UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 2001
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.
TEXAS 74-1598370 (State or other jurisdiction of (IRS Employer Identification Number) incorporation or organization) |
210-308-1234
(Telephone Number)
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 YES [X] 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.
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.
The aggregate market value of the 4,216,277 shares of nonvoting class A common stock held by nonaffiliates of the registrant on September 20, 2001 (based on the last sale price on the Nasdaq as of such date), was $4,300,603. Registrant's only voting stock is its class C common stock, par value of $0.05 per share, for which there is no active market. The aggregate value of the 104,589 shares of the class C common stock held by nonaffiliates of the registrant on September 20, 2001 (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 20, 2001, there were 6,299,474 shares of Registrant's class A common stock issued and 5,953,887 shares of Registrant's class A common stock issued and outstanding, no shares of Registrant's class B nonvoting common shares outstanding, and 1,496,800 shares of Registrant's class C common stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: NONE
TABLE OF CONTENTS
PART I OF ANNUAL REPORT ON FORM 10-K Item 1. Business........................................................1 Item 2. Properties......................................................4 Item 3. Legal Proceedings...............................................4 Item 4. Submission of Matters to a Vote of Security Holders.............4 PART II OF ANNUAL REPORT ON FORM 10-K Item 5. Market for Company's Common Equity and Related Shareholder Matters...................................................5 Item 6. Selected Financial Data.........................................6 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................7 Item 8. Financial Statements and Supplementary Data....................13 Item 9. Changes in and Disagreements With Accountants On Accounting and Financial Disclosure..................................28 PART III OF ANNUAL REPORT ON FORM 10-K Item 10. Directors and Executive Officers of the Company...............29 Item 11. Executive Compensation........................................30 Item 12. Security Ownership of Certain Beneficial Owners and Management.......................................................34 Item 13. Certain Relationships and Related Transactions................35 PART IV OF ANNUAL REPORT ON FORM 10-K Item 14. Exhibits, Financial Statement Schedules, and Reports On Form 8-K..................................................36 SIGNATURES..................................................................39 EXHIBIT 11 -- SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE.............40 EXHIBIT 21 -- SUBSIDIARIES OF THE COMPANY, JURISDICTION OF INCORPORATION, AND PERCENTAGE OF OWNERSHIP.................. .............41 |
PART I OF ANNUAL REPORT ON FORM 10-K
ITEM 1. BUSINESS
U.S. Global Investors, Inc. (Company or U.S. Global) has made forward- looking statements concerning the Company's performance, financial condition, and operations in this report. The Company from time to time may also make forward-looking statements in its public filings and press releases. Such forward-looking statements are subject to various known and unknown risks and uncertainties and do not guarantee future performance. Actual results could differ materially from those anticipated in such forward-looking statements due to a number of factors, some of which are beyond the Company's control, including (i) the volatile and competitive nature of the investment management industry, (ii) changes in domestic and foreign economic conditions, (iii) the effect of government regulation on the Company's business, and (iv) market, credit, and liquidity risks associated with the Company's investment management activities. Due to such risks, uncertainties, and other factors, the Company cautions each person receiving such forward-looking information not to place undue reliance on such statements. All such forward-looking statements are current only as of the date on which such statements were made.
This discussion reviews and analyzes the consolidated results of operations for the past three fiscal years and other factors that may affect future financial performance. This discussion should be read in conjunction with the Consolidated Financial Statements, Notes to the Consolidated Financial Statements, and Selected Financial Data.
U.S. Global, a Texas corporation organized in 1968, and its wholly owned subsidiaries are in the mutual fund management business. The Company is a registered investment adviser under the Investment Advisers Act of 1940 and is principally engaged in the business of providing investment advisory and other services, through the Company or its subsidiaries, to U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF), both Massachusetts business trusts (collectively, the Trusts or Funds). USGIF and USGAF are investment companies offering shares of nine and three mutual funds, respectively, on a no-load basis.
As part of the mutual fund management business, the Company provides: (1) investment advisory services through the Company or its subsidiaries to institutions (namely, mutual funds) and other persons; (2) transfer agency and record keeping services; (3) mailing services; and (4) distribution services, through its wholly owned broker/dealer, to mutual funds advised by the Company. The fees from investment advisory, transfer agent, and fund distribution services as well as investment income are the primary sources of the Company's revenue. Prior to June 30, 2001, the Company provided custodial and administrative services through its wholly owned trust company and administrator for IRAs and other types of retirement plans. The fees from these custodial and administrative services contributed to the Company's revenue. The Company will continue to receive the majority of the aforementioned custodial fees as it has contracted with another entity to assist with these services.
In addition to managing USGIF and USGAF, the Company is actively engaged in trading for its proprietary account. Management believes it can more effectively manage the Company's cash position by broadening the types of investments utilized in cash management and continues to believe that such activities are in the best interest of the Company. These activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients.
LINES OF BUSINESS
INVESTMENT MANAGEMENT SERVICES
INVESTMENT ADVISORY SERVICES. The Company furnishes an investment program for each of the mutual funds it manages and determines, subject to overall supervision by the boards of trustees of the funds, the funds' investments pursuant to advisory agreements (Advisory Agreements). Consistent with the investment restrictions, objectives and policies of the particular fund, the portfolio team for each fund determines what investments should be purchased, sold and held, and makes changes in the portfolio deemed to be necessary or appropriate. In the Advisory Agreements, the Company is charged with seeking the best overall terms in executing portfolio transactions and selecting brokers or dealers.
The Company also manages, supervises, and conducts certain other affairs of the funds, subject to the control of the boards of trustees. It provides office space, facilities, and certain business equipment as well as the services of executive and clerical personnel for administering the affairs of the mutual funds. U.S. Global and its affiliates compensate all personnel, officers, directors, and interested trustees of the funds if such persons are also employees of the Company or its affiliates. However, the funds are required to reimburse the Company for a portion of the compensation of the Company's employees who perform certain state and federal securities law regulatory compliance work on behalf of the funds based upon the time spent on such matters. The Company is responsible for costs associated with marketing fund shares to the extent not otherwise covered by any fund distribution plans adopted pursuant to Investment Company Act Rule 12b-1 (12b-1 Plan).
As required by the Investment Company Act of 1940, the Advisory Agreements are subject to annual renewal and are terminable upon 60-day notice. The boards of trustees of USGIF and USGAF will consider renewal of the applicable agreements in February and May 2002, respectively. Management anticipates that the Advisory Agreements will be renewed.
TRANSFER AGENT AND OTHER SERVICES. The Company's wholly owned subsidiary, United Shareholder Services, Inc. (USSI), is a transfer agent registered under the Securities Exchange Act of 1934 providing transfer agency, lockbox, and printing services to investment company clients. The transfer agency utilizes a third-party external system providing the Company's fund shareholder communication network with computer equipment and software designed to meet the operating requirements of a mutual fund transfer agency.
The transfer agency's duties encompass: (1) acting as servicing agent in connection with dividend and distribution functions; (2) performing shareholder account and administrative agent functions in connection with the issuance, transfer and redemption, or repurchase of shares; (3) maintaining such records as are necessary to document transactions in the funds' shares; (4) acting as servicing agent in connection with mailing of shareholder communications, including reports to shareholders, dividend and distribution notices, and proxy materials for shareholder meetings; and (5) investigating and answering all shareholder account inquiries.
The transfer agency agreements provide that USSI will receive, as compensation for services rendered as transfer agent, an annual fee per account, and will be reimbursed for out-of-pocket expenses. In connection with obtaining/providing administrative services to the beneficial owners of fund shares through institutions that provide such services and maintain an omnibus account with USSI, each fund pays a monthly fee based on the number of accounts or the value of the shares of the fund held in accounts at the institution, which payment shall not exceed the per account charge on an annual basis.
The transfer agency agreements with USGIF and USGAF are subject to renewal on an annual basis and are terminable upon 60-day notice. The agreements will be considered for renewal by the boards of trustees of USGIF and of USGAF in February and May 2002, 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. Through June 30, 2001, the Company has capitalized USGB with approximately $542,740 to cover the costs associated with continuing operations.
MAILING SERVICES. A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. A&B Mailers' primary customers include the Company in connection with its efforts to promote the funds and the Company's investment company clients in connection with required mailings.
TRUST COMPANY SERVICES. Security Trust & Financial Company (STFC), a wholly owned state chartered trust company, provided custodial services for IRA and other retirement plans administered by U.S. Global Administrators, Inc. until June 1, 2001. Management determined that it was in the Company's best interest to exit the 401(k) plan administration business and to voluntarily withdraw the charter of the trust company. The Company continues to collect the majority of the fees for custodial services to the IRAs for record keeping activities and has contracted with another entity to act as custodian to these accounts.
CORPORATE INVESTMENTS
INVESTMENT ACTIVITIES. In addition to mutual fund activity, the Company attempts to maximize its cash position by using a diversified venture capital approach to investing. Management invests in early-stage or start-up businesses seeking initial financing and more mature businesses in need of capital for expansion, acquisitions, management buyouts, or recapitalization.
EMPLOYEES
As of June 30, 2001, U.S. Global and its subsidiaries employed 66 full-time employees and 4 part-time employees; as of June 30, 2000, it employed 78 full-time employees and 4 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 domestically registered open-end investment companies of varying sizes and investment policies whose shares are being offered to the public worldwide. Generally, there are two types of mutual funds: "load" and "no-load." In addition, there are both load and no-load funds that have adopted 12b-1 plans authorizing the payment of distribution costs of the funds out of fund assets, such as USGAF. Load funds are typically sold through or sponsored by brokerage firms, and a sales commission is charged on the amount of the investment. No-load funds, such as the USGIF and USGAF funds, however, may be purchased directly from the particular mutual fund organization or through a distributor, and no sales commissions are charged.
In addition to competition from other mutual fund managers and investment advisers, the Company and the mutual fund industry are in competition with various investment alternatives offered by insurance companies, banks, securities dealers, and other financial institutions. Many of these institutions are able to engage in more liberal advertising than mutual funds and may offer accounts at competitive interest rates, which are insured by federally chartered corporations such as the Federal Deposit Insurance Corporation. Amendments to, and regulatory pronouncements related to, the Glass-Stegall Act, the statute that has prohibited banks from engaging in various activities, are enabling banks to compete with the Company in a variety of areas.
A number of mutual fund groups are significantly larger than the funds managed by U.S. Global, offer a greater variety of investment objectives, and have more experience and greater resources to promote the sale of investments therein. However, the Company believes it has the resources, products, and personnel to compete with these other mutual funds. Competition for sales of fund shares is influenced
by various factors, including investment objectives and performance, advertising and sales promotional efforts, distribution channels, and the types and quality of services offered to fund shareholders.
Success in the investment advisory and mutual fund share distribution businesses is substantially dependent on each fund's investment performance, the quality of services provided to shareholders, and the Company's efforts to market 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, and the investment companies it manages and administers operate under certain laws, including federal and state securities laws, governing their organization, registration, operation, legal, financial, and tax status. Among the penalties for violation of the laws and regulations applicable to the Company and its subsidiaries are fines, imprisonment, injunctions, revocation of registration, and certain additional administrative sanctions. Any determination that the Company or its management has violated applicable laws and regulations could have a material adverse effect on the business of the Company. Moreover, there is no assurance that changes to existing laws, regulations, or rulings promulgated by governmental entities having jurisdiction over the Company and the funds will not have a material adverse effect on its business.
U.S. Global is a registered investment adviser subject to regulation by the SEC pursuant to the Investment Advisers Act of 1940, the Investment Company Act of 1940, and the Securities Exchange Act of 1934 (1934 Act). USSI is also subject to regulation by the SEC under the 1934 Act. USGB is subject to regulation by the SEC under the 1934 Act and regulation by the NASD, a self-regulatory organization composed of other registered broker/dealers. U.S. Global, USSI, and USGB are required to keep and maintain certain reports and records, which must be made available to the SEC upon request. Moreover, the funds managed by the Company are subject to regulation and periodic reporting under the Investment Company Act of 1940 and, with respect to their continuous public offering of shares, the registration provisions of the Securities Act of 1933.
RELATIONSHIPS WITH THE FUNDS
The businesses of the Company are, to a very significant degree, dependent on their associations and contractual relationships with the Funds. In the event the advisory or transfer agent services agreements with USGIF or USGAF are canceled or not renewed pursuant to the terms thereof, the Company would be substantially adversely affected. U.S. Global, USSI, and USGB consider their relationships with the Funds to be good, and they have no reason to believe that their management and service contracts will not be renewed in the future; however, there is no assurance that the Trusts will choose to continue their relationships with the Company, USSI, or USGB.
ITEM 2. PROPERTIES
The Company presently occupies an office building as its headquarters in San Antonio, Texas. The office building is approximately 46,000 square feet on approximately 2.5 acres of land. This building is currently subject to a term loan for $1,082,841.
ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings in which the Company is involved. There are no material legal proceedings to which any director, officer or affiliate of the Company or any associate of any such director or officer is a party or has a material interest, adverse to the Company or any of its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during fiscal year 2001.
PART II OF ANNUAL REPORT ON FORM 10-K
ITEM 5. MARKET FOR COMPANY'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
MARKET INFORMATION
The Company has three classes of common equity: class A, class B and class C common stock, par value $0.05 per share.
There is no established public trading market for the Company's class B and class C common stock.
The Company's class A common stock is traded over-the-counter and is quoted daily under Nasdaq's Small Cap Issues. Trades are reported under the symbol "GROW."
The following table sets forth the range of high and low sales prices from Nasdaq for the fiscal years ended June 30, 2001 and 2000. The quotations represent prices between dealers and do not include any retail markup, markdown, or commission.
2001 2000 ----------------- ----------------- HIGH ($) LOW ($) HIGH ($) LOW ($) ----- ----- ----- ----- First quarter (9/30) 1.750 1.500 1.750 1.000 Second quarter (12/31) 1.500 0.938 1.625 1.250 Third quarter (3/31) 1.375 0.875 2.500 1.375 Fourth quarter (6/30) 1.210 1.000 1.813 1.438 |
HOLDERS
On September 20, 2001, there were 271 holders of record of class A common stock, no holders of record of class B common stock, and 71 holders of record of class C common stock.
Many of the class A common shares are held of record by nominees, and management believes that as of September 20, 2001, 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 seventeen fiscal years and has never paid cash dividends on its class A common stock. Payment of cash dividends is within the discretion of the Company's board of directors and is dependent on earnings, operations, capital requirements, general financial condition of the Company, and general business conditions.
