- --------------------------------------------------------------------------------
T. Rowe Price
- --------------------------------------------------------------------------------
Semiannual Report
U.S. Treasury Funds
- --------------------------------------------------------------------------------
November 30, 1998
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REPORT HIGHLIGHTS
================================================================================
U.S. Treasury Funds
* Global weakness sparked a sharp rally in U.S. Treasuries, and the
Federal Reserve cut interest rates three times.
* The U.S. Treasury Money Fund sought to maintain income by keeping its
average maturity higher than its peer group's.
* The U.S. Treasury Intermediate Fund and the U.S. Treasury Long-Term
Fund posted returns that exceeded their peer groups.
* Both the U.S. Treasury Intermediate Fund and the U.S. Treasury Long-
Term Fund maintained aggressive duration strategies.
* We expect economic growth to moderate, possibly leading to further
interest rate cuts.
<PAGE>
================================================================================
FELLOW SHAREHOLDERS
================================================================================
Global economic weakness once again dominated the domestic investment
environment during the past six months. The Treasury market rallied sharply in
the autumn as investors retreated to low-risk securities and the Federal Reserve
cut the federal funds target rate three times. Your funds benefited in this
environment, providing returns that outpaced their benchmark averages.
MARKET ENVIRONMENT
[Edgar description: chart showing interest rates for 30-Year Treasury
Bonds, 5-Year Treasury Notes, and 90-Day Treasury Bills 11/30/97 through
11/30/98.]
Over the past six and 12 months, the U.S. enjoyed steady gross domestic
product (GDP) growth, low inflation, and positive financial market gains.
However, these conditions were overshadowed by a string of negative global
events that produced considerable market volatility and investor anxiety.
Throughout the period, the effects of last year's Southeast Asia collapse showed
in weakening corporate earnings reports and a growing U.S. external trade
deficit. In August, Russia effectively defaulted on its external debts and
devalued its currency. On September 25, news of the near failure of a prominent
multinational hedge fund, along with details of the risks to major international
banks and the bailout orchestrated by the Federal Reserve, raised the specter of
a global liquidity crunch. These events prompted severe weakness among equities
and higher-risk fixed income securities, such as high-yield corporate issues and
emerging market bonds. Demand for high-quality investments---especially U.S.
Treasuries---soared in the midst of a so-called "flight to quality."
Between July and August, Treasury rates fell sharply as rising demand met
with dwindling supply. The Treasury recently paid off a large amount of debt,
wiping out a significant supply of short-term Treasuries, because of the
government's $70 billion fiscal year 1998 budget surplus. The yield curve
flattened, and intermediate rates even moved lower than short rates, a sign that
investors expected future interest rate cuts. The Federal Reserve did not
disappoint, reducing short-term interest rates a total of 75 basis points
between September and November. The moves eased the perceived credit crunch
while improving consumer and investor confidence at home. They also helped
restore stability to the bond and stock markets, paving the way for a November
rebound in the higher-risk instruments that were sold off earlier in the autumn.
================================================================================
<PAGE>
PREPARING FOR THE YEAR 2000
---------------------------
The Year 2000 draws closer every day, and it holds
special meaning beyond the arrival of a new millennium.
The issue for investors is that many computer programs
throughout the world use two digits instead of four to
identify the year and may assume the next century
starts with 1900. If these programs are not modified,
they will not be able to correctly handle the century
change when the year changes from "99" to "00" on
January 1, 2000, and they will no longer be able to
perform necessary functions. The Year 2000 issue
affects all companies and organizations.
T. Rowe Price has been taking steps to assure that
its computer systems and processes are capable of
functioning in the Year 2000. Detailed plans for
remediation efforts have been developed and are
currently being executed.
OUR PLAN OF ACTION
------------------
We began to address these issues several years ago
by requiring that all new systems process and store
four-digit years. We will complete all reprogramming
efforts for the major application systems, including
business applications required to service our customers
and processing infrastructure necessary to ensure the
integrity of customer data and investments, by December
31, 1998, leaving a full 12 months for system testing.
Because we exchange data electronically with customers
and vendors, we are working with them to assess the
adequacy of their own compliance efforts. Our goal is
to ensure the continuation of the same level of service
to all our mutual fund shareholders and clients after
December 31, 1999.
We are asking all vendors and companies we do
business with for a Year 2000 compliance status, with
the expectation that some organizations will not be
able to modify their interface files prior to December
31, 1999. Our goal is to identify any noncompliant
files so that we can implement alternative solutions.
In addition, we are scheduling tests for critical
vendors and companies that claim Year 2000 compliance
to ensure that time-related data and calculations
function properly as we move into the next century.
<PAGE>
SMOOTH TRANSITION PLANNED
-------------------------
We believe our programs and initiatives will
provide a smooth transition into the next millennium.
We are assessing all systems providing products or
services to our retail mutual fund shareholders,
retirement plan sponsors, and participants, and we are
taking steps to modify them where necessary for the
Year 2000. Our plan provides time to develop solutions
for all noncompliant systems and data files from
customers or vendors.
The Securities Industry Association (SIA) is
coordinating Year 2000 testing to assure that
securities markets, clearing corporations,
depositories, and third party service providers can
send, receive, and process files and transactions
accurately. In late July 1998, the SIA completed a beta
test of Year 2000 readiness. The test was considered
successful in terms of transactions completed and will
serve as the basis for the SIA's industry-wide
approach. During October 1998, T. Rowe Price completed
its beta test of Year 2000 readiness with the SIA and
is ready for the industry-wide test that is scheduled
for March and April 1999.
For a more detailed discussion of our Year 2000
effort, as well as continuing updates on our progress,
please check our Web site (www.troweprice.com).
