Annual Report
U.S.
Treasury
Funds
May 31, 2000
T. Rowe Price
REPORT HIGHLIGHTS
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U.S. Treasury Funds
o Interest rates rose during the last six months, benefiting money market
funds but pressuring intermediate-term bonds. Government buybacks supported
long-term bond prices.
o The U.S. Treasury Money Fund posted favorable 6- and 12-month returns,
surpassing its average competitor.
o The U.S. Treasury Intermediate Fund outperformed its Lipper peer group
average in both periods, as income more than offset falling bond prices.
o The U.S. Treasury Long-Term Fund outpaced its Lipper benchmark in both
periods because of its income advantage.
o We believe the Fed will raise rates once or twice more, but the bond
environment should improve if the economy shows definite signs of slowing.
UPDATES AVAILABLE
For updates on T. Rowe Price funds following the end of each calendar quarter,
please see our Web site at www.troweprice.com.
Fellow Shareholders
The U.S. economy expanded briskly during the six months ended May 31, 2000, but
some signs of slowing emerged late in the period. To contain inflation, the
Federal Reserve boosted short-term interest rates three times since February,
and six times in the last 12 months. Rising rates lifted money market funds but
hurt prices of intermediate-term bond funds. Long-term bond funds recovered from
early weakness after the Treasury initiated a buyback program.
MARKET ENVIRONMENT
Despite a long spell of rising interest rates, the country's GDP expanded at a
robust annualized rate of 5.4% in the first quarter of 2000. Consumer spending
remained strong, and the labor market tightened further, sending the
unemployment rate to a 30-year low of 3.9% in April. With energy prices rising
and the nation's trade deficit plunging to new depths, the Federal Reserve
stepped up its campaign to slow the economy and keep inflation from
accelerating. The Fed increased the key federal funds target rate by 100 basis
points (one percentage point) during the six-month period ending May 31, 2000,
and a total of 175 basis points in the last year. The most recent rate hike-50
basis points on May 16-lifted the fed funds target rate to 6.50%.
Interest Rate Levels
30-Year 5-year 90-Day
Treasury Treasury Treasury
Bond Note Bill
5/31/1999 5.80 5.51 4.65
6.03 5.76 4.77
6.05 5.75 4.71
8/31 6.08 5.86 4.96
6.09 5.81 4.88
6.30 6.09 5.13
11/30 6.22 6.03 5.28
6.46 6.33 5.33
6.57 6.63 5.59
2/29 6.13 6.59 5.81
5.94 6.42 5.88
5.95 6.42 5.78
5/31/2000 6.14 6.65 5.92
Ninety-day Treasury bill yields rose sharply in the last six months, tracking
the Fed's moves. In contrast, intermediate-term yield increases were muted-and
long-term yields declined-after the Treasury Department announced a $30 billion
"buyback" program. The proposed reduction in older, higher-yielding federal debt
sent shock waves through the bond market, and investors scrambled to buy
Treasuries with long-term maturities. The increased demand for longer-term bonds
contributed to a rare inversion of the Treasury yield curve, as 30-year and, to
a lesser extent, 10-year Treasury yields plunged below the two-year yield.
The growing federal budget surplus made the buyback program possible. Estimates
for the government's fiscal year 2000 surplus are approaching $240 billion-a
stark contrast to the record $290 billion deficit just eight years ago. In
addition, the surplus further reduced the Treasury's borrowing needs, enabling
it to change the frequency of its one-year T-bill auctions from monthly to
quarterly.
U.S. TREASURY MONEY FUND
Performance Comparison
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Periods Ended 5/31/00 6 Months 12 Months
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U.S. Treasury Money Fund 2.55% 4.75%
Lipper U.S. Treasury
Money Market Funds Average 2.46 4.64
Your investment in the U.S. Treasury Money Fund is neither insured nor
guaranteed by the U.S. government.
Your fund posted 6- and 12-month returns of 2.55% and 4.75%, respectively,
surpassing the Lipper benchmark's results for the same periods. The continued
rise in interest rates helped increase the fund's six-month dividend per share.
In addition, the fund's seven-day compound yield climbed from 4.57% to 5.48%
during the last six months.
We extended the fund's average maturity prior to the new year to avoid
short-term supply and demand considerations. After the Year 2000 transition, we
trimmed the average maturity because we anticipated-correctly-that the strong
economy would lead to additional Fed rate hikes. Staying short enables us to
purchase newer Treasuries with higher interest rates more quickly. The fund's
average maturity on May 31 was 58 days, down from 69 days on November 30, 1999.
