e10vk

-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AzC1CA4NDLsOkj/pAQFTSkiePnMdjAIZdjQOAeYnuWC6mk+GUM/lXR0buxIECKm4 ApMTPigTnzG95ZjXy9Vbhw== 0000950134-05-018480.txt : 20050928 0000950134-05-018480.hdr.sgml : 20050928 20050928134351 ACCESSION NUMBER: 0000950134-05-018480 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050928 DATE AS OF CHANGE: 20050928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S GLOBAL INVESTORS INC CENTRAL INDEX KEY: 0000754811 STANDARD INDUSTRIAL CLASSIFICATION: INVESTMENT ADVICE [6282] IRS NUMBER: 741598370 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13928 FILM NUMBER: 051107516 BUSINESS ADDRESS: STREET 1: 7900 CALLAGHAN RD CITY: SAN ANTONIO STATE: TX ZIP: 78229 BUSINESS PHONE: 2103081234 MAIL ADDRESS: STREET 1: 7900 CALLAGHAN ROAD CITY: SAN ANTONIO STATE: TX ZIP: 78229 FORMER COMPANY: FORMER CONFORMED NAME: UNITED SERVICES ADVISORS INC /TX/ DATE OF NAME CHANGE: 19950321 10-K 1 d28870e10vk.htm FORM 10-K e10vk

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


þ		Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the Fiscal Year Ended June 30, 2005


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 Number 0-13928

U.S. GLOBAL INVESTORS, INC.

Incorporated in the State of Texas

IRS Employer Identification No. 74-1598370

Principal Executive Offices:
7900 Callaghan Road
San Antonio, Texas 78229
Telephone Number: 210-308-1234

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act:
Class A common stock
($0.05 par value per share)

Registered: NASDAQ Small Cap Issues

Indicate by check mark whether the Company (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 twelve 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). Yes o No þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes o No o

The aggregate market value of the 4,079,317 shares of nonvoting class A common stock held by nonaffiliates of the registrant on September 9, 2005, based on the last sale price on NASDAQ as of December 31, 2004, was $16,725,200. Registrant’s only voting stock is its class C common stock, par value of $0.05 per share, for which there is no active market. The aggregate value of the 104,589 shares of the class C common stock held by nonaffiliates of the registrant on December 31, 2004 (based on the last sale price of the class C common stock in a private transaction) was $52,295. For purposes of this disclosure only, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of the registrant’s common stock are affiliates of the registrant.

On September 9, 2005, there were 6,319,974 shares of Registrant’s class A nonvoting common stock issued and 5,999,714 shares of Registrant’s class A nonvoting common stock issued and outstanding, no shares of Registrant’s class B nonvoting common stock outstanding, and 1,496,800 shares of Registrant’s class C common stock issued and outstanding.

Documents incorporated by reference: None

Table of Contents


Part I of Annual Report on Form 10-K			1
Item 1. Business			1
Item 2. Properties			5
Item 3. Legal Proceedings			5
Item 4. Submission of Matters to a Vote of Security Holders			5
Part II of Annual Report on Form 10-K			6
Item 5. Market for Company’s Common Equity and Related Shareholder Matters			6
Item 6. Selected Financial Data			7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			9
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			16
Item 8. Financial Statements and Supplementary Data			18
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			36
Item 9A. Controls and Procedures			37
Part III of Annual Report on Form 10-K			38
Item 10. Directors and Executive Officers of the Company			38
Item 11. Executive Compensation			40
Item 12. Security Ownership of Certain Beneficial Owners and Management			44
Item 13. Certain Relationships and Related Transactions			46
Item 14. Principal Accounting Fees and Services			47
Part IV of Annual Report on Form 10-K			48
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K			48
Signatures			52
Exhibit 14.02 — Code of Ethics
Exhibit 21 — Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership
Exhibit 31.1 — Rule 13a - 14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1 — Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)
Code of Ethics
List of Subsidiaries
Rule 13a-14(a) Certifications under Section 302
Section 1350 Certifications under Section 906

Part I of Annual Report on Form 10-K

Item 1. Business

U.S. Global Investors, Inc. (Company or U.S. Global) has made forward-looking statements concerning the Company’s performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company’s control, including (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, (iii) the effect of government regulation on the Company’s business, and (iv) market, credit, and liquidity risks associated with the Company’s investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.

U.S. Global, a Texas corporation organized in 1968, and its wholly owned subsidiaries are in the mutual fund management business. The Company is a registered investment adviser under the Investment Advisers Act of 1940 and is principally engaged in the business of providing investment advisory and other services, through the Company or its subsidiaries, to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts (collectively, the Trusts or Funds). USGIF and USGAF are investment companies offering shares of nine and four mutual funds, respectively, on a no-load basis.

As part of the mutual fund management business, the Company provides: (1) investment advisory services through the Company or its subsidiaries to institutions (namely, mutual funds) and other persons; (2) transfer agency and record keeping services; (3) mailing services; and (4) distribution services, through its wholly owned broker/dealer, to mutual funds advised by the Company. The fees from investment advisory and transfer agent services, as well as investment income, are the primary sources of the Company’s revenue.

Domestic Funds under Management


			AUM at June 30, 2005
Fund	Ticker	Category	in thousands
U.S. Global Investors Funds
All American Equity	GBTFX	Large cap core	$	19,296
China Region	USCOX	China region		30,513
Global Resources	PSPFX	Natural resources		486,625
Gold Shares	USERX	Gold oriented		67,463
Near-Term Tax Free	NEARX	Short / intermediate municipal debt		18,675
Tax Free	USUTX	General municipal debt		22,371
U.S. Government Securities Savings	UGSXX	U.S. Government money market		410,484
U.S. Treasury Securities Cash	USTXX	U.S. Government money market		111,255
World Precious Minerals	UNWPX	Gold and precious minerals		276,826
U.S. Global Accolade Funds
Eastern European	EUROX	Emerging markets		594,611
Global Emerging Markets⁽¹⁾	GEMFX	Emerging markets		10,835
Holmes Growth	ACBGX	Mid-cap growth		65,587
MegaTrends	MEGAX	Large-cap growth		13,763

Total AUM at June 30, 2005			$	2,128,304


⁽¹⁾		The Global Emerging Markets Fund was launched on February 24, 2005.

The Company also provides management and advisory services to two offshore funds: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005 and the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established on July 1, 2005, subsequent to the Company’s fiscal year end.

In addition to mutual fund activity, the Company is actively engaged in trading for its own account.

Lines of Business

Investment Management Services

Investment Advisory Services. The Company furnishes an investment program for each of the mutual funds it manages and determines, subject to overall supervision by the boards of trustees of the funds, the funds’ investments pursuant to advisory agreements (Advisory Agreements). Consistent with the investment restrictions, objectives and policies of the particular fund, the portfolio team for each fund determines what investments should be purchased, sold and held, and makes changes in the portfolio deemed to be necessary or appropriate. In the Advisory Agreements, the Company is charged with seeking the best overall terms in executing portfolio transactions and selecting brokers or dealers.

The Company also manages, supervises, and conducts certain other affairs of the funds, subject to the control of the boards of trustees. It provides office space, facilities, and certain business equipment as well as the services of executive and clerical personnel for administering the affairs of the mutual funds. U.S. Global and its affiliates compensate all personnel, officers, directors, and interested trustees of the funds if such persons are also employees of the Company or its affiliates. However, the funds are required to reimburse the Company for a portion of the compensation of the Company’s employees who perform certain state and federal securities law regulatory compliance work on behalf of the funds based upon the time spent on such matters. The Company is responsible for costs associated with marketing fund shares to the extent not otherwise covered by any fund distribution plans adopted pursuant to Investment Company Act Rule 12b-1 (12b-1 Plan).

As required by the Investment Company Act of 1940, the Advisory Agreements are subject to annual renewal and are terminable upon 60-day notice. The boards of trustees of USGIF and USGAF will consider renewal of the applicable agreements in February and May 2006, respectively. Management anticipates that the Advisory Agreements will be renewed.

Transfer Agent and Other Services. The Company’s wholly owned subsidiary, United Shareholder Services, Inc. (USSI), is a transfer agent registered under the Securities Exchange Act of 1934 providing transfer agency, lockbox, and printing services to investment company clients. The transfer agency utilizes a third-party external system providing the Company’s fund shareholder communication network with computer equipment and software designed to meet the operating requirements of a mutual fund transfer agency.

The transfer agency’s duties encompass: (1) acting as servicing agent in connection with dividend and distribution functions; (2) performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption, or repurchase of shares; (3) maintaining such records as are necessary to document transactions in the funds’ shares; (4) acting as servicing agent in connection with mailing of shareholder communications, including reports to shareholders, dividend and distribution notices, and proxy materials for shareholder meetings; and (5) investigating and answering all shareholder account inquiries.

The transfer agency agreements provide that USSI will receive, as compensation for services rendered as transfer agent, an annual fee per account, and will be reimbursed for out-of-pocket expenses. In connection with obtaining/providing administrative services to the beneficial owners of fund shares through institutions that provide such services and maintain an omnibus account with USSI, each fund pays a monthly fee based on the number of accounts or the value of the shares of the fund held in accounts at the institution, which payment shall not exceed the per account charge on an annual basis.

The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF in February and May 2006, respectively, and management anticipates that the agreements will be renewed.

Other Advisory Services. In addition to providing mutual fund management and transfer agent services to USGIF and USGAF funds, the Company provides management and advisory services to two offshore funds: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005, and the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established on July 1, 2005, subsequent to the Company’s fiscal year end.

Brokerage Services. The Company has registered its wholly owned subsidiary, U.S. Global Brokerage, Inc. (USGB), with the National Association of Securities Dealers (NASD), the Securities and Exchange Commission (SEC), and appropriate state regulatory authorities as a limited-purpose broker/dealer for the purpose of distributing USGIF and USGAF fund shares. Effective September 3, 1998, USGB became the distributor for USGIF and USGAF fund shares. For the fiscal year ended June 30, 2005, the Company capitalized USGB with approximately $4,151,000 to cover the costs associated with continuing operations.

Mailing Services. A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. A&B Mailers’ primary customers include the Company in connection with its efforts to promote the funds and the Company’s investment company clients in connection with required mailings.

Corporate Investments

Investment Activities. In addition to mutual fund activity, the Company attempts to maximize its cash position by using a diversified venture capital approach to investing. Management invests in early-stage or start-up businesses seeking initial financing and more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization.

Employees

As of June 30, 2005, U.S. Global and its subsidiaries employed 64 full-time employees and 3 part-time employees; as of June 30, 2004, it employed 61 full-time employees and 4 part-time employees. The Company considers its relationship with its employees to be good.

Competition

The mutual fund industry is highly competitive. Recent reports show there are approximately 8,000 domestically registered open-end investment companies of varying sizes and investment policies whose shares are being offered to the public worldwide. Generally, there are two types of mutual funds: “load” and “no-load.” In addition, there are both load and no-load funds that have adopted 12b-1 plans authorizing the payment of distribution costs of the funds out of fund assets, such as USGAF. Load funds are typically sold through or sponsored by brokerage firms, and a sales commission is charged on the amount of the investment. No-load funds, such as the USGIF and USGAF funds, however, may be purchased directly from the particular mutual fund organization or through a distributor, and no sales commissions are charged.

In addition to competition from other mutual fund managers and investment advisers, the Company and the mutual fund industry are in competition with various investment alternatives offered by insurance companies, banks, securities dealers, and other financial institutions. Many of these institutions are able to engage in more liberal advertising than mutual funds and may offer accounts at competitive interest rates, which are insured by federally chartered corporations such as the Federal Deposit Insurance Corporation. Amendments to, and regulatory pronouncements related to, the Glass-Stegall Act, the statute that has prohibited banks from engaging in various activities, are enabling banks to compete with the Company in a variety of areas.

A number of mutual fund groups are significantly larger than the funds managed by U.S. Global, offer a greater variety of investment objectives, and have more experience and greater resources to promote the sale of investments therein. However, the Company believes it has the resources, products, and personnel to compete with these other mutual funds. In particular, the company is known for its expertise in the gold mining and exploration and natural resources industries. Competition for sales of fund shares is influenced by various factors, including investment objectives and performance, advertising and sales promotional efforts, distribution channels, and the types and quality of services offered to fund shareholders.

Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on each fund’s investment performance, the quality of services provided to shareholders, and the Company’s efforts to market the funds effectively. Sales of fund shares generate management fees (which are based on assets of the funds) and transfer agent fees (which are based on the number of fund accounts). Costs of distribution and compliance continue to put pressure on profit margins for the mutual fund industry.

Supervision and Regulation

The Company, USSI, USGB, and the investment companies it manages and administers operate under certain laws, including federal and state securities laws, governing their organization, registration, operation, legal, financial, and tax status. Among the penalties for violation of the laws and regulations applicable to the Company and its subsidiaries are fines, imprisonment, injunctions, revocation of registration, and certain additional administrative sanctions. Any determination that the Company or its management has violated applicable laws and regulations could have a material adverse effect on the business of the Company. Moreover, there is no assurance that changes to existing laws, regulations, or rulings promulgated by governmental entities having jurisdiction over the Company and the funds will not have a material adverse effect on its business. The Company has no control over regulatory rulemaking or the consequences it may have on the mutual fund industry.

Recent and accelerating regulatory pronouncements and oversight have significantly increased the burden of compliance infrastructure with respect to the mutual fund industry and the capital markets.

This momentum of new regulations has contributed significantly to the costs of managing and administering mutual funds.

U.S. Global is a registered investment adviser subject to regulation by the SEC pursuant to the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Securities Exchange Act of 1934 (1934 Act). USSI is also subject to regulation by the SEC under the 1934 Act. USGB is subject to regulation by the SEC under the 1934 Act and regulation by the NASD, a self-regulatory organization composed of other registered broker/dealers. U.S. Global, USSI, and USGB are required to keep and maintain certain reports and records, which must be made available to the SEC and the NASD upon request. Moreover, the funds managed by the Company are subject to regulation and periodic reporting under the Investment Company Act of 1940 and, with respect to their continuous public offering of shares, the registration provisions of the Securities Act of 1933.

Relationships with the Funds

The businesses of the Company are, to a very significant degree, dependent on their associations and contractual relationships with the Funds. In the event the advisory or transfer agent services agreements with USGIF or USGAF are canceled or not renewed pursuant to the terms thereof, the Company would be substantially adversely affected. U.S. Global, USSI, and USGB consider their relationships with the Funds to be good, and they have no reason to believe that their management and service contracts will not be renewed in the future; however, there is no assurance that USGIF and USGAF will choose to continue their relationships with the Company, USSI, or USGB.

Item 2. Properties

The Company presently owns and occupies an office building as its headquarters in San Antonio, Texas. The office building is approximately 46,000 square feet on approximately 2.5 acres of land. The note payable related to the building was paid in full in fiscal 2004.

Item 3. Legal Proceedings

There are no material legal proceedings in which the Company is involved. There are no material legal proceedings to which any director, officer or affiliate of the Company or any associate of any such director or officer is a party or has a material interest, adverse to the Company or any of its subsidiaries.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of security holders during fiscal year 2005.

Part II of Annual Report on Form 10-K

Item 5. Market for Company’s Common Equity and Related Shareholder Matters

Market Information

The Company has three classes of common equity: class A, class B and class C common stock, par value $0.05 per share.

There is no established public trading market for the Company’s class B and class C common stock.

The Company’s class A and class B common stock have no voting privileges.

The Company’s class A common stock is traded over-the-counter and is quoted daily under NASDAQ’s Small Cap Issues. Trades are reported under the symbol “GROW.”

The following table sets forth the range of high and low sales prices from NASDAQ for the fiscal years ended June 30, 2005 and 2004. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission.

Sales Price


	2005				2004
	High ($)		Low ($)		High ($)		Low ($)
First quarter (9/30)		3.56		2.80		2.73		1.85
Second quarter (12/31)		4.47		2.90		5.00		2.00
Third quarter (3/31)		6.49		3.42		4.55		3.60
Fourth quarter (6/30)		6.50		4.39		5.20		2.39

Holders

On September 9, 2005, there were 200 holders of record of class A common stock, no holders of record of class B common stock, and 71 holders of record of class C common stock.

Many of the class A common shares are held of record by nominees, and management believes that as of September 9, 2005, there were approximately 1,000 beneficial owners of the Company’s class A common stock.

Dividends

The Company has not paid cash dividends on its class C common stock during the last twenty-one fiscal years and has never paid cash dividends on its class A common stock. Payment of cash dividends is within the discretion of the Company’s board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.

Holders of the outstanding shares of the Company’s class A common stock are entitled to receive, when and as declared by the Company’s board of directors, a noncumulative cash dividend equal in the aggregate to 5% of the Company’s net after-tax earnings for its prior fiscal year. After such dividend has been paid, the holders of the outstanding shares of class B common stock are entitled to receive, when and as declared by the Company’s board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A common stock. Holders of the outstanding shares of class C common stock are entitled to receive when and as declared by the Company’s board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A and class B common stock. Thereafter, if the board of directors determines to pay additional cash dividends, such dividends will be paid simultaneously on a prorated basis to holders of class A, B, and C common stock. The holders of the class A common stock are protected in certain instances against dilution of the dividend amount payable to such holders.

