UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K


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

For the Fiscal Year Ended June 30, ~~2006~~2007


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~~0.025 par value per share)

Registered: NASDAQ Capital Market

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

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 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.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, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filero Accelerated filerþ Non-accelerated filero

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

Yeso Noþ

Part I of Annual Report on Form 10-K

Item 1. Business

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

		U.S. Global 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, is a registered investment adviser under the Investment Advisers Act of 1940. The Company 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”), 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. 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; (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, the Company provides investment advisory services to several offshore institutional clients.

		~~Lines of Business~~

		~~Investment Management Services~~

		~~Investment Advisory Services.~~~~The Company furnishes an investment program for each of the mutual funds~~Lines of Business Investment Management Services Investment Advisory Services.The Company furnishes an investment program for each of the clients it manages and determines, subject to overall supervision by the applicable board of trustees of the clients, the clients’ investments pursuant to advisory agreements (the “Advisory Agreements”). Consistent with the investment restrictions, objectives and policies of the particular client, the portfolio team for each client 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 USGIF and USGAF, subject to the control of the boards of trustees. It provides office space, facilities, and certain business equipment as well as the services of executive and clerical personnel for administering the affairs of the mutual funds. U.S. Global and its affiliates compensate all personnel, officers, directors, and interested trustees of the funds if such persons are also employees of the Company or its affiliates. However, the funds are required to reimburse the Company for a portion of the compensation of the Company’s employees who perform certain state and federal securities law regulatory compliance work on behalf of the funds based upon the time spent on such matters. The Company is responsible for costs associated with marketing fund shares to the extent not otherwise covered by a fund distribution plan adopted pursuant to Investment Company Act Rule 12b-1 (“12b-1 Plan”). As required by the Investment Company Act of 1940, the Advisory Agreements with USGIF and USGAF are subject to annual renewal and are terminable upon 60-day notice. The boards of trustees of the funds, the funds’ investments pursuant to advisory agreements (the “Advisory Agreements”). Consistent with the investment restrictions, objectives and policies of the particular fund, the portfolio team for each fund determines what investments should be purchased, sold and held, and makes changes in the portfolio deemed to be necessary or appropriate. In the Advisory Agreements, the Company is charged with seeking the best overall terms in executing portfolio transactions and selecting brokers or dealers.

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

		~~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 meet to consider renewal of ~~the applicable agreements in February and May 2007, respectively. Management anticipates that~~ the applicable agreements in February and May 2008, respectively. Management anticipates that these Advisory Agreements will be renewed.

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

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

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

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

		The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF in February and May 2007, respectively, and management anticipates that the agreements will be renewed.

		~~Brokerage Services.~~The Company has registered its wholly owned subsidiary, U.S. Global Brokerage, Inc. (“USGB”), with the National Association of Securities Dealers (“NASD”), the Securities and Exchange Commission (“SEC”), and appropriate state regulatory authorities as a limited-purpose broker/dealer for the purpose of distributing USGIF and USGAF fund shares. Effective September 3, 1998, USGB became the distributor for USGIF and USGAF fund shares. For the fiscal year ended June 30, 2006, the Company capitalized USGB with approximately $8,054,000 to cover the costs associated with continuing operations.

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

		~~Corporate Investments~~

		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.; the Meridian Global Energy and Resources Fund; the U.S. Global Investors Balanced Natural Resources Fund, Ltd.; and Endeavour Mining Capital Corporation’s equity investment portfolio. 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, 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, but are not limited to, the following: (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, certain annual and activity-based fees 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. The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The transfer agency agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF on an annual basis, and management anticipates that the transfer agency 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 Financial Industry Regulatory Authority (“FINRA”), 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, 2007, the Company capitalized USGB with approximately $3,085,000 to cover the costs associated with continuing operations. Mailing Services.A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. A&B Mailers’ primary customers include the Company in connection with its efforts to promote the funds and the Company’s investment company clients in connection with required mailings. Corporate Investments Investment Activities.In addition to providing management and advisory services, the Company is actively engaged in trading for its own account.

Employees

		~~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~~

		As of June 30, 2007, U.S. Global and its subsidiaries employed 76 full-time employees and 6 part-time employees; as of June 30, 2006, it employed 77 full-time employees and 1 part-time employee. The Company considers its relationship with its employees to be good. Competition The mutual fund industry is highly competitive. According to the Investment Company Institute, at the end of 2006 there were 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. USGAF is a trust with no-load funds that has adopted a 12b-1 plan. 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 broker-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. 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. Furthermore, the Company acts as an investment adviser to four offshore funds. Despite the Company’s expertise in gold mining and exploration and natural resources, the Company faces the same obstacle many advisers face, namely uncovering undervalued investment opportunities as the markets face further uncertainty and increased volatility. In addition, the growing number of alternative investments, especially in specialized areas, has created pressure on the profit margins and increased competition for available investment opportunities. Supervision and Regulation The Company, USSI, USGB, and the investment companies it manages and administers operate under certain laws, including federal and state securities laws, governing their organization, registration, operation, legal, financial, and tax status. Among the penalties for violation of the laws and regulations applicable to the Company and its subsidiaries are fines, imprisonment, injunctions, revocation of registration, and certain additional administrative sanctions. Any determination that the Company or its management has violated applicable laws and regulations could have a material adverse effect on the business of the Company. Moreover, there is no assurance that changes to existing laws, regulations, or rulings promulgated by governmental entities having jurisdiction over the Company and the funds will not have a material adverse effect on its business. The Company has no control over regulatory rulemaking or the consequences it may have on the mutual fund industry.

		Recent and accelerating regulatory pronouncements and oversight have significantly increased the burden of compliance infrastructure with respect to the mutual fund industry and the capital markets. This momentum of new regulations has contributed significantly to the costs of managing and administering mutual funds.

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

		~~Relationships with the Funds~~

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

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 and investment advisory industry.

Recent and accelerating regulatory pronouncements and oversight have significantly increased the burden of compliance infrastructure with respect to the mutual fund industry and the capital markets. This momentum of new regulations has contributed significantly to the costs of managing and administering mutual funds.

U.S. Global is a registered investment adviser subject to regulation by the SEC pursuant to the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Securities Exchange Act of 1934 (“1934 Act”). USSI is also subject to regulation by the SEC under the 1934 Act. USGB is subject to regulation by the SEC under the 1934 Act and regulation by the NASD/FINRA, 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/FINRA 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 Clients

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.

In addition, the Company is also dependent on its relationships with its four offshore clients. Even though the Company views its relationship with the four offshore clients as stable, the Company could be adversely affected if these relationships ended.

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~~*A decline in securities markets could lead to a decline in revenues.* Changes in economic or market conditions may adversely affect the profitability, performance of and demand for the Company’s investment products and services. 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. *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. *Investment advisory fees are a significant portion of revenue and may be negatively affected by decreases in assets under management.* Changes which may negatively impact assets under management, and thus, the Company’s revenue, profitability and ability to grow include market depreciation, redemptions from shareholder accounts and terminations of client accounts. *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/FINRA, 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 six 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.

~~Part II of Annual Report on~~Part II of Annual Report on Form 10-K

Item 5. Market for Company’s Common Equity, ~~and~~ Related Shareholder Matters and Issuer Purchases of Equity Securities

		~~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.

Market Information

The Company has three classes of common equity: class A, class B and class C common stock, par value $0.025 per share.

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

~~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~~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, 2007, and 2006. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission.

Sales Price (Restated for Stock Split in March 2007)


	2007				2006
	High ($)		Low ($)		High ($)		Low ($)
First quarter (9/30)		17.41		8.77		3.46		2.30
Second quarter (12/31)		36.31		11.28		8.25		3.05
Third quarter (3/31)		34.95		17.49		10.00		5.96
Fourth quarter (6/30)		34.90		19.98		14.07		7.38

Holders

On August 24, 2007, there were approximately 219 holders of record of class A common stock, no holders of record of class B common stock, and 59 holders of record of class C common stock.

Dividends

On March 29, 2007, a two-for-one stock split became effective and shareholders of record were paid a $.25 per share dividend (post-split). On May 31, 2007, the board of directors authorized a dividend of $.01 per share per month beginning in June 2007. The monthly dividend is authorized through December 2007 and will be considered for continuation at that time by the board. Prior to that, the Company had not paid cash dividends on its class C common stock during the previous twenty-two fiscal years and had never paid cash dividends on its class A common stock. Payment of cash dividends is within the discretion of the Company’s board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.

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

		~~Purchases of equity securities by the issuer~~

		The 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.

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.

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

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, 2007. There were no repurchases of class B or class C common stock during the fiscal year. Amounts have been restated to reflect the stock split that occurred in March 2007.

Issuer Purchases of Equity Securities
Fiscal Year Ended 6/30/07


	Total						Total Number of	Maximum Number of
	Number of		Total		Average		Shares Purchased as	Shares that May
	Shares		Amount		Price Paid		Part of Publicly	Yet Be Purchased
Period	Purchased		Purchased		Per Share		Announced Plan	Under the Plan
07-01-06 to 07-31-06		—	$	—	$	—	N/A	N/A
08-01-06 to 08-31-06		88		1,005		11.41	N/A	N/A
09-01-06 to 09-30-06		264		4,340		16.44	N/A	N/A
10-01-06 to 10-31-06		—		—		—	N/A	N/A
11-01-06 to 11-30-06		16,304		413,847		25.38	N/A	N/A
12-01-06 to 12-31-06		8,908		288,494		32.39	N/A	N/A
01-01-07 to 01-31-07		—		—		—	N/A	N/A
02-01-07 to 02-28-07		70		1,545		22.07	N/A	N/A
03-01-07 to 03-31-07		—		—		—	N/A	N/A
04-01-07 to 04-30-07		4,000		127,480		31.87	N/A	N/A
05-01-07 to 05-31-07		—		—		—	N/A	N/A
06-01-07 to 06-30-07		—		—		—	N/A	N/A

Total		29,634	$	836,711	$	28.23	N/A	N/A


Item 6.		~~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, 2007, 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, 2003, and the year then ended is derived from the Company’s Consolidated Financial Statements. Earnings per share have been restated for prior years to reflect the stock split that occurred in March 2007.


Selected	Year ended June 30,
Financial Data	2007			2006		2005			2004			2003
Revenues	$	58,603,637		$	44,853,588	$	16,981,339		$	12,983,500		$	7,478,936
Expenses		37,257,889			28,986,248		14,744,897			10,141,019			7,817,883

Income (loss) before gain on litigation settlement and income taxes		21,345,748			15,867,340		2,236,442			2,842,481			(338,947	)
Gain on litigation settlement		—			—		—			—			371,057
Income tax expense (benefit)		7,586,499			5,431,978		789,971			675,839			(10,502	)

Net income		13,759,249			10,435,362	$	1,446,471		$	2,166,642		$	42,612
Basic income per share		0.91			0.69		0.10			0.15			0.00
Working capital		27,925,318			18,275,909		7,078,554			5,267,573			3,562,885
Total assets		39,793,113			29,046,853		12,102,515			9,356,596			7,439,687
Long-term obligations		—			—		—			—			988,536
Dividends per common share¹		0.26			—		—			—			—
Shareholders’ equity		31,095,202			20,543,211		9,903,088			8,485,346			5,673,689
Net cash provided by operations		8,817,821			5,482,567		986,120			2,669,928			128,916
Net cash provided by (used in) investing activities		(746,787	)		265,053		(67,634	)		(30,328	)		147,470
Net cash provided by (used in) financing activities		(3,272,657	)		494,245		64,016			(970,167	)		(103,079	)


¹		A special dividend of $.25 per share (post-split) was paid on March 29, 2007, when a two-for-one stock split became effective. Subsequently, the board of directors authorized a dividend of $.01 per share per month beginning in June 2007.


Item 7.		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 )
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, 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 USGIF, USGAF and four 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, 2007, the Company held approximately $7.2 million in investments, comprising 18.1% 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 2007, average assets under management for the SEC-registered funds increased 33.9% to $4.6 billion, primarily due to significant increases in the natural resource and foreign equity funds under management through both net inflows and market appreciation.


Average Assets under Management
(Dollars in Millions)
	2007		2006		% Change			2006		2005		% Change
USGIF — Money Market	$	564	$	526		7.2	%	$	526	$	547		(3.8	%)
USGIF — Other		2,558		1,630		56.9	%		1,630		721		126.1	%

USGIF — Total		3,122		2,156		44.8	%		2,156		1,268		70.0	%
USGAF		1,488		1,286		15.7	%		1,286		505		154.7	%

Total SEC-Registered Funds		4,610		3,442		33.9	%		3,442		1,773		94.1	%
Other Advisory Clients		236		61		286.9	%		61		4		1425.0	%

Total Average Assets Under Management	$	4,846	$	3,503		38.3	%	$	3,503	$	1,777		97.1	%

1012

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

		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.

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.

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 %

		~~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.

