior years.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 11/30/97 6 Months 12 Months
- --------------------------------------------------------------------------------
U.S. Treasury Money Fund 2.41% 4.83%
Lipper U.S. Treasury
Money Market Funds Average 2.40 4.79
Your investment in the U.S. Treasury Money Fund is neither insured nor
guaranteed by the U.S. government.
================================================================================
We are pleased that in a generally quiet market environment we were able
both to elevate your fund's yield and to keep pace with our peer group. Between
May 31 and November 30, 1997, the fund's seven-day compound dividend yield
jumped from 4.73% to 4.97%. That increase contributed to a 2.41% total return
over the six-month period, a step above the 2.40% gain notched by the Lipper
Money Market Funds Average. Over the past 12months, your fund posted a 4.83%
return, comparing favorably with a 4.79% gain for the Lipper average.
The fund's increased dividend yield was partly due to modestly higher
interest rates. However, we were also able to add value by managing the
portfolio's maturity structure. After taking a generally cautious stance in the
spring, when interest rates were rising, we used the past six months to extend
the average maturity of the fund's holdings from 65 to 74 days. We accomplished
this by purchasing several securities with somewhat longer maturities, extending
as long as eight months. These holdings typically have higher yields than
shorter money market instruments. To counter the added interest rate risk, we
maintained a significant stake in more defensive one-month instruments. This
"barbell" portfolio allowed us to increase fund yield.
The fund continues to invest exclusively in U.S. Treasury notes and bills,
with more emphasis on Treasury notes, whose yields typically surpass bills by
five to 10 basis points.
U.S. TREASURY INTERMEDIATE FUND
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 11/30/97 6 Months 12 Months
- --------------------------------------------------------------------------------
U.S. Treasury
Intermediate Fund 5.59% 6.14%
Lipper Average of Intermediate
U.S. Treasury Funds 5.84 5.95
================================================================================
Declining interest rates helped the fund post a strong six-month
performance of 5.59%. Concerned about inflation and a possible interest rate
hike, we maintained a comparatively defensive posture for much of the period.
That approach kept the fund's returns behind the Lipper peer group average over
the six months, but allowed it to outperform in the prior six-month period and
for the past year as a whole.
<PAGE>
When rates rose earlier in the year, we chose to shorten the fund's
duration to safeguard returns. (Duration measures a fund's price sensitivity to
interest rates changes. A longer duration enhances a fund's price appreciation
when rates fall, while a shorter duration helps limit losses when rates rise.)
More recently, when rates began to decline, we decided to extend the fund's
duration by adding some bonds with seven-year maturities. Overall, the fund's
duration moved from 3.6 years on May 31, 1997, to 4.5 years at the close of the
period. The shift to longer-maturity bonds helped fund performance, since a
flattening yield curve meant that longer Treasuries outperformed shorter-term
issues.
================================================================================
Operating Policy Change
- --------------------------------------------------------------------------------
Your fund's Board of Directors has approved a change in one of U.S.
Treasury Intermediate Fund's investment policies, which will become effective
January 15, 1998. Currently, any security purchased by the fund must have a
remaining effective maturity of no more than seven and one-half years from the
time of purchase. This restriction is being modified to allow the fund to invest
in securities with remaining effective maturities of up to 10 years. Even with
this added flexibility, the fund's overall dollar-weighted average maturity may
not fall outside the range of three to seven years.
This supplements the U.S. Treasury Funds prospectus dated October 1, 1997.
================================================================================
A significant position in GNMA mortgage-backed securities augmented your
fund's returns, particularly over the past year. These securities, which are
guaranteed by the full faith and credit pledge of the U.S. government,
outperformed Treasuries for the 12 months ended November 30. We have maintained
a stake in GNMAs close to the fund's allowable maximum of 15% of assets; at the
end of the period, the weighting stood at 13%.
U.S. TREASURY LONG-TERM FUND
Your fund produced a superior total return of 12.77% for the six- month
period, significantly outpacing the Lipper Average of General U.S. Treasury
Funds. That performance also helped the fund outstrip the Lipper average over
the one-year period. The fund's six-month dividends per share slipped by one
penny in an environment where prices rose and yields declined significantly.
