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, 2008

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

for the transition period from                 to                

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

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

Yes o     No þ

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

Yes o     No þ

Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes þ     No o

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

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

Yes o     No þ

The aggregate market value of the 7,382,729 shares of nonvoting class A common stock held by nonaffiliates of the registrant was $121,741,201, based on the last sale price quoted on NASDAQ (adjusted for the split) as of December 31, 2007, the last business day of the registrant’s most recently completed second fiscal quarter. Registrant’s only voting stock is its class C common stock, par value of $0.025 per share, for which there is no active market. The aggregate value of the 20,767 shares of the class C common stock held by nonaffiliates of the registrant on December 31, 2007 (based on the last sale price of the class C common stock in a private transaction) was $10,383.50. For purposes of this disclosure only, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of the registrant’s common stock are affiliates of the registrant.

On August 22, 2008, there were 13,817,269 shares of Registrant’s class A nonvoting common stock issued and 13,169,461 shares of Registrant’s class A nonvoting common stock issued and outstanding, no shares of Registrant’s class B nonvoting common stock outstanding, and 2,094,279 shares of Registrant’s class C common stock issued and outstanding.

Documents incorporated by reference: None

 

 

     Table of Contents

Part I of Annual Report on Form 10-K			1
Item 1. Business			1
Item 1A. Risk Factors			6
Item 1B. Unresolved Staff Comments			8
Item 2. Properties			8
Item 3. Legal Proceedings			8
Item 4. Submission of Matters to a Vote of Security Holders			8
Part II of Annual Report on Form 10-K			9
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities			9
Item 6. Selected Financial Data			12
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations			13
Item 7A. Quantitative and Qualitative Disclosures About Market Risk			24
Item 8. Financial Statements and Supplementary Data			25
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			45
Item 9A. Controls and Procedures			46
Item 9B. Other Information			46
Part III of Annual Report on Form 10-K			47
Item 10. Directors, Executive Officers and Corporate Governance			47
Item 11. Executive Compensation			49
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			57
Item 13. Certain Relationships and Related Transactions, and Director Independence			59
Item 14. Principal Accounting Fees and Services			60
Part IV of Annual Report on Form 10-K			61
Item 15. Exhibits, Financial Statement Schedules			61
Signatures			64
Exhibit 21 — Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership
Exhibit 31.1 — Rule 13a — 14(a) Certifications(under Section 302 of the Sarbanes-Oxley Act of 2002)
Rule 13a — 14(a) Certifications (under Section 302 of the Sarbanes-Oxley Act of 2002)
Exhibit 32.1 — Section 1350 Certifications (under Section 906 of the Sarbanes-Oxley Act of 2002)
Amendment to Line of Credit Note
Code of Ethics
List of Subsidiaries
Rule 13a-14(a) Certifications
Section 1350 Certifications

Part I of Annual Report on Form 10-K

Item 1. Business

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

U.S. Global, a Texas corporation organized in 1968, is a registered investment adviser under the Investment Advisers Act of 1940. The Company and its subsidiaries are principally engaged in the business of providing investment advisory and other services to U.S. Global Investors Funds (“USGIF”) and U.S. Global Accolade Funds (“USGAF”), both Massachusetts business trusts (collectively, the “Trusts” or “Funds”), as well as 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.

     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 Funds’ 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 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 an agreed upon allocation of the employee’s compensation or on 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 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 USGIF and USGAF will meet to consider renewal of the applicable agreements in February and May 2009, respectively. Management anticipates that these Advisory Agreements will be renewed.

In addition to providing management and transfer agent services to USGIF and USGAF, the Company provides advisory services to three offshore clients.

Net assets under management at June 30, 2008, and 2007, are detailed in the following table.

Assets Under Management (AUM)
						AUM				AUM
						at June 30, 2008				at June 30, 2007
Fund		Ticker		Category		(in thousands)				(in thousands)
U.S. Global Investors Funds
All American Equity		GBTFX		Large cap core		$	26,485			$	23,589
China Region Opportunity		USCOX		China region			81,560				93,787
Global Resources		PSPFX		Natural resources			2,005,399				1,382,845
Gold and Precious Metals		USERX		Gold oriented			258,708				178,488
Near-Term Tax Free		NEARX		Short / intermediate municipal debt			13,584				13,354
Tax Free		USUTX		General municipal debt			18,333				15,899
U.S. Government Securities Savings		UGSXX		U.S. Government money market			445,239				468,777
U.S. Treasury Securities Cash		USTXX		U.S. Government money market			111,914				115,234
World Precious Minerals		UNWPX		Gold and precious minerals			948,348				924,820
U.S. Global Accolade Funds
Eastern European		EUROX		Emerging markets			1,335,768				1,393,152
Global Emerging Markets		GEMFX		Emerging markets			37,743				40,040
Holmes Growth		ACBGX		Mid-cap growth			61,482				63,182
Global MegaTrends		MEGAX		Large-cap growth			47,519				16,197
Total SEC-Registered Funds							5,392,082				4,729,364
Other Advisory Clients							360,763				299,578
Total AUM						$	5,752,845			$	5,028,942

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 boards of trustees of USGIF and USGAF will meet to consider renewal of the applicable agreements in February and May 2009, respectively. Management anticipates that these transfer agency agreements will be renewed.

Brokerage Services. The Company has registered its wholly owned subsidiary, U.S. Global Brokerage, Inc. (“USGB”), with the Financial Industry Regulatory Authority (“FINRA”), formerly known as 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. USGB is the distributor for USGIF and USGAF fund shares.

Mailing Services. A&B Mailers, Inc., now known as USSI Mailers, was dissolved during fiscal year 2008 and its operation was rolled into USSI. USSI Mailers provides mail-handling services to various entities; its 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.

Investment Activities. In addition to providing management and advisory services, the Company is actively engaged in trading for its own account.

As of June 30, 2008, U.S. Global and its subsidiaries employed 84 full-time employees and 9 part-time employees; as of June 30, 2007, it employed 76 full-time employees and 6 part-time employees. The Company considers its relationship with its employees to be good.

The mutual fund industry is highly competitive. According to the Investment Company Institute, at the end of 2007 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 Rule 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 12b-1 plans. 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 may be 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 and the activity in those 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 three 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.

The Company, USSI, USGB, and the investment companies the Company 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 potential 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 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 Investors, Inc. is registered as an investment adviser with the SEC. As a registered investment adviser, it is subject to the requirements of the Investment Advisers Act of 1940, as amended, and the SEC’s regulations there under, as well as to examination by the SEC’s staff. The Investment Advisers Act of 1940 imposes substantive regulation on virtually all aspects of our business and relationships with our clients. Applicable requirements relate to, among other things, fiduciary duties to clients, engaging in transactions with clients, maintaining an effective compliance program, conflicts of interest, advertising, recordkeeping, reporting and disclosure requirements. The funds for which the Company acts as the investment adviser are registered with the SEC under the Investment Company Act of 1940, as amended. The Investment Company Act of 1940 imposes additional obligations, including detailed operational requirements for both the funds and their advisers.