================================================================================
Treasury funds of all maturities benefited from lower rates and higher
demand for safety, although they struggled to maintain their dividend payouts in
a markedly lower-rate environment.
<PAGE>
U.S. TREASURY MONEY FUND
Performance Comparison
----------------------
Periods Ended 11/30/98 6 Months 12 Months
---------------------- -------- ---------
U.S. Treasury Money Fund 2.35% 4.84%
------------------------ ----- -----
Lipper U.S. Treasury
Money Market Funds Average 2.30 4.75
-------------------------- ---- ----
Your investment in the U.S. Treasury Money Fund is neither insured nor
guaranteed by the U.S. government.
================================================================================
Falling interest rates during the past six months kept absolute returns low
for money market funds. However, during the period, your fund managed a total
return of 2.35%, ahead of the Lipper U.S. Treasury Money Market Funds Average.
The fund's 4.84% one-year return also outpaced the Lipper average. Dividends per
share for both the 6- and 12-month periods slipped by one-tenth of one penny
from prior periods.
Our greatest challenge during the period was in maintaining the fund's
dividend yield in an environment of unusually depressed rates. In early October,
at the height of autumn's market disruptions, the yield on the one-year Treasury
bill sank to 3.91%---109 basis points below the federal funds target rate of 5%.
Over the past 10 years, one-year bills have offered investors an average of 17
basis points more yield than the target rate, but during the past six months,
the average was 39 basis points less (100 basis points equal one percentage
point).
We chose to keep a relatively long weighted average maturity, since longer
issues tend to provide more yield than shorter ones. The fund's maturity
averaged about 15 days longer than the typical 100% Treasury fund and ended the
period at 79 days. Given the pressures pushing interest rates downward, we were
comfortable with this positioning.
We used a "laddered" maturity structure during the period, meaning we
divided assets among sets of issues with fairly evenly spaced maturities to
achieve the desired average. This strategy allowed us to add diversification to
the portfolio as we extended its maturity and helped compensate for the
comparatively thin supply of very short-term Treasuries.
<PAGE>
We supplemented our standard portfolio of Treasury bills with other
government-issued securities that offered comparatively attractive income. For
example, Treasury notes with remaining maturities under one year were used
extensively because they offer higher yields to compensate for their slightly
reduced liquidity. These notes were also less likely to experience the supply
disruptions affecting the bill market. Cash management bills, which the Treasury
issues periodically to manage short-term cash shortages, were also held when
possible because they added yield and diversification by maturity.
U.S. TREASURY INTERMEDIATE FUND
Performance Comparison
----------------------
Periods Ended 11/30/98 6 Months 12 Months
---------------------- -------- ---------
U.S. Treasury
Intermediate Fund 6.85% 10.88%
----------------- ----- ------
Lipper Average of
Intermediate
U.S. Treasury Funds 5.71 9.75
------------------- ---- ----
================================================================================
Plunging yields and soaring prices led to strong performance for
intermediate Treasury bonds in general and your fund in particular. The fund's
6.85% six-month and 10.88% 12-month total returns were exceptional on an
absolute basis and also significantly outpaced gains for the Lipper Average of
Intermediate U.S. Treasury Funds. A significant portion of the return was
principal gain, as the fund added $0.22 to its share price in the past six
months. We were also able to maintain reasonably steady income: despite the
sharp drop in Treasury yields, the six-month dividend payout dropped by only a
penny per share from the prior period.
Between November 30, 1997, and September 30, 1998---the height of the
Treasury rally---the yield on the five-year Treasury sank a remarkable 160 basis
points. Falling rates are a mixed blessing: they generate considerable price
gains, but they also reduce available yields. Our strategy during this period
was to maintain an aggressive, 5.3-year duration, longer than our peer group and
index. (Duration is a measure of price sensitivity to changes in interest rates.
A fund having a duration of five years will have a 5% appreciation or decline in
price in response to a one-percentage-point fall or rise, respectively, in
interest rates.) In addition to providing higher yields, longer bonds are more
sensitive to changes in interest rates. Despite a modest setback in November
when interest rates moved somewhat higher, our duration strategy was beneficial
to performance for the period as a whole.
<PAGE>
Falling rates also spur mortgage-backed bond prepayments, which occur when
homeowners refinance their mortgages. As a result of prepayments, our mortgage
position slipped from 14% of assets six months ago to 10% at the end of the
period. We did not aggressively rebuild this position as we were concerned about
the increased volatility prepayments were causing in this sector. However, over
the long run mortgage-backed bonds have always provided additional income and
enhanced returns to the fund, and we will look for opportunities to selectively
increase this exposure.
U.S. TREASURY LONG-TERM FUND
Performance Comparison
----------------------
Periods Ended 11/30/98 6 Months 12 Months
---------------------- -------- ---------
U.S. Treasury
Long-Term Fund 9.21% 14.83%
-------------- ----- ------
Lipper Average of General
U.S. Treasury Funds 6.48 11.19
------------------- ---- -----
================================================================================
Your fund produced a strong 9.21% six-month total return, far outpacing the
6.48% showing for the Lipper Average of General U.S. Treasury Funds. This gain
contributed to a 14.83% one-year return, similarly ahead of the Lipper average's
11.19% gain. Since May 31, the fund's price per share rose $0.73, and while
falling interest rates pushed yields down, we were able to keep dividends
relatively steady.
The fund's outperformance came primarily from its long duration of 11.7
years---approximately half a year longer than that of its benchmark and its
Lipper peer group. (See U.S. Treasury Intermediate Fund for a description of
duration.) We initially achieved a long average duration through use of a
"barbell" strategy, which overweights long and short issues while underweighting
intermediate maturities. Our long Treasuries posted significant principal gains
as interest rates fell and also provided the funds a relatively stable income
stream. As the yield curve flattened during the period, however, we introduced
intermediate bonds and structured mortgages into the portfolio to take advantage
of their attractive performance.