================================================================================
Performance Comparison
- --------------------------------------------------------------------------------
Periods Ended 11/30/97 6 Months 12 Months
- --------------------------------------------------------------------------------
U.S. Treasury
Long-Term Fund 12.77% 10.05%
Lipper Average of General
U.S. Treasury Funds 8.69 7.36
================================================================================
We were able to achieve these gains by keeping the fund's average maturity
consistently close to 23 years-near the high end of its 21- to 24-year range
- -during a period when long-term interest rates fell by nearly one percentage
point. Similarly, the fund's duration has been held at approximately 10 to 11
years (a fund with a duration of 10 years, for example, would experience 10%
price appreciation or depreciation in response to a one-percentage-point fall or
rise in interest rates, respectively).
This posture has historically caused short-term price volatility in the
fund when interest rates have fluctuated. However, we believe an aggressive
approach is suitable in a global economic environment that has encouraged low
inflation and (as a result) low interest rates. As rates have trended steadily
lower over the past five years, the fund's yield advantage and greater potential
for capital appreciation have translated into positive results relative to
shorter maturity funds.
<PAGE>
We enhanced the fund's dividends during the period by keeping its position
in mortgage-backed bonds near the allowable 15% maximum. We have held several
collateralized mortgage obligations (CMOs) within the mortgage position, which
we believe offer a combination of good yield and price appreciation potential.
We also think the CMOs have lower prepayment sensitivity than the standard
mortgage-backed pass-throughs they replaced. (Because mortgages can be retired
before maturity through refinancing, mortgage-backed bonds generally carry
prepayment risk.)
OUTLOOK
Despite the economy's strength, we believe the recent developments in Asia
and continued subdued inflation may obviate the need for any immediate action by
the Fed. Indeed, we do not expect any change in monetary policy for the next
quarter or two. However, with the budget apparently moving into balance and
government spending contained, there is a chance the markets could push rates
somewhat lower in the coming year, perhaps as low as 5.5% for 30-year
Treasuries.
We believe that the outlook for the fixed income market is favorable as
long as inflation remains subdued.
Respectfully submitted,
/s/
Peter Van Dyke
President
December 19, 1997
<PAGE>
T. Rowe Price U.S. Treasury Funds
================================================================================
Portfolio Highlights
================================================================================
Key statistics
5/31/97 11/30/97
U.S. Treasury Money Fund
- --------------------------------------------------------------------------------
Price Per Share .................................... $ 1.00 $ 1.00
Dividends Per Share
For 6 months .................................. 0.023 0.024
For 12 months ................................. 0.046 0.047
Dividend Yield (7-Day Compound) * .................. 4.73% 4.97%
Weighted Average Maturity (days) ................... 65 74
Weighted Average Quality ** ........................ First Tier First Tier
U.S. Treasury Intermediate Fund
- --------------------------------------------------------------------------------
Price Per Share .................................... $ 5.12 $ 5.25
Dividends Per Share
For 6 months .................................. 0.16 0.15
For 12 months ................................. 0.31 0.31
Dividend Yield *
For 6 months .................................. 6.16% 5.98%
For 12 months ................................. 6.29 6.17
Weighted Average Maturity (years) .................. 4.6 5.7
Weighted Average Effective Duration (years) ........ 3.6 4.5
Weighted Average Quality *** ....................... AAA AAA
U.S. Treasury Long-Term Fund
- --------------------------------------------------------------------------------
Price Per Share .................................... $ 10.17 $ 11.14
Dividends Per Share
For 6 months .................................. 0.32 0.31
For 12 months ................................. 0.63 0.63
Dividend Yield *
For 6 months .................................. 6.30% 5.97%
For 12 months ................................. 6.40 6.23
Weighted Average Maturity (years) .................. 23.5 22.8
Weighted Average Effective Duration (years) ........ 10.9 11.1
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.
================================================================================
<PAGE>
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.
[U.S. Treasury Money Fund SEC graph shown here]
[U.S. Treasury Intermediate Fund SEC graph shown here]
[U.S. Treasury Long-Term Fund SEC graph 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 11/30/97 1 Year 5 Years 10 Years Inception Date
U.S. Treasury Money Fund 4.83% 4.14% 5.18% 5.97% 6/28/82
U.S. Treasury Intermediate Fund 6.14 6.35 - 7.75 9/29/89
U.S. Treasury Long-Term Fund 10.05 8.99 - 9.26 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.
