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, 20052006
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 Small Cap IssuesCapital Market
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yeso Noþ
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.
Yeso Noþ
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 twelve12 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.Yesþ Noo
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, (as defined byor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act).YesExchange Act.
Large accelerated filero       NoAccelerated filerþ       Non-accelerated filero
Indicate by check mark whether the registrant is a shell company, (as defined in Rule 12b-2 of the Exchange Act).Yes.
Yeso Nooþ
The aggregate market value of the 4,079,3173,272,928 shares of nonvoting class A common stock held by nonaffiliates of the registrant on September 9, 2005,August 25, 2006, based on the last sale price on NASDAQ as of December 31, 2004,2005, was $16,725,200.$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, 20042005 (based on the last sale price of the class C common stock in a private transaction) was $52,295. For purposes of this disclosure only, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of the registrant’s common stock are affiliates of the registrant.
On September 9, 2005,August 25, 2006, there were 6,319,9746,402,974 shares of Registrant’s class A nonvoting common stock issued and 5,999,7146,077,029 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 2. Properties1A. Risk Factors
  56 
Item 3. Legal Proceedings1B. Unresolved Staff Comments
  57 
Item 2. Properties
7
Item 3. Legal Proceedings
7
Item 4. Submission of Matters to a Vote of Security Holders
  57 
Part II of Annual Report on Form 10-K
  68 
Item 5. Market for Company’s Common Equity and Related Shareholder Matters
  68 
Item 6. Selected Financial Data
  710 
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
  911 
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
  1621 
Item 8. Financial Statements and Supplementary Data
  1822 
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  3642 
Item 9A. Controls and Procedures
  3743
Item 9B. Other Information
43 
Part III of Annual Report on Form 10-K
  3844 
Item 10. Directors and Executive Officers of the Company
38
Item 11. Executive Compensation
40
Item 12. Security Ownership of Certain Beneficial Owners and Management
  44 
Item 13. Certain Relationships and Related Transactions11. 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
  4753 
Part IV of Annual Report on Form 10-K
  4854 
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
  4854 
Signatures
  5258 
Exhibit 14.02 — Code of Ethics
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 
 Code of EthicsAmendment to Loan Agreement
Amendment to Custodian Agreement - U.S. Global Investors
Amendment to Custodian Agreement - U.S. Global Accolade Funds
 List of Subsidiaries
 Rule 13a-14(a) Certifications underCertification Pursuant to Section 302
 Section 1350 Certifications underCertification Pursuant to Section 906

i

Part I of Annual Report on Form 10-K
Item 1. Business
U.S. Global Investors, Inc. (Company or U.S. Global) has made forward-looking statements concerning the Company’s performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company’s control, including (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, (iii) the effect of government regulation on the Company’s business, and (iv) market, credit, and liquidity risks associated with the Company’s investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.
U.S. Global, a Texas corporation organized in 1968, and its wholly owned subsidiaries are in the mutual fund management business. The Company is a registered investment adviser under the Investment Advisers Act of 1940 and is principally engaged in the business of providing investment advisory and other services, through the Company or its subsidiaries, to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts (collectively, the Trusts or Funds). USGIF and USGAF are investment companies offering shares of nine and four mutual funds, respectively, on a no-load basis.
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

Domestic Funds under Management
                
Assets Under ManagementAssets Under Management 
 AUM at June 30, 2005  AUM at June 30, 2006 
Fund Ticker Category in thousands  Ticker Category in thousands 
U.S. Global Investors Funds
          
All American Equity GBTFX Large cap core $19,296  GBTFX Large cap core $21,625 
China Region USCOX China region 30,513  USCOX China region 67,451 
Global Resources PSPFX Natural resources 486,625  PSPFX Natural resources 1,275,516 
Gold Shares USERX Gold oriented 67,463  USERX Gold oriented 205,665 
Near-Term Tax Free NEARX Short / intermediate municipal debt 18,675  NEARX Short / intermediate municipal debt 15,821 
Tax Free USUTX General municipal debt 22,371  USUTX General municipal debt 15,241 
U.S. Government Securities Savings UGSXX U.S. Government money market 410,484  UGSXX U.S. Government money market 434,015 
U.S. Treasury Securities Cash USTXX U.S. Government money market 111,255  USTXX U.S. Government money market 118,733 
World Precious Minerals UNWPX Gold and precious minerals 276,826  UNWPX Gold and precious minerals 913,950 
U.S. Global Accolade Funds
          
Eastern European EUROX Emerging markets 594,611  EUROX Emerging markets 1,259,361 
Global Emerging Markets(1)
 GEMFX Emerging markets 10,835 
Global Emerging Markets GEMFX Emerging markets 26,674 
Holmes Growth ACBGX Mid-cap growth 65,587  ACBGX Mid-cap growth 65,733 
MegaTrends MEGAX Large-cap growth 13,763  MEGAX Large-cap growth 16,831 
              
Total AUM at June 30, 2005
     $2,128,304 
Total SEC-Registered Funds
     $4,436,616 
              
     
Other Advisory Clients
     $201,217 
       
     
Total AUM at June 30, 2006
     $4,637,833 
       
Lines of Business
(1)
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 Emerging Markets Fund was launchedand 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 February 24, 2005.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”).
The Company also provides management and advisory services to two offshore funds: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005 and the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established on July 1, 2005, subsequent to the Company’s fiscal year end.
In addition to mutual fund activity, the Company is actively engaged in trading for its own account.
Lines of Business
Investment Management Services
Investment Advisory Services.The Company furnishes an investment program for each of the mutual funds it manages and determines, subject to overall supervision by the boards of trustees of the funds, the funds’ investments pursuant to advisory agreements (Advisory Agreements). Consistent with the investment restrictions, objectives and policies of the particular fund, the portfolio team for each fund determines what investments should be purchased, sold and held, and makes changes in the portfolio deemed to be necessary or appropriate. In the Advisory Agreements, the Company is charged with seeking the best overall terms in executing portfolio transactions and selecting brokers or dealers.
The Company also manages, supervises, and conducts certain other affairs of the funds, subject to the control of the boards of trustees. It provides office space, facilities, and certain business equipment as well as the services of executive and clerical personnel for administering the affairs of the mutual funds. U.S. Global and its affiliates compensate all personnel, officers, directors, and interested trustees of the funds if such persons are also employees of the Company or its affiliates. However, the funds are required to reimburse the Company for a portion of the compensation of the Company’s employees who perform certain state and federal securities law regulatory compliance work on behalf of the funds based upon the time spent on such matters. The Company is responsible for costs associated with marketing fund shares to the extent not otherwise covered by any fund distribution plans adopted pursuant to Investment Company Act Rule 12b-1 (12b-1 Plan).

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 2006,
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.
Transfer Agent and Other Services.The Company’s wholly owned subsidiary, United Shareholder Services, Inc. (USSI), is a transfer agent registered under the Securities Exchange Act of 1934 providing transfer agency, lockbox, and printing services to investment company clients. The transfer agency utilizes a third-party external system providing the Company’s fund shareholder communication network with computer equipment and software designed to meet the operating requirements of a mutual fund transfer agency.
The transfer agency’s duties encompass: (1) acting as servicing agent in connection with dividend and distribution functions; (2) performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption, or repurchase of shares; (3) maintaining such records as are necessary to document transactions in the funds’ shares; (4) acting as servicing agent in connection with mailing of shareholder communications, including reports to shareholders, dividend and distribution notices, and proxy materials for shareholder meetings; and (5) investigating and answering all shareholder account inquiries.
The transfer agency agreements provide that USSI will receive, as compensation for services rendered as transfer agent, an annual fee per account, and will be reimbursed for out-of-pocket expenses. In connection with obtaining/providing administrative services to the beneficial owners of fund shares through institutions that provide such services and maintain an omnibus account with USSI, each fund pays a monthly fee based on the number of accounts or the value of the shares of the fund held in accounts at the institution, which payment shall not exceed the per account charge on an annual basis.
The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF in February and May 2006, respectively, and management anticipates that the agreements will be renewed.
Other Advisory Services.In addition to providing mutual fund management and transfer agent services to USGIF and USGAF funds, the Company provides management and advisory services to two offshore funds: the Meridian Global Gold and Resources Fund Ltd., established in the first quarter of fiscal 2005, and the U.S. Global Investors Balanced Natural Resources Fund, Ltd., established on July 1, 2005, subsequent to the Company’s fiscal year end.
Brokerage Services.The Company has registered its wholly owned subsidiary, U.S. Global Brokerage, Inc. (USGB), with the National Association of Securities Dealers (NASD), the Securities and Exchange Commission (SEC), and appropriate state regulatory authorities as a limited-purpose broker/dealer for the purpose of distributing USGIF and USGAF fund shares. Effective September 3, 1998, USGB became the distributor for USGIF and USGAF fund shares. For the fiscal year ended June 30, 2005, the Company capitalized USGB with approximately $4,151,000 to cover the costs associated with continuing operations.
Mailing Services.A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. A&B Mailers’ primary customers include the Company in connection with its efforts to promote the funds and the Company’s investment company clients in connection with required mailings.
Corporate Investments
Investment Activities.In addition to mutual fund activity, the Company attempts to maximize its cash position by using a diversified venture capital approach to investing. Management invests in early-stage or start-up businesses seeking initial financing and more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization.
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, 2005, U.S. Global and its subsidiaries employed 64 full-time employees and 3 part-time employees; as of June 30, 2004, it employed 61 full-time employees and 4 part-time employees. The Company considers its relationship with its employees to be good.
Competition
The mutual fund industry is highly competitive. Recent reports show there are approximately 8,000 domestically registered open-end investment companies of varying sizes and investment policies whose shares are being offered to the public worldwide. Generally, there are two types of mutual funds: “load” and “no-load.” In addition, there are both load and no-load funds that have adopted 12b-1 plans authorizing the payment of distribution costs of the funds out of fund assets, such as USGAF. Load funds are typically sold through or sponsored by brokerage firms, and a sales commission is charged on the amount of the investment. No-load funds, such as the USGIF and USGAF funds, however, may be purchased directly from the particular mutual fund organization or through a distributor, and no sales commissions are charged.
In addition to competition from other mutual fund managers and investment advisers, the Company and the mutual fund industry are in competition with various investment alternatives offered by insurance companies, banks, securities dealers, and other financial institutions. Many of these institutions are able to engage in more liberal advertising than mutual funds and may offer accounts at competitive interest rates, which are insured by federally chartered corporations such as the Federal Deposit Insurance Corporation. Amendments to, and regulatory pronouncements related to, the Glass-Stegall Act, the statute that has prohibited banks from engaging in various activities, are enabling banks to compete with the Company in a variety of areas.
A number of mutual fund groups are significantly larger than the funds managed by U.S. Global, offer a greater variety of investment objectives, and have more experience and greater resources to promote the sale of investments therein. However, the Company believes it has the resources, products, and personnel to compete with these other mutual funds. In particular, the company is known for its expertise in the gold mining and exploration and natural resources industries. Competition for sales of fund shares is influenced by various factors, including investment objectives and performance, advertising and sales promotional efforts, distribution channels, and the types and quality of services offered to fund shareholders.
Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on each fund’s investment performance, the quality of services provided to shareholders, and the Company’s efforts to market the funds effectively. Sales of fund shares generate management fees (which are based on assets of the funds) and transfer agent fees (which are based on the number of fund accounts). Costs of distribution and compliance continue to put pressure on profit margins for the mutual fund industry.
Supervision and Regulation
The Company, USSI, USGB, and the investment companies it manages and administers operate under certain laws, including federal and state securities laws, governing their organization, registration, operation, legal, financial, and tax status. Among the penalties for violation of the laws and regulations applicable to the Company and its subsidiaries are fines, imprisonment, injunctions, revocation of registration, and certain additional administrative sanctions. Any determination that the Company or its management has violated applicable laws and regulations could have a material adverse effect on the business of the Company. Moreover, there is no assurance that changes to existing laws, regulations, or rulings promulgated by governmental entities having jurisdiction over the Company and the funds will not have a material adverse effect on its business. The Company has no control over regulatory rulemaking or the consequences it may have on the mutual fund industry.
Recent and accelerating regulatory pronouncements and oversight have significantly increased the burden of compliance infrastructure with respect to the mutual fund industry and the capital markets.
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

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
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. The note payable related to the building was paid in full in fiscal 2004.
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 2005.
No matters were submitted to a vote of security holders during fiscal year 2006.