		As of June 30, 2007, and 2006, the Company held approximately $2.0 million and $1.6 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:

Revenues

~~Revenues~~


(Dollars in Thousands)	2007		2006		% Change			2006		2005			% Change
Investment advisory fees:
USGIF — Money market	$	1,776	$	1,687		5.3	%	$	1,687	$	1,638			3.0	%
USGIF — Other		16,296		11,068		47.2	%		11,068		6,010			84.2	%

USGIF — Total		18,072		12,755		41.7	%		12,755		7,648			66.8	%
USGAF		18,350		15,767		16.4	%		15,767		6,059			160.2	%
Other advisory fees		13,095		8,622		51.9	%		8,622		299			2783.5	%

Total investment advisory fees		49,517		37,144		33.3	%		37,144		14,006			165.2	%
Transfer agent fees		7,537		5,332		41.4	%		5,332		3,187			67.3	%
Investment income (loss)		1,357		2,203		(38.4	)		2,203		(351	)		727.7	%
Other revenues		193		175		10.3	%		175		139			25.9	%


Total	$	58,604	$	44,854		30.7	%	$	44,854	$	16,981			164.1	%

(Dollars in Thousands) 2006 2005 % Change 2005 2004 % Change
Investment advisory fees:
USGIF – Money market $ 1,687 $ 1,638 3.0 % $ 1,638 $ 1,744 (6.1 )%
USGIF – Other 11,068 6,010 84.2 % 6,010 4,668 28.7 %

USGIF – Total 12,755 7,648 66.8 % 7,648 6,412 19.3 %
USGAF 15,767 6,059 160.2 % 6,059 2,097 188.9 %
Other advisory fees 8,622 299 2783.5 % 299 670 (55.4 )%

Total investment advisory fees 37,144 14,006 165.2 % 14,006 9,179 52.6 %
Transfer agent fees 5,332 3,187 67.3 % 3,187 2,610 22.1 %
Investment income (loss) 2,203 (351 ) 727.7 % (351 ) 1,023 (134.3 )%
Other revenues 175 139 25.9 % 139 171 (18.7 )%

Total $ 44,854 $ 16,981 164.1 % $ 16,981 $ 12,983 30.8 %

As a percentage of total revenues, SEC-registered mutual fund advisory fees account for 62%, offshore investment advisory fees constitute 22%, transfer agent fees account for 13%, and investment income and miscellaneous income together make up the remaining 3%.

		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.

		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 2007 accounted for 74% of the Company’s total advisory fees, and offshore investment advisory fees, which accounted for 26% 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 $7.9 million, or 28%, in fiscal 2007 over fiscal 2006. 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, in particular the money market and fixed income funds, through November 1, 2007, and February 28, 2008, respectively, or such later date as the Company determines for purposes of enhancing the funds’ competitive market positions. The aggregate amount of fees waived and expenses borne by the Company totaled approximately $1,178,000, $1,181,000, and $1,332,000, in 2007, 2006, and 2005, respectively. The Company expects to continue to waive fees and/or pay for fund expenses if market and economic conditions warrant. However, subject to the Company’s commitment to certain funds with respect to fee waivers and expense limitations, the Company may reduce the amount of fund expenses it is bearing. Mutual fund investment advisory fees are also affected by changes in assets under management, which include:

	•		market appreciation or depreciation;

	•		the addition of new client accounts;

	•		client contributions of additional assets to existing accounts;

	•		withdrawals of assets from and termination of client accounts;

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

	•		the amount of fees voluntarily reimbursed.

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

		~~In the first quarter of fiscal year 2005, the Company began providing~~Offshore investment advisory fees increased by $4.5 million, or 52%, in fiscal 2007 compared to fiscal 2006. Due to potential market volatility, performance fees are subject to fluctuation and are not necessarily predictive of future revenue. The Company provides 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 ~~receives a monthly~~

1415

recorded fees totaling $1,690,321 and $1,353,454 for the years ended June 30, 2007, and 2006, respectively.

		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.

		In August 2006, the Company began providing advisory services for the Meridian Global Energy 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 $222,981 for the year ended June 30, 2007. The Company provides 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 $140,717 and $212,828 for the years ended June 30, 2007, and 2006, respectively. The Company provides advisory services to Endeavour Mining Capital Corp., a Cayman corporation traded on the Toronto Stock Exchange. 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 $11,041,050 in advisory fees from Endeavour comprised of $8,994,074 in annual performance fees and $2,046,976 in monthly advisory fees for the year ended June 30, 2007. The Company recorded a total of $7,055,267 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 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 Policies. Transfer Agent Fees.United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency 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. Effective April 1, 2007, the transfer agency agreement between USSI and the funds was amended to incorporate transaction- and activity-based fees. 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, significantly affected by the number of client accounts. The increase in transfer agent fees in fiscal years 2007 and 2006 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 and the result of the revised fee structure which incorporated transaction- and activity-based fees. Investment Income.Investment income (loss) from the Company’s investments includes:

	•		realized gains and losses on sales of securities;

	•		unrealized gains and losses on trading securities;

	•		realized foreign currency gains and losses;

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

	•		dividend and interest income.

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

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

Investment income decreased by $847,000 in fiscal 2007 compared to fiscal 2006. This decrease can be attributed primarily to a $91,000 decrease in realized gains on corporate investments and a $1.4 million decrease in unrealized gains on corporate investments, offset by a $605,000 increase in dividend and interest income. Included in investment income were other-than-temporary impairments of $0, $28,655 and $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 ending 2007, 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.~~

		~~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:~~

The increase in investment income of $2.6 million in fiscal 2006 compared to fiscal 2005 was primarily attributable to a $935,000 increase in realized gains and a $1.3 million increase in unrealized gains on corporate investments.

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 — —

Expenses

		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.


(Dollars in Thousands)	2007		2006		% Change			2006		2005		% Change
Employee compensation and benefits	$	12,560	$	10,359		21.2	%	$	10,359	$	5,891		75.8	%
Subadvisory fees		8,935		7,619		17.3	%		7,619		2,720		180.1	%
General and administrative		7,482		5,460		37.0	%		5,460		3,821		42.9	%
Omnibus fees		7,528		4,882		54.2	%		4,882		1,833		166.3	%
Advertising		509		513		(0.8	)%		513		370		38.7	%
Depreciation		244		153		59.5	%		153		110		39.0	%

Total	$	37,258	$	28,986		28.5	%	$	28,986	$	14,745		96.6	%

Employee Compensation and Benefits.Employee compensation and benefits increased by $2.2 million, or 21%, in 2007 and $4.5 million, or 75.8%, in fiscal 2006, primarily due to incentive bonuses associated with strong mutual fund performance, mutual fund asset growth, strong offshore advisory client 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 $1.3 million and $4.9 million in fiscal years 2007 and 2006, respectively, resulted primarily from growth in assets in the Eastern European Fund.

General and Administrative.The increase in general and administrative expenses of $2.0 million, or 37%, in fiscal year 2007, resulted primarily from increased consulting, legal, audit and accounting fees. The increase in general and administrative expenses of $1.6 million, or 42.9%, in fiscal year 2006 is primarily attributable to increased consulting, auditing and accounting fees primarily related to first-year implementation of Sarbanes-Oxley and other compliance 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 $2.6 million and $3.0 million during fiscal years 2007 and 2006, 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 was essentially flat in fiscal 2007 and increased approximately $143,000 in fiscal 2006.

Depreciation.Depreciation expense increased by $91,000 in fiscal year 2007 and $43,000 in fiscal 2006 as a result of a slight increase in capital purchases.

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, 2007, the Company has no 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. Management included no valuation allowance at June 30, 2007.

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

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

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

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

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

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

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

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

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

Contractual Obligations

A summary of contractual obligations of the Company as of June 30, 2007, is as follows:


	Payments due by period
			Less than		1 — 3		3 — 5		More than
Contractual Obligations	Total		1 year		Years		years		5 years
Operating Lease Obligations	$	97,185	$	88,512	$	8,673	$	—		—
Contractual Obligations		200,000		60,000		120,000		20,000		—

Total	$	297,185	$	148,512	$	128,673	$	20,000		—

Operating leases consist of telephone equipment, printers, and copiers leased from several vendors. Contractual obligations consist of agreements to fund educational programs. Other contractual obligations not included in this table 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.

The Company’s board of directors also approved a dividend of $.01 per share per month to stockholders beginning in June 2007. The monthly dividend is authorized through December 2007 and will be considered for continuation at that time by the board. The total amount of cash dividends to be paid to class A and class C shareholders from July 2007 to December 2007 will be approximately $942,000.

Liquidity and Capital Resources

At fiscal year end, the Company had net working capital (current assets minus current liabilities) of approximately $27.9 million and a current ratio (current assets divided by current liabilities) of 4.2 to 1. With approximately $14.9 million in cash and cash equivalents and $7.2 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $31.1 million, with cash, cash equivalents, and marketable securities comprising 55.4% 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 March 1, 2008, and June 1, 2008, 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 Policies

The discussion and analysis of financial condition and results of operations are based on the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses. Management reviews these estimates on an on-going basis. Estimates are based on experience and on various other assumptions that the Company believes to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. While significant accounting policies are described in more detail in Note 2 to the consolidated financial statements, the Company believes the accounting policies that require management to make

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

		assumptions and estimates involving significant judgment are those relating to valuation of security investments, income taxes and valuation of stock-based compensation. Security Investments.The Company accounts for its investments in securities in accordance with SFAS No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” In accordance with SFAS No. 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 or mortgage-backed 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 or mortgage-backed securities. Investments classified as neither trading securities nor held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, reported net of tax as a separate component of shareholders’ equity, and recorded in earnings on the date of sale. The Company evaluates its investments for other-than-temporary declines in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an extended period of time. For available-for-sale securities with declines in value deemed other than temporary, the unrealized loss recorded net of tax in accumulated other comprehensive income is realized as a charge to net income. The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale. Valuation of Investments.Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but for which there was no trade on or near the balance sheet date, are valued at the mean price between the last price bid and last price asked. Securities for which quotations are not readily available are valued at management’s estimate of fair value. Taxes.The Company accounts for income taxes in accordance with 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. Stock-Based Compensation. In December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R eliminated 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 required that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123R established fair value as the measurement objective in accounting for share-based payment arrangements and required 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

		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 and is provided for by the contract terms. The Company recorded $8,994,074 in annual performance fees and $2,046,976 in advisory fees for the year ended June 30, 2007. Related Party Transactions The Company had $19.9 million and $12.6 million at fair value invested in USGIF, USGAF, and offshore funds the Company advises included in the balance sheet in cash and cash equivalents and trading securities at June 30, 2007, and 2006, respectively. The Company recorded $883,247 in dividend income and $170,388 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. The Company provides 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 $1,690,321 and $1,353,454 for the years ended June 30, 2007 and 2006, 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 August 2006, the Company began providing advisory services for the Meridian Global Energy 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 $222,981 for the year ended June 30, 2007. Mr. Holmes is a director of Meridian Global Energy and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund. In addition, the Company has an investment in the fund at June 30, 2007 with an estimated fair value of approximately $600,490. The Company provides 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 $140,717 and $212,828 for the years ended June 30, 2007 and 2006, respectively. Mr. Holmes is a director of U.S. Global Investors Balanced Natural Resources Fund Ltd. The Company also owns a position in the fund at June 30, 2007, with an estimated fair value of approximately $760,845. The Company provides investment advisory services to Endeavour Mining Capital Corp., a Cayman corporation traded on the Toronto Stock Exchange. 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 $11,041,050 in advisory fees from Endeavour comprised of $8,994,074 in annual performance fees and $2,046,976 in monthly advisory fees for the year ended June 30, 2007. The Company recorded a total of $7,055,267 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. 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.

advisory client are calculated and recorded only once a 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 Policies. Mr. Holmes is Chairman of the Board of Directors of Endeavour Mining Capital Corp.

The Company owns a position in Charlemagne Capital Limited at June 30, 2007, with an estimated fair value of approximately $739,977, recorded as an available-for-sale security. Charlemagne Capital specializes in emerging markets and is the subadviser to the Eastern European Fund and Global Emerging Markets Fund, two series in USGAF.

Recent Accounting Pronouncements

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, “Fair Value Measurements” (“FAS No. 157”). FAS No. 157 establishes a single authoritative definition of fair value, sets out a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. FAS No. 157 applies only to fair value measurements that are already required or permitted by other accounting standards. Accordingly, FAS No. 157 does not require any new fair value measurements. FAS No. 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the impact, if any, that adopting SFAS No. 157 will have on its financial position and results of operation.

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 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.

In September 2006, the SEC issued Staff Accounting Bulletin (SAB) Topic 1N,Financial Statements — Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements(“SAB 108”). SAB 108 addresses how the effects of prior-year uncorrected misstatements should be taken into consideration when quantifying misstatements in current-year financial statements. It requires quantification of misstatements using both the balance sheet and income statement approaches and evaluation of whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors. SAB 108 does not change the SEC’s previous guidance on evaluating the materiality of misstatements. When the effect of initial adoption is determined to be material, the guidance allows registrants to record that effect as a cumulative-effect adjustment to beginning-of-year retained earnings. The requirements are effective for annual financial statements covering the first fiscal year ending after November 15, 2006. The adoption of SAB 108 did not have a material impact on the Company’s financial position, results of income or cash flows.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

		~~Market Risk Disclosures~~

		The Company’s balance sheet includes assets whose fair value is subject to market risks. Due to the Company’s investments in equity securities, equity price fluctuations represent a market risk factor affecting the Company’s consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management’s estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the subsequent sale of an investment may differ significantly from the reported market value. The Company’s investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients. The Company has in place a code of ethics that addresses the trading activity by the Company. Written procedures are also in place to manage compliance with the code of ethics.

		~~The table below summarizes the Company’s equity price risks as of June 30, 2006, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.~~

Market Risk Disclosures

Increase
Estimated Fair (Decrease) in
Hypothetical Value After Shareholders’
Fair Value at June 30, Percentage Hypothetical Equity, Net
2006 ($) Change Price Change ($) of Tax ($)
Trading securities¹
4,659,824 25% increase 5,824,780 768,871
25% decrease 3,494,868 (768,871 )
Available-for-sale²
82,202 25% increase 102,753 13,563
25% decrease 61,652 (13,563 )
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 certain investment advisory clients. Written procedures are in place to manage compliance with the code of ethics.

The table below summarizes the Company’s equity price risks as of June 30, 2007, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.


				Estimated Fair		Increase (Decrease)
				Value After		in Shareholders’
	Fair Value at		Hypothetical	Hypothetical Price		Equity, Net
	June 30, 2007 ($)		Percentage Change	Change ($)		of Tax ($)

Trading securities¹		6,334,474	25% increase		7,918,093		1,045,188
			25% decrease		4,750,856		(1,045,188	)

Available-for-sale²		856,573	25% increase		1,070,716		141,335
			25% decrease		642,430		(141,335	)


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.

2122

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,~~2007, 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,~~2007, 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~~audited the Company’s internal control over financial reporting.

~~U.S. Global Investors, Inc.~~


U.S. Global Investors, Inc.