================================================================================
<PAGE>
T. Rowe Price U.S. Treasury Money Fund
================================================================================
Unaudited
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/97 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ............ $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income ...... 0.024 0.046 0.050 0.045 0.007 0.025 0.029
Distributions
Net investment income ...... (0.024) (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 $ 1.000
Ratios/Supplemental Data
Total return ................... 2.41% 4.74% 5.08% 4.58% 0.73% 2.51% 2.97%
Ratio of expenses to
average net assets ............. 0.51%+ 0.56% 0.53% 0.56% 0.57%+ 0.64% 0.65%
Ratio of net investment
income to average
net assets ..................... 4.79%+ 4.65% 4.93% 4.51% 2.87%+ 2.48% 2.92%
Net assets, end of period
(in thousands) ................. $ 839,222 $ 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>
T. Rowe Price U.S. Treasury Intermediate Fund
================================================================================
Unaudited
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/97 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ............ $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42 $ 5.28
Investment activities
Net investment income ...... 0.15 0.31 0.33 0.31 0.08 0.29 0.32
Net realized and
unrealized gain (loss) ..... 0.13 0.01 (0.14) 0.14 (0.19) (0.09) 0.27
Total from
investment activities ...... 0.28 0.32 0.19 0.45 (0.11) 0.20 0.59
Distributions
Net investment income ...... (0.15) (0.31) (0.33) (0.31) (0.08) (0.29) (0.32)
Net realized gain .......... -- -- -- -- (0.02) (0.01) (0.13)
Total distributions ........ (0.15) (0.31) (0.33) (0.31) (0.10) (0.30) (0.45)
NET ASSET VALUE
End of period .................. $ 5.25 $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42
Ratios/Supplemental Data
Total return ................... 5.59% 6.48% 3.52% 9.29% (2.16)% 3.80% 11.77%
Ratio of expenses to
average net assets ............. 0.61%+ 0.64% 0.65% 0.69% 0.70%+ 0.79% 0.80%
Ratio of net investment
income to average
net assets ..................... 5.91%+ 6.11% 6.14% 6.19% 5.78%+ 5.41% 5.98%
Portfolio turnover rate ........ 56.8% 57.9% 40.7% 81.1% 45.5%+ 20.2% 22.8%
Net assets, end of period
(in thousands) ................. $ 194,199 $ 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>
T. Rowe Price U.S. Treasury Long-Term Fund
================================================================================
Unaudited
<TABLE>
For a share outstanding throughout each period
====================================================================================================================================
Financial Highlights
<CAPTION>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/97 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94 2/28/93
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE
Beginning of period ............ $ 10.17 $ 10.02 $ 10.54 $ 9.81 $ 10.46 $ 10.79 $ 10.39
Investment activities
Net investment income ...... 0.31 0.63 0.65* 0.68* 0.17* 0.68* 0.70*
Net realized and
unrealized gain (loss) ..... 0.97 0.15 (0.52) 0.73 (0.64) (0.04) 0.68
Total from
investment activities ...... 1.28 0.78 0.13 1.41 (0.47) 0.64 1.38
Distributions
Net investment income ...... (0.31) (0.63) (0.65) (0.68) (0.17) (0.68) (0.70)
Net realized gain .......... -- -- -- -- (0.01) (0.29) (0.28)
Total distributions ........ (0.31) (0.63) (0.65) (0.68) (0.18) (0.97) (0.98)
NET ASSET VALUE
End of period .................. $ 11.14 $ 10.17 $ 10.02 $ 10.54 $ 9.81 $ 10.46 $ 10.79
Ratios/Supplemental Data
Total return ................... 12.77% 7.97% 1.02%* 15.24%* (4.50)%* 5.89%* 14.11%*
Ratio of expenses to
average net assets ............. 0.71%+ 0.80% 0.80%* 0.80%* 0.80%*+ 0.80%* 0.80%*
Ratio of net investment
income to average
net assets ..................... 5.87%+ 6.22% 6.05%* 7.05%* 6.75%*+ 6.17%* 6.75%*
Portfolio turnover rate ........ 65.4% 67.6% 60.1% 99.3% 246.9%+ 59.4% 165.4%
