Annual Report
U.S.
Treasury
Funds
May 31, 1998
T. Rowe Price
Report Highlights
U.S. Treasury Funds
o Interest rates declined generally during the past six
months; over the past year, longer-term rates fell
sharply, but 90-day Treasury bills stayed even.
o The U.S. Treasury Money Fund's 2.44% six-month and 4.91%
one-year returns modestly outpaced its peer group
averages for the same periods.
o The U.S. Treasury Intermediate Fund outperformed its
peers for the six-month period with a 3.78% gain, but
weakness in the first half kept its 9.58% one-year return
below the competition.
o Using an aggressive strategy, the U.S. Treasury Long-Term
Fund outstripped its peer group results with 6- and
12-month gains of 5.15% and 18.58%, respectively.
o We expect the Federal Reserve to make no near-term
changes to short-term interest rates.
Fellow Shareholders
With the economy surging and inflation flat to declining,
longer-term interest rates fell and bond prices rose
substantially over the one-year period ended May 31, 1998.
Despite considerable interim activity, 90-day Treasury bill
rates ended the year where they began. The U.S. Treasury Funds
notched attractive gains during the year, although returns
over the past six months were more modest than in the first
half.
Market Environment
The last time the Fed changed the federal funds target rate
was more than a year ago, in March 1997. A marvelous economic
environment, incorporating a near-ideal blend of steady growth
and flat-even declining-inflation, encouraged the central
bank's laissez-faire stance. Despite occasionally voicing
concerns over the sustainability of these conditions, Fed
officials did not find enough troubling data to support a
change in policy.
While the target rate did not change, two important
trends-increasing economic strength and the crises in
Asia-captured investor attention and placed conflicting
pressure on interest rates. The domestic economy continued to
expand above trend, leading many investors to fear that the
Fed might take a more restrictive policy. In actuality,
economic strength indirectly benefited the bond market. The
national budget moved into a projected surplus for fiscal year
1998 of $30 billion to $50 billion-a marked difference from
fiscal years 1997 and 1996, when the budgets reflected net
borrowing of $21 billion and $140 billion, respectively. The
Treasury's borrowing needs consequently dwindled and, as a
result, weekly Treasury bill auctions over the last year fell
from $17.5 billion to $13 billion. The declining supply has
forced yields down and bond prices up.
Interest Rate Levels
30-Year 5-Year 90-Day
Treasury Bond Treasury Note Treasury Bill
5/31/97 6.99 6.6 5.09
6.72 6.31 5.1
6.38 6 5.25
8/97 6.63 6.22 5.26
6.35 5.94 4.98
6.22 5.78 5.18
11/97 6.08 5.82 5.27
5.93 5.71 5.4
5.89 5.48 5.22
2/98 5.84 5.6 5.16
5.92 5.62 5.19
6.02 5.72 5.05
5/31/98 5.83 5.57 5.09
Inflation has also remained surprisingly tame-over the past
six months, there was some evidence that prices were going
down. This trend, unexpected in a period of strong growth, has
been supported by recent currency and economic crises in Japan
and Southeast Asia. In an effort to increase income and
accumulate stronger currencies, Asia's corporations have been
flooding the global markets with goods, and the excess supply
has put a damper on world inflation trends. In addition, many
investors thought that Asia's economic slowdowns (Japan's
harsh recession in particular) would prove a drag on the
domestic economy. These conditions at times made the money
market very attractive to U.S. investors.
After a striking convergence in the first half of the year,
yields among bonds of different maturities remained tightly
packed over the last six months. At the period's end, the
difference (or spread) between 30-year Treasury bonds and
90-day Treasury bills was only 74 basis points (100 basis
points equal one percentage point). This flatness is likely to
persist until the Fed shows a more pronounced inclination to
change rates.
U.S. Treasury Money Fund
Periods Ended 5/31/98 6 Months 12 Months
_____________________________________________________________
U.S. Treasury Money Fund 2.44% 4.91%
Lipper U.S. Treasury
Money Market Funds Average 2.40 4.85
Your investment in the U.S. Treasury Money Fund is neither insured nor
guaranteed by the U.S. government.
