INVESTMENTS

As of June 30, 2014, the Company held investments with a fair value of $24.0 million and a cost basis of $22.9 million. The market value of these investments is approximately 63.4 percent of the Company’s total assets. In addition, the Company held other investments of $1.4 million.

Investments in securities classified as trading are reflected as current assets on the Consolidated Balance Sheets at their fair market value. Unrealized gains and losses on trading securities are included in earnings in the Consolidated Statements of Operations.

Investments in securities classified as available-for-sale, which may not be readily marketable but have readily determinable fair values, are reflected as non-current assets on the Consolidated Balance Sheets at their fair value. Unrealized gains and losses on available-for-sale securities are excluded from earnings and reported in other comprehensive income (loss) as a separate component of shareholders’ equity until realized.

Other investments consist of equity investments in entities over which the Company is unable to exercise significant influence and which do not have readily determinable fair values. These equity investments are accounted for under the cost method of accounting and evaluated for impairment. The Company considers many factors in determining impairment, including the severity and duration of the decline in value below cost, the Company’s interest and ability to hold the security for a period of time sufficient for an anticipated recovery in value, and the financial condition and specific events related to the issuer. When an impairment of an equity security is determined to be other-than-temporary, the impairment is recognized in earnings.

In December 2013, the shareholders of the U.S. Government Securities Savings Fund approved a proposal resulting in the conversion of the fund from a money market fund to a U.S. Government ultra-short bond fund that is not a money market fund. The fund was renamed U.S. Government Securities Ultra-Short Bond Fund (“Government Fund”). Prior to the conversion, while the fund was a money market fund, the amount held in the fund was classified as a cash equivalent. After the conversion, the amount held in the fund is classified as a Level 1 trading mutual fund investment. The amount held in the fund by the Company as of the conversion date was $14.1 million.

The following details the components of the Company’s investments recorded at fair value as of June 30, 2014, and 2013:



	June 30, 2014
(dollars in thousands)	Cost		Gains		(Losses)			Fair Value
Trading securities ¹
Offshore fund	$	1,184	$	—	$	(186	)	$	998
Mutual funds - Fixed income	16,241		92		—			16,333
Mutual funds - Domestic equity	535		—		(76		)	459
Other	107		—		(80		)	27
Total trading securities	$	18,067	$	92	$	(342	)	$	17,817

Available-for-sale securities ²
Common stock - Domestic	$	535	$	586	$	(3	)	$	1,118
Common stock - International	607		802		—			1,409
Corporate debt	1,706		—		(74		)	1,632
Mutual funds - Fixed income	1,228		21		(2		)	1,247
Mutual funds - Domestic equity	543		7		—			550
Other	232		9		(1		)	240
Total available-for-sale securities ³	$	4,851	$	1,425	$	(80	)	$	6,196



	June 30, 2013
(dollars in thousands)	Cost		Gains		(Losses)			Fair Value
Trading securities ¹
Offshore fund	$	1,184	$	—	$	(398	)	$	786
Mutual funds - International equity	516		—		(156		)	360
Mutual funds - Fixed income	3,116		75		—			3,191
Mutual funds - Domestic equity	535		—		(136		)	399
Other	107		—		(85		)	22
Total trading securities	$	5,458	$	75	$	(775	)	$	4,758

Available-for-sale securities ²
Common stock - Domestic	$	266	$	313	$	—		$	579
Common stock - International	604		216		(5		)	815
Offshore fund	5,000		—		(288		)	4,712
Mutual funds - Fixed income	1,000		4		—			1,004
Mutual funds - Domestic equity	1,010		756		—			1,766
Other	185		—		(8		)	177
Total available-for-sale securities ³	$	8,065	$	1,289	$	(301	)	$	9,053


¹	Unrealized and realized gains and losses on trading securities are included in earnings in the statement of operations.


²	Unrealized gains and losses on available-for-sale securities are excluded from earnings and recorded in other comprehensive income (loss) as a separate component of shareholders’ equity until realized.


³	Net unrealized gains on available-for-sale securities gross and net of tax as of June 30, 2014, are $1,345 and $888, respectively, and as of June 30, 2013, are $988 and $652, respectively.