/s/ Frank E. Holmes		/s/ Catherine A. Rademacher

Frank E. Holmes		~~Catherine A. Rademacher~~
Chief Executive Officer and Chief Investment Officer		Catherine A. Rademacher Chief Financial Officer
~~August 28, 2006~~September 12, 2007

2223

Report of Independent Registered Public Accounting Firm on ~~Consolidated~~
Internal Control Over Financial ~~Statements~~Reporting

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

We have audited ~~management’s assessment, included in the accompanying Management’s Assessment of Internal Control Over Financial Reporting, that~~ U.S. Global Investors, Inc. (the “Company”) ~~maintained effective~~ internal control over financial reporting as of June 30, ~~2006,~~2007, based on criteria established inInternal Control –— Integrated Frameworkissued 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.~~reporting, included in the accompanying Item 9A, Management’s Report on 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~~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,~~assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control ~~and~~based on the assessed risk. Our audit also included 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,~~2007, based on the COSO ~~criteria.~~criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the accompanying consolidated ~~balance~~balances sheets of ~~the Company~~U.S. Global Investors, Inc. as of June 30, ~~2006~~2007 and ~~2005,~~2006, and the related consolidated statements of operations and comprehensive income, ~~changes in shareholders’~~stockholders’ equity, and cash flows for each of the three years in the period ended June 30, ~~2006, of the Company~~2007 and our report dated ~~August 28, 2006~~September 12, 2007, expressed an unqualified opinion thereon.

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



/s/ BDO Seidman, LLP
BDO Seidman, LLP
Dallas, Texas
September 12, 2007

2324

Report of Independent Registered Public Accounting Firm on Consolidated
Financial Statements

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

We have audited the accompanying consolidated balance sheets of U.S. Global Investors, Inc. as of June 30, ~~2006~~2007 and ~~2005~~2006 and the related consolidated statements of operations and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended June 30, ~~2006.~~2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial ~~statements. An audit also includes~~statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of U.S. Global Investors, Inc. at June 30, 2007 and 2006, and ~~2005, and~~ the ~~consolidated~~ results of its operations and its cash flows for each of the three years in the period ended June 30, ~~2006~~,2007, in conformity with ~~U.S.~~accounting principles generally accepted ~~accounting principles.~~in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of ~~the Company’s~~U.S. Global Investors, Inc. internal control over financial reporting as of June 30, ~~2006,~~2007, based on criteria established in Internal Control –- Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated ~~August 28, 2006,~~September 12, 2007, expressed an unqualified opinion thereon.

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

As more fully described in Note 2 to the consolidated financial statements, effective July 1, 2005, U.S. Global Investors, Inc.
~~Consolidated Balance Sheets~~

June 30,
2006 2005
Assets

Current Assets

Cash and cash equivalents $ 10,056,043 $ 3,814,178
Trading securities, at fair value 4,659,824 2,612,529
Receivables
Advisory, net of allowance 11,290,240 2,275,288
Employees 7,669 750
Other 184,962 43,274
Prepaid expenses 580,813 450,963
Deferred tax asset — 80,989

Total Current Assets
26,779,551 9,277,971

Net Property and Equipment
2,122,889 1,768,334

Other Assets

Long-term deferred tax asset 62,211 165,749
Investment securities available-for-sale, at fair value 82,202 890,461

Total Other Assets
144,413 1,056,210

Total Assets
$ 29,046,853 $ 12,102,515

Liabilities and Shareholders’ Equity

Current Liabilities

Accounts payable $ 343,364 $ 193,249
Accrued compensation and related costs 2,961,836 525,140
Deferred tax liability 178,707 —
Other accrued expenses 5,019,735 1,481,038

Total Current Liabilities
8,503,642 2,199,427

Total Liabilities
8,503,642 2,199,427

Shareholders’ Equity

Common stock (class A)— $0.05 par value; nonvoting; authorized 7,000,000 shares; issued, 6,402,974 and 6,316,474 shares at June 30, 2006, and 2005, respectively 320,149 315,824
Common stock (class B)— $0.05 par value; nonvoting; authorized 2,250,000 shares; no shares issued — —
Common stock (class C)— $0.05 par value; voting; authorized 1,750,000 shares; issued, 1,496,800 shares 74,840 74,840
Additional paid-in capital 11,754,779 11,008,535
Treasury stock, class A shares at cost; 327,057 and 326,988 shares at June 30, 2006, and 2005, respectively (830,330 ) (650,592 )
Accumulated other comprehensive income, net of tax 24,259 390,329
Retained earnings (deficit) 9,199,514 (1,235,848 )

Total Shareholders’ Equity
20,543,211 9,903,088

Total Liabilities and Shareholders’ Equity
$ 29,046,853 $ 12,102,515

~~The accompanying notes are an integral part~~ adopted the provisions of ~~these financial statements.~~SFAS 123(R), “Share-Based Payment.”



/s/ BDO Seidman, LLP
BDO Seidman, LLP
Dallas, Texas
September 12, 2007

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

Year Ended June 30,
2006 2005 2004
Revenue

Investment advisory fees $ 37,143,150 $ 14,006,508 $ 9,179,200
Transfer agent fees 5,332,066 3,187,487 2,610,029
Investment income (loss) 2,203,393 (351,248 ) 1,023,441
Other 174,979 138,592 170,830

44,853,588 16,981,339 12,983,500

Expenses

Employee compensation and benefits 10,359,365 5,891,162 4,985,449
General and administrative 5,460,442 3,821,129 2,622,773
Subadvisory fees 7,618,466 2,719,603 1,018,572
Omnibus fees 4,882,144 1,833,096 959,523
Advertising 513,076 369,927 373,492
Depreciation 152,755 109,899 108,065
Interest — 81 73,145

28,986,248 14,744,897 10,141,019

Income Before Income Taxes
15,867,340 2,236,442 2,842,481

Provision for Federal Income Taxes

Tax expense 5,431,978 789,971 675,839

Net Income
10,435,362 1,446,471 2,166,642
Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale securities arising during period (2,473 ) (142,745 ) 646,244
Less: reclassification adjustment for gains included in net income (363,596 ) — (102,287 )

Comprehensive Income
$ 10,069,293 $ 1,303,726 $ 2,710,599

Basic Net Income per Share
$ 1.39 $ 0.19 $ 0.29

Diluted Net Income per Share
$ 1.38 $ 0.19 $ 0.29

Basic weighted average number of common shares outstanding
7,515,789 7,479,998 7,469,164
Diluted weighted average number of common shares outstanding
7,573,115 7,564,269 7,533,134


	June 30,
	2007			2006

Assets

Current Assets
Cash and cash equivalents	$	14,854,420		$	10,056,043
Trading securities, at fair value		6,334,474			4,659,824
Receivables
Advisory, net of allowance		14,654,536			11,290,240
Employees		4,638			7,669
Other		7,382			184,962
Prepaid expenses		767,779			580,813
Total Current Assets		36,623,229			26,779,551

Net Property and Equipment		2,260,288			2,122,889

Other Assets
Long-term deferred tax asset		53,023			62,211
Investment securities available-for-sale, at fair value		856,573			82,202

Total Other Assets		909,596			144,413


Total Assets	$	39,793,113		$	29,046,853


Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable	$	272,564		$	343,364
Accrued compensation and related costs		3,356,488			2,961,836
Deferred tax liability		338,511			178,707
Other accrued expenses		4,730,348			5,019,735

Total Current Liabilities		8,697,911			8,503,642

Total Liabilities		8,697,911			8,503,642

Commitments and contingencies (refer to Notes 8 and 16)
Shareholders’ Equity
Common stock (class A) — $0.025 par value; nonvoting; authorized 28,000,000 shares; issued, 13,620,625 and 12,805,948 shares at June 30, 2007, and 2006, respectively		340,516			320,149
Common stock (class B) — $0.025 par value; nonvoting; authorized 4,500,000 shares; no shares issued		—			—
Common stock (class C) — $0.025 par value; voting; convertible to class A; authorized 3,500,000 shares; issued, 2,290,923 shares and 2,993,600 shares at June 30, 2007, and 2006, respectively		57,273			74,840
Additional paid-in capital		13,352,728			11,754,779
Treasury stock, class A shares at cost; 672,867 and 654,114 shares at June 30, 2007, and 2006, respectively		(1,640,792	)		(830,330	)
Accumulated other comprehensive income (loss), net of tax		(5,589	)		24,259
Retained earnings		18,991,066			9,199,514

Total Shareholders’ Equity		31,095,202			20,543,211

Total Liabilities and Shareholders’ Equity	$	39,793,113		$	29,046,853

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

U.S. Global Investors, Inc.
Consolidated Statements of ~~Shareholders’ Equity~~Operations and Comprehensive Income

Accumulated
Common Common Additional Retained Other
Stock Stock Paid-in Earnings Treasury Comprehensive
(Class A) (Class C) Capital (Deficit) Stock Income (Loss) Total
Balance at June 30, 2003 (6,311,474 shares of Class A; 1,496,800 shares of Class C)
315,574 74,840 10,806,655 (4,848,961 ) (663,536 ) (10,883 ) 5,673,689
Purchase of 16,741 shares of Common Stock (Class A) — — — — (72,246 ) — (72,246 )
Reissuance of 39,191 shares of Common Stock (Class A) — — 34,398 — 69,881 — 104,279
Exercise of 500 options for Common Stock (Class A) 25 — 1,400 — — — 1,425
Issuance of option for 20,000 shares of Common Stock (Class A) — — 17,600 — — — 17,600
Recognition of current year portion of deferred compensation — — 50,000 — — — 50,000
Unrealized gain on securities available-for-sale (net of tax) — — — — — 543,957 543,957

Net Income — — — 2,166,642 — — 2,166,642

Balance at June 30, 2004 (6,311,974 shares of Class A; 1,496,800 shares of Class C)
315,599 74,840 10,910,053 (2,682,319 ) (665,901 ) 533,074 8,485,346
Purchase of 2,980 shares of Common Stock (Class A) — — — — (13,968 ) — (13,968 )
Reissuance of 15,490 shares of Common Stock (Class A) — — 33,959 — 29,277 — 63,236
Exercise of 4,500 options for Common Stock (Class A) 225 — 14,524 — — — 14,749
Recognition of current year portion of deferred compensation — — 50,000 — — — 50,000
Unrealized gain (loss) on securities available-for-sale (net of tax) — — — — — (142,746 ) (142,746 )

Net Income — — — 1,446,471 — — 1,446,471

Balance at June 30, 2005 (6,316,474 shares of Class A; 1,496,800 shares of Class C)
315,824 74,840 11,008,536 (1,235,848 ) (650,592 ) 390,328 9,903,088
Purchase of 17,050 shares of Common Stock (Class A) — — — — (215,196 ) — (215,196 )
Reissuance of 16,981 shares of Common Stock (Class A) — — 109,325 — 35,458 — 144,783
Exercise of 86,500 options for Common Stock (Class A) 4,325 — 560,333 — — — 564,658
Recognition of current year portion of deferred compensation — — 50,000 — — — 50,000
FAS 123R compensation expense — — 26,585 — — — 26,585
Unrealized gain (loss) on securities available-for-sale and reclassification (net of tax) — — — — — (366,069 ) (366,069 )

Net Income — — — 10,435,362 — — 10,435,362

Balance at June 30, 2006 (6,402,974 shares of Class A; 1,496,800 shares of Class C)
320,149 74,840 11,754,779 9,199,514 (830,330 ) 24,259 20,543,211


	Year Ended June 30,
	2007			2006			2005

Revenue
Investment advisory fees	$	49,516,874		$	37,143,150		$	14,006,508
Transfer agent fees		7,537,110			5,332,066			3,187,487
Investment income (loss)		1,356,840			2,203,393			(351,248	)
Other		192,813			174,979			138,592

		58,603,637			44,853,588			16,981,339


Expenses
Employee compensation and benefits		12,560,108			10,359,365			5,891,162
General and administrative		7,481,344			5,460,442			3,821,210
Subadvisory fees		8,935,075			7,618,466			2,719,603
Omnibus fees		7,528,302			4,882,144			1,833,096
Advertising		508,992			513,076			369,927
Depreciation		244,068			152,755			109,899

		37,257,889			28,986,248			14,744,897

Income Before Income Taxes		21,345,748			15,867,340			2,236,442

Provision for Federal Income Taxes
Tax expense		7,586,499			5,431,978			789,971

Net Income		13,759,249			10,435,362			1,446,471

Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale securities arising during period		269,296			(2,473	)		(142,745	)
Less: reclassification adjustment for gains included in net income		(299,144	)		(363,596	)		—


Comprehensive Income	$	13,729,401		$	10,069,293		$	1,303,726


Basic Net Income per Share	$	0.91		$	0.69		$	0.10


Diluted Net Income per Share	$	0.90		$	0.69		$	0.10


Basic weighted average number of common shares outstanding		15,162,492			15,031,578			14,959,996
Diluted weighted average number of common shares outstanding		15,241,534			15,146,230			15,128,538

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

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

Year Ended June 30,
2006 2005 2004
Cash Flow from Operating Activities
Net income $ 10,435,362 $ 1,446,471 $ 2,166,642
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 152,755 109,899 108,065
Net recognized loss (gain) on securities (827,718 ) 184,253 (861,552 )
Provision for deferred taxes 551,815 49,624 604,296
Deferred compensation 50,000 50,000 50,000
Class A option issued to non-employee — — 17,600
Provision for losses on accounts receivable (8,988 ) 26,488 (64,488 )
Loss on disposal of equipment 3,494 889 4,827
Termination of annuity liability — — (102,909 )
Changes in assets and liabilities, impacting cash from operations:
Accounts receivable (9,154,571 ) (867,701 ) 327,072
Prepaid expenses and other (129,850 ) (143,552 ) 229,498
Trading securities (1,741,825 ) (1,018,428 ) (200,908 )
Accounts payable and accrued expenses 6,125,508 1,148,177 391,785