Net assets, end of period
(in thousands) ................. $ 186,296 $ 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
================================================================================
Unaudited November 30, 1997
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 98.0%
U.S. Treasury Obligations 98.0%
U.S. Treasury Bills
5.00%, 12/4/97 - 1/8/98 .............. $ 15,649 $ 15,619
5.005%, 12/11/97 ..................... 50,000 49,931
5.03%, 1/8/98 ........................ 17,281 17,189
5.105%, 1/8/98 ....................... 15,000 14,919
5.12%, 2/5/98 ........................ 2,154 2,134
5.14%, 2/5/98 ........................ 65,000 64,387
5.145%, 1/8/98 ....................... 20,000 19,891
5.155%, 1/22/98 ...................... 20,000 19,851
5.17%, 1/22/98 ....................... 9,491 9,420
5.20%, 1/22/98 ....................... 1,475 1,464
5.21%, 1/22/98 ....................... 56,675 56,249
5.22%, 1/22/98 ....................... 50,000 49,623
U.S. Treasury Notes
5.00%, 1/31/98 ....................... 50,000 49,963
5.125%, 2/28 - 4/30/98 ............... 20,000 19,946
5.25%, 12/31/97 ...................... 110,000 109,996
5.875%, 4/30/98 ...................... 51,000 51,059
6.125%, 3/31 - 5/15/98 ............... 100,000 100,217
6.25%, 7/31/98 ....................... 30,000 30,134
7.25%, 2/15/98 ....................... 10,000 10,032
7.875%, 1/15 - 4/15/98 ............... 130,000 130,650
Total U.S. Government Obligations (Cost $822,674) 822,674
Total Investments in Securities
98.0% of Net Assets (Cost $822,674) .......... $ 822,674
Other Assets Less Liabilities 16,548
NET ASSETS ................................... $ 839,222
Net Assets Consist of:
Accumulated net investment income -
net of distributions ......................... $ 81
Accumulated net realized gain/loss -
net of distributions ......................... 158
Paid-in-capital applicable to
839,061,571 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares
of the Corporation authorized ................ 838,983
NET ASSETS .................................. $ 839,222
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
================================================================================
Unaudited November 30, 1997
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 85.9%
U.S. Treasury Obligations 85.9%
U.S. Treasury Notes
5.75%, 8/15/03 ........................... $ 21,800 $ 21,664
5.875%, 2/15/04 .......................... 39,600 39,656
6.25%, 2/15/03 ........................... 59,000 59,995
6.375%, 8/15/02 .......................... 11,000 11,229
6.50%, 5/15/05 ........................... 11,000 11,393
7.50%, 2/15/05 ........................... 21,000 22,946
Total U.S. Government Obligations (Cost $164,547). 166,883
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 12.7%
U.S. Government Guaranteed Obligations 12.7%
Government National Mortgage Assn ................
I
6.50%, 8/15 - 10/15/02 ................... 304 306
7.00%, 7/15 - 9/15/16 .................... 1,855 1,892
7.50%, 2/15/16 - 11/15/17 ................ 1,536 1,591
8.00%, 2/15/08 - 10/15/25 ................ 2,986 3,119
8.50%, 8/15/04 - 4/15/23 ................. 1,577 1,665
9.00%, 5/15/16 - 11/15/25 ................ 174 187
9.50%, 12/15/24 - 5/15/25 ................ 1,172 1,270
10.00%, 8/15/19 .......................... 179 198
10.50%, 11/15/14 ......................... 229 256
11.00%, 12/15/09 - 12/15/19 .............. 1,147 1,298
11.50%, 3/15/10 - 11/15/18 ............... 2,312 2,655
12.50%, 10/15/13 - 3/15/15 ............... 256 301
II
8.50%, 10/20/26 .......................... 2,399 2,506
9.00%, 10/20/16 - 2/20/27 ................ 342 362
9.50%, 1/20 - 11/20/25 ................... 317 341
10.50%, 1/20/16 - 6/20/19 ................ 917 1,017
GPM, I, 11.00%, 9/15/10 ...................... 182 203
Midget, I
6.00%, 12/15/08 - 3/15/11 ................ 908 895
7.50%, 10/15/07 - 12/15/10 ............... 1,844 1,896
Government National Mortgage Assn ................