The following summarizes investment income (loss) reflected in earnings for the periods presented:



(dollars in thousands)	Year Ended June 30,
Investment Income (Loss)	2014			2013			2012
Realized losses on sales of trading securities	$	(163	)	$	(245	)	$	(2	)
Realized gains on sales of available-for-sale securities	1,044			266			179
Unrealized gains (losses) on trading securities	450			45			(485		)
Realized gain on Galileo acquisition	290			—			—
Realized foreign currency gains (losses)	1			1			(2		)
Other-than-temporary declines in available-for-sale securities	(3		)	(47		)	(19		)
Dividend and interest income	526			188			152
Total Investment Income (Loss)	$	2,145		$	208		$	(177	)

Unrealized Losses

The following tables show the gross unrealized losses and fair values of available-for-sale investment securities with unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:



	June 30, 2014
	Less Than 12 Months					12 Months or Greater					Total
(dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available-for-sale securities
Common stock - Domestic	$	125	$	(3	)	$	—	$	—		$	125	$	(3	)
Corporate debt	1,382		(74		)	—		—			1,382		(74		)
Mutual funds - Fixed income	151		(2		)	—		—			151		(2		)
Other	118		(1		)	—		—			118		(1		)
Total available-for-sale securities	$	1,776	$	(80	)	$	—	$	—		$	1,776	$	(80	)

	June 30, 2013
	Less Than 12 Months					12 Months or Greater					Total
(dollars in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available-for-sale securities
Common stock - International	$	95	$	(5	)	$	—	$	—		$	95	$	(5	)
Offshore fund	—		—			4,712		(288		)	4,712		(288		)
Other	166		(8		)	—		—			166		(8		)
Total available-for-sale securities	$	261	$	(13	)	$	4,712	$	(288	)	$	4,973	$	(301	)

Many of the investments included above are early-stage or start-up businesses whose fair values fluctuate.

Fair Value Hierarchy

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. Additionally, companies are required to provide enhanced disclosures regarding instruments in the Level 3 category (which have inputs to the valuation techniques that are unobservable and require significant management judgment), including a reconciliation of the beginning and ending values separately for each major category of assets or liabilities.

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 periodically reviews the fair value provided by the pricing service using information such as transactions in these investments, broker quotes, market transactions in comparable investments, general market conditions and the issuer’s financial condition. Debt securities that are not valued by an independent pricing service are valued based on review of similarly structured issuances in similar jurisdictions when possible. The Company also takes into consideration numerous other factors that could affect valuation such as overall market conditions, liquidity of the security and bond structure. 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 each balance sheet date, for the major categories of U.S. Global’s investments measured at fair value on a recurring basis:



	June 30, 2014
	Fair Value Measurement using
(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading securities
Offshore fund	$	—	$	998	$	—	$	998
Mutual funds - Fixed income	16,333		—		—		16,333
Mutual funds - Domestic equity	459		—		—		459
Other	27		—		—		27
Total trading securities	16,819		998		—		17,817

Available-for-sale securities
Common stock - Domestic	1,118		—		—		1,118
Common stock - International	1,406		3		—		1,409
Corporate debt	292		1,090		250		1,632
Mutual funds - Fixed income	1,247		—		—		1,247
Mutual funds - Domestic equity	550		—		—		550
Other	240		—		—		240
Total available-for-sale securities	4,853		1,093		250		6,196

Total	$	21,672	$	2,091	$	250	$	24,013

	June 30, 2013
	Fair Value Measurement using
(dollars in thousands)	Quoted Prices (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading securities
Offshore fund	$	—	$	786	$	—	$	786
Mutual funds - International equity	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	$	8,055	$	5,498	$	258	$	13,811

As of June 30, 2014, approximately 90 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; nine percent are derived from Level 2 inputs, including investments in offshore funds; 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 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 $998,000 and $786,000 as of June 30, 2014, and 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, classified as available-for-sale, of $1.1 million as of June 30, 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 $4.7 million 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 June 30, 2014, the Level 3 corporate debt is valued at cost, which approximates fair value as a result of the Company’s review of similarly structured issuances in comparable jurisdictions.

At March 31, 2014, approximately $385,000 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 recorded at fair value for which unobservable inputs (Level 3) were used in determining fair value during the years ended June 30, 2014, and 2013:



	Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
	Year Ended June 30,
	2014								2013
(dollars in thousands)	Common Stock - International			Corporate Debt		Other			Common Stock - International		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 (loss)	5			—		5			—		(5		)
Purchases	—			250		160			95		—
Sales	—			—		—			—		—
Transfers into Level 3	—			—		—			—		—
Transfers out of Level 3	(100		)	—		(285		)	—		—
Ending Balance	$	—		$	250	$	—		$	95	$	163