10-K

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, 2006

or

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

for the transition period from ___ to ___

Commission File 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 Capital Market

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections.

Yes o No þ

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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o       Accelerated filer þ       Non-accelerated filer o

Indicate by check mark whether the registrant is a shell company, (as defined in Rule 12b-2 of the Act).

Yes o No þ

The aggregate market value of the 3,272,928 shares of nonvoting class A common stock held by nonaffiliates of the registrant on August 25, 2006, based on the last sale price on NASDAQ as of December 31, 2005, was $45,493,699. 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, 2005 (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 August 25, 2006, there were 6,402,974 shares of Registrant’s class A nonvoting common stock issued and 6,077,029 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 1A. Risk Factors	6
Item 1B. Unresolved Staff Comments	7
Item 2. Properties	7
Item 3. Legal Proceedings	7
Item 4. Submission of Matters to a Vote of Security Holders	7
Part II of Annual Report on Form 10-K	8
Item 5. Market for Company’s Common Equity and Related Shareholder Matters	8
Item 6. Selected Financial Data	10
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 7A. Quantitative and Qualitative Disclosures About Market Risk	21
Item 8. Financial Statements and Supplementary Data	22
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	42
Item 9A. Controls and Procedures	43
Item 9B. Other Information	43
Part III of Annual Report on Form 10-K	44
Item 10. Directors and Executive Officers of the Company	44
Item 11. Executive Compensation	46
Item 12. Security Ownership of Certain Beneficial Owners and Management	50
Item 13. Certain Relationships and Related Transactions	52
Item 14. Principal Accounting Fees and Services	53
Part IV of Annual Report on Form 10-K	54
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K	54
Signatures	58
Exhibit 21 — Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership	59
Exhibit 31.1 — Rule 13a – 14(a) Certifications(under Section 302 of the Sarbanes-Oxley Act of 2002)	93
Rule 13a – 14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)	94
Exhibit 32.1 — Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)	95
Amendment to Loan Agreement
Amendment to Custodian Agreement - U.S. Global Investors
Amendment to Custodian Agreement - U.S. Global Accolade Funds
List of Subsidiaries
Certification Pursuant to Section 302
Certification Pursuant to Section 906

i

Part I of Annual Report on Form 10-K

Item 1. Business

U.S. Global Investors, Inc. (the “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.

In addition to providing mutual fund management and transfer agent services to USGIF and USGAF funds, the Company provides advisory services to four offshore clients.

1

Assets Under Management
			AUM at June 30, 2006
Fund	Ticker	Category	in thousands
U.S. Global Investors Funds
All American Equity	GBTFX	Large cap core	$	21,625
China Region	USCOX	China region		67,451
Global Resources	PSPFX	Natural resources		1,275,516
Gold Shares	USERX	Gold oriented		205,665
Near-Term Tax Free	NEARX	Short / intermediate municipal debt		15,821
Tax Free	USUTX	General municipal debt		15,241
U.S. Government Securities Savings	UGSXX	U.S. Government money market		434,015
U.S. Treasury Securities Cash	USTXX	U.S. Government money market		118,733
World Precious Minerals	UNWPX	Gold and precious minerals		913,950
U.S. Global Accolade Funds
Eastern European	EUROX	Emerging markets		1,259,361
Global Emerging Markets	GEMFX	Emerging markets		26,674
Holmes Growth	ACBGX	Mid-cap growth		65,733
MegaTrends	MEGAX	Large-cap growth		16,831
Total SEC-Registered Funds			$	4,436,616
Other Advisory Clients			$	201,217
Total AUM at June 30, 2006			$	4,637,833

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 (the “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 a fund distribution plan adopted pursuant to Investment Company Act Rule 12b-1 (“12b-1 Plan”).

2

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 2007, respectively. Management anticipates that the Advisory Agreements will be renewed.

In addition to providing mutual fund management and transfer agent services to USGIF and USGAF funds, the Company provides advisory services to four offshore clients: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005; the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established in the first quarter of fiscal 2006; Endeavour Mining Capital Corporation’s investment portfolio, which the Company began advising in the third quarter of fiscal 2006; and the Meridian Global Energy and Resources Fund, established on August 1, 2006, subsequent to the Company’s fiscal year end.

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 2007, respectively, and management anticipates that the agreements will be renewed.

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, 2006, the Company capitalized USGB with approximately $8,054,000 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 providing management and advisory services, the Company is actively engaged in trading for its own account.

3

Employees

As of June 30, 2006, U.S. Global and its subsidiaries employed 77 full-time employees and 1 part-time employee; as of June 30, 2005, it employed 64 full-time employees and 3 part-time employees. The Company considers its relationship with its employees to be good.

Competition

The mutual fund industry is highly competitive. 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.

4

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.

5

Item 1A. Risk Factors

A decline in securities markets could lead to a decline in revenues.

The ability of the Company to compete and grow is dependent on the relative attractiveness of the types of investment products the Company offers and its investment performance and strategies under prevailing market conditions. Changes in economic or market conditions may adversely affect the profitability and performance of the Company’s investment products and services.

Poor investment performance could lead to a decline in revenues.

Success in the investment management industry is largely dependent on investment performance relative to market conditions and the performance of competing products. Good relative performance generally attracts additional assets under management, resulting in additional revenues. Conversely, poor performance generally results in decreased sales and increased redemptions with a corresponding decrease in revenues. Therefore, poor investment performance relative to the portfolio benchmarks and to competitors could impair the Company’s revenues and growth.

Market-specific risks may negatively impact the Company’s earnings.

The Company manages certain funds in the emerging market and natural resource sectors, which are highly cyclical. The investments in the funds are subject to significant loss due to political, economic, and diplomatic developments, currency fluctuations, social instability, and changes in governmental policies. Foreign trading markets, particularly in some emerging market countries, are often smaller, less liquid, less regulated and significantly more volatile than the U.S. and other established markets.

Failure to comply with government regulations could result in fines, which could cause the Company’s earnings and stock price to decline.

The Company is subject to a variety of federal securities laws and agencies, including the Investment Advisers Act of 1940, as amended, the SEC, the NASD, NASDAQ, the Sarbanes-Oxley Act of 2002, and the USA Patriot Act of 2001. Moreover, financial reporting requirements, and the processes, controls and procedures that have been put in place to address them, are comprehensive and complex. While management has focused attention and resources on compliance policies and procedures, non-compliance with applicable laws or regulations could result in fines, sanctions or censures which could affect the Company’s reputation, and thus its revenues and earnings.

Increased regulatory and legislative actions and reforms could increase costs and negatively impact the Company’s profitability and future financial results.

During the past five years, the federal securities laws have been substantially augmented and made significantly more complex by the Sarbanes-Oxley Act of 2002 and USA Patriot Act of 2001. With new laws and changes in interpretations and enforcement of existing requirements, the associated time the Company must dedicate to, and related costs the Company must incur in, meeting the regulatory complexities of the business have increased. In order to comply with these new requirements, the Company has had to expend additional time and resources, including substantial efforts to conduct evaluations required to ensure compliance with the Sarbanes-Oxley Act of 2002. Moreover, current and pending regulatory and legislative actions and reforms affecting the mutual fund industry may negatively impact earnings by increasing the Company’s costs of dealing in the financial markets.

The loss of key personnel could negatively affect the Company’s financial performance.

The success of the Company depends on key personnel, including the portfolio managers, analysts and executive officers. Competition for qualified, motivated and skilled personnel in the asset management industry remains significant. As the business grows, the Company will likely need to increase the number of employees. Moreover, in order to retain certain key personnel, the Company may be required to increase compensation to such individuals, resulting in additional expense. The loss of key personnel or the Company’s failure to attract replacement personnel could negatively affect its financial performance.

6

Item 1B. Unresolved Staff Comments

None

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.

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 2006.

7

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.

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

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 following table sets forth the range of high and low sales prices of “GROW” from NASDAQ for the fiscal years ended June 30, 2006 and 2005. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission.

Sales Price
	2006				2005
	High ($)		Low ($)		High ($)		Low ($)
First quarter (9/30)		6.91		4.59		3.56		2.80
Second quarter (12/31)		16.50		6.10		4.47		2.90
Third quarter (3/31)		20.00		11.92		6.49		3.42
Fourth quarter (6/30)		28.13		14.75		6.50		4.39

Holders

On August 25, 2006, there were approximately 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 August 25, 2006, there were approximately 1,200 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-two 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.

8

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 Company may repurchase stock from employees. 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, 2006. There were no repurchases of class B or class C common stock during the fiscal year.

Issuer Purchases of Equity Securities Fiscal Year Ended 6/30/06
									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		Purchased		Per Share		Announced Plan		the Plan
07-01-05 to 07-31-05		—		—		—		N/A		N/A
08-01-05 to 08-31-05		—		—		—		N/A		N/A
09-01-05 to 09-30-05		100	$	647	$	6.47		N/A		N/A
10-01-05 to 10-31-05		442		3,054		6.91		N/A		N/A
11-01-05 to 11-30-05		6,998		69,204		9.89		N/A		N/A
12-01-05 to 12-31-05		7,103		89,288		12.57		N/A		N/A
01-01-06 to 01-31-06		—		—		—		N/A		N/A
02-01-06 to 02-28-06		54		942		17.44		N/A		N/A
03-01-06 to 03-31-06		100		1,475		14.75		N/A		N/A
04-01-06 to 04-30-06		—		—		—		N/A		N/A
05-01-06 to 05-31-06		1,603		38,132		23.79		N/A		N/A
06-01-06 to 06-30-06		650		12,454		19.16		N/A		N/A
Total		17,050	$	215,196	$	12.62		N/A		N/A

9

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, 2006, 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, 2002, through June 30, 2003, and the years then ended is derived from the Company’s Consolidated Financial Statements.

Selected	Year ended June 30,
Financial Data	2006		2005			2004			2003			2002
Revenues	$	44,853,588	$	16,981,339		$	12,983,500		$	7,478,936		$	7,767,514
Expenses		28,986,248		14,744,897			10,141,019			7,817,883			8,104,299
Income (loss) before gain on litigation settlement and income taxes		15,867,340		2,236,442			2,842,481			(338,947	)		(336,785	)
Gain on litigation settlement		—		—			—			371,057			—
Income tax expense (benefit)		5,431,978		789,971			675,839			(10,502	)		(95,351	)
Net income (loss)		10,435,362	$	1,446,471		$	2,166,642		$	42,612		$	(241,434	)
Basic income (loss) per share		1.39		0.19			0.29			0.01			(0.03	)
Working capital		18,275,909		7,078,554			5,267,573			3,562,885			2,930,974
Total assets		29,046,853		12,102,515			9,356,596			7,439,687			7,905,021
Long-term obligations		—		—			—			988,536			1,067,967
Shareholders’ equity		20,543,211		9,903,088			8,485,346			5,673,689			5,580,059
Net cash provided by operations		5,455,982		986,120			2,669,928			128,916			6,239
Net cash provided by (used in) investing activities		265,053		(67,634	)		(30,328	)		147,470			(274,750	)
Net cash provided by (used in) financing activities		520,830		64,016			(970,167	)		(103,079	)		(76,475	)

10

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. (the “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”) and providing advisory services to several offshore clients. 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, 2006, the Company held approximately $4.7 million in investments, comprising 16.4% 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 2006, average assets under management for the SEC-registered funds increased 94.1% to $3.4 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.

SEC-Registered Funds Average Assets under Management (Dollars in Millions)
	2006		2005		% Change			2005		2004		% Change
USGIF – Money Market	$	526	$	547		(3.8	%)	$	547	$	609		(10.2	%)
USGIF – Other		1,630		721		126.1	%		721		549		31.3	%
USGIF – Total		2,156		1,268		70.0	%		1,268		1,158		9.5	%
USGAF		1,286		505		154.7	%		505		186		171.5	%
Total	$	3,442	$	1,773		94.1	%	$	1,773	$	1,344		31.9	%

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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, 2006, and June 30, 2005.

								Unrealized
								holding gains on
								available-for-sale
					Unrealized Gain			securities, net of
Securities	Market Value		Cost		(Loss)			34% tax
Trading1	$	4,659,824	$	4,011,961	$	647,863			—
Available for sale2		82,202		45,444		36,758		$	24,259
Total at June 30, 2006		4,742,026		4,057,405		684,621
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

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, 2006, and 2005, the Company held approximately $1.6 and $2.0 million, respectively, in investments other than USGIF, USGAF and offshore clients the Company advises.

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 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 2006, 2005, and 2004, the Company had net realized gains (losses) of approximately $827,700, ($184,000), and $291,000, respectively. The Company expects that gains or losses will continue to fluctuate in the future.

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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.

	2006		2005		% Change			2005		2004		% Change
Net income (in thousands)	$	10,435	$	1,446		622	%	$	1,446	$	2,167		(33.3	)%
Net income per share
Basic	$	1.39	$	0.19		632	%	$	0.19	$	0.29		(34.5	)%
Diluted	$	1.38	$	0.19		626	%	$	0.19	$	0.29		(34.5	)%
Weighted average shares outstanding (in thousands)
Basic		7,516		7,480					7,480		7,469
Diluted		7,573		7,564					7,564		7,533

Year Ended June 30, 2006, Compared with Year Ended June 30, 2005

The Company posted net after-tax income of $10,435,362 ($1.39 per share) for the year ended June 30, 2006, compared with net after-tax income of $1,446,471 ($0.19 per share) for the year ended June 30, 2005. The increase in profitability is primarily attributable to the following factors:

• 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 165.2%, or $23.1 million.

• Investment income increased by 727.3%, or $2.6 million, primarily due to realized and unrealized gains on corporate investments.

• Transfer agent fees increased by 67.3%, or $2.1 million, primarily as a result of growth in the number of shareholder accounts.

These factors were somewhat offset by an overall increase in expenses of 96.6% in fiscal year 2006 primarily driven by the following:

• Consistent with continued growth in the Eastern European Fund, subadvisory fees increased by 180.1%, or $4.9 million;

• Driven by strong mutual fund and offshore fund performance, employee compensation expense increased by 75.8%, or $4.5 million primarily due to higher incentive bonuses and new hires;

• Omnibus fees increased by 166.3%, or $3.0 million, due to increased asset inflows through broker/dealer platforms; and,

• General and administrative expenses increased 42.9%, or $1.6 million, due to additional Sarbanes-Oxley related consulting, audit, and accounting fees; communication; legal fees; and marketing-related travel and entertainment costs.

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

The Company posted net after-tax income of $1,446,471 million ($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 in fiscal year 2005 is primarily a result of increased subadvisory fees of $1.7 million consistent with continued growth in the Eastern European Fund, decreased investment income of $1.4 million due to unrealized losses on corporate investments classified as trading securities, and increased general administrative expenses of $1.2 million due to additional consulting, communication, and marketing-related travel costs. Additionally, employee incentive bonus expense increased by $0.9 million due to strong mutual fund performance, and omnibus fees increased by $0.9 million due to increase asset inflows through broker platforms.

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Revenues

(Dollars in Thousands)	2006		2005			% Change			2005			2004		% Change
Investment advisory fees:
USGIF – Money market	$	1,687	$	1,638			3.0	%	$	1,638		$	1,744		(6.1	)%
USGIF – Other		11,068		6,010			84.2	%		6,010			4,668		28.7	%
USGIF – Total		12,755		7,648			66.8	%		7,648			6,412		19.3	%
USGAF		15,767		6,059			160.2	%		6,059			2,097		188.9	%
Other advisory fees		8,622		299			2783.5	%		299			670		(55.4	)%
Total investment advisory fees		37,144		14,006			165.2	%		14,006			9,179		52.6	%
Transfer agent fees		5,332		3,187			67.3	%		3,187			2,610		22.1	%
Investment income (loss)		2,203		(351	)		727.7	%		(351	)		1,023		(134.3	)%
Other revenues		175		139			25.9	%		139			171		(18.7	)%
Total	$	44,854	$	16,981			164.1	%	$	16,981		$	12,983		30.8	%

As a percentage of total revenues, SEC-registered mutual fund advisory fees account for 64%, offshore investment advisory fees constitute 19%, transfer agent fees account for 12%, and investment income and miscellaneous income together make up the remaining 5%.

Investment Advisory Fees. Investment advisory fees, the largest component of the Company’s revenues, are derived from two sources: SEC-registered mutual fund advisory fees, which in fiscal 2006 accounted for 77% of the Company’s total advisory fees, and offshore investment advisory fees, which accounted for 23% of total advisory fees.

SEC-registered 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. These advisory fees increased by approximately $14.8 million, or 108.1%, in fiscal 2006 over fiscal 2005. Advisory fees benefited from an increase in assets, particularly in the foreign equity and natural resource funds.

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, 2007, and February 28, 2007, 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 $1,181,000, $1,332,000, and $1,471,000, in 2006, 2005, and 2004, 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.

Offshore investment advisory fees increased by $8.3 million in fiscal 2006 compared to fiscal 2005. Due to potential market volatility, performance fees are subject to fluctuation and are not necessarily predictive of future revenue.

In the first quarter of fiscal year 2005, the Company began providing advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund. The Company receives a monthly

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advisory fee and a quarterly performance fee, if any, based on the overall increase in value of the net assets in the fund for the quarter. The Company recorded fees totaling $1,353,454 and $299,144 for the years ended June 30, 2006 and June 30, 2005, respectively. Frank Holmes, a director and CEO of the Company, is a director of Meridian Global Gold and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund.

In the first quarter of fiscal year 2006, the Company began providing advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company is paid a monthly advisory fee and a quarterly performance fee, if any. The Company recorded fees totaling $212,828 for the year ended June 30, 2006. Holmes is a director of U.S. Global Investors Balanced Natural Resources Fund Ltd.

In the third quarter of fiscal year 2006, the Company began providing investment advisory services to Endeavour Mining Capital Corp., an offshore company. The Company is paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance fee, if any, based on a percentage of consolidated net income from operations in excess of a predetermined percentage return on equity. The Company recorded a total of $7,055,267 in advisory fees from Endeavour comprised of $6,611,582 in annual performance fees and $443,685 in monthly advisory fees for the year ended June 30, 2006. The performance fees for this advisory client are calculated and recorded only once a year at the end of each fiscal year in accordance with the terms of the advisory agreement. This and other performance fees may fluctuate significantly from year to year based on factors that may be out of the Company’s control. For more information, see Item 1A. “Risk Factors” and the section entitled “Revenue Recognition” under Critical Accounting Estimates. Holmes is Chairman of the Board of Directors of Endeavour Mining Capital Corp.

In August of 2006, subsequent to the Company’s fiscal year end, the Company began providing advisory services for the Meridian Global Energy and Resources Fund Ltd., an offshore fund. The Company will receive a monthly advisory fee and a quarterly performance fee, if any, based on the overall increase in value of the net assets in the fund for the quarter. The Company recorded no fees for the year ending June 30, 2006. Holmes is a director of Meridian Global Energy and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund.

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 2006 and 2005 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 increased by $2.6 million in fiscal 2006 compared to fiscal 2005. This increase can be attributed primarily to a $935,000 increase in realized gains and a $1.3 million increase in unrealized gains on corporate investments. Included in investment income were other-than-temporary

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impairments of $28,655, $106,000 and $41,448 for the fiscal years ending 2006, 2005 and 2004, respectively.

The decrease in investment income of $1.4 million in fiscal 2005 compared to fiscal 2004 was primarily attributable to $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.