Although short-term interest rates fluctuated within a narrow range, the
90-day Treasury bill yield at May 31, 1998, was 5.09%-the same as a year
earlier. Your fund made the most of a low-returning environment with 6-
and 12-month gains of 2.44% and 4.91%, respectively, a step above the
Lipper U.S. Treasury Money Market Funds Average returns of 2.40% and
4.85%. Dividends per share remained steady.
As discussed in previous reports, effective maturity management has been
an important component of our strategy during this stretch of Fed
inactivity. By our estimates, the fund's average weighted maturity was
about 10 to 15 days longer than that of its typical peer throughout the
period. A longer portfolio generally produces a better income for
investors during periods of flat to declining interest rates. At the
period's end, the fund's average maturity was 85 days, up from 74 days at
November 30, 1997.
We also attempted to make use of frequent fluctuations in short-term
rates. We felt fairly confident during the period that the Fed would not
change interest rates, so when investors bid up money market securities in
the hopes of a Fed easing, we took a more defensive approach by reducing
average maturity. On the other hand, when people sold longer securities
out of concern the Fed might raise rates, we increased maturity to become
more aggressive. These decisions proved effective.
We helped keep maturity up by implementing a "barbell" strategy over the
past year: that is, we held a significant stake in securities with
one-year maturities for their somewhat higher yield and balanced their
modest additional interest rate risk with more defensive one-month
instruments. Fund performance also benefited from an almost 80% stake in
Treasury coupon instruments (that is, notes with short remaining
maturities) where yields are five to 10 basis points better than standard
Treasury bills.
U.S. Treasury Intermediate Fund
Performance Comparison
Periods Ended 5/31/98
6 Months 12 Months
U.S. Treasury
Intermediate Fund 3.78% 9.58%
Lipper Average of Intermediate
U.S. Treasury Funds 3.63 9.77
Your fund posted a 3.78% total return over the last six months, ahead of
3.63% for the Lipper Average of Intermediate U.S. Treasury Funds. The
fund's 9.58% return for the one-year period lagged 9.77% for the Lipper
Average because, in the first half of the year, we were more
conservatively postured than our peer group. Dividends per share remained
relatively steady.
The recently improved relative performance can be partially attributed to
new flexibility in the fund's investment policies. As indicated in our
last report, the Board of Directors approved a change, effective January
15, that allows us to purchase securities with maturities up to 10 years.
Although the portfolio's total average weighted maturity may not exceed
seven years, this modification gives us more leeway in structuring the
portfolio to achieve our goals.
Thus, over the last six months, we built up a 12% stake in securities with
8- to 10-year maturities as part of an overall effort to increase
duration. (Duration is a measure of price sensitivity to changes in
interest rates. A fund having a duration of five years will normally have
a 5% appreciation or decline in price in response to a
one-percentage-point fall or rise in interest rates.) We specifically
targeted longer bonds than we had held early in the year. Duration ended
the period at 5.0 years, up from 4.5 years six months ago (and only 3.6
years at the same time last year). The strategy worked: declining rates
among intermediate bonds and an overall strong Treasury market helped
longer-term Treasuries outperform their shorter siblings.
We nudged the fund's holdings in GNMA mortgage-backed securities from 13%
of assets to 14%-close to the fund's 15% maximum. Although declining rates
caused a rise in prepayments early in the period, GNMAs eventually
recovered. Investment in these securities, which are backed by the U.S.
government, provided the fund higher income without sacrificing credit
quality. GNMAs should continue to be a sound component of the fund's
investment program while interest rates remain relatively stable.
U.S. Treasury Long-Term Fund
Performance Comparison
Periods Ended 5/31/98 6 Months 12 Months
U.S. Treasury
Long-Term Fund 5.15% 18.58%
Lipper Average of General
U.S. Treasury Funds 4.53 13.60
Your fund's 6- and 12-month returns were 5.15% and 18.58%, well ahead of
the Lipper Average of General U.S. Treasury Funds' gains of 4.53% and
13.60% for the same periods. Its six-month dividends per share rose by one
penny compared with November 30, 1997, partly due to the fund's aggressive
interest rate posture.
