PIPER FUNDS INC, N-30D, 1997-05-30

PIPER FUNDS INC
N-30D, 1997-05-30

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<PAGE>

1997 Semiannual Report

[LOGO]

TAX-EXEMPT INCOME FUNDS

NATIONAL TAX-EXEMPT FUND
- ------------------------------------
MINNESOTA TAX-EXEMPT FUND
- ------------------------------------
<PAGE>

[LOGO]

CONTENTS

NATIONAL TAX-EXEMPT FUND

Letter to Shareholders . . . . . . . . . . . . . . . .2
Financial Statements and Notes . . . . . . . . . . . .8
Investments in Securities. . . . . . . . . . . . . . .17
Directors and Officers . . . . . . . . . . . . . . . .22
Shareholder Services . . . . . . . . . . . . . . . . .23
Glossary***. . . . . . . . . . . . . . . . . . . . . .25

MINNESOTA TAX-EXEMPT FUND

Letter to Shareholders . . . . . . . . . . . . . . . .5
Financial Statements and Notes . . . . . . . . . . . .8
Investments in Securities. . . . . . . . . . . . . . .19
Directors and Officers . . . . . . . . . . . . . . . .22
Shareholder Services . . . . . . . . . . . . . . . . .23
Glossary***. . . . . . . . . . . . . . . . . . . . . .25

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

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

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

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

***This report includes a glossary to help you understand financial words used
in the portfolio managers' letters. When you see this symbol, it indicates a
word that is defined in the glossary.

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

CASH MANAGEMENT FUNDS*
- -------------------------------

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

Piper Funds provide you with the flexibility to help you pursue your 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 about the
Piper Funds, including prospectuses, or call Mutual Fund Services at 1 800 866-
7778. Please read the prospectuses carefully before investing.

To counteract the impact of taxes on total investment return, many investors
find a tax-exempt fund often provides more spendable income.
<PAGE>

PRESIDENT'S LETTER
- --------------------------------------------------------------------------------

[PHOTO]
WILLIAM H. ELLIS
President
Piper Capital Management
- --------------------------------------------------------------------------------

INVESTOR EXPECTATIONS
- --------------------------------------------------------------------------------
What investors expect from the stock market over the next 10 years.

[CHART]

56% Expecting a 14% Return
29% More than a 14% Return
14% Less than a 14% Return

Source: Louis Harris and
Associates, 1996

*Past performance does not guarantee future results. Keep in mind that stocks
are more volatile than bonds, and long-term government bonds are guaranteed by
the U.S. government or its agencies as to payment of principal and interest.

May 15, 1997
- --------------------------------------------------------------------------------

DEAR SHAREHOLDERS:

What are you expecting from the markets this year? There's no denying that the
stock market's been on a bit of a roller coaster ride of late. The past six
months alone have seen record Dow highs, followed by quick downturns and
rebounds that are higher still. In fact, stock and bond prices have seen
unprecedented growth for almost 15 years. And, fortunately, more of you than
ever are sharing in these gains.

Word has it that investors' expectations have soared right along with these
phenomenal returns, and that's troubling. Don't get me wrong - we're happy about
the gains investors have enjoyed. But it's important that we all understand the
markets' potential for volatility and balance that with a good dose of reality.

Here's what I mean. According to Ibbotson Associates, the markets have, on
average, returned 11% in large-company stocks and 5% in long-term government
bonds per year since 1926.* Yet today's investors expect much more. I recently
read the results of a national survey by Louis Harris and Associates that found
a wide majority of investors expect at least a 14% stock market return over the
next 10 years (which is the average annual return from the last decade). Some
predict even greater returns.

No matter what the markets bring this year, I believe it's important to
maintain a long-term perspective. History shows that it's common for investors
to bail out at the first signs of a market downturn. But if I've learned one
thing from my 30 years in the financial services industry, it's this: you can
gain only if you stay in the game for the long term. Remember that market and
interest rate volatility (like we saw in March) are normal parts of investing.
I've never met anyone who can always time the market to their advantage. Here's
an adage to keep in mind: focus on "time in the market," not "timing the
market."

My other advice for weathering the bumpy markets? Stay in touch with your
Investment Executive. Together, you have probably already set your financial
goals and formulated a plan to help you reach them. Stick to that plan. During
this uncertain time, your Investment Executive can help you sort through the
clutter and tune out the market noise. Best of all, your broker can lend you the
perspective gained from years of experience and help you focus on long-term
results.

Thank you for your investment and best wishes for the balance of 1997.

Sincerely,

/s/ William H. Ellis
William H. Ellis

1 1997 Semiannual Report - Tax-Exempt Income Funds
<PAGE>

NATIONAL TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

[PHOTO]
RONALD REUSS, ISFA
shares responsibility for the management of National
Tax-Exempt Fund. He has 28 years of financial experience.

May 15, 1997
- --------------------------------------------------------------------------------

DEAR SHAREHOLDERS:

NATIONAL TAX-EXEMPT FUND ACHIEVED A 2.31%* TOTAL RETURN FOR THE SIX-MONTH PERIOD
ENDED MARCH 31, 1997, WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT INCLUDING THE
FUND'S SALES CHARGE. This compared to a 2.30% total return for the fund's
benchmark,*** the Lehman Brothers Municipal Bond Index,** and a 1.95% return for
the Lipper General Municipal Bond Funds Average.+ During this period, a shortage
in the national supply of municipal bonds, along with attractive after-tax
yields, caused municipal bonds to outperform taxable bonds. In addition, the
fund's effective duration*** was less than that of its competitive group as
represented by the Lipper average. This helped the fund outperform the group
average as interest rates rose (and bond prices fell) over much of the period.

THE SUPPLY AND DEMAND DYNAMICS THAT DRIVE MUNICIPAL BOND MARKET PERFORMANCE OVER
THE SHORT TERM BOTH HURT AND HELPED THE FUND DURING THIS SIX-MONTH REPORTING
PERIOD. Late in October, economic data suggested low inflation, which caused a
drop in municipal yields and a flood of new bond issues.v This resulted in
decreased municipal bond prices, and an underperformance compared to taxable
bonds for the fourth quarter of 1996. In early February, however, the market saw
a decreased supply of new issues. By the end of March, supply was down about 10%
nationally, compared to the same period last year, while demand continued to be
strong. Much of the shortage was due to a slowdown in issuer refunding because
of increased interest rates, along with several failed referendums for new

- --------------------------------------------------------------------------------
FUND PERFORMANCE THROUGH MARCH 31, 1997*
- --------------------------------------------------------------------------------
Growth of $10,000 Invested Since Inception

[GRAPH]

National Tax-Exempt Fund, reflects the fund's 2% maximum sales charge

Lehman Brothers Municipal Bond Index**

Lipper General Municipal Bond Funds Average+

** An unmanaged index that includes no expenses or transaction charges,
measuring performance for the investment-grade municipal bond market.

+The average total return of similar funds as characterized by Lipper Analytical
Services. Does not include sales charge.

Average Annualized Total Returns
Includes 2% maximum sales charge.

One Year 3.11%
- --------------------------------------------------------------------------------
Five Year 6.36%
- --------------------------------------------------------------------------------
Since Inception (7/11/88) 7.22%
- --------------------------------------------------------------------------------

During some periods, the fund's adviser waived or paid certain fund expenses
and/or the fund's distributor voluntarily limited 12b-1 fees for the fund.
Otherwise, the average annualized total returns would have been 3.02% one year,
6.26% five year and 6.96% since inception.

* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. PLEASE REMEMBER, YOU
COULD LOSE MONEY WITH THIS INVESTMENT. Neither safety of principal nor
stability of income is guaranteed. The investment return and principal value
of an investment will fluctuate so that fund shares, when sold, may be worth
more or less than their original cost.

All fund and benchmark returns include reinvested distributions.

2 1997 Semiannual Report - Tax-Exempt Income Funds
<PAGE>

NATIONAL TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------

[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for
the management of National
Tax-Exempt Fund. He has 14
years of financial experience.
- --------------------------------------------------------------------------------

bond issues. This helped tax-exempt bond prices to decrease less than taxable
bond prices as interest rates went up, and resulted in an outperformance by tax-
exempt bonds for the first quarter of 1997.

MIXED SIGNALS ABOUT THE STRENGTH OF THE ECONOMY CAUSED US TO SHORTEN THE FUND'S
EFFECTIVE DURATION DURING THE PERIOD. We typically keep National Tax-Exempt
Fund's effective duration longer than the duration of its Lehman Brothers
benchmark in our attempt to achieve the high current income portion of the
fund's objective. However, a longer effective duration can also add to a fund's
price volatility. Given our uncertainty about inflation and the near-term
direction of interest rates, we sold some of the fund's longer duration bonds
and purchased short-duration, floating rate municipal securities. This action
decreased income, but it also reduced the fund's net asset value volatility,
which proved helpful as interest rates moved in both directions throughout the
six-month period. Any changes made to the fund's effective duration are
undertaken with the fund's income and overall credit quality in mind. Effective
duration as of March 31 was 8.6 years, compared to a duration of 7.5 years for
the Lehman Brothers Municipal Bond Index.

THE CORE OF THE FUND'S INVESTMENTS CONTINUES TO BE IN THE MIDWESTERN STATES. In
addition, California, with its upgraded Standard & Poor's rating of A+, is a
state we view favorably. The fund is also focused on municipal bonds in the
Southwest and Southeast. These regions are among the faster growing in the
country and have provided the fund with some attractive opportunities.

CREDIT ANALYSIS IS A CENTRAL EMPHASIS IN THE FUND'S STRATEGY. We believe some
local governments will face difficult fiscal challenges as the federal
government passes more funding responsibility to them. These new
responsibilities, along with changes in federal reimbursements in programs like
Medicaid and welfare, mean it is important for us to monitor the ways
municipalities address their increasing

- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY STATE
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1997.

[CHART]

Alaska 2%
California 5%
Colorado 2%
Florida 1%
Georgia 2%
Iowa 3%
Illinois 10%
Indiana 9%
Louisiana 1%
Michigan 4%
Minnesota 14%
Montana 1%
New Mexico 7%
New York 6%
North Dakota 7%
South Dakota 4%
Texas 6%
Utah 3%
Washington 3%
Wisconsin 6%
West Virginia 2%
Other Assets 2%

Municipal derivative securities (inverse floating rate securities) account for
8% of the fund's total assets.

- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY RATING
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1997.

AAA 55%
- --------------------------------------------------------------------------------
AA 8%
- --------------------------------------------------------------------------------
A 8%
- --------------------------------------------------------------------------------
BBB and Below 2%
- --------------------------------------------------------------------------------
Non-Rated 18%
- --------------------------------------------------------------------------------
Short-Term 7%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------

3 1997 Semiannual Report - Tax-Exempt Income Funds
<PAGE>

NATIONAL TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------

demands on their decreasing resources. We will continue to watch for signs of
financial weakness or strength that could affect bond ratings (see chart on
previous page).

WE ANTICIPATE CONTINUED VOLATILITY IN INTEREST RATES IN THE COMING MONTHS. In
this uncertain environment, we feel comfortable with the steps we've taken to
shorten the fund's duration position. We continue to watch for opportunities to
extend the fund's call protection*** (which is currently 9.5 years) to allow the
fund to maintain its income.

Thank you for your investment in National Tax-Exempt Fund. We appreciate the
opportunity to serve your investment needs.

Sincerely,

/s/ Ronald Reuss /s/ Douglas J. White
Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager

4 1997 Semiannual Report - Tax-Exempt Income Funds
<PAGE>

MINNESOTA TAX-EXEMPT FUND
- --------------------------------------------------------------------------------

[PHOTO]
DOUGLAS WHITE, CFA
shares responsibility for the management of Minnesota Tax-Exempt Fund. He has 14
years of financial experience.
- --------------------------------------------------------------------------------

May 15, 1997
- --------------------------------------------------------------------------------

DEAR SHAREHOLDERS:

MINNESOTA TAX-EXEMPT FUND ACHIEVED A 2.10%* TOTAL RETURN FOR THE SIX-MONTH
PERIOD ENDED MARCH 31, 1997, WITH ALL DISTRIBUTIONS REINVESTED, BUT NOT
INCLUDING THE FUND'S SALES CHARGE. This compared to a 2.30% total return for the
fund's benchmark,*** the Lehman Brothers Municipal Bond Index,** and a 1.80%
return for the Lipper Minnesota Municipal Bond Funds Average.+ During this
period, a shortage in the national and state supplies of municipal bonds, along
with attractive after-tax yields, caused municipal bonds to outperform taxable
bonds. In addition, the fund's effective duration*** was less than that of its
competitive group as represented by the Lipper average. This helped the fund
outperform the group average as interest rates rose (and bond prices fell) over
much of the period.

THE SUPPLY AND DEMAND DYNAMICS THAT DRIVE MUNICIPAL BOND MARKET PERFORMANCE OVER
THE SHORT TERM BOTH HURT AND HELPED THE FUND DURING THIS SIX-MONTH REPORTING
PERIOD. Late in October, economic data suggested low inflation, which caused a
drop in municipal yields and a flood of new bond issues.*** This resulted in
decreased municipal bond prices, and an underperformance compared to taxable
bonds for the fourth quarter of 1996. In early February, however, the market saw
a decreased supply of new Minnesota issues. By the end of March, supply was down
about 10% nationally and 54% in Minnesota, compared to the same period last
year, while demand continued to be strong. Much of the shortage was due to a
slowdown in issuer refunding because of increased interest rates, along with

[CHART]

Minnesota Tax-Exempt Fund, reflects the fund's 2% maximum sales charge

Lehman Brothers Municipal Bond Index**

Lipper Minnesota Municipal Bond Funds Average+

** An unmanaged index that includes no expenses or transaction charges,
measuring performance for the investment-grade municipal bond market.

+ The average total return of similar funds as characterized by Lipper
Analytical Services. Does not include sales charge.

Average Annualized Total Returns
Includes 2% maximum sales charge.

One Year 3.42%
- --------------------------------------------------------------------------------
Five Year 6.43%
- --------------------------------------------------------------------------------
Since Inception (7/11/88) 7.12%
- --------------------------------------------------------------------------------

During some periods, the fund's adviser waived or paid certain fund expenses
and/or the fund's distributor voluntarily limited 12b-1 fees for the fund.
Otherwise, the average annualized total returns would have been 3.33% one year,
6.33% five year and 6.94% since inception.

* PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. PLEASE REMEMBER, YOU COULD
LOSE MONEY WITH THIS INVESTMENT. Neither safety of principal nor stability of
income is guaranteed. The investment return and principal value of an investment
will fluctuate so that fund shares, when sold, may be worth more or less than
their original cost.

All fund and benchmark returns include reinvested distributions.

