10-K 1 anualrprt.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2003 or |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _____ to _____ COMMISSION FILE NUMBER 0-13928 U.S. GLOBAL INVESTORS, INC. Incorporated in the State of Texas IRS Employer Identification No. 74-1598370 Principal Executive Offices: 7900 Callaghan Road San Antonio, Texas 78229 Telephone Number: 210-308-1234 Securities registered pursuant to Section 12(b) of the Act: None SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: CLASS A COMMON STOCK ($0.05 PAR VALUE PER SHARE) REGISTERED: NASDAQ SMALL CAP ISSUES Indicate by check mark whether the Company (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES |X| NO |_| Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.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. |_| Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Act). YES |_| NO |X| The aggregate market value of the 4,640,452 shares of nonvoting class A common stock held by nonaffiliates of the registrant on September 22, 2003, based on the last sale price on Nasdaq as of December 31, 2002, was $11,369,107. Registrant's only voting stock is its class C common stock, par value of $0.05 per share, for which there is no active market. The aggregate value of the 104,589 shares of the class C common stock held by nonaffiliates of the registrant on December 31, 2003 (based on the last sale price of the class C common stock in a private transaction) was $52,295. For purposes of this disclosure only, the registrant has assumed that its directors, executive officers, and beneficial owners of 5% or more of the registrant's common stock are affiliates of the registrant. On September 22, 2003, there were 6,311,474 shares of Registrant's class A nonvoting common stock issued and 5,976,996 shares of Registrant's class A nonvoting common stock issued and outstanding, no shares of Registrant's class B nonvoting common stock outstanding, and 1,496,800 shares of Registrant's class C common stock issued and outstanding. Documents incorporated by reference: None TABLE OF CONTENTS Part I of Annual Report on Form 10-K Item 1. Business____________________________________________________________1 Item 2. Properties__________________________________________________________4 Item 3. Legal Proceedings___________________________________________________5 Item 4. Submission of Matters to a Vote of Security Holders_________________5 Part II of Annual Report on Form 10-K Item 5. Market for Company's Common Equity and Related Shareholder Matters_______________________________________6 Item 6. Selected Financial Data_____________________________________________7 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations_____________________7 Item 7A. Quantitative and Qualitative Disclosures About Market Risk________14 Item 8. Financial Statements and Supplementary Data________________________15 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure_______________________________________________________33 Item 9A. Controls and Procedures___________________________________________33 Part III of Annual Report on Form 10-K Item 10. Directors and Executive Officers of the Company___________________34 Item 11. Executive Compensation____________________________________________36 Item 12. Security Ownership of Certain Beneficial Owners and Management____39 Item 13. Certain Relationships and Related Transactions____________________41 Item 14. Principal Accounting Fees and Services____________________________41 Part IV of Annual Report on Form 10-K Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K__________________________________________42 Signatures_________________________________________________________________45 Certifications_____________________________________________________________46 Exhibit 16 - Letter Regarding Change in Certifying Accountant______________48 Exhibit 21 - Subsidiaries of the Company, Jurisdiction of Incorporation, and Percentage of Ownership____________________49 Exhibit 99.1 - Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002___50 Exhibit 99.2 - Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002___51 PART I OF ANNUAL REPORT ON FORM 10-K ITEM 1. BUSINESS U.S. Global Investors, Inc. (Company or U.S. Global) has made forward-looking statements concerning the Company's performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company's control, including (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, (iii) the effect of government regulation on the Company's business, and (iv) market, credit, and liquidity risks associated with the Company's investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made. 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, a Texas corporation organized in 1968, and its wholly owned subsidiaries are in the mutual fund management business. The Company is a registered investment adviser under the Investment Advisers Act of 1940 and is principally engaged in the business of providing investment advisory and other services, through the Company or its subsidiaries, to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts (collectively, the Trusts or Funds). USGIF and USGAF are investment companies offering shares of nine and three mutual funds, respectively, on a no-load basis. As part of the mutual fund management business, the Company provides: (1) investment advisory services through the Company or its subsidiaries to institutions (namely, mutual funds) and other persons; (2) transfer agency and record keeping services; (3) mailing services; and (4) distribution services, through its wholly owned broker/dealer, to mutual funds advised by the Company. The fees from investment advisory and transfer agent services, as well as investment income, are the primary sources of the Company's revenue. Prior to June 30, 2001, the Company provided custodial and administrative services through its wholly owned trust company and administrator for IRAs and other types of retirement plans. The fees from these custodial and administrative services contributed to the Company's revenue. The Company will continue to receive the majority of the aforementioned custodial fees as it has contracted with another entity to assist with these services. In addition to managing USGIF and USGAF, the Company is actively engaged in trading for its proprietary account. Management believes it can more effectively manage the Company's cash position by broadening the types of investments utilized in cash management and continues to believe that such activities are in the best interest of the Company. These activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients. LINES OF BUSINESS INVESTMENT MANAGEMENT SERVICES INVESTMENT ADVISORY SERVICES. The Company furnishes an investment program for each of the mutual funds it manages and determines, subject to overall supervision by the boards of trustees of the funds, the funds' investments pursuant to advisory agreements (Advisory Agreements). Consistent with the investment restrictions, objectives and policies of the particular fund, the portfolio team for each fund determines what investments should be purchased, sold and held, and makes changes in the portfolio deemed to be necessary or appropriate. In the Advisory Agreements, the Company is charged with seeking the best overall terms in executing portfolio transactions and selecting brokers or dealers. The Company also manages, supervises, and conducts certain other affairs of the funds, subject to the control of the boards of trustees. It provides office space, facilities, and certain business equipment as well as the services of executive and clerical personnel for administering the affairs of the mutual funds. U.S. Global and its affiliates compensate all personnel, officers, directors, and interested trustees of the funds if such persons are also employees of the Company or its affiliates. However, the funds are required to reimburse the Company for a portion of the compensation of the Company's employees who perform certain state and federal securities law regulatory compliance work on behalf of the funds based upon the time spent on such matters. The Company is responsible for costs associated with marketing fund shares to the extent not otherwise covered by any fund distribution plans adopted pursuant to Investment Company Act Rule 12b-1 (12b-1 Plan). As required by the Investment Company Act of 1940, the Advisory Agreements are subject to annual renewal and are terminable upon 60-day notice. The boards of trustees of USGIF and USGAF will consider renewal of the applicable agreements in February and May 2004, respectively. Management anticipates that the Advisory Agreements will be renewed. TRANSFER AGENT AND OTHER SERVICES. The Company's wholly owned subsidiary, United Shareholder Services, Inc. (USSI), is a transfer agent registered under the Securities Exchange Act of 1934 providing transfer agency, lockbox, and printing services to investment company clients. The transfer agency utilizes a third-party external system providing the Company's fund shareholder communication network with computer equipment and software designed to meet the operating requirements of a mutual fund transfer agency. The transfer agency's duties encompass: (1) acting as servicing agent in connection with dividend and distribution functions; (2) performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption, or repurchase of shares; (3) maintaining such records as are necessary to document transactions in the funds' shares; (4) acting as servicing agent in connection with mailing of shareholder communications, including reports to shareholders, dividend and distribution notices, and proxy materials for shareholder meetings; and (5) investigating and answering all shareholder account inquiries. The transfer agency agreements provide that USSI will receive, as compensation for services rendered as transfer agent, an annual fee per account, and will be reimbursed for out-of-pocket expenses. In connection with obtaining/providing administrative services to the beneficial owners of fund shares through institutions that provide such services and maintain an omnibus account with USSI, each fund pays a monthly fee based on the number of accounts or the value of the shares of the fund held in accounts at the institution, which payment shall not exceed the per account charge on an annual basis. The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF in February and May 2004, respectively, and management anticipates that the agreements will be renewed. BROKERAGE SERVICES. The Company has registered its wholly owned subsidiary, U.S. Global Brokerage, Inc. (USGB), with the National Association of Securities Dealers (NASD), the Securities and Exchange Commission (SEC), and appropriate state regulatory authorities as a limited-purpose broker/dealer for the purpose of distributing USGIF and USGAF fund shares. Effective September 3, 1998, USGB became the distributor for USGIF and USGAF fund shares. For the fiscal year ended June 30, 2003, the Company has capitalized USGB with approximately $828,925 to cover the costs associated with continuing operations. MAILING SERVICES. A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. A&B Mailers' primary customers include the Company in connection with its efforts to promote the funds and the Company's investment company clients in connection with required mailings. TRUST COMPANY SERVICES. Security Trust & Financial Company (STFC), a wholly owned state chartered trust company, provided custodial services for IRA and other retirement plans administered by U.S. Global Administrators, Inc. until June 1, 2001. Management determined that it was in the Company's best interest to exit the 401(k) plan administration business and to voluntarily withdraw the charter of the trust company. The Company continues to collect the majority of the fees for custodial services to the IRAs for record keeping activities and has contracted with another entity to act as custodian of these accounts. CORPORATE INVESTMENTS INVESTMENT ACTIVITIES. In addition to mutual fund activity, the Company attempts to maximize its cash position by using a diversified venture capital approach to investing. Management invests in early-stage or start-up businesses seeking initial financing and more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization. EMPLOYEES As of June 30, 2003, U.S. Global and its subsidiaries employed 56 full-time employees and 5 part-time employees; as of June 30, 2002, it employed 60 full-time employees and 6 part-time employees. The Company considers its relationship with its employees to be good. COMPETITION The mutual fund industry is highly competitive. Recent reports show there are approximately 8,000 domestically registered open-end investment companies of varying sizes and investment policies whose shares are being offered to the public worldwide. Generally, there are two types of mutual funds: "load" and "no-load." In addition, there are both load and no-load funds that have adopted 12b-1 plans authorizing the payment of distribution costs of the funds out of fund assets, such as USGAF. Load funds are typically sold through or sponsored by brokerage firms, and a sales commission is charged on the amount of the investment. No-load funds, such as the USGIF and USGAF funds, however, may be purchased directly from the particular mutual fund organization or through a distributor, and no sales commissions are charged. In addition to competition from other mutual fund managers and investment advisers, the Company and the mutual fund industry are in competition with various investment alternatives offered by insurance companies, banks, securities dealers, and other financial institutions. Many of these institutions are able to engage in more liberal advertising than mutual funds and may offer accounts at competitive interest rates, which are insured by federally chartered corporations such as the Federal Deposit Insurance Corporation. Amendments to, and regulatory pronouncements related to, the Glass-Stegall Act, the statute that has prohibited banks from engaging in various activities, are enabling banks to compete with the Company in a variety of areas. A number of mutual fund groups are significantly larger than the funds managed by U.S. Global, offer a greater variety of investment objectives, and have more experience and greater resources to promote the sale of investments therein. However, the Company believes it has the resources, products, and personnel to compete with these other mutual funds. In particular, the company is known for its expertise in the gold mining and exploration industry. Competition for sales of fund shares is influenced by various factors, including investment objectives and performance, advertising and sales promotional efforts, distribution channels, and the types and quality of services offered to fund shareholders. Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on each fund's investment performance, the quality of services provided to shareholders, and the Company's efforts to market the funds effectively. Sales of fund shares generate management fees (which are based on assets of the funds) and transfer agent fees (which are based on the number of fund accounts). Costs of distribution and compliance have put pressure on profit margins for the mutual fund industry. SUPERVISION AND REGULATION The Company, USSI, USGB, and the investment companies it manages and administers operate under certain laws, including federal and state securities laws, governing their organization, registration, operation, legal, financial, and tax status. Among the penalties for violation of the laws and regulations applicable to the Company and its subsidiaries are fines, imprisonment, injunctions, revocation of registration, and certain additional administrative sanctions. Any determination that the Company or its management has violated applicable laws and regulations could have a material adverse effect on the business of the Company. Moreover, there is no assurance that changes to existing laws, regulations, or rulings promulgated by governmental entities having jurisdiction over the Company and the funds will not have a material adverse effect on its business. The Company has no control over regulatory rulemaking or the consequences it may have on the mutual fund industry. Recent and accelerating regulatory pronouncements and oversight have significantly increased the burden of compliance infrastructure with respect to the mutual fund industry and the capital markets. This momentum of new regulations has contributed significantly to the costs of managing and administering mutual funds. The future regulatory environment remains uncertain as no political or regulatory initiatives are currently underway to assess the impact or consequences to the capital markets of these costly pronouncements and oversight. U.S. Global is a registered investment adviser subject to regulation by the SEC pursuant to the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Securities Exchange Act of 1934 (1934 Act). USSI is also subject to regulation by the SEC under the 1934 Act. USGB is subject to regulation by the SEC under the 1934 Act and regulation by the NASD, a self-regulatory organization composed of other registered broker/dealers. U.S. Global, USSI, and USGB are required to keep and maintain certain reports and records, which must be made available to the SEC and the NASD upon request. Moreover, the funds managed by the Company are subject to regulation and periodic reporting under the Investment Company Act of 1940 and, with respect to their continuous public offering of shares, the registration provisions of the Securities Act of 1933. RELATIONSHIPS WITH THE FUNDS The businesses of the Company are, to a very significant degree, dependent on their associations and contractual relationships with the Funds. In the event the advisory or transfer agent services agreements with USGIF or USGAF are canceled or not renewed pursuant to the terms thereof, the Company would be substantially adversely affected. U.S. Global, USSI, and USGB consider their relationships with the Funds to be good, and they have no reason to believe that their management and service contracts will not be renewed in the future; however, there is no assurance that USGIF and USGAF will choose to continue their relationships with the Company, USSI, or USGB. ITEM 2. PROPERTIES The Company presently 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. This building is currently subject to a term loan for $956,560. ITEM 3. LEGAL PROCEEDINGS There are no material legal proceedings in which the Company is involved. There are no material legal proceedings to which any director, officer or affiliate of the Company or any associate of any such director or officer is a party or has a material interest, adverse to the Company or any of its subsidiaries. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during fiscal year 2003. Part II of Annual Report on Form 10-K ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS MARKET INFORMATION The Company has three classes of common equity: class A, class B and class C common stock, par value $0.05 per share. There is no established public trading market for the Company's class B and class C common stock. The Company's class A and class B common stock have no voting privileges. The Company's class A common stock is traded over-the-counter and is quoted daily under Nasdaq's Small Cap Issues. Trades are reported under the symbol "GROW." The following table sets forth the range of high and low sales prices from Nasdaq for the fiscal years ended June 30, 2003 and 2002. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission. SALES PRICE ----------------------------------------------------------------------------- 2003 2002 -------------------------- ------------ ----------- ------------ ------------ HIGH ($) LOW ($) HIGH ($) LOW ($) -------------------------- ------------ ----------- ------------ ------------ First quarter (9/30) 2.250 1.280 1.050 0.900 Second quarter (12/31) 2.449 0.970 1.100 0.900 Third quarter (3/31) 2.580 1.860 1.800 1.000 Fourth quarter (6/30) 2.079 1.520 2.450 1.790 HOLDERS On September 22, 2003, there were 248 holders of record of class A common stock, no holders of record of class B common stock, and 71 holders of record of class C common stock. Many of the class A common shares are held of record by nominees, and management believes that as of September 22, 2003, there were approximately 1,000 beneficial owners of the Company's class A common stock. DIVIDENDS The Company has not paid cash dividends on its class C common stock during the last nineteen fiscal years and has never paid cash dividends on its class A common stock. Payment of cash dividends is within the discretion of the Company's board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions. Holders of the outstanding shares of the Company's class A common stock are entitled to receive, when and as declared by the Company's board of directors, a noncumulative cash dividend equal in the aggregate to 5% of the Company's net after-tax earnings for its prior fiscal year. After such dividend has been paid, the holders of the outstanding shares of class B common stock are entitled to receive, when and as declared by the Company's board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A common stock. Holders of the outstanding shares of class C common stock are entitled to receive when and as declared by the Company's board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A and class B common stock. Thereafter, if the board of directors determines to pay additional cash dividends, such dividends will be paid simultaneously on a prorated basis to holders of class A, B, and C common stock. The holders of the class A common stock are protected in certain instances against dilution of the dividend amount payable to such holders. 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, 1999, through June 30, 2003, and the years then ended is derived from the Company's Consolidated Financial Statements, which were audited by Ernst & Young LLP, independent accountants.

