<PAGE>
Tax-Exempt Income Funds - 1997 Annual Report
[LOGO]
TAX-EXEMPT INCOME FUNDS
1997 Annual Report
NATIONAL TAX-EXEMPT FUND
MINNESOTA TAX-EXEMPT FUND
INSIDE: ACTION OR REACTION --
Which Guides Your Approach to Investing?
[PICTURE]
<PAGE>
[LOGO]
CONTENTS
President's Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . 23
Federal Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . 24
Shareholder Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Glossary***. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
NATIONAL TAX-EXEMPT FUND
Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . .4
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .8
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . 18
MINNESOTA TAX-EXEMPT FUND
Portfolio Managers' Letter . . . . . . . . . . . . . . . . . . . . . . . . .6
Financial Statements and Notes . . . . . . . . . . . . . . . . . . . . . . .8
Investments in Securities. . . . . . . . . . . . . . . . . . . . . . . . . 20
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 of
Minnesota taxes. A portion of the fund's income may be subject to federal or
state alternative minimum tax.
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.
*** - This report includes a glossary to help you understand financial terms
used in the portfolio managers' letters. When you see this symbol, it indicates
a word that is defined in the glossary.
ACTION
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WHICH GUIDES YOUR APPROACH TO INVESTING?
The market soars 150 points. The market plummets 150 points. One financial
commentator urges investors to sell stocks and buy bonds. Another promotes a
"can't miss" investment opportunity. One thing is for sure -- in today's
financial markets, it's easy to get the impression that investment experts
possess a secret formula for success. Yet many successful investors realize
there are no short-term secrets to investing. While others heed market
soothsayers and prophets, savvy investors work with investment professionals who
help them remain calm in the face of volatility. Guided by long-term investment
plans rather than by emotions, these investors stay the course while others
react to the latest trend. More important, successful investors employ several
time-tested investment strategies to help reach their goals, including
diversification and systematic investing.*
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WALL STREET'S WILD RIDE
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Dow Jones Industrial Average
[EDGAR REPRESENTATION OF CHART]
8/1 8194
8/4 8198
8/5 8188
8/6 8259
High 8/6/97 8,259
8/7 8188
8/8 8031
8/11 8062
8/12 7961
8/13 7928
8/14 7942
8/15 7695
8/18 7803
8/19 7918
8/20 8021
8/21 7894
8/22 7888
8/25 7860
8/26 7782
8/27 7787
8/28 7694
8/29 7622
9/2 7880
9/3 7895
9/4 7867
9/5 7822
9/8 7835
9/9 7852
9/10 7719
9/11 7661
9/12 7743
9/15 7721
9/16 7896
9/17 7886
9/18 7923
9/19 7917
9/22 7997
9/23 7970
9/24 7907
9/25 7848
9/26 7922
9/29 7991
9/30 7945
10/1 8016
10/2 8028
10/3 8039
10/6 8100
10/7 8178
10/8 8095
10/9 8061
10/10 8045
10/13 8072
10/14 8096
10/15 8058
10/16 7939
10/17 7847
10/20 7921
10/21 8060
10/22 8035
10/23 7848
10/24 7715
10/27 7161
Low 10/27/97 7,161
10/28 7498
10/29 7507
10/30 7382
10/31 7442
Source: Bloomberg. The Dow Jones industrial average is a price-weighted average
of the 30 largest blue-chip stocks on the New York Stock Exchange.
DO YOUR EXPECTATIONS REFLECT MARKET REALITIES?
Investors' expectations have risen with the market -- and are in sharp contrast
to market realities. In the words of Federal Reserve Chairman Alan Greenspan,
there is an "irrational exuberance" based on unprecedented growth in recent
years. During the past few years, returns -- especially from stocks -- have been
much higher than at any other time in history. The chart below shows long-term
returns of various securities compared to the highly inflated results of the
past year.
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SHORT-TERM RETURNS VS. LONG-TERM RETURNS THROUGH SEPTEMBER 30, 1997
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The past year has provided investors with unusually high returns
[EDGAR REPRESENTATION OF GRAPH]
THE PAST YEAR PAST 71 YEARS
total return average annualized
total return 1926-1997
Large Company Stocks 40.49% 10.98%
Long-Term Corporate Bonds 12.67% 5.67%
Source: Ibbotson Associates. Past performance does not guarantee future
results. Stocks generally exhibit more volatility than bonds.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
<PAGE>
OR REACTION:
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What actions do successful investors take to weather the market's normal ups
and downs? First, they realize that markets move in cycles. In addition, they
diversify their holdings among a mix of funds that mirror their investment
objectives and risk tolerance and continue to purchase fund shares
systematically. By investing regularly* -- consistently buying shares through
market fluctuations -- educated investors steadily increase the number of shares
they own, while evening out their average cost per share over time.
THE MISGUIDED REACTIVE INVESTOR
The reactive investor believes that a shortcut to success is to chase today's
best-performing funds. After all, what could go wrong when you invest in these
winners? Plenty. The lure of a quick profit could fade to the reality of poor
returns for reactive investors who buy in at the peak of a fund's rally. They
often buy when prospects look bright and sell when prices drop -- behavior that
can devastate an investor's returns even while the market makes solid gains.
In contrast, educated investors don't succumb to emotions that could undermine
rational decisions. They're aware that few, if any, mutual funds can
significantly outperform their peers year after year. They also realize that
long-term investing helps reduce volatility. A buy-and-hold philosophy protects
investors against wild swings triggered by short-term market fluctuations -- and
helps them sleep better at night, too.
IT'S A FACT: INVESTORS PROFIT FROM THEIR ACTIONS, NOT THEIR REACTIONS
If you want to be successful in the financial marketplace, don't be swayed by
emotions or speculation. Keep in mind that markets change daily, yet your goals
may not change for years. Work with your Piper Jaffray Investment Executive to
develop an investment plan or to fine-tune your investment strategies as your
objectives change. A professional can help you ignore short-term volatility and
focus on long-term results. Your actions -- not your reactions -- ultimately
represent the difference between getting by ... and getting ahead.
* Keep in mind, investing regularly does not assure a profit and does not
protect against loss in declining markets.
TAKE THE GUESSWORK OUT OF INVESTING WITH THESE TRIED-AND-TRUE INVESTMENT
STRATEGIES
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X GET AN INVESTMENT PLAN An investment plan maps out your goals and
identifies effective ways to pursue them.
X INVEST SYSTEMATICALLY* Systematic investing is an effective way to build
wealth over time and helps you avoid hitting only market peaks and valleys.
X DIVERSIFY Diversification helps reduce volatility within your portfolio
and may also give you better long-term results.
X REASSESS YOUR RISK TOLERANCE Life's events may affect the amount of risk
that's comfortable.
A "BUY-AND-HOLD" PHILOSOPHY HELPS REDUCE YOUR RISK
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Your chance of losing money decreases the longer you hold stocks
[EDGAR REPRESENTATION OF GRAPH]
Holding Stocks for one year 29%
Holding Stocks for five years 11%
Holding Stocks for 10 years 3%
Source: Based on rolling annual returns of the S&P 500 Index through 1996. The
S&P500 is an unmanaged index of large-capitalization stocks. Past performance
does not guarantee future results.
<PAGE>
PRESIDENT'S LETTER
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[PHOTO]
PAUL A. DOW, CFA
- --------------------------------------------------------------------------------
President
Piper Funds
November 10, 1997
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DEAR SHAREHOLDERS:
An athlete is sometimes said to be "in the zone." That's the time when the
difficult seems easy, the fast seems slow; essentially, the time when everything
comes together and performance soars. For the last few years, the investment
environment has been in the zone. The economy has maintained a steady growth
rate without increasing inflationary pressures. In fact, economic
prognosticators have consistently underestimated growth and overestimated
inflation - traditionally considered an impossible feat.
Fixed income investors, including municipal bond investors, have fared well
during this period from a historical perspective, yet not without setbacks.
Fixed income returns have been helped by steadily declining inflation
expectations. Non-government issues have further benefited from investors'
increasing degree of comfort with credit risk. As a result, the amount of
additional yield required by investors to take on credit risk has declined to
levels not seen since the late 1960s. This is a normal occurrence during a
period of economic growth, but is not sustainable permanently.
For much of the year, municipal bonds outperformed their taxable counterparts.
As the chart on the next page indicates, municipals provided a benefit -
especially in longer maturities - compared to after-tax U.S. Treasury bond
yields as of September 30 (assuming a federal tax rate of 39.6%). Supply of new
municipal issues was down from the previous year, and that - combined with the
continued strong demand - helped boost prices of municipal bonds overall. The
supply situation changed late in the fiscal year, however, when lower interest
rates prompted a surge in new bond issues.
During this time of high valuations and buoyant investor confidence, it is
important to be watchful of significant changes that may alter the generally
positive condition of the U.S. investment environment. Late last month, we
watched as turmoil in Hong Kong dramatically affected our own markets. While
events like this may seem irrelevant to the U.S. municipal bond market, it's
important to pay attention to the long-term implications. For example, the
deflation experienced in Japan last month is spreading to other countries in the
region, leading to over capacity in the goods they produce. This could result in
lower global growth and interest rates. If a hint of deflation occurs in the
United States, higher quality municipal issues with greater call protection will
benefit the most as the economy slows and interest rates drop. A slowing economy
could jeopardize corporate earnings growth, which could send a wave of defensive
buying activity into the taxable and tax-free bond markets.
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2 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
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When markets change, it is important to clearly understand, and be disciplined
in, your investment strategy. At Piper Funds, we believe that maintaining sound,
disciplined investment strategies is essential to achieving consistent,
competitive performance in an ever-changing environment. We also believe in
providing a higher level of quality service to shareholders. That means going
the extra step to make sure you understand your investments. Take a look at the
fund prospectus that accompanies this shareholder report. We've revised it to
make it simpler and easier to read. We hope the information in your new
prospectus, and in this shareholder report, is useful to you, and we look
forward to continuing to provide you with exceptional service. Thank you for
your continued confidence in the Piper Funds family.
Sincerely,
/s/ Paul A. Dow
Paul A. Dow
President, Piper Funds
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MUNICIPAL YIELD CURVE
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Municipal yields vs. Treasury yields as of September 30, 1997
During the year, municipal bonds - especially longer term bonds - provided
greater relative benefits than U.S. Treasuries. (Chart includes municipal bonds
rated AAA.)
[GRAPH - PLOT POINTS TO COME]
Past performance does not guarantee future results. The U.S. government
guarantees the payment of principal and interest on U.S. Treasury securities.