Purchases of equity securities by the issuer

The following table provides information regarding the Company’s repurchases of shares of its class A common stock during the fiscal year ended June 30, 2005. There were no repurchases of class B or class C common stock during the fiscal year.

Issuer Purchases of Equity Securities
Fiscal Year Ended 6/30/05

Maximum

Number of

Total

Total Number of

Shares that May

Number of

Total

Average

Shares Purchased

Yet Be

Shares

Amount

Price Paid

as Part of Publicly

Purchased Under

Period

Purchased

Per Share

Announced Plan

the Plan

07-01-04 to 07-31-04

—

N/A

08-01-04 to 08-31-04

—

N/A

09-01-04 to 09-30-04

—

N/A

10-01-04 to 10-31-04

—

N/A

11-01-04 to 11-30-04

987

3,510

3.56

N/A

12-01-04 to 12-31-04

300

1,023

3.41

N/A

01-01-05 to 01-31-05

—

N/A

02-01-05 to 02-28-05

—

N/A

03-01-05 to 03-31-05

400

2,370

5.92

N/A

04-01-05 to 04-30-05

—

N/A

05-01-05 to 05-31-05

177

1,012

5.72

N/A

06-01-05 to 06-30-05

1,116

6,053

5.42

N/A

Total

2,980

13,968

4.69

N/A

Item 6. Selected Financial Data

The following selected financial data is qualified by reference to, and should be read in conjunction with, the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this Form 10-K. The selected financial data as of June 30, 2004, through June 30, 2005, and the years then ended, is derived from the Company’s Consolidated Financial Statements, which were audited by BDO Seidman, LLP, independent registered public accountants. The selected financial data as of June 30, 2001, through June 30, 2003, and the years then ended is derived from the Company’s Consolidated Financial Statements, which were audited by Ernst & Young LLP, independent registered public accountants.


Selected	Year ended June 30,
Financial Data	2005			2004			2003			2002			2001
Revenues	$	16,981,339		$	12,983,500		$	7,478,936		$	7,767,514		$	8,893,884
Expenses		14,744,897			10,141,019			7,817,883			8,104,299			9,652,382

Income (loss) before gain on litigation settlement and income taxes		2,236,442			2,842,481			(338,947	)		(336,785	)		(758,498	)
Gain on litigation settlement		—			—			371,057			—			—
Income tax expense (benefit)		789,971			675,839			(10,502	)		(95,351	)		36,181

Net income (loss)		1,446,471		$	2,166,642		$	42,612		$	(241,434	)	$	(794,679	)
Basic income (loss) per share		0.19			0.29			0.01			(0.03	)		(0.11	)
Working capital		7,078,544			5,267,573			3,562,885			2,930,974			3,246,792
Total assets		12,102,515			9,356,596			7,439,687			7,905,021			7,912,184
Long-term obligations		—			—			988,536			1,067,967			1,135,903
Shareholders’ equity		9,903,088			8,485,346			5,673,689			5,580,059			5,715,520
Net cash provided by operations		986,120			2,669,928			128,916			6,239			132,855
Net cash (used in) provided by investing activities		(67,634	)		(30,328	)		147,470			(274,750	)		(71,534	)
Net cash provided by (used in) financing activities		64,016			(970,167	)		(103,079	)		(76,475	)		(84,302	)

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion reviews and analyzes the consolidated results of operations for the past three fiscal years and other factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements, Notes to the Consolidated Financial Statements, and Selected Financial Data.

Business Segments

U.S. Global Investors, Inc. (Company or U.S. Global), with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position. For more details on the results of our core operations, see Note 14 — Financial Information by Business Segment.

The Company generates substantially all its operating revenues from the investment management of products and services for the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Although the Company generates the majority of its revenues from this segment, the Company holds a significant amount of its total assets in investments. As of June 30, 2005, the Company held approximately $3.5 million in investments, comprising 28.9% of its total assets. The following is a brief discussion of the Company’s two business segments.

Investment Management Products and Services

Investment management revenues are largely dependent on the total value and composition of assets under management. Fluctuations in the markets and investor sentiment directly impact the funds’ asset levels, thereby affecting income and results of operations. During fiscal year 2005, total average assets under management increased 31.9% to $1.77 billion, primarily due to significant increases in the natural resource and foreign equity funds under management, through both net inflows and market appreciation. This favorable trend has been partially offset by a reduction in assets in the money market funds as investors seek alternative short-term investments with higher yields.

Average Assets under Management
(Dollars in Millions)


	2005		2004		% Change			2004		2003		% Change
USGIF — Money Market	$	547	$	609		(10.2	%)	$	609	$	746		(18.4	)%
USGIF — Other		721		549		31.3	%		549		224		145.1	%

USGIF — Total		1,268		1,158		9.5	%		1,158		970		19.4	%
USGAF		505		186		171.5	%		186		101		84.2	%

Total	$	1,773	$	1,344		31.9	%	$	1,344	$	1,071		25.5	%

Investment Activities

Management believes it can more effectively manage the Company’s cash position by maintaining certain types of investments utilized in cash management and continues to believe that such activities are in the best interest of the Company.

The following summarizes the market value, cost and unrealized gain or loss on investments as of June 30, 2005, and June 30, 2004.


								Unrealized
								holding gains on
								available-for-sale
					Unrealized Gain			securities, net of
Securities	Market Value		Cost		(Loss)			34% tax
Trading¹	$	2,612,529	$	3,040,700	$	(428,171	)		—
Available for sale²		890,461		299,055		591,406		$	390,328

Total at June 30, 2005		3,502,990		3,339,755		163,235


Trading¹		1,672,354		1,857,171		(184,817	)		—
Available for sale²		1,212,742		405,055		807,687		$	533,074

Total at June 30, 2004	$	2,885,096	$	2,262,226	$	622,870


¹		Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.

²		Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.

As of June 30, 2005, and 2004, the Company held approximately $2.0 and $2.6 million, respectively, in investments other than USGIF, USGAF and its subadvised offshore funds.

Investments in securities classified as trading are reflected as current assets on the consolidated balance sheet at their fair market value. Unrealized holding gains and losses on trading securities are included in earnings in the consolidated statements of operations and comprehensive income. Investments in securities classified as available for sale, which may not be readily marketable, are reflected as non-current assets on the consolidated balance sheet at their fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income as a separate component of shareholders’ equity until realized.

Investment income (loss) from the Company’s investments includes:

	•		realized gains and losses on sales of securities;

	•		unrealized gains and losses on trading securities;

	•		realized foreign currency gains and losses;

	•		other-than-temporary impairments on available-for-sale securities; and

	•		dividend and interest income.

Investment income (loss) can be volatile and varies depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. A significant portion of the unrealized gains and losses is concentrated in a small number of issuers. For fiscal years 2005, 2004, and 2003, the Company had net realized gains (losses) of approximately ($184,000), $291,000, and ($97,000), respectively. The Company expects that gains or losses will continue to fluctuate in the future.

Consolidated Results of Operations

The following is a discussion of the consolidated results of operations of the Company and a detailed discussion of the Company’s revenues and expenses.


	2005		2004		% Change			2004		2003		% Change
Net income (loss) (in thousands)	$	1,446	$	2,167		(33.3	%)	$	2,167	$	43		4,939.5	%
Net income (loss) per share — basic and diluted	$	0.19	$	0.29		(34.5	%)	$	0.29	$	0.01		2,800.0	%
Weighted average shares outstanding (in thousands)
Basic		7,480		7,469					7,469		7,460
Diluted		7,564		7,533					7,533		7,469

Year Ended June 30, 2005, Compared with Year Ended June 30, 2004

The Company posted net after-tax income of $1,446,471 ($0.19 per share) for the year ended June 30, 2005, compared with net after-tax income of $2,166,642 ($0.29 per share) for the year ended June 30, 2004. The decrease in profitability is primarily attributable to the following factors:

	•		Consistent with continued growth in the Eastern European Fund, subadvisory fees increased by $1.7 million;

	•		Investment income decreased by $1.4 million, primarily due to unrealized losses on corporate investments classified as trading securities;

	•		General and administrative expenses increased $1.2 million due to additional consulting, communication, and marketing-related travel and entertainment costs;

	•		Driven by strong mutual fund performance, employee compensation expense increased by $0.9 million primarily due to higher incentive bonuses; and

	•		Omnibus fees increased by $0.9 million due to increased asset inflows through broker/dealer platforms.

These factors were somewhat offset by an overall increase in revenues of 30.8% in fiscal year 2005 to $16,981,339 primarily driven by the following:

	•		The Company’s advisory fees, boosted primarily by the positive impact of market gains and shareholder investments in natural resource and foreign equity funds, increased by 52.6%, or $4.8 million.

	•		Transfer agent fees increased by 24.1%, or $0.6 million, primarily as a result of growth in the number of shareholder accounts.

Year Ended June 30, 2004, Compared with Year Ended June 30, 2003

The Company posted net after-tax income of $2,166,642 million ($0.29 per share) for the year ended June 30, 2004, compared with net after-tax income of $42,612 ($.01 per share) for the year ended June 30, 2003. The profitability in fiscal year 2004 was primarily a result of improved markets for gold-related assets, natural resource commodities, and foreign equities resulting in an increase in advisory fees of $3.9 million. Additionally, the Company’s investment portfolio benefited from the rising gold markets, resulting in an increase in investment income of $1.4 million. These favorable items were partially offset by increases in general and administrative expenses of $1 million, due primarily to increased omnibus fees, and increases in subadvisory fees of $0.5 million.

Revenues


(Dollars in Thousands)	2005			2004		% Change			2004		2003			% Change
Investment advisory fees:
USGIF — Money market	$	1,638		$	1,744		(6.1	)%	$	1,744	$	2,297			(24.1	)%
USGIF — Other		6,010			4,668		28.7	%		4,668		1,562			198.8	%

USGIF — Total		7,648			6,412		19.3	%		6,412		3,859			66.2	%
USGAF		6,059			2,097		188.9	%		2,097		1,045			100.7	%
Other advisory fees		299			670		(55.4	)%		670		386			73.6	%

Total investment advisory fees		14,006			9,179		52.6	%		9,179		5,290			73.5	%
Transfer agent fees		3,187			2,610		22.1	%		2,610		2,327			12.2	%
Investment income (loss)		(351	)		1,023		(134.3	)%		1,023		(345	)		396.5	%
Other revenues		139			171		(18.7	)%		171		207			(17.4	)%

Total	$	16,981		$	12,983		30.8	%	$	12,983	$	7,479			73.6	%

Investment Advisory Fees. Investment advisory fees, the largest component of the Company’s revenues, are derived from two sources: mutual fund advisory fees, which in fiscal 2005 accounted for 98% of the Company’s investment advisory fees, and other advisory fees, which accounted for the remainder.

Mutual fund investment advisory fees are calculated as a percentage of average net assets, ranging from 0.375% to 1.375%, and are paid monthly. Mutual fund investment advisory fees increased by approximately $5.2 million, or 61.1%, in fiscal 2005 over fiscal 2004. Advisory fees benefited from an increase in assets of the higher-margin foreign equity and natural resource funds, particularly in the USGAF Eastern European Fund, USGIF Global Resources Fund and USGIF World Precious Minerals Fund, due to market gains and net shareholder inflows. These funds have higher margins resulting from higher management fee rates.

The Company has agreed to waive or reduce its fees and/or pay expenses for several USGIF funds and one USGAF fund through November 1, 2006, and February 28, 2006, respectively, or such later date as the Company determines for purposes of enhancing the funds’ competitive market positions, in particular the money market and fixed income funds. The aggregate amount of fees waived and expenses borne by the Company totaled approximately $1,332,000, $1,471,000, and $1,509,000, in 2005, 2004, and 2003, respectively. The Company expects to continue to waive fees and/or pay for fund expenses if market and economic conditions warrant. However, subject to the Company’s commitment to certain funds with respect to fee waivers and expense limitations, the Company may reduce the amount of fund expenses it is bearing.

Mutual fund investment advisory fees are also affected by changes in assets under management, which include:

	•		market appreciation or depreciation;

	•		the addition of new client accounts;

	•		client contributions of additional assets to existing accounts;

	•		withdrawals of assets from and termination of client accounts;

	•		exchanges of assets between accounts or products with different fee structures; and

	•		the amount of fees voluntarily reimbursed.

The Company began providing management and advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund, in the first quarter of fiscal year 2005. The Company initially had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee, if any, based on the overall increase in value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the arrangement was changed to provide payment of performance fees on a quarterly rather than annual basis. The Company has recorded subadvisory and performance fees totaling $299,000 for the fiscal year ended June 30, 2005.

Subsequent to fiscal year end, the Company began providing management and advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company will be paid a monthly management fee and a quarterly performance fee, if any.

The Company also provided investment management services for a separate client through March 2004. The Company had a fee arrangement whereby it received an annual administrative fee plus a percentage of any gains from the sale of the securities in the client account, payable at the settlement of the sales. The Company recorded $670,000 in revenue from this fee arrangement through March 2004, at which time the agreement was terminated.

Transfer Agent Fees. United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency, lockbox, and printing services for Company clients. The Company receives an annual fee per account as compensation for services rendered as transfer agent, and is reimbursed for out-of-pocket expenses associated with processing shareholder information. In addition, the Company collects custodial fees on IRAs and other types of retirement plans invested in USGIF and USGAF. Transfer agent fees are therefore affected by the number of client accounts.

The increase in transfer agent fees in fiscal years 2005 and 2004 was primarily a result of an increase in the number of mutual fund shareholder accounts due to improved performance of the natural resource and foreign equity funds.

Investment Income. Investment income (loss) from the Company’s investments includes:

	•		realized gains and losses on sales of securities;

	•		unrealized gains and losses on trading securities;

	•		realized foreign currency gains and losses;

	•		other-than-temporary impairments on available-for-sale securities; and

	•		dividend and interest income.

This source of revenue is dependent on market fluctuations and does not remain at a consistent level. Timing of transactions and the Company’s ability to participate in investment opportunities largely affect this source of revenue.

Investment income decreased by $1.4 million, or 134.3%, in fiscal 2005 compared to fiscal 2004. This decrease can be attributed primarily to a $991,000 increase in unrealized losses on corporate investments classified as trading securities. In addition, realized losses on sales of securities increased by $369,000, and other-than-temporary impairments on available-for-sale securities increased by $65,000. These were slightly offset by an increase in dividend and interest income of $50,000.

The increase in investment income of $1.4 million in fiscal 2004 compared to fiscal 2003 was primarily attributable to improved markets for gold-related assets and natural resource commodities.

Expenses


(Dollars in Thousands)	2005		2004		% Change			2004		2003		% Change
Employee compensation and benefits	$	5,891	$	4,986		18.2	%	$	4,986	$	4,266		16.9	%
General and administrative		3,821		2,623		45.7	%		2,623		2,379		10.3	%
Subadvisory fees		2,720		1,019		166.9	%		1,019		523		94.8	%
Omnibus fees		1,833		959		91.1	%		959		204		370.1	%
Advertising		370		373		(0.8	)%		373		242		54.1	%
Depreciation		110		108		1.9	%		108		121		(10.7	)%
Interest		—		73		(100.0	)%		73		83		(12.0	)%

Total	$	14,745	$	10,141		45.4	%	$	10,141	$	7,818		29.7	%

Employee Compensation and Benefits. Employee compensation and benefits increased by $900,000, or 18.2%, in 2005 and $720,000, or 16.9%, in fiscal 2004, primarily due to incentive bonuses associated with strong mutual fund performance, mutual fund asset growth, and increased accounts.

General and Administrative. The increase in general and administrative expenses of $1.2 million, or 45.7%, in fiscal year 2005 is primarily attributable to increased consulting, communication, and

marketing-related travel and entertainment costs. The increase in general and administrative expenses of $244,000, or 10.3%, in fiscal year 2004 was primarily attributable to increased insurance, sales and marketing costs.

Subadvisory Fees. The increases in subadvisory fees of $1,700,000 and $496,000 in fiscal years 2005 and 2004, respectively, resulted from the sizeable growth in assets in the Eastern European Fund.

Omnibus Fees. Much of the mutual fund asset growth across all funds has been realized through broker/dealer platforms. These broker/dealers typically charge an asset-based fee for assets held in their platforms. Accordingly, net omnibus fee expenses have increased by $874,000 and $755,000 during fiscal years 2005 and 2004, respectively. The incremental assets received through the broker/dealer platforms are not as profitable as those received from direct shareholder accounts due to margin compression from paying omnibus fees on those assets.

Advertising. Advertising expense remained flat at approximately $370,000 and $373,000 during fiscal 2005 and 2004, respectively.

Depreciation. Depreciation expense has remained stable at $110,000 and $108,000 in fiscal years 2005 and 2004, respectively, primarily due to assets becoming fully depreciated without being replaced with additional capital purchases.

Interest. The decrease in interest expense during fiscal 2005 and 2004 of $73,000 and $10,000, respectively, is attributable to the payment in full of the note related to the Company’s building in fiscal 2004.

Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes, resulting from the use of the liability method of accounting for income taxes. For federal income tax purposes at June 30, 2005, the Company has no remaining carryovers.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. As such, management included a valuation allowance of $34,472 at June 30, 2004 providing for the utilization of investment tax credits. The valuation allowance was reduced to zero in fiscal 2005 as the credits expired.

Contractual Obligations

A summary of contractual obligations of the Company as of June 30, 2005, is as follows:


			Payments due by period
			Less than		1 – 3		4 –5		More than
Contractual Obligations	Total		1 year		Years		years		5 years
Operating Lease Obligations	$	217,656	$	79,813	$	129,170	$	8,673		—
Contractual Obligation		191,750		83,400		108,350		—		—

Operating leases consist of telephone equipment, printers, and copiers leased from several vendors. Contractual obligation consists of an agreement with a vendor to provide an e-mail server and a web server.

Liquidity and Capital Resources

At fiscal year end, the Company had net working capital (current assets minus current liabilities) of approximately $7.1 million and a current ratio of 4.2 to 1. With approximately $3.8 million in cash and cash equivalents and $3.5 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $9.9 million, with cash, cash equivalents, and marketable securities comprising 60.5% of total assets. The Company paid the mortgage on its corporate headquarters in full in fiscal 2004. Thus, the Company’s only material commitment from fiscal 2005 forward is for operating expenses. The Company also has access to a $1

million credit facility, which can be utilized for working capital purposes. The Company’s available working capital and potential cash flow are expected to be sufficient to cover current expenses.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 28, 2006, and May 31, 2006, respectively. Management anticipates that the trustees of both USGIF and USGAF will renew the contracts.

Management believes current cash reserves, financing obtained and/or available, and potential cash flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the above-mentioned activities and allow the Company to take advantage of investment opportunities whenever available.

Critical Accounting Policies

Security Investments. The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115). In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date.

Securities that are purchased and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value. Unrealized gains and losses on these securities are included in earnings.

Investments in debt securities that are purchased with the intent and ability to hold until maturity are classified as held-to-maturity and measured at amortized cost. The Company currently has no investments in debt securities.

Investments classified as neither trading securities nor held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale.

The Company evaluates its investments for other-than-temporary declines in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. For available-for-sale securities with declines in value deemed other than temporary, the unrealized loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income.

The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

Taxes. The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.

Valuation of Investments. Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but for which there was no trade on or near the balance sheet date, are valued at the mean price between the last price bid and last price asked. Securities for which quotations are not readily available are valued at cost.

Revenue Recognition. The Company began providing investment subadvisory services for a client in the first quarter of fiscal year 2005. The Company had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee based on the overall increase in

value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the agreement was amended such that performance fees would be earned and paid quarterly based on the overall increase in value of the net assets over the quarter. The Company has recorded $299,000 in revenues from this fee arrangement for the year ended June 30, 2005. Since the performance fee is earned and paid quarterly, the fees will fluctuate on a quarterly basis based on the net asset value of the fund and a decrease in the net assets in subsequent quarters will not be refunded. The calculation of the performance fees will be made as of the last day of each quarter while the agreement is in place, at which time the fees will be recognized. The Company will not be required to offset any previously earned performance fees if losses are recorded by the fund in future quarters.

Stock Options. In December, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in exchange for share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. On April 14, 2005, the SEC announced that SFAS 123R is effective for fiscal years beginning after June 15, 2005. The Company currently accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), which has been superseded by FAS 123R. The Company is currently evaluating the impact that the implementation of FAS 123R will have on the Company’s consolidated financial statements and the Company does not expect the effect to be material.

Related Party Transactions.

The Company had $4,823,000 and $3,045,000 invested in USGIF and USGAF mutual funds included in the balance sheet in cash and cash equivalents and trading securities at June 30, 2005, and 2004, respectively. Receivables from mutual funds shown on the Consolidated Balance Sheets represent amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.

The Company invested $500,000 in an offshore fund (U.S. Global Investors Balanced Natural Resources Fund, Ltd.) that the Company will subadvise starting in July 2005.

Frank Holmes, a director and CEO of the Company, served as an independent director of Franc-Or Resources from June 2000 to November 2003. The Company owns a position in Franc-Or Resources at June 30, 2005, with an estimated fair value of approximately $229,000, recorded as a trading security on the balance sheet.

Mr. Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became a public company. Mr. Holmes personally owned shares of BCS Global Networks at June 30, 2005. The Company owned a position in BCS Global Networks at June 30, 2005, with an estimated fair value of approximately $42,000 recorded as available for sale on the balance sheet. Subsequent to fiscal year end, both the Company and Mr. Holmes sold their holdings in BCS Global Networks in response to a tender offer, with the Company realizing a loss of $31,560 recorded in the first quarter of fiscal 2006.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk Disclosures

The Company’s balance sheet includes assets whose fair value is subject to market risks. Due to the Company’s investments in equity securities, equity price fluctuations represent a market risk factor affecting the Company’s consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management’s estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the

subsequent sale of an investment may differ significantly from the reported market value. The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients. The Company has in place a code of ethics that requires pre-clearance of any trading activity by the Company. Written procedures are also in place to manage compliance with the code of ethics.

The table below summarizes the Company’s equity price risks as of June 30, 2005, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.

Increase

Estimated Fair

(Decrease) in

Hypothetical

Value After

Shareholders’

Fair Value at June 30,

Percentage

Hypothetical

Equity, Net

2005 ($)

Change

Price Change ($)

of Tax ($)

Trading securities¹

2,612,529

25% increase

3,265,661

431,067

25% decrease

1,959,397

(431,067

)

Available-for-sale²

890,461

25% increase

1,113,076

146,926

25% decrease

667,846

(146,926

)


¹		Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.

²		Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income as a separate component of shareholders’ equity until realized.

The selected hypothetical changes do not reflect what could be considered best- or worst-case scenarios. Results could be significantly different due to both the nature of equity markets and the concentration of the Company’s investment portfolio.

Item 8. Financial Statements and Supplementary Data

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
U.S Global Investors, Inc.
San Antonio, Texas

We have audited the accompanying consolidated balance sheets of U.S. Global Investors, Inc. as of June 30, 2005 and 2004 and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the two years in the period ended June 30, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Global Investors, Inc. at June 30, 2005 and 2004, and the results of its operations and its cash flows for each of the two years in the period ended June 30, 2005, in conformity with accounting principles generally accepted in the United States of America.

/s/ BDO Seidman, LLP
Dallas, Texas
August 26, 2005

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders of U. S. Global Investors, Inc.

We have audited the accompanying consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows of U. S. Global Investors, Inc. (the Company) for the year ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated results of operations and cash flows of U.S. Global Investors, Inc. for the year ended June 30, 2003, in conformity with U.S. generally accepted accounting principles.

/s/ Ernst & Young LLP

Dallas, Texas
September 24, 2003

U.S. Global Investors, Inc.
Consolidated Balance Sheets


	June 30,
	2005			2004
Assets
Current Assets
Cash and cash equivalents	$	3,814,178		$	2,831,676
Due from brokers		—			21
Trading securities, at fair value		2,612,529			1,672,354
Receivables
Mutual funds		2,221,148			1,454,872
Other advisory clients		54,140			—
Employees		750			—
Other		43,274			23,227
Prepaid expenses		450,963			307,390
Deferred tax asset		80,989			29,283

Total Current Assets		9,277,971			6,318,823

Net Property and Equipment		1,768,334			1,811,488

Other Assets
Long-term deferred tax asset		165,749			193,543
Investment securities available-for-sale, at fair value		890,461			1,212,742

Total Other Assets		1,056,210			1,406,285

Total Assets	$	12,102,515		$	9,536,596

Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		193,249		$	99,526
Accrued compensation and related costs		525,140			408,681
Other accrued expenses		1,481,038			543,043

Total Current Liabilities		2,199,427			1,051,250

Total Liabilities		2,199,427			1,051,250

Shareholders’ Equity
Common stock (class A) $0.05 par value; nonvoting; authorized 7,000,000 shares; issued, 6,316,474 and 6,311,974 shares at June 30, 2005, and 2004, respectively		315,824			315,599
Common stock (class B) — $0.05 par value; nonvoting; authorized 2,250,000 shares; no shares issued		—			—
Common stock (class C) — $0.05 par value; voting; authorized 1,750,000 shares; issued, 1,496,800 shares		74,840			74,840
Additional paid-in capital		11,158,535			11,110,053
Deferred compensation		(150,000	)		(200,000	)
Treasury stock, class A shares at cost; 326,988 and 339,498 shares at June 30, 2005, and 2004, respectively		(650,592	)		(665,901	)
Accumulated other comprehensive income, net of tax		390,329			533,074
Accumulated deficit		(1,235,848	)		(2,682,319	)

Total Shareholders’ Equity		9,903,088			8,485,346

Total Liabilities and Shareholders’ Equity	$	12,102,515		$	9,536,596

The accompanying notes are an integral part of these financial statements.

U.S. Global Investors, Inc.
Consolidated Statements of Operations and Comprehensive Income


	Year Ended June 30,
	2005			2004		2003
Revenue
Investment advisory fees	$	14,006,508		$	9,179,200	$	5,289,856
Transfer agent fees		3,187,487			2,610,029		2,327,127
Investment income (loss)		(351,248	)		1,023,441		(344,525	)
Other		138,592			170,830		206,478

		16,981,339			12,983,500		7,478,936

Expenses
Employee compensation and benefits		5,891,162			4,985,449		4,265,983
General and administrative		3,821,129			2,622,773		2,379,552
Subadvisory fees		2,719,603			1,018,572		522,673
Omnibus Fees		1,833,096			959,523		203,620
Advertising		369,927			373,492		241,617
Depreciation		109,899			108,065		121,493
Interest		81			73,145		82,945

		14,744,897			10,141,019		7,817,883

Gain on Litigation Settlement		—			—		371,057

Income Before Income Taxes		2,236,442			2,842,481		32,110
Provision for Federal Income Taxes
Tax Expense (Benefit)		789,971			675,839		(10,502	)

Net Income		1,446,471			2,166,642		42,612
Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale securities		(142,745	)		543,957		29,768

Comprehensive Income	$	1,303,726		$	2,710,599	$	72,380

Basic and Diluted Net Income per Share	$	0.19		$	0.29	$	0.01

Basic weighted average number of common shares outstanding		7,479,998			7,469,164		7,460,260
Diluted weighted average number of common shares outstanding		7,564,269			7,533,134		7,469,120

The accompanying notes are an integral part of these financial statements.

U.S. Global Investors, Inc.
Consolidated Statements of Shareholders’ Equity


																	Accumulated
	Common		Common		Additional												Other
	Stock		Stock		Paid-in			Deferred			Accumulated			Treasury			Comprehensive
	(Class A)		(Class C)		Capital			Compensation			Deficit			Stock			Income (Loss)			Total
Balance at June 30, 2002 (6,311,474 shares of Class A; 1,496,800 shares of Class C)		315,574		74,840		11,061,276			(300,000	)		(4,891,573	)		(639,407	)		(40,651	)		5,580,059
Purchase of 40,127 shares of Common Stock (Class A)		—		—		—			—			—			(65,649	)		—			(65,649	)
Reissuance of 23,510 shares of Common Stock (Class A)		—		—		(4,621	)		—			—			41,520			—			36,899
Recognition of current year portion of deferred compensation		—		—					50,000			—			—			—			50,000
Unrealized gain on securities available-for-sale (net of tax)		—		—		—			—			—			—			29,768			29,768
Net Income		—		—		—			—			42,612			—			—			42,612


Balance at June 30, 2003 (6,311,474 shares of Class A; 1,496,800 shares of Class C)		315,574		74,840		11,056,655			(250,000	)		(4,848,961	)		(663,536	)		(10,883	)		5,673,689

Purchase of 16,741 shares of Common Stock (Class A)		—		—		—			—			—			(72,246	)		—			(72,246	)
Reissuance of 39,191 shares of Common Stock (Class A)		—		—		34,398			—			—			69,881			—			104,279
Exercise of 500 options for Common Stock (Class A)		25		—		1,400			—			—			—			—			1,425
Issuance of option for 20,000 shares of Common Stock (Class A)		—		—		17,600			—			—			—			—			17,600
Recognition of current year portion of deferred compensation		—		—		—			50,000			—			—			—			50,000
Unrealized gain on securities available-for-sale (net of tax)		—		—		—			—			—			—			543,957			543,957
Net Income		—		—		—			—			2,166,642			—			—			2,166,642


Balance at June 30, 2004 (6,311,974 shares of Class A; 1,496,800 shares of Class C)		315,599		74,840		11,110,053			(200,000	)		(2,682,319	)		(665,901	)		533,074			8,485,346
Purchase of 2,980 shares of Common Stock (Class A)		—		—		—			—			—			(13,968	)		—			(13,968	)
Reissuance of 15,490 shares of Common Stock (Class A)		—		—		33,958			—			—			29,277			—			63,235
Exercise of 4,500 options for Common Stock (Class A)		225		—		14,524			—			—			—			—			14,749
Recognition of current year portion of deferred compensation		—		—		—			50,000			—			—			—			50,000
Unrealized gain (loss) on securities available-for-sale (net of tax)		—		—		—						—						(142,745	)		(142,745	)
Net Income		—		—		—			—			1,446,471			—			—			1,446,471


Balance at June 30, 2005 (6,316,474 shares of Class A; 1,496,800 shares of Class C)		315,824		74,840		11,158,535			(150,000	)		(1,235,848	)		(650,592	)		390,329			9,903,088

The accompanying notes are an integral part of these financial statements.

U.S. Global Investors, Inc.
Consolidated Statements of Cash Flows


	Year Ended June 30,
	2005			2004			2003
Cash Flow from Operating Activities
Net income	$	1,446,471		$	2,166,642		$	42,612
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		109,899			108,065			121,493
Net recognized loss (gain) on securities		184,253			(861,552	)		344,505
Provision for deferred taxes		49,624			604,296			(10,502	)
Deferred compensation		50,000			50,000			50,000
Class A option issued to non-employee		—			17,600			—
Provision for losses on accounts receivable		26,488			(64,488	)		64,488
Gain on litigation settlement		—			—			(371,057	)
Loss on disposal of equipment		889			4,827			—
Termination of annuity liability		—			(102,909	)		—
Changes in assets and liabilities, impacting cash from operations:
Accounts receivable		(867,701	)		327,072			(360,120	)
Prepaid expenses and other		(143,552	)		229,498			59,930
Trading securities		(1,018,428	)		(200,908	)		672,202
Accounts payable and accrued expenses		1,148,177			391,785			(484,635	)

Total adjustments		(460,351	)		503,286			86,304

Net cash provided by operations		986,120			2,669,928			128,916

Cash Flow from Investing Activities
Purchase of property and equipment		(67,634	)		(145,548	)		(30,335	)
Purchase of available-for-sale securities		—			(200,520	)		(139,866	)
Proceeds on sale of available-for-sale securities		—			315,740			317,671

Net cash (used in) provided by investing activities		(67,634	)		(30,328	)		147,470

Cash Flow from Financing Activities
Payments on annuity		—			(9,564	)		(9,683	)
Payments on note payable		—			(956,560	)		(64,646	)
Proceeds from issuance or exercise of stock, warrants, and options		77,984			68,203			36,899
Purchase of treasury stock		(13,968	)		(72,246	)		(65,649	)

Net cash provided by (used in) financing activities		64,016			(970,167	)		(103,079	)

Net Increase in Cash and Cash Equivalents		982,502			1,669,433			173,307
Beginning Cash and Cash Equivalents		2,831,676			1,162,243			988,936

Ending Cash and Cash Equivalents	$	3,814,178		$	2,831,676		$	1,162,243


Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	81		$	73,145		$	82,945
Cash paid for income taxes	$	645,251		$	29,095			—
Non-cash Transaction
Re-registration of private client investment		—			—		$	581,000

The accompanying notes are an integral part of these financial statements.

Notes to Consolidated Financial Statements

Note 1. Organization

U.S. Global Investors, Inc. (Company or U.S. Global) serves as investment adviser and transfer agent to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts that are no-load, open-end investment companies offering shares in numerous mutual funds to the investing public. The Company has served as investment adviser and manager since the inception of USGIF and USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, its commencement of operations. For these services, the Company receives fees from USGIF and USGAF.

U.S. Global formed the following companies to provide supplementary services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), and U.S. Global Brokerage, Inc. (USGB).

The Company formed two limited liability companies utilized primarily for corporate investment purposes: U.S. Global Investors (Guernsey) Limited (USGG), which was incorporated in Guernsey on August 20, 1993 and U.S. Global Investors (Bermuda) Limited (USBERM) which was incorporated in Bermuda on June 15, 2005.

Note 2. Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, A&B, USGG, USBERM, and USGB.

All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.

Cash and Cash Equivalents. Cash and cash equivalents include highly liquid investments with original maturities of three months or less.

Due from Brokers. The Company conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The due from brokers balance represents cash balances with these brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances owed the Company. Management monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.

for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale.

The Company evaluates its investments for other-than-temporary decline in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. For available-for-sale securities with declines in value deemed other than temporary, the unrealized loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income.