SELECTED YEAR ENDED JUNE 30, FINANCIAL DATA ---------------------- ------------------------------------------------------------------ 2003 2002 2001 2000 1999 ---------------------- ----------- ----------- ----------- ----------- ----------- Revenues $ 7,478,936 $ 7,767,514 $ 8,893,884 $10,912,764 $ 9,739,180 Expenses 7,817,883 8,104,299 9,652,382 10,495,271 10,665,616 --------- --------- --------- ---------- ---------- Income (loss) before equity interest, gain on litigation settlement and income taxes (338,947) (336,785) (758,498) 417,493 (926,436) Equity in income (loss) of affiliate -- -- -- 51,739 (743,041)(1) Gain on litigation settlement 371,057 -- -- -- -- Income tax (benefit) expense (10,502) (95,351) 36,181 (26,526) 183,329 -------- -------- ------ -------- ------- Net income (loss) $ 42,612 $(241,434) $(794,679) $495,758 $(1,852,806) Basic income (loss) per share 0.01 (0.03) (0.11) 0.07 (0.28) Working capital 3,562,885 2,930,974 3,246,792 3,138,009 2,441,109 Total assets 7,439,687 7,905,021 7,912,184 9,118,624 8,328,138 Long-term obligations 988,536 1,067,967 1,135,903 1,197,961 1,255,724 Shareholders' equity 5,673,689 5,580,059 5,715,520 6,484,486 5,912,238 Net cash provided by operations 128,916 6,239 132,855 1,255,844 850,577 ------------------ (1) The gain on changes of interest in affiliate for fiscal year 1999 of $97,744 is included in equity in income (loss) of affiliate.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS SEGMENTS U.S. Global Investors, Inc. (Company or U.S. Global), with principal operations located in San Antonio, Texas, manages two business segments: (1) the Company offers a broad range of investment management products and services to meet the needs of individual and institutional investors, and (2) the Company invests for its own account in an effort to add growth and value to its cash position. The Company generates substantially all its operating revenues from the investment management of products and services for the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Notwithstanding the fact that the Company generates the majority of its revenues from this segment, the Company holds a significant amount of its total assets in investments. As of June 30, 2003, the Company held approximately $1.1 million in investments, comprising 15.0% of its total assets. The following is a brief discussion of the Company's two business segments. INVESTMENT MANAGEMENT PRODUCTS AND SERVICES The Company generates substantially all of its operating revenues from managing and servicing USGIF and USGAF. These revenues are largely dependent on the total value and composition of assets under its management. Fluctuations in the markets and investor sentiment directly impact the funds' asset levels, thereby affecting income and results of operations. During fiscal year 2003, total average assets under management decreased 8.1% to $1.07 billion primarily due to shareholder redemptions in the U.S. Government Securities Savings Fund, which reflects a current industry trend as investors are moving away from lower yielding money market funds and are seeking investment products with higher yields.

--------------------------------------------------------------------------------------------- AVERAGE ASSETS UNDER MANAGEMENT (DOLLARS IN MILLIONS) ----------------------- ---------- ---------- ------------ ---------- --------- ------------- 2003 2002 % CHANGE 2002 2001 % CHANGE ----------------------- ---------- ---------- ------------ ---------- --------- ------------- USGIF - Money Market $ 746 $ 872 (14.4)% $ 872 $ 910 (4.2)% USGIF - Other 224 167 34.1 % 167 164 1.8 % --- --- ------ --- --- ----- USGIF - Total 970 1,039 (6.6)% 1,039 1,074 (3.3)% USGAF 101 126 (19.8)% 126 205 (38.5)% --- --- ------- --- --- ------- Total $1,071 $1,165 (8.1)% $1,165 $1,279 (8.9)%

INVESTMENT ACTIVITIES Management believes it can more effectively manage the Company's cash position by broadening the types of investments used in cash management. Management attempts to maximize the Company's return on its cash position by using a diversified venture capital approach to investing. Strategically, management invests in early-stage or start-up businesses seeking initial financing and more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization. Management has reduced these activities due to poor market conditions. As of June 30, 2003 and 2002, the Company held approximately $1.1 and $2.3 million, respectively, in investments other than USGIF money market mutual fund shares. Investment income from the Company's investments includes realized gains and losses, unrealized gains and losses on trading securities, other-than-temporary impairments on available-for-sale securities, and dividend and interest income. This source of revenue does not remain at a consistent level and is dependent on market fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions. For fiscal years 2003, 2002, and 2001, the Company had net realized gains (losses) of approximately $(97,000), $(49,000), and $383,000, respectively. The Company expects that gains or losses will continue to fluctuate in the future, as fluctuations in the market value of the Company's investments will affect the amounts of such gains or losses. CONSOLIDATED RESULTS OF OPERATIONS The following is a discussion of the consolidated results of operations of the Company and a more detailed discussion of the Company's revenues and expenses.

2003 2002 % CHANGE 2002 2001 % CHANGE ---------------------------------- ---------- -------- ------------ --------- ---------- ----------- Net income (loss) (in thousands) $43 $(241) 117.8% $(241) $(795) 69.7% Net income (loss) per share - $0.01 $(0.03) 133.3% $(0.03) $(0.11) 72.7% basic and diluted Weighted average shares outstanding (in thousands) Basic 7,460 7,456 7,456 7,525 Diluted 7,469 7,456 7,456 7,525

YEAR ENDED JUNE 30, 2003, COMPARED WITH YEAR ENDED JUNE 30, 2002 The Company posted a net after-tax profit of $43,000 ($0.01 per share) for the year ended June 30, 2003, compared with a net after-tax loss of $241,000 ($0.03 loss per share) for the year ended June 30, 2002. The profitability in 2003 was principally due to revenue of $386,000 associated with private client advisory fees and a one-time gain of $371,000 related to the favorable settlement of a lawsuit. These items were offset by recognition of an other-than-temporary impairment on available-for-sale securities of $247,000. In addition, declines in investment advisory and transfer agent fees were partially offset by expense reductions during the year. YEAR ENDED JUNE 30, 2002, COMPARED WITH YEAR ENDED JUNE 30, 2001 The Company posted a net after-tax loss of $241,000 ($0.03 loss per share) for the year ended June 30, 2002, compared with a net after-tax loss of $795,000 ($0.11 loss per share) for the year ended June 30, 2001. The decease in net loss for 2002 from 2001 was principally due to the Company's reduction of the overall expense reimbursement levels of its funds. The Company also realigned its cost structure in order to better cope with declining fund asset levels due to adverse market conditions. However, offsetting these activities was a decline in both investment advisory and transfer agent revenues, as well as other ancillary operations.

REVENUES (DOLLARS IN THOUSANDS) 2003 2002 % CHANGE 2002 2001 % CHANGE ------------------------------- --------- ---------- ----------- --------- ---------- ----------- Investment advisory fees: USGIF - Money market $2,297 $2,710 (15.2)% $2,710 $2,357 15.0% USGIF - Other 1,562 1,110 40.7% 1,110 1,081 2.7% ----- ----- ----- ----- ----- ---- USGIF - Total 3,859 3,820 1.0% 3,820 3,438 11.1% USGAF 1,045 1,275 (18.0)% 1,275 2,060 (38.1)% ----- ----- ------- ----- ----- ------- Total investment advisory fees $4,904 $5,095 (3.7)% $5,095 $5,498 (7.3)% Transfer agent fees 2,172 2,417 (10.1)% 2,417 2,682 (9.9)% Custodial and administrative 155 157 (1.3)% 157 302 (48.0)% fees Mailing services fees 174 146 19.2% 146 302 (51.7)% Private client advisory fees 386 27 1,329.6% 27 -- N/A Investment income (loss) (345) (168) (105.4)% (168) 127 (232.3)% Other revenues 33 94 (64.9)% 94 (17) 652.9% ----- ----- -------- ----- ----- ------- Total $7,479 $7,768 (3.7)% $7,768 $8,894 (12.7)%