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3 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
NATIONAL TAX-EXEMPT FUND
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[PHOTO]
RONALD REUSS, ISFA
shares responsibility for the management of National
Tax-Exempt Fund. He has 28 years of financial experience.
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November 10, 1997
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DEAR SHAREHOLDERS:
NATIONAL TAX-EXEMPT FUND PROVIDED A TOTAL RETURN OF 9.09%* FOR THE YEAR ENDED
SEPTEMBER 30, 1997, WHICH REFLECTS REINVESTED DISTRIBUTIONS BUT NOT THE
FUND'S SALES CHARGE. This compared to a 9.02% total return for the fund's
benchmark,*** the Lehman Brothers Municipal Bond Index,** and an 8.59% return
for the Lipper General Municipal Bond Funds average.+
THE FUND'S PERFORMANCE WAS LARGELY DUE TO OUR DECISION TO KEEP THE FUND'S
EFFECTIVE DURATION*** LONGER THAN THAT OF ITS BENCHMARK INDEX. This helped
the fund outperform its competitive group as interest rates moved in a
downward trend during much of the year. Bond prices generally move in the
opposite direction of interest rates, and the longer duration made the fund's
price more sensitive to interest rate movements. The longer duration also
benefited the fund's overall yield, since securities with longer durations
generally provide additional income.
ALTHOUGH THE FUND'S DURATION REMAINED LONGER THAN THAT OF ITS BENCHMARK INDEX,
WE SHORTENED IT SOMEWHAT DURING THE REPORTING PERIOD. We shortened duration from
9.9 years in September 1996 to 8.5 years in September 1997 due to mixed signals
about inflation and the near-term direction of interest rates. In comparison,
the fund's benchmark had an effective duration of 7.4 years at the end of the
period. While our decision slightly reduced the fund's current income and the
benefit we received from falling interest rates, it also lessened the fund's net
asset value volatility, which will benefit the fund if rates begin to rise.
Whenever we change the fund's effective duration, we also keep the fund's income
and overall credit quality in mind.
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PERFORMANCE THROUGH SEPTEMBER 30, 1997*
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Growth of $10,000 Invested Since Inception
[EDGAR REPRESENTATION OF CHART]
National Tax-Exempt Fund, Lehman Brothers Lipper General Municipal
reflects the fund's 2% Municipal Bond Index** Bond Funds Average+
maximum sales charge++
7/88 9,800 10,000 10,000
7/88 9,800 10,000 10,000
8/88 9,829 10,009 10,035
9/88 9,947 10,190 10,226
10/88 10,129 10,370 10,441
11/88 10,076 10,274 10,343
12/88 10,115 10,379 10,502
1/89 10,194 10,594 10,662
2/89 10,172 10,473 10,574
3/89 10,181 10,448 10,567
4/89 10,416 10,695 10,825
5/89 10,611 10,918 11,031
6/89 10,723 11,066 11,176
7/89 10,814 11,217 11,291
8/89 10,684 11,107 11,167
9/89 10,625 11,074 11,129
10/89 10,772 11,209 11,265
11/89 10,929 11,405 11,445
12/89 11,001 11,498 11,522
1/90 10,902 11,444 11,392
2/90 11,041 11,546 11,507
3/90 11,049 11,550 11,503
4/90 10,891 11,467 11,350
5/90 11,164 11,717 11,650
6/90 11,294 11,820 11,762
7/90 11,480 11,993 11,956
8/90 11,207 11,819 11,693
9/90 11,278 11,827 11,710
10/90 11,427 12,041 11,883
11/90 11,721 12,283 12,171
12/90 11,798 12,337 12,224
1/91 11,933 12,502 12,377
2/91 12,000 12,611 12,450
3/91 12,038 12,616 12,472
4/91 12,214 12,784 12,654
5/91 12,341 12,897 12,768
6/91 12,287 12,884 12,727
7/91 12,463 13,042 12,912
8/91 12,627 13,214 13,078
9/91 12,778 13,386 13,245
10/91 12,883 13,506 13,364
11/91 12,900 13,544 13,382
12/91 13,217 13,835 13,697
1/92 13,210 13,867 13,689
2/92 13,227 13,871 13,707
3/92 13,227 13,877 13,712
4/92 13,309 14,000 13,841
5/92 13,529 14,165 14,037
6/92 13,799 14,403 14,294
7/92 14,365 14,835 14,805
8/92 14,087 14,690 14,566
9/92 14,143 14,785 14,620
10/92 13,798 14,641 14,361
11/92 14,192 14,903 14,723
12/92 14,351 15,055 14,907
1/93 14,563 15,229 15,075
2/93 15,290 15,781 15,663
3/93 15,075 15,613 15,489
4/93 15,222 15,771 15,656
5/93 15,324 15,859 15,738
6/93 15,614 16,124 16,010
7/93 15,615 16,145 16,006
8/93 16,026 16,481 16,361
9/93 16,230 16,669 16,555
10/93 16,228 16,701 16,592
11/93 16,013 16,554 16,421
12/93 16,440 16,903 16,752
1/94 16,623 17,096 16,935
2/94 16,085 16,653 16,502
3/94 15,182 15,975 15,793
4/94 15,249 16,111 15,841
5/94 15,390 16,251 15,983
6/94 15,239 16,152 15,881
7/94 15,588 16,447 16,164
8/94 15,615 16,505 16,209
9/94 15,300 16,262 15,947
10/94 14,969 15,973 15,645
11/94 14,560 15,684 15,317
12/94 15,049 16,029 15,695
1/95 15,605 16,487 16,162
2/95 16,149 16,967 16,646
3/95 16,251 17,162 16,799
4/95 16,214 17,183 16,808
5/95 16,749 17,731 17,329
6/95 16,539 17,577 17,145
7/95 16,642 17,744 17,255
8/95 16,823 17,969 17,442
9/95 16,877 18,082 17,546
10/95 17,184 18,344 17,823
11/95 17,608 18,649 18,168
12/95 17,839 18,828 18,376
1/96 17,912 18,971 18,466
2/96 17,735 18,842 18,323
3/96 17,464 18,601 18,041
4/96 17,342 18,549 17,956
5/96 17,353 18,539 17,971
6/96 17,528 18,741 18,141
7/96 17,753 18,912 18,300
8/96 17,715 18,908 18,292
9/96 17,961 19,173 18,564
10/96 18,187 19,390 18,765
11/96 18,499 19,744 19,097
12/96 18,455 19,662 19,020
1/97 18,479 19,699 19,019
2/97 18,605 19,880 19,188
3/97 18,375 19,616 18,940
4/97 18,572 19,780 19,100
5/97 18,821 20,077 19,377
6/97 19,019 20,292 19,603
7/97 19,599 20,854 20,192
8/97 19,383 20,658 19,961
9/97 19,593 20,904 20,218
** 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, not including sales charges, as
characterized by Lipper Analytical Services.
Average Annualized Total Returns
Includes 2% maximum sales charge++
One Year 6.91%
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Five Year 6.30%
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Since Inception (7/11/88) 7.56%
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* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. 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. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily waived certain 12b-1
fees. Without waivers, returns would have been lower.
All fund and benchmark returns include reinvested distributions.
++ Effective February 18, 1997, the fund's maximum sales charge was changed from
4% to 2%.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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4 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
NATIONAL TAX-EXEMPT FUND (CONTINUED)
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[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for the management of National
Tax-Exempt Fund. He has 14 years of financial experience.
WE CONTINUED TO FOCUS ON SECURITIES WITH HIGH CREDIT QUALITY AND MAXIMUM
AVAILABLE CALL PROTECTION.*** The fund's composition remained essentially
unchanged, with 69% of total assets rated AA or above (or the short-term
equivalent rating) on September 30, 1997, and the geographic focus on Midwestern
states. In addition, we maintained 19% in non-rated securities that helped to
boost the fund's income. Credit analysis remains an important part of our
strategy because we believe some local governments will face tough fiscal
challenges as the federal government passes more funding responsibility to them.
We will continue to monitor issuers for signs of financial weakness or strength.
Average call protection, which is important in a falling interest rate
environment, remained at about 9 years.
AT THIS TIME, WE SEE LITTLE EVIDENCE OF A SUBSTANTIAL CHANGE IN THE DOMESTIC
ECONOMY, INTEREST RATES OR THE MUNICIPAL BOND MARKET. We remain focused on long-
term trends that are not likely to be significantly changed by the recent global
events that have caused uncertainty in financial markets. We expect the Federal
Reserve Board will be vigilant about controlling inflation and may increase
short-term interest rates if inflation becomes a concern. As always, we will
watch events closely and manage your fund accordingly.
Thank you for your investment in National Tax-Exempt Fund. We are pleased to
have provided you with a competitive return for the period, and we will continue
to emphasize high-quality investment management and service.
Sincerely,
/s/ Ronald Reuss /s/ Douglas White
Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager
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PORTFOLIO COMPOSITION BY STATE
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As a percentage of total assets on September 30, 1997
[EDGAR REPRESENTATION OF CHART]
Alaska 2%
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Colorado 2%
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Florida 1%
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Georgia 2%
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Iowa 3%
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Illinois 12%
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Indiana 10%
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Michigan 9%
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Minnesota 14%
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Montana 1%
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New Mexico 7%
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North Dakota 8%
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South Dakota 2%
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Texas 7%
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Utah 3%
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Washington 6%
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Wisconsin 6%
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West Virginia 2%
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Other Assets 3%
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Municipal derivative securities (inverse floating rate securities) account for
7% of the fund's total assets.
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PORTFOLIO COMPOSITION BY RATING
- --------------------------------------------------------------------------------
As a percentage of total assets on September 30, 1997
AAA 57%
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AA 8%
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A 7%
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Baa and Below 2%
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Non-Rated 19%
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Short-Term 4%
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Other Assets 3%
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*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
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5 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
MINNESOTA TAX-EXEMPT FUND
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[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for the management of Minnesota Tax-Exempt Fund. He has 14
years of financial experience.
November 10, 1997
- --------------------------------------------------------------------------------
DEAR SHAREHOLDERS:
MINNESOTA TAX-EXEMPT FUND CLASS A PROVIDED A TOTAL RETURN OF 8.32%* FOR THE
YEAR ENDED SEPTEMBER 30, 1997, WHICH REFLECTS REINVESTED DISTRIBUTIONS BUT
NOT THE FUND'S SALES CHARGE. This compared to a 9.02% total return for the
fund's benchmark,*** the Lehman Brothers Municipal Bond Index,** and a 7.79%
return for the Lipper Minnesota Municipal Bond Funds Average.+ (Please note
the Lipper peer group is made up of Minnesota funds only, while the Lehman
benchmark also includes national bonds.)