Total adjustments (4,979,380 ) (460,351 ) 503,286

Net cash provided by operations 5,455,982 986,120 2,669,928

Cash Flow from Investing Activities
Purchase of property and equipment (510,804 ) (67,634 ) (145,548 )
Purchase of available-for-sale securities (8,420 ) — (200,520 )
Proceeds on sale of available-for-sale securities 784,277 — 315,740

Net cash (used in) provided by investing activities 265,053 (67,634 ) (30,328 )

Cash Flow from Financing Activities
Payments on annuity — — (9,564 )
Payments on note payable — — (956,560 )
SFAS 123R compensation expense 26,585 — —
Benefits from tax deduction in excess of stock-based compensation expense 404,817 — —
Proceeds from issuance or exercise of stock, warrants, and options 304,624 77,984 68,203
Purchase of treasury stock (215,196 ) (13,968 ) (72,246 )

Net cash provided by (used in) financing activities 520,830 64,016 (970,167 )

Net Increase in Cash and Cash Equivalents 6,241,865 982,502 1,669,433
Beginning Cash and Cash Equivalents 3,814,178 2,831,676 1,162,243

Ending Cash and Cash Equivalents $ 10,056,043 $ 3,814,178 $ 2,831,676

Supplemental Disclosures of Cash Flow Information
Cash paid for interest $ — $ 81 $ 73,145

Cash paid for income taxes $ 1,753,000 $ 645,251 $ 29,095


														Accumulated
	Common		Common			Additional		Retained						Other
	Stock		Stock			Paid-in		Earnings			Treasury			Comprehensive
	(class A)		(class C)			Capital		(Deficit)			Stock			Income (Loss)			Total
Balance at June 30, 2004 (12,623,948 shares of class A; 2,993,600 shares of class C)	$	315,599	$	74,840		$	10,910,053	$	(2,682,319	)	$	(665,901	)	$	533,074		$	8,485,346
Purchase of 5,960 shares of Common Stock (class A)		—		—			—		—			(13,968	)		—			(13,968	)
Reissuance of 30,980 shares of Common Stock (class A)		—		—			33,959		—			29,277			—			63,236
Exercise of 9,000 options for Common Stock (class A)		225		—			14,524		—			—			—			14,749
Recognition of current year portion of deferred compensation		—		—			50,000		—			—			—			50,000
Unrealized gain on securities available-for-sale (net of tax)		—		—			—		—			—			(142,746	)		(142,746	)

Net Income		—		—			—		1,446,471			—			—			1,446,471

Balance at June 30, 2005 (12,632,948 shares of class A; 2,993,600 shares of class C)		315,824		74,840			11,008,536		(1,235,848	)		(650,592	)		390,328			9,903,088

Purchase of 34,100 shares of Common Stock (class A)		—		—			—		—			(215,196	)		—			(215,196	)
Reissuance of 33,962 shares of Common Stock (class A)		—		—			109,325		—			35,458			—			144,783
Exercise of 173,000 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 (net of tax)		—		—			—		—			—			(366,069	)		(366,069	)

Net Income		—		—			—		10,435,362			—			—			10,435,362

Balance at June 30, 2006 (12,805,948 shares of class A; 2,993,600 shares of class C)		320,149		74,840			11,754,779		9,199,514			(830,330	)		24,259			20,543,211
Purchase of 29,634 shares of Common Stock (class A)		—		—			—		—			(836,710	)		—			(836,710	)
Reissuance of 10,881 shares of Common Stock (class A)		—		—			177,433		—			26,248			—			203,681
Exercise of 112,000 options for Common Stock (class A)		2,800		—			961,792		—			—			—			964,592
Conversion of 702,677 shares of class C common stock for class A common stock		17,567		(17,567	)		—		—			—			—			—
Recognition of current year portion of deferred compensation		—		—			413,479		—			—			—			413,479
Dividends paid		—		—			—		(3,967,697	)		—			—			(3,967,697	)
FAS 123R compensation expense		—		—			45,245		—			—			—			45,245
Unrealized gain (loss) on securities available-for-sale and reclassification (net of tax)		—		—			—		—			—			(29,848	)		(29,848	)

Net Income		—		—			—		13,759,249			—			—			13,759,249

Balance at June 30, 2007 (13,620,625 shares of class A; 2,290,923 shares of class C)	$	340,516	$	57,273		$	13,352,728	$	18,991,066		$	(1,640,792	)	$	(5,589	)	$	31,095,202

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

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


	Year Ended June 30,
	2007			2006			2005
Cash Flow from Operating Activities
Net income	$	13,759,249		$	10,435,362		$	1,446,471
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		244,068			152,755			109,899
Net recognized loss (gain) on securities		(736,860	)		(827,718	)		184,253
Provision for deferred taxes		184,481			551,815			49,624
Deferred compensation		50,000			50,000			50,000
Benefits from tax deduction in excess of stock-based compensation expense		(1,208,822	)		(404,817	)		—
SFAS 123R compensation expense		45,245			26,585			—
Provision for losses on accounts receivable		—			(8,988	)		26,488
Loss on disposal of equipment		—			3,494			889
Changes in assets and liabilities, impacting cash from Operations:
Accounts receivable		(3,183,685	)		(9,154,571	)		(867,701	)
Prepaid expenses and other		(186,966	)		(129,850	)		(143,552	)
Trading securities		(1,392,177	)		(1,741,825	)		(1,018,428	)
Accounts payable and accrued expenses		1,243,288			6,530,325			1,148,177

Total adjustments		(4,941,428	)		(4,952,795	)		(460,351	)

Net cash provided by operations		8,817,821			5,482,567			986,120

Cash Flow from Investing Activities
Purchase of property and equipment		(381,467	)		(510,804	)		(67,634	)
Purchase of available-for-sale securities		(2,072,531	)		(8,420	)		—
Proceeds on sale of available-for-sale securities		1,707,211			784,277			—

Net cash (used in) provided by investing activities		(746,787	)		265,053			(67,634	)

Cash Flow from Financing Activities
Benefits from tax deduction in excess of stock-based compensation expense		1,208,822			404,817			—
Proceeds from issuance or exercise of stock, warrants, and options		322,928			304,624			77,984
Purchase of treasury stock		(836,710	)		(215,196	)		(13,968	)
Dividends paid		(3,967,697	)		—			—

Net cash (used in) provided by financing activities		(3,272,657	)		494,245			64,016


Net Increase in Cash and Cash Equivalents		4,798,377			6,241,865			982,502
Beginning Cash and Cash Equivalents		10,056,043			3,814,178			2,831,676

Ending Cash and Cash Equivalents	$	14,854,420		$	10,056,043		$	3,814,178


Supplemental Disclosures of Cash Flow Information
Cash paid for interest	$	425		$	—		$	81

Cash paid for income taxes	$	7,062,000		$	1,753,000		$	645,251

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

Notes to Consolidated Financial Statements

Note 1. Organization

U.S. Global ~~Investors, Inc. (the “Company” or “U.S. Global”)~~ serves as investment adviser and transfer agent to ~~U.S. Global Investors Funds (“USGIF”)~~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~~also provides transfer agency functions to USGIF and ~~USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, the commencement of operations.~~USGAF. For these services, the Company receives fees from USGIF and USGAF.

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

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

The Company also provides advisory services to various offshore clients.

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.

Share and per share data presented for all periods reflect the effect of the two-for-one stock split which was effective March 29, 2007, unless otherwise indicated.

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

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

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

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

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

The Company evaluates its investments for other-than-temporary decline in value on a periodic basis. This may exist when the fair value of an investment security has been below the current value for an

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

Advisory Receivables.Advisory receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF as well as receivables related to offshore investment advisory ~~fees receivable.~~fees. In addition, mutual fund receivables include amounts reimbursed to the Company for certain advertising and distribution expenses incurred on behalf of USGAF in accordance with Rule 12b-1of the Investment Company Act of 1940. The Company evaluates the collectibility of these 12b-1 receivables on an ongoing basis, and, as a result, placed an allowance of $17,500 and $26,488 against the receivable balance as of June 30, 2006, and June 30, 2005, respectively. The allowance is based on the amount estimated to be collected within one year. If the receivable exceeds the estimate, an allowance is recorded for the difference.

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

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

Stock-Based Compensation.In December 2004, the Financial Accounting Standards Board (FASB) issued ~~Statement of Financial Accounting Standards~~SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). SFAS 123R ~~eliminates~~eliminated 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~~required that the cost resulting from all share-based payment transactions be recognized in the financial statements. SFAS 123R ~~establishes~~established fair value as the measurement objective in accounting for share-based payment arrangements and ~~requires~~required 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~~records 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.

~~The following table details~~Had the ~~effect on~~Company adopted SFAS No. 123R for the 2005 fiscal year, net income ~~and earnings per share had~~reported of $1,446,471 would have decreased to $1,443,254, with the difference attributable to the difference between $33,000 stock-based employee compensation expense ~~for the~~included in reported net income (net of tax) and $36,217 stock-based employee ~~stock-based awards been recorded in the prior year ended June 30, 2005, based on~~compensation expense under the fair value method ~~under SFAS 123. The reported~~(net of tax). Basic and ~~pro forma net income and~~diluted earnings per share ~~for the current year ended June 30, 2006, are the same since stock-based compensation expense is calculated under the provisions~~ of ~~SFAS 123R. The amounts for the years ended June 30, 2005 and 2004 are included in the table below solely to provide the detail for a comparative presentation to the period of the previous year.~~

Year Ended June 30,
2006 2005 2004

Net income, as reported $ 10,435,362 $ 1,446,471 $ 2,166,642
Add: Stock-based employee compensation expense included in reported net income, net of tax 46,135 33,000 33,000
Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax (46,135 ) (36,217 ) (36,753 )

Pro forma net income $ 10,435,362 $ 1,443,254 $ 2,162,889

Earnings per share:
Basic – as reported $ 1.39 $ 0.19 $ 0.29
Diluted – as reported $ 1.38 $ 0.19 $ 0.29
Basic – pro forma $ 1.39 $ 0.19 $ 0.29
Diluted – pro forma $ 1.38 $ 0.19 $ 0.29
$0.10 would not have changed.

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 2007, options for 23,000 shares were granted with a fair value, net of tax, of $320,753. During fiscal 2006, an option for ~~5,000~~10,000 shares was granted with a fair value, net of tax, of $43,400. During fiscal year 2005, options for ~~20,000~~40,000 shares were granted with a fair value, net of tax, of $30,750. ~~No options were granted during fiscal year 2004.~~

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

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

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

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 atbased on the ~~end of each fiscal~~contract terms. The Company recorded $8,994,074 in annual performance fees and $2,046,976 in advisory fees related to the EMCC contract for the year ~~of EMCC.~~ended June 30, 2007. The Company recorded $6,611,582 in annual performance fees and $443,685 in advisory fees related to the EMCC contract for ~~the~~fiscal 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, 2007, 2006, ~~2005,~~ and ~~2004,~~2005, the Company had capitalized sales materials of approximately $31,000, $59,000, ~~$48,000,~~ and ~~$16,000,~~$48,000, respectively. Net advertising expenditures were approximately $509,000, $513,000, ~~$370,000,~~ and ~~$373,000~~$370,000 during fiscal 2007, 2006, ~~2005,~~ and ~~2004,~~2005, 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.

Fair Value of Financial Instruments.The financial instruments of the Company are reported on the consolidated balance sheet at market or fair values, or at carrying amounts that approximate fair values because of the short maturity of the instruments.

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

Note 3. Investments

As of June 30, ~~2006,~~2007, the Company held investments with a market value of ~~$4.7~~$7.2 million and a cost basis of ~~$4.1~~$6.9 million. The market value of these investments is approximately ~~16.3~~18 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,
	2006			2005			2004			2007			2006			2005
Realized gains (losses) on sale of trading securities	$	305,469		$	(78,253	)	$	135,789		$	282,473		$	305,469		$	(78,253	)
Trading securities, at cost		4,011,961			3,040,700			1,857,171			5,990,256			4,011,961			3,040,700
Trading securities, at fair value⁽¹⁾		4,659,824			2,612,529			1,672,354
Net change in unrealized gains (losses) on trading securities (included in earnings)⁽²⁾		1,076,034			(243,355	)		748,018
Trading securities, at fair value¹											6,334,474			4,659,824			2,612,529
Net change in unrealized gains (losses) on trading securities (included in earnings)²											(303,645	)		1,076,034			(243,355	)
Available-for-sale securities, at cost		45,444			299,055			405,055			865,152			45,444			299,055
Available-for-sale securities, at fair value⁽¹⁾		82,202			890,461			1,212,742
Available-for-sale securities, at fair value¹											856,573			82,202			890,461
Gross realized gains on sale of available-for-sale securities		582,475			—			158,387			455,990			582,475			—
Gross realized losses on sale of available-for-sale securities		(31,572	)		—			(3,406	)		(1,603	)		(31,572	)		—
Gross unrealized losses recorded in shareholders’ equity		(3,137	)		(76,746	)		(180,727	)		(79,731	)		(3,137	)		(76,746	)
Gross unrealized gains recorded in shareholders’ equity		39,896			668,152			988,414			71,151			39,896			668,152
Losses on available-for-sale securities deemed to have other-than-temporary declines in value		(28,655	)		(106,000	)		(41,448	)		—			(28,655	)		(106,000	)

receives ~~a fee~~fees based on the number of shareholder ~~accounts.~~accounts as well as transaction- and activity-based fees. 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 management and transfer agent services to USGIF and USGAF continue to be the Company’s primary revenue source.

The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several USGIF funds and one USGAF fund through November 1, 2007, and February 28, ~~2007,~~2008, respectively, or such later date as the Company ~~determines.~~determines in order to maintain competitive yields and to allow assets to grow. The aggregate fees waived and expenses borne by the Company were $1,178,000, $1,181,000, and $1,332,000, in 2007, 2006, and ~~$1,471,000, in 2006,~~ 2005, ~~and 2004,~~ respectively.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire ~~in February 2007~~on March 1, 2008, and ~~May 2007,~~June 1, 2008, respectively. Management anticipates the ~~trustees~~boards of both USGIF and USGAF will renew the contracts.