Holders of the outstanding shares of the Company's class A common stock are entitled to receive, when and as declared by the Company's board of directors, a noncumulative cash dividend equal in the aggregate to 5% of the Company's net after-tax earnings for its prior fiscal year. After such dividend has been paid, the holders of the outstanding shares of class B common stock are entitled to receive, when and as declared by the Company's board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A common stock. Holders of the outstanding shares of class C common stock are entitled to receive when and as declared by the Company's board of directors, cash dividends per share equal to the cash dividends per share paid to the holders of the class A and class B common stock. Thereafter, if the board of directors determines to pay additional cash dividends, such dividends will be paid simultaneously on a prorated basis to holders of class A, B, and C common stock. The holders of the class A common stock are protected in certain instances against dilution of the dividend amount payable to such holders.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data is qualified by reference to, and should be read in conjunction with, the Company's Consolidated Financial Statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in this Form 10-K. The selected financial data as of June 30, 1997, and the year then ended are 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, 2001, and the years then ended is derived from the Company's Consolidated Financial Statements, which were audited by Ernst & Young LLP, independent accountants.
SELECTED EARNINGS DATA YEAR ENDED JUNE 30, ------------------------------------------------------------------------------------------------------------------ 2001 2000 1999 1998 1997 ----------- ------------ ------------ ------------ -------------- Revenues $ 8,893,884 $ 10,912,764 $ 9,739,180 $ 10,195,349 $ 14,009,131(1) Expenses 9,652,382 10,495,271 10,665,616 10,034,397 13,329,439 ----------- ------------ ------------ ------------ -------------- Income (loss) before equity interest and income taxes (758,498) 417,493 (926,436) 160,952 679,692 Income tax (benefit) expense 36,181 (26,526) 183,329 (39,571) 331,976 Equity in net loss of joint venture -- -- -- -- (196,535) Equity in income (loss) of affiliate -- 51,739 (743,041)(1) (349,142)(1) 132,968 Net income (loss) (794,679) 495,758 (1,852,806) (148,619) 284,149 Basic income (loss) per share (0.11) 0.07 (0.28) (0.02) 0.04 Working capital 3,246,792 3,138,009 2,441,109 3,719,539 2,440,198 Total assets 7,912,184 9,118,624 8,328,138 10,308,947 10,712,775 Long-term obligations 1,135,903 1,197,961 1,255,724 1,330,638 1,359,308 Shareholders' equity 5,715,520 6,484,486 5,912,238 7,941,859 7,966,407 ------------------ (1) Amounts included in revenues for fiscal year 1997 include gains on changes of interest in affiliate of $10,490. 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. |
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
BUSINESS SEGMENTS
U.S. Global Investors, Inc. (Company or U.S. Global), with principal
operations located in San Antonio, Texas, manages two business segments:
(1) the Company offers a broad range of investment management products and
services to meet the needs of individual and institutional investors, and
(2) the Company invests for its own account in an effort to add growth and
value to its cash position.
The Company generates substantially all its operating revenues from the investment management of products and services for the U.S. Global Investors Funds (USGIF) and U.S. Global Accolade Funds (USGAF). Notwithstanding the fact that the Company generates the majority of its revenues from this segment, the Company holds a significant amount of its total assets in investments. As of June 30, 2001, the Company held approximately $1.9 million in investments, comprising 23% 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 2001, total average assets under management decreased 8.6% to $1.3 billion primarily because of depreciation of the equity markets and shareholder withdrawals from the Bonnel Growth Fund.
AVERAGE ASSETS UNDER MANAGEMENT (DOLLARS IN MILLIONS) ---------------------------------------------------------- 2001 2000 % CHANGE 2000 1999 % CHANGE ------ ------ ------- ------ ------ ------- USGIF - Money market $ 910 $ 928 (1.9)% $ 928 $ 979 (5.2)% USGIF - Other 164 234 (29.9)% 234 280 (16.4)% ------ ------ ---- ------ ------ --- USGIF - Total 1,074 1,162 (7.6)% 1,162 1,259 (7.7)% USGAF 205 238 (13.9)% 238 130 83.1% ------ ------ ---- ------ ------ --- Total $1,279 $1,400 (8.6)% $1,400 $1,389 0.8% |
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, 2001 and 2000, the Company held approximately $1.9 and $2.6 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 the Company's 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 2001, 2000, and 1999, the Company had net realized gains of approximately $383,000, $550,000, and $238,000, respectively. The Company expects that gains or losses will continue to fluctuate in the future as
fluctuations in the market value of the Company's investments will affect the amounts of such gains or losses.
CONSOLIDATED RESULTS OF OPERATIONS
The following is a discussion of the consolidated results of operations of the Company and a more detailed discussion of the Company's revenues and expenses.
2001 2000 % CHANGE 2000 1999 % CHANGE ------ ----- ------- ----- ------- -------- Net income (loss) (in thousands) $(795) $496 (260.3)% $496 $(1,852) 126.8% Net income (loss) per share - basic and diluted $(0.11) $0.07 (257.1)% $0.07 $(0.28) 125.0% Weighted average shares outstanding (in thousands) Basic 7,525 7,409 7,409 6,562 Diluted 7,525 7,411 7,411 6,564 |
YEAR ENDED JUNE 30, 2001, COMPARED WITH YEAR ENDED JUNE 30, 2000
The Company posted a net after-tax loss of $795,000 ($0.11 loss per share) for the year ended June 30, 2001, compared with net after-tax income of $496,000 ($0.07 income per share) for the year ended June 30, 2000. The decrease in net income for 2001 was principally due to declines in net advisory fees, transfer agent fees, and investment income. These decreases were partially offset by reductions in general and administrative expenses.
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, which was recognized in fiscal year 2000.
REVENUES
(DOLLARS IN THOUSANDS) 2001 2000 % CHANGE 2000 1999 % CHANGE ------ ------- ----- ------- ------ ---- Investment advisory fees: USGIF - Money market $2,357 $2,438 (3.3)% $2,438 $1,825 33.6 % USGIF - Other 1,081 1,666 (35.1)% 1,666 2,037 (18.2)% ------ ------- ----- ------- ------ ---- USGIF - Total 3,438 4,104 (16.2)% 4,104 3,862 6.3 % USGAF 2,060 2,393 (13.9)% 2,393 1,319 81.4 % Other -- 9 (100.0)% 9 42 (78.6)% ------ ------- ----- ------- ------ ---- Total investment advisory fees $5,498 $6,506 (15.5)% $6,506 $5,223 24.5 % Transfer agent fees 2,682 2,934 (8.6)% 2,934 3,341 (12.2)% Custodial and administrative fees 302 484 (37.6)% 484 465 4.3 % Mailing services fees 302 368 (17.9)% 368 293 25.6 % Investment income 127 556 (77.2)% 556 352 58.0 % Other revenues (18) 65 (127.7)% 65 65 0.0 % ------ ------- ----- ------- ------ ---- Total $8,894 $10,913 (18.5)% $10,913 $9,739 12.1 % ====== ======= ===== ======= ====== ==== |
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 $2,039,360, $2,125,773, and $3,052,054 in 2001, 2000, and 1999, respectively. The Company expects to continue to waive fees and/or pay for fund expenses if market and economic conditions warrant. However, subject to the Company's commitment to certain funds with respect to fee waivers and expense limitations, the Company may reduce the amount of fund expenses it is bearing.
Net investment advisory fees are also affected by changes in assets under management, including market appreciation or depreciation, the addition of new client accounts or client contributions of additional assets to existing accounts, withdrawals of assets from and termination of client accounts, exchanges of assets between accounts or products with different fee structures, and the amount of fees voluntarily reimbursed.
The decrease in net advisory fees in fiscal year 2001 of approximately $1.0 million, or 15.5%, over fiscal year 2000 was largely due to market declines in the Company's equity funds, particularly in the Bonnel Growth Fund, World Gold Fund, and All American Equity Fund, and shareholder withdrawals from the Bonnel Growth Fund.
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.
TRANSFER AGENT FEES. United Shareholder Services, Inc., a wholly owned subsidiary of the Company, provides transfer agency, lockbox, and printing services for Company clients. The Company receives, as compensation for services rendered as transfer agent, an annual fee per account and is reimbursed for out-of-pocket expenses associated with processing shareholder information. Transfer agent fees are therefore affected by the number of client accounts.
The decrease in fees in fiscal year 2001, as compared with fiscal year 2000, is a result of a decrease in client accounts from 107,450 to 97,932. The fee decrease in fiscal year 2000, as compared with fiscal year 1999, is a result of a decrease in client accounts from 116,831 to 107,450. Management believes investors are shifting from direct investment in the funds to mutual fund supermarkets 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, provided custodial and/or trustee services for IRAs and other retirement plans administered by the Company. The custodial fees were previously paid to STFC at calendar year end upon separate invoice to the customer, not the funds. Effective January 1, 2000, U.S. Global Administrators, Inc. (USGA), a wholly owned subsidiary of the Company, began providing qualified plan administration and record keeping services for existing 401(k) clients, which services were previously offered by STFC. The administrative fees were paid to USGA on a quarterly basis by its clients. USGA ceased revenue-generating operations on May 31, 2001. STFC continued to collect its custodial fees through May 31, 2001, at which time a majority of these fees transferred to USGI. Both companies will be liquidated subsequent to fiscal year end.
Custodial and administrative fees decreased approximately $180,000, or 37.6%, in fiscal year 2001. This decrease was primarily due to the dissolution of USGA's 401(k) operations. The custodial and administrative fee increase of approximately $20,000, or 4.3%, in fiscal year 2000 over fiscal year 1999 was due primarily to growth in the retirement plans under administration.
MAILING SERVICES. A&B Mailers, Inc., a wholly owned subsidiary of the Company, provides mail-handling services to various entities. One of A&B Mailers' primary customers is the Company in connection with its efforts to promote the funds. Each service is priced separately.
Mailing service fees decreased approximately $66,000, or 17.9%, in fiscal year 2001. This decline was due primarily to reduced mailing activities for USGIF and USGAF as well as outside clients. There was an increase in mailing service fees of approximately $75,000, or 25.6%, in fiscal year 2000 from fiscal year 1999. This increase was related to increased mailings for USGIF and USGAF.
EXPENSES
(DOLLARS IN THOUSANDS) 2001 2000 % CHANGE 2000 1999 % CHANGE ------- ------- ------- ------- ------- ------- Employee compensation and benefits $ 4,701 $ 4,767 (1.4)% $ 4,767 $ 5,125 (7.0)% General and administrative 4,304 4,525 (4.9)% 4,525 4,061 11.4 % Marketing and distribution 311 695 (55.3)% 695 860 (19.2)% Depreciation and amortization 226 395 (42.8)% 395 493 (19.7)% Interest and finance 110 113 (2.7)% 113 127 (11.3)% Total $ 9,652 $10,495 (8.0)% $10,495 $10,666 (1.6)% |
EMPLOYEE COMPENSATION AND BENEFITS. Employee compensation and benefits decreased in fiscal year 2001 over fiscal year 2000 by approximately $66,000, or 1.4%, due to staff reductions implemented during the third and fourth quarters of fiscal year 2001 in response to market downturns and decreased shareholder activity. 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. The Company expects that employee compensation expenses for fiscal year 2002 will continue to decline as the staff reductions in fiscal year 2001 were not fully effective until the end of the fiscal year.
GENERAL AND ADMINISTRATIVE. General and administrative expenses decreased by approximately $221,000, or 4.9%, in fiscal year 2001 over fiscal year 2000 largely due to (1) a decrease in sub-advisory fees paid for management of the Bonnel Growth Fund, and (2) a decrease in travel and training expenses incurred on behalf of company personnel. These decreases were offset by increased professional fees and leasing costs associated with equipment and computers. 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.
MARKETING AND DISTRIBUTION. Fiscal year 2001 marketing and distribution expenses decreased by approximately $384,000, or 55.3%, over fiscal year 2000. The net decrease was due to an overall reduction of marketing expenditures as well as an increased percentage of marketing costs that were reimbursed by 12b-1 plans adopted by the funds. 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 an increase in the percentage of marketing costs reimbursed by the 12b-1 plans, which offset an overall increase in marketing expenditures. The Company expects that marketing and distribution expenses for fiscal year 2002 will approximate fiscal year 2001 levels.
DEPRECIATION AND AMORTIZATION. Depreciation expenses decreased by approximately $169,000, or 42.8%, in fiscal year 2001 from fiscal year 2000 due to the Company's decision to lease its computer equipment. As such, fully depreciated assets were replaced by operating leases. 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.
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 $3,000, or 2.7%, in fiscal year 2001 from fiscal year 2000 and the decrease of $14,000, or 11.3%, in fiscal year 2000 from fiscal year 1999 were due to the continued amortization of the note payable.
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, 2001, the Company has net operating losses (NOLs) of approximately $2.1 million, which will expire between fiscal 2005 and 2011, charitable contribution carryovers of approximately $230,000 expiring between fiscal 2002 and 2006, and alternative minimum tax credits of $139,729 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, 2001, 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 $547,000 and $293,000 at June 30, 2001, and June 30, 2000, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income.
LIQUIDITY AND CAPITAL RESOURCES
At year end, the Company had net working capital (current assets minus current liabilities) of approximately $3.2 million and a current ratio of 4.1 to 1. With approximately $1.3 million in cash and cash equivalents and almost $1.9 million in marketable securities, the Company has adequate liquidity to meet its current debt obligations. Total shareholders' equity was approximately $5.7 million, with cash, cash equivalents, and marketable securities comprising 40.3% of total assets. With the exception of operating expenses, the Company's only material commitment is the mortgage on its corporate headquarters. The Company also has access to a $1 million credit facility, which can be utilized for working capital purposes. The Company's available working capital and potential cash flow are expected to be sufficient to cover current expenses, including debt service.
The investment advisory and related contracts between the Company and USGIF and USGAF will expire on February 28, 2002, and May 31, 2002, respectively. Management anticipates the trustees of both USGIF and USGAF will renew the contracts.
Management believes current cash reserves, financing obtained and/or available, and potential cash flow from operations will be sufficient to meet foreseeable cash needs or capital necessary for the above-mentioned activities and allow the Company to take advantage of investment opportunities whenever available.