Expenses

(Dollars in Thousands)	2006		2005		% Change			2005		2004		% Change
Employee compensation and benefits	$	10,359	$	5,891		75.8	%	$	5,891	$	4,986		18.2	%
Subadvisory fees		7,619		2,720		180.1	%		2,720		1,019		166.9	%
General and administrative		5,460		3,821		42.9	%		3,821		2,623		45.7	%
Omnibus fees		4,882		1,833		166.3	%		1,833		959		91.1	%
Advertising		513		370		38.7	%		370		373		(0.8	)%
Depreciation		153		110		39.0	%		110		108		1.9	%
Interest		—		—		—			—		73		(100.0	)%
Total	$	28,986	$	14,745		96.6	%	$	14,745	$	10,141		45.4	%

Employee Compensation and Benefits. Employee compensation and benefits increased by $4.5 million, or 75.8%, in 2006 and $900,000, or 18.2%, in fiscal 2005, primarily due to incentive bonuses associated with strong mutual fund performance, mutual fund asset growth, strong offshore advisory performance and increased shareholder accounts.

Subadvisory Fees. Subadvisory fees are calculated as a percentage of average net assets of the three funds that are subadvised by third-party managers. The increases in subadvisory fees of $4.9 million and $1.7 million in fiscal years 2006 and 2005, respectively, resulted primarily from the sizeable growth in assets in the Eastern European Fund.

General and Administrative. The increase in general and administrative expenses of $1.6 million, or 42.9%, in fiscal year 2006 resulted primarily from increased consulting, auditing and accounting fees of approximately $905,000 attributable primarily to Sarbanes-Oxley and compliance costs. In addition, communication, legal, and marketing-related travel and entertainment costs also increased. 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.

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 $3.0 million and $874,000 during fiscal years 2006 and 2005, 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 increased by approximately $143,000 in fiscal 2006 and remained flat in fiscal 2005.

Depreciation. Depreciation expense increased by $43,000 in fiscal year 2006 as a result of a slight increase in capital purchases. Depreciation expense remained flat in fiscal year 2005 primarily due to assets becoming fully depreciated without being replaced with additional capital purchases.

Interest. No interest expense was incurred during fiscal 2006 or 2005. This is attributable to the payment in full of the note related to the Company’s building in fiscal 2004.

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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, 2006, the Company has $14,584 in capital loss 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 no valuation allowance at June 30, 2006 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, 2006, is as follows:

	Payments due by period
			Less than		1 – 3				More than
Contractual Obligations	Total		1 year		Years		3 – 5 years		5 years
Operating Lease Obligations	$	220,809	$	153,384	$	67,425		—		—
Contractual Obligation		108,350		83,400		24,950		—		—
Total		329,159		236,784		92,375		—		—

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. Other contractual obligations consist of subadvisory contracts and agreements to waive or reduce advisory fees and/or pay expenses on several funds, which are renewed annually. Future obligations under these agreements are dependent upon future levels of fund assets.

Liquidity and Capital Resources

At fiscal year end, the Company had net working capital (current assets minus current liabilities) of approximately $18.3 million and a current ratio of 3.1 to 1. With approximately $10.1 million in cash and cash equivalents and $4.7 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $20.5 million, with cash, cash equivalents, and marketable securities comprising 50.9% of total assets. The Company has no long-term debt; thus, the Company’s only material commitment going 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, 2007, and May 31, 2007, respectively. Management anticipates that the trustees of both USGIF and USGAF will renew the contracts. With respect to offshore advisory clients, the contracts between the Company and the clients expire periodically and management anticipates that its offshore clients 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 Estimates

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.

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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.

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 management’s estimate of fair value..

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.

In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109 by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would recognize in its financial statements the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement of the tax position. FIN 48 will be effective for the fiscal years beginning after December 15, 2006. The provisions of FIN 48 are required to be applied to all tax positions in all open tax years. The Company is in the process of evaluating the impact, if any, of adoption on the Company’s financial position and results of operation.

Adoption of SFAS123R. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R eliminates the alternative to use the intrinsic value method of accounting that was provided in SFAS 123, which generally resulted in no compensation expense recorded in the financial statements related to the issuance of equity awards to employees. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires

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all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees.

On July 1, 2005 (the first day of the Company’s 2006 fiscal year), the Company adopted SFAS 123R. The provisions of SFAS 123R became effective the first annual reporting period beginning after June 15, 2005, and the Company adopted SFAS 123R using a modified prospective application, as permitted under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

Revenue Recognition on Advisory Contract. In the third quarter of fiscal year 2006, the Company began providing investment advisory services for Endeavour Mining Capital Corp. (EMCC), an offshore company. The Company is paid a monthly advisory fee based on the net asset value of the portfolio, and an annual performance fee, if any, based on a percentage of consolidated net income from operations in excess of a predetermined percentage return on equity.

EITF Abstract Topic No. D-96, “Accounting for Management Fees Based on a Formula,” identifies two methods by which incentive revenue may be recorded. Under “Method 1,” incentive fees are recorded at the end of the contract year; under “Method 2,” the incentive fees are recorded periodically and calculated as the amount that would be due under the formula at any point in time as if the contract was terminated at that date. Management has chosen the more conservative method (“Method 1”), in which performance fees are recorded annually at the end of each fiscal year of EMCC. The Company recorded $6,611,582 in annual performance fees and $443,685 in advisory fees for the year ended June 30, 2006.

Related Party Transactions

The Company had $12.6 million and $4.8 million at fair value invested in USGIF and USGAF funds included in the balance sheet in cash and cash equivalents and trading securities at June 30, 2006, and 2005, respectively. The Company recorded $49,380 in dividend income and $100,952 in unrealized gains on its investments in the funds. 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.

In the first quarter of fiscal year 2005, the Company began providing advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund. The Company receives a monthly advisory fee and a quarterly performance fee, if any, based on the overall increase in value of the net assets in the fund for the quarter. The Company recorded fees totaling $1,353,454 and $299,144 for the years ended June 30, 2006 and June 30, 2005, respectively. Frank Holmes, a director and CEO of the Company, is a director of Meridian Global Gold and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund.

In the first quarter of fiscal year 2006, the Company began providing advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company is paid a monthly advisory fee and a quarterly performance fee, if any. The Company recorded advisory fees totaling $212,828 for the year ended June 30, 2006. The Company has an investment in the U.S. Global Investors Balanced Natural Resources Fund, Ltd. with a market value of $682,000 as of June 30, 2006, and earned $182,000 in unrealized gains, which were recorded as investment income in fiscal 2006. Holmes is a director of U.S. Global Investors Balanced Natural Resources Fund Ltd.

In the third quarter of fiscal year 2006, the Company began providing investment advisory services to Endeavour Mining Capital Corp., an offshore company. The Company is paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance fee, if any, based on a percentage of consolidated net income from operations in excess of a predetermined percentage return on equity. The Company recorded a total of $7,055,267 in advisory fees from Endeavour comprised of $6,611,582 in annual performance fees and $443,685 in monthly advisory fees for the year ended June

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30, 2006. The performance fees for this advisory client are calculated and recorded only once a year at the end of each fiscal year in accordance with the terms of the advisory agreement. For more information, see the section entitled “Revenue Recognition” under Critical Accounting Policies. Holmes is Chairman of the Board of Directors of Endeavour Mining Capital Corp.

In August of 2006, subsequent to the Company’s fiscal year end, the Company began providing advisory services for the Meridian Global Energy and Resources Fund Ltd., an offshore fund. The Company will receive a monthly advisory fee and a quarterly performance fee, if any, based on the overall increase in value of the net assets in the fund for the quarter. The Company recorded no fees for the year ending June 30, 2006. The Company invested $500,000 in the fund in August 2006. Holmes is a director of Meridian Global Energy and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund.

The Company owns a position in Franc-Or Resources at June 30, 2006, with an estimated fair value of approximately $400,000, recorded as a trading security on the balance sheet. Holmes served as an independent director of Franc-Or Resources from June 2000 to November 2003.

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. 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. In the first quarter of fiscal 2006, both the Company and Holmes sold their holdings in BCS Global Networks in response to a tender offer, with the Company realizing a loss of $31,560.

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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 addresses the 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, 2006, 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
	2006 ($)		Change	Price Change ($)		of Tax ($)
Trading securities1		4,659,824	25% increase		5,824,780		768,871
			25% decrease		3,494,868		(768,871	)
Available-for-sale2		82,202	25% increase		102,753		13,563
			25% decrease		61,652		(13,563	)

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.

21

Item 8. Financial Statements and Supplementary Data

Management’s Annual Report on Internal Control Over Financial Reporting

U.S. Global Investors, Inc.’s (Company) management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements in this annual report. These consolidated financial statements and notes have been prepared in conformity with U.S. generally accepted accounting principles from accounting records which management believes fairly and accurately reflect the Company’s operations and financial position. The consolidated financial statements include amounts based on management’s best estimates and judgments considering currently available information and management’s view of current conditions and circumstances.

Management is responsible for establishing and maintaining adequate internal control over financial reporting that is designed to provide a reasonable assurance of the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2006, in relation to criteria for effective internal control over financial reporting as described in “Internal Control – Integrated Framework,” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management concluded that, as of June 30, 2006, its system of internal control over financial reporting is properly designed and operating effectively to achieve the criteria of the “Internal Control – Integrated Framework.” BDO Seidman, LLP, independent registered public accounting firm, has audited the consolidated financial statements included in this annual report and has issued a report on management’s assessment of the Company’s internal control over financial reporting.

U.S. Global Investors, Inc.

Frank E. Holmes	Catherine A. Rademacher
Chief Executive Officer and Chief Investment Officer	Chief Financial Officer
August 28, 2006

22

Report of Independent Registered Public Accounting Firm on Consolidated
Financial Statements

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

We have audited management’s assessment, included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting, that U.S. Global Investors, Inc. (the “Company”) maintained effective internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of June 30, 2006 is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2006, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of June 30, 2006 and 2005, and the related consolidated statements of income, changes in shareholders’ equity, and cash flows for each of the three years in the period ended June 30, 2006, of the Company and our report dated August 28, 2006 expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP
Dallas, Texas
August 28, 2006

23

Report of Independent Registered Public Accounting Firm on Consolidated
Financial Statements

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, 2006 and 2005 and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, 2006. 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Global Investors, Inc. at June 30, 2006 and 2005, and the consolidated results of its operations and its cash flows for each of the three years in the period ended June 30, 2006, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Company’s internal control over financial reporting as of June 30, 2006, based on criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated August 28, 2006, expressed an unqualified opinion thereon.

/s/ BDO Seidman, LLP
Dallas, Texas
August 28, 2006

24

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

	June 30,
	2006			2005
Assets
Current Assets
Cash and cash equivalents	$	10,056,043		$	3,814,178
Trading securities, at fair value		4,659,824			2,612,529
Receivables
Advisory, net of allowance		11,290,240			2,275,288
Employees		7,669			750
Other		184,962			43,274
Prepaid expenses		580,813			450,963
Deferred tax asset		—			80,989
Total Current Assets		26,779,551			9,277,971
Net Property and Equipment		2,122,889			1,768,334
Other Assets
Long-term deferred tax asset		62,211			165,749
Investment securities available-for-sale, at fair value		82,202			890,461
Total Other Assets		144,413			1,056,210
Total Assets	$	29,046,853		$	12,102,515
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	343,364		$	193,249
Accrued compensation and related costs		2,961,836			525,140
Deferred tax liability		178,707			—
Other accrued expenses		5,019,735			1,481,038
Total Current Liabilities		8,503,642			2,199,427
Total Liabilities		8,503,642			2,199,427
Shareholders’ Equity
Common stock (class A)— $0.05 par value; nonvoting; authorized 7,000,000 shares; issued, 6,402,974 and 6,316,474 shares at June 30, 2006, and 2005, respectively		320,149			315,824
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		11,754,779			11,008,535
Treasury stock, class A shares at cost; 327,057 and 326,988 shares at June 30, 2006, and 2005, respectively		(830,330	)		(650,592	)
Accumulated other comprehensive income, net of tax		24,259			390,329
Retained earnings (deficit)		9,199,514			(1,235,848	)
Total Shareholders’ Equity		20,543,211			9,903,088
Total Liabilities and Shareholders’ Equity	$	29,046,853		$	12,102,515

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

25

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

	Year Ended June 30,
	2006			2005			2004
Revenue
Investment advisory fees	$	37,143,150		$	14,006,508		$	9,179,200
Transfer agent fees		5,332,066			3,187,487			2,610,029
Investment income (loss)		2,203,393			(351,248	)		1,023,441
Other		174,979			138,592			170,830
		44,853,588			16,981,339			12,983,500
Expenses
Employee compensation and benefits		10,359,365			5,891,162			4,985,449
General and administrative		5,460,442			3,821,129			2,622,773
Subadvisory fees		7,618,466			2,719,603			1,018,572
Omnibus fees		4,882,144			1,833,096			959,523
Advertising		513,076			369,927			373,492
Depreciation		152,755			109,899			108,065
Interest		—			81			73,145
		28,986,248			14,744,897			10,141,019
Income Before Income Taxes		15,867,340			2,236,442			2,842,481
Provision for Federal Income Taxes
Tax expense		5,431,978			789,971			675,839
Net Income		10,435,362			1,446,471			2,166,642
Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale securities arising during period		(2,473	)		(142,745	)		646,244
Less: reclassification adjustment for gains included in net income		(363,596	)		—			(102,287	)
Comprehensive Income	$	10,069,293		$	1,303,726		$	2,710,599
Basic Net Income per Share	$	1.39		$	0.19		$	0.29
Diluted Net Income per Share	$	1.38		$	0.19		$	0.29
Basic weighted average number of common shares outstanding		7,515,789			7,479,998			7,469,164
Diluted weighted average number of common shares outstanding		7,573,115			7,564,269			7,533,134

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

26

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

													Accumulated
	Common		Common		Additional		Retained						Other
	Stock		Stock		Paid-in		Earnings			Treasury			Comprehensive
	(Class A)		(Class C)		Capital		(Deficit)			Stock			Income (Loss)			Total
Balance at June 30, 2003 (6,311,474 shares of Class A; 1,496,800 shares of Class C)		315,574		74,840		10,806,655		(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		10,910,053		(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)		—		—		33,959		—			29,277			—			63,236
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)		—		—		—		—			—			(142,746	)		(142,746	)
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		11,008,536		(1,235,848	)		(650,592	)		390,328			9,903,088
Purchase of 17,050 shares of Common Stock (Class A)		—		—		—		—			(215,196	)		—			(215,196	)
Reissuance of 16,981 shares of Common Stock (Class A)		—		—		109,325		—			35,458			—			144,783
Exercise of 86,500 options for Common Stock (Class A)		4,325		—		560,333		—			—			—			564,658
Recognition of current year portion of deferred compensation		—		—		50,000		—			—			—			50,000
FAS 123R compensation expense		—		—		26,585		—			—			—			26,585
Unrealized gain (loss) on securities available-for-sale and reclassification (net of tax)		—		—		—		—			—			(366,069	)		(366,069	)
Net Income		—		—		—		10,435,362			—			—			10,435,362
Balance at June 30, 2006 (6,402,974 shares of Class A; 1,496,800 shares of Class C)		320,149		74,840		11,754,779		9,199,514			(830,330	)		24,259			20,543,211

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

27

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

	Year Ended June 30,
	2006			2005			2004
Cash Flow from Operating Activities
Net income	$	10,435,362		$	1,446,471		$	2,166,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		152,755			109,899			108,065
Net recognized loss (gain) on securities		(827,718	)		184,253			(861,552	)
Provision for deferred taxes		551,815			49,624			604,296
Deferred compensation		50,000			50,000			50,000
Class A option issued to non-employee		—			—			17,600
Provision for losses on accounts receivable		(8,988	)		26,488			(64,488	)
Loss on disposal of equipment		3,494			889			4,827
Termination of annuity liability		—			—			(102,909	)
Changes in assets and liabilities, impacting cash from operations:
Accounts receivable		(9,154,571	)		(867,701	)		327,072
Prepaid expenses and other		(129,850	)		(143,552	)		229,498
Trading securities		(1,741,825	)		(1,018,428	)		(200,908	)
Accounts payable and accrued expenses		6,125,508			1,148,177			391,785
Total adjustments		(4,979,380	)		(460,351	)		503,286
Net cash provided by operations		5,455,982			986,120			2,669,928
Cash Flow from Investing Activities
Purchase of property and equipment		(510,804	)		(67,634	)		(145,548	)
Purchase of available-for-sale securities		(8,420	)		—			(200,520	)
Proceeds on sale of available-for-sale securities		784,277			—			315,740
Net cash (used in) provided by investing activities		265,053			(67,634	)		(30,328	)
Cash Flow from Financing Activities
Payments on annuity		—			—			(9,564	)
Payments on note payable		—			—			(956,560	)
SFAS 123R compensation expense		26,585			—			—
Benefits from tax deduction in excess of stock-based compensation expense		404,817			—			—
Proceeds from issuance or exercise of stock, warrants, and options		304,624			77,984			68,203
Purchase of treasury stock		(215,196	)		(13,968	)		(72,246	)
Net cash provided by (used in) financing activities		520,830			64,016			(970,167	)
Net Increase in Cash and Cash Equivalents		6,241,865			982,502			1,669,433
Beginning Cash and Cash Equivalents		3,814,178			2,831,676			1,162,243
Ending Cash and Cash Equivalents	$	10,056,043		$	3,814,178		$	2,831,676
Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	—		$	81		$	73,145
Cash paid for income taxes	$	1,753,000		$	645,251		$	29,095

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

28

Notes to Consolidated Financial Statements

Note 1. Organization

U.S. Global Investors, Inc. (the “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, the 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 subsidiaries 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.

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 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.

29

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.

Advisory Receivables. Advisory receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF as well as offshore investment advisory fees receivable. 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 12b-1 receivables on an ongoing basis, and, as a result, placed an allowance of $17,500 and $26,488 against the receivable balance as of June 30, 2006, and June 30, 2005, respectively. The allowance is based on the amount estimated to be collected within one year. If the receivable exceeds the estimate, an allowance is recorded for the difference.

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. 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 eliminates the alternative to use the intrinsic value method of accounting provided in SFAS 123, which generally resulted in no compensation expense recorded in the financial statements related to the issuance of equity awards to employees. SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees.

On July 1, 2005 (the first day of the Company’s 2006 fiscal year), the Company adopted SFAS 123R. The provisions of SFAS 123R became effective the first annual reporting period beginning after June 15, 2005, and the Company adopted SFAS 123R using a modified prospective application, as permitted under SFAS 123R. Accordingly, prior period amounts have not been restated. Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

30

The following table details the effect on net income and earnings per share had compensation expense for the employee stock-based awards been recorded in the prior year ended June 30, 2005, based on the fair value method under SFAS 123. The reported and pro forma net income and earnings per share for the current year ended June 30, 2006, are the same since stock-based compensation expense is calculated under the provisions of SFAS 123R. The amounts for the years ended June 30, 2005 and 2004 are included in the table below solely to provide the detail for a comparative presentation to the period of the previous year.

				Year Ended June 30,
	2006			2005			2004
Net income, as reported	$	10,435,362		$	1,446,471		$	2,166,642
Add: Stock-based employee compensation expense included in reported net income, net of tax		46,135			33,000			33,000
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax		(46,135	)		(36,217	)		(36,753	)
Pro forma net income	$	10,435,362		$	1,443,254		$	2,162,889
Earnings per share:
Basic – as reported	$	1.39		$	0.19		$	0.29
Diluted – as reported	$	1.38		$	0.19		$	0.29
Basic – pro forma	$	1.39		$	0.19		$	0.29
Diluted – pro forma	$	1.38		$	0.19		$	0.29

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 2006, an option for 5,000 shares was granted with a fair value, net of tax, of $43,400. During fiscal year 2005, options for 20,000 shares were granted with a fair value, net of tax, of $30,750. No options were granted during fiscal year 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. 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.

In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109 by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. If a tax position is more likely than not to be sustained upon examination, then an enterprise would recognize in its financial statements the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement of the tax position. FIN 48 will be effective for the fiscal years beginning after December 15, 2006. The provisions of FIN 48 are required to be applied to all tax positions in all open tax years. The Company is in the process of evaluating the impact, if any, of adoption on the Company’s financial position and results of operation.