Our superior performance, especially over the past year, was attributable
in large part to consistency. While many investors were distracted by the
possibility of a change in Fed policy, we pursued a long-duration strategy
that assumed rates would not change. We believed that as long as the
federal funds target remained stable, long-term rates would trend down and
longer bonds would provide the most attractive income. We therefore kept
the fund's average maturity near the maximum end of its allowable range
and its duration at approximately 11 years-longer than most competing
funds. The strategy worked quite well in a generally falling interest rate
environment.
We acknowledge that this approach makes the fund's share price very
sensitive to interest rate changes. However, we still feel that it is
appropriate. Inflation is extremely low, interest rates are flat to
declining, and despite occasional fears there has been virtually no hard
data to suggest that these trends are coming to an end.
We are still enhancing the fund's dividends by investing approximately 12%
of assets in mortgage-backed securities, which offer somewhat higher
income than Treasuries in addition to top-of-the-line credit quality. We
also expect these securities, which are less sensitive to rising rates
than Treasuries, to provide a hedge if the market changes direction.
Outlook
With the troubles in Asia putting pressure on the U.S. economy and
domestic inflation under wraps, we see little likelihood of any tightening
by the Fed in the near future and possibly not through year-end. As long
as the central bank stands pat, we expect to remain somewhat more
aggressive than our peers. However, we plan to keep a close eye on
inflation data. If there were any evidence that inflation is starting to
pick up, we would consider more defensive strategies.
Respectfully submitted,
Peter Van Dyke
President
June 19, 1998
T. Rowe Price U.S. Treasury Funds
Portfolio Highlights
Key statistics
11/30/97 5/31/98
U.S. Treasury Money Fund
Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.024 0.024
For 12 months 0.047 0.048
Dividend Yield (7-Day Compound) * 4.97% 4.91%
Weighted Average Maturity (days) 74 85
Weighted Average Quality ** First Tier First Tier
U.S. Treasury Intermediate Fund
Price Per Share $ 5.25 $ 5.30
Dividends Per Share
For 6 months 0.15 0.15
For 12 months 0.31 0.30
Dividend Yield *
For 6 months 5.98% 5.61%
For 12 months 6.17 5.88
Weighted Average Maturity (years) 5.7 6.3
Weighted Average
Effective Duration (years) 4.5 5.0
Weighted Average Quality *** AAA AAA
Key statistics
11/30/97 5/31/98
U.S. Treasury Long-Term Fund
Price Per Share $ 11.14 $ 11.39
Dividends Per Share
For 6 months 0.31 0.32
For 12 months 0.63 0.63
Dividend Yield *
For 6 months 5.97% 5.70%
For 12 months 6.23 5.92
Weighted Average Maturity (years) 22.8 23.0
Weighted Average
Effective Duration (years) 11.1 11.4
Weighted Average Quality *** AAA AAA
(continued on next page)
* Dividends earned and reinvested for the periods indicated are
annualized and divided by the average daily net asset values per
share for the same period.
** All securities purchased in the money fund are rated in the two
highest categories (tiers) as established by national rating
agencies or, if unrated, are deemed of comparable quality by
T. Rowe Price.
*** Based on T. Rowe Price research.
Note:Investments in the U.S. Treasury Funds are neither insured nor
guaranteed by the U.S. government.
T. Rowe Price U.S. Treasury Funds
Performance Comparison
These charts show the value of a hypothetical $10,000 investment in each
fund over the past 10 fiscal year periods or since inception (for funds
lacking 10-year records). The result is compared with a broad-based
average or index. The index return does not reflect expenses, which have
been deducted from the fund's return.