INVESTMENT ADVISORY FEES. Investment advisory fees, the largest component of the Company's revenues, are calculated as a percentage ranging from 0.375% to 1.25% of average net assets and are paid monthly. The Company has agreed to waive its fee revenues and/or pay expenses for certain USGIF funds through June 30, 2004, for purposes of enhancing the funds' competitive market positions, in particular the money market and fixed income funds. The aggregate amount of fees waived and expenses born by the Company totaled $1,509,060, $1,530,046, and $2,039,360, in 2003, 2002, and 2001, 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. Net investment advisory fees are also affected by changes in assets under management, including market appreciation or depreciation, the addition of new client accounts or 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 decrease in net advisory fees in fiscal year 2003 of approximately $191,000, or 3.7%, over fiscal year 2002 was largely due to continued shareholder redemptions in the U. S. Government Securities Savings Fund. Market trends throughout the year, as reflected in Investment Company Institute (ICI) mutual fund money flow data, have affected the investment industry as a whole, as well as the Company. Money market funds have continued to suffer net outflows over the last twelve months during which time money market yields have declined to the lowest levels in approximately 30 years. As money market investors seek alternative short-term investments with higher yields, along with equity investors rebalancing their portfolios, there was an increase in bond fund cash flows. In addition, gold-related investments have performed relatively well during this period and valuations have increased as a result of gold bullion reaching a seven-year high of $389 per ounce during the period. The decrease in net advisory fees in fiscal year 2002 of approximately $402,000, or 7.3%, over fiscal year 2001 was largely due to market declines and shareholder redemptions in the Company's equity funds, particularly the Bonnel Growth Fund and the All American Equity Fund. The Company also experienced net redemptions in its U.S. Government Securities Savings Fund. Again, this is an industry trend as yields had fallen significantly and money market funds had lost ground to other higher-yielding products. TRANSFER AGENT FEES. United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency, lockbox, and printing services for Company clients. The Company receives, as compensation for services rendered as transfer agent, an annual fee per account and is reimbursed for out-of-pocket expenses associated with processing shareholder information. Transfer agent fees are therefore affected by the number of client accounts. The decrease in transfer agent fees in fiscal year 2003 of approximately $245,000, or 10.1%, over fiscal year 2002 is primarily a result of a decrease in mutual fund shareholder accounts from 92,210 to 79,856. The Company has continued to see a decline in its number of accounts serviced as many smaller accounts in the funds continue to close. The Company instituted a small account fee in January 2002 for shareholders with low account balances in the funds. Market practices in the mutual fund industry typically demand that low fund expense ratios are necessary in order to remain competitive. As a result of the small account fees, which serve to reduce expenses borne by the funds, the gold funds have realized significant improvements in their expense ratios. However, the Company has realized a large drop in accounts under management, which has resulted in a decline in transfer agent fees for the Company. Also, as a result of the small account fee, the Company expects to have a continued trend in client account closures for calendar year 2003. The Company expects that these small account closures, though painful in the short-term, will result in improved long-term fund profitability and lower expense ratios for its equity funds, improving their competitive positioning against their respective peer groups. The decrease in fees in fiscal year 2002, as compared with fiscal year 2001, is a result of a decrease in mutual fund shareholder accounts from 97,932 to 92,210. CUSTODIAL AND ADMINISTRATIVE FEES. Security Trust & Financial Company (STFC), a wholly owned state chartered trust company, provided custodial and/or trustee services for IRAs and other retirement plans administered by the Company. The custodial fees were previously paid to STFC at calendar year-end upon separate invoice to the customer, not the funds. Effective January 1, 2000, U.S. Global Administrators, Inc. (USGA), a wholly owned subsidiary of the Company, began providing qualified plan administration and record keeping services for existing 401(k) clients, which services were previously offered by STFC. The administrative fees were paid to USGA on a quarterly basis by its clients. USGA ceased revenue-generating operations on May 31, 2001. STFC continued to collect its custodial fees through May 31, 2001, at which time a majority of these fees transferred to USGI. Both companies were liquidated during fiscal year 2002. Custodial and administrative fees remained relatively stable in fiscal year 2003 at $155,000 after declines were realized in prior years. Custodial and administrative fees decreased approximately $145,000, or 48.0%, in fiscal year 2002 as a result of the discontinuation of USGA's 401(k) servicing operations, a decline in the number of custodial accounts administered, and a revenue sharing agreement with the entity USGI contracted to provide custodial services for these accounts. MAILING SERVICES. A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. Some of A&B Mailers' primary customers include the Company, in connection with its efforts to promote the funds, and USGIF and USGAF in fulfilling communications services with fund shareholders. Each service is priced separately. Mailing service fees increased by $28,000, or 19.2%, during fiscal year 2003. The decrease in mailing service fees of approximately $156,000, or 51.7%, for fiscal year 2002 was a result of an adjustment to revenues to reflect mailing volumes. PRIVATE CLIENT ADVISORY FEES. During May of 2002, the Company began managing an investment portfolio for a private advisory client. The increase in fees of $359,000 from 2002 to 2003 reflects an entire year of fees earned during the current fiscal year as compared to one month of fees earned in the prior fiscal year. In addition, securities in this portfolio realized a significant increase in market value during the year. EXPENSES

(DOLLARS IN THOUSANDS) 2003 2002 % CHANGE 2002 2001 % CHANGE --------------------------- ---------- ---------- ------------ ---------- --------- ------------- Employee compensation and $ 4,266 $ 4,479 (4.8)% $ 4,479 $ 4,701 (4.7)% benefits General and administrative 3,106 3,132 (0.8)% 3,132 4,399 (28.8)% Advertising 242 243 (0.4)% 243 216 12.5% Depreciation 121 165 (26.7)% 165 226 (27.0)% Interest 83 85 (2.4)% 85 110 (22.7)% ----- ----- ----- ----- ----- ------ Total $ 7,818 $ 8,104 (3.5)% $ 8,104 $ 9,652 (16.0)%

EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits decreased in fiscal year 2003 over fiscal year 2002 by $213,000, or 4.8%, due to continued staff reductions and a decrease in bonuses. The staff reductions were primarily made in the marketing area in an effort to streamline marketing efforts to reduce overhead. Employee compensation and benefits decreased in fiscal year 2002 over fiscal year 2001 by $222,000, or 4.7%, which was also due to staff reductions. GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by $26,000, or 0.8%, in fiscal year 2003 over fiscal year 2002. This was primarily a result of a write-off of $157,000 associated with a receivable from an insurance carrier during fiscal year 2002. Additionally, the cost of defending a lawsuit reached reimbursable levels on the Company's insurance policy during late fiscal 2002. Prior to this, all costs had been expensed as the Company paid the deductible on this claim. These items were offset by increases in insurance expenses, sub-advisory fees, and omnibus account fees. Insurance costs have continued to rise since September 11, 2001, as the insurance industry has continued to pass through its increasing costs of coverage. Sub-advisory fees increased as a result of strong growth in assets in the Eastern European Fund, and omnibus account fees increased as the Company has realized an increase in asset growth through broker/dealer distribution platforms. General and administrative expenses decreased by approximately $1.3 million, or 28.8%, in fiscal year 2002 over fiscal year 2001 primarily as a result of a decrease in sub-advisory fees paid for portfolio management of the Bonnel Growth Fund and an overall realignment of overhead costs with reduced revenues. ADVERTISING. Fiscal year 2003 advertising expenses were flat as compared to fiscal year 2002. Fiscal year 2002 advertising expenses increased by approximately $27,000, or 12.5%, over fiscal year 2001. The net increase was due to a decreased percentage of costs that were reimbursed by 12b-1 plans adopted by the funds despite an overall reduction in advertising costs. DEPRECIATION. Depreciation expense decreased by approximately $44,000, or 26.7%, in fiscal year 2003 from 2002 due to a continuation of assets becoming fully depreciated without being replaced with additional capital purchases. Depreciation expense decreased by approximately $61,000, or 27.0%, in fiscal year 2002 from 2001, which was also due to existing assets becoming fully depreciated. INTEREST. Interest charges are incurred primarily from a note payable on the Company's building. The decrease in interest expense of approximately $2,000, or 2.4%, from fiscal year 2002 to 2003 is attributable to continued amortization of the note payable. The decrease in interest expense of approximately $25,000, or 22.7%, from fiscal year 2001 to 2002, was due to the continued amortization of the note payable as well as a reduction in rates that was negotiated during fiscal year 2001. EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION (EBITDA) Management considers EBITDA to be the best measure of the Company's financial performance since this measurement reflects the operations of the Company's primary business segment, managing and servicing USGIF and USGAF. The following is a reconciliation of income (loss) before income taxes to EBITDA: EBITDA -------------------------------------------------------------------------------- 2003 2002 2001 -------------------------------- ---------- ---------- ---------- Income (loss) before income taxes $ 32,110 $(336,785) $(758,498) Adjustments: Interest 82,945 85,384 110,250 Depreciation 121,493 164,674 226,150 Gain on litigation settlement (371,057) -- -- Recognized (gains) losses on securities 344,505 100,862 (383,379) Unrealized losses on trading securities 34,308 112,092 379,861 ---------- -------- ---------- EBITDA $244,304 $126,227 $(425,616) The increase in EBITDA of $118,000, or 94%, from fiscal year 2002 to 2003 was primarily attributable to a revenue increase of $359,000 associated with our private client advisory fees. This was partially offset by a decrease of $242,000 in transfer agent fees due to a reduction in shareholder accounts. The increase in EBITDA of $552,000, or 130%, from fiscal year 2001 to 2002 was principally due to the Company's reduction of the overall expense reimbursement levels of its funds. INCOME TAXES Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes, resulting from the use of the liability method of accounting for income taxes. For federal income tax purposes at June 30, 2003, the Company had net operating losses (NOLs) of approximately $1.3 million, which will expire between fiscal 2010 and 2022, charitable contribution carryovers of approximately $68,000 expiring between fiscal 2004 and 2007, and alternative minimum tax credits of $139,729 with indefinite expirations. If certain changes in the Company's ownership occur subsequent to June 30, 2003, there could be an annual limitation on the amount of NOLs that could be utilized under Section 382 of the Internal Revenue Code. The Company has a tax planning strategy, including the sale of owned assets and investments if necessary, which would be implemented to realize the deferred tax asset prior to the expiration of any unused NOLs. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax amount will not be realized. As such, management has included a valuation allowance of approximately $315,000 and $684,000 at June 30, 2003, and 2002, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income. CONTRACTUAL OBLIGATIONS A summary of contractual obligations of the Company as of June 30, 2003, is as follows:

PAYMENTS DUE BY PERIOD ------------------------------------ ----------- ----------- ----------- ---------- -------------- TOTAL LESS THAN 1 - 3 4 - 5 MORE THAN CONTRACTUAL OBLIGATIONS 1 YEAR YEARS YEARS 5 YEARS ------------------------------------ ----------- ----------- ----------- ---------- -------------- Long-Term Debt Obligations $956,560 $70,033 $886,527 Operating Lease Obligations 237,973 87,155 81,432 $69,386 Annuity and Contractual Obligations 112,473 10,464 23,251 26,734 $52,024 ------- ------ ------ ------ ------- Total $1,307,006 $167,652 $991,210 $96,120 $52,024

LIQUIDITY AND CAPITAL RESOURCES At year end, the Company had net working capital (current assets minus current liabilities) of approximately $3.6 million and a current ratio of 5.6 to 1. With approximately $1.2 million in cash and cash equivalents and almost $1.1 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. Total shareholders' equity was approximately $5.7 million, with cash, cash equivalents, and marketable securities comprising 30.6% of total assets. With the exception of operating expenses, the Company's only material commitment is the mortgage on its corporate headquarters. The Company must maintain certain financial covenants as a result of the mortgage. One of the covenants requires that the Company maintain cash and cash equivalents and eligible marketable securities to meet or exceed $1 million at the end of each quarter. 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, including debt service. The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 29, 2004, and May 31, 2004, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts. Management believes current cash reserves, financing obtained and/or available, and potential cash flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the above-mentioned activities and allow the Company to take advantage of investment opportunities whenever available. CRITICAL ACCOUNTING POLICIES SECURITY INVESTMENTS. The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date. Securities that are purchased and held principally for the purpose of selling them 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 classified neither as trading securities nor as 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, are reported, net of tax, as a separate component of shareholders' equity, and are recorded in earnings on the date of sale. For available-for-sale securities with declines in value that are deemed other than temporary, the cost basis of the securities is reduced accordingly, and the resulting loss is realized in earnings. Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available 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 fair value, as determined by the Company's management. 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. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK MARKET RISK DISCLOSURES The Company's balance sheet includes assets whose fair value is subject to market risks. Due to the Company's investments in equity securities, equity price fluctuations represent a market risk factor affecting the Company's consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management's estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the subsequent sale of an investment may differ significantly from the reported market value. The Company's investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients. The Company has in place a code of ethics which requires pre-clearance of any trading activity by the Company. Written procedures are also in place to manage compliance with the code of ethics. The table below summarizes the Company's equity price risks as of June 30, 2003, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.