57

Part II of Annual Report onPart II of Annual Report on Form 10-K
Item 5. Market for Company’s Common Equity and Related Shareholder Matters
Market Information
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.
The Company has three classes of common equity: class A, class B and class C common stock, par value $0.05 per share.
There is no established public trading market for the Company’s class B and class C common stock.
                 
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 
The Company’s class A and class B common stock have no voting privileges.
The Company’s class A common stock is traded over-the-counter and is quoted daily under NASDAQ’s Small Cap Issues. Trades are reported under the symbol “GROW.”
The following table sets forth the range of high and low sales prices from NASDAQ for the fiscal years ended June 30, 2005 and 2004. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission.
Sales Price
                 
  2005  2004 
  High ($)  Low ($)  High ($)  Low ($) 
First quarter (9/30)  3.56   2.80   2.73   1.85 
Second quarter (12/31)  4.47   2.90   5.00   2.00 
Third quarter (3/31)  6.49   3.42   4.55   3.60 
Fourth quarter (6/30)  6.50   4.39   5.20   2.39 
Holders
On September 9, 2005, there were 200 holders of record of class A common stock, no holders of record of class B common stock, and 71 holders of record of class C common stock.
Many of the class A common shares are held of record by nominees, and management believes that as of September 9, 2005, there were approximately 1,000 beneficial owners of the Company’s class A common stock.
Dividends
The Company has not paid cash dividends on its class C common stock during the last twenty-one fiscal years and has never paid cash dividends on its class A common stock. Payment of cash dividends is within the discretion of the Company’s board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.

6

Holders of the outstanding shares of the Company’s class A common stock are entitled to receive, when and as declared by the Company’s board of directors, a noncumulative cash dividend equal in the aggregate to 5% of the Company’s net after-tax earnings for its prior fiscal year. After such dividend has been paid, the holders of the outstanding shares of class B common stock are entitled to receive, when and as declared by the Company’s board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A common stock. Holders of the outstanding shares of class C common stock are entitled to receive when and as declared by the Company’s board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A and class B common stock. Thereafter, if the board of directors determines to pay additional cash dividends, such dividends will be paid simultaneously on a prorated basis to holders of class A, B, and C common stock. The holders of the class A common stock are protected in certain instances against dilution of the dividend amount payable to such holders.
Purchases of equity securities by the issuer
The following table provides information regarding the Company’s repurchases of shares of its class A common stock during the fiscal year ended June 30, 2005. There were no repurchases of class B or class C common stock during the fiscal year.
Issuer Purchases of Equity Securities
Fiscal Year Ended 6/30/05
                     
                  Maximum
                  Number of
  Total         Total Number of Shares that May
  Number of Total Average Shares Purchased Yet Be
  Shares Amount Price Paid as Part of Publicly Purchased Under
Period Purchased Purchased Per Share Announced Plan the Plan
07-01-04 to 07-31-04  —   —  $—   N/A   N/A 
08-01-04 to 08-31-04  —   —   —   N/A   N/A 
09-01-04 to 09-30-04  —   —   —   N/A   N/A 
10-01-04 to 10-31-04  —   —   —   N/A   N/A 
11-01-04 to 11-30-04  987  $3,510   3.56   N/A   N/A 
12-01-04 to 12-31-04  300   1,023   3.41   N/A   N/A 
01-01-05 to 01-31-05  —   —   —   N/A   N/A 
02-01-05 to 02-28-05  —   —   —   N/A   N/A 
03-01-05 to 03-31-05  400   2,370   5.92   N/A   N/A 
04-01-05 to 04-30-05  —   —   —   N/A   N/A 
05-01-05 to 05-31-05  177   1,012   5.72   N/A   N/A 
06-01-05 to 06-30-05  1,116   6,053   5.42   N/A   N/A 
Total
  2,980  $13,968  $4.69   N/A   N/A 
Item 6. Selected Financial Data
The following selected financial data is qualified by reference to, and should be read in conjunction with, the Company’s Consolidated Financial Statements and related notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations, contained in this Form 10-K. The selected financial data as of June 30, 2004, through June 30, 2005, and the years then ended, is derived from the Company’s Consolidated Financial Statements, which were audited by BDO Seidman, LLP, independent registered public accountants. The selected financial data as of June 30, 2001, through June 30, 2003, and the years then ended is derived from the Company’s Consolidated Financial Statements, which were audited by Ernst & Young LLP, independent registered public accountants.

7

                     
Selected Year ended June 30, 
Financial Data 2005  2004  2003  2002  2001 
Revenues $16,981,339  $12,983,500  $7,478,936  $7,767,514  $8,893,884 
Expenses  14,744,897   10,141,019   7,817,883   8,104,299   9,652,382 
                
Income (loss) before gain on litigation settlement and income taxes  2,236,442   2,842,481   (338,947)  (336,785)  (758,498)
Gain on litigation settlement  —   —   371,057   —   — 
Income tax expense (benefit)  789,971   675,839   (10,502)  (95,351)  36,181 
                
Net income (loss)  1,446,471  $2,166,642  $42,612  $(241,434) $(794,679)
Basic income (loss) per share  0.19   0.29   0.01   (0.03)  (0.11)
Working capital  7,078,544   5,267,573   3,562,885   2,930,974   3,246,792 
Total assets  12,102,515   9,356,596   7,439,687   7,905,021   7,912,184 
Long-term obligations  —   —   988,536   1,067,967   1,135,903 
Shareholders’ equity  9,903,088   8,485,346   5,673,689   5,580,059   5,715,520 
Net cash provided by operations  986,120   2,669,928   128,916   6,239   132,855 
Net cash (used in) provided by investing activities  (67,634)  (30,328)  147,470   (274,750)  (71,534)
Net cash provided by (used in) financing activities  64,016   (970,167)  (103,079)  (76,475)  (84,302)
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.
Business Segments
U.S. Global Investors, Inc. (Company or U.S. Global), with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position. For more details on the results of our core operations, see Note 14 — Financial Information by Business Segment.
The Company generates substantially all its operating revenues from the investment management of products and services for the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Although the Company generates the majority of its revenues from this segment, the Company holds a significant amount of its total assets in investments. As of June 30, 2005, the Company held approximately $3.5 million in investments, comprising 28.9% of its total assets. The following is a brief discussion of the Company’s two business segments.
Investment Management Products and Services
Investment management revenues are largely dependent on the total value and composition of assets under management. Fluctuations in the markets and investor sentiment directly impact the funds’ asset levels, thereby affecting income and results of operations. During fiscal year 2005, total average assets under management increased 31.9% to $1.77 billion, primarily due to significant increases in the natural resource and foreign equity funds under management, through both net inflows and market appreciation. This favorable trend has been partially offset by a reduction in assets in the money market funds as investors seek alternative short-term investments with higher yields.
Average Assets under Management
(Dollars in Millions)
                         
  2005  2004  % Change  2004  2003  % Change 
USGIF — Money Market $547  $609   (10.2%) $609  $746   (18.4)%
USGIF — Other  721   549   31.3%  549   224   145.1%
                   
USGIF — Total  1,268   1,158   9.5%  1,158   970   19.4%
USGAF  505   186   171.5%  186   101   84.2%
                   
Total $1,773  $1,344   31.9% $1,344  $1,071   25.5%
                         
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%

911

Investment Activities
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.
Management believes it can more effectively manage the Company’s cash position by maintaining certain types of investments utilized in cash management and continues to believe that such activities are in the best interest of the Company.
The following summarizes the market value, cost and unrealized gain or loss on investments as of June 30, 2005, and June 30, 2004.
                                
 Unrealized  Unrealized
 holding gains on  holding gains on
 available-for-sale  available-for-sale
 Unrealized Gain securities, net of  Unrealized Gain securities, net of
Securities Market Value Cost (Loss) 34% tax  Market Value Cost (Loss) 34% tax
Trading1
 $2,612,529 $3,040,700 $(428,171) —  $4,659,824  $4,011,961  $647,863   — 
Available for sale2
 890,461 299,055 591,406 $390,328   82,202   45,444   36,758  $24,259 
                       
Total at June 30, 2005 3,502,990 3,339,755 163,235 
Total at June 30, 2006  4,742,026   4,057,405   684,621     
                       
                 
Trading1
 1,672,354 1,857,171  (184,817) —  $2,612,529  $3,040,700  $(428,171)  — 
Available for sale2
 1,212,742 405,055 807,687 $533,074   890,461   299,055   591,406  $390,328 
                       
Total at June 30, 2004 $2,885,096 $2,262,226 $622,870 
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, 2005, and 2004, the Company held approximately $2.0 and $2.6 million, respectively, in investments other than USGIF, USGAF and its subadvised offshore funds.
Investments in securities classified as trading are reflected as current assets on the consolidated balance sheet at their fair market value. Unrealized holding gains and losses on trading securities are included in earnings in the consolidated statements of operations and comprehensive income. Investments in securities classified as available for sale, which may not be readily marketable, are reflected as non-current assets on the consolidated balance sheet at their fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income as a separate component of shareholders’ equity until realized.
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 (loss) can be volatile and varies depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. A significant portion of the unrealized gains and losses is concentrated in a small number of issuers. For fiscal years 2006, 2005, and varies depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. A significant portion of the unrealized gains and losses is concentrated in a small number of issuers. For fiscal years 2005, 2004, and 2003, the Company had net realized gains (losses) of approximately $827,700, ($184,000), and $291,000, and ($97,000), respectively. The Company expects that gains or losses will continue to fluctuate in the future.

1012

Consolidated Results of Operations
The following is a discussion of the consolidated results of operations of the Company and a detailed discussion of the Company’s revenues and expenses.
                         