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

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

Note 5. Property and Equipment

Property and equipment are composed of the following:


	June 30,						June 30,
	2006			2005			2007			2006
Building and land	$	2,523,623		$	2,303,014		$	2,574,530		$	2,523,623
Furniture, equipment, and other		1,678,790			1,773,327			1,831,531			1,678,790

		4,202,413			4,076,341			4,406,061			4,202,413
Accumulated depreciation		(2,079,524	)		(2,308,007	)		(2,145,773	)		(2,079,524	)

Net property and equipment	$	2,122,889		$	1,768,334		$	2,260,288		$	2,122,889

Note 10. Shareholders’ Equity

On February 21, 2007, the Company’s shareholders approved the first of two proposed amendments to the Company’s Articles of Incorporation. The first amendment approved an increase in authorized shares that enabled the Company to effectuate a two-for-one stock split of the Company’s outstanding stock. Shareholders of record as of March 19, 2007, received one additional share of class A common stock, par value $0.025 per share, for every outstanding share of class A common stock and one additional share of class C common stock, par value $0.025 per share, for every outstanding share of class C common stock. The amendment provided that the Company issue no fractional shares of common stock and all shares were rounded up or down to the nearest whole number of shares. Accordingly, all per-share and share data in the accompanying consolidated financial statements and in these accompanying notes has been adjusted to give retroactive effect to this stock split.

On February 22, 2007, shareholders approved the second of two proposed amendments, which modified the relative dividend and liquidation preference rights of the different classes of common stock and permits conversion of class C common stock to class A common stock. As a result of approval of both proposals, shareholders of record on March 19, 2007, received a special cash dividend of $0.25 per share based on the number of post-split shares held. Both the split and the dividend were distributed on March 29, 2007. The Company believes there was no significant differential in the value of either class of common stock as a result of the amendments. Therefore, no modification to the fair value of either class of stock was warranted.

In addition to the $0.25 per share dividend paid on March 29, 2007, the board authorized a dividend of $0.01 per share per month beginning in June 2007. The monthly dividend is authorized through December 2007 and will be considered for continuation at that time by the board. Prior to that, the Company had not paid cash dividends on its class C common stock during the previous twenty-two fiscal years and had 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. On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company’s board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5 percent of the Company’s after-tax prior year net earnings. The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share. In the event of a full liquidation, the total liquidation preference of the holders of the class A stock would be $320,149, based on shares outstanding at June 30, 2006.directors.

During fiscal year 1999, the board of directors of the Company approved the issuance of ~~1,000,000~~2,000,000 (post-split) shares of class C common stock to Frank Holmes ~~(Holmes)~~ in exchange for services and cancellation of the option to purchase ~~400,000~~800,000 (post-split) shares of class C common stock held by Mr. Holmes and the cancellation of warrants to purchase ~~586,122~~1,172,244 (post-split) shares of class C common stock held by Mr. Holmes and F.E. Holmes Organization, Inc. The ~~1,000,000~~2,000,000 shares vest over a ten-year period beginning July 1, 1998, and will vest fully on June 30, 2008, or in the event of Mr. Holmes’ death, and were valued at ~~$.50~~$0.50 (pre-split) per share for compensation expense purposes. The agreement was executed on August 10, 1999. AtFor tax return purposes, the 200,000 shares that vested on June 30, ~~2006,~~2007, were valued at $5.21 per share, which incorporated factors including the ~~unvested balance~~ability to to convert to class A shares (under the 2007 amendment to the Company’s Articles of Incorporation), the loss of voting rights if converted to class A, and holding period and liquidity restrictions.

The Statement of Cash Flows includes a benefit in fiscal 2007 from the tax deduction in excess of stock-based compensation expense of $1,208,822. Of this ~~deferred compensation arrangement is $100,000~~total benefit, $363,479 related to the value of these 200,000 shares that vested during fiscal 2007, and ~~is included~~the remaining $845,343 was attributable to the tax-effected difference between the market value of the shares acquired upon exercise of non-qualified stock options in ~~additional paid-in capital.~~fiscal 2007 and the strike price.

During the fiscal years ended June 30, 2007, 2006, ~~2005,~~ and ~~2004~~2005 the Company purchased ~~17,050, 2,980,~~29,634, 34,100, and ~~16,741~~5,960 shares, respectively, of its class A common stock at an average price of ~~$12.62, $4.69,~~$28.23, $6.31, and ~~$4.32,~~$2.34, per share, respectively.

During the year ended June 30, ~~2006,~~2007, the Company granted ~~4,100~~1,000 shares of class A common stock to certain employees at a weighted average fair value on grant date of ~~$12.18.~~$19.48. During the year ended June 30, 2006, the Company granted 8,200 shares of class A common stock to employees at a weighted average fair value on grant date of $6.09. During the year ended June 30, 2005, the Company granted no shares of class A common stock to employees. ~~During the year ended June 30, 2004, the Company granted 15,000 shares of class A common stock to certain employees at a weighted average fair value on grant date of $1.77.~~

In November 1989, the board of directors adopted the 1989 Non-Qualified Stock Option Plan (“1989 Plan”), amended in December 1991, which provides for the granting of options to purchase ~~800,000~~1,600,000 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~~$0.75 to ~~$5.69~~$2.84 per share, which equaled or exceeded the fair market value at date of grant. Options issued under the 1989 Plan vest six months from the grant date or 20 percent on the first, second, third, fourth, and fifth anniversaries of the grant date.

In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (“1997 Plan”), which provides for the granting of stock appreciation rights (SARs) and/or options to purchase ~~200,000~~400,000 shares of the Company’s class A common stock to directors, officers, and employees of the Company and its subsidiaries. ~~Options issued prior to fiscal 2005 that were outstanding at June 30, 2006, were 100 percent vested at June 30, 2006.~~ In October 2004, options for ~~20,000~~40,000 shares were granted at an exercise price of ~~$3.29~~$1.65 per share and vesting of 50 percent on the first and second anniversary dates. In February 2006, an option for ~~5,000~~10,000 shares was granted at an exercise price of ~~$15.38~~$7.69 per share and vesting of 50 percent on the first and second anniversary dates.

During the fiscal year ended June 30, 2007, three options for a total of 23,000 shares were granted with 50 percent vesting 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.

In connection with the two-for-one split on March 29, 2007, the board of directors authorized an adjustment to outstanding options so that a proportionate number of shares underlying each option was maintained. Option information disclosed herein has been adjusted to give retroactive effect to the stock split.

The estimated fair value of options granted 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 with the following assumptions for options granted in fiscal 2007, 2006, and 2005, respectively: expected volatility factors based on historical volatility of 80.0%, 84.0%, and 57.4%, risk-free interest rates of 4.6%, 4.6% and 4.2%, and an expected life of 10, 10 and 10 years. During fiscal 2007, options for 23,000 shares were granted with a fair value, net of tax, of $320,753. During fiscal 2006, an option for 10,000 shares was granted with a fair value, net of tax, of $43,400. In fiscal 2005, options for 40,000 shares were granted with a fair value, net of tax, of $30,750.

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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~~the funds it manages, and investing for its own account in an effort to add growth and value to its cash position. The following schedule details total revenues and income ~~(loss)~~ by business segment:


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

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

Depreciation									109,899		—			109,899

Interest expense									81		—			81

Capital expenditures									67,634		—			67,634
	Services		Investments			Consolidated
Year ended June 30, 2006
Net revenues	$	42,959,530	$	1,894,058		$	44,853,588	$	42,959,530	$	1,894,058		$	44,853,588

Net income before income taxes		13,997,166		1,870,174			15,867,340		13,997,166		1,870,174			15,867,340

Depreciation		152,755		—			152,755		152,755		—			152,755

Interest expense		—		—			—		—		—			—

Capital expenditures		510,804		—			510,804		510,804		—			510,804

Gross identifiable assets at June 30, 2006		24,220,565		4,764,077			28,984,642		24,220,565		4,764,077			28,984,642
Deferred tax asset							62,211							62,211

Consolidated total assets at June 30, 2006							29,046,853							29,046,853

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

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

Depreciation		109,899		—			109,899

Interest expense		81		—			81

Capital expenditures		67,634		—			67,634

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

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

Year ended June 30, 2004
Year ended June 30, 2007
Net revenues	$	11,979,314	$	1,004,186		$	12,983,500	$	58,162,933	$	440,704		$	58,603,637

Net income before income taxes		1,839,764		1,002,717			2,842,481		20,919,336		426,412			21,345,748

Depreciation		108,065		—			108,065		244,068		—			244,068

Interest expense		72,962		183			73,145		425		—			425

Gain on litigation settlement		—		—			—

Capital expenditures		145,548		—			145,548		381,467		—			381,467

Gross identifiable assets at June 30, 2004		6,428,674		2,885,096			9,313,770
Deferred tax asset							222,826
Gross identifiable assets at June 30, 2007									32,826,085		7,252,516			40,078,601
Deferred tax liability														(285,488	)

Consolidated total assets at June 30, 2004							9,536,596
Consolidated total assets at June 30, 2007														39,793,113

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 $222,981 for the year ended June 30, 2007. Mr. Holmes is a director of Meridian Global Energy and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the fund. In addition, the Company has an investment in the fund at June 30, 2007 with an estimated fair value of approximately $600,490.

The Company provides 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 $140,717 and $212,828 for the ~~year~~years 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~~2007, 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.~~Mr. Holmes is a director of U.S. Global Investors Balanced Natural Resources Fund Ltd. The Company also owns a position in the fund at June 30, 2007, with an estimated fair value of approximately $760,845.

~~In the third quarter of fiscal year 2006, the~~The Company ~~began providing~~provides investment advisory services to Endeavour Mining Capital Corp., ~~an offshore company.~~a Cayman corporation traded on the Toronto Stock Exchange. 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~~a total of $11,041,050 in advisory fees from Endeavour comprised of $8,994,074 in annual performance fees and $2,046,976 in monthly advisory fees for the year ended June 30, 2007. The Company recorded a total of $7,055,267 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 based on the contract terms 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 Policies. Mr. 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~~Charlemagne Capital Limited at June 30, ~~2006,~~2007, with an estimated fair value of approximately ~~$400,000,~~$739,977, recorded as ~~a trading security on~~an available-for-sale security. Charlemagne Capital specializes in emerging markets and is the ~~balance sheet. Holmes served as an independent director of Franc-Or Resources Corporation from June 2000~~subadviser to ~~November 2003.~~

~~Holmes also served as an independent director for BCS~~the Eastern European Fund and 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 positionEmerging Markets Fund, two series 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.USGAF.

Note 16. Contingencies and Commitments

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

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

The Company has certain contractual obligations which consist of agreements to contribute to various educational programs. These obligations total approximately $200,000 for fiscal years 2008 through 2012.

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Item 9A. Controls and Procedures

Disclosure Controls and Procedures.An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, ~~2006,~~2007, was conducted under the supervision and with the participation of management, including the chief executive officer and chief financial officer. Based on that evaluation the chief executive officer and chief financial officer concluded that the Company’s disclosure controls and procedures were effective as of June 30, ~~2006.~~2007.

Internal Control over Financial Reporting.

(a)

~~(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 2223 of this report, and is incorporated herein by reference.

(b)

~~(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 2324 of this ~~report.,~~report, and is incorporated herein by reference.

(c) ~~Changes in Internal Control Over Financial Reporting.~~

Changes in Internal Control Over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, ~~2006,~~2007, 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~~and Corporate Governance

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


Name	Age		Position
Frank E. Holmes		5152	Director of the Company and Chief Executive Officer of the Company since October 1989, and Chief Investment Officer since June 1999. Since October 1989, Mr. Holmes has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Mr. Holmes has also served as Director of 71316 Ontario, Inc. since April 1987. Director, President, and Secretary of F.E. Holmes Organization, Inc. since July 1978. Mr. Holmes served as Director of Franc-Or Resources Corporation from June 2000 to November 2003, Chairman and Director of Fortress IT Corp (formerly Consolidated Fortress) from November 2000 to November 2003, and Director of Broadband Collaborative Solutions from May 2000 to June 2002.

Jerold H. Rubinstein		6869	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		6061	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.		4647	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		4748	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		4647	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.

compensation programs, (c) stock option plans, and (d) director compensation programs, and consists of Messrs. Lydon, Rubinstein, and Terracina. The Company’s Audit Committee consists of Messrs. Lydon, Rubinstein, and Terracina. The board of directors has determined that a member of the Audit Committee, namely Roy D. Terracina, is an “audit committee financial expert” and is “independent” (as defined by the SEC). The Company does not have a Nominating Committee.

Code of Ethics for Senior Financial Officers

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

Compliance with Section 16(a) of the 1934 Act

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

To the Company’s knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, ~~2006,~~2007, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met.

4546

Item 11. Executive Compensation

Compensation Discussion and Analysis

Overview

The ~~Company has intentionally omitted columns (g), (h),~~following section provides a discussion 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~~analysis of the ~~June 30, 2006,~~basis for the compensation awarded to the CEO, the CFO and our other most highly compensated executive officer of the Company (“named executive officers”), as well as our directors in fiscal ~~year).~~2007. We provide investment advisory and other services to our clients. Our long-term success depends on our ability to provide superior investment returns and outstanding client service. As such, one of our greatest assets is the collective skill, experience and efforts of our employees. To achieve success, we must be able to attract, retain and motivate professionals within all levels of our Company who are committed to our core values.

Long-Term
Annual Compensation Compensation
(e) Awards
(a) Other (f)
Name and Annual Restricted
Principal Position (b) (c) (d) Compen- Stock
During FY 2006 Year Salary ($) Bonus ($) sation ($) Awards ($)
Frank Holmes 2006 488,390 ⁽¹⁾ 1,617,762 3,375 ⁽³⁾ 50,000 ⁽²⁾
Chairman, Chief 2005 492,040 ⁽¹⁾ 273,805 — ⁽³⁾ 50,000 ⁽²⁾
Executive Officer 2004 486,190 ⁽¹⁾ 206,640 — ⁽³⁾ 50,000 ⁽²⁾
Susan B. McGee 2006 188,714 567,896 163,275 ⁽³⁾ —
President, General 2005 188,714 213,186 — ⁽³⁾ —
Counsel 2004 188,714 168,210 — ⁽³⁾ —
Catherine A. Rademacher 2006 102,953 112,037 51,950 ⁽³⁾ —
Chief Financial Officer 2005 96,116 23,630 — ⁽³⁾ —
We place great significance on our values of performance, teamwork, initiative, responsiveness, focused work ethic and intellectual curiosity. We believe that adherence to these core values will contribute to the long-term success of the Company and our shareholders.

