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T. ROWE PRICE
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Tax-Free Funds, Inc.
Tax-Exempt Money Fund
Tax-Free Short-Intermediate Fund
Tax-Free Insured Intermediate Bond Fund
Tax-Free Income Fund
Tax-Free High Yield Fund
Supplements to prospectus dated July 1, 1998
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The first paragraph under Tax Information on page 18 of the prospectus states
in error that each fund's regular monthly dividends are expected to be exempt
from federal and state and local (if any) income taxes. The reference to "state
and local (if any) income taxes" was inserted in error. As noted throughout the
Fund, Market, and Risk Characteristics section (pp. 8-15), the fund's regular
dividends are expected to be exempt from federal income taxes only. Effective
July 17, 1998, the Tax Information paragraphs on page 18 of the prospectus are
revised as follows:
Tax Information
o You will be sent timely information for your tax filing needs.
Although the regular monthly income dividends you receive from each fund are
expected to be exempt from federal income taxes, you need to be aware of the
possible tax consequences when:
. You sell fund shares, including an exchange from one fund to another.
. The fund makes a distribution to your account.
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The date of the above supplement is July 17, 1998.
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T. Rowe Price Tax-Free Insured Intermediate Bond Fund, Inc.
Reflecting the result of shareholder votes at the fund's annual meeting on
October 15, 1998, the fund's objective will be amended to remove the
requirement to invest primarily in insured bonds. This change was recommended
by the fund's management and board of directors to give the portfolio managers
more flexibility in selecting bonds. Broader diversification of assets
typically reduces volatility and may increase opportunities available to the
fund. The word "insured" will be omitted from the fund's name, and its new
abbreviation for newspaper listings will be TF Inter.
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Effective November 1, 1998, the changes noted below are being made to the
prospectus.
Fund name: Tax-Free Intermediate Bond Fund
Front cover: the existing paragraphs are replaced with the following:
Strategy and Risk/Reward
Invests in high-quality intermediate-term municipal bonds. The
fund's average maturity is five to 10 years. Risk/Reward Higher
income and potential share price fluctuation than the
Short-Intermediate Fund.
Page 9: The following replaces the current paragraph.
Tax-Free Intermediate Bond Fund
The fund's objective is a high level of income exempt from federal income taxes
consistent with moderate price fluctuation by investing primarily in municipal
securities. At least 95% of the bonds purchased by the fund will be rated AAA
or AA by at least one national rating organization (Standard & Poor's
Corporation, Moody's Investor Service, Inc., or a similar service). Up to 5%
may be rated A at the time of purchase. The fund may purchase unrated bonds if
T. Rowe Price believes they are of comparable quality. At its discretion, the
fund may retain a security whose credit quality is downgraded after purchase.
The fund's dollar-weighted average maturity is expected to vary between five
and 10 years. This fund should provide higher income and volatility than the
Short-Intermediate Fund and lower income and volatility than the other tax-free
bond funds.
Page 30: Under the heading, "Municipal Bond Insurance," the third paragraph is
deleted.
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The date of the above supplement is October 22, 1998.
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C03-042 10/22/98
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