<PAGE>
The fund's duration posture has been aggressive and would hurt performance
if interest rates climbed sharply. At this time, with inflation low and economic
growth moderate, we expect a flat-to-declining interest rate environment.
Nonetheless, we have maintained positions in the portfolio that we feel can help
dampen the fund's risk. For example, we held a number of premium bonds
(high-priced bonds with above-market coupons) since these holdings enhance
dividends and react more moderately to interest rate changes.
We also held a 13.4% stake in mortgage-backed bonds---near the fund's 15%
maximum for non-Treasury investments---for the same reasons. Falling rates often
lead to prepayments of mortgage-backed bonds, so to prevent our mortgage
holdings from being called away too quickly, we moved into more structured
mortgage products (in particular, collateralized mortgage obligations or CMOs).
These have better prepayment protection but offer somewhat less of a yield
advantage than typical mortgage securities. We expect to keep our mortgage
weighting near the 15% maximum allowed for the fund unless our outlook for
mortgages becomes negative.
OUTLOOK
With international economic weakness impinging on U.S. corporate profit
health, we expect 1999 to be marked by slower GDP growth, perhaps below 2%.
Recession appears unlikely at this time, but the already accommodative Fed may
lower rates further to take pressure off corporations, head off additional
international crises, and promote market stability. Nonetheless, we anticipate
further volatility in the equity and bond markets.
These conditions create a favorable backdrop for Treasuries. Backed by the
full faith and credit of the United States government, Treasuries are generally
not prone to negative sentiment when private sector corporate profits are
strained. They also react very positively to declines in interest rates. As they
have in recent periods, the Treasury funds should retain their long interest
rate postures to take advantage of falling rates and the modestly higher yields
on longer issues. However, if we begin to see indications of a sustainable
recovery abroad, a subsequent acceleration in economic activity at home, or
other events that could signal a change of course by the Fed, we would likely
move to a less aggressive duration stance.
Respectfully submitted,
[signature]
Peter Van Dyke
President
December 22, 1998
<PAGE>
================================================================================
CHANGE IN MANAGEMENT
Peter Van Dyke, a managing director of T. Rowe Price Associates and
director of the taxable bond department, is planning to retire at the end of
this year. We are grateful for his contributions and wish him the very best for
the future. Your directors have elected William T. Reynolds as president of the
U.S. Treasury Funds. Mr. Reynolds is a director of T. Rowe Price Associates and
the director of the fixed income department. He joined T. Rowe Price in 1981 and
has been managing investments since 1978. Cheryl A. Mickel, an assistant vice
president of T. Rowe Price Associates, has been appointed chairman of the U.S.
Treasury Intermediate Fund's Investment Advisory Committee. She joined T. Rowe
Price in 1989 and has been managing investments since 1997. Other committee
members include Connice A. Bavely, Jerome A. Clark, Heather R. Landon, Alan D.
Levenson, and William T. Reynolds. Jerome A. Clark, a vice president of T. Rowe
Price Associates, has been appointed chairman of the U.S. Treasury Long-Term
Fund's Investment Advisory Committee. He joined T. Rowe Price in 1992 and has
been managing investments since 1994. Other committee members include Connice A.
Bavely, Cheryl A. Mickel, Heather R. Landon, Alan D. Levenson, and William T.
Reynolds.
The preceding updates the U.S. Treasury Funds prospectus of October 1,
1998.
================================================================================
<PAGE>
T. Rowe Price U.S. Treasury Funds
PORTFOLIO HIGHLIGHTS
KEY STATISTICS
5/31/98 11/30/98
------- --------
U.S. Treasury Money Fund
Price Per Share ............................... $ 1.00 $ 1.00
Dividends Per Share
For 6 months ............................. 0.024 0.023
For 12 months ............................ 0.048 0.047
Dividend Yield (7-Day Compound) * ............. 4.91% 4.36%
Weighted Average Maturity (days) .............. 85 79
Weighted Average Quality ** ................... First Tier First Tier
================================================================================
U.S. TREASURY INTERMEDIATE FUND
- -------------------------------
Price Per Share ............................... $ 5.30 $ 5.52
Dividends Per Share
For 6 months ............................. 0.15 0.14
For 12 months ............................ 0.30 0.29
Dividend Yield *
For 6 months ............................. 5.61% 5.19%
For 12 months ............................ 5.88 5.47
30-Day Standardized Yield ..................... 5.29 4.45
Weighted Average Maturity (years) ............. 6.3 6.6
Weighted Average Effective Duration (years) ... 5.0 5.3
Weighted Average Quality *** AAA AAA
- --------------------------------------------------------------------------------
<PAGE>
PORTFOLIO HIGHLIGHTS
KEY STATISTICS
5/31/98 11/30/98
------- --------
U.S. Treasury Long-Term Fund
Price Per Share ................................ $ 11.39 $ 12.12
Dividends Per Share
For 6 months .............................. 0.32 0.31
For 12 months ............................. 0.63 0.63
Dividend Yield *
For 6 months .............................. 5.70% 5.29%
For 12 months ............................. 5.92 5.56
30-Day Standardized Yield ...................... 5.35 4.92
Weighted Average Maturity (years) .............. 23.0 22.2
Weighted Average Effective Duration (years) .... 11.4 11.7
Weighted Average Quality *** ................... AAA AAA
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the average daily net asset values per share for the same
period.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research. Note: Investments in the U.S. Treasury
Funds are not insured 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.