  2005 2004 % Change 2004 2003 % Change
Net income (loss) (in thousands) $1,446  $2,167   (33.3%) $2,167  $43   4,939.5%
Net income (loss) per share — basic and diluted $0.19  $0.29   (34.5%) $0.29  $0.01   2,800.0%
Weighted average shares outstanding (in thousands)                        
Basic  7,480   7,469       7,469   7,460     
Diluted  7,564   7,533       7,533   7,469     
Year Ended June 30, 2005, Compared with Year Ended June 30, 2004
The Company posted net after-tax income of $1,446,471 ($0.19 per share) for the year ended June 30, 2005, compared with net after-tax income of $2,166,642 ($0.29 per share) for the year ended June 30, 2004. The decrease in profitability is primarily attributable to the following factors:
 •Consistent with continued growth in the Eastern European Fund, subadvisory fees increased by $1.7 million;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     
 Investment income decreased by $1.4 million, primarily due to unrealized losses on corporate investments classified as trading securities;Year Ended June 30, 2006, Compared with Year Ended June 30, 2005
 
 •General and administrative expenses increased $1.2 million dueThe 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 additional consulting, communication, and marketing-related travel and entertainment costs;
•Driven by strong mutual fund performance, employee compensation expense increased by $0.9 million primarily due to higher incentive bonuses; and
•Omnibus fees increased by $0.9 million due to increased asset inflows through broker/dealer platforms.the following factors:
These factors were somewhat offset by an overall increase in revenues of 30.8% in fiscal year 2005 to $16,981,339 primarily driven by the following:
 • The Company’s advisory fees, boosted primarily by the positive impact of market gains and shareholder investments in natural resource and foreign equity funds, increased by 52.6%165.2%, or $4.8$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 24.1%67.3%, or $0.6$2.1 million, primarily as a result of growth in the number of shareholder accounts.
Year Ended June 30, 2004, Compared with Year Ended June 30, 2003
These factors were somewhat offset by an overall increase in expenses of 96.6% in fiscal year 2006 primarily driven by the following:
The Company posted net after-tax income of $2,166,642 million ($0.29 per share) for the year ended June 30, 2004, compared with net after-tax income of $42,612 ($.01 per share) for the year ended June 30, 2003. The profitability in fiscal year 2004 was primarily a result of improved markets for gold-related assets, natural resource commodities, and foreign equities resulting in an increase in advisory fees of $3.9 million. Additionally, the Company’s investment portfolio benefited from the rising gold markets, resulting in an increase in investment income of $1.4 million. These favorable items were partially offset by increases in general and administrative expenses of $1 million, due primarily to increased omnibus fees, and increases in subadvisory fees of $0.5 million.
•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) 2005  2004  % Change  2004  2003  % Change 
Investment advisory fees:                        
USGIF — Money market $1,638  $1,744   (6.1)% $1,744  $2,297   (24.1)%
USGIF — Other  6,010   4,668   28.7%  4,668   1,562   198.8%
                   
USGIF — Total  7,648   6,412   19.3%  6,412   3,859   66.2%
USGAF  6,059   2,097   188.9%  2,097   1,045   100.7%
Other advisory fees  299   670   (55.4)%  670   386   73.6%
                   
Total investment advisory fees  14,006   9,179   52.6%  9,179   5,290   73.5%
Transfer agent fees  3,187   2,610   22.1%  2,610   2,327   12.2%
Investment income (loss)  (351)  1,023   (134.3)%  1,023   (345)  396.5%
Other revenues  139   171   (18.7)%  171   207   (17.4)%
                   
Total $16,981  $12,983   30.8% $12,983  $7,479   73.6%
                   
Revenues
Investment Advisory Fees.Investment advisory fees, the largest component of the Company’s revenues, are derived from two sources: mutual fund advisory fees, which in fiscal 2005 accounted for 98% of the Company’s investment advisory fees, and other advisory fees, which accounted for the remainder.
                         
          (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%
                     
Mutual fund investment advisory fees are calculated as a percentage of average net assets, ranging from 0.375% to 1.375%, and are paid monthly. Mutual fund investment advisory fees increased by approximately $5.2 million, or 61.1%, in fiscal 2005 over fiscal 2004. Advisory fees benefited from an increase in assets of the higher-margin foreign equity and natural resource funds, particularly in the USGAF Eastern European Fund, USGIF Global Resources Fund and USGIF World Precious Minerals Fund, due to market gains and net shareholder inflows. These funds have higher margins resulting from higher management fee rates.
The Company has agreed to waive or reduce its fees and/or pay expenses for several USGIF funds and one USGAF fund through November 1, 2006, and February 28, 2006, respectively, or such later date as the Company determines for purposes of enhancing the funds’ competitive market positions, in particular the money market and fixed income funds. The aggregate amount of fees waived and expenses borne by the Company totaled approximately $1,332,000, $1,471,000, and $1,509,000, in 2005, 2004, and 2003, respectively. The Company expects to continue to waive fees and/or pay for fund expenses if market and economic conditions warrant. However, subject to the Company’s commitment to certain funds with respect to fee waivers and expense limitations, the Company may reduce the amount of fund expenses it is bearing.
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.
The Company began providing management and advisory services for the Meridian Global Gold and Resources Fund Ltd., an offshore fund, in the first quarter of fiscal year 2005. The Company initially had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee, if any, based on the overall increase in value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the arrangement was changed to provide payment of performance fees on a quarterly rather than annual basis. The Company has recorded subadvisory and performance fees totaling $299,000 for the fiscal year ended June 30, 2005.
Subsequent to fiscal year end, the Company began providing management and advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company will be paid a monthly management fee and a quarterly performance fee, if any.
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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The Company also provided investment management services for a separate client through March 2004. The Company had a fee arrangement whereby it received an annual administrative fee plus a percentage of any gains from the sale of the securities in the client account, payable at the settlement of the sales. The Company recorded $670,000 in revenue from this fee arrangement through March 2004, at which time the agreement was terminated.
Transfer Agent Fees.United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency, lockbox, and printing services for Company clients. The Company receives an annual fee per account as compensation for services rendered as transfer agent, and is reimbursed for out-of-pocket expenses associated with processing shareholder information. In addition, the Company collects custodial fees on IRAs and other types of retirement plans invested in USGIF and USGAF. Transfer agent fees are therefore affected by the number of client accounts.
The increase in transfer agent fees in fiscal years 2005 and 2004 was primarily a result of an increase in the number of mutual fund shareholder accounts due to improved performance of the natural resource and foreign equity funds.
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 decreased by $1.4 million, or 134.3%, in fiscal 2005 compared to fiscal 2004. This decrease can be attributed primarily to a $991,000 increase in unrealized losses on corporate investments classified as trading securities. In addition, realized losses on sales of securities increased by $369,000, and other-than-temporary impairments on available-for-sale securities increased by $65,000. These were slightly offset by an increase in dividend and interest income of $50,000.
The increase in investment income of $1.4 million in fiscal 2004 compared to fiscal 2003 was primarily attributable to improved markets for gold-related assets and natural resource commodities.
Expenses
                         
(Dollars in Thousands) 2005  2004  % Change  2004  2003  % Change 
Employee compensation and benefits $5,891  $4,986   18.2% $4,986  $4,266   16.9%
General and administrative  3,821   2,623   45.7%  2,623   2,379   10.3%
Subadvisory fees  2,720   1,019   166.9%  1,019   523   94.8%
Omnibus fees  1,833   959   91.1%  959   204   370.1%
Advertising  370   373   (0.8)%  373   242   54.1%
Depreciation  110   108   1.9%  108   121   (10.7)%
Interest  —   73   (100.0)%  73   83   (12.0)%
                   
Total $14,745  $10,141   45.4% $10,141  $7,818   29.7%
Employee Compensation and Benefits.Employee compensation and benefits increased by $900,000, or 18.2%, in 2005 and $720,000, or 16.9%, in fiscal 2004, primarily due to incentive bonuses associated with strong mutual fund performance, mutual fund asset growth, and increased accounts.
General and Administrative.The increase in general and administrative expenses of $1.2 million, or 45.7%, in fiscal year 2005 is primarily attributable to increased consulting, communication, and

13

marketing-related travel and entertainment costs. The increase in general and administrative expenses of $244,000, or 10.3%, in fiscal year 2004 was primarily attributable to increased insurance, sales and marketing costs.
Subadvisory Fees.The increases in subadvisory fees of $1,700,000 and $496,000 in fiscal years 2005 and 2004, respectively, resulted from the sizeable growth in assets in the Eastern European Fund.
Omnibus Fees.Much of the mutual fund asset growth across all funds has been realized through broker/dealer platforms. These broker/dealers typically charge an asset-based fee for assets held in their platforms. Accordingly, net omnibus fee expenses have increased by $874,000 and $755,000 during fiscal years 2005 and 2004, respectively. The incremental assets received through the broker/dealer platforms are not as profitable as those received from direct shareholder accounts due to margin compression from paying omnibus fees on those assets.
Advertising.Advertising expense remained flat at approximately $370,000 and $373,000 during fiscal 2005 and 2004, respectively.
Depreciation.Depreciation expense has remained stable at $110,000 and $108,000 in fiscal years 2005 and 2004, respectively, primarily due to assets becoming fully depreciated without being replaced with additional capital purchases.
Interest.The decrease in interest expense during fiscal 2005 and 2004 of $73,000 and $10,000, respectively, is attributable to the payment in full of the note related to the Company’s building in fiscal 2004.
Income Taxes
The Company and its subsidiaries file a consolidated federal income tax return. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes, resulting from the use of the liability method of accounting for income taxes. For federal income tax purposes at June 30, 2005, the Company has no remaining carryovers.
A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. As such, management included a valuation allowance of $34,472 at June 30, 2004 providing for the utilization of investment tax credits. The valuation allowance was reduced to zero in fiscal 2005 as the credits expired.
Contractual Obligations
A summary of contractual obligations of the Company as of June 30, 2005, is as follows:
                     
      Payments due by period       
      Less than  1 – 3  4 –5  More than 
Contractual Obligations Total  1 year  Years  years  5 years 
Operating Lease Obligations $217,656  $79,813  $129,170  $8,673   — 
Contractual Obligation  191,750   83,400   108,350   —   — 
Operating leases consist of telephone equipment, printers, and copiers leased from several vendors. Contractual obligation consists of an agreement with a vendor to provide an e-mail server and a web server.
Liquidity and Capital Resources
At fiscal year end, the Company had net working capital (current assets minus current liabilities) of approximately $7.1 million and a current ratio of 4.2 to 1. With approximately $3.8 million in cash and cash equivalents and $3.5 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $9.9 million, with cash, cash equivalents, and marketable securities comprising 60.5% of total assets. The Company paid the mortgage on its corporate headquarters in full in fiscal 2004. Thus, the Company’s only material commitment from fiscal 2005 forward is for operating expenses. The Company also has access to a $1

14

million credit facility, which can be utilized for working capital purposes. The Company’s available working capital and potential cash flow are expected to be sufficient to cover current expenses.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 28, 2006, and May 31, 2006, respectively. Management anticipates that the trustees of both USGIF and USGAF will renew the contracts.
Management believes current cash reserves, financing obtained and/or available, and potential cash flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the above-mentioned activities and allow the Company to take advantage of investment opportunities whenever available.
Critical Accounting Policies
Security Investments.The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities” (SFAS 115). In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date.
Securities that are purchased and held principally for the purpose of selling in the near term are classified as trading securities and reported at fair value. Unrealized gains and losses on these securities are included in earnings.
Investments in debt securities that are purchased with the intent and ability to hold until maturity are classified as held-to-maturity and measured at amortized cost. The Company currently has no investments in debt securities.
Investments classified as neither trading securities nor held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale.
The Company evaluates its investments for other-than-temporary declines in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. For available-for-sale securities with declines in value deemed other than temporary, the unrealized loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income.
The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.
Taxes.The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes.” The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.
Valuation of Investments.Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but for which there was no trade on or near the balance sheet date, are valued at the mean price between the last price bid and last price asked. Securities for which quotations are not readily available are valued at cost.
Revenue Recognition.The Company began providing investment subadvisory services for a client in the first quarter of fiscal year 2005. The Company had a fee arrangement for these services whereby it received a monthly subadvisory fee and an annual performance fee based on the overall
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

15

value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the agreement was amended such that performance fees would be earned
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.

16

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.