Moreover, an investment adviser’s contract with a registered fund may be terminated by the fund on not more than 60 days’ notice, and is subject to annual renewal by the fund’s board after an initial two-year term. Both the Investment Advisers Act of 1940 and the Investment Company Act 1940 regulate the “assignment” of advisory contracts by the investment adviser. The SEC is authorized to institute proceedings and impose sanctions for violations of the Investment Advisers Act and the Investment Company Act, ranging from fines and censures to termination of an investment adviser’s registration. The failure of the Company, or the funds which the Company advises, to comply with the requirements of the SEC could have a material adverse effect on us.

USGB is subject to regulation by the SEC under the 1934 Act and regulation by FINRA (formerly known as 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 FINRA upon request.

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 offshore clients. Even though the Company views its relationship with its offshore clients as stable, the Company could be adversely affected if these relationships ended.

Available Information. The Company’s internet website address is www.usfunds.com. Information contained on the Company’s website is not part of this annual report on Form 10-K. The Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed with (or furnished to) the Securities and Exchange Commission are available on the Company’s internet website, free of charge, soon after such material is filed or furnished. (The SEC filings can be found by clicking “About the Advisor” followed by “Financial Reports.”)

The Company also posts its corporate governance guidelines, code of business conduct, code of ethics for chief executive and financial officers, and the charters of the audit and compensation/options committees of its board of directors on the same website (in the “Compliance / Policies” section). The Company’s SEC filings and governance documents are available in print to any stockholder that makes a written request to, Terry Badger, Director of Communications, U.S. Global Investors, Inc., 7900 Callaghan Road, San Antonio, Texas 78229.

The public may read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC also maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.

Item 1A. Risk Factors

The Company faces a variety of significant and diverse risks, many of which are inherent in the business. Described below are certain risks that could materially affect the Company. Other risks and uncertainties that the Company does not presently consider to be material, or of which the Company is not presently aware, may become important factors that affect it in the future. The occurrence of any of the risks discussed below could materially and adversely affect the business, prospects, financial condition, results of operations or cash flow.

     The investment management business is intensely competitive.

Competition in the investment management business is based on a variety of factors, including:

	•		Investment performance;
	•		Investor perception of an investment team’s drive, focus and alignment of interest with them;
	•		Quality of service provided to, and duration of relationships with, clients and shareholders;
	•		Business reputation; and
	•		Level of fees charged for services.

The Company competes with a large number of investment management firms, commercial banks, broker-dealers, insurance companies and other financial institutions. Competitive risk is heightened by the fact that some competitors may invest according to different investment styles or in alternative asset classes which the markets may perceive as more attractive than the Company’s investment approach. If the Company is unable to compete effectively, revenues and earnings may be reduced, and the business could be materially affected.

     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.

The Company’s clients can terminate their agreements with the Company on short notice, which may lead to unexpected declines in revenue and profitability.

The Company’s investment advisory agreements are generally terminable on short notice and subject to annual renewal. The Company’s clients can terminate their relationships with us, or reduce the aggregate amount of assets under management, for a number of reasons, including investment performance, financial market performance, or to shift their funds to competitors who may charge lower advisory fee rates, or for no stated reason. Poor performance relative to that of other investment management firms tend to result in decreased investments in the funds managed by the Company, increased withdrawals from the funds, and the loss of shareholders in the funds. If the Company’s investment advisory agreements are terminated, which may occur in a short time frame, the Company may experience a decline in revenues and profitability.

Difficult market conditions can adversely affect the Company by reducing the market value of the assets we manage or causing shareholders to make significant redemptions.

The Company would be expected to generate lower revenues in a declining stock market or general economic downturn. Under the Company’s advisory fee arrangements, the fees received are primarily based on the market value of assets under management. Accordingly, a decline in the price of securities held in the funds would be expected to cause revenues and net income to decline, which would result in lower advisory fees; or cause increased shareholder redemptions in favor of investments they perceive as offering greater opportunity or lower risk, which redemptions would also result in lower advisory fees.

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.

The market price and trading volume of the Company’s class A common stock may be volatile, which could result in rapid and substantial losses for the Company’s stockholders.

The market price of the Company’s class A common stock may be volatile and the trading volume may fluctuate, causing significant price variations to occur. If the market price of the Company’s class A common stock declines significantly, stockholders may be unable to sell their shares at or above their purchase price. The Company cannot assure that the market price of its class A common stock will not fluctuate or decline significantly in the future. Some of the factors that could negatively affect the price of the Company’s class A common stock, or result in fluctuations in price or trading volume include:

	•		Decreases in assets under management;
	•		Variations in quarterly and annual operating results;
	•		Publication of research reports about the Company or the investment management industry;
	•		Departures of key personnel;
	•		Adverse market reactions to any indebtedness the Company may incur, acquisitions or disposals the Company may make, or securities the Company may issue in the future;
	•		Changes in market valuations of similar companies;
	•		Changes or proposed changes in laws or regulations, or differing interpretations thereof, affecting the business, or enforcement of these laws and regulations, or announcements relating to these matters;
	•		Adverse publicity about the asset management industry, generally, or individual scandals, specifically; and
	•		General market and economic conditions.

The market price of the Company’s class A common stock could decline due the large number of shares of the Company’s class C common stock eligible for future sale upon conversion to class A shares.

The market price of the Company’s class A common stock could decline as a result of sales of a large number of shares of class A common stock eligible for future sale upon the conversion of class C shares, or the perception that such sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for the Company to raise additional capital by selling equity securities in the future, at a time and price the Company deems appropriate.

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

The Company and its subsidiaries are subject to a variety of federal securities laws and agencies, including, but not limited to, the Investment Advisers Act of 1940, as amended, the Sarbanes-Oxley Act of 2002, the Gramm-Leach-Bliley Act of 1999, the Bank Secrecy Act of 1970, as amended, the USA PATRIOT Act of 2001, the SEC, FINRA and NASDAQ. 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.

During the past seven 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 Company intends to pay cash dividends on a monthly basis, but the board of directors, at its discretion, may decrease the level or frequency of dividends or discontinue payment of dividends entirely based on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.

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.

Item 1B. Unresolved Staff Comments

None

Item 2. Properties

The Company presently owns and occupies an office building as its headquarters in San Antonio, Texas. The office building is approximately 46,000 square feet on approximately 2.5 acres of land.

Item 3. Legal Proceedings

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

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

No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 30, 2008.

