UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2005

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File No. 001-31720

PIPER JAFFRAY COMPANIES

(Exact Name of Registrant as specified in its Charter)

DELAWARE (State or Other Jurisdiction of Incorporation or Organization)	30-0168701 (IRS Employer Identification No.)
800 Nicollet Mall, Suite 800 Minneapolis, Minnesota (Address of Principal Executive Offices)	55402 (Zip Code)

(612) 303-6000
(Registrant’s Telephone Number, Including Area Code)

     Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). YES þ NO o

     As of July 22, 2005, the Registrant had 20,011,894 shares of Common Stock outstanding.

Piper Jaffray Companies

Index to Quarterly Report on Form 10-Q

 Rule 13a-14(a)/15d-14(a) Certification of CEO

 Rule 13a-14(a)/15d-14(a) Certification of CFO

 Certifications Furnished Pursuant to Section 906

 Risk Factors

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Piper Jaffray Companies

Consolidated Statements of Financial Condition

	June 30,			December 31,
	2005			2004
(Amounts in thousands, except share data)	(Unaudited)
Assets
Cash and cash equivalents	$	38,655		$	67,387
Receivables:
Customers (net of allowance of $1,793)		472,986			433,173
Brokers, dealers and clearing organizations		340,248			536,705
Deposits with clearing organizations		68,136			70,886
Securities purchased under agreements to resell		344,398			251,923
Trading securities owned		487,108			694,222
Trading securities owned and pledged as collateral		337,161			290,499
Total trading securities owned		824,269			984,721
Fixed assets (net of accumulated depreciation and amortization of $104,394 and $110,928, respectively)		53,633			53,968
Goodwill and intangible assets (net of accumulated amortization of $53,464 and $52,664, respectively)		321,034			321,834
Other receivables		36,298			31,832
Other assets		77,204			75,828
Total assets	$	2,576,861		$	2,828,257
Liabilities and Shareholders’ Equity
Short-term bank financing	$	46,000		$	—
Payables:
Customers		281,840			189,153
Checks and drafts		52,677			63,270
Brokers, dealers and clearing organizations		345,083			287,217
Securities sold under agreements to repurchase		258,562			312,273
Trading securities sold, but not yet purchased		449,636			746,604
Accrued compensation		96,181			184,608
Other liabilities and accrued expenses		141,903			139,704
Total liabilities		1,671,882			1,922,829
Subordinated debt		180,000			180,000
Shareholders’ equity:
Common stock, $0.01 par value;
Shares authorized: 100,000,000 at June 30, 2005 and December 31, 2004;
Shares issued: 19,487,319 at June 30, 2005 and 19,333,261 at December 31, 2004;
Shares outstanding: 18,715,945 at June 30, 2005 and 19,333,261 at December 31, 2004		195			193
Additional paid-in capital		693,939			678,755
Other comprehensive loss		(3,868	)		(3,868	)
Retained earnings		58,920			50,348
Less common stock held in treasury, at cost: 771,374 shares at June 30, 2005		(24,207	)		—
Total shareholders’ equity		724,979			725,428
Total liabilities and shareholders’ equity	$	2,576,861		$	2,828,257

See Notes to Consolidated Financial Statements

2

Piper Jaffray Companies

Consolidated Statements of Operations

(Unaudited)

	Three Months Ended				Six Months Ended
(Amounts in thousands, except per share data)	June 30,				June 30,
	2005		2004		2005		2004
Revenues:
Commissions and fees	$	67,879	$	65,776	$	138,039	$	135,288
Principal transactions		38,158		50,243		73,022		102,319
Investment banking		55,024		68,180		111,346		133,042
Interest income		17,052		14,044		32,654		27,371
Other income		11,267		16,407		21,994		30,807
Total revenues		189,380		214,650		377,055		428,827
Interest expense		9,715		7,318		18,322		12,095
Net revenues		179,665		207,332		358,733		416,732
Non-interest expenses:
Compensation and benefits		110,383		127,690		219,785		257,397
Occupancy and equipment		14,419		13,683		28,446		27,415
Communications		10,299		10,712		20,704		21,170
Floor brokerage and clearance		4,732		4,559		8,935		9,359
Marketing and business development		10,014		11,131		20,664		21,793
Outside services		12,374		9,951		23,013		19,109
Cash award program		1,061		1,269		2,197		2,340
Restructuring-related expense		8,595		—		8,595		—
Other operating expenses		6,196		7,647		13,323		15,287
Total non-interest expenses		178,073		186,642		345,662		373,870
Income before income tax expense		1,592		20,690		13,071		42,862
Income tax expense		355		7,710		4,499		16,092
Net income	$	1,237	$	12,980	$	8,572	$	26,770
Earnings per common share
Basic	$	0.07	$	0.67	$	0.45	$	1.38
Diluted	$	0.06	$	0.67	$	0.44	$	1.38
Weighted average number of common shares outstanding
Basic		19,028		19,333		19,141		19,333
Diluted		19,195		19,395		19,297		19,380

See Notes to Consolidated Financial Statements

3

Piper Jaffray Companies

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended
	June 30,
(Dollars in thousands)	2005			2004
Operating Activities:
Net income	$	8,572		$	26,770
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		8,749			10,427
Deferred income taxes		(2,947	)		8,457
Stock-based compensation		9,167			4,113
Amortization of intangible assets		800			—
Forgivable loan reserve		—			(2,000	)
Decrease (increase) in operating assets:
Cash and cash equivalents segregated for regulatory purposes		—			66,000
Receivables:
Customers		(39,813	)		(1,085	)
Brokers, dealers and clearing organizations		196,457			(196,530	)
Deposits with clearing organizations		2,750			9,399
Securities purchased under agreements to resell		(92,475	)		78,958
Net trading securities owned		(136,516	)		(137,480	)
Other receivables		(4,466	)		6,111
Other assets		1,593			(8,453	)
Increase (decrease) in operating liabilities:
Payables:
Customers		92,687			(19,988	)
Checks and drafts		(10,593	)		(23,753	)
Brokers, dealers and clearing organizations		(3,517	)		142,148
Securities sold under agreements to repurchase		(5,009	)		(2,529	)
Accrued compensation		(75,240	)		(67,386	)
Other liabilities and accrued expenses		2,199			44,235
Net cash used in operating activities		(47,602	)		(62,586	)
Investing Activities:
Purchases of fixed assets, net		(8,414	)		(5,610	)
Net cash used in investing activities		(8,414	)		(5,610	)
Financing Activities:
Increase in securities loaned		61,383			3,673
Increase (decrease) in securities sold under agreements to repurchase		(48,702	)		3,077
Increase in short-term bank financing, net		46,000			1,000
Repurchase of common stock		(31,397	)		—
Net cash provided by financing activities		27,284			7,750
Net decrease in cash and cash equivalents		(28,732	)		(60,446	)
Cash and cash equivalents at beginning of period		67,387			84,436
Cash and cash equivalents at end of period	$	38,655		$	23,990
Supplemental disclosure of cash flow information -
Cash paid during the period for:
Interest	$	16,480		$	7,249
Income taxes	$	10,150		$	902
Noncash financing activities -
Issuance of 331,434 shares of common stock for retirement plan obligations	$	13,187		$	—

See Notes to Consolidated Financial Statements

4

Piper Jaffray Companies

Notes to Consolidated Financial Statements

(Unaudited)

Note 1 Background and Basis of Presentation

Background

     Piper Jaffray Companies is the parent company of Piper Jaffray & Co. (“Piper Jaffray”), a securities broker dealer and investment banking firm; Piper Jaffray Ltd., a firm providing securities brokerage and investment banking services in Europe through an office located in London, England; and Piper Jaffray Financial Products Inc. and Piper Jaffray Financial Products II Inc., two entities that facilitate Piper Jaffray Companies customer derivative transactions. The Company, through its subsidiaries, operates in three business segments: Capital Markets, Private Client Services, and Corporate Support and Other. Capital Markets includes institutional sales, trading and research services and investment banking services. Private Client Services provides financial advice and investment products and services to individual investors. Corporate Support and Other includes the Company’s results from its private equity business and certain public company and long-term financing costs. The Company’s business segments are described more fully in Note 13.

     On April 28, 2003, Piper Jaffray Companies was incorporated in Delaware as a subsidiary of U.S. Bancorp (“USB”) to effect the spin-off of USB’s capital markets business to its shareholders. On December 31, 2003, after receiving regulatory approval, USB distributed to its shareholders all of its interest in Piper Jaffray Companies and its subsidiaries (collectively, the “Company”). On that date, 19,334,261 shares of Piper Jaffray Companies common stock were issued to USB shareholders (the “Distribution”).

Basis of Presentation

     The consolidated financial statements include the accounts of Piper Jaffray Companies, its wholly owned subsidiaries and other entities in which the Company has a controlling financial interest. All material intercompany balances have been eliminated. Where appropriate, prior periods’ financial information has been reclassified to conform to the current period presentation.

     The consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) with respect to Form 10-Q and reflect all adjustments, which in the opinion of management are normal and recurring and that are necessary for a fair statement of the results for the interim periods presented. In accordance with these rules and regulations, certain disclosures that are normally included in annual financial statements have been omitted. The consolidated financial statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

     The consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles. These principles require management to make certain estimates and assumptions that may affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The nature of the Company’s business is such that the results of any interim period may not be indicative of the results to be expected for a full year.

Note 2 Summary of Significant Accounting Policies

     There have been no changes in the significant accounting policies from those included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

Note 3 Recent Accounting Pronouncements

     On June 29, 2005, the Financial Accounting Standards Board (“FASB”) ratified the consensus reached by Emerging Issues Task Force (“EITF”) on Issue No. 04-5, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity when the Limited Partners Have Certain Rights.” The consensus reached by the EITF at the June 2005 meeting was that a sole general partner is presumed to control a limited partnership (or similar entity) and should consolidate the limited partnership unless (1) the limited partners possess substantive kick-out rights or (2) the limited partners possess substantive participating rights. This ratification of EITF Issue No. 04-5 has caused the amendments of Statement of Position 78-9, “Accounting for Investments in Real Estate Ventures,” and EITF Issue No. 96-16, “Investor’s Accounting for an Investee When the Investor has a Majority of the Voting Interest but the Minority Shareholder or Shareholders Have Certain Approval or Veto Rights.” EITF 04-5 is effective for all new and modified agreements effective June 29, 2005. For pre-existing agreements that are not modified, the EITF is effective as of the beginning of the first fiscal reporting period beginning after December 15, 2005. The Company has evaluated the impact of the adoption of EITF 04-5 and does not believe the impact will be significant to the Company’s results of operations or financial position.

5

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Note 4 Derivatives

     Derivative contracts are financial instruments such as forwards, futures, swaps or option contracts that derive their value from underlying assets, reference rates, indices or a combination of these factors. A derivative contract generally represents future commitments to purchase or sell financial instruments at specified terms on a specified date or to exchange currency or interest payment streams based on the contract or notional amount. Derivative contracts exclude certain cash instruments, such as mortgage-backed securities, interest-only and principal-only obligations and indexed debt instruments that derive their values or contractually required cash flows from the price of some other security or index.

     In the normal course of business, the Company enters into derivative contracts to facilitate customer transactions and as a means to manage risk in net trading securities. The Company also enters into interest rate swap agreements to manage interest rate exposure associated with holding residual interest securities from its tender option bond program. As of June 30, 2005, and December 31, 2004, the Company was counterparty to notional/contract amounts of $3.6 billion and $2.5 billion, respectively, of derivative instruments.

     The market or fair values related to derivative contract transactions are reported in trading securities owned and trading securities sold, but not yet purchased on the Consolidated Statements of Financial Condition and any unrealized gain or loss resulting from changes in fair values of derivatives is recognized in principal transactions on the Consolidated Statements of Operations. Derivatives are reported on a net-by-counterparty basis when a legal right of offset exists under an enforceable netting agreement.

     Fair values for derivative contracts represent amounts estimated to be received from or paid to a counterparty in settlement of these instruments. These derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. The net fair value of derivative contracts was an asset of approximately $2.7 million and $2.5 million as of June 30, 2005, and December 31, 2004, respectively.

6

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Note 5 Trading Securities Owned and Trading Securities Sold, But Not Yet Purchased

     Trading securities owned and trading securities sold, but not yet purchased were as follows:

	June 30,		December 31,
(Dollars in thousands)	2005		2004
Owned:
Corporate securities:
Equity securities	$	23,475	$	9,490
Convertible securities		25,633		93,480
Fixed income securities		172,704		208,494
Mortgage-backed securities		278,819		459,322
U.S. government securities		52,499		37,244
Municipal securities		254,826		165,435
Other		16,313		11,256
	$	824,269	$	984,721
Sold, but not yet purchased:
Corporate securities:
Equity securities	$	18,842	$	59,106
Convertible securities		9,073		12,600
Fixed income securities		99,925		155,534
Mortgage-backed securities		167,481		406,621
U.S. government securities		139,808		103,148
Municipal securities		329		—
Other		14,178		9,595
	$	449,636	$	746,604

     At June 30, 2005, and December 31, 2004, trading securities owned in the amount of $337.2 million and $290.5 million, respectively, have been pledged as collateral for the Company’s secured borrowings, repurchase agreements and securities loaned activities.

