PIPER FUNDS INC, N-30D, 1996-11-26

PIPER FUNDS INC
N-30D, 1996-11-26

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<PAGE>

NATIONAL TAX-EXEMPT FUND
MINNESOTA TAX-EXEMPT FUND

[LOGO]
TAX-EXEMPT
INCOME FUNDS

<PAGE>

CONTENTS

NATIONAL TAX-EXEMPT FUND

Letter to Shareholders . . . . . . . . . . . . . 2
Financial Statements and Notes . . . . . . . . . 7
Investments in Securities. . . . . . . . . . . .16
Independent Auditors' Report . . . . . . . . . .21
Federal Tax Information . . . . . . . . . . . .22
Directors and Officers . . . . . . . . . . . . .23
Shareholder Services . . . . . . . . . . . . . .24
Glossary . . . . . . . . . . . . . . . . . . . .25

MINNESOTA TAX-EXEMPT FUND

Letter to Shareholders . . . . . . . . . . . . . 4
Financial Statements and Notes . . . . . . . . . 7
Investments in Securities. . . . . . . . . . . .18
Independent Auditors' Report . . . . . . . . . .21
Federal Tax Information . . . . . . . . . . . .22
Directors and Officers . . . . . . . . . . . . .23
Shareholder Services . . . . . . . . . . . . . .24
Glossary . . . . . . . . . . . . . . . . . . . .25

This report is intended for shareholders of National Tax-Exempt Fund and
Minnesota Tax-Exempt Fund, but may also be used as sales literature if preceded
or accompanied by a prospectus. The prospectus gives details about the charges,
investment results, risks and operating policies of the funds.

Income from National Tax-Exempt Fund is largely free from federal taxes but may
be subject to state or local taxes. A portion of the fund's income may be
subject to the alternative minimum tax.

Income from Minnesota Tax-Exempt Fund is largely free from federal and state
taxes. A portion of the fund's income may be subject to local taxes or federal
or state alternative minimum tax.

*An investment in a Piper money market fund is neither insured nor guaranteed by
the U.S. government and there can be no assurance that the fund will be able to
maintain a stable net asset value of $1 per share.

[LOGO]

INTERNATIONAL GROWTH FUNDS

Emerging Markets Growth Fund
Pacific-European Growth Fund

U.S. GROWTH FUNDS

Small Company Growth Fund
Emerging Growth Fund
Growth Fund

GROWTH AND INCOME FUNDS

Growth and Income Fund
Balanced Fund

INCOME FUNDS

Government Income Fund
Intermediate Bond Fund
Adjustable Rate Mortgage Securities Fund

TAX-EXEMPT INCOME FUNDS

National Tax-Exempt Fund To counteract the impact of taxes on
Minnesota Tax-Exempt Fund total investment return, many investors
find a tax-exempt fund often provides
more spendable income.

CASH MANAGEMENT FUNDS*

Money Market Fund
Tax-Exempt Money Market Fund
U.S. Government Money Market Fund
Institutional Money Market Fund

Piper Funds provide you with the flexibility to help you pursue your lifelong
goals. Among our funds, we offer a spectrum of investment objectives and
convenient shareholder services to meet the varied needs of today's investors.

Contact your Piper Jaffray Investment Executive for more information about the
Piper Funds, including prospectuses, or call Mutual Fund Services at 1 800 866-
7778.

<PAGE>

[PHOTO]
WILLIAM H. ELLIS
President
Piper Capital Management

PRESIDENT'S LETTER

November 14, 1996

DEAR SHAREHOLDERS:

Check out the best sellers' list at your local bookstore. You'll notice a number
of books about companies that have gone through dramatic changes in recent
years. Surprising? Not really. Every company experiences change periodically.
And we're no exception. At Piper Capital Management, we've recently made
significant changes to enhance our ability to achieve consistent, competitive
performance and provide a higher level of quality service.

We've restructured our fund family to offer you a broader range of mutual
funds - from small company to emerging markets. We've renamed certain funds so
it's easier to identify how they invest. Take a look at the names, and you'll
see what I mean.

We've upgraded our toll-free telephone system so you spend less time
listening to voice response and more time receiving information you can put to
use. When calling our toll-free number, you'll now have the option to listen to
our portfolio managers talk about their current investment strategies and market
outlook. Find out the many ways to reach us, including our toll-free number, on
the back page of this report.

Take a close look at the annual report in your hand. You'll see that the
format is simpler and more inviting. The report has less jargon and is easier to
read. We've even added a glossary of terms at the back of the book to help you
better understand commonly used financial terms. Whenever you see this symbol
(***), it indicates a term that is defined in the glossary. In addition, we've
developed more literature that clearly spells out each fund's investment process
with succinct content that you can easily grasp. Flip to the back page for more
information on how to order literature.

You'll hear the word "team" more often when we talk about our portfolio
managers. We've reorganized our investment management group so managers interact
more frequently, sharing their best ideas to improve the investment capabilities
of Piper Capital.

There is one thing that hasn't changed at Piper Capital, and that's the
value we place on your Investment Executive. He or she plays an integral part in
helping you build your wealth. Rely on your Piper Jaffray Investment Executive
to give you the support and guidance that you need in working toward your
financial goals.

The recent changes we have made represent a new way of doing business at
Piper Capital - an approach we believe will enable us to establish an
unparalleled reputation for prudent investing and high-quality service.

That said, we look forward to serving your future financial needs and
exceeding your expectations in every way we can.

Thank you for your investment.

Sincerely,

/s/ William H. Ellis

William H. Ellis

1 1996 Annual Report - Tax-Exempt Income Funds

<PAGE>

[PHOTO]
RONALD REUSS
shares responsibility for the management of National Tax-Exempt Fund. He has 27
years of financial experience.

NATIONAL TAX-EXEMPT FUND

November 14, 1996

DEAR SHAREHOLDERS:

NATIONAL TAX-EXEMPT FUND ACHIEVED A 6.42%* TOTAL RETURN FOR THE ONE-YEAR PERIOD
ENDED SEPTEMBER 30, 1996. This return included reinvested distributions, but not
the fund's sales charge. The fund's return compared favorably to the Lipper
General Municipal Bond Funds Average+ return of 5.61% and the Lehman Brothers
Municipal Bond Index** return of 6.04% for the same one-year period. A good
environment for municipal bonds provided a positive backdrop for the fund during
the year. Municipals have been outperforming taxable bonds for the past several
quarters, largely due to subsiding fears of tax reform and the proposed flat
tax, which would have had a negative effect on tax-free bonds. This, combined
with a reduced supply of new issues and favorable after-tax yields, allowed
municipal bonds to perform relatively well in a time of economic uncertainty.
We'll review other factors that contributed to the fund's positive performance
below.

THE FUND'S AGGRESSIVE EFFECTIVE DURATION(***) POSITION BENEFITED PERFORMANCE
DURING A TIME OF FALLING INTEREST RATES IN LATE 1995, BUT IT HAD A NEGATIVE
EFFECT IN EARLY 1996. Longer duration can lead to more net asset value
volatility, but it can also mean more income, and that extra income helped this
fund during the year. For much of the reporting period, we kept the fund's
duration at a more aggressive level than that of the Lehman benchmark.(***)
Later, as economic uncertainty resulted in interest rates fluctuating within a
relatively narrow range, we took steps to shorten the duration to its current
position, which is close to that of the index.

INCOME FROM INVERSE FLOATING RATE MUNICIPAL SECURITIES(***) HELPED THE FUND
DURING THE FISCAL YEAR. As of September 30, 1996, the fund's position in inverse
floaters was about 10% of total assets, an increase of about 6% since the last
time we reported to you. Inverse floaters' coupons(***) have an inverse

FUND PERFORMANCE THROUGH SEPTEMBER 30, 1996*

Growth of $10,000 Invested Since Inception

[GRAPH]

** AN UNMANAGED INDEX THAT INCLUDES NO EXPENSES OR TRANSACTION CHARGES,
MEASURING PERFORMANCE FOR THE INVESTMENT-GRADE MUNICIPAL BOND MARKET.

+ THE AVERAGE TOTAL RETURN OF SIMILAR FUNDS AS CHARACTERIZED BY LIPPER
ANALYTICAL SERVICES.

Average Annualized Total Returns
Includes 4% maximum sales charge.

One Year . . . . . . . . . . .2.16%
Five Years . . . . . . . . . .6.17%
Since Inception (7/11/88). . .7.11%

DURING SOME PERIODS, PIPER CAPITAL WAIVED OR PAID FUND EXPENSES AND/OR PIPER
JAFFRAY, THE FUND'S DISTRIBUTOR, VOLUNTARILY LIMITED 12b-1 FEES FOR THE FUND.
HAD THESE FEES AND EXPENSES NOT BEEN WAIVED, RETURNS WOULD HAVE BEEN 2.07% ONE
YEAR, 6.05% FIVE YEARS AND 6.83% SINCE INCEPTION.

* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. PLEASE REMEMBER, YOU COULD
LOSE MONEY WITH THIS INVESTMENT. NEITHER SAFETY OF PRINCIPAL NOR STABILITY OF
INCOME IS GUARANTEED. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT
WILL FLUCTUATE SO THAT FUND SHARES, WHEN SOLD, MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.

ALL FUND AND BENCHMARK RETURNS INCLUDE REINVESTED DISTRIBUTIONS.

2 1996 Annual Report - Tax-Exempt Income Funds

<PAGE>

DOUGLAS WHITE, CFA
shares responsibility for the management of National Tax-Exempt Fund. He has 13
years of financial experience.

NATIONAL TAX-EXEMPT FUND (continued)

relationship with market interest rates. They tend to exhibit more price
volatility; however, they also have provided more income than traditional
municipal bonds. When interest rates fell late in 1995, the value of these
inverse floaters and their coupons increased. Conversely, when rates rose in
early 1996, these securities dropped in value and their coupons fell somewhat.
As rates fluctuated during the year, the price volatility of these securities
hasn't had a significant impact on the fund; however, the extra income they've
produced has helped its performance.

IN JULY, THE FUND BENEFITED FROM STANDARD & POOR'S UPGRADE OF CALIFORNIA GENERAL
OBLIGATION BONDS FROM A TO A+. The fund has a 5% position in these bonds, the
result of a purchase we made earlier in the year when we recognized signs of
renewed strength in that state's economy. During the reporting period, the
fund's geographic focus continued to be on the Central United States, with
secondary emphasis on the West and Southwest. These regions are attractive for
many reasons, including positive economic environments, an attractive supply of
bond issues and bonds with rates that are good values for the fund. (See the
chart below for the fund's composition by state.) We will continue to look for
opportunities to invest in regions that offer bonds appropriate for this fund's
objective.(***)

IN THE COMING MONTHS, WE ANTICIPATE STABLE, AND POSSIBLY LOWER, INTEREST RATES.
WE BELIEVE THE FUND IS PREPARED TO BENEFIT FROM THAT TYPE OF ENVIRONMENT. We've
positioned the fund's call protection(***) at about 10 years, which will allow
it to maintain a relatively high income stream if rates fall. Also, as always,
we will focus on credit analysis of the municipal bonds the fund purchases. The
federal government has passed more financial responsibility to state and local
entities, and we will be watching for any resulting improvements or downgrades
in bond ratings. This will be critical for any municipal bond fund, and we will
continue to apply our proprietary credit analysis to all of the fund's holdings.

Thank you for investing in National Tax-Exempt Fund. We are dedicated to serving
your financial needs and look forward to helping you reach your goals.

Sincerely,

/s/ Ronald Reuss /s/ Douglas White

Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager

PORTFOLIO COMPOSITION BY STATE
As a percentage of total assets on September 30, 1996.

[GRAPH]

MUNICIPAL DERIVATIVE SECURITIES (INVERSE FLOATERS) ACCOUNT FOR 10% OF THE FUND'S
TOTAL ASSETS.

PORTFOLIO COMPOSITION BY RATING
As a percentage of total assets on September 30, 1996.

AAA 56%
AA 11%
A 12%
BBB 2%
Non-Rated 17%
Other Assets 2%

3 1996 Annual Report - Tax-Exempt Income Funds

<PAGE>
[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for the management of Minnesota Tax-Exempt Fund. He has
13 years of financial experience.

MINNESOTA TAX-EXEMPT FUND

November 14, 1996

DEAR SHAREHOLDERS:

MINNESOTA TAX-EXEMPT FUND ACHIEVED A 6.24%* TOTAL RETURN FOR THE ONE-YEAR PERIOD
ENDED SEPTEMBER 30, 1996. This return included reinvested distributions, but not
the fund's sales charge. The fund's return compared favorably to the Lipper
Minnesota Municipal Bond Funds Average+ return of 5.21% and the Lehman Brothers
Municipal Bond Index** return of 6.04% for the same one-year period. A good
environment for municipal bonds provided a positive backdrop for the fund during
the year. Municipals have been outperforming taxable bonds for the past several
quarters, largely due to subsiding fears of tax reform and the proposed flat
tax, which would have had a negative effect on tax-free bonds. This, combined
with a reduced supply of new issues and favorable after-tax yields, allowed
municipal bonds to perform relatively well in a time of economic uncertainty.
We'll review other factors that contributed to the fund's positive performance
below.

THE FUND'S AGGRESSIVE EFFECTIVE DURATION(***) POSITION BENEFITED PERFORMANCE
DURING A TIME OF FALLING INTEREST RATES IN LATE 1995, BUT IT HAD A NEGATIVE
EFFECT IN EARLY 1996. Longer duration can lead to more net asset value
volatility, but it can also mean more income, and that extra income helped this
fund during the year. For much of the reporting period, we kept the fund's
duration at a more aggressive level than that of the Lehman benchmark.(***)
Later, economic uncertainty resulted in rates fluctuating within a relatively
narrow range, and we took steps to shorten the duration somewhat.

INCOME FROM INVERSE FLOATING RATE MUNICIPAL SECURITIES(***) HELPED THE FUND
DURING THE FISCAL YEAR. As of September 30, 1996, the fund's position in inverse
floaters was about 9% of total assets. Inverse floaters' coupons(***) have an
inverse relationship with market interest rates. They tend to exhibit more

FUND PERFORMANCE THROUGH SEPTEMBER 30, 1996*

Growth of $10,000 Invested Since Inception

[GRAPH]

** AN UNMANAGED INDEX THAT INCLUDES NO EXPENSES OR TRANSACTION CHARGES,
MEASURING PERFORMANCE FOR THE INVESTMENT-GRADE MUNICIPAL BOND MARKET.

+ THE AVERAGE TOTAL RETURN OF SIMILAR FUNDS AS CHARACTERIZED BY LIPPER
ANALYTICAL SERVICES.

Average Annualized Total Returns
Includes 4% maximum sales charge.

One Year . . . . . . . . . . . 1.99%
Five Years . . . . . . . . . . 6.28%
Since Inception (7/11/88). . . 7.03%

DURING SOME PERIODS, THE FUND'S ADVISER WAIVED OR PAID CERTAIN FUND EXPENSES
AND/OR THE FUND'S DISTRIBUTOR VOLUNTARILY LIMITED 12b-1 FEES FOR THE FUND.
OTHERWISE, THE AVERAGE ANNUALIZED TOTAL RETURNS WOULD HAVE BEEN 1.89% ONE YEAR,
6.18% FIVE YEARS AND 6.84% SINCE INCEPTION. ALL RETURNS INCLUDE REINVESTED
DISTRIBUTIONS AND THE FUND'S 4% SALES CHARGE.

ALL FUND AND BENCHMARK RETURNS INCLUDE REINVESTED DISTRIBUTIONS.

4 1996 Annual Report - Tax-Exempt Income Funds

<PAGE>

[PHOTO]
RONALD REUSS
shares responsibility for the management of Minnesota Tax-Exempt Fund. He has 27
years of financial experience.

MINNESOTA TAX-EXEMPT FUND (CONTINUED)

price volatility; however, they also have provided more income than traditional
municipal bonds. When interest rates fell late in 1995, the value of these
inverse floaters and their coupons increased. Conversely, when rates rose in
early 1996, these securities dropped in value and their coupons fell somewhat.
As rates fluctuated during the year, the price volatility of these securities
hasn't had a significant impact on the fund; however, the extra income they've
produced has helped its performance.

THE FUND SOLD SOME OF ITS HOLDINGS IN LONG DURATION ZERO-COUPON BONDS(***)
DURING THE PERIOD.
Zero-coupon bonds are among the most volatile fixed income securities. As such,
a reduction in these holdings is an efficient method of reducing the fund's
overall duration and, therefore, its price volatility. While we had only
slightly reduced the fund's position in zero-coupon bonds as of September 30,
1996 (from 8% to 7% of the portfolio), we plan further reductions in the near
future.

Thank you for investing in Minnesota Tax-Exempt Fund. We are dedicated to
serving your financial needs and look forward to helping you reach your goals.

Sincerely,

/s/ Ronald Reuss /s/ Douglas White

Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager

PORTFOLIO COMPOSITION BY SECTOR

As a percentage of total assets on September 30, 1996.

[GRAPH]

MUNICIPAL DERIVATIVE SECURITIES (INVERSE FLOATERS) ACCOUNT FOR 9% OF THE FUND'S
TOTAL ASSETS.

PORTFOLIO COMPOSITION BY RATING
As a percentage of total assets on September 30, 1996.

AAA 30%
AA 31%
A 6%
BBB 6%
Non-Rated 26%
Other Assets 1%

5 1996 Annual Report - Tax-Exempt Income Funds
<PAGE>
Financial Statements

- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES September 30, 1996
..................................................................