We compete for talent with a large number of investment management and financial services companies, many of which have significantly larger market capitalization than we do. Our relatively small size within the industry, geographic location and lean executive management team provides unique challenges.

Setting Executive Compensation

The Compensation Committee of our board of directors is responsible for reviewing and approving corporate goals and objectives relevant to the Chief Executive Officer and Chief Investment Officer (“CEO”), Frank Holmes; evaluating the CEO’s performance in light of those goals and objectives; and determining and approving the CEO’s compensation level based on this evaluation. In addition, the committee is responsible for reviewing and approving compensation recommended by Mr. Holmes for our other executive officers. The board appointed Messrs. Lydon, Terracina, and Rubinstein as members of the Compensation Committee. Mr. Lydon serves as the chairman of the committee. There are no compensation committee interlocks to report. The Compensation Committee has a charter that is available for review on our website at http://www.us-global.com.

The individuals listed below are the chief executive officer and chief financial officer, plus our other most highly compensated executive officer (“named executive officers”) in fiscal 2007.


⁽¹⁾		~~Includes trustee fees of $43,600, $47,250,~~
Name		Title
Frank E. Holmes		Chief Executive Officer and ~~$40,400 paid by the Company during fiscal year 2006, 2005,~~Chief Investment Officer
Catherine A. Rademacher		Chief Financial Officer
Susan B. McGee		President and ~~2004, respectively.~~General Counsel

In establishing total annual compensation for Mr. Holmes, the Compensation Committee considers a number of factors. For assistance in determining the appropriate factors to consider, the Compensation Committee consulted in 2005 with Moss Adams LLP, an executive compensation consulting firm. Importantly, the Committee considers the various functions Mr. Holmes assumes, including the dual role of chief executive officer and chief investment officer. In addition, the committee considers various measures of company performance, including profitability and total shareholder return. The committee also reviews Mr. Holmes’ performance in managing our securities portfolio, in overseeing the management of our client portfolios and the results of our operational earnings.

In addition to his base salary, Mr. Holmes receives a bonus based on operational earnings, which are substantially derived from assets under management, in the amount of 10% of our operational earnings, if any, and capped at $500,000, as computed for financial reporting purposes in accordance with U.S. generally accepted accounting principles (before consideration of this fee).

Mr. Holmes also receives a bonus when our investment team meets their goal of being in the top half of their peer group. The bonus is based on fund performance bonuses paid to the investment team and is in recognition of Mr. Holmes’ creation and oversight of the investment processes and strategy.

In addition, Mr. Holmes receives 10% of offshore fund performance fees in recognition of attracting and managing offshore client accounts, and 10% of realized gains on investments, offset by realized losses and other-than-temporary write-downs, in recognition of his expertise in managing the investments of the company.

The committee has delegated to Mr. Holmes the responsibility for reviewing the performance of, and recommending the compensation levels for, our other named executive officers. The committee does not use rigid formulas with respect to the compensation of named executive officers. Mr. Holmes makes a recommendation based on the achievement of qualitative goals that apply to all employees, quantitative goals that apply to an executive officer’s specific job responsibilities, and other accomplishments, such as expansion in functional responsibility. In forming his recommendations, Mr. Holmes also considers the responsibilities and workload of the executive officer; the explicit and tacit knowledge required to perform these responsibilities, including any professional designations; the profitability of the company; and the cost of living in San Antonio, Texas.

Objectives

Our executive compensation programs are designed to:

	•	attract and retain key executives,

⁽²⁾	•	~~In June 1999, the board~~align executive performance with our long-term interests and those 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 effortsour shareholders, and ~~upon cancellation of Holmes’ warrants and option to acquire 986,122 shares of class C common stock.~~

⁽³⁾	•	Any amounts shown represent options exercised. The Company believes that the aggregate amounts of any omitted personal benefits do not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus reported in columns (c) and (d) for the namedlink executive ~~officers.~~pay with performance.

~~Incentive~~Elements of Executive Compensation

The committee reviews and approves all components of executive officer compensation. The principal elements of executive compensation are:

	•		base salary,

	•		performance-based cash and stock bonuses,

	•		long-term incentive awards, and

	•		other compensation and benefits.

Base Salary

Base salaries for named executive officers are reviewed annually by the Compensation Committee. Generally, the salaries of named executive officers are occasionally adjusted to recognize expansion of an individual’s role, outstanding and sustained performance, or to bring the officer’s pay into alignment with the market. We did not use any benchmarking studies in fiscal 2007 to obtain market information. In addition, the Compensation Committee did not consider the equity ownership of the Company by Mr. Holmes when setting his compensation. Nor did the committee aim for a specific relationship between Mr. Holmes and the other executive officers. Base salaries paid to named executive officers during the fiscal year are shown in the Summary Compensation Table.

Performance-Based Cash and Stock Bonuses

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. Discretionary cash or stock bonuses are awarded from time to time for such things as completion of critical projects or outstanding performance. During fiscal 2007, stock bonuses totaling $34,285 were awarded to named executive officers, of which $22,600 was distributed in fiscal 2008.

~~401(k) Plan~~

~~The Company offers~~Mr. Holmes considers a ~~401(k) plan covering substantially all employees. The Company will match a certain percentage~~matrix of ~~a participating employee’s pay deferment. The Company contributes to participants’ accounts at~~factors in reviewing the ~~same time that~~performance of, and compensation for, the ~~employee’s pay deferral is made. Employees are immediately vested in both their 401(k) salary deferral contribution~~chief financial officer, Catherine Rademacher. Mr. Holmes considers such thing as responsibilities, productivity, results of the Company’s Balanced Scorecard, hours of work, profitability of the company, timely and accurate financial regulatory filings, unqualified Sarbanes-Oxley and audit results, 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~~cost of ~~directors. The Company made a profit sharing contribution of $220,000~~living in ~~fiscal year 2006.~~San Antonio. In addition the Company accrued an additional $166,000 through June 30, 2006 for a potential profit sharing contribution in fiscal 2007. The Company did not make a profit sharing contribution for the 2005 or 2004 fiscal years.to her base salary, Ms. Rademacher is

4648

generally paid discretionary bonuses upon timely and accurate completion of the annual Sarbanes-Oxley audit, the annual financial audit and the Form 10-K filing.

In reviewing the performance of, and compensation for the president and general counsel, Susan McGee, Mr. Holmes considers a matrix of factors including responsibilities, productivity, hours of work, profitability of the company, timely and accurate regulatory filings, completion of regulatory examinations, and the cost of living in San Antonio. In addition to her base salary, Ms. McGee, is paid a monthly bonus based on new assets flowing through institutional accounts in recognition of her leadership and strategic guidance of the institutional sales department. Along with other senior management in the marketing department, Ms. McGee receives a monthly bonus for new accounts and for her key role in supervisory responsibilities. Occasionally, Ms. McGee receives discretionary bonuses for special projects such as completion of regulatory exams or managing significant new business relationships.

~~Savings Plans~~Long-Term Incentive Awards

~~The Company has continued~~Long-term incentive awards include stock options and restricted shares. We have utilized option grants to induce qualified individuals to join us, thereby providing the ~~program pursuant to which it offers employees, including its executive officers,~~individual with an opportunity to ~~participate in savings programs using managed investment companies. Limited employee contributions~~benefit if we have significant growth. Similarly, options have been utilized to ~~an Individual Retirement Account are matched by~~reward existing employees, including named executive officers, for long and faithful service and to encourage them to stay with us. The Compensation Committee administers the ~~Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and~~stock option plans. Although the Company ~~will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save~~has no written policy for allocating between cash and equity, or current and long-term compensation for the ~~education~~CEO and other named executive officers, the weighting has generally been in the range of ~~their minor relatives.~~less than 5 percent long-term compensation in the form of options or stock awards, with the remaining compensation in cash.

~~Stock Purchase Plan~~

~~The Company has a program whereby eligible employees can purchase treasury shares, at market price, and~~In August 1999, the ~~Company will match their contribution up to 3%~~board approved the issuance of ~~gross salary. During fiscal years 2006, 2005, and 2004, employees purchased 12,881, 15,127, and 28,180~~1,000,000 pre-split shares of ~~treasury~~class C common stock ~~from the Company, respectively.~~to Mr. Holmes in recognition of his expanded duties as Chief Investment Officer and in exchange for cancellation of options and warrants held by Mr. Holmes. The shares vest over a ten-year period beginning with fiscal year 1998, and will fully vest on June 30, 2008.

Stock Option Plans

In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of ~~the Company’s~~our class A common stock to directors, officers and ~~employees of the Company and its subsidiaries.~~employees. 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~~1,600,000 shares. During the fiscal year ended June 30, ~~2006,~~2007, there were no grants. As of June 30, ~~2006,~~2007, under this amended plan, ~~866,700~~1,733,400 options had been granted, ~~426,500~~883,000 options had been exercised, ~~425,200~~850,400 options had expired, ~~15,000~~no options remained outstanding, and ~~358,500~~717,000 options are available for grant. All options referenced reflect the 2-for-1 split in March 2007.

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~~our class A common stock to directors, officers, and ~~employees of the Company and its subsidiaries.~~employees. 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~~400,000 shares. During the fiscal year ended June 30, ~~2006, there was one option~~2007, three options for ~~5,000~~a total of 23,000 shares were granted. As of June 30, ~~2006, 265,500~~2007, 554,000 options had been granted, ~~75,500~~233,000 shares had been exercised, ~~132,000~~264,000 options had expired, ~~58,000~~57,000 options remained outstanding, and ~~66,500~~110,000 options are available for grant. All options referenced reflect the 2-for-1 split in March 2007.

4749

Other Compensation and Benefits

Health, Welfare and Retirement Benefits

Health, welfare and retirement benefits are designed to provide a safety net of protection for employees in the event of illness, disability or death, and to provide employees an opportunity to accumulate retirement savings.

We offer a range of health and welfare benefits to substantially all employees, including the named executive officers. These benefits include medical, dental, vision, prescription drug, short-term disability, group life and accidental death insurance, tuition reimbursement, and a free health club membership.

401(k) Plan

We offer a 401(k) plan covering substantially all employees, including named executive officers. Participants may contribute, on a pretax basis, their base salary and cash incentive compensation, up to a limit imposed by the Internal Revenue Code, which is $15,500 in calendar year 2007. An additional “catch-up” pretax contribution of up to $5,000 is allowed for employees over 50. We automatically match 100 percent of the first 3 percent of participating employees’ contributions and 50 percent of the next 2 percent of participating employees’ contributions. We contribute 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 matched contributions. Participants in our 401(k) plan may allocate some or all of their contributions to a separate designated Roth account, commonly known as a Roth 401(k).

Profit Sharing

The 401(k) plan allows for us to make a discretionary profit sharing contribution, as authorized by the board of directors. Factors that are considered by the board include earnings, cash flows, capital requirements and the general financial condition of the Company. No specific performance thresholds or goals are required by the board to authorize a profit sharing contribution. Profit sharing contributions of $369,000, and $220,000 were made in fiscal years 2007 and 2006, respectively. Profit sharing contributions were made to our named executive officers totaling $52,446 in fiscal 2007. We did not make a profit sharing contribution in fiscal year 2005.

Savings Plans

We also have a program pursuant to which we offer employees an opportunity to participate in savings programs using managed investment companies. Employee contributions to an Individual Retirement Account are matched to a maximum of $100 per month for certain management-level employees, including named executive officers, and a maximum of $30 for all other employees. Similarly, certain management-level employees, including named executive officers, may contribute to the Tax Free Fund and we will match these contributions up to a maximum of $90 per month. A similar savings plan utilizing UGMA accounts is offered to all employees to save for the education of minor relatives and is matched at a maximum of $15 per month per child.

Stock Purchase Plan

We also have a program whereby eligible employees can purchase treasury shares, at market price, and we will automatically match their contribution up to 3% of gross salary. During fiscal years 2007, 2006, and 2005, employees purchased 8,981, 6,441, and 7,564 shares of treasury stock from us, respectively. The purchase price used is the closing stock price on the last business day of each month. We do not restrict the ability of our employees or directors to hedge their position in our shares. In addition, neither the board nor named executive officers are required to own or purchase a certain number of shares.

The Summary Compensation Table includes the matched contributions to the plans described above for each named officer.

Compensation of Named Executive Officers

The following table sets forth for the fiscal year ended June 30, 2007, the compensation reportable for the named executive officers, as determined by SEC rules. Columns were omitted if they were not applicable.

Summary Compensation Table


									Non-Equity
									Incentive Plan
Name and Principle							Stock Awards		Compensation		All Other
Position	Year		Salary ($)		Bonus ($)		($)¹		($)²		Compensation ($)			Total ($)
Frank E. Holmes Chief Executive Officer Chief Investment Officer		2007		421,788		9,700		50,000		1,856,760		148,373	³		2,486,621

Catherine A. Rademacher Chief Financial Officer		2007		96,003		104,940		11,300		—		31,065	⁴		243,308

Susan B. McGee President General Counsel		2007		176,547		221,060		22,985		276,114		66,771	⁵		763,477


¹		Stock awards consist of restricted stock in the case of Mr. Holmes and grants of stock awards for the other named executive officers as indicated. During fiscal year 1999, the board of directors granted Mr. Holmes 1,000,000 pre-split shares of class C common stock to be vested, in equal parts, over a ten-year period beginning July 1, 1998. The shares will fully vest on June 30, 2008. At June 30, 2007, 200,000 shares vested, with the final 200,000 shares to vest on June 30, 2008.