Midget, I
9.00%, 5/15/01 - 10/15/05 ................ $ 1,649 $1,712
9.50%, 1/15/98 - 12/15/05 ................ 482 501
10.00%, 11/15/00 - 9/15/05 ............... 207 218
10.50%, 1/15/01 - 9/15/04 ................ 52 56
11.00%, 8/15/00 .......................... 23 23
11.50%, 4/15/98 - 7/15/00 ................ 115 120
Midget, II
11.00%, 9/20/99 .......................... 6 6
11.50%, 12/20/98 - 10/20/00 .............. 15 16
Total U.S. Government Mortgage-Backed
Securities (Cost $24,170) ....................... 24,610
MONEY MARKET FUNDS 0.0%
Government Reserve Investment Fund, 5.44% # ...... 1 1
Total Money Market Funds (Cost $1) ............... 1
<PAGE>
Total Investments in Securities
98.6% of Net Assets (Cost $188,718) ............. $ 191,494
Other Assets Less Liabilities .................. 2,705
NET ASSETS ....................................... $ 194,199
Net Assets Consist of:
Accumulated net investment income -
net of distributions ............................. $ (917)
Accumulated net realized gain/loss -
net of distributions ............................. 551
Net unrealized gain (loss) ...................... 2,776
Paid-in-capital applicable to 36,997,984
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares of the
Corporation authorized .......................... 191,789
NET ASSETS ....................................... $ 194,199
NET ASSET VALUE PER SHARE ........................ $ 5.25
# Seven-day yield
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
================================================================================
Unaudited November 30, 1997
Statement of Net Assets
- --------------------------------------------------------------------------------
Par Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 84.2%
U.S. Treasury Obligations 84.2%
U.S. Treasury Bonds
6.25%, 8/15/23 ........................... $ 38,000 $ 38,611
6.375%, 8/15/27 .......................... 10,000 10,398
6.625%, 2/15/27 .......................... 14,500 15,526
7.125%, 2/15/23 .......................... 27,000 30,409
7.25%, 5/15/16 ........................... 18,000 20,247
7.50%, 11/15/24 .......................... 17,000 20,068
7.625%, 2/15/25 .......................... 18,000 21,564
Total U.S. Government Obligations (Cost $145,431). 156,823
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 13.5%
U.S. Government Guaranteed Obligations 13.5%
Government National Mortgage Assn .................
I
8.00%, 10/15/16 - 3/15/17 ................. 270 283
8.50%, 5/15 - 6/15/26 ..................... 1,604 1,686
9.00%, 7/15/16 - 5/15/21 .................. 5,842 6,252
9.50%, 8/15/09 - 11/15/17 ................. 9,831 10,745
10.00%, 12/15/17 - 8/15/19 ................ 393 436
10.50%, 5/15/13 - 7/15/19 ................. 345 386
11.50%, 10/15/10 - 8/15/15 ................ 166 190
II, 7.00%, 11/20/23 - 1/20/24 ................. 44 44
Midget, I, 10.50%, 1/15/98 .................... -- --
Project Loan, I
6.85%, 8/15/32 ............................ 808 817
7.35%, 7/15/32 ............................ 362 378
REMIC
6.50%, 10/16/24 ........................... 2,000 1,886
7.00%, 5/16/24 ............................ 2,000 2,005
Interest Only, 8.00%, 6/16/23 ** .......... 885 144
Total U.S. Government Mortgage-Backed
Securities (Cost $24,839) ......................... 25,252
MONEY MARKET FUNDS 0.9%
Government Reserve Investment Fund, 5.44% # ....... 1,606 1,606
Total Money Market Funds (Cost $1,606) ........... 1,606
Total Investments in Securities
98.6% of Net Assets (Cost $171,876) .............. $ 183,681
Other Assets Less Liabilities ..................... 2,615
NET ASSETS ....................................... $ 186,296
Net Assets Consist of:
Accumulated net investment income -
net of distributions .............................. $ 12
Accumulated net realized gain/loss -
net of distributions .............................. (420)
Net unrealized gain (loss) ........................ 11,805
Paid-in-capital applicable to 16,728,046
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares
of the Corporation authorized ..................... 174,899
NET ASSETS ........................................ $ 186,296
NET ASSET VALUE PER SHARE ......................... $ 11.14
** For Interest Only securities, amount represents notional principal, on
which the fund receives interest
# Seven-day yield
REMIC Real Estate Mortgage Investment Conduit
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price U.S. Treasury Funds
================================================================================
Unaudited
Statement of Operations
- --------------------------------------------------------------------------------
In thousands
Inter-
Money mediate Long-Term
Fund Fund Fund
6 Months 6 Months 6 Months
Ended Ended Ended
11/30/97 11/30/97 11/30/97
Investment Income
Interest income ............................. $21,844 $6,085 $ 3,886
Expenses
Investment management ................... 1,337 350 242
Shareholder servicing ................... 625 129 100
Custody and accounting .................. 60 51 43
Prospectus and shareholder reports ...... 41 12 7