ESTIMATED FAIR INCREASE VALUE AFTER (DECREASE) IN FAIR VALUE AT HYPOTHETICAL HYPOTHETICAL SHAREHOLDERS' JUNE 30, 2003 ($) PERCENTAGE CHANGE PRICE CHANGE ($) EQUITY ($) ------------------- ------------------ ------------------- ------------------ ------------------- Trading securities 723,428 25% increase 904,285 119,366 25% decrease 542,571 (119,366) Available-for-sale 390,251 25% increase 487,814 64,392 25% decrease 292,688 (64,392)

The selected hypothetical change does not reflect what could be considered best- or worst-case scenarios. Results could be much worse due to both the nature of equity markets and the concentration of the Company's investment portfolio. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of U.S. Global Investors, Inc. We have audited the accompanying consolidated balance sheets of U.S. Global Investors, Inc. and Subsidiaries (Company) as of June 30, 2003 and 2002, and the related consolidated statements of operations and comprehensive income (loss), shareholders' equity, and cash flows for each of the three years in the period ended June 30, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Global Investors, Inc. and Subsidiaries at June 30, 2003 and 2002, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2003, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Ernst & Young LLP Dallas, Texas September 24, 2003 CONSOLIDATED BALANCE SHEETS -------------------------------------------------------------------------------- ASSETS -------------------------------------------------------------------------------- JUNE 30, ---------------------------------------------------- ------------- ------------- 2003 2002 -------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $1,162,243 $ 988,936 Due from brokers 3,889 70,871 Trading securities, at fair value 723,428 1,409,474 Receivables Mutual funds 966,260 963,730 Private advisory client 378,832 27,320 Litigation settlement 371,057 -- Employees 3,998 78,070 Other 20,536 4,874 Prepaid expenses 338,020 279,273 Deferred tax asset 372,084 365,421 --------- --------- TOTAL CURRENT ASSETS 4,340,347 4,187,969 --------- --------- NET PROPERTY AND EQUIPMENT 1,778,832 1,869,990 --------- --------- OTHER ASSETS Restricted investments 195,000 210,000 Long-term deferred tax asset 735,257 739,154 Investment securities available-for-sale, at fair value 390,251 853,612 Other -- 44,296 --------- --------- TOTAL OTHER ASSETS 1,320,508 1,847,062 --------- --------- TOTAL ASSETS $7,439,687 $7,905,021 ========== ========== -------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY -------------------------------------------------------------------------------- CURRENT LIABILITIES Accounts payable $ 70,437 $ 695,693 Accrued compensation and related costs 264,697 221,282 Current portion of notes payable 70,033 65,637 Current portion of annuity and 10,464 9,758 contractual obligation Other accrued expenses 361,831 264,625 ---------- ---------- TOTAL CURRENT LIABILITIES 777,462 1,256,995 ---------- ---------- NONCURRENT LIABILITIES Notes payable - net of current portion 886,527 955,569 Annuity and contractual obligations 102,009 112,398 ---------- ---------- TOTAL NONCURRENT LIABILITIES 988,536 1,067,967 ---------- ---------- TOTAL LIABILITIES 1,765,998 2,324,962 ---------- ---------- SHAREHOLDERS' EQUITY Common stock (class A) -- $0.05 par value; 315,574 315,574 nonvoting;authorized 7,000,000 shares; issued, 6,311,474 shares Common stock (class B) -- $0.05 par value; -- -- nonvoting;authorized 2,250,000 shares; no shares issued Common stock (class C) -- $0.05 par value; 74,840 74,840 voting; authorized 1,750,000 shares; issued, 1,496,800 shares Additional paid-in capital 10,806,655 10,761,276 Treasury stock, class A shares at cost; (663,536) (639,407) 361,948 and 345,331 shares at June 30, 2003, and 2002, respectively Accumulated other comprehensive loss, (10,883) (40,651) net of tax Accumulated deficit (4,848,961) (4,891,573) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 5,673,689 5,580,059 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,439,687 $7,905,021 ========== ========== The accompanying notes are an integral part of this statement. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEAR ENDED JUNE 30, -------------------------------------- ----------------------------------------- 2003 2002 2001 -------------------------------------- ------------- ------------- ------------- REVENUE Investment advisory fees $ 4,904,036 $ 5,095,343 $ 5,497,802 Transfer agent fees 2,171,908 2,417,203 2,682,226 Custodial and administrative fees 155,219 156,688 302,017 Private client advisory fees 385,820 27,320 -- Investment income (loss) (344,525) (168,326) 127,395 Other 206,478 239,286 284,444 ----------- ------------ ------------ 7,478,936 7,767,514 8,893,884 ----------- ------------ ------------ EXPENSES General and administrative 7,613,445 7,854,241 9,315,982 Depreciation 121,493 164,674 226,150 Interest 82,945 85,384 110,250 ----------- ------------ ------------ 7,817,883 8,104,299 9,652,382 ----------- ------------ ------------ GAIN ON LITIGATION SETTLEMENT 371,057 -- -- ----------- ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 32,110 (336,785) (758,498) PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense (10,502) (95,351) 36,181 ----------- ------------ ------------ NET INCOME (LOSS) 42,612 (241,434) (794,679) Other comprehensive income (loss), net of tax: Unrealized gains (losses) on 29,768 61,713 (50,593) available-for-sale securities ----------- ------------ ----------- COMPREHENSIVE INCOME (LOSS) $ 72,380 $ (179,721) $(845,272) ======== =========== ========== BASIC AND DILUTED NET INCOME (LOSS) $ 0.01 $ (0.03) $ (0.11) PER SHARE ======== ========= ========= The accompanying notes are an integral part of this statement. CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

ACCUMULATED TOTAL COMMON COMMON ADDITIONAL OTHER STOCK STOCK PAID-IN ACCUMULATED TREASURY COMPREHENSIVE (CLASS A) (CLASS C) CAPITAL DEFICIT STOCK INCOME (LOSS) ------------------------------ ---------- --------- ------------ ------------- ----------- -------------- ----------- BALANCE AT JUNE 30, 2000 (6,299,474 SHARES OF CLASS A; 1,496,800 SHARES OF CLASS C) $314,974 $74,840 $10,578,419 $(3,794,678) $(637,298) $(51,771) $6,484,486 Purchase of 71,346 shares of Common Stock (Class A) -- -- -- -- (81,326) -- (81,326) Reissuance of 40,270 shares of Common Stock (Class A) -- -- -- (28,731) 86,363 -- 57,632 Recognition of current year portion of deferred compensation -- -- 100,000 -- -- -- 100,000 Unrealized gain (loss) on securities available-for-sale (net of tax) -- -- -- -- -- (50,593) (50,593) Net Loss -- -- -- (794,679) -- -- (794,679) -------- ------- ----------- ------------ ---------- --------- ---------- BALANCE AT JUNE 30, 2001 (6,299,474 SHARES OF CLASS A; 1,496,800 SHARES OF CLASS C) 314,974 74,840 10,678,419 (4,618,088) (632,261) (102,364) 5,715,520 Purchase of 86,275 shares of -- -- -- -- (106,482) -- (106,482) Common Stock (Class A) Reissuance of 54,370 shares of Common Stock (Class A) -- -- 6,679 (32,051) 99,336 -- 73,964 Exercise of 12,000 options for Common Stock (Class A) 600 -- 26,178 -- -- -- 26,778 Recognition of current year portion of deferred compensation -- -- 50,000 -- -- -- 50,000 Unrealized gain (loss) on securities available-for-sale (net of tax) -- -- -- -- -- 61,713 61,713 Net Loss -- -- -- (241,434) -- -- (241,434) -------- ------- ----------- ------------ ---------- --------- ---------- BALANCE AT JUNE 30, 2002 (6,311,474 SHARES OF CLASS A; 1,496,800 SHARES OF CLASS C) 315,574 74,840 10,761,276 (4,891,573) (639,407) (40,651) 5,580,059 Purchase of 40,127 shares of -- -- -- -- (65,649) -- (65,649) Common Stock (Class A) Reissuance of 23,510 shares of Common Stock (Class A) -- -- (4,621) -- 41,520 -- 36,899 Recognition of current year portion of deferred compensation -- -- 50,000 -- -- -- 50,000 Unrealized gain (loss) on -- -- -- -- -- 29,768 29,768 securities available-for-sale (net of tax) Net Income -- -- -- 42,612 -- -- 42,612 ---------- --------- ------------ ------------- ----------- -------------- ----------- BALANCE AT JUNE 30, 2003 (6,311,474 SHARES OF CLASS A; 1,496,800 SHARES OF CLASS C) $315,574 $74,840 $10,806,655 $(4,848,961) $(663,536) $(10,883) $5,673,689 ========= ======= =========== ============ ========== =========== ==========

The accompanying notes are an integral part of this statement. CONSOLIDATED STATEMENTS OF CASH FLOW

YEAR ENDED JUNE 30, ----------------------------------------------------- ------------------------------------------- 2003 2002 2001 ----------------------------------------------------- --------------- -------------- ------------ Cash Flow from Operating Activities Net income (loss) $42,612 $(241,434) $(794,679) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 121,493 164,674 226,150 Net recognized loss (gain) on securities 344,505 100,862 (383,379) Provision for deferred taxes (10,502) (95,351) 36,181 Deferred compensation 50,000 50,000 100,000 Provision for losses on accounts receivable 64,488 -- -- Gain on litigation settlement (371,057) -- -- Loss on disposal of equipment -- -- 97,752 Reserve against impairment of equipment -- -- 9,436 Changes in assets and liabilities, impacting cash from operations: Accounts receivable (360,120) 96,430 56,933 Prepaid expenses and other 59,930 (126,079) 142,964 Trading securities 672,202 (141,896) 1,018,363 Accounts payable and accrued expenses (484,635) 199,033 (376,866) ---------- --------- ---------- Total adjustments 86,304 247,673 927,534 ---------- --------- ---------- Net cash provided by operations 128,916 6,239 132,855 ---------- --------- ---------- Cash Flow from Investing Activities Purchase of property and equipment (30,335) (4,765) (84,493) Purchase of available-for-sale securities (139,866) (269,985) (233,310) Proceeds on sale of available-for-sale securities 317,671 -- 246,269 ---------- --------- ---------- Net cash provided by (used in) investing activities 147,470 (274,750) (71,534) ---------- --------- ---------- Cash Flow from Financing Activities Payments on annuity (9,683) (9,100) (8,487) Payments on note payable (64,646) (61,635) (52,121) Proceeds from issuance or exercise of stock, 36,899 100,742 57,632 warrants, and options Purchase of treasury stock (65,649) (106,482) (81,326) ---------- --------- ---------- Net cash used in financing activities (103,079) (76,475) (84,302) ---------- --------- ---------- Net Increase (Decrease) in Cash and Cash Equivalents 173,307 (344,986) (22,981) Beginning Cash and Cash Equivalents 988,936 1,333,922 1,356,903 ---------- --------- --------- Ending Cash and Cash Equivalents $1,162,243 $ 988,936 $1,333,922 ========== ========= ========== Supplemental Disclosures of Cash Flow Information Cash paid for interest $82,945 $85,384 $133,250 Non-cash Transaction Re-registration of private client investment $581,000 -- -- The accompanying notes are an integral part of this statement.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. ORGANIZATION U.S. Global Investors, Inc. (Company or U.S. Global) serves as investment adviser and transfer agent to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts that are no-load, open end investment companies offering shares in numerous mutual funds to the investing public. The Company has served as investment adviser and manager since the inception of USGIF and USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, its commencement of operations. For these services, the Company receives fees from USGIF and USGAF. U.S. Global formed the following companies to provide supplementary services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), U.S. Global Brokerage, Inc. (USGB), U.S. Global Administrators, Inc. (USGA), and Security Trust & Financial Company (STFC). USGA and STFC were liquidated during fiscal year 2002. The Company formed a limited liability company, which was incorporated in Guernsey on August 20, 1993. This company, U.S. Global Investors (Guernsey) Limited (USGG), is utilized in conducting the Company's cash management activities. NOTE 2. SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries: USSI, A&B, USGG, and USGB. As of June 30, 2002, STFC and USGA were liquidated and are no longer included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes. CASH AND CASH EQUIVALENTS. Cash and cash equivalents include highly liquid investments with original maturities of three months or less. DUE FROM BROKERS. The Company conducts business with various brokers for its investment activities. The clearing and depository operations for the investment activities are performed pursuant to agreements with the brokers. The due from brokers balance represents cash balances with these brokers. The Company is subject to credit risk to the extent any broker with whom the Company conducts business is unable to deliver cash balances owed the Company. Management monitors the financial condition of the brokers with which the Company conducts business and believes the likelihood of loss under the aforementioned circumstances is remote. MUTUAL FUND RECEIVABLES. Mutual fund receivables consist primarily of monthly investment advisory and transfer agent fees owed to the Company by USGIF and USGAF. In addition, mutual fund receivables include amounts reimbursed to the Company for certain advertising and distribution expenses incurred on behalf of USGAF in accordance with Rule 12b-1 of the Investment Company Act of 1940. The Company evaluates the collectibility of these receivables on an ongoing basis, and, as a result, has placed an allowance of $64,488 and $0 against the receivable balance as of June 30, 2003 and June 30, 2002, respectively. Growth in mutual fund assets, in particular growth in assets which are invested directly with the funds and not through broker/dealer distribution platforms, may serve to reduce this allowance in future periods. 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 them 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 classified neither as trading securities nor as 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, are reported, net of tax, as a separate component of shareholders' equity, and are recorded in earnings on the date of sale. For available-for-sale securities with declines in value that are deemed other than temporary, the cost basis of the securities is reduced accordingly, and the resulting loss is realized in earnings. Securities traded on a securities exchange are valued at the last sale price. Securities for which over-the-counter market quotations are available, but there was no trade on 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 fair value, as determined by the Company's management. 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. 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 31.5 to 40 years. TREASURY STOCK. Treasury stock purchases are accounted for under the cost method. The subsequent issuances of these shares are accounted for based on their weighted-average cost basis. STOCK-BASED COMPENSATION. The Company accounts for stock-based compensation using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25), and related interpretations, as allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation", (SFAS 123). In accordance with APB 25, no compensation expense is recognized for stock options where the exercise price equals or exceeds the underlying stock price on the date of grant. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS 123:

FISCAL YEAR ENDED JUNE 30, 2003 2002 2001 Net income (loss), as reported $ 42,612 $(241,434) $ (794,679) Add: Stock-based employee compensation expense included in reported net income, net of tax 36,168 55,397 82,570 Deduct: Total stock-based employee compensation expense determined under fair value based method, net of tax (40,554) (61,723) (90,240) --------- ---------- ------------ Pro forma net income (loss) $ 38,226 $(247,760) $ (802,349) ========= ========== ============ Earnings per share: Basic & Diluted - as reported $ 0.01 $ (0.03) $ (0.11) Basic & Diluted - pro forma $ 0.01 $ (0.03) $ (0.11)