5 1997 Semiannual 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.
- --------------------------------------------------------------------------------

several failed referendums for new bond issues. This helped tax-exempt bond
prices to decrease less than taxable bond prices as interest rates went up, and
resulted in an outperformance by tax-exempt bonds for the first quarter of 1997.

THE SHORTAGE OF BONDS IN MINNESOTA SHOULD NOT BE A MAJOR ISSUE FOR THIS FUND.
Minnesota currently enjoys a diverse business environment with no dominant
company or industry. This minimizes the concern of geographic non-
diversification that many other state-specific funds experience.

MIXED SIGNALS ABOUT THE STRENGTH OF THE ECONOMY CAUSED US TO SHORTEN THE FUND'S
EFFECTIVE DURATION DURING THE PERIOD. We typically keep Minnesota Tax-Exempt
Fund's effective duration longer than the duration of its Lehman Brothers
benchmark in our attempt to achieve the high current income portion of the
fund's objective. However, a longer effective duration can also add to a fund's
price volatility. Given our uncertainty about inflation and the near-term
direction of interest rates, we sold some of the fund's longer duration bonds
and purchased short-duration, floating rate municipal securities. This action
decreased income, but it also reduced the fund's net asset value volatility,
which proved helpful as interest rates moved in both directions throughout the
six-month period. Any changes made to the fund's effective duration are
undertaken with the fund's income and overall credit quality in mind. Effective
duration as of March 31 was 9.3 years, compared to a duration of 7.5 years for
the Lehman Brothers Municipal Bond Index.

- --------------------------------------------------------------------------------
PORTFOLIO COMPOSITION BY SECTOR
- --------------------------------------------------------------------------------
As a percentage of total assets on March 31, 1997.

[CHART]

Hospital Revenue 11%
Commercial Development Revenue 1%
Electric Revenue 3%
Leasing Revenue 6%
Education Revenue 7%
General Obligations 41%
Housing Revenue 15%
Special Tax Revenue 4%
Industrial Development Revenue 1%
Nursing Home Revenue 9%
Other Assets 2%

Municipal derivative securities (inverse floating rate securities) account for
6% of the fund's total assets.

AAA 29%
- --------------------------------------------------------------------------------
AA 30%
- --------------------------------------------------------------------------------
A 4%
- --------------------------------------------------------------------------------
BBB and Below 6%
- --------------------------------------------------------------------------------
Non-Rated 23%
- --------------------------------------------------------------------------------
Short-Term 6%
- --------------------------------------------------------------------------------
Other Assets 2%
- --------------------------------------------------------------------------------

6 1997 Semiannual Report - Tax-Exempt Income Funds
<PAGE>

MINNESOTA TAX-EXEMPT FUND (CONTINUED)
- --------------------------------------------------------------------------------

demands on their decreasing resources. We will continue to watch for signs of
financial weakness or strength that could affect bond ratings (see chart on
previous page).

WE ANTICIPATE CONTINUED VOLATILITY IN INTEREST RATES IN THE COMING MONTHS. In
this uncertain environment, we feel comfortable with the steps we've taken to
shorten the fund's duration position. We continue to watch for opportunities
to extend the fund's call protection*** (which is currently 7.1 years) to
allow the fund to maintain its income.

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

Sincerely,

/s/ Ronald R. Reuss /s/ Douglas J. White
Ronald Reuss Douglas White
Portfolio Manager Portfolio Manager

7 1997 Semiannual Report - Tax-Exempt Income Funds

<PAGE>
Financial Statements (Unaudited)

- --------------------------------------------------------------------------------
STATEMENTS OF ASSETS AND LIABILITIES March 31, 1997
..................................................................

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------
<S> <C> <C>
ASSETS:
Investments in securities, at market value* (note 2) ....... $50,873,481 $124,908,080
Cash in bank on demand deposit ............................. 248,467 76,937
Receivable for fund shares sold ............................ 26,021 624,194
Accrued interest receivable ................................ 775,997 2,013,552
------------ -------------
Total assets ............................................. 51,923,966 127,622,763
------------ -------------

LIABILITIES:
Dividends payable to shareholders .......................... 201,622 538,622
Payable for investment securities purchased ................ 2,544,448 996,508
Payable for fund shares redeemed ........................... 1,000 --
Accrued investment management fee .......................... 21,133 53,834
Accrued distribution and service fees ...................... 10,144 25,841
------------ -------------
Total liabilities ........................................ 2,778,347 1,614,805
------------ -------------
Net assets applicable to outstanding capital stock ....... $49,145,619 $126,007,958
------------ -------------
------------ -------------

COMPOSITION OF NET ASSETS:
Capital stock and additional paid-in capital ............... $47,832,199 $122,857,768
Accumulated net realized gain on investments ............... 24,567 604,547
Unrealized appreciation of investments ..................... 1,288,853 2,545,643
------------ -------------

Total - representing net assets applicable to outstanding
capital stock .......................................... $49,145,619 $126,007,958
------------ -------------
------------ -------------

NET ASSET VALUE AND OFFERING PRICE:
Net assets ................................................. $49,145,619 $126,007,958
Shares outstanding ......................................... 4,563,192 11,686,300
Net asset value ............................................ $ 10.77 $ 10.78
Maximum offering price per share (net asset value plus 2% of
offering price) .......................................... $ 10.99 $ 11.00

* Investments in securities, at identified cost ............ $49,584,628 $122,362,437
------------ -------------
------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

8 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

STATEMENTS OF OPERATIONS For The Six Months Ended March
31, 1997
..................................................................

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------------ -------------
<S> <C> <C>
INCOME:
Interest ................................................... $ 1,432,770 $ 3,868,725
------------ -------------

EXPENSES (NOTE 5):
Investment management fee .................................. 118,731 312,318
Distribution and service fees .............................. 71,238 187,394
Custodian and accounting fees .............................. 17,590 42,992
Transfer agent and dividend disbursing agent fees .......... 11,406 18,396
Registration fees .......................................... 9,053 8,740
Reports to shareholders .................................... 6,737 11,674
Directors' fees ............................................ 3,619 3,619
Audit and legal fees ....................................... 21,171 26,926
Other expenses ............................................. 8,206 20,988
------------ -------------
Total expenses ........................................... 267,751 633,047
Less expenses waived by the distributor ................ (17,713) (46,823)
------------ -------------

Net expenses before expenses paid indirectly ............. 250,038 586,224
Less expenses paid indirectly .......................... (2,173) (3,923)
------------ -------------

Total net expenses ....................................... 247,865 582,301
------------ -------------

Net investment income .................................... 1,184,905 3,286,424
------------ -------------

NET REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS:
Net realized gain on investments (note 3) .................. 50,806 1,151,652
Net change in unrealized appreciation or depreciation of
investments .............................................. (207,482) (1,891,940)
------------ -------------

Net loss on investments .................................. (156,676) (740,288)
------------ -------------

Net increase in net assets resulting from operations ... $ 1,028,229 $ 2,546,136
------------ -------------
------------ -------------
</TABLE>

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

9 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Financial Statements (continued)
- --------------------------------------------------------------------------------

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

<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND MINNESOTA TAX-EXEMPT FUND
----------------------------- -----------------------------
Six Months Six Months
Ended 3/31/97 Year Ended Ended 3/31/97 Year Ended
(Unaudited) 9/30/96 (Unaudited) 9/30/96
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
OPERATIONS:
Net investment income ...................................... $ 1,184,905 $ 2,665,025 $ 3,286,424 $ 7,116,241
Net realized gain on investments ........................... 50,806 1,251,613 1,151,652 1,622,750
Net change in unrealized appreciation or depreciation of
investments .............................................. (207,482) (591,728) (1,891,940) (730,954)
------------- ------------- ------------- -------------

Net increase in net assets resulting from operations ..... 1,028,229 3,324,910 2,546,136 8,008,037
------------- ------------- ------------- -------------

DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income ................................. (1,176,045) (2,646,973) (3,266,017) (7,047,814)
From net realized gains .................................... (82,981) -- (602,173) --
------------- ------------- ------------- -------------
Total distributions ...................................... (1,259,026) (2,646,973) (3,868,190) (7,047,814)
------------- ------------- ------------- -------------

CAPITAL SHARE TRANSACTIONS:
Increase (decrease) in net assets from capital share
transactions (note 4) .................................... 3,441,521 (11,803,695) 1,653,230 (9,140,546)
------------- ------------- ------------- -------------
Total increase (decrease) in net assets .................. 3,210,724 (11,125,758) 331,176 (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 ................................ $49,145,619 $ 45,934,895 $126,007,958 $ 125,676,782
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------

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

SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.