[SEC chart showing U.S. Treasury Money Fund]
[SEC chart showing U.S. Treasury Intermediate Fund]
[SEC chart showing U.S. Treasury Long-Term Fund]
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 11/30/98 1 Year 5 Years 10 Years Inception Date
- ---------------------- ------ ------- -------- --------- ----
U.S.Treasury Money Fund 4.84% 4.61% 5.02% - 6/28/82
U.S.Treasury Intermediate Fund 10.88 6.66 - 8.08% 9/29/89
U.S.Treasury Long-Term Fund 14.83 9.00 - 9.85 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>
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
Unaudited
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/98 5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94
-------- ------- ------- ------- ------- ------- -------
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income 0.023 0.048 0.046 0.050 0.045 0.007 0.025
Distributions
Net investment income (0.023) (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 $ 1.000
=====================================================================================================
==Ratios/Supplemental=Data===================================================================
Total returns * 2.35% 4.91% 4.74% 5.08% 4.58% 0.73% 2.51%
- -------------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.51%+ 0.51% 0.56% 0.53% 0.56% 0.57%+ 0.64%
- -------------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 4.64%+ 4.82% 4.65% 4.93% 4.51% 2.87%+ 2.48%
- -------------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 927,805 $846,586$ 821,075 $ 760,010 $ 719,215 $ 654,837 $ 613,583
- -------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
================================================================================
<PAGE>
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
Unaudited
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/98 5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94
NET ASSET VALUE
Beginning of period $ 5.30 $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32 $ 5.42
- -------------------------------------------------------------------------------------------------------
Investment activities
Net investment income 0.14 0.30 0.31 0.33 0.31 0.08 0.29
Net realized and
unrealized gain (loss) 0.22 0.18 0.01 (0.14) 0.14 (0.19) (0.09)
- -------------------------------------------------------------------------------------------------------
Total from
investment activities 0.36 0.48 0.32 0.19 0.45 (0.11) 0.20
- -------------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.14) (0.30) (0.31) (0.33) (0.31) (0.08) (0.29)
Net realized gain - - - - - (0.02) (0.01)
- -----------------------------------------------------------------------------------------------------
Total distributions (0.14) (0.30) (0.31) (0.33) (0.31) (0.10) (0.30)
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE
=======================================================================================================
End of period $ 5.52 $ 5.30 $ 5.12 $ 5.11 $ 5.25 $ 5.11 $ 5.32
=======================================================================================================
Ratios/Supplemental=Data=============================================================================
Total returns * 6.85% 9.58% 6.48% 3.52% 9.29% (2.16)% 3.80%
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.61%+ 0.61% 0.64% 0.65% 0.69% 0.70%+ 0.79%
- --------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 5.12%+ 5.72% 6.11% 6.14% 6.19% 5.78%+ 5.41%
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 45.9%+ 112.8% 57.9% 40.7% 81.1% 45.5%+ 20.2%
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 260,636 $ 203,027 $ 180,609 $ 174,176 $ 172,666 $ 181,231 $ 175,953
- -------------------------------------------------------------------------------------------------------
</TABLE>
* 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.
<PAGE>
================================================================================
For a share outstanding throughout each period
FINANCIAL HIGHLIGHTS
Unaudited
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
6 Months Year 3 Months++ Year
Ended Ended Ended Ended
11/30/98 5/31/98 5/31/97 5/31/96 5/31/95 5/31/94 2/28/94
NET ASSET VALUE
Beginning of period $ 11.39 $ 10.17 $ 10.02 $ 10.54 $ 9.81 $ 10.46 $ 10.79
- -----------------------------------------------------------------------------------------------------
Investment activities
Net investment income 0.31 0.63 0.63 0.65** 0.68** 0.17** 0.68**
Net realized and
unrealized gain (loss) 0.73 1.22 0.15 (0.52) 0.73 (0.64) (0.04)
- -----------------------------------------------------------------------------------------------------
Total from
investment activities 1.04 1.85 0.78 0.13 1.41 (0.47) 0.64
- ----------------------------------------------------------------------------------------------------
Distributions
Net investment income (0.31) (0.63) (0.63) (0.65) (0.68) (0.17) (0.68)
Net realized gain - - - - - (0.01) (0.29)
- ----------------------------------------------------------------------------------------------------
Total distributions (0.31) (0.63) (0.63) (0.65) (0.68) (0.18) (0.97)
- -----------------------------------------------------------------------------------------------------
NET ASSET VALUE
=====================================================================================================
End of period $ 12.12 $ 11.39 $ 10.17 $ 10.02 $ 10.54 $ 9.81 $ 10.46
=====================================================================================================
Ratios/Supplemental=Data=============================================================================
Total returns 9.21% 18.58% 7.97% 1.02%** 15.24%** (4.50)%** 5.89%**
- -----------------------------------------------------------------------------------------------------
Ratio of expenses to
average net assets 0.67%+ 0.67% 0.80% 0.80%** 0.80%** 0.80%**+ 0.80%**
- -----------------------------------------------------------------------------------------------------
Ratio of net investment
income to average
net assets 5.22%+ 5.71% 6.22% 6.05%** 7.05%** 6.75%**+ 6.17%**
- -----------------------------------------------------------------------------------------------------
Portfolio turnover rate 67.2%+ 80.8% 67.6% 60.1% 99.3% 246.9%+ 59.4%
- -----------------------------------------------------------------------------------------------------
Net assets, end of period
(in thousands) $ 315,274 $ 275,850 $ 71,263 $ 70,326 $ 65,284 $ 54,237 $ 56,632
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* 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.