For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model. No options were granted during fiscal years 2003, 2002 or 2001. INCOME TAXES. Provisions for income taxes include deferred taxes for temporary differences in the bases of assets and liabilities for financial and tax purposes, resulting from the use of the liability method of accounting for income taxes. The liability method requires that deferred tax assets be reduced by a valuation allowance in cases where it is more likely than not that the deferred tax assets will not be realized. REVENUE RECOGNITION. The Company earns substantially all of its revenues from investment advisory and transfer agency services. Investment advisory fees, calculated as a percentage of client assets under management, are recorded as revenue as services are performed. The private advisory client contract provides for a performance fee, in addition to the base fee, which is calculated as a percentage of absolute investment results. Transfer agency fees are account based and calculated using a charge based upon the number of shareholder accounts serviced. DIVIDENDS AND INTEREST. Dividends are recorded on the ex-dividend date, and interest income is recorded on an accrual basis. 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, 2003, 2002 and 2001, the Company had capitalized sales materials of approximately $11,000, $4,000 and $7,000, respectively. Net advertising expenditures were approximately $242,000, $243,000 and $216,000 during fiscal 2003, 2002 and 2001, 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 gain (loss) is included as a component of investment income. USE OF ESTIMATES. The preparation of financial statements in conformity with generally accepted accounting principles requires the Company to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates. RECENT ACCOUNTING DEVELOPMENTS. In December 2002, the Financial Accounting Standards Board (FASB) issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS 148 amends SFAS 123 to provide alternative methods of transition to the fair value method of accounting for stock-based compensation when companies elect to expense stock options at fair value at the time of grant. As the Company currently follows the intrinsic value method described in APB 25, the transition provision of SFAS 148 does not apply. SFAS 148 also requires additional disclosures for all companies with stock-based employee compensation. The Company applied the disclosure provisions of SFAS 148 in its financial statements for the year ended June 30, 2003. In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." FIN 46 requires the consolidation of the assets, liabilities and results of operations of a variable interest entity (VIE) by the primary beneficiary. FIN 46 also requires the disclosure of information concerning VIEs by entities that hold a significant variable interest but may not be the primary beneficiary. FIN 46 also requires the disclosure of the nature, purpose, size and activities of VIEs, as well as the maximum exposure to loss in connection with VIEs. The provisions of FIN 46 apply immediately to VIEs created after January 31, 2003, and is effective for interim periods beginning after June 15, 2003 for interests in VIEs that were acquired before February 1, 2003. Management is in the process of evaluating the impact of FIN 46 on its consolidated financial statements for periods after June 30, 2003. NOTE 3. INVESTMENTS The following table summarizes investment activity over the last three fiscal years:

YEAR ENDED JUNE 30, ------------------------------------------------------- ------------------------------------------- 2003 2002 2001 ------------------------------------------------------- ------------ ----------------- ------------ Realized gains (losses) on sale of trading securities $(7,583) $(48,975) $350,717 Trading securities, at cost 1,658,058 2,178,041 1,951,963 Trading securities, at fair value * 723,428 1,409,474 1,163,693 Net change in unrealized losses on trading securities (34,308) (112,092) (379,861) (included in earnings) Available-for-sale securities, at cost 406,739 915,204 849,966 Available-for-sale securities, at fair value * 390,251 853,612 694,870 Gross realized gains on sale of available-for-sale 178,326 -- 32,673 securities Gross realized losses on sale of available-for-sale (267,836) -- (11) securities Gross unrealized losses recorded in shareholders' (44,481) (272,118) (211,510) equity Gross unrealized gains recorded in shareholders' 27,992 210,525 56,413 equity Losses on available-for-sale securities deemed to (247,412) (51,887) -- have other-than-temporary declines in value ----------------- * These categories of securities are comprised primarily of equity investments, including those investments discussed in Note 15 regarding related party transactions.

During fiscal 2002, a security was purchased on behalf of a private advisory client of the Company for which $581,000 was included in trading securities on the Company's balance sheet at June 30, 2002. This security had a contingent payable that was required to be paid by the Company to the private advisory client upon liquidation of the securities, net of any fees earned. This payable was included in accounts payable on the balance sheet at June 30, 2002. To better reflect the terms of the relationship, during December 2002 these securities were re-registered, and, as a result, were no longer recorded as an asset of the Company and there were no longer any associated contingent payables. Beneficial ownership of the securities has been, and still is, maintained by the private advisory client. The Company has a fee arrangement for these securities whereby it receives an administrative fee annually plus a percentage of any gains from the sale of the securities, payable at the settlement of the sales. The Company has recorded $385,820 and $27,320 in revenue from these fee arrangements for period ended June 30, 2003, and June 30, 2002, respectively. These amounts have been classified as private client advisory fees on the statement of operations. Subsequent to fiscal year-end, it was determined, based upon market quotations, that the value of an available-for-sale security had declined $89,000 below its recorded value at June 30, 2003. 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. USGAF are sub-advised by outside third-party managers, who are in turn paid out of the investment advisory fees received by the Company. In March 2002, an agreement was reached with one of these sub-advisors whereby $165,000 of sub-advisory fees payable were waived. The Company also serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder accounts serviced. The Company also provides in-house legal services to USGIF and USGAF for which it is reimbursed. The Company also receives exchange, maintenance, closing, and small account fees directly from USGIF and USGAF shareholders. Fees for providing services to USGIF and USGAF continue to be the Company's primary revenue source. The Company receives additional revenue from several sources including: custodian revenues, revenues from miscellaneous transfer agency activities including lockbox and printing functions, A&B mailroom operations, private account advisory services, as well as gains on marketable securities transactions. The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF through June 30, 2004, or such later date as the Company determines. The aggregate amount of fees waived and expenses borne by the Company were $1,509,061, $1,530,046, and $2,039,360 in 2003, 2002, and 2001, respectively. The investment advisory contract and related contracts between the Company and USGIF expire in February 2004, and the contracts between the Company and USGAF expire in May 2004. Management anticipates the trustees of both USGIF and USGAF will renew the contracts. NOTE 5. PROPERTY AND EQUIPMENT Property and equipment are composed of the following: JUNE 30, ------------------------------------------------------ ------------------------- 2003 2002 ------------------------------------------------------ ------------ ------------ Building and land $2,271,613 $2,271,613 Furniture, equipment, and other 2,144,770 2,136,843 ----------- ----------- 4,416,383 4,408,456 Accumulated depreciation (2,637,551) (2,538,466) ----------- ----------- Net property and equipment $1,778,832 $1,869,990 ========== ========== The building and land are pledged as collateral for the financing used to acquire the building. NOTE 6. BORROWINGS The Company has a note payable to a bank, which is secured by land, an office building, and related improvements. As of June 30, 2003, the balance on the note was $956,560. The loan is currently being amortized over a twelve-year period with payments of both principal and interest due monthly based on a fixed rate of 6.50%. The current monthly payment is $10,840, and the note matures on January 31, 2006. Under this agreement, the Company must maintain certain financial covenants. One of the covenants requires that the Company maintain cash and cash equivalents and eligible marketable securities to meet or exceed $1 million at the end of each quarter. As of June 30, 2003, the Company was in full compliance with all financial covenants. Management believes that the Company has adequate cash, cash equivalents, and equity in the underlying asset to retire the obligation if necessary. The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. Any use of this credit facility will be secured by the Company's eligible accounts receivable. As of June 30, 2003, this credit facility remained unutilized by the Company. Future principal payments to be made over the next three years based on the note payable outstanding at June 30, 2003, are as follows: FISCAL YEAR AMOUNT ----------- -------- 2004 $ 70,033 2005 74,712 2006 811,815 -------- Total $956,560 ======== NOTE 7. LEASE COMMITMENTS The Company has operating leases for computers and equipment that expire between fiscal years 2004 and 2008. Total lease expenses were $188,558, $222,983, and $202,006 in fiscal years 2003, 2002, and 2001, respectively. Future minimum lease payments required under these leases are as follows: FISCAL YEAR AMOUNT ----------- -------- 2004 $ 87,155 2005 43,728 2006 37,704 2007 34,693 2008 34,693 -------- Total $237,973 ======== NOTE 8. ANNUITY AND CONTRACTUAL OBLIGATIONS On February 6, 1989, the Company entered into an agreement with Clark Aylsworth (Aylsworth) related to his retirement on December 31, 1988. This agreement provided for the payment to Aylsworth of a monthly annuity of $1,500 for the remainder of his life or his wife's life, if he predeceases her. The Company has recorded an obligation related to this agreement. On December 30, 1990, the Company entered into a noncompete/noninterference agreement, an executory contract, pursuant to which it pays the Aylsworths $4,500 monthly, such amount to continue for the longer of Aylsworth's or his wife's life. The Company determined that the executory contract should be expensed as payments are made. The Company placed cash in escrow to cover the Company's obligation to the Aylsworths if the Company defaults. The escrowed amount decreases $15,000 annually and the balance was $195,000 at June 30, 2003, which is disclosed on the balance sheet as restricted investments. NOTE 9. BENEFIT PLANS The Company offers a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code covering substantially all employees. In connection with this 401(k) plan, participants can voluntarily contribute a portion of their compensation, up to certain limitations, to this plan, and the Company will match 50% of their contribution up to 2% of compensation. The Company has recorded expenses related to the 401(k) plan of $46,918, $48,760, and $37,477 for fiscal years 2003, 2002, and 2001, respectively. The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company has neither accrued nor paid a contribution for fiscal years 2003, 2002, and 2001. Prior to January 1, 2002, there was a separate profit sharing plan. Effective January 1, 2002, the separate profit sharing plan was merged into the 401(k) plan to provide a more efficient manner of administration. The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using mutual funds managed by the Company, which essentially all such employees accepted. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children's education. The Company match, reflected in base salary expense, aggregated in all programs to $52,983, $52,692, and $67,485 in fiscal years 2003, 2002 and 2001, respectively. The Company has a program whereby employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2003, 2002 and 2001, employees purchased 20,510, 37,770 and 21,870 shares of treasury stock from the Company, respectively. Additionally, the Company self-funds its employee health care plan. The Company has obtained reinsurance with both a specific and an aggregate stop-loss in the event of catastrophic claims. The Company has accrued an amount representing the Company's estimate of claims incurred but not paid at June 30, 2003. NOTE 10. SHAREHOLDERS' EQUITY On a per share basis, the holders of the class C common stock and the nonvoting class A common stock participate equally in dividends as declared by the Company's board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5% of the Company's after-tax prior year net earnings. The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share. During fiscal year 1999, the Board of Directors of the Company approved the issuance of 1,000,000 shares of class C common stock to Frank Holmes in exchange for services and cancellation of the option to purchase 400,000 shares of class C common stock held by Mr. Holmes and the cancellation of warrants to purchase 586,122 shares of class C common stock held by Mr. Holmes and F.E. Holmes Organization, Inc. The 1,000,000 shares vest over a ten-year period beginning July 1, 1998, and will vest fully on June 30, 2008, or in the event of Mr. Holmes' death, and were valued at $.50 per share for compensation purposes. The agreement was executed on August 10, 1999. At June 30, 2003, the unvested balance of this deferred compensation arrangement is $250,000 and is included on the statement of financial condition as a contra account to additional paid-in capital. During the fiscal years ended June 30, 2003 and 2002, the Company purchased 40,127 and 86,275 shares, respectively, of its class A common stock at an average price of $1.64 and $1.23, per share, respectively. During the years ended June 30, 2003, 2002 and 2001, the Company granted 3,000, 16,600 and 18,400 shares, respectively, of class A common stock to certain employees at a weighted average fair value on grant date of $1.60, $2.04, and $1.36, respectively. In addition, at June 30, 2003, the Company accrued a discretionary bonus to certain employees of approximately $38,000. Subsequent to June 30, 2003, the Company granted 15,000 shares of its class A common stock in payment of this bonus. In March 1985, the board of directors adopted an Incentive Stock Option Plan (1985 Plan), amended in November 1989 and December 1991, which provides for the granting of options to purchase 200,000 shares of the Company's class A common stock, at or above fair market value, to certain executives and key salaried employees of the Company and its subsidiaries. Options under the 1985 Plan were granted for a term of up to five years in the case of employees who own in excess of 10% of the total combined voting power of all classes of the Company's stock and up to ten years for other employees. Options issued under the 1985 Plan vest six months from the grant date or 20% on the first, second, third, fourth and fifth anniversaries of the grant date. Options were granted at prices ranging from $1.50 to $4.50 per share, which equaled or exceeded the fair market value at date of grant. The 1985 Plan expired December 31, 1994; consequently, there will be no further option granted under the 1985 Plan. As of June 30, 2003, 2,500 options remain outstanding. In November 1989, the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan), amended in December 1991, which provides for the granting of options to purchase 800,000 shares of the Company's class A common stock to directors, officers, and employees of the Company and its subsidiaries. Since adoption of the 1989 Plan, options have been granted at prices ranging from $1.50 to $5.69 per share, which equaled or exceeded the fair market value at date of grant. Options issued under the 1989 Plan vest six months from the grant date or 20% on the first, second, third, fourth and fifth anniversaries of the grant date. In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which provides for the granting of stock appreciation rights (SARs) and/or options to purchase 200,000 shares of the Company's class A common stock to directors, officers, and employees of the Company and its subsidiaries. Stock option transactions under the various stock option plans for the past three fiscal years are summarized below: WEIGHTED AVERAGE EXERCISE SHARES PRICE ($) --------------------------- -------------- -------------- OUTSTANDING JUNE 30, 2000 380,800 2.16 Granted -- -- Canceled 39,000 1.58 Exercised -- -- ------- OUTSTANDING JUNE 30, 2001 341,800 2.23 Granted -- -- Canceled 150,300 2.62 Exercised 12,000 1.92 ------- OUTSTANDING JUNE 30, 2002 179,500 1.92 Granted -- -- Canceled 18,000 1.68 Exercised -- -- ------- OUTSTANDING JUNE 30, 2003 161,500 1.94 ======= As of June 30, 2003, 2002, and 2001, exercisable stock options totaled 144,700, 144,100, and 293,000 shares and had weighted average exercise prices of $2.00, $2.02, and $2.35 per share, respectively. Class A common stock options outstanding and exercisable at June 30, 2003, were as follows:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE WEIGHTED WEIGHTED DATE OF REMAINING AVERAGE AVERAGE OPTION NUMBER LIFE IN EXERCISE NUMBER OPTION GRANT OUTSTANDING YEARS PRICE ($) EXERCISABLE PRICE ($) 1985 PLAN 12/15/94 2,500 1.45 2.63 2,500 2.63 CLASS A 1989 PLAN 05/16/94 1,000 .87 4.75 1,000 4.75 CLASS A 09/05/95 4,500 2.18 2.63 4,500 2.63 05/24/96 10,000 2.90 3.06 10,000 3.06 06/04/97 20,000 3.93 2.00 20,000 2.00 12/03/99 15,000 6.42 1.50 9,000 1.50 ------- ---- ---- ------- ---- 50,500 2.69 2.17 44,500 2.26 1997 PLAN 06/04/97 31,500 3.93 1.82 31,500 1.82 CLASS A 06/04/97 50,000 3.93 2.00 50,000 2.00 12/03/99 27,000 6.42 1.50 16,200 1.50 ------- ---- ---- ------- ---- 108,500 4.55 1.82 97,700 1.86 ALL PLANS 12/91 161,500 3.92 1.94 144,700 2.00 through ======== ==== ==== ======= ==== 12/99