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------

<S> <C> <C>
ASSETS:
Investment in securities, at market value* (note 2) ........ $46,434,123 $125,399,664
Cash in bank on demand deposit ............................. 91,012 114,626
Receivable for fund shares sold ............................ 29,380 2,721
Other assets ............................................... 2,181 5,741
Accrued interest receivable ................................ 730,591 1,980,577
------------ -------------
Total Assets ............................................. 47,287,287 127,503,329
------------ -------------

LIABILITIES:
Dividends payable to shareholders .......................... 207,267 565,918
Payable for investment securities purchased ................ -- 981,095
Payable for investment securities purchased on a when-issued
basis .................................................... 1,042,440 --
Payable for fund shares redeemed ........................... 75,786 206,432
Accrued investment management fee .......................... 18,961 51,529
Accrued distribution fee ................................... 7,938 21,573
------------ -------------
Total Liabilities ........................................ 1,352,392 1,826,547
------------ -------------
Net assets applicable to outstanding capital stock ......... $45,934,895 $125,676,782
------------ -------------
------------ -------------

REPRESENTED BY:
Capital stock - authorized 10 billion shares for each fund
of $0.01 par value; outstanding, 4,247,615 and 11,537,228
shares, respectively ..................................... $ 42,476 $ 115,372
Additional paid-in capital ................................. 44,348,202 121,089,166
Distributions in excess of net investment income ........... (8,860) (20,407)
Accumulated net realized gain on investments ............... 56,742 55,068
Unrealized appreciation of investments ..................... 1,496,335 4,437,583
------------ -------------

Total - representing net assets applicable to outstanding
capital stock .......................................... $45,934,895 $125,676,782
------------ -------------
------------ -------------

Net asset value per share of outstanding capital stock ..... $ 10.81 $ 10.89
------------ -------------
------------ -------------

* Investments in securities, at identified cost ............ $44,937,788 $120,962,081
------------ -------------
------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- --------------------------------------------------------------------------------

6 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------

STATEMENTS OF OPERATIONS For The Year Ended September 30,
1996
..................................................................

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ ------------

<S> <C> <C>
INCOME:
Interest ................................................... $ 3,196,094 $ 8,298,156

EXPENSES (NOTE 5):
Investment management fee .................................. 258,789 660,926
Distribution fee ........................................... 154,705 395,328
Custodian and accounting fees .............................. 51,450 113,868
Transfer agent and dividend disbursing agent fees .......... 33,052 46,173
Registration fees .......................................... 15,982 18,366
Reports to shareholders .................................... 15,374 15,300
Directors' fees ............................................ 2,791 2,791
Audit and legal fees ....................................... 35,871 37,314
Other expenses ............................................. 13,788 19,581
------------ ------------
Total expenses ........................................... 581,802 1,309,647
Less expenses waived by the distributor .................... (46,920) (120,108)
------------ ------------

Net expenses before expenses paid indirectly ............. 534,882 1,189,539
Less expenses paid indirectly .............................. (3,813) (7,624)
------------ ------------

Total net expenses ....................................... 531,069 1,181,915
------------ ------------

Net investment income .................................... 2,665,025 7,116,241
------------ ------------

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 1,251,613 1,622,750
Net change in unrealized appreciation or depreciation of
investments .............................................. (591,728) (730,954)
------------ ------------

Net gain on investments .................................. 659,885 891,796
------------ ------------

Net increase in net assets resulting from operations ..... $ 3,324,910 $ 8,008,037
------------ ------------
------------ ------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- --------------------------------------------------------------------------------

7 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------

STATEMENTS OF CHANGES IN NET ASSETS
..................................................................

<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND
---------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
9/30/96 9/30/95 9/30/96 9/30/95
------------- ------------ ------------- -------------

<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 2,665,025 $ 3,205,862 $ 7,116,241 $ 8,194,043
Net realized gain (loss) on investments .................... 1,251,613 (286,382) 1,622,750 594,780
Net change in unrealized appreciation or depreciation of
investments .............................................. (591,728) 2,746,079 (730,954) 5,979,488
------------- ------------ ------------- -------------

Net increase in net assets resulting from operations ..... 3,324,910 5,665,559 8,008,037 14,768,311
------------- ------------ ------------- -------------

DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (2,646,973) (3,195,698) (7,047,814) (8,169,500)
------------- ------------ ------------- -------------

CAPITAL SHARE TRANSACTIONS (NOTE 4):
Proceeds from sales ........................................ 4,822,153 7,261,365 7,476,545 10,065,315
Shares issued for reinvestment of distributions ............ 2,646,937 1,894,074 7,110,996 6,920,383
Payments for shares redeemed ............................... (19,272,785) (22,514,103) (23,728,087) (52,194,970)
------------- ------------ ------------- -------------
Decrease in net assets from capital share transactions ... (11,803,695) (13,358,664) (9,140,546) (35,209,272)
------------- ------------ ------------- -------------
Total decrease in net assets ............................. (11,125,758) (10,888,803) (8,180,323) (28,610,461)

Net assets at beginning of year ............................ 57,060,653 67,949,456 133,857,105 162,467,566
------------- ------------ ------------- -------------

Net assets at end of year .................................. $45,934,895 $ 57,060,653 $125,676,782 $ 133,857,105
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------

Distributions in excess of net investment income ........... $ (8,860) $ (18,052) $ (20,407) $ (68,427)
------------- ------------ ------------- -------------
------------- ------------ ------------- -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

- --------------------------------------------------------------------------------

8 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Notes to Financial Statements
- --------------------------------------------------

(1) ORGANIZATION
................................................................................
Piper Funds Inc. (the company) is registered under the
Investment Company Act of 1940 (as amended) as a single,
open-end management investment company. The company
currently has 12 series, including National Tax-Exempt
Fund and Minnesota Tax-Exempt Fund (the funds), which are
classified as diversified and nondiversified series,
respectively. The company's articles of incorporation
permit the board of directors to create additional series
in the future.

National Tax-Exempt Fund invests primarily in
investment-grade or comparable quality municipal bonds,
notes and tax-free municipal leases issued by states,
territories and possessions of the United States, the
District of Columbia or their agencies, instrumentalities
and political subdivisions. These may include municipal
derivative securities.

Minnesota Tax-Exempt Fund invests primarily in
investment-grade or comparable quality municipal bonds,
notes and tax-free municipal leases issued by the state of
Minnesota, its agencies, instrumentalities and political
subdivisions, and certain securities of U.S. territorial
possessions. These may include municipal derivative
securities.

(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
................................................................................
INVESTMENTS IN SECURITIES
The value of certain fixed income securities will be
provided by an independent pricing service, which
determines these valuations at a time earlier than the
close of the Exchange. Fixed income securities for which
prices are not available from an independent pricing
service but where an active market exists will be valued
using market quotations obtained from one or more dealers
that make markets in the securities.

Occasionally, events affecting the value of such
securities may occur between the time valuations are
determined and the close of the Exchange. If events
materially affecting the value of such securities occur,
if the Company's management determines for any other
reason that valuations provided by the pricing service are
inaccurate or when market quotations are not readily
available, securities will be valued at their fair value
according to procedures decided upon in good faith by the
Board of Directors. Short-term securities with maturities
of 60 days or less are valued at amortized cost, which
approximates market value.

Financial futures are valued at the last settlement price
established each day by the board of trade or exchange on
which they are traded. Such valuations are determined
using independent pricing services or prices quoted by
independent brokers.

Securities transactions are accounted for on the date the
securities are purchased or sold. Realized gains and
losses are calculated on the identified-cost basis.
Interest income, including amortization of bond discount
and premium computed on a level-yield basis, is accrued
daily.

FUTURES TRANSACTIONS
For hedging purposes, the funds may buy and sell financial
futures contracts and related options. Risks of entering
into futures contracts and related options include the
possibility that there may be an illiquid market and that
a change in the value of the contract or option may not
correlate with changes in the value of the underlying
securities.

- --------------------------------------------------------------------------------

9 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

Upon entering into a futures contract, the funds are
required to deposit either cash or securities in an amount
(initial margin) equal to a certain percentage of the
contract value. Subsequent payments (variation margin) are
made or received by the funds each day. The variation
margin payments are equal to the daily changes in the
contract value and are recorded as unrealized gains and
losses. The funds recognize a realized gain or loss when
the contract is closed or expires.

SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been
purchased by the funds on a forward-commitment or
when-issued basis can take place a month or more after the
transaction date. During this period, such securities do
not earn interest, are subject to market fluctuation and
may increase or decrease in value prior to their delivery.
Each fund maintains, in segregated accounts with the
custodian, assets with a market value equal to the amount
of its purchase commitments. The purchase of securities on
a when-issued or forward-commitment basis may increase the
volatility of each fund's net asset value if the funds
make such purchases while remaining substantially fully
invested. As of September 30, 1996, National Tax-Exempt
Fund had outstanding when-issued or forward-commitments of
$1,042,440.

FEDERAL TAXES
Each fund is treated separately for federal income tax
purposes. Each fund intends to comply with the
requirements of the Internal Revenue Code applicable to
regulated investment companies and not be subject to
federal income tax. Therefore, no income tax provision is
required. In addition, on a calendar-year basis, the funds
will distribute substantially all of their taxable net
investment income and realized gains, if any, to avoid the
payment of any federal excise taxes.