     Trading securities sold, but not yet purchased represent obligations of the Company to deliver the specified security at the contracted price, thereby creating a liability to purchase the security in the market at prevailing prices. The Company is obligated to acquire the securities sold short at prevailing market prices, which may exceed the amount reflected on the Consolidated Statements of Financial Condition. The Company hedges changes in market value of its trading securities owned utilizing trading securities sold, but not yet purchased, interest rate swaps, futures and exchange-traded options. It is the Company’s practice to hedge a significant portion of its trading securities owned.

7

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Note 6 Goodwill and Intangible Assets

     The following table presents the changes in the carrying value of goodwill and intangible assets by reportable segment for the six months ended June 30, 2005:

				Private		Corporate
	Capital			Client		Support and		Consolidated
	Markets			Services		Other		Company
(Dollars in thousands)
Goodwill
Balance at December 31, 2004	$	231,567		$	85,600	$	—	$	317,167
Goodwill acquired		—			—		—		—
Impairment losses		—			—		—		—
Balance at June 30, 2005	$	231,567		$	85,600	$	—	$	317,167
Intangible assets
Balance at December 31, 2004	$	4,667		$	—	$	—	$	4,667
Intangible assets acquired		—			—		—		—
Amortization of intangible assets		(800	)		—		—		(800	)
Impairment losses		—			—		—		—
Balance at June 30, 2005	$	3,867		$	—	$	—	$	3,867
Total goodwill and intangible assets	$	235,434		$	85,600	$	—	$	321,034

The intangible assets are amortized on a straight-line basis over three years.

Note 7 Short-Term Financing

     The Company has uncommitted credit agreements with banks totaling $675 million at June 30, 2005, composed of $555 million in discretionary secured lines of which $46 million and $0 were outstanding at June 30, 2005 and December 31, 2004, respectively, and $120 million in discretionary unsecured lines. In addition, the Company has established arrangements to obtain financing using as collateral the Company’s securities held by its clearing bank and by another broker dealer at the end of each business day. Repurchase agreements and securities loaned to other broker dealers are also used as sources of funding.

     Piper Jaffray has executed a $180 million subordinated debt agreement with an affiliate of USB, which satisfies provisions of Appendix D of SEC Rule 15c3-1 and has been approved by the New York Stock Exchange, Inc. (“NYSE”) and is therefore allowable in Piper Jaffray’s net capital computation. The entire amount of the subordinated debt will mature in 2008.

     During 2004, Piper Jaffray entered into an agreement whereby an affiliate of USB has agreed to provide up to $40 million in temporary subordinated debt, which will be used as necessary to facilitate underwriting transactions. The temporary subordinated debt satisfies provisions of Appendix D of SEC Rule 15c3-1, and in form has been approved by the NYSE and would therefore be allowed in Piper Jaffray’s net capital computation. No advances were made under this agreement for the six months ended June 30, 2005. The term of the agreement expires in December 2005.

     The Company’s subordinated debt and short-term financing bear interest at rates based on the London Interbank Offered Rate or federal funds rate. At June 30, 2005 and December 31, 2004, the weighted average interest rate on borrowings was 4.44 percent and 3.51 percent, respectively. At June 30, 2005 and December 31, 2004, no formal compensating balance agreements existed, and the Company was in compliance with all debt covenants related to these facilities.

8

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Note 8 Legal Contingencies

     The Company has been the subject of customer complaints and also has been named as a defendant in various legal proceedings arising primarily from securities brokerage and investment banking activities, including certain class actions that primarily allege violations of securities laws and seek unspecified damages, which could be substantial. Also, the Company is involved from time to time in investigations and proceedings by governmental agencies and self-regulatory organizations.

     The Company has established reserves for potential losses that are probable and reasonably estimable that may result from pending and potential complaints, legal actions, investigations and proceedings. In addition to the Company’s established reserves, USB has agreed to indemnify the Company in an amount up to $17.5 million for certain legal and regulatory matters. Approximately $13.5 million of this amount remained available as of June 30, 2005.

     Given uncertainties regarding the timing, scope, volume and outcome of pending and potential litigation, arbitration and regulatory proceedings and other factors, the reserve is difficult to determine and of necessity subject to future revision. Subject to the foregoing, management of the Company believes, based on its current knowledge, after consultation with counsel and after taking into account its established reserves and the USB indemnity agreement entered into in connection with the spin-off, that pending legal actions, investigations and proceedings will be resolved with no material adverse effect on the financial condition of the Company. However, if during any period a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves and indemnification, the results of operations in that period could be materially adversely affected.

Note 9 Restructuring

     The Company recorded a pre-tax restructuring-related expense of $8.6 million in the three months ended June 30, 2005. The expense was incurred to restructure the Company’s operations as a means to better align its cost infrastructure with its revenues. The Company determined restructuring charges and related accruals based on a specific formulated plan.

     The components of these charges are shown below for the three months ended June 30, 2005:

(Dollars in thousands)
Severance and employee-related	$	4,886
Lease terminations and asset write-downs		3,709
Total	$	8,595

     Severance and employee-related charges included the cost of severance, other benefits and outplacement costs associated with the termination of employees. The severance amounts were determined based on the Company’s severance pay program in place at the time of termination and will be paid out over a benefit period of up to one year from the time of termination. Approximately 100 employees received severance.

     Lease terminations and asset write-downs represented costs associated with redundant office space and equipment disposed of as part of the restructuring plan. Payments related to terminated lease contracts continue through the original terms of the leases, which run for various periods, with the longest lease term running through 2014.

9

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

     The following table presents a summary of activity with respect to the restructuring-related liability:

(Dollars in thousands)
Balance at December 31, 2004	$	—
Provision charged to operating expense		8,595
Cash outlays		(1,357	)
Noncash write-downs		(1,010	)
Balance at June 30, 2005	$	6,228

     The adequacy of the restructuring-related liability is reviewed regularly, taking into consideration actual and projected payment liabilities. Adjustments are made to increase or decrease the accrual as needed. Reversals of expenses, if any, can reflect a lower-than-expected use of benefits by affected employees and changes in initial assumptions as a result of subsequent events.

Note 10 Net Capital Requirements and Other Regulatory Matters

     As a registered broker dealer and member firm of the NYSE, Piper Jaffray is subject to the Uniform Net Capital Rule (the “Rule”) of the SEC and the net capital rule of the NYSE. Piper Jaffray has elected to use the alternative method permitted by the Rule, which requires that it maintain minimum net capital of the greater of $1.0 million or 2 percent of aggregate debit balances arising from customer transactions, as such term is defined in the Rule. The NYSE may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated debt, dividend payments and other equity withdrawals by Piper Jaffray are subject to certain notification and other provisions of the Rule and the net capital rule of the NYSE. In addition, Piper Jaffray is subject to certain notification requirements related to withdrawals of excess net capital.

     At June 30, 2005, net capital under the Rule was $244.4 million, or 40.8 percent of aggregate debit balances, and $232.4 million in excess of the minimum net capital required under the Rule.

     Piper Jaffray is also registered with the Commodity Futures Trading Commission (“CFTC”) and therefore is subject to CFTC regulations.

     Piper Jaffray Ltd., which is a registered United Kingdom broker dealer, is subject to the capital requirements of the Financial Services Authority (“FSA”). As of June 30, 2005, Piper Jaffray Ltd. was in compliance with the capital requirements of the FSA.

10

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Note 11 Stock-Based Compensation and Cash Award Program

     The Company maintains one stock-based compensation plan, the Piper Jaffray Companies 2003 Amended and Restated Long-Term Incentive Plan (the “Plan”). The Plan permits the grant of stock options and restricted stock to the Company’s employees and directors for up to 4.1 million shares of common stock. In 2004 and 2005, the Company granted shares of restricted stock and options to purchase Piper Jaffray Companies common stock to employees and directors. The Company believes that such awards better align the interests of employees with those of shareholders. The awards granted to employees have three-year cliff vesting periods. The director awards are fully vested upon grant. The Plan provides for accelerated vesting of option and restricted stock awards if there is a change in control of the Company (as defined in the Plan). The following table summarizes the Company’s stock options and restricted stock outstanding for the six months ended June 30, 2005:

				Weighted		Shares of
	Options			Average		Restricted Stock
	Outstanding			Exercise Price		Outstanding
December 31, 2004		295,683		$	47.50		531,885
Granted:
Stock options		422,351			38.83		—
Restricted stock		—			—		909,605
Exercised		—			—		—
Canceled options		(43,762	)		42.62		—
Canceled restricted stock		—			—		(60,903	)
June 30, 2005		674,272		$	42.39		1,380,587

     Additional information regarding Piper Jaffray Companies options outstanding as of June 30, 2005, is as follows:

	Options Outstanding				Exercisable Options
			Weighted
			Average				Weighted
			Remaining				Average
Range of			Contractual				Exercise
Exercise Prices	Shares		Life (Years)		Shares		Price
$28.01		28,565		9.8		28,565	$	28.01
$39.62		367,116		9.7		—		N/A
$47.30 - $51.05		278,591		8.6		21,249	$	50.13

     Effective January 1, 2004, the Company elected to account for stock-based compensation under the fair value method as prescribed by SFAS 123 and as amended by SFAS 148. Therefore, employee and director stock options granted on and after January 1, 2004, are expensed by the Company on a straight-line basis over the option vesting period, based on the estimated fair value of the award on the date of grant using a Black-Scholes option-pricing model. Restricted stock expense is based on the market price of Piper Jaffray Companies stock on the date of the grant and is amortized on a straight-line basis over the vesting period. The Company recorded compensation expense, net of estimated forfeitures, of $5.5 million and $2.7 million, for the three months ended June 30, 2005 and 2004, respectively, and $9.2 million and $4.1 million, respectively, for the six months ended June 30, 2005 and 2004, related to employee stock option and restricted stock grants.

11

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

     The following table provides a summary of the valuation assumptions used by the Company to determine the estimated value of stock option grants in Piper Jaffray Companies common stock:

	2005			2004
Weighted average assumptions in option valuation
Risk-free interest rates		3.77	%		3.20	%
Dividend yield		0.00	%		0.00	%
Stock volatility factor		38.11	%		40.00	%
Expected life of options (in years)		5.86			5.79
Weighted average fair value of options granted	$	16.66		$	21.24

     In connection with the Company’s spin-off from USB, it established a cash award program pursuant to which it granted cash awards to a broad-based group of employees. The cash award program was intended to aid in retention of employees and to compensate employees for the value of USB stock options and restricted stock lost by employees as a result of the Distribution. The cash awards are being expensed over a four-year period ending December 31, 2007. Participants must be employed on the date of payment to receive the award. Expense related to the cash award program is included as a separate line item on the Company’s Consolidated Statements of Operations.

Note 12 Shareholders’ Equity

Share Repurchase Program

     In 2005, the Company’s board of directors authorized the repurchase of up to 1.3 million shares of the Company’s common stock for a maximum aggregate purchase price of $65.0 million. The principal purpose of the share repurchase program is to manage the Company’s equity capital relative to the growth of its business and to offset the dilutive effect of employee equity-based compensation. During the six months ended June 30, 2005, the Company repurchased 948,750 of the Company’s common stock at an average price of $33.09 per share.

Issuance of Shares

     During the six months ended June 30, 2005, the Company issued 154,058 shares of the Company’s common stock and reissued 177,376 shares out of treasury stock in fulfillment of $13.2 million in obligations under the Piper Jaffray Companies Retirement Plan.

12

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Earnings Per Share

     Basic earnings per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted earnings per common share is calculated by adjusting the weighted average outstanding shares to assume vesting and, in the case of options, exercise of all potentially dilutive restricted stock and stock options. The computation of earnings per share is as follows:

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
	2005		2004		2005		2004
(Amounts in thousands, except per share data)
Net income	$	1,237	$	12,980	$	8,572	$	26,770
Shares for basic and diluted calculations:
Average shares used in basic computation		19,028		19,333		19,141		19,333
Stock options		—		—		—		—
Restricted stock		167		62		156		47
Average shares used in diluted computation		19,195		19,395		19,297		19,380
Earnings per share:
Basic	$	0.07	$	0.67	$	0.45	$	1.38
Diluted	$	0.06	$	0.67	$	0.44	$	1.38

Note 13 Business Segments

     Within the Company, financial performance is measured by lines of business. The Company’s reportable business segments include Capital Markets, Private Client Services and Corporate Support and Other. The business segments are determined based upon factors such as the type of customers, the nature of products and services provided and the distribution channels used to provide those products and services. Certain services that the Company offers are provided to clients through more than one of our business segments. These business segments are components of the Company about which financial information is available and is evaluated on a regular basis in deciding how to allocate resources and assess performance relative to competitors.

Basis for Presentation

     In the first quarter of 2005, the Company began to more fully allocate corporate expenses previously included in Corporate Support and Other to Capital Markets and Private Client Services. This change in how the Company reports segment results was made as a result of the Company completing an extensive study of costs included in Corporate Support and Other to determine how these costs were related to and driven by business activities conducted in the Capital Markets and Private Client Services segments. As a result of this study, certain expenses such as finance, human resources and other corporate administration have been reclassified and included in the results of the revenue-producing segments. Internally, the Company is now managing and allocating resources to its business segments based on these reclassified results. In connection with this change, the Company has restated prior period business results to conform to the current period presentation. The restatement does not affect the Company’s aggregate financial results.