NOTE 11. INCOME TAXES The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is: YEAR ENDED JUNE 30, 2003 2002 2001 Tax expense (benefit) at statutory rate $ 10,917 $ (114,507) $ (257,889) Nondeductible membership dues 8,690 14,754 10,788 Nondeductible meals and entertainment 15,091 14,242 18,758 Change in valuation allowance (369,068) 137,928 253,966 Other 323,868 (147,768) 10,558 ----------- ----------- ----------- $(10,502) $(95,351) $ 36,181 ========= ========= ======== Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company's deferred total assets and liabilities using a 34% tax rate are as follows: YEAR ENDED JUNE 30, 2003 2002 BOOK/TAX DIFFERENCES IN THE BALANCE SHEET Trading securities $ 317,774 $ 306,110 Accumulated depreciation 22,636 31,930 Accrued expenses 54,310 59,311 Available-for-sale securities 120,267 20,942 Losses of USGG 229,307 195,107 Annuity obligations 38,241 41,533 ------ ------ 782,535 654,933 TAX CARRYOVERS Net operating loss (NOL) carryover 442,909 941,357 Charitable contributions carryover 23,089 18,545 Investment tax credit 34,472 34,472 Alternative minimum tax credits 139,729 139,729 --------- -------- 640,199 1,134,103 TOTAL GROSS DEFERRED TAX ASSET 1,422,734 1,789,036 VALUATION ALLOWANCE (315,393) (684,461) ---------- --------- NET DEFERRED TAX ASSET $1,107,341 $1,104,575 ========== ========== For federal income tax purposes at June 30, 2003, the Company has NOLs of approximately $1.3 million, which will begin expiring between fiscal 2010 and 2022, charitable contribution carryovers of approximately $68,000 expiring between 2004 and 2007, and alternative minimum tax credits of $139,729 with indefinite expirations. If certain changes in the Company's ownership should occur, there could be an annual limitation on the amount of NOLs that could be utilized. The Company has a tax planning strategy, including the sale of owned assets and investments if necessary, which would be implemented to realize the deferred tax asset prior to the expiration of any unused NOLs. 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 a valuation allowance of $315,393 and $684,461 at June 30, 2003 and 2002, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income. NOTE 12. EARNINGS PER SHARE The following table sets forth the computation for basic and diluted earnings per share (EPS): YEAR ENDED JUNE 30, 2002 2002 2001 BASIC AND DILUTED NET INCOME (LOSS) $42,612 $ (241,434) $ (794,679) WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES Basic 7,460,260 7,456,181 7,524,913 EFFECT OF DILUTIVE SECURITIES Employee stock options 8,860 -- -- ------------ --------- --------- Diluted 7,469,120 7,456,181 7,524,913 ============ ========= ========= EARNINGS (LOSS) PER SHARE Basic $ 0.01 $ (0.03) $ (0.11) ======== ========== ========= Diluted $ 0.01 $ (0.03) $ (0.11) ======== ========== ========= The diluted EPS calculation excludes the effect of stock options when their exercise prices exceed the average market price for the period. For the years ended June 30, 2003, 2002, and 2001, options for 88,000, 179,500, and 341,800 shares, respectively, were excluded from diluted EPS. NOTE 13. COMPREHENSIVE INCOME (LOSS) The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income. TAX BEFORE-TAX (EXPENSE) OR NET-OF-TAX AMOUNT BENEFIT AMOUNT JUNE 30, 2003 Unrealized gains (losses) on $ 45,103 $(15,335) $ 29,768 available-for-sale securities -------- --------- -------- Other comprehensive income (loss) $ 45,103 $(15,335) $ 29,768 ======== ========= ======== JUNE 30, 2002 Unrealized gains (losses) on $ 93,504 $ (31,791) $ 61,713 available-for-sale securities -------- ---------- -------- Other comprehensive income (loss) $ 93,504 $ (31,791) $ 61,713 ======== ========== ======== JUNE 30, 2001 Unrealized gains (losses) on $(76,656) $26,063 $(50,593) available-for-sale securities --------- ------- --------- Other comprehensive income (loss) $(76,656) $26,063 $(50,593) ========= ======= ========= NOTE 14. FINANCIAL INFORMATION BY BUSINESS SEGMENT The Company operates principally in two business segments: providing mutual fund investment management services to its clients and investing for its own account in an effort to add growth and value to its cash position. The following details total revenues and income (loss) by business segment:

INVESTMENT CORPORATE CONSOLI- MANAGEMENT INVESTMENT DATED SERVICES ($) ($) ($) YEAR ENDED JUNE 30, 2003 Net revenues 7,842,828 (363,892) 7,478,936 ========= ========= ========= Net income (loss) before income taxes 427,341 (395,231) 32,110 ======= ========= ======== Depreciation 121,493 121,493 ======= ========== ======= Interest expense 82,216 729 82,945 ======= ========= ========= Gain on litigation settlement 371,057 -- 371,057 ======= ========== ======= Capital expenditures 30,335 -- 30,335 ====== ========== ======== Gross identifiable assets at June 30, 5,218,667 1,113,679 6,332,346 2003 Deferred tax asset 1,107,341 --------- Consolidated total assets at June 30, 7,439,687 2003 ========= YEAR ENDED JUNE 30, 2002 Net revenues 7,975,056 (207,542) 7,767,514 ========= ========= ========= Net income (loss) before income taxes (128,643) (208,142) (336,785) ========= ======== ========= Depreciation 164,674 -- 164,674 ======= ======== ======= Interest expense 84,810 574 85,384 ======= ======== ====== Capital expenditures 4,765 -- 4,765 ===== ======== ===== Gross identifiable assets at June 30, 4,537,360 2,263,086 6,800,446 2002 Deferred tax asset 1,104,575 --------- Consolidated total assets at June 30, 7,905,021 2002 ========= YEAR ENDED JUNE 30, 2001 Net revenues 8,881,776 12,108 8,893,884 ========= ====== ========= Net income (loss) before income taxes (742,801) (15,697) (758,498) ========= ======== ========= Depreciation 226,150 -- 226,150 ======= ======== ======= Interest expense 109,995 255 110,250 ======= ======= ======= Capital expenditures 84,493 -- 84,493 ======= ======= ======= Gross identifiable assets at June 30, 5,012,606 1,858,563 6,871,169 2001 Deferred tax asset 1,041,015 --------- Consolidated total assets at June 30, 7,912,184 2001 =========

NOTE 15. RELATED PARTY TRANSACTIONS In addition to the Company's receivable from USGIF and USGAF relating to investment management, transfer agent, and other fees, the Company had $1,125,037 and $969,087 invested in USGIF money market mutual funds at June 30, 2003 and 2002, respectively. Receivables from mutual funds 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. Frank Holmes, a director and CEO of the Company, has served as an independent director of Franc-Or Resources beginning in June 2000 and chairman of Fortress IT Corp (formerly Consolidated Fortress Resources) beginning November 2000. He also served as an independent director for Broadband Collaborative Solutions, a private company, from May 2000 to June 30, 2002. Mr. Holmes resigned as director of Broadband Collaborative Solutions when the entity became a public company. The Company owns a position in Franc-Or Resources at June 30, 2003, with an estimated fair value of $267,949, recorded as a trading security on the balance sheet. The Company also owns positions in Fortress IT and Broadband Collaborative Solutions at June 30, 2003, with estimated fair values of $15,037 and $81,867, respectively, recorded as investment securities available-for-sale on the balance sheet. Mr. Holmes personally owned shares of Broadband Collaborative Solutions at June 30, 2003. Mr. Holmes had an outstanding payable to the Company of $1,613 and $43,567 at June 30, 2003 and 2002, respectively. In addition, Mr. Holmes had advances outstanding at June 30, 2002 of $76,651, and this amount was settled through a bonus to Mr. Holmes after June 30, 2002. During fiscal year 2002, J. Stephen Penner, a former director of the Company who resigned during fiscal year 2002, exercised options for 10,000 shares of Class A stock at $2.00 per share. NOTE 16. RECEIVABLE ADJUSTMENTS In fiscal year 2001, the Company paid $182,115 for losses from shareholder activity incurred by USGIF in previous years. Management consulted with its insurance carrier and determined that it was probable that this sum could be claimed against the Company's insurance policy. The deductible on this policy was $25,000, which amount was expensed in fiscal 2000. The balance of approximately $157,000 was booked as a receivable at June 30, 2001. In fiscal year 2002, discussions with the insurance carrier indicated that the possibility of recovery was not likely, and as such, the entire receivable balance was expensed. Any subsequent collections on this claim will result in a reversal of this expense to the extent of collection. During fiscal year 2003, the Company collected $20,000 on this claim. During fiscal 2002, an adjustment was made to the billing practices related to the Company's mail services. As a result, an overall reduction of $104,000 was applied to mail service revenues and related receivables in order to reflect billing volumes. NOTE 17. CONTINGENCIES The Company was named as one of several defendants in a civil lawsuit filed in New York. During June 2003, this lawsuit was dismissed, however, on July 28, 2003, the plaintiff filed an appeal. Management consulted with legal counsel and determined that the Company has strong merits for obtaining a favorable ruling. The Company had filed a claim against its insurance policy that would provide reimbursement of legal costs that exceeded the deductible. This deductible was reached in late fiscal year 2002. The Company received $172,000 and $66,000 in reimbursements from its insurance carrier during fiscal years 2003 and 2002, respectively. All reimbursements were recorded as a reduction in general and administrative expenses on the statement of operations. The Company was the plaintiff in a lawsuit filed in Ontario, Canada and a mediation was held during June 2003. During this mediation, the Company and the defendant agreed to a settlement in the amount of $371,057, which has been recorded as a receivable and a gain on the balance sheet and statement of operations, respectively. Payment on the settlement was received by the Company subsequent to June 30, 2003, and the case has been formally dismissed. NOTE 18. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

FISCAL 2003 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER (in thousands except per share figures) Revenues $1,971 $2,041 $1,874 $1,593 Income (Loss) Before Income Taxes $ 114 $ 137 $ (74) $ (145) Net Income $ 111 $ 142 $ (70) $ (140) Earnings per Share: Basic $0.01 $0.02 ($0.01) ($0.02) Diluted $0.01 $0.02 ($0.01) ($0.02) Fiscal 2002 1ST QUARTER 2ND QUARTER 3RD QUARTER 4TH QUARTER (in thousands except per share figures) Revenues $1,828 $1,886 $1,933 $2,121 Income (Loss) Before Income Taxes $ (52) $ 1 $ 68 $(354) Net Income $ (5) $ (22) $ (25) $(189) Earnings per Share: Basic ($0.00) ($0.00) ($0.00) ($0.03) Diluted ($0.00) ($0.00) ($0.00) ($0.03)