Net investment income and net realized gains (losses) may
differ for financial statement and tax purposes primarily
because of market discount amortization. The character of
distributions made during the year from net investment
income or net realized gains may differ from its ultimate
characterization for federal income tax purposes. In
addition, due to the timing of dividend distributions, the
fiscal year in which amounts are distributed may differ
from the year that the income or realized gains (losses)
were recorded by the funds.

On the statements of assets and liabilities, as a result
of permanent book-to-tax differences, reclassification
adjustments have been made as follows:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------- --------
<S> <C> <C>
Increase distributions in excess of net
investment income ......................... $8,860 $20,407
Increase accumulated net realized gain on
investments ............................... $8,860 $20,407
</TABLE>

DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
are declared daily and paid monthly. Net realized gains
distributions, if any, will be made at least annually.
Distributions are payable in cash or reinvested in
additional shares.

- --------------------------------------------------------------------------------

10 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

REPURCHASE AGREEMENTS
For repurchase agreements entered into with certain
broker-dealers, the funds, along with other affiliated
registered investment companies, may transfer uninvested
cash balances to a joint trading account, the daily
aggregate of which is invested in repurchase agreements
secured by U.S. government or agency obligations.
Securities pledged as collateral for all individual and
joint repurchase agreements are held by the funds'
custodian bank until maturity of the repurchase agreement.
Provisions for all agreements ensure that the daily market
value of the collateral is in excess of the repurchase
amount, including accrued interest, to protect the funds
in the event of a default.

USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts in the financial statements. Actual
results could differ from these estimates.

(3) INVESTMENT SECURITY TRANSACTIONS
................................................................................
Cost of purchases and proceeds from sales of securities,
other than temporary investments in short-term securities
for the year ended September 30, 1996, were as follows:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ ------------
<S> <C> <C>
Purchases ................................... $ 21,973,034 $ 44,844,833
Proceeds from sales ......................... $ 32,091,071 $ 54,624,455
</TABLE>

For the year ended September 30, 1996, no brokerage
commissions were paid to Piper Jaffray Inc., an affiliated
broker.

(4) CAPITAL SHARE TRANSACTIONS
................................................................................
Transactions in shares of each fund for the years ended
September 30, 1996, and 1995, were as follows:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
----------- -----------
<S> <C> <C>
1996:
Sold ...................................... 449,319 682,698
Issued for reinvested distributions ....... 243,960 650,478
Redeemed .................................. (1,782,195) (2,173,520)
----------- -----------
Decrease ................................ (1,088,916) (840,344)
----------- -----------
----------- -----------
1995:
Sold ...................................... 713,082 987,596
Issued for reinvested distributions ....... 183,824 659,450
Redeemed .................................. (2,212,011) (5,070,335)
----------- -----------
Decrease ................................ (1,315,105) (3,423,289)
----------- -----------
----------- -----------
</TABLE>

(5) EXPENSES
................................................................................
The company has entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital) under which Piper Capital manages each
fund's assets and furnishes related office facilities,
equipment, research and personnel. The agreement requires
each fund to pay Piper Capital a monthly fee based on
average daily net assets. The fee for each fund is equal
to an annual rate of 0.50% of the first $250 million in
net assets, 0.45% of the next $250 million and 0.40% of
net assets in excess of $500 million.

- --------------------------------------------------------------------------------

11 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

Each fund also pays Piper Jaffray Inc. (Piper Jaffray),
the funds' distributor, a monthly fee for providing
shareholder services and distribution-related services.
The fee is limited to an annual rate of 0.30% of average
daily net assets for each fund and includes 0.25% payable
as a servicing fee and 0.05% payable as a distribution
fee. For the year ended September 30, 1996, Piper Jaffray
voluntarily agreed to limit the fee to an annual rate of
0.22% of each fund's average daily net assets.

The company has also entered into shareholder servicing
agreements under which Piper Jaffray and Piper Trust
Company perform various transfer and dividend disbursing
agent services for accounts held at the respective
company. The fees, which are paid monthly to Piper Jaffray
and Piper Trust Company for providing these services, are
equal to an annual rate of $7.50 per active shareholder
account and $1.60 per closed account. For the year ended
September 30, 1996, Piper Jaffray and Piper Trust received
the following amounts in connection with the shareholder
account servicing agreements:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
-------- --------
<S> <C> <C>
Piper Jaffray ............................... $13,073 $23,612
Piper Trust ................................. -- --
-------- --------
$13,073 $23,612
-------- --------
-------- --------
</TABLE>

In addition to the investment management, distribution and
shareholder account servicing fees, each fund is
responsible for paying most other operating expenses
including: outside directors' fees and expenses; custodian
fees; registration fees; printing and shareholder reports;
transfer agent fees and expenses; legal, auditing and
accounting services; insurance; interest; taxes and other
miscellaneous expenses.

Expenses paid indirectly represent a reduction of
custodian fees for earnings on cash balances maintained by
the funds.

Sales charges received by Piper Jaffray for distributing
the funds' shares were $35,016 and $138,945 for National
Tax-Exempt Fund and Minnesota Tax-Exempt Fund,
respectively, for the year ended September 30, 1996.

- --------------------------------------------------------------------------------

12 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(6) FINANCIAL HIGHLIGHTS
................................................................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:

NATIONAL TAX-EXEMPT FUND

<TABLE>
<CAPTION>
Fiscal year ended September 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 10.69 $ 10.22 $ 11.76 $ 10.94 $ 10.51
------- ------- ------- ------- -------
Operations:
Net investment income ..................... 0.56 0.60 0.57 0.61 0.66
Net realized and unrealized gains (losses)
on investments .......................... 0.12 0.47 (1.21) 0.94 0.43
------- ------- ------- ------- -------
Total from operations ................... 0.68 1.07 (0.64) 1.55 1.09
------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ................ (0.56) (0.60) (0.57) (0.61) (0.66)
From net realized gains on investments .... -- -- (0.33) (0.12) --
------- ------- ------- ------- -------
Total distributions to shareholders ..... (0.56) (0.60) (0.90) (0.73) (0.66)
------- ------- ------- ------- -------
Net asset value, end of period .............. $ 10.81 $ 10.69 $ 10.22 $ 11.76 $ 10.94
------- ------- ------- ------- -------
------- ------- ------- ------- -------
SELECTED INFORMATION
Total return(a) ............................. 6.42% 10.30% (5.72)% 14.76% 10.68%
Net assets at end of period (in millions) ... $ 46 $ 57 $ 68 $ 79 $ 59
Ratio of expenses to average daily net
assets(b) ................................. 1.03% 1.01% 0.93% 0.94% 0.94%
Ratio of net investment income to average
daily net assets(b) ....................... 5.15% 5.37% 5.25% 5.42% 6.13%
Portfolio turnover rate (excluding short-term
securities) ............................... 43% 28% 65% 43% 35%
</TABLE>

(A) TOTAL RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE DURING THE PERIOD,
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT A SALES
CHARGE.
(B) DURING THE YEARS REFLECTED ABOVE, THE ADVISOR AND DISTRIBUTOR VOLUNTARILY
WAIVED FEES AND EXPENSES. HAD THE FUND PAID ALL EXPENSES AND THE MAXIMUM
DISTRIBUTION FEE BEEN IN EFFECT, THE RATIOS OF EXPENSES AND NET INVESTMENT
INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN AS FOLLOWS: 1.13%/5.05%,
1.09%/5.29%, 1.03%/5.15%, 1.04%/5.32%, AND 1.10%/5.97% IN FISCAL 1996,
1995, 1994, 1993, AND 1992, RESPECTIVELY. BEGINNING IN FISCAL 1995, THE
EXPENSE RATIOS REFLECT THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE
FUND. PRIOR PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.

