-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QwJjvvjB2HD1noMm57kgx5+qjRXqxSC/eSlpJ3lrZNUKPIs7SsDLmRx+DPn4aQpn 6n4zTqhu9OXl27WC/8lq0A== /in/edgar/work/0000754811-00-000017/0000754811-00-000017.txt : 20000930 0000754811-00-000017.hdr.sgml : 20000930 ACCESSION NUMBER: 0000754811-00-000017 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20000630 FILED AS OF DATE: 20000928 FILER: COMPANY DATA: COMPANY CONFORMED NAME: U S GLOBAL INVESTORS INC CENTRAL INDEX KEY: 0000754811 STANDARD INDUSTRIAL CLASSIFICATION: [6282 ] IRS NUMBER: 741598370 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-13928 FILM NUMBER: 731173 BUSINESS ADDRESS: STREET 1: 7900 CALLAGHAN RD CITY: SAN ANTONIO STATE: TX ZIP: 78229 BUSINESS PHONE: 2103081234 MAIL ADDRESS: STREET 1: 7900 CALLAGHAN ROAD CITY: SAN ANTONIO STATE: TX ZIP: 78229 FORMER COMPANY: FORMER CONFORMED NAME: UNITED SERVICES ADVISORS INC /TX/ DATE OF NAME CHANGE: 19950321 10-K405 1 0001.txt ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 30, 2000 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. (Exact name of registrant as specified in its charter) Texas (State or other jurisdiction of incorporation or organization) 74-1598370 (I.R.S. Employer Identification No.) 7900 Callaghan Road, San Antonio, Texas 78229 (Address of Principal Executive Offices) (Zip Code) 210-308-1234 (Registrant's Telephone Number, Including Area Code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of Each Class: Class A Common Stock, par value $0.05 per share Name of Each Exchange on Which 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. [X] The aggregate market value of the 4,109,064 shares of non-voting class A common stock held by non-affiliates of the registrant on September 19, 2000 (based on the last sale price on the Nasdaq as of such date), was $6,422,467. 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 non-affiliates of the registrant on September 19, 2000 (based on the last sale price of the class C common stock in a private transaction) was $52,294. 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 19, 2000, there were 6,299,474 shares of Registrant's class A common stock issued and 6,034,794 shares of Registrant's class A common stock issued and outstanding, no shares of Registrant's class B non-voting common shares outstanding, and 1,496,800 shares of Registrant's class C common stock outstanding, . DOCUMENTS INCORPORATED BY REFERENCE Portions of the Annual Report To Shareholders for the fiscal year ended June 30, 2000, are incorporated by reference in Part I, Item 1 and Part II, Items 6, 7, 7A, 8 and Part III, Item 13 of this Form 10-K. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 2 of 47 TABLE OF CONTENTS Page PART I Item 1. Business........................................................3 Item 2. Properties......................................................3 Item 3. Legal Proceedings...............................................3 Item 4. Submission of Matters to a Vote of Security Holders.............3 PART II Item 5. Market for Company's Common Equity and Related Shareholder Matters.......................................................4 Item 6. Selected Financial Data.........................................5 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.....................................5 Item 7A. Market Risk Disclosures........................................5 Item 8. Financial Statements and Supplementary Data.....................5 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......................................5 PART III Item 10. Directors and Executive Officers of the Company................6 Item 11. Executive Compensation.........................................7 Item 12. Security Ownership of Certain Beneficial Owners and Management..................................................11 Item 13. Certain Relationships and Related Transactions................12 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K....................................................13 SIGNATURES..................................................................16 EXHIBIT 11--SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE...............17 EXHIBIT 13--ANNUAL REPORT...................................................18 EXHIBIT 21--SUBSIDIARIES OF THE COMPANY, JURISDICTION OF INCORPORATION, AND PERCENTAGE OF OWNERSHIP...........................................45 EXHIBIT 23.1--CONSENT OF INDEPENDENT ACCOUNTANT, ERNST & YOUNG LLP..........46 EXHIBIT 23.2--CONSENT OF INDEPENDENT ACCOUNTANT, PRICEWATERHOUSECOOPERS LLP............................................47 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 3 of 47 PART I ITEM 1. BUSINESS There is incorporated in this Item 1 by reference that portion of the U.S. Global Investors, Inc. (U.S. Global or Company) Annual Report to Shareholders, attached to this Form 10-K as Exhibit 13, appearing under the caption "The Company." 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. The Company and its subsidiaries, United Shareholder Services, Inc. (USSI), A&B Mailers, Inc., Security Trust & Financial Company (STFC), U.S. Global Brokerage, Inc. (USGB), and U.S. Global Administrators, Inc. (USGA) occupy approximately 95% of the building. ITEM 3. LEGAL PROCEEDINGS Except as described in the following paragraph, there is no material legal proceeding to 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. In August 2000, a suit was filed against U. S. Global Investors, Inc. (USGI) and other defendants in state court alleging negligence, breach of contract and fraud with regard to processing of certain checks drawn on plaintiff's accounts held in U.S. Global Investors Funds. USGI denies all allegations and the suit is in the discovery stage. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during fiscal year 2000. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 4 of 47 PART II 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 $0.05 per share. There is no established public trading market for the Company's class B and class C common stock. The Company's class A common stock is traded over-the-counter and is quoted daily under the Nasdaq Small Cap Issues. Trades are reported under the symbol "GROW." The following table sets forth the range of high and low closing bid quotations from Nasdaq for the fiscal years ended June 30, 2000 and 1999. The quotations represent prices between dealers and do not include any retail markup, markdown or commission and may not necessarily represent actual transactions. BID PRICE ($) ------------------------------------ 2000 1999 ---------------- ---------------- HIGH LOW HIGH LOW ------ ------ ------ ------ First Quarter (9/30) $1.625 $1.000 $1.875 $1.375 Second Quarter (12/31) $1.563 $1.313 $1.750 $1.313 Third Quarter (3/31) $2.500 $1.375 $2.906 $1.500 Fourth Quarter (6/30) $1.750 $1.438 $1.688 $1.250 HOLDERS On September 19, 2000, there were 299 holders of record of the 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 19, 2000, 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 fourteen 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 upon 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 non-cumulative cash dividend equal in the aggregate to 5% of the Company's after-tax net 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. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 5 of 47 ITEM 6. SELECTED FINANCIAL DATA There is incorporated by reference in this Item 6 that portion of the Company's Annual Report to Shareholders appearing under the caption "Selected Financial Data." ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS There is incorporated by reference in this Item 7 that portion of the Company's Annual Report to Shareholders appearing under the caption "Annual Status Report." ITEM 7A. MARKET RISK DISCLOSURES There is incorporated by reference in this Item 7A that portion of the Company's Annual Report to Shareholders appearing under the caption "Annual Status Report." ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Consolidated Financial Statements and notes thereto located in the Company's Annual Report to Shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Within twenty-four months prior to the date of Company's most recent financial statement, no Form 8-K recording a change of accountants due to a disagreement on any matter of accounting principles or practices or financial statement disclosure has been filed with the Commission. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 6 of 47 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY The directors and executive officers of the Company are as follows: NAME AGE POSITION - ------------------- --- --------------------------------------------------- David J. Clark 39 Chief Financial Officer of the Company since May 1997 and Chief Operating Officer since December 1997. Since May 1997 Mr. Clark has served and continues to serve in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Mr. Clark served as a Foreign Service Officer with U.S. Agency for International Development in the U.S. Embassy, Bonn, West Germany from May 1992 to May 1997. Frank E. Holmes 45 Chairman of the Board of Directors and Chief Executive Officer of the Company since October 27, 1989, and Chief Investment Officer since June 4, 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. Director of USACI since February 1995, Director and President from February 1995 to June 1997. Mr. Holmes has served as director of Franc-Or Resources Corporation since June 2000 and Broadband Collaborative Solutions since May 2000. Thomas F. Lydon, Jr. 40 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 41 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. J. Stephen Penner 59 Director since May 1997. Senior Vice President of LCG Associates, and since March 1982 has held various positions with that Company. Senior Vice President of LCG Holdings, Inc. since November 1992. Mr. Penner currently serves as President and CEO of Fiduciary Advisory and Management Co., Inc. Jerold H. Rubinstein 62 Director of the Company since October 1989. Chairman and Chief Executive Officer of Xtra Music since July 1997. Chairman of the Board of Directors and Chief Executive Officer of DMX Inc. from May 1986 to July 1997. Roy D. Terracina 54 Director of the Company since December 1994 and Vice Chairman of the Board of Directors since May 1997. Director of STFC since August 1992. Owner of Sunshine Ventures, Inc., an investment company, since January 1994. None of the directors or executive officers of the Company has a family relationship with any of the other directors or executive officers. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 7 of 47 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, Terracina and Rubinstein. The Company's Audit Committee consists of Messrs. Rubinstein and Terracina. The Stock Option Committee consists of Messrs. Rubinstein and 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. To the Company's knowledge, based solely on a review of the copies of such reports furnished to the Company and written representations that no other reports were required, during the year ended June 30, 2000, all Section 16(a) filing requirements applicable to its directors, officers and more than 10% beneficial owners were met. ITEM 11. EXECUTIVE COMPENSATION
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ------------------------------------------------------------------------- -------------------------- (a) (b) (c) (d) (e) (f) (g) ------------------- ---- ---------- -------- -------------- ----------- ----------- OTHER NAME AND ANNUAL RESTRICTED NUMBER OF PRINCIPAL POSITION COMPEN- STOCK OPTIONS/ DURING FY 2000 YEAR SALARY BONUS SATION(1) AWARDS SARS(2) ------------------- ---- ---------- -------- -------------- ----------- ----------- Frank E. Holmes 2000 $318,280 $ 58,602 $48,640(3) $50,000 (4) __ Chairman, Chief 1999 318,280 92,054 41,780 338 __ Executive Officer 1998 315,917 164,902 37,405 __ __ Susan B. McGee 2000 135,886 55,857 __ -- 15,000 President, 1999 132,408 43,491 __ 338 __ General Counsel 1998 104,786 5,439 __ 1,328 __ The Company has intentionally omitted columns (h) and (i) as they are not applicable. Includes amounts identified for 401(k) contributions (calculable through the end of June 30, 2000, fiscal year) and amounts for Company savings plans (calculable through the end of the June 30, 2000, fiscal year). ------------------------ (1) 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. (2) All options pertain to Company class A common stock. (3) Includes directors fees of $32,000 paid by the Company. (4) Includes the board's issuance, in June 1999, of 1,000,000 shares of class C common stock 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. 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.
U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 8 of 47 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. PROFIT SHARING PLAN In June 1983, the Company adopted a profit sharing plan in which all qualified employees who have completed one year of employment with the Company are included. Subject to board action, the Company may contribute up to 15% of its net income before taxes during each fiscal year, limited to 15% of qualifying salaries, to a profit sharing plan, the beneficiaries of which are the eligible employees of the Company. The Company's contribution to the plan is then apportioned to each employee's account in the plan in an amount equal to the percentage of the total basic compensation paid to all eligible employees, which each employee's individual basic compensation represents. For the fiscal year ended June 30, 2000, the Company did not contribute to the profit sharing plan. There have been no recent material changes to the plan. 401(k) PLAN The Company adopted a 401(k) plan in October 1990 for the benefit of all employees. The Company will match a certain percentage of a participating employee's pay deferment. The Company will make contributions to participants' accounts subsequent to the end of each plan year if the employee is still employed at the end of the plan year. 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, 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. Beginning in fiscal year 1997, a similar savings plan utilizing UGMA accounts has been offered to employees to save for their children's education. 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 1934 Act Rule 16b-3. As of June 30, 2000, under this plan, 202,500 options were granted, 88,000 options had been exercised, 110,500 options had expired and 4,000 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, 2000, there were no grants. As of June 30, 2000, under this amended plan, 876,700 options had been granted, 393,000 options had been exercised, 265,900 options had expired and 217,800 options remained outstanding. The board of directors, at a meeting held on July 14, 1992, amended the Stock Option Agreement for stock options granted during November 1989 to provide for an option period of ten years. All optionees accepted the amendment. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 9 of 47 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, 2000, there were 72,000 options granted. As of September 19, 2000, grants covering 6,000 shares have been exercised under the 1997 Plan, and grants covering 75,500 shares have expired and 159,000 remained outstanding. Shares available for stock option grants under the 1989 Plan and the 1997 Plan aggregate to approximately 189,200 and 29,000 shares, respectively, on September 19, 2000. The following table shows, as to each officer of the Company listed in the cash compensation table, grants of stock options and freestanding stock appreciation rights made during the last fiscal year.
OPTION/SAR GRANTS IN LAST FISCAL YEAR ---------------------------------------------------------------------------------------------------------- POTENTIAL REALIZED VALUE AT ASSUMED ANNUAL RATES OF STOCK PRICE APPRECIATION INDIVIDUAL GRANTS FOR OPTION TERM --------------------------------------------------------------------------------- ------------------- (a) (b) (c) (d) (e) (f) (g) --------------- -------- ----------- ------ ---------- ------- ------- NUMBER OF % OF TOTAL SECURITIES OPTIONS/SARS UNDERLYING GRANTED TO EXERCISE OF OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION NAME GRANTED FISCAL YEAR ($/SH) DATE 5% ($) 10% ($) --------------- -------- ----------- ------ ---------- ------- ------- Frank E. Holmes 0/0 0/0 $0 -- $0 $0 Susan B. McGee 15,000/0 15.95% $1.50 12-03-2009 $12,630 $33,435
The following table shows, as to each of the officers of the Company listed in the cash compensation table, aggregated option exercises during the last fiscal year and fiscal year-end option values.