MARKET RISK DISCLOSURES
The Company's balance sheet includes assets whose fair value is subject to market risks. Due to the Company's investments in equity securities, equity price fluctuations represent a market risk factor affecting the Company's consolidated financial position. The carrying values of investments subject to equity price risks are based on quoted market prices or, if not actively traded, management's estimate of fair value as of the balance sheet date. Market prices fluctuate, and the amount realized in the subsequent sale of an investment may differ significantly from the reported market value. The Company's investment activities are reviewed and monitored by Company compliance personnel, and various reports are provided to investment advisory clients.
The table below summarizes the Company's equity price risks as of June 30, 2001, and shows the effects of a hypothetical 25% increase and a 25% decrease in market prices.
ESTIMATED FAIR INCREASE HYPOTHETICAL VALUE AFTER (DECREASE) IN FAIR VALUE AT PERCENTAGE HYPOTHETICAL PRICE SHAREHOLDERS' JUNE 30, 2001 ($) CHANGE CHANGE ($) EQUITY ($) ----------------- ------------ ------------------ ------------- Trading securities 1,163,693 25% increase 1,454,616 192,009 25% decrease 872,770 (192,009) Available-for-sale 694,870 25% increase 868,587 114,653 25% decrease 521,153 (114,653) |
The selected hypothetical change does not reflect what could be considered best- or worst-case scenarios. Results could be much worse due to both the nature of equity markets and the concentration of the Company's investment portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of U. S. Global Investors, Inc.
We have audited the accompanying consolidated balance sheets of U.S. Global Investors, Inc. and Subsidiaries (Company) as of June 30, 2001 and 2000, 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, 2001. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of U.S. Global Investors, Inc. and Subsidiaries at June 30, 2001 and 2000, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 2001, in conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP Ernst & Young LLP Dallas, Texas September 27, 2001 |
CONSOLIDATED BALANCE SHEETS
ASSETS
JUNE 30, ------------------------- 2001 2000 ----------- ----------- CURRENT ASSETS Cash and cash equivalents $1,333,922 $1,356,903 Trading securities, at fair value 1,163,693 1,424,120 Receivables Mutual funds 773,595 779,809 Other 396,829 447,548 Prepaid Expenses 203,565 350,729 Deferred Tax Asset 435,949 215,077 ----------- ----------- TOTAL CURRENT ASSETS 4,307,553 4,574,186 ----------- ----------- NET PROPERTY AND EQUIPMENT 2,029,899 2,278,744 ----------- ----------- OTHER ASSETS Restricted investments 225,000 240,000 Long-term deferred tax asset 605,066 836,056 Investment securities available-for-sale, at fair value 694,870 1,159,042 Other 49,796 30,596 ----------- ----------- TOTAL OTHER ASSETS 1,574,732 2,265,694 ----------- ----------- TOTAL ASSETS $7,912,184 $9,118,624 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable $ 280,587 $ 498,632 Accrued compensation and related costs 224,094 298,826 Current portion of notes payable 69,094 68,257 Current portion of annuity and contractual obligation 9,100 8,487 Other accrued expenses 477,886 561,975 ----------- ----------- TOTAL CURRENT LIABILITIES 1,060,761 1,436,177 ----------- ----------- NONCURRENT LIABILITIES Notes payable - net of current portion 1,013,747 1,066,705 Annuity and contractual obligations 122,156 131,256 ----------- ----------- TOTAL NONCURRENT LIABILITIES 1,135,903 1,197,961 ----------- ----------- TOTAL LIABILITIES 2,196,664 2,634,138 ----------- ----------- SHAREHOLDERS' EQUITY Common stock (class A) -- $0.05 par value; nonvoting; 314,974 314,974 authorized 7,000,000 shares Common stock (class C) -- $0.05 par value; voting; authorized 1,750,000 shares 74,840 74,840 Additional paid-in capital 10,678,419 10,578,419 Treasury stock, class A shares at cost; 313,426 and 282,350 shares at June 30, 2001 and 2000, respectively (632,261) (637,298) Accumulated other comprehensive loss, net of tax (102,364) (51,771) Accumulated deficit (4,618,088) (3,794,678) ----------- ----------- TOTAL SHAREHOLDERS' EQUITY 5,715,520 6,484,486 ----------- ----------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,912,184 $9,118,624 =========== =========== |
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
YEAR ENDED JUNE 30, ---------------------------------------- 2001 2000 1999 ------------ ------------ ------------ REVENUE Investment advisory fees $ 5,497,802 $ 6,505,552 $ 5,223,405 Transfer agent fees 2,682,226 2,933,855 3,340,528 Custodial and administrative fees 302,017 484,441 464,666 Investment income 127,395 556,165 352,204 Other 284,444 432,751 358,377 ------------ ------------ ------------ 8,893,884 10,912,764 9,739,180 ------------ ------------ ------------ EXPENSES General and administrative 9,315,982 9,987,166 10,046,087 Depreciation and amortization 226,150 395,452 492,581 Interest 110,250 112,653 126,948 ------------ ------------ ------------ 9,652,382 10,495,271 10,665,616 ------------ ------------ ------------ INCOME (LOSS) BEFORE EQUITY INTEREST AND INCOME TAXES (758,498) 417,493 (926,436) ------------ ------------ ------------ EQUITY IN NET INCOME (LOSS) OF AFFILIATE -- 51,739 (743,041) ------------ ------------ ------------ INCOME (LOSS) BEFORE INCOME TAXES (758,498) 469,232 (1,669,477) PROVISION FOR FEDERAL INCOME TAXES Tax (Benefit) Expense 36,181 (26,526) 183,329 ------------ ------------ ------------ NET INCOME (LOSS) (794,679) 495,758 (1,852,806) Other comprehensive income (loss), net of tax: Unrealized gains (losses) on available-for-sale securities (50,593) 23,167 806 ------------ ------------ ------------ COMPREHENSIVE INCOME (LOSS) $(845,272) $ 518,925 $(1,852,000) ============ ============ ============ BASIC AND DILUTED NET INCOME (LOSS) PER SHARE $ (0.11) $ 0.07 $ (0.28) ============ ============ ============ |
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
COMMON COMMON ACCUMULATED STOCK STOCK ADDITIONAL OTHER (CLASS (CLASS PAID-IN ACCUMULATED TREASURY COMPREHENSIVE A) C) CAPITAL DEFICIT STOCK INCOME (LOSS) TOTAL --------- -------- ------------ ------------ ---------- -------------- ----------- BALANCE AT JUNE 30, 1998 $314,972 $24,842 $10,591,708 $(2,437,630) $(476,289) $(75,744) $7,941,859 (6,299,444 SHARES OF CLASS A; 496,830 SHARES OF CLASS C) 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 Purchase of 71,346 shares of Common Stock (Class A) -- -- -- -- (81,326) -- (81,326) Reissuance of 40,270 shares of Common Stock (Class A) -- -- -- (28,731) 86,363 -- 57,632 Recognition of current year portion of deferred compensation -- -- 100,000 -- -- -- 100,000 Unrealized gain (loss) on securities available-for-sale (net of tax) -- -- -- -- -- (50,593) (50,593) Net Loss -- -- -- (794,679) -- -- (794,679) --------- -------- ------------ ------------ ---------- -------------- ----------- BALANCE AT JUNE 30, 2001 $314,974 $74,840 $10,678,419 $(4,618,088) $(632,261) $(102,364) $5,715,520 (6,299,474 SHARES OF CLASS A; ========= ======== ============ ============ ========== ============== =========== 1,496,800 SHARES OF CLASS C) |
The accompanying notes are an integral part of this statement.
CONSOLIDATED STATEMENTS OF CASH FLOW
YEAR ENDED JUNE 30, -------------------------------------- 2001 2000 1999 --------- --------- ------------ CASH FLOW FROM OPERATING ACTIVITIES Net income (loss) $(794,679) $ 495,758 $(1,852,806) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 226,150 395,452 492,581 Net gain on sales of securities (383,379) (550,000) (238,394) (Gain) loss on disposal of equipment 97,752 (5,752) -- Gain on changes of interest in affiliate -- -- (97,744) Provision for deferred taxes 36,181 (26,526) 183,329 Reserve against impairment of equipment 9,436 -- -- Changes in assets and liabilities, impacting cash from operations: Accounts receivable 56,933 (62,213) 913,527 Prepaid expenses and other 142,964 46,134 954,571 Trading securities 1,018,363 676,746 377,260 Accounts payable and accrued expenses (376,866) 286,245 118,253 --------- --------- ----------- Total adjustments 827,534 760,086 2,703,383 --------- --------- ----------- NET CASH PROVIDED BY OPERATIONS 32,855 1,255,844 850,577 --------- --------- ----------- CASH FLOW FROM INVESTING ACTIVITIES Purchase of property and equipment (84,493) (258,644) (323,069) Proceeds on disposal of equipment -- 16,792 -- Purchase of available-for-sale securities (233,310) (717,652) (97,056) Redemption (investment) in equity affiliate -- 100,000 (550,000) Proceeds on sale of available-for-sale securities 246,269 -- -- --------- --------- ----------- NET CASH USED IN INVESTING ACTIVITIES (71,534) (859,504) (970,125) --------- --------- ----------- CASH FLOW FROM FINANCING ACTIVITIES Payments on annuity (8,487) (7,915) (7,381) Payments on note payable (52,121) (60,092) (62,070) Proceeds from issuance or exercise of stock, warrants, and options 157,632 47,185 52,491 Purchase of treasury stock (81,326) (43,862) (230,112) --------- --------- ----------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 15,698 (64,684) (247,072) --------- --------- ----------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (22,981) 331,656 (366,620) BEGINNING CASH AND CASH EQUIVALENTS 1,356,903 1,025,247 1,391,867 --------- --------- ----------- ENDING CASH AND CASH EQUIVALENTS 1,333,922 1,356,903 1,025,247 ========== ========= =========== SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Receipt of trading and available-for-sale securities in liquidation of equity investment -- $701,478 -- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest $133,250 $89,653 $126,948 |
The accompanying notes are an integral part of this statement.
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 formed the following companies to provide supplementary services to USGIF and USGAF: United Shareholder Services, Inc. (USSI), A&B Mailers, Inc. (A&B), U.S. Global Brokerage, Inc. (USGB), U.S. Global Administrators, Inc. (USGA), and Security Trust & Financial Company (STFC). USGA and STFC will be liquidated subsequent to fiscal year end.
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: USSI, STFC, 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. Before 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 classified neither as trading securities nor as held-to-maturity securities are classified as available-for-sale securities and reported at fair value. Unrealized gains and losses on these available-for-sale securities are excluded from earnings, are reported, net of tax, as a separate component of shareholders' equity, and are recorded in earnings on the date of sale.
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.
Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis and are recorded in earnings on the date of sale. For those securities with declines in value that are deemed permanent, the cost basis of the securities is reduced accordingly, and the resulting loss is realized 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 agent 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 $264,000, $575,000, and $741,000 in 2001, 2000, and 1999, 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.
NOTE 2. INVESTMENTS
The following table summarizes investment activity over the last three fiscal years:
2001 2000 1999 --------- --------- --------- Realized gains on sale of securities $ 383,379 $550,000 $238,394 Trading securities, at cost 1,951,963 1,832,282 1,197,233 Trading securities, at fair value 1,163,693 1,424,120 884,837 Net change in unrealized losses on trading securities (included in earnings) (379,861) 95,974 41,251 Available-for-sale securities, at cost 849,966 1,237,483 484,382 Available-for-sale securities, at fair value 694,870 1,159,042 370,840 Unrealized loss recorded in shareholders' equity (net of 102,364 51,771 74,938 tax) Unrealized gains on available-for- sale securities reclassified as trading securities during fiscal year -- -- 344,394 |
NOTE 3. INVESTMENT MANAGEMENT, TRANSFER AGENT, AND OTHER FEES
The Company serves as investment adviser to USGIF and USGAF and receives a fee based on a specified percentage of net assets under management. The Company also serves as transfer agent to USGIF and USGAF and receives a fee based on the number of shareholder accounts serviced. The Company also provides in-house legal services to USGIF and USGAF. The Company also receives exchange, maintenance, closing, and small account fees directly from USGIF and USGAF shareholders. Fees for providing services to USGIF and USGAF continue to be the Company's primary revenue source.
The Company receives additional revenue from several sources including:
custodian revenues, revenues from miscellaneous transfer agency activities
including lockbox, and printing functions, A&B mailroom operations, as well
as gains on marketable securities transactions.
The Company has voluntarily waived or reduced its advisory fees and/or has agreed to pay expenses on several funds within USGIF through June 30, 2002, or such later date as the Company determines. The aggregate amount of fees waived and expenses borne by the Company were $2,039,360, $2,125,773, and $3,052,054 in 2001, 2000, and 1999, respectively.
The investment advisory contract and related contracts between the Company and USGIF expire in February 2002, and the contracts between the Company and USGAF expire in May 2002. 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:
2001 2000 ----------- ----------- Building and land $2,203,757 $2,203,757 Furniture, equipment, and other 2,122,642 5,600,773 Building improvements 67,856 189,156 ----------- ----------- 4,394,255 7,993,686 Accumulated depreciation and amortization (2,364,356) (5,714,942) ----------- ----------- Net property and equipment $2,029,899 $2,278,744 ========== =========== |
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, 2001, the balance on the note was $1,082,841. The loan is currently amortizing over a twelve-year period with payments of both principal and interest due monthly based on Bank One Texas Prime. The rate was locked in September 1, 2001, at 6.50%. The current monthly payment is $12,320, and the note matures on January 31, 2006. Under this agreement, the Company must maintain certain financial covenants. The Company was not in compliance with certain debt covenants but received a waiver from the bank through June 30, 2001. The Company projects that it will be in full compliance with its debt covenants for the quarter ended September 30, 2001, and believes that the bank will provide a waiver if the Company falls short of its projections.
The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. Any use of this credit facility will be secured by the Company's eligible accounts receivable and pledged securities.
Management believes that the Company has adequate cash, cash equivalents, and equity in the underlying asset to retire the obligation if necessary.