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

10 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------

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

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

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

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

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

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

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

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

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

11 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

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

SECURITIES PURCHASED ON A WHEN-ISSUED BASIS
Delivery and payment for securities that have been
purchased by the funds on a 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 fund's net asset value if the funds make
such purchases while remaining substantially fully
invested. As of March 31, 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 its 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.

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

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.

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

12 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------

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 six months ended March 31, 1997 were as follows:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
----------- ------------
<S> <C> <C>
Purchases ................................... $8,484,007 $ 7,051,694
Proceeds from sales ......................... $7,187,973 $13,152,990
</TABLE>

For the six months ended March 31, 1997, no brokerage
commissions were paid to Piper Jaffray Inc., an affiliated
broker.

(4) CAPITAL SHARE
TRANSACTIONS
................................
Capital share transactions of each fund were as follows:

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
---------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
NATIONAL TAX-EXEMPT FUND:
(authorized 10 billion shares of $0.01 par
value)
Purchases of fund shares .................. 1,135,779 $ 12,381,864 449,319 $ 4,822,153
Issued for reinvested distributions ....... 74,341 811,284 243,960 2,646,937
Redemptions of fund shares ................ (894,543) (9,751,627) (1,782,195) (19,272,785)
----------- ------------ ----------- -------------
315,577 $ 3,441,521 (1,088,916) $ (11,803,695)
----------- ------------ ----------- -------------
----------- ------------ ----------- -------------
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED
MARCH 31, 1997 SEPTEMBER 30, 1996
----------------------------- -----------------------------
SHARES AMOUNT SHARES AMOUNT
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
MINNESOTA TAX-EXEMPT FUND:
(authorized 10 billion shares of $0.01 par
value)
Purchases of fund shares .................. 1,212,447 $ 13,259,063 682,698 $ 7,476,545
Issued for reinvested distributions ....... 237,985 2,601,047 650,478 7,110,996
Redemptions of fund shares ................ (1,301,360) (14,206,880) (2,173,520) (23,728,087)
----------- ------------- ----------- -------------
149,072 $ 1,653,230 (840,344) $ (9,140,546)
----------- ------------- ----------- -------------
----------- ------------- ----------- -------------
</TABLE>

Contingent deferred sales charges received by Piper
Jaffray Inc. (Piper Jaffray), the funds' distributor, upon
certain redemptions for the six months ended March 31,
1997 were $213 and $2,838 for National Tax-Exempt Fund and
Minnesota Tax-Exempt Fund, respectively. There were no
front-end sales charges received by Piper Jaffray for
distributing the funds' shares.

(5) EXPENSES
................................
INVESTMENT MANAGEMENT FEE
The company has entered into an investment management
agreement with Piper Capital Management Incorporated
(Piper Capital), the funds' adviser, under which Piper
Capital manages each fund's assets and furnishes related
office facilities, equipment, research and personnel. The

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

13 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Notes to Financial Statements (Unaudited) (continued)
- --------------------------------------------------------------------------------
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.

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 are being voluntarily limited for the year ending
September 30, 1997, are stated below as a percent of
average daily net assets.

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

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
six months ended March 31, 1997, Piper Jaffray and Piper
Trust received the following amounts in connection with
the shareholder account servicing agreements:

<TABLE>
<CAPTION>
NATIONAL MINNESOTA
TAX-EXEMPT TAX-EXEMPT
FUND FUND
------- --------
<S> <C> <C>
Piper Jaffray ............................... $5,068 $10,896
Piper Trust ................................. -- --
------- --------
$5,068 $10,896
------- --------
------- --------
</TABLE>

OTHER FEES AND EXPENSES
In addition to the investment management, distribution,
service 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.

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

14 1997 Semiannual 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>
(Unaudited)
Six
Months
Ended
March Year Ended September 30,
31, -------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $10.81 $ 10.69 $ 10.22 $ 11.76 $ 10.94 $ 10.51
------- ------- ------- ------- ------- -------
Operations:
Net investment income ..................... 0.27 0.56 0.60 0.57 0.61 0.66
Net realized and unrealized gains (losses)
on investments .......................... (0.02) 0.12 0.47 (1.21) 0.94 0.43
------- ------- ------- ------- ------- -------
Total from operations ................... 0.25 0.68 1.07 (0.64) 1.55 1.09
------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income ................ (0.27) (0.56) (0.60) (0.57) (0.61) (0.66)
From net realized gains on investments (0.02) -- -- (0.33) (0.12) --
------- ------- ------- ------- ------- -------
Total distributions to shareholders ..... (0.29) (0.56) (0.60) (0.90) (0.73) (0.66)
------- ------- ------- ------- ------- -------
Net asset value, end of period .............. $10.77 $ 10.81 $ 10.69 $ 10.22 $ 11.76 $ 10.94
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (a) ............................ 2.31% 6.42% 10.30% (5.72)% 14.76% 10.68%
Net assets at end of period (in millions) ... $ 49 $ 46 $ 57 $ 68 $ 79 $ 59
Ratio of expenses to average daily net
assets .................................... 1.05%(b) 1.03% 1.01% 0.93% 0.94% 0.94%
Ratio of net investment income to average
daily net assets .......................... 4.99%(b) 5.15% 5.37% 5.25% 5.42% 6.13%
Portfolio turnover rate (excluding short-term
securities) ............................... 16% 43% 28% 65% 43% 35%
Ratios before waivers by the distributor:
Ratio of expenses to average daily net
assets before waivers ................... 1.13%(b) 1.13% 1.09% 1.03% 1.04% 1.10%
Ratio of net investment income to average
daily net assets before waivers ......... 4.91%(b) 5.05% 5.29% 5.15% 5.32% 5.97%
</TABLE>

(A) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(B) ANNUALIZED.