(a) (b) (c) (d) (e) --------------- ----------- -------- --------------- -------------- NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS OPTIONS/SARS NUMBER OF AT FY END AT FY END ($) SHARES --------------- -------------- ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE --------------- ----------- -------- --------------- -------------- Frank E. Holmes 0 0 101,000/0 $0/$0 Susan B. McGee 0 0 51,000/0 $0/$0
COMPENSATION OF DIRECTORS The Company may grant non-employee directors options under the Company's 1989 and 1997 Stock Option Plans. Their compensation is subject to a minimum of $3,000 in any quarter paid in advance. During the fiscal year ended June 30, 2000, the non-employee directors each received cash compensation of $12,000. Mr. Terracina is also a director of STFC for which he received cash compensation of $3,600. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 10 of 47 REPORT ON EXECUTIVE COMPENSATION The board appointed Messrs. Holmes, Terracina, and Rubinstein as members of the Executive Compensation Committee during fiscal year 1997, and they continue to serve on the committee. There are no compensation committee interlocks to report. Mr. Holmes served 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 with respect to which he is paid a cash bonus, which bonus is paid periodically throughout the year. 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 June 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 (1) participating in team building programs to enhance operational and fiscal efficiencies throughout the Company with a percent of resulting savings flowing to the executive and (2) 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. Messrs. Penner, Rubinstein, and Terracina constitute the Stock Option Committee of the board of directors. This committee acts upon recommendations of the Chief Executive Officer and President. COMPANY PERFORMANCE PRESENTATION The graph below compares the cumulative total return for the Company's class A common stock to the cumulative total return for the Financial Times Gold Mines Index, S&P 500 Composite Index, and Russell 2000 Index 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, 1995, and that all dividends are reinvested. [GRAPHIC:Linear chart plotted from data in table below.] U.S. GLOBAL INVESTORS FT GOLD CLASS A S&P 500 RUSSELL MINES COMMON COMPOSITE 2000 DATE INDEX STOCK INDEX INDEX - --------- ----------- ----- ----------- ----------- 30-Jun-93 100 100 100 100 30-Jul-93 106.3136446 112.5 99.46729408 101.3327619 31-Aug-93 98.74168255 95 102.8921492 105.5024641 30-Sep-93 88.09430028 80 101.8644707 108.3994 29-Oct-93 103.6168749 95 103.8399219 111.0692093 30-Nov-93 101.3397195 97.5 102.4992786 107.3109064 31-Dec-93 116.8701717 112.5 103.533616 110.8163703 31-Jan-94 113.6750117 115 106.8985417 114.214699 28-Feb-94 106.2474726 105 103.6867689 113.7904435 31-Mar-94 106.8960628 107.5 98.94346658 107.5894579 29-Apr-94 99.59561585 87.5 100.0843451 108.2279837 31-May-94 102.6432019 97.5 101.3273256 106.8266552 30-Jun-94 100.3046011 92.5 98.61052538 102.9740733 29-Jul-94 103.0108238 85 101.715757 104.5896722 31-Aug-94 109.3607054 85 105.5423612 110.2721234 30-Sep-94 122.0641448 92.5 102.7034826 109.7578744 31-Oct-94 113.2228367 82.5 104.8431847 109.2864795 30-Nov-94 99.22431767 75 100.7013961 104.6710949 30-Dec-94 103.7633985 65 101.9399374 107.2894793 31-Jan-95 86.01881174 67.5 104.4148003 105.785301 28-Feb-95 90.88192508 67.5 108.1814752 109.9507178 31-Mar-95 101.3491726 67.5 111.137993 111.7505892 28-Apr-95 101.3260649 67.5 114.2454443 114.0647097 31-May-95 99.84087221 55 118.3938916 115.8131562 30-Jun-95 10000 10000 10000 10000 31-Jul-95 10116.88595 10000 10317.76044 10567.28837 31-Aug-95 10233.72001 9523.809524 10314.45617 10764.37612 29-Sep-95 10301.99427 10000 10728.04039 10943.13013 31-Oct-95 8938.584295 8095.238095 10674.62139 10444.94588 30-Nov-95 9791.649373 7142.857143 11112.80404 10879.66717 29-Dec-95 9927.056529 6190.47619 11306.65443 11140.21789 31-Jan-96 11962.21051 11428.57143 11675.44745 11119.41614 29-Feb-96 12141.04134 10952.38095 11756.40202 11456.12241 29-Mar-96 12108.92753 10415.2381 11849.47223 11662.02447 30-Apr-96 12070.79563 10476.19048 12008.62781 12279.37806 31-May-96 12331.70084 12857.14286 12283.06563 12757.81828 28-Jun-96 10462.61517 10952.38095 12310.78476 12220.49854 31-Jul-96 10353.92629 9047.619048 11747.59064 11141.27561 30-Aug-96 10539.08649 9523.809524 11968.60945 11771.67436 30-Sep-96 9607.37113 10240 12616.98027 12212.74195 31-Oct-96 9741.844443 9047.619048 12946.67279 12007.54504 29-Nov-96 9728.822528 9047.619048 13896.64984 12484.92755 31-Dec-96 9460.602225 9047.619048 13597.79715 12784.61376 31-Jan-97 8810.95916 10476.19048 14431.57412 13025.77301 28-Feb-97 9896.084087 9047.619048 14517.11794 12694.35532 31-Mar-97 8492.415124 7859.047619 13898.48554 12077.70687 30-Apr-97 7619.116793 6666.666667 14710.23405 12093.22004 30-May-97 8144.610691 6906.666667 15571.91372 13424.53196 30-Jun-97 7226.072881 7619.047619 16248.55438 13974.89687 31-Jul-97 7336.629451 9047.619048 17517.94401 14613.40479 29-Aug-97 7325.112061 9287.619048 16511.61083 14928.95674 30-Sep-97 7911.980161 8335.238095 17389.26113 16000.42309 31-Oct-97 6441.593343 8335.238095 16789.72006 15275.53503 28-Nov-97 5071.905869 8571.428571 17538.32033 15157.77598 31-Dec-97 5490.059766 7142.857143 17814.22671 15408.1021 30-Jan-98 5799.317257 7619.047619 17995.0436 15162.35941 27-Feb-98 5587.957583 9047.619048 19262.78109 16282.83327 31-Mar-98 5940.898149 10000 20224.8738 16947.43151 30-Apr-98 6736.272516 9763.809524 20408.44424 17025.34993 29-May-98 5639.993359 8571.428571 20024.2313 16099.14325 30-Jun-98 5156.15921 7619.047619 20813.95135 16126.29129 31-Jul-98 4672.480701 6190.47619 20572.18908 14799.21024 31-Aug-98 3639.806591 5478.095238 17572.83157 11915.17117 30-Sep-98 5711.639827 5954.285714 18669.29784 12819.16581 30-Oct-98 5774.829833 5001.904762 20168.3341 13332.86324 30-Nov-98 5474.028804 5954.285714 21360.80771 14023.55181 31-Dec-98 4848.146842 5954.285714 22565.02983 14877.12865 29-Jan-99 4836.00689 6190.47619 23490.40844 15062.58153 26-Feb-99 4520.990703 7859.047619 22732.07894 13829.98978 31-Mar-99 4508.38383 5714.285714 23613.95135 14019.32095 30-Apr-99 5281.345978 5238.095238 24509.9587 15259.66929 31-May-99 4297.335436 5478.095238 23897.93483 15466.62906 30-Jun-99 4591.651448 4761.904762 25198.89858 16136.51588 30-Jul-99 4381.848178 5238.095238 24391.37219 15681.34541 31-Aug-99 4658.888105 5478.095238 24238.82515 15084.08843 30-Sep-99 5858.771893 5714.285714 23546.76457 15065.40211 29-Oct-99 5082.593177 6190.47619 25019.36668 15112.64676 30-Nov-99 4856.292023 5714.285714 25496.2827 16009.58996 31-Dec-99 4815.981157 5714.285714 26971.08765 17796.07235 31-Jan-00 4250.020752 6190.47619 25598.1643 17495.68099 29-Feb-00 4384.182784 8335.238095 25083.43277 20368.43775 31-Mar-00 4055.418361 6190.47619 27509.49977 19006.80464 28-Apr-00 3923.746576 5714.285714 26662.32217 17848.95815 31-May-00 4042.240807 6430.47619 26078.01744 16788.77411 30-Jun-00 4189.113472 6666.666667 26702.15695 18236.08222 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 11 of 47 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Class C Common Stock (Voting Stock). At September 19, 2000, 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. PERCENT OF SHARES NAME AND ADDRESS OF BENEFICIALLY OWNED ISSUED OUTSTANDING BENEFICIAL OWNER CLASS C COMMON SHARES -------------------- ------------------ ------------------ Frank E. Holmes 7900 Callaghan Road San Antonio, TX 78229 1,392,211(1) 93.01% ------------------------ (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 (NON-VOTING STOCK). At September 19, 2000, there were 6,034,794 shares of the Company's class A common stock issued and outstanding. The following table sets forth, as of such date, information regarding the beneficial ownership of the Company's class A common stock by each person known by the Company to own 5% or more of the outstanding shares of class A common stock. CLASS A NAME AND ADDRESS OF BENEFICIALLY COMMON SHARES BENEFICIAL OWNER OWNED PERCENT OF CLASS ------------------------------------ ------------ ---------------- Frank E. Holmes - San Antonio, TX 286,966(1) 4.75%(5) Mason Hill Asset Management, Inc. - New York, NY 409,000(2) 6.77% Royce & Associates, Inc. - New York, NY 386,205(3) 6.39% Heartland Advisors, Inc. - Milwaukee, WI 600,000(4) 9.94% ------------------------ (1) Detail of beneficial ownership set forth below under "Security Ownership of Management." (2) Mason Hill Asset Management, Inc. owns 250,500 shares or 4.15%. Equinox Partners, LP owns 158,500 shares or 2.62%. Mason Hill Asset Management, Inc. and Equinox Partners, L.P. may be deemed to be under the common control of William W. Strong. Information is from Schedule 13D filed with the SEC on March 18, 1996. (3) Information is from Schedule 13G, dated March 9, 2000, filed with the SEC. (4) Information is from Schedule 13G, dated January 18, 2000, filed with the SEC. (5) Prior to their expiration in November 1999, Mr. Holmes owned an additional 100,000 exercisable options. Prior to their expiration, Mr. Holmes' beneficial ownership was approximately 6.41%. SECURITY OWNERSHIP OF MANAGEMENT The following table sets forth, as of September 19, 2000, 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. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 12 of 47 CLASS C COMMON STOCK CLASS A COMMON STOCK -------------------- -------------------- NUMBER OF NUMBER OF BENEFICIAL OWNER SHARES % SHARES % ---------------- ------------ ----- ------------ ---- Frank E. Holmes 1,392,211(1) 93.01 286,966(2) 4.75 Thomas F. Lydon, Jr. -- -- 10,000(3) .16 Susan B. McGee -- -- 67,035(3) 1.11 J. Stephen Penner -- -- 10,000(3) .16 Jerold H. Rubinstein -- -- 50,000(3) .82 Roy D. Terracina -- -- 89,100(3) 1.47 All directors and executive officers as a group (7 persons) 1,392,211 93.01 530,343(4) 8.79 ------------------------ (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 85,966 shares and options to obtain 101,000 shares of class A common stock as well as 100,000 shares of class A common stock held by F.E. Holmes Organization, Inc., a corporation wholly owned by Mr. Holmes. Mr. Holmes' 85,966 shares also include 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. Holmes - 101,000 shares; Mr. Lydon - 10,000 shares; Ms. McGee - 51,500 shares; Mr. Penner - 10,000 shares; Mr. Rubinstein - 40,000 shares; and Mr. Terracina - 51,000 shares. (4) Includes the shares underlying presently exercisable options held by the directors and officers listed above and beneficial ownership of an additional 17,242 of class A common stock or its underlying presently exercisable options held by officers other than those listed above. 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 by reference that portion of the U.S. Global Investors, Inc. Annual Report to Shareholders, attached to this Form 10-K as Exhibit 13, appearing under Note 13 to the Consolidated Financial Statements. Frank E. Holmes, director and Chief Executive Officer of the registrant, has, throughout the year, received loans from the registrant. In November 1999 these loans had an accumulated balance of $121,234. As of September 22, 2000, these loans had an accumulated balance of $18,081. These loans were made against bonuses owned to Mr. Holmes. No interest was charged on these loans. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 13 of 47 PART IV 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 are incorporated herein by reference to the Company's Annual Report to Shareholders as an exhibit hereto (see Item 8): o Reports of Independent Accountants o Consolidated Balance Sheets at June 30, 2000 and 1999 o Consolidated Statements of Operations for the three years ended June 30, 2000 o Consolidated Statements for Cash Flows for the three years ended June 30, 2000 o Consolidated Statements of Shareholders' Equity for the three years ended June 30, 2000 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 in 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, included herein for purposes of entering into EDGAR date base. 10.1 Advisory Agreement dated October 27, 1989, by and between Company and United Services Funds (USF), incorporated by reference to Exhibit (4)(b) to 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 to 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 and Accolade Funds/Bonnel Growth Fund and Bonnel, Inc., incorporated by reference to Exhibit 10.3 to Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002). 10.4 Transfer Agency Agreement dated September 21, 1994, by and between United Shareholder Services , Inc. (USSI) and Accolade Funds/Bonnel Growth Fund, incorporated by reference to Exhibit 10.4 to Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002). 10.5 Transfer Agent Agreement by and between USSI and USF, incorporated by reference to Exhibit 10(b) to the Company's Form 10-K for the fiscal year ended June 30, 1989; Transfer Agency Agreement, as amended, between U.S. Global Investors Funds and United Shareholder Services, Inc. dated November 1, 1988, incorporated by reference to Post Effective Amendment No. 79 filed September 3, 1996 (EDGAR Accession No. 0000101507-96-000065). U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 14 of 47 10.6 Loan Agreement between Company and Bank One, dated April 12, 1994, and Modification Agreement, dated February 28, 1995, for $1,385,000 for refinancing new building, incorporated by reference to Exhibit 10.8 to Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95- 000002). 10.6 United Services Advisors, Inc. 1985 Incentive Stock Option Plan as amended November 1989 and December 1991, incorporated by reference to Exhibit 4(b) of the Company's Registration Statement No. 33-3012, Post- Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No.754811-97-000004). 10.7 United Services Advisors, Inc. 1989 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4(a) to 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. 754811-97-000004). 10.8 U.S. Global Investors, Inc. 1997 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4 to the Company's Registration Statement No. 333-25699 filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 7548111-97-000003). 10.9 Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co. of Massachusetts incorporated by reference to Post-Effective Amendment No. 82 dated September 2, 1998 (EDGAR Accession No. 0000101507-98-000031). 10.10 Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. of Massachusetts incorporated by reference to Post-Effective Amendment No. 13 dated January 29, 1998 (EDGAR Accession No. 0000902042-98-000006). 10.11 Amendment dated May 14, 1999, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. of Massachusetts incorporated by reference to Post- Effective Amendment No. 16 dated February 29, 1999 (EDGAR Accession No. 0000902042-99-000004). 10.12 Distribution Agreement by and between USGB and U.S. Global Accolade Funds dated September 3, 1998, incorporated by reference to Exhibit 10.12 to Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 10.13 Distribution Agreement by and between USGB and U.S. Global Investors Funds dated September 3, 1998, incorporated by reference to Exhibit 10.13 to Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 10.14 Statement re: Computation of Per Share Earnings, filed herein. 13 Annual Report to Shareholders, filed herein. 21 List of Subsidiaries of the Company, filed herein. 23.1 Consent of Independent Accountant, Ernst & Young LLP, filed herein. 23.2 Consent of Independent Accountant, PricewaterhouseCoopers LLP, filed herein. 24.1 Power of Attorney, incorporated by reference to Exhibit 24.1 to Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 24.2 Power of Attorney, incorporated by reference to Exhibit 24.2 to Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 15 of 47 27 Financial Data Schedule, filed herein. (b) Reports on Form 8-K None. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 16 of 47 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/ Susan B. McGee ------------------------------ SUSAN B. MC GEE Date: September 29, 2000 President, General Counsel 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 SIGN DATE /s/ Frank E. Holmes - ------------------------------- FRANK E. HOLMES Chairman of the Board September 29, 2000 of Directors Chief Executive Officer Chief Investment Officer * /s/ Thomas F. Lydon, Jr. - ------------------------------- THOMAS F. LYDON, JR. Director September 29, 2000 * /s/ J. Stephen Penner - ------------------------------- J. STEPHEN PENNER Director September 29, 2000 * /s/ Jerold H. Rubinstein - ------------------------------- JEROLD H. RUBINSTEIN Director September 29, 2000 * /s/ Roy D. Terracina - ------------------------------- ROY D. TERRACINA Director September 29, 2000 /s/ David J. Clark - ------------------------------- DAVID J. CLARK Chief Financial Officer September 29, 2000 Chief Operating Officer Tracy C. Peterson - ------------------------------- TRACY C. PETERSON Chief Accounting Officer September 29, 2000 *BY: /s/ Susan B. McGee - ------------------------------- SUSAN B. MCGEE September 29, 2000 Attorney -in-Fact under Powers of Attorney dated June 30, 1998 EX-3.