     Segment results are derived from the Company’s financial reporting systems by specifically attributing customer relationships and their related revenues and expenses to the appropriate segment. Revenue-sharing of sales credits associated with underwritten offerings is based on the distribution channel generating the sales. Expenses directly managed by the business line, including salaries, commissions, incentives, employee benefits, occupancy, marketing and business development and other direct expenses, are accounted for within each segment’s pre-tax operating income or loss. In addition, operations, technology and other business activities managed on a corporate basis are allocated based on each segment’s use of these functions to support its business. Expenses related to costs of being a public company and long-term financing are included within Corporate Support and Other. Cash award plan charges related to the Distribution, restructuring-related charges and income taxes are not assigned to the business segments. The financial management of assets, liabilities and capital is performed on an enterprise-wide basis. Net revenues from the Company’s non-U.S. operations were $2.2 million and $3.1 million for the three months ended June 30, 2005 and 2004, respectively, and $4.9 million and $6.1 million for the six months ended June 30, 2005 and 2004, respectively, and are included in the Capital Markets business segment. Non-U.S. long-lived assets were $0.6 million at June 30, 2005 and December 31, 2004.

13

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

     Designations, assignments and allocations may change from time to time as financial reporting systems are enhanced and methods of evaluating performance change or segments are realigned to better serve the clients of the Company. Accordingly, prior period balances are reclassified and presented on a comparable basis.

Capital Markets (“CM”)

     CM includes institutional sales, trading and research services and investment banking services. Institutional sales, trading and research services focus on the sale of U.S. equities and fixed income products to institutions and government and non-profit entities. Investment banking services include management of and participation in underwritings, merger and acquisition services and public finance activities. Additionally, CM includes earnings on trading activities related to securities inventories held to facilitate customer transactions and net interest revenues on trading securities held in inventory.

Private Client Services (“PCS”)

     PCS principally provides individual investors with financial advice and investment products and services, including equity and fixed income securities, mutual funds and annuities. This segment also includes net interest income on customer margin loans. As of June 30, 2005, PCS had 863 financial advisors operating in 91 branch offices in 17 midwest, mountain and west coast states.

Corporate Support and Other

     Corporate Support and Other includes costs of being a public company, long-term financing costs and the results of our private equity business, which generates revenues through the management of private equity funds. This segment also includes results related to our investments in these funds and in venture capital funds. Prior to January 1, 2005, Corporate Support and Other also included the results of our venture capital business. Effective December 31, 2004, we exited this business and the management of our venture capital funds was transitioned to an independent company.

     Reportable segment financial results are as follows:

					Private Client				Corporate Support
	Capital Markets				Services				and Other						Consolidated Company
Three Months Ended June 30,	2005		2004		2005		2004		2005			2004			2005		2004
(Dollars in thousands)
Net revenues	$	97,598	$	113,645	$	84,081	$	89,506	$	(2,014	)	$	4,181		$	179,665	$	207,332
Operating expense		84,726		96,405		81,983		82,465		1,708			6,503			168,417		185,373
Pre-tax operating income (loss) before unallocated charges	$	12,872	$	17,240	$	2,098	$	7,041	$	(3,722	)	$	(2,322	)	$	11,248	$	21,959
Cash award program																1,061		1,269
Restructuring-related expense																8,595		—
Consolidated operating income before taxes															$	1,592	$	20,690

					Private Client				Corporate Support
	Capital Markets				Services				and Other						Consolidated Company
Six Months Ended June 30,	2005		2004		2005		2004		2005			2004			2005		2004
(Dollars in thousands)
Net revenues	$	189,543	$	225,689	$	173,280	$	185,901	$	(4,090	)	$	5,142		$	358,733	$	416,732
Operating expense		165,144		189,547		166,371		171,840		3,355			10,143			334,870		371,530
Pre-tax operating income (loss) before unallocated charges	$	24,399	$	36,142	$	6,909	$	14,061	$	(7,445	)	$	(5,001	)	$	23,863	$	45,202
Cash award program																2,197		2,340
Restructuring-related expense																8,595		—
Consolidated operating income before taxes															$	13,071	$	42,862

14

Piper Jaffray Companies

Notes to Consolidated Financial Statements
(Unaudited)

Note 14 Securitizations

     In connection with its tender option bond program, the Company has securitized $298.5 million of highly rated municipal bonds. Each municipal bond is sold into a separate trust that is funded by the sale of variable rate certificates to institutional and retail customers seeking variable rate tax-free investment products. These variable rate certificates reprice weekly. Securitization transactions meeting certain SFAS 140 criteria are treated as sales, with the resulting gain included in principal transactions on the Consolidated Statements of Operations. If a securitization does not meet the sale of asset requirements of SFAS 140, the transaction is recorded as a borrowing. The Company retains a residual interest in each structure and accounts for the residual interest as a trading security, which is recorded at fair value on the Consolidated Statements of Financial Condition. The fair value of retained interests was $14.4 million at June 30, 2005, with a weighted average life of 9.8 years. Fair value of retained interests is estimated based on the present value of future cash flows using management’s best estimates of the key assumptions—expected yield, credit losses of 0 percent and a 12 percent discount rate. The Company receives a fee to remarket the variable rate certificates derived from the securitizations.

     At June 30, 2005, the sensitivity of the current fair value of retained interests to immediate 10 percent and 20 percent adverse changes in the key economic assumptions was not material. The sensitivity analysis does not include the offsetting benefit of financial instruments the Company utilizes to hedge risks inherent in its retained interests and is hypothetical. Changes in fair value based on a 10 percent or 20 percent variation in an assumption generally cannot be extrapolated because the relationship of the change in the assumption to the change in the fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interests is calculated independent of changes in any other assumption; in practice, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. In addition, the sensitivity analysis does not consider any corrective action that the Company might take to mitigate the impact of any adverse changes in key assumptions.

     Certain cash flow activity for the municipal bond securitizations described above during 2005 includes:

(Dollars in thousands)
Proceeds from new sales	$	22,655
Remarketing fees received		66
Cash flows received on retained interests		4,194

     During 2004, two securitization transactions were designed such that they did not meet the asset sale requirements of SFAS 140; therefore, the Company consolidated these trusts. As a result, the Company has recorded an asset for the underlying bonds of approximately $45.1 million in trading securities and a liability for the certificates sold by the trust for approximately $44.9 million in other liabilities on the Consolidated Statement of Financial Condition as of June 30, 2005. The Company has hedged the activities of these securitizations with interest rate swaps, which have been recorded at fair value and resulted in a liability of approximately $0.2 million at June 30, 2005.

     The Company has contracted with a major third-party financial institution to act as the liquidity provider for the Company’s tender option bond securitized trusts. The Company has agreed to reimburse this party for any losses associated with providing liquidity to the trusts. The maximum exposure to loss at June 30, 2005 was $270.2 million, representing the outstanding amount of all trust certificates at that date. This exposure to loss is mitigated by the underlying municipal bonds in the trusts, which are either AAA or AA rated. These bonds had a market value of approximately $285.2 million at June 30, 2005. The Company believes the likelihood it will be required to fund the reimbursement agreement obligation under any provision of the arrangement is remote, and accordingly, no liability for such guarantee has been recorded in the accompanying consolidated financial statements.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     The following information should be read in conjunction with the accompanying unaudited consolidated financial statements and related notes and exhibits included elsewhere in this report. Certain statements in this report may be considered forward-looking. Statements that are not historical or current facts, including statements about beliefs and expectations, are forward-looking statements. These forward-looking statements cover, among other things, the future prospects of Piper Jaffray Companies. Forward-looking statements involve inherent risks and uncertainties, and important factors could cause actual results to differ materially from those anticipated, including those factors identified in the document entitled “Risk Factors” filed as Exhibit 99.1 to this Form 10-Q and in our subsequent reports filed with the SEC. These reports are available at our Web site at www.piperjaffray.com and at the SEC Web site at www.sec.gov. Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

EXECUTIVE OVERVIEW

Our Business

     We are principally engaged in providing securities brokerage, investment banking and related financial services to individuals, corporations and public sector and non-profit entities in the United States, with limited activity in Europe. We operate through three reportable segments:

Capital Markets — This segment consists of our equity and fixed income institutional sales, trading and research and investment banking businesses. It generates revenues primarily through commissions and sales credits earned on equity and fixed income transactions, fees earned on investment banking and public finance activities, and net interest earned on securities inventories. While we maintain securities inventories primarily to facilitate customer transactions, our Capital Markets business also realizes profits and losses from trading activities related to these securities inventories .

Private Client Services — This segment comprises our retail brokerage business, which provides financial advice and a wide range of financial products and services to individual investors through our network of branches. It generates revenues primarily through commissions earned on equity and fixed income transactions, commissions earned for distribution of mutual funds and annuities, fees earned on fee-based client accounts and net interest from customers’ margin loan balances.

Corporate Support and Other — This segment includes the costs of being a public company, long-term financing costs and the results of our private equity business, which generates revenues through the management of private equity funds. This segment also includes results related to our investments in these funds and in venture capital funds. Prior to January 1, 2005, Corporate Support and Other also included the results of our venture capital business. Effective December 31, 2004, we exited this business and the management of our venture capital funds was transitioned to an independent company. We maintained our existing investments in these funds.

     The securities business is a human capital business; accordingly, compensation and benefits comprise the largest component of our expenses, and our performance is dependent upon our ability to attract, develop and retain highly skilled employees who are motivated to serve the best interests of our clients, thereby serving the best interests of our company.

External Factors Impacting Our Business

     Performance in the financial services industry in which we operate is highly correlated to the overall strength of economic conditions and financial market activity. Overall market conditions are a product of many factors, which are mostly unpredictable and beyond our control. These factors may affect the financial decisions made by investors, including their level of participation in the financial markets. In turn, these decisions may affect our business results. With respect to financial market activity, our profitability is sensitive to a variety of factors, including the volume and value of trading in securities, the volatility of the equity and fixed income markets, the market spread on investment products, the level and shape of various yield curves and the demand for investment banking services as reflected by the number and size of public offerings and merger and acquisition transactions.

     Factors that differentiate our business within the financial services industry also may affect our financial results. For example, our Capital Markets business focuses primarily on specific sectors such as the consumer, financial institutions, health care and technology industries within the corporate sector and on health care, higher education, housing, and state and local government entities within the government/non-profit sector. These products and sectors may experience growth or downturns independently of general economic and market conditions, or may face market conditions that are disproportionately better or worse than those impacting the economy and markets generally. In either case, our business could be affected differently than overall market trends. Our Private Client Services business primarily operates in the midwest, mountain and west coast states, and an economic growth spurt or downturn that disproportionately impacts one or all of these regions may disproportionately affect our business compared with companies operating in other regions or more nationally or globally. Given the variability of the capital markets and securities businesses, our earnings may fluctuate significantly from period to period, and results of any individual period should not be considered indicative of future results.

16

Results for the Six Months Ended June 30, 2005

     For the six months ended June 30, 2005, our net income decreased to $8.6 million from $26.8 million for the corresponding period in the prior year, resulting in diluted earnings per share of $0.44, a 68.1 percent decrease over the prior-year period. Net revenues for the first six months of 2005 decreased 13.9 percent to $358.7 million, compared to $416.7 million for the first six months of 2004. Annualized return on average tangible shareholders’ equity¹ was 4.2 percent for the six-month period ended June 30, 2005, compared to 14.1 percent for the six-month period ended June 30, 2004.

     Impact of Structural Changes in the Industry. The decline in net income for the first six months of 2005 compared to the first six months of 2004 is due in part to reduced revenues in our fixed income and equity institutional sales and trading businesses, which are experiencing the effects of structural changes in the industry. These changes include increased price transparency in the corporate bond market and increased use of electronic and direct market access trading, which have created additional competitive downward pressure on trading margins. We expect the pressure on trading margins will continue, which may negatively impact our sales and trading businesses.

     Impact of Recent Economic Trends. Our results for the first six months of 2005 also reflect the cyclicality of the market. Investment banking revenues declined due to the timing of merger and acquisition deals and more challenging equity underwriting markets. The second quarter of 2005 was an especially slow period for convertible underwriting activity. In addition, higher interest rates compared to a year ago led to a reduction in the volume of activity related to certain fixed income products, resulting in reduced revenues. We also experienced reduced client activity within Private Client Services.

     Initiatives. We continually evaluate all of our businesses to ensure we are directing resources to areas where we can add value to our clients, achieve appropriate profitability and sustain competitive growth, and we have taken a number of actions in recent months to advance these efforts, as described in the following paragraphs.

Company-Wide

As announced on May 24, 2005, we implemented cost reduction measures to better align our cost infrastructure with our revenues. These cost reduction measures resulted in an $8.6 million pre-tax restructuring charge related to severance benefits and reductions in leased office space. We anticipate these actions will result in annual pre-tax savings of approximately $10.0 million, of which approximately $5.4 million is attributable to Private Client Services and $4.6 million is attributable to Capital Markets. Only a minimal portion of this anticipated savings is reflected in the results for the first six months of 2005.

Capital Markets

Within Capital Markets, we believe our future growth will depend on our ability to differentiate ourselves by offering more non-traditional products and services than we do today. For example, in response to increased demand for electronic trading, we added algorithmic and program trading (“APT”) capabilities for equity securities in the fourth quarter of 2004. We are evaluating additional ways to grow and strengthen our Capital Markets business. In the second quarter of 2005, we strategically repositioned our fixed income resources within our Capital Markets segment around two focused businesses: public finance services, and corporate high-yield and structured products sales, trading and research. This repositioning allows us to better focus our resources and leverage our expertise in the fixed income areas where we have the greatest strengths. Additionally, we continue to review a range of alternatives to leverage our investment banking franchises. This may include expanding our public finance activity geographically or providing additional products to our investment banking clients. We recently announced the European expansion of our healthcare franchise with the hiring of a team of 14 professionals in our London office. As we look to add new capabilities, we may build them internally, acquire them or partner with other firms to provide them.