U.S. Treasury Money Fund
Lipper U.S. Treasury
Money Market U.S. Treasury
Funds Average Money Fund
5/88 $10,000 $ 10,000
5/89 10,784 10,762
5/90 11,657 11,616
5/91 12,474 12,399
5/92 13,049 12,955
5/93 13,413 13,305
5/94 13,766 13,654
5/95 14,394 14,279
5/96 15,112 15,004
5/97 15,825 15,715
5/98 16,597 16,486
T. Rowe Price U.S. Treasury Intermediate Fund
Salomon Smith
Barney 1-7 U.S. Treasury
Year Treasury Index Intermediate Fund
9/29/89 $10,000 $10,000
5/90 10,519 10,480
5/91 11,747 11,657
5/92 13,051 12,975
5/93 14,281 14,361
5/94 14,494 14,462
5/95 15,712 15,805
5/96 16,606 16,362
5/97 17,743 17,422
5/98 19,165 19,091
T. Rowe Price U.S. Treasury Long-Term Fund
Salomon Smith
Barney 1-7 U.S. Treasury
Year Treasury Index Long-Term Fund
9/29/89 $10,000 $ 10,000
5/90 10,426 10,301
5/91 11,669 11,418
5/92 13,070 12,766
5/93 14,658 14,557
5/94 14,822 14,543
5/95 16,436 16,760
5/96 17,091 16,932
5/97 18,364 18,281
5/98 20,442 21,676
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.
Periods Ended Since Inception
5/31/98 1 Year Years Years Inception Date
______________________________________________________________________
U.S. Treasury
Money Fund 4.91% 4.38% 5.13% - 6/28/82
U.S. Treasury
Intermediate
Fund 9.58 5.86 - 7.74% 9/29/89
U.S. Treasury
Long-Term Fund18.58 8.29 - 9.33 9/29/89
Investment return represents past performance and will vary. Shares of the
bond funds may be worth more or less at redemption than at original
purchase. The Money Fund's $1.00 share price is not guaranteed.
T. Rowe Price U.S. Treasury Money Fund
For a share outstanding throughout each period
Financial Highlights
Year 3 Months+ Year
Ended Ended Ended
5/31/985/31/975/31/965/31/95 5/31/94 2/28/94
NET ASSET VALUE
Beginning of
period $1.000 $1.000 $1.000 $1.000 $ 1.000 $1.000
Investment activities
Net investment income0.048 0.046 0.050 0.045 0.007 0.025
Distributions
Net investment income(0.048)(0.046)(0.050)(0.045)(0.007)(0.025)
NET ASSET VALUE
End of period $1.000 $1.000 $1.000 $1.000 $ 1.000 $1.000
__________________________________________________
Ratios/Supplemental Data
Total return* 4.91% 4.74% 5.08% 4.58% 0.73% 2.51%
Ratio of expenses to
average net assets 0.51% 0.56% 0.53% 0.56% 0.57%! 0.64%
Ratio of net investment
income to average
net assets 4.82% 4.65% 4.93% 4.51% 2.87%! 2.48%
Net assets, end of period
(in thousands)$846,586$821,075$760,010$719,215 $654,837$613,583
* Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment
of all distributions.
! Annualized.
+ The fund's fiscal year-end was changed to May 31.
T. Rowe Price U.S. Treasury Intermediate Fund
Year 3 Months+ Year
Ended Ended Ended
5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94
NET ASSET VALUE
Beginning of
period $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42
Investment activities
Net investment
income 0.30 0.31 0.33 0.31 0.08 0.29
Net realized and
unrealized gain
(loss) 0.18 0.01 (0.14) 0.14 (0.19) (0.09)
Total from
investment
activities 0.48 0.32 0.19 0.45 (0.11) 0.20
Distributions
Net investment
income (0.30) (0.31) (0.33) (0.31) (0.08) (0.29)
Net realized
gain - - - - (0.02) (0.01)
Total
distributions (0.30) (0.31) (0.33) (0.31) (0.10) (0.30)
NET ASSET VALUE
End of period $ 5.30 $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32
_________________________________________________________
Ratios/Supplemental Data
Total return* 9.58% 6.48% 3.52% 9.29% (2.16)% 3.80%
Ratio of
expenses to
average net
assets 0.61% 0.64% 0.65% 0.69% 0.70%! 0.79%
Ratio of net
investment
income to average
net assets 5.72% 6.11% 6.14% 6.19% 5.78%! 5.41%
Portfolio turnover
rate 112.8% 57.9% 40.7% 81.1% 45.5%! 20.2%
Net assets, end
of period
(in thousands)$203,027$180,609$174,176$172,666 $181,231$175,953
* Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment
of all distributions.
! Annualized.