To help us achieve this posture and maintain liquidity in an environment with
reduced Treasury issuance, we structured the portfolio like a "ladder," in which
we equally emphasized short-, intermediate-, and long-term Treasuries within the
money market universe.
U.S. TREASURY INTERMEDIATEFUND
Performance Comparison
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Periods Ended 5/31/00 6 Months 12 Months
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U.S. Treasury Intermediate Fund 1.67% 1.97%
Lipper Average of Intermediate
U.S. Treasury Funds 1.40 1.80
Salomon Smith Barney 1-7 Year
Treasury Index 1.87 3.59
Fund returns were modest as prices of intermediate-term Treasuries fell when
interest rates rose. However, income of $0.14 more than offset the principal
decline to provide a positive six-month return of 1.67%, which exceeded the
1.40% gain for the Lipper peer group average. The fund's 12-month relative
performance was also favorable: 1.97% versus 1.80% for the Lipper benchmark.
For comparison purposes, we also show the Salomon Smith Barney 1-7 Year Treasury
Index. The fund lagged this benchmark in both periods because the index had a
shorter average maturity. Treasuries with short maturities typically hold up
better than longer-term issues in a rising interest rate environment.
Because we expected rates to continue rising, we shortened the fund's duration
from 4.6 years on November 30 to 4.1 years on May 31. This helped reduce the
effect of rate increases and enabled the fund to outperform its Lipper
benchmark. (Duration is a measure of a bond fund's price sensitivity to interest
rate changes; longer durations mean potential for greater price fluctuation.)
Although some signs of slower economic growth appeared in late May, we will
remain cautious about changing our duration strategy until we see clearer
signals about the direction of the economy and interest rates.
Another factor that helped our relative performance in the last six months was
the purchase of additional Treasury inflation-protected securities (TIPS), which
offer a 4% "real" (inflation-adjusted) return. These securities act as a hedge
against inflation since their principal value is adjusted monthly to reflect
changes in the consumer price index. TIPS increase the portfolio's
diversification and, when interest rates rise, help offset negative returns from
conventional Treasury securities.
The fund had about 14% of assets in U.S. government mortgage-backed securities
at the end of May, near its 15% limit. These issues provide a yield advantage
over comparable Treasuries yet have the same high credit quality. In addition,
when rates rise, they tend to perform better than Treasuries because of reduced
prepayment risk and also because their yields are higher.
U.S. TREASURY LONG-TERM FUND
Performance Comparison
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Periods Ended 5/31/00 6 Months 12 Months
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U.S. Treasury Long-Term Fund 4.49% 2.43%
Lipper Average of General
U.S. Treasury Funds 3.10 2.14
Salomon Smith Barney
Treasury Index 2.94 3.35
Your fund had a solid 4.49% return in the last six months but only 2.43% for the
12-month period, when rising rates sent bond prices lower. The six-month return
reflects $0.31 dividend income and $0.04 price appreciation, while 12-month
performance represents $0.62 of dividend income that more than offsets a $0.49
share price decline.
The fund outperformed the Lipper Average of General U.S. Treasury Funds in both
periods, as you can see in the Performance Comparison table, because our
emphasis on long-term Treasuries gave us an income advantage over the average
competitor. For comparison purposes, we also show the Salomon Smith Barney
Treasury Index, which has somewhat more defensive characteristics (such as a
shorter duration) than your fund. The fund surpassed this index for the last six
months, but not for the 12-month period, because a shorter duration was
advantageous when long-term rates rose in the first half of the fund's fiscal
year.
We trimmed the fund's duration in the last six months from 10.2 years to 9.5
years. (See U.S. Treasury Intermediate for an explanation of duration.) This
strategy helped moderate the negative effect of rising rates, but also limited
our gains when long-term Treasuries rallied in the spring. To achieve the
9.5-year duration, we structured the portfolio like a "barbell," with an
emphasis on the extremes of the Treasury bond market: 30-year bonds at one end,
and short- to intermediate-term maturities at the other. The longer-term issues,
as well as our positions in zero-coupon bonds, benefited most from the
January-April bond rally. The fund's duration is in line with that of our peer
group, but the portfolio is very sensitive to interest rate changes because of
our significant holdings of longer-term Treasuries.
We also maintained a 14% position in U.S. government mortgage-backed securities,
near the 15% maximum. These securities, which offer a nice income advantage over
Treasuries yet the same high credit quality, made a solid contribution to the
fund's relative performance in the last six months. In addition, they tend to
perform better than Treasuries in a rising interest rate environment because of
the decline in mortgage prepayment activity and because of their higher yields.