²		Amounts consist of cash incentive compensation awards earned for services rendered in fiscal 2007. The amounts were paid pursuant to the senior executive bonus programs.

³		Represents amounts paid by us on behalf of Mr. Holmes as follows: (i) $44,750 in trustee fees, (ii) $31,816 in matched contributions, (iii) $20,056 in insurance, (iv) $17,482 in profit sharing contributions, (v) $8,227 in club memberships, and (vi) $26,042 in miscellaneous items.

⁴		Represents amounts paid by us on behalf of Ms. Rademacher as follows: (i) $17,482 in profit sharing contributions, (ii) $11,264 in matched contributions, and (iii) $2,319 in miscellaneous items.

⁵		Represents amounts paid us on behalf of Ms. McGee as follows: (i) $21,074 in matched contributions, (ii) $17,482 in profit sharing contributions, (iii) $12,379 in insurance, (iv) $10,939 in club memberships, and (v) $4,897 in miscellaneous items.

Compensation Committee Report on Executive Compensation

The Compensation Committee is composed entirely of independent directors in accordance with the listing standards of the NASDAQ Stock Market. The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management. Based upon this review and discussion, the committee has recommended to the board ~~appointed Messrs. Lydon, Terracina,~~that the Compensation Discussion and ~~Rubinstein as members~~Analysis section be included in this annual report.

Respectfully,

Members of the Compensation ~~Committee. There are no compensation committee interlocks to report. The Compensation~~ Committee reviews Mr. Holmes’ compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The Compensation Committee also reviews Mr. Holmes’ performance in managing the Company’s securities portfolio, in overseeing the management of the Company’s client portfolios and the results of the Company’s operational earnings. Mr. Holmes receives a bonus based on achieving certain benchmarks in each of these areas.

During fiscal year 1999, Mr. Holmes, in addition to his other duties, became the Company’s Chief Investment Officer responsible for supervising management of clients’ portfolios. In August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes’ warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.

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

The Company has utilized option grants under the 1989 Plan and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, optionsThomas F. Lydon, Jr., Chairman
Jerold H. Rubinstein
Roy D. Terracina

Item 14. Principal Accounting Fees and Services

The following table represents fees for professional audit services for the audit of the Company’s annual financial statements for the fiscal years ended June 30, ~~2006~~2007, and ~~2005,~~2006, respectively, rendered by BDO Seidman, LLP.

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

Total fees $ 445,035 $ 150,984


	Fiscal year ended June 30,
	2007		2006
Audit fees¹	$	415,363	$	446,409
Audit-related fees²		10,670		7,490
Tax fees³		24,065		20,210

Total fees	$	450,098	$	474,109


⁽¹⁾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⁾²		Audit-related fees consist primarily of fees for assurance and related services by the accountant that are reasonably related to the performance of the audit or review of the Company’s financial statements. ~~These fees also include professional services rendered in assistance with the Company’s compliance with Sarbanes-Oxley requirements.~~

⁽³⁾³		Tax fees include the preparation of federal and state tax returns as well as tax planning and consultation on new tax legislation, regulations, rulings, and developments.

Audit Committee Pre-Approval Policies

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

All services provided by BDO Seidman, LLP in the fiscal years ended June 30, ~~2006~~2007, and ~~2005~~2006 were pre-approved by the Audit Committee.

5359

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~~Control Over Financial Reporting

	•		~~Reports~~Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting

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

	•		Consolidated Balance Sheets as of June 30, ~~2006~~2007 and ~~2005~~2006

	•		Consolidated Statements of Operations and Comprehensive Income for the three years ended June 30, ~~2006~~2007

	•		Consolidated Statements of Shareholders’ Equity for the three years ended June 30, ~~2006~~2007

	•		Consolidated Statements of Cash Flows for the three years ended June 30, ~~2006~~2007

	•		Notes to Consolidated Financial Statements

2. Financial Statement Schedules

None.

3. Exhibits

	3.1		~~Third~~Fourth Restated and Amended Articles of Incorporation of Company, incorporated by reference to the Company’s Form ~~10-K~~10-Q for the ~~fiscal year~~quarterly report ended ~~June 30, 1996~~March 31, 2007 (EDGAR Accession Number ~~0000754811-96-000025)~~000095134-07-010817).

	3.2		Amended and Restated By-Laws of Company, incorporated by reference to Exhibit D3.02 of the Company’s ~~Registration Statement No. 33-33012~~Form 8-K filed on ~~Form S-8 with the Commission on January 30, 1990, as amended~~November 8, 2006, (EDGAR Accession Number ~~0000754811-00-000017)~~0000754811-06-000076).

	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).

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

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

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

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

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

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

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

	10.10		Amendment dated June 3, 2005, to loan agreement between Company and Bank One NA, ~~included herein.~~incorporated by reference to Exhibit 10.10 of the Company’s Form 10-K filing on September 12, 2006 (EDGAR Accession No. 0000950134-06-017619).

	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

			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.~~incorporated by reference to Exhibit 10.17 to the Company’s Form 8-K filed on November 12, 2006 (EDGAR Accession No. 0000950134-06-017619).

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

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

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

	10.21		Amendment dated March 21, 2002 to Appendix A of the Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016).

	10.22		Amendment dated September 30, 2004 to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Post-Effective Amendment No. 26 to Registration Statement on Form N1-A dated January 20, 2005 (EDGAR Accession No. 902042-05-000004).

	10.23		Amendment dated April 23, 2006 to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., ~~included herein.~~incorporated by reference to Exhibit 10.23 to the Company’s Form 8-K filed on November 12, 2006 (EDGAR Accession No. 0000950134-06-017619).

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

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

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

	10.27		Amendment to Credit Agreement dated February 1, 2007, by and between the Company and JP Morgan Chase Bank N.A., originally entered into on June 3, 2005, included herein.

	10.28		Note Modification Agreement dated February 1, 2007, by and between the Company and JP Morgan Chase Bank N.A. referencing a Line of Credit Note entered on June 3, 2005, included herein.

	10.29		Sub-Advisory Agreement by and between U.S. Global Accolade Funds, Eastern European Fund and Charlemagne Capital (IOM) Limited, dated August 31, 2006, incorporated by reference to Post Effective Amendment 37 and Sub-Advisory Agreement by and between U.S. Global Accolade Funds/Global Emerging Markets Fund and Charlemagne Capital (IOM) Limited, dated August 31, 2006, incorporated by reference to Post Effective Amendment 37, dated December 29, 2006, (EDGAR Accession No. 000902042-07-000004).

	10.30		Transfer Agency Agreement Dated April 1, 2007, by and between United Shareholder Services, Inc. and U.S. Global Accolade Funds, included herein.

	10.31		Transfer Agency Agreement Dated April 1, 2007, by and between United Shareholder Services, Inc. and U.S. Global Investors Funds, incorporated by reference to Post-Effective Amendment No. 96 to Registration Statement on Form N-1A dated September 4, 2007 (EDGAR Accession No. 0001068800-07-001420).

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

	14.02		Code of Ethics, adopted June 28, 1989, and amended March 23, 2005, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2005 (EDGAR Accession Number 0000950134-05-018480).

	21		List of Subsidiaries of the Company, included herein.


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

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

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

(b) Reports on Form 8-K

	(i)		On July 21, 2005, the Company filed a Current Report on Form 8-K dated July 21, 2005, reporting Item 1.01 (Entry into a Material Definitive Agreement) announcing the approval of a bonus plan with specific performance criteria for Mr. Frank E. Holmes, Chief Executive Officer and Chief Investment Officer of U.S. Global Investors, Inc. for the fiscal year ended June 30, 2005.

	~~(ii)~~		On September 28, 2005, the Company filed a Current Report on Form 8-K dated September 28, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the fiscal year ended June 30, 2005.

	~~(iii)~~		On November 14, 2005, the Company filed a Current Report on Form 8-K dated November 14, 2005, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended September 30, 2005.

	~~(iv)~~		On February 14, 2006, the Company filed a Current Report on Form 8-K dated February 14, 2006, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended December 31, 2005.

	~~(v)~~		On May 15, 2006, the Company filed a Current Report on Form 8-K dated May 15, 2006, reporting Item 2.02 (Results of Operations and Financial Condition) announcing a press release reporting earnings for the quarter ended March 31, 2006.

	~~(vi)~~		On August 10, 2006, the Company filed a Current Report on Form 8-K dated August 10, 2006, reporting Item 8.01 (Other Events) announcing a press release reporting the earnings of an annual performance fee for its role in providing advisory services to a merchant banking company that invests in the natural resources sector.

	~~(vii)~~(ii)		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.

	(iii)		On November 8, 2006, the Company filed a Current Report on Form 8-K dated November 8, 2006, reporting Item 8.01 (Other Events) announcing a press release that the board of directors had approved a two-for-one stock split, special dividend, and amendment to the Articles of Incorporation.

	(iv)		On November 9, 2006, the Company filed a Current Report on Form 8-K dated November 9, 2006, reporting Item 2.02 (Results of Operation and Financial Condition) announcing a press release for reporting earnings for the quarter ended September 30, 2006.

5763

	(v)		On November 21, 2006, the Company filed a Current Report on Form 8-K dated November 21, 2006, reporting Item 8.01 (Other Events) announcing a press release that the Company has filed its definitive proxy statement and declaration of a dividend.

	(vi)		On January 12, 2007, the Company filed a Current Report on Form 8-K dated January 12, 2007, reporting Item 8.01 (Other Events) announcing a press release regarding the adjournment of the special meeting dated January 10, 2007.

	(vii)		On January 12, 2007, the Company filed a Current Report on Form 8-K/A dated January 12, 2007, reporting Item 8.01 (Other Events) announcing a press release regarding the adjournment of the special meeting dated January 10, 2007.

	(viii)		On January 26, 2007, the Company filed a Current Report on Form 8-K dated January 26, 2007, reporting Item 2.02 (Results of Operation and Financial Condition) announcing a press release reporting the performance fee to date accruing to the Company for serving as the equity investment manager for Endeavour Mining Capital.

	(ix)		On January 31, 2007, the Company filed a Current Report on Form 8-K dated January 31, 2007, reporting Item 8.01 (Other Events) announcing a press release regarding the Company’s adjournment of the special meeting called for January 31, 2007 to February 21, 2007.

	(x)		On February 1, 2007, the Company filed a Current Report on Form 8-K/A dated February 1, 2007, reporting Item 8.01 (Other Events) containing a corrected press release, which was issued by the Company on January 31, 2007.

	(xi)		On February 8, 2007, the Company filed a Current Report on Form 8-K dated February 8, 2007, reporting Item 2.02 (Results of Operation and Financial Condition) announcing a press release for reporting earnings and other financial results for its second fiscal quarter of the fiscal year ending June 30, 2007.

	(xii)		On February 22, 2007, the Company filed a Current Report on Form 8-K dated February 22, 2007, reporting Item 8.01 (Other Events) announcing two press releases for (i) shareholder approval to affect a two-for-one stock split and (i) shareholder approval for the second amendment to its Articles of Incorporation.

	(xiii)		On May 7, 2007, the Company filed a Current Report on Form 8-K dated May 7, 2007, reporting Item 2.02 (Results of Operation and Financial Condition) announcing a press release for reporting earnings and other financial results for its third fiscal quarter of the fiscal year ending June 30, 2007.


Part I of Annual Report on Form 10-K			1
Item 1. Business			1
Item 1A. Risk Factors			6
Item 1B. Unresolved Staff Comments			7
Item 2. Properties			7
Item 3. Legal Proceedings			7
Item 4. Submission of Matters to a Vote of Security Holders			7
Part II of Annual Report on Form 10-K			8
Item 5. Market for Company’s Common Equity and Related Shareholder Matters			8
Item 6. Selected Financial Data			1011
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1112
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			2122
Item 8. Financial Statements and Supplementary Data			2223
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			4243
Item 9A. Controls and Procedures			4344
Item 9B. Other Information			4344
Part III of Annual Report on Form 10-K			4445
Item 10. Directors and Executive Officers of the Company			4445
Item 11. Executive Compensation			4647
Item 12. Security Ownership of Certain Beneficial Owners and Management			5056
Item 13. Certain Relationships and Related Transactions			5258
Item 14. Principal Accounting Fees and Services			5359
Part IV of Annual Report on Form 10-K			5460
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K			5460
Signatures			5865
Exhibit 21 — Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership			59
Exhibit 31.1 — Rule 13a –— 14(a) Certifications(under Section 302 of the Sarbanes-Oxley Act of 2002)			93
Rule 13a –— 14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)			94
Exhibit 32.1 — Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)			95
Amendment to ~~Loan~~Credit Agreement
~~Amendment to Custodian~~Note Modification Agreement ~~- U.S. Global Investors~~
~~Amendment to Custodian~~Transfer Agency Agreement ~~- U.S. Global Accolade Funds~~
List of Subsidiaries
~~Certification Pursuant to Section 302~~Rule 13a-14(a) Certifications
~~Certification Pursuant to~~ Section ~~906~~1350 Certifications


								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)			tax

Trading¹										$	6,334,474	$	5,990,256	$	344,218			N/A
Available for sale²											856,573		865,152		(8,579	)	$	(5,589	)

Total at June 30, 2007										$	7,191,047	$	6,855,408	$	335,639


Trading¹	$	4,659,824	$	4,011,961	$	647,863			—	$	4,659,824	$	4,011,961	$	647,863			N/A
Available for sale²		82,202		45,444		36,758		$	24,259		82,202		45,444		36,758		$	24,259

Total at June 30, 2006		4,742,026		4,057,405		684,621				$	4,742,026	$	4,057,405	$	684,621


Trading¹	$	2,612,529	$	3,040,700	$	(428,171	)		—
Available for sale²		890,461		299,055		591,406		$	390,328

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

	~~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	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 omnibussubadvisory fees increased by ~~$0.9 million due to increase asset inflows through broker platforms.~~17%, or $1.3 million.


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


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

		~~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.~~

		~~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.