Future principal payments to be made over the next five years based on the note payable outstanding at June 30, 2001, are as follows:
FISCAL YEAR AMOUNT ----------- ---------- 2002 $ 69,094 2003 77,236 2004 83,012 2005 89,219 2006 764,280 ---------- Total $1,082,841 |
NOTE 6. LEASE COMMITMENTS
The Company has operating leases for computers and equipment that expire between fiscal years 2002 and 2006. Total lease expenses were $202,006, $108,925, and $57,859 in fiscal years 2001, 2000, and 1999, respectively. Future minimum lease payments required under these leases are as follows:
FISCAL YEAR AMOUNT ----------- --------- 2002 $ 215,872 2003 169,089 2004 36,687 2005 9,036 2006 3,012 --------- Total $ 433,696 |
NOTE 7. ANNUITY AND CONTRACTUAL OBLIGATIONS
On February 6, 1989, the Company entered into an agreement with Clark Aylsworth (Aylsworth) related to his retirement on December 31, 1988. This agreement provided for the payment to Aylsworth of a monthly annuity of $1,500 for the remainder of his life or his wife's life, if he predeceases her. The Company has recorded an obligation related to this agreement.
On December 30, 1990, the Company entered into a noncompete/noninterference agreement, an executory contract, pursuant to which it pays the Aylsworths $4,500 monthly, such amount to continue for the longer of Aylsworth's or his wife's life. The Company determined that the executory contract should be expensed as payments are made. The Company placed cash in escrow to cover the Company's obligation to the Aylsworths if the Company defaults. The escrowed amount decreases $15,000 annually and amounted to $225,000 at June 30, 2001.
NOTE 8. BENEFIT PLANS
The Company has a contributory profit sharing plan, which includes all qualified employees who have completed one year of employment with the Company as of June 30. 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 fiscal years 2001, 2000, and 1999.
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% of their compensation. The Company has recorded expenses related to the 401(k) plan of $37,477, $48,743, and $45,143 for fiscal years 2001, 2000, and 1999, 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. A similar savings plan utilizing UGMA accounts is offered to employees to save for their children's education. The Company match, reflected in base salary expense, aggregated in all programs to $67,485, $53,417, and $57,317 in fiscal years 2001, 2000, and 1999, respectively.
Additionally, the Company self-funds its employee health care plan. The Company has obtained reinsurance with both a specific and an aggregate stop-loss in the event of catastrophic claims. The Company has accrued an amount representing the Company's estimate of claims incurred but not paid at June 30, 2001.
NOTE 9. 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, 2001, options covering 88,000 shares have been exercised, and options covering 111,000 shares have expired. The 1985 plan expired December 31, 1994; consequently, 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, 2001, options covering 393,000 shares have been exercised under this plan, and options covering 273,400 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, 2001, options covering 6,000 shares have been exercised under this plan, and options covering 106,500 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 nonvoting class A common stock participate equally in dividends as declared by the Company's board of directors, with the exception that any dividends declared must first be paid to the holders of the class A stock to the extent of 5% of the Company's after-tax prior year net earnings.
The holders of the class A stock have a liquidation preference equal to the par value of $.05 per share. Stock option transactions under the various stock option plans are summarized below:
WEIGHTED AVERAGE EXERCISE SHARES PRICE ($) ---------- -------- OUTSTANDING JUNE 30, 1998 971,600 2.41 Granted 20,000 1.56 Canceled 38,800 2.48 Exercised -- -- ---------- |
WEIGHTED AVERAGE EXERCISE SHARES PRICE ($) ---------- -------- 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 Granted -- -- Canceled 39,000 1.58 Exercised -- -- ---------- OUTSTANDING JUNE 30, 2001 341,800 2.23 ========== |
As of June 30, 2001, 2000, and 1999, exercisable stock options totaled 293,000, 295,700, and 948,020 shares and had weighted average exercise prices of $2.35, $2.35, and $2.39 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 $7,670,
$1,227, and $13,121 in fiscal years 2001, 2000, and 1999, respectively, and
the pro forma net income and income per share would have been as follows:
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 $7,670, $1,227, and $13,121 in
fiscal years 2001, 2000, and 1999, respectively, and the pro forma net
income and income per share would have been as follows:
2001 2000 1999 ---------- -------- ----------- Pro forma net income (loss) $(802,349) $494,531 $(1,865,927) Pro forma income (loss) per share - basic and diluted $(0.11) $0.07 $(0.28) |
The weighted average fair value of options granted during the fiscal years ended June 30, 2000 and 1999, was $0.81 and $0.85, respectively. Because SFAS 123 is applicable only to options granted in fiscal years beginning subsequently to December 15, 1994, its pro forma effect was not fully reflected until fiscal 2001 due to vesting requirements. For purposes of pro forma disclosure, the estimated fair value of the options is amortized to expense over the options' vesting period. The fair value of these options was estimated at the date of the grant using a Black-Scholes option-pricing model with the following weighted-average assumptions:
2001 2000 1999 ------------- ------------- ------------- Expected volatility 0.42 - 0.55 0.42 - 0.55 0.42 - 0.55 Expected dividend yield -- -- -- Expected life (term) 8 years 8 years 8 years Risk-free interest rate 5.07% - 6.16% 4.41% - 6.16% 4.41% - 5.53% |
Class A common stock options outstanding and exercisable at June 30, 2001, were as follows:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE -------------------------------------------------------- ---------------------- WEIGHTED WEIGHTED WEIGHTED DATE OF AVERAGE REMAINING AVERAGE AVERAGE OPTION OPTION NUMBER LIFE IN OPTION NUMBER OPTION GRANT PRICE ($) OUTSTANDING YEARS PRICE ($) EXERCISABLE PRICE ($) -------- --------- ----------- -------- --------- ----------- --------- 1985 PLAN CLASS A 12/15/94 2.63 3,500 3.45 2.63 3,500 2.63 1989 PLAN CLASS A 12/06/91 2.63 148,300 0.43 2.63 148,300 2.63 05/16/94 4.75 2,000 2.87 4.75 2,000 4.75 09/05/95 2.63 5,000 4.18 2.63 5,000 2.63 05/24/96 3.06 10,000 4.90 3.06 10,000 3.06 06/04/97 2.00 30,000 5.93 2.00 30,000 2.00 12/03/99 1.50 15,000 8.42 1.50 3,000 1.50 ----------- ------- ---- ---- ------- ---- 1.50 - 4.75 210,300 1.26 2.50 198,300 2.56 1997 PLAN CLASS A 06/04/97 1.82 32,000 5.93 1.82 32,000 1.82 06/04/97 2.00 50,000 5.93 2.00 50,000 2.00 12/03/99 1.50 46,000 8.42 1.50 9,200 1.50 ----------- ------- ---- ---- ------- ---- 1.50 - 2.00 128,000 6.82 1.78 91,200 1.89 ALL PLANS 12/91 through 1.50 - 4.75 341,800 3.37 2.23 293,000 2.35 12/99 =========== ========== ==== ==== ======== ==== |
During the fiscal years ended June 30, 2001, and June 30, 2000, the Company purchased 71,346 and 25,375 shares of its class A common stock at an average price of $1.14 and $1.73 per share, respectively.
NOTE 10. INCOME TAXES
The reconciliation of income tax computed at the U.S. federal statutory rates to income tax expense is:
2001 2000 1999 ----------- ---------- --------- Tax expense (benefit) at statutory rate $ (257,889) $ 159,539 $ (563,373) Nondeductible membership dues 18,758 11,379 12,238 Nondeductible meals and entertainment 10,788 27,813 35,194 Change in valuation allowance 253,966 (258,095) 886,891 Other 10,558 32,838 (187,621) ----------- ---------- --------- $ 36,181 $ (26,526) $183,329 =========== ========== ======== |
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, ---------------------------- 2001 2000 ----------- ----------- BOOK/TAX DIFFERENCES IN THE BALANCE SHEET Trading securities $ 268,012 $ 138,775 Accumulated depreciation -- 147,941 Accrued expenses 115,202 76,301 Available-for-sale securities 52,733 26,670 Reduction in cost basis of available-for-sale securities 177,466 177,466 Annuity obligations 44,627 47,513 Affiliated investment -- 17,591 ----------- ----------- 658,040 632,257 TAX CARRYOVERS Net operating loss (NOL) carryover 699,061 479,095 Charitable contributions carryover 78,363 65,748 Investment tax credit 34,472 34,472 Alternative minimum tax credits 139,729 132,128 ----------- ----------- 951,625 711,443 ----------- ----------- TOTAL GROSS DEFERRED TAX ASSET 1,609,665 1,343,700 ----------- ----------- BOOK/TAX DIFFERENCES IN THE BALANCE SHEET Accumulated depreciation (22,117) -- Unrealized loss on available-for-sale securities (52,733) (26,670) ----------- ----------- TOTAL GROSS DEFERRED TAX LIABILITY (74,850) (26,670) ----------- ----------- DEFERRED TAX ASSET 1,534,815 1,317,030 VALUATION ALLOWANCE (546,533) (292,567) ----------- ----------- NET DEFERRED TAX ASSET $ 988,282 $ 1,024,463 =========== =========== |
For federal income tax purposes at June 30, 2001, the Company has NOLs of approximately $2.1 million, which will begin expiring between fiscal 2005 and 2011, charitable contribution carryovers of approximately $230,000 expiring between 2002 and 2006, and alternative minimum tax credits of $139,729 with indefinite expirations. If certain changes in the Company's ownership should occur, there could be an annual limitation on the amount of NOLs that could be utilized.
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 $546,533 and $292,567 at June 30, 2001 and 2000, respectively, providing for the utilization of NOLs, charitable contributions, and investment tax credits against future taxable income.
NOTE 11. EARNINGS PER SHARE
The following table sets forth the computation for basic and diluted earnings per share (EPS):
YEAR ENDED JUNE 30, ------------------------------------------- 2001 2000 1999 ----------- ---------- ----------- BASIC AND DILUTED NET INCOME (LOSS) $ (794,679) $ 495,758 $(1,852,806) WEIGHTED AVERAGE NUMBER OF OUTSTANDING SHARES Basic 7,524,913 7,408,821 6,562,140 EFFECT OF DILUTIVE SECURITIES Employee stock options -- 2,278 1,704 ----------- ---------- ----------- Diluted 7,524,913 7,411,099 6,563,844 =========== ========== =========== EARNINGS (LOSS) PER SHARE Basic $ (0.11) $ 0.07 $ (0.28) =========== ========== =========== Diluted $ (0.11) $ 0.07 $ (0.28) =========== ========== =========== |
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, 2001, 2000, and 1999, options for 341,800, 296,800, and 910,800 shares, respectively, were excluded from diluted EPS. Additionally, for the year ended June 30, 1999, there were 586,122 warrants outstanding which had no dilutive effect and were excluded from diluted EPS.
NOTE 12. COMPREHENSIVE INCOME
The Company has disclosed the components of comprehensive income in the consolidated statements of operations and comprehensive income.
TAX BEFORE-TAX (EXPENSE) OR NET-OF-TAX AMOUNT BENEFIT ($) AMOUNT ($) --------- --------- --------- JUNE 30, 2001 Unrealized gains (losses) on available-for-sale securities $ (76,656) $ 26,063 $ (50,593) Less reclassification adjustment for gains in net income -- -- -- --------- --------- --------- Other comprehensive income (loss) $ (76,656) $ 26,063 $ (50,593) ========= ========= ========= 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 ========= ========= ========= |
NOTE 13. FINANCIAL INFORMATION BY BUSINESS SEGMENT
The Company operates principally in two business segments: providing mutual fund investment management services to its clients and investing for its own account in an effort to add growth and value to its cash position. The following details total revenues and income (loss) by business segment:
INVESTMENT CORPORATE CONSOLI- MANAGEMENT INVESTMENT DATED SERVICES($) ($) ($) ---------- --------- ---------- YEAR ENDED JUNE 30, 2001 Net revenues 8,881,776 12,108 8,893,884 ========== ========= ========== Net income (loss) before income taxes (742,801) (15,697) (758,498) ========== ========= ========== Depreciation and amortization 226,150 -- 226,150 ========== ========= ========== Interest expense 109,995 255 110,250 ========== ========= ========== Capital expenditures 84,493 -- 84,493 ========== ========= ========== Gross identifiable assets at June 30, 2001 4,910,242 1,858,563 6,768,805 Deferred tax asset 1,041,015 Accumulated other comprehensive loss 102,364 --------- Consolidated total assets at June 30, 2001 7,912,184 ========= 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 ========== 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 comprehensive loss 74,938 ---------- Consolidated total assets at June 30, 1999 8,328,138 ========== |
NOTE 14. RELATED PARTY TRANSACTIONS
In addition to the Company's receivable from USGIF and USGAF relating to investment management, transfer agent, and other fees, the Company had $1,303,789 and $1,280,768 invested in USGIF money market mutual funds at June 30, 2001 and 2000, respectively. Receivables from mutual funds represent
amounts due the Company and its wholly owned subsidiaries for investment advisory fees, transfer agent fees, and out-of-pocket expenses, net of amounts payable to the mutual funds.
Frank Holmes, a director and CEO of the Company, has served as a director of Franc-Or Resources beginning in June 2000, Broadband Collaborative Solutions in May 2000, and Consolidated Fortress Resources in November 2000. The Company owns positions in Franc-Or Resources, Broadband Collaborative Solutions, and Consolidated Fortress Resources with estimated fair market values of $352,060, $232,944, and $81,547, respectively.
NOTE 15. CONTINGENCIES
In fiscal year 2001, the Company paid $182,115 for losses from shareholder activity incurred by USGIF in previous years. Management consulted with its insurance carrier and internal legal counsel and determined that it was probable that this sum could be claimed against the Company's insurance policy. The deductible on this policy is $25,000. This amount has been expensed, but the remainder is in a receivable until final determination from the insurance carrier is received.
The Company has been named as one of several defendants in a civil law suit filed in New York. Management consulted with internal legal counsel and determined that the Company has strong merits for either having the case dismissed or obtaining a favorable ruling. In addition, the Company has filed a claim against its insurance policy, and the carrier has agreed to coverage of this claim. Legal expenses associated with this law suit have been expensed as incurred.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Within twenty-four months prior to the date of the 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.
PART III OF ANNUAL REPORT ON FORM 10-K
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
NAME AGE POSITION -------------------- --- -------------------------------------------- Frank E. Holmes 46 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 Consolidated Fortress since November 2000. Jerold H. Rubinstein 63 Director of the Company since October 1989. Chairman and Chief Executive Officer of Xtra Music from July 1997 to May 2000. Chairman of the Board of Directors and Chief Executive Officer of DMX Inc. from May 1986 to July 1997. Chairman of Musicplex, Inc. September 1999 to present. Roy D. Terracina 55 Director of the Company since December 1994 and Vice Chairman of the Board of Directors since May 1997. Owner of Sunshine Ventures, Inc., an investment company, since January 1994. J. Stephen Penner 60 Director since May 1997. From March 1982 through November 2000 held various positions with LCG Associates. Mr. Penner currently serves as President and CEO of Fiduciary Advisory and Management Co., Inc. Thomas F. Lydon, Jr. 41 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 42 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. Bobby D. Duncan 44 Chief Financial Officer and Chief Operating Officer of the Company since December 2000. From 1985 through 1999, Mr. Duncan served in various positions with the Company, its subsidiaries, and the investment companies it sponsors. Mr. Duncan served as Chief Financial Officer for Robbins Research International, Inc. from 1999 through 2000. |
None of the directors or executive officers of the Company has a family relationship with any of the other directors or executive officers.