Finally, we have been trimming our exposure to Treasury inflation-protected
securities (TIPS), which have performed well in the last 12 months as inflation
concerns and interest rates have increased. (See also the discussion of TIPS in
the U.S. Treasury Intermediate Fund section.) These securities have shorter
durations than those of the bonds we usually purchase and, strategically, are
more appropriate for the intermediate Treasury fund.
OUTLOOK
We believe the Federal Reserve will raise short-term interest rates at least one
or two more times-perhaps 25 to 50 basis points-to slow the economy and keep
inflation in check. The Treasury yield curve will probably remain inverted until
the Fed finishes tightening monetary policy, but yields may decline in response
to technical factors (such as reduced Treasury issuance), stock market
volatility, or solid evidence of slower economic growth.
Money fund investors should continue to benefit from recent short-term rate
increases. For bond investors, the market environment should become more
favorable if the economy slows and interest rates stabilize or decline.
Respectfully submitted,
William T. Reynolds
President
June 14, 2000
T. Rowe Price U.S. Treasury Funds
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Portfolio Highlights
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KEY STATISTICS
11/30/99 5/31/00
U.S. Treasury Money Fund
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Price Per Share $ 1.00 $ 1.00
Dividends Per Share
For 6 months 0.021 0.025
For 12 months 0.042 0.046
Dividend Yield (7-Day Compound) * 4.57% 5.48%
Weighted Average Maturity (days) 69 58
Weighted Average Quality ** First Tier First Tier
U.S. Treasury Intermediate Fund
Price Per Share $ 5.07 $ 4.96
Dividends Per Share
For 6 months 0.14 0.14
For 12 months 0.27 0.28
Dividend Yield *
For 6 months 5.37% 5.78%
For 12 months 5.38 5.71
30-Day Standardized Yield 6.10 6.89
Weighted Average Maturity (years) 6.1 5.8
Weighted Average Effective Duration (years) 4.6 4.1
Weighted Average Quality *** AAA AAA
(continued on next page)
T. Rowe Price U.S. Treasury Funds
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Portfolio Highlights
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KEY STATISTICS
11/30/99 5/31/00
U.S. Treasury Long-Term Fund
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Price Per Share $ 10.54 $ 10.58
Dividends Per Share
For 6 months 0.31 0.31
For 12 months 0.62 0.62
Dividend Yield *
For 6 months 5.99% 5.96%
For 12 months 6.06 6.05
30-Day Standardized Yield 6.06 6.27
Weighted Average Maturity (years) 17.2 15.7
Weighted Average Effective Duration (years) 10.2 9.5
Weighted Average Quality *** AAA AAA
* Dividends earned and reinvested for the periods indicated are annualized
and divided by the fund's net asset value per share at the end of the
period.
** All securities purchased in the money fund are rated in the two highest
categories (tiers) as established by national rating agencies or, if
unrated, are deemed of comparable quality by T. Rowe Price.
*** Based on T. Rowe Price research.
Note: Investments in the U.S. Treasury Funds are not insured or guaranteed by
the U.S. government.
T. Rowe Price U.S. Treasury Funds
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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 benchmarks, which may include a
broad-based market index and a peer group average or index. Market indexes do
not include expenses, which are deducted from fund returns as well as mutual
fund averages and indexes.
U.S. TREASURY MONEY FUND
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Lipper
U.S. Treasury
Money Market U.S. Treasury
Funds Average Money Fund
5/31/90 10,000 10,000
5/91 10,697 10,673
5/92 11,185 11,153
5/93 11,497 11,454
5/94 11,800 11,754
5/95 12,339 12,293
5/96 12,957 12,916
5/97 13,569 13,528
5/98 14,231 14,192
5/99 14,859 14,826
5/00 15,557 15,529
U.S. TREASURY INTERMEDIATE FUND
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Salomon
Smith Barney
1-7 Year U.S. Treasury
Treasury Index Intermediate Fund
5/31/90 10,000 10,000
5/91 11,168 11,123
5/92 12,407 12,381
5/93 13,577 13,704
5/94 13,780 13,800
5/95 14,937 15,081
5/96 15,787 15,612
5/97 16,868 16,624
5/98 18,220 18,216
5/99 19,154 18,996
5/00 19,842 19,371
T. Rowe Price U.S. Treasury Funds
Performance Comparison
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U.S. TREASURY LONG-TERMFUND
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Salomon
Smith Barney U.S. Treasury
Treasury Index Long-Term Fund
5/31/90 10,000 10,000
5/91 11,193 11,084
5/92 12,536 12,393
5/93 14,059 14,131
5/94 14,216 14,118
5/95 15,765 16,270
5/96 16,393 16,437
5/97 17,614 17,746
5/98 19,607 21,043
5/99 20,477 21,686
5/00 21,162 22,212
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 5/31/00 1 Year 3 Years 5 Years 10 Years
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U.S. Treasury Money Fund 4.75% 4.71% 4.79% 4.50%
U.S. Treasury Intermediate Fund 1.97 5.23 5.13 6.84
U.S. Treasury Long-Term Fund 2.43 7.77 6.42 8.31
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, as
their principal value will fluctuate. Investments in the Money Fund are not
insured or guaranteed by the FDIC or any other government agency. Although it
seeks to preserve the value of your investment at $1.00 per share, it is
possible to lose money by investing in the fund.