Mutual Fund Receivables. Mutual fund receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF. In addition, mutual fund receivables include amounts reimbursed to the Company for certain advertising and distribution expenses incurred on behalf of USGAF in accordance with Rule 12b-1of the Investment Company Act of 1940. The Company evaluates the collectibility of these receivables on an ongoing basis, and, as a result, placed an allowance of $26,488 and $0 against the receivable balance as of June 30, 2005, and June 30, 2004, respectively.

Property and Equipment. Fixed assets are recorded at cost. Depreciation for fixed assets is recorded using the straight-line method over the estimated useful life of each asset as follows: furniture and equipment are depreciated over 3 to 10 years, and the building and related improvements are depreciated over 32 to 40 years.

Treasury Stock. Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis.

Stock-Based Compensation. The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, as allowed under Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). In accordance with APB 25, no compensation expense is recognized for stock options where the exercise price equals or exceeds the underlying stock price on the date of grant.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:


	Year Ended June 30,
	2005			2004			2003
Net income, as reported	$	1,446,471		$	2,166,642		$	42,612

Add: Stock-based employee compensation expense included in reported net income, net of tax		33,000			33,000			36,168

Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(36,217	)		(36,753	)		(40,554	)


Pro forma net income (loss)	$	1,443,254		$	2,162,889		$	38,226


Earnings per share:
Basic and Diluted — as reported	$	0.19		$	0.29		$	0.01

Basic and Diluted — pro forma	$	0.19		$	0.29		$	0.01

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model. During fiscal 2005, 20,000 options were granted to employees with a fair value, net of tax, of $30,756. No options were granted during fiscal years 2004 or 2003. Subsequent to fiscal year end, a director exercised an option for 10,000 shares.

In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award.

The adoption of SFAS 123R will be effective for the Company for fiscal years beginning after June 15, 2005. As discussed above, the Company currently accounts for stock-based compensation using the intrinsic value method in accordance APB 25, which has been superseded by SFAS 123R. The Company is currently evaluating the impact that SFAS 123R will have on the Company’s consolidated financial statements and does not expect the effect to be material.

Income Taxes. The Company and its subsidiaries file a consolidated federal income tax return. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes resulting from the use of the liability method of accounting for income taxes. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized.

Revenue Recognition. The Company earns substantially all of its revenues from mutual fund investment advisory and transfer agency services. Mutual fund investment advisory fees, calculated as a percentage of assets under management, are recorded as revenue as services are performed. Transfer agency fees are calculated using a charge based upon the number of shareholder accounts serviced. A subadvisory client contract provides for a monthly management fee, in addition to a quarterly performance fee based on the overall increase in value of the net assets in the fund. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.

Dividends and Interest. Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. Both dividends and interest income are included in investment income.

Advertising Costs. The Company expenses advertising costs as they are incurred. Certain sales materials, which are considered tangible assets, are capitalized and then expensed during the period in which they are distributed. At June 30, 2005, 2004, and 2003, the Company had capitalized sales materials of approximately $48,000, $16,000, and $11,000, respectively. Net advertising expenditures were approximately $370,000, $373,000, and $242,000 during fiscal 2005, 2004, and 2003, respectively.

Foreign Currency Transactions. Transactions between the Company and foreign entities are converted to U.S. dollars using the exchange rate on the date of the transactions. Security investments valued in foreign currencies are translated to U.S. dollars using the applicable exchange rate as of the reporting date. Realized foreign currency gains and losses are included as a component of investment income.

Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Earnings Per Share. Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised.

Note 3. Investments

As of June 30, 2005, the Company held investments with a market value of $3.5 million and a cost basis of $3.3 million. The market value of these investments is approximately 28.9 percent of the Company’s total assets.

The following table summarizes investment activity over the last three fiscal years:


	Year Ended June 30,
	2005			2004			2003
Realized gains (losses) on sale of trading securities	$	(78,253	)	$	135,789		$	(7,583	)
Trading securities, at cost		3,040,700			1,857,171			1,658,058
Trading securities, at fair value ⁽¹⁾		2,612,529			1,672,354			723,428
Net change in unrealized gains (losses) on trading securities (included in earnings)		(243,355	)		748,018			(34,308	)
Available-for-sale securities, at cost		299,055			405,055			406,739
Available-for-sale securities, at fair value ⁽¹⁾		890,461			1,212,742			390,251
Gross realized gains on sale of available-for-sale securities		—			158,387			178,326
Gross realized losses on sale of available-for-sale securities		—			(3,406	)		(267,836	)
Gross unrealized losses recorded in shareholders’ equity		(76,746	)		(180,727	)		(44,481	)
Gross unrealized gains recorded in shareholders’ equity⁽²⁾		668,152			988,414			27,992
Losses on available-for-sale securities deemed to have other-than-temporary declines in value		(106,000	)		(41,448	)		(247,412	)


⁽¹⁾		These categories of securities are comprised primarily of equity investments, including those investments discussed in Note 15 regarding related party transactions.

⁽²⁾		Total gross unrealized gains recorded in shareholders’ equity in fiscal 2005 are comprised primarily of the unrealized gain on a single security, which makes up $611,133 of the $668,152, or 91%, of the gross unrealized gains recorded.

The following table summarizes equity investments that are in an unrealized loss position at each balance sheet date, categorized by how long they have been in a continuous loss position. These investments do not include trading securities or those available-for-sale securities with declines in value deemed other than temporary as their unrealized losses are recognized in earnings.


	Less Than 12 Months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized
Fiscal Year	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses
2005	$	112,702	$	35,953	$	51,039	$	40,793	$	163,741	$	76,746
2004	$	150,134	$	76,829	$	11,860	$	103,898	$	161,994	$	180,727

The aggregate gross unrealized loss of $76,746 and $180,727 at June 30, 2005 and 2004, respectively, was primarily related to three securities. Many of the investments included above are early-stage or start-up businesses whose fair values fluctuate.

Note 4. Investment Management, Transfer Agent, and Other Fees

The Company serves as investment adviser to USGIF and USGAF and receives a fee based on a specified percentage of net assets under management. Three of the four funds within USGAF are sub-advised by third-party managers, who are in turn compensated out of the investment advisory fees received by the Company. The Company also serves as transfer agent to USGIF and USGAF and

receives a fee based on the number of shareholder accounts. Additionally, the Company provides in-house legal services to USGIF and USGAF for which it is reimbursed and receives certain miscellaneous fees directly from USGAF and USGIF shareholders. Fees for providing investment and transfer agent services to USGIF and USGAF continue to be the Company’s primary revenue source.

The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF funds and one USGAF fund through November 1, 2006, and February 28, 2006, respectively, or such later date as the Company determines. The aggregate fees waived and expenses borne by the Company were $1,332,000, $1,471,000, and $1,509,000, in 2005, 2004, and 2003, respectively.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 2006 and May 2006, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.

The Company began providing management and advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund, in the first quarter of fiscal year 2005. The Company initially had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee, if any, based on the overall increase in value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the arrangement was changed to provide payment and earnings of performance fees on a quarterly rather than annual basis. The Company has recorded subadvisory and performance fees totaling $299,000 for the fiscal year ended June 30, 2005.

The Company receives additional revenue from several sources including custodial fee revenues, revenues from miscellaneous transfer agency activities including lockbox functions, mailroom operations from A&B, as well as investment income.

Note 5. Property and Equipment

Property and equipment are composed of the following:


	June 30,
	2005			2004
Building and land	$	2,303,014		$	2,275,123
Furniture, equipment, and other		1,773,327			1,734,770

		4,076,341			4,009,893
Accumulated depreciation		(2,308,007	)		(2,198,405	)

Net property and equipment	$	1,768,334		$	1,811,488

Note 6. Other Accrued Expenses

Other accrued expenses consist of the following:


	June 30,
	2005		2004
Omnibus fees	$	509,185	$	137,958
Subadviser fees		295,500		86,322
Vendors payable		286,880		88,986
Taxes payable		181,099		85,859
Legal, professional, and consulting fees		127,713		102,497
Other		80,661		41,421

Total other accrued expenses	$	1,481,038	$	543,043

Note 7. Borrowings

The Company had a note payable to a bank until the latter part of fiscal 2004 when the note was paid in full. The note had been secured by land, an office building, and related improvements and was to mature in January 2006. The monthly payment of $10,840 consisted of principal and interest based on a fixed rate of 6.5%. As of June 30, 2005, the Company has no long-term liabilities.

The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. The Company must maintain certain quarterly financial covenants to access the line of credit. Any use of this credit facility will be secured by the Company’s eligible accounts receivable. As of June 30, 2005, this credit facility remained unutilized by the Company.

Note 8. Lease Commitments

The Company has operating leases for computers and equipment that expire from fiscal years 2006 through 2009. Total lease expenses were $360,778, $245,776, and $188,558 in fiscal years 2005, 2004, and 2003, respectively. Future minimum lease payments required under these leases are as follows:


Fiscal Year	Amount
2006	$	79,813
2007		76,800
2008		52,370
2009		8,673

Total	$	217,656

Note 9. Benefit Plans

The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with this 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 50% of participants’ contributions up to 4% of compensation. The Company has recorded expenses related to the 401(k) plan for contributions of $55,018, $51,523, and $46,918 for fiscal years 2005, 2004, and 2003, respectively.

The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company has neither accrued nor paid a contribution for fiscal years 2005, 2004, and 2003.

The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company, which essentially all such employees accepted. Employees may contribute to an IRA, and the Company matches these contributions on a limited basis. Similarly, certain employees may contribute to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education. The Company match, reflected in base salary expense, aggregated in all programs to $54,616, $50,903, and $52,983 in fiscal years 2005, 2004, and 2003, respectively.

The Company has a program whereby eligible employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2005, 2004, and 2003, employees purchased 15,127; 28,180; and 20,510 shares of treasury stock from the Company, respectively.

Additionally, the Company self-funds its employee health care plan. The Company has obtained reinsurance with both a specific and an aggregate stop-loss in the event of catastrophic claims. The Company has accrued an amount representing the Company’s estimate of claims incurred but not paid at June 30, 2005.

Note 10. Shareholders’ Equity

On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5 percent of the Company’s after-tax prior year net earnings. The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share. In the event of a full liquidation, the total liquidation preference of the holders of the class A stock would be $315,824, based on shares outstanding at June 30, 2005.

During fiscal year 1999, the Board of Directors of the Company approved the issuance of 1,000,000 shares of class C common stock to Frank Holmes (Holmes) in exchange for services and cancellation of the option to purchase 400,000 shares of class C common stock held by Holmes and the cancellation of warrants to purchase 586,122 shares of class C common stock held by Holmes and F.E. Holmes Organization, Inc. The 1,000,000 shares vest over a ten-year period beginning July 1, 1998, and will vest fully on June 30, 2008, or in the event of Holmes’ death, and were valued at $.50 per share for compensation purposes. The agreement was executed on August 10, 1999. At June 30, 2005, the unvested balance of this deferred compensation arrangement is $150,000 and is included in additional paid-in capital as a contra account.

During the fiscal years ended June 30, 2005, 2004, and 2003 the Company purchased 2,980, 16,741, and 40,127 shares, respectively, of its class A common stock at an average price of $4.69, $4.32, and $1.64, per share, respectively.

During the year ended June 30, 2005, the Company granted no shares of class A common stock to employees. During the years ended June 30, 2004, and 2003, the Company granted 15,000 and 3,000 shares, respectively, of class A common stock to certain employees at a weighted average fair value on grant date of $1.77 and $1.60, respectively.

In March 1985, the board of directors adopted an Incentive Stock Option Plan (1985 Plan), amended in November 1989 and December 1991, which provides for the granting of options to purchase 200,000 shares of the Company’s class A common stock, at or above fair market value, to certain executives and key salaried employees of the Company and its subsidiaries. Options under the 1985 Plan were granted for a term of up to five years in the case of employees who own in excess of 10 percent of the total combined voting power of all classes of the Company’s stock and up to ten years for other employees. Options issued under the 1985 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Options were granted at prices ranging from $1.50 to $4.50 per share, which equaled or exceeded the fair market value at date of grant. The 1985 Plan expired December 31, 1994; consequently, there will be no further options granted under the 1985 Plan. As of June 30, 2005, no options remain outstanding.

In November 1989, the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan), amended in December 1991, which provides for the granting of options to purchase 800,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. Since adoption of the 1989 Plan, options have been granted at prices ranging from $1.50 to $5.69 per share, which equaled or exceeded the fair market value at date of grant. Options issued under the 1989 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Subsequent to fiscal year end, a director exercised an option for 10,000 shares issued under the 1989 plan.

In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which provides for the granting of stock appreciation rights (SARs) and/or options to purchase 200,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. On October 1, 2004, options for 20,000 shares were granted at an exercise price of $3.29 per share and vesting of 50 percent on the first and second anniversary dates.

Stock option transactions under the various employee stock option plans for the past three fiscal years are summarized below:


			Weighted
			Average
			Exercise
	Shares		Price ($)
Outstanding June 30, 2002		179,500		1.92
Granted		—		—
Canceled		18,000		1.68
Exercised		—		—
Outstanding June 30, 2003		161,500		1.94
Granted		—		—

Canceled		10,000		1.58
Exercised		500		1.82

Outstanding June 30, 2004		151,000		1.94
Granted		20,000		3.29
Canceled		2,000		2.07
Exercised		4,500		1.63

Outstanding June 30, 2005		164,500		2.11

As of June 30, 2005, 2004, and 2003, exercisable employee stock options totaled 144,500, 144,000, and 144,700 shares and had weighted average exercise prices of $1.95, $1.96, and $2.00 per share, respectively.

Class A common stock options outstanding and exercisable under the employee stock option plans at June 30, 2005, were as follows:


	Options Outstanding							Options Exercisable
						Weighted				Weighted
	Date of			Remaining		Average				Average
	Option	Number		Life in		Exercise		Number		Option
	Grant	Outstanding		Years		Price ($)		Exercisable		Price ($)
1989	09/05/95		3,500		.18		2.63		3,500		2.63
Plan	05/24/96		10,000		.89		3.06		10,000		3.06
Class A	06/04/97		20,000		1.92		2.00		20,000		2.00
	12/03/99		15,000		4.42		1.50		15,000		1.50

			48,500		2.36		2.11		48,500		2.11

1997	06/04/97		31,000		1.92		1.82		31,000		1.82
Plan	06/04/97		50,000		1.92		2.00		50,000		2.00
Class A	12/03/99		15,000		4.42		1.50		15,000		1.50
	10/01/04		20,000		9.25		3.29		—		—

			116,000		3.51		2.11		96,000		1.86

All Plans	12/94 through 12/99		164,500		3.17		2.11		144,500		1.95

Note 11. Income Taxes

The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is:


	Year Ended June 30,
				% of						% of						% of
	2005			Pretax			2004			Pretax			2003			Pretax
Tax expense (benefit) at statutory rate	$	760,390			34.0	%	$	966,443			34.0	%	$	10,917			34.0	%
Nondeductible membership dues		8,602			0.4	%		8,722			0.3	%		8,690			27.1	%
Nondeductible meals and entertainment		25,291			1.1	%		16,807			0.6	%		15,091			47.0	%
Change in valuation allowance		(34,472	)		(1.5	%)		(280,921	)		(9.9	%)		(369,068	)		(1149.4	%)
Other		30,160			1.3	%		(35,212	)		(1.2	%)		323,868			1008.6	%

	$	789,971			35.3	%	$	675,839			23.8	%	$	(10,502	)		(32.7	%)

Components of total tax expense are as follows:


	Year Ended June 30,
	2005		2004		2003
Current tax expense	$	749,347	$	71,543	$	7,601
Deferred tax expense (benefit)		49,624		604,296		(18,103	)

Total tax expense (benefit)	$	789,971	$	675,839	$	(10,502	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company’s deferred total assets and liabilities using a 34% tax rate are as follows:


	Year Ended June 30,
	2005			2004
Book/tax differences in the balance sheet
Trading securities	$	145,578		$	63,448
Prepaid expenses		(145,089	)		(97,210	)
Accumulated depreciation		12,086			8,012
Accrued expenses		80,499			63,044
Available for sale securities		147,680			38,104
Option issued to vendor		5,984			5,984

		246,738			81,382

Tax carryovers
Charitable contributions carryover		—			7,696
Investment tax credit		—			34,472
Alternative minimum tax credits		—			133,748

		246,738			175,916

Total gross deferred tax asset		246,738			257,298
Valuation allowance		—			(34,472	)

Net deferred tax asset	$	246,738		$	222,826

For federal income tax purposes at June 30, 2005, the Company has no remaining carryovers.

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. As such, management included a valuation allowance of $34,472 at June 30, 2004, providing for the utilization of investment tax credits. The valuation allowance was reduced to zero in fiscal 2005 as the credits expired.