The members of the board of directors are elected for one-year terms or until their successors are elected and qualified. The board of directors appoints the executive officers of the Company. The
Company's Compensation Committee consists of Messrs. Holmes, Terracina, and Rubinstein. The Company's Audit Committee consists of Messrs. Penner, Rubinstein, and Terracina. The Stock Option Committee consists of Messrs. Penner, 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, 2001, all Section 16(a) filing requirements applicable to its directors, officers, and more than 10% beneficial owners were met.
ITEM 11. EXECUTIVE COMPENSATION
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, 2001, fiscal year) and amounts for Company savings plans (calculable through the end of the June 30, 2001, fiscal year).
LONG-TERM COMPENSATION ANNUAL COMPENSATION AWARDS ---------------------------------------------------------------------- ------------------------ (A) (B) (C) (D) (E) (F) (G) -------------------------- ---- ---------- --------- --------- ----------- --------- OTHER ANNUAL NAME AND COMPEN- RESTRICTED NUMBER OF PRINCIPAL POSITION SATION(1) STOCK OPTIONS/ DURING FY 2001 YEAR SALARY ($) BONUS ($) ($) AWARDS ($) SARS (2) -------------------------- ---- ---------- --------- --------- ----------- --------- Frank E. Holmes 2001 318,280 141,918 64,817(3) 100,000 (4) -- Chairman, Chief Executive 2000 318,280 58,602 48,640 50,000 (4) -- Officer 1999 318,280 92,054 41,780 338 -- Susan B. McGee 2001 139,054 46,867 -- -- -- President, General Counsel 2000 135,886 55,857 -- -- 15,000 1999 132,408 43,491 -- 338 -- -------------------- (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 trustee fees of $52,000 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 1999, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008. Issuance was in part to compensate him for his efforts and upon cancellation of Mr. Holmes' warrants and option to acquire 986,122 shares of class C common stock. |
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, 2001, 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 contributes to participants' accounts at the same time that the employee's pay deferral is made.
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. A similar savings plan utilizing UGMA accounts is 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 the Securities Exchange Act of 1934 (1934 Act) Rule 16b-3. As of June 30, 2001, under this plan, 202,500 options were granted, 88,000 options had been exercised, 111,000 options had expired, and 3,500 options remained outstanding. The 1985 Plan, as amended, terminated on December 31, 1994.
In November 1989 the board of directors adopted the 1989 Non-Qualified Stock Option Plan (1989 Plan) which provides for the granting of options to purchase shares of the Company's class A common stock to directors, officers and employees of the Company and its subsidiaries. On December 6, 1991, shareholders approved and amended the 1989 Plan to provide provisions to cause the plan and future grants under the plan to qualify under 1934 Act Rule 16b-3. The 1989 Plan is administered by a committee consisting of three 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, 2001, there were no grants. As of June 30, 2001, under this amended plan, 876,700 options had been granted, 393,000 options had been exercised, 273,400 options had expired, and 210,300 options remained outstanding.
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 three 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, 2001, there were no options granted. As of June 30, 2001, 240,500 options had been granted; 6,000 shares had been exercised; 106,500 options had expired; 128,000 options remained outstanding.
Shares available for stock option grants under the 1989 Plan and the 1997 Plan aggregate to approximately 196,700 and 66,000 shares, respectively, on September 20, 2001.
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 FOR OPTION INDIVIDUAL GRANTS 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 N/A 0 0 Susan B. McGee 0/0 0/0 0 N/A 0 0 |
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 AT FY END AT FY END (%) --------------- ---------------- -------- ------------- ------------- NUMBER OF 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 nonemployee 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, 2001, the nonemployee directors each received cash compensation of $12,000. Mr. Terracina was also a director of STFC for which he received cash compensation of $2,700. Directors are reimbursed for reasonable travel expenses incurred in attending the meetings held by the board of directors.
REPORT ON EXECUTIVE COMPENSATION
The board appointed Messrs. Holmes, 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 August 1999, in part to compensate him for these efforts and upon cancellation of Mr. Holmes' warrants and option to acquire 986,122 shares of class C common stock, the board approved the issuance of 1,000,000 shares of class C common stock to Mr. Holmes to be vested over a ten-year period beginning with fiscal year 1998, with an annual compensation value of $50,000. Mr. Holmes will be fully vested on June 30, 2008.
The base pay of the executives is relatively fixed, but the executive has the opportunity to increase his/her compensation by participating directly in retirement and savings programs whereby the Company will contribute amounts relative to the executive's contribution.
The Company has utilized option grants under the 1985 Plan, the 1989 Plan, and the 1997 Plan to induce qualified individuals to join the Company with a base pay consistent with the foregoing, thereby providing the individual with an opportunity to benefit if there is significant Company growth. Similarly, options have been utilized to reward existing employees for long and faithful service and to encourage them to stay with the Company. 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
{Linear graph plotted from data in table below.]
FT GOLD RUSSELL S&P 500 MINES 2000 U.S. TOTAL INDEX (NO TOTAL GLOBAL RETURN DIVIDEND RETURN INVESTORS DATE INDEX REINVEST) INDEX CLASS A --------- --------- --------- --------- --------- 30-Jun-96 10,000.00 10,000.00 10,000.00 10,000.00 31-Jul-96 9,558.19 9,896.12 9,126.54 8,260.87 31-Aug-96 9,759.82 10,073.09 9,656.49 8,695.65 30-Sep-96 10,309.15 9,182.57 10,033.83 9,347.83 31-Oct-96 10,593.48 9,311.10 9,879.19 8,260.87 30-Nov-96 11,394.21 9,298.65 10,286.23 8,260.87 31-Dec-96 11,168.44 9,042.29 10,555.82 8,260.87 31-Jan-97 11,866.19 8,421.37 10,766.80 9,565.22 28-Feb-97 11,959.19 9,458.52 10,505.73 8,260.87 31-Mar-97 11,468.01 8,116.91 10,010.00 7,173.91 30-Apr-97 12,152.42 7,282.23 10,037.90 6,086.96 31-May-97 12,892.31 7,784.49 11,154.61 6,304.35 30-Jun-97 13,469.90 6,906.56 11,632.68 6,956.52 31-Jul-97 14,541.67 7,012.23 12,173.96 8,260.87 31-Aug-97 13,727.05 7,001.22 12,452.53 8,478.26 30-Sep-97 14,478.80 7,562.14 13,363.96 7,608.70 31-Oct-97 13,995.28 6,156.77 12,776.89 7,608.70 30-Nov-97 14,643.10 4,847.65 12,694.22 7,826.09 31-Dec-97 14,894.60 5,247.31 12,916.45 6,521.74 31-Jan-98 15,059.38 5,542.89 12,712.58 6,956.52 28-Feb-98 16,145.49 5,340.88 13,652.62 8,260.87 31-Mar-98 16,972.29 5,678.22 14,215.62 9,130.43 30-Apr-98 17,143.08 6,438.42 14,294.31 8,913.04 31-May-98 16,848.35 5,390.62 13,524.47 7,826.09 30-Jun-98 17,532.75 4,928.17 13,552.91 6,956.52 31-Jul-98 17,346.06 4,465.88 12,455.73 5,652.17 31-Aug-98 14,838.21 3,478.87 10,037.12 5,000.00 30-Sep-98 15,788.75 5,459.09 10,822.59 5,434.78 31-Oct-98 17,073.01 5,519.49 11,264.01 4,565.22 30-Nov-98 18,107.80 5,231.99 11,854.13 5,434.78 31-Dec-98 19,151.27 4,633.78 12,587.63 5,434.78 31-Jan-99 19,952.11 4,622.18 12,754.93 5,652.17 28-Feb-99 19,332.05 4,321.09 11,721.83 7,173.91 31-Mar-99 20,105.46 4,309.04 11,904.84 5,217.39 30-Apr-99 20,884.05 5,047.83 12,971.62 4,782.61 31-May-99 20,390.87 4,107.32 13,161.11 5,000.00 30-Jun-99 21,522.51 4,388.63 13,756.23 4,347.83 31-Jul-99 20,850.50 4,188.10 13,378.81 4,782.61 31-Aug-99 20,747.36 4,452.89 12,883.63 5,000.00 30-Sep-99 20,178.60 5,599.72 12,886.45 5,217.39 31-Oct-99 21,455.54 4,857.86 12,938.64 5,652.17 30-Nov-99 21,891.66 4,641.57 13,711.22 5,217.39 31-Dec-99 23,180.99 4,603.04 15,263.33 5,217.39 31-Jan-00 22,016.32 4,062.10 15,018.21 5,652.17 29-Feb-00 21,599.56 4,190.33 17,498.24 7,608.70 31-Mar-00 23,712.51 3,876.10 16,344.57 5,652.17 30-Apr-00 22,999.22 3,750.25 15,361.01 5,217.39 31-May-00 22,527.33 3,863.51 14,465.75 5,869.57 30-Jun-00 23,082.70 4,003.89 15,726.79 6,086.96 31-Jul-00 22,721.82 3,613.25 15,220.83 5,869.57 31-Aug-00 24,133.17 3,658.42 16,382.16 5,434.78 30-Sep-00 22,859.10 3,463.99 15,900.65 5,217.39 31-Oct-00 22,762.46 2,936.84 15,190.90 4,891.48 30-Nov-00 20,967.88 3,097.65 13,631.52 3,913.04 31-Dec-00 21,070.51 3,389.71 14,802.23 3,695.65 31-Jan-01 21,818.07 3,309.63 15,572.85 3,913.04 28-Feb-01 19,828.66 3,544.27 14,551.08 4,239.30 31-Mar-01 18,572.50 3,195.43 13,839.30 4,130.43 30-Apr-01 20,015.78 3,725.66 14,921.94 4,000.00 31-May-01 20,149.88 3,853.39 15,288.73 3,652.17 30-Jun-01 20,149.88 3,849.82 15,816.65 3,721.74 |
The graph above 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 (without dividend reinvestment),
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, 1996, and that all dividends are reinvested.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
CLASS C COMMON STOCK (VOTING STOCK)
At September 20, 2001, 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 BENEFICIALLY ISSUED OWNED CLASS C OUTSTANDING NAME AND ADDRESS OF BENEFICIAL OWNER COMMON (%) SHARES ------------------------------------ ------------- ----------- Frank E. Holmes 1,392,211 (1) 93.01% 7900 Callaghan Road San Antonio, TX 78229 |
---------------------- 1) Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a ten-year period and will be fully vested on June 30, 2008, 102,280 shares owned by F. E. Holmes Organization Inc., 285,000 shares owned directly by Mr. Holmes, and 4,931 shares owned by Mr. Holmes in an IRA.
CLASS A COMMON STOCK (NONVOTING STOCK)
At September 20, 2001, there were 5,953,887 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 COMMON SHARES BENEFICIALLY PERCENT OF NAME AND ADDRESS OF BENEFICIAL OWNER OWNED CLASS (%) ------------------------------------ ------------- ----------- Frank E. Holmes - San Antonio, Texas 332,458(1) 5.58% Mason Hill Asset Management, Inc. - New York, New York 409,000(2) 6.87% Royce & Associates, Inc. - New York, New York 386,205(3) 6.49% RS Investment Management Co., LLC - San Francisco, CA 394,750(4) 6.63% ---------------------- |
(1) Detail of beneficial ownership set forth below under "Security Ownership of Management."
(2) Mason Hill Asset Management, Inc. owns 250,500 shares or 4.21%. Equinox Partners, LP owns 158,500 shares or 2.66%. 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 February 5, 2001, filed with the SEC.
(4) Information is from Schedule 13G dated February 15, 2001, filed with the SEC. The beneficial owner is a group that includes RS Investments Co., LLC, RS Investment Management L.P., RS Value Group LLC, and The RS Orphan Fund L.P.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of September 20, 2001, information regarding the beneficial ownership of the Company's class A and class C common stock by each director and by all directors and executive officers as a group. Except as otherwise indicated in the notes below, each director owns directly the number of shares indicated in the table and has sole voting power and investment power with respect to all such shares.
CLASS C CLASS A COMMON STOCK COMMON STOCK ---------------------- -------------------- NUMBER NUMBER OF OF BENEFICIAL OWNER SHARES % SHARES % --------------------- ----------- ------ --------- ----- Frank E. Holmes 1,392,211(1) 93.01% 332,458(2) 5.58% Thomas F. Lydon, Jr. -- -- 10,000(3) 0.17% Susan B. McGee -- -- 56,097(3) 0.94% J. Stephen Penner -- -- 10,000(3) 0.17% Jerold H. Rubinstein -- -- 50,000(3) 0.84% Roy D. Terracina -- -- 89,100(3) 1.50% All directors and executive officers as a group (six persons) 1,392,211 93.01% 547,655 9.20% ------------------------ |
(1) Includes 1,000,000 shares of class C common stock issued to Mr. Holmes that will be vested in equal amounts over a period of ten years and will be fully vested on June 30, 2008, 102,280 shares owned by F. E. Holmes Organization Inc., 285,000 shares owned directly by Mr. Holmes, and 4,931 shares owned by Mr. Holmes in an IRA.
(2) Includes options to obtain 101,000 shares of class A common stock, 100,000 shares of class A common stock held by F.E. Holmes Organization, Inc., a corporation wholly owned by Mr. Holmes, 72,341 shares owned directly by Mr. Holmes, 57,817 shares owned by Mr. Holmes in retirement accounts, and 1,300 shares of class A common stock owned separately by Mr. Holmes' wife. Mr. Holmes disclaims beneficial ownership of these 1,300 shares of class A common stock.
(3) Includes shares of class A common stock underlying presently exercisable options held directly by each individual as follows: Mr. Lydon - 10,000 shares; Ms. McGee - 51,500 shares; Mr. Penner - 10,000 shares; Mr. Rubinstein - 50,000 shares; and Mr. Terracina - 51,000 shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
U.S. Global is invested in several of the mutual funds it manages. There is incorporated in this Item 13 those items appearing under Note 14 to the Consolidated Financial Statements and filed as a part of this report.