Part II of Annual Report on Form 10-K

The Company has three classes of common equity: class A, class B and class C common stock, par value $0.025 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, 2008, and 2007. 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)
		2008								2007
		High ($)				Low ($)				High ($)				Low ($)
First quarter (9/30)			26.33				18.22				17.41				8.77
Second quarter (12/31)			24.50				14.80				36.31				11.28
Third quarter (3/31)			17.95				12.31				34.95				17.49
Fourth quarter (6/30)			20.20				12.41				34.90				19.98

On August 22, 2008, there were approximately 192 holders of record of class A common stock, no holders of record of class B common stock, and 53 holders of record of class C common stock.

On March 29, 2007, a two-for-one stock split became effective and shareholders of record were paid a $0.25 per share dividend (post-split). The board then authorized a dividend of $0.01 per share per month beginning in June 2007. The board authorized an increase to $0.02 per share per month beginning in October 2007. The dividend is payable on class A and class C shares. The monthly dividend is authorized through December 2008 and will be considered for continuation at that time by the board. Prior to 2007, the Company had not paid cash dividends on its class C common stock during the previous twenty-two fiscal years and had never paid 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.

The Company may repurchase stock from employees. There were no repurchases of class A, B or class C common stock during the fiscal year ended June 30, 2008.

The following graph compares the cumulative total return for the Company’s class A common stock (GROW) to the cumulative total return for the S&P 500 Index, the Russell 2000 Index and the American Stock Exchange Gold BUGS Index (HUI) for the Company’s last five fiscal years. The graph assumes an investment of $10,000 in the class A common stock and in each index as of June 30, 2003, and that all dividends are reinvested. The historical information included in this graph is not necessarily indicative of future performance and the Company does not make or endorse any predictions as to future stock performance.

     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, 2008, 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. Earnings per share have been restated for prior years to reflect the stock split that occurred in March 2007 and for all other information included throughout the document.

Selected		Year ended June 30,
Financial Data		2008				2007				2006				2005				2004
Revenues		$	56,039,247			$	58,603,637			$	44,853,588			$	16,981,339			$	12,983,500
Expenses			39,457,020				37,257,889				28,986,248				14,744,897				10,141,019
Income before income taxes			16,582,227				21,345,748				15,867,340				2,236,442				2,842,481
Income tax expense			5,745,417				7,586,499				5,431,978				789,971				675,839
Net income		$	10,836,810			$	13,759,249			$	10,435,362			$	1,446,471			$	2,166,642
Basic income per share			0.71				0.91				0.69				0.10				0.15
Working capital			35,309,228				27,925,318				18,275,909				7,078,554				5,267,573
Total assets			45,494,619				39,793,113				29,046,853				12,102,515				9,356,596
Dividends per common share			0.21				0.26				—				—				—
Shareholders’ equity			39,233,744				31,095,202				20,543,211				9,903,088				8,485,346
Net cash provided by operations			14,309,886				8,867,278				5,532,505				986,120				2,669,928
Net cash provided by (used in) investing activities			(1,180,602	)			(746,787	)			265,053				(67,634	)			(30,328	)
Net cash provided by (used in) financing activities			(2,848,629	)			(3,322,114	)			444,307				64,016				(970,167	)

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

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

U.S. Global, with principal operations located in San Antonio, Texas, manages two business segments.

First, the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and second, 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 (collectively, the “Funds”) and three offshore clients. Although the Company generates the majority of its revenues from its investment advisory segment, the Company holds a significant amount of its total assets in investments. As of June 30, 2008, the Company held approximately $8.2 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 2008, average assets under management increased 12.2% to $5.437 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)
		2008				2007				% Change				2007				2006				% Change
USGIF — Money Market		$	586			$	564				4.0	%		$	564			$	526				7.2	%
USGIF — Other			2,989				2,558				16.8	%			2,558				1,630				56.9	%
USGIF — Total			3,575				3,122				14.5	%			3,122				2,156				44.8	%
USGAF			1,550				1,488				4.2	%			1,488				1,286				15.7	%
Total SEC-Registered Funds			5,125				4,610				11.2	%			4,610				3,442				33.9	%
Other Advisory Clients			312				236				32.2	%			236				61				286.9	%
Average Assets Under Management		$	5,437			$	4,846				12.2	%		$	4,846			$	3,503				38.3	%

     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, 2008, and June 30, 2007.

														Unrealized holding
														gains on
														available-for-sale
										Unrealized Gain				securities, net of
Securities		Market Value				Cost				(Loss)				tax
Trading 1		$	6,991,843			$	6,275,478			$	716,365				N/A
Available for sale 2			1,246,769				1,739,795				(493,026	)		$	(325,397	)
Total at June 30, 2008		$	8,238,612			$	8,015,273			$	223,339
Trading 1		$	6,334,474			$	5,990,256			$	344,218				N/A
Available for sale 2			856,573				865,152				(8,579	)		$	(5,589	)
Total at June 30, 2007		$	7,191,047			$	6,855,408			$	335,639

As of June 30, 2008, and 2007, the Company held approximately $2.4 million and $2.0 million, respectively, in investments other than USGIF, USGAF and offshore clients the Company advises.

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

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

	•		realized gains and losses on sales of securities;
	•		unrealized gains and losses on trading securities;
	•		realized foreign currency gains and losses;
	•		other-than-temporary impairments on available-for-sale securities; and
	•		dividend and interest income.

Investment income can be volatile and may vary depending on market fluctuations, the Company’s ability to participate in investment opportunities, and timing of transactions. A significant portion of the unrealized gains and losses is concentrated in a small number of issuers. For fiscal years 2008, 2007, and 2006, the Company had net realized gains (losses) of approximately $(152,323), $737,000, and $828,000, respectively. The Company expects that gains or losses will continue to fluctuate in the future.

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.

		2008				2007				% Change				2007				2006				% Change
Net income (in thousands)		$	10,837			$	13,759				(21.2	%)		$	13,759			$	10,435				31.9	%
Net income per share
Basic		$	0.71			$	0.91				(22.0	%)		$	0.91			$	0.69				31.9	%
Diluted		$	0.71			$	0.90				(21.1	%)		$	0.90			$	0.69				30.4	%
Weighted average shares outstanding (in thousands)
Basic			15,247				15,162								15,162				15,032
Diluted			15,275				15,242								15,242				15,146

     Year Ended June 30, 2008, Compared with Year Ended June 30, 2007

The Company posted net after-tax income of $10,836,810 ($0.71 per share) for the year ended June 30, 2008, compared with net after-tax income of $13,759,249 ($0.91 per share) for the year ended June 30, 2007. This 21.2% decrease in profitability is primarily attributable to the following factors:

	•		Endeavour performance fees decreased by $6.3 million, or 70%, to $2.7 million. This decrease was due primarily to Endeavour’s exposure to junior natural resources stocks, which were adversely impacted by a market environment in which risk aversion increased and access to capital decreased. Other offshore performance fees decreased by approximately $981,000, or 59%, to $694,000. The decrease in performance fees was slightly offset by an offshore management fee increase of $711,000, or 29%, due to higher assets under management. Despite a volatile market, management fees benefited from a higher base level of assets under management from the prior year.
	•		The Company’s SEC-registered advisory fees increased by $3.1 million, or 9 %, primarily as a result of the positive impact of market gains and shareholder investments in natural resources and foreign equity funds. Offsetting these increases were overall declines in offshore advisory fees of $6.6 million as described above, for a net decrease in advisory fees of $3.5 million, or 7%.
	•		Transfer agent revenues increased by 12%, or $918,000, primarily as a result of growth in the number of shareholder accounts and a revised transfer agent fee structure, which incorporated transaction- and activity-based fees;
	•		Platform fees increased by 20%, or $1.5 million, due to increased asset inflows through broker-dealer platforms;
	•		Driven by strong mutual fund and offshore fund performance, employee compensation expense increased by 8%, or $1.0 million, primarily due to higher salaries and incentive bonuses;
	•		Consistent with continued growth in the Eastern European Fund, subadvisory fees increased by 3%, or $288,000; and
	•		General and administrative expenses decreased 9%, or $676,000, primarily as a result of decreased consulting and legal fees.