Note 12. Earnings Per Share

The following table sets forth the computation for basic and diluted earnings per share (EPS):


	Year Ended June 30,
	2005		2004		2003
Basic and diluted net income	$	1,446,471	$	2,166,642	$	42,612

Weighted average number of outstanding shares
Basic		7,479,998		7,469,164		7,460,260

Effect of dilutive securities
Employee stock options		84,271		63,970		8,860

Diluted		7,564,269		7,533,134		7,469,120


Earnings per share
Basic	$	0.19	$	0.29	$	0.01

Diluted	$	0.19	$	0.29	$	0.01

The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the years ended June 30, 2005, 2004, and 2003, employee stock options for 0, 0, and 88,000 shares, respectively, were excluded from diluted EPS. Additionally, an option issued to a vendor for 20,000 shares was excluded for the years ended June 30, 2005, and June 30, 2004, because it was anti-dilutive as the exercise price was greater than the average share price during the year. The option for 20,000 shares issued to a vendor expired on May 15, 2005.

Note 13. Comprehensive Income

The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income.


	Before-Tax			Tax			Net-of-Tax
	Amount			Effect			Amount
June 30, 2005
Unrealized losses on available-for-sale securities	$	(216,280	)	$	73,535		$	(142,745	)

Other comprehensive income	$	(216,280	)	$	73,535		$	(142,745	)

June 30, 2004
Unrealized gains on available-for-sale securities	$	824,177		$	(280,220	)	$	543,957

Other comprehensive income	$	824,177		$	(280,220	)	$	543,957

June 30, 2003
Unrealized gains on available-for-sale securities	$	45,103		$	(15,335	)	$	29,768

Other comprehensive income	$	45,103		$	(15,335	)	$	29,768

Note 14. Financial Information by Business Segment

The Company operates principally in two business segments: providing investment management services to its clients and investing for its own account in an effort to add growth and value to its cash position. The following details total revenues and income (loss) by business segment:


	Investment
	Management		Corporate
	Services		Investment			Consolidated
Year ended June 30, 2005
Net revenues (loss)	$	17,408,377	$	(427,038	)	$	16,981,339

Net income (loss) before income taxes		2,691,479		(455,037	)		2,236,442

Depreciation		109,899		—			109,899

Interest expense		81		—			81

Capital expenditures		67,634		—			67,634

Gross identifiable assets at June 30, 2005		8,331,233		3,524,544			11,855,777
Deferred tax asset							246,738

Consolidated total assets at June 30, 2005							12,102,515

Year ended June 30, 2004
Net revenues		11,979,314		1,004,186			12,983,500

Net income (loss) before income taxes		1,839,764		1,002,717			2,842,481

Depreciation		108,065		—			108,065

Interest expense		72,962		183			73,145

Capital expenditures		145,548		—			145,548

Gross identifiable assets at June 30, 2004		6,428,674		2,885,096			9,313,770
Deferred tax asset							222,826

Consolidated total assets at June 30, 2004							9,536,596

Year ended June 30, 2003
Net revenues (loss)		7,842,828		(363,892	)		7,478,936

Net income (loss) before income taxes		427,341		(395,231	)		32,110

Depreciation		121,493		—			121,493

Interest expense		82,216		729			82,945

Gain on litigation settlement		371,057		—			371,057

Capital expenditures		30,335		—			30,335

Gross identifiable assets at June 30, 2003		5,218,667		1,113,679			6,332,346
Deferred tax asset							1,107,341

Consolidated total assets at June 30, 2003							7,439,687

Note 15. Related Party Transactions

The Company had $4,823,000 and $3,045,000 invested in USGIF and USGAF mutual funds at June 30, 2005, and 2004, respectively. Receivables from mutual funds shown on the Consolidated Balance Sheets represent amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.

The Company invested $500,000 in an offshore fund (U.S. Global Investors Balanced Natural Resources Fund, Ltd.) that the Company will subadvise starting in July 2005.

Mr. Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became

a public company. Mr. Holmes personally owned shares of BCS Global Networks at June 30, 2005. The Company owned a position in BCS Global Networks at June 30, 2005, with an estimated fair value of approximately $42,000 recorded as available for sale on the balance sheet. Subsequent to fiscal year end, both the Company and Mr. Holmes sold their holdings in BCS Global Networks in response to a tender offer.

Note 16. Contingencies and Commitments

Beginning in July 2003, the Company agreed to maintain a minimum yield on its U.S. Treasury Securities Cash Fund. In order to comply with this arrangement, it may be necessary for the Company to waive a portion of its management fees. These fee waivers are recorded as incurred. If in future periods the yield exceeds the minimum, the Company may be eligible to recover previously waived amounts. The amount of fees waived during fiscal years 2005 and 2004 was $0 and $45,136, respectively. Due to the unpredictability of future yields, the Company has not recorded a receivable for this amount in its financial statements.

The Company entered into an agreement in March 2004 with a financial consulting company to render advice, disseminate information about the Company, and assist in public relations. The Company paid the consulting company $5,000 per month until the agreement terminated in March 2005.

The Company entered into an agreement with a telecommunications company, which commenced in August 2004, to provide an e-mail server and a web server. The agreement terminates in July 2007.

Note 17. Selected Quarterly Financial Data (Unaudited)


Fiscal 2005	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	2,962	$	4,106	$	4,884	$	5,029
Expenses	$	2,631	$	3,495	$	4,154	$	4,465
Income Before Income Taxes	$	331	$	611	$	730	$	564
Net Income	$	240	$	407	$	449	$	350
Earnings per Share:
Basic	$	0.03	$	0.05	$	0.06	$	0.05
Diluted	$	0.03	$	0.05	$	0.06	$	0.05


Fiscal 2004	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	2,629	$	4,337	$	3,217	$	2,800
Expenses	$	1,946	$	2,514	$	2,870	$	2,811
Income (Loss) Before Income Taxes	$	683	$	1,823	$	347	$	(11	)
Net Income	$	688	$	1,248	$	240	$	(10	)
Earnings per Share:
Basic	$	0.09	$	0.17	$	0.03		($0.00	)
Diluted	$	0.09	$	0.17	$	0.03		($0.00	)

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There are no changes in and disagreements with accountants on accounting and financial disclosure during the two most recent fiscal years.

Item 9A. Controls and Procedures

An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2005, was conducted under the supervision and with the participation of management, including our chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of June 30, 2005.

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2005, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Part III of Annual Report on Form 10-K

Item 10. Directors and Executive Officers of the Company

The directors and executive officers of the Company are as follows:


Name	Age		Position
Frank E. Holmes		50	Chairman of the Board of Directors and Chief Executive Officer of the Company since October 1989, and Chief Investment Officer since June 1999. Since October 1989, Mr. Holmes has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Mr. Holmes has also served as Director of 71316 Ontario, Inc. since April 1987. Director, President, and Secretary of F.E. Holmes Organization, Inc. since July 1978. Mr. Holmes served as Director of Franc-Or Resources Corporation from June 2000 to November 2003, Chairman and Director of Fortress IT Corp (formerly Consolidated Fortress) from November 2000 to November 2003, and Director of Broadband Collaborative Solutions from May 2000 to June 2002.

Jerold H. Rubinstein		67	Director of the Company since October 1989. Chief Executive Officer and founder of Music Imaging & Media, Inc. from July 2002 to present. Chairman of Musicplex, Inc. from September 1999 to June 2002. Chairman of Xtra Music Services from July 1997 to May 2000. Chairman of the Board of Directors and Chief Executive Officer of DMX Inc. from May 1986 to July 1997.

Roy D. Terracina		59	Director of the Company since December 1994 and Vice Chairman of the Board of Directors since May 1997. Owner of Sunshine Ventures, Inc., an investment company, since January 1994.

Thomas F. Lydon, Jr.		45	Director of the Company since June 1997. Chairman of the Board and President of Global Trends Investments since April 1996. President, Vice President and Account Manager with Fabian Financial Services, Inc. from April 1984 to March 1996. Member of the Advisory Board for Schwab Institutional from 1989 to 1991 and from 1995 to 1996. Member of the Advisory Board of Rydex Series Trust since January 1999. Fund Relations Chair for SAAFTI since 1994.

Susan B. McGee		46	President of the Company since February 1998, General Counsel since March 1997. Since September 1992, Ms. McGee has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors.

Catherine A. Rademacher		45	Chief Financial Officer of the Company since August 2004. Controller of the Company from April 2004 until August 2004. Associate with Resources Connection from July 2003 to February 2004. Recruiting Manager with Robert Half International from November 2002 to June 2003. Controller of Luby’s Inc. from June 2000 to October 2002. Assistant Controller of Hunt Building Corp. from April 1995 to October 1998. Senior auditor with KPMG Peat Marwick from October 1993 to March 1995.

None of the directors or executive officers of the Company has a family relationship with any of the other directors or executive officers.

The members of the board of directors are elected for one-year terms or until their successors are elected and qualified. The board of directors appoints the executive officers of the Company. The Company’s Compensation Committee assists the board of directors in carrying out its responsibilities with respect to (a) employee qualified benefit plans and employee programs, (b) executive compensation programs, (c) stock option plans, and (d) director compensation programs, and consists of Messrs. Lydon, Rubinstein, and Terracina. The Company’s Audit Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The board of directors has determined that a member of the Audit Committee, namely Roy D. Terracina, is an “audit committee financial expert” (as defined by the SEC). The Company does not have a Nominating Committee.

Code of Ethics for Senior Financial Officers

The Company has adopted a Code of Ethics for Senior Financial Officers that applies to the Company’s principal executive officer and principal financial officer. This code charges these individuals with responsibilities regarding honest and ethical conduct, the preparation and quality of the disclosures in documents and reports the Company files with the Securities and Exchange Commission, and compliance with applicable laws, rules and regulations.

Compliance with Section 16(a) of the 1934 Act

Section 16(a) of the 1934 Act requires directors and officers of the Company, and persons who own more than 10% of the Company’s class A common stock, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of the stock. Directors, officers and more than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, 2005, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met.

Item 11. Executive Compensation

The Company has intentionally omitted columns (g), (h), and (i) as they are not applicable.

Executive compensation includes amounts identified for 401(k) contributions and amounts for Company savings plans (calculable through the end of the June 30, 2005, fiscal year).


											Long-Term
											Compensation
Annual Compensation											Awards
(a)	(b)		(c)			(d)		(e)			(f)
								Other
Name and								Annual			Restricted
Principal Position								Compen-			Stock
During FY 2005	Year		Salary ($)			Bonus ($)		sation ($)			Awards ($)
Frank Holmes		2005		492,040	⁽¹⁾		273,805		—	⁽³⁾		50,000	⁽²⁾
Chairman, Chief		2004		485,190	⁽¹⁾		206,640		—	⁽³⁾		50,000	⁽²⁾
Executive Officer		2003		486,025	⁽¹⁾		110,195		—	⁽³⁾		50,000	⁽²⁾

Susan B. McGee		2005		188,714			213,186		—	⁽³⁾		—
President, General		2004		188,714			168,210		—	⁽³⁾		—
Counsel		2003		175,206			64,390		—	⁽³⁾		6,500

Catherine A. Rademacher		2005		96,116			23,630		—	⁽³⁾		—
Chief Financial Officer


⁽¹⁾		Includes trustee fees of $47,250, $40,400, and $40,350 paid by the Company during fiscal year 2005, 2004, and 2003, respectively.

⁽²⁾		In June 1999, the board of directors granted Holmes 1,000,000 shares of class C common stock to be vested, in equal parts, over a ten-year period beginning with fiscal year 1999, with an annual compensation value of $50,000. Holmes will be fully vested on June 30, 2008. Issuance was in part to compensate him for his efforts and upon cancellation of Holmes’ warrants and option to acquire 986,122 shares of class C common stock.

⁽³⁾		The Company believes that the aggregate amounts of such omitted personal benefits do not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus reported in columns (c) and (d) for the named executive officers.

Incentive Compensation

Executive officers, except Mr. Holmes, participate in a team performance pay program based on each employee’s annual salary to recognize monthly completion of departmental goals. Additionally, key executive officers are compensated based on individual performance pay arrangements.

401(k) Plan

The Company offers a 401(k) plan covering substantially all employees. The Company will match a certain percentage of a participating employee’s pay deferment. The Company contributes to participants’ accounts at the same time that the employee’s pay deferral is made. Employees are immediately vested in both their 401(k) salary deferral contribution and the Company’s matching contribution.

The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company did not make a profit sharing contribution for the 2005, 2004 or 2003 fiscal years.

Savings Plans

The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using managed investment companies. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children’s education.

Stock Purchase Plan

Stock Option Plans

In March 1985, the board of directors of the Company adopted an Incentive Stock Option Plan (1985 Plan), giving certain executives and key salaried employees of the Company and its subsidiaries options to purchase shares of the Company’s class A common stock. The 1985 Plan was amended on November 7, 1989 and December 6, 1991. In December 1991, it was amended to provide provisions to cause the plan and future grants under the plan to qualify under the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2005, under this plan, 202,500 options were granted, 88,500 options had been exercised, 114,000 options had expired, and zero options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994.

In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company’s class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by the Compensation Committee consisting of three outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal year ended June 30, 2005, there were no grants. As of June 30, 2005, under this amended plan, 876,700 options had been granted, 403,000 options had been exercised, 425,200 options had expired, and 48,500 options remained outstanding, and 348,500 options are available for grant.

In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It provides for the granting of stock appreciation rights (SARs) and/or options to purchase shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. The 1997 Plan expressly requires that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan is administered by the Compensation Committee consisting of three outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal year ended June 30, 2005, there were two options for 10,000 shares each granted. As of June 30, 2005, 260,500 options had been granted, 12,500 shares had been exercised, 132,000 options had expired, 116,000 options remained outstanding, and 71,500 options are available for grant.

The following table lists information concerning individual grants of stock options made during the last fiscal year to each of the named executive officers. The Company has intentionally omitted columns (f) and (g) as they are not applicable.

Option/SAR Grants in Last Fiscal Year

Number of

Percent of total

securities

options/SARs

underlying

granted to

Exercise of

options/SARS

employees in

base price

Expiration

Grant date

Name

granted (#)

fiscal year

$/Sh

date

present value $

Catherine A. Rademacher

10,000

3.29

10/1/2014

30,756

The following table shows, as to each of the officers of the Company listed in the cash compensation table, aggregated option exercises during the last fiscal year and fiscal year-end option values. During fiscal year 2005, one option for 10,000 shares was granted to an officer of the Company.

(a)

(b)

(c)

(d)

(e)

Number of

Securities

Value of

Underlying

Unexercised

In-The-Money

Options/SARs

at FY End (#)

at FY End ($)

Number of

Shares

Dollar

Acquired on

Value

Exercisable/

Name

Exercise

Realized

Unexercisable

Frank E. Holmes

1,000/0

2,215/$0

Susan B. McGee

500

433

51,000/0

145,615/$0

Catherine A. Rademacher

0/10,000

0/$15,500

Compensation of Directors

The Company may grant nonemployee directors options under the Company’s 1989 and 1997 Stock Option Plans. Their compensation is subject to a minimum of $6,000 in any quarter paid in arrears. For the fiscal year ended June 30, 2005, two nonemployee directors each received compensation of $27,000 and one nonemployee director received compensation of $24,000. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors.

Report on Executive Compensation

The board appointed Messrs. Lydon, Terracina, and Rubinstein as members of the Compensation Committee. There are no compensation committee interlocks to report. The Compensation Committee reviews, and recommends to the board, Mr. Holmes’ compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The Compensation Committee also reviews Mr. Holmes’ performance in managing the Company’s securities portfolio and in overseeing the management of the Company’s client portfolios and determines periodically whether to recommend to the full board to pay Mr. Holmes a cash bonus with respect to such performance. During fiscal year 1999, Mr. Holmes, in addition to his other duties, became the Company’s Chief Investment Officer responsible for supervising management of clients’ portfolios. In August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes’ warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C

common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.

The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation through bonuses or by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive’s contribution.

The Company has utilized option grants under the 1985 Plan, the 1989 Plan, and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. The Compensation Committee administers the stock option plans and acts upon recommendations of the board of directors.

Company Performance Presentation

(COMPNAY PERFORMANCE PRESENTATION GRAPH)

The graph above compares the cumulative total return for the Company’s class A common stock (GROW) to the cumulative total return for both the S&P 500 Index and the American Stock Exchange Gold BUGS Index (HUI) for the Company’s last five fiscal years. The graph assumes an investment of $10,000 in the class A common stock and in each index as of June 30, 2000, and that all dividends are reinvested.

Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

Class C Common Stock (Voting Stock)

On September 9, 2005, there were 1,496,800 shares of the Company’s class C common stock outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company’s class C common stock by each person known by the Company to own 5% or more of the outstanding shares of class C common stock.


	Class C Common
	Shares
	Beneficially			Percent of
Name and Address of Beneficial Owner	Owned			Class (%)
Frank E. Holmes 7900 Callaghan Road San Antonio, TX 78229		1,392,211	⁽¹⁾		93.01	%


⁽¹⁾		Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a ten-year period and will be fully vested on June 30, 2008; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.

Class A Common Stock (Nonvoting Stock)

On September 9, 2005, there were 5,999,714 shares of the Company’s class A common stock issued and outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company’s class A common stock by each person known by the Company to own 5% or more of the outstanding shares of class A common stock.


	Class A Common
	Shares
	Beneficially			Percent of
Name and Address of Beneficial Owner	Owned			Class (%)
Osmium Partners LLC^{(1) –}San Francisco, California		302,336	⁽¹⁾		5.04	%
Boston Partners Asset Management LLC ^{(2) -}Boston, Massachusetts		314,210	⁽²⁾		5.23	%
Royce & Associates, LLC. – New York, New York ⁽³⁾		872,505	⁽³⁾		14.54	%


⁽¹⁾		Information is from Schedule 13G for period ending February 8, 2005, filed with the SEC March 18, 2005.