- --------------------------------------------------------------------------------

13 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Notes to Financial Statements (continued)
- --------------------------------------------------------------------------------

(6) FINANCIAL HIGHLIGHTS
(CONTINUED)
................................................................................
Per-share data for a share of capital stock outstanding
throughout each period and selected information for each
period are as follows:

MINNESOTA TAX-EXEMPT FUND

<TABLE>
<CAPTION>
Fiscal year ended September 30,
-------------------------------------------------------
1996 1995 1994 1993 1992
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $ 10.81 $ 10.28 $ 11.43 $ 10.79 $ 10.46
------- ------- ------- ------- -------
Operations:
Net investment income ..................... 0.59 0.66 0.61 0.62 0.64
Net realized and unrealized gains (losses)
on investments .......................... 0.07 0.53 (0.95) 0.68 0.33
------- ------- ------- ------- -------
Total from operations ................... 0.66 1.19 (0.34) 1.30 0.97
------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income(a) ............. (0.58) (0.66) (0.61) (0.62) (0.64)
From net realized gains on investments .... -- -- (0.20) (0.04) --
------- ------- ------- ------- -------
Total distributions to shareholders ..... (0.58) (0.66) (0.81) (0.66) (0.64)
------- ------- ------- ------- -------
Net asset value, end of period .............. $ 10.89 $ 10.81 $ 10.28 $ 11.43 $ 10.79
------- ------- ------- ------- -------
------- ------- ------- ------- -------
SELECTED INFORMATION
Total return(b) ............................. 6.24% 11.38% (3.14)% 12.52% 9.56%
Net assets at end of period (in millions) ... $ 126 $ 134 $ 162 $ 169 $ 132
Ratio of expenses to average daily net
assets(c) ................................. 0.90% 0.91% 0.89% 0.91% 0.93%
Ratio of net investment income to average
daily net assets(c) ....................... 5.38% 5.80% 5.61% 5.62% 6.00%
Portfolio turnover rate (excluding short-term
securities) ............................... 35% 30% 44% 29% 35%
</TABLE>

(A) AMOUNTS INCLUDED IN DISTRIBUTIONS FROM NET INVESTMENT INCOME THAT ARE
TAXABLE FOR FEDERAL INCOME TAX PURPOSES ARE $0.003 PER SHARE FOR FISCAL
1992.
(B) TOTAL RETURN IS BASED ON THE CHANGE IN NET ASSET VALUE DURING THE PERIOD,
ASSUMES REINVESTMENT OF ALL DISTRIBUTIONS AND DOES NOT REFLECT A SALES
CHARGE.
(C) DURING THE YEARS REFLECTED ABOVE, THE ADVISOR AND DISTRIBUTOR VOLUNTARILY
WAIVED FEES AND EXPENSES. HAD THE FUND PAID ALL EXPENSES AND THE MAXIMUM
DISTRIBUTION FEE BEEN IN EFFECT, THE RATIOS OF EXPENSES AND NET INVESTMENT
INCOME TO AVERAGE DAILY NET ASSETS WOULD HAVE BEEN AS FOLLOWS: 0.99%/5.29%,
0.99%/5.72%, 0.99%/5.51%, 1.00%/5.53%, AND 1.01%/5.92% IN FISCAL 1996,
1995, 1994, 1993, AND 1992, RESPECTIVELY. BEGINNING IN FISCAL 1995 THE
EXPENSE RATIOS REFLECT THE EFFECT OF GROSS EXPENSES PAID INDIRECTLY BY THE
FUND. PRIOR PERIOD EXPENSE RATIOS HAVE NOT BEEN ADJUSTED.

- --------------------------------------------------------------------------------

14 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Investments in Securities
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND September 30, 1996
.......................................................................................

Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
(PERCENTAGES OF EACH INVESTMENT CATEGORY RELATE TO TOTAL NET ASSETS)

MUNICIPAL LONG-TERM SECURITIES (89.6%):
CALIFORNIA (5.3%):
State General Obligation, 5.63%, 9/1/24 $ 2,500,000 $ 2,454,975
------------

COLORADO (2.3%):
Montrose County Health Care Facilities, 8.25%,
11/1/19 ........................................... 1,000,000 1,049,880
------------

FLORIDA (0.7%):
Clay County Industrial Development Revenue, 6.40%,
3/1/11 ............................................ 300,000(e) 317,502
------------

GEORGIA (6.1%):
Municipal Electrical Authority, 6.40%, 1/1/13 ....... 1,500,000 1,636,050
State General Obligation, 6.75%, 9/1/10 1,000,000 1,140,900
------------
2,776,950
------------

ILLINOIS (7.9%):
Board of Governors, State College and University,
7.55%-7.70%, 2/1/16-2/1/22 ........................ 425,000 465,739
Development Financial Authority, 7.38%, 7/1/21 ...... 500,000 554,385
Rock Island Nursing Home Revenue, 7.00%-7.20%,
6/1/06-6/1/13 ..................................... 1,500,000 1,550,284
State Toll Highway Authority, 6.30%, 1/1/12 ......... 1,000,000 1,074,790
------------
3,645,198
------------

INDIANA (9.3%):
Elberfeld J H Castle School Building Corporation,
Zero-Coupon, 6.30%, 7/15/07 ....................... 500,000(b) 278,115
Hammond School Building Corporation, 6.00%,
1/15/13 ........................................... 1,000,000 1,029,100
Lake County Redevelopment Authority, 6.50%,
2/1/16 ............................................ 800,000 866,624
Municipal Power Agency, 6.00%, 1/1/11-1/1/12 ........ 2,000,000 2,100,910
------------
4,274,749
------------

LOUISIANA (0.7%):
St. Charles Parish Pollution Control Revenue, 8.00%,
12/1/14 ........................................... 300,000 330,894
------------

MICHIGAN (5.3%):
Hospital Financing Authority-Metropolitan Hospital,
5.88%, 7/1/18 ..................................... 1,100,000 1,072,225
Romulus County Schools, 5.13%, 5/1/17 1,475,000 1,383,948
------------
2,456,173
------------
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>

MINNESOTA (9.7%):
Brooklyn Center Health Care Facility, 7.60%,
12/1/18 ........................................... $ 400,000 $ 415,792
Fergus Falls Health Care Facility, 7.00%, 11/1/19 ... 500,000 502,935
Glencoe Hospital Revenue, 6.75%, 4/1/16 ............. 485,000 481,004
Hopkins Multifamily Housing Revenue, 6.25%,
4/1/15 ............................................ 500,000 513,095
Roseville Housing Facilities, 7.13%, 10/1/13 ........ 1,000,000 1,035,410
St. Anthony Multifamily Revenue, 6.25%, 11/20/25 .... 1,000,000 1,020,630
St. Paul Housing-Como Lake Project, 7.50%, 3/1/26 ... 500,000(f) 478,750
------------
4,447,616
------------

MONTANA (0.6%):
Sidney Nursing Home, 9.00%, 6/1/11 .................. 250,000 270,900
------------

NEVADA (0.5%):
Sparks Redevelopment Agency, 8.10%, 3/1/07 .......... 200,000 210,206
------------

NEW MEXICO (7.6%):
Mortgage Finance Authority, 6.20%-6.40%, 7/1/15 ..... 3,350,000 3,497,393
------------

NORTH DAKOTA (8.5%):
Mercer County Pollution Control Revenue, 7.20%,
6/30/13 ........................................... 3,300,000 3,900,897
------------

SOUTH DAKOTA (4.8%):
Housing Development Authority, 6.65%, 5/1/14 ........ 1,135,000 1,188,958
State Health and Education Facilities, 6.00%,
7/1/14 ............................................ 1,000,000 1,018,470
------------
2,207,428
------------

TEXAS (4.7%):
Austin Employment Commission, 8.10%-8.45%,
8/1/01-8/1/08 ..................................... 440,000 453,005
Carrolton Independent School District, 5.70%,
2/15/17 ........................................... 1,000,000 994,210
Fort Bend Independent School District, 5.00%,
2/15/14 ........................................... 500,000 465,600
Harts Bluff Independent School District, 8.60%-8.80%,
11/15/98-11/15/00 ................................. 100,000 101,037
Houston Employment Commission, 7.85%-8.05%,
5/1/04-5/1/07 ..................................... 135,000 137,224
------------
2,151,076
------------

UTAH (3.0%):
Carbon County Road Improvement Revenue, 7.90%,
8/1/04 ............................................ 300,000 314,388
Intermountain Power Agency, 6.50%, 7/1/11 ........... 1,000,000(g) 1,056,040
------------
1,370,428
------------
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- --------------------------------------------------------------------------------

15 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------

NATIONAL TAX-EXEMPT FUND
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
WASHINGTON (5.8%):
Grant County Public Utilities District, 5.70%,
1/1/15 ............................................ $ 1,000,000 $ 995,970
King County School District, 5.55%, 12/1/11 ......... 1,000,000 1,001,030
Public Power Supply System, 7.13%, 7/1/16 ........... 600,000 680,820
------------
2,677,820
------------

WISCONSIN (6.8%):
Dallas Nursing Home Revenue, 6.25%, 5/1/19 .......... 1,020,000 989,125
State Health Facilities Authority-Franciscan
Hospital, 6.13%, 11/15/15 2,000,000 2,019,100
Watertown Community Development Authority, 8.50%,
3/1/19 ............................................ 95,000 100,625
------------
3,108,850
------------

Total Municipal Long-Term Securities
(cost: $39,927,381) ............................. 41,148,935
------------

MUNICIPAL DERIVATIVE SECURITIES (10.4%):
Illinois Health Facilities Authority, inverse
floater, 9.59%, 6/19/15 ........................... 1,000,000(c) 1,122,500
Rochester, Minnesota, Health Care Facility Authority,
inverse floater, 8.07%, 11/15/15 .................. 1,000,000(c) 1,028,750
Montana State Health Facility Authority, inverse
floater, 6.83%, 2/25/25 ........................... 1,850,000(c) 1,523,938
North Central Texas Health Facility, inverse floater,
9.60%, 6/22/21 .................................... 1,000,000(c) 1,110,000
------------

Total Municipal Derivative Securities
(cost: $4,510,407) ............................. 4,785,188
------------
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>