================================================================================
<PAGE>
T. ROWE PRICE U.S. TREASURY MONEY FUND
UNAUDITED NOVEMBER 30, 1998
PORTFOLIO OF INVESTMENTS
PAR VALUE
IN THOUSANDS
- --------------------------------------------------------------------------------
U.S. TREASURY OBLIGATIONS 98.6%
U.S. Treasury Bills
4.00%, 3/4/99 $ 10,000 $ 9,897
- -----------------------------------------------------------------------
4.08%, 1/7/99 1,142 1,137
- -----------------------------------------------------------------------
4.25%, 12/10/98 50,000 49,947
- -----------------------------------------------------------------------
4.30%, 12/10/98 4,670 4,665
- -----------------------------------------------------------------------
4.345%, 1/21/99 20,000 19,877
- -----------------------------------------------------------------------
4.39%, 1/21/99 2,321 2,306
- -----------------------------------------------------------------------
4.40%, 1/21/99 527 524
- -----------------------------------------------------------------------
4.405%, 1/21/99 4,981 4,950
- -----------------------------------------------------------------------
4.42%, 1/21/99 30,000 29,812
- -----------------------------------------------------------------------
4.45%, 1/7 - 2/4/99 45,190 44,828
- -----------------------------------------------------------------------
4.47%, 1/21/99 995 989
- -----------------------------------------------------------------------
4.60%, 1/7/99 1,190 1,184
- -----------------------------------------------------------------------
4.63%, 1/7/99 130 129
- -----------------------------------------------------------------------
4.855%, 12/15/98 50,000 49,906
- -----------------------------------------------------------------------
5.00%, 1/7/99 20,000 19,897
- -----------------------------------------------------------------------
5.1475%, 12/10/98 10,000 9,987
- -----------------------------------------------------------------------
<PAGE>
U.S. Treasury Notes
5.00%, 1/31 - 2/15/99 175,000 175,116
- -----------------------------------------------------------------------
5.125%, 12/31/98 50,000 50,012
- -----------------------------------------------------------------------
5.75%, 12/31/98 70,000 70,025
- -----------------------------------------------------------------------
5.875%, 8/31/99 10,000 10,086
- -----------------------------------------------------------------------
6.00%, 6/30/99 10,000 10,035
- -----------------------------------------------------------------------
6.25%, 3/31/99 80,000 80,345
- -----------------------------------------------------------------------
6.375%, 1/15 - 7/15/99 158,000 158,695
- -----------------------------------------------------------------------
6.50%, 4/30/99 10,000 10,078
- -----------------------------------------------------------------------
6.75%, 6/30/99 10,000 10,091
- -----------------------------------------------------------------------
7.00%, 4/15/99 90,000 90,696
- -----------------------------------------------------------------------
Total U.S. Treasury Obligations (Cost $915,214) 915,214
- --------------------------------------------------------------------------
=Total=Investments=in=Securities============================================
98.6% of Net Assets (Cost $915,214) $ 915,214
============================================================================
Other Assets Less Liabilities 12,591
============================================================================
============================================================================
NET ASSETS $ 927,805
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
T. ROWE PRICE U.S. TREASURY MONEY FUND
UNAUDITED NOVEMBER 30, 1998
STATEMENT OF ASSETS AND LIABILITIES
IN THOUSANDS
Assets
Investments in securities, at value (cost $915,214) $ 915,214
Receivable for investment securities sold 49,945
Other assets 21,962
- ------------------------------------------------------------------------------
Total assets 987,121
- ------------------------------------------------------------------------------
=Liabilities==================================================================
Payable for investment securities purchased 49,905
Other liabilities 9,411
- ------------------------------------------------------------------------------
Total liabilities 59,316
==============================================================================
NET ASSETS $ 927,805
==============================================================================
Net Assets Consist of:
Accumulated net investment income - net of distributions $ 81
Accumulated net realized gain/loss - net of distributions 184
Paid-in-capital applicable to 927,617,835 shares of
$0.01 par value capital stock outstanding;
1,000,000,000 shares of the corporation authorized 927,540
- ------------------------------------------------------------------------------
NET ASSETS $ 927,805
==============================================================================
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, 1998
STATEMENT OF NET ASSETS
PAR/SHARES VALUE
In thousands
U.S. GOVERNMENT OBLIGATIONS 89.2%
U.S. Treasury Obligations 89.2%
U.S. Treasury Bonds
9.375%, 2/15/06 $ 4,050$ 5,175
- -----------------------------------------------------------------
11.625%, 11/15/04 11,800 15,938
- -----------------------------------------------------------------
12.00%, 5/15/05 4,700 6,558
- -----------------------------------------------------------------
U.S. Treasury Notes
Zero Coupon, 8/15/03 4,000 3,217
- -----------------------------------------------------------------
Zero Coupon, 2/15/04 33,300 26,120
- -----------------------------------------------------------------
Zero Coupon, 2/15/05 14,600 10,870
- -----------------------------------------------------------------
Zero Coupon, 2/15/06 28,000 19,809
- -----------------------------------------------------------------
Zero Coupon, 2/15/08 24,600 15,637
- -----------------------------------------------------------------
5.875%, 2/15/04 15,225 16,125
- -----------------------------------------------------------------
6.125%, 8/15/07 11,100 12,102
- -----------------------------------------------------------------
6.50%, 5/15/05 42,810 47,022
- -----------------------------------------------------------------
6.50%, 10/15/06 18,500 20,513
- -----------------------------------------------------------------
7.50%, 2/15/05 29,100 33,350
- -----------------------------------------------------------------
Total U.S. Government Obligations (Cost $222,142) 232,436
- -----------------------------------------------------------------
<PAGE>
U.S.=GOVERNMENT=MORTGAGE-BACKED==================================
SECURITIES==10.1%================================================
U.S. Government Guaranteed Obligations 10.1%
Government National Mortgage Assn.