     Year Ended June 30, 2007, Compared with Year Ended June 30, 2006

The Company posted net after-tax income of $13,759,249 ($0.91 per share) for the year ended June 30, 2007, compared with net after-tax income of $10,435,362 ($0.69 per share) for the year ended June 30, 2006. The increase in profitability in fiscal year 2007 primarily resulted from an increase of $12.4 million in advisory fees and $2.2 million in transfer agent fees. These factors were somewhat offset by an increase of $2.6 million in platform fees, $2.2 million in employee compensation, $2.0 million in general and administrative expenses, and $1.3 million in subadvisory fees.

     Revenues

(Dollars in Thousands)		2008				2007				% Change				2007				2006				% Change
Investment advisory fees:
USGIF — Money market		$	1,605			$	1,776				(9.6	%)		$	1,776			$	1,687				5.3	%
USGIF — Other			18,754				16,296				15.1	%			16,296				11,068				47.2	%
USGIF — Total			20,359				18,072				12.7	%			18,072				12,755				41.7	%
USGAF			19,159				18,350				4.4	%			18,350				15,767				16.4	%
Total mutual fund advisory fees			39,518				36,422				8.5	%			36,422				28,522
Other advisory fees			6,538				13,095				(50.1	%)			13,095				8,622				51.9	%
Total investment advisory fees			46,056				49,517				(7.0	%)			49,517				37,144				33.3	%
Transfer agent fees			8,455				7,537				12.2	%			7,537				5,332				41.4	%
Investment income			1,447				1,357				6.7	%			1,357				2,203				(38.4	)%
Other revenues			81				193				(58.2	%)			193				175				10.3	%
Total		$	56,039			$	58,604				(4.4	%)		$	58,604			$	44,854				30.7	%

As a percentage of total revenues, SEC-registered mutual fund advisory fees account for 71%, offshore investment advisory fees constitute 12%, transfer agent fees account for 15%, and investment income and miscellaneous income together make up the remaining 2%.

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 2008 accounted for 86% of the Company’s total advisory fees, and offshore investment advisory fees, which accounted for 14% 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 $3.1 million, or 8.5%, in fiscal 2008 over fiscal 2007. 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 two USGAF funds, through November 1, 2008, and February 28, 2009, 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 $1,422,000, $1,178,000, and $1,181,000, in 2008, 2007, and 2006, respectively. The Company expects to continue to waive fees and/or pay for fund expenses if market and economic conditions warrant. However, subject to the Company’s commitment to certain funds with respect to fee waivers and expense limitations, the Company may reduce the amount of Fund expenses it is bearing.

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

	•		market appreciation or depreciation;
	•		the addition of new client accounts;
	•		client contributions of additional assets to existing accounts;
	•		withdrawals of assets from and termination of client accounts;
	•		exchanges of assets between accounts or products with different fee structures; and
	•		the amount of fees voluntarily reimbursed.

The Boards of Trustees of USGIF and USGAF have called a Special Meeting of Shareholders for September 23, 2008, to consider several proposals, including proposals to approve (i) a new Advisory Agreement for USGIF and USGAF and (ii) a new Distribution Plans for the nine equity USGIF and USGAF Funds under which U.S. Global Brokerage, Inc. would be paid a fee at an annual rate of

0.25% of the average daily net assets of each Fund. A full discussion of the proposals is set forth in proxy materials filed with the SEC by USGIF and USGAF.

The proposed new Advisory Agreement for the nine equity USGIF and USGAF Funds provides for a base advisory fee that will be adjusted upwards or downwards by 0.25% if there is a performance difference of 5% or more between a Fund’s performance and that of its designated benchmark index over the prior 12 months. With respect to four equity USGIF Funds, the new Advisory Agreement also will increase the base advisory fee and make changes to the advisory fee breakpoints. In addition, if the new Advisory Agreement is approved, administrative services that are part of the current Advisory Agreement will be removed and become the subject of a completely separate Administration Agreement. Under the Administration Agreement, USGIF and USGAF would no longer reimburse the Company for certain legal and administrative services, but instead would pay the Company compensation at an annual rate of 0.08% of the average daily net assets of each Fund for these and other administrative services.

If approved, the Company has agreed to cap the expenses of each Fund for the first year: Going forward, the Company and each Fund’s Board of Trustees would negotiate the amounts of these expense caps annually during the consideration of the renewal of the Advisory Agreement.

The Company provides advisory services for three offshore clients. The company receives a monthly advisory fee and a quarterly or annual performance fee, if any, based on the overall increase in value of net assets, and in the case of one client, based on a percentage of consolidated net income from operations in excess of a predetermined percentage return on equity. Offshore investment advisory fees decreased by $6.6 million, or 50.1 percent, to $6.5 million in fiscal 2008 compared to $13.1 million in fiscal 2007. Due to potential market volatility, performance fees are subject to fluctuation based on factors that may be out of the Company’s control, and are not necessarily predictive of future revenue. 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 well as transaction- and activity-based fees 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, significantly affected by the number of client accounts.

The increase in transfer agent fees in fiscal years 2008 and 2007 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 effective April 1, 2007, 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 $90,000 in fiscal 2008 compared to fiscal 2007. This increase can be attributed primarily to increases in unrealized gains on corporate investments.

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, $0 and $28,655 for the fiscal years ending 2008, 2007 and 2006, respectively.