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE On September 22, 2003, Ernst & Young LLP (E&Y) notified the Registrant, including the audit committee of the board of directors, that it will not stand for reelection following the completion of the audit for fiscal year ended June 30, 2003. E&Y's reports on the Registrant's financial statements for the past two most recent fiscal years contained no adverse opinion or disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. The board of directors, including the members of the audit committee, accepted E&Y's resignation at a board meeting held September 29, 2003. There have been no disagreements with E&Y on any matter of accounting principles or practices, financial statement disclosures or auditing scope or procedures during the Registrant's two most recent fiscal years or in the subsequent interim period through September 22, 2003 (the date of resignation) which disagreement(s), if not resolved to E&Y's satisfaction, would have caused E&Y to make reference to the subject matter of the disagreement(s) in connection with its report. E&Y did not advise the Registrant during the Registrant's two most recent fiscal years or in the subsequent interim period through September 22, 2003 (the date of resignation): 1. that the internal controls necessary for the Registrant to develop reliable financial statements did not exist except as follows; in response to a design in control deficiency reported by E&Y related to the fiscal 2002 audit, the Registrant corrected this design in control deficiency by realigning certain reporting responsibilities; 2. that information had come to its attention that had led it to no longer be able to rely on management's representations, or that had made it unwilling to be associated with the financial statements prepared by management; 3. (i) of the need to expand significantly the scope of its audit, or that information had come to its attention during the two most recent fiscal years or any subsequent interim period that if further investigated might (a) materially have impacted the fairness or reliability of either a previously issued audit report or the underlying financial statements, or the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report or (b) have caused it to be unwilling to rely on management's representations or be associated with the Registrant's financial statements, and (ii) it did not, due to its resignation or for any other reason, expand the scope of its audit or conduct such further investigation; or 4. (i) that information had come to its attention that it had concluded materially impacts the fairness or reliability of either: (a) a previously issued audit report or the underlying financial statements, or (b) the financial statements issued or to be issued covering the fiscal period(s) subsequent to the date of the most recent financial statements covered by an audit report. The Registrant has requested E&Y to provide a letter addressed to the Securities and Exchange Commission stating whether it agrees with the statements set forth above. A copy of E&Y's letter to the Securities and Exchange Commission is filed as Exhibit 16 to this Form 10-K. E&Y was authorized by the Registrant to respond fully to inquiries of the new independent principal accountant to be hired. ITEM 9A. CONTROLS AND PROCEDURES In the fiscal year ended June 30, 2003, there were no significant changes in the Company's internal controls or in other factors that could significantly affect those controls subsequent to the date of their most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Part III of Annual Report on Form 10-K ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company are as follows: NAME AGE POSITION Frank E. Holmes 48 Chairman of the Board of Directors and Chief Executive Officer of the Company since October 1989, and Chief Investment Officer since June 1999. Since October 1989, Mr. Holmes has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Mr. Holmes has also served as Director of 71316 Ontario, Inc. since April 1987. Director, President, and Secretary of F.E. Holmes Organization, Inc. since July 1978. Mr. Holmes has served as Director of Franc-Or Resources Corporation since June 2000 and Chairman and Director of Fortress IT Corp (formerly Consolidated Fortress) since November 2000. Jerold H. Rubinstein 65 Director of the Company since October 1989.Chief Executive Officer and founder of Music Imaging & Media, Inc. from July 2002 to present. Chairman of Musicplex, Inc. from September 1999 to June 2002. Chairman and Chief Executive Officer of Xtra Music from July 1997 to May 2000. Chairman of the Board of Directors and Chief Executive Officer of DMX Inc. from May 1986 to July 1997. Roy D. Terracina 57 Director of the Company since December 1994 and Vice Chairman of the Board of Directors since May 1997. Owner of Sunshine Ventures, Inc., an investment company, since January 1994. Thomas F. Lydon, Jr. 43 Director of the Company since June 1997.Chairman of the Board and President of Global Trends Investments since April 1996. President, Vice President and Account Manager with Fabian Financial Services, Inc. from April 1984 to March 1996. Member of the Advisory Board for Schwab Institutional from 1989 to 1991 and from 1995 to 1996. Member of the Advisory Board of Rydex Series Trust since January 1999. Fund Relations Chair for SAAFTI since 1994. Susan B. McGee 44 President of the Company since February 1998, General Counsel since March 1997. Since September 1992, Ms. McGee has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Tracy C. Peterson 31 Chief Financial Officer of the Company since January 2002. Since 1997, Mr. Peterson has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. None of the directors or executive officers of the Company has a family relationship with any of the other directors or executive officers. The members of the board of directors are elected for one-year terms or until their successors are elected and qualified. The board of directors appoints the executive officers of the Company. The Company's Compensation Committee consists of Messrs. Holmes, Lydon, Rubinstein, and Terracina. The Company's Audit Committee consists of Messrs. Rubinstein and Terracina. The Stock Option Committee consists of Mr. Rubinstein and Mr. Terracina. The Company does not have a Nominating Committee. COMPLIANCE WITH SECTION 16(A) OF THE 1934 ACT Section 16(a) of the 1934 Act requires directors and officers of the Company, and persons who own more than 10% of the Company's class A common stock, to file with the Securities and Exchange Commission (SEC) initial reports of ownership and reports of changes in ownership of the stock. Directors, officers and more than 10% shareholders are required by SEC regulations to furnish the Company with copies of all Section 16(a) forms they file. Frank E. Holmes, Tracy C. Peterson and Susan B. McGee participated during the period in a Company-sponsored employee stock purchase plan under which Company employees may elect to have a portion of their salary, which is paid on a semi-monthly basis, withheld for the purpose of purchasing common stock of the Company at its prevailing market price. From and after August 29, 2002, the effective date of the SEC's amendments to the reporting requirements under Section 16(a) of the Exchange Act, Mr. Holmes, Mr. Peterson and Ms. McGee did not timely file Forms 4 to report purchases of common stock made under this employee stock purchase plan. During the period, Mr. Holmes did not file 20 different Forms 4 which would have reported 20 different purchases made under this employee stock purchase plan. Mr. Holmes reported all of the common stock purchased under this employee stock purchase plan during this period on a Form 4 filed with the SEC on July 7, 2003. During this period, Mr. Peterson did not file 20 different Forms 4 which would have reported 20 different purchases made under this employee stock purchase plan. Mr. Peterson reported all of the common stock purchased under this employee stock purchase plan during this period on a Form 4 filed on July 7, 2003. During the period, Ms. McGee did not file 4 different Forms 4 which would have reported 4 different purchases made under this employee stock purchase plan. Ms. McGee reported all of the common stock purchased under this employee stock purchase plan during this period on a Form 4 filed on July 7, 2003. Effective June 30, 2003, the Company adopted a new employee stock purchase plan, under which employee purchases are deemed to take place only once every quarter. ITEM 11. EXECUTIVE COMPENSATION The Company has intentionally omitted columns (g), (h), and (i) as they are not applicable. Includes amounts identified for 401(k) contributions (calculable through the end of the June 30, 2003, fiscal year) and amounts for Company savings plans (calculable through the end of the June 30, 2003, fiscal year).

ANNUAL COMPENSATION LONG-TERM COMPENSATION AWARDS (A) (B) (C) (D) (E) (F) (G) NAME AND YEAR SALARY($) BONUS($) OTHER PRINCIPAL POSITION ANNUAL RESTRICTED NUMBER OF DURING FY 2003 COMPEN- STOCK OPTIONS/ SATION($) AWARDS($) SARS Frank E. Holmes 2003 445,675 110,195 82,858(1) 50,000(2) -- Chairman, Chief Executive Officer 2002 318,280 103,715 74,784(1) 50,000(2) -- 2001 318,280 141,918 82,644(1) 100,000(2) -- Susan B. McGee 2003 175,206 64,390 --(3) 6,500 -- President, General Counsel 2002 151,610 50,536 --(3) 4,300 -- 2001 139,054 46,650 --(3) 217 -- Tracy C. Peterson 2003 91,284 14,333 --(3) 4,050 -- Chief Financial Officer 2002 82,443 19,130 --(3) 2,150 -- 2001 62,638 10,459 --(3) 217 -- (1) Includes trustee fees of $40,350, $38,200 and $48,000 paid by the Company during fiscal year 2003, 2002 and 2001, respectively. (2) In June 1999, the board of directors granted Mr. Holmes 1,000,000 shares of class C common stock to be vested, in equal parts, over a ten-year period beginning with fiscal year 1999, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008. Issuance was in part to compensate him for his efforts and upon cancellation of Mr. Holmes' warrants and option to acquire 986,122 shares of class C common stock. (3) The Company believes that the aggregate amounts of such omitted personal benefits do not exceed the lesser of $50,000 or 10% of the total of annual salary and bonus reported in columns (c) and (d) for the named executive officers.

INCENTIVE COMPENSATION Executive officers, except Mr. Holmes, participate in a team performance pay program based on each employee's annual salary to recognize monthly completion of departmental goals. Additionally, key executive officers are compensated based on individual performance pay arrangements. 401(K) PLAN The Company offers a 401(k) plan covering substantially all employees. The Company will match a certain percentage of a participating employee's pay deferment. The Company contributes to participants' accounts at the same time that the employee's pay deferral is made. Employees are immediately vested in both their 401(k) salary deferral contribution and the Company's matching contribution. The 401(k) plan allows for a discretionary profit sharing contribution by the Company, as authorized by the board of directors. The Company did not make a profit sharing contribution for the 2003, 2002 or 2001 fiscal years. Prior to January 1, 2002, there was a separate profit sharing plan. Effective January 1, 2002, the separate profit sharing plan was merged into the 401(k) plan to provide a more efficient manner of administration. SAVINGS PLANS The Company has continued the program pursuant to which it offers employees, including its executive officers, an opportunity to participate in savings programs using managed investment companies. Limited employee contributions to an Individual Retirement Account are matched by the Company. Similarly, certain employees may contribute monthly to the Tax Free Fund, and the Company will match these contributions on a limited basis. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children's education. STOCK PURCHASE PLAN The Company has a program whereby employees can purchase treasury shares, at market price, and the Company will match their contribution up to 3% of gross salary. During fiscal years 2003, 2002 and 2001, employees purchased 20,510, 37,770 and 21,870 shares of treasury stock from the Company respectively. STOCK OPTION PLANS In March 1985, the board of directors of the Company adopted an Incentive Stock Option Plan (1985 Plan), giving certain executives and key salaried employees of the Company and its subsidiaries options to purchase shares of the Company's class A common stock. The 1985 Plan was amended on November 7, 1989 and December 6, 1991. In December 1991, it was amended to provide provisions to cause the plan and future grants under the plan to qualify under the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2003, under this plan, 202,500 options were granted, 88,000 options had been exercised, 112,000 options had expired, and 2,500 options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994. In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company's class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by a committee consisting of two outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1989 Plan is 800,000 shares. During the fiscal year ended June 30, 2003, there were no grants. As of June 30, 2003, under this amended plan, 876,700 options had been granted, 403,000 options had been exercised, 423,200 options had expired, and 50,500 options remained outstanding, and 346,500 options are available for grant. In April 1997, the board of directors adopted the 1997 Non-Qualified Stock Option Plan (1997 Plan), which shareholders approved on April 25, 1997. It provides for the granting of stock appreciation rights (SARs) and/or options to purchase shares of the Company's class A common stock to directors, officers, and employees of the Company and its subsidiaries. The 1997 Plan expressly requires that all grants under the plan qualify under 1934 Act Rule 16b-3. The 1997 Plan is administered by a committee consisting of two outside members of the board of directors. The maximum number of shares of class A common stock initially approved for issuance under the 1997 Plan is 200,000 shares. During the fiscal year ended June 30, 2003, there were no options granted. As of June 30, 2003, 240,500 options had been granted, 8,000 shares had been exercised, 124,000 options had expired, 108,500 options remained outstanding, and 85,500 options are available for grant. The following table shows, as to each of the officers of the Company listed in the cash compensation table, aggregated option exercises during the last fiscal year and fiscal year-end option values. There were no options or SARs awarded during the period.