OUR DECISION TO MAINTAIN A LONGER EFFECTIVE DURATION*** HELPED THE FUND
OUTPERFORM THE LIPPER AVERAGE AS INTEREST RATES MOVED IN A DOWNWARD TREND
DURING MUCH OF THE YEAR. Bond prices generally move in the opposite direction
of interest rates, and the longer duration made the fund's price more
sensitive to interest rate movements. The longer duration also benefited the
fund's overall yield, since securities with longer durations generally
provide additional income.
ALTHOUGH THE FUND'S DURATION REMAINED LONGER THAN THAT OF ITS BENCHMARK INDEX,
WE SHORTENED IT SOMEWHAT DURING THE REPORTING PERIOD. We shortened duration
from 9.9 years in September 1996 to 8.9 years in September 1997 due to mixed
signals about inflation and the near-term direction of interest rates. In
comparison, the fund's benchmark had an effective duration of 7.4 years at the
end of the period. While our decision slightly reduced the fund's current income
and the benefit we received from falling interest rates, it also lessened the
fund's net asset value volatility, which will benefit the fund if
- --------------------------------------------------------------------------------
PERFORMANCE THROUGH SEPTEMBER 30, 1997*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception
[EDGAR REPRESENTATION OF CHART]
<TABLE>
<CAPTION>
Minnesota Tax-Exempt Fund, Lehman Brothers Lipper Minnesota Municipal
Class A, reflects the fund's 2% Municipal Bond Index** Bond Funds Average+
maximum sales charge++
<S> <C> <C> <C>
7/88 9,800 10,000 10,000
7/88 9,771 10,000 10,000
8/88 9,693 10,009 10,015
9/88 9,856 10,190 10,197
10/88 10,043 10,370 10,387
11/88 9,983 10,274 10,315
12/88 10,009 10,379 10,436
1/89 10,157 10,594 10,601
2/89 10,123 10,473 10,525
3/89 10,161 10,448 10,526
4/89 10,394 10,695 10,761
5/89 10,608 10,918 10,952
6/89 10,729 11,066 11,091
7/89 10,795 11,217 11,194
8/89 10,727 11,107 11,119
9/89 10,668 11,074 11,074
10/89 10,833 11,209 11,216
11/89 10,967 11,405 11,356
12/89 11,027 11,498 11,425
1/90 10,905 11,444 11,355
2/90 11,042 11,546 11,467
3/90 11,059 11,550 11,488
4/90 10,890 11,467 11,377
5/90 11,126 11,717 11,611
6/90 11,242 11,820 11,711
7/90 11,437 11,993 11,883
8/90 11,163 11,819 11,695
9/90 11,234 11,827 11,721
10/90 11,402 12,041 11,885
11/90 11,658 12,283 12,125
12/90 11,733 12,337 12,184
1/91 11,832 12,502 12,312
2/91 11,872 12,611 12,395
3/91 11,910 12,616 12,418
4/91 12,073 12,784 12,556
5/91 12,184 12,897 12,663
6/91 12,154 12,884 12,651
7/91 12,327 13,042 12,798
8/91 12,477 13,214 12,935
9/91 12,637 13,386 13,069
10/91 12,740 13,506 13,163
11/91 12,768 13,544 13,185
12/91 13,019 13,835 13,418
1/92 13,059 13,867 13,454
2/92 13,070 13,871 13,496
3/92 13,079 13,877 13,525
4/92 13,170 14,000 13,625
5/92 13,337 14,165 13,764
6/92 13,529 14,403 13,961
7/92 13,950 14,835 14,372
8/92 13,776 14,690 14,224
9/92 13,844 14,785 14,275
10/92 13,579 14,641 14,083
11/92 13,917 14,903 14,361
12/92 14,080 15,055 14,518
1/93 14,275 15,229 14,702
2/93 14,741 15,781 15,148
3/93 14,610 15,613 15,047
4/93 14,770 15,771 15,196
5/93 14,859 15,859 15,288
6/93 15,082 16,124 15,521
7/93 15,112 16,145 15,544
8/93 15,412 16,481 15,845
9/93 15,578 16,669 16,037
10/93 15,595 16,701 16,090
11/93 15,484 16,554 15,980
12/93 15,765 16,903 16,259
1/94 15,949 17,096 16,428
2/94 15,610 16,653 16,060
3/94 14,986 15,975 15,473
4/94 15,058 16,111 15,504
5/94 15,186 16,251 15,644
6/94 15,056 16,152 15,568
7/94 15,359 16,447 15,827
8/94 15,389 16,505 15,866
9/94 15,090 16,262 15,650
10/94 14,813 15,973 15,372
11/94 14,446 15,684 15,061
12/94 14,903 16,029 15,418
1/95 15,425 16,487 15,866
2/95 15,950 16,967 16,326
3/95 16,070 17,162 16,455
4/95 16,115 17,183 16,467
5/95 16,645 17,731 16,906
6/95 16,477 17,577 16,744
7/95 16,568 17,744 16,835
8/95 16,675 17,969 16,993
9/95 16,807 18,082 17,112
10/95 17,147 18,344 17,356
11/95 17,571 18,649 17,651
12/95 17,791 18,828 17,836
1/96 17,836 18,971 17,924
2/96 17,628 18,842 17,802
3/96 17,274 18,601 17,533
4/96 17,175 18,549 17,472
5/96 17,218 18,539 17,500
6/96 17,391 18,741 17,661
7/96 17,568 18,912 17,815
8/96 17,562 18,908 17,815
9/96 17,855 19,173 18,048
10/96 18,029 19,390 18,231
11/96 18,332 19,744 18,515
12/96 18,277 19,662 18,447
1/97 18,289 19,699 18,454
2/97 18,453 19,880 18,612
3/97 18,230 19,616 18,388
4/97 18,412 19,780 18,542
5/97 18,659 20,077 18,789
6/97 18,842 20,292 18,978
7/97 19,315 20,854 19,482
8/97 19,120 20,658 19,290
9/97 19,340 20,904 19,508
</TABLE>
** 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, not including sales charges, as
characterized by Lipper Analytical Services.
Class A Average Annualized Total Returns
Includes 2% maximum sales charge++
One Year 6.15%
- --------------------------------------------------------------------------------
Five Year 6.48%
- --------------------------------------------------------------------------------
Since Inception (7/11/88) 7.41%
- --------------------------------------------------------------------------------
Class Y Cumulative Total Returns
Sales charges do not apply to class Y shares
Since Inception (8/1/97) 0.72%
- --------------------------------------------------------------------------------
* PLEASE REMEMBER, YOU COULD LOSE MONEY WITH THIS INVESTMENT. PAST PERFORMANCE
DOES NOT GUARANTEE FUTURE RESULTS. 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. Neither safety of principal nor stability of
income is guaranteed. During most periods, the fund's advisor waived or paid
certain expenses and/or the fund's distributor voluntarily limited certain 12b-1
fees. Without waivers, class A returns would have been lower.
All fund and benchmark returns include reinvested distributions.
++ Effective February 18, 1997, the fund's maximum class A sales charge was
changed from 4% to 2%.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
6 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
MINNESOTA TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------
[PHOTO]
RONALD REUSS, ISFA
shares responsibility for the management of Minnesota Tax-Exempt Fund. He has 28
years of financial experience.
- --------------------------------------------------------------------------------
rates begin to rise. Whenever we change the fund's effective duration, we also
keep the fund's income and overall credit quality in mind.
WE CONTINUED TO FOCUS ON SECURITIES WITH HIGH CREDIT QUALITY AND MAXIMUM
AVAILABLE CALL PROTECTION.*** The fund's composition remained essentially
unchanged, with 64% of our total assets rated AA or higher on September 30,
1997. In addition, we maintained 23% in non-rated securities that helped to
boost the fund's income. Credit analysis remains an important part of our
strategy because we believe some local governments will face tough fiscal
challenges as the federal government passes more funding responsibility to
them. We will continue to monitor issuers for signs of financial weakness or
strength. Average call protection, which is important in a falling interest
rate environment, remained at about 7 years on September 30. While we believe
an average call protection of 8 to 10 years would be more desirable, the
availability of new Minnesota issues with 10-year or longer call protection
has been limited.
AT THIS TIME, WE SEE LITTLE EVIDENCE OF A SUBSTANTIAL CHANGE IN THE DOMESTIC
ECONOMY, INTEREST RATES OR THE MUNICIPAL BOND MARKET. We remain focused on long-
term trends that are not likely to be significantly changed by the recent global
events that have caused uncertainty in financial markets. We expect the Federal
Reserve Board will be vigilant about controlling inflation and may increase
short-term interest rates if inflation becomes a concern. As always, we will
watch events closely and manage your fund accordingly.
Thank you for your investment in Minnesota Tax-Exempt Fund. We are pleased to
have provided you with a competitive return for the period, and we will continue
to emphasize high-quality investment management and service.
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, 1997
[EDGAR REPRESENTATION OF CHART]
Hospital Revenue 12%
- --------------------------------------------------------------------------------
Miscellaneous Revenue 1%
- --------------------------------------------------------------------------------
Electric Revenue 4%
- --------------------------------------------------------------------------------
Leasing Revenue 5%
- --------------------------------------------------------------------------------
Education Revenue 9%
- --------------------------------------------------------------------------------
Housing Revenue 15%
- --------------------------------------------------------------------------------
Industrial Development Revenue 1%
- --------------------------------------------------------------------------------
Nursing Home Revenue 8%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------
General Obligations 43%
- --------------------------------------------------------------------------------
Municipal derivative securities (inverse floating rate securities) account for
7% of the fund's total assets.
- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY RATING
- --------------------------------------------------------------------------------
As a percentage of total assets on September 30, 1997
AAA 31%
- --------------------------------------------------------------------------------
AA 33%
- --------------------------------------------------------------------------------
A 5%
- --------------------------------------------------------------------------------
Baa and Below 6%
- --------------------------------------------------------------------------------
Non-Rated 23%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
7 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES September 30, 1997
................................................................................