     Expenses

(Dollars in Thousands)		2008				2007				% Change				2007				2006				% Change
Employee compensation and benefits		$	13,608			$	12,560				8.3	%		$	12,560			$	10,359				21.2	%
Subadvisory fees			9,223				8,935				3.2	%			8,935				7,619				17.3	%
General and administrative			6,805				7,482				(9.0	%)			7,482				5,460				37.0	%
Platform fees			9,049				7,528				20.2	%			7,528				4,882				54.2	%
Advertising			488				509				(4.1	%)			509				513				(0.8	)%
Depreciation			284				244				16.5	%			244				153				59.5	%
Total		$	39,457			$	37,258				5.9	%		$	37,258			$	28,986				28.5	%

Employee Compensation and Benefits. Employee compensation and benefits increased by $1.0 million, or 8.3%, in 2008 and $2.2 million, or 21%, in fiscal 2007, 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 two funds that are subadvised by third-party managers. The increases in subadvisory fees of $.3 million and $1.3 million in fiscal years 2008 and 2007, respectively, resulted primarily from growth in assets in the Eastern European Fund. The subadvisory agreement related to the MegaTrends Funds (subsequently renamed the Global MegaTrends Fund) was terminated effective September 30, 2007.

General and Administrative. The decrease in general and administrative expenses of $.7 million, or (9.0%), in fiscal year 2008, resulted primarily from decreased consulting and legal fees. The increase in general and administrative expenses of $2.0 million, or 37%, in fiscal year 2007 is primarily attributable to increased consulting, legal, audit and accounting fees.

Platform 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 platform fee expenses have increased by $1.5 million and $2.6 million during fiscal years 2008 and 2007, 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 platform fees on those assets.

Advertising. Advertising expense was essentially flat in fiscal 2008 compared to fiscal 2007.

Depreciation. Depreciation expense increased by $40,000 in fiscal year 2008 and $91,000 in fiscal 2007 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 basis 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, 2008, 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, 2008.

     Off Balance Sheet Arrangements

The Company does not have any off balance sheet arrangements.

     Contractual Obligations

A summary of contractual obligations of the Company as of June 30, 2008, 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		$	622,892			$	234,717			$	313,061			$	75,114				—
Contractual Obligations			1,320,000				1,255,000				65,000				—				—
Total		$	1,942,892			$	1,489,717			$	378,061			$	75,114				—

Operating leases consist of telephone equipment, printers, and copiers leased from several vendors. Contractual obligations include agreements to fund educational programs and building renovation commitments. Although no additional contracts have been signed at this time, additional improvements may be made over the next 18 to 24 months at a cost of approximately $2 to $4 million. 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.

In addition, the board has authorized a monthly dividend of $0.02 per share through December 2008, at which time it will be considered for continuation by the board. 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. The total amount of cash dividends to be paid to class A and class C shareholders from July 2008 to December 2008 will be approximately $1.8 million.

     Liquidity and Capital Resources

At fiscal year end, the Company had net working capital (current assets minus current liabilities) of approximately $35.3 million and a current ratio (current assets divided by current liabilities) of 6.6 to 1. With approximately $25.1 million in cash and cash equivalents and $8.2 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders’ equity was approximately $39.2 million, with cash, cash equivalents, and marketable securities comprising 73.4% 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, 2009, and June 1, 2009, 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.

Please refer to “Contractual Obligations” for a discussion on commitments related to the Company’s building renovation.

     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 generally accepted accounting principles 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 ongoing 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 assumptions and estimates involving significant judgment are those relating to valuation of security investments, income taxes, valuation of stock-based compensation, revenue recognition on advisory contracts, related party transactions and recent accounting pronouncements.

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 or 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.

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.

Income Taxes. The Company’s annual effective income tax rate is based on the mix of income and losses in its U.S. and non-U.S. entities which are part of the Company’s Consolidated Financial Statements, statutory tax rates, and tax-planning opportunities available to the Company in the various jurisdictions in which it operates. Significant judgment is required in evaluating the Company’s tax positions.

Tax law requires items to be included in the tax return at different times from when these items are reflected in the Company’s Consolidated Income Statement. As a result, the effective tax rate reflected in the Consolidated Financial Statements is different from the tax rate reported on the Company’s consolidated tax return. Some of these differences are permanent, such as expenses that are not deductible in the tax return, and some differences reverse over time, such as depreciation expense. These timing differences create deferred tax assets and liabilities. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and the tax basis of assets and liabilities. In addition, excess tax benefits associated with stock option exercises and vesting of restricted stock also create a difference between the tax rate used in the consolidated tax return and the effective tax rate in our Consolidated Income Statement.

The Company assesses uncertain tax positions in accordance with FIN 48, Accounting for Uncertainty in Income Taxes. Judgment is used to identify, recognize, and measure the amounts to be recorded in the financial statements related to tax positions taken or expected to be taken in a tax return. A liability is recognized to represent the potential future obligation to the taxing authority for the benefit taken in the tax return. These liabilities are adjusted, including any impact of the related interest and penalties, in light of changing facts and circumstances such as the progress of a tax audit. A number of years may elapse before a particular matter for which a reserve has been established is audited and finally resolved. The number of years with open tax audits varies depending on the tax jurisdiction.

Judgment is used in classifying unrecognized tax benefits as either current or noncurrent liabilities in the Company’s Consolidated Balance Sheets. Settlement of any particular issue would usually require the use of cash. A liability associated with unrecognized tax benefits will generally be classified as a noncurrent liability because there will usually be a period of several years between the filing of the tax return and the final resolution of an uncertain tax position with the taxing authority. Favorable resolutions of tax matters for which reserves have been established are recognized as a reduction to income tax expense when the amounts involved become known.

Assessing the future tax consequences of events that have been recognized in the Company’s Consolidated Financial Statements or tax returns requires judgment. Variations in the actual outcome of these future tax consequences could materially impact the Company’s financial position, results of operations, or cash flows.

Stock-Based Compensation. The Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R) on July 1, 2005. Under SFAS No. 123(R), stock-based compensation expense is measured at the grant date based on the fair value of the award, and the cost is recognized as expense ratably over the award’s vesting period. We measured the fair value of stock options granted in fiscal 2006, 2007 and 2008 on the date of grant using a Black-Scholes option-pricing model.

We believe that the estimates related to stock-based compensation expense are critical accounting estimates because the assumptions used could significantly impact the timing and amount of stock-based compensation expense recorded in our Consolidated Financial Statements.

Revenue Recognition on Advisory Contract. The Company provides investment advisory services for EFC. 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 $2,706,216 in annual performance fees and $2,620,222 in advisory fees for the year ended June 30, 2008.

     Related Party Transactions

The Company had $30.9 million and $19.9 million at fair value invested in USGIF, USGAF, and offshore clients the Company advises included in the balance sheet in cash and cash equivalents and trading securities at June 30, 2008, and 2007, respectively. The Company recorded $1,083,081 in dividend income and $508,159 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 $538,375 and $1,690,321 for the years ended June 30, 2008 and 2007, 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 Meridian Global Gold and Resources Fund Ltd.

The Company provides 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 $659,632 and $222,981 for the years ended June 30, 2008 and 2007, respectively. Mr. Holmes is a director of Meridian Global Energy and Resources Fund Ltd., and Meridian Fund Managers Ltd., the manager of the Meridian Global Energy and Resources Fund Ltd. In addition, the Company has an investment in the Meridian Global Energy and Resources Fund Ltd. with a value of approximately $1,559, 000 at June 30, 2008.