I
6.50%, 8/15/02 - 4/15/28 8,055 8,139
- -----------------------------------------------------------------
7.00%, 7/15/16 - 6/15/28 3,505 3,599
- -----------------------------------------------------------------
7.50%, 2/15/16 - 11/15/17 1,168 1,212
- -----------------------------------------------------------------
8.00%, 2/15/08 - 10/15/25 2,127 2,225
- -----------------------------------------------------------------
8.50%, 8/15/04 - 4/15/23 1,166 1,240
- -----------------------------------------------------------------
9.00%, 5/15/16 - 11/15/25 96 103
- -----------------------------------------------------------------
9.50%, 12/15/24 - 5/15/25 836 904
- -----------------------------------------------------------------
10.00%, 8/15/19 123 135
- -----------------------------------------------------------------
10.50%, 11/15/14 164 182
- -----------------------------------------------------------------
11.00%, 12/15/09 - 12/15/19 909 1,021
- -----------------------------------------------------------------
11.50%, 3/15/10 - 2/15/18 1,752 1,994
- -----------------------------------------------------------------
12.50%, 10/15/13 - 3/15/15 192 224
- -----------------------------------------------------------------
Government National Mortgage Assn.
II
9.00%, 10/20/16 - 2/20/27 $ 158$ 168
- -----------------------------------------------------------------
9.50%, 1/20 - 11/20/25 211 228
- -----------------------------------------------------------------
10.50%, 1/20/16 - 6/20/19 674 747
- -----------------------------------------------------------------
GPM, I, 11.00%, 9/15/10 175 195
- -----------------------------------------------------------------
<PAGE>
Midget, I
6.00%, 12/15/08 - 3/15/11 766 771
- -----------------------------------------------------------------
7.50%, 10/15/07 - 12/15/10 1,462 1,512
- -----------------------------------------------------------------
9.00%, 5/15/01 - 10/15/05 1,079 1,113
- -----------------------------------------------------------------
9.50%, 9/15/00 - 12/15/05 310 320
- -----------------------------------------------------------------
10.00%, 11/15/00 - 9/15/05 174 183
- -----------------------------------------------------------------
10.50%, 1/15/01 - 9/15/04 36 38
- -----------------------------------------------------------------
11.00%, 8/15/00 13 14
- -----------------------------------------------------------------
11.50%, 12/15/99 - 7/15/00 55 56
- -----------------------------------------------------------------
Midget, II
11.00%, 9/20/99 1 1
- -----------------------------------------------------------------
11.50%, 12/20/98 - 10/20/00 4 3
- -----------------------------------------------------------------
Total U.S. Government Mortgage-
Backed Securities (Cost $25,855) 26,327
MONEY=MARKET=FUNDS==0.2%=========================================
Government Reserve Investment Fund, 4.77% # 649 649
- -----------------------------------------------------------------
Total Money Market Funds (Cost $649) 649
- -----------------------------------------------------------------
=Total=Investments=in=Securities=================================
99.5% of Net Assets (Cost $248,646) $ 259,412
=================================================================
Other Assets Less Liabilities 1,224
=================================================================
NET ASSETS $ 260,636
=================================================================
Net Assets Consist of:
Accumulated net investment income - net
of distributions $ (932)
Accumulated net realized gain/loss - net
of distributions 4,222
Net unrealized gain (loss) 10,766
Paid-in-capital applicable to 47,203,743 shares
of $0.01 par value capital stock outstanding;
1,000,000,000 shares of the corporation authorized 246,580
=================================================================
NET ASSETS $ 260,636
=================================================================
NET ASSET VALUE PER SHARE $ 5.52
=================================================================
# 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, 1998
STATEMENT OF NET ASSETS
PAR/SHARES VALUE
IN THOUSANDS
U.S. GOVERNMENT OBLIGATIONS 85.5%
U.S. Treasury Obligations 85.5%
U.S. Treasury Bonds
6.00%, 2/15/26 $ 37,000$ 40,654
- -------------------------------------------------------------------
6.125%, 11/15/27 15,500 17,484
- -------------------------------------------------------------------
6.25%, 8/15/23 42,000 47,271
- -------------------------------------------------------------------
6.375%, 8/15/27 21,550 24,980
- -------------------------------------------------------------------
6.625%, 2/15/27 6,500 7,739
- -------------------------------------------------------------------
7.125%, 2/15/23 23,400 29,051
- -------------------------------------------------------------------
7.25%, 5/15/16 36,400 44,491
- -------------------------------------------------------------------
7.50%, 11/15/24 14,500 18,909
- -------------------------------------------------------------------
7.625%, 2/15/25 20,275 26,825
- -------------------------------------------------------------------
8.875%, 2/15/19 7,850 11,265
- -------------------------------------------------------------------
9.875%, 11/15/15 500 762
- -------------------------------------------------------------------
Total U.S. Government Obligations (Cost $237,676) 269,431
- -------------------------------------------------------------------
<PAGE>
U.S.=GOVERNMENT=MORTGAGE-BACKED====================================
SECURITIES==13.4%==================================================
U.S. Government Guaranteed Obligations 13.4%
Government National Mortgage Assn.
I
6.50%, 8/15/28 3,949 3,989
- -------------------------------------------------------------------
7.50%, 6/15/28 2,788 2,879
- -------------------------------------------------------------------
8.00%, 2/15/04 - 3/15/17 795 831
- -------------------------------------------------------------------
8.50%, 12/15/05 - 6/15/26 3,069 3,261
- -------------------------------------------------------------------
9.00%, 11/15/04 - 8/15/25 7,013 7,520
- -------------------------------------------------------------------
9.50%, 8/15/09 - 12/15/17 7,616 8,273
- -------------------------------------------------------------------
10.00%, 12/15/17 - 7/15/22 987 1,084
- -------------------------------------------------------------------
10.50%, 5/15/13 - 7/15/19 263 292
- -------------------------------------------------------------------
11.50%, 10/15/10 - 8/15/15 118 135
- -------------------------------------------------------------------
II
7.00%, 11/20/23 - 1/20/24 38 39
- -------------------------------------------------------------------
8.50%, 10/20/24 595 631
- -------------------------------------------------------------------
REMIC
6.35%, 1/20/28 5,000 4,977
- -------------------------------------------------------------------
6.50%, 10/16/24 - 5/20/28 6,249 6,194
- -------------------------------------------------------------------
Government National Mortgage Assn.