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------
<S> <C> <C>
ASSETS:
Investments in securities, at market value* (note 2) ....... $50,478,021 $132,319,799
Cash in bank on demand deposit ............................. 46,327 140,089
Receivable for investment securities sold .................. 965,990 1,001,333
Receivable for fund shares sold ............................ -- 54,056
Accrued interest receivable ................................ 782,996 2,175,144
------------ -------------
Total assets ............................................. 52,273,334 135,690,421
------------ -------------
LIABILITIES:
Dividends payable to shareholders .......................... 180,028 573,650
Payable for investment securities purchased ................ 2,424,349 --
Payable for fund shares redeemed ........................... 1,000 366,674
Accrued investment management fee .......................... 20,458 55,802
Accrued distribution and service fees ...................... 9,820 25,014
------------ -------------
Total liabilities ........................................ 2,635,655 1,021,140
------------ -------------
Net assets applicable to outstanding capital stock ....... $49,637,679 $134,669,281
------------ -------------
------------ -------------
COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $46,332,856 $127,081,604
Distributions in excess of net investment income ........... (11) (28,338)
Accumulated net realized gain on investments ............... 166,045 651,649
Unrealized appreciation of investments ..................... 3,138,789 6,964,366
------------ -------------
Total - representing net assets applicable to outstanding
capital stock .......................................... $49,637,679 $134,669,281
------------ -------------
------------ -------------
* Investments in securities, at identified cost .......... $47,339,232 $125,355,433
------------ -------------
------------ -------------
NET ASSET VALUE AND OFFERING PRICE:
CLASS A (NOTE 1):
Net assets ................................................. $49,637,679 $125,658,567
Shares outstanding (authorized 10 billion and four billion
shares, respectively, of $0.01 par value) ................ 4,427,749 11,267,758
Net asset value ............................................ $ 11.21 $ 11.15
Maximum offering price per share (net asset value plus 2% of
offering price) .......................................... $ 11.44 $ 11.38
CLASS Y:
Net assets ................................................. -- $ 9,010,714
Shares outstanding (authorized one billion shares of $0.01
par value) ............................................... -- 808,499
Net asset value and offering price per share ............... -- $ 11.14
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
8 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS For The Year Ended September 30,
1997
................................................................................
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------
<S> <C> <C>
INCOME:
Interest ................................................... $ 2,931,017 $ 7,904,552
------------ -------------
EXPENSES (NOTE 5):
Investment management fee .................................. 243,669 645,935
Distribution and service fees:
CLASS A .................................................. 146,200 383,370
CLASS Y .................................................. -- --
Custodian and accounting fees .............................. 49,443 107,785
Transfer agent and dividend disbursing agent fees .......... 28,258 39,613
Registration fees .......................................... 21,539 23,175
Reports to shareholders .................................... 19,437 29,233
Directors' fees ............................................ 7,968 7,968
Audit and legal fees ....................................... 39,281 43,825
Other expenses ............................................. 14,035 21,694
------------ -------------
Total expenses ........................................... 569,830 1,302,598
Less Class A expenses waived by the distributor ........ (29,638) (77,639)
------------ -------------
Net expenses before expenses paid indirectly ............. 540,192 1,224,959
Less expenses paid indirectly .......................... (3,895) (8,587)
------------ -------------
Total net expenses ....................................... 536,297 1,216,372
------------ -------------
Net investment income .................................... 2,394,720 6,688,180
------------ -------------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 192,273 1,170,417
Net change in unrealized appreciation or depreciation of
investments .............................................. 1,642,454 2,526,783
------------ -------------
Net gain on investments .................................. 1,834,727 3,697,200
------------ -------------
Net increase in net assets resulting from operations ... $ 4,229,447 $ 10,385,380
------------ -------------
------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
9 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
STATEMENTS OF CHANGES IN NET ASSETS
................................................................................
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT FUND TAX-EXEMPT FUND
----------------------------- -----------------------------
Year Ended Year Ended Year Ended Year Ended
9/30/97 9/30/96 9/30/97 9/30/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 2,394,720 $ 2,665,025 $ 6,688,180 $ 7,116,241
Net realized gain on investments ........................... 192,273 1,251,613 1,170,417 1,622,750
Net change in unrealized appreciation or depreciation of
investments .............................................. 1,642,454 (591,728) 2,526,783 (730,954)
------------- ------------- ------------- -------------
Net increase in net assets resulting from operations ..... 4,229,447 3,324,910 10,385,380 8,008,037
------------- ------------- ------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS:
CLASS A:
From net investment income ............................... (2,385,860) (2,646,973) (6,587,533) (7,047,814)
From net realized gains .................................. (82,981) -- (602,174) --
CLASS Y:
From net investment income ............................... -- -- (80,240) --
From net realized gains .................................. -- -- -- --
------------- ------------- ------------- -------------
Total distributions .................................... (2,468,841) (2,646,973) (7,269,947) (7,047,814)
------------- ------------- ------------- -------------
CAPITAL SHARE TRANSACTIONS (NOTE 4):
CLASS A .................................................... 1,942,178 (11,803,695) (3,145,424) (9,140,546)
CLASS Y .................................................... -- -- 9,022,490 --
------------- ------------- ------------- -------------
Increase (decrease) in net assets from capital share
transactions ........................................... 1,942,178 (11,803,695) 5,877,066 (9,140,546)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets .................. 3,702,784 (11,125,758) 8,992,499 (8,180,323)
Net assets at beginning of period .......................... 45,934,895 57,060,653 125,676,782 133,857,105
------------- ------------- ------------- -------------
Net assets at end of period ................................ $49,637,679 $ 45,934,895 $ 134,669,281 $ 125,676,782
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Distributions in excess of net investment income ........... $ (11) $ (8,860) $ (28,338) $ (20,407)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
- --------------------------------------------------------------------------------
10 1997 Annual Report - Tax-Exempt Income 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, a diversified series, and Minnesota Tax-Exempt Fund,
a non-diversified series (the funds). The company's
articles of incorporation permit the board of directors to
create additional series in the future.
Minnesota Tax-Exempt Fund commenced offering Class Y
shares on August 1, 1997. All shares existing prior to
that date were classified as Class A shares. Key features
of each class are:
CLASS A:
- Subject to a front-end sales charge
- Subject to distribution and service fees
CLASS Y:
- Requires a minimum initial investment of $1 million
- No front-end or contingent deferred sales charges
- No distribution and service fees
The classes of shares of Minnesota Tax-Exempt Fund have
the same rights and are identical in all respects except
that each class bears different distribution expenses, has
exclusive voting rights with respect to matters affecting
that class and has different exchange privileges. National
Tax-Exempt Fund has a single class of shares, which is
shown as Class A in the financial statements.
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
Portfolio securities for which market quotations are
readily available are valued at current market value. If
market quotations or valuations are not available, or if
such quotations or valuations are believed to be
inaccurate, unreliable or not reflective of market value,
portfolio securities are valued according to procedures
adopted by the funds' board of directors in good faith at
"fair value", that is, a price that the fund might
reasonably expect to receive for the security or other
asset upon its current sale.
The current market value of certain fixed income
securities is provided by an independent pricing service.
Fixed income securities for which prices are not available
from an independent pricing service but where an active
market exists are valued using market quotations obtained
from one or more
- --------------------------------------------------------------------------------
11 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
dealers that make markets in the securities or from a
widely-used quotation system. Short-term securities with
maturities of 60 days or less are valued at amortized
cost, which approximates market value.
Securities transactions are accounted for on the date
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, is recorded on an accrual basis.
SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been
purchased by the funds on a when-issued or
forward-commitment 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. The funds segregate, with their custodian,
assets with a market value equal to the amount of their
purchase commitments. The purchase of securities on a
when-issued or forward-commitment basis may increase the
volatility of the funds' net asset value if the funds make
such purchases while remaining substantially fully
invested. As of September 30, 1997, the funds had no
outstanding when-issued or forward-commitments.
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. The funds also intend to distribute 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 .................... $11 $28,338
Increase accumulated net realized gain
on investments ....................... $11 $28,338
</TABLE>
ALLOCATION OF INCOME, EXPENSES AND GAINS (LOSSES)
Income, expenses (other than class-specific expenses) and
realized and unrealized gains and losses for Minnesota
Tax-Exempt Fund are allocated daily to each class of
shares based upon the relative proportion of net assets
represented by such class. Class-specific expenses, which
include distribution and service fees, are charged
directly to such class.
- --------------------------------------------------------------------------------
12 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders from net investment income
for National Tax-Exempt Fund are declared daily and paid
monthly. Distributions to shareholders from net investment
income for Minnesota Tax-Exempt Fund are declared
separately for each class daily and paid monthly. Net
realized gains distributions for the funds, if any, will
be made at least annually. Distributions are payable in
cash or reinvested in additional shares of the same class.
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, 1997, were as follows:
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
----------- -----------
<S> <C> <C>
Purchases .............................. $13,808,159 $26,441,067
Proceeds from sales .................... $13,198,988 $21,368,132
</TABLE>
(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions for the funds were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
NATIONAL TAX-EXEMPT FUND:
Sales of fund shares ................. 1,301,809 $ 14,202,955 449,319 $ 4,822,153
Issued for reinvested
distributions ...................... 144,321 1,580,581 243,960 2,646,937
Redemptions of fund shares ........... (1,265,996) (13,841,358) (1,782,195) (19,272,785)
---------- ------------ ---------- ------------
180,134 $ 1,942,178 (1,088,916) $(11,803,695)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
- --------------------------------------------------------------------------------
13 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1997(a) SEPTEMBER 30, 1996
------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT
---------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
MINNESOTA TAX-EXEMPT FUND:
CLASS A
Sales of fund shares ................. 2,314,387 $ 25,337,742 682,698 $ 7,476,545
Issued for reinvested
distributions ...................... 437,608 4,791,499 650,478 7,110,996
Redemptions of fund shares ........... (2,216,525) (24,291,535) (2,173,520) (23,728,087)
Redemptions in exchange for Class Y
shares ............................. (804,940) (8,983,130) -- --
---------- ------------ ---------- ------------
(269,470) $ (3,145,424) (840,344) $ (9,140,546)
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
CLASS Y
Sales in exchange for Class A
shares ............................. 804,940 8,983,130 -- --
Issued for reinvested
distributions ...................... 3,559 39,360 -- --
---------- ------------ ---------- ------------
808,499 $ 9,022,490 -- $ --
---------- ------------ ---------- ------------
---------- ------------ ---------- ------------
</TABLE>
(a) REPRESENTS PERIOD FROM AUGUST 1 (COMMENCEMENT OF
OFFERING OF SHARES) TO SEPTEMBER 30, 1997, FOR CLASS
Y.
Sales charges received by Piper Jaffray Inc. (Piper
Jaffray), the funds' distributor, for distributing the
funds' shares for the year ended September 30, 1997, were
as follows:
<TABLE>
<CAPTION>
MINNESOTA
TAX-EXEMPT FUND
NATIONAL ---------------------
TAX-EXEMPT FUND CLASS A CLASS Y
---------------- ---------- --------
<S> <C> <C> <C>
Front-end sales charges ................ $3,827 $19,072 $ --
Contingent deferred sales charges ...... 4,268 5,501 --
-------- ---------- --------
$8,095 $24,573 $ --
-------- ---------- --------
-------- ---------- --------
</TABLE>
(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
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. For the year ended
September 30, 1997, the effective management fee paid by
the funds was 0.50% and 0.50% on an annual basis for
National Tax-Exempt Fund and Minnesota Tax-Exempt Fund,
respectively.