⁽²⁾		Information is from Schedule 13G for period ending December 31, 2004, filed with the SEC February 10, 2005.

⁽³⁾		Information is from Schedule 13G for period ending December 31, 2004, filed with the SEC February 3, 2005.

Security Ownership of Management

The following table sets forth, as of September 9, 2005, information regarding the beneficial ownership of the Company’s class A and class C common stock by each director and by all directors and executive officers as a group. Except as otherwise indicated in the notes below, each director owns directly the number of shares indicated in the table and has sole voting power and investment power with respect to all such shares.


	Class C						Class A
	Common Stock						Common Stock
	Number						Number
	of						of
Beneficial Owner	Shares			%			Shares			%
Frank E. Holmes, CEO, Director		1,392,211	⁽¹⁾		93.01	%		289,343	⁽²⁾		4.61	%

Thomas F. Lydon, Jr., Director		—			—			10,000	⁽³⁾		0.16	%

Susan B. McGee, President, General Counsel		—			—			69,604	⁽³⁾		1.11	%

Catherine A. Rademacher, CFO		—			—			369			0.01	%

Roy D. Terracina, Director		—			—			50,100	⁽³⁾		0.80	%

All directors and executive officers as a		1,392,211			93.01	%		419,416			6.68	%
group (five persons)


⁽¹⁾		Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a period of ten years and will be fully vested on June 30, 2008; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.

⁽²⁾		Includes 100,000 shares of class A common stock held by F.E. Holmes Organization, Inc., a corporation wholly owned by Mr. Holmes; 99,376 shares owned directly by Mr. Holmes, 88,667 shares owned by Mr. Holmes in retirement accounts, and 1,300 shares of class A common stock owned separately by Mr. Holmes’ wife. Mr. Holmes disclaims beneficial ownership of these 1,300 shares of class A common stock.

⁽³⁾		Includes shares of class A common stock underlying presently exercisable options held directly by each individual as follows: Mr. Lydon – 10,000 shares; Ms. McGee – 50,000 shares; and Mr. Terracina – 50,000 shares.

Equity Compensation Plan Information

Number of securities

remaining available

for future issuance

Number of securities

under equity

to be issued upon

Weighted-average

compensation plans

exercise of

exercise price of

(excluding securities

outstanding options,

reflected in column

warrants and rights

(a))

Plan Category

(a)

(b)

(c)

Equity compensation plans approved by security holders

N/A

Equity compensation plans not approved by security holders

1985 Stock Option Plan ⁽¹⁾

—

1989 Stock Option Plan ⁽²⁾

48,500

2.11

348,500

1997 Non-Qualified Stock Option Plan ⁽³⁾

116,000

2.11

71,500

Employee Stock Purchase Plan ⁽⁴⁾

N/A

31,693

Total

164,500

451,693


⁽¹⁾		No options may be granted under this plan after December 31, 1994.

⁽²⁾		Stock options under this plan may be granted to directors, officers, and employees of the Company from authorized but unissued shares or treasury shares.

⁽³⁾		Stock options under this plan may be granted to directors, executives, and key salaried employees of the Company from authorized but unissued shares or treasury shares. The term of the option periods must be less than ten years.

⁽⁴⁾		The Company has adopted a stock purchase plan to provide eligible employees of the Company an opportunity to purchase common stock of the Company. There are 75,000 authorized shares of treasury stock reserved for issuance under the plan. The Company contributes on behalf of each participant an amount equal to lesser of (i) the aggregate amount of the participant’s payroll deductions for the purchase period, or (ii) 3% of the participant’s base compensation during the purchase period.

Item 13. Certain Relationships and Related Transactions

U.S. Global is invested in several of the mutual funds it manages. There is incorporated in this Item 13 those items appearing under Note 15 to the Consolidated Financial Statements and filed as a part of this report.

Item 14. Principal Accounting Fees and Services

The following table represents fees for professional audit services for the audit of the Company’s annual financial statements for the fiscal years ended June 30, 2005 and 2004, respectively, rendered by BDO Seidman, LLP.


	Fiscal year ended June 30,
	2005		2004
Audit fees ⁽¹⁾	$	109,000	$	90,000
Audit-related fees⁽²⁾		5,256		6,900
Tax fees ⁽³⁾		19,084		14,000
All other fees		—		—

Total fees	$	133,340	$	110,900


⁽¹⁾		Audit fees consist of fees for professional services rendered by the principal accountant for the audit of the Company’s annual financial statements and review of the financial statements included in the Company’s Form 10-Q and for services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.

⁽²⁾		Audit-related fees consist primarily of fees for assurance and related services by the accountant that are reasonably related to the performance of the audit or review of the Company’s financial statements. These fees also include professional services rendered in assistance with the Company’s compliance with Sarbanes-Oxley requirements. Audit-related fees in fiscal 2005 also include fees for professional services rendered in Guernsey in connection with USGG accounts in the amount of $2,216.

⁽³⁾		Tax fees include the preparation of federal tax returns as well as tax planning and consultation on new tax legislation, regulations, rulings, and developments. These fees in fiscal 2005 also include $7,254 for consultation with Guernsey taxing authorities on operations of USGG.

Audit Committee Pre-Approval Policies

The Audit Committee has established pre-approval policies pursuant to which all audit and auditor- provided non-audit engagement fees and terms must be approved. Pre-approval is generally provided and is detailed as to the particular service or category of services. The Audit Committee is also responsible for considering, to the extent applicable, whether the independent auditors’ provision of other non-audit services to the Company is compatible with maintaining the independence of the independent auditors.

All services provided by BDO Seidman, LLP in the fiscal year ended June 30, 2005, were pre-approved by the Audit Committee.

Part IV of Annual Report on Form 10-K

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) The following documents are filed as part of this report:

1. Financial Statements

The Consolidated Financial Statements including:

	•		Reports of Independent Registered Public Accounting Firms

	•		Consolidated Balance Sheets as of June 30, 2005 and 2004

	•		Consolidated Statements of Operations and Comprehensive Income for the three years ended June 30, 2005

	•		Consolidated Statements of Shareholders’ Equity for the three years ended June 30, 2005

	•		Consolidated Statements of Cash Flows for the three years ended June 30, 2005

	•		Notes to Consolidated Financial Statements

2. Financial Statement Schedules

None.

3. Exhibits


			3.1			Third Restated and Amended Articles of Incorporation of Company, incorporated by reference to the Company’s Form 10-K for the fiscal year ended June 30, 1996 (EDGAR Accession Number 0000754811-96-000025).

			3.2			By-Laws of Company, incorporated by reference to Exhibit D of the Company’s Registration Statement No. 33-33012 filed on Form S-8 with the Commission on January 30, 1990, as amended (EDGAR Accession Number 0000754811-00-000017).

			10.1			Advisory Agreement dated October 27, 1989, by and between Company and United Services Funds, incorporated by reference to Exhibit (4)(b) of the Company’s Form 10-K for fiscal year ended June 30, 1990 (EDGAR Accession No. 0000101507-99-000019).

			10.2			Advisory Agreement dated September 21, 1994, by and between Company and Accolade Funds, incorporated by reference to Exhibit 10.2 of Company’s Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).

			10.3			Sub-Advisory Agreement dated September 21, 1994, by and between Company, Accolade Funds/Bonnel Growth Fund and Bonnel, Inc., incorporated by reference to Exhibit 10.3 of Company’s Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).


			10.4			Sub-Advisory Agreement dated November 15, 1996, by and between Company, U.S. Global Accolade Funds/MegaTrends Fund, and Money Growth Institute, Inc., incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-1A dated June 21, 1996 (EDGAR Accession No. 0000902042-96-000046).

			10.5			Sub-Advisory Agreement dated January 25, 2002, by and between Company, U.S. Global Accolade Funds/ Eastern European Fund, and Charlemagne Capital Limited, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2002 (EDGAR Accession No. 07777811-02-000019).

			10.6			Transfer Agency Agreement dated December 15, 2000, by and between United Shareholder Services, Inc. and U.S. Global Accolade Funds incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005).

			10.7			Transfer Agency Agreement dated February 21, 2001, by and between United Shareholder Services, Inc. and U.S. Global Investors Funds, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.8			Loan Agreement between Company and Bank One NA, dated February 1, 2001, for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.9			Amendment No. 1, dated July 1, 2001, to loan agreement between Company and Bank One NA for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2003 (EDGAR Accession No. 0000754811-03-000018).

			10.10			Amendment No. 2, dated February 1, 2003, to loan agreement between Company and Bank One NA for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2003 (EDGAR Accession No. 0000754811-03-000018).

			10.11			United Services Advisors, Inc. 1985 Incentive Stock Option Plan as amended November 1989 and December 1991, incorporated by reference to Exhibit 4(b) of the Company’s Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004).

			10.12			United Services Advisors, Inc. 1989 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4(a) of the Company’s Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004).

			10.13			U.S. Global Investors, Inc. 1997 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4 of the Company’s Registration Statement No. 333-25699 filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000003).

			10.14			Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 82 to Registration Statement on Form N-1A dated September 2, 1998 (EDGAR Accession No. 0000101507-98-000031).

			10.15			Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).


			10.16			Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.17			Amendment dated February 21, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.18			Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-1A dated January 29, 1998 (EDGAR Accession No. 0000902042-98-000006).

			10.19			Amendment dated May 14, 1999, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-1A dated February 29, 1999 (EDGAR Accession No. 0000902042-99-000004).

			10.20			Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.21			Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			10.22			Amendment dated February 16, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005).

			10.23			Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Accolade Funds dated September 3, 1998, incorporated by reference to Exhibit 10.12 of Company’s Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009).

			10.24			Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Investors Funds dated September 3, 1998, incorporated by reference to Exhibit 10.13 of Company’s Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009).

			14.01			Code of Ethics for Principal Executive and Senior Financial Officers, adopted December 15, 2003, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2004 (EDGAR Accession Number 0000950134-04-014177).

			14.02			Code of Ethics, adopted June 28, 1989, and amended March 23, 2005, included herein.

			21			List of Subsidiaries of the Company, included herein.

			24			Power of Attorney, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

			31.1			Rule 13a-14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002), included herein.


			32.1			Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002), included herein.

(b) Reports on Form 8-K

	(i)		On September 27, 2004, the Company filed a Current Report on Form 8-K dated September 27, 2004, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the fiscal year ended June 30, 2004.

	(ii)		On November 15, 2004, the Company filed a Current Report on Form 8-K dated November 15, 2004, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2004.

	(iii)		On November 15, 2004, the Company filed a Current Report on Form 8-K/A dated November 15, 2004, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2004 (changes to financial highlights table).

	(iv)		On February 14, 2005, the Company filed a Current Report on Form 8-K dated February 14, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended December 31, 2004.

	(v)		On May 16, 2005, the Company filed a Current Report on Form 8-K dated May 16, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended March 31, 2005.

Signatures

Pursuant to the requirements of Section 13 or 15(d) 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.


				U.S. Global Investors, Inc.

				By: /s/ Frank Holmes

				Frank E. Holmes
		Date: September 28, 2005		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


Signature	Capacity in which signed	Date
/s/ Frank Holmes

Frank E. Holmes	Chairman of the Board of Directors Chief Executive Officer Chief Investment Officer	September 28, 2005

* /s/ Thomas F. Lydon, Jr.

Thomas F. Lydon, Jr.	Director	September 28, 2005

* /s/ Jerold H. Rubinstein

Jerold H. Rubinstein	Director	September 28, 2005

* /s/ Roy D. Terracina

Roy D. Terracina	Director	September 28, 2005

/s/ Catherine A. Rademacher		September 28, 2005

Catherine A. Rademacher	Chief Financial Officer

*BY: /s/ Susan B. McGee

Susan B. McGee		September 28, 2005
Attorney-in-Fact under Power
of Attorney dated
September 26, 2001

EX-14.02 2 d28870exv14w02.htm CODE OF ETHICS exv14w02

Exhibit 14.02 —

Code of Ethics
Adopted by
U.S. Global Investors, Inc.
U.S. Global Brokerage, Inc.

Effective June 28, 1989
As Amended November 13, 1989
As Amended May 17, 1993
As Amended February 14, 1994
As Amended December 5, 1994
As Amended March 1, 1996
As Amended May 24, 1996
As Amended June 2, 1997
As Amended October 29, 1997
As Amended December 12, 1997
As Amended December 3, 1999
As Amended December 9, 2004
As Amended March 23, 2005

TABLE OF CONTENTS


	Page
STATEMENT OF GENERAL PRINCIPLES		1
DEFINITIONS		1
PROHIBITED PURCHASES AND SALES		4
THE ADVISER’S TRANSACTIONS		5
TRADE ALLOCATION PROCEDURES		6
INSIDER TRADING PROCEDURES		7
PRE-CLEARING AND PRE-APPROVAL OF PERSONAL SECURITIES TRANSACTIONS		8
SECURITIES REPORTING REQUIREMENTS		8
EXEMPTED TRANSACTIONS		11
GIFTS		12
SERVICE AS A DIRECTOR		12
REVIEW		12
SANCTIONS		13
EXEMPTIONS FROM THE CODE		14
MISCELLANEOUS PROVISIONS		14
APPENDIX A		15
APPENDIX B		16

STATEMENT OF GENERAL PRINCIPLES

As an investment adviser, U.S. Global Investors, Inc. (the “Adviser”) and U.S. Global Brokerage, Inc. have a fiduciary duty to all its clients. It is the Adviser’s policy that officers, directors, employees and consultants of the Adviser, and the Adviser when trading for its own account (together, “Covered Persons”), conduct themselves so as to avoid not only any conflict of interest with clients, but also to refrain from any conduct that could create an appearance of conflict of interest.

Every officer, director, employee and consultant must read and retain this Code and should consult the Compliance Officer about any question arising under this Code.

This Code is designed to ensure, among other things, that covered persons conduct their personal securities transactions while adhering to the following principles:

(1) The interest of U.S. Global clients should be placed first and foremost;

(2) All personal securities transactions should be conducted in a manner consistent with this Code and in such a manner as to avoid any actual, potential or appearance of a conflict of interest or any abuse of a covered person’s position of trust and responsibility; and

(3) Covered persons should not take inappropriate advantage of their positions.

In translating these principles into day-to-day guidance, covered persons should:

	•		Be ethical

	•		Act professionally

	•		Exercise independent judgment

	•		When in doubt, consult compliance personnel or legal counsel

The securities markets and the regulations guiding investment professionals are continually changing. The Adviser will regularly review this Code to determine if any changes are necessary in order to maintain the highest ethical standards and at the same time maximize investment performance of clients’ assets entrusted to the Adviser.

In all instances, Covered Persons must comply with all applicable Federal Securities Laws.

For the purposes of Code provisions dealing with Pre-Clearing and Trade Allocation Procedures, the Adviser and Independent Sub-Advisers shall be treated as separate unrelated entities and shall not be required to coordinate their efforts.

I. DEFINITIONS

(a) “Access Person” means any director, officer, or Advisory Person of the Adviser, and the Adviser itself when it is trading for its own account.

(b) “Adviser’s Code of Ethics” means the Code of Ethics of U.S. Global Investors, Inc., and U.S. Global Brokerage, Inc. as amended from time to time.

(1) Any employee or consultant of the Adviser (or of any company controlled by the Adviser) who makes, participates in, or obtains nonpublic information about the portfolio

holdings or purchase or sale of a Security by a registered investment company, or whose functions relate to the making of any recommendations about such purchases or sales or portfolio holdings; and

(2) Any natural person in a control relationship to the Adviser who obtains information about recommendations made to clients about the purchase or sale of a Security.

Advisory Persons include Access Persons who are not portfolio managers or other investment personnel, such as officers, and legal, compliance, and accounting personnel who obtain nonpublic information about investment decisions or portfolio holdings.

(d) “Beneficial Ownership” is interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder. This definition is explained in more detail in Appendix A.

(e) “Client” means any person (including an investment company) who has a current advisory agreement with the Adviser. “Client” shall include any partnership or limited liability company of which the Adviser is a general partner or managing member.

(f) “Compliance Officer” means the officer of the Adviser designated by vote of the Board of Directors of the Adviser to receive reports and take certain actions as provided in this Code of Ethics.

(g) “Considered for purchase or sale” means a Security is being “considered for purchase or sale” for a Client’s account when the Security is discussed at a portfolio manager team meeting and the Security is added to the Recommended List.

(h) “Control” generally means the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company.

(i) “Covered Persons” means any officer, director, employee, or consultant of the Adviser, and the Adviser when trading for its own account.

(j) “Federal Securities Laws” means the Securities Act of 1933 (15 U.S.C. 77a-aa), the Securities Exchange Act of 1934 (15 U.S.C. 78a-mm), the Sarbanes-Oxley Act of 2002 (Pub. L. 107-204, 116 Stat. 745 (2002)), the Investment Company Act of 1940 (15 U.S.C. 80a), the Investment Advisers Act of 1940 (15 U.S.C. 80b), title V of the Gramm-Leach-Bliley Act (Pub. L. 106-102, 113 Stat. 1338 (1999), any rules adopted by the Commission under any of these statutes, the Bank Secrecy Act (31 U.S.C. 5311-5314; 5316-5332) as it applies to funds and investment advisers, and any rules adopted thereunder by the Commission or the Department of the Treasury.