(II) 2 0002.txt BY-LAWS UNITED SERVICES ADVISORS, INC. AMENDMENT TO BY-LAWS The By-Laws of the Corporation are hereby amended by action of the Board of Directors at a meeting held February 10, 1995. ARTICLE III DIRECTORS, Section 1. Number of Directors. will be amended to include an additional Paragraph designated as Section 1.1 and will read as follows: Section 1.1. The Board of Directors of the Corporation shall consist of 9 directors, of whom 2 shall be nominated by Marleau, Lemire Inc. ("Marleau") (or the successors or assignees of its rights under the Shareholders Agreement hereinafter referred to). ARTICLE III DIRECTORS, Section 6. Regular Meetings. will be amended to include an additional Paragraph designated as Section 6.1 and will read as follows: Section 6.1 There shall be at least 4 meetings of the Board of Directors of the Corporation annually and inasmuch as reasonably possible, one such meeting during each of its fiscal quarters. In the event that any director nominated by Marleau is unable to attend a meeting of the Board of Directors, Marleau may delegate an observer (who may speak but will not have any voting right) to attend such meeting. ARTICLE III DIRECTORS, Section 8. Quorum. shall be amended to include an additional Paragraph designated as Section 8.1 and will read as follows: Section 8.1 A quorum of a meeting of each of the Board of Directors and the audit or remuneration committee of the Corporation shall consist of a majority of the directors then forming part of the Board of Directors or such committee, respectively, provided that at least 1 director nominated by Marleau is present at such meeting. Notwithstanding the foregoing, the absence of any or all directors nominated by Marleau at a meeting of the Board of Directors or the audit or remuneration committee previously adjourned for such reason and called for the same purpose shall not prevent a quorum of such meeting if a majority of the directors then forming part of the Board of Directors or such committee, as the case may be, are present thereat. ARTICLE III DIRECTORS, Section 9. Committees. shall be amended to include an additional Paragraph designated as Section 9.1 and will read as follows: Section 9. 1. Each of the audit and remuneration committees of the Corporation shall include at least 1 representative designated by Marleau. In the event that any such representative of Marleau is unable to attend a meeting of any such committee, Marleau may delegate an observer (who may speak but will not have any voting right) to attend such meeting. ARTICLE III DIRECTORS, a Section 12 be included to read as follows: Section 12. Books of Account and Records. The books of account and records of the Corporation shall be kept and maintained at all times at the head office of the Corporation and Marleau shall have the same right of access to such books of account and records that a director of a corporation constituted under the BUSINESS CORPORATION ACT (TEXAS) has thereunder. ARTICLE III NOTICES, Sections 6 and 7. Regular Meetings and Special Meetings. shall be amended to include an additional Paragraph designated as Section 7.1 and shall read as follows: Section 7.1 Notices of convocation in respect of each regular or special meeting of the Board of Directors or the audit or remuneration committee of the Corporation shall be given to each director or member of such committee, respectively, at least 25 hours prior to each such meeting, containing an agenda for such meeting. ARTICLE IV NOTICES, Section 2. Waiver. shall be amended to include an additional Paragraph designated as Section 2.1 and will read as follows: Section 2.1. The presence in person or participation by conference call of a director at any such meeting shall be deemed to be a waiver of notice for the meeting, unless such director objects to the holding of the meeting on the basis that same is not regularly held or called. The Board of Directors' action provided further that each of the amendments to the By-Laws set forth above and as stipulated by the Shareholders Agreement dated December 7, 1994, will be revoked upon termination of the Shareholders Agreement. UNITED SERVICES ADVISORS INC. AMENDMENT TO BY-LAWS RESOLVED: That Article II, Section 2 of the By-Laws of the Company is hereby amended to read as follows: "Section 2. Annual Meetings. Annual meeting of the shareholders shall be held within 120 days after the expiration of the Corporation's fiscal year, at which meeting the shareholders shall elect Directors and transact such other business as may properly be brought before the meeting. Amended by Action of Board of Directors at a meeting held April 18, 1991. The ByLaws of the Corporation are hereby amended by deleting therefrom Article VIII - Indemnity, in its entirety, and substituting in its place the following: ARTICLE VIII INDEMNITY Section 1. Indemnification of Directors and Officers. The Corporation shall, to the fullest extent to which it is empowered to do so by the Texas Business Corporation Act or any other applicable laws as may from time to time be in effect, indemnify any person who was, is or is threatened to be made, a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, venturer, proprietary, trustee, employee, agent or similar functionary of another foreign or domestic corporation, partnership, joint venture, trust or other enterprise, against all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding. The Corporation's obligations under this Section include, but are not limited to, the convening of any meeting, and the consideration of any matter thereby, required by statute in order to determine the eligibility of an officer or director for indemnification. The Corporation's obligation to indemnify and to prepay expenses under this Section shall arise, and all rights granted to directors, officers, employees or agents hereunder shall vest, at the time of the occurrence of the transaction or event to which such action, suit or proceeding relates, or at the time that the action or conduct to which such action, suit or proceeding relates was f irst taken or engaged in (or omitted to be taken or engaged in), regardless of when such action, suit or proceeding is first threatened, commenced or completed. Notwithstanding any other provision of these Bylaws or the Articles or Certificate of Incorporation of the Corporation, no action taken by the Corporation, either by amendment of the Bylaws or the Certificate of Incorporation of the Corporation or otherwise, shall diminish or adversely affect any rights to indemnification or prepayment of expenses granted under this Article VIII which shall have become vested as aforesaid prior to the date that such amendment or other corporate action is taken. Further, if any provision of this Article VIII shall be held to be invalid or unenforceable, the validity and enforceability of the remaining provisions shall not in any way be affected or impaired. Section 2. Insurance. The Board of Directors shall have, in its discretion, the power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was -1- serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of the Texas Business Corporation Act, the articles of incorporation or these Bylaws. Amended by Action of the Board of Directors at a meeting held October 4, 1988. -2- AMENDMENT TO THE BY-LAWS "RESOLVED: That Article VIII, Section 2 for permissive indemnification of Directors and Section 5 of that Section of the By- Laws of the Company is hereby amended to read as follows: "That United Services Advisors, Inc. hereby does and will indemnify its Directors, Officers, Employees, Agents and Others who are, or, are threatened to be made a named defendant or respondent in a proceeding because the person is or was a Director and/or Officer, Employee, Agent or Other of the Corporation. Determination of indemnification and advancement of expenses must be made in the manner specified in Section 4 of Article VIII and the Texas Business Corporation Act ("TBCA"), and provided that such person otherwise meets the provisions of Section 2., 3. and 5. of Article VIII of the By-Laws and TBCA." Amended by Action of the Board of Directors at a meeting held April 29, 1987. AMENDMENT TO BY-LAWS RESOLVED: That Article II, Section 2 of the By-Laws of the Company is hereby amended to read as follows: "Section 2. Annual Meetings. Annual meetings of the shareholders shall be held on the last Friday in February of each year, at which meeting the shareholders shall elect Directors and transact such other business as may properly be brought before the meeting." Amended by Action of Directors by Unanimous Written Consent Dated October 4, 1985. BY-LAWS OF UNITED SERVICES ADVISORS, INC. ARTICLE I OFFICES Section 1. Principal Office. The principal office of the Corporation shall be 5300 Woodway Park, 11333 IR 10 West, San Antonio, Bexar County, Texas. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the State of Texas as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II SHAREHOLDERS Section 1. Time and Place of Meeting. All meetings of the shareholders shall be held at such time and at such place within or without the State of Texas as shall be determined by the Board of Directors. Section 2. Annual Meetings. Annual meetings of the shareholders shall be held within 120 days after the expiration of the Corporation's fiscal vear, at which meeting the shareholders shall elect Directors and transact such other business as may properly be brought before the meeting. Section 3. Special Meetings. Special meetings of the shareholders may be called at any time by the President or the Board of Directors, and shall be called by the President or Secretary at the request in writing of the holders of not less than ten percent (10%) of all the shares issued, outstanding and entitled to vote at the meeting. Such request shall state the purpose or purposes of the proposed meeting. Business transacted at special meetings shall be confined to the purposes stated in the notice of the meeting. Section 4. Notice. Written or printed notice stating the place, day and hour of any shareholders' meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than fifty (50) days before the date of the meeting, either personally or by mail, by or at the direction of the President, Secretarv, or the officer or person calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, postage prepaid, to the shareholder at his/her address as it appears on the stock transfer books of the Corporation. Section 5. Record Date. The Board of Directors may fix in advance a record date for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such record date to be not less than ten (10) nor more than fifty (50) days prior to such meeting, or the Board of Directors may close the stock transfer books for such purpose for a period of not less than ten (10) nor more than fifty (50) days prior to such meeting. In the absence of any action by the Board of Directors, the date upon which the notice of the meeting is mailed shall be the record date. Section 6. List of Shareholders. The officer or agent of the Corporation having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of the shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, arranged in alphabetical order, with the address of and the number of voting shares held by each, which list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation and shall be subject to inspection by any such shareholder at any time during the usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meetings of shareholders. Section 7. Quorum. The holders of a majority of the issued and outstanding shares and entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business except as otherwise provided by the Texas Business Corporation Act (herein called the "Act"). If, however, such quorum shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present or represented. When any adjourned meeting is reconvened and a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. Once a quorum is constituted, the shareholders present or represented by proxy at a meeting may continue to transact business until adjournment, notwithstanding the subsequent withdrawal therefrom of such number of shareholders as to leave less than a quorum. Section 8. Voting. When a quorum is present at any meeting, the vote of the holders of a majority of the shares present or represented by proxy at such meeting and entitled to vote shall be the act of the shareholders, unless the vote of a different number is required by the Act, the Articles of Incorporation or these By- Laws. The holders of shares of Class A -2- Common Stock shall have full voting rights at any annual or special meeting of the shareholders and as provided in the Texas Business Corporation Act. The holders of shares of Class B Common Stock shall have no power to vote at any annual or special meeting of the shareholders, except as may be required by the Texas Business Corporation Act. Section 9. Proxy. Each shareholder shall at every meeting of the shareholders be entitled to one vote in person or by proxy for each share having voting power held by such shareholder. Every proxy must be executed in writing by the shareholder or by his duly authorized attorney-in-fact, and shall be filed with the Secretary of the Corporation prior to or at the time of the meeting. No proxy shall be valid after eleven months from the date of its execution unless otherwise provided therein. Each proxy shall be revocable unless expressly provided therein to be irrevocable and unless otherwise made irrevocable by law. Section 10. Action by Written Consent. Any action required or permitted to be taken at any meeting of the shareholders may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof, and such consent shall have the same force and effect as a unanimous vote of shareholders. Section 11. Meetings by Conference Telephone. Shareholders may participate in and hold meetings of shareholders by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transactions of any business on the ground that the meeting is not lawfully called or convened. ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors of the Corporation shall be from 3 to 11. The Board of Directors shall each year prior to the annual shareholders meeting determine the number of directors that the Corporation shall have for the ensuing year. Directors shall be elected at the annual meeting of the shareholders, except as provided in Section 2 of this Article, and each director shall hold office until his/her successor is elected and qualified. Directors need not be shareholders of the Corporation or residents of the State of Texas. Section 2. Vacancies. Any vacancy occurring in the Board of Directors maybe filled by the affirmative vote of a majority of the remaining directors, though the remaining directors may constitute less than a quorum of the Board of Directors as fixed -3- by Section 8 of this Article. A director elected to fill a vacancy shall be elected for the unexpired term of his/her predecessor in office. Any directorship to be filled by reason of an increase in the number of directors shall be filled by the Board of Directors for a term of office continuing only until the next election of one or more directors by the shareholders or by election at an annual meeting or at a special meeting of shareholders called for that purpose; provided that the Board of Directors may not fill more than two such directorships during the period between any two successive annual meetings of shareholders. At any annual meeting of shareholders, or any special meeting called for such purpose, any director may be removed from office, for or without cause, though his/her term may not have expired. Section 3. General Powers. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and do all such lawful acts and things as are not by the Act, the Articles of Incorporation or by these By- Laws directed or required to be exercised or done by the shareholders. Section 4. Place of Meetings. The directors of the Corporation may hold their meetings, both regular and special, either within or without the State of Texas. Section 5. Annual Meetings. The first meeting of each newly elected Board of Directors shall be held without further notice immediately following the annual meeting of the shareholders, and at the same place, unless by unanimous consent of the directors then elected and serving such time or place shall be changed. Section 6. Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place as shall from time to time be determined by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the President on two days' notice to each director, either personally or by mail or by telegram. Special meetings shall be called by the President or Secretary in like manner and on like notice on the written request of any two (2) directors. Section 8. Quorum. At all meetings of the Board of Directors the presence of a majority of the then serving directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the affirmative vote of at least a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by the Act, the Articles of Incorporation or these By-Laws. If a quorum shall not be present at any meeting of directors, the directors present thereat may adjourn the meeting from time to -4- time without notice other than announcement at the meeting, until a quorum shall be present. Section 9. Committees. The Board of Directors may, by resolution passed by a majority of the whole Board, designate committees, each committee to consist of two or more directors, which committees shall have such power and authority and shall perform such functions as may be provided in such resolution. Such committee or committees shall have such name or names as may be designated by the Board of Directors and shall keep regular minutes of their proceedings and report the same to the Board of Directors when required. Section 10. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee designated by the Board of Directors may be taken without a meeting if a written consent, setting forth the action so taken, is signed by all the members of the Board of Directors or of such committee, and such consent shall have the same force and effect as a unanimous vote at a meeting. Section 11. Meetings by Conference Telephone. Members of the Board of Directors or members of any committee designated by the Board of Directors may participate in and hold a meeting of such Board or committee by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person at such meeting, except where a person participates in the meeting for the express purpose of objecting to the transactions of any business on the ground that the meeting is not lawfully called or convened. ARTICLE IV NOTICES Section 1. Form of Notice. Whenever under the provisions of the Act, the Articles of Incorporation or these By-Laws, notice is required to be given to any director or shareholder, and no provision is made as to how such notice shall be given, it shall not be construed to mean personal notice, but any such notice may be given in writing, by mail, postage prepaid, addressed to such director or shareholder at such address as appears on the books of the Corporation. Any notice required or permitted to be given by mail shall be deemed to be given at the time when the same be thus deposited, postage prepaid, in the United States mail as aforesaid. Section 2. Waiver. Whenever any notice is required to be given to any director or shareholder of the Corporation, under the provisions of the Act, the Articles of Incorporation or these By- Laws, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time -5- stated in such notice, shall be deemed equivalent to the giving of such notice. ARTICLE V OFFICERS Section 1. In General. The officers of the Corporation shall be elected by the Board of Directors and shall be a President, a Vice President, a Secretary, a Treasurer and/or a Comptroller. The Board of Directors may also, if it chooses to do so, elect a Chairman of the Board, additional Vice Presidents, one or more Assistant Secretaries and one or more Assistant Treasurers, all of whom shall also be officers. Two or more offices may be held by the same person. Section 2. Election. The Board of Directors at its first meeting after such annual meeting of the shareholders shall elect a President and, if it so chooses, may elect a Chairman of the Board, both of whom shall be members of the Board, but-the other officers need not be members of the Board. The Board of Directors may appoint such other officers and agents as it shall deem necessary and may determine the salaries of all officers and agents from time to time. The officers shall hold office until their successors are chosen and qualified. Any officer elected or appointed by the Board of Directors may be removed, for or without cause, at any time by a majority vote of the whole Board. Election or appointment of an officer or agent shall not of itself create contract rights. Section 3. Chairman. The Chairman of the Board of Directors, if there be a Chairman, shall preside at all meetings of the shareholders and the Board of Directors and shall have such other powers as may from time to time be assigned by the Board of Directors. Section 4. President. The President shall be the chief executive officer of the Corporation, shall preside at all meetings of the shareholders and the Board of Directors, if a Chairman of the Board has not been elected, and shall have the general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. The President shall execute all contracts requiring a seal and shall also execute any mortgages, conveyances or other legal instruments in the name of and on behalf of the Corporation, but this provision shall not prohibit the delegation of such powers by the Board of Directors to some other officer, agent or attorney-in-fact of the Corporation. Section 5. Vice Presidents. The Vice President or, if there be more than one, the Vice Presidents in the order of their seniority or in any other order determined by the Board of Directors, shall, in the absence or disability of the President, perform the duties and exercise the powers of the President, and -6- shall generally assist the President and perform such other duties as the Board of Directors shall prescribe. Section 6. Secretary. The Secretary shall attend all sessions of the Board of Directors and all meetings of the shareholders and record all votes and the minutes of all proceedings in a book to be kept for that purpose, and shall perform like duties for any other committees of the Board when required. He/she shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or President, under whose supervision he/she shall be. He/she shall keep in safe custody the seal of the Corporation. Section 7. Assistant Secretaries. Any Assistant Secretary shall, in the absence or disability of the Secretary, perform the duties and exercise the powers of the Secretary and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 8. Treasurer. The Treasurer shall have the custody of all corporate funds and securities, and shall keep full and accurate accounts of receipts and disbursements of the Corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He/she shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, AND shall render to the President and Directors, at the regular meetings of the Board or whenever they may require it, an account of all his/her transactions as Treasurer and of the financial condition of the Corporation, and shall perform such other duties as may be prescribed by the Board of Directors or the President. Section 9. Comptroller. The Comptroller shall, in the absence or disability of the Treasurer, perform the duties and exercise the powers of the Treasurer and shall perform such other duties as may be prescribed by the Board of Directors or the President. ARTICLE VI CERTIFICATES REPRESENTING SHARES/UNCERTIFICATED SHARES Section 1. Form of Certificates/Uncertificated Shares. The Corporation shall deliver certificates representing all shares to which shareholders are entitled; or the shares of the Corporation may be uncertificated shares as provided by resolution of the Board of Directors. Certificates representing shares of the Corporation shall be in such form as shall be determined by the Board of Directors and shall be numbered consecutively and entered in the books of the Corporation as they are issued. Each certificate shall state on the face thereof the holder's name, -7- the number, class of shares, and the par value of the shares or a statement that the shares are without par value. They shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary, and may be sealed with the seal of the Corporation or a facsimile thereof if the Corporation shall then have a seal. If any certificate is countersigned by a transfer agent or registered by a registrar, either of which is other than the Corporation or an employee of the Corporation, the signatures of the Corporation's officers may be facsimilies. In case any officer or officers who have signed, or whose facsimile signature or signatures have been used on such certificate or certificates, shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates have been delivered by the Corporation or its agents, such certificate or certificates may nevertheless be adopted by the Corporation and be issued and delivered as though the person or persons who signed the certificate or certificates or whose facsimile signature or signatures have been used thereon had not ceased to be such officer or officers of the Corporation. Section 2. Lost Certificates. The Board of Directors may direct that a new certificate be issued in place of any certificate theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost or destroyed. When authorizing the issue of a new certificate, the Board of Directors, in its discretion and as a condition precedent to the issuance thereof, may require the owner of the lost or destroyed certificate, or his/her legal representative, to advertise the same in such manner as it shall require and/or give the Corporation a bond in such form, in such sum, and with such surety or sureties as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed. Section 3. Transfer of Shares. Shares of stock shall be transferable only on the books of the Corporation by the holder thereof in person or by his duly authorized attorney and, upon surrender to the Corporation or to the transfer agent of the Corporation of a certificate representing shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation or the transfer agent of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 4. Registered Shareholders. The Corporation shall be entitled to recognize the holder of record of any share or shares of stock as the holder in fact thereof and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. -8- ARTICLE VII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the outstanding shares of the Corporation, subject to the provisions of the Act and of the Articles of Incorporation, if any, may be declared by the Board of Directors at any regular or special meeting. Dividends may be declared and paid in cash, in property, or in shares of the Corporation, provided that all such declarations and payments of dividends shall be in strict compliance with all applicable laws and the Articles of Incorporation. The Board of Directors may fix in advance a record date for the purposes of determining shareholders entitled to receive payment of any dividend, such record date to be not more than fifty (50) days prior to the payment date of such dividend, or the Board of Directors may close the stock transfer books for such purpose for a period of not more than fifty (50) days prior to the payment date of such dividend. In the absence of any action by the Board of Directors, the date upon which the Board of Directors adopts the resolution declaring such dividend shall be the record date. Section 2. Fiscal Year. The fiscal year of the Corporation shall be the period from July 1 through June 30 of each year. Section 3. Seal. The Corporation shall have a seal and said seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. Any officer of the Corporation shall have authority to affix the seal to any document requiring it. Section 4. Annual Statement. The Board of Directors shall present at each annual meeting and when called for by vote of the shareholders at any special meeting of the shareholders, a full and clear statement of the business and condition of the Corporation. ARTICLE VIII INDEMNITY Section 1. Definitions. When used in this Article, unless the context otherwise requires: (a) the term "Corporation" includes any domestic or foreign predecessor entity of the Corporation in a merger, consolidation, or other transaction in which the liabilities of the predecessor are transferred to the Corporation by operation of law and in any other transaction in which the Corporation assumes the liabilities of the predecessor but does not specifically exclude liabilities that are the subject matter of this Article; (b) the term "director" means any person who is or was a director of the Corporation and any person who, while a director of the Corporation, is or was serving at the -9- request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corporation, partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise; (c) the term "expenses" includes court costs and attorneys' fees; (d) the term "official capacity" means (a) when used with respect to a director, the office of director in the Corporation and (b) when used with respect to a person other than a director, the elective or appointive office in the Corporation held by the officer or the employment or agency relationship undertaken by the employee or agent on behalf of the Corporation, but in each case does not include service for any other foreign or domestic corporation or any partnership, joint venture, sole proprietorship, trust, employee benefit plan, or other enterprise; and (e) the term "proceeding" means any threatened, pending, or contemplated action, suit, or proceeding, whether civil, criminal, administrative, arbitrative, or investigative, any appeal in such an action, suit, or proceeding, and any inquiry or investigation that could lead to such an action, suit, or proceeding. Section 2. Permissive Indemnification of Directors. The Corporation may indemnify a person who was, is, or is threatened to be made a named defendant or respondent in a proceeding because the person is or was a director of the Corporation only if it is determined in accordance with the procedure set forth in Section 4 of this Article that the person: (a) conducted himself/herself in good faith, (b) reasonably believed (a) in the case of conduct in his/her official capacity as a director of the Corporation, that his/her conduct was in the Corporation's best interest and (b) in all other cases, that his/her conduct was at least not opposed to the Corporation's best interests, and (c) in the case of any criminal proceeding, had no reasonable cause to believe his/her conduct was unlawful. A person may not be indemnified under this Section for obligations resulting from a proceeding (a) in which he/she is found liable on the basis that personal benefit was improperly received by him/her, whether or not the benefit resulted from an action taken in his/her official capacity, or (b) in which he/she is found liable to the Corporation. The termination of a proceeding by judgment, order, settlement, or conviction, or on a plea of nolo contenders or its equivalent is not of itself determinative that the person did not meet the requirements set forth in this -10- Section. A person may be indemnified under this Section against judgments, penalties (including excise and similar taxes), fines, settlements, and reasonable expenses actually incurred by him/her in connection with the proceeding; but, if the proceeding was brought by or on behalf of the Corporation, the indemnification is limited to reasonable expenses actually incurred by the person in connection with the proceeding. Section 3. Payment or Reimbursement of Expenses in Advance of Final Disposition. Reasonable expenses incurred by a director who was, is, or is threatened to be made a named defendant or respondent in a proceeding may be paid or reimbursed by the Corporation in advance of the final disposition of the proceeding after: (a) the Corporation receives a written affirmation by the person of his/her good faith belief that he has met the standard of conduct necessary for indemnification under this Article and a written undertaking by or on behalf of the person to repay the amount paid or reimbursed if it is ultimately determined that he/she has not met those require- ments, and (b) a determination that the facts then known to those making the determination would not preclude indemnification under this Article. The written undertaking required by this Section must be an unlimited general obligation of the director but need not be secured. It may be accepted without reference to financial ability to make repayment. Determinations and authorizations of payment under this Section must be made in the manner specified by Section 4 of this Article for determining that indemnification is permissible. Notwithstanding any other provision of this Article, the Corporation may pay or reimburse expenses incurred by a director in connection with his/her appearance as a witness or other participation in a proceeding at a time when he/she is not a named defendant or respondent in the proceeding. Section 4. Determination of Indemnification and Payment or Reimbursement of Expenses. A determination of indemnification or payment or reimbursement of expenses under this Article must be made: (a) by a majority vote of a quorum consisting of directors who at the time of the vote are not named defen- dants or respondents in the proceeding; (b) if such a quorum cannot be obtained, by a majority vote of a committee of the Board of Directors, designated to act in the matter by a majority vote of all