REMIC
7.00%, 5/16/24 $ 2,000$ 2,066
- -------------------------------------------------------------------
Interest Only, 8.00%, 6/16/23 ** 626 78
- -------------------------------------------------------------------
Total U.S. Government Mortgage-Backed
Securities (Cost $41,515) 42,249
- -------------------------------------------------------------------
<PAGE>
MONEY=MARKET=FUNDS==0.1%===========================================
Government Reserve Investment Fund, 4.77% # 371 371
- -------------------------------------------------------------------
Total Money Market Funds (Cost $371) 371
- -------------------------------------------------------------------
=Total=Investments=in=Securities===================================
99.0% of Net Assets (Cost $279,562) $ 312,051
===================================================================
Other Assets Less Liabilities 3,223
===================================================================
NET ASSETS $ 315,274
===================================================================
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 12
Accumulated net realized gain/loss -
net of distributions 2,135
Net unrealized gain (loss) 32,489
Paid-in-capital applicable to 26,005,941
shares of $0.01 par value capital
stock outstanding; 1,000,000,000 shares
of the corporation authorized 280,638
===================================================================
NET ASSETS $ 315,274
===================================================================
NET ASSET VALUE PER SHARE $ 12.12
===================================================================
** 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
MONEY INTERMEDIATE LONG-TERM
FUND FUND FUND
IN THOUSANDS
6 Months 6 Months 6 Months
Ended Ended Ended
11/30/98 11/30/98 11/30/98
Investment=Income===========================================================
Interest income $ 22,850 $ 6,864 $ 9,077
- ----------------------------------------------------------------------------
Expenses
Investment management 1,431 446 573
Shareholder servicing 672 194 324
Registration 56 15 70
Custody and accounting 53 50 48
Prospectus and shareholder reports 29 13 10
Proxy and annual meeting 10 3 2
Legal and audit 6 5 5
Directors 3 3 4
Miscellaneous 2 2 2
- ----------------------------------------------------------------------------
Total expenses 2,262 731 1,038
- ----------------------------------------------------------------------------
Net investment income 20,588 6,133 8,039
- ----------------------------------------------------------------------------
Realized=and=Unrealized=Gain=(Loss)=========================================
Net realized gain (loss) on securities 22 2,012 1,215
Change in net unrealized gain or loss
on securities - 7,624 17,270
- ----------------------------------------------------------------------------
Net realized and unrealized gain (loss) 22 9,636 18,485
- ----------------------------------------------------------------------------
INCREASE (DECREASE) IN NET
============================================================================
ASSETS FROM OPERATIONS $ 20,610 $ 15,769 $ 26,524
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
11/30/98 5/31/98
Increase=(Decrease)=in=Net=Assets===============================================
Operations
Net investment income $ 20,588 $ 39,724
Net realized gain (loss) 22 22
- --------------------------------------------------------------------------------
Increase (decrease) in net assets from operations 20,610 39,746
- --------------------------------------------------------------------------------
Distributions to shareholders
Net investment income (20,588) (39,724)
- --------------------------------------------------------------------------------
Capital share transactions *
Shares sold 1,613,738 2,832,862
Distributions reinvested 19,697 38,169
Shares redeemed (1,552,238) (2,845,542)
- --------------------------------------------------------------------------------
Increase (decrease) in net assets from capital
share transactions 81,197 25,489
- --------------------------------------------------------------------------------
Net=Assets======================================================================
Increase (decrease) during period 81,219 25,511
Beginning of period 846,586 821,075
- --------------------------------------------------------------------------------
================================================================================
End of period $ 927,805 $ 846,586
================================================================================
*Share information
Shares sold 1,613,738 2,832,862
Distributions nvested 19,697 38,169
Shares redeemed (1,552,238) (2,845,542)
- --------------------------------------------------------------------------------
Increase (decrease) in shares outstanding 81,197 25,489
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
11/30/98 5/31/98
Increase=(Decrease)=in=Net=Assets=========================================
Operations
Net investment income $ 6,133 $ 11,091
Net realized gain (loss) 2,012 3,504
Change in net unrealized gain or loss 7,624 2,971
- --------------------------------------------------------------------------
Increase (decrease) in net assets from operations 15,769 17,566
- --------------------------------------------------------------------------
Distributions to shareholders
Net investment income (6,133) (11,091)
- --------------------------------------------------------------------------
Capital share transactions *
Shares sold 103,525 70,483
Distributions reinvested 5,211 8,823
Shares redeemed (60,763) (63,363)
- --------------------------------------------------------------------------
Increase (decrease) in net assets from capital
share transactions 47,973 15,943
- --------------------------------------------------------------------------
Net=Assets================================================================
Increase (decrease) during period 57,609 22,418
Beginning of period 203,027 180,609
End of period $ 260,636 $ 203,027
==========================================================================
*Share information
Shares sold 18,997 13,387
Distributions reinvested 953 1,679
Shares redeemed (11,025) (12,041)
- --------------------------------------------------------------------------
Increase (decrease) in shares outstanding 8,925 3,025
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
11/30/98 5/31/98
Increase=(Decrease)=in=Net=Assets============================================
Operations
Net investment income $ 8,039 $ 10,211
Net realized gain (loss) 1,215 1,725
Change in net unrealized gain or loss 17,270 13,578
- -----------------------------------------------------------------------------
Increase (decrease) in net assets from operations 26,524 25,514
- -----------------------------------------------------------------------------
Distributions to shareholders
Net investment income (8,039) (10,211)
- -----------------------------------------------------------------------------
Capital share transactions *
Shares sold 101,320 237,577
Distributions reinvested 7,637 9,579
Shares redeemed (88,018) (57,872)
- -----------------------------------------------------------------------------
Increase (decrease) in net assets from capital
share transactions 20,939 189,284
- -----------------------------------------------------------------------------
Net=Assets===================================================================
Increase (decrease) during period 39,424 204,587
Beginning of period 275,850 71,263
End of period $ 315,274 $ 275,850
=============================================================================
*Share information
Shares sold 8,515 21,591
Distributions reinvested 641 859
Shares redeemed (7,363) (5,242)
- ---------------------------------------------------------------------------
Increase (decrease) in shares outstanding 1,793 17,208
The accompanying notes are an integral part of these financial statements.