(k) “Independent Director” means any director (or trustee) of a registered investment company advised by the Adviser who is not an “Interested Person” of the investment company as defined in section 2(a)(19) of the 1940 Act.

(l) “Independent Sub-Adviser” is any sub-adviser with which the Adviser has contracted to manage the investment portfolios of one or more clients and which the Adviser’s Review Committee has designated as independent. Independence is a question of fact. Factors include, but are not limited to, performance of securities research, analysis, selection, and trading conducted independently and separately from the Adviser. The fact that the Adviser or its

subsidiaries provides administrative services for a Client advised by a sub-adviser will not by itself prevent the sub-adviser from being independent.

(m) “Initial Public Offering” means an offering of securities registered under the Securities Act of 1933 (15 U.S.C. 77a), the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)).

(n) “Investment Person” means any employee of the Adviser or any investment company advised by the Adviser who in connection with his regular functions or duties makes or participates in making investment decisions for a client; provides information, analysis, or advice to employees who make investment decisions for a Client; or helps such employees execute investment decisions. “Investment Person” also means any natural person who controls the Adviser or any investment company advised by the Adviser who obtains information about recommendations made to clients about the purchase or sale of a Security. Investment Persons include securities analysts and traders.

(o) “1940 Act” means the Investment Company Act of 1940 as amended from time to time.

(p) “Limited Offering” means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) (15 U.S.C. 77d(2) or 77d(6)) or pursuant to Rules 504, 505, or 506 of the Securities Act of 1933.

(q) “Liquid Market” is a securities market which is sufficiently large and liquid that neither an Access Person’s nor a Client’s securities transaction would have a material impact on the price or availability of the Security purchased or sold in that market. The party determining that a securities market is a Liquid Market must reasonably conclude that it highly unlikely that an Access Person’s proposed transaction would either harm any Client or be materially benefited by any subsequent Client transaction. Examples of Liquid Markets include, but are not limited to, Treasury Securities and equity Securities included in the S&P 500 Index.

(r) “Material” information is “material” with respect to trading in a Security if its disclosure would affect or influence a reasonable investor’s decisions to purchase or sell the Security or would reasonably be expected to affect the price of the Security. A partial list of situations that likely would be considered material includes:

	•		Mergers, acquisitions or takeovers

	•		Increases or decreases in dividends

	•		Financial forecasts, especially estimates of earnings

	•		Changes in previously disclosed financial information

	•		Proposed issuance of new securities

	•		Significant changes in operations

	•		Significant increases or declines in backlog orders or the award of a significant contract

	•		Significant new products to be introduced; significant discoveries of oil and gas, minerals or the like

	•		Extraordinary borrowings

	•		Major litigation

	•		Financial liquidity problems

	•		Significant changes in management

	•		The purchase or sale of substantial assets

	•		Significant changes in capital structure

(s) “Non-public” information is “non-public” when it has not been filed in publicly-available SEC reports, announced in press releases, carried on leading business wire services or printed in business publications. However, it may be advisable for a person in possession of material, nonpublic information to wait a reasonable period of time after such information has been published before making or recommending a trade in the related Securities. The length of this waiting period depends upon the nature of the information disclosed as well as how quickly and thoroughly the information was disseminated. For example, if the effect of the information or an investment decision is readily understandable, as in the case of an earnings decline, the waiting period may be shorter than if the information must be carefully evaluated before its bearing on an investment decision can be discerned.

(t) “Purchase” or “sale” of a Security includes, among other things, the writing of an option to purchase or sell a Security.

(u) “Security” has the same meaning as that set forth in Section 202(a)(18) of the Investment Advisers Act of 1940 (generally, all securities) except that it shall not include direct obligations of the Government of the United States, bankers’ acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments, including repurchase agreements, shares issued by money market funds, shares of registered open-end investment companies, except those registered open-end investment companies for which the Adviser, or any investment adviser under common control with the Adviser, serves as investment adviser, and securities issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are advised by the Adviser or by an adviser under common control with the Adviser.

(v) “Review Committee” consists of the Adviser’s Chief Executive Officer, Chief Investment Officer (or Assistant Chief Investment Officer) and General Counsel. Should the Review Committee meet to discuss a transaction involving the Adviser’s proprietary account or a transaction involving any of the committee members, a director of the Adviser, as nominated by the board of directors, will take the place of that committee member.

II. PROHIBITED PURCHASES AND SALES

(a) Because of the sensitive fiduciary nature of the work performed by Covered Persons, they may not engage in any practice which would take unfair advantage of the person’s relationship with a Client or the Adviser when executing personal securities transactions. Examples of prohibited trading include, but are not limited to, front running, appropriation of an investment opportunity that properly belongs to a Client, buying or selling a Security that has been considered for purchase for a Client in the previous 15 days without notification of this fact on the Request to Pre-Clear, and buying or selling a Security when the Covered Person knows that an Independent Sub-Adviser to a Client is buying or selling that Security for a Client.

(b) An Advisory Person may not purchase or sell the same (or substantially similar) Security that trades on a Liquid Market for his or her personal account if he or she knows or should have known that the Security had been, or will be, bought or sold for any Client on the same day as the Advisory Person’s trade. An Advisory Person may not purchase or sell the same (or substantially similar) Security that does not trade on a Liquid Market for his or her personal account within five business days before or after any Client.

(c) No person that is an “affiliated person,” or an affiliated person of an affiliated person, of the investment company as defined in Section 2(a)(3) of the 1940 Act shall enter into any personal securities transaction in which a Client is the counterparty in violation of Section 17 of the 1940 Act or Rule 17j-1 of the 1940 Act. A copy of each provision is attached as Appendix B.

(d) All Covered Persons are prohibited from trading in (either personally, including Securities that such persons are deemed to beneficially own, or on behalf of others) or recommending any Securities at any time that they are in possession of material, nonpublic information about the issuer of those Securities.

In addition, all Covered Persons must maintain in strict confidence any material, nonpublic information about the issuer of any Securities in accordance with the procedures in Section V of this Code of Ethics.

(e) All Covered Persons with access to financial data about the Adviser are prohibited from purchasing or selling shares of any class of the Adviser’s capital stock from fifteen (15) days before the end of a reporting period until twenty-four (24) hours after the earnings release for the period is published. The Adviser’s fiscal year ends June 30; accordingly, the “trading window” is closed from June 15 until twenty-four (24) hours after the annual earnings are released. Similarly, for the fiscal quarters ending September 30, December 31 and March 31, the “trading window” closes on the 15th or 16th of those months. The Adviser’s General Counsel may allow written exceptions to this prohibition for good cause. Further, Covered Persons’ purchases through the Adviser’s 401(k) plan are exempted from this prohibition, provided the purchases are effected on a regular basis (that is, lump sum purchases or exchanges in the 401(k) plan are subject to this prohibition).

NOTE: Officers, directors, and 10 percent shareholders of the Adviser are subject to the short-swing profit restrictions in Section 16(b) of the Securities Exchange Act of 1934. The Adviser is legally required to recover all gains or avoided losses from these persons’ purchases and sales of the Adviser’s capital stock within a six-month period.

III. THE ADVISER’S TRANSACTIONS

Because of its fiduciary relationship to Clients, when the Adviser executes Securities transactions for its own account, the Adviser may not engage in any practice which would take unfair advantage of its relationship with a Client.

(a) The Adviser may not purchase a Security (liquid or illiquid) for its own account when a Client owns the same (or substantially similar) Security or when the Adviser is in the process of acquiring that Security for a Client’s account. The portfolio manager for the Adviser shall notify at least one member of each portfolio team for each appropriate Client account of the intended purchase and each appropriate Client will be given the opportunity to purchase the Security (in which case the Adviser will not purchase the Security for its own account). Each team declining to purchase the Security will explain in writing its reason(s) for declining to purchase the Security.

If the Adviser has purchased a Security for its own account, then no team shall direct a Client to purchase the same (or substantially similar) Security without first obtaining permission of the Chief Investment Officer (or his designated agent) or the Assistant Chief Investment Officer (someone other than the person who purchased the Security for the Adviser’s account must give permission). Each such purchase shall be accompanied by a memorandum signed by a team member describing material changes in circumstances between the time of the Adviser’s purchase and the Client’s purchase.

When the Adviser proposes to sell a Security from its own account, and one or more Client accounts also hold the same Security, the Adviser will notify at least one member of the Client’s team before the sale and each Client will be given the opportunity to sell its holdings before the Adviser sells the same Security for its own account. Each team declining to sell the Security shall explain in writing its reason(s) for declining to sell the Security.

(b) The Adviser may pre-clear its own Securities transactions either through the Compliance Officer (as described in Section VI) or orally through the Trading Desk or appropriate team(s) (each, a “Responsible Party”). Immediately upon pre-clearing a transaction, the Trading Desk or team shall memorialize the clearance by completing the Request to Pre-Clear and giving it to the Compliance Officer.

When clearing a proposed transaction, the Responsible Party shall make a good faith effort to determine whether the proposed transaction will be executed in a Liquid Market, and if not, whether any Client has a purchase or sell order in the same (or a substantially similar) Security currently pending or is contemplating a purchase or sale of the same (or a substantially similar) Security.

(c) When the Chief Executive Officer serves on the board of directors of a publicly traded company, the Adviser may not trade for its own account in Securities of that company, except as provided in Section X(c).

IV. TRADE ALLOCATION PROCEDURES

(a) When more than one Client intends to purchase or sell the same (or substantially similar) Security, then the following Trade Allocation procedures will apply:

(1) If all requests are executed in their entirety, then each party will be allocated the amount of Securities that it submitted.

(2) If all requests are not executed in their entirety, then the following Objective Formula will be used to allocate the transaction (subject to minor adjustments for rounding and odd lots) in so far as it is practical:

Client A ‘ (Dollar Amount Executed/Aggregate Dollar Amount of All Requests Combined)

*Dollar Amount Requested by Client A.

Client B ‘ (Dollar Amount Executed/Aggregate Dollar Amount of All Requests Combined)

*Dollar Amount Requested by Client B.

(3) The actual allocations to each party based upon the objective formula may be modified to reflect market conditions in any manner that can be articulated and is equitable. Relevant factors include, but are not limited to, the Client’s investment objectives and restrictions, pattern of investment, the dollar amount of the offering relative to the dollar amount of the account (an investment may be immaterial to a large Client or result in excessive concentration in a small Client), the cost of initial and continuing due diligence and compliance, whether trading problems are created by splitting an order, whether the Security is subject to contractual or statutory minimums or maximums, and whether each requesting party should be allocated a pre-determined minimum percentage of their bid. There shall be no presumption that any Client should receive an allocation simply because the Security in question represents an eligible investment for that Client. The Trading Desk shall negotiate among the affected parties to attempt to assign partial fills to achieve a just and equitable allocation over time.

(4) A written report of all partial fills involving the above parties, including the initial requests and the final allocation, shall be maintained.

(b) If the investment opportunity is a private placement with limited availability, then the investment opportunity does not have to be offered to all Clients for which the investment opportunity would be appropriate. The Investment Person discovering the investment opportunity may offer it exclusively to Clients for whom he or she has responsibility. This exception to the general rule that investment opportunities must be shared with all Clients recognizes the difficulty of allocating small private placements. If the available allotment of a private placement is $500,000.00 or less, it is presumed to have limited availability.

V. INSIDER TRADING PROCEDURES

(a) Covered Persons may at times come into possession of material, nonpublic information about the Adviser, its Clients or other companies with which Adviser has a business relationship (e.g., serving on the board of a company). These persons must not trade in or recommend any Securities of any company while they are in possession of material, nonpublic information about these Securities. The following procedures have been established to aid Covered Persons in avoiding insider trading, and to aid the Adviser in preventing, detecting, and imposing sanctions against insider trading. If an individual believes that certain information in his or her possession is material and nonpublic, or if the individual has questions as to whether the information is material or nonpublic, the individual should take the following steps:

(1) Report the matter immediately to the Compliance Officer,

(2) Do not purchase or sell the Securities on behalf of the individual or others, including investment companies or private accounts the Adviser manages,

(3) Do not communicate the information inside or outside the Adviser, other than to the Compliance Officer, and

(4) After the Compliance Officer has reviewed the issue, the individual will be instructed to either continue the prohibitions against trading and communication, or trade and communicate the information.

(b) To prevent insider trading, the Compliance Officer should:

(1) Regularly educate Covered Persons about the Adviser’s policies and procedures on insider trading; misuse of material, nonpublic information; securities trading reporting requirements; and related matters.

(2) Answer questions from Covered Persons about the Adviser’s policies and procedures.

(3) Resolve issues of whether information received by a Covered Person is material and nonpublic.

(4) Review on a regular basis and update as necessary the Adviser’s policies and procedures.

(5) When it has been determined that a Covered Person has material nonpublic information,

(i) Ensure that such information is not disseminated, and

(ii) If necessary, restrict Covered Persons from trading in Securities to which the information relates, either for their own accounts, for the accounts of Clients or for the Adviser’s proprietary trading accounts.

(6) Designate a restricted access location for the receipt of facsimile transmissions and establish appropriate procedures for controlling the circulation and distribution of facsimile transmissions received by the Adviser.

(c) To minimize the chance of misuse of material, nonpublic information, all Covered Persons should adhere to the following procedures:

(1) Material nonpublic information relating to a Client should be limited to those who have a “need to know” the information. Such information should not be discussed even with other employees unless it is necessary to serve the client. Material, nonpublic information generally should not be sent from one department to another department of the Adviser.

(2) Files and other documents containing material, nonpublic information should be properly secured. This information should not be left in the open or in an unattended office.

(3) All documents of a confidential nature should be stamped “Confidential” on their face.

(4) All Covered Persons should be extremely careful about discussing nonpublic information relating to the Adviser or its Clients in public areas, such as elevators, reception areas and restaurants.

VI. PRE-CLEARING AND PRE-APPROVAL OF PERSONAL SECURITIES TRANSACTIONS

(a)		Advisory Persons shall pre-clear every personal transaction in a Security, except securities of a registered open-end investment company advised by the Adviser or by an adviser under common control with the Adviser, in writing by completing a “Request to Pre-Clear,” submitting the form to the Compliance Officer before executing any personal securities transaction, and receiving permission to execute the trade. If granted, the Request to Pre-Clear is good for 24 hours. The Advisory Person, if authorized to execute a personal securities transaction, either must execute the transaction within this time period or complete a new “Request to Pre-Clear” if he or she still wishes to execute the transaction after the 24 hour period has expired.

(b)		Covered Persons shall obtain approval before they acquire any direct or indirect beneficial ownership in an initial public offering or in a limited offering. A record of any approval, and the basis therefor, of such acquisition must be kept for at least five years after the end of the fiscal year in which the approval was granted.

VII. SECURITIES REPORTING REQUIREMENTS

(a) For every personal securities transaction, even if defined as an Exempted Transaction under this Code, each Access Person shall:

(1) Instruct the broker-dealer executing any personal securities transaction to send a duplicate confirmation statement of the transaction to the Compliance Officer and file a quarterly affirmation with the Compliance Officer stating that this was done; and

(2) File with the Compliance Officer a “Securities Transaction Report” for each transaction in any Security in which such Access Person has participated. Each report may contain a statement that the report shall not be construed as an admission by the Access Person that he or she has any direct or indirect Beneficial Ownership in the Security to which the report relates.

A report must be provided no later than 30 days after the end of the calendar quarter in which the transaction to which the report relates was effected, and shall contain the following information:

	•		The date of the transaction, the title of and, as applicable, the exchange ticker symbol or CUSIP number, number of shares, interest rate and maturity date, and the principal amount of each Security involved;

	•		The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);

	•		The price at which the transaction was effected;

	•		The name of the broker, dealer, or bank with or through whom the transaction was effected; and

	•		The date the access person submits the report.

Access Persons are not required to provide a duplicate confirmation statement or make a report for any transaction:

(1) Effected for any account over which he or she does not have any direct or indirect influence or control;

(2) In shares of registered open-end investment companies except those for which the Adviser, or an adviser under common control with the Adviser, serves as investment adviser;

(3) Direct obligations of the U.S. Government or agency obligations, bankers’ acceptances, commercial paper, bank certificates of deposit and high quality short-term debt instruments, including repurchase agreements;

(4) Shares issued by money market funds, and

(5) Shares issued by unit investment trusts that are invested exclusively in one or more open-end funds, none of which are advised by the Adviser or an adviser under common control with the Adviser.

Access persons are not required to submit a transaction report if the report would duplicate information contained in broker trade confirmations or account statements, so long as the confirmations or statements are received no later than 30 days after the end of the applicable calendar quarter.

(b) Each Access Person must complete an Initial Holdings report within 10 days of becoming an Access Person. The report must include the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each

Security as of a date no more than 45 days prior to the time the person becomes an Access Person. The report also must disclose the name of any broker, dealer, or bank with whom the Access Person maintained an account in which any Securities were held for the Access Person’s direct or indirect benefit at the time the person became an Access Person. The report must contain the date on which it is submitted to the Adviser.