Private Client Services

We continue our work to return our Private Client Services business to competitive performance. Our focus is on increasing the number of financial advisors, increasing the productivity of our financial advisors, and executing on our strategy of becoming our clients’ primary advisor.

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⁽¹⁾ Tangible shareholders’ equity equals total shareholders’ equity less goodwill and identifiable intangible assets. Annualized return on average tangible shareholders’ equity is computed by dividing annualized net income by average monthly tangible shareholders’ equity. Given the significant goodwill on our balance sheet, we believe that annualized return on tangible shareholders’ equity is a meaningful measure of our performance because it reflects the tangible equity deployed in our business. This measure excludes the portion of our shareholders’ equity attributable to goodwill and identifiable intangible assets. The majority of the goodwill recorded on our balance sheet relates to U.S. Bancorp’s acquisition of our predecessor company, Piper Jaffray Companies Inc., and its subsidiaries in 1998. This goodwill reflects the premium paid by U.S. Bancorp for our business, and is reflected on our books in accordance with U.S. generally accepted accounting principles (“GAAP”). The following table sets forth a reconciliation of shareholders’ equity to tangible shareholders’ equity. Shareholders’ equity is the most directly comparable GAAP financial measure to tangible shareholders’ equity.

	Average for the
	Six Months Ended		Six Months Ended		As of
	June 30,		June 30,		June 30,
(Dollars in thousands)	2005		2004		2005
Shareholders’ equity	$	731,388	$	684,631	$	724,979
Deduct: Goodwill and indentifiable intangible assets		321,434		305,635		321,034
Tangible shareholders’ equity	$	409,954	$	378,996	$	403,945

18

RESULTS OF OPERATIONS

FINANCIAL SUMMARY FOR THE THREE MONTHS ENDED JUNE 30, 2005 AND 2004

     The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated.

										Results of Operations
										as a Percentage of Net
	Results of Operations									Revenues
	For the Three Months Ended									For the Three Months Ended
	June 30,									June 30,
							2005
	2005			2004			v2004			2005			2004
(Amounts in thousands)
Revenues:
Commissions and fees	$	67,879		$	65,776			3.2	%		37.8	%		31.7	%
Principal transactions		38,158			50,243			(24.1	)		21.2			24.2
Investment banking		55,024			68,180			(19.3	)		30.6			32.9
Interest income		17,052			14,044			21.4			9.5			6.8
Other income		11,267			16,407			(31.3	)		6.3			7.9
Total revenues		189,380			214,650			(11.8	)		105.4			103.5
Interest expense		(9,715	)		(7,318	)		32.8			(5.4	)		(3.5	)
Net revenues		179,665			207,332			(13.3	)		100.0			100.0
Non-interest expenses:
Compensation and benefits		110,383			127,690			(13.6	)		61.4			61.6
Occupancy and equipment		14,419			13,683			5.4			8.0			6.6
Communications		10,299			10,712			(3.9	)		5.7			5.2
Floor brokerage and clearance		4,732			4,559			3.8			2.6			2.2
Marketing and business development		10,014			11,131			(10.0	)		5.6			5.4
Outside services		12,374			9,951			24.3			6.9			4.8
Cash award program		1,061			1,269			(16.4	)		0.6			0.6
Restructuring-related expense		8,595			—			N/M			4.8			—
Other operating expenses		6,196			7,647			(19.0	)		3.5			3.6
Total non-interest expenses		178,073			186,642			(4.6	)		99.1			90.0
Income before taxes		1,592			20,690			(92.3	)		0.9			10.0
Income tax expense		355			7,710			(95.4	)		0.2			3.7
Net income	$	1,237		$	12,980			(90.5	)%		0.7	%		6.3	%

N/M — Not Meaningful

     Net income decreased to $1.2 million for the three months ended June 30, 2005, down from $13.0 million for the three months ended June 30, 2004. Net revenues decreased to $179.7 million for the three months ended June 30, 2005, down 13.3 percent over the same period last year. The largest component of our revenue stream was commissions and fees, which increased 3.2 percent over the corresponding period in the prior year. Principal transactions revenue decreased 24.1 percent from the year-ago period, due to declines in institutional sales and trading revenues in Capital Markets as well as private client principal transaction activity. In the second quarter of 2005, our Capital Markets sales and trading business experienced reduced trading margins compared to the year-ago period due largely to structural changes in the industry, and we expect this pressure to continue for the foreseeable future. Investment banking revenues decreased to $55.0 million, down 19.3 percent compared with the three months ended June 30, 2004. The decrease in investment banking revenues was driven by a decline in mergers and acquisitions revenue and equity underwriting activity, offset partially by an increase in municipal fixed income underwriting revenue. Net interest income for the three months ended June 30, 2005, increased to $7.3 million, up 9.1 percent compared to the three months

19

ended June 30, 2004. This increase is due to an increase in interest income related to customer margin balances, which are subject to a variable interest rate, offset in part by increased interest expense associated with financing our business with variable-rate debt. Other income revenues for the three months ended June 30, 2005, decreased by 31.3 percent to $11.3 million, compared with $16.4 million for the corresponding period in the prior year. This decrease was largely due to gains recorded in the second quarter of 2004 on private equity investments. Additionally, the second quarter of 2004 included revenues associated with our venture capital business, the management of which was transitioned to an independent company effective December 31, 2004. Non-interest expenses decreased 4.6 percent to $178.1 million for the three months ended June 30, 2005, from $186.6 million for the three months ended June 30, 2004. This decrease was primarily attributable to a reduction in compensation and benefits due to lower revenues and profitability. Partially offsetting the decline in non-interest expenses was a one-time $8.6 million restructuring charge taken in the second quarter of 2005.

CONSOLIDATED NON-INTEREST EXPENSES

Compensation and Benefits

     A substantial portion of compensation expense is comprised of variable incentive arrangements and commissions, the amounts of which fluctuate in proportion to the level of business activity, decreasing with lower revenues and operating profits. Other compensation costs, primarily base salaries and benefits, are more fixed in nature. Compensation and benefits expenses decreased 13.6 percent to $110.4 million for the three months ended June 30, 2005, from $127.7 million for the corresponding period in the prior year, due to a decline in revenues and lower profitability. Compensation and benefits expenses as a percentage of net revenues decreased slightly to 61.4 percent for the three months ended June 30, 2005, versus 61.6 percent for the three months ended June 30, 2004.

Occupancy and Equipment

     Occupancy and equipment expenses increased 5.4 percent to $14.4 million for the three months ended June 30, 2005, compared with $13.7 million in the corresponding period in the prior year. This increase is primarily attributable to the additional office space and software expenses associated with our APT business that we acquired in the fourth quarter of 2004.

Communications

     Communication expenses include costs for telecommunication and data communication, primarily consisting of expense for obtaining third-party market data information. Communication expenses were $10.3 million for the three months ended June 30, 2005, down 3.9 percent from $10.7 million for the three months ended June 30, 2004. The decrease is primarily due to lower market data service expenses as a result of reduced business activity.

Floor Brokerage and Clearance

     Floor brokerage and clearance expenses were $4.7 million for the three months ended June 30, 2005, increasing from $4.6 million for the three months ended June 30, 2004. This slight increase primarily reflects increased costs associated with the addition of our APT capabilities. We expect these expenses to continue to increase with the growth of our APT business.

Marketing and Business Development

     Marketing and business development expenses include travel and entertainment, postage, supplies and promotional and advertising costs. Marketing and business development expenses decreased 10.0 percent to $10.0 million for the three months ended June 30, 2005, compared with the corresponding period in the prior year. This decrease was largely driven by the impact of cost savings initiatives and reduced business activity.

Outside Services

     Outside services expenses include securities processing expenses, outsourced technology and operations functions, outside legal fees and other professional fees. Outside services expenses increased to $12.4 million for the three months ended June 30, 2005, compared with $10.0 million for the corresponding period in the prior year. This increase primarily reflects costs for outsourcing additional technology and operations functions, which were previously performed in-house with the associated expense principally reflected in compensation and benefits. In addition, during the quarter we incurred higher legal expense related to our Capital Markets investment banking activity.

20

Cash Award Program

     In connection with our spin-off from U.S. Bancorp, we established a cash award program pursuant to which we granted cash awards to a broad-based group of our employees. The award program was designed to aid in retention of employees and to compensate for the value of U.S. Bancorp stock options and restricted stock lost by our employees as a result of the spin-off. The cash awards are being expensed over a four-year period ending December 31, 2007, and will result in charges of approximately $4.2 million, $4.2 million and $4.0 million in 2005, 2006 and 2007, respectively. For the three months ended June 30, 2005, we recorded expense of $1.1 million related to the cash awards, which is a decline from the $1.3 million in expense recorded in the corresponding period in the prior year. This decline is due to the attrition of employees who forfeited the cash awards upon leaving the Company.

Restructuring-Related Expense

     In the second quarter of 2005, we implemented certain expense reduction measures as a means to better align our cost infrastructure with our revenues. This resulted in a restructuring charge of $8.6 million, consisting of $4.9 million in severance benefits and $3.7 million related to the reduction of leased office space.

Other Operating Expenses

     Other operating expenses include insurance costs, license and registration fees, financial advisor loan loss contingencies, expenses related to our charitable giving program, amortization on intangible assets and litigation-related expenses, which consist of the amounts we reserve and/or pay out related to legal and regulatory settlements, awards or judgments, and fines. Other operating expenses decreased 19.0 percent to $6.2 million for the three months ended June 30, 2005, compared with $7.6 million for the three months ended June 30, 2004. This decrease is a result of lower expenses related to corporate insurance premiums, decreased charitable giving and lower minority interest expense than was recorded in the second quarter of 2004 related to our private equity investments. These reduced costs were offset in part by increased litigation-related expenses and intangible asset amortization expense that we began to record in late 2004 in conjunction with our acquisition of the APT business. Additionally, in the second quarter of 2004 we reduced our forgivable loan reserve by $1.7 million as we determined that the attrition of financial advisors related to the implementation of a new compensation plan in 2003 was largely complete.

Income Taxes

     Our provision for income taxes for the three months ended June 30, 2005 was $0.4 million, an effective tax rate of 22.3 percent, compared with $7.7 million, an effective tax rate of 37.3 percent, for the three months ended June 30, 2004. The unusually low 22.3 percent effective tax rate for the second quarter of 2005 was a result of an increase in the expected ratio of municipal interest income, which is non-taxable, to taxable income and the sharp decline in pre-tax income. This tax rate is not representative of our annual effective tax rate, which is 34.4 percent for the six months ended June 30, 2005.

SEGMENT PERFORMANCE

     We measure financial performance by business segment. Our three segments are Capital Markets, Private Client Services, and Corporate Support and Other. We determined these segments based on factors such as the type of customers served, the nature of products and services provided and the distribution channels used to provide those products and services. Segment pre-tax operating income or loss and segment operating margin are used to evaluate and measure segment performance by our management team in deciding how to allocate resources and in assessing performance in relation to our competitors. Segment pre-tax operating income or loss is derived from our business unit profitability reporting systems by specifically attributing customer relationships and their related revenues and expenses to the business unit that maintains the relationship and generates the revenues. Expenses directly managed by the business unit are accounted for within each segment’s pre-tax operating income or loss. In addition, operations, technology and other business activities managed on a corporate basis are allocated to the segments based on each segment’s use of these functions to support its business. Expenses related to being a public company and long-term financing are included within Corporate Support and Other. To enhance the comparability of business segment results over time, the cash awards granted to employees in connection with our separation from U.S. Bancorp and restructuring charges are not included in segment pre-tax operating income or loss. The presentation reflects our current management structure.

     In the first quarter of 2005, we began to more fully allocate corporate expenses previously included in Corporate Support and Other to Capital Markets and Private Client Services. Early in 2005, we concluded an extensive study of costs included in Corporate Support and Other to determine how these costs related to and were driven by business activities conducted in Capital Markets and Private Client Services. As a result of this study, certain expenses such as finance, human resources and other corporate administration costs were reclassified and included in the results of the revenue-producing segments beginning in the first quarter of 2005. Internally, we are managing and allocating resources to our business segments based on these reclassified results. This restatement did not affect our aggregate financial results. All periods presented have been restated and are presented on a comparable basis.

21

     Our primary revenue-producing segments, Capital Markets and Private Client Services, have different compensation plans and non-compensation cost structures that impact the operating margins of the two segments differently during periods of increasing or decreasing business activity and revenues. Compensation expense for Capital Markets is driven primarily by pre-tax operating income of the segment, whereas compensation expense for Private Client Services is driven primarily by net revenues. In addition, Private Client Services has a higher proportion of fixed non-compensation expenses than Capital Markets.