DISTRIBUTION AND SERVICE FEES
Each fund also pays Piper Jaffray fees accrued daily and
paid quarterly for providing shareholder services and
distribution-related services. The fees for each fund,
which were being voluntarily limited for the year ended
September 30, 1997, are stated below as a percent of
average daily net assets.
<TABLE>
<CAPTION>
MINNESOTA
TAX-EXEMPT FUND
NATIONAL ------------------
TAX-EXEMPT FUND CLASS A CLASS Y
--------------- ------- --------
<S> <C> <C> <C>
Distribution fee ....................... 0.05% 0.05% --
Service fee ............................ 0.25% 0.25% --
----- ------- ---
Total distribution and service
fees ............................... 0.30% 0.30% --
----- ------- ---
----- ------- ---
Total distribution and service fees
after voluntary limitation ......... 0.24% 0.24% --
----- ------- ---
----- ------- ---
</TABLE>
- --------------------------------------------------------------------------------
14 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
- --------------------------------------------------------------------------------
SHAREHOLDER ACCOUNT SERVICING FEES
The company has also entered into shareholder account
servicing agreements under which Piper Jaffray and Piper
Trust Company (Piper Trust) 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 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, 1997, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT FUND TAX-EXEMPT FUND
---------------- ----------------
<S> <C> <C>
Piper Jaffray .......................... $11,758 $22,113
Piper Trust ............................ -- --
---------------- ----------------
$11,758 $22,113
---------------- ----------------
---------------- ----------------
</TABLE>
OTHER FEES AND EXPENSES
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 miscellaneous cash balances
maintained by the funds.
- --------------------------------------------------------------------------------
15 1997 Annual Report - Tax-Exempt Income 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>
Year Ended September 30,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $10.81 $10.69 $10.22 $11.76 $10.94
------ ------ ------ ------ ------
Operations:
Net investment income ................ 0.54 0.56 0.60 0.57 0.61
Net realized and unrealized gains
(losses) on investments ............ 0.42 0.12 0.47 (1.21) 0.94
------ ------ ------ ------ ------
Total from operations .............. 0.96 0.68 1.07 (0.64) 1.55
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income ........... (0.54) (0.56) (0.60) (0.57) (0.61)
From net realized gains .............. (0.02) -- -- (0.33) (0.12)
------ ------ ------ ------ ------
Total distributions to
shareholders ..................... (0.56) (0.56) (0.60) (0.90) (0.73)
------ ------ ------ ------ ------
Net asset value, end of period ......... $11.21 $10.81 $10.69 $10.22 $11.76
------ ------ ------ ------ ------
------ ------ ------ ------ ------
SELECTED INFORMATION
Total return (a) ....................... 9.09% 6.42% 10.30% (5.72)% 14.76%
Net assets at end of period (in
millions) ............................ $ 50 $ 46 $ 57 $ 68 $ 79
Ratio of expenses to average daily net
assets ............................... 1.11% 1.03% 1.01% 0.93% 0.94%
Ratio of net investment income to
average daily net assets ............. 4.91% 5.15% 5.37% 5.25% 5.42%
Portfolio turnover rate (excluding
short-term securities) ............... 28% 43% 28% 65% 43%
Ratios before waivers by the adviser and
distributor:
Ratio of expenses to average daily net
assets before waivers . 1.17% 1.13% 1.09% 1.03% 1.04%
Ratio of net investment income to
average daily net assets before
waivers ............................ 4.85% 5.05% 5.29% 5.15% 5.32%
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
- --------------------------------------------------------------------------------
16 1997 Annual Report - Tax-Exempt Income 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:
MINNESOTA TAX-EXEMPT FUND
<TABLE>
<CAPTION>
CLASS A
--------------------------------------
Year Ended September 30,
--------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $10.89 $10.81 $10.28 $11.43 $10.79
------ ------ ------ ------ ------
Operations:
Net investment income ................ 0.57 0.59 0.66 0.61 0.62
Net realized and unrealized gains
(losses) on investments ............ 0.31 0.07 0.53 (0.95) 0.68
------ ------ ------ ------ ------
Total from operations .............. 0.88 0.66 1.19 (0.34) 1.30
------ ------ ------ ------ ------
Distributions to shareholders:
From net investment income ........... (0.57) (0.58) (0.66) (0.61) (0.62)
From net realized gains .............. (0.05) -- -- (0.20) (0.04)
------ ------ ------ ------ ------
Total distributions to
shareholders ..................... (0.62) (0.58) (0.66) (0.81) (0.66)
------ ------ ------ ------ ------
Net asset value, end of period ......... $11.15 $10.89 $10.81 $10.28 $11.43
------ ------ ------ ------ ------
------ ------ ------ ------ ------
SELECTED INFORMATION
Total return (a) ....................... 8.32% 6.24% 11.38% (3.14)% 12.52%
Net assets at end of period (in
millions) ............................ $ 126 $ 126 $ 134 $ 162 $ 169
Ratio of expenses to average daily net
assets ............................... 0.95% 0.90% 0.91% 0.89% 0.91%
Ratio of net investment income to
average daily net assets ............. 5.17% 5.38% 5.80% 5.61% 5.62%
Portfolio turnover rate (excluding
short-term securities) ............... 17% 35% 30% 44% 29%
Ratios before waivers by the
distributor:
Ratio of expenses to average daily net
assets before waivers . 1.01% 0.99% 0.99% 0.99% 1.00%
Ratio of net investment income to
average daily net assets before
waivers ............................ 5.11% 5.29% 5.72% 5.51% 5.53%
</TABLE>
<TABLE>
<CAPTION>
CLASS Y
--------------------------------------
Period Ended
September 30, 1997(b)
--------------------------------------
<S> <C>
PER-SHARE DATA
Net asset value, beginning of period ... $11.16
--------
Operations:
Net investment income ................ 0.10
Net realized and unrealized losses on
investments ........................ (0.02)
--------
Total from operations .............. 0.08
--------
Distributions to shareholders:
From net investment income ........... (0.10)
--------
Net asset value, end of period ......... $11.14
--------
--------
SELECTED INFORMATION
Total return (a) ....................... 0.72%
Net assets at end of period (in
millions) ............................ $ 9
Ratio of expenses to average daily net
assets ............................... 0.75%(c)
Ratio of net investment income to
average daily net assets ............. 5.73%(c)
Portfolio turnover rate (excluding
short-term securities) ............... 17%
</TABLE>
(a) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(b) COMMENCEMENT OF OFFERING OF CLASS Y SHARES WAS AUGUST 1, 1997.
(c) ANNUALIZED.
- --------------------------------------------------------------------------------
17 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND September 30, 1997
.......................................................................................
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 (97.5%):
MUNICIPAL BONDS (90.4%):
ALASKA (2.1%):
State Housing Finance Corporation (Callable 6/1/07 at
102), 5.90%, 12/1/19 .............................. $ 1,000,000 $ 1,020,200
------------
COLORADO (2.2%):
Montrose County Health Care Facilities (Callable
11/1/02 at 102), 8.25%, 11/1/19 ................... 1,000,000 1,091,070
------------
FLORIDA (0.7%):
Clay County Industrial Development Revenue (Callable
3/1/02 at 102), 6.40%, 3/1/11 ..................... 300,000(c) 323,985
------------
GEORGIA (2.4%):
State General Obligation, 6.75%, 9/1/10 ............. 1,000,000 1,191,420
------------
ILLINOIS (8.6%):
Education Facility Authority Revenue (Callable
10/1/07 at 100), 5.88%, 10/1/17 ................... 500,000 514,470
Development Financial Authority, 7.38%, 7/1/21 ...... 500,000 574,295
Board of Governors, State College and University
(Callable 2/1/02 at 100), 7.55%-7.70%,
2/1/16-2/1/22 ..................................... 425,000 468,854
Rock Island Nursing Home Revenue, 7.00%, 6/1/06 ..... 1,100,000 1,160,093
Rock Island Nursing Home Revenue (Callable 6/1/03 at
102), 7.20%, 6/1/13 ............................... 400,000 424,552
State Toll Highway Authority, 6.30%, 1/1/12 ......... 1,000,000 1,115,020
------------
4,257,284
------------
INDIANA (8.5%):
Municipal Power Agency, 6.00%, 1/1/11-1/1/12 ........ 2,000,000 2,212,040
Lake County Redevelopment Authority (MBIA) (Callable
2/1/05 at 102), 6.50%, 2/1/16 ..................... 800,000 895,024
Hammond School Building Corporation (Callable 7/15/03
at 102), 6.00%, 1/15/13 ........................... 1,000,000 1,094,460
------------
4,201,524
------------
IOWA (3.5%):
Finance Authority - Private College Revenue, 6.50%,
12/1/11 ........................................... 1,500,000 1,743,000
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
MICHIGAN (9.0%):
Lakeview Community Schools, 5.75%, 5/1/16 ........... $ 1,000,000 $ 1,041,820
Romulus County Schools (FGIC) (Callable 5/1/06 at
101), 5.13%, 5/1/17 ............................... 1,475,000 1,446,872
Detroit Finance Authority (Callable 5/1/07 at 101.5),
5.38%, 5/1/18 ..................................... 2,000,000 1,969,320
------------
4,458,012
------------
MINNESOTA (12.4%):
Fergus Falls Health Care Facility (Callable 11/1/04
at 102), 7.00%, 11/1/19 ........................... 500,000 520,705
Glencoe Hospital Revenue (Callable 8/1/04 at 102),
6.75%, 4/1/16 ..................................... 485,000 499,531
Hopkins Multifamily Housing Revenue (Callable 4/1/07
at 102), 6.25%, 4/1/15 ............................ 500,000 524,690
Roseville Housing Facility Revenue (Callable 10/1/03
at 102), 7.13%, 10/1/13 ........................... 1,000,000 1,057,410
St. Anthony Multifamily Revenue (Callable 5/20/06 at
102), 6.25%, 11/20/25 ............................. 1,000,000 1,037,680
St. Paul Housing - Como Lake Project (Callable 3/1/99
at 102), 7.50%, 3/1/26 ............................ 500,000(d) 480,000
Brooklyn Center Health Care Facility (Callable
12/1/03 at 102), 7.60%, 12/1/18 ................... 400,000 427,812
Maplewood Health Care Facility (Callable 10/1/04 at