================================================================================
<PAGE>
Unaudited November 30, 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) and 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 (MBS), are amortized for both financial
reporting and tax purposes. Premiums and discounts on all MBS are recognized
upon disposition or principal repayment as gain or loss for financial reporting
purposes. For tax purposes, premiums and discounts on MBS acquired on or before
June 8, 1997, are recognized upon disposition or principal repayment as ordinary
income. For MBS acquired after June 8, 1997, premiums are recognized as gain or
loss; discounts are recognized as gain or loss, except to the extent of accrued
market discount.
<PAGE>
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-divid end 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 six months ended November 30, 1998, were as follows:
================================================================================
T. ROWE PRICE U.S. TREASURY FUNDS
INTERMEDIATE LONG-TERM
FUND FUND
U.S. government securities
Purchases $ 101,172,000 $ 124,441,000
Sales 54,017,000 100,739,000
================================================================================
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.
<PAGE>
At November 30, 1998, the costs of investments for the Money, Intermediate,
and Long-Term Funds for federal income tax purposes were substantially the same
as for financial reporting and totaled $915,214,000, $248,646,000, and
$279,562,000, 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 $ 10,815,000 $ 32,673,000
Depreciated investments (49,000) (184,000)
Net unrealized gain (loss) $ 10,766,000 $ 32,489,000
================================================================================
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 $245,000, $79,000, and $96,000 were payable at November 30, 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 November 30, 1998, 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%.
<PAGE>
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 $582,000, $190,000, and $126,000, respectively, for the six months
ended November 30, 1998, of which $91,000, $32,000, and $15,000, 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 51.0% of the outstanding shares of the
Long-Term Fund at November 30, 1998. For the six months then ended, the
Long-Term Fund was allocated $208,000 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 six months
ended November 30, 1998, totaled $33,000 and $41,000, respectively, and are
reflected as interest income in the accompanying Statement of Operations.
================================================================================
<PAGE>
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.
INTERNET. T. ROWE PRICE WEB SITE: WWW.TROWEPRICE.COM All the information
and services available on Tele*Access are available on our Web site, including
transactions in your fund and Discount Brokerage accounts (with preauthorized
access).
ACCOUNT SERVICES
CHECKING Write checks for $500 or more on any money market and most bond
fund accounts (except the High Yield and Emerging Markets Bond Funds).
AUTOMATIC INVESTING Build your account over time by investing directly from
your bank account or paycheck with Automatic Asset Builder. Additionally,
Automatic Exchange enables you to 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, mutual funds, 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. Detail pages itemize
account transactions.
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 or CD-ROM for PC use) can help
you determine and reach your investment goals.
* A division of T. Rowe Price Investment Services, Inc. Member
NASD/SIPC.
================================================================================
<PAGE>
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
<PAGE>
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 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 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
<PAGE>
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
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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.
** Closed to new investors.
*** Formerly named Florida Insured Intermediate Tax-Free.
+ Formerly named Tax-Free Insured Intermediate Bond.
++ Formerly named Global Government Bond.
+++ Neither the funds nor their share prices are insured or guaranteed by the
U.S. government.
<PAGE>
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.
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T. Rowe Price U.S. Treasury Funds
Annual Meeting Results
The U.S. Treasury Funds held an annual meeting on October 15, 1998, to
elect directors of the fund and to ratify the Board of Directors' selection of
PricewaterhouseCoopers L.L.P. as the funds' independent accountants.
The results of voting were as follows (by number of shares):
For nominees to the Board of Directors for the U.S. Treasury Funds:
Calvin W. Burnett
In favor: 568,829,406.860
Withheld: 8,943,972.648
Anthony W. Deering
In favor: 570,409,566.548
Withheld: 7,363,812.960
F. Pierce Linaweaver
In favor: 569,397,233.734
Withheld: 8,376,145.774
William T. Reynolds
In favor: 570,741,427.324
Withheld: 7,031,952.184
James S. Riepe
In favor: 570,560,915.103
Withheld:7,212,464.405
<PAGE>
John G. Schreiber
In favor: 570,343,472.373
Withheld: 7,429,907.135
M. David Testa
In favor: 570,513,024.758
Withheld: 7,260,354.750
For PricewaterhouseCoopers L.L.P
as independent accountants:
For U.S. Treasury Money Fund
In favor: 521,748,406.113
Withheld: 5,242,901.210
Abstained: 6,380,537.830
For U.S. Treasury Intermediate Fund
In favor: 24,347,736.128
Withheld: 151,645.408
Abstained: 361,320.978
For U.S. Treasury Long-Term Fund
In favor: 19,236,434.031
Withheld: 71,921.491
Abstained: 232,476.319
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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
<PAGE>
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 11/30/98