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

15 1997 Semiannual 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>
(Unaudited)
Six
Months
Ended
March Year Ended September 30,
31, -------------------------------------------------------
1997 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
PER-SHARE DATA
Net asset value, beginning of period ........ $10.89 $ 10.81 $ 10.28 $ 11.43 $ 10.79 $ 10.46
------- ------- ------- ------- ------- -------
Operations:
Net investment income ..................... 0.29 0.59 0.66 0.61 0.62 0.64
Net realized and unrealized gains (losses)
on investments .......................... (0.06) 0.07 0.53 (0.95) 0.68 0.33
------- ------- ------- ------- ------- -------
Total from operations ................... 0.23 0.66 1.19 (0.34) 1.30 0.97
------- ------- ------- ------- ------- -------
Distributions to shareholders:
From net investment income (a) ............ (0.29) (0.58) (0.66) (0.61) (0.62) (0.64)
From net realized gains on investments (0.05) -- -- (0.20) (0.04) --
------- ------- ------- ------- ------- -------
Total distributions to shareholders ..... (0.34) (0.58) (0.66) (0.81) (0.66) (0.64)
------- ------- ------- ------- ------- -------
Net asset value, end of period .............. $10.78 $ 10.89 $ 10.81 $ 10.28 $ 11.43 $ 10.79
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
SELECTED INFORMATION
Total return (b) ............................ 2.10% 6.24% 11.38% (3.14)% 12.52% 9.56%
Net assets at end of period (in millions) ... $ 126 $ 126 $ 134 $ 162 $ 169 $ 132
Ratio of expenses to average daily net
assets .................................... 0.94%(c) 0.90% 0.91% 0.89% 0.91% 0.93%
Ratio of net investment income to average
daily net assets .......................... 5.26%(c) 5.38% 5.80% 5.61% 5.62% 6.00%
Portfolio turnover rate (excluding short-term
securities) ............................... 6% 35% 30% 44% 29% 35%
Ratios before waivers by the distributor:
Ratio of expenses to average daily net
assets before waivers ................... 1.01%(c) 0.99% 0.99% 0.99% 1.00% 1.01%
Ratio of net investment income to average
daily net assets before waivers ......... 5.19%(c) 5.29% 5.72% 5.51% 5.53% 5.92%
</TABLE>

(A) INCLUDES DISTRIBUTIONS WHICH ARE TAXABLE FOR FEDERAL INCOME TAX PURPOSES OF
$0.003 PER SHARE FOR FISCAL 1992.
(B) TOTAL RETURN ASSUMES REINVESTMENT OF DISTRIBUTIONS AND DOES NOT REFLECT A
SALES CHARGE.
(C) ANNUALIZED.

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

16 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
NATIONAL TAX-EXEMPT FUND March 31, 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 (89.0%):
ALASKA (2.0%):
State Housing Finance Corporation (Callable 6/1/07 at
102), 5.90%, 12/1/19 .............................. $ 1,000,000 $ 986,380
------------

CALIFORNIA (4.9%):
State General Obligation (Callable 9/1/06 at 101),
5.63%, 9/1/24 ..................................... 2,500,000 2,395,550
------------

COLORADO (2.1%):
Montrose County Health Care Facilities (Callable
11/1/02 at 102), 8.25%, 11/1/19 ................... 1,000,000 1,051,100
------------

FLORIDA (0.6%):
Clay County Industrial Development Revenue (Callable
3/1/02 at 102), 6.40%, 3/1/11 ..................... 300,000(d) 317,586
------------

GEORGIA (2.3%):
State General Obligation, 6.75%, 9/1/10 1,000,000 1,139,470
------------

ILLINOIS (8.4%):
Board of Governors, State College and University
(Callable 2/1/02 at 100), 7.55%-7.70%,
2/1/16-2/1/22 ..................................... 425,000 462,944
Development Financial Authority, 7.38%, 7/1/21 ...... 500,000 553,230
Education Facility Authority Revenue (Callable
10/1/07 at 100), 5.88%, 10/1/17 ................... 500,000 489,510
Rock Island Nursing Home Revenue, 7.00%, 6/1/06 ..... 1,100,000 1,140,711
Rock Island Nursing Home Revenue (Callable 6/1/03 at
102), 7.20%, 6/1/13 ............................... 400,000 413,716
State Toll Highway Authority, 6.30%, 1/1/12 ......... 1,000,000 1,073,190
------------
4,133,301
------------

INDIANA (8.1%):
Hammond School Building Corporation (Callable 7/15/03
at 102), 6.00%, 1/15/13 ........................... 1,000,000 1,048,760
Lake County Redevelopment Authority (MBIA) (Callable
2/1/05 at 102), 6.50%, 2/1/16 ..................... 800,000 844,816
Municipal Power Agency, 6.00%, 1/1/11-1/1/12 ........ 2,000,000 2,095,530
------------
3,989,106
------------

IOWA (3.4%):
Finance Authority -Private College Revenue, 6.50%,
12/1/11 ........................................... 1,500,000 1,658,310
------------
</TABLE>

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

LOUISIANA (0.7%):
St. Charles Parish Pollution Control Revenue
(Callable 12/1/99 at 103), 8.00%, 12/1/14 ......... $ 300,000 $ 327,339
------------

MICHIGAN (4.8%):
Lakeview Community Schools, 5.75%, 5/1/16 ........... 1,000,000 993,650
Romulus County Schools (FGIC) (Callable 5/1/06 at
101), 5.13%, 5/1/17 ............................... 1,475,000 1,361,823
------------
2,355,473
------------

MINNESOTA (12.2%):
Brooklyn Center Health Care Facility (Callable
12/1/03 at 102), 7.60%, 12/1/18 ................... 400,000 416,736
Fergus Falls Health Care Facility (Callable 11/1/04
at 102), 7.00%, 11/1/19 ........................... 500,000 504,920
Glencoe Hospital Revenue (Callable 8/1/04 at 102),
6.75%, 4/1/16 ..................................... 485,000 484,127
Hopkins Multifamily Housing Revenue (Callable 4/1/07
at 102), 6.25%, 4/1/15 ............................ 500,000 512,735
Maplewood Health Care Facility (Callable 10/1/04 at
102), 7.50%, 10/1/24 .............................. 500,000 518,295
Plymouth Health Care Facility (Callable 8/1/04 at
102), 7.50%, 8/1/24 ............................... 500,000 509,075
Roseville Housing Facility Revenue (Callable 10/1/03
at 102), 7.13%, 10/1/13 ........................... 1,000,000 1,029,160
St. Anthony Multifamily Revenue (Callable 5/20/06 at
102), 6.25%, 11/20/25 ............................. 1,000,000 1,013,520
St. Paul Housing-Como Lake Project (Callable 3/1/99
at 102), 7.50%, 3/1/26 ............................ 500,000(e) 478,750
White Bear Lake Care Center (Callable 11/1/03 at
102), 8.25%, 11/1/12 .............................. 500,000 544,165
------------
6,011,483
------------

MONTANA (0.5%):
Sidney Nursing Home (Callable 6/1/00 at 102), 9.00%,
6/1/11 ............................................ 250,000 269,388
------------

NEVADA (0.4%):
Sparks Redevelopment Agency (Callable 3/1/98 at 102),
8.10%, 3/1/07 ..................................... 200,000 207,710
------------

NEW MEXICO (7.1%):
Mortgage Finance Authority, 6.20%-6.40%, 7/1/15 ..... 3,350,000 3,471,644
------------
3,471,644
------------

NORTH DAKOTA (7.8%):
Mercer County Pollution Control Revenue, 7.20%,
6/30/13 ........................................... 3,300,000 3,852,321
------------
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