102), 7.50%, 10/1/24 .............................. 500,000 533,640
Plymouth Health Care Facility (Callable 8/1/04 at
102), 7.50%, 8/1/24 ............................... 500,000 524,215
White Bear Lake Care Center (Callable 11/1/03 at
102), 8.25%, 11/1/12 .............................. 500,000 555,715
------------
6,161,398
------------
MONTANA (0.5%):
Sidney Nursing Home (Callable 6/1/00 at 102), 9.00%,
6/1/11 ............................................ 250,000 270,285
------------
NEVADA (0.4%):
Sparks Redevelopment Agency (Callable 3/1/98 at 102),
8.10%, 3/1/07 ..................................... 200,000 207,528
------------
NEW MEXICO (7.1%):
Mortgage Finance Authority, 6.20%-6.40%, 7/1/15 ..... 3,350,000 3,540,716
------------
NORTH DAKOTA (8.1%):
Mercer County Pollution Control Revenue, 7.20%,
6/30/13 ........................................... 3,300,000 4,037,616
------------
SOUTH DAKOTA (2.1%):
State Health and Education Facilities (MBIA)
(Callable 7/1/06 at 102), 6.00%, 7/1/14 ........... 1,000,000 1,065,170
------------
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
18 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
NATIONAL TAX-EXEMPT FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
TEXAS (4.4%):
Carrolton Independent School District (MBIA)
(Callable 2/15/06 at 100), 5.70%, 2/15/17 ......... $ 1,000,000 $ 1,021,280
Fort Bend Independent School District (MBIA)
(Callable 2/15/05 at 100), 5.00%, 2/15/14 ......... 500,000 491,740
Harts Bluff Independent School District, 8.60%-8.80%,
11/15/98-11/15/00 ................................. 100,000 100,551
Austin Employment Commission, 8.10%-8.45%,
8/1/01-8/1/08 ..................................... 440,000 453,938
Houston Employment Commission, 7.85%-8.05%,
5/1/04-5/1/07 ..................................... 135,000 136,712
------------
2,204,221
------------
UTAH (3.0%):
Intermountain Power Agency, 6.50%, 7/1/11 ........... 1,000,000 1,161,910
Carbon County Road Improvement Revenue (Callable
8/01/99 at 100), 7.90%, 8/1/04 .................... 300,000 309,918
------------
1,471,828
------------
WASHINGTON (6.5%):
Grant County Public Utilities District (MBIA)
(Callable 1/1/06 at 101), 5.70%, 1/1/15 ........... 1,000,000 1,036,120
Public Power Supply System, 7.13%, 7/1/16 ........... 600,000 718,644
Public Power Supply System (MBIA) (Callable 7/1/07 at
102), 5.13%, 7/1/16 ............................... 1,500,000 1,456,770
------------
3,211,534
------------
WEST VIRGINIA (2.4%):
State General Obligation (Callable 11/01/16 at 102),
6.50%, 11/1/26 .................................... 1,000,000 1,170,330
------------
WISCONSIN (6.5%):
Watertown Community Development Authority (Callable
3/1/00 at 103), 8.50%, 3/1/19 ..................... 95,000 101,027
State Health Facilities Authority - Franciscan
Hospital (Callable 11/15/05 at 102), 6.13%,
11/15/15 .......................................... 2,000,000 2,113,400
Dallas Nursing Home Revenue (Callable 5/1/03 at 102),
6.25%, 5/1/19 ..................................... 1,020,000 1,036,473
------------
3,250,900
------------
Total Municipal Bonds
(cost: $42,230,056) ............................. 44,878,021
------------
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
MUNICIPAL DERIVATIVE SECURITIES (7.1%):
INVERSE FLOATER (7.1%):
Illinois Health Facilities Authority, inverse floater
(Callable 6/1/02 at 104), 9.42%, 6/19/15 .......... $ 1,000,000(b) $ 1,182,500
North Central Texas Health Facility, inverse floater,
9.44%, 6/22/21 .................................... 1,000,000(b) 1,198,750
Rochester, MN, Health Care Facility Authority,
inverse floater, 7.98%, 11/15/15 .................. 1,000,000(b) 1,118,750
------------
Total Municipal Derivative Securities
(cost: $3,009,176) ............................. 3,500,000
------------
Total Municipal Long-Term Securities
(cost: $45,239,232) ............................ 48,378,021
------------
MUNICIPAL SHORT-TERM SECURITIES (4.2%):
ILLINOIS (2.2%):
Illinois Health Facilities Authority, VRDN, 3.85%,
11/1/20 ........................................... 1,100,000(b) 1,100,000
------------
INDIANA (2.0%):
Indiana Hospital Equipment Finance Authority, VRDN,
4.05%, 12/1/15 .................................... 1,000,000(b) 1,000,000
------------
Total Municipal Short-Term Securities
(cost: $2,100,000) .............................. 2,100,000
------------
Total Investments in Securities
(cost: $47,339,232)(e) .......................... $ 50,478,021
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
VRDN - VARIABLE RATE DEMAND NOTE. FLOATING OR VARIABLE RATE OBLIGATION
MATURING IN MORE THAN ONE YEAR. THE INTEREST RATE, WHICH IS BASED ON
SPECIFIC, OR AN INDEX OF, MARKET INTEREST RATES, IS SUBJECT TO CHANGE
PERIODICALLY AND IS THE EFFECTIVE RATE ON SEPTEMBER 30, 1997. THIS
INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH ALLOWS THE RECOVERY
OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT EXCEEDING ONE
YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN REPRESENTS FINAL
MATURITY.
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, 1997.
(c) SECURITY PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAS NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND IS CONSIDERED TO BE ILLIQUID. ON SEPTEMBER 30, 1997, THE
TOTAL MARKET VALUE OF THIS INVESTMENT WAS $323,985 OR 0.7% OF TOTAL NET
ASSETS.
(d) CURRENTLY NON-INCOME PRODUCING AND CONSIDERED ILLIQUID BY THE ADVISER. ON
SEPTEMBER 30, 1997, THE TOTAL MARKET VALUE OF THIS INVESTMENT WAS $480,000
OR 1.0% OF TOTAL NET ASSETS.
(e) ON SEPTEMBER 30, 1997, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $47,328,750. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $3,169,306
GROSS UNREALIZED DEPRECIATION ...... (20,035)
----------
NET UNREALIZED APPRECIATION ...... $3,149,271
----------
----------
</TABLE>
- --------------------------------------------------------------------------------
19 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
INVESTMENTS IN SECURITIES
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MINNESOTA TAX-EXEMPT FUND September 30, 1997
.......................................................................................
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 (98.3%):
MUNICIPAL BONDS (91.5%):
EDUCATION REVENUE (10.2%):
Higher Education Facility - St. John's University
(Callable 10/01/07 at 100), 5.35%, 10/1/17 ........ $ 1,000,000 $ 995,140
Higher Education Facility - University of St. Thomas
(Callable 4/1/07 at 100), 5.35%, 4/1/17 ........... 500,000 500,000
Higher Education Facility - University of St. Thomas
(Callable 10/1/06 at 100), 5.40%, 10/1/11 ......... 1,000,000 1,019,990
Higher Education Facility - University of St. Thomas
(Callable 4/1/07 at 100), 5.38%, 4/1/12 ........... 500,000 503,140
Higher Education Facility,
Carleton College, 5.25%-5.40%, 11/1/11-11/1/15 .... 2,000,000 2,017,520
Higher Education Facility - Carleton College
(Callable 5/1/06 at 100), 5.75%, 11/1/12 .......... 1,050,000 1,092,483
Higher Education Facility - St. Benedict College
(Callable 3/1/04 at 100), 6.20%-6.38%,
3/1/14-3/1/20 ..................................... 1,400,000 1,462,824
Higher Education Facility - University of St. Thomas
(Callable 10/1/06 at 100), 5.63%,
10/1/16-10/1/21 ................................... 2,000,000 2,029,610
Higher Education Facility - Vermillion Community
College, 6.00%, 1/1/13 ............................ 860,000 898,279
Maplewood - Mounds Park Academy Project (Callable
9/1/03 at 102), 7.00%, 9/1/23 ..................... 1,500,000 1,594,335
State Higher Education - Augsburg College (Callable
5/1/06 at 102), 6.25%, 5/1/23 ..................... 1,500,000 1,585,575
------------
13,698,896
------------
ELECTRIC REVENUE (3.4%):
Southern Municipal Power Agency, 5.00%, 1/1/12 ...... 1,000,000 985,900
Southern Municipal Power Agency (MBIA) (escrowed to
maturity), 5.75%, 1/1/18 850,000 875,891
Western Minnesota Municipal Power Agency (AMBAC)
(Callable 1/1/06 at 102), 5.40%-5.50%,
1/1/09-1/1/12 . 2,000,000 2,080,690
Western Municipal Power Agency
(MBIA) (escrowed to maturity),
9.75%, 1/1/16 ..................................... 410,000 604,000
------------
4,546,481
------------
GENERAL OBLIGATIONS (36.8%):
Big Lake Independent School District #727 (Callable
2/1/07 at 100), 5.60%, 2/1/15 ..................... 1,000,000 1,034,290
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%-5.13%, 2/1/13-2/1/17 ........ 3,450,000 3,381,322
Chaska Independent School District (Callable 2/1/06
at 100), 5.88%-6.00%, 2/1/11-2/1/16 ............... $ 9,690,000 $ 10,218,392
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Columbia Heights Independent School District
(Callable 2/1/07 at 100), 5.25%, 2/1/15 ........... 1,000,000 1,005,060
Eden Prairie Independent School District (Callable
2/1/08 at 100), 5.10%, 2/1/11-2/1/12 .............. 1,650,000 1,668,741
Hawley Independent School District (FHA) (Callable
2/1/06 at 100), 5.75%, 2/1/14 ..................... 1,500,000 1,574,775
Long Prairie Independent School District (Callable
4/1/05 at 100), 5.00%, 4/1/12-4/1/14 .............. 1,500,000 1,493,650
Mahtomedi Independent School District (MBIA)
(Callable 2/1/05 at 100), 5.75%, 2/1/17 ........... 1,000,000 1,031,270
Milaca Independent School District (Callable 2/1/04
at 100), 5.45%, 2/1/16 ............................ 1,735,000 1,765,519
Minneapolis and St. Paul Metropolitan Council
(Callable 6/1/05 at 100), 5.60%, 6/1/15 ........... 2,400,000 2,479,512
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................... 400,000 403,340
Minneapolis Sports Arena Project (Callable 4/1/08 at
100), 5.10%-5.13%, 4/1/13-10/1/20 ................. 2,250,000 2,241,590
North Branch Independent School District (FGIC)
(Callable 2/1/05 at 100), 5.60%, 2/1/13 ........... 1,500,000 1,550,685
North St. Paul Independent School District, 5.00%,
2/1/15 ............................................ 2,925,000 2,881,476
North St. Paul Maplewood Independent School District
(Callable 5/1/06 at 100), 5.85%, 5/1/17 ........... 500,000 520,845
Prior Lake Independent School District (FGIC)
(Callable 2/1/06 at 100), 5.25%, 2/1/15 ........... 2,335,000 2,341,071
Richfield School District (FGIC) (Callable 2/1/03 at
100), 5.35%, 2/1/15 ............................... 4,730,000 4,719,026