T. Rowe Price U.S. Treasury Money Fund
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Financial Highlights For a share outstanding throughout each period
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Year
Ended
5/31/00 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Investment activities
Net investment income
(loss) 0.046 0.044 0.048 0.046 0.050
Distributions
Net investment income (0.046) (0.044) 0.048) (0.046) (0.050)
NET ASSET VALUE
End of period $ 1.000 $ 1.000 $ 1.000 $ 1.000 $ 1.000
Ratios/Supplemental Data
Total return(diamond) 4.75% 4.46% 4.91% 4.74% 5.08%
Ratio of total expenses
to average net assets 0.48% 0.51% 0.51% 0.56% 0.53%
Ratio of net investment
income (loss) to average
net assets 4.66% 4.37% 4.82% 4.65% 4.93%
Net assets, end
of period
(in thousands) $927,410 $889,945 $846,586 $821,075 $760,010
(diamond) 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
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Financial Highlights For a share outstanding throughout each period
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Year
Ended
5/31/00 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 5.19 $ 5.30 $ 5.12 $ 5.11 $ 5.25
Investment activities
Net investment income
(loss) 0.28 0.27 0.30 0.31 0.33
Net realized and
unrealized gain (loss) (0.18) (0.04) 0.18 0.01 (0.14)
Total from
investment activities 0.10 0.23 0.48 0.32 0.19
Distributions
Net investment income (0.28) (0.27) (0.30) (0.31) (0.33)
Net realized gain (0.05) (0.07) -- -- --
Total distributions (0.33) (0.34) (0.30) (0.31) (0.33)
NET ASSET VALUE
End of period $ 4.96 $ 5.19 $ 5.30 $ 5.12 $ 5.11
Ratios/Supplemental Data
Total return(diamond) 1.97% 4.28% 9.58% 6.48% 3.52%
Ratio of total expenses
to average net assets 0.64% 0.62% 0.61% 0.64% 0.65%
Ratio of net investment
income (loss) to average
net assets 5.49% 5.02% 5.72% 6.11% 6.14%
Portfolio turnover rate 48.5% 61.2% 112.8% 57.9% 40.7%
Net assets, end
of period
(in thousands) $230,350 $255,987 $203,027 $180,609 $174,176
(diamond) 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.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Long-Term Fund
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Financial Highlights For a share outstanding throughout each period
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Year
Ended
5/31/00 5/31/99 5/31/98 5/31/97 5/31/96
NET ASSET VALUE
Beginning of period $ 11.07 $ 11.39 $ 10.17 $ 10.02 $ 10.54
Investment activities
Net investment income
(loss) 0.62 0.62 0.63 0.63 0.65*
Net realized and
unrealized gain (loss) (0.38) (0.25) 1.22 0.15 (0.52)
Total from
investment activities 0.24 0.37 1.85 0.78 0.13
Distributions
Net investment income (0.62) (0.62) (0.63) (0.63) (0.65)
Net realized gain (0.11) (0.07) -- -- --
Total distributions (0.73) (0.69) (0.63) (0.63) (0.65)
NET ASSET VALUE
End of period $ 10.58 $ 11.07 $ 11.39 $ 10.17 $ 10.02
Ratios/Supplemental Data
Total return(diamond) 2.43% 3.06% 18.58% 7.97% 1.02%*
Ratio of total expenses
to average net assets 0.64% 0.66% 0.67% 0.80% 0.80%*
Ratio of net investment
income (loss) to average
net assets 5.89% 5.30% 5.71% 6.22% 6.05%*
Portfolio turnover rate 21.7% 74.1% 80.8% 67.6% 60.1%
Net assets, end
of period
(in thousands) $299,840 $333,535 $275,850 $ 71,263 $ 70,326
(diamond) 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 5/31/99.