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

		The Company posted net after-tax income of $10,435,362 ($1.39 per share) for the year ended June 30, 2006, compared with net after-tax income of $1,446,471 ($0.19 per share) for the year ended June 30, 2005. Year Ended June 30, 2007, Compared with Year Ended June 30, 2006 The Company posted net after-tax income of $13,759,249 ($.91 per share) for the year ended June 30, 2007, compared with net after-tax income of $10,435,362 ($.69 per share) for the year ended June 30, 2006. This 31.9% increase in profitability is primarily attributable to the following factors:

	•		The Company’s advisory fees, boosted primarily by the positive impact of market gains and shareholder investments in natural resource and foreign equity funds, increased by ~~165.2%~~33%, or ~~$23.1 million.~~

	•		~~Investment income increased by 727.3%, or $2.6 million, primarily due to realized~~$12.4 million; and ~~unrealized gains on corporate investments.~~

	•		Transfer agent fees increased by ~~67.3%~~41%, or ~~$2.1~~$2.2 million, primarily as a result of growth in the number of shareholder ~~accounts.~~accounts and a revised transfer agent fee structure, which incorporated transaction- and activity-based fees.

	•		~~Consistent with continued growth in the Eastern European Fund, subadvisory~~Omnibus fees increased by ~~180.1%~~54%, or ~~$4.9 million;~~$2.6 million, due to increased asset inflows through broker/dealer platforms;

	•		Driven by strong mutual fund and offshore fund performance, employee compensation expense increased by ~~75.8%~~21%, or ~~$4.5~~$2.2 million, primarily due to higher salaries and 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,~~bonuses;

	•		General and administrative expenses increased ~~42.9%~~37%, or ~~$1.6~~$2.0 million, ~~due to additional Sarbanes-Oxley related~~primarily as a result of increased consulting, legal, audit and accounting fees; ~~communication; legal fees;~~ and, ~~marketing-related travel and entertainment costs.~~


(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	%


	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		—		—


						Increase
				Estimated Fair		(Decrease) in
			Hypothetical	Value After		Shareholders’
	Fair Value at June 30,		Percentage	Hypothetical		Equity, Net
	2006 ($)		Change	Price Change ($)		of Tax ($)
Trading securities¹		4,659,824	25% increase		5,824,780		768,871
			25% decrease		3,494,868		(768,871	)
Available-for-sale²		82,202	25% increase		102,753		13,563
			25% decrease		61,652		(13,563	)


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

⁽²⁾²		Total gross unrealized gains and losses on trading securities recorded in fiscal ~~2006~~2007 are comprised primarily of the unrealized ~~gain~~gains and losses on ~~four~~seven securities, which ~~makes~~make up ~~$826,240~~$197,172 of the ~~$1,076,034,~~$303,645, or ~~77%~~65%, of the gross unrealized ~~gains~~losses recorded.


	Less Than 12 Months				12 Months or Greater				Total
			Unrealized				Unrealized				Unrealized		Less Than 12 Months				12 Months or Greater				Total
Fiscal Year	Fair Value		Losses		Fair Value		Losses		Fair Value		Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2007													$	739,977	$	79,731	$	0	$	0	$	739,977	$	79,731
2006	$	7,614	$	3,137	$	0	$	0	$	7,614	$	3,137	$	7,614	$	3,137	$	0	$	0	$	7,614	$	3,137
2005	$	112,702	$	35,953	$	51,039	$	40,793	$	163,741	$	76,746


			Weighted						Weighted
			Average				Weighted		Average		Aggregate
			Exercise				Average		Remaining		Intrinsic
	Shares		Price ($)				Exercise		Contractual		Value (net
Outstanding June 30, 2003		161,500		1.94
Granted		—		—
Canceled		10,000		1.58
Exercised		500		1.82
					Shares		Price ($)		Life in Yrs		of tax)
Outstanding June 30, 2004		151,000		1.94		302,000		.97
Granted		20,000		3.29		40,000		1.65
Canceled		2,000		2.07		4,000		1.04
Exercised		4,500		1.63		9,000		.82

Outstanding June 30, 2005		164,500		2.11		329,000		1.06
Granted		5,000		15.38		10,000		7.69
Canceled		10,000		2.00		20,000		1.00
Exercised		86,500		2.19		173,000		1.10

Outstanding June 30, 2006		73,000		2.93		146,000		1.47
Granted						23,000		24.74
Canceled						—		—
Exercised						112,000		1.06

Outstanding June 30, 2007						57,000		11.65		6.56	$	364,325


	Options Outstanding							Options Exercisable
						Weighted				Weighted
	Date of			Remaining		Average				Average
	Option	Number		Life in		Exercise		Number		Option
	Grant	Outstanding		Years		Price ($)		Exercisable		Price ($)
1989 Plan	12/03/99		15,000		3.42		1.50		15,000		1.50

Class A			15,000		3.42		1.50		15,000		1.50

1997	06/04/97		26,000		.92		1.82		26,000		1.82
Plan	12/03/99		12,000		3.42		1.50		12,000		1.50
Class A	10/01/04		15,000		8.25		3.29		5,000		3.29
	02/24/06		5,000		9.65		15.38		0		15.38

			58,000		4.09		3.30		43,000		1.90

All Plans	12/99 through 02/06		73,000		3.95		2.93		58,000		1.80


	Year Ended June 30,
				% of						% of						% of			Year Ended June 30,
	2006			Pretax			2005			Pretax			2004			Pretax			2007		% of Pretax			2006			% of Pretax			2005			% of Pretax
Tax expense at statutory rate	$	5,479,589			34.5	%	$	760,390			34.0	%	$	966,443			34.0	%	$	7,439,441		34.9	%	$	5,479,589			34.5	%	$	760,390			34.0	%
Change in valuation allowance		—			—			(34,472	)		(1.5	%)		(280,921	)		(9.9	%)		—		—			—			—			(34,472	)		(1.5	%)
Other		(47,611	)		(0.3	%)		64,053			2.9	%		(9,683	)		(0.3	)%		147,058		0.7	%		(47,611	)		(0.3	)%		64,053			2.9	%

	$	5,431,978			34.2	%	$	789,971			35.3	%	$	675,839			23.8	%	$	7,586,499		35.5	%	$	5,431,978			34.2	%	$	789,971			35.3	%


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

Other comprehensive income										$	(216,280	)	$	73,535		$	(142,745	)
	Amount			Effect			Net-of-Tax Amount
June 30, 2006
Change in unrealized losses on available-for-sale securities	$	(3,746	)	$	1,273		$	(2,473	)	$	(3,746	)	$	1,273		$	(2,473	)
Less: reclassification adjustment for gains included in net income		(550,903	)		187,307			(363,596	)		(550,903	)		187,307			(363,596	)

Other comprehensive income	$	(554,649	)	$	188,580		$	(366,069	)	$	(554,649	)	$	188,580		$	(366,069	)

June 30, 2005
June 30, 2007
Change in unrealized losses on available-for-sale securities	$	(216,280	)	$	73,535		$	(142,745	)	$	409,050		$	(139,754	)	$	269,296

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

June 30, 2004
Change in unrealized gains on available-for-sale securities	$	979,158		$	(332,914	)	$	646,244
Less: reclassification adjustment for gains included in net income		(154,981	)		52,694			(102,287	)		(454,388	)		155,244			(299,144	)

Other comprehensive income	$	824,177		$	(280,220	)	$	543,957		$	(45,338	)	$	15,490		$	(29,848	)


Fiscal 2006	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Fiscal 2007									1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	6,575	$	7,761	$	11,557	$	18,961	$	11,908	$	12,418	$	12,444	$	21,833
Expenses		4,859		6,048		7,459		10,620		8,195		8,651		8,707		11,705
Income Before Income Taxes		1,716		1,713		4,098		8,341		3,712		3,767		3,738		10,128
Net Income		1,095		1,168		2,550		5,622		2,480		2,461		2,412		6,406
Earnings per Share:
Basic	$	0.15	$	0.16	$	0.34	$	0.74	$	0.16	$	0.16	$	0.16	$	0.42
Diluted	$	0.14	$	0.15	$	0.34	$	0.74	$	0.16	$	0.16	$	0.16	$	0.42


Fiscal 2005	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	$	2,962	$	4,106	$	4,884	$	5,029	$	6,575	$	7,761	$	11,557	$	18,961
Expenses		2,631		3,495		4,154		4,465		4,859		6,048		7,459		10,620
Income Before Income Taxes		331		611		730		564		1,716		1,713		4,098		8,341
Net Income		240		407		449		350		1,095		1,168		2,550		5,622
Earnings per Share:
Basic	$	0.03	$	0.05	$	0.06	$	0.05	$	0.07	$	0.08	$	0.17	$	0.37
Diluted	$	0.03	$	0.05	$	0.06	$	0.05	$	0.07	$	0.08	$	0.17	$	0.37


Fiscal 2004	1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
Fiscal 2005										1st Quarter		2nd Quarter		3rd Quarter		4th Quarter
(in thousands except per share figures)
Revenues	$	2,629	$	4,337	$	3,217	$	2,800		$	2,962	$	4,106	$	4,884	$	5,029
Expenses		1,946		2,514		2,870		2,811			2,631		3,495		4,154		4,465
Income (Loss) Before Income Taxes		683		1,823		347		(11	)		331		611		730		564
Net Income		688		1,248		240		(10	)		240		407		449		350
Earnings per Share:
Basic	$	0.09	$	0.17	$	0.03	$	(0.00	)	$	0.02	$	0.03	$	0.03	$	0.02
Diluted	$	0.09	$	0.17	$	0.03	$	(0.00	)	$	0.02	$	0.03	$	0.03	$	0.02


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


¹		These shares were awarded in fiscal 2007 but distributed in fiscal 2008.


Outstanding Equity Awards at Fiscal Year-End
	Stock Awards
	Number of Shares			Market Value of
	or Units of Stocks			Shares or Units That
Name	That Have Not Vested (#)			Have Not Vested ($)
Frank E. Holmes		200,000	¹		1,042,820
Catherine A. Rademacher		—			—
Susan B. McGee		—			—


¹		The value realized equals the difference between the option exercise price and the sale price of class A common stock at the time of exercise, multiplied by the number of shares for which the option was exercised.

²		The value realized equals the valuation of class C common stock on the vesting date, multiplied by the number of shares that vested.


Director Compensation
	Fees Earned
	or Paid in		Stock
	Cash		Awards
Name	($)¹		($)²		Total ($)
Jerold H. Rubinstein		142,000		9,029	$	151,029
Roy D. Terracina		27,000		9,029	$	36,029
Thomas F. Lydon, Jr.		24,000		9,029	$	33,029


¹		Includes certain fees earned in fiscal 2007 but paid in 2008. Difference in fees earned was primarily due to Mr. Rubinstein receiving an additional $5,000 per month and bonuses for added responsibilities as chairman.

²		Amounts shown represent expense recognized in the consolidated financial statements for stock awards granted to non-employee directors in fiscal 2007. These shares were granted pursuant to a plan that commenced in January 2007 to grant 100 shares of class A common stock to each non-employee director per quarter.


⁽¹⁾¹		Includes ~~1,000,000~~2,000,000 (post-split) shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a ten-year period and will be fully vested on June 30, 2008; ~~387,280~~74,560 shares owned directly by Mr. Holmes; and ~~4,931~~9,862 shares owned by Mr. Holmes in an IRA.


	Class A Common
	Shares
	Beneficially			Percent of
Name and Address of Beneficial Owner	Owned			Class (%)
Praetorian Capital Management, LLC^– Miami Beach, Florida⁽¹⁾		720,000	⁽¹⁾		11.85	%
Insight Capital Research & Management, Inc.– Walnut Creek, California⁽²⁾		557,508	⁽²⁾		9.17	%
Whitebox Advisors, LLC– Minneapolis, Minnesota⁽³⁾		354,428	⁽³⁾		5.83	%
Osmium Partners, LLC– San Francisco, California⁽⁴⁾		348,270	⁽⁴⁾		5.73	%
Royce & Associates, LLC. – New York, New York⁽⁵⁾		336,804	⁽⁵⁾		5.54	%
Navellier & Associates, Inc. – Reno, Nevada⁽⁶⁾		307,878	⁽⁶⁾		5.07	%


⁽¹⁾		~~Information is from Schedule 13G for period ending December 31, 2005, filed with the SEC on January 13, 2006.~~

⁽²⁾		~~Information is from Schedule 13F for period ending June 30, 2006, filed with the SEC on August 9, 2006.~~

⁽³⁾		~~Information is from Schedule 13F Amendment Number 2 for the period ending June 30, 2006, filed with the SEC on August 18, 2006.~~

⁽⁴⁾		~~Information is from Schedule 13G Amendment Number 1 for the period ending September 14, 2005, filed with the SEC on February 10, 2006.~~

⁽⁵⁾		~~Information is from Schedule 13G for the period ending July 31, 2006, filed with the SEC on August 7, 2006.~~

⁽⁶⁾		~~Information is from Schedule 13F for the period ending June 30, 2006, filed with the SEC on July 20, 2006.~~


	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	%		99,320			1.63	%		2,084,422	¹		92.4	%		199,932		1.54	%
Catherine A. Rademacher, CFO														—			—			13,210		0.10	%
Susan B. McGee, President, General Counsel		—			—			54,754	⁽²⁾		0.90	%		—			—			79,270		0.61	%
Catherine A. Rademacher, CFO		—			—			6,206	⁽³⁾		0.10	%
Jerold H Rubinstein, Director														—			—			500		0.004	%
Roy D. Terracina, Director		—			—			20,000			0.33	%		—			—			34,500		0.27	%
All directors and executive officers as a group (four persons)		1,392,211			93.01	%		180,280			2.97	%
Thomas F. Lydon, Jr., Director														—			—			500		0.004	%
All directors and executive officers as a group (six persons)														2,084,422			92.4	%		327,912		2.53	%


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

⁽²⁾²		Stock options under this plan may be granted to directors, executives, and key salaried employees of the Company from authorized but unissued shares or treasury shares. The term of the option periods must be less than ten years.

⁽³⁾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~~150,000 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.