     The following table provides our segment performance for the periods presented:

	For the Three Months Ended June 30,
							2005
	2005			2004			v2004
(Dollars in thousands)
Net revenues
Capital Markets	$	97,598		$	113,645			(14.1	)%
Private Client Services		84,081			89,506			(6.1	)
Corporate Support and Other		(2,014	)		4,181			N/M
Total	$	179,665		$	207,332			(13.3	)%
Pre-tax operating income (loss) before unallocated charges (a)
Capital Markets	$	12,872		$	17,240			(25.3	)%
Private Client Services		2,098			7,041			(70.2	)
Corporate Support and Other		(3,722	)		(2,322	)		60.3
Total	$	11,248		$	21,959			(48.8	)%
Pre-tax operating margin before unallocated charges
Capital Markets		13.2	%		15.2	%
Private Client Services		2.5	%		7.9	%
Total		6.3	%		10.6	%

(a) See Reconciliation to pre-tax operating income including unallocated charges for detail on expenses excluded from segment performance.

Reconciliation to pre-tax operating income including unallocated charges:
Pre-tax operating income before unallocated charges	$	11,248	$	21,959
Cash award program		1,061		1,269
Restructuring-related expense		8,595		—
Consolidated income before income tax expense	$	1,592	$	20,690

N/M — Not Meaningful

22

CAPITAL MARKETS

	For the Three Months Ended June 30,
							2005
	2005			2004			v2004
(Dollars in thousands)
Net revenues:
Institutional sales and trading
Fixed income	$	19,354		$	22,080			(12.3	)%
Equities		29,418			30,241			(2.7	)
Total institutional sales and trading		48,772			52,321			(6.8	)
Investment banking
Underwriting
Fixed income		19,758			14,540			35.9
Equities		16,960			20,888			(18.8	)
Mergers and acquisitions		11,240			26,399			(57.4	)
Total investment banking		47,958			61,827			(22.4	)
Other income		868			(503	)		N/M
Total net revenues	$	97,598		$	113,645			(14.1	)%
Pre-tax operating income before unallocated charges	$	12,872		$	17,240			(25.3	)%
Pre-tax operating margin		13.2	%		15.2	%

N/M — Not Meaningful

     Capital Markets financial performance in the second quarter of 2005 reflects the cyclicality of the market, as a less active equity market led to a decline in equity and convertible underwriting. In contrast, public finance underwriting was very active and recorded strong performance. While the demand for mergers and acquisitions services declined somewhat, our mergers and acquisitions revenue declined more steeply due to the timing of deal closings. Capital Markets results continue to be affected by structural changes in the sales and trading markets, including increased price transparency in the corporate bond markets and increased use of electronic and direct market access trading, which have increased the downward pressure on trading margins. We believe this pressure will continue for the foreseeable future and that the traditional model for institutional sales and trading will remain challenged.

     Institutional sales and trading revenues are comprised of all the revenues generated through trading activities. Our core revenues in this business are derived from offering clients a traditional set of products, such as cash equities, corporate bonds, municipal bonds and interest rate products. These revenues, which are generated primarily through the facilitation of customer trades, include principal transaction revenues, commissions and the interest income or expense associated with financing or hedging our inventory positions. To assess the profitability of institutional sales and trading activities, we aggregate principal transactions, commissions and net interest revenues. Institutional sales and trading revenues decreased 6.8 percent for the three months ended June 30, 2005 compared to the year-ago period, to $48.8 million.

     Fixed income institutional sales and trading revenues declined 12.3 percent to $19.4 million for the quarter ended June 30, 2005, compared with $22.1 million for the three months ended June 30, 2004. Rising interest rates resulted in reduced volumes in certain fixed income products, particularly agency bonds, and reduced net interest revenues on inventories. Also, trading margins declined in the three months ended June 30, 2005, compared to the year-ago period, due largely to increased price transparency in the corporate bond markets and electronic trading. In February 2005, certain high-yield bonds in which we have proprietary research became subject to the NASD’s TRACE requirement. These high-yield bonds represent a substantial portion of our overall corporate bond sales and trading revenue.

     Equity institutional sales and trading declined 2.7 percent to $29.4 million for the three months ended June 30, 2005, compared to $30.2 million for the corresponding period in the prior year. This decline was a result of a reduction in net commissions due to increased pressure from institutional clients to reduce transaction costs and due to reduced activity in our London office. The decline in net commissions in our cash equities business was largely offset by increased electronic trading revenue from our APT business acquired in the fourth quarter of 2004, and an increase in our convertible trading revenue, which was due to lower trading losses as a result of reducing our capital at risk.

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     In the second quarter of 2005, investment banking revenue decreased to $48.0 million for the three months ended June 30, 2005, compared with $61.8 million for the three months ended June 30, 2004, down 22.4 percent. This decrease was largely attributable to a decline in mergers and acquisitions revenues, which decreased 57.4 percent to $11.2 million for the three months ended June 30, 2005. We completed six deals valued at $616.0 million in the second quarter of 2005, compared to 12 deals valued at $2.6 billion for the same period in 2004. We do not believe the second quarter of 2005 was indicative of performance for the remainder of 2005 as the mergers and acquisitions pipeline currently is very strong; however, there can be no assurance that this pipeline will result in increased firm revenues given the inherent uncertainty of transactional business. Equity underwriting activity decreased 18.8 percent to $17.0 million for the three months ended June 30, 2005, due largely to a decline in convertible underwriting revenues. During the second quarter of 2005, we completed 14 equity offerings, raising $2.5 billion in capital for our clients, compared to 26 equity offerings, raising $3.2 billion in capital, during the second quarter of 2004. Partially offsetting these decreases were increased fixed income underwriting revenues, which increased 35.9 percent to $19.8 million in the three months ended June 30, 2005, due to an increased number of public finance transactions. We completed 126 issues with a par amount of $1.5 billion during the second quarter of 2005, compared with 111 issues with a par value of $1.2 billion during the second quarter of 2004.

     Segment pre-tax operating margin for the second quarter of 2005 decreased to 13.2 percent from 15.2 percent for the corresponding period in the prior year as a result of the decline in net revenues.

PRIVATE CLIENT SERVICES

	For the Three Months Ended June 30,
							2005
(Dollars in thousands)	2005			2004			v2004
Net revenues	$	84,081		$	89,506			(6.1	)%
Pre-tax operating income before unallocated charges	$	2,098		$	7,041			(70.2	)%
Pre-tax operating margin		2.5	%		7.9	%
Number of financial advisors		863			850			1.5	%
(period end)

     Private Client Services financial performance in the second quarter of 2005 reflected decreased transaction revenues driven by lower private client transaction volume compared to the second quarter of 2004. Notwithstanding this decline, we believe we have stabilized our private client business and are working to return it to competitive performance by transitioning to an advisory, rather than a transactional, model, working to increase financial advisor productivity, increasing the number of financial advisors by selectively recruiting experienced financial advisors and training successful developing financial advisors, and by diligently managing costs. We currently anticipate that returning this business to competitive performance will be a multi-year process.

     Private Client Services net revenues decreased 6.1 percent to $84.1 million for the three months ended June 30, 2005, compared with net revenues of $89.5 million for the corresponding period in the prior year. This decrease is largely a result of lower private client transactional volume offset, in part, by increased fee-based revenues, which are charged as a percentage of an account’s asset balance rather than on a transaction basis. Total client assets under management increased approximately 4.0 percent from $49 billion at June 30, 2004 to $51 billion at June 30, 2005, largely due to stronger financial markets, while client assets in fee-based accounts increased 11.0 percent. As of June 30, 2005, 16.0 percent of client assets were in fee-based accounts.

     Segment pre-tax operating margin for Private Client Services decreased to 2.5 percent for the second quarter of 2005 compared to 7.9 percent in the corresponding period of 2004. The decline in pre-tax operating margin was due to lower net revenues, higher litigation-related expenses and the relatively fixed nature of non-compensation expenses. Additionally, in the second quarter of 2004 we reduced our forgivable loan reserve by $1.7 million as we determined that the attrition of financial advisors related to the implementation of a new compensation plan in 2003 was largely complete.

     The number of financial advisors includes both developing and experienced financial advisors. We continue to work to grow our financial advisor ranks, which we expect to accomplish over the long term primarily by training professionals to become financial advisors and by selectively recruiting experienced financial advisors. The total number of financial advisors at June 30, 2005 increased 1.5 percent compared to the corresponding prior-year period and remained flat compared to the first quarter of 2005.

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CORPORATE SUPPORT AND OTHER

     Corporate Support and Other includes revenues primarily attributable to our private equity business and our investments in private equity funds. The Corporate Support and Other segment also includes interest expense on our subordinated debt, which is recorded as a reduction of net revenues. Prior to January 1, 2005, Corporate Support and Other also included revenues associated with our venture capital business. Effective December 31, 2004, the management of our venture capital funds was transitioned to an independent company. For the three months ended June 30, 2005, Corporate Support and Other recorded negative net revenues of $2.0 million, compared with net revenues of $4.2 million for the corresponding period in the prior year. This change was due primarily to gains recorded in the second quarter of 2004 pertaining to our private equity investments. These private equity investments included an investment in a company that completed its initial public offering during the second quarter of 2004. As a result, we recognized approximately $3.8 million in net revenues on this investment in the second quarter of 2004 and approximately $2.8 million in minority interest expense. Also contributing to decreased net revenues in the second quarter of 2005 was an increase in long-term financing costs. Our subordinated debt is variable-rate debt based on the London Interbank Offered Rate, which has increased by approximately 190 basis points from the second quarter of 2004 to the second quarter of 2005.

FINANCIAL SUMMARY FOR THE SIX MONTHS ENDED JUNE 30, 2005 AND 2004

     The following table provides a summary of the results of our operations and the results of our operations as a percentage of net revenues for the periods indicated.

										Results of Operations
										as a Percentage of Net
	Results of Operations									Revenues
	For the Six Months Ended									For the Six Months Ended
	June 30,									June 30,
							2005
	2005			2004			v2004			2005			2004
(Amounts in thousands)
Revenues:
Commissions and fees	$	138,039		$	135,288			2.0	%		38.5	%		32.4	%
Principal transactions		73,022			102,319			(28.6	)		20.4			24.6
Investment banking		111,346			133,042			(16.3	)		31.0			31.9
Interest income		32,654			27,371			19.3			9.1			6.6
Other income		21,994			30,807			(28.6	)		6.1			7.4
Total revenues		377,055			428,827			(12.1	)		105.1			102.9
Interest expense		(18,322	)		(12,095	)		51.5			(5.1	)		(2.9	)
Net revenues		358,733			416,732			(13.9	)		100.0			100.0
Non-interest expenses:
Compensation and benefits		219,785			257,397			(14.6	)		61.3			61.8
Occupancy and equipment		28,446			27,415			3.8			7.9			6.6
Communications		20,704			21,170			(2.2	)		5.8			5.1
Floor brokerage and clearance		8,935			9,359			(4.5	)		2.5			2.2
Marketing and business development		20,664			21,793			(5.2	)		5.8			5.2
Outside services		23,013			19,109			20.4			6.4			4.6
Cash award program		2,197			2,340			(6.1	)		0.6			0.6
Restructuring-related expense		8,595			—			N/M			2.4			—
Other operating expenses		13,323			15,287			(12.8	)		3.7			3.6
Total non-interest expenses		345,662			373,870			(7.5	)		96.4			89.7
Income before taxes		13,071			42,862			(69.5	)		3.6			10.3
Income tax expense		4,499			16,092			(72.0	)		1.2			3.9
Net income	$	8,572		$	26,770			(68.0	)%		2.4	%		6.4	%

N/M — Not Meaningful

25

     Except as discussed below, the underlying reasons for variances to the prior year are substantially the same as the comparative quarterly discussion, and the statements contained in the foregoing discussion also apply for the six-month comparison.

     Net income decreased to $8.6 million for the six months ended June 30, 2005, down from $26.8 million for the six months ended June 30, 2004. Net revenues decreased to $358.7 million for the six months ended June 30, 2005, down 13.9 percent over the same period last year. The largest component of our revenue stream was commissions and fees, which increased 2.0 percent over the corresponding period in the prior year to $138.0 million for the six months ended June 30, 2005. Principal transactions revenue decreased 28.6 percent from the year-ago period, due to significant declines in both fixed income and equity institutional sales and trading revenues. Our Capital Markets sales and trading business experienced downward pressure on trading margins compared to the year-ago period, and we expect this pressure to continue for the foreseeable future. Investment banking revenues decreased to $111.3 million, down 16.3 percent compared with the six months ended June 30, 2004. The decrease in investment banking revenue was driven by a decline in mergers and acquisitions revenue and equity underwriting activity, offset partially by an increase in fixed income underwriting revenue. Net interest income for the six months ended June 30, 2005, decreased to $14.3 million, down 6.2 percent compared to the six months ended June 30, 2004. This decrease is due to a decline in interest income related to reduced fixed income inventories and the flattening yield curve. In addition, we incurred increased interest expense associated with financing our business with variable-rate debt. The decrease in net interest income was offset in part by our increased interest income related to customer margin balances, which are subject to a variable interest rate. Other income revenue for the six months ended June 30, 2005, decreased by 28.6 percent to $22.0 million, compared with $30.8 million for the corresponding period in the prior year. This decrease was largely due to gains recorded in the first half of 2004 on private equity investments. Additionally, the first half of 2004 included revenues associated with our venture capital business, the management of which was transitioned to an independent company effective December 31, 2004. Non-interest expenses decreased 7.5 percent to $345.7 million for the six months ended June 30, 2005, from $373.9 million for the six months ended June 30, 2004. This decrease was primarily attributable to a reduction in compensation and benefits due to lower revenues and profitability. Partially offsetting the decline in non-interest expenses was a one-time $8.6 million restructuring charge taken in the second quarter of 2005.