17

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 paid quarterly based on the overall increase in value of the net assets over the quarter. The Company has recorded $299,000 in revenues from this fee arrangement for the year ended June 30, 2005. Since the performance fee is earned and paid quarterly, the fees will fluctuate on a quarterly basis based on the net asset value of the fund and a decrease in the net assets in subsequent quarters will not be refunded. The calculation of the performance fees will be made as of the last day of each quarter while the agreement is in place, at which time the fees will be recognized. The Company will not be required to offset any previously earned performance fees if losses are recorded by the fund in future quarters.
Stock Options.In December, 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R focuses primarily on accounting for transactions in which an entity obtains employee services in exchange for share-based payment transactions. SFAS 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award. On April 14, 2005, the SEC announced that SFAS 123R is effective for fiscal years beginning after June 15, 2005. The Company currently accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), which has been superseded by FAS 123R. The Company is currently evaluating the impact that the implementation of FAS 123R will have on the Company’s consolidated financial statements and the Company does not expect the effect to be material.
Related Party Transactions.
The Company had $4,823,000 and $3,045,000 invested in USGIF and USGAF mutual funds included in the balance sheet in cash and cash equivalents and trading securities at June 30, 2005, and 2004, respectively. Receivables from mutual funds shown on the Consolidated Balance Sheets represent amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.
The Company invested $500,000 in an offshore fund (U.S. Global Investors Balanced Natural Resources Fund, Ltd.) that the Company will subadvise starting in July 2005.
Frank Holmes, a director and CEO of the Company, served as an independent director of Franc-Or Resources from June 2000 to November 2003. The Company owns a position in Franc-Or Resources at June 30, 2005, with an estimated fair value of approximately $229,000, recorded as a trading security on the balance sheet.
Mr. Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became a public company. Mr. Holmes personally owned shares of BCS Global Networks at June 30, 2005. The Company owned a position in BCS Global Networks at June 30, 2005, with an estimated fair value of approximately $42,000 recorded as available for sale on the balance sheet. Subsequent to fiscal year end, both the Company and Mr. Holmes sold their holdings in BCS Global Networks in response to a tender offer, with the Company realizing a loss of $31,560 recorded in 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

18

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

19

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
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.
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

16

subsequent sale of an investment may differ significantly from the reported market value. The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients. The Company has in place a code of ethics that requires pre-clearance of any trading activity by the Company. Written procedures are also in place to manage compliance with the code of ethics.
The table below summarizes the Company’s equity price risks as of June 30, 2005, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.
                                
 Increase Increase
 Estimated Fair (Decrease) in Estimated Fair (Decrease) in
 Hypothetical Value After Shareholders’ Hypothetical Value After Shareholders’
 Fair Value at June 30, Percentage Hypothetical Equity, Net Fair Value at June 30, Percentage Hypothetical Equity, Net
 2005 ($) Change Price Change ($) of Tax ($) 2006 ($) Change Price Change ($) of Tax ($)
Trading securities1
 2,612,529 25% increase 3,265,661 431,067  4,659,824 25% increase 5,824,780 768,871 
 25% decrease 1,959,397  (431,067) 25% decrease 3,494,868  (768,871)
Available-for-sale2
 890,461 25% increase 1,113,076 146,926  82,202 25% increase 102,753 13,563 
 25% decrease 667,846  (146,926) 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.

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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. HolmesCatherine A. Rademacher
Chief Executive Officer and Chief Investment OfficerChief Financial Officer
August 28, 2006

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Report of Independent Registered Public Accounting Firm on Consolidated
Financial Statements
Board of Directors and Stockholders
U.SU.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, 20052006 and 20042005 and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the twothree years in the period ended June 30, 2005.2006. 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,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 2004, and the consolidated results of its operations and its cash flows for each of the twothree years in the period ended June 30, 20052006,in conformity with accounting principlesU.S. generally accepted in the United States of America.
/s/ BDO Seidman, LLP
Dallas, Texas
August 26, 2005

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of U. S. Global Investors, Inc.accounting principles.
We also have audited, the accompanying consolidated statements of operations and comprehensive income, shareholders’ equity, and cash flows of U. S. Global Investors, Inc. (the Company) for the year ended June 30, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on, the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated resultsreporting as of operations and cash flows of U.S. Global Investors, Inc. for the year ended June 30, 2003,2006, based on criteria established in conformity with U.S. generally accepted accounting principles.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/ Ernst & YoungBDO Seidman, LLP

Dallas, Texas
September 24, 2003August 28, 2006

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U.S. Global Investors, Inc.
Consolidated Balance Sheets
                
 June 30,  June 30, 
 2005 2004  2006 2005 
Assets
  
Current Assets
  
Cash and cash equivalents $3,814,178 $2,831,676  $10,056,043 $3,814,178 
Due from brokers — 21 
Trading securities, at fair value 2,612,529 1,672,354  4,659,824 2,612,529 
Receivables  
Mutual funds 2,221,148 1,454,872 
Other advisory clients 54,140 — 
Advisory, net of allowance 11,290,240 2,275,288 
Employees 750 —  7,669 750 
Other 43,274 23,227  184,962 43,274 
Prepaid expenses 450,963 307,390  580,813 450,963 
Deferred tax asset 80,989 29,283  — 80,989 
          
Total Current Assets
 9,277,971 6,318,823  26,779,551 9,277,971 
          
Net Property and Equipment
 1,768,334 1,811,488  2,122,889 1,768,334 
          
Other Assets
  
Long-term deferred tax asset 165,749 193,543  62,211 165,749 
Investment securities available-for-sale, at fair value 890,461 1,212,742  82,202 890,461 
          
Total Other Assets
 1,056,210 1,406,285  144,413 1,056,210 
          
Total Assets
 $12,102,515 $9,536,596  $29,046,853 $12,102,515 
          
Liabilities and Shareholders’ Equity
  
Current Liabilities
  
Accounts payable 193,249 $99,526  $343,364 $193,249 
Accrued compensation and related costs 525,140 408,681  2,961,836 525,140 
Deferred tax liability 178,707 — 
Other accrued expenses 1,481,038 543,043  5,019,735 1,481,038 
          
Total Current Liabilities
 2,199,427 1,051,250  8,503,642 2,199,427 
          
Total Liabilities
 2,199,427 1,051,250  8,503,642 2,199,427 
          
Shareholders’ Equity
  
Common stock (class A) $0.05 par value; nonvoting; authorized 7,000,000 shares; issued, 6,316,474 and 6,311,974 shares at June 30, 2005, and 2004, respectively 315,824 315,599 
Common stock (class B) — $0.05 par value; nonvoting; authorized 2,250,000 shares; no shares issued — — 
Common stock (class C) — $0.05 par value; voting; authorized 1,750,000 shares; issued, 1,496,800 shares 74,840 74,840 
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 11,158,535 11,110,053  11,754,779 11,008,535 
Deferred compensation  (150,000)  (200,000)
Treasury stock, class A shares at cost; 326,988 and 339,498 shares at June 30, 2005, and 2004, respectively  (650,592)  (665,901)
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 390,329 533,074  24,259 390,329 
Accumulated deficit  (1,235,848)  (2,682,319)
Retained earnings (deficit) 9,199,514  (1,235,848)
          
Total Shareholders’ Equity
 9,903,088 8,485,346  20,543,211 9,903,088 
          
Total Liabilities and Shareholders’ Equity
 $12,102,515 $9,536,596  $29,046,853 $12,102,515 
          
The accompanying notes are an integral part of these financial statements.

2025

U.S. Global Investors, Inc.
Consolidated Statements of Operations and Comprehensive Income
                        
 Year Ended June 30,  Year Ended June 30, 
 2005 2004 2003  2006 2005 2004 
Revenue
  
Investment advisory fees $14,006,508 $9,179,200 $5,289,856  $37,143,150 $14,006,508 $9,179,200 
Transfer agent fees 3,187,487 2,610,029 2,327,127  5,332,066 3,187,487 2,610,029 
Investment income (loss)  (351,248) 1,023,441  (344,525) 2,203,393  (351,248) 1,023,441 
Other 138,592 170,830 206,478  174,979 138,592 170,830 
              
 16,981,339 12,983,500 7,478,936  44,853,588 16,981,339 12,983,500 
              
 
Expenses
  
Employee compensation and benefits 5,891,162 4,985,449 4,265,983  10,359,365 5,891,162 4,985,449 
General and administrative 3,821,129 2,622,773 2,379,552  5,460,442 3,821,129 2,622,773 
Subadvisory fees 2,719,603 1,018,572 522,673  7,618,466 2,719,603 1,018,572 
Omnibus Fees 1,833,096 959,523 203,620 
Omnibus fees 4,882,144 1,833,096 959,523 
Advertising 369,927 373,492 241,617  513,076 369,927 373,492 
Depreciation 109,899 108,065 121,493  152,755 109,899 108,065 
Interest 81 73,145 82,945  — 81 73,145 
              
 14,744,897 10,141,019 7,817,883  28,986,248 14,744,897 10,141,019 
              
Gain on Litigation Settlement
 — — 371,057 
Income Before Income Taxes
 15,867,340 2,236,442 2,842,481 
        
Income Before Income Taxes
 2,236,442 2,842,481 32,110 
Provision for Federal Income Taxes
  
Tax Expense (Benefit) 789,971 675,839  (10,502)
Tax expense 5,431,978 789,971 675,839 
              
Net Income
 1,446,471 2,166,642 42,612  10,435,362 1,446,471 2,166,642 
Other comprehensive income, net of tax:  
Unrealized gains (losses) on available-for-sale securities  (142,745) 543,957 29,768 
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
 $1,303,726 $2,710,599 $72,380  $10,069,293 $1,303,726 $2,710,599 
              
Basic and Diluted Net Income per Share
 $0.19 $0.29 $0.01 
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
 7,479,998 7,469,164 7,460,260  7,515,789 7,479,998 7,469,164 
Diluted weighted average number of common shares outstanding
 7,564,269 7,533,134 7,469,120  7,573,115 7,564,269 7,533,134 
The accompanying notes are an integral part of these financial statements.

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U.S. Global Investors, Inc.
Consolidated Statements of Shareholders’ Equity
                                                         
 Accumulated    Accumulated  
 Common Common Additional Other    Common Common Additional Retained Other  
 Stock Stock Paid-in Deferred Accumulated Treasury Comprehensive    Stock Stock Paid-in Earnings Treasury Comprehensive  
 (Class A) (Class C) Capital Compensation Deficit Stock Income (Loss) Total  (Class A) (Class C) Capital (Deficit) Stock Income (Loss) Total
Balance at June 30, 2002 (6,311,474 shares of Class A; 1,496,800 shares of Class C)
 315,574 74,840 11,061,276  (300,000)  (4,891,573)  (639,407)  (40,651) 5,580,059 
Purchase of 40,127 shares of Common Stock (Class A) — — — — —  (65,649) —  (65,649)
Reissuance of 23,510 shares of Common Stock (Class A) — —  (4,621) — — 41,520 — 36,899 
Recognition of current year portion of deferred compensation — — 50,000 — — — 50,000 
Unrealized gain on securities available-for-sale (net of tax) — — — — — — 29,768 29,768 
Net Income — — — — 42,612 — — 42,612 
                 
 
Balance at June 30, 2003 (6,311,474 shares of Class A; 1,496,800 shares of Class C)
 315,574 74,840 11,056,655  (250,000)  (4,848,961)  (663,536)  (10,883) 5,673,689   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)  —   —   —   —   (72,246)  —   (72,246)
Reissuance of 39,191 shares of Common Stock (Class A) — — 34,398 — — 69,881 — 104,279   —   —   34,398   —   69,881   —   104,279 
Exercise of 500 options for Common Stock (Class A) 25 — 1,400 — — — — 1,425   25   —   1,400   —   —   —   1,425 
Issuance of option for 20,000 shares of Common Stock (Class A) — — 17,600 — — — — 17,600   —   —   17,600   —   —   —   17,600 
Recognition of current year portion of deferred compensation — — — 50,000 — — — 50,000   —   —   50,000   —   —   —   50,000 
Unrealized gain on securities available-for-sale (net of tax) — — — — — — 543,957 543,957   —   —   —   —   —   543,957   543,957 
                            
Net Income — — — — 2,166,642 — — 2,166,642   —   —   —   2,166,642   —   —   2,166,642 
                 
                             
Balance at June 30, 2004 (6,311,974 shares of Class A; 1,496,800 shares of Class C)
 315,599 74,840 11,110,053  (200,000)  (2,682,319)  (665,901) 533,074 8,485,346   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)  —   —   —   —   (13,968)  —   (13,968)
Reissuance of 15,490 shares of Common Stock (Class A) — — 33,958 — — 29,277 — 63,235   —   —   33,959   —   29,277   —   63,236 
Exercise of 4,500 options for Common Stock (Class A) 225 — 14,524 — — — — 14,749   225   —   14,524   —   —   —   14,749 
Recognition of current year portion of deferred compensation — — — 50,000 — — — 50,000   —   —   50,000   —   —   —   50,000 
Unrealized gain (loss) on securities available-for-sale (net of tax) — — — —  (142,745)  (142,745)  —   —   —   —   —   (142,746)  (142,746)
                            
Net Income — — — — 1,446,471 — — 1,446,471   —   —   —   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)
                             
Balance at June 30, 2005 (6,316,474 shares of Class A; 1,496,800 shares of Class C)
 315,824 74,840 11,158,535  (150,000)  (1,235,848)  (650,592) 390,329 9,903,088 
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.