The Company provided advisory services to the U.S. Global Investors Balanced Natural Resources Fund, Ltd., an offshore fund, through November 30, 2007, at which time the fund was liquidated and assets were transferred to the Meridian Global Energy and Resources Fund Ltd. For these services, the Company was paid a monthly advisory fee and a quarterly performance fee, if any. The Company recorded fees totaling $13,329 and $140,717 for the years ended June 30, 2008, and 2007, respectively.

The Company provides investment advisory services to EFC. 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. For the year ended June 30, 2008, the Company recorded a total of $5,326,438 in advisory fees from Endeavour comprised of $2,706,216 in annual performance fees and $2,620,222 in monthly advisory fees. For the year ended June 30, 2007, 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. 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. Mr. Holmes is Chairman of the Board of Directors of EFC. In addition, the Company has an investment in EFC at June 30, 2008 with a value of approximately $647,000.

The Company owns a position in Charlemagne Capital Limited at June 30, 2008, valued at $540,641 and 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 and for interim periods within those years; therefore, the Company will adopt SFAS No. 157 in the first quarter of fiscal year 2009. Management is in the process of determining the effect the adoption of SFAS No. 157 will have on the Company’s Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, (including an amendment to FASB Statement 115, Accounting for Certain Investments in Debt and Equity Securities).” SFAS 159 allows entities to voluntarily choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. The election is made on an instrument-by-instrument basis and is irrevocable. Once the election is made for the instrument, all subsequent changes in fair value for that instrument must be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years; therefore, the Company will adopt SFAS No. 159 in the first quarter of fiscal year 2009. Management is currently evaluating the effect the adoption of SFAS No. 159 will have on the Consolidated Financial Statements, if any.

In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards,” (“EITF 06-11”). Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Management has determined that EITF No. 06-11 has no material impact on the financial statements.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

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, 2008, 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 June				Hypothetical				Hypothetical Price				Equity, Net
		30, 2008				Percentage Change				Change				of Tax
Trading securities 1		$	6,991,843			25% increase				$	8,739,803			$	1,153,654
						25% decrease				$	5,243,882			$	(1,153,654	)
Available-for-sale 2		$	1,246,769			25% increase				$	1,558,461			$	205,717
						25% decrease				$	935,077			$	(205,717	)

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

Item 8. Financial Statements and Supplementary Data

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

We have audited U.S. Global Investors, Inc.’s (the “Company”) internal control over financial reporting as of June 30, 2008, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying “Item 9A, Management’s Report on Internal Control Over Financial Reporting.” Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control 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, the Company maintained, in all material respects, effective internal control over financial reporting as of June 30, 2008, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balances sheets of U.S. Global Investors, Inc. as of June 30, 2008 and 2007, 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, 2008 and our report dated September 10, 2008, expressed an unqualified opinion thereon.

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. (the “Company”) as of June 30, 2008 and 2007 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, 2008. 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. Our audits include examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. 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, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended June 30, 2008, in conformity with accounting principles generally accepted 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 U.S. Global Investors, Inc. internal control over financial reporting as of June 30, 2008, 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 September 10, 2008, expressed an unqualified opinion thereon.

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

		June 30,
		2008				2007
Assets
Current Assets
Cash and cash equivalents		$	25,135,075			$	14,854,420
Trading securities, at fair value			6,991,843				6,334,474
Receivables
Mutual funds			5,096,117				4,739,763
Other advisory clients			3,690,400				9,914,773
Employees			6,111				4,638
Other			21,767				7,382
Prepaid expenses			628,790				767,779
Total Current Assets			41,570,103				36,623,229
Net Property and Equipment			2,378,396				2,260,288
Other Assets
Long-term deferred tax asset			299,351				53,023
Investment securities available-for-sale, at fair value			1,246,769				856,573
Total Other Assets			1,546,120				909,596
Total Assets		$	45,494,619			$	39,793,113
Liabilities and Shareholders’ Equity
Current Liabilities
Accounts payable		$	289,364			$	272,564
Accrued compensation and related costs			2,396,881				3,356,488
Deferred tax liability			406,730				338,511
Other accrued expenses			3,167,900				4,730,348
Total Current Liabilities			6,260,875				8,697,911
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, 13,817,269 and 13,620,625 shares at June 30, 2008, and 2007, respectively			345,432				340,516
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, 2,094,279 shares and 2,290,923 shares at June 30, 2008, and 2007, respectively			52,357				57,273
Additional paid-in capital			14,114,178				13,352,728
Treasury stock, class A shares at cost; 656,520 and 672,867 shares at June 30, 2008, and 2007, respectively			(1,562,419	)			(1,640,792	)
Accumulated other comprehensive loss, net of tax			(325,397	)			(5,589	)
Retained earnings			26,609,593				18,991,066
Total Shareholders’ Equity			39,233,744				31,095,202
Total Liabilities and Shareholders’ Equity		$	45,494,619			$	39,793,113

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

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

		Year Ended June 30,
		2008				2007				2006
Revenue
Mutual fund advisory fees		$	39,518,557			$	36,421,804			$	28,521,601
Other advisory fees			6,537,775				13,095,070				8,621,549
Transfer agent fees			8,454,871				7,537,110				5,332,066
Investment income			1,447,454				1,356,840				2,203,393
Other			80,590				192,813				174,979
			56,039,247				58,603,637				44,853,588
Expenses
Employee compensation and benefits			13,607,601				12,560,108				10,359,365
General and administrative			6,805,085				7,481,344				5,460,442
Subadvisory fees			9,223,309				8,935,075				7,618,466
Platform fees			9,048,571				7,528,302				4,882,144
Advertising			488,217				508,992				513,076
Depreciation			284,237				244,068				152,755
			39,457,020				37,257,889				28,986,248
Income Before Income Taxes			16,582,227				21,345,748				15,867,340
Provision for Income Taxes
Income tax expense			5,745,417				7,586,499				5,431,978
Net Income			10,836,810				13,759,249				10,435,362
Other comprehensive income, net of tax:
Unrealized gains (losses) on available-for-sale securities arising during period			(256,701	)			269,296				(2,473	)
Less: reclassification adjustment for gains included in net income			(63,107	)			(299,144	)			(363,596	)
Comprehensive Income		$	10,517,002			$	13,729,401			$	10,069,293
Basic Net Income per Share		$	0.71			$	0.91			$	0.69
Diluted Net Income per Share		$	0.71			$	0.90			$	0.69
Basic weighted average number of common shares outstanding			15,246,710				15,162,492				15,031,578
Diluted weighted average number of common shares outstanding			15,275,441				15,241,534				15,146,230