CONSOLIDATED NON-INTEREST EXPENSES

Floor Brokerage and Clearance

     Floor brokerage and clearance expenses were $8.9 million for the six months ended June 30, 2005, decreasing from $9.4 million for the six months ended June 30, 2004. This reduction reflects our continued efforts to reduce expenses associated with accessing electronic communication networks, offset in part by increased costs associated with our new APT capabilities. We expect these expenses to increase as the APT business grows.

Income Taxes

     Our provision for income taxes for the six months ended June 30, 2005, was $4.5 million, an effective tax rate of 34.4 percent, compared with $16.1 million, an effective tax rate of 37.5 percent, for the six months ended June 30, 2004. The decreased effective tax rate is attributable to an increase in the expected ratio of municipal interest income, which is non-taxable, to taxable income and the tax effect of contributing appreciated securities to the Piper Jaffray Foundation, through which we make some of our charitable contributions.

26

SEGMENT PERFORMANCE

     This following table provides our segment performance for the periods presented:

	For the Six Months Ended June 30,
							2005
	2005			2004			v2004
(Dollars in thousands)
Net revenues
Capital Markets	$	189,543		$	225,689			(16.0	)%
Private Client Services		173,280			185,901			(6.8	)
Corporate Support and Other		(4,090	)		5,142			N/M
Total	$	358,733		$	416,732			(13.9	)%
Pre-tax operating income (loss) before unallocated charges (a)
Capital Markets	$	24,399		$	36,142			(32.5	)%
Private Client Services		6,909			14,061			(50.9	)
Corporate Support and Other		(7,445	)		(5,001	)		48.9
Total	$	23,863		$	45,202			(47.2	)%
Pre-tax operating margin before unallocated charges
Capital Markets		12.9	%		16.0	%
Private Client Services		4.0	%		7.6	%
Total		6.7	%		10.8	%

(a) See Reconciliation to pre-tax operating income including unallocated charges for detail on expenses excluded from segment performance.

Reconciliation to pre-tax operating income including unallocated charges:
Pre-tax operating income before unallocated charges	$	23,863	$	45,202
Cash award program		2,197		2,340
Restructuring-related expense		8,595		—
Consolidated income before income tax expense	$	13,071	$	42,862

N/M — Not Meaningful

27

CAPITAL MARKETS

	For the Six Months Ended June 30,
							2005
	2005			2004			v2004
(Dollars in thousands)
Net revenues:
Institutional sales and trading
Fixed income	$	35,672		$	43,683			(18.3	)%
Equities		55,738			64,752			(13.9	)
Total institutional sales and trading		91,410			108,435			(15.7	)
Investment banking
Underwriting
Fixed income		31,390			29,260			7.3
Equities		37,298			47,806			(22.0	)
Mergers and acquisitions		27,814			39,551			(29.7	)
Total investment banking		96,502			116,617			(17.2	)
Other income		1,631			637			156.0
Total net revenues	$	189,543		$	225,689			(16.0	)%
Pre-tax operating income before unallocated charges	$	24,399		$	36,142			(32.5	)%
Pre-tax operating margin		12.9	%		16.0	%

     Institutional sales and trading revenues are comprised of all the revenues generated through trading activities. Our core revenues in this business are derived from offering clients a traditional set of products, such as cash equities, corporate bonds and interest rate products. These revenues, which are generated primarily through the facilitation of customer trades, include principal transaction revenues, commissions and the interest income or expense associated with financing or hedging our inventory positions. To assess the profitability of institutional sales and trading activities, we aggregate principal transactions, commissions and net interest revenues. Institutional sales and trading revenues decreased 15.7 percent for the six months ended June 30, 2005, to $91.4 million.

     Fixed income institutional sales and trading revenues declined 18.3 percent to $35.7 million for the six months ended June 30, 2005, compared with $43.7 million for the six months ended June 30, 2004. Rising interest rates resulted in reduced volumes in certain fixed income products, particularly agency bonds, and reduced net inventories and a flattening yield curve reduced our net interest revenues on inventories. Additionally, trading margins declined in the first six months of 2005, due largely to increased price transparency in the corporate bond markets and electronic trading. In February 2005, certain high-yield bonds in which we have proprietary research became subject to the NASD’s TRACE requirement. These high-yield bonds represent a substantial portion of our overall corporate bond sales and trading.

     We also experienced downward pressure in the first six months of 2005 on net commissions in the cash equities business. Equity institutional sales and trading revenue decreased 13.9 percent for the six months ended June 30, 2005, to $55.7 million, compared to $64.8 million in the corresponding period in 2004, primarily driven by a reduction in net commissions as a result of increased pressure from institutional clients to reduce transaction costs, our increased use of capital to secure customer order flow and reduced activity in our London office. The decline in the net commissions in our cash equities business was offset in part by increased electronic trading revenue from our APT business acquired in the fourth quarter of 2004 and improved convertible sales and trading results.

     Investment banking revenue decreased to $96.5 million for the six months ended June 30, 2005, compared with $116.6 million for the six months ended June 30, 2004, down 17.2 percent. This decrease was attributed to a decline in equity underwriting activity and mergers and acquisitions revenues. Equity underwriting revenues decreased 22.0 percent to $37.3 million for the six months ended June 20, 2005. Equity underwriting revenues during the first six months of 2005 did not match the revenues of the corresponding period of 2004 as less favorable capital market conditions led to a decline in offering activity. During the first six months of 2005, we completed 33 equity offerings, raising $4.7 billion in capital for our clients, compared to 53 equity offerings, raising $7.2 billion in capital, during the corresponding period of 2004. Additionally, mergers and acquisitions revenue decreased 29.7 percent to $27.8 million for the six months ended June 30, 2005, due to the timing of deal closings. We completed 15 deals valued at $2.0 billion in the first half of 2005, compared to 22 deals valued at $3.4 billion for the same period in 2004. Partially offsetting these decreases were increased fixed income underwriting revenues, which increased 7.3 percent to $31.4 million for the six months ended June 30, 2005, due to the increased par value of public finance transactions. We completed 237 issues with a par amount of $2.9 billion, during the first six months of 2005, compared with 237 issues with a par value of $2.6 billion during the corresponding period of 2004.

28

     Segment pre-tax operating margin for the first six months of 2005 decreased to 12.9 percent from 16.0 percent for the corresponding period in the prior year as a result of the decline in net revenues.

PRIVATE CLIENT SERVICES

	For the Six Months Ended June 30,
							2005
(Dollars in thousands)	2005			2004			v2004
Net revenues	$	173,280		$	185,901			(6.8	)%
Pre-tax operating income before unallocated charges	$	6,909		$	14,061			(50.9	)%
Pre-tax operating margin		4.0	%		7.6	%

     Private Client Services net revenues decreased 6.8 percent to $173.3 million for the six months ended June 30, 2005, compared with net revenues of $185.9 million for the corresponding period in the prior year. The decline in net revenues was largely attributable to lower private client activity in the first six months of 2005 as stronger investor sentiment in the corresponding period in 2004 drove higher revenues. Offsetting these declines in part were increased fee-based revenues, which are charged as a percentage of an account’s asset balance rather than on a transaction basis. Total client assets under management increased approximately 4.0 percent from $49 billion at June 30, 2004 to $51 billion at June 30, 2005, largely due to stronger financial markets, while client assets in fee-based accounts increased 11.0 percent. As of June 30, 2005, 16.0 percent of client assets were in fee-based accounts.

     Segment pre-tax operating margin for Private Client Services decreased to 4.0 percent for the six months ended June 30, 2005 compared to 7.6 percent in the corresponding period of 2004. The decline in pre-tax operating margin was due to lower net revenues, higher litigation-related expenses and the relatively fixed nature of non-compensation expenses. Additionally, in the second quarter of 2004 we reduced our forgivable loan reserve by $1.7 million as we determined that the attrition of financial advisors related to the implementation of a new compensation plan in 2003 was largely complete.

CRITICAL ACCOUNTING POLICIES

     Our accounting and reporting policies comply with GAAP and conform to practices within the securities industry. The preparation of financial statements in compliance with GAAP and industry practices requires us to make estimates and assumptions that could materially affect amounts reported in our consolidated financial statements. Critical accounting policies are those policies that we believe to be the most important to the portrayal of our financial condition and results of operations and that require us to make estimates that are difficult, subjective or complex. Most accounting policies are not considered by us to be critical accounting policies. Several factors are considered in determining whether or not a policy is critical, including, among others, whether the estimates are significant to the consolidated financial statements taken as a whole, the nature of the estimates, the ability to readily validate the estimates with other information, including third-party or independent sources, the sensitivity of the estimates to changes in economic conditions and whether alternative accounting methods may be used under GAAP.

     For a full description of our significant accounting policies, see Note 2 to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2004. We believe that of our significant policies, the following are our critical accounting policies.

Valuation of Financial Instruments

     Substantially all of our financial instruments are recorded at fair value or contract amounts that approximate fair value. Financial instruments carried at contract amounts that approximate fair value either have short-term maturities (one year or less), are repriced frequently or bear market interest rates and, accordingly, are carried at amounts approximating fair value. Financial instruments carried at contract amount on our Consolidated Statements of Financial Condition include receivables from and payables to brokers, dealers and clearing organizations, securities purchased under agreements to resell, securities sold under agreements to repurchase, receivables from and payables to customers, short-term financing and subordinated debt. Financial instruments recorded at fair value are generally priced based upon independent sources such as listed market prices or dealer price quotations. Unrealized gains and losses related to these financial instruments are reflected on our Consolidated Statements of Operations.

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     For investments in illiquid or privately held securities that do not have readily determinable fair values, the determination of fair value requires us to estimate the value of the securities using the best information available. Among the factors considered by us in determining the fair value of financial instruments are the cost, terms and liquidity of the investment, the financial condition and operating results of the issuer, the quoted market price of publicly traded securities with similar quality and yield, and other factors generally pertinent to the valuation of investments. In instances where a security is subject to transfer restrictions, the value of the security is based primarily on the quoted price of a similar security without restriction but may be reduced by an amount estimated to reflect such restrictions. In addition, even where the value of a security is derived from an independent source, certain assumptions may be required to determine the security’s fair value. For instance, we assume that the size of positions in securities that we hold would not be large enough to affect the quoted price of the securities if we sell them, and that any such sale would happen in an orderly manner. The actual value realized upon disposition could be different from the currently estimated fair value.

     Fair values for derivative contracts represent amounts estimated to be received from or paid to a third party in settlement of these instruments. These derivatives are valued using quoted market prices when available or pricing models based on the net present value of estimated future cash flows. Management deemed the net present value of estimated future cash flows model to be the best estimate of fair value as most of our derivative products are interest rate swaps. The valuation models used require inputs including contractual terms, market prices, yield curves, credit curves and measures of volatility. The valuation models are monitored over the life of the derivative product. If there are any changes in the underlying inputs, the model is updated for those new inputs.

Goodwill and Intangible Assets

     We record all assets and liabilities acquired in purchase acquisitions, including goodwill, at fair value as required by Statement of Financial Accounting Standards No. 141, “Business Combinations.” At June 30, 2005, we had goodwill of $317.2 million, principally as a result of the 1998 acquisition of our predecessor, Piper Jaffray Companies Inc., and its subsidiaries by U.S. Bancorp.

     The initial recognition of goodwill and other intangible assets and the subsequent impairment analysis requires management to make subjective judgments concerning estimates of how the acquired assets or businesses will perform in the future using valuation methods including discounted cash flow analysis. Additionally, estimated cash flows may extend beyond ten years and, by their nature, are difficult to determine over an extended time period. Events and factors that may significantly affect the estimates include, among others, competitive forces and changes in revenue growth trends, cost structures, technology, discount rates and market conditions. To assess the reasonableness of cash flow estimates and validate assumptions used in our estimates, we review historical performance of the underlying assets or similar assets.

     In assessing the fair value of our operating segments, the volatile nature of the securities markets and our industry requires us to consider the business and market cycle and assess the stage of the cycle in estimating the timing and extent of future cash flows. In addition to estimating the fair value of an operating segment based on discounted cash flows, we consider other information to validate the reasonableness of our valuations, including public market comparables, multiples of recent mergers and acquisitions of similar businesses and third-party assessments. Valuation multiples may be based on revenues, price-to-earnings and tangible capital ratios of comparable public companies and business segments. These multiples may be adjusted to consider competitive differences including size, operating leverage and other factors. We determine the carrying amount of an operating segment based on the capital required to support the segment’s activities, including its tangible and intangible assets. The determination of a segment’s capital allocation requires management judgment and considers many factors, including the regulatory capital requirements and tangible capital ratios of comparable public companies in relevant industry sectors. In certain circumstances, we may engage a third party to validate independently our assessment of the fair value of our operating segments. If during any future period it is determined that an impairment exists, the results of operations in that period could be materially adversely affected.

Stock-Based Compensation

     As part of our compensation to employees and directors, we use stock-based compensation, including stock options and restricted stock. Effective January 1, 2004, we elected to account for stock-based employee compensation on a prospective basis under the fair value method, as prescribed by Statement of Financial Accounting Standards No. 123, “Accounting and Disclosure of Stock-Based Compensation,” and as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation — Transition and Disclosure.” The fair value method requires an estimate of the value of stock options to be recognized as compensation over the vesting period of the awards. The amended standard provides alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, we are required to present prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation utilized and its effect on the reported results.