(c) Each Access Person including the Adviser must complete an Annual Holdings report. The report must include the title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal amount of each Security as of a date no more than 45 days before the report is submitted. The report also must disclose the name of any broker, dealer, or bank with whom the Access Person maintained an account in which any Securities were held for the Access Person’s direct or indirect benefit. The report must contain the date on which it is submitted to the Adviser. The Annual Holdings Report shall be submitted no later than January 20 of each year.

(d) An Access Person will be deemed to have participated in, and must report under this Code, any securities transaction participated in by:

(1) The person’s spouse, minor children, or any other relatives sharing the person’s household;

(2) A trust in which the person has a beneficial interest, unless such person has no direct or indirect control over the trust;

(3) A trust as to which the person is a trustee;

(4) A revocable trust as to which the person is a settlor;

(5) A corporation of which the person is an officer, director or 10% or greater stockholder, or

(6) A partnership of which the person is a partner (including most investment clubs) unless the person has no direct or indirect control over the partnership.

With respect to subparagraph “(5),” officers, directors, and employees of the Adviser are not required to report transactions effected for the Adviser’s account. These persons shall cause the Adviser to provide the Compliance Officer with duplicate confirmations.

(e) In addition to the reporting requirements listed above, each officer, director and 10 percent shareholder of the Adviser shall file with the Securities and Exchange Commission an Initial Statement of Beneficial of Ownership of Securities on Form 3 within ten days of becoming an officer, director or 10 percent shareholder of the Adviser. In addition, each officer, director and 10 percent shareholder of the Adviser shall file with the Securities and Exchange Commission a Statement of Changes in Beneficial Ownership on Form 4 within 10 days after the close of any calendar month in which there is a change in the Beneficial Ownership of Securities of the Adviser by such person.

(f) The Adviser shall prepare and submit to the Boards of Directors of investment company Clients the reports required by Rule 17j-1 under the 1940 Act.

(g) Annually, the Compliance Officer shall provide a written report to the Review Committee containing:

(1) A summary of existing procedures to detect and prevent insider trading.

(2) Full details of any investigation, either internal or by a regulatory agency, of any suspected insider trading and the results of such investigation,

(3) An evaluation of the current procedures and any recommendations for improvement, and

(4) A description of Adviser’s continuing efforts to educate all Covered Persons regarding insider trading, including the dates of any educational programs presented since the last report to management.

(h) Adviser shall provide each Covered Person with a copy of the Code and any amendments thereto. All Covered Persons shall annually certify in writing that they have received, read and understand the Code of Ethics (and any amendments) and acknowledge that they are subject to the Code.

(i) All Covered Persons shall annually certify that they have complied with the requirements of the Code and they have disclosed or reported all personal securities transactions required to be disclosed or reported under the Code.

(j) All Covered Persons shall report any violation of this Code promptly to the Chief Compliance Officer.

(k) All reports of Securities transactions and any other information filed with the Adviser or furnished to any person pursuant to this Code shall be treated as confidential, but are subject to review as provided herein and by representatives of the Securities and Exchange Commission or any other regulatory or self-regulatory organization to the extent legally required.

VIII. EXEMPTED TRANSACTIONS

Sections II(b), II(d), III, IV and VI of this Code shall not apply to:

(a) Purchases or sales effected in any account over which the Covered Person has no direct or indirect influence or control;

(b) Purchases or sales which are non-volitional on the part of the Covered Person; or

Sections III, IV and VI of this Code shall not apply to:

(d) Purchases effected upon a Covered Person’s exercise of rights issued by an issuer pro rata to all holders of a class of its Securities, to the extent these rights were acquired from the issuer; and sales effected upon a Covered Person’s tender of Securities to an issuer or other party, to the extent the tender offer is made by the issuer or third party pro rata to all holders of a class of the issuer’s Securities.

Sections II(b) and VI of this Code shall not apply to:

(e) Any Securities transaction, or series of related transactions amounting to $25,000 or less in the aggregate, if the issuer has a market capitalization (outstanding shares multiplied by the current

price per share) greater than $500 million. Any private placement of securities by such an issuer and all IPOs must be pre-cleared.

IX. GIFTS

No Advisory Person shall accept any gift of material value from any person or entity that does business with the Adviser or on behalf of any Client. For purposes of this provision, “material value” shall include but not be limited to gifts amounting in value to more than $100 per person per year. Items of material value shall not include an occasional dinner, ticket to a sporting event or the theater, or comparable entertainment which is not conditioned on doing business with the Adviser or on behalf of any Client and is neither so frequent nor so extensive as to raise any question of propriety.

X. SERVICE AS A DIRECTOR

(a) No Advisory Person except the Chief Executive Officer shall serve on the board of directors of a publicly traded company (“Public Company”) (other than the Adviser, its subsidiaries and affiliates, including investment companies).

If the Chief Executive Officer intends to serve as a director of a Public Company (or if he serves as a director for a private company that proposes to become public), he shall first notify the boards of directors of the Adviser and of each investment company registered under the 1940 Act for which the Adviser serves as investment adviser. Each Board shall be given an opportunity to ask questions and discuss the Chief Executive Officer’s proposed service as a director.

(b) When the Chief Executive Officer serves on the board of directors of a Public Company, he (trading for his own account) and the Adviser (trading for its own account or on behalf of Clients) are prohibited from trading in the Securities of the Public Company (except during the “Trading Window”) for as long as the Chief Executive Officer serves as a director and continuing until the Public Company issues a Form 10-K, 10-Q, or otherwise makes a public announcement which discloses any material nonpublic information which the Chief Executive Officer may possess. The Trading Window begins 24 hours after the Public Company issues a Form 10-K, 10-Q, or otherwise makes a public announcement that discloses any material nonpublic information the Chief Executive Officer may possess and continues for a period of 30 days after publication. If the Public Company has an insider trading policy that is in whole or in part more restrictive than this Code of Ethics, the more restrictive provision shall apply to the Chief Executive Officer or the Adviser.

(c) The Chief Executive Officer (trading for his own account) and the Adviser (trading for its own account or on behalf of Clients) may trade in the Securities of the Public Company during the “Trading Window” after the Chief Executive Officer notifies the Compliance Department of his intention to trade and the Compliance Department has made a reasonable inquiry to determine that the Chief Executive Officer is not in possession of material inside information.

XI. REVIEW

(a) The Compliance Officer shall regularly review or supervise the review of the personal securities transactions of Access Persons. The Compliance Officer shall quarterly issue a written report of his or her review to the Review Committee. The review will include:

(1) Matching all reported personal securities transactions against transactions in the same (or substantially similar) Securities in a Client account within 15 business days before or 5 business days after the date of the Client’s transaction;

(2) A review of all partial fills involving more than one Client to ensure that allocations are made before execution and that partial fills are equitably allocated based upon the Objective Formula; and

(3) A review of all reported transactions in the Advisor’s capital stock to ensure compliance with the blackout period and testing for short-swing profits.

(b) If the Compliance Officer determines that a violation may have occurred, he or she shall promptly submit the pertinent information about the transaction to the Review Committee, which shall evaluate whether a violation of this Code has occurred and whether the violation was material, taking into account all facts and circumstances. Before determining that a violation has occurred, the Review Committee shall give the person involved an opportunity to supply additional information about the transaction in question. The Review Committee shall consider all relevant factors, including but not limited to:

(1) Whether the investment would have been appropriate for a Client (considerations shall include the Client’s investment objectives and restrictions, pattern of investment, whether the Client has sufficient liquid resources at the time, the dollar amount of the offering relative to the dollar amount of the account (an investment may be immaterial to a large Client or result in excessive concentration in a small Client) and, the cost of initial and continuing due diligence and compliance);

(2) Whether or not a Client was harmed or compromised (considerations shall include whether the security was traded on a Liquid Market and the time of the Access Person’s (or Adviser’s) trade execution relative to the time of the Client’s trade execution);

(3) Whether an investment opportunity was available primarily because of investments made by a Client (or the Adviser) or because of a relationship with the Client (or Adviser);

(4) The relationship which the broker executing the transaction has with the Adviser and the Adviser’s Clients (considerations include the dollar volume of transactions which the Adviser directs to the broker);

(5) Whether the investment opportunity was brought to the attention of, and declined by, at least one member of the team of each appropriate Client;

(6) Whether the transaction was pre-cleared; and

(7) In the case of the Adviser trading for its own account, whether the person investing for the Adviser’s account learned of the investment opportunity independently of work performed by Investment Persons researching investment opportunities for Clients.

XII. SANCTIONS

(a) If the Review Committee determines that a material violation of this Code has occurred, the Chief Executive Officer shall provide a written report of the Review Committee’s determination to the Adviser’s Board of Directors for such further action and sanctions as the Board deems appropriate. In the event the violation involves the Chief Executive Officer, the director of the Adviser serving on the Review Committee shall issue the report. The Board may, among other things, censure (orally or in writing), suspend or dismiss the individual. Sanctions also may include the unwinding of personal trades or the suspension of trading privileges.

(b) Failure to follow pre-clearing procedures may subject the Advisory Person, at the discretion of management, to a penalty of up to $100 per infraction plus any profits on the uncleared transaction.

XIII. EXEMPTIONS FROM THE CODE

The Review Committee may exempt any transaction or class of transactions from this Code if it finds that the exemption is consistent with the intent and purposes of the Investment Advisers Act of 1940 and the 1940 Act. The exemption shall be in writing and signed by each member of the Review Committee. No member of the Review Committee shall participate in any discussion or decision involving a potential exemption from this Code for a transaction in which the member has any direct or indirect beneficial interest.

XIV. MISCELLANEOUS PROVISIONS

(a) The Adviser shall maintain: a copy of this Code that is in effect, or at any time within the past five years was in effect; a record of any violation of this Code, and of any action taken as a result of any violation; and a record of all written acknowledgments required by Section VII (h).

(b) The directors of the Adviser may from time to time amend this Code and adopt interpretations of this Code as they deem appropriate. The Board of Directors/Trustees of any Client that previously has received a copy of this Code immediately shall be provided with a copy of the Code as amended.

(c) Nothing in this Code shall be interpreted as relieving any Covered Person from acting in accordance with the provisions of any applicable law, rule or regulation or any other statement of policy or procedure governing the conduct of such person adopted by the Adviser, its affiliates or subsidiaries. The policies and procedures described in this Code of Ethics supplement, and do not replace, any other policies and procedures adopted by the Adviser or codes of ethics adopted by affiliated investment companies under Rule 17j-1. Every Covered Person must read and retain this Code and should consult the Compliance Officer about any question arising under this Code.

(d) In adopting Rule 17j-1, the Securities and Exchange Commission specifically noted in Investment Company Act Release No. 11421 that a violation of any provision of a particular Code of Ethics, such as this Code, would not be considered a per se unlawful act prohibited by the general anti-fraud provisions of Rule 17j-1. Violations of this Code do not necessarily violate Section 17(j) or Rule 17j-1 thereunder.

(e) This Code shall not be applied retroactively to events or transactions occurring before a change in the laws or regulations or their interpretation governing the Adviser.

APPENDIX A

For purposes of the attached Code of Ethics, “beneficial ownership” shall be interpreted in the same manner as it would be in determining whether a person is subject to the provisions of Section 16 of the Securities Exchange Act of 1934 and the rules and regulations thereunder, except that the determination of direct or indirect beneficial ownership shall apply to all securities that an officer, director, employee or consultant has or acquires. The term “beneficial ownership” of securities would include not only ownership of securities held by an officer, director, employee or consultant for his own benefit, whether in bearer form or registered in his name or otherwise, but also ownership of securities held for his benefit by others (regardless of whether or how they are registered) such as custodians, brokers, executors, administrators, or trustees (including trusts in which he has only a remainder interest), and securities held for his account by pledgees, securities owned by a partnership in which he is a member if he may exercise a controlling influence over the purchase, sale or voting of such securities, and securities owned by any corporation that he should regard as a personal holding corporation. Correspondingly, this term would exclude securities held by an officer, director, employee, or consultant for the benefit of someone else.

Ordinarily, this term would not include securities held by executors or administrators in estates in which an officer, director, employee or consultant is a legatee or beneficiary unless there is a specific legacy to such person of such securities or such person is the sole legatee or beneficiary and there are other assets in the estate sufficient to pay debts ranking ahead of such legacy, or the securities are held in the estate more than a year after the decedent’s death.

Securities held in the name of another should be considered as “beneficially” owned by an officer, director, employee, or consultant where such person enjoys “benefits substantially equivalent to ownership.” The Securities and Exchange Commission has said that although the final determination of beneficial ownership is a question to be determined in the light of the facts of the particular case, generally a person is regarded as the beneficial owner of securities held in the name of his or her spouse and their minor children. Absent special circumstances such relationship ordinarily results in such person obtaining benefits substantially equivalent to ownership, e.g., application of the income derived from such securities to maintain a common home, to meet expenses that such person otherwise would meet from other sources, or the ability to exercise a controlling influence over the purchase, sale or voting of such securities.

An officer, director, employee or consultant also may be regarded as the beneficial owner of securities held in the name of another person, if by reason of any contract, understanding, relationship, agreement, or other arrangement, he obtains therefrom benefits substantially equivalent to those of ownership. Moreover, the fact that the holder is a relative or relative of a spouse and sharing the same home as an officer, director, employee or consultant may in itself indicate that the officer, director, employee or consultant would obtain benefits substantially equivalent to those of ownership from securities held in the name of such relative. Thus, absent countervailing facts, it is expected that securities held by relatives who share the same home as an officer, director, employee or consultant will be treated as being beneficially owned by the officer, director, employee or consultant.

An officer, director, employee, or consultant also is regarded as the beneficial owner of securities held in the name of a spouse, minor children or other person, even though he does not obtain therefrom the aforementioned benefits of ownership, if he can vest or revest title in himself at once or at some future time.

APPENDIX B

Sec. 2(a)

(3) “Affiliated person” of another person means (A) any person directly or indirectly owning, controlling, or holding with power to vote, 5 per centum or more of the outstanding voting securities of such other person; (B) any person 5 per centum or more of whose outstanding voting securities are directly or indirectly owned, controlled, or held with power to vote, by such other person; (C) any person directly or indirectly controlling, controlled by, or under common control with, such other person; (D) any officer, director, partner, copartner, or employee of such other person; (E) if such other person is an investment company, any investment adviser thereof or any member of an advisory board thereof; and (F) if such other person is an unincorporated investment company not having a board of directors, the depositor thereof.

EX-21 3 d28870exv21.htm LIST OF SUBSIDIARIES exv21

Exhibit 21 — Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership

	1.		United Shareholder Services, Inc. – incorporated in Texas and wholly owned by the Company

	2.		A & B Mailers, Inc. – incorporated in Texas and wholly owned by the Company

	3.		U.S. Global Investors (Guernsey) Limited – incorporated in Guernsey, Channel Islands, and wholly owned by the Company

	4.		U.S. Global Brokerage, Inc. – incorporated in Texas and wholly owned by the Company

	5.		<i>Weblabs, Inc. – incorporated in Texas and wholly owned by the Company

	6.		U.S. Global Investors (Bermuda) Ltd., incorporated in Bermuda and wholly owned by the Company

EX-31.1 4 d28870exv31w1.htm RULE 13A-14(A) CERTIFICATIONS UNDER SECTION 302 exv31w1

Exhibit 31.1 — Rule 13a – 14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)

I, Frank E. Holmes, the principal executive officer of U.S. Global Investors, Inc., certify that:

	1.		I have reviewed this annual report on Form 10-K of U.S. Global Investors, Inc.;

	2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

	3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

	4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


		Date: September 28, 2005

		/s/ Frank E. Holmes
		Frank E. Holmes
		Chief Executive Officer

Rule 13a – 14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)

I, Catherine A. Rademacher, the principal financial officer of U.S. Global Investors, Inc., certify that:

1.		I have reviewed this annual report on Form 10-K of U.S. Global Investors, Inc.;

2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

	(a)		Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

	(b)		Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

	(c)		Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

	(a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

	(b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.


		Date: September 28, 2005

		/s/ Catherine A. Rademacher
		Catherine A. Rademacher
		Chief Financial Officer

EX-32.1 5 d28870exv32w1.htm SECTION 1350 CERTIFICATIONS UNDER SECTION 906 exv32w1

Exhibit 32.1 — Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Annual Report of U.S. Global Investors, Inc. (the Company) on Form 10-K for the year ending June 30, 2005 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Frank E. Holmes, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

	1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		Date: September 28, 2005

		/s/ Frank E. Holmes
		Frank E. Holmes
		Chief Executive Officer

A signed original of the written statement required by Section 906 has been provided to U.S. Global Investors, Inc. and will be retained by U.S. Global Investors, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)

In connection with the Annual Report of U.S. Global Investors, Inc. (the Company) on Form 10-K for the year ending June 30, 2005, as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Catherine A. Rademacher, Chief Financial Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.


		Date: September 28, 2005

		/s/ Catherine A. Rademacher
		Catherine A. Rademacher
		Chief Financial Officer

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