(A) (B) (C) (D) (E) NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS AT FY END (#) AT FY END ($) NAME NUMBER OF SHARES ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE Frank E. Holmes 0 0 1,000/0 $0/$0 Susan B. McGee 0 0 45,500/6,000 $3,900/$2,100 Tracy C. Peterson 0 0 3,000/2,000 $1,050/$700

COMPENSATION OF DIRECTORS The Company may grant nonemployee directors options under the Company's 1989 and 1997 Stock Option Plans. Their compensation is subject to a minimum of $3,750 in any quarter paid in arrears. During the fiscal year ended June 30, 2003, the nonemployee directors each received compensation of $12,750. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors. REPORT ON EXECUTIVE COMPENSATION The board appointed Messrs. Holmes, Lydon, Terracina, and Rubinstein as members of the Compensation Committee. There are no compensation committee interlocks to report. Mr. Holmes serves as an employee and officer of the Company. The board of directors reviews Mr. Holmes' compensation annually to determine an acceptable base compensation, reflecting an amount competitive with industry peers and taking into account the relative cost of living in San Antonio, Texas. The board of directors also reviews Mr. Holmes' performance in managing the Company's securities portfolio and determines periodically whether to pay Mr. Holmes a cash bonus with respect to such performance. During fiscal year 1999, Mr. Holmes, in addition to his other duties, became the Company's chief investment officer responsible for supervising management of clients' portfolios. In August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes' warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008. The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive's contribution. The Company has utilized option grants under the 1985 Plan, the 1989 Plan, and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. Mr. Rubinstein and Mr. Terracina are the members of the Stock Option Committee of the board of directors. This committee acts upon recommendations of the Chief Executive Officer. COMPANY PERFORMANCE PRESENTATION [GRAPHIC: Graph plotted from data points in following chart] U.S. GLOBAL INVESTORS, INC. JUNE 30, 1998 THROUGH JUNE 30, 2003 TSE S&P Gold & 500 Prec. Min. DATE INDEX Index GROW $ $ $ --------- ------- --------- ------ Jun-98 10,000 10,000 10,000 Jul-98 9,894 8,621 8,125 Aug-98 8,465 6,523 7,188 Sep-98 9,007 10,367 7,813 Oct-98 9,739 10,545 6,563 Nov-98 10,329 9,824 7,813 Dec-98 10,924 9,339 7,813 Jan-99 11,381 9,095 8,125 Feb-99 11,027 8,559 10,313 Mar-99 11,468 8,357 7,500 Apr-99 11,912 9,852 6,875 May-99 11,631 8,174 7,188 Jun-99 12,276 8,709 6,250 Jul-99 11,893 8,162 6,875 Aug-99 11,834 8,445 7,188 Sep-99 11,510 10,636 7,500 Oct-99 12,238 9,135 8,125 Nov-99 12,487 8,606 7,500 Dec-99 13,222 8,240 7,500 Jan-00 12,558 7,308 8,125 Feb-00 12,320 7,114 10,938 Mar-00 13,525 6,693 8,125 Apr-00 13,118 6,971 7,500 May-00 12,850 7,275 8,438 Jun-00 13,167 7,434 8,750 Jul-00 12,961 6,572 8,438 Aug-00 13,766 6,856 7,813 Sep-00 13,039 6,658 7,500 Oct-00 12,984 5,951 7,032 Nov-00 11,961 6,601 5,625 Dec-00 12,019 7,175 5,313 Jan-01 12,446 6,752 5,625 Feb-01 11,312 7,062 6,094 Mar-01 10,595 6,516 5,938 Apr-01 11,418 7,514 5,750 May-01 11,495 7,696 5,250 Jun-01 11,215 7,472 5,350 Jul-01 11,105 7,348 5,250 Aug-01 10,410 7,790 5,000 Sep-01 9,570 8,576 4,500 Oct-01 9,752 7,935 4,750 Nov-01 10,500 7,685 4,850 Dec-01 10,592 7,994 5,250 Jan-02 10,438 8,928 5,350 Feb-02 10,236 9,344 5,900 Mar-02 10,621 9,760 9,000 Apr-02 9,978 10,414 10,750 May-02 9,904 12,185 11,945 Jun-02 9,199 10,621 10,000 Jul-02 8,482 8,567 7,755 Aug-02 8,538 9,722 8,750 Sep-02 7,611 9,661 6,500 Oct-02 8,280 8,790 5,800 Nov-02 8,767 8,633 6,250 Dec-02 8,252 10,296 12,245 Jan-03 8,036 10,471 11,490 Feb-03 7,915 9,780 12,900 Mar-03 7,992 9,219 10,000 Apr-03 8,650 9,104 9,500 May-03 9,105 10,151 9,850 Jun-03 9,222 10,428 9,250 The graph above compares the cumulative total return for both Company's class A common stock to the cumulative total return for the S&P 500 Index and the Toronto Stock Exchange Gold and Precious Minerals Index (without dividend reinvestment) 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, 1998, and that all dividends are reinvested. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS CLASS C COMMON STOCK (VOTING STOCK) On September 22, 2003, there were 1,496,800 shares of the Company's class C common stock outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company's class C common stock by each person known by the Company to own 5% or more of the outstanding shares of class C common stock. NAME AND ADDRESS OF BENEFICIAL OWNER CLASS C COMMON PERCENT OF SHARES CLASS (%) BENEFICIALLY OWNED Frank E. Holmes 1,392,211 (1) 93.01% 7900 Callaghan Road San Antonio, TX 78229 (1) Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a ten-year period and will be fully vested on June 30, 2008; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA. CLASS A COMMON STOCK (NONVOTING STOCK) On September 22, 2003, there were 5,976,996 shares of the Company's class A common stock issued and outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company's class A common stock by each person known by the Company to own 5% or more of the outstanding shares of class A common stock. NAME AND ADDRESS OF BENEFICIAL OWNER CLASS A COMMON PERCENT OF SHARES CLASS (%) BENEFICIALLY OWNED Royce Associates, LLC. - New York, New York (1) 886,305(1) 14.82% (1) Information is from Schedule 13G for period ending December 31, 2002, filed with the SEC February 5, 2003. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth, as of September 22, 2003, information regarding the beneficial ownership of the Company's class A and class C common stock by each director and by all directors and executive officers as a group. Except as otherwise indicated in the notes below, each director owns directly the number of shares indicated in the table and has sole voting power and investment power with respect to all such shares.

CLASS C CLASS A COMMON STOCK COMMON STOCK BENEFICIAL OWNER NUMBER % NUMBER % OF OF SHARES SHARES Frank E. Holmes, CEO, Director 1,392,211(1) 93.01% 265,570(2) 4.44% Thomas F. Lydon, Jr., Director -- -- 10,000(3) 0.17% Susan B. McGee, President, General Counsel -- -- 62,804(3) 1.05% Tracy C. Peterson, CFO -- -- 12,765(3) 0.21% Jerold H. Rubinstein, Director -- -- 10,000(3) 0.17% Roy D. Terracina, Director -- -- 89,100(3) 1.49% All directors and executive officers as a group 1,392,211 93.01% 450,239 7.53% (six persons) (1) Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a period of ten years and will be fully vested on June 30, 2008; 102,280 shares owned by F. E. Holmes Organization Inc.; 285,000 shares owned directly by Mr. Holmes; and 4,931 shares owned by Mr. Holmes in an IRA. (2) Includes options to obtain 1,000 shares of class A common stock; 100,000 shares of class A common stock held by F.E. Holmes Organization, Inc., a corporation wholly owned by Mr. Holmes; 99,453 shares owned directly by Mr. Holmes, 64,817 shares owned by Mr. Holmes in retirement accounts, and 1,300 shares of class A common stock owned separately by Mr. Holmes' wife. Mr. Holmes disclaims beneficial ownership of these 1,300 shares of class A common stock. (3) Includes shares of class A common stock underlying presently exercisable options held directly by each individual as follows: Mr. Lydon - 10,000 shares; Ms. McGee - 51,500 shares; Mr. Peterson - 5,000 shares; Mr. Rubinstein - 10,000 shares; and Mr. Terracina - 51,000 shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS U.S. Global is invested in several of the mutual funds it manages. There is incorporated in this Item 13 those items appearing under Note 15 to the Consolidated Financial Statements and filed as a part of this report. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES Section not applicable until fiscal year ending June 30, 2004. Part IV of Annual Report on Form 10-K ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) The following documents are filed as part of this report: 1. FINANCIAL STATEMENTS The Consolidated Financial Statements including: o Report of Independent Accountants o Consolidated Balance Sheets as of June 30, 2003 and 2002 o Consolidated Statements of Operations and Comprehensive Income (Loss) for the three years ended June 30, 2003 o Consolidated Statements of Shareholders' Equity for the three years ended June 30, 2003 o Consolidated Statements of Cash Flows for the three years ended June 30, 2003 o Notes to Consolidated Financial Statements 2. FINANCIAL STATEMENT SCHEDULES None. 3. EXHIBITS 3.1 Third Restated and Amended Articles of Incorporation of Company, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1996 (EDGAR Accession Number 0000754811-96-000025). 3.2 By-Laws of Company, incorporated by reference to Exhibit D of the Company's Registration Statement No. 33-33012 filed on Form S-8 with the Commission on January 30, 1990, as amended (EDGAR Accession Number 0000754811-00-000017). 10.1 Advisory Agreement dated October 27, 1989, by and between Company and United Services Funds, incorporated by reference to Exhibit (4)(b) of the Company's Form 10-K for fiscal year ended June 30, 1990 (EDGAR Accession No. 0000101507-99-000019). 10.2 Advisory Agreement dated September 21, 1994, by and between Company and Accolade Funds, incorporated by reference to Exhibit 10.2 of Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002). 10.3 Sub-Advisory Agreement dated September 21, 1994, by and between Company, Accolade Funds/Bonnel Growth Fund and Bonnel, Inc., incorporated by reference to Exhibit 10.3 of Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002). 10.4 Sub-Advisory Agreement dated November 15, 1996, by and between Company, U.S. Global Accolade Funds/MegaTrends Fund, and Money Growth Institute, Inc., incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-1A dated June 21, 1996 (EDGAR Accession No. 0000902042-96-000046). 10.5 Sub-Advisory Agreement dated January 25, 2002, by and between Company, U.S. Global Accolade Funds/ Eastern European Fund, and Charlemagne Capital Limited, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2002 (EDGAR Accession No. 07777811-02-000019). 10.6 Transfer Agency Agreement dated December 15, 2000, by and between United Shareholder Services, Inc. and U.S. Global Accolade Funds incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005). 10.7 Transfer Agency Agreement dated February 21, 2001, by and between United Shareholder Services, Inc. and U.S. Global Investors Funds, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.8 Loan Agreement between Company and Bank One NA, dated February 1, 2001, for refinancing building, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.9 Amendment No. 1, dated July 1, 2001, to loan agreement between Company and Bank One NA for refinancing building, included herein. 10.10Amendment No. 2, dated February 1, 2003, to loan agreement between Company and Bank One NA for refinancing building, included herein. 10.11United Services Advisors, Inc. 1985 Incentive Stock Option Plan as amended November 1989 and December 1991, incorporated by reference to Exhibit 4(b) of the Company's Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004). 10.12United Services Advisors, Inc. 1989 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4(a) of the Company's Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004). 10.13U.S. Global Investors, Inc. 1997 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4 of the Company's Registration Statement No. 333-25699 filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000003). 10.14Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 82 to Registration Statement on Form N-1A dated September 2, 1998 (EDGAR Accession No. 0000101507-98-000031). 10.15Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.16Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.17Amendment dated February 21, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.18Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-1A dated January 29, 1998 (EDGAR Accession No. 0000902042-98-000006). 10.19Amendment dated May 14, 1999, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-1A dated February 29, 1999 (EDGAR Accession No. 0000902042-99-000004). 10.20Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.21Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 10.22Amendment dated February 16, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005). 10.23Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Accolade Funds dated September 3, 1998, incorporated by reference to Exhibit 10.12 of Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 10.24Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Investors Funds dated September 3, 1998, incorporated by reference to Exhibit 10.13 of Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 16 Letter Regarding Change in Certifying Accountant 21 List of Subsidiaries of the Company, included herein. 24 Power of Attorney, incorporated by reference to Annual Report on Form 10-K for fiscal year ended June 30, 2001 (EDGAR Accession No. 0000754811-01-500016). 99.1 Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 99.2 Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (b) Reports on Form 8-K None. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. U.S. GLOBAL INVESTORS, INC. By: /s/ Frank Holmes FRANK E. HOLMES Date: September 29, 2003 Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURE CAPACITY IN WHICH SIGNED DATE /s/ Frank Holmes --------------------------- FRANK E. HOLMES Chairman of the Board of September 29, 2003 Directors Chief Executive Officer Chief Investment Officer * /s/ Thomas F. Lydon, Jr. --------------------------- THOMAS F. LYDON, JR. Director September 29, 2003 * /s/ Jerold H. Rubinstein --------------------------- JEROLD H. RUBINSTEIN Director September 29, 2003 * /s/ Roy D. Terracina --------------------------- ROY D. TERRACINA Director September 29, 2003 /s/ Tracy C. Peterson --------------------------- TRACY C. PETERSON Chief Financial Officer September 29, 2003 *BY: /s/ Susan B. McGee --------------------------- Susan B. McGee September 29, 2003 Attorney-in-Fact under Power of Attorney dated September 26, 2001 CERTIFICATIONS I, Frank E. Holmes, certify that: 1. I have reviewed this annual report on Form 10-K of U.S. Global Investors, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 29, 2003 /s/ Frank E. Holmes --------------------------------- Signature Frank E. Holmes, Chief Executive Officer I, Tracy C. Peterson, certify that: 1. I have reviewed this annual report on Form 10-K of U.S. Global Investors, Inc.; 2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; 3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have: a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function): a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and 6. The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. Date: September 29, 2003 /s/ Tracy C. Peterson ---------------------------------- Signature Tracy C. Peterson, Chief Financial Officer