2227

U.S. Global Investors, Inc.
Consolidated Statements of Cash Flows
                        
 Year Ended June 30,  Year Ended June 30, 
 2005 2004 2003  2006 2005 2004 
Cash Flow from Operating Activities  
Net income $1,446,471 $2,166,642 $42,612  $10,435,362 $1,446,471 $2,166,642 
Adjustments to reconcile net income to net cash provided by operating activities:  
Depreciation 109,899 108,065 121,493  152,755 109,899 108,065 
Net recognized loss (gain) on securities 184,253  (861,552) 344,505   (827,718) 184,253  (861,552)
Provision for deferred taxes 49,624 604,296  (10,502) 551,815 49,624 604,296 
Deferred compensation 50,000 50,000 50,000  50,000 50,000 50,000 
Class A option issued to non-employee — 17,600 —  — — 17,600 
Provision for losses on accounts receivable 26,488  (64,488) 64,488   (8,988) 26,488  (64,488)
Gain on litigation settlement — —  (371,057)
Loss on disposal of equipment 889 4,827 —  3,494 889 4,827 
Termination of annuity liability —  (102,909) —  — —  (102,909)
Changes in assets and liabilities, impacting cash from operations:  
Accounts receivable  (867,701) 327,072  (360,120)  (9,154,571)  (867,701) 327,072 
Prepaid expenses and other  (143,552) 229,498 59,930   (129,850)  (143,552) 229,498 
Trading securities  (1,018,428)  (200,908) 672,202   (1,741,825)  (1,018,428)  (200,908)
Accounts payable and accrued expenses 1,148,177 391,785  (484,635) 6,125,508 1,148,177 391,785 
              
Total adjustments  (460,351) 503,286 86,304   (4,979,380)  (460,351) 503,286 
              
Net cash provided by operations 986,120 2,669,928 128,916  5,455,982 986,120 2,669,928 
              
Cash Flow from Investing Activities  
Purchase of property and equipment  (67,634)  (145,548)  (30,335)  (510,804)  (67,634)  (145,548)
Purchase of available-for-sale securities —  (200,520)  (139,866)  (8,420) —  (200,520)
Proceeds on sale of available-for-sale securities — 315,740 317,671  784,277 — 315,740 
              
Net cash (used in) provided by investing activities  (67,634)  (30,328) 147,470  265,053  (67,634)  (30,328)
              
Cash Flow from Financing Activities  
Payments on annuity —  (9,564)  (9,683) — —  (9,564)
Payments on note payable —  (956,560)  (64,646) — —  (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 77,984 68,203 36,899  304,624 77,984 68,203 
Purchase of treasury stock  (13,968)  (72,246)  (65,649)  (215,196)  (13,968)  (72,246)
              
Net cash provided by (used in) financing activities 64,016  (970,167)  (103,079) 520,830 64,016  (970,167)
       
        
Net Increase in Cash and Cash Equivalents 982,502 1,669,433 173,307  6,241,865 982,502 1,669,433 
Beginning Cash and Cash Equivalents 2,831,676 1,162,243 988,936  3,814,178 2,831,676 1,162,243 
              
Ending Cash and Cash Equivalents $3,814,178 $2,831,676 $1,162,243  $10,056,043 $3,814,178 $2,831,676 
              
  
Supplemental Disclosures of Cash Flow Information  
Cash paid for interest $81 $73,145 $82,945  $— $81 $73,145 
 
Cash paid for income taxes $645,251 $29,095 —  $1,753,000 $645,251 $29,095 
Non-cash Transaction 
Re-registration of private client investment — — $581,000 
The accompanying notes are an integral part of these financial statements.

2328

Notes to Consolidated Financial Statements
Note 1. Organization
U.S. Global Investors, Inc. (Company(the “Company” or U.S. Global)“U.S. Global”) serves as investment adviser and transfer agent to U.S. Global Investors Funds (USGIF)(“USGIF”) and U.S. Global Accolade Funds (USGAF)(“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, itsthe 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)(“USSI”), A&B Mailers, Inc. (A&B)(“A&B”), and U.S. Global Brokerage, Inc. (USGB)(“USGB”).
The Company formed two limited liability companiessubsidiaries utilized primarily for corporate investment purposes: U.S. Global Investors (Guernsey) Limited (USGG), which was incorporated in Guernsey on August 20, 1993 and U.S. Global Investors (Bermuda) Limited (USBERM) which was incorporated in Bermuda on June 15, 2005.
Note 2. Significant Accounting Policies
Principles of Consolidation.The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, A&B, USGG, USBERM, and USGB.
All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes.
Cash and Cash Equivalents.Cash and cash equivalents include highly liquid investments with original maturities of three months or less.
Due from Brokers.The Company conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The due from brokers balance represents cash balances with these brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances owed the Company. Management monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote.
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-

24

for-saleavailable-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.
Mutual FundAdvisory Receivables.Mutual fundAdvisory receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF.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 $26,488$17,500 and $0$26,488 against the receivable balance as of June 30, 2005,2006, and June 30, 2004,2005, 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.The Company accounts for stock-based compensation usingIn December 2004, the intrinsic value method in accordance withFinancial Accounting PrinciplesStandards Board Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations, as allowed under(FASB) issued Statement of Financial Accounting Standards No. 123 “Accounting for Stock-Based Compensation”(revised 2004), “Share-Based Payment” (SFAS 123)123R). In accordance with APB 25,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 recognizedrequired to record compensation expense for stock options where the exercise price equals or exceeds the underlying stock price onall awards granted after the date of grant.adoption and for the unvested portion of previously granted awards that remain outstanding at the date of adoption.

30

The following table illustratesdetails the effect on net income and earnings per share ifhad compensation expense for the Company had appliedemployee stock-based awards been recorded in the prior year ended June 30, 2005, based on the fair value recognitionmethod 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 123:123R. 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,   
 Year Ended June 30,  2006 2005 2004 
 2005 2004 2003        
Net income, as reported $1,446,471 $2,166,642 $42,612  $10,435,362 $1,446,471 $2,166,642 
 
Add: Stock-based employee compensation expense included in reported net income, net of tax 33,000 33,000 36,168  46,135 33,000 33,000 
 
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax  (36,217)  (36,753)  (40,554)  (46,135)  (36,217)  (36,753)
              
 
Pro forma net income (loss) $1,443,254 $2,162,889 $38,226 
       
Pro forma net income $10,435,362 $1,443,254 $2,162,889 
        
Earnings per share:  
Basic and Diluted — as reported $0.19 $0.29 $0.01 
 
Basic and Diluted — pro forma $0.19 $0.29 $0.01 
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 

25

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options’ vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model. During fiscal 2005, 20,000 options were2006, an option for 5,000 shares was granted to employees with a fair value, net of tax, of $30,756.$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 years 2004 or 2003. Subsequent to fiscal year end, a director exercised an option for 10,000 shares.
In December 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R requires a public entity to measure the cost of employee services received in exchange for the award of equity instruments based on the fair value of the award at the date of grant. The cost will be recognized over the period during which an employee is required to provide services in exchange for the award.
The adoption of SFAS 123R will be effective for the Company for fiscal years beginning after June 15, 2005. As discussed above, the Company currently accounts for stock-based compensation using the intrinsic value method in accordance APB 25, which has been superseded by SFAS 123R. The Company is currently evaluating the impact that SFAS 123R will have on the Company’s consolidated financial statements and does not expect the effect to be material.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 mutual fund investment advisory and transfer agency services. Mutual fund investment advisory fees, calculated as a percentage of assets under management, are recorded as revenue as services are performed. 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. A subadvisory client contract provides for a monthly management fee, in addition to a quarterly performance fee based on the overall increase in value of the net assets in the fund. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.

31

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, 2004, and 2003,2004, the Company had capitalized sales materials of approximately $59,000, $48,000, $16,000, and $11,000,$16,000, respectively. Net advertising expenditures were approximately $513,000, $370,000, $373,000, and $242,000$373,000 during fiscal 2006, 2005, 2004, and 2003,2004, 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.

2632

Note 3. Investments
As of June 30, 2005,2006, the Company held investments with a market value of $3.5$4.7 million and a cost basis of $3.3$4.1 million. The market value of these investments is approximately 28.916.3 percent of the Company’s total assets.
The following table summarizes investment activity over the last three fiscal years:
                        
 Year Ended June 30,  Year Ended June 30, 
 2005 2004 2003  2006 2005 2004 
Realized gains (losses) on sale of trading securities $(78,253) $135,789 $(7,583) $305,469 $(78,253) $135,789 
Trading securities, at cost 3,040,700 1,857,171 1,658,058  4,011,961 3,040,700 1,857,171 
Trading securities, at fair value(1)
 2,612,529 1,672,354 723,428  4,659,824 2,612,529 1,672,354 
Net change in unrealized gains (losses) on trading securities (included in earnings)(2)  (243,355) 748,018  (34,308) 1,076,034  (243,355) 748,018 
Available-for-sale securities, at cost 299,055 405,055 406,739  45,444 299,055 405,055 
Available-for-sale securities, at fair value(1)
 890,461 1,212,742 390,251  82,202 890,461 1,212,742 
Gross realized gains on sale of available-for-sale securities — 158,387 178,326  582,475 — 158,387 
Gross realized losses on sale of available-for-sale securities —  (3,406)  (267,836)  (31,572) —  (3,406)
Gross unrealized losses recorded in shareholders’ equity  (76,746)  (180,727)  (44,481)  (3,137)  (76,746)  (180,727)
Gross unrealized gains recorded in shareholders’ equity (2)
 668,152 988,414 27,992  39,896 668,152 988,414 
Losses on available-for-sale securities deemed to have other-than-temporary declines in value  (106,000)  (41,448)  (247,412)  (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 shareholders’ equity in fiscal 20052006 are comprised primarily of the unrealized gain on a single security,four securities, which makes up $611,133$826,240 of the $668,152,$1,076,034, or 91%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  Less Than 12 Months 12 Months or Greater Total 
 Unrealized Unrealized Unrealized  Unrealized Unrealized Unrealized 
Fiscal Year Fair Value Losses Fair Value Losses Fair Value Losses  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  $112,702 $35,953 $51,039 $40,793 $163,741 $76,746 
2004 $150,134 $76,829 $11,860 $103,898 $161,994 $180,727 
The aggregate gross unrealized loss of $76,746$3,137 and $180,727$76,746 at June 30, 20052006 and 2004,2005, respectively, was primarily related to one and three securities.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