Revenue Recognition. The Company earns substantially all of its revenues from 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. Advisory client contracts provide for monthly management fees, in addition to a quarterly or annual performance fees. Transfer agency fees are calculated using a charge based upon the number of shareholder accounts serviced. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.

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In the third quarter of fiscal year 2006, the Company began providing investment advisory services for Endeavour Mining Capital Corp. (EMCC), an offshore company. The Company is paid a monthly advisory fee based on the net asset value of the portfolio, and an annual performance fee, if any, based on a percentage of consolidated net income from operations in excess of a predetermined percentage return on equity.

EITF Abstract Topic No. D-96, “Accounting for Management Fees Based on a Formula,” identifies two methods by which incentive revenue may be recorded. Under “Method 1,” incentive fees are recorded at the end of the contract year; under “Method 2,” the incentive fees are recorded periodically and calculated as the amount that would be due under the formula at any point in time as if the contract was terminated at that date. Management has chosen the more conservative method (“Method 1”), in which performance fees are recorded annually at the end of each fiscal year of EMCC. The Company recorded $6,611,582 in annual performance fees and $443,685 in advisory fees for the year ended June 30, 2006.

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, 2006, 2005, and 2004, the Company had capitalized sales materials of approximately $59,000, $48,000, and $16,000, respectively. Net advertising expenditures were approximately $513,000, $370,000, and $373,000 during fiscal 2006, 2005, and 2004, 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 immaterial and are therefore included as a component of investment income rather than other comprehensive 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.

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Note 3. Investments

As of June 30, 2006, the Company held investments with a market value of $4.7 million and a cost basis of $4.1 million. The market value of these investments is approximately 16.3 percent of the Company’s total assets.

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

	Year Ended June 30,
	2006			2005			2004
Realized gains (losses) on sale of trading securities	$	305,469		$	(78,253	)	$	135,789
Trading securities, at cost		4,011,961			3,040,700			1,857,171
Trading securities, at fair value (1)		4,659,824			2,612,529			1,672,354
Net change in unrealized gains (losses) on trading securities (included in earnings) (2)		1,076,034			(243,355	)		748,018
Available-for-sale securities, at cost		45,444			299,055			405,055
Available-for-sale securities, at fair value (1)		82,202			890,461			1,212,742
Gross realized gains on sale of available-for-sale securities		582,475			—			158,387
Gross realized losses on sale of available-for-sale securities		(31,572	)		—			(3,406	)
Gross unrealized losses recorded in shareholders’ equity		(3,137	)		(76,746	)		(180,727	)
Gross unrealized gains recorded in shareholders’ equity		39,896			668,152			988,414
Losses on available-for-sale securities deemed to have other-than-temporary declines in value		(28,655	)		(106,000	)		(41,448	)

(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 on trading securities recorded in fiscal 2006 are comprised primarily of the unrealized gain on four securities, which makes up $826,240 of the $1,076,034, or 77%, 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
2006	$	7,614	$	3,137	$	0	$	0	$	7,614	$	3,137
2005	$	112,702	$	35,953	$	51,039	$	40,793	$	163,741	$	76,746

The aggregate gross unrealized loss of $3,137 and $76,746 at June 30, 2006 and 2005, respectively, was primarily related to one and three securities, respectively. 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

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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 USGIF funds and one USGAF fund through November 1, 2007, and February 28, 2007, respectively, or such later date as the Company determines. The aggregate fees waived and expenses borne by the Company were $1,181,000, $1,332,000, and $1,471,000, in 2006, 2005, and 2004, respectively.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 2007 and May 2007, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.

The Company provides advisory services to various offshore clients. The Company generally receives a monthly advisory fee and a quarterly or annual performance fee, if any, based on an agreed-upon performance measurement. The contracts between the Company and the offshore clients expire periodically and management anticipates that its offshore clients will renew the contracts.

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,
	2006			2005
Building and land	$	2,523,623		$	2,303,014
Furniture, equipment, and other		1,678,790			1,773,327
		4,202,413			4,076,341
Accumulated depreciation		(2,079,524	)		(2,308,007	)
Net property and equipment	$	2,122,889		$	1,768,334

Note 6. Other Accrued Expenses

Other accrued expenses consist of the following:

	June 30,
	2006		2005
Taxes payable	$	2,907,266	$	181,099
Omnibus fees		981,524		509,185
Subadvisory fees		642,644		295,500
Vendors payable		286,168		286,880
Legal, professional, and consulting fees		176,619		127,713
Other		25,514		80,661
Total other accrued expenses	$	5,019,735	$	1,481,038

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Note 7. Borrowings

As of June 30, 2006, 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. The covenants include: (1) liquidity of $1 million or more in cash, cash equivalents and marketable securities, (2) a debt to equity ratio of .75 or less, and (3) a ratio of current assets to current liabilities of 2.0 or greater. The Company has been in compliance with all financial covenants during the fiscal year. Any use of this credit facility will be secured by the Company’s eligible accounts receivable. As of June 30, 2006, 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 2007 through 2009. Total lease expenses were $416,491, $360,778, and $245,776 in fiscal years 2006, 2005, and 2004, respectively. Future minimum lease payments required under these leases are as follows:

Fiscal Year	Amount
2007	$	153,384
2008		58,752
2009		8,673
Total	$	220,809

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 $73,166, $55,018, and $51,523 for fiscal years 2006, 2005, and 2004, respectively.

The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company paid a profit sharing contribution in fiscal year 2006 of $220,000. In addition, the Company accrued an additional $166,000 through June 30, 2006 for a potential profit sharing contribution in fiscal 2007. The Company neither accrued nor paid a contribution for fiscal years 2005 and 2004.

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 the education of their minor relatives. The Company match, reflected in base salary expense, aggregated in all programs to $61,061, $54,616, and $50,903 in fiscal years 2006, 2005, and 2004, 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 2006, 2005, and 2004, employees purchased 12,881, 15,127 and 28,180 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, 2006.

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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 $320,149, based on shares outstanding at June 30, 2006.

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, 2006, the unvested balance of this deferred compensation arrangement is $100,000 and is included in additional paid-in capital.

During the fiscal years ended June 30, 2006, 2005, and 2004 the Company purchased 17,050, 2,980, and 16,741 shares, respectively, of its class A common stock at an average price of $12.62, $4.69, and $4.32, per share, respectively.

During the year ended June 30, 2006, the Company granted 4,100 shares of class A common stock to certain employees at a weighted average fair value on grant date of $12.18. During the year ended June 30, 2005, the Company granted no shares of class A common stock to employees. During the year ended June 30, 2004, the Company granted 15,000 shares of class A common stock to certain employees at a weighted average fair value on grant date of $1.77.

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.

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. Options issued prior to fiscal 2005 that were outstanding at June 30, 2006, were 100 percent vested at June 30, 2006. In October 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. In February 2006, an option for 5,000 shares was granted at an exercise price of $15.38 per share and vesting of 50 percent on the first and second anniversary dates.

Options issued under the 1989 Plan and the 1997 Plan expire ten years after issuance. It is the Company’s policy to issue class A common stock upon exercise of stock options.

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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, 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
Granted		5,000		15.38
Canceled		10,000		2.00
Exercised		86,500		2.19
Outstanding June 30, 2006		73,000		2.93

As of June 30, 2006, 2005, and 2004, exercisable employee stock options totaled 58,000, 144,500, and 144,000 shares and had weighted average exercise prices of $1.80, $1.95, and $1.96 per share, respectively.

Class A common stock options outstanding and exercisable under the employee stock option plans at June 30, 2006, 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 Plan	12/03/99		15,000		3.42		1.50		15,000		1.50
Class A			15,000		3.42		1.50		15,000		1.50
1997	06/04/97		26,000		.92		1.82		26,000		1.82
Plan	12/03/99		12,000		3.42		1.50		12,000		1.50
Class A	10/01/04		15,000		8.25		3.29		5,000		3.29
	02/24/06		5,000		9.65		15.38		0		15.38
			58,000		4.09		3.30		43,000		1.90
All Plans	12/99 through 02/06		73,000		3.95		2.93		58,000		1.80

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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
	2006			Pretax			2005			Pretax			2004			Pretax
Tax expense at statutory rate	$	5,479,589			34.5	%	$	760,390			34.0	%	$	966,443			34.0	%
Change in valuation allowance		—			—			(34,472	)		(1.5	%)		(280,921	)		(9.9	%)
Other		(47,611	)		(0.3	%)		64,053			2.9	%		(9,683	)		(0.3	)%
	$	5,431,978			34.2	%	$	789,971			35.3	%	$	675,839			23.8	%

Components of total tax expense are as follows:

	Year Ended June 30,
	2006		2005		2004
Current tax expense	$	4,875,027	$	740,347	$	71,543
Deferred tax expense		556,951		49,624		604,296
Total tax expense	$	5,431,978	$	789,971	$	675,839

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,
	2006			2005
Book/tax differences in the balance sheet
Trading securities	$	(220,273	)	$	145,578
Prepaid expenses		(167,574	)		(145,089	)
Accumulated depreciation		(22,531	)		12,086
Accrued expenses		209,141			80,499
FAS 123R compensation expense		12,136			—
Available-for-sale securities		58,021			147,680
Option issued to vendor		—			5,984
		(131,080	)		246,738
Tax carryovers
Capital loss carryover		14,584			—
		14,584			—
Total gross deferred tax asset (liability)		(116,496	)		246,738
Valuation allowance		—			—
Net deferred tax asset (liability)	$	(116,496	)	$	246,738

For federal income tax purposes at June 30, 2006, the Company has $14,584 in capital loss carryovers that will expire in 2010.

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 no valuation allowance at June 30, 2006 providing for the utilization of investment tax credits. The valuation allowance was reduced to zero in fiscal 2005 as the credits expired.

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Note 12. Earnings Per Share

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

	Year Ended June 30,
	2006		2005		2004
Basic and diluted net income	$	10,435,362	$	1,446,471	$	2,166,642
Weighted average number of outstanding shares
Basic		7,515,789		7,479,998		7,469,164
Effect of dilutive securities
Employee stock options		57,326		84,271		63,970
Diluted		7,573,115		7,564,269		7,533,134
Earnings per share
Basic	$	1.39	$	0.19	$	0.29
Diluted	$	1.38	$	0.19	$	0.29

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, 2006, 2005, and 2004, employee stock options for 5,000, 0, and 0 shares, respectively, were excluded from diluted EPS.

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
	Amount			Effect			Net-of-Tax Amount
June 30, 2006
Change in unrealized losses on available-for-sale securities	$	(3,746	)	$	1,273		$	(2,473	)
Less: reclassification adjustment for gains included in net income		(550,903	)		187,307			(363,596	)
Other comprehensive income	$	(554,649	)	$	188,580		$	(366,069	)
June 30, 2005
Change in 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
Change in unrealized gains on available-for-sale securities	$	979,158		$	(332,914	)	$	646,244
Less: reclassification adjustment for gains included in net income		(154,981	)		52,694			(102,287	)
Other comprehensive income	$	824,177		$	(280,220	)	$	543,957

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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		Investments			Consolidated
Year ended June 30, 2006
Net revenues	$	42,959,530	$	1,894,058		$	44,853,588
Net income before income taxes		13,997,166		1,870,174			15,867,340
Depreciation		152,755		—			152,755
Interest expense		—		—			—
Capital expenditures		510,804		—			510,804
Gross identifiable assets at June 30, 2006		24,220,565		4,764,077			28,984,642
Deferred tax asset							62,211
Consolidated total assets at June 30, 2006							29,046,853
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 before income taxes		1,839,764		1,002,717			2,842,481
Depreciation		108,065		—			108,065
Interest expense		72,962		183			73,145
Gain on litigation settlement		—		—			—
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

Note 15. Related Party Transactions

The Company had $12.6 million and $4.8 million at fair value invested in USGIF and USGAF funds, included in the balance sheet in cash and cash equivalents and trading securities, at June 30, 2006, and 2005, respectively. The Company recorded $49,380 in dividend income and $100,952 in unrealized gains on its investments in the funds. 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.

In the first quarter of fiscal year 2005, the Company began providing advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund. The Company receives a monthly advisory fee and a quarterly performance fee, if any, based on the overall increase in value of the net assets in the fund for the quarter. The Company recorded fees totaling $1,353,454 and $299,144 for the years ended June 30, 2006 and June 30, 2005, respectively. Frank Holmes, a director and CEO of the

40

Company, is a director of Meridian Global Gold and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund.

In the first quarter of fiscal year 2006, the Company began providing advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company is paid a monthly advisory fee and a quarterly performance fee, if any. The Company recorded advisory fees totaling $212,828 for the year ended June 30, 2006. The Company has an investment in the U.S. Global Investors Balanced Natural Resources Fund, Ltd. with a market value of $682,000 and $500,000 as of June 30, 2006, and 2005, respectively. The Company earned $182,000 in unrealized gains on its investment in the fund in fiscal 2006, which was recorded as investment income. Holmes is a director of U.S. Global Investors Balanced Natural Resources Fund Ltd.

In the third quarter of fiscal year 2006, the Company began providing investment advisory services to Endeavour Mining Capital Corp., an offshore company. The Company is paid a monthly advisory fee based on the net asset value of the portfolio and an annual performance fee, if any, based on a percentage of consolidated net income from operations in excess of a predetermined percentage return on equity. The Company recorded $7,055,267 in performance and advisory fees for the year ended June 30, 2006. Holmes is Chairman of the Board of Directors of Endeavour Mining Capital Corp.

In August of 2006, subsequent to the Company’s fiscal year end, the Company began providing advisory services for the Meridian Global Energy and Resources Fund Ltd., an offshore fund. The Company will receive a monthly advisory fee and a quarterly performance fee, if any, based on the overall increase in value of the net assets in the fund for the quarter. The Company recorded no fees for the year ending June 30, 2006. The Company invested $500,000 in the fund in August 2006. Holmes is a director of Meridian Global Energy and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund.

The Company owns a position in Franc-Or Resources Corporation at June 30, 2006, with an estimated fair value of approximately $400,000, recorded as a trading security on the balance sheet. Holmes served as an independent director of Franc-Or Resources Corporation from June 2000 to November 2003.

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. 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. In the first quarter of fiscal 2006, both the Company and Holmes sold their holdings in BCS Global Networks in response to a tender offer, with the Company realizing a loss of $31,560.

Note 16. Contingencies and Commitments

The Company continuously reviews all investor, employee and vendor complaints, and pending or threatened litigation. The likelihood that a loss contingency exists is evaluated under the criteria of SFAS No. 5, “Accounting for Contingencies,” through consultation with legal counsel, and a loss contingency is recorded if the contingency is probable and reasonably estimable at the date of the financial statements.

During the normal course of business, the Company may be subject to claims, legal proceedings, and other contingencies. These matters are subject to various uncertainties, and it is possible that some of these matters may be resolved unfavorably. The Company establishes accruals for matters for which the outcome is probable and can be reasonably estimated. Management believes that any liability in excess of these accruals upon the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial statements of the Company.

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Note 17. Selected Quarterly Financial Data (Unaudited)

Note that some rows may not add to the correct annual total due to rounding.

Fiscal 2006	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	6,575	$	7,761	$	11,557	$	18,961
Expenses		4,859		6,048		7,459		10,620
Income Before Income Taxes		1,716		1,713		4,098		8,341
Net Income		1,095		1,168		2,550		5,622
Earnings per Share:
Basic	$	0.15	$	0.16	$	0.34	$	0.74
Diluted	$	0.14	$	0.15	$	0.34	$	0.74

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

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Item 9A. Controls and Procedures

Disclosure 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, 2006, was conducted under the supervision and with the participation of management, including the chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, 2006.

Internal Control over Financial Reporting.

(a) Management’s Annual Report on Internal Control Over Financial Reporting

The management report on U.S. Global Investors, Inc.’s internal control over financial reporting required by Item 9A appears in Item 8 on page 22 of this report, and is incorporated herein by reference.

(b) Attestation Report of the Independent Registered Public Accounting Firm.

The report of BDO Seidman, LLP on our management’s assessment of U.S. Global Investors, Inc.’s internal control over financial reporting appears in Item 8 on page 23 of this report., and is incorporated herein by reference.

(c) Changes in Internal Control Over Financial Reporting.

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2006, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

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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		51	Director of the Company 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		68	Chairman of the Board of Directors since February 2006 and Director of the Company since October 1989. Board member and Chairman of the Audit Committee of CKR since June 2006. 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		60	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.		46	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		47	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		46	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.

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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” and is “independent” (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 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, 2006, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met.

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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, 2006, fiscal year).

											Long-Term
	Annual Compensation										Compensation
								(e)			Awards
(a)								Other			(f)
Name and								Annual			Restricted
Principal Position	(b)		(c)			(d)		Compen-			Stock
During FY 2006	Year		Salary ($)			Bonus ($)		sation ($)			Awards ($)
Frank Holmes		2006		488,390	(1)		1,617,762		3,375	(3)		50,000	(2)
Chairman, Chief		2005		492,040	(1)		273,805		—	(3)		50,000	(2)
Executive Officer		2004		486,190	(1)		206,640		—	(3)		50,000	(2)
Susan B. McGee		2006		188,714			567,896		163,275	(3)		—
President, General		2005		188,714			213,186		—	(3)		—
Counsel		2004		188,714			168,210		—	(3)		—
Catherine A. Rademacher		2006		102,953			112,037		51,950	(3)		—
Chief Financial Officer		2005		96,116			23,630		—	(3)		—

(1)	Includes trustee fees of $43,600, $47,250, and $40,400 paid by the Company during fiscal year 2006, 2005, and 2004, 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)	Any amounts shown represent options exercised. The Company believes that the aggregate amounts of any 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 made a profit sharing contribution of $220,000 in fiscal year 2006. In addition, the Company accrued an additional $166,000 through June 30, 2006 for a potential profit sharing contribution in fiscal 2007. The Company did not make a profit sharing contribution for the 2005 or 2004 fiscal years.

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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 the education of their minor relatives.

Stock Purchase Plan

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 2006, 2005, and 2004, employees purchased 12,881, 15,127, and 28,180 shares of treasury stock from the Company, respectively.

Stock Option Plans

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, 2006, there were no grants. As of June 30, 2006, under this amended plan, 866,700 options had been granted, 426,500 options had been exercised, 425,200 options had expired, 15,000 options remained outstanding, and 358,500 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, 2006, there was one option for 5,000 shares granted. As of June 30, 2006, 265,500 options had been granted, 75,500 shares had been exercised, 132,000 options had expired, 58,000 options remained outstanding, and 66,500 options are available for grant.

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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 2006, no options were granted to an officer of the Company.

					(d)
					Number of		(e)
					Securities		Value of
					Underlying		Unexercised
	(b)				Unexercised		In-The-Money
	Number of		(c)		Options/SARs		Options/SARs
	Shares		Dollar		at FY End (#)		at FY End ($)
(a)	Acquired on		Value		Exercisable/		Exercisable/
Name	Exercise		Realized		Unexercisable		Unexercisable
Frank E. Holmes		1,000	$	3,375		0/0	$	0/$0
Susan B. McGee		11,000	$	163,275		40,000/0		$778,000/$0
Catherine A. Rademacher		5,000	$	51,950		0/5,000	$	0/$89,300

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, 2006, the three nonemployee directors received compensation of $62,000, $27,000 and $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 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, in overseeing the management of the Company’s client portfolios and the results of the Company’s operational earnings. Mr. Holmes receives a bonus based on achieving certain benchmarks in each of these areas.

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 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

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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.

Company Performance Presentation

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, 2001, and that all dividends are reinvested.

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Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

Class C Common Stock (Voting Stock)

On August 25, 2006, 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		1,392,211	(1)		93.01	%
7900 Callaghan Road
San Antonio, TX 78229

⁽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; 387,280 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.