+ The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
For a share outstanding throughout each period
Financial Highlights
Year 3 Months+ Year
Ended Ended Ended
5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94
NET ASSET VALUE
Beginning of
period $10.17 $10.02 $ 10.54 $ 9.81 $10.46 $ 10.79
Investment activities
Net investment
income 0.63 0.63 0.65* 0.68* 0.17* 0.68*
Net realized and
unrealized
gain (loss) 1.22 0.15 (0.52) 0.73 (0.64) (0.04)
Total from
investment
activities 1.85 0.78 0.13 1.41 (0.47) 0.64
Distributions
Net investment
income (0.63) (0.63) (0.65) (0.68) (0.17) (0.68)
Net realized
gain - - - - (0.01) (0.29)
Total
distributions (0.63) (0.63) (0.65) (0.68) (0.18) (0.97)
NET ASSET VALUE
End of period $11.39 $10.17 $ 10.02 $ 10.54 $ 9.81 $ 10.46
_________________________________________________________
Ratios/Supplemental Data
Total return* 18.58% 7.97% 1.02%* 15.24%*(4.50)%* 5.89%*
Ratio of expenses
to average net
assets 0.67% 0.80% 0.80%* 0.80%* 0.80%*! 0.80%*
Ratio of net
investment
income to average
net assets 5.71% 6.22% 6.05%* 7.05%* 6.75%*! 6.17%*
Portfolio turnover
rate 80.8% 67.6% 60.1% 99.3% 246.9%! 59.4%
Net assets,
end of period
(in thousands)$275,850$71,263 $70,326 $65,284 $54,237$56,632
* Total return reflects the rate that an investor would have earned on
an investment in the fund during each period, assuming reinvestment
of all distributions.
* Excludes expenses in excess of a 0.80% voluntary expense
limitation in effect through 5/31/97.
! Annualized.
+ The fund's fiscal year-end was changed to May 31.
The accompanying notes are an integral part of these financial statements.
U.S. Treasury Money Fund
May 31, 1998
Statement of Net Assets Par/Shares Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 97.0%
U.S. Treasury Obligations 97.0%
U.S. Treasury Bills
4.60%, 7/9/98 $ 1,220 $ 1,214
4.73%, 7/23/98 8,697 8,638
4.795%, 6/18/98 2,553 2,547
4.835%, 6/18/98 8,608 8,588
5.00%, 6/18/98 26,303 26,241
5.05%, 6/11/98 30,000 29,958
5.07%, 8/20/98 2,663 2,633
5.075%, 8/20/98 10,000 9,887
U.S. Treasury Notes
5.25%, 7/31/98 20,000 19,996
5.75%, 12/31/98 20,000 20,019
5.875%, 8/15 - 10/31/98 130,000 130,147
6.00%, 9/30/98 100,000 100,190
6.125%, 8/31/98 100,000 100,166
6.25%, 6/30/98 - 3/31/99 200,000 200,301
7.125%, 10/15/98 60,000 60,375
8.25%, 7/15/98 100,000 100,346
Total U.S. Government
Obligations (Cost $821,246) 821,246
Total Investments in Securities
97.0% of Net Assets (Cost $821,246) $ 821,246
Other Assets Less Liabilities 25,340
NET ASSETS $ 846,586
________
Net Assets Consist of:
Accumulated net investment
income - net of distributions $81
Accumulated net realized
gain/loss - net of distributions 162
Paid-in-capital applicable to 846,421,169
shares of $0.01 par value capital stock
outstanding; 1,000,000,000 shares of
the Corporation authorized 846,343
NET ASSETS $846,586
________
NET ASSET VALUE PER SHARE $1.00
________
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund May 31, 1998
Statement of Net Assets Par/Shares Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 85.6%
U.S. Treasury Obligations 85.6%
U.S. Treasury Bonds, 11.625%, 11/15/04$ 12,100 $ 15,963
U.S. Treasury Notes
Zero Coupon, 8/15/03 4,000 3,000
Zero Coupon, 2/15/04 4,500 3,281
Zero Coupon, 2/15/05 14,600 10,041
Zero Coupon, 2/15/06 21,000 13,602
Zero Coupon, 2/15/08 4,000 2,301
5.75%, 8/15/03 21,500 21,655
5.875%, 2/15/04 21,125 21,415
6.25%, 2/15/03 9,900 10,160
6.50%, 5/15/05 - 10/15/06 49,835 52,341
7.50%, 2/15/05 18,100 19,955
Total U.S. Government
Obligations (Cost $171,009) 173,714
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 13.5%
U.S. Government Guaranteed Obligations 13.5%
Government National Mortgage Assn.