PART IV OF ANNUAL REPORT ON FORM 10-K
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
1. FINANCIAL STATEMENTS
The Consolidated Financial Statements including:
o Report of Independent Accountants
o Consolidated Balance Sheets at June 30, 2001 and 2000
o Consolidated Statements of Operations for the three years ended June 30, 2001
o Consolidated Statements of Shareholders' Equity for the three years ended June 30, 2001
o Consolidated Statements of Cash Flows for the three years ended June 30, 2001
o Notes to Consolidated Financial Statements
2. FINANCIAL STATEMENT SCHEDULES
None.
3. EXHIBITS
3.1 Third Restated and Amended Articles of Incorporation of Company, incorporated by reference to the Company's Form 10-K for the fiscal year ended June 30, 1996 (EDGAR Accession Number 0000754811-96-000025).
3.2 By-Laws of Company, incorporated by reference to Exhibit D of the Company's Registration Statement No. 33-33012 filed on Form S-8 with the Commission on January 30, 1990, as amended (EDGAR Accession Number 0000754811-00-000017).
10.1 Advisory Agreement dated October 27, 1989, by and between Company
and United Services Funds, incorporated by reference to Exhibit
(4)(b) of the Company's Form 10-K for fiscal year ended June 30,
1990 (EDGAR Accession No. 0000101507-99-000019).
10.2 Advisory Agreement dated September 21, 1994, by and between Company and Accolade Funds, incorporated by reference to Exhibit 10.2 of Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).
10.3 Sub-Advisory Agreement dated September 21, 1994, by and between Company, Accolade Funds/Bonnel Growth Fund and Bonnel, Inc., incorporated by reference to Exhibit 10.3 of
Company's Form 10-K for fiscal year ended June 30, 1995 (EDGAR Accession Number 0000754811-95-000002).
10.4 Sub-Advisory Agreement dated November 15, 1996, by and between Company, U.S. Global Accolade Funds/MegaTrends Fund, and Money Growth Institute, Inc., incorporated by reference to Post-Effective Amendment No. 5 to Registration Statement on Form N-1A dated June 21, 1996 (EDGAR Accession No. 0000902042-96-000046). 10.5 Sub-Advisory Agreement dated February 28, 1997, by and between Company, U.S. Global Accolade Funds/Regent Eastern European Fund, and Regent Fund Management Limited incorporated by reference to Post-Effective Amendment No. 9 to Registration Statement on Form N-1A dated December 24, 1996 (EDGAR Accession No. 0000902042-96-000083). 10.6 Transfer Agency Agreement dated December 15, 2000, by and between United Shareholder Services, Inc. and U.S. Global Accolade Funds incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005). 10.7 Transfer Agency Agreement dated February 21, 2001, by and between United Shareholder Services, Inc. and U.S. Global Investors Funds, included herein. 10.8 Loan Agreement between Company and Bank One NA, dated February 1, 2001, and for refinancing building, included herein. 10.9 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. 0000754811-97-000004). 10.10 United Services Advisors, Inc. 1989 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4(a) of the Company's Registration Statement No. 33-3012, Post-Effective Amendment No. 2, filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000004). 10.11 U.S. Global Investors, Inc. 1997 Non-Qualified Stock Option Plan, incorporated by reference to Exhibit 4 of the Company's Registration Statement No. 333-25699 filed on Form S-8 with the Commission on April 23, 1997 (EDGAR Accession No. 0000754811-97-000003). 10.12 Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 82 to Registraton Statement on Form N-1A dated September 2, 1998 (EDGAR Accession No. 0000101507-98-000031). 10.13 Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., included herein. 10.14 Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., included herein. 10.15 Amendment dated February 21, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Investors Funds and Brown Brothers Harriman & Co., included herein. 10.16 Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 13 to Registration Statement on Form N-1A dated January 29, 1998 (EDGAR Accession No. 0000902042-98-000006). 37 |
10.17 Amendment dated May 14, 1999, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 16 to Registration Statement on Form N-1A dated February 29, 1999 (EDGAR Accession No. 0000902042-99-000004). 10.18 Amendment dated June 30, 2001, to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., included herein. 10.19 Appendix A to Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co., included herein. 10.20 Amendment dated February 16, 2001, to Appendix B of the Custodian Agreement dated November 1, 1997, between U.S. Global Accolade Funds and Brown Brothers Harriman & Co. incorporated by reference to Post-Effective Amendment No. 18 to Registration Statement on Form N-1A dated February 28, 2001 (EDGAR Accession No. 0000902042-01-500005). 10.21 Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Accolade Funds dated September 3, 1998, incorporated by reference to Exhibit 10.12 of Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 10.22 Distribution Agreement by and between U.S. Global Brokerage, Inc. and U.S. Global Investors Funds dated September 3, 1998, incorporated by reference to Exhibit 10.13 of Company's Form 10-K for fiscal year ended June 30, 1998 (EDGAR Accession Number 0000754811-98-000009). 11 Statement regarding Computation of Per Share Earnings, included herein. 21 List of Subsidiaries of the Company, included herein. 24 Power of Attorney, included herein. |
(b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
U.S. GLOBAL INVESTORS, INC.
BY: /s/ Frank E. Holmes ------------------------------------------- FRANK E. HOLMES Chief Executive Officer Date: September 28, 2001 |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE CAPACITY IN WHICH SIGNED DATE /s/ Frank E. Holmes -------------------------- FRANK E. HOLMES Chairman of the Board September 28, 2001 of Directors, Chief Executive Officer, Chief Investment Officer * /s/ Thomas F. Lydon, Jr. -------------------------- THOMAS F. LYDON, JR. Director September 28, 2001 * /s/ Stephen J. Penner -------------------------- STEPHEN J. PENNER Director September 28, 2001 * /s/ Jerold H. Rubinstein -------------------------- JEROLD H. RUBINSTEIN Director September 28, 2001 * /s/ Roy D. Terracina -------------------------- ROY D. TERRACINA Director September 28, 2001 /s/ Bobby D. Duncan -------------------------- BOBBY D. DUNCAN Chief Financial Officer September 28, 2001 Chief Operating Officer /s/ Tracy C. Peterson -------------------------- TRACY C. PETERSON Chief Accounting Officer September 28, 2001 *BY: /s/ Susan B. McGee -------------------------- SUSAN B. MCGEE September 28, 2001 Attorney-in-Fact under Power of Attorney dated September 26, 2001 |
TRANSFER AGENCY AGREEMENT
THIS AGREEMENT is made as of the 21st day of February 2001 by and between U.S. Global Investors Funds, an unincorporated business trust organized under the laws of the Commonwealth of Massachusetts, having its principal office and place of business at 7900 Callaghan Road, San Antonio, Texas 78229 (hereinafter referred to as the "Trust"), and United Shareholder Services, Inc., a Texas corporation authorized to do business at 7900 Callaghan Road, San Antonio, Texas 78229 (hereinafter referred to as the "Transfer Agent").
WITNESSETH:
That for and in consideration of the mutual promises hereinafter set forth, the Trust on behalf of each Sub-Trust and the Transfer Agent agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following words and phrases, unless the context otherwise requires, shall have the following meanings:
(a) "Authorized Person" includes the President, any Vice President, the Secretary, Treasurer, the persons listed in Appendix A hereto, or any other person, whether or not the person is an Officer or employee of the Trust, duly authorized to give Oral Instructions and Written Instructions on behalf of the Trust as indicated in a certification pursuant to Section 7(d) or 7(e) hereof as the Transfer Agent may receive from time to time;
(b) "Certificate" means any notice, instruction, or other instrument in writing, authorized or required by this Agreement to be given to the Transfer Agent, which the Transfer Agent actually receives and which any two Officers of the Trust have signed on its behalf;
(c) "Commission" has the meaning given it in the 1940 Act;
(d) "Custodian" refers to the custodian of all of the securities and other moneys the Trust owns;
(e) "Declaration of Trust" means the Master Trust Agreement and Declaration of Trust of United Services Funds dated July 31, 1984, as it is amended from time to time;
(f) "Officer" means the President, Vice President, Secretary, and Treasurer;
(g) "Oral Instructions" means instructions orally communicated to and actually received by the Transfer Agent from an Authorized Person or from a person the Transfer Agent reasonably believes to be an Authorized Person;
(h) "Prospectus" means the most current effective prospectus relating to the particular Sub-Trust's Shares under the Securities Act of 1933, as amended;
(i) "Shares" refers to the transferable units of interest into which the beneficial interest in the Trust or any Sub-Trust of the Trust (as the context may require) shall be divided from time to time;
(j) "Shareholder" means a record owner of Shares;
(k) "Sub-Trust" means each series of Shares established and designated under or in accordance with the provisions of Article IV of the Declaration of Trust, as listed in Appendix C, as the Trust may modify from time to time;
(l) "Trust" refers to the Massachusetts business trust established under the Declaration of Trust;
(m) "Trustees" or "Board of Trustees" refers to the duly elected Trustees of the Trust;
(n) "Written Instruction" means a written communication the Transfer Agent actually receives from an Authorized Person or from a person the Transfer Agent reasonably believes to be an Authorized Person by telex or any other system whereby the receiver of a communication is able to verify through codes or otherwise with a reasonable degree of certainty the authenticity of the sender of the communication; and
(o) The "1940 Act" refers to the Investment Company Act of 1940 and the regulations thereunder.
2. REPRESENTATION OF TRANSFER AGENT. The Transfer Agent does hereby represent and warrant to the Trust that it is duly registered as a transfer agent as provided in Section 17A(c) of the Securities Exchange Act of 1934, as amended. The Transfer Agent represents that it is duly organized and existing and in good standing under the laws of the state of Texas; that it is empowered under applicable laws and by its organizational documents and By-laws to enter into and perform this agreement; that all necessary filings with the states will have been made and will be current during the term of this agreement; and that no legal or administrative proceedings have been instituted or threatened that would impair the Transfer Agent's ability to perform its duties and obligations under this Agreement.
3. REPRESENTATIONS OF THE TRUST. The Trust represents to the Transfer Agent that, as of the date hereof, all outstanding Shares are validly issued, fully paid, and non-assessable by the Trust. The Trust may hereafter issue an unlimited number of Shares of each Sub-Trust presently existing or hereafter created. When Shares are hereafter issued in accordance with the terms of the Prospectus, the Shares shall be validly issued, fully paid, and non-assessable by the Trust. The Trust represents that it is validly existing under the laws of the Commonwealth of Massachusetts; that it is empowered under applicable laws and by its Declaration of Trust and By-laws to enter into and perform this agreement; that it is registered under the 1940 Act; that a registration statement on Form N-1A has been filed and will be effective during the term of this agreement; that all necessary filings with the states (including all registration or filing fees) will have been made and will be current during the term of this agreement; and that no legal or administrative proceedings have been instituted or threatened that would impair the Fund's ability to perform its duties and obligations under this Agreement.
4. APPOINTMENT OF THE TRANSFER AGENT. The Trust hereby appoints and constitutes the Transfer Agent as transfer agent for all of the Shares of each Sub-Trust of the Trust in existence as of the date hereof, and as shareholder-servicing agent for the Trust and the Transfer Agent accepts these appointments and agrees to perform the duties herein set forth. If the Board of Trustees, pursuant to Article IV of the Declaration of the Trust, hereafter designates and establishes one or more new Sub-Trusts, the Transfer Agent agrees that it will act as transfer agent and shareholder servicing agent for the new Sub-Trust(s) on the terms set forth herein. The Trust shall cause a written notice to be sent to the Transfer Agent to the effect that it has established a new Sub-Trust and that it appoints the Transfer Agent as transfer agent and shareholder servicing agent for the new Sub-Trust. Compensation of the Transfer
Agent shall be established pursuant to Section 5 hereof. The Trust shall provide any documents as are specified in Sections 6 and 7 hereof as the Transfer Agent may reasonably request.
5. COMPENSATION.
(a) Each Sub-Trust will compensate the Transfer Agent for its services rendered under this Agreement in accordance with the fees set forth in the Fee Schedule annexed hereto and incorporated herein for the existing Sub-Trusts, except as provided in paragraph 5(e) of this Agreement. The Fee Schedule shall specify out-of-pocket disbursements of the Transfer Agent for which the Transfer Agent shall be entitled to bill separately. No Sub-Trust shall be liable for any expenses, debts, or obligations arising under this Agreement of any other Sub-Trust.
(b) The parties will agree upon the compensation for acting as Transfer Agent for any Sub-Trust hereafter designated and established at the time that the Transfer Agent commences serving as transfer agent for that Sub-Trust, and this agreement shall be reflected in a Fee Schedule for that Sub-Trust, dated and signed by an authorized officer of each party, to be attached to this Agreement.
(c) Any compensation to be paid under this agreement may be adjusted by attaching to this Agreement a revised Fee Schedule, approved by the Board of Trustees of the Trust and dated and signed by an Officer of each party.
(d) The Transfer Agent will bill the Trust for each Sub-Trust as soon as practicable after the end of each calendar month, and the billings will be detailed in accordance with the Fee Schedule for each Sub-Trust. The Trust promptly will pay the amount of the bill to the Transfer Agent.
(e) From time to time the Transfer Agent may request that the Trust pay for part or all of the services or products provided through, or maintenance or improvements made to, the Trust's website. These costs include, but are not limited to, providing online account access and banking transactions, shareholder communications via e-mail, online NAV information, and responding to online requests from current investors for a prospectus or other fund information. The Trust shall pay for that portion of the costs which represents the portion of website visitors who are shareholders accessing the website to obtain or change account information, to engage n transactions related to their existing accounts, or to obtain or request information about the Trust. These costs shall be allocated pursuant to reasonable procedures or formulae mutually agreed upon from time to time, which procedures or formulae shall to the extent practicable reflect studies of relevant empirical data.
6. DOCUMENTS. In connection with the appointment of the Transfer Agent, the Trust shall, on or before the date this Agreement goes into effect, provide copies of the following documents to the Transfer Agent:
(a) A copy of the Declaration of Trust as then in effect;
(b) A copy of the By-laws of the Trust, as then in effect;
(c) A copy of the resolution of the Trustees authorizing this Agreement;
(d) If applicable, a specimen of the certificate for Shares of each Sub-Trust of the Trust in the form the Trustees approved, with a certificate of the Secretary of the Trust as to this approval;
(e) All account application forms and other documents relating to Shareholder accounts or relating to any plan, program or service the Trust offers;
(f) If applicable, a list of Shareholders of the existing Sub-Trusts with the name, address, and tax identification number of each Shareholder, and the number of Shares of the existing Sub-Trusts each Shareholder holds, certificate numbers and denominations (if any certificates have been issued), lists of any accounts against which stops have been placed, together with the reasons for the stops, and the number of Shares the Sub-Trusts redeemed; and
(g) A copy of the opinion of counsel for the Trust on the validity of the Shares and the status of the shares under the Securities Act of 1933.