     Compensation paid to employees in the form of stock options or restricted stock is amortized on a straight-line basis over the requisite service period of the award, which is generally three years, and is included in our results of operations as compensation, net of estimated forfeitures. Stock-based compensation granted to our non-employee directors is in the form of stock options. Stock-based compensation paid to directors is immediately vested and is included in our results of operations as outside services expense. For a more detailed description of our stock incentive program, see Note 11 of our unaudited consolidated financial statements.

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     In determining the estimated fair value of stock options, we use the Black-Scholes option-pricing model, which requires judgment regarding certain assumptions, including the expected life of the options granted, dividend yields and stock volatility. Certain assumptions are estimated using industry comparisons due to a lack of historical data. For instance, the volatility of the stock is not known for a period greater than eighteen months, therefore, to develop a reasonable estimate, we used industry comparisons to determine an appropriate volatility. Also, we do not have historical data regarding employee exercising or post-termination behaviors, therefore, industry comparisons were also used to estimate the expected life of the options. Additional information regarding assumptions used in the Black-Scholes pricing model can be found in Note 11 of our unaudited consolidated financial statements.

Contingencies

     We are involved in various pending and potential legal proceedings related to our business, including litigation, arbitration and regulatory proceedings. Some of these matters involve claims for substantial amounts, including claims for punitive and other special damages. The number of these legal proceedings has increased in recent years. We have, after consultation with outside legal counsel and consideration of facts currently known by management, recorded estimated losses in accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies,” to the extent that claims are probable of loss and the amount of the loss can be reasonably estimated. The determination of these reserve amounts requires significant judgment on the part of management. In making these determinations, we consider many factors, including, but not limited to, the loss and damages sought by the plaintiff or claimant, the basis and validity of the claim, the likelihood of a successful defense against the claim, and the potential for, and magnitude of, damages or settlements from such pending and potential litigation and arbitration proceedings, and fines and penalties or orders from regulatory agencies.

     Under the terms of our separation and distribution agreement with U.S. Bancorp and ancillary agreements entered into in connection with the spin-off, we generally are responsible for all liabilities relating to our business, including those liabilities relating to our business while it was operated as a segment of U.S. Bancorp under the supervision of its management and board of directors and while our employees were employees of U.S. Bancorp servicing our business. Similarly, U.S. Bancorp generally is responsible for all liabilities relating to the businesses U.S. Bancorp retained. However, in addition to our established reserves, U.S. Bancorp has agreed to indemnify us in an amount up to $17.5 million for losses that result from third-party claims relating to research analyst independence, regulatory investigations regarding the allocation of initial public offering shares to directors and officers of public companies, and regulatory investigations of mutual fund practices. U.S. Bancorp has the right to terminate this indemnification obligation in the event of a change in control of our company. As of June 30, 2005, $13.5 million of the indemnification remained.

     Subject to the foregoing, we believe, based on our current knowledge, after appropriate consultation with outside legal counsel and after taking into account our established reserves and the U.S. Bancorp indemnity agreement, that pending litigation, arbitration and regulatory proceedings will be resolved with no material adverse effect on our financial condition. However, if, during any period, a potential adverse contingency should become probable or resolved for an amount in excess of the established reserves and indemnification, the results of operations in that period could be materially adversely affected.

LIQUIDITY AND CAPITAL RESOURCES

     We have a liquid balance sheet. Most of our assets consist of cash and assets readily convertible into cash. Securities inventories are stated at fair value and are generally readily marketable. Customers’ margin loans are collateralized by securities and have floating interest rates. Other receivables and payables with customers and other brokers and dealers usually settle within a few days. As part of our liquidity strategy, we emphasize diversification of funding sources. We utilize a mix of funding sources and, to the extent possible, maximize our lower-cost financing associated with securities lending and repurchase agreements. Our assets are financed by our cash flows from operations, equity capital, subordinated debt, bank lines of credit and proceeds from securities lending and securities sold under agreements to repurchase. The fluctuations in cash flows from financing activities are directly related to daily operating activities from our various businesses.

     We do not intend to pay cash dividends on our common stock for the foreseeable future.

     To optimize our use of capital, our board of directors authorized the repurchase of up to 1.3 million shares of our common stock for a maximum aggregate purchase price of $65 million. The program commenced in the first quarter of 2005 and is authorized through December 31, 2005. During the first six months of 2005, we repurchased a total of 948,750 shares of common stock at an average price of $33.09 per share.

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Funding Sources

     We have available discretionary short-term financing on both a secured and unsecured basis. Secured financing is obtained through the use of securities lending agreements, repurchase agreements and secured bank loans. Securities lending agreements are secured by client collateral pledged for margin loans and securities held in firm inventory while bank loans and repurchase agreements are typically collateralized by the firm’s securities inventory. Short-term funding is generally obtained at rates based upon the federal funds rate.

     Average short-term bank loans of $59 million and $53 million in the second quarter of 2005 and second quarter of 2004, respectively, and average securities lending arrangements of $258 million and $213 million in the second quarter of 2005 and second quarter of 2004, respectively, were primarily used to finance customer receivables. Average repurchase agreements of $165 million and $277 million in the second quarter of 2005 and second quarter of 2004, respectively, were primarily used to finance inventory. Growth in margin loans to customers is generally financed through increases in securities lending to third parties while growth in our securities inventory is generally financed through repurchase agreements or securities lending. Bank financing supplements these sources as necessary.

     As of June 30, 2005, we had uncommitted credit agreements with banks totaling $675 million, comprising $555 million in discretionary secured lines and $120 million in discretionary unsecured lines. We have been able to obtain necessary short-term borrowings in the past and believe that we will continue to be able to do so in the future. We have also established arrangements to obtain financing using as collateral our securities held by our clearing bank or by another broker dealer at the end of each business day.

     In addition to the $675 million of credit agreements described above, our broker dealer subsidiary is party to a $180 million subordinated debt facility with an affiliate of U.S. Bancorp, which has been approved by the New York Stock Exchange, Inc. (“NYSE”) for regulatory net capital purposes as allowable in our broker dealer subsidiary’s net capital computation. The interest on the $180 million subordinated debt facility is variable based on the three-month London Interbank Offer Rate. The entire amount outstanding matures in 2008. We have an additional committed, but undrawn, temporary subordinated debt facility of $40 million. The interest on the $40 million subordinated debt facility is based on the prime rate, and the facility expires in December 2005.

Contractual Obligations

     Our contractual obligations have not materially changed from those reported in our Annual Report on Form 10-K for the year-ended December 31, 2004.

Capital Requirements

     As a registered broker dealer and member firm of the NYSE, our broker dealer subsidiary is subject to the uniform net capital rule of the SEC and the net capital rule of the NYSE. We have elected to use the alternative method permitted by the uniform net capital rule, which requires that we maintain minimum net capital of the greater of $1.0 million or 2.0 percent of aggregate debit balances arising from customer transactions, as this is defined in the rule. The NYSE may prohibit a member firm from expanding its business or paying dividends if resulting net capital would be less than 5.0 percent of aggregate debit balances. Advances to affiliates, repayment of subordinated liabilities, dividend payments and other equity withdrawals are subject to certain notification and other provisions of the uniform net capital rule and the net capital rule of the NYSE. We expect these provisions will not impact our ability to meet current and future obligations. We also are subject to certain notification requirements related to withdrawals of excess net capital from our broker dealer subsidiary. In addition, our broker dealer subsidiary is registered with the Commodity Futures Trading Commission (“CFTC”) and therefore is subject to CFTC regulations. Piper Jaffray Ltd., our registered United Kingdom broker dealer subsidiary, is subject to the capital requirements of the U.K. Financial Services Authority.

     At June 30, 2005, net capital under the SEC’s uniform net capital rule was $244.4 million, or 40.8 percent, of aggregate debit balances, and $232.4 million in excess of the minimum required net capital.

OFF-BALANCE SHEET ARRANGEMENTS

     We enter into various types of off-balance sheet arrangements in the ordinary course of business. We hold retained interests in nonconsolidated entities, incur obligations to commit capital to nonconsolidated entities, enter into derivative transactions, enter into nonderivative guarantees and enter into other off-balance sheet arrangements.

     We enter into arrangements with special-purpose entities (“SPE’s”), also known as variable interest entities (“VIE’s”). SPE’s are corporations, trusts or partnerships that are established for a limited purpose. SPE’s, by their nature, generally are not controlled by their equity owners, as the establishing documents govern all material decisions. Our primary involvement with SPE’s relates to securitization transactions in which highly rated fixed rate municipal bonds are sold to an SPE. We follow Statement of Financial Accounting Standards No. 140 (“SFAS 140”), “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities — a Replacement of FASB Statement No. 125,” to account for securitizations and other transfers of financial assets. Therefore, we derecognize financial assets transferred in securitizations provided that such transfer meets all of the SFAS 140 criteria.

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     We have investments in various entities, typically partnerships or limited liability companies, established for the purpose of investing in emerging growth companies. We commit capital or act as the managing partner or member of these entities. These entities are reviewed under variable interest entity and voting interest entity standards. If we determine that an entity should not be consolidated, we record these investments on the equity method of accounting. The cost method of accounting is applied to investments where we do not have the ability to exercise significant influence over the operations of an entity.

     We use derivative products in a principal capacity as a dealer to satisfy the financial needs of clients. We also use derivative products to manage the interest rate and market value risks associated with our security positions.

     Our other types of off-balance-sheet arrangements include leases, letters of credit and other commitments or guarantees.

     For a complete discussion of our activities related to our off-balance sheet arrangements, see our Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2004.

ENTERPRISE RISK MANAGEMENT

     Risk is an inherent part of our business. In the course of conducting business operations, we are exposed to a variety of risks. Market risk, credit risk, liquidity risk, operational risk, and legal, regulatory and compliance risk are the principal risks we face in operating our business. We seek to identify, assess and monitor each risk in accordance with defined policies and procedures. The extent to which we properly identify and effectively manage each of these risks is critical to our financial condition and profitability. For a full discussion of our risk management framework, see Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2004.

     Value-at-Risk (“VaR”) is the potential loss in value of Piper Jaffray’s trading positions due to adverse market movements over a defined time horizon with a specified confidence level. We perform a daily VaR analysis on substantially all of our trading positions, including fixed income, equities, convertible bonds and all associated hedges. We use a VaR model because it provides a common metric for assessing market risk across business lines and products. The modeling of the market risk characteristics of our trading positions involves a number of assumptions and approximations. While we believe that these assumptions and approximations are reasonable, different assumptions and approximations could produce materially different VaR estimates. For example, we include the risk-reducing diversification benefit between various securities because it is highly unlikely that all securities would have an equally adverse move on a typical trading day.

     Consistent with industry practice, when calculating VaR we use a 95 percent confidence level and a one-day time horizon for calculating the VaR numbers reported below. This means there is a 1 in 20 chance that daily trading net revenues will fall below the expected daily trading net revenues by an amount at least as large as the reported VaR. As a result, shortfalls from expected trading net revenues on a single trading day that are greater than the reported VaR would be anticipated to occur, on average, about once a month.

     VaR has inherent limitations, including reliance on historical data to predict future market risk and the parameters established in creating the models that limit quantitative risk information outputs. There can be no assurance that actual losses occurring on any given day arising from changes in market conditions will not exceed the VaR amounts shown below or that such losses will not occur more than once in a 20-day trading period. In addition, different VaR methodologies and distribution assumptions could produce materially different VaR numbers. Changes in VaR between reporting periods are generally due to changes in levels of risk exposure, volatilities and/or correlations among asset classes.

     In addition to daily VaR estimates, we calculate the potential market risk to our trading positions under selected stress scenarios. We calculate the daily 99.9 percent VaR estimates both with and without diversification benefits for each risk category and firmwide. These stress tests allow us to measure the potential effects on net revenue from adverse changes in market volatilities, correlations and trading liquidity.

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     The following table quantifies the estimated VaR for each component of market risk for the periods presented:

	June 30,			December 31,
(Dollars in thousands)	2005			2004
Interest Rate Risk	$	625		$	381
Equity Price Risk		537			232
Aggregate Undiversified Risk		1,162			613
Diversification Benefit		(470	)		(242	)
Aggregate Diversified Value-at-Risk	$	692		$	371

     The table below illustrates the high, low and average value-at-risk calculated on a daily basis for each component of market risk during the six months ended June 30, 2005 and the year ended December 31, 2004.

For the Six Months Ended June 30, 2005
(Dollars in thousands)	High		Low		Average
Interest Rate Risk	$	825	$	294	$	502
Equity Price Risk		766		201		534
Aggregate Undiversified Risk		1,406		551		1,035
Aggregate Diversified Value-at-Risk		760		253		584

For the Year Ended December 31, 2004
(Dollars in thousands)	High		Low		Average
Interest Rate Risk	$	1,446	$	238	$	557
Equity Price Risk		578		209		312
Aggregate Undiversified Risk		1,695		482		869
Aggregate Diversified Value-at-Risk		945		267		421

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The information under the caption “Enterprise Risk Management” in Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in this Form 10-Q is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

     As of the end of the period covered by this report, we conducted an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

Internal Control Over Financial Reporting

     During our most recently completed fiscal quarter, there was no change in our system of internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     Due to the nature of our business, we are involved in a variety of legal proceedings on a continuous basis. These proceedings include litigation, arbitration and regulatory proceedings, which may arise from, among other things, client account activity, underwriting or other transactional activity, employment matters, regulatory examinations of our broker dealer business and investigations of securities industry practices by governmental agencies and self-regulatory organizations. The securities industry is highly regulated, and the regulatory scrutiny applied to securities firms has increased dramatically in recent years, resulting in a higher number of regulatory investigations and enforcement actions and significantly greater uncertainty regarding the likely outcome of these matters. The number of litigation and arbitration proceedings also has increased in recent years. Accordingly, in recent years we have incurred, and may incur in the future, higher expenses for legal proceedings than previously.