2733

receives a fee based on the number of shareholder accounts. Additionally, the Company provides in-house legal services to USGIF and USGAF for which it is reimbursed and receives certain miscellaneous fees directly from USGAF and USGIF shareholders. Fees for providing investment and transfer agent services to USGIF and USGAF continue to be the Company’s primary revenue source.
The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF funds and one USGAF fund through November 1, 2006,2007, and February 28, 2006,2007, 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 $1,509,000, in 2005, 2004, and 2003, respectively.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire in February 20062007 and May 2006,2007, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.
The Company began providing management andprovides advisory services for the Meridian Global Gold and Resources Fund Ltd., anto various offshore fund, in the first quarter of fiscal year 2005.clients. The Company initially had a fee arrangement for these services whereby it receivedgenerally receives a monthly subadvisoryadvisory fee and ana quarterly or annual performance fee, if any, based on the overall increase in value of the net assets in the fund for the calendar year. During the quarter ended March 31, 2005, the arrangement was changed to provide payment and earnings ofan agreed-upon performance fees on a quarterly rather than annual basis.measurement. The Company has recorded subadvisory and performance fees totaling $299,000 for the fiscal year ended June 30, 2005.
Subsequent to fiscal year end,contracts between the Company began providingand the offshore clients expire periodically and management and advisory services toanticipates that its offshore clients will renew the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund. For these services, the Company will be paid a monthly management fee and a quarterly performance fee, if any.
The Company also provided investment management services for a separate client through March 2004. The Company had a fee arrangement whereby it received an annual administrative fee plus a percentage of any gains from the sale of the securities in the client account, payable at the settlement of the sales. The Company recorded $670,000 in revenue from this fee arrangement through March 2004, at which time the agreement was terminated.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,  June 30, 
 2005 2004  2006 2005 
Building and land $2,303,014 $2,275,123  $2,523,623 $2,303,014 
Furniture, equipment, and other 1,773,327 1,734,770  1,678,790 1,773,327 
          
 4,076,341 4,009,893  4,202,413 4,076,341 
Accumulated depreciation  (2,308,007)  (2,198,405)  (2,079,524)  (2,308,007)
          
Net property and equipment $1,768,334 $1,811,488  $2,122,889 $1,768,334 
          

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Note 6. Other Accrued Expenses
Other accrued expenses consist of the following:
                
 June 30,  June 30, 
 2005 2004  2006 2005 
Taxes payable $2,907,266 $181,099 
Omnibus fees $509,185 $137,958  981,524 509,185 
Subadviser fees 295,500 86,322 
Subadvisory fees 642,644 295,500 
Vendors payable 286,880 88,986  286,168 286,880 
Taxes payable 181,099 85,859 
Legal, professional, and consulting fees 127,713 102,497  176,619 127,713 
Other 80,661 41,421  25,514 80,661 
          
Total other accrued expenses $1,481,038 $543,043  $5,019,735 $1,481,038 
          

34

Note 7. Borrowings
The Company had a note payable to a bank until the latter part of fiscal 2004 when the note was paid in full. The note had been secured by land, an office building, and related improvements and was to mature in January 2006. The monthly payment of $10,840 consisted of principal and interest based on a fixed rate of 6.5%. As of June 30, 2005,2006, 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, 2005,2006, 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 20062007 through 2009. Total lease expenses were $416,491, $360,778, $245,776, and $188,558$245,776 in fiscal years 2006, 2005, 2004, and 2003,2004, respectively. Future minimum lease payments required under these leases are as follows:
        
Fiscal Year Amount  Amount 
2006 $79,813 
2007 76,800  $153,384 
2008 52,370  58,752 
2009 8,673  8,673 
      
Total $217,656  $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, $51,523, and $46,918$51,523 for fiscal years 2006, 2005, 2004, and 2003,2004, respectively.
The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company haspaid 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 2004, and 2003.2004.
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 children’s education.minor relatives. The Company match, reflected in base salary expense, aggregated in all programs to $61,061, $54,616, $50,903, and $52,983$50,903 in fiscal years 2006, 2005, and 2004, and 2003, respectively.

29

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, 2004, and 2003,2004, employees purchased 15,127; 28,180;12,881, 15,127 and 20,51028,180 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, 2005.2006.

35

Note 10. Shareholders’ Equity
On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5 percent of the Company’s after-tax prior year net earnings. The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share. In the event of a full liquidation, the total liquidation preference of the holders of the class A stock would be $315,824,$320,149, based on shares outstanding at June 30, 2005.2006.
During fiscal year 1999, the Boardboard of Directorsdirectors of the Company approved the issuance of 1,000,000 shares of class C common stock to Frank Holmes (Holmes) in exchange for services and cancellation of the option to purchase 400,000 shares of class C common stock held by Holmes and the cancellation of warrants to purchase 586,122 shares of class C common stock held by Holmes and F.E. Holmes Organization, Inc. The 1,000,000 shares vest over a ten-year period beginning July 1, 1998, and will vest fully on June 30, 2008, or in the event of Holmes’ death, and were valued at $.50 per share for compensation purposes. The agreement was executed on August 10, 1999. At June 30, 2005,2006, the unvested balance of this deferred compensation arrangement is $150,000$100,000 and is included in additional paid-in capital as a contra account.capital.
During the fiscal years ended June 30, 2006, 2005, 2004, and 20032004 the Company purchased 17,050, 2,980, 16,741, and 40,12716,741 shares, respectively, of its class A common stock at an average price of $12.62, $4.69, $4.32, and $1.64,$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 yearsyear ended June 30, 2004, and 2003, the Company granted 15,000 and 3,000 shares respectively, of class A common stock to certain employees at a weighted average fair value on grant date of $1.77 and $1.60, respectively.
In March 1985, the board of directors adopted an Incentive Stock Option Plan (1985 Plan), amended in November 1989 and December 1991, which provides for the granting of options to purchase 200,000 shares of the Company’s class A common stock, at or above fair market value, to certain executives and key salaried employees of the Company and its subsidiaries. Options under the 1985 Plan were granted for a term of up to five years in the case of employees who own in excess of 10 percent of the total combined voting power of all classes of the Company’s stock and up to ten years for other employees. Options issued under the 1985 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Options were granted at prices ranging from $1.50 to $4.50 per share, which equaled or exceeded the fair market value at date of grant. The 1985 Plan expired December 31, 1994; consequently, there will be no further options granted under the 1985 Plan. As of June 30, 2005, no options remain outstanding.$1.77.
In November 1989, the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan)(“1989 Plan”), amended in December 1991, which provides for the granting of options to purchase 800,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. Since adoption of the 1989 Plan, options have been granted at prices ranging from $1.50 to $5.69 per share, which equaled or exceeded the fair market value at date of grant. Options issued under the 1989 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date. Subsequent to fiscal year end, a director exercised an option for 10,000 shares issued under the 1989 plan.

30

In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 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. OnOptions issued prior to fiscal 2005 that were outstanding at June 30, 2006, were 100 percent vested at June 30, 2006. In October 1, 2004, options for 20,000 shares were granted at an exercise price of $3.29 per share and vesting of 50 percent on the first and second anniversary dates. 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.

36

Stock option transactions under the various employee stock option plans for the past three fiscal years are summarized below:
                
 Weighted Weighted 
 Average Average 
 Exercise Exercise 
 Shares Price ($) Shares Price ($) 
Outstanding June 30, 2002
 179,500 1.92 
Granted — — 
Canceled 18,000 1.68 
Exercised — — 
Outstanding June 30, 2003
 161,500 1.94  161,500 1.94 
Granted — —  — — 
   
Canceled 10,000 1.58  10,000 1.58 
Exercised 500 1.82  500 1.82 
      
Outstanding June 30, 2004
 151,000 1.94  151,000 1.94 
Granted 20,000 3.29  20,000 3.29 
Canceled 2,000 2.07  2,000 2.07 
Exercised 4,500 1.63  4,500 1.63 
      
Outstanding June 30, 2005
 164,500 2.11  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, 2004, and 2003,2004, exercisable employee stock options totaled 58,000, 144,500, 144,000, and 144,700144,000 shares and had weighted average exercise prices of $1.80, $1.95, $1.96, and $2.00$1.96 per share, respectively.

31

Class A common stock options outstanding and exercisable under the employee stock option plans at June 30, 2005,2006, were as follows:
                                            
 Options Outstanding Options Exercisable Options Outstanding Options Exercisable
 Weighted Weighted Weighted Weighted
 Date of Remaining Average Average Date of Remaining Average Average
 Option Number Life in Exercise Number Option Option Number Life in Exercise Number Option
 Grant Outstanding Years Price ($) Exercisable Price ($) Grant Outstanding Years Price ($) Exercisable Price ($)
1989
 09/05/95  3,500   .18   2.63   3,500   2.63 
Plan
 05/24/96  10,000   .89   3.06   10,000   3.06 
1989 Plan
 12/03/99  15,000   3.42   1.50   15,000   1.50 
                      
Class A
 06/04/97  20,000   1.92   2.00   20,000   2.00     15,000   3.42   1.50   15,000   1.50 
 12/03/99  15,000   4.42   1.50   15,000   1.50 
                      
    48,500   2.36   2.11   48,500   2.11 
                  
1997
 06/04/97  31,000   1.92   1.82   31,000   1.82  06/04/97  26,000   .92   1.82   26,000   1.82 
Plan
 06/04/97  50,000   1.92   2.00   50,000   2.00  12/03/99  12,000   3.42   1.50   12,000   1.50 
Class A
 12/03/99  15,000   4.42   1.50   15,000   1.50  10/01/04  15,000   8.25   3.29   5,000   3.29 
 10/01/04  20,000   9.25   3.29   —   —  02/24/06  5,000   9.65   15.38   0   15.38 
                                            
    116,000   3.51   2.11   96,000   1.86     58,000   4.09   3.30   43,000   1.90 
                  
All Plans
 12/94 through 12/99  164,500   3.17   2.11   144,500   1.95  12/99 through 02/06  73,000   3.95   2.93   58,000   1.80 
                                            

37

Note 11. Income Taxes
The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is:
                         
  Year Ended June 30, 
      % of      % of      % of 
  2005  Pretax  2004  Pretax  2003  Pretax 
Tax expense (benefit) at statutory rate $760,390   34.0% $966,443   34.0% $10,917   34.0%
Nondeductible membership dues  8,602   0.4%  8,722   0.3%  8,690   27.1%
Nondeductible meals and entertainment  25,291   1.1%  16,807   0.6%  15,091   47.0%
Change in valuation allowance  (34,472)  (1.5%)  (280,921)  (9.9%)  (369,068)  (1149.4%)
Other  30,160   1.3%  (35,212)  (1.2%)  323,868   1008.6%
                   
  $789,971   35.3% $675,839   23.8% $(10,502)  (32.7%)
                   
                         
  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, 
  2005  2004  2003 
Current tax expense $749,347  $71,543  $7,601 
Deferred tax expense (benefit)  49,624   604,296   (18,103)
          
Total tax expense (benefit) $789,971  $675,839  $(10,502)
          
             
  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 
          

32

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,  Year Ended June 30, 
 2005 2004  2006 2005 
Book/tax differences in the balance sheet
  
Trading securities $145,578 $63,448  $(220,273) $145,578 
Prepaid expenses  (145,089)  (97,210)  (167,574)  (145,089)
Accumulated depreciation 12,086 8,012   (22,531) 12,086 
Accrued expenses 80,499 63,044  209,141 80,499 
Available for sale securities 147,680 38,104 
FAS 123R compensation expense 12,136 — 
Available-for-sale securities 58,021 147,680 
Option issued to vendor 5,984 5,984  — 5,984 
          
 246,738 81,382   (131,080) 246,738 
 
Tax carryovers
  
Charitable contributions carryover — 7,696 
Investment tax credit — 34,472 
Alternative minimum tax credits — 133,748 
Capital loss carryover 14,584 — 
          
 246,738 175,916  14,584 — 
          
Total gross deferred tax asset
 246,738 257,298 
Total gross deferred tax asset (liability)
  (116,496) 246,738 
Valuation allowance
 —  (34,472) — — 
          
Net deferred tax asset
 $246,738 $222,826 
Net deferred tax asset (liability)
 $(116,496) $246,738 
          
For federal income tax purposes at June 30, 2005,2006, the Company has no remaining carryovers.$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 ano valuation allowance of $34,472 at June 30, 2004,2006 providing for the utilization of investment tax credits. The valuation allowance was reduced to zero in fiscal 2005 as the credits expired.