Class A Common Stock (Nonvoting Stock)

On August 25, 2006, there were 6,077,029 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 (%)
Praetorian Capital Management, LLC – Miami Beach, Florida(1)		720,000	(1)		11.85	%
Insight Capital Research & Management, Inc.– Walnut Creek, California(2)		557,508	(2)		9.17	%
Whitebox Advisors, LLC– Minneapolis, Minnesota(3)		354,428	(3)		5.83	%
Osmium Partners, LLC– San Francisco, California(4)		348,270	(4)		5.73	%
Royce & Associates, LLC. – New York, New York (5)		336,804	(5)		5.54	%
Navellier & Associates, Inc. – Reno, Nevada(6)		307,878	(6)		5.07	%

(1)	Information is from Schedule 13G for period ending December 31, 2005, filed with the SEC on January 13, 2006.
(2)	Information is from Schedule 13F for period ending June 30, 2006, filed with the SEC on August 9, 2006.
(3)	Information is from Schedule 13F Amendment Number 2 for the period ending June 30, 2006, filed with the SEC on August 18, 2006.
(4)	Information is from Schedule 13G Amendment Number 1 for the period ending September 14, 2005, filed with the SEC on February 10, 2006.
(5)	Information is from Schedule 13G for the period ending July 31, 2006, filed with the SEC on August 7, 2006.
(6)	Information is from Schedule 13F for the period ending June 30, 2006, filed with the SEC on July 20, 2006.

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Security Ownership of Management

The following table sets forth, as of August 25, 2006, information regarding the beneficial ownership of the Company’s class A and class C common stock by each director and named executive officers 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	%		99,320			1.63	%
Susan B. McGee, President, General Counsel		—			—			54,754	(2)		0.90	%
Catherine A. Rademacher, CFO		—			—			6,206	(3)		0.10	%
Roy D. Terracina, Director		—			—			20,000			0.33	%
All directors and executive officers as a group (four persons)		1,392,211			93.01	%		180,280			2.97	%

(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; 387,280 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.
(2)	Includes 40,000 shares of class A common stock underlying presently exercisable options held directly and 14,754 shares owned directly by Ms. McGee.
(3)	Includes 5,000 shares of class A common stock underlying options not presently exercisable and 1,206 shares owned directly by Ms. Rademacher.

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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,		outstanding options,		reflected in column
	warrants and rights		warrants and rights		(a))
Plan Category	(a)		(b)		(c)
Equity compensation plans approved by security holders		N/A		N/A		N/A
Equity compensation plans not approved by security holders
1989 Stock Option Plan (1)		15,000	$	1.50		358,500
1997 Non-Qualified Stock Option Plan (2)		58,000	$	3.30		66,500
Employee Stock Purchase Plan (3)		N/A		N/A		21,900
Total		73,000				446,900

(1)	Stock options under this plan may be granted to directors, officers, and employees of the Company from authorized but unissued shares or treasury shares.
(2)	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.
(3)	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.

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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, 2006 and 2005, respectively, rendered by BDO Seidman, LLP.

	Fiscal year ended June 30,
	2006		2005
Audit fees (1)	$	418,335	$	117,000
Audit-related fees (2)		7,490		14,900
Tax fees (3)		19,210		19,084
All other fees		—		—
Total fees	$	445,035	$	150,984

(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 internal control report 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.
(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.

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 years ended June 30, 2006 and 2005 were pre-approved by the Audit Committee.

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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:

• Management’s Annual Report on Internal Controls Over Financial Reporting

• Reports of Independent Registered Public Accounting Firm on Consolidated Financial Statements

• Consolidated Balance Sheets as of June 30, 2006 and 2005

• Consolidated Statements of Operations and Comprehensive Income for the three years ended June 30, 2006

• Consolidated Statements of Shareholders’ Equity for the three years ended June 30, 2006

• Consolidated Statements of Cash Flows for the three years ended June 30, 2006

• 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 November 15, 1996, by and between Company, U.S. Global Accolade Funds/MegaTrends Fund, and Money Growth Institute, Inc., incorporated by

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	reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-1A dated June 21, 1996 (EDGAR Accession No. 0000902042-96-000046).
10.4	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).
10.5	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).
10.6	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).
10.7	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).
10.8	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).
10.9	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).
10.10	Amendment dated June 3, 2005, to loan agreement between Company and Bank One NA, included herein.
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	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.,

55

	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 April 23, 2006 to Custodian Agreement dated November 1, 1997, between U.S. Global Investors and Brown Brothers Harriman & Co., included herein.
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	Amendment dated March 21, 2002 to Appendix A of the 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 September 30, 2004 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. 26 to Registration Statement on Form N1-A dated January 20, 2005 (EDGAR Accession No. 902042-05-000004).
10.23	Amendment dated April 23, 2006 to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., included herein.
10.24	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).
10.25	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).
10.26	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, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2005 (EDGAR Accession Number 0000950134-05-018480).
21	List of Subsidiaries of the Company, included herein.

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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 July 21, 2005, the Company filed a Current Report on Form 8-K dated July 21, 2005, reporting Item 1.01 (Entry into a Material Definitive Agreement) announcing the approval of a bonus plan with specific performance criteria for Mr. Frank E. Holmes, Chief Executive Officer and Chief Investment Officer of U.S. Global Investors, Inc. for the fiscal year ended June 30, 2005.
(ii)	On September 28, 2005, the Company filed a Current Report on Form 8-K dated September 28, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the fiscal year ended June 30, 2005.
(iii)	On November 14, 2005, the Company filed a Current Report on Form 8-K dated November 14, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2005.
(iv)	On February 14, 2006, the Company filed a Current Report on Form 8-K dated February 14, 2006, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended December 31, 2005.
(v)	On May 15, 2006, the Company filed a Current Report on Form 8-K dated May 15, 2006, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended March 31, 2006.
(vi)	On August 10, 2006, the Company filed a Current Report on Form 8-K dated August 10, 2006 reporting Item 8.01 (Other Events) announcing a press release reporting the earnings of an annual performance fee for its role in providing advisory services to a merchant banking company that invests in the natural resources sector.
(vii)	On September 8, 2006, the Company filed a Current Report on Form 8-K dated September 8, 2006 reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the fiscal year ended June 30, 2006.

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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 12, 2006	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	September 12, 2006
	Chief Executive Officer
	Chief Investment Officer
* /s/ Thomas F. Lydon, Jr.
Thomas F. Lydon, Jr.	Director	September 12, 2006
* /s/ Jerold H. Rubinstein
Jerold H. Rubinstein	Director	September 12, 2006
* /s/ Roy D. Terracina
Roy D. Terracina	Director	September 12, 2006
/s/ Catherine A. Rademacher
Catherine A. Rademacher	Chief Financial Officer	September 12, 2006
*BY: /s/ Susan B. McGee
Susan B. McGee		September 12, 2006
Attorney-in-Fact under Power of Attorney dated
September 26, 2001

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EX-10.10

Exhibit 10.10 ___

BANK1ONE

     A Division of JPMorgan Chase Bank, N.A. Notice of Final Agreement

Dated as of June 3, 2005

To: U.S. Global Investors, Inc. (collectively, whether one or more, the “Borrower”)

As of the effective date of this Notice, the Borrower and JPMorgan Chase Bank, N.A., (the “Bank”) have consummated a transaction pursuant to which the Bank has agreed to make a loan or loans to the Borrower, to renew and extend an existing loan or loans to the Borrower and/or to otherwise extend credit or make financial accommodations to or for the benefit of the Borrower, in an aggregate amount up to $1,000,000.00 (collectively, whether one or more, the “Loan”).

In connection with the Loan, the Borrower and the Bank and the undersigned guarantors and other obligors, if any (collectively, whether one or more, the “Other Obligors”) have executed and delivered and may hereafter execute and deliver certain agreements, instruments and documents (collectively hereinafter referred to as the “Written Loan Agreement”).

It is the intention of the Borrower, the Bank and the Other Obligors that this Notice be incorporated by reference into each of the written agreements, instruments and documents comprising the Written Loan Agreement. The Borrower, the Bank and the Other Obligors each warrants and represents that the entire agreement made and existing by or among the Borrower, the Bank and the Other Obligors with respect to the Loan is and shall be contained within the Written Loan Agreement, as amended and supplemented hereby, and that no agreements or promises exist or shall exist by or among the Borrower, the Bank and the Other Obligors that are not reflected in the Written Loan Agreement.

THE WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

JPMorgan Chase Bank, N.A.

By: /s/ John L. Dochendorf II.

John L. Dochendorf II, Vice President

Printed Name          Title

Date Signed:   6/17/05

ACKNOWLEDGED AND AGREED:

BORROWER:

U.S. Global Investors, Inc.

By: /s/ Frank E. Holmes

Frank E. Holmes, CEO

Printed Name   Title

OTHER OBLIGORS

59

BANK1ONE

     A Division of JPMorgan Chase Bank, N.A. Continuing Security Agreement

Dated as of June 3, 2005

Grant of Security Interest. U.S. Global Investors, Inc. (the “Borrower”) grants to JPMorgan Chase Bank, N.A., whose address is 1020 NE Loop 410, San Antonio, TX 78209, on behalf of itself and its successors and assigns (the “Bank”), as secured party, a continuing security interest in all of the Collateral (as hereinafter defined) to secure the payment and performance of the Liabilities.

The term “Liabilities” means all obligations, indebtedness and liabilities of the Borrower to any one or more of the Bank, JPMorgan Chase & Co., and any of their subsidiaries, affiliates or successors, now existing or later arising, including, without limitation, all loans, advances, interest, costs, overdraft indebtedness, credit card indebtedness, lease obligations, or obligations relating to any Rate Management Transaction, all monetary obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions, modifications, consolidations or substitutions of any of the foregoing, whether the Borrower may be liable jointly with others or individually liable as a debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and whether voluntarily or involuntarily incurred, due or not due, absolute or contingent, direct or indirect, liquidated or unliquidated. The term “Rate Management Transaction” in this agreement means any transaction (including an agreement with respect thereto) now existing or hereafter entered into among the Borrower, the Bank or JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors, which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.

The term “Collateral” means all of the Borrower’s “accounts”; “chattel paper”; “general intangibles” and any right to a refund of taxes paid at any time to any governmental entity; “instruments”; all as defined in the UCC, whether now owned or hereafter acquired, whether now existing or hereafter arising, and wherever located. In addition, the term “Collateral” includes all “proceeds”, “products” and “supporting obligations” (as such terms are defined in the UCC) of the Collateral, including but not limited to all stock rights, subscription rights, dividends, stock dividends, stock splits, or liquidating dividends, and all cash, accounts, chattel paper, “instruments,” “investment property,” and “general intangibles” (as such terms are defined in the UCC) arising from the sale, rent, lease, casualty loss or other disposition of the Collateral, and any Collateral returned to, repossessed by or stopped in transit by the Borrower, and all insurance claims relating to any of the Collateral. The term “Collateral” further includes all of the Borrower’s right, title and interest in and to all books, records and data relating to the Collateral, regardless of the form of media containing such information or data, and all software necessary or desirable to use any of the Collateral or to access, retrieve, or process any of such information or data. Where the Collateral is in the possession of the Bank or the Bank’s agent, the Borrower agrees to deliver to the Bank any property that represents an increase in the Collateral or profits or proceeds of the Collateral.

The term “UCC” means the Uniform Commercial Code of Texas, as in effect from time to time.

Representations, Warranties and Covenants. The Borrower represents and warrants to, and covenants and agrees with the Bank that:

1. At its own expense, it shall maintain comprehensive casualty insurance on the Collateral against such risks, in such amounts, with such deductibles and with such companies as may be satisfactory to the Bank. Each insurance policy on the Collateral shall contain a lender’s loss payable endorsement satisfactory to the Bank and a prohibition against cancellation or amendment of the policy or removal of the Bank as loss payee without at least thirty (30) days prior written notice to the Bank. In all events, the amounts of such insurance coverages on the Collateral shall be in such minimum amounts that the Borrower will not be deemed a co-insurer. The policies on the Collateral, or certificates evidencing them, shall, if the Bank so requests, be deposited with the Bank.

2. It shall permit the Bank, at the Borrower’s expense, to inspect and examine the Collateral and to check and test the same as to quality, quantity, value, and condition.

3. It shall maintain the Collateral in good repair; use the Collateral in accordance with law and in compliance with any policy of insurance thereon; and exhibit the Collateral to the Bank on demand.

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4. Until the Bank gives notice to the Borrower to the contrary or until the Borrower is in default, it may use the funds collected in its business. Upon notice from the Bank or upon default, the Borrower agrees that all sums of money it receives on account of or in payment or settlement of the accounts, chattel paper, general intangibles and instruments shall be held by it as trustee for the Bank without commingling with any of the Borrower’s other funds, and shall immediately be delivered to the Bank with endorsement to the Bank’s order of any check or similar instrument. It is agreed that, at any time the Bank so elects, the Bank shall be entitled, in its own name or in the name of the Borrower or otherwise, but at the expense and cost of the Borrower, to collect, demand, receive, sue for or compromise any and all accounts, chattel paper, general intangibles, and instruments, and to give good and sufficient releases, to endorse any checks, drafts or other orders for the payment of money payable to the Borrower and, in the Bank’s discretion, to file any claims or take any action or proceeding which the Bank may deem necessary or advisable. It is expressly understood and agreed, however, that the Bank shall not be required or obligated in any manner to make any demand or to make any inquiry as to the nature or sufficiency of any payment received by it or to present or file any claim or take any other action to collect or enforce the payment of any amounts which may have been assigned to the Bank or to which the Bank may be entitled at any time or times. All notices required in this paragraph will be immediately effective when sent. Such notices need not be given prior to the Bank’s taking action. The Borrower appoints the Bank or the Bank’s designee as the Borrower’s attorney-in-fact to do all things with reference to the Collateral as provided for in this agreement including without limitation (1) to sign the Borrower’s name on any invoice or bill of lading relating to any Collateral, on assignments and verifications of account and on notices to the Borrower’s customers, and (2) to do all things necessary to carry out this agreement, (3) to notify the post office authorities to change the Borrower’s mailing address to one designated by the Bank, and (4) to receive, open and dispose of mail addressed to the Borrower. The Borrower ratifies and approves all acts of the Bank as attorney-in-fact. The Bank shall not be liable for any act or omission, nor any error of judgment or mistake of fact or law, but only for its gross negligence or willful misconduct. This power being coupled with an interest is irrevocable until all of the Liabilities have been fully satisfied. Immediately upon its receipt of any Collateral evidenced by an agreement, “instrument,” “chattel paper,” certificated “security” or “document” (as such terms are defined in the UCC) (collectively, “Special Collateral”), it shall mark the Special Collateral to show that it is subject to the Bank’s security interest and shall deliver the original to the Bank together with appropriate endorsements and other specific evidence of assignment in form and substance satisfactory to the Bank.

5. It will not, sell, lease, license or offer to sell, lease, license, grant as security to anyone other than the Bank, or otherwise transfer the Collateral or any rights in or to the Collateral, without the written consent of the Bank, except in the ordinary course of business; or change the location of the Collateral from the locations of the Collateral disclosed to the Bank, without providing at least ten (10) days prior written notice to the Bank.

6. No financing statement covering all or any part of the Collateral or any proceeds is on file in any public office, unless the Bank has approved that filing.

7. When the Collateral is located at, used in or attached to a facility leased by the Borrower, the Borrower will, at the request of the Bank, obtain from the lessor a consent to the granting of this security interest and a release or subordination of the lessor’s interest in any of the Collateral, in form acceptable to the Bank.

Remedies Regarding Collateral. The Bank shall have the right to require the Borrower to assemble the Collateral and make it available to the Bank at a place to be designated by the Bank which is reasonably convenient to both parties, the right to take possession of the Collateral with or without demand and with or without process of law, and the right to sell and dispose of it and distribute the proceeds according to law. The Borrower agrees that upon default the Bank may dispose of any of the Collateral in its then present condition, that the Bank has no duty to repair or clean the Collateral prior to sale, and that the disposal of the Collateral in its present condition or without repair or clean-up shall not affect the commercial reasonableness of such sale or disposition. The Bank’s compliance with any applicable state or federal law requirements in connection with the disposition of the Collateral will not adversely affect the commercial reasonableness of any sale of the Collateral. The Bank may disclaim warranties of title, possession, quiet enjoyment, and the like, and the Borrower agrees that any such action shall not affect the commercial reasonableness of the sale. In connection with the right of the Bank to take possession of the Collateral, the Bank may take possession of any other items of property in or on the Collateral at the time of taking possession, and hold them for the Borrower without liability on the part of the Bank. The Borrower expressly agrees that the Bank may enter upon the premises where the Collateral is believed to be located without any obligation of payment to the Borrower, and that the Bank may, without cost, use any and all of the Borrower’s “equipment” (as defined in the UCC) in the manufacturing or processing of any “inventory” (as defined in the UCC) or in growing, raising, cultivating, caring for, harvesting, loading and transporting of any of the Collateral that constitutes “farm products” (as defined in the UCC). If there is any statutory requirement for notice, that requirement shall be met if the Bank sends notice to the Borrower at least ten (10) days prior to the date of sale, disposition or other event giving rise to the required notice, and such notice shall be deemed commercially reasonable. Without limiting any other remedy, the Borrower is liable for any deficiency remaining after disposition of the Collateral. The Bank is authorized to cause all or any part of the Collateral to be transferred to or registered in its name or in the name of any other person or

61

business entity, with or without designating the capacity of that nominee. At its option the Bank may, but shall be under no duty or obligation to, discharge taxes, liens, security interests or other encumbrances at any time levied or placed on the Collateral, pay for insurance on the Collateral, and pay for the maintenance and preservation of the Collateral, and the Borrower agrees to reimburse the Bank on demand for any such payment made or expense incurred by the Bank with interest at the highest rate at which interest may accrue under any of the instruments evidencing the Liabilities. The Borrower authorizes the Bank to endorse on the Borrower’s behalf and to negotiate drafts reflecting proceeds of insurance of the Collateral, provided that the Bank shall remit to the Borrower such surplus, if any, as remains after the proceeds have been applied, at the Bank’s option, to the satisfaction of all of the Liabilities (in such order of application as the Bank may elect) or to the establishment of a cash collateral account for the Liabilities. The Bank shall have the right now, and at any time in the future in its sole and absolute discretion, without notice to the Borrower to (a) prepare, file and sign the Borrower’s name on any proof of claim in bankruptcy or similar document against any owner of the Collateral and (b) prepare, file and sign the Borrower’s name on any notice of lien, assignment or satisfaction of lien or similar document in connection with the Collateral.

Miscellaneous. A carbon, photographic or other reproduction of this agreement is sufficient as, and can be filed as, a financing statement. Additionally, the Borrower authorizes the Bank to file one or more financing statements containing the collateral description “All of the Borrower’s assets whether now owned or hereafter acquired.” or such lesser amount of assets as the Bank may determine, or the Bank may, at its option, file financing statements containing any collateral description which reasonably describes the Collateral, and the Borrower will pay the cost of filing them in all public offices where filing is deemed by the Bank to be necessary or desirable. In addition, the Borrower shall execute and deliver, or cause to be executed and delivered, such other documents as the Bank may from time to time request to perfect or to further evidence the security interest created in the Collateral by this agreement. If any provision of this agreement cannot be enforced, the remaining portions of this agreement shall continue in effect. This agreement constitutes an amendment and a restatement of that certain Security Agreement dated February 1, 2001 (the “Prior Security Agreement”) executed by the Borrower in favor of the Bank in its entirety. The lien and security interest granted under the Prior Security Agreement continues and subsists under this agreement.