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Money Fund
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May 31, 2000
Statement of Net Assets Par Value
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In thousands
U.S. TREASURY OBLIGATIONS 98.7%
U.S. Treasury Bills
5.075%, 6/8/00 $ 40,000 $ 39,961
5.17%, 7/13/00 30,000 29,819
5.305%, 7/20/00 40,000 39,711
5.315%, 7/20/00 1,204 1,195
5.38%, 7/20/00 4,707 4,673
5.40%, 7/20/00 2,153 2,137
5.47%, 7/6/00 297 295
5.51%, 6/8/00 10,000 9,989
5.55%, 6/8 - 7/6/00 20,616 20,591
5.553%, 6/15/00 50,000 49,892
5.56%, 7/6/00 2,682 2,667
5.58%, 7/6/00 5,621 5,591
5.62%, 7/6/00 10,105 10,050
5.64%, 7/6/00 29,798 29,635
5.65%, 7/6/00 9,053 9,003
5.67%, 7/6/00 2,188 2,176
5.69%, 6/8/00 30,000 29,967
5.70%, 7/20/00 5,760 5,715
5.745%, 7/13/00 30,000 29,799
5.75%, 7/20/00 40,000 39,687
5.755%, 10/19/00 20,000 19,552
5.77%, 6/22/00 59,113 58,914
U.S. Treasury Notes
4.00%, 10/31/00 20,000 19,804
5.75%, 10/31/00 50,000 49,857
5.875%, 6/30/00 75,000 75,008
6.00%, 8/15/00 100,000 99,994
6.125%, 7/31/00 100,000 100,027
6.25%, 8/31/00 120,000 120,041
8.75%, 8/15/00 10,000 10,055
Total U.S. Treasury Obligations (Cost $915,805) 915,805
Total Investments in Securities
98.7% of Net Assets (Cost $915,805) $ 915,805
Other Assets Less Liabilities 11,605
NET ASSETS $ 927,410
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Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 82
Accumulated net realized gain/loss -
net of distributions 215
Paid-in-capital applicable to 927,191,071
shares of $0.01 par value capital stock
outstanding; 2,000,000,000 shares
of the Corporation authorized 927,113
NET ASSETS $ 927,410
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NET ASSET VALUE PER SHARE $ 1.00
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The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
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May 31, 2000
Statement of Net Assets Par/Shares Value
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In thousands
U.S. GOVERNMENT OBLIGATIONS 78.8%
U.S. Treasury Obligations 78.8%
U.S. Treasury Bonds
9.375%, 2/15/06 $ 5,150 $ 5,824
11.625%, 11/15/04 3,800 4,514
12.00%, 5/15/05 19,300 23,570
U.S. Treasury Inflation-Indexed Notes
3.375%, 1/15/07 8,043 7,663
3.625%, 7/15/02 16,694 16,549
U.S. Treasury Notes
Zero Coupon, 2/15/05 4,700 3,464
6.00%, 8/15/09 2,500 2,437
6.125%, 8/15/07 24,200 23,681
6.25%, 2/15/07 5,000 4,929
6.50%, 5/15/05 - 2/15/10 68,910 68,975
7.00%, 7/15/06 3,700 3,779
7.50%, 2/15/05 15,500 16,043
Total U.S. Government Obligations (Cost $186,710) 181,428
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 13.9%
U.S. Government Guaranteed Obligations 13.9%
Government National Mortgage Assn.
I
6.00%, 12/15/08 - 3/15/11 688 648
6.50%, 8/15/02 - 2/15/29 16,914 15,852
7.00%, 7/15/16 - 6/15/28 2,777 2,686
7.50%, 10/15/07 - 8/15/29 2,793 2,767
8.00%, 2/15/08 - 12/15/29 5,100 5,118
8.50%, 8/15/04 - 4/15/23 772 785
9.00%, 5/15/01 - 11/15/25 583 592
9.50%, 12/15/24 - 5/15/25 501 523
10.00%, 8/15/19 70 75
10.50%, 11/15/14 113 122
11.00%, 12/15/09 - 12/15/19 575 628
11.50%, 3/15/10 - 2/15/18 1,016 1,115
12.50%, 10/15/13 - 3/15/15 98 109
Government National Mortgage Assn.