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

17 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------

NATIONAL TAX-EXEMPT FUND
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- ------------
<S> <C> <C>
SOUTH DAKOTA (4.5%):
Housing Development Authority (Callable 5/1/04 at
102), 6.65%, 5/1/14 ............................... $ 1,135,000 $ 1,183,589
State Health and Education Facilities (MBIA)
(Callable 7/1/06 at 102), 6.00%, 7/1/14 ........... 1,000,000 1,013,780
------------
2,197,369
------------
TEXAS (4.3%):
Austin Employment Commission (Callable 8/1/97 at
102), 8.10%-8.45%, 8/1/01-8/1/08 .................. 440,000 452,125
Carrolton Independent School District (MBIA)
(Callable 2/15/06 at 100), 5.70%, 2/15/17 ......... 1,000,000 976,930
Fort Bend Independent School District (MBIA)
(Callable 2/15/05 at 100), 5.00%, 2/15/14 ......... 500,000 461,585
Harts Bluff Independent School District (Callable
5/15/97 at 100.5), 8.60%-8.80%,
11/15/98-11/15/00 ................................. 100,000 101,016
Houston Employment Commission (Callable 5/1/97 at
101), 7.85%-8.05%, 5/1/04-5/1/07 .................. 135,000 136,525
------------
2,128,181
------------
UTAH (2.9%):
Carbon County Road Improvement Revenue (Callable
8/01/99 at 100), 7.90%, 8/1/04 .................... 300,000 311,211
Intermountain Power Agency, 6.50%, 7/1/11 ........... 1,000,000 1,089,500
------------
1,400,711
------------
WASHINGTON (3.4%):
Grant County Public Utilities District (MBIA)
(Callable 1/1/06 at 101), 5.70%, 1/1/15 ........... 1,000,000 987,710
Public Power Supply System, 7.13%, 7/1/16 ........... 600,000 676,740
------------
1,664,450
------------
WEST VIRGINIA (2.2%):
State General Obligation (Callable 11/01/16 at 102),
6.50%, 11/1/26 .................................... 1,000,000 1,082,770
------------
WISCONSIN (6.3%):
Dallas Nursing Home Revenue (Callable 5/1/03 at 102),
6.25%, 5/1/19 ..................................... 1,020,000 996,438
State Health Facilities Authority-Franciscan Hospital
(Callable 11/15/05 at 102), 6.13%, 11/15/15 . 2,000,000 1,993,240
Watertown Community Development Authority (Callable
3/1/00 at 103), 8.50%, 3/1/19 ..................... 95,000 100,411
------------
3,090,089
------------

Total Municipal Long-Term Securities
(cost: $42,774,965) ............................. 43,729,731
------------
</TABLE>

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

MUNICIPAL DERIVATIVE SECURITIES (B) (6.8%):
Rochester, MN, Health Care Facility Authority,
inverse floater, 8.25%, 11/15/15 .................. $ 1,000,000 $ 1,051,250
Illinois Health Facilities Authority, inverse floater
(Callable 6/1/02 at 104), 9.59%, 6/19/15 .......... 1,000,000 1,125,000
North Central Texas Health Facility, inverse floater,
9.52%, 6/22/21 .................................... 1,000,000 1,167,500
------------

Total Municipal Derivative Securities
(cost: $3,009,663) ............................. 3,343,750
------------

MUNICIPAL SHORT-TERM SECURITIES (C) (7.7%):
Illinois Health Facilities Authority, VRDN, 3.75%,
11/1/20 ........................................... 100,000 100,000
Indiana Hospital Equipment Finance Authority, VRDN,
3.45%, 12/1/15 .................................... 800,000 800,000
New York City, NY, Series B, VRDN, 3.70%, 10/1/20 ... 1,200,000 1,200,000
New York City, NY, Subseries A-10, VRDN, 3.70%,
8/1/17 ............................................ 500,000 500,000
New York City, NY, Subseries B-4, VRDN, 3.70%,
8/15/22 ........................................... 1,200,000 1,200,000
------------

Total Municipal Short-Term Securities
(cost: $3,800,000) .............................. 3,800,000
------------

Total Investments in Securities
(cost: $49,584,628) (f) ......................... $ 50,873,481
------------
------------
</TABLE>

NOTES TO INVESTMENTS IN SECURITIES:
(A) SECURITIES ARE VALUED IN ACCORDANCE WITH PROCEDURES DESCRIBED IN NOTE 2 TO
THE FINANCIAL STATEMENTS.
(B) 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 MARCH 31, 1997.
(C) VARIABLE DEMAND RATE NOTE. INTEREST RATE VARIES TO REFLECT CURRENT MARKET
CONDITIONS; RATE SHOWN IS THE EFFECTIVE RATE ON MARCH 31, 1997. THE
MATURITY DATE SHOWN REPRESENTS FINAL MATURITY.
(D) SECURITIES SOLD WITHIN TERMS OF A PRIVATE PLACEMENT MEMORANDUM AND MAY BE
SOLD ONLY TO DEALERS IN THAT PROGRAM OR OTHER ACCREDITED INVESTORS.
CONSIDERED ILLIQUID BY THE ADVISER.
(E) CURRENTLY NON-INCOME PRODUCING AND CONSIDERED ILLIQUID BY THE ADVISER.
(F) ALSO APPROXIMATES COST FOR FEDERAL INCOME TAX PURPOSES. THE AGGREGATE GROSS
UNREALIZED APPRECIATION AND DEPRECIATION OF INVESTMENTS IN SECURITIES BASED
ON THIS COST WERE AS FOLLOWS:

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 1,564,528
GROSS UNREALIZED DEPRECIATION ...... (275,675)
------------
NET UNREALIZED APPRECIATION ...... $ 1,288,853
------------
------------
</TABLE>