directors, consisting solely of two or more directors who at the time of the vote are not named defendants or respondents in the proceeding; - 11 - (c) by special legal counsel selected by the Board of Directors or a committee thereof by vote as hereinbefore set forth in this paragraph, or, if such a quorum cannot be obtained and such a committee cannot be established, by a majority vote of all directors; or (d) by the shareholders in a vote that excludes the shares held by directors who are named defendants or respon- dents in the proceeding. Authorization of indemnification and determination as to reason- ableness of expenses must be made in the same manner as set forth in this Section for the determination that indemnification is permissible, except that if the determination that indemnifica-tion is permissible is made by special legal counsel, authoriza-tion of indemnification and determination as to reasonableness of expenses must be made in the manner specified by this Section for the selection of special legal counsel. Section 5. Permissive Indemnification of Officers, Em- ployees, Agents and Other. The Corporation may indemnify and advance expenses to an officer, employee, or agent of the Corpo- ration and to nominees and designees (who are not or were not officers, employees, or agents of the Corporation) who are or were serving at the request of the Corporation as a director, officer, partner, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or domestic corpora-tion, partnership, joint venture, sole proprietorship, trust, or other enterprise, or employee benefit plan to the same extent that it may indemnify and advance expenses to directors under this Article. Determinations of indemnification and advancement of expenses under this Section must be made in the manner speci-fied by Section 4 of this Article. Section 6. Mandatory Indemnification of Directors and Officers. The Corporation shall indemnify any director or officer of the Corporation against reasonable expenses incurred by him/her in connection with a proceeding in which he/she is a party because he/she is a director or officer of the Corporation if he/she has been wholly successful, on the merits or otherwise, in the defense of the proceeding. If, in a suit for the indemnification required by this Section, a court of competent jurisdiction determines that the director or officer is entitled to indemnification under this Section and Article 2.02-1 H of the Texas Business Corporation Act, the court shall order indemnification and shall award to the director or officer the expenses incurred in securing the indemnification. Section 7. Liability Insurance. The Corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation or who is or was serving at the request of the Corporation as a director, officer, partner,, venturer, proprietor, trustee, employee, agent, or similar functionary of another foreign or -12- domestic corporation, partnership, joint venture, sole proprie- torship, trust, other enterprise, or employee benefit plan, against any liability asserted against him/her and incurred by him/her in such a capacity or arising out of his/her status as such a person, whether or not the Corporation would have the power to indemnify him/her against that liability under this Article and the provisions of the Texas Business Corporation Act. Section S. Report to Shareholders. Any indemnification of or advance of expenses to a director in accordance with this Article shall be reported in writing to the shareholders with or before the notice or waiver of notice of the next shareholders' meeting or with or before the next submission to shareholders of a consent to action without a meeting pursuant to Article 9.10A of the Texas Business Corporation Act and, in any case, within the twelve-month period immediately following the date of the indemnification or advance. Section 9. Special Provisions for Employee Benefit Plans. For purposes of this Article, the Corporation is deemed to have requested a director to serve an employee benefit plan whenever the performance by him/her of his/her duties to the Corporation also imposes duties on or otherwise involves services by him/her to the plan or participants or beneficiaries of the plan. Excise taxes assessed on a director with respect to an employee benefit plan pursuant to applicable law are deemed fines. Action taken or omitted by a director with respect to an employee benefit plan in the performance of his/her duties or a purpose reasonably believed by him/her to be in the interest of the participants and beneficiaries of the plan is deemed to be for a purpose which is not opposed to the best interests of the Corporation. ARTICLE IX BY-LAWS Section 1. Amendments. These By-Laws may be altered, amended or repealed and new By-Laws may be adopted by the Board of Directors at any regular meeting or at any special meeting called for that purpose. Section 2. When By-Laws Silent. It is expressly recognized that when the By-Laws are silent as to the manner of performing any corporate function, the provisions of the Texas Business Corporation Act shall control. -13- EX-11 3 0003.txt COMPUTATION OF NET EARNINGS PER SHARE EXHIBIT 11-- SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE YEAR ENDED JUNE 30, --------------------------------------- 2000 1999 1998 ---------- ----------- ----------- Net income (loss) $ 495,758 $(1,852,806) $ (148,619) BASIC Weighted average number shares outstanding during the year: 7,408,821 6,562,140 6,617,153 Basic income (loss) per share: Net income (loss) $ 0.07 $ (0.28) $ (0.02) ========== =========== =========== DILUTED Weighted average number of shares outstanding during the year: 7,408,821 6,562,140 6,617,153 Effect of dilutive securities: Common stock equivalent shares (determined using the "treasury stock" method) representing shares issuable upon exercise of common stock options 2,278 1,704 52,210 ---------- ----------- ----------- Weighted average number of shares used in calculation of diluted earnings per share 7,411,099 6,563,844 6,669,363 ========== =========== =========== Diluted income (loss) per share: Net income (loss) $ 0.07 $ (0.28) $ (0.02) ========== =========== =========== EX-13 4 0004.txt ANNUAL RPEORT U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 18 of 47 EXHIBIT 13 -- ANNUAL REPORT The Company 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. THE COMPANY U.S. Global Investors, Inc., a Texas corporation organized in 1968 (Company or U.S. Global), and its wholly owned subsidiaries are in the mutual fund management business. 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; (4) custodial and administrative services, through its wholly owned trust company and administrator for IRAs and other types of retirement plans; and (5) distribution services, through its wholly owned broker/dealer, to mutual funds advised by the Company. The fees from investment advisory, transfer agent, fund distribution, administrative and custodial services and investment income are the primary sources of the Company's revenue. 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 eleven and three mutual funds, respectively, on a no-load basis. The Company organized U.S. Global Investors (Guernsey) Limited (USGG) in August 1993 for the purpose of acting as investment adviser for investment companies whose shares are offered to non-U.S. citizens. USGG has delegated its investment advisory duties to U.S. Global. 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 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 19 of 47 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 and also provides 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 of USGAF will consider renewal of the applicable agreements in February and March 2001, 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 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 and 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 during February and March 2001, 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 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. To date, the Company has capitalized USGB with approximately $1,132,590 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, provides custodial services for IRA and other retirement plans administered by USGA. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 20 of 47 ADMINISTRATIVE SERVICES. Effective January 1, 2000, U.S. Global Administrators, Inc. (USGA), a wholly owned subsidiary of the Company, began providing qualified plan administration services for existing clients. USGA also actively markets 401(k) and other retirement plans. CORPORATE INVESTMENT 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, 2000, U.S. Global and its subsidiaries employed 78 full-time employees and 4 part-time employees; as of June 30, 1999, it employed 84 full-time employees and 3 part-time employees. The Company considers its relationship with its employees to be excellent. COMPETITION The mutual fund industry is highly competitive. Recent reports show there are approximately 8,000 registered open-end investment companies of varying sizes and investment policies whose shares were being offered to the public worldwide. Generally, there are two types of mutual funds: "load" and "no-load." In addition there are both no-load and 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 USGIF's and USGAF's, 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. Recent 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. 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 the funds' investment performance, the quality of services provided to shareholders and the Company's efforts to market fund performance 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). SUPERVISION AND REGULATION The Company, USSI, USGB, USGA, 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, U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 21 of 47 and tax status. STFC operates under certain laws, including Texas banking laws, governing its 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 had 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. 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. USSI is also subject to regulation by the SEC under the Securities Exchange Act of 1934. 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 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 were canceled or not renewed pursuant to the terms thereof, the Company would be substantially adversely affected. U.S. Global, USSI and STFC 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 the Trusts will choose to continue their relationships with the Company, USSI, and STFC. ANNUAL STATUS REPORT BUSINESS SEGMENTS U.S. Global Investors, Inc. (Company), 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 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, 2000, the Company held approximately $2.6 million in investments, comprising 28% of its total assets. The following is a brief discussion of the Company's two business segments. INVESTMENT MANAGEMENT PRODUCTS AND SERVICES As noted above, the Company generates substantially all of its 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 2000, total average assets under management increased slightly, 0.8%, to $1.4 billion primarily as a result of market appreciation and shareholder purchases into the Bonnel Growth Fund. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 22 of 47 AVERAGE ASSETS UNDER MANAGEMENT (DOLLARS IN MILLIONS) 2000 1999 % CHANGE 1999 1998 % CHANGE -------------------- ------ ------ --------- ------ ------ -------- USGIF - Money $ 928 $ 979 (5.2)% $ 979 $ 919 6.5% Market USGIF - Other 234 280 (16.4) 280 371 (24.5) USGIF - Total 1,162 1,259 (7.7) 1,259 1,290 (2.4) USGAF 238 130 83.1 130 146 (11.0) ------ ------ ---- ------ ------ ---- Total $1,400 $1,389 0.8% $1,389 $1,436 (3.3)% 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 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. As of June 30, 2000 and 1999, the Company held approximately $2.6 and $1.3 million, respectively, in investments other than USGIF money market mutual fund shares. In fiscal year 2000, the Company received $701,000 in trading and available-for-sale securities in liquidation of its investment in the U.S. Global Strategies Fund Limited (Guernsey Fund), an offshore fund managed by the Company . Investment income from these investments includes realized gains and losses, unrealized gains and losses on trading 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 2000, 1999, and 1998, the Company had realized gains (losses) of approximately $550,000, $238,000, and ($349,000), respectively. The Company expects that gains (losses) will continue to fluctuate in the future; 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.
2000 1999 % CHANGE 1999 1998 % CHANGE ------ -------- -------- -------- ------ ---------- Net Income (Loss) (in thousands) $ 496 $(1,852) 126.8% $(1,852) $ (149) (1,143.0)% Net Income (Loss) Per Share: Basic and Diluted $ 0.07 $ (0.28) 125.0% $ (0.28) $ (0.02) (1,300.0)% Weighted average shares outstanding (in thousands): Basic 7,408 6,562 6,562 6,617 Diluted 7,411 6,564 6,564 6,669
YEAR ENDED JUNE 30, 2000, COMPARED WITH YEAR ENDED JUNE 30, 1999 The Company posted net after-tax income of $496,000 ($0.07 income per share) for the year ended June 30, 2000, compared with a net after-tax loss of $1.9 million ($0.28 loss per share) for the year ended June 30, 1999. The increase in net income for 2000 was principally due to an increase in net advisory fees. These increases were partially offset by decreases in transfer agent fees. Additionally, an equity interest in the net losses of the Guernsey Fund of $743,041 for the year ended June 30, 1999, had reversed into a gain of $51,739 at the time of the Guernsey Fund's liquidation in September 1999. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 23 of 47 YEAR ENDED JUNE 30, 1999, COMPARED WITH YEAR ENDED JUNE 30, 1998 The Company posted net after-tax loss of $1.9 million ($0.28 per share) for fiscal year 1999, compared with a net after- tax loss of $149,000 ($0.02 per share) for fiscal year 1998. The decrease in net income for 1999 was primarily due to a 14% decrease in net investment advisory fees and the elimination of fund accounting fees. In 1997, the Company decided to outsource such services to Brown Brothers Harriman & Co. (BBH), the conversion was completed during the second quarter of fiscal year 1998. The Company has foregone accounting fee revenue associated with this function and also has reduced direct costs for personnel and equipment related to the fund accounting function. The decrease in investment advisory fees was primarily the result of a decline in the net assets of high-margin, gold-related funds. REVENUES (DOLLARS IN THOUSANDS) 2000 1999 % CHANGE 1999 1998 % CHANGE - --------------------- ------- ------ -------- ------ ------- -------- Investment advisory fees: USGIF - Money Market $ 2,438 $1,825 33.6% $1,825 $ 1,416 28.9% USGIF - Other 1,666 2,037 (18.2) 2,037 3,066 (33.6) ------- ------ ------ ------ ------- ------ USGIF - Total 4,104 3,862 6.3 3,862 4,482 (13.8) USGAF 2,393 1,319 81.4 1,319 1,423 (7.3) Other 9 42 (78.6) 42 168 (75.0) ------- ------ ------ ------ ------- ------ Total investment advisory fees $ 6,506 $5,223 24.5% $5,223 $ 6,073 (14.0)% Transfer agent fees 2,934 3,341 (12.2)% 3,341 3,446 (3.0)% Custodial and administrative fees 484 465 4.3% 465 441 5.4% Mailing services fees 368 293 25.6% 293 306 (4.3)% Accounting fees 0 0 0.0% 0 318 (100.0)% Investment income 556 352 58.0% 352 (419) 184.0% Other revenues 65 65 0.0% 65 30 116.7% ------- ------ ------ ------ ------- ------ Total $10,913 $9,739 12.1% $9,739 $10,195 (4.5)% ======= ====== ======= ====== ======= ====== 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 for purposes of enhancing the funds' competitive market positions. The aggregate amount of fees waived and expenses born by the Company totaled $2,125,773, $3,052,054, and $3,484,595 in 2000, 1999, and 1998, 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 the amounts of 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 increase in net advisory fees in fiscal year 2000 of approximately $1.3 million, or 24.5%, over fiscal year 1999 was largely due to market appreciation and shareholder purchases in the Bonnel Growth Fund. In addition, net advisory fees of the U.S. Government Securities Savings Fund increased 83.4% over fiscal year 1999, because the Company waived $839,000 less in fees than in fiscal year 1999. The decrease in net advisory fees in fiscal year 1999 of approximately $850,000, or 14.0%, over fiscal year 1998 was due, for the most part, to decreases in the net assets of high-margin, gold-related funds of approximately 37.1%. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 24 of 47 TRANSFER AGENT FEES United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency, lockbox and printing services for the 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 fees in fiscal year 2000 is a result in a decrease in client accounts to 107,450 from 116,831 in fiscal year 1999. The decrease in fees in fiscal year 1999 is also a result of a decrease in client accounts to 116,831 from 117,363 in fiscal year 1998. Management believes investors are shifting from direct investment in the funds to omnibus accounts through mutual fund trading facilities offered by broker/dealers such as Charles Schwab and Fidelity. CUSTODIAL AND ADMINISTRATIVE FEES Security Trust & Financial Company (STFC), a wholly owned state chartered trust company, provides custodial and/or trustee services for IRAs and other retirement plans administered by the Company. The custodial fees are generally 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 are paid to USGA on a quarterly basis by its clients. USGA also actively markets 401(k) and other retirement plans. Custodial and administrative fees increased approximately $20,000, or 4.3%, in fiscal year 2000. This slight increase was due primarily to growth in the underlying plans. The custodial and administrative fees increase of approximately $24,000, or 5.4%, in fiscal year 1999 over fiscal year 1998 was also due to the growth in existing client plans. 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. Each service is priced separately. Mailing service fees increased approximately $75,000, or 25.6%, in fiscal year 2000. This increase was due primarily to increased mailings for USGIF and USGAF. There was a slight decrease in mailing service fees of approximately $13,000, or 4.3%, in fiscal year 1999 from fiscal year 1998. ACCOUNTING FEES United Shareholder Services Inc. formerly maintained the books and records of each trust and of each fund of each trust, including calculations of the daily net asset value per share. In 1997, the Company decided to outsource such services to Brown Brothers Harriman & Co. (BBH). The conversion was completed during the second quarter of fiscal year 1998. The Company has foregone accounting fee revenue associated with this function and also has reduced direct costs for personnel and equipment related to providing fund accounting services. For the years ended June 30, 2000, 1999, and 1998, bookkeeping and accounting fees net of waivers were $0, $0, and $318,000, respectively. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 25 of 47 EXPENSES (DOLLARS IN THOUSANDS) 2000 1999 % CHANGE 1999 1998 % CHANGE - --------------------- ------- ------ -------- ------ ------- -------- Employee compensation/ benefits $ 4,767 $ 5,125 (7.0)% $ 5,125 $ 4,611 11.1% General and administrative 4,525 4,061 11.4% 4,061 3,664 10.8% Marketing and distribution 695 860 (19.2)% 860 1,179 (27.1)% Depreciation and amortization 395 493 (19.7)% 493 457 7.7% Interest and finance 113 127 (11.3)% 127 123 3.6% Total $10,495 $10,666 (1.6)% $10,666 $10,034 6.3% EMPLOYEE COMPENSATION AND BENEFITS Employee compensation and benefits decreased in fiscal year 2000 over fiscal year 1999 by approximately $358,000, or 7.0%, due to the reduction of personnel resulting from the introduction of new technology and improved processes. Employee compensation and benefits increased approximately $514,000, or 11.1% , in fiscal year 1999 over 1998 due primarily to the company filling certain key positions in the investment management and legal departments. The Company expects that employee compensation expenses for fiscal year 2001 will approximate fiscal year 2000 levels. GENERAL AND ADMINISTRATIVE General and administrative expenses increased by approximately $464,000, or 11.4%, in fiscal year 2000 over fiscal year 1999 largely due to (1) an increase in sub-advisory fees paid for management of the Bonnel Growth Fund and additional fees paid to mutual fund supermarkets due to the asset growth of the fund, and (2) an increase in education and training expenses for company personnel. General and administrative expenses increased by approximately $397,000, or 10.8%, in fiscal year 1999 over fiscal year 1998. This increase was due the reversal of approximately $750,000 in accrued legal expenses in 1998 due to the successful appeal of an adverse judgment against the Company from a lawsuit brought against the Company in 1994. This was a singular event, which was not repeated in 1999. This difference between years was partially offset by a decrease in fee waivers/expense reimbursements on behalf of USGIF and USGAF in fiscal year 1999 from fiscal year 1998. MARKETING AND DISTRIBUTION Fiscal year 2000 marketing and distribution expenses decreased by approximately $165,000, or 19.2%, over fiscal year 1999. The net decrease was due to a shift in marketing efforts to funds whereby expenditures are reimbursed via a 12b-1 arrangement. Fiscal year 1999 marketing and distribution expenses decreased by approximately $319,000, or 27.1%, over fiscal year 1998 primarily due to lower prospectus printing and mailing costs. The Company expects that marketing and distribution expenses for fiscal year 2001 will approximate fiscal year 2000 levels. DEPRECIATION AND AMORTIZATION Depreciation expenses decreased by approximately $98,000, or 19.7%, in fiscal year 2000 from fiscal year 1999 due to certain assets becoming fully depreciated. Depreciation expense increased by $36,000, or 7.7%, in fiscal year 1999 over fiscal year 1998, primarily due to depreciation expense on computer equipment placed into service during 1999. INTEREST AND FINANCE Interest and finance charges are incurred primarily from a note payable on the Company's building. The decrease in interest expense of $14,000, or 11.3%, in fiscal year 2000 from fiscal year 1999 was largely due to the amortization of the note payable. Interest and finance charges increased by $4,000, or 3.6%, in fiscal year 1999 over fiscal year 1998. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 26 of 47 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, 2000, the Company has net operating losses (NOLs) of approximately $1.4 million, which will expire in fiscal 2007 and 2010, charitable contribution carryovers of approximately $193,000 expiring between 2000 and 2001, and alternative minimum tax credits of $132,128 with indefinite expirations. Certain changes in the Company's ownership may result in a limitation on the amount of NOLs that could be utilized under Section 382 of the Internal Revenue Code. If certain changes in the Company's ownership occur subsequent to June 30, 2000, there could be an annual limitation on the amount of NOLs that could be utilized. 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 $293,000 at June 30, 2000, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income. LIQUIDITY AND CAPITAL STRUCTURE LIQUIDITY At year end, the Company had net working capital (current assets minus current liabilities) of approximately $3.1 million and a current ratio of 3.2 to 1. With approximately $1.4 million in cash and cash equivalents and almost $2.6 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. Total shareholders' equity was approximately $6.5 million, with cash, cash equivalents, and marketable securities comprising 43.2% of total assets. With the exception of operating expenses, the Company's only material commitment is the mortgage on its corporate headquarters (a long-term debt). The Company's cash flow is 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 28, 2001, and March 8, 2001, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts. Management believes current cash reserves, and financing obtained and/or available, and 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. CAPITAL STRUCTURE 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 common stock is traded over-the-counter and is quoted daily under the Nasdaq Small Cap Issues. Trades are reported under the symbol "GROW." The Company's current capital structure, as of September 19, 2000, includes 6,299,474 shares of class A common stock issued and 6,034,794 shares of class A common stock issued and outstanding; no shares of class B common stock issued and outstanding; and 1,496,800 shares of class C common stock issued and outstanding. 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 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 27 of 47 market prices or 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. Company compliance personnel review the Company's investment activities and periodically report certain information to investment advisory clients. The table below summarizes the Company's equity price risks as of June 30, 2000, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices. ESTIMATED FAIR VALUE AFTER INCREASE HYPOTHETICAL HYPOTHETICAL (DECREASE) IN FAIR VALUE AT PERCENTAGE PRICE SHAREHOLDERS' JUNE 30, 2000 CHANGE CHANGE EQUITY ------------- ------------ ------------ -------------- Trading Securities $1,424,120 25% increase $1,780,150 $ 234,980 25% decrease $1,068,090 $(234,980) Available-for-sale $1,159,042 25% increase $1,448,803 $ 191,242 25% decrease $ 869,282 $(191,242) 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. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 28 of 47 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 Annual Report. The selected financial data as of June 30, 1996, through June 30, 1997, and the years then ended is derived from the Company's Consolidated Financial Statements, which were audited by other auditors. The selected financial data as of June 30, 1998, through June 30, 2000, and the years then ended is derived from the Company's Consolidated Financial Statements, which were audited by Ernst & Young LLP, independent accountants.
YEAR ENDED JUNE 30, --------------------------------------------------------------------------- SELECTED EARNINGS DATA 2000 1999 1998 1997 1996 ----------- ----------- ----------- ----------- ----------- Revenues $10,912,764 $ 9,739,180 $10,195,349 $14,009,131(2) $20,214,546(2) Expenses 10,495,271 10,665,616 10,034,397 13,329,439 17,261,592 ----------- ----------- ----------- ----------- ----------- Income (loss) before minority interest, equity interest, and income taxes 417,493 (926,436) 160,952 679,6922 2,952,954(2) Income tax (benefit) expense (26,526) 183,329 (39,571) 331,976 1,013,517 Minority interest -- -- -- -- (55,098) Equity in net loss of joint venture -- -- -- (196,535) -- Equity in income (loss) of affiliate 51,739 (743,041) (349,142) 132,9682 102,7282 Net income (loss) 495,758 (1,852,806) (148,619) 284,149 1,987,067 Basic income (loss) per share 0.07 (0.28) (0.02) 0.04 0.30 Working capital 3,138,009 2,441,109 3,719,539 2,440,198 1,316,006(1) Total assets 9,118,624 8,328,138 10,308,957 10,712,775 39,307,196 Long-term obligations 1,197,961 1,255,724 1,330,638 1,359,308 1,410,479 Shareholders' equity 6,484,486 5,912,238 7,941,859 7,966,407 8,544,072 - ------------------------ (1) Working capital includes amounts due to broker/dealers under reverse repurchase agreements related to the Company's purchase of certain U.S. Government securities but does not include the securities collateralizing the obligations. (2) Amounts included in revenues for fiscal years 1997 and 1996 include gains on changes of interest in affiliate of $10,490 and $555,905, respectively. The gains (losses) for fiscal years 1999 and 1998 of $97,744 and ($17,146), respectively, are included in equity in income (loss) of affiliate.
U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 29 of 47 FINANCIAL STATEMENTS 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, 2000 and 1999, 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, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We did not audit the 1998 financial statements of U.S. Global Investors (Guernsey) Limited, a wholly owned subsidiary, which statements reflect a loss of $432,453 for the year ended June 30, 1998. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to data included for U.S. Global Investors (Guernsey) Limited, is based solely on the report of the other auditors. 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, based on our audits and the report of other auditors, 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Ernst & Young LLP Ernst & Young LLP San Antonio, Texas September 22, 2000 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 30 of 47 AUDITORS' REPORT TO THE MEMBERS OF U.S. GLOBAL INVESTORS (GUERNSEY) LIMITED We have audited the financial statements on page 4 to 10 of U.S. Global Investors (Guernsey) Limited. Respective responsibilities of Directors and Auditors As described on page 2 the Company's Directors are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. Basis of Opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board in the United Kingdom. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the financial statements, and of whether the accounting polices are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatements, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion the financial statements give a true and fair view of the state of the company's affairs as at 30th of June, 1998 and of its net revenue for the year then ended and have been properly prepared in accordance with the Companies (Guernsey) Law, 1994. /s/ PricewaterhouseCoopers PricewaterhouseCoopers, Chartered Accountants, P.O. Box 321, National Westminster House, Le Truchot, St Peter Port, Guernsey, GY1 4ND Channel Islands. Date: 28th September, 1998 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 31 of 47 CONSOLIDATED BALANCE SHEETS ASSETS JUNE 30, ------------------------------ 2000 1999 ------------ ------------ CURRENT ASSETS Cash and cash equivalents $ 1,356,903 $ 1,025,247 Trading securities, at fair value 1,424,120 884,837 Receivables: Mutual funds 779,809 794,562 Other 447,548 370,582 Prepaid expenses 350,729 384,506 Deferred tax asset 215,077 141,551 ------------ ------------ TOTAL CURRENT ASSETS 4,574,186 3,601,285 ------------ ------------ NET PROPERTY AND EQUIPMENT 2,278,744 2,426,592 ------------ ------------ OTHER ASSETS Restricted investments 240,000 255,000 Long-term deferred tax asset 836,056 878,091 Investment securities available-for-sale, at fair value 1,159,042 370,840 Equity investment in affiliate -- 749,739 Other 30,596 46,591 ------------ ------------ TOTAL OTHER ASSETS 2,265,694 2,300,261 ------------ ------------ TOTAL ASSETS $ 9,118,624 $ 8,328,138 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 498,632 $ 346,504 Accrued compensation and related costs 298,826 274,667 Current portion of notes payable 68,257 68,988 Current portion of annuity and contractual obligation 8,487 18,000 Other accrued expenses 561,975 452,017 ------------ ------------ Total Current Liabilities 1,436,177 1,160,176 ------------ ------------ NON-CURRENT LIABILITIES Notes payable - net of current portion 1,066,705 1,126,066 Annuity and contractual obligations 131,256 129,658 ------------ ------------ TOTAL NON-CURRENT LIABILITIES 1,197,961 1,255,724 ------------ ------------ TOTAL LIABILITIES 2,634,138 2,415,900 ------------ ------------ SHAREHOLDERS' EQUITY Common stock (class A)-- $0.05 par value; non-voting; authorized, 7,000,000 shares 314,974 314,974 Common stock (class C) (formerly class A)-- $.05 par value; authorized 1,750,000 shares 74,840 24,840 Additional paid-in-capital 10,578,419 10,586,628 Treasury stock, class A shares at cost; 282,350 and 288,029 shares at June 30, 2000 and 1999, respectively (637,298) (648,830) Accumulated other comprehensive loss (51,771) (74,938) Accumulated deficit (3,794,678) (4,290,436) ------------ ------------ TOTAL SHAREHOLDERS' EQUITY 6,484,486 5,912,238 ------------ ------------ TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 9,118,624 $ 8,328,138 ============ ============ The accompanying notes are an integral part of this statement. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 32 of 47 CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) YEAR ENDED JUNE 30, -------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ REVENUE Investment advisory fees $ 6,505,552 $ 5,223,405 $ 6,073,005 Transfer agent fees 2,933,855 3,340,528 3,445,681 Custodial and administrative fees 484,441 464,666 440,884 Investment income (loss) 556,165 352,204 (419,096) Other 432,751 358,377 654,875 ------------ ------------ ------------ 10,912,764 9,739,180 10,195,349 ------------ ------------ ------------ EXPENSES General and administrative 9,987,166 10,046,087 9,454,481 Depreciation and amortization 395,452 492,581 457,386 Interest expense 112,653 126,948 122,530 ------------ ------------ ------------ 10,495,271 10,665,616 10,034,397 ------------ ------------ ------------ INCOME (LOSS) BEFORE EQUITY INTEREST AND INCOME TAXES 417,493 (926,436) 160,952 ------------ ------------ ------------ EQUITY IN NET INCOME (LOSS) OF AFFILIATE 51,739 (743,041) (349,142) ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES 469,232 (1,669,477) (188,190) PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense (26,526 183,329 (39,571) ------------ ------------ ------------ NET INCOME (LOSS) 495,758 (1,852,806) (148,619) Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available-for-sale securities 23,167 806 81,441 ------------ ------------ ------------ COMPREHENSIVE INCOME (LOSS) $ 518,925 $ (1,852,000) $ (67,178) ============ ============ ============ BASIC AND DILUTED NET INCOME (LOSS) PER SHARE: $ 0.07 $ (0.28) $ (0.02) ============ ============ ============ The accompanying notes are an integral part of this statement. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 33 of 47 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ACCUMULATED COMMON COMMON ADDITIONAL OTHER STOCK STOCK PAID-IN ACCUMULATED TREASURY COMPREHENSIVE (CLASS A) (CLASS C) CAPITAL DEFICIT STOCK INCOME (LOSS) TOTAL --------- --------- ------------ ----------- --------- ------------- ----------- Balance at June 30, 1997 (6,277,074 shares of Class A; 562,200 shares of Class C) $ 311,354 $ 28,110 $ 10,587,909 ($2,289,011) ($514,770) ($157,185) $ 7,966,407 Purchase of 29,525 shares of Common Stock (Class A) -- -- -- -- (67,856) -- (67,856) Reissuance of 32,972 shares of Common Stock (Class A) -- -- (8,271) -- 106,337 -- 98,066 Exercise of 7,000 Stock Options 350 -- 12,070 -- -- -- 12,420 Conversion of 63,370 shares of Common stock (Class C) to Common Stock (Class A)3,268 (3,268) -- -- -- -- -- -- Unrealized gain (loss) on securities available-for-sale (net of tax) -- -- -- -- -- 152,544 152,544 Equity in unrealized gain (loss) on available-for-sale securities of affiliated company (net of tax) -- -- -- -- -- (71,103) (71,103) Net Loss -- -- -- (148,619) -- -- (148,619) --------- -------- ------------ ----------- --------- --------- ----------- Balance at June 30, 1998 (6,299,444 shares of Class A; 496,830 shares of Class C) 314,972 24,842 10,591,708 (2,437,630) (476,289) (75,744) 7,941,859 Purchase of 133,685 shares of Common Stock (Class A) -- -- -- -- (230,113) -- (230,113) Reissuance of 28,892 shares of Common Stock (Class A) -- -- (5,080) -- 57,572 -- 52,492 Conversion of 30 shares of Common stock (Class C) to Common Stock (Class A) 2 (2) -- -- -- -- -- Unrealized gain (loss) on securities available-for-sale (net of tax) -- -- -- -- -- 806 806 Net Loss -- -- -- (1,852,806) -- -- (1,852,806) --------- -------- ------------ ----------- --------- --------- ----------- Balance at June 30, 1999 (6,299,474 shares of Class A; 496,800 shares of Class C) 314,974 24,840 10,586,628 (4,290,436) (648,830) (74,938) 5,912,238 Purchase of 25,375 shares of Common Stock (Class A) -- -- -- -- (43,862) -- (43,862) Reissuance of 31, 054 shares of Common Stock (Class A) -- -- (8,209) -- 55,394 -- 47,185 Issuance of 1,000,000 shares of Common Stock (Class C) to Frank Holmes as deferred compensation -- 50,000 (50,000) -- -- -- -- Recognition of current year portion of deferred compensation -- -- 50,000 -- -- -- 50,000 Unrealized gain (loss) on securities available-for-sale (net of tax) -- -- -- -- -- 23,167 23,167 Net Income -- -- -- 495,758 -- -- 495,758 --------- -------- ------------ ----------- --------- --------- ----------- 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 ========= ======== ============ =========== ========= ========= ===========
The accompanying notes are an integral part of this statement. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 34 of 47 CONSOLIDATED STATEMENTS OF CASH FLOW YEAR ENDED JUNE 30, -------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ CASH FLOW FROM OPERATING ACTIVITIES: Net income (loss) $ 495,758 $ (1,852,806) $ (148,619) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 395,452 492,581 457,386 Net (gain) loss on sales of securities (550,000) (238,394) 348,579 Gain on disposal of equipment (5,752) -- (1,266) (Gain) loss on changes of interest in affiliate -- (97,744) 17,146 Provision for deferred taxes (26,526) 183,329 (39,571) Changes in assets and liabilities, impacting cash from operations: Restricted investments 15,000 16,166 371,362 Accounts receivable (62,213) 913,527 172,223 Prepaid expenses and other 31,134 938,405 579,710 Trading securities 676,746 377,260 (41,271) Accounts payable and accrued expenses 286,245 118,253 (360,564) ------------ ------------ ------------ Total adjustments 760,086 2,703,383 1,503,734 ------------ ------------ ------------ NET CASH PROVIDED BY OPERATIONS 1,255,844 850,577 1,355,115 ------------ ------------ ------------ CASH FLOW FROM INVESTING ACTIVITIES: Purchase of furniture and equipment (258,644) (323,069) (469,633) Proceeds on disposal of equipment 16,792 -- 1,240 Purchase of available- for-sale securities (717,652) (97,056) (383,630) Redemption (investment) in equity affiliate 100,000 (550,000) -- Proceeds on sale of available-for-sale securities -- -- 212,830 ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (859,504) (970,125) (639,193) ------------ ------------ ------------ CASH FLOW FROM FINANCING ACTIVITIES: Payments on annuity (7,915) (7,381) (6,883) Payments on note payable to bank (60,092) (62,070) (50,762) Principal payments on capital lease obligation -- -- (8,660) Proceeds from issuance or exercise of stock, warrants, and options 47,185 52,491 87,985 Purchase of treasury stock (43,862) (230,112) (67,856) ------------ ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (64,684) (247,072) (46,176) ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 331,656 (366,620) 669,746 BEGINNING CASH AND CASH EQUIVALENTS 1,025,247 1,391,867 722,121 ------------ ------------ ------------ ENDING CASH AND CASH EQUIVALENTS $ 1,356,903 $ 1,025,247 $ 1,391,867 ============ ============ ============ SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Receipt of trading and available-for-sale securities in liqui- dation of equity investment $ 701,478 -- -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash paid for interest $ 89,653 $ 126,948 $ 122,530 The accompanying notes are an integral part of this statement. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 35 of 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1. SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION. U.S. Global Investors, Inc. (Company or U.S. Global) serves as investment adviser, investment manager, and transfer agent to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts that are no-load, open end investment companies offering shares in numerous mutual funds to the investing public. The Company has served as investment adviser and manager since the inception of USGIF and USGAF and assumed the transfer agency function of USGIF in November 1984, and of USGAF in October 1994, the commencement of operations. For these services, the Company receives fees from USGIF and USGAF. U.S. Global has also formed a company, U.S. Global Brokerage, Inc. (USGB), formerly United Services Brokerage, Inc., originally incorporated in Texas on April 24, 1994. USGB is registered as a broker/dealer with the National Association of Securities Dealers, Inc. and the appropriate state regulatory agencies so that it may provide distribution services for USGIF and USGAF mutual fund shares. The Company has also formed U.S. Global Administrators, Inc. (USGA), incorporated in Texas on October 23, 1998, to provide qualified plan administration services for existing clients. Another wholly owned subsidiary, Security Trust & Financial Company (STFC), serves as custodian for retirement accounts invested in USGIF, USGAF, and other mutual funds. The Company has 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. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, United Shareholder Services, Inc. (USSI), STFC, A&B Mailers, Inc. (A&B), USGG, USGB, and USGA. All significant intercompany balances and transactions have been eliminated in consolidation. Certain amounts have been reclassified for comparative purposes. ACCOUNTING FOR EQUITY INVESTMENTS. Prior to the liquidation of the U.S. Global Strategies Fund (Guernsey Fund) in fiscal year 2000, the Company accounted for its investment in the Guernsey Fund under the equity method. CASH AND CASH EQUIVALENTS. Cash consists of cash on hand and cash equivalents with original maturities of three months or less. SECURITY INVESTMENTS. The Company accounts for its investments in securities in accordance with Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115). In accordance with SFAS 115, the Company classifies its investments in equity and debt securities based on intent. Management determines the appropriate classification of securities at the time of purchase and reevaluates such designation as of each reporting period date. Securities that are purchased and held principally for the purpose of selling 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 not classified 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 and reported, net of tax, as a separate component of shareholders' equity and are recorded in earnings on trade date. The Company values its investments using third-party quoted prices. For securities that have no quoted price or for which the Company owns a significant portion of shares relative to trading volume, management estimates the fair value of these securities. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 36 of 47 Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis and are recorded in earnings on trade date. For those securities with declines in fair value, which are considered other than temporary, the cost basis of the security is written down as a new cost basis, and the amount of the write down is included in earnings. FIXED ASSETS. 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: building improvements, furniture and equipment are depreciated over 3 years and the building is depreciated over 31.5 years. 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. Investment advisory fees, transfer agency fees, accounting fees, custodian fees and all other fees earned by the Company are recorded as income during the period in which services are performed. ADVERTISING. The Company expenses advertising and sales promotion costs as they are incurred. Total advertising and sales promotion expenditures were approximately $575,000, $741,000, and $820,000 in 2000, 1999, and 1998, 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. ACCOUNTING PRONOUNCEMENTS. In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS 133 (an amendment to SFAS 133)" was issued, which delayed the required adoption fo SFAS No. 133 by one year. In 2000, the FASB issued SFAS No. 138, "Accounting for Derivative Instruments and Hedging Activities," which addresses certain implementation issues related to SFAS No. 133. The Company adopted SFAS No. 133 on July 1, 2000 as required, and the adoption had no impact on the financial position or earnings of the Company as the Company did not have any off-balance sheet derivatives. In 2000, the FASB issued FASB Interpretation No. 44, "Accounting for Certain Transactions involving Stock Compensation, an interpretation of APB Opinion No. 25." This interpretation has been adopted by the Company, and there has been no impact on the financial position or earnings of the Company as a result of this adoption. NOTE 2. INVESTMENTS The following table summarizes investment activity over the last three fiscal years: YEAR ENDED JUNE 30 ------------------------------------- 2000 1999 1998 ---------- ---------- ----------- Realized gains (losses) on sale of securities $ 550,000 $ 238,394 $ (349,579) Trading securities, at cost 1,832,282 1,197,233 1,173,011 Trading securities, at fair value 1,424,120 884,837 901,647 Net change in unrealized losses on trading securities (included in earnings) 95,974 41,251 220,468 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 37 of 47 Available-for-sale securities, at cost 1,237,483 484,382 509,382 Available-for-sale securities, at fair value 1,159,042 370,840 472,240 Unrealized loss recorded in shareholders' equity (Net of tax) 51,771 74,938 24,514 Unrealized gains on available- for-sale securities reclas- sified as trading securities during fiscal year -- 344,394 103,205 During fiscal year 1998, the Company reduced the carrying value of investments held as available-for-sale by approximately $350,000 for certain investments with declines in fair value that were considered other than temporary. NOTE 3. INVESTMENT MANAGEMENT, TRANSFER AGENT AND OTHER FEES The Company serves as investment adviser to USGIF, USGAF and the Guernsey Fund and receives a fee based on a specified percentage of net assets under management. The Company also serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder accounts. The Company also provides in-house legal services to USGIF and USGAF. During the second quarter of fiscal year 1998, the Company outsourced the bookkeeping and accounting functions performed by USSI. 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: STFC custodian revenues, USGA administrative fee revenues, revenues from miscellaneous transfer agency activities including lockbox and printing functions, A&B mailroom operations, 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 and USGAF through June 30, 2001, or such later date as the Company determines. The aggregate amount of fees waived and expenses borne by the Company were $2,125,773, $3,052,054, and $3,484,595 in 2000, 1999, and 1998, respectively. The investment advisory contract and related contracts between the Company and USGIF expire in February 8, 2001, and the contracts between the Company and USGAF expire in March 8, 2001. Management anticipates the trustees of both USGIF and USGAF will renew the contracts. NOTE 4. PROPERTY AND EQUIPMENT Property and equipment are composed of the following: JUNE 30, ------------------------------ 2000 1999 ------------ ------------ Furniture and equipment $ 5,600,773 $ 5,350,812 Building and land 2,203,757 2,203,757 Building improvements 189,156 186,549 ------------ ------------ 7,993,686 7,741,118 Accumulated depreciation and amortization (5,714,942) (5,314,526) ------------ ------------ Net property and equipment $ 2,278,744 $ 2,426,592 ============ ============ The building and land are pledged as collateral for the financing used to acquire the building. NOTE 5. 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, 2000, the balance on the note was $1,127,464. The loan is currently amortizing over a twenty-year period with payments of both principal and interest due monthly based on a floating rate of Bank One Texas Prime U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 38 of 47 plus 0.25%. The current monthly payment is $11,750, and the note matures on July 1, 2001. Under this agreement, the Company must maintain certain financial covenants. The company is in full compliance with its financial covenants at June 30, 2000. Additionally, the Company believes it has adequate cash, cash equivalents, and equity in the underlying asset to retire the obligation if necessary. The Company also carries a small note on a vehicle, which will mature in fiscal year 2001. Future principal payments to be made over the next five years based on the notes payable outstanding at June 30, 2000, are as follows: FISCAL YEAR AMOUNT ----------- ---------- 2001 $ 68,257 2002 1,066,705 Thereafter -- ---------- Total $1,134,962 ========== NOTE 6. 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 non-compete/non-interference 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 amounted to $240,000 at June 30, 2000. NOTE 7. BENEFIT PLANS The Company has a contributory profit sharing plan in which all qualified employees who have completed one year of employment as of June 30 with the Company are included. The amount of the annual contribution, which may not exceed 15% of earnings before income taxes, is approved by the Company's board of directors. The Company has neither accrued nor paid a contribution for the fiscal years 2000, 1999, and 1998. The Company also has a savings and investment plan qualified under Section 401(k) of the Internal Revenue Code. In connection with this 401(k) Plan, participants can voluntarily contribute up to 15% of their compensation to this plan, and the Company will match 50% of their contribution up to a match of 2%. The Company has recorded expense related to the 401(k) plan of $48,743; $38,674; and $45,143 for fiscal years 2000, 1999, and 1998, respectively. 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, 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. Beginning in fiscal year 1997, a similar savings plan utilizing UGMA accounts has been offered to employees to save for their children's education. The Company match, reflected in base salary expense, aggregated in all programs to $53,417; $57,317; and $61,102 in fiscal years 2000, 1999, and 1998, 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. U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 39 of 47 NOTE 8. SHAREHOLDERS' EQUITY 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 may be 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. Since adoption of the 1985 plan, options have been granted at prices ranging from $1.50 to $4.50 per share, which equaled or exceeded the fair market value at date of grant. As of June 30, 2000, options covering 88,000 shares have been exercised, and options covering 110,500 shares have expired. The 1985 plan expired December 31, 1994; as a consequence, there will be no further option grants under the 1985 plan. 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. During fiscal year 2000, options covering 22,000 shares were granted at an exercise price of $1.50 per share. 