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

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

																						Accumulated
		Common				Common				Additional												Other
		Stock				Stock				Paid-in				Retained Earnings				Treasury				Comprehensive
		(class A)				(class C)				Capital				(Deficit)				Stock				Income (Loss)				Total
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	)
Grants and purchases of 33,962 shares of Common Stock (class A)			—				—				68,868				—				25,977				—				94,845
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
Stock bonuses											40,457								9,481								49,938
FAS 123R compensation expense			—				—				26,585				—				—				—				26,585
Unrealized 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 (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	)
Grants and purchases of 10,881 shares of Common Stock (class A)			—				—				135,128				—				19,096				—				154,224
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 and related tax benefit			—				—				413,479				—				—				—				413,479
Dividends paid			—				—				—				(3,967,697	)			—				—				(3,967,697	)
Stock bonuses											42,305								7,152								49,457
FAS 123R compensation expense			—				—				45,245				—				—				—				45,245
Unrealized 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
Grants and purchases of 16,347 shares of Common Stock (class A)			—				—				137,708				—				53,442				—				191,150
Conversion of 196,644 shares of class C common stock for class A common stock			4,916				(4,916	)			—				—				—				—				—
Recognition of current year portion of deferred compensation and related tax benefit			—				—				228,504				—				—				—				228,504
Dividends paid			—				—				—				(3,218,283	)			—				—				(3,218,283	)
Stock bonuses											71,004								24,931								95,935
FAS 123R compensation expense			—				—				324,234				—				—				—				324,234
Unrealized loss on securities available-for-sale and reclassification (net of tax)			—				—				—				—				—				(319,808	)			(319,808	)
Net Income			—				—				—				10,836,810				—				—				10,836,810
Balance at June 30, 2008 (13,817,269 shares of class A; 2,094,279 shares of class C)		$	345,432			$	52,357			$	14,114,178			$	26,609,593			$	(1,562,419	)		$	(325,397	)		$	39,233,744

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,
		2008				2007				2006
Cash Flow from Operating Activities
Net income		$	10,836,810			$	13,759,249			$	10,435,362
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			284,237				244,068				152,755
Net recognized (gain) loss on securities			152,325				(736,860	)			(827,718	)
Provision for deferred taxes			(13,470	)			184,481				551,815
Deferred compensation			50,000				50,000				50,000
Benefits from tax deduction in excess of stock-based compensation expense			(178,504	)			(1,208,822	)			(404,817	)
SFAS 123R compensation expense			324,234				45,245				26,585
Stock bonuses			95,935				49,457				49,938
Provision for losses on accounts receivable			—				—				(8,988	)
Loss on disposal of equipment			388				—				3,494
Changes in assets and liabilities, impacting cash from operations:
Accounts receivable			5,852,161				(3,183,685	)			(9,154,571	)
Prepaid expenses and other			138,989				(186,966	)			(129,850	)
Trading securities			(906,468	)			(1,392,177	)			(1,741,825	)
Accounts payable and accrued expenses			(2,326,751	)			1,243,288				6,530,325
Total adjustments			3,473,076				(4,891,971	)			(4,902,857	)
Net cash provided by operations			14,309,886				8,867,278				5,532,505
Cash Flow from Investing Activities
Purchase of property and equipment			(402,733	)			(381,467	)			(510,804	)
Purchase of available-for-sale securities			(895,153	)			(2,072,531	)			(8,420	)
Proceeds on sale of available-for-sale securities			117,284				1,707,211				784,277
Net cash (used in) provided by investing activities			(1,180,602	)			(746,787	)			265,053
Cash Flow from Financing Activities
Benefits from tax deduction in excess of stock-based compensation expense			178,504				1,208,822				404,817
Grants, issuance or exercise of stock and options			191,150				273,471				254,686
Treasury stock purchased			—				(836,710	)			(215,196	)
Dividends paid			(3,218,283	)			(3,967,697	)			—
Net cash (used in) provided by financing activities			(2,848,629	)			(3,322,114	)			444,307
Net Increase in Cash and Cash Equivalents			10,280,655				4,798,377				6,241,865
Beginning Cash and Cash Equivalents			14,854,420				10,056,043				3,814,178
Ending Cash and Cash Equivalents		$	25,135,075			$	14,854,420			$	10,056,043
Supplemental Disclosures of Cash Flow Information
Cash paid for interest		$	—			$	425			$	—
Cash paid for income taxes		$	6,950,000			$	7,062,000			$	1,753,000

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

    Notes to Consolidated Financial Statements

Note 1. Organization

U.S. Global serves as investment adviser and transfer agent to USGIF and 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 also provides transfer agency functions to USGIF and USGAF. For these services, the Company receives fees from USGIF and USGAF. The Company also provides advisory services to several offshore clients.

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”). As of December 31, 2007, A&B was dissolved as a corporation. Subsequent to the dissolution, effective January 1, 2008, a new department was formed within USSI consisting of the same employees performing the same functions as A&B prior to its dissolution. All assets and liabilities that were previously held in A&B were transferred at cost to USSI. There was no accounting impact, no personnel changes, and no accounting changes other than reconfiguring certain internal reports.

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

     Note 2. Significant Accounting Policies

Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, 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 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.

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. 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.

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

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

Stock-Based Compensation. The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123R). 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.

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 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 is an interpretation of SFAS No. 109, “Accounting for Income Taxes,” and it seeks to reduce the diversity in practice associated with certain aspects of measurement and accounting for income taxes and requires expanded disclosure with respect to uncertainty in income taxes. FIN 48 is effective for fiscal years beginning after December 15, 2006. Accordingly, the Company adopted FIN 48 on July 1, 2007. There were no transactions recorded as a result of adopting FIN 48 for the year ended June 30, 2008. The Company’s policy is to recognize interest and penalties related to uncertain tax positions in income tax expense. As of June 30, 2008, the Company did not have any accrued interest or penalties related to uncertain tax positions. The tax years from 2004 through 2007 remain open to examination by the tax jurisdictions to which the Company is subject.

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 as well as transaction and activity-based fees. Revenue shown on the Consolidated Statements of Operations and Comprehensive Income are net of any fee waivers.

The Company provides investment advisory services for Endeavour Financial Corporation (“EFC”). 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 based on the contract terms. The Company recorded $5,326,438 in annual performance fees and $2,620,222 in advisory fees related to the EFC contract for the year ended June 30, 2008. The Company recorded $8,994,074 in annual performance fees and $2,046,976 in advisory fees related to the EFC contract for the year ended June 30, 2007. The Company recorded $6,611,582 in annual performance fees and $337,455 in advisory fees related to the EFC contract for the year ended June 30, 2006.

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

Advertising Costs. The Company expenses advertising costs as they are incurred. Certain sales materials, which are considered tangible assets, are capitalized and then expensed during the period in which they are distributed. At June 30, 2008, 2007, and 2006, the Company had capitalized sales materials of approximately $35,000, $31,000, and $59,000, respectively. Net advertising expenditures were approximately $488,000, $509,000, and $513,000 during fiscal 2008, 2007, and 2006, 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.