II
9.00%, 10/20/16 - 2/20/27 $ 86 $ 88
9.50%, 1/20 - 11/20/25 113 117
10.50%, 1/20/16 - 6/20/19 389 418
GPM, I, 11.00%, 9/15/10 30 33
Midget, I
9.50%, 9/15/00 - 12/15/05 151 154
10.00%, 11/15/00 - 9/15/05 100 102
10.50%, 1/15/01 - 9/15/04 20 20
11.00%, 8/15/00 1 1
Total U.S. Government Mortgage-Backed Securities
(Cost $33,413) 31,953
MONEY MARKET FUNDS 6.4%
Government Reserve Investment Fund, 6.08% # 14,859 14,859
Total Money Market Funds (Cost $14,859) 14,859
Total Investments in Securities
99.1% of Net Assets (Cost $234,982) $ 228,240
Other Assets Less Liabilities 2,110
NET ASSETS $ 230,350
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Net Assets Consist of:
Accumulated net investment income -
net of distributions $ (917)
Accumulated net realized gain/loss -
net of distributions (5,957)
Net unrealized gain (loss) (6,742)
Paid-in-capital applicable to 46,454,867
shares of $0.01 par value capital stock
outstanding; 2,000,000,000 shares
of the Corporation authorized 243,966
NET ASSETS $ 230,350
----------
NET ASSET VALUE PER SHARE $ 4.96
----------
# 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
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May 31, 2000
Statement of Net Assets Par/Shares Value
--------------------------------------------------------------------------------
In thousands
U.S. GOVERNMENT OBLIGATIONS 83.5%
U.S. Treasury Obligations 83.5%
U.S. Treasury Bonds
6.25%, 8/15/23 $ 20,500 $ 20,276
7.125%, 2/15/23 22,700 24,776
7.25%, 5/15/16 33,950 36,757
7.625%, 2/15/25 16,275 18,883
8.75%, 5/15/17 32,500 40,195
8.875%, 2/15/19 33,150 41,931
U.S. Treasury Inflation-Indexed Notes
3.375%, 1/15/07 5,128 4,885
3.625%, 7/15/02 2,937 2,912
U.S. Treasury Notes
Zero Coupon, 5/15/16 70,000 25,425
Zero Coupon, 11/15/16 50,000 17,639
5.875%, 2/15/04 4,000 3,902
6.125%, 12/31/01 13,000 12,869
Total U.S. Government Obligations (Cost $256,394) 250,450
U.S. GOVERNMENT MORTGAGE-BACKED
SECURITIES 13.8%
U.S. Government Guaranteed Obligations 13.8%
Government National Mortgage Assn.
I
6.50%, 8/15/28 3,667 3,432
7.50%, 1/15/28 - 12/15/29 10,336 10,155
8.00%, 2/15/04 - 1/15/29 4,253 4,266
8.50%, 12/15/05 - 6/15/26 2,041 2,072
9.00%, 11/15/04 - 8/15/25 4,186 4,345
9.50%, 8/15/09 - 12/15/17 4,493 4,696
10.00%, 12/15/17 - 7/15/22 582 619
10.50%, 5/15/13 - 7/15/19 166 180
11.50%, 10/15/10 - 8/15/15 88 96
II
7.00%, 11/20/23 - 1/20/24 29 28
8.50%, 10/20/24 - 2/15/27 894 910
Government National Mortgage Assn.
REMIC
6.35%, 1/20/28 $ 5,000 $ 4,384
6.50%, 5/20/28 4,683 4,039
7.00%, 5/16/24 2,000 1,909
Interest Only, 8.00%, 6/16/23** 376 65
Total U.S. Government Mortgage-Backed Securities
(Cost $43,262) 41,196
MONEY MARKET FUNDS 1.7%
Government Reserve Investment Fund, 6.08% # 5,222 5,222
Total Money Market Funds (Cost $5,222) 5,222
Total Investments in Securities
99.0% of Net Assets (Cost $304,878) $ 296,868
Other Assets Less Liabilities 2,972
NET ASSETS $ 299,840
----------
Net Assets Consist of:
Accumulated net investment income -
net of distributions $ 12
Accumulated net realized gain/loss -
net of distributions (1,441)
Net unrealized gain (loss) (8,010)
Paid-in-capital applicable to 28,328,752
shares of $0.01 par value capital stock
outstanding; 2,000,000,000 shares of
the Corporation authorized 309,279
NET ASSETS $ 299,840
----------
NET ASSET VALUE PER SHARE $ 10.58
----------
** 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
--------------------------------------------------------------------------------
In thousands Money Intermediate Long-Term
Fund Fund Fund
Year Ended Year Ended Year Ended
5/31/00 5/31/00 5/31/00
Investment Income (Loss)
Interest income $ 47,064 $ 14,971 $ 21,222
Expenses
Investment management 2,922 901 1,200
Shareholder servicing 1,184 470 712
Custody and accounting 118 111 105
Prospectus and shareholder reports 83 26 19
Registration 24 33 33
Legal and audit 13 12 12
Directors 8 6 6
Miscellaneous 6 4 5
Total expenses 4,358 1,563 2,092
Expenses paid indirectly (18) (1) (4)
Net expenses 4,340 1,562 2,088
Net investment income (loss) 42,724 13,409 19,134
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on securities 30 (6,458) (2,077)
Change in net unrealized gain or loss
on securities -- (2,366) (10,189)
Net realized and unrealized gain (loss) 30 (8,824) (12,266)
INCREASE (DECREASE) IN NET
