FAIR VALUE DISCLOSURES

Accounting Standards Codification (ASC) 820, Fair Value Measurement and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy (i.e., Levels 1, 2, and 3 inputs, as defined below). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

Financial instruments measured and reported at fair value are classified and disclosed in one of the following categories:

Level 1 – Valuations based on quoted prices in active markets for identical assets or liabilities at the reporting date. Since valuations are based on quoted prices that are readily and regularly available in an active market, value of these products does not entail a significant degree of judgment.

Level 2 – Valuations based on quoted prices in markets for which not all significant inputs are observable, directly or indirectly. Corporate debt securities valued in accordance with the evaluated price supplied by an independent service are categorized as Level 2 in the hierarchy. Other securities categorized as Level 2 included securities valued at the mean between the last reported bid and ask quotation.

Level 3 – Valuations based on inputs that are unobservable and significant to the fair value measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with the investing in those securities. Because of the inherent uncertainties of valuation, the values reflected may materially differ from the values received upon actual sale of those investments.

For actively traded securities, the Company values investments using the closing price of the securities on the exchange or market on which the securities principally trade. If the security is not traded on the last business day of the quarter, it is generally valued at the mean between the last bid and ask quotation. Mutual funds, which include open- and closed-end funds, exchange-traded funds, and offshore funds, are valued at net asset value or closing price, as applicable. Certain corporate debt securities are valued by an independent pricing service using an evaluated quote based on such factors as institutional-size trading in similar groups of securities, yield, quality maturity, coupon rate, type of issuance and individual trading characteristics and other market data. As part of its independent price verification process, the Company reviews the fair value provided by the pricing service using information such as transactions in these investments, broker quotes, and market transactions in comparable investments. Other debt securities are valued based on review of similarly structured issuances in similar jurisdictions. Securities for which market quotations are not readily available are valued at their fair value as determined by the portfolio management team. The portfolio management team includes representatives from the investment, accounting and legal/compliance departments. The portfolio management team meets periodically to consider a number of factors in determining a security’s fair value, including the security’s trading volume, market values of similar class issuances, investment personnel’s judgment regarding the market experience of the issuer, financial status of the issuer, the issuer’s management, and back testing, as appropriate. The fair values may differ from what may have been used had a broader market for these securities existed. The portfolio management team reviews inputs and assumptions and reports material items to the board of directors.

Prior to March 31, 2014, the Company classified investments that were valued using the mean between the last reported bid ask quotation as Level 1 investments. The Company has determined that it is reasonable to classify these securities as Level 2 investments. This reclassification does not affect balance sheet presentation, net income or earnings per share.

The following presents fair value measurements, as of March 31, 2014 and June 30, 2013, for the three major categories of U.S. Global’s investments measured at fair value on a recurring basis:



	Fair Value Measurement using (in thousands)
	March 31, 2014
	Quoted Prices (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading securities
Offshore fund	$	—	$	874	$	—	$	874
Mutual funds - Fixed income	17,300		—		—		17,300
Mutual funds - Domestic equity	455		—		—		455
Other	17		—		—		17
Total trading securities	17,772		874		—		18,646
Available-for-sale securities
Common stock - Domestic	788		—		—		788
Common stock - International	1,355		—		—		1,355
Corporate debt	345		1,129		250		1,724
Mutual funds - Fixed income	1,481		—		—		1,481
Mutual funds - Domestic equity	658		—		—		658
Other	235		—		—		235
Total available-for-sale securities	4,862		1,129		250		6,241
Total Investments Measured at Fair Value on a Recurring Basis	$	22,634	$	2,003	$	250	$	24,887



	Fair Value Measurement using (in thousands)
	June 30, 2013
	Quoted Prices (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading securities
Offshore fund	$	—	$	786	$	—	$	786
Mutual funds - Emerging markets	360		—		—		360
Mutual funds - Fixed income	3,191		—		—		3,191
Mutual funds - Domestic equity	399		—		—		399
Other	22		—		—		22
Total trading securities	3,972		786		—		4,758
Available-for-sale securities
Common stock - Domestic	579		—		—		579
Common stock - International	720		—		95		815
Offshore fund	—		4,712		—		4,712
Mutual funds - Fixed income	1,004		—		—		1,004
Mutual funds - Domestic equity	1,766		—		—		1,766
Other	14		—		163		177
Total available-for-sale securities	4,083		4,712		258		9,053
Total Investments Measured at Fair Value on a Recurring Basis	$	8,055	$	5,498	$	258	$	13,811

As of March 31, 2014, approximately 91 percent of the Company’s financial assets measured at fair value are derived from Level 1 inputs including SEC-registered mutual funds and equity and debt securities traded on an active market, eight percent of the Company’s financial assets measured at fair value are derived from Level 2 inputs, including an investment in an offshore fund, and the remaining one percent are Level 3 inputs. As of June 30, 2013, approximately 58 percent of the Company’s financial assets measured at fair value are derived from Level 1 inputs including SEC-registered mutual funds and equity securities traded on an active market, 40 percent of the Company’s financial assets measured at fair value are derived from Level 2 inputs, including investments in offshore funds, and the remaining two percent are Level 3 inputs. The Company recognizes transfers between levels at the end of each quarter.

In Level 2, the Company has an investment in an affiliated offshore fund, classified as trading, with a fair value of $874,300 and $785,990 as of March 31, 2014 and June 30, 2013, respectively, based on the net asset value per share, which invests in companies in the energy and natural resources sectors. The Company may redeem this investment on the first business day of each month after providing a redemption notice at least forty-five days prior to the proposed redemption date.

In addition, the Company has investments in corporate debt securities of $1,128,640 as of March 31, 2014 categorized as Level 2 which the Company valued in accordance with the evaluated price supplied by an independent service.

The Company also had a Level 2 investment in an affiliated offshore fund, with a fair value of $4,712,205 as of June 30, 2013, classified as available-for-sale, which invested in dividend-paying equity and debt securities of companies located around the world. The fund liquidated in November 2013, and the Company received the fund’s underlying investments as a non-taxable redemption-in-kind.

The corporate debt in Level 3 is valued based on review of similarly structured issuances in similar jurisdictions. At March 31, 2014, the Level 3 corporate debt is valued at cost, which approximates fair value as a result of the Company’s review of similar structured issuances in similar jurisdictions.

At March 31, 2014, approximately $385,439 in investments in private and venture capital securities were transferred out of available-for-sale Level 3 assets and classified as other investments.

The following table is a reconciliation of investments for which unobservable inputs (Level 3) were used in determining fair value during the period ended March 31, 2014 and March 31, 2013:



	Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis (in thousands)
	Nine Months Ended March 31,
	2014								2013
	Common Stock - International			Corporate Debt		Other			Other
Beginning Balance	$	95		$	—	$	163		$	168
Return of capital	—			—		(43		)	—
Total gains or losses (realized/unrealized)
Included in earnings (investment income)	—			—		—			—
Included in other comprehensive income	5			—		5			(5		)
Purchases	—			250		160			—
Sales	—			—		—			—
Transfers into Level 3	—			—		—			—
Transfers out of Level 3	(100		)	—		(285		)	—
Ending Balance	$	—		$	250	$	—		$	163

There was no unrealized gain or loss included in earnings that is attributable to the change in unrealized loss relating to assets held at the end of the reporting period.