I
6.50%, 8/15/02 - 4/15/28 8,230 8,194
7.00%, 7/15 - 9/15/16 1,767 1,826
7.50%, 2/15/16 - 11/15/17 1,423 1,487
8.00%, 2/15/08 - 10/15/25 2,606 2,729
8.50%, 8/15/04 - 4/15/23 1,375 1,457
9.00%, 5/15/16 - 11/15/25 155 167
9.50%, 12/15/24 - 5/15/25 984 1,066
10.00%, 8/15/19 150 167
10.50%, 11/15/14 166 185
11.00%, 12/15/09 - 12/15/19 1,016 1,147
11.50%, 3/15/10 - 11/15/18 2,028 2,325
12.50%, 10/15/13 - 3/15/15 248 291
Government National Mortgage Assn.
II
9.00%, 10/20/16 - 2/20/27 $ 217 $ 230
9.50%, 1/20 - 11/20/25 248 267
10.50%, 1/20/16 - 6/20/19 829 918
GPM, I, 11.00%, 9/15/10 179 199
Midget, I
6.00%, 12/15/08 - 3/15/11 865 862
7.50%, 10/15/07 - 12/15/10 1,628 1,685
9.00%, 5/15/01 - 10/15/05 1,379 1,430
9.50%, 7/15/98 - 12/15/05 406 422
10.00%, 11/15/00 - 9/15/05 194 205
10.50%, 1/15/01 - 9/15/04 41 44
11.00%, 8/15/00 19 19
11.50%, 11/15/98 - 7/15/00 86 89
Midget, II
11.00%, 9/20/99 3 3
11.50%, 12/20/98 - 10/20/00 10 10
Total U.S. Government Mortgage-Backed
Securities (Cost $26,987) 27,424
MONEY MARKET FUNDS 0.1%
Government Reserve
Investment Fund, 5.46% # 260 260
Total Money Market Funds (Cost $260) 260
Total Investments in Securities
99.2% of Net Assets (Cost $198,256) $201,398
Other Assets Less Liabilities 1,629
NET ASSETS $203,027
________
Net Assets Consist of:
Accumulated net investment
income - net of distributions $ (932)
Accumulated net realized
gain/loss - net of distributions 2,210
Net unrealized gain (loss) 3,142
Paid-in-capital applicable to
38,278,914 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of the
Corporation authorized 198,607
NET ASSETS $ 203,027
_______
NET ASSET VALUE PER SHARE $ 5.30
_______
# Seven-day yield
GPM Graduated Payment Mortgage
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
May 31, 1998
Statement of Net Assets Par/Shares Value
In thousands
U.S. GOVERNMENT OBLIGATIONS 85.9%
U.S. Treasury Obligations 85.9%
U.S. Treasury Bonds
6.00%, 2/15/26 $ 37,000 $ 37,555
6.125%, 11/15/27 12,250 12,799
6.25%, 8/15/23 42,000 43,929
6.375%, 8/15/27 21,550 23,096
6.625%, 2/15/27 6,500 7,166
7.125%, 2/15/23 25,000 28,926
7.25%, 5/15/16 31,000 35,689
7.50%, 11/15/24 17,000 20,613
7.625%, 2/15/25 18,000 22,143
9.25%, 2/15/16 3,750 5,133
Total U.S. Government
Obligations (Cost $222,218) 237,049
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 12.3%
U.S. Government Guaranteed Obligations 12.3%
Government National Mortgage Assn.