Borrower:
U.S. Global Investors, Inc.
By: /s/	Frank E. Holmes
	Frank E. Holmes, CEO
	Printed Name     Title
Date Signed: 6/17/05

62

BANK1ONE

A Division of JPMorgan Chase Bank, N.A.	Line of Credit Note
	$1,000,000.00
	Date: June 3, 2005

Due: February 1, 2007

Promise to Pay. On or before February 1, 2007, for value received, U.S. Global Investors, Inc. (the “Borrower”) promises to pay to JPMorgan Chase Bank, N.A., whose address is 1020 NE Loop 410, San Antonio, TX 78209 (the “Bank”) or order, in lawful money of the United States of America, the sum of One Million and 00/100 Dollars ($1,000,000.00) or such lesser sum as is indicated on Bank records, plus interest computed on the basis of the actual number of days elapsed in a year of 360 days at the rate of 0% per annum above the Prime Rate (the “Note Rate”), and at the rate of 3.00% per annum above the Note Rate, at the Bank’s option, upon the occurrence of any default under this Note, whether or not the Bank elects to accelerate the maturity of this Note, from the date such increased rate is imposed by the Bank. In this Note, “Prime Rate” means a rate per annum equal to the prime rate of interest announced from time to time by the Bank or its parent (which rate is not necessarily the lowest rate charged to any customer), changing when and as the prime rate changes.

In no event shall the interest rate exceed the maximum rate allowed by law. Any interest payment that would for any reason be unlawful under applicable law shall be applied to principal.

Interest will be computed on unpaid principal balance from the date of each borrowing.

Until maturity, the Borrower will pay consecutive monthly installments of interest only commencing July 1, 2005.

The Borrower will pay, without setoff, deduction, or counterclaim, the Bank at the Bank’s address above or at such other place as the Bank may designate in writing. If any payment of principal or interest on this Note shall become due on a day that is not a Business Day, the payment will be made on the next succeeding Business Day. The term “Business Day” in this Note means a day other than a Saturday, Sunday or any other day on which national banking associations are authorized to be closed. Payments shall be allocated among principal, interest and fees at the discretion of the Bank unless otherwise agreed or required by applicable law. Acceptance by the Bank of any payment that is less than the payment due at that time shall not constitute a waiver of the Bank’s right to receive payment in full at that time or any other time.

Late Fee. If any payment is not received by the Bank within ten (10) days after its due date, the Bank may assess and the Borrower agrees to pay a late fee equal to the greater of: (a) five percent (5.00%) of the past due amount or (b) Twenty Five and 00/100 Dollars ($25.00), up to the maximum amount of One Thousand Five Hundred and 00/100 Dollars ($1,500.00) per late charge.

Credit Facility. The Bank has approved a credit facility to the Borrower in a principal amount not to exceed the face amount of this Note. The credit facility is in the form of advances made from time to time by the Bank to the Borrower. This Note evidences the Borrower’s obligation to repay those advances. The aggregate principal amount of debt evidenced by this Note is the amount reflected from time to time in the records of the Bank. Until the earliest of maturity, the occurrence of any default, or the occurrence of any event that would constitute a default but for the giving of notice or the lapse of time or both until the end of any grace or cure period, the Borrower may borrow, pay down and reborrow under this Note subject to the terms of the Related Documents.

Renewal and Extension. This Note is given in replacement, renewal and/or extension of, but not extinguishing the indebtedness evidenced by, that Promissory Note (Revolving Credit Note) dated February 1, 2003 executed by the Borrower in the original principal amount of One Million and 00/100 Dollars ($1,000,000.00), including previous renewals or modifications thereof, if any (the “Prior Note”), and is not a novation thereof. All interest evidenced by the Prior Note shall continue to be due and payable until paid. If applicable, all Collateral continues to secure the payment of this Note and the Liabilities. The provisions of this Note are effective on February 1,2005.

Usury. The Bank does not intend to charge, collect or receive any interest that would exceed the maximum rate allowed by law. If the effect of any applicable law is to render usurious any amount called for under this Note or the other Related Documents, or if any amount is charged or received with respect to this Note, or if any prepayment by the Borrower results in the Borrower having paid any interest in excess of that permitted by law, then all excess amounts collected by the Bank shall be credited on the principal balance of this Note (or, if this Note and all other indebtedness arising under or pursuant to the other

63

Related Documents have been paid in full, refunded to the Borrower), and the provisions of this Note and the other Related Documents immediately shall be deemed reformed and the amounts thereafter collectable reduced, without the necessity of the execution of any new document, so as to comply with the then applicable law. All sums paid, or agreed to be paid, by the Borrower for the use, forbearance, or detention of money under this Note or the other Related Documents shall, to the maximum extent permitted by applicable law, be amortized, prorated, allocated and spread throughout the full term indebtedness until payment in full so that the rate or amount of interest on account of such indebtedness does not exceed the usury ceiling from time to time in effect and applicable to such indebtedness for so long as such indebtedness is outstanding. To the extent federal law permits the Bank to contract for, charge or receive a greater amount of interest, the Bank will rely on federal law instead of the Texas Finance Code. In no event shall Chapter 346 of the Texas Finance Code apply to this Note. To the extent that Chapter 303 of the Texas Finance Code is applicable to this Note, the “weekly ceiling” specified in Chapter 303 is the applicable ceiling.

Miscellaneous. This Note binds the Borrower and its successors, and benefits the Bank, its successors and assigns. Any reference to the Bank includes any holder of this Note. This Note is issued pursuant and entitled to the benefits of that certain Credit Agreement by and between the Borrower and the Bank, dated May 6, 2005, and all replacements thereof (the “Credit Agreement”) to which reference is hereby made for a more complete statement of the terms and conditions under which the loan evidenced hereby is made and is to be repaid. The terms and provisions of the Credit Agreement are hereby incorporated and made a part hereof by this reference thereto with the same force and effect as if set forth at length herein. No reference to the Credit Agreement and no provisions of this Note or the Credit Agreement shall alter or impair the absolute and unconditional obligation of the Borrower to pay the principal and interest on this Note as herein prescribed. Capitalized terms not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement.

		Borrower:
		U.S. Global Investors, Inc.
Address:	7900 Callaghan Road
	San Antonio, TX 78229	By: /s/ Frank E. Holmes
		Frank E. Holmes, CEO
		Printed Name   Title
		Date Signed: 6/17/05

64

BANK1ONE

A Division of JPMorgan Chase Bank, N.A.	Resolution of Board of Directors
	(Resolution to Borrow)

By
U.S. Global Investors, Inc.,
A Texas corporation (the “Corporation”).
Dated: June 3, 2005

The Corporation desires to engage in financial transactions from time to time with JPMorgan Chase Bank, N.A., and its successors and assigns (the “Bank”); and

The Corporation desires to authorize certain of its officers to engage in these transactions for the Corporation; and

The Corporation desires to ratify all past transactions and eliminate the necessity of presenting separate individual resolutions to the Bank in the future; and

The Corporation has found that the transactions authorized by the resolutions are or will be in the Corporation’s interest and to its financial benefit.

Resolved: That any                      [if this blank is not completed then those authorized herein can act singly on behalf of the Corporation] of

the following named officers, of this Corporation whose actual signatures are shown below:

Title	Printed Name	Signature
Chief Executive Officer	Frank E. Holmes	/s/ Frank E. Holmes

are authorized from time to time for the Corporation to enter into any agreements of any nature with the Bank, and those agreements will bind the Corporation. Specifically, but without limitation, the authorized person is authorized, empowered, and directed to do the following for and on behalf of the Corporation:

1. Borrow and incur any indebtedness, negotiate and procure loans, lines of credit, letters of credit, discounts, and any other credit or financial accommodations from the Bank in any form and in any amount and on any terms as may be agreed upon between the Corporation and the Bank.

2. Subordinate, in all respects, any and all present and future indebtedness, obligations, liabilities, claims, rights, demands, notes and leases, of any kind which may be owed, now or hereafter, from any person or entity to the Corporation to all present and future indebtedness, obligations, liabilities, claims, rights and demands of any kind which may be owed, now or hereafter, from such person or entity to the Bank (“Subordinated Indebtedness”), together with subordination by the Corporation of any and all security interests, liens and mortgages, of any kind, whether now existing or hereafter acquired, securing payment of the Subordinated Indebtedness, all on such terms as may be agreed upon between the Corporation’s officers and the Bank and in such amounts as in his or her judgment should be subordinated.

3. Mortgage, pledge, transfer, endorse, hypothecate, or otherwise encumber and deliver to the Bank any property now or hereafter belonging to the Corporation or in which the Corporation now or hereafter may have an interest, including without limitation, all real property and all personal property, tangible or intangible, of the Corporation, as security for the payment of any credits, loans, or other financial accommodations so obtained by the Corporation or any promissory notes so executed, including any amendments to or modifications, renewals, and extensions of such promissory notes, or any other or further indebtedness of the Corporation, however the same may be evidenced. Such property may be mortgaged, pledged, transferred, endorsed, hypothecated, or encumbered at the time such loans are obtained or such indebtedness is incurred, or at any other time or times, and may be either in addition to or in lieu of any property theretofore mortgaged, pledged, transferred, endorsed, hypothecated or encumbered.

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4.	Lease personal property as lessee and elect as to tax credit and depreciation deductions.
5.	Sell, assign, pledge or transfer all or any present or future stocks or securities registered in the Corporation’s name.
6.	Enter into any agreement for any rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency swap transaction, currency option or any other similar transaction, including any option with respect to any of these transactions, or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.
7.	Draw, endorse, and discount with the Bank all drafts, trade acceptances, promissory notes, or other evidences of indebtedness payable to or belonging to the Corporation or in which the Corporation may have an interest, and either receive cash for the same or cause such proceeds to be credited to the Corporation’s account with the Bank, or cause such other disposition of the proceeds derived therefrom as he or she may deem advisable.
8.	Sign and deliver to the Bank, promissory notes or notes, drafts, acceptances, guaranties, subordination agreements, assignments, applications and reimbursement agreements for letters of credit, security agreements, financing statements, mortgages, deeds of trust, pledges, hypothecations, transfers, leases and any other instrument or document deemed necessary or required to carry out the authority contained in this resolution, and any one or more renewals, extensions, modifications, refinancings, consolidations or substitutions of any of the foregoing.
9.	In the case of lines of credit, to designate additional or alternate individuals as being authorized to request advances under such lines.
10.	Negotiate, consent to, and sign any instrument, writing, document or other agreement with the Bank containing a provision or provisions for waiver of the right to a trial before a jury; provisions for resolution of any and all disputes, claims, actions, issues, complaints, suits, or controversies, of any kind or nature, by arbitration; and provisions for cognovit, and confession of judgment and warrant of attorney for any indebtedness, or for any guaranty of indebtedness of the Company to the Bank.
11.	Do and perform such other acts and things, pay any and all fees and costs, and execute and deliver such other documents and agreements as any authorized officer of the Corporation may in his or her discretion deem reasonably necessary or proper to carry into effect the provisions of this resolution.

Further Resolved: The Corporation authorizes any one of the persons authorized above or any other person designated in writing by any of those persons to pay the proceeds of any action taken pursuant to these resolutions in the manner directed by any of the persons authorized to act, including (but not in limitation) directing the payment of such proceeds: (i) to any deposit or loan account of the Corporation; (ii) to the order of any of such persons in an individual capacity; or (iii) to the individual credit of any such person or the individual credit of any other person; and further to direct the payment from any of the Corporation’s accounts in satisfaction of any of its obligations. These requests or authorizations may be made by telephone, facsimile, or any other means of communication. The Bank is released from any liability for following the instructions that the Bank believes in good faith to have been given by a person authorized to act under this resolution.

Further Resolved: The authority given is retroactive, and any acts referred to which were performed prior to the adoption of these resolutions are ratified and affirmed. This resolution shall be continuing, shall remain in full force and effect, and the Bank may rely on it until written notice of its revocation shall have been delivered to and received by the Bank. Any such notice shall not affect any of the Corporation’s agreements or commitments in effect at the time notice is given. The Corporation does indemnify and hold harmless the Bank from any loss or damage incurred by the Bank by acting in reliance upon this resolution.

Further Resolved: The Corporation will notify the Bank prior to any (i) change in the Corporation’s name; (ii) change in the Corporation’s assumed business name(s); (iii) change in the management of the Corporation; (iv) change in the authorized signers; (v) change in the Corporation’s chief executive office address; (vi) change in the jurisdiction under which the Corporation’s business organization is formed or organized; (vii) conversion of the Corporation to a new or different type of business entity; or (viii) change in any other aspect of the Corporation that directly or indirectly relates to any agreements between the Corporation and the Bank. No change in the Corporation’s name will take effect until after the Bank has been notified.

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I Certify that I am the duly elected and qualified Secretary, Assistant Secretary or President of the Corporation and the keeper of the records and the corporate seal of the Corporation, and that the above is a true and correct copy of resolutions duly adopted at a meeting of the Board of Directors of the Corporation held in accordance with its by-laws, or by a legally effective instrument of action in lieu of a meeting, and that they are in full force and effect. This resolution now stands of record on the books of the Corporation, and has not been modified or revoked in any manner whatsoever.

I Further Certify that the individuals whose signatures appear above have been duly elected and are presently the incumbents of the offices set next to their respective signatures, and that the signatures are the genuine original signatures of each respectively.

I Further Certify that all statements and representations made in this resolution are true and correct.

/s/ Laura Bogert

(Signature)

Laura Bogert

(Printed Name)

Secretary

(Title)

6/28/05

(Date Signed)

Complete this section only if the person certifying this resolution by signature and with the title stated above is the only officer of the Corporation authorized to act on its behalf. In such case, complete this section by the signature of a different officer or director of the Corporation.

The undersigned as an officer or director of the Corporation hereby acknowledges the authority of the person certifying this resolution by the signature and title stated above to act alone for and on behalf of the Corporation as described in this resolution.

(Signature)

(Printed Name)

(Title)

(Date Signed)

Complete this section only if the Corporation is organized with only one Officer-Director. As permitted by law of the state of incorporation, there are no other individuals who are either officers or directors.

(Signature)

(Printed Name)

(Title)

(Date Signed)

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BANK1ONE

     A Division of JPMorgan Chase Bank, N.A. Credit Agreement

This agreement dated as of June 3, 2005 between JPMorgan Chase Bank, N.A., and its successors and assigns, (the “Bank”), whose address is 1020 NE Loop 410, San Antonio, TX 78209, and U.S. Global Investors, Inc. (the “Borrower”), whose address is 7900 Callaghan Road, San Antonio, TX 78229.

1. Credit Facilities.

1.1	Scope. This agreement governs Facility A, and, unless otherwise agreed to in writing by the Bank and the Borrower or prohibited by applicable law, governs the Credit Facilities.
1.2	Facility A (Line of Credit). The Bank has approved a credit facility to the Borrower in the principal sum not to exceed $1,000,000.00 in the aggregate at any one time outstanding (“Facility A”). Credit under Facility A shall be repayable as set forth in a Line of Credit Note executed concurrently with this agreement, and any renewals, modifications or extensions thereof. The proceeds of Facility A shall be used for the following purpose: Support Accounts Receivable.
	Non Usage Fee. The Borrower shall pay to the Bank a non-usage fee on the average daily unused portion of Facility A at a rate of 0.35% per annum, payable in arrears within ten (10) days of the end of each calendar quarter for which the fee is owing.
1.3	Borrowing Base. The aggregate principal amount of advances outstanding at any one time under Facility A (the “Aggregate Outstanding Amount”) shall not exceed the Borrowing Base or the maximum principal amount then available under the Line of Credit Note (and any renewals, modifications or extensions thereof) evidencing Facility A, whichever is less (the “Maximum Available Amount”). If at any time the Aggregate Outstanding Amount exceeds the Maximum Available Amount, the Borrower shall immediately pay the Bank an amount equal to such excess. “Borrowing Base” means the aggregate of:

A.	80% of the book value of all Eligible Accounts;
B.	100% of the aggregate amount of all Eligible Cash;
C.	80% of the aggregate current market value of all Eligible Major Exchange Traded Securities; and
D.	85% of the aggregate current market value of Eligible U.S. Government Securities.

1.4 Condition to Certain Advances. Notwithstanding in other provision of this agreement or the Notes, it shall be a condition precedent to any advance under Facility A which is based in whole or in part upon Eligible Cash. Eligible Major Exchange Traded Securities, and/or Eligible U.S. Government Securities, that Borrower shall have presented its request for such advance to Bank not less than three (3) business days prior to the date of such advance, and that Borrower shall have executed such documentation, including a Reg. U Purpose Statement, as shall be required by Bank.

2. Definitions. As used in this agreement, the following terms have the following respective meanings:

2.1

“Credit Facilities” means all extensions of credit from the Bank to the Borrower, whether now existing or hereafter arising, including but not limited to those described in Section 1.

2.2

“Liabilities” means all obligations, indebtedness and liabilities of the Borrower to any one or more of the Bank, JPMorgan Chase & Co., and any of their subsidiaries, affiliates or successors, now existing or later arising, including, without limitation, all loans, advances, interest, costs, overdraft indebtedness, credit card indebtedness, lease obligations, or obligations relating to any Rate Management Transaction, all monetary obligations incurred or accrued during the pendency of any bankruptcy, insolvency, receivership or other similar proceedings, regardless of whether allowed or allowable in such proceeding, and all renewals, extensions,

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	modifications, consolidations or substitutions of any of the foregoing, whether the Borrower may be liable jointly with others or individually liable as a debtor, maker, co-maker, drawer, endorser, guarantor, surety or otherwise, and whether voluntarily or involuntarily incurred, due or not due, absolute or contingent, direct or indirect, liquidated or unliquidated. The term “Rate Management Transaction” in this agreement means any transaction (including an agreement with respect thereto) now existing or hereafter entered into among the Borrower, the Bank or JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors, which is a rate swap, basis swap, forward rate transaction, commodity swap, commodity option, equity or equity index swap, equity or equity index option, bond option, interest rate option, foreign exchange transaction, cap transaction, floor transaction, collar transaction, forward transaction, currency swap transaction, cross-currency rate swap transaction, currency option or any other similar transaction (including any option with respect to any of these transactions) or any combination thereof, whether linked to one or more interest rates, foreign currencies, commodity prices, equity prices or other financial measures.
2.3	“Notes” means all promissory notes, instruments and/or contracts evidencing the terms and conditions of any of the Credit Facilities.
2.4	“Account” means a trade account, account receivable, other receivable, or other right to payment for goods sold or leased or services rendered owing to the Borrower (or to a third party grantor acceptable to the Bank).
2.5	“Account Debtor” means the person or entity obligated upon an Account.
2.6	“Affiliate” means any person, corporation or other entity directly or indirectly controlling, controlled by or under common control with the Borrower and any director or officer of the Borrower or any subsidiary of the Borrower.
2.7	“Eligible Accounts” means, at any time, all of the Borrower’s Accounts which contain selling terms and conditions acceptable to the Bank, are payable on ordinary trade terms, and are not evidenced by a promissory note or chattel paper. The net amount of any Eligible Account against which the Borrower may borrow shall exclude all returns, discounts, credits, and offsets of any nature. Unless otherwise agreed to by the Bank in writing, Eligible Accounts do not include Accounts: (1) which are not owned by the Borrower free and clear of all security interests, liens, encumbrances, and claims of third parties, except the Bank; (2) with respect to which the Account Debtor is an employee or agent of the Borrower; (3) with respect to which the Account Debtor is affiliated with or related to the Borrower; (4) with respect to which goods are placed on consignment, guaranteed sale, or other terms by reason of which the payment by the Account Debtor may be conditional; (5) with respect to which the Account Debtor is not a resident of the United States, except to the extent such Accounts are otherwise Eligible Accounts and are supported by insurance, bonds or other assurances satisfactory to the Bank; (6) subject to the U.S. Office of Foreign Asset Control Special Designated Nationals and Blocked Person’s List, or with respect to which the Account Debtor is otherwise a person or entity with whom the Borrower or the Bank is prohibited from doing business by any applicable law, regulation, executive order or other legal directive; (7) which are not payable in U.S. Dollars; (8) with respect to which the Borrower is or may become liable to the Account Debtor for goods sold or services rendered by the Account Debtor to the Borrower; (9) which are subject to dispute, counterclaim, withholding, defense, or setoff; (10) with respect to which the goods have not been shipped or delivered, or the services have not been rendered, to the Account Debtor, or which otherwise constitute pre-billed Accounts; (11) which constitute retainage, or are bonded Accounts; (12) with respect to which the Bank, in its sole discretion, deems the creditworthiness or financial condition of the Account Debtor to be unsatisfactory; (13) of any Account Debtor who has filed or has had filed against it a petition in bankruptcy or an application for relief under any provision of any state or federal bankruptcy, insolvency, or debtor-in-relief acts; or who has had appointed a trustee, custodian, or receiver for the assets of such Account Debtor; or who has made an assignment for the benefit of creditors or has become insolvent or fails generally to pay its debts (including its payrolls) as such debts become due; (14) with respect to which the Account Debtor is the United States government or any department or agency of the United States; and (15) which have not been paid in full within ninety (90) days from the invoice date.