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

18 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Investments in Securities (Unaudited)
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
MINNESOTA TAX-EXEMPT FUND March 31, 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 (84.2%):
EDUCATION REVENUE (6.2%):
Higher Education Facility - University of St. Thomas
(Callable 10/1/06 at 100), 5.40%, 10/1/11 ......... $ 1,000,000 $ 980,810
Higher Education Facility-Carleton College (Callable
5/1/06 at 100), 5.75%, 11/1/12 .................... 1,050,000 1,062,159
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 1,420,975
Higher Education Facility-University of St. Thomas
(Callable 10/1/06 at 100), 5.63%,
10/1/16-10/1/21 ................................... 2,000,000 1,945,145
Higher Education Facility-Vermillion Community
College, 6.00%, 1/1/13 ............................ 860,000 865,134
State Higher Education -Augsburg College (Callable
5/1/06 at 102), 6.25%, 5/1/23 ..................... 1,500,000 1,514,835
-------------
7,789,058
-------------
ELECTRIC REVENUE (3.5%):
Southern Municipal Power Agency, 5.00%, 1/1/12 ...... 1,000,000 933,070
Southern Municipal Power Agency (MBIA) (escrowed to
maturity), 5.75%, 1/1/18 .......................... 850,000 851,658
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 1,996,680
Western Municipal Power Agency (MBIA) (escrowed to
maturity), 9.75%, 1/1/16 .......................... 410,000 594,787
-------------
4,376,195
-------------
GENERAL OBLIGATIONS (32.5%):
Big Lake Independent School District # 727 (Callable
2/1/07 at 100), 5.60%, 2/2/15 ..................... 1,000,000 988,920
Burnsville Independent School District (Callable
2/1/06 at 100), 4.88%-5.13%, 2/1/13-2/1/17 ........ 3,450,000 3,195,985
Chaska Independent School District (Callable 2/1/06
at 100), 5.88%-6.00%, 2/1/11-2/1/16 ............... 9,690,000 9,901,355
Columbia Heights Independent School District
(Callable 2/1/07 at 100), 5.25%, 2/1/15 ........... 1,000,000 954,790
Eden Prairie Independent School District (Callable
2/1/08 at 100), 5.10%, 2/1/11-2/1/12 .............. 1,650,000 1,589,189
Hawley Independent School District (FHA) (Callable
2/1/06 at 100), 5.75%, 2/1/14 ..................... 1,500,000 1,510,710
Long Prairie Independent School District (Callable
4/1/05 at 100), 5.00%, 4/1/12-4/1/14 .............. 1,500,000 1,402,580
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
Mahtomedi Independent School District (MBIA)
(Callable 2/1/05 at 100), 5.75%, 2/1/17 ........... $ 1,000,000 $ 1,002,100
Milaca Independent School District (Callable 2/1/04
at 100), 5.45%, 2/1/16 ............................ 1,735,000 1,688,086
Minneapolis and St. Paul Metropolitan Council
(Callable 6/1/05 at 100), 5.60%, 6/1/15 ........... 2,400,000 2,378,472
Minneapolis General Obligation (Callable 9/1/05 at
100), 5.20%, 3/1/13 ............................... 400,000 385,720
Minneapolis Sports Arena Project (Callable 4/1/08 at
100), 5.10%-5.13%, 4/1/13-10/1/20 ................. 2,250,000 2,114,905
North Branch Independent School District (FGIC)
(Callable 2/1/05 at 100), 5.60%, 2/1/13 ........... 1,500,000 1,498,470
North St. Paul Independent School District, 5.00%,
2/1/15 ............................................ 2,925,000 2,692,784
North St. Paul Maplewood Independent School District
(Callable 5/1/06 at 100), 5.85%, 5/1/17 ........... 500,000 504,350
Prior Lake Independent School District (FGIC)
(Callable 2/1/06 at 100), 5.25%, 2/1/15 ........... 2,335,000 2,226,913
Rochester Independent School District (Callable
2/1/06 at 100), 5.25%, 2/1/14 ..................... 1,000,000 967,910
South Washington Independent School District
(Callable 6/1/05 at 100), 5.85%, 6/1/15 ........... 500,000 504,635
St. Paul Independent School District (Callable 2/1/05
at 100), 5.25%, 2/1/15 ............................ 1,000,000 950,480
State General Obligation (Callable 11/1/06 at 100),
5.25%, 11/1/13 .................................... 1,500,000 1,455,510
Wayzata Independent School District (FSA) (Callable
2/1/05 at 100), 5.95%-6.00%, 2/1/13-2/1/16 ........ 3,000,000 3,044,360
-------------
40,958,224
-------------
HEALTH SERVICE/HMO (0.3%):
Duluth Clinic Health Care Facilities (AMBAC)
(Callable 11/1/02 at 102), 6.30%, 11/1/22 ......... 145,000 149,523
Minneapolis and St. Paul, Health One Obligated Group
(FSA) (Callable 8/15/05 at 102), 5.60%, 8/15/12 ... 250,000 249,905
-------------
399,428
-------------
HOSPITAL REVENUE (11.4%):
Chisago City Health Facility-Pleasant Heights
(Callable 7/1/05 at 102), 7.30%, 7/1/25 ........... 400,000 402,600
Fergus Falls Health Care Facility (Callable 11/1/04
at 102), 7.00%, 11/1/19 ........................... 1,000,000 1,009,840
Glencoe Hospital Revenue (Callable 8/1/04 at 102),
6.75%, 4/1/16 ..................................... 1,100,000 1,098,020
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

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

19 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------

MINNESOTA TAX-EXEMPT FUND
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
New Prague Hospital Revenue (Callable 12/1/06 at
100), 6.50%, 6/1/12 ............................... $ 500,000 $ 498,370
Northern Itasca Hospital Revenue (Callable 1/1/00 at
100), 7.50%-8.00%, 7/1/03-7/1/11 .................. 830,000 856,992
Northfield Hospital Revenue (Callable 12/1/01 at
100), 7.00%, 12/1/05-12/1/08 ...................... 1,690,000 1,766,996
Roseau Hospital District Revenue (Callable 10/1/01 at
100), 7.20%, 10/1/11-10/1/13 ...................... 730,000 756,699
South St. Paul, Healtheast Hospital (Callable 11/1/04
at 102), 6.75%, 11/1/09 ........................... 2,000,000 2,089,460
St. Cloud Hospital Facility Revenue (AMBAC) (Callable
7/1/06 at 101), 5.00%, 7/1/12-7/1/15 .............. 5,000,000 4,563,440
Worthington Hospital Revenue (Callable 12/1/02 at
100), 6.50%, 12/1/10-12/1/12 ...................... 1,230,000 1,246,234
-------------
14,288,651
-------------
HOUSING REVENUE (15.1%):
Austin Housing-Courtyard Project (Callable 1/1/06 at
102), 7.25%, 1/1/26 ............................... 500,000 500,290
Coon Rapids, Multifamily Development-Woodland Apts.
(FHA) (Callable 12/1/03 at 100), 5.63%, 12/1/09 ... 995,000 994,463
Dakota County Housing and Redevelopment (Callable
9/1/98 at 103), 8.10%, 9/1/12 ..................... 575,000 604,055
Fairmount Housing-Maplewood Project (Callable 7/1/02
at 102), 8.50%, 7/1/15 ............................ 900,000 955,773
Hopkins Multifamily Housing Revenue (Callable 4/1/07
at 102), 6.25%, 4/1/15 ............................ 500,000 512,735
Maplewood-Hazel Ridge Project (Callable 6/1/97 at
103), 8.50%-9.25%, 12/1/97-12/1/00 ................ 665,000 680,733
Maplewood-Mounds Park Academy Project (Callable
9/1/03 at 102), 7.00%, 9/1/23 ..................... 1,500,000 1,544,490
Minneapolis Community Development Agency (Callable
6/1/98 at 102), 8.25%, 6/1/02 ..................... 350,000 369,677
Minneapolis Housing and Urban Development (Callable
2/1/01 at 102), 7.88%-8.25%, 2/1/06-2/1/18 . 2,810,000 2,893,294
Minneapolis Housing Revenue-Seward Towers (Callable
12/20/00 at 102), 7.38%, 12/20/30 ................. 1,370,000 1,443,459
Minneapolis Housing-Churchill Apartments (Callable
10/1/01 at 102), 7.05%, 10/1/22 ................... 750,000 780,840
Minnetonka Housing Revenue (Callable 12/1/99 at 103),
7.50%, 12/1/27 .................................... 500,000 511,410
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
Roseville Housing Facility Revenue (Callable 10/1/03
at 102), 7.13%, 10/1/13 ........................... $ 2,000,000 $ 2,058,320
St. Anthony Multifamily Revenue (Callable 5/20/06 at
102), 6.25%, 11/20/25 ............................. 1,500,000 1,520,280
St. Cloud Northway Housing Project (Callable 12/1/00
at 102), 7.50%, 12/1/18 ........................... 500,000 525,250
St. Louis Park, Multifamily Housing Project (Callable
12/1/05 at 102), 6.25%, 12/1/28 ................... 500,000 504,595
St. Paul Housing-Como Lake Project (Callable 3/1/99
at 102), 7.50%, 3/1/26 ............................ 1,500,000(e) 1,436,250
St. Paul Multifamily, Peoples Inc. (Callable 12/1/00
at 100), 8.00%, 12/1/04-12/1/08 ................... 230,000 230,483
St. Paul Multifamily, Peoples Inc. (Callable 6/1/97
at 100), 8.00%, 12/1/97-12/1/99 ................... 120,000 120,400
State Housing and Finance Agency (Callable 2/1/02 at
102), 7.05%, 8/1/27 ............................... 500,000 523,040
State Housing and Finance Agency (Callable 7/1/00 at
102), 7.65%, 7/1/08 ............................... 310,000 326,690
State Housing and Finance Agency (Callable 7/1/97 at
101), 7.00%, 7/1/16 ............................... 5,000 5,109
-------------
19,041,636
-------------
IDR - MISCELLANEOUS PROJECTS (0.6%):
Duluth Economic Development Revenue, 8.00%,
2/1/09 ............................................ 325,000 369,246
Shakopee Industrial Development, 6.05%-6.75%,
6/1/97-12/1/00 .................................... 95,000(d) 97,743
Shakopee Industrial Development (Callable 12/1/00 at
101), 7.00%-7.50%, 6/1/01-12/1/08 ................. 290,000(d) 307,155
-------------
774,144
-------------
LEASING REVENUE (5.6%):
Hastings Housing and Redevelopment Authority
(Callable 2/1/03 at 100), 6.50%, 2/1/14 ........... 1,000,000 1,014,150
Hennepin County Certificates of Participation
(Callable 11/15/01 at 100), 6.65%-6.80%,
11/15/08-5/15/17 .................................. 3,625,000 3,897,774
Little Canada Community Development, 7.10%,
4/1/13 ............................................ 1,830,000 1,861,988
Melrose City Center Project (Callable 2/1/99 at 101),
7.80%-8.00%, 2/1/02-8/1/04 ........................ 270,000 284,193
-------------
7,058,105
-------------
</TABLE>