7. FURTHER DOCUMENTATION. The Trust will also furnish to the Transfer Agent from time to time the following documents:
(a) Each resolution of the Trustees authorizing the original issue of Shares or establishing a new Sub-Trust;
(b) Each Registration Statement filed with the Commission, and all amendments and orders pertaining to the Registration Statement, in effect for the sale of Shares of the Trust;
(c) A copy of each amendment to the Declaration of Trust by the By-laws of the Trust;
(d) Copies of each vote of the Trustees designating Authorized Persons to give instructions to the Transfer Agent;
(e) Certificates as to any change in an Officer or Trustee of the Trust;
(f) Specimens of all new certificates for Shares, accompanied by the Trustees' resolutions approving these forms; and
(g) Any other certificates, documents, or opinions as the Transfer Agent and the Trust may mutually deem necessary or appropriate for the Transfer Agent in the proper performance of its duties.
8. DUTIES OF THE TRANSFER AGENT.
(a) The Transfer Agent shall be responsible for administering and/or performing transfer agent functions, for acting as service agent in connection with dividend and distribution functions, and for performing shareholder account administrative agent functions in connection with the issuance, transfer, and redemption or repurchase (including coordination with the Custodian) of the Trust's Shares. The details of the operating standards and procedures to be followed shall be determined from time to time as the Transfer Agent and the Trust agree.
(b) The Transfer Agent will provide the services listed in Appendix B subject to the control, direction, and supervision of the Board and its designated agents and in compliance with the purchase, sale, and exchange provisions of the Trust's prospectus and statement of additional information as in effect from time to time.
(c) The Transfer Agent shall record the issuance of shares pursuant to Rule 17Ad-10(e) of the 1934 Act and maintain a record of the total number of Shares of each Sub-Trust which are authorized, based upon data the Trust provides to it, and issued and outstanding. The Transfer Agent shall provide the Trust and its agent for preparing and making "blue sky" filings with the states on a regular basis with the total number of Shares of each Sub-Trust which are authorized and issued and outstanding and shall have no obligation, when recording the issuance of Shares, to monitor the issuance of such Shares or to take cognizance of any laws relating to the issue or sale of such Shares, which functions shall be the sole responsibility of the Trust.
(d) The Transfer Agent shall create and maintain all records required by applicable laws, rules, and regulations, including but not limited to records required by Section 31(a) of the 1940 Act and the rules thereunder, as they may be amended from time to time, pertaining to the various functions the Transfer Agent performs and which are not otherwise created and maintained by another party pursuant to contract with the Trust. All such records shall be the property of the Trust at all times and shall be available for its inspection and use. When applicable, the Transfer Agent shall maintain these records for the periods and in the places required by Rule 31a-2 under the 1940 Act. The retention of such records shall be at the expense of the Trust. The Transfer Agent shall make available during regular business hours all record and other data created and maintained pursuant to this Agreement for the reasonable audit and inspection by the Trust, any person the Trust retains, or any regulatory agency having authority over the Trust.
(e) In addition to the duties listed in Appendix B, the Transfer Agent shall perform other duties and functions and shall be paid for these services as the Transfer Agent and the Trust may from time to time agree in writing.
9. RIGHT TO SEEK ASSURANCES. The Transfer Agent reserves the right to refuse to transfer or redeem Shares until it is satisfied that the requested transfer or redemption is legally authorized, and it shall incur no liability for the refusal, in good faith, to make transfers or redemptions that the Transfer Agent, in its judgment, deems improper or unauthorized, or until it is satisfied that there is no basis for any claim adverse to the transfer or redemption. The Transfer Agent may, in effecting transfers, rely upon the provisions of the Uniform Act for the Simplification of Fiduciary Security Transfers or the Uniform Commercial Code, as these may be amended from time to time, which in the opinion of legal counsel for the Trust or of its own legal counsel, protect it in not requiring certain documents in connection with the transfer or redemption of Shares of any Sub-Trust. The Trust shall indemnify the Transfer Agent for any act it does or omits to do in reliance upon these laws or opinions of counsel of the Trust or its own counsel.
10. RELIANCE BY TRANSFER AGENT; INSTRUCTIONS.
(a) The Transfer Agent shall be protected in acting upon any paper or document it believes to be genuine and to have been signed by an Authorized Person and shall not be held to have any
notice of any change of authority of any person until receipt of written certification thereof from the Trust. It shall also be protected in processing Share certificates that it reasonably believes to bear the proper manual or facsimile signatures.
(b) At any time, the Transfer Agent may apply to any Authorized Person of the Trust for Written Instructions, and at the expense of the Trust, may seek advice from legal counsel for the Trust or its own legal counsel, for any matter arising in connection with this Agreement, and it shall not be liable for any action it takes or does not take or suffers in good faith in accordance with these Written Instructions or with the opinion of counsel. In addition, the Transfer Agent, its officers, agents, or employees shall accept instructions or requests from any person representing or acting on behalf of the Trust only if the Transfer Agent, its officers, agents, or employees knows the representative to be an Authorized Person. The Transfer Agent shall have no duty or obligation to inquire into, nor shall the Transfer Agent be responsible for, the legality of any act it does upon the request or direction of Authorized Persons of the Trust.
(c) Notwithstanding any of the foregoing provisions of this Agreement, the Transfer Agent shall be under no duty or obligation to inquire into, and shall not be liable for: (i) the legality of the issue or sale of any Shares of the Trust, or the sufficiency of the amount to be received therefore; (ii) the legality of the redemption of any Shares of the Trust, or the propriety of the amount to be paid therefore; (iii) the legality of the Trust's declaration of any dividend, or the legality of the issue of any Shares of the Trust in payment of any stock dividend; or (iv) the legality of any recapitalization or readjustment of the Shares of the Trust.
11. STANDARD OF CARE AND INDEMNIFICATION.
(a) The Transfer Agent may, in connection with this Agreement, employ agents or attorneys in fact, and shall not be liable for any loss arising out of or in connection with its actions or the actions of its agents or attorneys in fact under this Agreement so long as the Transfer Agent acts in good faith and with due diligence, and is not negligent or guilty of any willful misconduct.
(b) The Trust hereby agrees to indemnify and hold harmless the Transfer Agent from and against any and all claims, demands, expenses, and liabilities (whether with or without basis in fact of law) of any and every nature which the Transfer Agent may sustain or incur or which any person may assert against the Transfer Agent by reason of, or as a result of: (i) any action the Transfer Agent takes or omits to take in good faith in reliance upon any Certificate, instrument, order, or stock certificate it believed to be genuine and to be signed, countersigned, or executed by any duly authorized person, upon the Oral Instructions or Written Instructions of an Authorized Person of the Trust, or upon the opinion of legal counsel for the Trust or its own counsel; or (ii) any good action the transfer Agent takes or is permitted to take in connection with its appointment in good faith in reliance upon any law, act, regulation, or interpretation of the same even though the same may thereafter have been altered, changed, amended, or repealed. However, indemnification hereunder shall not apply to actions or omissions of the Transfer Agent or its directors, officers, employees, or agents in cases of its or their own negligence, willful misconduct, bad faith, or reckless disregard of its or their own duties hereunder.
12. AFFILIATION BETWEEN TRUST AND TRANSFER AGENT. It is understood that the Trustees, officers, employees, agents, and Shareholders of the Trust are or may be interested in the Transfer Agent as directors, officers, employees, agents, stockholders, or otherwise, and that the directors, officers, employees, agents, or stockholders of the Transfer Agent may be interested in the Trust as Trustees, officers, employees, agents, Shareholders, or otherwise. The fact that the officers, Trustees, employees, agents, or Shareholders of the Trust are or may be affiliated persons (as defined in the 1940 Act) of the Transfer Agent shall not affect the validity of this Agreement.
13. TERM.
(a) This Agreement shall become effective on the date hereof (the "Effective Date") and shall continue so long as the continuance is specifically approved at least annually by either a majority of the Trustees or the vote of a majority of the outstanding voting securities (as defined in the 1940 Act).
Any approval of this Agreement by the holders of a majority of the outstanding shares (as defined in the 1940 Act) of any Sub-Trust shall be effective to continue this Agreement for any Sub-Trust notwithstanding: (i) that this Agreement has not been approved by the holders of a majority of the outstanding shares of any other Sub-Trust affected thereby, and (ii) that this Agreement has not been approved by the vote of a majority of the outstanding shares of the Trust, unless this approval shall be required by any other applicable law or otherwise.
(b) This Agreement may be terminated at any time without payment of any penalty by vote of the Trustees of the Trust or by the Transfer Agent on sixty (60) day written notice to the other party. In the event the Trust gives notice, notice shall be accompanied by a resolution of the Board of Trustees, certified by the Secretary, electing to terminate this Agreement and designating a successor transfer agent.
14. AMENDMENT. This Agreement may not be amended or modified in any manner except by a written agreement executed by both parties with the formality of this Agreement and authorized or approved by a resolution of the Board of Trustees.
15. SUBCONTRACTING. The Trust agrees that the Transfer Agent may, in its discretion, subcontract for certain of the services to be provided hereunder.
16. SECURITY. The Transfer Agent represents and warrants that, to the best of its knowledge, the various procedures and systems which the Transfer Agent has implemented for safeguarding from loss or damage attributable to fire, theft, or any other cause (including provision for twenty-four hours a day restricted access) the Trust's blank checks, records, and other data and the Transfer Agent's records, data, equipment, facilities, and other property used in the performance of its obligations hereunder are adequate and that it will make changes therein from time to time as in its judgment are required for the secure performance of its obligations hereunder. The parties shall periodically review these systems and procedures.
17. MISCELLANEOUS.
(a) Any notice or other instrument in writing, authorized or required by this Agreement to be given to the Trust or the Transfer Agent, shall be sufficiently given if addressed to that party
and mailed or delivered to it at its office set forth below or at another place as it may from time to time designate in writing.
TO THE TRUST: TO THE TRANSFER AGENT: U.S. Global Investors Funds United Shareholder Services, Inc. 7900 Callaghan Road 7900 Callaghan Road San Antonio, Texas 78229 San Antonio, Texas 78229 Attention: President Attention: President |
(b) This Agreement shall extend to and shall be binding upon the parties hereto and their respective successors and assigns, provided, however, that neither the Trust nor the Transfer Agent shall assign this Agreement without the written consent of the other.
(c) This Agreement shall be construed in accordance with the laws of the State of Texas.
(d) This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original; but the counterparts shall, together, constitute only one instrument.
(e) If any term or condition of this Agreement shall be invalid or unenforceable to any extent or in any application, then the remainder of this Agreement (including the term or condition to the extent possible) shall not be affected thereby, and each and every term and condition of this Agreement shall be valid and enforceable to the fullest extent and in the broadest application permitted by law.
(f) Neither party may assign this Agreement without the written consent of the other party.
(g) The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive the party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement. Any waiver must be in writing signed by the waiving party.
(h) The Transfer Agent shall not be responsible or liable for any harm, loss, or damage the Trust, its investors, or other third parties suffer or for any failure or delay in the performance of its obligations under this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control. In the event of such circumstances, the Transfer Agent shall use reasonable efforts under the circumstances to mitigate any adverse effects that such circumstances may have upon the Trust, its investors, or any third parties in connection with this Agreement. In the event of a force majeure, any resulting harm, loss, damage, failure, or delay by the Transfer Agent will not give the Trust the right to terminate this Agreement.
18. LIMITATION OF LIABILITY OF TRUSTEES. It is expressly agreed that obligations of the Trust hereunder shall not be binding upon any Trustee, Shareholder, nominees, officers, agents, or employees of the Trust, personally, but bind only the assets and property of the Trust, as provided in the Master Trust Agreement. The execution and delivery of this Agreement have been authorized by the Trustees and signed by an authorized officer of the Trust, acting as such, and neither this authorization nor this execution and delivery shall be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the assets and property of the Trust as provided in the Master Trust Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunder duly authorized and their respective seals to be hereunto affixed, as of the day and year first above written.
U.S. GLOBAL INVESTORS FUNDS
Attest:
By: /s/ Stacy G. Henk By: /s/ Frank E. Holmes ----------------------- Frank E. Holmes President |
S E A L
UNITED SHAREHOLDER SERVICES, INC.
Attest:
By: /s/ Stacy G. Henk By: /s/ Susan B. McGee ----------------------- Susan B. McGee President |
S E A L
FEE SCHEDULE
As compensation for all services the Transfer Agent renders and will render hereunder, each Sub-Trust shall pay to the Transfer Agent an annual fee per investor account for all Sub-Trusts, including equity, bond, and "money market" funds, an annual fee of $23 per account. In connection with obtaining/providing administrative services to the beneficial owners of Trust shares through broker-dealers, banks, trust companies, and similar institutions that provide these services and maintain an omnibus account with the Transfer Agent, each Sub-Trust shall pay to the Transfer Agent a monthly fee equal to one-twelfth (1/12) of 12.5 basis points (.00125%) of the value of the shares of the Sub-Trust held in accounts, at the institutions, which payment shall not exceed $1.92 times the average daily number of accounts holding Trust shares at the institution.
The Transfer Agent shall be entitled to bill the Trust separately for all out-of-pocket disbursements incurred at the direction of the Trust, including, without limitation:
(a) Costs of postage, envelopes, statements, confirmations, forms, labels, and any other materials required to be sent to shareholders;
(b) Costs of stationery and postage for communications with individual shareholders regarding the investment accounts;
(c) Costs of microfilm, and microfilm and electronic storage;
(d) Costs of storage of records to be maintained under applicable laws or regulations;
(e) Telephone and line charges, including "800 service" shareholders use to contact the Transfer Agent, telephone equipment and maintenance contracts;
(f) Processing forms and printing thereof;
(g) Other usual and customary miscellaneous items; and
(h) Electronic communications including firewall service for security 24 hours a day; router communications; bank transaction communications (modems), including modem telephone lines; server hardware (data warehousing, data security, data access); printers; PC hardware and software; and PC maintenance (support and training on computer hardware).