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2.8	“Eligible Major Exchange Traded Security” means, at any time, any stock owned by Borrower which is not JPMorgan Chase & Co. stock, and which is listed and traded at a price per share of not less than $10 on the New York Stock Exchange, the NASDAQ, or the AMEX, and the shares of any mutual fund and/or unit investment trust owned by Borrower which is not a JPMorgan Chase & Co. mutual fund, that invests solely in stocks which are listed and traded on the New York Stock Exchange, the NASDAQ, or the AMEX ,in which the Bank has a perfected first priority security interest.
2.9	“Eligible Cash” means, at any time, the aggregate of the balances of Borrower’s savings and certificate of deposit accounts at Bank upon which Bank has a perfected first priority security interest.
2.10	“Eligible U.S. Government Securities” means, at any time, U.S. Government and U.S. Government Agency securities owned by Borrower, and the shares of any mutual fund and/or unit investment trust owned by Borrower which invests solely in the foregoing, in which Bank has a perfected first priority security interest.
2.11	“Intangible Assets” means the aggregate amount of: (1) all assets classified as intangible assets under generally accepted accounting principles, including, without limitation, goodwill, trademarks, patents, copyrights, organization expenses, franchises, licenses, trade names, brand names, mailing lists, catalogs, excess of cost over book value of assets acquired, and bond discount and underwriting expenses; and (2) loans or advances to, investments in, or receivables from (i) Affiliates, officers, directors, employees or shareholders of the Borrower or (ii) any person or entity if such loan, advance, investment or receivable is outside the Borrower’s normal course of business.
2.12	“Tangible Net Worth” means total assets less the sum of Intangible Assets and total liabilities.
2.13	“Related Documents” means all loan agreements, credit agreements, reimbursement agreements, security agreements, mortgages, deeds of trust, pledge agreements, assignments, guaranties, or any other instrument or document executed in connection with this agreement or in connection with any of the Liabilities.

3. Affirmative Covenants. The Borrower shall:

3.1	Insurance. Maintain insurance with financially sound and reputable insurers covering its properties and business against those casualties and contingencies and in the types and amounts as are in accordance with sound business and industry practices, and furnish to the Bank, upon request of the Bank, reports on each existing insurance policy showing such information as the Bank may reasonably request.
3.2	Existence. Maintain its existence and business operations as presently in effect in accordance with all applicable laws and regulations, pay its debts and obligations when due under normal terms, and pay on or before their due date, all taxes, assessments, fees and other governmental monetary obligations, except as they may be contested in good faith if they have been properly reflected on its books and, at the Bank’s request, adequate funds or security has been pledged to insure payment.
3.3	Financial Records. Maintain proper books and records of account, in accordance with generally accepted accounting principles, and consistent with financial statements previously submitted to the Bank.
3.4	Inspection. Permit the Bank, its assigns or agents, at such times and at such intervals as the Bank may reasonably require: (1) to inspect, examine, audit and copy the Borrower’s business records, and to discuss the Borrower’s business, operations, and financial condition with the Borrower’s officers and accountants; (2) to inspect the Borrower’s business operations and sites; (3) to perform audits or other inspections of any collateral securing any of the Liabilities, including records and other documents relating to that collateral and the Borrower shall promptly compensate the Bank for all costs and expenses associated with any such inspection or audit (including in-house costs and expenses charged within the Bank for such inspection or audit) after receiving the Bank’s invoice(s) therefor; and (4) at the Borrower’s expense, to

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	confirm with Account Debtors the accuracy of Accounts.
3.5	Financial Reports. Furnish to the Bank whatever information, books and records the Bank may from time to time reasonably request, including at a minimum:

A. Within forty-five (45) days after each quarterly period, publicly traded 10-Q reports.

B. Within one hundred and twenty (120) days after and as of the end of each of its fiscal years, a detailed financial statement including a balance sheet and statements of income, cash flow and retained earnings, such financial statement, to be audited by an independent certified public accountant of recognized standing acceptable to the Bank in the Bank’s sole discretion.

C. A list of accounts receivable, aged from date of invoice and certified as correct by one of its authorized agents, with each request of an advance under Facility A and within forty-five (45) days after and as of the end of each calendar month during which there is a balance outstanding under Facility A.

D. A borrowing base certificate, in form and detail satisfactory to the Bank, along with such supporting documentation as the Bank may request, with each request of an advance under Facility A and within forty-five (45) days after and as of the end of each calendar month during which there is a balance outstanding under Facility A.

3.6	Notices of Claims, Litigation, Defaults, etc. Promptly inform the Bank in writing of (1) all existing and all threatened litigation, claims, investigations, administrative proceedings and similar actions affecting the Borrower which could materially affect the financial condition of the Borrower; (2) the occurrence of any event which gives rise to the Bank’s option to terminate the Credit Facilities; (3) the institution of steps by the Borrower to withdraw from, or the institution of any steps to terminate, any employee benefit plan as to which the Borrower may have liability; (4) any additions to or changes in the locations of the Borrower’s businesses; and (5) any alleged breach of any provision of this agreement or of any other agreement related to the Credit Facilities by the Bank.
3.7	Other Agreements. Comply with all terms and conditions of all other agreements, whether now or hereafter existing, between the Borrower and any other party.
3.8	Title to Assets and Property. Maintain good and marketable title to all of the Borrower’s assets and properties, and defend such assets and properties against all claims and demands of all persons at any time claiming any interest in them.
3.9	Additional Assurances. Make, execute and deliver to the Bank such other agreements as the Bank may reasonably request to evidence the Credit Facilities and to perfect any security interests.
3.10	Employee Benefit Plans. Maintain each employee benefit plan as to which the Borrower may have any liability, incompliance with all applicable requirements of law and regulations.
3.11	Banking Relationship. Maintain its primary banking depository and disbursement relationship with the Bank and establish such accounts and maintain balances therein with the Bank sufficient to cover the cost of all the Bank’s services provided; provided, however, that nothing herein shall require the Borrower to keep and maintain a specific minimum balance in such accounts.
3.12	Compliance Certificates. Provide the Bank, within forty-five (45) days after the end of each fiscal quarter, with a certificate executed by the Borrower’s chief financial officer, or other officer or a person acceptable to the Bank, certifying that, as of the date of the certificate, no default exists under any provision of this agreement.
3.13	Brokerage Accounts. Maintain all Eligible Major Exchange Traded Securities and Eligible U.S. Government Securities in either safekeeping accounts with Bank or brokerage accounts with an affiliate of JPMorgan Chase &Co.

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4. Negative Covenants.

4.1	Unless otherwise noted, the financial requirements set forth in this section will be computed in accordance with generally accepted accounting principles applied on a basis consistent with financial statements previously submitted by the Borrower to the Bank.
4.2	Without the written consent of the Bank, the Borrower will not:

A. Sale of Shares. Issue, sell or otherwise dispose of any shares of its capital stock or other securities, or rights, warrants or options to purchase or acquire those shares or securities.

B. Debt. Incur, contract for, assume, or permit to remain outstanding, indebtedness for borrowed money, installment obligations, or obligations under capital leases or operating leases, other than (1) unsecured trade debt incurred in the ordinary course of business, (2) indebtedness owing to the Bank, (3) indebtedness reflected in the latest financial statement of the Borrower furnished to the Bank prior to execution of this agreement and that is not to be paid with proceeds of borrowings under the Credit Facilities, and (4) indebtedness outstanding as of the date hereof that has been disclosed to the Bank in writing and that is not to be paid with proceeds of borrowings under the Credit Facilities.

C. Guaranties. Guarantee or otherwise become or remain secondarily liable on the undertaking of another, except for endorsement of drafts for deposit and collection in the ordinary course of business.

D. Liens. Create or permit to exist any lien on any of its property, real or personal, except: existing liens known to the Bank; liens to the Bank; liens incurred in the ordinary course of business securing current non-delinquent liabilities for taxes, worker’s compensation, unemployment insurance, social security and pension liabilities.

E. Use of Proceeds. Use, or permit any proceeds of the Credit Facilities to be used, directly or indirectly, for: (1) any personal, family or household purpose; or (2) the purpose of “purchasing or carrying any margin stock” within the meaning of Federal Reserve Board Regulation U. At the Bank’s request, the Borrower will furnish a completed Federal Reserve Board Form U-1.

F. Continuity of Operations. (1) Engage in any business activities substantially different from those in which the Borrower is presently engaged; (2) cease operations, liquidate, merge, transfer, acquire or consolidate with any other entity, change its name, dissolve, or sell any assets out of the ordinary course of business; (3) enter into any arrangement with any person providing for the leasing by the Borrower or any subsidiary of real or personal property which has been sold or transferred by the Borrower or subsidiary to such person; or (4) change its business organization, the jurisdiction under which its business organization is formed or organized, or its chief executive office, or any places of its businesses.

G. Limitation on Negative Pledge Clauses. Enter into any agreement with any person other than the Bank which prohibits or limits the ability of the Borrower or any of its subsidiaries to create or permit to exist any lien on any of its property, assets or revenues, whether now owned or hereafter acquired.

H. Conflicting Agreements. Enter into any agreement containing any provision which would be violated or breached by the performance of the Borrower’s obligations under this agreement.

I. Current Ratio. Permit as of each fiscal quarter end, its ratio of current assets to current liabilities to be less than 2.00 to 1.00.

J. Leverage Ratio. Permit as of each fiscal quarter end, its ratio of total liabilities to Tangible Net Worth to be greater than 0.75 to 1.00.

K. Liquidity. Permit at any time its total of cash, marketable securities and accounts receivable (net of reserves), to be less than $1,000,000.00.

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L. Government Regulation. (1) Be or become subject at any time to any law, regulation, or list of any government agency (including, without limitation, the U.S. Office of Foreign Asset Control list) that prohibits or limits Bank from making any advance or extension of credit to Borrower or from otherwise conducting business with Borrower, or (2) fail to provide documentary and other evidence of Borrower’s identity as may be requested by Bank at any time to enable Bank to verify Borrower’s identity or to comply with any applicable law or regulation, including, without limitation, Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318.

5. Representations.

5.1

Representations by the Borrower. The Borrower represents and warrants to the Bank that: (a) its principal residence or chief executive office is at the address shown above, (b) its name as it appears in this agreement is its exact name as it appears in its organizational documents, as amended, including any trust documents, (c) the execution and delivery of this agreement and the Notes, and the performance of the obligations they impose, do not violate any law, conflict with any agreement by which it is bound, or require the consent or approval of any governmental authority or other third party, (d) this agreement and the Notes are valid and binding agreements, enforceable according to their terms, (e) all balance sheets, profit and loss statements, and other financial statements and other information furnished to the Bank in connection with the Liabilities are accurate and fairly reflect the financial condition of the organizations and persons to which they apply on their effective dates, including contingent liabilities of every type, which financial condition has not changed materially and adversely since those dates, (f) no litigation, claim, investigation, administrative proceeding or similar action (including those for unpaid taxes) against the Borrower is pending or threatened, and no other event has occurred which may in any one case or in the aggregate materially adversely affect the Borrower’s financial condition and properties, other than litigation, claims, or other events, if any, that have been disclosed to and acknowledged by the Bank in writing, (g) all of the Borrower’s tax returns and reports that are or were required to be filed, have been filed, and all taxes, assessments and other governmental charges have been paid in full, except those presently being contested by the Borrower in good faith and for which adequate reserves have been provided, (h) the Borrower is not an “investment company” or a company “controlled” by an “investment company”, within the meaning of the Investment Company Act of 1940, as amended, (i) the Borrower is not a “holding company”, or a “subsidiary company” of a “holding company” or an “affiliate” of a “holding company” or of a “subsidiary company” of a “holding company” within the meaning of the Public Utility Holding Company Act of 1935, as amended, (j) there are no defenses or counterclaims, offsets or adverse claims, demands or actions of any kind, personal or otherwise, that the Borrower could assert with respect to this agreement or the Credit Facilities, (k) the Borrower owns, or is licensed to use, all trademarks, trade names, copyrights, technology, know-how and processes necessary for the conduct of its business as currently conducted, (1) the execution and delivery of this agreement and the Notes and the performance of the obligations they impose, if the Borrower is other than a natural person (i) are within its powers, (ii) have been duly authorized by all necessary action of its governing body, and (iii) do not contravene the terms of its articles of incorporation or organization, its by-laws, or any partnership, operating or other agreement governing its affairs; and (m) with respect to the Borrowing Base, (i) each asset represented by the Borrower to be eligible for Borrowing Base purposes of this agreement conforms to the eligibility definitions set forth in this agreement (ii) all asset values delivered to the Bank will be true and correct, subject to immaterial variance; and be determined on a consistent accounting basis; (iii) except as agreed to the contrary by the Bank in writing, each asset is now and at all times hereafter will be in the Borrower’s physical possession and shall not be held by others on consignment, sale or approval, or sale or return; (iv) except as reflected in schedules delivered to the Bank, each asset is now and at all times hereafter will be of good and merchantable quality, free from defects; and (v) each asset is not now and will not at any time hereafter be stored with a bailee, warehouseman, or similar party without the Bank’s prior written consent, and in such event, the Borrower will concurrently at the time of bailment cause any such bailee, warehouseman, or similar party to issue and deliver to the Bank, warehouseman receipts in the Bank’s name evidencing the storage of the assets.

5.2

Continuing Representations. Each request for an advance or conversion or continuation of an advance under any of the Credit Facilities shall constitute a representation and warranty by the Borrower that all of the representations and warranties set forth in this agreement shall be true and correct on and as of such date with the same effect as though such representations and

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warranties had been made on such date, except to the extent that such representations and warranties are stated to expressly relate solely to an earlier date.

6. Default/Remedies.

6.1 Events of Default/Acceleration. If any of the following events occurs the Notes shall become due immediately, without notice, at the Bank’s option, and the Borrower hereby waives notice of intent to accelerate maturity of the Notes and notice of acceleration of the Notes upon any of the following events:

A. The Borrower, or any guarantor of the Notes (the “Guarantor”), fails to pay when due any amount payable under the Notes, under any of the Liabilities, or under any agreement or instrument evidencing debt to any creditor.

B. The Borrower or any Guarantor (1) fails to observe or perform any other term of the Notes; (2) makes any materially incorrect or misleading representation, warranty, or certificate to the Bank; (3) makes any materially incorrect or misleading representation in any financial statement or other information delivered to the Bank; or (4)defaults under the terms of any agreement or instrument relating to any debt for borrowed money (other than the debt evidenced by the Notes) and the effect of such default will allow the creditor to declare the debt due before its maturity.

C. In the event (1) there is a default under the terms of any Related Document, (2) any guaranty of the loan evidenced by the Notes is terminated or becomes unenforceable in whole or in part, (3) any Guarantor fails to promptly perform under its guaranty, or (4) the Borrower fails to comply with, or pay, or perform under any agreement, now or hereafter in effect, between the Borrower and JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors.

D. There is any loss, theft, damage, or destruction of any collateral securing the Credit Facilities not covered by insurance.

E. A “reportable event” (as defined in the Employee Retirement Income Security Act of 1974 as amended) occurs that would permit the Pension Benefit Guaranty Corporation to terminate any employee benefit plan of the Borrower or any affiliate of the Borrower.

F. The Borrower or any Guarantor becomes insolvent or unable to pay its debts as they become due.

G. The Borrower or any Guarantor (1) makes an assignment for the benefit of creditors; (2) consents to the appointment of a custodian, receiver, or trustee for itself or for a substantial part of its assets; or (3) commences any proceeding under any bankruptcy, reorganization, liquidation, insolvency or similar laws of any jurisdiction.

H. A custodian, receiver, or trustee is appointed for the Borrower or any Guarantor or for a substantial part of its assets without its consent.

I. Proceedings are commenced against the Borrower or any Guarantor under any bankruptcy, reorganization, liquidation, or similar laws of any jurisdiction, and they remain undismissed for thirty (30) days after commencement; or the Borrower or the Guarantor consents to the commencement of those proceedings.

J. Any judgment exceeding $50,000.00 is entered against the Borrower or any Guarantor, or any attachment, levy, or garnishment is issued against any property of the Borrower or any Guarantor.

K. The Borrower or any Guarantor dies, or a guardian or conservator is appointed for the Borrower or any Guarantor or all or any portion of the Borrower’s assets, any Guarantor’s assets, or the Collateral.

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L. The Borrower or any Guarantor, without the Bank’s written consent (1) is dissolved, (2) merges or consolidates with any third party, (3) leases, sells or otherwise conveys a material part of its assets or business outside the ordinary course of its business, (4) leases, purchases, or otherwise acquires a material part of the assets of any other business entity, except in the ordinary course of its business, or (5) agrees to do any of the foregoing (notwithstanding the foregoing, any subsidiary may merge or consolidate with any other subsidiary, or with the Borrower, so long as the Borrower is the survivor).

6.2	Cure Periods. Except as expressly provided to the contrary in the Notes or any of the Related Documents, no condition, event or occurrence shall constitute the occurrence of a default under the Notes, of a default under any of the Liabilities or of a default under any of the Related Documents unless: (a) the Bank has notified the Borrower of such condition, event or occurrence in writing (a “Default Notice”); and (b) such condition, event, or occurrence has not been fully cured (i) within five (5) days after the Borrower’s receipt of a Default Notice, if the condition, event or occurrence giving rise to such Default Notice can be cured by the payment of money, or (ii) within thirty (30) days after the Borrower’s receipt of a Default Notice, if the condition, event or occurrence giving rise to such Default Notice is of a nature that it can be cured only by the means other than payment of money.
	Provided, however, that the Borrower shall have no notice and cure rights under this section if: (a) the condition, event or occurrence giving rise to the occurrence of a default under the Notes, of a default under the Liabilities or of a default under the Related Documents (i) is a condition, event or occurrence described in any of clauses C(2), (F), (G), (H), (I), (K) or (L) of the section captioned Events of Default/Acceleration section above or (ii) constitutes a breach of any covenant in any Related Document prohibiting the sale or transfer of (1) any assets of any Borrower, Mortgagor, Pledgor, Debtor, Assignor, Trustor or any similar pledging or borrowing party or (2) any of the Collateral; or (b) the Borrower, during the twelve (12) month period immediately preceding any Default Notice, has been given either (i) any other Default Notice covering the same condition, event or occurrence or (ii) three (3) or more other Default Notices of any nature.
6.3	Remedies.

A. Generally. If any of the Liabilities are not paid at maturity, whether by acceleration or otherwise, or if a default by anyone occurs under the terms of any agreement related to any of the Liabilities, then the Bank shall have the rights and remedies provided by law or this agreement. The Borrower is liable to the Bank for all reasonable costs and expenses of every kind incurred in the collection of the Notes, or in connection with the enforcement or preservation of rights under this agreement, or any amendment, supplement, or modification thereto, including without limitation reasonable attorneys’ fees and court costs. These costs and expenses include without limitation any costs or expenses incurred by the Bank in any bankruptcy, reorganization, insolvency or other similar proceeding.