MUNICIPAL SHORT-TERM SECURITIES (1.1%):
NEW YORK (1.1%):
New York General Obligation, Series B, 4.00%,
10/1/20-8/15/21 ................................... $ 500,000(d) $ 500,000
------------

Total Municipal Short-Term Securities
(cost: $500,000) ................................ 500,000
------------

Total Investments in Securities
(cost: $44,937,788) (h) ......................... $ 46,434,123
------------
------------
</TABLE>

<TABLE>
<S> <C>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD
ON THE DATE OF PURCHASE.
(C) INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING RATE
SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON SEPTEMBER 30, 1996.
(D) VARIABLE DEMAND RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON SEPTEMBER 30, 1996. THE
MATURITY DATE SHOWN REPRESENTS FINAL MATURITY.
(E) SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM AND MAY BE
SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
CONSIDERED ILLIQUID BY THE ADVISER.
(F) CURRENTLY NON-INCOME PRODUCING AND CONSIDERED ILLIQUID BY THE ADVISER.
(G) THE TOTAL COST OF SECURITIES PURCHASED ON A WHEN-ISSUED BASIS WAS
$1,042,440 AT SEPTEMBER 30, 1996.
(H) ON SEPTEMBER 30, 1996, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $44,930,104. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
</TABLE>

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 1,644,156
GROSS UNREALIZED DEPRECIATION ...... (140,137)
------------
NET UNREALIZED APPRECIATION ...... $ 1,504,019
------------
------------
</TABLE>

- --------------------------------------------------------------------------------

16 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Investments in Securities
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MINNESOTA TAX-EXEMPT FUND September 30, 1996
.......................................................................................

MUNICIPAL LONG-TERM SECURITIES (89.7%):
EDUCATION REVENUE (5.5%):
Higher Education Facility-Augsburg College, 6.25%,
5/1/23 ............................................ $ 1,500,000 $ 1,515,300
Higher Education Facility-Carleton College, 5.75%,
11/1/12 ........................................... 1,050,000 1,072,040
Higher Education Facility-St. Benedict College,
6.20%-6.38%, 3/1/14-3/1/20 ........................ 1,400,000 1,418,912
Higher Education Facility-University of St. Thomas,
5.63%, 10/1/16-10/1/21 ............................ 2,000,000 1,968,255
Higher Education Facility-Vermillion Community
College, 6.00%, 1/1/13 . 890,000 899,976
------------
6,874,483
------------

ELECTRIC REVENUE (7.1%):
Southern Municipal Power Agency, 5.00%-5.75%,
1/1/12-1/1/18 ..................................... 1,850,000 1,788,311
Southern Municipal Power Agency, Zero-Coupon,
6.20%-6.85%, 1/1/19-1/1/23 ........................ 21,800,000(b) 5,489,748
Western Municipal Power Agency, 5.50%-9.75%,
1/1/12-1/1/16 ..................................... 1,410,000 1,589,218
------------
8,867,277
------------

GENERAL OBLIGATIONS (33.5%):
Burnsville Independent School District, 4.88%-5.13%,
2/1/13-2/1/17 ..................................... 3,450,000 3,235,182
Chaska Independent School District, 5.88%-6.00%,
2/1/11-2/1/16 ..................................... 9,690,000 9,954,212
Eden Prairie Independent School District, 5.10%,
2/1/11-2/1/12 ..................................... 1,650,000 1,592,749
Hawley Independent School District, 5.75%, 2/1/14 ... 1,500,000 1,499,055
Long Prairie Independent School District, 5.00%,
4/1/12-4/1/14 ..................................... 1,500,000 1,413,345
Mahtomedi Independent School District, 5.75%,
2/1/17 ............................................ 1,000,000 1,008,800
Milaca Independent School District, 5.45%, 2/1/16 ... 1,735,000 1,729,726
Minneapolis and St. Paul Metropolitan Council, 5.60%,
6/1/15 ............................................ 2,400,000 2,408,448
Minneapolis Capital Appreciation, Series A,
Zero-Coupon, 5.70%-5.75%, 12/1/09-12/1/12 ......... 3,420,000(b) 1,563,077
Minneapolis General Obligation, 5.20%, 3/1/13 ....... 400,000 387,828
Minneapolis Sports Arena Project, 5.10%-5.13%,
4/1/13-10/1/20 .................................... 2,250,000 2,140,913
North Branch Independent School District, 5.60%,
2/1/13 ............................................ 1,500,000 1,505,325
North St. Paul Independent School District, 5.00%,
2/1/15 ............................................ 2,925,000 2,723,643
North St. Paul Maplewood Independent School District,
5.85%, 5/1/17 ..................................... 500,000 507,850
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Prior Lake Independent School District, 5.25%,
2/1/15 ............................................ $ 2,335,000 $ 2,245,756
Rochester Independent School District, 5.25%,
2/1/14 ............................................ 1,000,000 974,940
Rosemount Independent School District, Zero-Coupon,
5.99%-6.00%, 3/1/07-3/1/08 ........................ 2,450,000(b) 1,360,019
South Washington Independent School District, 5.85%,
6/1/15 ............................................ 500,000 508,205
St. Paul Independent School District, 5.25%-5.90%,
2/1/13-2/1/15 ..................................... 2,000,000 1,990,480
St. Paul Independent School District, Zero-Coupon,
7.06%, 7/1/12 ..................................... 650,000(b) 265,720
Wayzata Independent School District, 5.95%-6.00%,
2/1/13-2/1/16 ..................................... 3,000,000 3,061,568
------------
42,076,841
------------

HEALTH SERVICE/HMO'S (0.3%):
Duluth Clinic Health Care Facilities, 6.30%,
11/1/22 ........................................... 145,000 151,663
Minneapolis and St. Paul, Health One Obligated Group,
5.60%, 8/15/12 .................................... 250,000 250,122
------------
401,785
------------

HOSPITAL REVENUE (11.4%):
Chisago City Health Facility-Pleasant Heights, 7.30%,
7/1/25 ............................................ 400,000 400,908
Glencoe Hospital Revenue, 6.75%, 4/1/16 ............. 1,100,000 1,090,936
Mankato Hospital Revenue, Emmanuel, 6.30%, 8/1/22 ... 1,500,000 1,519,530
Northern Itasca Hospital Revenue, 7.50%-8.00%,
7/1/03-7/1/11 ..................................... 830,000 860,247
Northfield Hospital Revenue, 7.00%,
12/1/05-12/1/08 ................................... 1,690,000 1,769,548
Roseau Hospital District Revenue, 7.20%,
10/1/11-10/1/13 ................................... 730,000 758,277
South St. Paul, Healtheast Hospital, 6.75%,
11/1/09 ........................................... 2,000,000 2,069,760
St. Cloud Hospital Facility Revenue, 5.00%,
7/1/12-7/1/15 ..................................... 5,000,000 4,656,790
Worthington Hospital Revenue, 6.50%,
12/1/10-12/1/12 ................................... 1,230,000 1,243,669
------------
14,369,665
------------

HOUSING REVENUE (15.3%):
Austin Housing-Courtyard Project, 7.25%, 1/1/26 ..... 500,000 501,445
Coon Rapids, Multifamily Development-Woodland Apts.,
5.63%, 12/1/09 .................................... 1,020,000 1,024,988
Dakota County Housing and Redevelopment, 8.10%,
9/1/12 ............................................ 640,000 677,229
Fairmount Housing-Maplewood Project, 8.50%,
7/1/15 ............................................ 900,000 955,836
Hopkins Multifamily Housing Revenue, 6.25%,
4/1/15 ............................................ 500,000 513,095
Maplewood-Hazel Ridge Project, 8.50%-9.25%,
12/1/97-12/1/00 ................................... 665,000 683,691
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- --------------------------------------------------------------------------------

17 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------

MINNESOTA TAX-EXEMPT FUND
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Maplewood-Mounds Park Academy Project, 7.00%,
9/1/23 ............................................ $ 1,500,000 $ 1,543,410
Minneapolis Community Development Agency, 8.25%,
6/1/02 ............................................ 350,000 374,938
Minneapolis Housing and Urban Development,
7.88%-8.25%, 2/1/06-2/1/18 ........................ 2,810,000 2,884,667
Minneapolis Housing Revenue-Seward Towers, 7.38%,
12/20/30 .......................................... 1,370,000 1,451,036
Minneapolis Housing-Churchill Apartments, 7.05%,
10/1/22 ........................................... 750,000 784,470
Minnetonka Housing Revenue, 7.50%, 12/1/27 .......... 500,000 516,570
Roseville Housing Facilities, 7.13%, 10/1/13 ........ 2,000,000 2,070,820
St. Anthony Multifamily Revenue, 6.25%, 11/20/25 .... 1,500,000 1,530,945
St. Cloud Northway Housing Project, 7.50%,
12/1/18 ........................................... 500,000 527,850
St. Louis Park, Multifamily Housing Project, 6.25%,
12/1/28 ........................................... 500,000 505,555
St. Paul Housing-Como Lake Project, 7.50%, 3/1/26 ... 1,500,000(f) 1,436,250
St. Paul Multifamily, Peoples Inc., 8.00%,
12/1/96-12/1/00 ................................... 395,000 396,004
State Housing and Finance Agency, 7.00%-7.65%,
7/1/08-8/1/27 ..................................... 830,000 874,680
------------
19,253,479
------------