Registration ............................ 19 12 13
Legal and audit ......................... 8 7 6
Directors ............................... 4 3 6
Miscellaneous ........................... 4 2 2
Total expenses .......................... 2,098 566 419
Net investment income ....................... 19,746 5,519 3,467
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities ...... 18 1,860 385
Change in net unrealized gain or loss
on securities ........................... -- 2,605 10,164
Net realized and unrealized gain (loss) ..... 18 4,465 10,549
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS ...................... $19,764 $9,984 $14,016
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price U.S. Treasury Money Fund
================================================================================
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/97 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income .................. $ 19,746 $ 36,600
Net realized gain (loss) ............... 18 16
Increase (decrease) in net
assets from operations ................. 19,764 36,616
Distributions to shareholders
Net investment income .................. (19,746) (36,600)
Capital share transactions *
Shares sold ............................ 1,316,982 2,298,880
Distributions reinvested ............... 18,955 35,238
Shares redeemed ........................ (1,317,808) (2,273,069)
Increase (decrease) in net
assets from capital
share transactions ..................... 18,129 61,049
Net Assets
Increase (decrease) during period .......... 18,147 61,065
Beginning of period ........................ 821,075 760,010
End of period .............................. $ 839,222 $ 821,075
*Share information
Shares sold ............................ 1,316,955 2,298,880
Distributions reinvested ............... 18,955 35,238
Shares redeemed ........................ (1,317,781) (2,273,069)
Increase (decrease) in shares
outstanding ............................ 18,129 61,049
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price U.S. Treasury Intermediate Fund
================================================================================
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/97 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income ........................ $ 5,519 $ 11,210
Net realized gain (loss) ..................... 1,860 (129)
Change in net unrealized gain or loss ........ 2,605 187
Increase (decrease) in net
assets from operations ....................... 9,984 11,268
Distributions to shareholders
Net investment income ........................ (5,519) (11,195)
Tax return of capital ........................ -- (15)
Decrease in net assets from distributions .... (5,519) (11,210)
Capital share transactions *
Shares sold .................................. 29,669 89,735
Distributions reinvested ..................... 4,358 8,985
Shares redeemed .............................. (24,902) (92,345)
Increase (decrease) in net assets
from capital share transactions .............. 9,125 6,375
Net Assets
Increase (decrease) during period ................ 13,590 6,433
Beginning of period .............................. 180,609 174,176
End of period .................................... $ 194,199 $ 180,609
*Share information
Shares sold .................................. 5,697 17,454
Distributions reinvested ..................... 836 1,746
Shares redeemed .............................. (4,788) (18,022)
Increase (decrease) in shares outstanding .... 1,745 1,178
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price U.S. Treasury Long-Term Fund
================================================================================
Unaudited
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
In thousands
6 Months Year
Ended Ended
11/30/97 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income ......................... $ 3,467 $ 4,515
Net realized gain (loss) ...................... 385 (130)
Change in net unrealized gain or loss ......... 10,164 1,424
Increase (decrease) in net
assets from operations ........................ 14,016 5,809
Distributions to shareholders
Net investment income ......................... (3,467) (4,515)
Capital share transactions *
Shares sold ................................... 123,789 28,170
Distributions reinvested ...................... 3,154 3,826
Shares redeemed ............................... (22,459) (32,353)
Increase (decrease) in net
assets from capital
share transactions ............................ 104,484 (357)
Net Assets
Increase (decrease) during period ................. 115,033 937
Beginning of period ............................... 71,263 70,326
End of period ..................................... $ 186,296 $ 71,263
*Share information
Shares sold ................................... 11,541 2,775
Distributions reinvested ...................... 291 375
Shares redeemed ............................... (2,109) (3,160)
Increase (decrease) in shares outstanding ..... 9,723 (10)
The accompanying notes are an integral part of these financial statements.