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. As of June 30, 2000, options covering 393,000 shares have been exercised under this plan, and options covering 265,900 shares have expired. 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. During fiscal year 1999, options covering 20,000 shares were granted at an exercise price of $1.56 per share. During fiscal year 2000, options covering 72,000 shares were granted at an exercise price of $1.50 per share. As of June 30, 2000, options covering 6,000 shares have been exercised under this plan, and options covering 75,500 shares have expired. 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. On a per share basis, the holders of the class C common stock and the non-voting 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. Certain class C common stock is exchangeable on a one-for-one basis for class A stock. Stock option transactions under the various stock option plans are summarized below: WEIGHTED AVERAGE ------------------------ EXERCISE SHARES PRICE --------- -------- Outstanding June 30, 1997 1,058,800 $ 2.53 --------- -------- Granted -- -- Canceled 80,200 $ 3.96 Exercised 7,000 $ 1.94 --------- -------- U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 40 of 47 Outstanding June 30, 1998 971,600 $ 2.41 Granted 20,000 $ 1.56 Canceled 38,800 $ 2.48 Exercised -- -- --------- -------- Outstanding June 30, 1999 952,800 $ 2.40 --------- -------- Granted 94,000 $ 1.50 Canceled 666,000 $ 2.40 Exercised -- -- --------- -------- Outstanding June 30, 2000 380,800 $ 2.16 ========= As of June 30, 2000, 1999, and 1998, exercisable stock options totaled 295,700, 948,020, and 958,580 shares and had weighted average exercise prices of $2.35, $2.39, and $2.41 per share, respectively. The Company applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations in accounting for its stock option plans as allowed under Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123). Accordingly, the Company has not recognized compensation expense for its stock options granted subsequent to December 15, 1994, the effective date of the Statement. Had compensation expense for the Company's stock options granted after issuance of SFAS 123 been determined based on the fair value at the grant dates consistent with the methodology of SFAS 123, such compensation expense, net of tax benefit, would have been $1,227, $13,121, and $2,567 in fiscal years 2000, 1999, and 1998, respectively, and the pro forma net income and income per share would have been as follows: FISCAL YEAR ENDED JUNE 30, ------------------------------------- 2000 1999 1998 ---------- ----------- ----------- Pro forma net income (loss) $ 494,531 ($1,865,927) ($ 151,186) Pro forma income per share: Basic and diluted $ 0.07 ($ 0.28) ($ 0.02) The weighted average fair value of options granted during the fiscal years ended June 30, 2000 and 1999, was $0.81 and $0.85, respectively. Because SFAS 123 is applicable only to options granted in fiscal years beginning subsequently to December 15, 1994, its pro forma effect will not be fully reflected until fiscal 2001 due to vesting requirements. 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 with the following weighted-average assumptions: FISCAL YEAR ENDED JUNE 30, --------------------------------------------- 2000 1999 1998 ------------- ------------- ------------- Expected volatility 0.42 - 0.55 0.42 - 0.55 0.50 - 0.55 Expected dividend yield -- -- -- Expected life (term) 8 Years 8 Years 8 Years Risk-free interest rate 4.41% - 6.16% 4.41% - 5.53% 5.07% - 5.53% Class A and class C common stock options outstanding and exercisable at June 30, 2000, were as follows: U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 41 of 47
OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------------------------ ---------------------- WEIGHTED WEIGHTED WEIGHTED DATE OF AVERAGE AVERAGE AVERAGE OPTION OPTION NUMBER REMAINING OPTION NUMBER OPTION GRANT PRICE OUTSTANDING LIFE IN YEARS PRICE EXERCISABLE PRICE -------- ------ ----------- ------------- -------- ----------- -------- 1985 Plan 12/15/94 $ 2.63 4,000 4.45 $ 2.63 4,000 $ 2.63 Class A 1989 Plan 12/06/91 $ 2.63 148,300 1.43 $ 2.63 148,300 $ 2.63 Class A 05/16/94 $ 4.75 2,000 3.87 $ 4.75 2,000 $ 4.75 09/05/95 $ 2.63 5,000 5.18 $ 2.63 4,000 $ 2.63 11/07/95 $ 2.19 500 5.35 $ 2.19 400 $ 2.19 05/24/96 $ 3.06 10,000 5.90 $ 3.06 10,000 $ 3.06 06/04/97 $ 2.00 30,000 6.93 $ 2.00 30,000 $ 2.00 12/03/99 $ 1.50 22,000 9.42 $ 1.50 -- $ 1.50 ------ ------- ---- ------ ------- ------ $1.50 - $4.75 217,800 2.36 $ 2.46 194,700 $ 2.57 1997 Plan 06/04/97 $1.82 37,000 6.93 $ 1.82 37,000 $ 1.82 Class A 06/04/97 $2.00 50,000 6.93 $ 2.00 50,000 $ 2.00 12/09/98 $1.56 10,000 8.44 $ 1.56 10,000 $ 1.56 12/03/99 $1.50 62,000 9.42 $ 1.50 -- $ 1.50 ------ ------- ---- ------ ------- ------ $1.56 - $2.00 159,000 7.46 $ 1.74 97,000 $ 1.89 All Plans 12/91 thru 12/99 $1.50 - $4.75 380,800 4.51 $2.16 295,700 $ 2.35 ============= ======= ==== ===== ======= ======
During the fiscal years ended June 30, 2000, and June 30, 1999, the Company purchased 25,375 and 133,685 shares of its class A common stock at an average price of $1.73 and $1.72 per share, respectively. NOTE 9. INCOME TAXES The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is: YEAR ENDED JUNE 30, ------------------------------------- 2000 1999 1998 ---------- ---------- ----------- Tax expense (benefit) at statutory rate $ 159,539 $ (563,373) $ (63,984) Non-deductible membership dues 11,379 12,238 11,880 Non-deductible meals and entertainment 27,813 35,194 31,401 Valuation allowance (258,095) 886,891 (31,986) Other 32,838 (187,621) 13,118 ---------- ---------- ----------- $ (26,526) $ 183,329 $ (39,571) ========== ========== =========== 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 are as follows: YEAR ENDED JUNE 30, ----------- ----------- 2000 1999 ----------- ----------- Book/tax differences in the balance sheet: Trading securities $ 138,775 $ 106,214 Accumulated depreciation 147,941 148,169 Accrued expenses 76,301 35,335 Available-for-sale securities 26,670 38,604 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 42 of 47 Reduction in cost basis of AFS securities 177,466 177,466 Annuity obligations 47,513 50,204 Affiliated investment 17,591 217,542 ----------- ----------- 632,257 773,534 Tax carryovers: Net operating loss (NOL) carryover 479,095 886,891 Charitable contributions carryover 65,748 130,879 Investment tax credit 34,472 34,472 Alternative minimum tax credits 132,128 115,228 ----------- ----------- 711,443 1,167,470 ----------- ----------- Total gross deferred tax asset 1,343,700 1,941,004 ----------- ----------- Unrealized gain (loss) on available-for-sale securit (26,670) (38,604) ----------- ----------- Total gross deferred tax liability (26,670) (38,604) ----------- ----------- Deferred tax asset 1,317,030 1,902,400 Valuation allowance (292,567) (921,363) ----------- ----------- Net deferred tax asset $ 1,024,463 $ 981,037 =========== =========== For federal income tax purposes at June 30, 2000, the Company has NOLs of approximately $1.4 million which will begin expiring in fiscal 2007 and 2010, charitable contribution carryovers of approximately $193,000 expiring between 2000 and 2001, and alternative minimum tax credits of $132,128 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. 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 $292,567 and $921,363 at June 30, 2000 and 1999, respectively, providing for the utilization of NOLs, charitable contributions and investment tax credits against future taxable income. NOTE 10. EARNINGS PER SHARE The following table sets forth the computation for basic and diluted earnings per share (EPS): YEAR ENDED JUNE 30, -------------------------------------- 2000 1999 1998 ---------- ----------- ----------- Basic and diluted net income (loss) $ 495,758 $(1,852,806) $ (148,619) Weighted average number of outstanding shares: Basic 7,408,821 6,562,140 6,617,153 Effect of dilutive securities: Employee stock options 2,278 1,704 52,210 ---------- ---------- ----------- Diluted 7,411,099 6,563,844 6,669,363 ========== ========== =========== Earnings (loss) per share: Basic $ 0.07 $ (0.28) $ (0.02) ========== ========== =========== Diluted $ 0.07 $ (0.28) $ (0.02) ========== ========== =========== 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, 2000, 1999, and 1998, options for 296,800, 910,800, and 650,400 shares, respectively, were excluded from diluted EPS. Additionally, for the years ended June 30, 1999 and 1998, there were 586,122 warrants outstanding which had no dilutive effect and were excluded from diluted EPS. NOTE 11. COMPREHENSIVE INCOME Effective December 31, 1998, the Company adopted Statement No. 130, Reporting Comprehensive Income (SFAS 130). SFAS 130 established standards for reporting and display of comprehensive income and its components (revenues, expenses, gains and losses) in a full set of general-purpose financial statements. The Company has disclosed U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 43 of 47 the components of comprehensive income in the consolidated statements of operations and comprehensive income and has reclassified a prior period to conform with the requirements. TAX BEFORE-TAX (EXPENSE) NET-OF-TAX AMOUNT OR BENEFIT AMOUNT --------- --------- --------- JUNE 30, 2000: Unrealized gains (losses) on available-for-sale securities $ 35,101 $ (11,934) $ 23,167 Less: reclassification adjustment for gains in net income -- -- -- --------- --------- --------- Other comprehensive income (loss) $ 35,101 $ (11,934) $ 23,167 ========= ========= ========= JUNE 30, 1999: Unrealized gains (losses) on available-for-sale securities $(333,172) $ 113,278 $(219,894) Less: reclassification adjustment for gains in net income 334,394 (113,694) 220,700 --------- --------- --------- Other comprehensive income (loss) $ 1,222 $ (416) $ 806 ========= ========= ========= JUNE 30, 1998: Unrealized gains (losses) on available-for-sale securities $ 20,191 $ (6,865) $ 13,326 Less: reclassification adjustment for gains in net income 103,205 35,090) 68,115 --------- --------- --------- Other comprehensive income (loss) $ 123,396 $ (41,955) $ 81,441 ========= ========= ========= NOTE 12. 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 MANAGEMENT CORPORATE SERVICES INVESTMENT CONSOLIDATED ----------- ---------- ----------- YEAR ENDED JUNE 30, 2000: Net revenues $10,458,738 $ 454,026 $10,912,764 Income (loss) before income taxes and equity interest $ (36,533) $ 454,026 $ 417,493 Equity in net loss of affiliate -- 51,739 51,739 ----------- ---------- ----------- Net income (loss) before income taxes $ (36,533) $ 505,765 $ 469,232 =========== ========== =========== Depreciation and amortization $ 395,452 $ -- $ 395,452 =========== ========== =========== Interest expense $ 111,757 $ 896 $ 112,653 =========== ========== =========== Capital expenditures $ 247,421 $ -- $ 247,421 =========== ========== =========== Gross identifiable assets at June 30, 2000 $6,700,188 $1,315,532 $ 8,015,720 Deferred tax asset $1,051,133 Accumulated other comprehensive loss $ 51,771 Consolidated total assets at June 30, 2000 $9,118,624 U.S. Global Investors, Inc. Annual Report on Form 10-K 2000 Page 44 of 47 YEAR ENDED JUNE 30, 1999: Net revenues $9,542,037 $ 197,143 $ 9,739,180 =========== ========== =========== Income (loss) before income taxes and equity interest $(1,123,579) $ 197,143 $ (926,436) Equity in net loss of affiliate -- (743,041) (743,041) ----------- ---------- ----------- Net income (loss) before income taxes $(1,123,579) $ (545,898) $(1,669,477) =========== ========== =========== Depreciation and amortization $ 492,568 $ 13 $ 492,581 =========== ========== =========== Interest expense $ 126,898 $ 50 $ 126,948 =========== ========== =========== Capital expenditures $ 323,069 $ -- $ 323,069 =========== ========== =========== Gross identifiable assets at June 30, 1999 $5,283,452 $1,950,106 $ 7,233,558 Deferred tax asset 1,019,642 Accumulated other compre- hensive loss 74,938 ----------- Consolidated total assets at June 30, 1999 $8,328,138 =========== YEAR ENDED JUNE 30, 1998: Net revenues $10,764,522 $ (569,173) $10,195,349 =========== ========== =========== Income (loss) before income taxes and equity interest $ 730,125 $ (569,173) $ 160,952 Equity in net loss of affiliate -- (349,142) (349,142) ----------- ---------- ----------- Net income (loss) before income taxes $ 730,125 $ (918,315) $ (188,190) =========== ========== =========== Depreciation and amortization $ 457,224 $ 162 $ 457,386 =========== ========== =========== Interest expense $ 122,530 $ -- $ 122,530 =========== ========== =========== Capital expenditures $ 469,633 $ -- $ 469,633 =========== ========== =========== Gross identifiable assets at June 30, 1998 $6,848,706 $2,181,121 $ 9,029,827 Deferred tax asset 1,203,386 Accumulated other comprehensive loss 75,744 ----------- Consolidated total assets at June 30, 1998 $10,308,957 =========== NOTE 13. RELATED PARTY TRANSACTIONS In addition to the Company's receivable from USGIF and USGAF relating to investment management, transfer agency and other fees, the Company had $1,280,768 and $892,778 invested in USGIF money market mutual funds at June 30, 2000 and 1999, respectively. Receivables from mutual funds represent amounts due the Company, and its wholly owned subsidiaries, for investment advisory fees, transfer agent fees, and exchange fees, net of amounts payable to the mutual funds. During fiscal year 1998, the Company purchased 4,379 shares for $200,000 of Xtra Music Limited, of which Jerold H. Rubinstein, a director of the Company, has controlling interest. Additionally, during fiscal year 1998, the Company paid Bobby D. Duncan, a former director of the Company, approximately $60,000 in consulting fees. Frank Holmes, a director and CEO of the Company, has served as a director of Franc-Or Resources beginning in June 2000. The Company owns a position in Franc-Or Resources with an estimated fair market value of $173,000. NOTE 14. CONTINGENCIES Subsequent to year end, the Company became aware of a potential sum it will owe to USGIF in fiscal year 2001. In prior years, USGIF incurred losses of approximately $150,000, primarily due to forged signatures. Management has consulted with its insurance carrier and internal legal counsel and believes that it is probable that this claim will be honored under its insurance policy. The deductible on this policy is $25,000. Management believes that, as such, the Company's loss would be limited to this amount. As a result, the Company has accrued $25,000 during fiscal year 2000. EX-21 5 0005.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21-- SUBSIDIARIES OF THE COMPANY, JURISDICTION OF INCORPORATION, AND PERCENTAGE OF OWNERSHIP 1. United Shareholder Services, Inc. - incorporated in Texas and wholly owned by the Company 2. A & B Mailers, Inc. - incorporated in Texas and wholly owned by the Company 3. Securities Trust and Financial Company - incorporated in Texas and wholly owned by the Company 4. U.S. Advisors (Guernsey) Limited - incorporated in Guernsey, Channel Islands and wholly owned by the Company 5. U.S. Global Brokerage, Inc. - incorporated in Texas and wholly owned by the Company 6. U.S. Global Administrators, Inc. - incorporated in Texas and wholly owned by the Company EX-23.1 6 0006.txt CONSENT OF ERNST & YOUNG LLP CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 33-33012) pertaining to the 1989 Non-Qualified Stock Option Plan and the 1985 Incentive Stock Option Plan and (Form S-8 No. 333-25699) pertaining to the 1997 Non-Qualified Stock Option Plan of our report dated September 22, 2000, with respect to the consolidated financial statements of U.S. Global Investors, Inc. and Subsidiaries incorporated by reference in the Annual Report (Form 10-K) for the year ended June 30, 2000. /s/ Ernst & Young LLP San Antonio, Texas September 22, 2000 EX-23.2 7 0007.txt CONSENT OF PRICEWATERHOUSECOOPERS LLP We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 33-33012 and No. 333-25699) of U.S. Global Investors, Inc. of our report dated September 28, 1998, appearing in the ANNUAL REPORT TO SHAREHOLDERS which is incorporated in this Annual Report on Form 10-K. /s/ PricewaterhouseCoopers PricewaterhouseCoopers PO Box 321 National Westminister House Le Truchot St Peter Port Guernsey GY1 4ND September 28, 2000 EX-27 8 0008.txt FDS -- ANNUAL REPORT ON FORM 10-K
5 This financial data schedule contains summary financial information extracted from the consolidated financial statements found in Part IV, Item 14, of the U.S. Global Investors, Inc. Annual Report on Form 10-K for the fiscal year ended June 30, 2000, and is qualified in its entirety by reference to such financial statements YEAR JUN-30-2000 JUL-01-1999 JUN-30-2000 1,356,903 2,583,162 1,227,357 0 0 4,574,186 7,993,686 (5,714,942) 9,118,624 1,436,177 0 0 0 389,814 6,094,672 9,118,624 10,480,013 10,912,764 0 10,495,271 10,382,618 0 112,653 469,232 (26,526) 495,758 0 0 0 495,758 0.07 0.07
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