I
8.00%, 10/15/16 - 3/15/17 259 273
8.50%, 12/15/24 - 6/15/26 2,550 2,695
9.00%, 11/15/04 - 8/15/25 8,209 8,853
9.50%, 8/15/09 - 12/15/17 9,387 10,250
10.00%, 12/15/17 - 7/15/22 1,214 1,344
10.50%, 5/15/13 - 7/15/19 315 353
11.50%, 10/15/10 - 8/15/15 147 168
II
7.00%, 11/20/23 - 1/20/24 42 42
8.50%, 10/20/24 781 820
Project Loan, I, 7.35%, 7/15/32 361 383
REMIC
6.35%, 1/20/28 5,000 4,725
6.50%, 10/16/24 2,000 1,972
7.00%, 5/16/24 2,000 2,032
Interest Only, 8.00%, 6/16/23** 749 106
Total U.S. Government Mortgage-Backed
Securities (Cost $33,628) 34,016
MONEY MARKET FUNDS 0.3%
Government Reserve Investment
Fund, 5.46% # 673 $ 673
Total Money Market Funds (Cost $673) 673
Total Investments in Securities
98.5% of Net Assets (Cost $256,519) $ 271,738
Other Assets Less Liabilities 4,112
NET ASSETS $ 275,850
_______
Net Assets Consist of:
Accumulated net investment
income - net of distributions $ 12
Accumulated net realized
gain/loss - net of distributions 920
Net unrealized gain (loss) 15,219
Paid-in-capital applicable to
24,213,350 shares of $0.01 par
value capital stock outstanding;
1,000,000,000 shares of the
Corporation authorized 259,699
NET ASSETS $ 275,850
_______
NET ASSET VALUE PER SHARE $ 11.39
_______
** For Interest Only securities, par 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.
T. Rowe Price U.S. Treasury Funds
Statement of Operations
Money Intermediate Long-Term
Fund Fund Fund
Year Year Year
Ended Ended Ended
5/31/98 5/31/98 5/31/98
Investment Income
Interest income $ 43,933 $ 12,270 $ 11,410
Expenses
Investment management 2,668 724 687
Shareholder servicing 1,277 278 349
Custody and accounting 111 101 91
Prospectus and
shareholder reports 84 25 18
Registration 39 27 27
Legal and audit 15 12 11
Directors 7 7 12
Miscellaneous 8 5 4
Total expenses 4,209 1,179 1,199
Net investment income 39,724 11,091 10,211
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
on securities 22 3,504 1,725
Change in net unrealized gain or loss
on securities - 2,971 13,578
Net realized and unrealized
gain (loss) 22 6,475 15,303
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 39,746 $ 17,566 $ 25,514
______ ______ ______
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Money Fund
Statement of Changes in Net Assets
Year
Ended
5/31/98 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 39,724 $ 36,600
Net realized gain (loss) 22 16
Increase (decrease) in net assets
from operations 39,746 36,616
Distributions to shareholders
Net investment income (39,724) (36,600)
Capital share transactions*
Shares sold 2,832,862 2,298,880
Distributions reinvested 38,169 35,238
Shares redeemed (2,845,542) (2,273,069)
Increase (decrease) in net
assets from capital share transactions25,489 61,049
Net Assets
Increase (decrease) during period 25,511 61,065
Beginning of period 821,075 760,010
End of period $ 846,586 $ 821,075
_______ _______
*Share information
Shares sold 2,832,862 2,298,880
Distributions reinvested 38,169 35,238
Shares redeemed (2,845,542) (2,273,069)
Increase (decrease) in
shares outstanding 25,489 61,049
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
Statement of Changes in Net Assets
Year
Ended
5/31/98 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 11,091 $ 11,210
Net realized gain (loss) 3,504 (129)
Change in net unrealized gain or loss2,971 187
Increase (decrease) in net
assets from operations 17,566 11,268
Distributions to shareholders
Net investment income (11,091) (11,195)
Tax return of capital - (15)
Decrease in net assets
from distributions (11,091) (11,210)
Capital share transactions*
Shares sold 70,483 89,735
Distributions reinvested 8,823 8,985
Shares redeemed (63,363) (92,345)
Increase (decrease) in net assets
from capital share transactions 15,943 6,375
Net Assets
Increase (decrease) during period 22,418 6,433
Beginning of period 180,609 174,176
End of period $ 203,027 $ 180,609
_______ _______
*Share information
Shares sold 13,387 17,454
Distributions reinvested 1,679 1,746
Shares redeemed (12,041) (18,022)
Increase (decrease) in
shares outstanding 3,025 1,178
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
Statement of Changes in Net Assets
In thousands
Year
Ended
5/31/98 5/31/97
Increase (Decrease) in Net Assets
Operations
Net investment income $ 10,211 $ 4,515
Net realized gain (loss) 1,725 (130)
Change in net unrealized gain or loss13,578 1,424
Increase (decrease) in net
assets from operations 25,514 5,809
Distributions to shareholders
Net investment income (10,211) (4,515)
Capital share transactions*
Shares sold 237,577 28,170
Distributions reinvested 9,579 3,826
Shares redeemed (57,872) (32,353)
Increase (decrease) in net assets
from capital share transactions 189,284 (357)
Net Assets
Increase (decrease) during period 204,587 937
Beginning of period 71,263 70,326
End of period $ 275,850 $ 71,263
_______ ______
*Share information
Shares sold 21,591 2,775
Distributions reinvested 859 375
Shares redeemed (5,242) (3,160)
Increase (decrease) in
shares outstanding 17,208 (10)
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Funds
May 31, 1998
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.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation.