<PAGE>
T. Rowe Price U.S. Treasury Funds
================================================================================
Unaudited November 30, 1997
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.
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles for the investment company industry;
these principles may require the use of estimates by fund management.
VALUATION 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.
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 The Intermediate Fund lends its securities to
approved brokers to earn additional income and takes cash and U.S. Treasury
securities as collateral to secure the loans. Collateral is maintained at not
less than 100% of the value of loaned securities. At November 30, 1997, the
value of securities on loan was $34,900,000. Although the risk is mitigated by
the collateral, the 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, other than
short-term securities, for the six months ended November 30, 1997, were as
follows:
================================================================================
Intermediate Long-Term
Fund Fund
U.S. government securities
Purchases $ 117,837,000 $ 178,730,000
Sales 103,056,000 77,537,000
<PAGE>
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. 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.
At November 30, 1997, the aggregate costs of investments for the Money,
Intermediate, and Long-Term Funds for federal income tax and financial reporting
purposes were $822,674,000, $188,718,000, and $171,876,000, 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 $ 2,834,000 $ 11,894,000
Depreciated investments (58,000) (89,000)
Net unrealized gain (loss) $ 2,776,000 $ 11,805,000
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 $222,000, $59,000, and $52,000 were payable at November 30, 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 November 30, 1997, and for the six months then ended,
the effective annual group fee rate was 0.32%. 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, 1999, which would cause the
Long-Term Fund's ratio of expenses to average net assets to exceed 0.80%.
Thereafter, through May 31, 2001, 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 a
previous agreement, $22,000 of unaccrued 1996-1997 fees were repaid during the
six months ended November 30, 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 $546,000, $136,000, and $81,000, respectively, for the six months
ended November 30, 1997, of which $97,000, $25,000, and $14,000, respectively,
were payable at period-end.
Additionally, the Long-Term Fund is one of several T. Rowe
Price-sponsored mutual funds (underlying funds) in which the T. Rowe Price
Spectrum Funds (Spectrum) may invest. Spectrum does not invest in the underlying
funds for the purpose of exercising management or control. Expenses associated
with the operation of Spectrum are borne by each underlying fund to the extent
of estimated savings to it and in proportion to the average daily value of its
shares owned by Spectrum, pursuant to special servicing agreements between and
among Spectrum, the underlying funds, T. Rowe Price, and, in the case of
<PAGE>
T. Rowe Price Spectrum International, Rowe Price-Fleming International.
Spectrum Income Fund held approximately 53.4% of the outstanding shares of the
Long-Term Fund at November 30, 1997. For the six months then ended, the
Long-Term Fund was allocated $34,000 of Spectrum expenses, none of which was
payable at period-end.
The funds may invest in the Reserve Investment Fund and Government
Reserve Investment Fund (collectively, the Reserve Funds), open-end management
investment companies managed by T. Rowe Price Associates, Inc. The Reserve Funds
are offered as cash management options only to mutual funds and other accounts
managed by T. Rowe Price and its affiliates and are not available to the public.
The Reserve Funds pay no investment management fees. Distributions from the
Reserve Funds to the Intermediate and Long-Term Funds for the six months ended
November 30, 1997, totaled $63,000 and $21,000, respectively, and are reflected
as interest income in the accompanying Statement of Operations.