38

Note 12. Earnings Per Share
The following table sets forth the computation for basic and diluted earnings per share (EPS):
                        
 Year Ended June 30,  Year Ended June 30, 
 2005 2004 2003  2006 2005 2004 
Basic and diluted net income
 $1,446,471 $2,166,642 $42,612  $10,435,362 $1,446,471 $2,166,642 
 
Weighted average number of outstanding shares
  
Basic 7,479,998 7,469,164 7,460,260  7,515,789 7,479,998 7,469,164 
 
Effect of dilutive securities
  
Employee stock options 84,271 63,970 8,860  57,326 84,271 63,970 
              
Diluted 7,564,269 7,533,134 7,469,120  7,573,115 7,564,269 7,533,134 
       
        
Earnings per share
  
Basic $0.19 $0.29 $0.01  $1.39 $0.19 $0.29 
              
Diluted $0.19 $0.29 $0.01  $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, 2004, and 2003,2004, employee stock options for 0,5,000, 0, and 88,0000 shares, respectively, were excluded from diluted EPS. Additionally, an option issued to a vendor for 20,000 shares was excluded for the years ended June 30, 2005, and June 30, 2004, because it was anti-dilutive as the exercise price was greater than the average share price during the year. The option for 20,000 shares issued to a vendor expired on May 15, 2005.

33

Note 13. Comprehensive Income
The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income.
                        
 Before-Tax Tax Net-of-Tax  Before-Tax Tax   
 Amount Effect Amount  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
  
Unrealized losses on available-for-sale securities $(216,280) $73,535 $(142,745)
Change in unrealized losses on available-for-sale securities $(216,280) $73,535 $(142,745)
              
Other comprehensive income $(216,280) $73,535 $(142,745) $(216,280) $73,535 $(142,745)
              
June 30, 2004
  
Unrealized gains on available-for-sale securities $824,177 $(280,220) $543,957 
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  $824,177 $(280,220) $543,957 
              
June 30, 2003
 
Unrealized gains on available-for-sale securities $45,103 $(15,335) $29,768 
       
Other comprehensive income $45,103 $(15,335) $29,768 
       

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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      Investment     
 Management Corporate    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 
 Services Investment Consolidated    
Year ended June 30, 2005
  
Net revenues (loss) $17,408,377 $(427,038) $16,981,339  $17,408,377 $(427,038) $16,981,339 
              
Net income (loss) before income taxes 2,691,479  (455,037) 2,236,442  2,691,479  (455,037) 2,236,442 
              
Depreciation 109,899 — 109,899  109,899 — 109,899 
              
Interest expense 81 — 81  81 — 81 
              
Capital expenditures 67,634 — 67,634  67,634 — 67,634 
              
Gross identifiable assets at June 30, 2005 8,331,233 3,524,544 11,855,777  8,331,233 3,524,544 11,855,777 
Deferred tax asset 246,738  246,738 
      
Consolidated total assets at June 30, 2005 12,102,515  12,102,515 
      
Year ended June 30, 2004
  
Net revenues 11,979,314 1,004,186 12,983,500  $11,979,314 $1,004,186 $12,983,500 
              
Net income (loss) before income taxes 1,839,764 1,002,717 2,842,481 
       
Depreciation 108,065 — 108,065 
       
Interest expense 72,962 183 73,145 
       
Capital expenditures 145,548 — 145,548 
       
Gross identifiable assets at June 30, 2004 6,428,674 2,885,096 9,313,770 
Deferred tax asset 222,826 
   
Consolidated total assets at June 30, 2004 9,536,596 
   
Year ended June 30, 2003
 
Net revenues (loss) 7,842,828  (363,892) 7,478,936 
       
Net income (loss) before income taxes 427,341  (395,231) 32,110 
Net income before income taxes 1,839,764 1,002,717 2,842,481 
              
Depreciation 121,493 — 121,493  108,065 — 108,065 
              
Interest expense 82,216 729 82,945  72,962 183 73,145 
              
Gain on litigation settlement 371,057 — 371,057  — — — 
              
Capital expenditures 30,335 — 30,335  145,548 — 145,548 
              
Gross identifiable assets at June 30, 2003 5,218,667 1,113,679 6,332,346 
Gross identifiable assets at June 30, 2004 6,428,674 2,885,096 9,313,770 
Deferred tax asset 1,107,341  222,826 
      
Consolidated total assets at June 30, 2003 7,439,687 
Consolidated total assets at June 30, 2004 9,536,596 
      
Note 15. Related Party Transactions
The Company had $4,823,000$12.6 million and $3,045,000$4.8 million at fair value invested in USGIF and USGAF mutual 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 2004, respectively.$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.
TheIn the first quarter of fiscal year 2005, the Company invested $500,000 in an offshore fund (U.S.began providing advisory services for the Meridian Global Investors Balanced NaturalGold and Resources Fund Ltd.) that, 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 will subadvise starting in July 2005.
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. The Company owns a position in Franc-Or Resources at June 30, 2005, with an estimated fair value of approximately $229,000, recorded as a trading security on the balance sheet.
Mr. Holmes also served as an independent director for BCS Global Networks (formerly Broadband Collaborative Solutions), a private company, from May 2000 to June 30, 2002, when the entity became

35

a public company. Mr. Holmes personally owned shares of BCS Global Networks at June 30, 2005. The Company owned a position in BCS Global Networks at June 30, 2005, with an estimated fair value of approximately $42,000 recorded as available for sale on the balance sheet. Subsequent toIn the first quarter of fiscal year end,2006, both the Company and Mr. Holmes sold their holdings in BCS Global Networks in response to a tender offer.offer, with the Company realizing a loss of $31,560.
Note 16. Contingencies and Commitments
Beginning in July 2003,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 Company agreed to maintaincriteria of SFAS No. 5, “Accounting for Contingencies,” through consultation with legal counsel, and a minimum yield on its U.S. Treasury Securities Cash Fund. In order to comply with this arrangement, it may be necessary forloss contingency is recorded if the Company to waive a portioncontingency is probable and reasonably estimable at the date of its management fees. These fee waivers are recorded as incurred. If in future periods the yield exceedsfinancial statements.
During the minimum,normal course of business, the Company may be eligiblesubject to recover previously waived amounts. The amountclaims, legal proceedings, and other contingencies. These matters are subject to various uncertainties, and it is possible that some of fees waived during fiscal years 2005 and 2004 was $0 and $45,136, respectively. Due to the unpredictability of future yields, the Company has not recorded a receivable for this amount in its financial statements.
these matters may be resolved unfavorably. The Company entered into an agreementestablishes accruals for matters for which the outcome is probable and can be reasonably estimated. Management believes that any liability in March 2004 withexcess of these accruals upon the ultimate resolution of these matters will not have a material adverse effect on the consolidated financial consulting company to render advice, disseminate information aboutstatements of the Company, and assist in public relations. The Company paid the consulting company $5,000 per month until the agreement terminated in March 2005.Company.

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The Company entered into an agreement with a telecommunications company, which commenced in August 2004, to provide an e-mail server and a web server. The agreement terminates in July 2007.
Note 17. Selected Quarterly Financial Data (Unaudited)
                 
Fiscal 2005 1st Quarter  2nd Quarter  3rd Quarter  4th Quarter 
(in thousands except per share figures)                
Revenues $2,962  $4,106  $4,884  $5,029 
Expenses $2,631  $3,495  $4,154  $4,465 
Income Before Income Taxes $331  $611  $730  $564 
Net Income $240  $407  $449  $350 
Earnings per Share:                
Basic $0.03  $0.05  $0.06  $0.05 
Diluted $0.03  $0.05  $0.06  $0.05 
Note that some rows may not add to the correct annual total due to rounding.
                                
Fiscal 2004 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 
Fiscal 2006 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter 
(in thousands except per share figures)  
Revenues $2,629 $4,337 $3,217 $2,800  $6,575 $7,761 $11,557 $18,961 
Expenses $1,946 $2,514 $2,870 $2,811  4,859 6,048 7,459 10,620 
Income (Loss) Before Income Taxes $683 $1,823 $347 $(11)
Income Before Income Taxes 1,716 1,713 4,098 8,341 
Net Income $688 $1,248 $240 $(10) 1,095 1,168 2,550 5,622 
Earnings per Share:  
Basic $0.09 $0.17 $0.03  ($0.00) $0.15 $0.16 $0.34 $0.74 
Diluted $0.09 $0.17 $0.03  ($0.00) $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 arewere no changes in andor 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, 2005,2006, was conducted under the supervision and with the participation of management, including ourthe chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that ourthe Company’s disclosure controls and procedures were effective as of June 30, 2005.2006.
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, 2005,2006, 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  5051  ChairmanDirector of the Board of DirectorsCompany 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  6768  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  5960  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.  4546  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  4647  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  4546  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 Securities and Exchange Commission (SEC)SEC initial reports of ownership and reports of changes in ownership of the stock. Directors, officers and more than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file.
To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, 2005,2006, 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, 2005,2006, fiscal year).
                                        
 Long-Term Long-Term
 Compensation  Annual Compensation  Compensation
Annual Compensation Awards 
   (e) Awards
(a) (b) (c) (d) (e) (f)  Other (f)
 Other   
Name and Annual Restricted    Annual Restricted
Principal Position Compen- Stock  (b) (c) (d) Compen- Stock
During FY 2005 Year Salary ($) Bonus ($) sation ($) Awards ($) 
During FY 2006 Year Salary ($) Bonus ($) sation ($) Awards ($)
Frank Holmes 2005  492,040(1) 273,805  —(3)  50,000(2) 2006  488,390(1) 1,617,762  3,375(3)  50,000(2)
Chairman, Chief 2004  485,190(1) 206,640  —(3)  50,000(2) 2005  492,040(1) 273,805  —(3)  50,000(2)
Executive Officer 2003  486,025(1) 110,195  —(3)  50,000(2) 2004  486,190(1) 206,640  —(3)  50,000(2)
 
Susan B. McGee 2005 188,714 213,186  —(3) —  2006 188,714 567,896  163,275(3) — 
President, General 2004 188,714 168,210  —(3) —  2005 188,714 213,186  —(3) — 
Counsel 2003 175,206 64,390  —(3) 6,500  2004 188,714 168,210  —(3) — 
 
Catherine A. Rademacher 2005 96,116 23,630  —(3) —  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, $40,400, and $40,350$40,400 paid by the Company during fiscal year 2006, 2005, 2004, and 2003,2004, 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 suchany 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)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 2004 or 20032004 fiscal years.

4046

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 children’s education.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, 2004, and 2003,2004, employees purchased 15,127; 28,180;12,881, 15,127, and 20,51028,180 shares of treasury stock from the Company, respectively.
Stock Option Plans
In March 1985, the board of directors of the Company adopted an Incentive Stock Option Plan (1985 Plan), giving certain executives and key salaried employees of the Company and its subsidiaries options to purchase shares of the Company’s class A common stock. The 1985 Plan was amended on November 7, 1989 and December 6, 1991. In December 1991, it was amended to provide provisions to cause the plan and future grants under the plan to qualify under the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2005, under this plan, 202,500 options were granted, 88,500 options had been exercised, 114,000 options had expired, and zero options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994.
In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company’s class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by the Compensation Committee consisting of three outside members of the board of directors. The maximum number of             shares of class A common stock initially approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal year ended June 30, 2005,2006, there were no grants. As of June 30, 2005,2006, under this amended plan, 876,700866,700 options had been granted, 403,000426,500 options had been exercised, 425,200 options had expired, and 48,50015,000 options remained outstanding, and 348,500358,500 options are available for grant.
In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It provides for the granting of stock appreciation rights (SARs) and/or options to purchase shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. The 1997 Plan expressly requires that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan is administered by the Compensation Committee consisting of three outside members of the board of directors. The maximum number of             shares of class A common stock initially approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal year ended June 30, 2005,2006, there were two optionswas one option for 10,0005,000 shares each granted. As of June 30, 2005, 260,5002006, 265,500 options had been granted, 12,50075,500 shares had been exercised, 132,000 options had expired, 116,00058,000 options remained outstanding, and 71,50066,500 options are available for grant.