Rochester Independent School District (Callable
2/1/06 at 100), 5.25%, 2/1/14 ..................... 1,000,000 1,011,360
South Washington Independent School District
(Callable 6/1/05 at 100), 5.85%, 6/1/15 ........... 500,000 519,660
St. Paul Independent School District (Callable 2/1/05
at 100), 5.25%, 2/1/15 ............................ 1,000,000 996,540
State General Obligation, 5.00%, 11/1/01 ............ 1,000,000 1,031,990
State General Obligation (Callable 11/1/06 at 100),
5.25%, 11/1/13 .................................... 1,500,000 1,519,395
Wayzata Independent School District (FSA) (Callable
2/1/05 at 100), 5.95%-6.00%, 2/1/13-2/1/16 ........ 3,000,000 3,160,910
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
20 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Wayzata Minnesota Independent School District
(Callable 2/1/07 at 100), 5.50%, 2/1/17 ........... $ 1,000,000 $ 1,013,030
------------
49,563,449
------------
HEALTH SERVICE/HMO (0.3%):
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ......... 145,000 157,600
Minneapolis and St. Paul, Health One Obligated Group
(FSA) (Callable 8/15/05 at 102), 5.60%, 8/15/12 ... 250,000 258,802
------------
416,402
------------
HOSPITAL REVENUE (12.2%):
Chisago City Health Facility - Pleasant Heights
(Callable 7/1/05 at 102), 7.30%, 7/1/25 ........... 400,000 415,736
Fairview Hospital Revenue (MBIA) (Callable 11/15/07
at 102), 5.50%, 11/15/17 .......................... 1,000,000 1,006,090
Fairview Hospital Revenue (MBIA) (Callable 11/15/07
at 102), 5.50%, 11/15/11 .......................... 500,000 516,515
Glencoe Hospital Revenue (Callable 8/1/04 at 102),
6.75%, 4/1/16 ..................................... 1,100,000 1,132,956
New Prague Hospital Revenue (Callable 12/1/06 at
100), 6.50%, 6/1/12 ............................... 500,000 515,000
Northern Itasca Hospital Revenue (Callable 1/1/00 at
100), 7.50%-8.00%, 7/1/03-7/1/11 .................. 830,000 860,946
Northfield Hospital Revenue (Callable 12/1/01 at
100), 7.00%, 12/1/05-12/1/08 ...................... 1,690,000 1,789,507
Rochester, Health Care Facility, 5.80%, 11/15/07 .... 1,000,000 1,101,310
Roseau Hospital District Revenue (Callable 10/1/01 at
100), 7.20%, 10/1/11-10/1/13 ...................... 730,000 767,899
South St. Paul, Healtheast Hospital (Callable 11/1/04
at 102), 6.75%, 11/1/09 ........................... 2,000,000 2,152,740
St. Cloud Hospital Facility Revenue (AMBAC) (Callable
7/1/06 at 101), 5.00%, 7/1/12-7/1/15 .............. 5,000,000 4,866,170
Worthington Hospital Revenue (Callable 12/1/02 at
100), 6.50%, 12/1/10-12/1/12 ...................... 1,230,000 1,270,529
------------
16,395,398
------------
HOUSING REVENUE (13.4%):
Austin Housing - Courtyard Project (Callable 1/1/06
at 102), 7.25%, 1/1/26 ............................ 500,000 509,690
Coon Rapids, Multifamily Development - Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%, 12/1/09 ... 965,000 979,726
Coon Rapids, Multifamily Housing Revenue (Callable
11/1/07 at 102), 6.25%, 5/1/18 .................... 500,000 502,215
Dakota County Housing and Redevelopment (Callable
9/1/98 at 103), 8.10%, 9/1/12 ..................... $ 545,000 $ 569,759
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
Fairmount Housing - Maplewood Project (Callable
7/1/02 at 102), 8.50%, 7/1/15 ..................... 900,000 974,160
Hopkins Multifamily Housing Revenue (Callable 4/1/07
at 102), 6.25%, 4/1/15 ............................ 500,000 524,690
Maplewood - Hazel Ridge Project (Callable 12/1/97 at
103), 8.50%-9.25%, 12/1/97-12/1/00 ................ 665,000 681,536
Minneapolis Community Development Agency (Callable
6/1/98 at 102), 8.25%, 6/1/02 ..................... 350,000 366,048
Minneapolis Housing and Urban Development (Callable
2/1/01 at 102), 7.88%-8.25%, 2/1/06-2/1/18 . 2,810,000 2,913,449
Minneapolis Housing Revenue - Seward Towers (Callable
12/20/00 at 102), 7.38%, 12/20/30 ................. 1,370,000 1,447,748
Minneapolis Housing - Churchill Apartments (Callable
10/1/01 at 102), 7.05%, 10/1/22 ................... 750,000 800,123
Minnetonka Housing Revenue (Callable 12/1/99 at 103),
7.50%, 12/1/27 .................................... 500,000 518,425
Roseville Housing Facility Revenue (Callable 10/1/03
at 102), 7.13%, 10/1/13 ........................... 2,000,000 2,114,820
St. Anthony Multifamily Revenue (Callable 5/20/06 at
102), 6.25%, 11/20/25 ............................. 1,500,000 1,556,520
St. Cloud Northway Housing Project (Callable 12/1/00
at 102), 7.50%, 12/1/18 ........................... 500,000 526,920
St. Louis Park, Multifamily Housing Project (Callable
12/1/05 at 102), 6.25%, 12/1/28 ................... 500,000 517,440
St. Paul Housing - Como Lake Project (Callable 3/1/99
at 102), 7.50%, 3/1/26 ............................ 1,500,000(d) 1,440,000
St. Paul Multifamily, Peoples Inc., 8.00%,
12/1/97-12/1/08 ................................... 350,000 351,207
State Housing and Finance Agency (Callable 2/1/02 at
102), 7.05%, 8/1/27 ............................... 500,000 528,845
State Housing and Finance Agency (Callable 7/1/00 at
102), 7.65%, 7/1/08 ............................... 295,000 311,163
------------
18,134,484
------------
IDR - MISCELLANEOUS PROJECTS (0.6%):
Duluth Economic Development Revenue, 8.00%,
2/1/09 ............................................ 325,000 383,165
Shakopee Industrial Development, 6.05%-6.75%,
12/1/97-12/1/00 ................................... 85,000(c) 87,972
Shakopee Industrial Development (Callable 12/1/00 at
101), 7.00%-7.50%, 6/1/01-12/1/08 ................. 290,000(c) 308,711
------------
779,848
------------
LEASING REVENUE (5.3%):
Hastings Housing and Redevelopment Authority
(Callable 2/1/03 at 100), 6.50%, 2/1/14 ........... $ 1,000,000 $ 1,039,520
Hennepin County Certificates of Participation
(Callable 11/15/01 at
</TABLE>
SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.
- --------------------------------------------------------------------------------
21 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
INVESTMENTS IN SECURITIES (continued)
- --------------------------------------------------------------------------------
MINNESOTA TAX-EXEMPT FUND
(CONTINUED)
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
100), 6.65%-6.80%, 11/15/08-5/15/17 3,625,000 3,946,726
<S> <C> <C>
Little Canada Community Development, 7.10%,
4/1/13 ............................................ 1,775,000 1,843,178
Melrose City Center Project (Callable 2/1/99 at 101),
7.80%-8.00%, 2/1/02-8/1/04 ........................ 270,000 281,871
------------
7,111,295
------------
NURSING HOME REVENUE (8.2%):
Brooklyn Center Health Care Facility (Callable
12/1/03 at 102), 7.60%, 12/1/18 ................... 900,000 962,577
Coon Rapids Medical Clinic, 6.00%, 5/1/03 ........... 905,000 944,965
Fergus Falls Health Care Facility (Callable 11/1/04
at 102), 7.00%, 11/1/19 ........................... 1,000,000 1,041,410
Glencoe Health Care System (Prerefunded to 12/1/00 at
100), 8.50%, 12/1/15 .............................. 575,000 647,059
Litchfield Health Care (Callable 8/1/01 at 102),
8.75%, 8/1/20 ..................................... 500,000 550,800
Little Canada Presbyterian Home (Callable 7/1/01 at
102), 7.00%, 7/1/07 ............................... 700,000 724,171
Maplewood Health Care Facility (Callable 10/1/04 at
102), 7.50%, 10/1/24 .............................. 1,000,000 1,067,280
Minneapolis, Careview Home Inc. (Callable 5/1/01 at
100), 8.00%, 5/1/21 ............................... 250,000 263,138
Plymouth Health Care Facility (Callable 8/1/04 at
102), 7.50%, 8/1/14-8/1/24 ........................ 1,100,000 1,184,733
Red Wing Elderly Housing - River Region (Callable
9/1/03 at 102), 6.40%, 9/1/12 ..................... 1,000,000 1,052,510
Rushford Good Shepard Nursing Home (Callable 11/1/98
at 100), 9.00%, 11/1/06 ........................... 200,000 200,540
Springfield Nursing Home (Callable 11/1/99 at 103),
8.50%, 11/1/19 .................................... 250,000 268,935
White Bear Lake Care Center (Callable 11/1/03 at
102), 8.25%, 11/1/12 .............................. 1,000,000 1,111,430
White Bear Lake Multifamily Revenue (Callable 2/1/07
at 102), 6.00%, 8/1/20 ............................ 1,020,000 1,050,355
------------
11,069,903
------------
OTHER REVENUE (1.1%):
Moorhead Golf Course Revenue (Callable 12/1/01 at
100), 7.75%, 12/1/15 .............................. $ 1,165,000 $ 1,238,290
Olmsted County Hiawatha Children's Home (Callable
7/1/03 at 102),
</TABLE>
<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
6.50%, 7/1/16 ..................................... 205,000 211,628
<S> <C> <C>
------------
1,449,918
------------
Total Municipal Bonds
(cost: $117,515,029) ........................... 123,166,074
------------
MUNICIPAL DERIVATIVE SECURITIES (6.8%):
INVERSE FLOATER (6.8%):
Osseo Independent School District, inverse floater,
7.25%, 2/1/14 ..................................... 3,195,000(b) 3,370,725
St. Cloud General Obligation, inverse floater
(Callable 2/1/02 at 100), 8.60%, 8/1/13 ........... 5,200,000(b) 5,733,000
------------
Total Municipal Derivative Securities
(cost: $7,790,404) ............................. 9,103,725
------------
Total Municipal Long-Term Securities
(cost: $125,305,433) ........................... 132,269,799
------------
MUNICIPAL SHORT-TERM SECURITIES (0.0%):
Bloomington Port Authority, VRDN, 4.15%, 2/1/13
(cost: $50,000) ................................... 50,000(b) 50,000
------------
Total Investments in Securities
(cost: $125,355,433) (e) ....................... $132,319,799
------------
------------
</TABLE>
NOTES TO INVESTMENTS IN SECURITIES:
(a) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(b) PORTFOLIO ABBREVIATIONS AND DEFINITIONS:
VRDN - VARIABLE RATE DEMAND NOTE. FLOATING OR VARIABLE RATE OBLIGATION
MATURING IN MORE THAN ONE YEAR. THE INTEREST RATE, WHICH IS BASED ON
SPECIFIC, OR AN INDEX OF, MARKET INTEREST RATES, IS SUBJECT TO CHANGE
PERIODICALLY AND IS THE EFFECTIVE RATE ON SEPTEMBER 30, 1997. THIS
INSTRUMENT MAY ALSO HAVE A DEMAND FEATURE WHICH ALLOWS THE RECOVERY
OF PRINCIPAL AT ANY TIME, OR AT SPECIFIED INTERVALS NOT EXCEEDING ONE
YEAR, ON UP TO 30 DAYS' NOTICE. MATURITY DATE SHOWN REPRESENTS FINAL
MATURITY.