T. Rowe Price Shareholder Services
================================================================================
INVESTMENT SERVICES AND INFORMATION
KNOWLEDGEABLE SERVICE REPRESENTATIVES
BY PHONE Shareholder service representatives are available from 8
a.m. to 10 p.m. ET Monday through Friday and from 8:30 a.m. to 5
p.m. ET on weekends. 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 at these centers.
AUTOMATED 24-HOUR SERVICES
TELE*ACCESS [Registration Mark] Call 1-800-638-2587 to obtain
information such as account balance, date and amount of your last
transaction, latest dividend payment, fund prices, and yields.
Additionally, you have the ability to request prospectuses,
statements, and account and tax forms; to reorder checks; and to
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 plus conduct transactions in your Discount Brokerage
and Variable Annuity accounts.
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 set up
systematic investments from one fund account into another, such
as from a money fund into a stock fund. A $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.
<PAGE>
DISCOUNT BROKERAGE*
INVESTMENTS AVAILABLE You can trade stocks, bonds, options,
precious metals, and other securities at a savings over regular
commission rates.
TO OPEN AN ACCOUNT Call a shareholder service representative for
more information.
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.
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
develop- ments and provides comprehensive performance information
for every 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, Diversifying Overseas: A Guide
to International Investing, Retirees Financial Guide, and
Retirement Planning Kit (also available on disk for PC use) can
help you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member NASD/SIPC.
T. Rowe Price Mutual Funds
================================================================================
STOCK FUNDS
- --------------------------------------------------------------------------------
DOMESTIC
Blue Chip Growth
Capital Appreciation
Capital Opportunity
Diversified Small-Cap Growth
Dividend Growth
Equity Income
Equity Index
Financial Services
Growth & Income
Growth Stock
Health Sciences
Media & Telecommunications
Mid-Cap Growth
Mid-Cap Value
New America Growth
New Era
New Horizons*
Real Estate
Science & Technology
Small-Cap Stock**
Small-Cap Value*
Spectrum Growth
Value
<PAGE>
INTERNATIONAL/GLOBAL
Emerging Markets Stock
European Stock
Global Stock
International Discovery
International Stock
Japan
Latin America
New Asia
Spectrum International
BOND FUNDS
- --------------------------------------------------------------------------------
DOMESTIC TAXABLE
Corporate Income
GNMA
High Yield
New Income
Short-Term Bond
Short-Term U.S. Government
Spectrum Income
Summit GNMA
Summit Limited-Term Bond
U.S. Treasury Intermediate
U.S. Treasury Long-Term
DOMESTIC TAX-FREE
California Tax-Free Bond
Florida 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
MONEY MARKET FUNDS
- --------------------------------------------------------------------------------
TAXABLE
Prime Reserve
Summit Cash Reserves
U.S. Treasury Money
TAX-FREE
California Tax-Free Money
New York Tax-Free Money
Summit Municipal Money Market
Tax-Exempt Money
<PAGE>
BLENDED ASSET FUNDS
- --------------------------------------------------------------------------------
Balanced
Personal Strategy Balanced
Personal Strategy Growth
Personal Strategy Income
Tax-Efficient Balanced
T. ROWE PRICE NO-LOAD VARIABLE ANNUITY
- --------------------------------------------------------------------------------
Equity Income Portfolio
International Stock Portfolio
Limited-Term Bond Portfolio
Mid-Cap Growth Portfolio
New America Growth Portfolio
Personal Strategy Balanced Portfolio
Prime Reserve Portfolio
* Closed to new investors.
** Formerly the OTC Fund.
Please call for a prospectus. Read it carefully before you invest or send money.
The T. Rowe Price No-Load Variable Annuity [#V6021] is issued by Security
Benefit Life Insurance Company. In New York, it [#FSB201(11-96)] is issued by
First Security Benefit Life Insurance Company of New York, White Plains, NY. T.
Rowe Price refers to the underlying portfolios' investment managers and the
distributors, T. Rowe Price Investment Services, Inc.; T. Rowe Price Insurance
Agency, Inc.; and T. Rowe Price Insurance Agency of Texas, Inc. The Security
Benefit Group of Companies and the T. Rowe Price companies are not affiliated.
The variable annuity may not be available in all states. The contract has
limitations. Call a representative for costs and complete details of the
coverage.
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 Funds.
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. C07-051 11/30/97
