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substantially the same terms as those prevailing at the time for comparable transactions with nonemployees.From time to time, certain of our directors, executive officers and other employees who areaccredited investors may invest their personal funds directly in funds managed by Piper Jaffray,through our subsidiaries, on the same terms and with the same conditions as the other investors inthese funds, who may not be our directors, executive officers or employees. Messrs. Schnettler andPiper invested $100,000 and $80,000, respectively, in one such fund in 2005.To the extent permitted by the Sarbanes-Oxley Act of 2002, our directors and executive officersand their affiliates from time to time may be or may have been indebted to our broker-dealersubsidiary in connection with margin account loans. Such indebtedness is in the ordinary course ofbusiness, is on substantially the same terms, including interest rates and collateral, as those prevailingat the time for comparable transactions with other persons and does not involve more than a normalrisk of collectibility or present other unfavorable features.AUDIT COMMITTEE REPORT AND PAYMENT OF FEES TO OUR INDEPENDENT AUDITORAudit Committee ReportThe primary function of our Audit Committee is oversight of our financial reporting process,publicly filed financial reports, internal accounting and financial controls, and the independent audit ofthe consolidated financial statements. The consolidated financial statements of Piper Jaffray Companiesfor the year ended December 31, 2005, were audited by Ernst & Young LLP, independent auditor forthe company.As part of its activities, the Committee has:1. Reviewed and discussed with management and the independent auditor the company’saudited financial statements;2. Discussed with the independent auditor the matters required to be communicated underStatement on Auditing Standards No. 61 (Communications with Audit Committees);3. Received the written disclosures and letter from the independent auditor required byIndependence Standards Board Standard No. 1 (Independence Discussions with AuditCommittees); and4. Discussed with the independent auditor its independence.Management is responsible for the company’s system of internal controls and the financialreporting process. Ernst & Young LLP is responsible for performing an independent audit of theconsolidated financial statements in accordance with the standards of the Public Company AccountingOversight Board and issuing a report thereon. Our Committee’s responsibility is to monitor andoversee these processes.Based on the foregoing review and discussions and a review of the report of Ernst & Young LLPwith respect to the consolidated financial statements, and relying thereon, we have recommended tothe Board of Directors of Piper Jaffray Companies the inclusion of the audited consolidated financialstatements in Piper Jaffray’s Annual Report on Form 10-K for the year ended December 31, 2005, forfiling with the Securities and Exchange Commission.Audit Committee of the Board of Directors of Piper Jaffray CompaniesRichard A. Zona, ChairpersonB. Kristine JohnsonFrank L. Sims34