B. Bank’s Right of Setoff. The Borrower grants to the Bank a security interest in, and the Bank is authorized to setoff and apply, all Deposits, Securities and Other Property, and Bank Debt against any and all Liabilities of the Borrower. This right of setoff may be exercised at any time and from time to time, and without prior notice to the Borrower. This security interest and right of setoff may be enforced or exercised by the Bank regardless of whether or not the Bank has made any demand under this paragraph or whether the Liabilities are contingent, matured, or unmatured. Any delay, neglect or conduct by the Bank in exercising its rights under this paragraph will not be a waiver of the right to exercise this right of setoff or enforce this security interest. The rights of the Bank under this paragraph are in addition to other rights the Bank may have in the Related Documents or by law. In this paragraph: (a) the term “Deposits” means any and all accounts and deposits of the Borrower (whether general, special, time, demand, provisional or final) at any time held by the Bank (including all Deposits held jointly with another, but excluding any IRA or Keogh Deposits, or any trust or other Deposits in which a security interest would be prohibited by law); (b) the term “Securities and Other Property” means any and all securities and other property of the Borrower in the custody, possession or control of the Bank (other than property held by the Bank in a fiduciary capacity); and (c) the term “Bank Debt” means all indebtedness at any time owing by the Bank, to or for the credit or account of the Borrower.

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7. Miscellaneous.

7.1	Notice. Any notices and demands under or related to this document shall be in writing and delivered to the intended party at its address stated herein, and if to the Bank, at its main office if no other address of the Bank is specified herein, by one of the following means: (a) by hand, (b) by a nationally recognized overnight courier service, or (c) by certified mail, postage prepaid, with return receipt requested. Notice shall be deemed given: (a) upon receipt if delivered by hand, (b) on the Delivery Day after the day of deposit with a nationally recognized courier service, or (c) on the third Delivery Day after the notice is deposited in the mail. “Delivery Day” means a day other than a Saturday, a Sunday or any other day on which national banking associations are authorized to be closed. Any party may change its address for purposes of the receipt of notices and demands by giving notice of such change in the manner provided in this provision.
7.2	No Waiver. No delay on the part of the Bank in the exercise of any right or remedy waives that right or remedy. No single or partial exercise by the Bank of any right or remedy precludes any other future exercise of it or the exercise of any other right or remedy. No waiver or indulgence by the Bank of any default is effective unless it is in writing and signed by the Bank, nor shall a waiver on one occasion bar or waive that right on any future occasion.
7.3	Integration. This agreement, the Notes, and any agreement related to the Credit Facilities embody the entire agreement and understanding between the Borrower and the Bank and supersede all prior agreements and understandings relating to their subject matter. If any one or more of the obligations of the Borrower under this agreement or the Notes is invalid, illegal or unenforceable in any jurisdiction, the validity, legality and enforceability of the remaining obligations of the Borrower shall not in any way be affected or impaired, and the invalidity, illegality or unenforceability in one jurisdiction shall not affect the validity, legality or enforceability of the obligations of the Borrower under this agreement or the Notes in any other jurisdiction.
7.4	Governing Law and Venue. This agreement is delivered in the State of Texas and governed by Texas law (without giving effect to its laws of conflicts). The Borrower agrees that any legal action or proceeding with respect to any of its obligations under this agreement may be brought by the Bank in any state or federal court located in the State of Texas, as the Bank in its sole discretion may elect. By the execution and delivery of this agreement, the Borrower submits to and accepts, for itself and in respect of its property, generally and unconditionally, the non-exclusive jurisdiction of those courts. The Borrower waives any claim that the State of Texas is not a convenient forum or the proper venue for any such suit, action or proceeding.
7.5	Captions. Section headings are for convenience of reference only and do not affect the interpretation of this agreement.
7.6	Survival of Representations and Warranties. The Borrower understands and agrees that in extending the Credit Facilities, the Bank is relying on all representations, warranties, and covenants made by the Borrower in this agreement or in any certificate or other instrument delivered by the Borrower to the Bank under this agreement. The Borrower further agrees that regardless of any investigation made by the Bank, all such representations, warranties and covenants will survive the making of the Credit Facilities and delivery to the Bank of this agreement, shall be continuing in nature, and shall remain in full force and effect until such time as the Borrower’s indebtedness to the Bank shall be paid in full.
7.7	Non-Liability of the Bank. The relationship between the Borrower on one hand and the Bank on the other hand shall be solely that of borrower and lender. The Bank shall have no fiduciary responsibilities to the Borrower. The Bank undertakes no responsibility to the Borrower to review or inform the Borrower of any matter in connection with any phase of the Borrower’s business or operations.
7.8	Indemnification of the Bank. The Borrower agrees to indemnify, defend and hold the Bank and JPMorgan Chase &Co., or any of its subsidiaries or affiliates or their successors, and each of their respective shareholders, directors, officers, employees and agents (collectively, the “Indemnified Persons”) harmless from any and all obligations, claims, liabilities, losses, damages, penalties, fines, forfeitures, actions, judgments, suits, costs, expenses and

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	disbursements of any kind or nature (including, without limitation, any Indemnified Person’s attorneys’ fees)(collectively, the “Claims”) which may be imposed upon, incurred by or assessed against any Indemnified Person(whether or not caused by any Indemnified Person’s sole, concurrent, or contributory negligence) arising out of or relating to this agreement; the exercise of the rights and remedies granted under this agreement (including, without limitation, the enforcement of this agreement and the defense of any Indemnified Person’s action or inaction in connection with this agreement); and in connection with the Borrower’s failure to perform all of the Borrower’s obligations under this agreement, except to the limited extent that the Claims against any such Indemnified Person are proximately caused by such Indemnified Person’s gross negligence or willful misconduct. The indemnification provided for in this section shall survive the termination of this agreement and shall extend to and continue to benefit each individual or entity who is or has at any time been an Indemnified Person. The Borrower’s indemnity obligations under this section shall not in any way be affected by the presence or absence of covering insurance, or by the amount of such insurance or by the failure or refusal of any insurance carrier to perform any obligation on its part under any insurance policy or policies affecting the Borrower’s assets or the Borrower’s business activities. Should any Claim be made or brought against any Indemnified Person by reason of any event as to which the Borrower’s indemnification obligations apply, then, upon any Indemnified Person’s demand, the Borrower, at its sole cost and expense, shall defend such Claim in the Borrower’s name, if necessary, by the attorneys for the Borrower’s insurance carrier (if such Claim is covered by insurance), or otherwise by such attorneys as any Indemnified Person shall approve. Any Indemnified Person may also engage its own attorneys at its reasonable discretion to defend the Indemnified Person and to assist in its defense and the Borrower agrees to pay the fees and disbursements of such attorneys.
	WITHOUT LIMITATION OF THE FOREGOING, IT IS THE INTENTION OF BORROWER AND BORROWER AGREES THAT THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON WITH RESPECT TO CLAIMS, OBLIGATIONS, DAMAGES, LOSSES, COSTS, EXPENSES (INCLUDING, WITHOUT LIMITATION, ATTORNEYS’ FEES), DEMANDS, LIABILITIES, PENALTIES, FINES AND FORFEITURES WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT OF THE NEGLIGENCE OF SUCH (AND/OR ANY OTHER) INDEMNIFIED PERSON.
7.9	Counterparts. This agreement may be executed in multiple counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts, taken together, shall constitute one and the same agreement.
7.10	Advice of Counsel. The Borrower acknowledges that it has been advised by counsel, or had the opportunity to be advised by counsel, in the negotiation, execution and delivery of this agreement and any documents executed and delivered in connection with the Credit Facilities.
7.11	Conflicting Terms. If this agreement is inconsistent with any provision in any agreement related to the Credit Facilities, the Bank shall determine, in the Bank’s sole and absolute discretion, which of the provisions shall control any such in consistency.
7.12	Expenses. The Borrower agrees to pay or reimburse the Bank for all its out-of-pocket costs and expenses and reasonable attorneys’ fees incurred in connection with the preparation and execution of this agreement, any amendment, supplement, or modification thereto, and any other documents prepared in connection herewith or therewith.
7.13	Reinstatement. All parties liable on the Notes agree that to the extent any payment is received by the Bank in connection with the Liabilities, and all or any part of such payment is subsequently invalidated, declared to be fraudulent or preferential, set aside or required to be repaid by the Bank or paid over to a trustee, receiver or any other entity, whether under any bankruptcy act or otherwise (any such payment is hereinafter referred to as a “Preferential Payment”), then the Notes shall continue to be effective or shall be reinstated, as the case may be, and whether or not the Bank is in possession of the Notes, and, to the extent of such payment or repayment by the Bank, the Liabilities or part thereof intended to be satisfied by such Preferential Payment shall be revived and continued in full force and effect as if said Preferential Payment had not been made.

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7.14	Severability. If any provision of this agreement cannot be enforced, the remaining portions of this agreement shall continue in effect.
7.15	Assignments. The Borrower agrees that the Bank may provide any information or knowledge the Bank may have about the Borrower or about any matter relating to the Notes or the Related Documents to JPMorgan Chase & Co., or any of its subsidiaries or affiliates or their successors, or to any one or more purchasers or potential purchasers of the Notes or the Related Documents. The Borrower agrees that the Bank may at any time sell, assign or transfer one or more interests or participations in all or any part of its rights and obligations in the Notes to one or more purchasers whether or not related to the Bank.
7.16	Waivers. Any party liable on the Notes waives (a) any right to receive notice of the following matters before the Bank enforces any of its rights: (i) any demand, diligence, presentment, dishonor and protest, or (ii) any action that the Bank takes regarding anyone else, any collateral, or any of the Liabilities, that it might be entitled to by law or under any other agreement; (b) any right to require the Bank to proceed against any other obligor or guarantor of the Liabilities, or any collateral, or pursue any remedy in the Bank’s power to pursue; (c) any defense based on any claim that any endorser or other parties’ obligations exceed or are more burdensome than those of the Borrower; (d) the benefit of any statute of limitations affecting liability of any endorser or other party liable hereunder or the enforcement hereof; (e) any defense arising by reason of any disability or other defense of the Borrower or by reason of the cessation from any cause whatsoever (other than payment in full) of the obligation of the Borrower for the Liabilities; and (f) any defense based on or arising out of any defense that the Borrower may have to the payment or performance of the Liabilities or any portion thereof. Any party liable on the Notes consents to any extension or postponement of time of its payment without limit as to the number or period, to any substitution, exchange or release of all or any part of any collateral, to the addition of any other party, and to the release or discharge of, or suspension of any rights and remedies against, any person who may be liable for the payment of the Notes. The Bank may waive or delay enforcing any of its rights without losing them. Any waiver affects only the specific terms and time period stated in the waiver. No modification or waiver of any provision of the Notes is effective unless it is in writing and signed by the party against whom it is being enforced.

8.	USA PATRIOT ACT NOTIFICATION. The following notification is provided to Borrower pursuant to Section 326 of the USA Patriot Act of 2001, 31 U.S.C. Section 5318:
	IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT. To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person or entity that opens an account, including any deposit account, treasury management account, loan, other extension of credit, or other financial services product. What this means for Borrower: When Borrower opens an account, if Borrower is an individual Bank will ask for Borrower’s name, taxpayer identification number, residential address, date of birth, and other information that will allow Bank to identify Borrower, and if Borrower is not an individual Bank will ask for Borrower’s name, taxpayer identification number, business address, and other information that will allow Bank to identify Borrower. Bank may also ask, if Borrower is an individual to see Borrower’s driver’s license or other identifying documents, and if Borrower is not an individual to see Borrower’s legal organizational documents or other identifying documents.
9.	WAIVER OF SPECIAL DAMAGES. THE BORROWER WAIVES, TO THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT THE UNDERSIGNED MAY HAVE TO CLAIM OR RECOVER FROM THE BANK IN ANY LEGAL ACTION OR PROCEEDING ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES.
10.	JURY WAIVER. THE BORROWER AND THE BANK HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) BETWEEN THE BORROWER AND THE BANKARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT. THIS PROVISION IS A MATERIAL INDUCEMENT TO THE BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN.

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Address(es) for Notices:		Borrower:
7900 Callaghan Road		U.S. Global Investors, Inc.
San Antonio, TX 78229
Attn:	Catherine Rademacher, CFO	By:	/s/ Frank E. Holmes
		Frank E. Holmes, CEO
		Printed Name   Title
		Date Signed: 6/17/05
Address for Notices:		Bank:
1020 NE Loop 410,		JPMorgan Chase Bank, N.A.
San Antonio, TX 78209
Attn:		By:	/s/ John L. Dochendorf II.
		John L. Dochendorf II, Vice President
		Printed Name     Title
		Date Signed: 6/17/05

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EX-10.17

Exhibit 10.17 — Amendment to Custodian Agreement

AMENDMENT TO CUSTODIAN AGREEMENT

This Amendment to the Custodian Agreement is dated as of April 23, 2006 by and between U.S. Global Investors Funds, a Massachusetts business trust, on behalf of each of the portfolios listed on Appendix C to the Custodian Agreement (the “Fund”) and attached hereto and Brown Brothers Harriman & Co., a limited partnership organized under the laws of the State of New York (“BBH”) (the Fund and BBH collectively known as the “Parties”).

Whereas pursuant to a Custodian Agreement dated as of November 1, 1997, by and between the Fund and BBH, as amended to date (the “Agreement”) the latter has been appointed (i) custodian, (ii) administrator, and (iii) fund accounting agent;

Whereas the Parties have agreed to make certain modifications to the Agreement in order to update and amend the administrative services to be provided by BBH;

Now therefore, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby agree to amend the Agreement as follows:

I. Amendment to the Agreement

1. The Agreement is hereby amended by deleting the second paragraph of Section 8.5 in its entirety and substituting therefor with the following:

          “In computing the net asset value, the Custodian may rely upon any information furnished by Proper Instructions, including without limitation any information (1) as to accrual of liabilities of the Fund and as to liabilities of the Fund not appearing on the books of account kept by the Custodian, (2) as to the existence, status and proper treatment of reserves, if any, authorized by the Fund, (3) as to the sources of quotations which BBH was authorized to rely upon in computing the net asset value, including those listed in Appendix B, (4) as to the fair value to be assigned to any securities or other property for which price quotations are not readily available, and (5) as to the sources of information with respect to “corporate actions” affecting portfolio securities of the Fund, which sources BBH in its reasonable judgment shall have deemed appropriate for such information. (Information as to “corporate actions” shall include information as to dividends, distributions, stock splits, stock dividends, rights offerings, conversions, exchanges, recapitalizations, mergers, redemptions, calls, maturity dates and similar transactions, including the ex- and record dates and the amounts or other terms thereof.) The Fund may instruct the Custodian to utilize a particular source for the valuation of a specific Security or other Property and the Custodian shall be protected in utilizing the valuation provided by such source without further inquiry (save for its usual and customary automated review of price disparities) in order to effect calculation of the Fund’s net asset value. Notwithstanding anything in this Agreement to the contrary, provided the Custodian shall perform its duties under Sections 8.6(3) and 8.6(6) with reasonable care and diligence, the Custodian shall not be responsible for the failure of the Fund or the Investment Adviser to provide the Custodian with Proper Instructions regarding liabilities which ought to be included in the calculation of the Fund’s net asset value.”

2. The Agreement is hereby amended by deleting Section 8.6 in its entirety and substituting therefore with the following:

“8.6 Appointment as Administrator.

The Custodian is hereby appointed administrator of the Funds with responsibility for performing the services set forth in this Section 8.6, subject to the supervision and direction of the Trustees of the Funds, and subject to any changes or modifications to such services that the Funds and Custodian shall from time to time agree in writing. In performing its duties and obligations hereunder, the Custodian shall act in accordance with the Funds’ Declaration of Trust, By-laws (or comparable documents) and Prospectus and Statement of Additional Information and with the Proper Instructions of its Trustees, Treasurer and any other person reasonably believed by the Custodian to be authorized to act on behalf of the Funds. It is agreed and understood, however, that the Custodian shall not be responsible for compliance of any Fund’s

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investments with any applicable documents, laws or regulations, or for losses, costs or expenses arising out of such Fund’s failure to comply with said documents, laws, regulations, or for losses, costs, or expenses arising out of the Fund’s failure or inability to correct any non-compliance therewith and shall be protected in acting on any direction from the Funds’ Investment Advisor, Trustees, Treasurer and any other person reasonably believe by the Custodian to be authorized to act on behalf of the Funds.

(1) Shareholder Reports. The Custodian shall accumulate information for and prepare one annual and one semi-annual shareholder report for the Funds per fiscal year, such preparation includes but is not limited to, the coordination of all printer and author edits, the review of printer drafts and the coordination of the audit of the Funds by its independent public auditor (e.g. manage open items lists, host weekly audit meeting, etc.)

(2) Regulatory Filings to the Securities and Exchange Commission. The Custodian shall accumulate information for and prepare one annual report and one semi-annual report on Form N-SAR, one first fiscal quarter report and one third fiscal quarter report on Form N-Q and one annual Rule 24f-2 Notice for the Funds, as requested by the Funds’ Treasurer. Upon acceptance of these reports by each of the Funds, the Custodian shall edgarize and file such reports, including the edgarizing and filing of any applicable executed officer certifications.

(3) Treasurer Support Services. The Custodian shall provide the following support services to the Treasurer of the Funds:

a. Expenses. The Custodian shall prepare all expense invoices for authorization by the Funds and shall process all such authorized expenses. The Custodian shall review all contractual expenses of the Funds submitted by the Investment Advisor prior to processing such expenses. The Custodian shall prepare and periodically review the expense accruals for all fixed vendor expenses of the Funds.

b. Budgets. The Custodian shall prepare and provide an analysis of each Fund’s budget at the end of each fiscal quarter, which shall include a review of each Fund’s fixed expenses accruals and recommendations, if any, for budget adjustments.

c. Monthly Expense Reports. The Custodian shall prepare and review Monthly Expense Reports, which shall consist of for each Fund, (i) a reconciliation of fund accounting monthly expenses to fund administration monthly expenses, (ii) a basis point summary sheet, (iii) a cash disbursements journal, (iv) an expense accrual analysis worksheet and (v) an average net assets worksheet.

d. Quarterly Reporting. In the Funds’ preparation of its quarterly reporting to its Board of Trustees, the Custodian shall prepare various quarterly reports, which shall consist of (i) a cost versus market value analysis for the applicable portfolios listed on Appendix C attached hereto, (ii) an expense ratio report, (iii) an exit fee calculation report and (iv) a portfolio turnover calculation report and shall provide the broker reports that are electronically downloaded from the Custodian’s accounting system and have been requested by the Funds.

(4) Compliance Support. The Custodian shall perform, in accordance with operating procedures as the Custodian and the Funds shall from time to time agree in writing, administrative compliance monitoring of the Funds with respect to the investment objectives, restrictions and policies set forth in (i) the Fund’s current prospectus and statement of additional information provided by the Funds, or otherwise available to the Custodian, (ii) the 1940 Act and (iii) applicable IRS rules and regulations, using both manual compliance testing and an automatic compliance system currently utilized by the Custodian through an unaffiliated third party vendor. Any changes or modifications to the administrative compliance monitoring provided by the Custodian shall be agreed upon by the Funds and the Custodian in writing. In performing its compliance monitoring services, the Custodian shall use post net asset value compliance monitoring.

a. The Custodian and the Funds agreed that each shall promptly notify the other of any possible non-compliance by the Funds of their investment restrictions and policies.

b. The Custodian agrees that it shall provide the Investment Advisor with a compliance summary report for the Funds for each fiscal month end.