ASSETS FROM OPERATIONS $ 42,754 $ 4,585 $ 6,868
---------------------------------------
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Money Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/00 5/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 42,724 $ 39,311
Net realized gain (loss) 30 24
Increase (decrease) in net
assets from operations 42,754 39,335
Distributions to shareholders
Net investment income (42,724) (39,311)
Capital share transactions *
Shares sold 2,512,141 3,541,154
Distributions reinvested 40,913 37,444
Shares redeemed (2,515,619) (3,535,263)
Increase (decrease) in
net assets from capital
share transactions 37,435 43,335
Net Assets
Increase (decrease) during period 37,465 43,359
Beginning of period 889,945 846,586
End of period $ 927,410 $ 889,945
-----------------------
*Share information
Shares sold 2,512,141 3,541,154
Distributions reinvested 40,913 37,444
Shares redeemed (2,515,619) (3,535,263)
Increase (decrease) in
shares outstanding 37,435 43,335
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Intermediate Fund
--------------------------------------------------------------------------------
Statement of Changes in Net Assets
--------------------------------------------------------------------------------
In thousands
Year
Ended
5/31/00 5/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 13,409 $ 12,593
Net realized gain (loss) (6,458) 4,087
Change in net unrealized
gain or loss (2,366) (7,518)
Increase (decrease) in net
assets from operations 4,585 9,162
Distributions to shareholders
Net investment income (13,409) (12,593)
Net realized gain (2,460) (3,321)
Decrease in net assets
from distributions (15,869) (15,914)
Capital share transactions *
Shares sold 75,533 159,141
Distributions reinvested 13,264 13,541
Shares redeemed (103,150) (112,970)
Increase (decrease) in
net assets from capital
share transactions (14,353) 59,712
Net Assets
Increase (decrease)
during period (25,637) 52,960
Beginning of period 255,987 203,027
End of period $ 230,350 $ 255,987
*Share information
Shares sold 14,978 29,337
Distributions reinvested 2,638 2,501
Shares redeemed (20,516) (20,762)
Increase (decrease) in
shares outstanding (2,900) 11,076
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
5/31/00 5/31/99
Increase (Decrease) in Net Assets
Operations
Net investment income (loss) $ 19,134 $ 16,425
Net realized gain (loss) (2,077) 5,011
Change in net unrealized
gain or loss (10,189) (13,040)
Increase (decrease) in net
assets from operations 6,868 8,396
Distributions to shareholders
Net investment income (19,134) (16,425)
Net realized gain (3,483) (1,812)
Decrease in net
assets from distributions (22,617) (18,237)
Capital share transactions *
Shares sold 80,055 195,948
Distributions reinvested 21,607 17,337
Shares redeemed (119,608) (145,759)
Increase (decrease) in
net assets from capital
share transactions (17,946) 67,526
Net Assets
Increase (decrease)
during period (33,695) 57,685
Beginning of period 333,535 275,850
End of period $ 299,840 $ 333,535
-----------------------
*Share information
Shares sold 7,506 16,744
Distributions reinvested 2,044 1,477
Shares redeemed (11,337) (12,318)
Increase (decrease) in
shares outstanding (1,787) 5,903
The accompanying notes are an integral part of these financial statements.
T. Rowe Price U.S. Treasury Funds
--------------------------------------------------------------------------------
May 31, 2000
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), 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 Money Fund
seeks maximum preservation of capital and liquidity and, consistent with
these goals, the highest possible current income by investing principally
in U.S. Treasury securities. The Intermediate Fund seeks a high level of
income consistent with maximum credit protection and moderate fluctuation
in principal by investing principally in U.S. Treasury securities. The
Long-Term Fund seeks the highest level of income consistent with maximum
credit protection by investing principally in U.S. Treasury securities.
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.
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. Expenses paid indirectly reflect
credits earned on daily uninvested cash balances at the custodian and are
used to reduce each fund's custody charges.