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The following table lists information concerning individual grants of stock options made during the last fiscal year to each of the named executive officers. The Company has intentionally omitted columns (f) and (g) as they are not applicable.
                     
Option/SAR Grants in Last Fiscal Year 
  Number of  Percent of total          
  securities  options/SARs          
  underlying  granted to  Exercise of       
  options/SARS  employees in  base price  Expiration  Grant date 
Name granted (#)  fiscal year  $/Sh  date  present value $ 
Catherine A. Rademacher  10,000   50% $3.29   10/1/2014  $30,756 
The following table shows, as to each of the officers of the Company listed in the cash compensation table, aggregated option exercises during the last fiscal year and fiscal year-end option values. During fiscal year 2005, one option for 10,000 shares was2006, no options were granted to an officer of the Company.
                
(a) (b) (c) (d) (e) 
 Number of                   
 Securities Value of  (d)   
 Underlying Unexercised  Number of (e) 
 Unexercised In-The-Money  Securities Value of 
 Options/SARs Options/SARs  Underlying Unexercised 
 at FY End (#) at FY End ($)  (b) Unexercised In-The-Money 
 Number of        Number of (c) Options/SARs Options/SARs 
 Shares Dollar      Shares Dollar at FY End (#) at FY End ($) 
 Acquired on Value Exercisable/ Exercisable/ 
(a) Acquired on Value Exercisable/ Exercisable/ 
Name Exercise Realized Unexercisable Unexercisable  Exercise Realized Unexercisable Unexercisable 
Frank E. Holmes 0 0 1,000/0 $2,215/$0  1,000 $3,375 0/0 $0/$0 
 
Susan B. McGee 500 $433 51,000/0 $145,615/$0  11,000 $163,275 40,000/0 $778,000/$0 
 
Catherine A. Rademacher 0 0 0/10,000 $0/$15,500  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, 2005, two2006, the three nonemployee directors each received compensation of $62,000, $27,000 and one nonemployee director received compensation of $24,000. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors.
Report on Executive Compensation
The board appointed Messrs. Lydon, Terracina, and Rubinstein as members of the Compensation Committee. There are no compensation committee interlocks to report. The Compensation Committee reviews and recommends to the board, Mr. Holmes’ compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The Compensation Committee also reviews Mr. Holmes’ performance in managing the Company’s securities portfolio, and in overseeing the management of the Company’s client portfolios and determines periodically whether to recommend to the full board to payresults of the Company’s operational earnings. Mr. Holmes receives a cash bonus with respect to such performance. 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

42

common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.
The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation through bonuses or by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive’s contribution.
The Company has utilized option grants under the 1985 Plan, the 1989 Plan and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options

48

have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. The Compensation Committee administers the stock option plans and acts upon recommendations of the board of directors.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, 2000,2001, 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 September 9, 2005,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    Class C Common  
 Shares    Shares  
 Beneficially Percent of  Beneficially Percent of
Name and Address of Beneficial Owner Owned Class (%)  Owned Class (%)
Frank E. Holmes
7900 Callaghan Road
San Antonio, TX 78229		  1,392,211(1)  93.01%
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; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000387,280 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.
Class A Common Stock (Nonvoting Stock)
On September 9, 2005,August 25, 2006, there were 5,999,7146,077,029 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 (%) 
Osmium Partners LLC(1) –San Francisco, California
  302,336(1)  5.04%
Boston Partners Asset Management LLC(2) -Boston, Massachusetts
  314,210(2)  5.23%
Royce & Associates, LLC. – New York, New York(3)
  872,505(3)  14.54%
         
  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 February 8,December 31, 2005, filed with the SEC March 18, 2005.on January 13, 2006.
 
(2) Information is from Schedule 13G13F for period ending December 31, 2004,June 30, 2006, filed with the SEC February 10, 2005.on August 9, 2006.
 
(3) Information is from Schedule 13G13F Amendment Number 2 for the period ending December 31, 2004,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 3, 2005.10, 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 September 9, 2005,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  Class C Class A
 Common Stock Common Stock  Common Stock Common Stock
 Number Number    Number Number  
 of of    of of  
Beneficial Owner Shares % Shares %  Shares % Shares %
Frank E. Holmes, CEO, Director  1,392,211(1)  93.01%  289,343(2)  4.61%  1,392,211(1)  93.01% 99,320  1.63%
 
Thomas F. Lydon, Jr., Director — —  10,000(3)  0.16%
 
Susan B. McGee, President, General Counsel — —  69,604(3)  1.11% — —  54,754(2)  0.90%
 
Catherine A. Rademacher, CFO — — 369  0.01% — —  6,206(3)  0.10%
 
Roy D. Terracina, Director — —  50,100(3)  0.80% — — 20,000  0.33%
 
All directors and executive officers as a 1,392,211  93.01% 419,416  6.68%
group (five persons) 
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; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000387,280 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA.
 
(2) Includes 100,000 shares of class A common stock held by F.E. Holmes Organization, Inc., a corporation wholly owned by Mr. Holmes; 99,376 shares owned directly by Mr. Holmes, 88,667 shares owned by Mr. Holmes in retirement accounts, and 1,300 shares of class A common stock owned separately by Mr. Holmes’ wife. Mr. Holmes disclaims beneficial ownership of these 1,300 shares of class A common stock.
(3)Includes40,000 shares of class A common stock underlying presently exercisable options held directly and 14,754 shares owned directly by each individual as follows: Mr. Lydon – 10,000 shares; Ms. McGee – 50,000 shares;McGee.
(3)Includes 5,000 shares of class A common stock underlying options not presently exercisable and Mr. Terracina – 50,000 shares.1,206 shares owned directly by Ms. Rademacher.

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Equity Compensation Plan Information
                     
 Number of securities  Number of securities 
 remaining available  remaining available 
 for future issuance  for future issuance 
 Number of securities under equity  Number of securities under equity 
 to be issued upon Weighted-average compensation plans  to be issued upon Weighted-average compensation plans 
 exercise of exercise price of (excluding securities  exercise of exercise price of (excluding securities 
 outstanding options, outstanding options, reflected in column  outstanding options, outstanding options, reflected in column 
 warrants and rights warrants and rights (a))  warrants and rights warrants and rights (a)) 
Plan Category (a) (b) (c)  (a) (b) (c) 
Equity compensation plans approved by security holders
 N/A N/A N/A  N/A N/A N/A 
  
Equity compensation plans not approved by security holders
  
1985 Stock Option Plan(1)
 0 — 0 
1989 Stock Option Plan(2)
 48,500 $2.11 348,500 
1997 Non-Qualified Stock Option Plan(3)
 116,000 $2.11 71,500 
Employee Stock Purchase Plan(4)
 N/A N/A 31,693 
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
 164,500 451,693  73,000 446,900 
 
(1)No options may be granted under this plan after December 31, 1994.
(2) Stock options under this plan may be granted to directors, officers, and employees of the Company from authorized but unissued shares or treasury shares.
 
(3)(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.
 
(4)(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, 20052006 and 2004,2005, respectively, rendered by BDO Seidman, LLP.
                
 Fiscal year ended June 30,  Fiscal year ended June 30, 
 2005 2004  2006 2005 
Audit fees(1)
 $109,000 $90,000  $418,335 $117,000 
Audit-related fees (2)
 5,256 6,900  7,490 14,900 
Tax fees(3)
 19,084 14,000  19,210 19,084 
All other fees — —  — — 
          
Total fees $133,340 $110,900  $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. Audit-related fees in fiscal 2005 also include fees for professional services rendered in Guernsey in connection with USGG accounts in the amount of $2,216.
 
(3) Tax fees include the preparation of federal tax returns as well as tax planning and consultation on new tax legislation, regulations, rulings, and developments. These fees in fiscal 2005 also include $7,254 for consultation with Guernsey taxing authorities on operations of USGG.
Audit Committee Pre-Approval Policies
The Audit Committee has established pre-approval policies pursuant to which all audit and auditor- provided non-audit engagement fees and terms must be approved. Pre-approval is generally provided and is detailed as to the particular service or category of services. The Audit Committee is also responsible for considering, to the extent applicable, whether the independent auditors’ provision of other non-audit services to the Company is compatible with maintaining the independence of the independent auditors.
All services provided by BDO Seidman, LLP in the fiscal yearyears ended June 30, 2006 and 2005 were pre-approved by the Audit Committee.

4753

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 FirmsFirm on Consolidated Financial Statements
 
 • Consolidated Balance Sheets as of June 30, 20052006 and 20042005
 
 • Consolidated Statements of Operations and Comprehensive Income for the three years ended June 30, 20052006
 
 • Consolidated Statements of Shareholders’ Equity for the three years ended June 30, 20052006
 
 • Consolidated Statements of Cash Flows for the three years ended June 30, 20052006
 
 • 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).
 
 10.3Sub-Advisory Agreement dated September 21, 1994, by and between Company, Accolade Funds/Bonnel Growth Fund and Bonnel, Inc., incorporated by reference to Exhibit 10.3 of Company’s Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).

48

10.4 Sub-Advisory Agreement dated November 15, 1996, by and between Company, U.S. Global Accolade Funds/MegaTrends Fund, and Money Growth Institute, Inc., incorporated by

54

reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-1A dated June 21, 1996 (EDGAR Accession No. 0000902042-96-000046).
 
 10.510.4 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).
 
 10.610.5 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).
 
 10.710.6 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).
 
 10.810.7 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).
 
 10.910.8 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).
 
 10.1010.9 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).

49

 
 10.16Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).
10.17 Amendment dated February 21, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co.,

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 toof 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 10.22Amendment 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).
 
 10.2310.25 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).
 
 10.2410.26 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, included herein.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.

56

 
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.

50

 
 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 27, 2004,28, 2005, the Company filed a Current Report on Form 8-K dated September 27, 2004,28, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the fiscal year ended June 30, 2004.2005.
 
 (ii)(iii) On November 15, 2004,14, 2005, the Company filed a Current Report on Form 8-K dated November 15, 2004,14, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2004.
(iii)On November 15, 2004, the Company filed a Current Report on Form 8-K/A dated November 15, 2004, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2004 (changes to financial highlights table).2005.
 
 (iv) On February 14, 2005,2006, the Company filed a Current Report on Form 8-K dated February 14, 2005,2006, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended December 31, 2004.2005.
 
 (v) On May 16, 2005,15, 2006, the Company filed a Current Report on Form 8-K dated May 16, 2005,15, 2006, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended March 31, 2005.2006.
(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 28, 200512, 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 September 28, 2005
     
* /s/ Thomas F. Lydon, Jr.    
Thomas F. Lydon, Jr.
 Director September 28, 200512, 2006
     
* /s/ Jerold H. Rubinstein    
Jerold H. Rubinstein
 Director September 28, 200512, 2006
     
* /s/ Roy D. Terracina    
Roy D. Terracina
 Director September 28, 200512, 2006
     
/s/ Catherine A. Rademacher   September 28, 2005
Catherine A. Rademacher
 Chief Financial Officer September 12, 2006
     
*BY: /s/ Susan B. McGee    
Susan B. McGee
   September 28, 200512, 2006
Attorney-in-Fact under Power
of Attorney dated    
September 26, 2001    

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