SEE ACCOMPANYING NOTES TO INVESTMENTS IN SECURITIES.

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

20 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Investments in Securities (Unaudited) (continued)
- --------------------------------------------------------------------------------

MINNESOTA TAX-EXEMPT FUND
(CONTINUED)

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
NURSING HOME REVENUE (7.9%):
Brooklyn Center Health Care Facility (Callable
12/1/03 at 102), 7.60%, 12/1/18 ................... $ 900,000 $ 937,656
Coon Rapids Medical Clinic, 6.00%, 5/1/03 ........... 1,025,000 1,048,637
Glencoe Health Care System (Prerefunded to 12/1/00 at
100), 8.50%, 12/1/15 .............................. 575,000 646,409
Litchfield Health Care (Callable 8/1/01 at 102),
8.75%, 8/1/20 ..................................... 500,000 545,145
Little Canada Presbyterian Home (Callable 7/1/01 at
102), 7.00%, 7/1/07 ............................... 700,000 711,725
Maplewood Health Care Facility (Callable 10/1/04 at
102), 7.50%, 10/1/24 .............................. 1,000,000 1,036,590
Minneapolis, Careview Home Inc. (Callable 5/1/01 at
100), 8.00%, 5/1/21 ............................... 250,000 260,050
Plymouth Health Care Facility (Callable 8/1/04 at
102), 7.50%, 8/1/14-8/1/24 ........................ 1,100,000 1,153,205
Red Wing Elderly Housing-River Region (Callable
9/1/03 at 102), 6.40%, 9/1/12 ..................... 1,000,000 1,012,900
Rushford Good Shepard Nursing Home (Callable 5/1/97
at 100), 9.00%, 11/1/06 ........................... 200,000 200,442
Springfield Nursing Home (Callable 11/1/99 at 103),
8.50%, 11/1/19 .................................... 250,000 268,553
White Bear Lake Care Center (Callable 11/1/03 at
102), 8.25%, 11/1/12 .............................. 1,000,000 1,088,330
White Bear Lake Multifamily Revenue (Callable 2/1/07
at 102), 6.00%, 8/1/20 ............................ 1,020,000 1,023,325
-------------
9,932,967
-------------
OTHER REVENUE (1.1%):
Moorhead Golf Course Revenue (Callable 12/1/01 at
100), 7.75%, 12/1/15 .............................. 1,165,000 1,223,343
Olmsted County Hiawatha Children's Home (Callable
7/1/03 at 102), 6.50%, 7/1/16 ..................... 205,000 205,791
-------------
1,429,134
-------------

Total Municipal Long-Term Securities
(cost: $104,365,813) ........................... 106,047,542
-------------
</TABLE>

<TABLE>
<CAPTION>
Principal Market
Description of Security Amount Value (a)
- --------------------------------------------------------- ----------- -------------
<S> <C> <C>
MUNICIPAL DERIVATIVE SECURITIES (B) (8.4%):
Osseo Independent School District, inverse floater,
8.85%, 2/1/14 ..................................... $ 3,195,000 $ 2,975,344
Richfield Independent School District, inverse
floater (FGIC) (Callable 2/1/03 at 100), 6.88%,
2/1/15 ............................................ 2,365,000 2,149,194
St. Cloud General Obligation, inverse floater
(Callable 2/1/02 at 100), 8.65%, 8/1/13 ........... 5,200,000 5,486,000
-------------

Total Municipal Derivative Securities
(cost: $9,746,624) ............................. 10,610,538
-------------
MUNICIPAL SHORT-TERM SECURITIES (C) (6.5%):
Bloomington, MN, Port Authority, VRDN, 3.30%,
2/1/09 ............................................ 1,100,000 1,100,000
Bloomington, MN, Port Authority, VRDN, 3.30%,
2/1/13 ............................................ 4,050,000 4,050,000
Mankato, MN, VRDN, 3.25%, 2/1/18 .................... 200,000 200,000
Minneapolis and St. Paul, MN, Metropolitan Airport
Commission, VRDN, 3.25%, 9/1/13 ................... 1,700,000 1,700,000
Minnesota State Higher Education Facilities
Authority, VRDN, 3.45%, 3/1/24 .................... 1,200,000 1,200,000
-------------

Total Municipal Short-Term Securities
(cost: $8,250,000) ............................. 8,250,000
-------------

Total Investments in Securities
(cost: $122,362,437) (f) ....................... $ 124,908,080
-------------
-------------
</TABLE>

<TABLE>
<S> <C>
GROSS UNREALIZED APPRECIATION ...... $ 3,512,163
GROSS UNREALIZED DEPRECIATION ...... (966,520)
------------
NET UNREALIZED APPRECIATION ...... $ 2,545,643
------------
------------
</TABLE>

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

21 1997 Semiannual Report - Tax-Exempt
Income Funds
<PAGE>
Directors and Officers
- --------------------------------------------------

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

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

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

TRANSFER AND DIVIDEND DISBURSING AGENTS
Investors Fiduciary Trust Company
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716
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
127 WEST 10TH STREET, KANSAS CITY, MO 64105-1716

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

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

22 1997 Semiannual 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 can open a Piper Fund account with a minimum investment of $250.

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

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

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

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

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

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

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

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

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

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

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

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

* 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.

23 1997 Semiannual Report - Tax-Exempt Income Funds

<PAGE>

THIS PAGE WAS INTENTIONALLY LEFT BLANK.

24 1997 Semiannual 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 or decrease when interest rates rise.

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

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

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

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

ISSUE
Municipal bonds sold by a government entity at a particular time.

FOR MORE INFORMATION

BY PHONE [GRAPHIC]

1 800 866-7778

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

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

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

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

BY MAIL [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 1 800 866-7778, or mail a request to us.

ON-LINE [GRAPHIC]

http://www.piperjaffray.com/

<PAGE>

Tax-Exempt Income Funds

[LOGO]

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

PIPER JAFFRAY INC., FUND DISTRIBUTOR AND NASD MEMBER.

#20500 5/1997 155-97

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