NOTE 2 - INVESTMENT TRANSACTIONS
Purchases and sales of U.S. government securities, other than short-term
securities, for the year ended May 31, 2000, were as follows:
--------------------------------------------------------------------------------
Intermediate Fund Long-Term Fund
U.S. government securities
Purchases $ 115,297,000 $ 69,146,000
Sales 143,301,000 93,786,000
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. As of May 31, 2000, the Intermediate and Long-Term
Funds have capital loss carryforwards for federal income tax purposes of
$842,000 and $293,000, respectively, all of which expires in 2008. The
funds intend to retain gains realized in future periods that may be offset
by available capital loss carryforwards.
In order for the Money 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, 2000.
The results of operations and net assets were not affected by the
increases/(decreases) to these accounts.
Undistributed net investment income $1,000
Undistributed net realized gain (1,000)
At May 31, 2000, the costs of investments for the Money, Intermediate, and
Long-Term Funds for federal income tax purposes was substantially the same
as for financial reporting and totaled $915,805,000, $234,982,000, and
$304,878,000, respectively. For the Money Fund, amortized cost is
equivalent to value; for the Intermediate and Long-Term Funds, net
unrealized gain (loss) on investments was as follows:
--------------------------------------------------------------------------------
Intermediate Fund Long-Term Fund
Appreciated investments $ 183,000 $ 3,928,000
Depreciated investments (6,925,000) (11,938,000)
Net unrealized gain (loss) $ (6,742,000) $ (8,010,000)
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 $250,000, $71,000, and $91,000 were payable at May 31, 2000,
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 0.295% for assets in
excess of $120 billion. At May 31, 2000, 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.
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 $1,041,000, $442,000, and
$272,000, respectively, for the year ended May 31, 2000, of which $115,000,
$48,000, and $29,000, 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 58.6% of the
outstanding shares of the Long-Term Fund at May 31, 2000. For the year then
ended, the Long-Term Fund was allocated $461,000 of Spectrum expenses,
$21,000 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, 2000, totaled $196,000 and $149,000,
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 of T. Rowe Price U.S. Treasury Funds, Inc. and
Shareholders of U.S. Treasury Money Fund, U.S. Treasury Intermediate Fund, and
U.S. Treasury Long-Term Fund
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 (comprising T. Rowe Price U.S. Treasury Funds,
Inc., hereafter referred to as the "Funds") at May 31, 2000, and the
results of each of their operations, the changes in each of their net
assets and the financial highlights for each of the fiscal periods
presented, in conformity with accounting principles generally accepted in
the United States. 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 auditing standards generally
accepted in the United States, 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, 2000 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Baltimore, Maryland
June 19, 2000
T. Rowe Price U.S. Treasury Funds
--------------------------------------------------------------------------------
Tax Information (Unaudited) for the Tax Year Ended 5/31/00
We are providing this information as required by the Internal Revenue Code.
The amounts shown may differ from those elsewhere in this report because of
differences between tax and financial reporting requirements.
The Intermediate Fund's distributions to shareholders included: $2,460,000
from long-term capital gains, subject to the 20% rate gains category.
The Long-Term Fund's distributions to shareholders included:
o $950,000 from short-term capital gains,
o $2,533,000 from long-term capital gains, subject to the 20% rate gains
category.
For fund and account information
or to conduct transactions,
24 hours, 7 days a week
By touch-tone telephone
Tele*Access 1-800-638-2587
By Account Access on the Internet
www.troweprice.com/access
For assistance
with your existing
fund account, call:
Shareholder Service Center
1-800-225-5132
To open a brokerage account
or obtain information, call:
1-800-638-5660
Internet address:
www.troweprice.com
Plan Account Lines for retirement
plan participants:
The appropriate 800 number appears
on your retirement account statement.
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 appropriate
to the fund or funds covered in this
report.
Walk-In Investor Centers:
For directions, call 1-800-225-5132
or visit our Web site
Baltimore Area
Downtown
101 East Lombard Street
Owings Mills
Three Financial Center
4515 Painters Mill Road
Boston Area
386 Washington Street
Wellesley
Colorado Springs
4410 ArrowsWest Drive
Los Angeles Area
Warner Center
21800 Oxnard Street, Suite 270
Woodland Hills
Tampa
4200 West Cypress Street
10th Floor
Washington, D.C.
900 17th Street N.W.
Farragut Square
T. Rowe Price, Invest With Confidence
T. Rowe Price Investment Services, Inc., Distributor. C07-050 5/31/00