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 reported in the financial statements and accompanying notes. Actual results could differ from these estimates.

Earnings Per Share. The Company computes and presents earnings per share in accordance with SFAS No. 128, “Earnings Per Share.” Basic earnings per share (“EPS”) excludes dilution and is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution of EPS that could occur if options to issue common stock were exercised. The Company has two classes of common stock with outstanding shares. Both classes share equally in dividend and liquidation preferences. Per share amounts for fiscal 2007 and 2006 have been restated to reflect the Company’s two-for-one stock split effective March 29, 2007.

     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 and for interim periods within those years; therefore, the Company will adopt SFAS No. 157 in the first quarter of fiscal year 2009. Management is in the process of determining the effect the adoption of SFAS No. 157 will have on the Company’s Consolidated Financial Statements.

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities, (including an amendment to FASB Statement 115, Accounting for Certain Investments in Debt and Equity Securities).” SFAS 159 allows entities to voluntarily choose to measure many financial instruments and certain other items at fair value. The objective is to improve financial reporting by providing entities with the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. The amendment to SFAS No. 115 applies to all entities with available-for-sale and trading securities. The election is made on an instrument-by-instrument basis and is irrevocable. Once the election is made for the instrument, all subsequent changes in fair value for that instrument must be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007 and for interim periods within those years; therefore, the Company will adopt SFAS No. 159 in the first quarter of fiscal year 2009. Management is currently evaluating the effect the adoption of SFAS No. 159 will have on the Consolidated Financial Statements, if any.

In June 2007, the Emerging Issues Task Force (“EITF”) issued EITF Issue No. 06-11, “Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards,” (“EITF 06-11”). Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Management has determined that EITF No. 06-11 has no material impact on the financial statements.

     Note 3. Investments

As of June 30, 2008, the Company held investments with a fair value of $8.2 million and a cost basis of $8.0 million. The fair value of these investments is approximately 18.1 percent of the Company’s total assets.

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

		Year Ended June 30,
		2008				2007				2006
Realized gains (losses) on sale of trading securities		$	(249,099	)		$	282,473			$	305,469
Trading securities, at cost			6,275,478				5,990,256				4,011,961
Trading securities, at fair value 1			6,991,843				6,334,474				4,659,824
Net change in unrealized gains (losses) on trading securities (included in earnings) 2			372,147				(303,645	)			1,076,034
Available-for-sale securities, at cost			1,739,795				865,152				45,444
Available-for-sale securities, at fair value 1			1,246,769				856,573				82,202
Gross realized gains on sale of available-for-sale securities			96,774				455,990				582,475
Gross realized losses on sale of available-for-sale securities			—				(1,603	)			(31,572	)
Gross unrealized losses recorded in shareholders’ equity			(514,795	)			(79,731	)			(3,137	)
Gross unrealized gains recorded in shareholders’ equity			21,769				71,151				39,896
Losses on available-for-sale securities deemed to have other-than-temporary declines in value			—				—				(28,655	)

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

		Less Than 12 Months								12 Months or Greater								Total
Fiscal Year		Fair Value				Unrealized Losses				Fair Value				Unrealized Losses				Fair Value				Unrealized Losses
2008		$	687,405			$	144,729			$	449,643			$	370,066			$	1,137,048			$	514,795
2007		$	739,977			$	79,731			$	0			$	0			$	739,977			$	79,731

The aggregate gross unrealized loss of $514,795 and $79,731 at June 30, 2008, and 2007, respectively, was primarily related to investments in two companies that specialize in emerging markets. There are many risks associated with an investment of this type including general market risk and emerging markets risk. Many of the investments included above are early-stage or start-up businesses whose fair values fluctuate.

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

The Company serves as investment adviser to USGIF and USGAF and receives a fee based on a specified percentage of net assets under management. Two of the four funds within USGAF are sub-advised by a third-party manager, who is in turn compensated out of the investment advisory fees received by the Company. The Company also serves as transfer agent to USGIF and USGAF and receives fees based on the number of shareholder 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 two USGAF funds through November 1, 2008, and February 28, 2009, respectively, or such later date as the Company determines in order to maintain competitive yields and to allow assets to grow. The aggregate fees waived and expenses borne by the Company were $1,422,000, $1,178,000, and $1,181,000, in 2008, 2007, and 2006, respectively.

The investment advisory and related contracts between the Company and USGIF and USGAF will expire on March 1, 2009, and June 1, 2009, respectively. Management anticipates the boards of both USGIF and USGAF will renew the contracts.

The Boards of Trustees of USGIF and USGAF have called a Special Meeting of Shareholders for September 23, 2008, to consider several proposals, including proposals to approve (i) a new Advisory Agreement for the USGIF and USGAF funds and (ii) a new Distribution Plan for the nine equity USGIF and USGAF funds under which U.S. Global Brokerage, Inc. would be paid a fee at an annual rate of 0.25% of the average daily net assets of each fund. A full discussion of the proposals is set forth in proxy materials filed with the SEC by USGIF and USGAF.

The proposed new Advisory Agreement for the nine equity USGIF and USGAF funds provides for a base advisory fee that will be adjusted upwards or downwards by 0.25% if there is a performance difference of 5% or more between a fund’s performance and that of its designated benchmark index over the prior 12 months. With respect to four equity USGIF funds, the new Advisory Agreement also will increase the base advisory fee and make changes to the advisory fee breakpoints. In addition, if the new Advisory Agreement is approved, administrative services that are part of the current Advisory Agreement will be removed and become the subject of a completely separate Administration Agreement. Under the Administration Agreement, the USGIF and USGAF funds would no longer reimburse the Company for certain legal and administrative services, but instead would pay the Company compensation at an annual rate of 0.08% of the average daily net assets of each fund for these and other administrative services.

If approved, the Company has agreed to cap the expenses of each fund for the first year. Going forward, the Company and each fund’s Board of Trustees would negotiate the amounts of these expense caps annually during the consideration of the renewal of the Advisory Agreement.

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, as well as investment income.

     Note 5. Property and Equipment

Property and equipment are composed of the following:

		June 30,
		2008				2007
Building and land		$	2,663,644			$	2,574,530
Furniture, equipment, and other			2,032,062				1,831,531
			4,695,706				4,406,061
Accumulated depreciation			(2,317,310	)			(2,145,773	)
Net property and equipment		$	2,378,396			$	2,260,288

Depreciation expense totaled $284,237, $244,068, and $152,755 in 2008, 2007, and 2006, respectively.

     Note 6. Other Accrued Expenses

Other accrued expenses consist of the following:

		June 30,
		2008				2007
Platform fees		$	1,275,189			$	1,054,870
Taxes payable			726,277				2,188,521
Subadvisory fees			716,032				695,509
Legal, professional, and consulting fees			254,121				277,398
Vendors payable			189,026				506,473
Other			7,255				7,577
Total other accrued expenses		$	3,167,900			$	4,730,348