IDR - MISCELLANEOUS PROJECTS (0.6%):
Duluth Economic Development Revenue, 8.00%,
2/1/09 ............................................ 325,000 369,600
Shakopee Industrial Development, 5.85%-7.50%,
12/1/96-12/1/08 ................................... 395,000(e) 418,191
------------
787,791
------------

LEASING REVENUE (5.7%):
Hastings Housing and Redevelopment Authority, 6.50%,
2/1/14 ............................................ 1,000,000 1,018,030
Hennepin County Certificates of Participation,
6.65%-6.80%, 11/15/08-5/15/17 ..................... 3,625,000 3,926,390
Little Canada Community Development, 7.10%,
4/1/13 ............................................ 1,830,000 1,861,055
Melrose City Center Project, 7.80%-8.00%,
2/1/02-8/1/04 ..................................... 270,000 287,740
------------
7,093,215
------------

NURSING HOME REVENUE (9.1%):
Brooklyn Center Health Care Facility, 7.60%,
12/1/18 ........................................... 900,000 935,532
Coon Rapids Medical Clinic, 6.00%, 5/1/03 ........... 1,025,000 1,046,874
Fergus Falls Health Care Facility, 7.00%, 11/1/19 ... 1,000,000 1,005,870
Glencoe Health Care System, 8.50%, 12/1/15 .......... 575,000 604,854
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Litchfield Health Care, 8.75%, 8/1/20 . $ 500,000 $ 548,575
Little Canada Presbyterian Home, 7.00%, 7/1/07 ...... 700,000 710,654
Maplewood Health Care Facility, 7.50%, 10/1/24 ...... 1,500,000 1,550,355
Minneapolis, Careview Home Inc., 8.00%, 5/1/21 ...... 250,000 260,513
Plymouth Health Care Facility, 7.50%,
8/1/14-8/1/24 ..................................... 1,600,000 1,657,748
Red Wing Elderly Housing-River Region, 6.40%,
9/1/12 ............................................ 1,000,000 1,014,370
Rushford Good Shepard Nursing Home, 9.00%,
11/1/06 ........................................... 200,000 200,446
Springfield Nursing Home, 8.50%, 11/1/19 ............ 250,000 270,065
White Bear Lake Care Center, 8.25%, 11/1/12 ......... 1,500,000 1,633,320
------------
11,439,176
------------

OTHER REVENUE (1.2%):
Moorhead Golf Course Revenue, 7.75%, 12/1/15 ........ 1,165,000 1,303,344
Olmsted County Hiawatha Children's Home, 6.50%,
7/1/16 ............................................ 205,000 205,014
------------
1,508,358
------------

Total Municipal Long-Term Securities
(cost: $109,323,634) ........................... 112,672,070
------------

MUNICIPAL DERIVATIVE SECURITIES (8.6%):
Osseo Independent School District, inverse floater,
7.55%, 2/1/14 ..................................... 3,195,000(c) 3,087,169
Richfield Independent School District, inverse
floater, 6.23%, 2/1/15 ............................ 2,365,000(c) 2,234,925
St. Cloud General Obligation, inverse floater, 8.45%,
8/1/13 ............................................ 5,200,000(c) 5,505,500
------------

Total Municipal Derivative Securities
(cost: $9,738,447) ............................. 10,827,594
------------

MUNICIPAL SHORT-TERM SECURITIES (1.6%):
Mankato General Obligation Sales Tax, 3.60%,
2/1/18 ............................................ 400,000(d) 400,000
Minneapolis International Center, 3.60%, 9/1/13 ..... 800,000(d) 800,000
Port Authority of Bloomington, 3.90%, 2/1/13 ........ 700,000(d) 700,000
------------

Total Municipal Short-Term Securities
(cost: $1,900,000) ............................. 1,900,000
------------

Total Investments in Securities
(cost: $120,962,081) (g) ....................... $125,399,664
------------
------------
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

- --------------------------------------------------------------------------------

18 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Investments in Securities (continued)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) FOR ZERO-COUPON INVESTMENTS, THE INTEREST RATE SHOWN IS THE EFFECTIVE YIELD
ON THE DATE OF PURCHASE.
(C) INVERSE FLOATER - REPRESENTS SECURITIES THAT PAY INTEREST AT RATES THAT
INCREASE (DECREASE) IN THE SAME MAGNITUDE AS, OR IN A MULTIPLE OF, A
DECREASE (INCREASE) IN THE MARKET RATE PAID ON A RELATED, FLOATING RATE
SECURITY. INTEREST RATES DISCLOSED ARE IN EFFECT ON SEPTEMBER 30, 1996.
(D) VARIABLE DEMAND RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON SEPTEMBER 30, 1996. THE
MATURITY DATE SHOWN REPRESENTS FINAL MATURITY.
(E) SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM AND MAY BE
SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
CONSIDERED ILLIQUID BY THE ADVISER.
(F) CURRENTLY NON-INCOME PRODUCING AND CONSIDERED ILLIQUID BY THE ADVISER.
(G) ON SEPTEMBER 30, 1996, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $120,883,888. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
</TABLE>

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 5,168,660
GROSS UNREALIZED DEPRECIATION ...... (652,884)
------------
NET UNREALIZED APPRECIATION ...... $ 4,515,776
------------
------------
</TABLE>

- --------------------------------------------------------------------------------

19 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Independent Auditors' Report
- --------------------------------------------------

THE BOARD OF DIRECTORS AND SHAREHOLDERS
PIPER FUNDS INC.:

We have audited the accompanying statements of assets and
liabilities, including the schedules of investments in
securities, of National Tax-Exempt Fund and Minnesota
Tax-Exempt Fund (funds within Piper Funds Inc.) as of
September 30, 1996, and the related statements of
operations for the year then ended, the statements of
changes in net assets for each of the years in the
two-year period then ended and the financial highlights
for each of the years in the five-year period then ended.
These financial statements and the financial highlights
are the responsibility of the funds' management. Our
responsibility is to express an opinion on these financial
statements and the financial highlights based on our
audits.

We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and the
financial highlights are free of material misstatement. An
audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. Investment securities held in custody are
confirmed to us by the custodian. As to securities
purchased but not received, we request confirmations from
brokers and, where replies are not received, we carry out
other appropriate auditing procedures. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for
our opinion.

In our opinion, the financial statements and the financial
highlights referred to above present fairly, in all
material respects, the financial position of National
Tax-Exempt Fund and Minnesota Tax-Exempt Fund at September
30, 1996, and the results of their operations, the changes
in their net assets and the financial highlights for the
periods stated in the first paragraph above, in conformity
with generally accepted accounting principles.

KPMG Peat Marwick LLP
Minneapolis, Minnesota
November 14, 1996

- --------------------------------------------------------------------------------

20 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Federal Income Tax Information
- --------------------------------------------------

The following per-share information describes the federal
tax treatment of distributions made during the fiscal
year. Exempt-interest dividends are exempt from federal
income tax and should not be included in your gross
income, but need to be reported on your income tax return
for informational purposes. Please consult a tax adviser
on how to report these distributions at the state and
local levels.

INCOME DISTRIBUTIONS
99.58% and 99.81% qualifying as exempt-interest dividends,
respectively

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
PAYABLE DATE FUND FUND
- --------------------------------------------- -------- --------
<S> <C> <C>
October 2, 1995 ............................. $0.0442 $0.0550
November 1, 1995 ............................ 0.0441 0.0490
December 1, 1995 ............................ 0.0475 0.0513
January 2, 1996 ............................. 0.0456 0.0500
February 1, 1996 ............................ 0.0457 0.0487
March 1, 1996 ............................... 0.0494 0.0487
April 1, 1996 ............................... 0.0422 0.0474
May 1, 1996 ................................. 0.0442 0.0480
June 3, 1996 ................................ 0.0473 0.0466
July 1, 1996 ................................ 0.0469 0.0478
August 1, 1996 .............................. 0.0470 0.0491
September 3, 1996 ........................... 0.0473 0.0466
-------- --------
Total ..................................... $0.5514 $0.5882
-------- --------
-------- --------
</TABLE>

- --------------------------------------------------------------------------------

21 1996 Annual Report - Tax-Exempt Funds
<PAGE>
Directors and Officers
- --------------------------------------------------