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c. The Funds agree that they shall remain fully responsible for ensuring compliance of the investments of the Funds with their investment restrictions and policies and that assistance provided by the Custodian in monitoring investment restrictions and policies shall not be deemed to be a delegation of responsibility to the Custodian. In addition, the Funds agree that the Custodian shall not be liable for the accuracy, completeness or use of any information or data other compliance systems generate in connection with such administrative compliance monitoring on any given date.

d. The Funds acknowledge that the compliance monitoring of the investments of the Funds with respect to investment restrictions and policies is subject to parameters that may vary over time and that may be beyond the control or knowledge of the Custodian. Consequently, the results of the monitoring as notified by the Custodian to the Funds are to be considered merely as an indication of possible non-compliance with the investment restrictions and policies of the Funds rather than an affirmative statement as to non-compliance with the investment restrictions and policies. Moreover, the Custodian might not detect a breach and consequently may not notify the Funds thereof if information or data in its possession are inaccurate, incomplete or ambiguous.

(5) Performance Information. The Custodian shall prepare the Funds’ performance analysis reports (including yield and total return information) calculated in accordance with applicable U.S. securities laws and in reporting portfolio holdings information to external databases as may reasonably be requested.

(6) Tax Reporting. The Custodian shall assist the Funds’ Treasurer in preparing and reporting all required information under the Federal, state and applicable local tax laws, which shall consist of preparing fiscal and excise tax distribution calculations, preparing and filing federal, state and any local income tax returns, including tax return extension requests, preparing shareholder year end reporting statements, providing the appropriate amounts and characterization of distributions declared during the calendar year for Forms 1099 reporting, periodically reviewing and determining the distributions to be paid to shareholders, consulting with the Funds’ Treasurer regarding potential passive foreign investment companies, and consulting with the Funds’ Treasurer on various tax issues as they arise and with the Funds’ outside auditors, as appropriate.

(7) Blue Sky Compliance. The Custodian shall select and monitor an independent service supplier to provide for reasonable and necessary monitoring of compliance with the securities regulations of the fifty states of the United States on such terms as the Funds may direct, or in the absence of such direction, as the Custodian shall reasonably deem appropriate, provided however, that such arrangement shall require that such service supplier act with reasonable care in the discharge of its duties. The Custodian shall deliver to the Funds, or cause to be delivered to the Funds, regular reports and notices with respect to blue sky compliance and shall be responsible to use reasonable efforts to enforce the terms of the agreement with the service supplier on the Funds’ behalf. The Funds shall be responsible to provide copies of its prospectus and other relevant documents and information relating to the Funds as may be reasonably required for the performance of state securities law compliance.

(8) Other Assistance. The Custodian shall consult with and assist the Funds’ Treasurer, officers and Investment Advisor in such as other matters as the Funds and the Custodian shall from time to time agree in writing.

3. The Amendment is hereby amended by deleting Section 12 in its entirety and substituting therefore with the following:

“12. Compensation. The Fund shall pay the Custodian such fee for custody, administrative and fund accounting services as set forth in that certain Fee Agreement between the Fund and the Custodian dated as of June 2005, as may be amended from time to time by the Custodian and the Fund. Such fee, together with all out-of-pocket expenses for which the Custodian is to be reimbursed, shall be billed to the Fund and be paid by cash or wire transfer to the Custodian.”

4. The Agreement is amended by replacing the existing Appendix B with the attached Appendix B, which document shall list the sources of quotations approved by the Parties to be used in computing the net asset value.

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5. The Agreement is further amended by replacing the existing Appendix C with the attached Appendix C, which document shall list the funds served under the Agreement.

II. Miscellaneous

1. As amended and appended hereby, all terms and provisions of the Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.

2. Terms not otherwise defined herein shall have the definitions set forth in the Agreement.

3. By signing below where indicated, the Fund hereby ratifies and affirms each of the representations and warranties set forth in the Agreement and confirms that each representation and warranty remains true and correct as of the date hereof.

4. This Amendment, the Agreement and the other agreements, documents and certificates referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior or current understandings and agreements, whether written or oral.

5. Upon receipt by BBH of a fully executed copy of this Amendment, this Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 14.6 of the Agreement. This Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Amendment.

U.S. GLOBAL INVESTORS FUNDS		BROWN BROTHERS HARRIMAN & CO.
AS THE FUND		AS SERVICE PROVIDER
By:	/s/ Susan B. McGee Name: Susan B. McGee	By:	/s/ James R. Kent Name: James R. Kent
	Title: Executive Vice President		Title: Managing Director

83

APPENDIX B

DATED AS OF MARCH 23, 2006

TO

CUSTODIAN AGREEMENT
WITH RESPECT TO
ADMINISTRATIVE AND FUND ACCOUNTING AGENCY SERVICES

THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING:

AUTHORIZED SOURCES

BLOOMBERG
Fund Managers/Advisor
INTERACTIVE DATA CORPORATION
REPUTABLE BROKERS
REUTERS
SUBCUSTODIAN BANKS
TELEKURS
REPUTABLE FINANCIAL PUBLICATIONS
STOCK EXCHANGES
JJ KENNY
FRI CORPORATION
BRIDGE
ITG (effective September 8, 2005)

FOREIGN EXCHANGE QUOTATIONS

PRICES ARE RETRIEVED DAILY @ 12 PM EST

AUTHORIZED SOURCE:

REUTERS

APPROVED:	/s/ Susan B. McGee	5/25/06
		DATE

84

APPENDIX C

TO

ADMINISTRATIVE AND FUND ACCOUNTING AGENCY AGREEMENT

DATED AS OF MARCH 23, 2006

The following is a list of Investment Companies for which BBH shall perform services under a Custodian Agreement dated as of November 1, 1997, as amended.

U.S. Global Investors Funds, a Massachusetts Business Trust on behalf of each of the following series:

U.S. Treasury Securities Cash Fund
U.S. Government Securities Savings Fund
Near-Term Tax Free Fund
Tax Free Fund
All American Equity Fund
China Region Opportunity Fund
Global Resources Fund
World Previous Minerals Fund
Gold Shares Fund

85

EX-10.23

Exhibit 10.23 — Amendment to Custodian Agreement

AMENDMENT TO CUSTODIAN AGREEMENT

This Amendment to the Custodian Agreement is dated as of April 23, 2006 by and between U.S. Global Accolade Funds, a Massachusetts business trust, on behalf of each of the portfolios listed on Appendix C to the Custodian Agreement (the “Fund”) and attached hereto and Brown Brothers Harriman & Co., a limited partnership organized under the laws of the State of New York (“BBH”) (the Fund and BBH collectively known as the “Parties”).

Whereas pursuant to a Custodian Agreement dated as of November 1, 1997, by and between the Fund and BBH, as amended to date (the “Agreement”) the latter has been appointed (i) custodian for the purpose of holding foreign securities, cash and cash equivalents outside of the United States, (ii) administrator, and (iii) fund accounting agent;

Whereas the Parties have agreed to make certain modifications to the Agreement in order to update and amend the administrative services to be provided by BBH;

Now therefore, for good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereby agree to amend the Agreement as follows:

III. Amendment to the Agreement

1. The Agreement is hereby amended by deleting the second paragraph of Section 8.5 in its entirety and substituting therefor with the following:

          “In computing the net asset value, the Custodian may rely upon any information furnished by Proper Instructions, including without limitation any information (1) as to accrual of liabilities of the Fund and as to liabilities of the Fund not appearing on the books of account kept by the Custodian, (2) as to the existence, status and proper treatment of reserves, if any, authorized by the Fund, (3) as to the sources of quotations which BBH was authorized to rely upon in computing the net asset value, including those listed in Appendix B, (4) as to the fair value to be assigned to any securities or other property for which price quotations are not readily available, and (5) as to the sources of information with respect to “corporate actions” affecting portfolio securities of the Fund, which sources BBH in its reasonable judgment shall have deemed appropriate for such information. (Information as to “corporate actions” shall include information as to dividends, distributions, stock splits, stock dividends, rights offerings, conversions, exchanges, recapitalizations, mergers, redemptions, calls, maturity dates and similar transactions, including the ex- and record dates and the amounts or other terms thereof.) The Fund may instruct the Custodian to utilize a particular source for the valuation of a specific Security or other Property and the Custodian shall be protected in utilizing the valuation provided by such source without further inquiry (save for its usual and customary automated review of price disparities) in order to effect calculation of the Fund’s net asset value. Notwithstanding anything in this Agreement to the contrary, provided the Custodian shall perform its duties under Sections 8.6(3) and 8.6(6) with reasonable care and diligence, the Custodian shall not be responsible for the failure of the Fund or the Investment Adviser to provide the Custodian with Proper Instructions regarding liabilities which ought to be included in the calculation of the Fund’s net asset value.”

2. The Agreement is hereby amended by deleting Section 8.6 in its entirety and substituting therefor with the following:

“8.6 Appointment as Administrator.

The Custodian is hereby appointed administrator of the Funds with responsibility for performing the services set forth in this Section 8.6, subject to the supervision and direction of the Trustees of the Funds, and subject to any changes or modifications to such services that the Funds and Custodian shall from time to time agree in writing. In performing its duties and obligations hereunder, the Custodian shall act in accordance with the Funds’ Declaration of Trust, By-laws (or comparable documents) and Prospectus and Statement of Additional Information and with the Proper Instructions of its Trustees, Treasurer and any other person reasonably believed by the Custodian to be authorized to act on behalf of the Funds. It is agreed and understood, however, that the Custodian shall not be responsible for compliance of any Fund’s investments with any applicable documents, laws or regulations, or for losses, costs or expenses arising out

86

of such Fund’s failure to comply with said documents, laws, regulations, or for losses, costs, or expenses arising out of the Fund’s failure or inability to correct any non-compliance therewith and shall be protected in acting on any direction from the Funds’ Investment Advisor, Trustees, Treasurer and any other person reasonably believe by the Custodian to be authorized to act on behalf of the Funds.

(1) Shareholder Reports. The Custodian shall accumulate information for and prepare one annual and one semi-annual shareholder report for the Funds per fiscal year, such preparation includes but is not limited to, the coordination of all printer and author edits, the review of printer drafts and the coordination of the audit of the Funds by its independent public auditor (e.g. manage open items lists, host weekly audit meeting, etc.)

(2) Regulatory Filings to the Securities and Exchange Commission. The Custodian shall accumulate information for and prepare one annual report and one semi-annual report on Form N-SAR, one first fiscal quarter report and one third fiscal quarter report on Form N-Q and one annual Rule 24f-2 Notice for the Funds, as requested by the Funds’ Treasurer. Upon acceptance of these reports by each of the Funds, the Custodian shall edgarize and file such reports, including the edgarizing and filing of any applicable executed officer certifications. The Custodian shall also prepare a 13f report and shall submit said report to the Fund for review on a quarterly basis. For avoidance of doubt, the Custodian shall not be responsible for approving or filing 13f reports.

(3) Treasurer Support Services. The Custodian shall provide the following support services to the Treasurer of the Funds:

a. Expenses. The Custodian shall prepare all expense invoices for authorization by the Funds and shall process all such authorized expenses. The Custodian shall review all contractual expenses of the Funds submitted by the Investment Advisor prior to processing such expenses. The Custodian shall prepare and periodically review the expense accruals for all fixed vendor expenses of the Funds.

b. Budgets. The Custodian shall prepare and provide an analysis of each Fund’s budget at the end of each fiscal quarter, which shall include a review of each Fund’s fixed expenses accruals and recommendations, if any, for budget adjustments.

c. Monthly Expense Reports. The Custodian shall prepare and review Monthly Expense Reports, which shall consist of for each Fund, (i) a reconciliation of fund accounting monthly expenses to fund administration monthly expenses, (ii) a basis point summary sheet, (iii) a cash disbursements journal, (iv) an expense accrual analysis worksheet and (v) an average net assets worksheet.

d. Quarterly Reporting. In the Funds’ preparation of its quarterly reporting to its Board of Trustees, the Custodian shall prepare various quarterly reports, which shall consist of (i) a cost versus market value analysis for the applicable portfolios listed on Appendix C attached hereto, (ii) an expense ratio report, (iii) an exit fee calculation report and (iv) a portfolio turnover calculation report and shall provide the broker reports that are electronically downloaded from the Custodian’s accounting system and have been requested by the Funds.

(4) Compliance Support. The Custodian shall perform, in accordance with operating procedures as the Custodian and the Funds shall from time to time agree in writing, administrative compliance monitoring of the Funds with respect to the investment objectives, restrictions and policies set forth in (i) the Fund’s current prospectus and statement of additional information provided by the Funds, or otherwise available to the Custodian, (ii) the 1940 Act and (iii) applicable IRS rules and regulations, using both manual compliance testing and an automatic compliance system currently utilized by the Custodian through an unaffiliated third party vendor. Any changes or modifications to the administrative compliance monitoring provided by the Custodian shall be agreed upon by the Funds and the Custodian in writing. In performing its compliance monitoring services, the Custodian shall use post net asset value compliance monitoring.

a. The Custodian and the Funds agreed that each shall promptly notify the other of any possible non-compliance by the Funds of their investment restrictions and policies.

b. The Custodian agrees that it shall provide the Investment Advisor with a compliance summary report for the Funds for each fiscal month end.

87

c. The Funds agree that they shall remain fully responsible for ensuring compliance of the investments of the Funds with their investment restrictions and policies and that assistance provided by the Custodian in monitoring investment restrictions and policies shall not be deemed to be a delegation of responsibility to the Custodian. In addition, the Funds agree that the Custodian shall not be liable for the accuracy, completeness or use of any information or data generated by third party information sources in connection with such administrative compliance monitoring on any given date.

d. The Funds acknowledge that the compliance monitoring of the investments of the Funds with respect to investment restrictions and policies is subject to parameters that may vary over time and that may be beyond the control or knowledge of the Custodian. Consequently, the results of the monitoring as notified by the Custodian to the Funds are to be considered merely as an indication of possible non-compliance with the investment restrictions and policies of the Funds rather than an affirmative statement as to non-compliance with the investment restrictions and policies. Moreover, the Custodian might not detect a breach and consequently may not notify the Funds thereof if information or data in its possession are inaccurate, incomplete or ambiguous. For avoidance of doubt, the Custodian shall exercise reasonable care in carrying out its compliance monitoring obligations hereunder.

(5) Fidelity Bond Coverage. The Custodian shall report monthly to the Fund’s Treasurer on compliance of the Fund’s fidelity bond coverage with Rule 17g-1 of the 1940 Act. For avoidance of doubt, the Custodian shall not be responsible for approving or filing the fidelity bond.

(6) Performance Information. The Custodian shall prepare the Funds’ performance analysis reports (including yield and total return information) calculated in accordance with applicable U.S. securities laws and in reporting portfolio holdings information to external databases as may reasonably be requested.

(7) Tax Reporting. The Custodian shall assist the Funds’ Treasurer in preparing and reporting all required information under the Federal, state and applicable local tax laws, which shall consist of preparing fiscal and excise tax distribution calculations, preparing and filing federal, state and any local income tax returns, including tax return extension requests, preparing shareholder year end reporting statements, providing the appropriate amounts and characterization of distributions declared during the calendar year for Forms 1099 reporting, periodically reviewing and determining the distributions to be paid to shareholders, consulting with the Funds’ Treasurer regarding potential passive foreign investment companies, and consulting with the Funds’ Treasurer on various tax issues as they arise and with the Funds’ outside auditors, as appropriate.

(8) Blue Sky Compliance. The Custodian shall select and monitor an independent service supplier to provide for reasonable and necessary monitoring of compliance with the securities regulations of the fifty states of the United States on such terms as the Funds may direct, or in the absence of such direction, as the Custodian shall reasonably deem appropriate, provided however, that such arrangement shall require that such service supplier act with reasonable care in the discharge of its duties. The Custodian shall deliver to the Funds, or cause to be delivered to the Funds, regular reports and notices with respect to blue sky compliance and shall be responsible to use reasonable efforts to enforce the terms of the agreement with the service supplier on the Funds’ behalf. The Funds shall be responsible to provide copies of its prospectus and other relevant documents and information relating to the Funds as may be reasonably required for the performance of state securities law compliance.

(9) Other Assistance. The Custodian shall consult with and assist the Funds’ Treasurer, officers and Investment Advisor in such as other matters as the Funds and the Custodian shall from time to time agree in writing.

3. The Amendment is hereby amended by deleting Section 12 in its entirety and substituting therefor with the following:

“12. Compensation. The Fund shall pay the Custodian such fee for custody, administrative and fund accounting services as set forth in that certain Fee Agreement between the Fund and the Custodian dated as of June 2005, as may be amended from time to time by the Custodian and the Fund. Such fee, together with all out-of-pocket expenses for which the Custodian is to be reimbursed, shall be billed to the Fund and be paid by cash or wire transfer to the Custodian.”

88

4. The Agreement is amended by replacing the existing Appendix B with the attached Appendix B, which document shall list the sources of quotations approved by the Parties to be used in computing the net asset value.

5. The Agreement is further amended by replacing the existing Appendix C with the attached Appendix C, which document shall list the funds served under the Agreement.

IV. Miscellaneous

1. As amended and appended hereby, all terms and provisions of the Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.

2. Terms not otherwise defined herein shall have the definitions set forth in the Agreement.

3. By signing below where indicated, the Fund hereby ratifies and affirms each of the representations and warranties set forth in the Agreement and confirms that each representation and warranty remains true and correct as of the date hereof.

4. This Amendment, the Agreement and the other agreements, documents and certificates referred to herein or therein constitute the entire understanding of the parties with respect to the subject matter hereof and thereof and supersede all prior or current understandings and agreements, whether written or oral.

5. Upon receipt by BBH of a fully executed copy of this Amendment, this Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 14.6 of the Agreement. This Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Amendment.

U.S. GLOBAL ACCOLADE FUNDS		BROWN BROTHERS HARRIMAN & CO.
AS THE FUND		AS SERVICE PROVIDER
By:	/s/ Susan B. McGee Name: Susan B. McGee	By:	/s/ James R. Kent Name: James R. Kent
	Title: Executive Vice President		Title: Managing Director

89

APPENDIX B

DATED AS OF MARCH 23, 2006

TO

CUSTODIAN AGREEMENT
WITH RESPECT TO
ADMINISTRATIVE AND FUND ACCOUNTING AGENCY SERVICES

THE FOLLOWING AUTHORIZED SOURCES ARE TO BE USED FOR PRICING:

AUTHORIZED SOURCES

BLOOMBERG
Fund Managers of the Advisor
INTERACTIVE DATA CORPORATION
REPUTABLE BROKERS
REUTERS
SUBCUSTODIAN
BANKS
TELEKURS
REPUTABLE FINANCIAL PUBLICATIONS
STOCK EXCHANGES
JJ KENNY
FRI CORPORATION
BRIDGE

FOREIGN EXCHANGE QUOTATIONS

PRICES ARE RETRIEVED DAILY @ 12:00 PM (NOON) EST

FOREIGN EXCHANGE AUTHORIZED SOURCE:

REUTERS

APPROVED:	/s/ Susan B. McGee	5/25/06
		DATE

90

APPENDIX C

DATED AS OF MARCH 23, 2006

TO

CUSTODIAN AGREEMENT
WITH RESPECT TO
ADMINISTRATIVE AND FUND ACCOUNTING AGENCY SERVICES

The following is a list of Investment Companies for which BBH shall perform services under a Custodian Agreement dated as of November 1, 1997, as amended.

U.S. Global Accolade Funds, a Massachusetts Business Trust, on behalf of each of the following series:

MegaTrends Fund
Eastern European Fund
Holmes Growth Fund
Global Emerging Markets Fund

91

EX-21

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

92

EX-31.1

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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	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
(d)	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

5. 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 12, 2006

/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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d – 15(f) 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)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	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
(d)	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

5. 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 12, 2006

/s/ Catherine A. Rademacher Catherine A. Rademacher

Chief Financial Officer

EX-32.1

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, 2006 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 12, 2006

/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, 2006, 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 12, 2006

/s/ Catherine A. Rademacher Catherine A. Rademacher

Chief Financial 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.