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, 1997.
(c) SECURITY PURCHASED AS PART OF A PRIVATE PLACEMENT WHICH HAS NOT BEEN
REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE SECURITIES
ACT OF 1933 AND IS CONSIDERED TO BE ILLIQUID. ON SEPTEMBER 30, 1997, THE
TOTAL MARKET VALUE OF THESE INVESTMENTS WAS $396,683 OR 0.3% OF TOTAL NET
ASSETS.
(d) CURRENTLY NON-INCOME PRODUCING AND CONSIDERED ILLIQUID BY THE ADVISER. ON
SEPTEMBER 30, 1997, THE TOTAL MARKET VALUE OF THIS INVESTMENT WAS
$1,440,000 OR 1.1% OF TOTAL NET ASSETS.
(e) ON SEPTEMBER 30, 1997, THE COST OF INVESTMENTS IN SECURITIES FOR FEDERAL
INCOME TAX PURPOSES WAS $125,259,080. THE AGGREGATE GROSS UNREALIZED
APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED ON THIS
COST WERE AS FOLLOWS:
<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 7,120,719
GROSS UNREALIZED DEPRECIATION ...... (60,000)
------------
NET UNREALIZED APPRECIATION ...... $ 7,060,719
------------
------------
</TABLE>
- --------------------------------------------------------------------------------
22 1997 Annual Report - Tax-Exempt Income 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, 1997, 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 ended September 30, 1997, and the
financial highlights for each of the years in the
five-year period ended September 30, 1997. 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 and sold but not received or delivered, 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, 1997, 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 7, 1997
- --------------------------------------------------------------------------------
23 1997 Annual Report - Tax-Exempt Income 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
99.94% AND 99.56% QUALIFYING AS EXEMPT-INTEREST DIVIDENDS,
RESPECTIVELY
<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT FUND
PAYABLE DATE FUND CLASS A CLASS Y
- ---------------------------------------- ----------- ---------------- -----------
<S> <C> <C> <C>
October 1, 1996 ........................ $0.0484 $0.0492 $ --
November 1, 1996 ....................... 0.0466 0.0481 --
December 2, 1996 ....................... 0.0463 0.0484 --
January 2, 1997 ........................ 0.0439 0.0468 --
February 3, 1997 ....................... 0.0440 0.0475 --
March 3, 1997 .......................... 0.0448 0.0479 --
April 1, 1997 .......................... 0.0445 0.0472 --
May 1, 1997 ............................ 0.0456 0.0480 --
June 2, 1997 ........................... 0.0449 0.0454 --
July 1, 1997 ........................... 0.0455 0.0470 --
August 1, 1997 ......................... 0.0454 0.0462 --
September 2, 1997 ...................... 0.0453 0.0469 0.0489
----------- ---------------- -----------
Total ................................ $0.5452 $0.5686 $ 0.0489
----------- ---------------- -----------
----------- ---------------- -----------
</TABLE>
LONG-TERM GAINS (TAXABLE AS CAPITAL GAINS DISTRIBUTIONS)
<TABLE>
<CAPTION>
MINNESOTA
NATIONAL TAX-EXEMPT FUND
TAX-EXEMPT ---------------------
PAYABLE DATE FUND CLASS A CLASS Y
- ---------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
October 22, 1996 ....................... $0.0197 $ 0.0480 $ --
November 26, 1996 ...................... -- 0.0045 --
----------- --------- ---------
Total ................................ $0.0197 $ 0.0525 $ --
----------- --------- ---------
----------- --------- ---------
</TABLE>
- --------------------------------------------------------------------------------
24 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
25 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
THIS PAGE WAS INTENTIONALLY LEFT BLANK.
- --------------------------------------------------------------------------------
26 1997 Annual Report - Tax-Exempt Income 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 may become a shareholder in Piper Funds class A shares or class B shares
with an initial investment of $250 or more. Class Y shares have a minimum
initial investment of $1 million. Add to your existing investment with any
amount, at any time.
AUTOMATIC MONTHLY INVESTMENT PROGRAMS
To purchase shares as part of a savings discipline, you may automatically
transfer $100 or more each month to any Piper fund from your bank, savings
and loan or other financial institution. Or, transfer $25 or more per month
from any of the Piper money market funds.*
RECEIVING DIVIDENDS AND OTHER DISTRIBUTIONS
Dividend and capital gains distributions may be reinvested in additional
shares of the fund you own, invested in shares of a different Piper fund
offered in your state, or distributed in cash. Any reinvestments must be in
the same class of shares.
REDUCING THE CLASS A FRONT-END SALES CHARGE
You may reduce, or even eliminate, the class A front-end sales charge if:
your initial investment exceeds a specified amount, your investment combined
with the value of your existing Piper Funds investments (or a related
account's investments) exceeds a specified amount or if your investments
combined during a 13-month period exceed a specified amount. See your
prospectus for details.
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.
EXCHANGING SHARES
If your investment goals or your financial needs change, you may move from
one Piper fund to the same class of another Piper fund, if the shares of that
fund are legally available in your state. There is no fee to exchange shares.
Exchanges are generally made based on the net asset value per share of each
fund at the time of the exchange. However, if your new fund has a higher
sales charge, you must pay the difference.
TAKING SYSTEMATIC WITHDRAWALS
If your account has a value of $5,000 or more, you may make automatic
withdrawals from your account. You may withdraw $100 or more monthly,
quarterly, or semiannually by authorizing the sale of the appropriate number
of shares on a periodic basis.
REINVESTING AFTER A SALE
If you sell class A shares, you may reinvest in class A shares of that fund
or another Piper fund within 30 days without a sales charge. If you sell
class B shares (or other shares subject to a CDSC) and elect to reinvest
within 30 days, that charge will be credited to your account and the
reinvested shares will continue to be subject to the CDSC.
ACCOUNT STATEMENTS
Whenever you add to or withdraw from your account, you will receive a monthly
statement from Piper Jaffray. Accounts with no activity receive a quarterly
statement instead. Periodic dividend and capital gains distributions, if any,
also appear on your statement.
* 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.
- --------------------------------------------------------------------------------
27 1997 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.
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 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.
*** - This symbol represents a graduation cap, used throughout this report to
indicate terms defined in the glossary.
- --------------------------------------------------------------------------------
28 1997 Annual Report - Tax-Exempt Income Funds
<PAGE>
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, Retired 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 ADVISOR
- --------------------------------------------------------------------------------
PIPER CAPITAL MANAGEMENT INCORPORATED
222 South Ninth Street, Minneapolis, MN 55402-3804
TRANSFER AND DIVIDEND DISBURSING AGENTS
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
1004 Baltimore, Kansas City, MO 64105-1614
PIPER JAFFRAY INC.
222 South Ninth Street, Minneapolis, MN 55402-3804
PIPER TRUST COMPANY
222 South Ninth Street, Minneapolis, MN 55402-3804
CUSTODIAN AND ACCOUNTING AGENT
- --------------------------------------------------------------------------------
INVESTORS FIDUCIARY TRUST COMPANY
801 Pennsylvania, Kansas City, MO 64105-1307
INDEPENDENT AUDITORS
- --------------------------------------------------------------------------------
KPMG PEAT MARWICK LLP
4200 Norwest Center, Minneapolis, MN 55402
LEGAL COUNSEL
- --------------------------------------------------------------------------------
DORSEY & WHITNEY LLP
220 South Sixth Street, Minneapolis, MN 55402
FOR MORE INFORMATION
By Phone [GRAPHIC]
800 866-7778
FOR GENERAL INFORMATION
press 5, our Mutual Fund Services representatives are ready to answer
your questions.
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 [GRAPHIC]
Piper Capital Management
Attn: Mutual Fund Services
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 funds' 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 800 866-7778, or mail a request to us.
On-Line [GRAPHIC]
http://www.piperjaffray.com/
<PAGE>
TAX-EXEMPT INCOME FUNDS
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
Minnesota Tax-Exempt Fund
To counteract the impact of taxes on total investment return, many investors
find a tax-exempt fund often provides more spendable income.
CASH MANAGEMENT FUNDS*
- -------------------------------------------------------------------------------
Money Market Fund
U.S. Government Money Market Fund
Tax-Exempt Money Market Fund
Institutional Money Market Fund
Piper Funds provide you with the flexibility to help you pursue your
financial 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,
including prospectuses, about the Piper Funds or call Mutual Fund Services at
800 866-7778. Please read the prospectuses carefully before investing or
sending money.
*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.
PIPER JAFFRAY INC., FUND DISTRIBUTOR AND NASD MEMBER.
#10500 11/1997 268-97
- -------------------------------------------------------------------------------
[LOGO]
222 South Ninth Street
Minneapolis, MN 55402-3804
Bulk Rate
U.S. Postage
PAID
Permit No. 3006
Mpls., MN