DIRECTORS
David T. Bennett, CHAIRMAN, HIGHLAND HOMES, INC., USL
PRODUCTS, INC., KIEFER BUILT, INC., OF COUNSEL, GRAY,
PLANT, MOOTY, MOOTY & BENNETT, P.A.
Jaye F. Dyer, PRESIDENT, DYER MANAGEMENT COMPANY
William H. Ellis, PRESIDENT, PIPER JAFFRAY COMPANIES INC.,
PIPER CAPITAL MANAGEMENT INCORPORATED
Karol D. Emmerich, PRESIDENT, THE PARACLETE GROUP
Luella G. Goldberg, DIRECTOR, TCF FINANCIAL, RELIASTAR
FINANCIAL CORP., HORMEL FOODS CORP.
David A. Hughey, RETIRED EXECUTIVE VICE PRESIDENT AND
CHIEF ADMINISTRATIVE OFFICER OF DEAN WITTER
INTERCAPITAL INC. AND DEAN WITTER TRUST CO.
George Latimer, CHIEF EXECUTIVE OFFICER, NATIONAL EQUITY
FUNDS

OFFICERS
William H. Ellis, CHAIRMAN OF THE BOARD
Paul A. Dow, PRESIDENT
Robert H. Nelson, VICE PRESIDENT AND TREASURER
Susan Sharp Miley, SECRETARY

INVESTMENT ADVISER
Piper Capital Management Incorporated
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804

DISTRIBUTOR
Piper Jaffray Inc.
222 SOUTH NINTH STREET, MINNEAPOLIS, MN 55402-3804

CUSTODIAN AND TRANSFER AGENT
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716

INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
4200 NORWEST CENTER, MINNEAPOLIS, MN 55402

LEGAL COUNSEL
Dorsey & Whitney LLP
220 SOUTH SIXTH STREET, MINNEAPOLIS, MN 55402

- --------------------------------------------------------------------------------

22 1996 Annual Report - Tax-Exempt Funds
<PAGE>

SHAREHOLDER SERVICES

As a shareholder in Piper Funds, you have access to a full range of services and
benefits.

Check your prospectus for details about services and any limitations that might
apply to your fund.

LOW MINIMUM INVESTMENTS
You can open a Piper mutual fund account with a minimum investment of $250.

QUANTITY DISCOUNTS
If your initial investment exceeds a specified amount, if an investment combined
with the value of your existing Piper shares exceeds a specified amount, or if
your investments combined during a 13-month period exceed a specified amount,
you can reduce or even eliminate the front-end sales charge.

WAIVER OF SALES CHARGES
Money market funds carry no sales charges.* Sales charges on other Piper funds
are waived on purchases of $500,000 or more. However, a contingent deferred
sales charge may be imposed. See your prospectus for details.

AUTOMATIC REINVESTMENT OF DIVIDENDS
For maximum growth of your assets, you can reinvest dividends and capital gains
automatically in additional shares of your fund without a sales charge.

CROSS-REINVESTMENT OF DISTRIBUTIONS
Diversify your holdings by reinvesting dividends and capital gains from one
Piper fund to another.

CASH DISTRIBUTIONS
If you prefer, take your dividends and/or capital gains in cash.

AUTOMATIC MONTHLY INVESTMENT PROGRAM
You may automatically transfer $25 or more each month from any Piper money
market fund* into many other Piper funds.

AUTOMATIC MONTHLY MONEY TRANSFER PROGRAM
If you are starting a savings discipline or seeking a convenient way to invest,
you can transfer a minimum of $100 automatically from your bank, savings and
loan or other financial institution into many of the Piper funds.

* AN INVESTMENT IN A PIPER MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED
BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THE FUND WILL BE ABLE
TO MAINTAIN A STABLE NET ASSET VALUE OF $1 PER SHARE.

EXCHANGE PRIVILEGES
Revise your investment plan without incurring a sales charge by moving assets
from one Piper fund to another with the same fee structure. See your prospectus
for restrictions involving exchanges between funds with different sales charges.

REINVESTMENT PRIVILEGES
If you buy a fund with a sales charge and later redeem your shares, you may
reinvest all or part of the proceeds in shares of that fund or another Piper
fund within 30 days and pay no additional sales charge, subject to each fund's
minimum investment requirements.

SYSTEMATIC WITHDRAWAL PLAN
If your account has a value of $5,000 or more, you can elect to receive periodic
payments of $100 or more, at no cost, excluding money market funds.

ACCOUNT STATEMENTS
Whenever you add to or withdraw money from your account, you'll receive a
monthly statement from Piper Jaffray. Accounts with no activity receive a
quarterly statement instead. Periodic dividend and capital gain distributions,
if any, also appear on your statement.

CONFIRMATION OF TRANSACTIONS
You receive a confirmation statement following every transaction, except in the
money market funds. All transactions are reflected on your account statement.

ACCOUNT PROTECTION
Piper Jaffray is a member of Securities Investor Protection Company (SIPC),
which protects securities customers of its members in liquidation up to $500,000
(limited to $100,000 on claims for cash). An explanatory brochure is available
from your Investment Executive. Piper Jaffray provides clients who are protected
by SIPC with additional protection through The Aetna Casualty and Surety
Company. Every Piper Jaffray securities client has protection up to $25 million.
Clients with a Piper Jaffray PRIMEor PATPlus account have protection up to $50
million. Both amounts include SIPCprotection. These protection plans do not
cover market loss.

23 1996 Annual Report - Tax-Exempt Income Funds

<PAGE>

THIS PAGE WAS INTENTIONALLY LEFT BLANK.

24 1996 Annual Report - Tax-Exempt Income Funds

<PAGE>

GLOSSARY OF TERMS(***)

BENCHMARK
A benchmark is an established basis of comparison for an investment's
performance. A benchmark may be an unmanaged market index or a group of similar
investments.

CALL PROTECTION
Call protection is the length of time during which a security cannot be redeemed
by the issuer. For bonds, long call protection allows a security to maintain its
income stream for a longer period of time by keeping issuers from refinancing
their bonds during times of falling interest rates. At the same time, long call
protection leaves more opportunity for a bond's price to increase in times of
decreasing interest rates.

COUPON
Coupon is the interest rate on a bond that the issuer promises to pay to the
holder. It is expressed as an annual percentage of face value. It may be fixed
until maturity, or it may reset at specific intervals until final maturity of
the bond.

EFFECTIVE DURATION
Effective duration estimates how much the value of a security is expected to
change with a given change in interest rates. Longer effective durations
indicate more sensitivity to changes in interest rates. For example, if interest
rates were to increase by 1%, the market value of a bond with an effective
duration of five years would decrease by about 5%, with all other factors being
constant. It is important to remember that effective duration is based on
certain assumptions and has several limitations. It is most effective as a
measure when interest rate changes are small, rapid and occur equally across all
the different points of the yield curve. In addition, effective duration is
difficult to calculate precisely, especially in the case of a bond that is
callable prior to maturity, and can be greatly affected by interest rate
changes.

If a fund has an AGGRESSIVE EFFECTIVE DURATION, it means its managers have set a
longer duration posture in comparison to the fund's benchmark. A fund with a
long effective duration is more sensitive to changing interest rates.

If a fund has a DEFENSIVE EFFECTIVE DURATION, it means its managers have set a
shorter duration posture in comparison to the fund's benchmark, to make the fund
less sensitive to changing interest rates.

If a fund has a NEUTRAL EFFECTIVE DURATION, the duration is approximately the
same as that of its benchmark.

INVERSE FLOATING RATE MUNICIPAL SECURITIES
These securities pay interest at rates that increase or decrease in a multiple
of the changes in the market rates paid on related floating rate securities.
Like most other fixed income securities, their values will decrease as interest
rates increase or increase as interest rates fall. However, inverse floaters may
exhibit greater price volatility than the majority of municipal bonds.

OBJECTIVE
A fund's objective is stated in its prospectus. It is the goal (although it is
not guaranteed) that a mutual fund pursues. Examples of an investment objective
might be long-term capital appreciation or current income.

ZERO-COUPON BOND
A zero-coupon bond is a bond that makes no periodic interest payments. They are
generally bought at a deep discount to their maturity value and are redeemed at
par or face value.

FOR MORE INFORMATION

BY PHONE[ICON]

1 800 866-7778

FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer
your questions.

TO LISTEN TO MONTHLY FUND UPDATES
press 3, press 1, then press:

20 for National Tax-Exempt Fund
21 for Minnesota Tax-Exempt Fund

TO ORDER LITERATURE
press 5, ask a service representative to mail you additional literature,
including a Quarterly Update. You can also request to be put on a mailing list
to receive this information automatically each quarter.

BY MAIL(***)

Piper Capital Management
Attn: Communications Department
222 South Ninth Street
Minneapolis, MN 55402-3804

In an effort to reduce costs to our shareholders, we have implemented a process
to reduce duplicate mailings of the fund's shareholder reports. This
householding process should allow us to mail one report to each address where
one or more registered shareholders with the same last name reside. If you would
like to have additional reports mailed to your address, please call our Mutual
Fund Services area at 1 800 866-7778, or mail a request to us.

ON-LINE [ICON]

http://www.piperjaffray.com/
money_management/

<PAGE>

[LOGO] PIPER FUNDS 222 South Ninth Street
Minneapolis, MN 55402-3804

PIPER JAFFRAY INC., FUND DISTRIBUTOR AND NASD MEMBER.