     At the time of our spin-off from U.S. Bancorp, we assumed liability for certain legal proceedings that named U.S. Bancorp as a defendant but related to the business we managed when Piper Jaffray was a subsidiary of U.S. Bancorp. In those situations, we generally have agreed with U.S. Bancorp that we will manage the proceedings and indemnify U.S. Bancorp for the related expenses, including the amount of any judgment. In turn, U.S. Bancorp agreed at the time of the spin-off to indemnify us for certain legal proceedings relating to our business prior to the spin-off (as described in Note 8 to our unaudited consolidated financial statements, included in this Form 10-Q).

     Litigation-related expenses include amounts we reserve and/or pay out as legal and regulatory settlements, awards or judgments, and fines. Parties who initiate litigation and arbitration proceedings against us may seek substantial or indeterminate damages, and regulatory investigations can result in substantial fines being imposed on us. We reserve for contingencies related to legal proceedings at the time and to the extent we determine the amount to be probable and reasonably estimable. However, it is inherently difficult to predict accurately the timing and outcome of legal proceedings, including the amounts of any settlements, judgments or fines. We assess each proceeding based on its particular facts, our outside advisors’ and our past experience with similar matters, and expectations regarding the current legal and regulatory environment and other external developments that might affect the outcome of a particular proceeding or type of proceeding. We believe, based on our current knowledge, after appropriate consultation with outside legal counsel, in light of our established reserves and the indemnification available from U.S. Bancorp, that pending litigation, arbitration and regulatory proceedings, including those described below, will be resolved with no material adverse effect on our financial condition. Of course, there can be no assurance that our assessments will reflect the ultimate outcome of pending proceedings, and the outcome of any particular matter may be material to our operating results for any particular period, depending, in part, on the operating results for that period and the amount of established reserves and indemnification. We generally have denied, or believe that we have meritorious defenses and will deny, liability in all significant litigation and arbitration proceedings currently pending against us, and we intend to vigorously defend such actions.

Litigation Regarding Equity Research Conflicts of Interest

     Together with the other firms involved in the 2003 equity research conflicts of interest settlement, we have been named as a defendant in a pending lawsuit based, in part, on allegations regarding violations of a number of different NASD and NYSE rules and Section 17(b) of the Securities Act. This action, entitled State of West Virginia v. Bear, Stearns & Company, Inc., et al., Case No. 03-C-133M, Circuit Court of Marshall County, West Virginia, was filed on June 23, 2003, and seeks unspecified civil penalties under the West Virginia Consumer Protection Act. The defendants filed a motion to dismiss all claims. The circuit court indicated a desire to certify certain legal questions raised by the defendants’ motion for appeal to the West Virginia Supreme Court of Appeals. The circuit court entered its order denying the motions to dismiss and certifying a question of law to the Supreme Court of Appeals of West Virginia on July 23, 2004. On September 21, 2004, the defendants filed a petition in the Supreme Court of Appeals seeking certification and review of the denial of the motions to dismiss. On January 19, 2005, the Supreme Court of Appeals entered an order granting defendants’ petition, and the parties submitted briefs to the court. Oral argument on the petition was held on June 8, 2005. The Supreme Court of Appeals answered the certified question by concluding that the West Virginia attorney general does not have authority under the Consumer Credit and Protection Act to pursue the claims asserted in this action and remanded this matter to the circuit court on July 7, 2005. We did not settle any other litigation regarding equity research conflicts of interest as part of the research settlement with securities regulators.

Initial Public Offering Allocation Litigation

     We have been named, along with other leading securities firms, as a defendant in many putative class actions filed in 2001 and 2002 in the U.S. District Court for the Southern District of New York involving the allocation of securities in certain initial public offerings. The court’s order, dated August 8, 2001, transferred all related class action complaints for coordination and pretrial purposes as In re Initial Public Offering Allocation Securities Litigation, Master File No. 21 MC 92 (SAS). These complaints assert claims pursuant to Section 11 of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder. The claims are

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based, in part, upon allegations that between 1998 and 2000, in connection with acting as an underwriter of certain initial public offerings of technology and Internet-related companies, we obtained excessive compensation by allocating shares in these initial public offerings to preferred customers who, in return, purportedly agreed to pay additional compensation to us in the form of excess commissions that we failed to disclose. The complaints also allege that our customers who received favorable allocations of shares in initial public offerings agreed to purchase additional shares of the same issuer in the secondary market at pre-determined prices. These complaints seek unspecified damages. The defendants’ motions to dismiss the complaints were filed on July 1, 2002, and oral argument on the motions to dismiss was heard on November 14, 2002. The court entered its order largely denying the motions to dismiss on February 19, 2003. A status conference was held with the court on July 11, 2003, for purposes of establishing a case management plan setting forth discovery deadlines, selecting focus cases and briefing class certification. Seventeen focus cases were selected, including eleven cases for purposes of merits discovery and six cases for purposes of class certification. We are named defendants in two of the merits focus cases and none of the class certification focus cases. On October 13, 2004, the court issued an opinion largely granting plaintiffs’ motions for class certification in the six class certification focus cases. Defendants filed a petition seeking leave to appeal the class certification ruling on October 27, 2004. Plaintiffs filed their opposition to the petition on November 8, 2004, and defendants filed their reply in further support of the petition on November 15, 2004. The United States Court of Appeals for the Second Circuit granted the defendants’ petition on June 30, 2005. A briefing schedule has not yet been established in connection with this appeal. Discovery is proceeding with respect to the remaining eleven focus cases selected for merits discovery.

Initial Public Offering Fee Antitrust Litigation

     We have been named, along with other leading securities firms, as a defendant in several putative class actions filed in the U.S. District Court for the Southern District of New York in 1998. The court’s order, dated February 11, 1999, consolidated these purported class actions for all purposes as In re Public Offering Fee Antitrust Litigation, Case No. 98 CV 7890 (LMM). The consolidated amended complaint seeks unspecified compensatory damages, treble damages and injunctive relief. The consolidated amended complaint was filed on behalf of purchasers of shares issued in certain initial public offerings for U.S. companies and alleges that defendants conspired in offerings of an amount between $20 million and $80 million to fix the underwriters’ discount at 7.0 percent of the offering amount in violation of Section 1 of the Sherman Act. The court dismissed this consolidated action with prejudice and denied plaintiffs’ motion to amend the complaint and include an issuer plaintiff. The court stated that its decision did not affect any class actions filed on behalf of issuer plaintiffs. The Second Circuit Court of Appeals reversed the district court’s decision on December 13, 2002 and remanded the action to the district court. A motion to dismiss was filed with the district court on March 26, 2003 seeking dismissal of this action and the issuer plaintiff action described below in their entirety, based upon the argument that the determination of underwriting fees is implicitly immune from the antitrust laws because of the extensive federal regulation of the securities markets. Plaintiffs filed their opposition to the motion to dismiss on April 25, 2003. The underwriter defendants filed a motion for leave to file a supplemental memorandum of law in further support of their motion to dismiss on June 10, 2003. The court denied the motion to dismiss based upon implied immunity in its memorandum and order dated June 26, 2003. A supplemental memorandum in support of the motion to dismiss, applicable only to this action because the purported class consists of indirect purchasers, was filed on June 24, 2003 and seeks dismissal based upon the argument that the proposed class members cannot state claims upon which relief can be granted. Plaintiffs filed a supplemental memorandum in opposition to defendants’ motion to dismiss on July 9, 2003. Defendants filed a reply in further support of the motion to dismiss on July 25, 2003. The court entered its memorandum and order granting in part and denying in part the motion to dismiss on February 24, 2004. Plaintiffs’ damage claims were dismissed because they were indirect purchasers. The motion to dismiss was denied with respect to plaintiffs’ claims for injunctive relief. We filed our answer to the consolidated amended complaint on April 22, 2004. Plaintiffs filed a motion for class certification and supporting memorandum of law on September 16, 2004. Class discovery concluded on April 11, 2005. Defendants filed their brief in opposition to plaintiffs’ motion for class certification on May 25, 2005. Oral argument with respect to the class certification motion has not yet been scheduled. Discovery is proceeding at this time.

     Similar purported class actions have also been filed against us in the U.S. District Court for the Southern District of New York on behalf of issuer plaintiffs asserting substantially similar antitrust claims based upon allegations that 7.0 percent underwriters’ discounts violate the Sherman Act. These purported class actions were consolidated by the district court as In re Issuer Plaintiff Initial Public Offering Fee Antitrust Litigation, Case No. 00 CV 7804 (LMM), on May 23, 2001. These complaints also seek unspecified compensatory damages, treble damages and injunctive relief. Plaintiffs filed a consolidated class action complaint on July 6, 2001. The district court denied defendants’ motion to dismiss the complaint on September 30, 2002. Defendants filed a motion to certify the order for interlocutory appeal on October 15, 2002. On March 26, 2003, the motion to dismiss based upon implied immunity was also filed in connection with this action. The court denied the motion to dismiss on June 26, 2003. Plaintiffs filed a motion for class certification and supporting memorandum of law on September 16, 2004. Class discovery concluded on April 11, 2005. Defendants filed their brief in opposition to plaintiffs’ motion for class certification on May 25, 2005. Oral argument with respect to the class certification motion has not yet been scheduled. Discovery is proceeding at this time.

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

     The table below sets forth the information with respect to purchases made by or on behalf of Piper Jaffray Companies or any “affiliated purchaser” (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of our common stock during the quarter ended June 30, 2005.

     In addition, a third-party trustee makes open-market purchases of our common stock from time to time pursuant to the Piper Jaffray Companies Retirement Plan, under which participating employees may allocate assets to a company stock fund.

					Total Number of Shares
	Total Number				Purchased as Part of		Maximum Number of Shares
	of Shares		Average Price		Publicly Announced		that May Yet Be Purchased
Period	Purchased(1)		Paid per Share		Plans or Programs		Under the Plans or Programs
Month #1 (April 1, 2005 to April 30, 2005)		207,200	$	32.10		207,200		767,800
Month #2 (May 1, 2005 to May 31, 2005)		291,150	$	27.37		291,150		476,650
Month #3 (June 1, 2005 to June 30, 2005)		125,400	$	29.89		125,400		351,250
Total		623,750	$	29.45		623,750

⁽¹⁾ On January 26, 2005, we announced that our board of directors had authorized us to repurchase up to 1.3 million shares of our outstanding common stock for a maximum aggregate purchase price of $65.0 million. The repurchase program is authorized through December 31, 2005. Purchases under the program are made in the open market pursuant to a 10b5-1 plan established with an independent agent. The 10b5-1 plan is a formula-based plan, with the formula based primarily on the trading volume of our shares in the open market. Accordingly, the timing of repurchases under the plan will accelerate or decelerate based on high or low trading volumes, respectively.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a)	The Company’s 2005 annual meeting of shareholders was held on April 27, 2005. The holders of 18,074,847 shares of common stock, 87 percent of the outstanding shares entitled to vote as of the record date, were represented at the meeting in person or by proxy.
(c)	At the annual meeting, Michael R. Francis and Addison L. Piper were elected as Class II directors to serve three-year terms expiring at the annual meeting of shareholders in 2008. The following table shows the vote totals for each of these individuals:

Name	Votes For		Authority Withheld
Michael R. Francis		17,143,772		931,075
Addison L. Piper		17,086,118		988,729

At the annual meeting, our shareholders also ratified the selection of Ernst & Young LLP as the Company’s independent auditor for the year ending December 31, 2005. The following table indicates the specific voting results for this item:

Proposal	Votes For		Votes Against		Abstentions		Broker Non-Votes
Ratification of Ernst & Young LLP as Independent Auditor for 2005		17,675,484		362,160		37,202		0

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A third business item was submitted to the Company by a shareholder for inclusion in the proxy statement but was misdirected within the Company and inadvertently excluded from the proxy statement. The non-binding proposal recommended that our board of directors take the steps necessary to eliminate the Company’s classified board and require the annual election of all directors. Given the circumstances, the board of directors determined it would treat this proposal as if it had been approved by a majority of our shareholders and will consider over the coming months whether to propose to shareholders at our 2006 annual meeting a binding amendment to our certificate of incorporation to declassify the board.

ITEM 6. EXHIBITS

Exhibit		Method of
Number	Description	Filing
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith
32.1	Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith
99.1	Risk Factors.	Filed herewith

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SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on August 1, 2005.

PIPER JAFFRAY COMPANIES
By	/s/ Andrew S. Duff
Its	Chairman and CEO
By	/s/ Sandra G. Sponem
Its	Chief Financial Officer

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Exhibit Index

Exhibit		Method of
Number	Description	Filing
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer.	Filed herewith
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer.	Filed herewith
32.1	Certifications furnished pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	Filed herewith
99.1	Risk Factors.	Filed herewith