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
Purchases and sales of U.S. Government securities, other than short-term
securities, for the year ended May 31, 1998, were as follows:
Intermediate Long-Term
Fund Fund
U.S. government securities
Purchases $236,738,000$328,398,000
Sales 214,313,000142,867,000
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. At May 31, 1998, the Intermediate and Long-Term
Funds had no unused realized capital loss carryforwards for federal income
tax purposes. Capital loss carryforwards utilized by the Intermediate and
Long-Term Funds in fiscal 1998 amounted to $1,309,000 and $591,000,
respectively.
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, 1998.
The results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
Undistributed net investment income $ (15,000)
Undistributed net realized gain 15,000
At May 31, 1998, the aggregate costs of investments for the Money,
Intermediate, and Long-Term Funds for federal income tax and financial
reporting purposes were $821,246,000, $198,256,000, and $256,519,000,
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 $3,181,000 $15,739,000
Depreciated investments (39,000) (520,000)
Net unrealized gain (loss) $3,142,000 $15,219,000
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 $228,000, $63,000, and $84,000 were payable at
May 31, 1998 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, 1998, and for the year 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 year ended May 31, 1998.
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
$1,110,000, $289,000, and $378,000, respectively, for the year ended May
31, 1998, of which $109,000, $30,000, and $2,000, 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 T. Rowe Price Spectrum International, Rowe
Price-Fleming International. Spectrum Income Fund held approximately 61.1%
of the outstanding shares of the Long-Term Fund at May 31, 1998. For the
year then ended, the Long-Term Fund was allocated $192,000 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 the
Long-Term Funds for the year ended May 31,1998, totaled $110,000 and
$64,000, respectively, and are reflected as interest income in the
accompanying Statement of Operations.
T. Rowe Price U.S. Treasury Funds
Report of Independent Accountants
To the Board of Directors and Shareholders of
T. Rowe Price U.S. Treasury Funds, Inc.
In our opinion, the accompanying statements of net assets and the related
statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial
position of U.S. Treasury Money Fund, U.S. Treasury Intermediate Fund, and
U.S. Treasury Long-Term Fund (constituting T. Rowe Price U.S. Treasury
Funds, Inc., hereafter referred to as the "Funds") at May 31, 1998, 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, 1998, and the financial highlights for each of the four years in
the period ended May 31, 1998, 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, 1998, by correspondence with the
custodian, 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 17, 1998
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(registered trademark)
and the T. Rowe Price Web site on the Internet. Address:
www.troweprice.com
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 all your accounts with T. Rowe Price.
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.
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 500*
Extended Equity Market 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
Total Equity Market Index
Value
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 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
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
* Formerly named Equity Index.
** Formerly the closed-end New Age Media Fund. Converted to open-end
status on 7/28/97.
*** Closed to new investors.
! Formerly named Global Government Bond.
!! Neither the funds nor their share prices are insured or guaranteed by
the U.S. government.
Please call for a prospectus. Read it carefully before investing.
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(registered trademark):
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.C07-050 5/31/98