With regard to the costs of items such as telephone and electronic
communications charges which are susceptible to use for multiple purposes, the
Trust shall pay for that portion of the costs which represent usage of such
communications systems for communications by the Transfer Agent with
shareholders of the Trust for purposes of fulfilling its duties as set forth in
Section 8 of the Agreement. These costs shall be allocated pursuant to
reasonable procedures or formulae mutually agreed upon from time to time, which
procedures or formulae shall to the extent practicable reflect studies of
relevant empirical data.
The Trust assesses Account Closing Fees, Small Account Charges, and Account Maintenance Fees to shareholders of certain Sub-Trusts in accordance with the Trust's prospectuses. These fees or
charges shall be paid directly to the Transfer Agent which will, in turn, apply these amounts first to its annual fee and then, in the event aggregate fees and charges exceed its annual fee, to out-of-pocket disbursements incurred at the direction of the Trust. The remainder, if any, shall be paid to the appropriate fund.
APPENDIX A
AUTHORIZED PERSONS
I, Frank E. Holmes, President, and I, Susan B. McGee, Secretary, of U.S. Global Investors Funds, a Massachusetts business trust (the "Trust"), do hereby certify that:
The Board of Trustees of the Trust has duly authorized the following individuals in conformity with the Trust's Declaration of Trust and By-Laws to give Oral Instructions and Written Instructions on behalf of the Trust, and the signatures set forth opposite their respective names are their true and correct signatures:
NAME POSITION SIGNATURE Frank E. Holmes President /s/ Frak E. Holmes Chief Executive Officer ------------------- Chief Investment Officer Susan B. McGee Executive Vice President /s/ Susan B. McGee Secretary ------------------- Bobby D. Duncan Treasurer /s/ Bobby D. Duncan ------------------- |
APPENDIX B
DUTIES OF THE TRANSFER AGENT
The following is a general description of the transfer agency services the Transfer Agent shall provide to each Sub-Trust.
A. SHAREHOLDER RECORD KEEPING. Maintain shareholder and stock transfer
records as required by the rules of the Securities and Exchange
Commission, including records for each shareholder showing: (i) name,
address, appropriate tax certification, and tax identifying number;
(ii) number of shares of each Fund, portfolio, or class; (iii)
historical information including, but not limited to, dividends paid,
date and price of all transactions including individual purchases and
redemptions, based upon appropriate supporting documents; (iv) any
capital gain or dividend reinvestment order, application, specific
address, payment and processing instructions and correspondence
relating to the current maintenance of the account; (v) any stop or
restraining order placed against a Shareholder's account; (vi)
certificate numbers, denominations, and the name of the holder of
record for any Shareholders holding certificates; (vii) any
information required in order for the Transfer Agent to perform the
calculations this Agreement contemplates or requires; and (viii) any
other information and data as applicable law may require.
B. SHARE ISSUANCE. Record the issuance of Shares of each Sub-Trust. Except as specifically agreed in writing between the Transfer Agent and the Trust, the Transfer Agent shall have no obligation when countersigning and issuing and/or crediting Shares to take cognizance of any other laws relating to the issue and sale of Shares except insofar as policies and procedures of the Stock Transfer Association recognize these laws.
C. PURCHASE, EXCHANGE, TRANSFER, AND REDEMPTION ORDERS. Process all orders for the purchase, exchange, transfer, and redemption of shares of the Trust in accordance with the Trust's current prospectus and customary transfer agency policies and procedures, including electronic transmissions which the Trust acknowledges it has authorized, or in accordance with any instructions of the Trust or its agents which the Transfer Agent reasonably believes to be authorized.
1. PURCHASES. Upon the sale of any Shares of a Sub-Trust, the Trust shall transmit, or cause to be transmitted, the following information to the Transfer Agent via a mutually acceptable means of communication, specifying: (i) the name of the Sub-Trust whose Shares were sold; (ii) the number of Shares sold, trade date, and price; (iii) the amount of money to be delivered to the Custodian for the sale of the Shares and specifically allocated to the Sub-Trust; and (iv) in the case of a new account, a new account application or sufficient information to establish an account.
(a) The Transfer Agent will, upon its receipt of a check or other payment it identifies as an investment in Shares of a Sub-Trust and drawn or endorsed to the Transfer Agent as agent for, or identified as being for the account of, a Sub-Trust, promptly deposit the check or other payment to the appropriate account and make such postings as are
necessary to reflect the investment. The Transfer Agent will notify the Trust, or its designee, and the Custodian of all purchases and related account adjustments.
(b) Under procedures as the Trust and Transfer Agent establish, the Transfer Agent shall issue to the purchaser or his authorized agent the Shares he is entitled to receive, based on the appropriate net asset value of the Sub-Trust's Shares, determined in accordance with the Trust's pricing procedures, as approved by the Board of Trustees. In issuing Shares to a purchaser or his authorized agent, the Transfer Agent shall be entitled to rely upon the latest directions, if any, the Transfer Agent previously received from the purchaser or his authorized agent concerning the delivery of the Shares.
(c) The Transfer Agent shall not be required to issue any Shares of the Trust when it has received a Written Instruction from the Trust or written notification from any appropriate Federal or state authority that the sale of the Shares of the Sub-Trust in question has been suspended or discontinued, and the Transfer Agent shall be entitled to rely upon the Written Instruction or written notification.
(d) Upon the issuance of any Shares of any Sub-Trust in accordance with the foregoing provision of this Section, the Transfer Agent shall not be responsible for the payment of any original issue or other taxes the Trust is required to pay in connection with the issuance.
(e) The Transfer Agent may establish additional policies and practices governing the transfer or registration of Shares as it may deem advisable and consistent with those transfer agents generally adopt.
2. EXCHANGES, TRANSFERS, AND REDEMPTIONS. The Transfer Agent is authorized to review and process transfers of Shares of each Sub-Trust, exchanges between Sub-Trusts on the records of the Sub-Trusts the Transfer Agent maintains, exchanges between the Trust and other funds as the Trust's prospectus may permit, and redemptions of Shares of a Sub-Trust. If Shares to be transferred, exchanged, or redeemed are represented by outstanding certificates, the Transfer Agent will, upon surrender to it of the certificates in proper form for transfer, and upon cancellation thereof, in the case of exchanges and transfers, countersign and issue new certificates for a like number of Shares and deliver the same or, in the case of a redemption, cause redemption proceeds to be paid to the shareholder. If the Shares to be exchanged, transferred, or redeemed are not represented by outstanding certificates, the Transfer Agent will, upon receipt of an order therefore by or on behalf of the registered holder thereof in proper form, credit the same to the transferee on its books or process the redemption request. If Shares are to be exchanged for shares of another fund, the Transfer Agent will process the exchange in the same manner as a redemption of sale of Shares, except that it may in its discretion waive requirements for information and documentation.
D. SHAREHOLDER COMMUNICATIONS. The Transfer Agent will transmit all communications by the Trust to its shareholders promptly following the Trust's delivery to the Transfer Agent of the material to be transmitted by mail, telephone, courier service, or electronically.
E. PROXY MATERIALS. In connection with special meetings of Shareholders, the Transfer Agent will prepare Shareholder lists, assist with the mailing or transmission of proxy materials, process
and tabulate returned proxy cards, report on proxies voted prior to meetings, act as teller at meetings, and certify Shares voted at meetings.
F. RETURNED CHECKS. If any check or other order for the transfer of money is returned unpaid for any reason, the Transfer Agent will take any steps as it may, in its discretion, deem appropriate to protect the Trust from financial loss or as the Trust or its designee may instruct, and notify the Fund of the steps taken. If the Transfer Agent adheres to standard procedures, as the Trust and Transfer Agent agree upon from time to time, regarding purchases and redemptions of shares, the Transfer Agent shall not be liable for any loss the Sub-Trust suffers as a result of returned or unpaid purchase or redemption transactions. Except as mutually agreed upon from time to time, legal or other expenses incurred to collect amounts owed to a Sub-Trust as a consequence of returned or unpaid purchase or redemption transaction shall be an expense of that Sub-Trust. A Sub-Trust may, at its option, purchase insurance to reduce its potential losses from collection activities.
G. SHAREHOLDER AND BROKER-DEALER CORRESPONDENCE. The Transfer Agent will investigate all Shareholder inquiries relating to Shareholder accounts and will answer all correspondence from Shareholders, securities brokers, and others relating to its duties hereunder and other correspondence as may from time to time be mutually agreed upon between the Transfer Agent and the Trust.
H. TAX REPORTING. The Transfer Agent shall file appropriate information returns concerning the payment of dividends and capital gain distributions with the proper Federal, State and local authorities as the Trust is required by law to file and shall withhold any sums required to be withheld by applicable law.
I. DIVIDEND DISBURSING. The Transfer Agent will prepare and mail checks, place wire transfers, or credit income and capital gain payments to shareholders. The Trust will advise the Transfer Agent of the declaration of any dividend or distribution and the record and payable date thereof at least five (5) days prior to the record date. The Trust shall furnish to the Transfer Agent a resolution of the Board of Trustees of the Trust certified by the Secretary: (i) authorizing the declaration of dividends on a specified period basis and authorizing the Transfer Agent to rely on Oral Instructions or a Certificate specifying the date of the declaration of the dividend or distribution, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined and the amount payable per share to Shareholders of record as of that date and the total amount payable to the Transfer Agent of the Trust on the payment date; or (ii) setting forth the date of the declaration of any dividend or distribution by a Sub-Trust, the date of payment thereof, the record date as of which Shareholders entitled to payment shall be determined, and the amount payable per share to the Shareholders of record as of that date and the total amount payable to the Transfer Agent on the payment date.
The Transfer Agent will, on or before the payment date of any dividend or distribution, notify the Trust's Custodian of the estimated amount required to pay any portion of the dividend or distribution payable in cash, and on or before the payment date of the distribution, the Trust will instruct its Custodian to make available to the Transfer Agent sufficient funds for the cash amount to be paid out. If the Transfer Agent does not receive from the Custodian sufficient cash to pay all shareholders of the Trust as of the record date, the Transfer Agent shall, upon notifying
the Trust, withhold payment to all Shareholders of record as of the record date until it receives sufficient cash for this purpose.
If a shareholder is entitled to receive additional shares by virtue of any distribution or dividend, appropriate credits will be made to each shareholder's account. The Transfer Agent will calculate, prepare, and mail checks to, or (where appropriate) credit the dividend or distribution to the account of, Sub-Trust Shareholders, and maintain and safeguard all underlying records. The Transfer Agent will replace lost checks at its discretion and in conformity with regular business practices. The Transfer Agent will maintain all records necessary to reflect the crediting of dividends that are reinvested in Shares of the Trust, including without limitation daily dividends. The Transfer Agent shall not be liable for any improper payments made in accordance with a resolution of the Board of Trustees of the Trust.
J. ESCHEATMENT. The Transfer Agent shall provide escheatment services abandoned accounts and returned checks under applicable law and report such actions to the Trust.
K. TELEPHONE SERVICES. The Transfer Agent will provide staff coverage, training, and supervision in connection with the Trust's telephone line for shareholder inquiries, and will respond to inquiries concerning shareholder records, transactions the Transfer Agent processes, procedures to effect the shareholder records, and inquiries of a general nature relative to shareholder services.
L. 12B-1. The Transfer Agent will calculate and process, or will cause to be processed, all 12b-1 payments in accordance with each Fund's current prospectus.
M. COMMISSION PAYMENTS. The Transfer Agent will calculate and process all commission payments in accordance with each Fund's current prospectus.
N. REQUESTS FOR INFORMATION. The Transfer Agent will provide all required information in a timely fashion in support of regulatory filings.
O. SAS 70. The Transfer Agent will make available to the Trust's adviser independent auditor reports in compliance with SAS 70.
P. REGULATORY CHANGES. The Transfer Agent will assist with the analysis and implementation of any changes required by regulatory bodies.
Q. The Transfer Agent will:
1. Provide office facilities for the provision of the services contemplated herein (which may be in the offices of the Transfer Agent or its corporate affiliate);
2. Provide or otherwise obtain personnel sufficient for provision of the services contemplated herein;
3. Furnish equipment and other materials necessary or desirable for provision of the services contemplated herein; and
4. Keep records relating to the services provided hereunder in the form and manner as the Transfer Agent may deem appropriate or advisable. To the extent required by Section 31 of the 1940 Act and the rules thereunder, the Transfer Agent agrees that all records it prepares or maintains relating to the services provided hereunder are the property of the Funds and will be preserved for the periods prescribed under Rule 31a-2 under the 1940 Act, maintained at the Funds' expense, and made available in accordance with Section 31 and the rules thereunder. The Transfer Agent will make available during regular business hours all records and other data created and maintained pursuant to this Agreement for reasonable audit and inspection by the Trust, or any person the Trust retains. Upon reasonable notice by the Trust, the Transfer Agent shall make available during regular business hours its facilities and premises employed in connection with its performance of this Agreement for reasonable visitation by the Trust or any person the Trust retains. The Transfer Agent may, at its option at any time, and shall forthwith upon the Trust's demand, turn over to the Trust and cease to retain in the Transfer Agent's files, records and documents it created and maintained in performance of its services or for its protection. At the end of the six-year retention period, these records and documents either will be turned over to the Trust, or destroyed in accordance with the Trust's authorization.
R. The Transfer Agent shall furnish the Trust any state notice filing reports, any periodic and special reports as the Trust may reasonably request, and other information, including Shareholder lists and statistical information concerning accounts, as the Trust and the Transfer Agent may agree upon.
APPENDIX C
SUB-TRUSTS OF THE TRUST
All American Equity Fund
China Region Opportunity Fund
Equity Income Fund
Global Resources Fund
Gold Shares Fund
Near-Term Tax Free Fund
Tax Free Fund
U.S. Government Securities Savings Fund
U.S. Treasury Securities Cash Fund
World Gold Fund
LOAN AGREEMENT
between
U.S. GLOBAL INVESTORS, INC.
and
BANK ONE, NA
February 1, 2001
LOAN AGREEMENT
This Loan Agreement (the "Loan Agreement") is entered into effective this 1st day of February, 2001, by and between U.S. GLOBAL INVESTORS, INC. ("Borrower), and BANK ONE, NA, with its main office in Chicago, Illinois, ("Bank").
W I T N E S S E T H:
In consideration of the mutual promises herein contained and for other valuable consideration, Borrower and Bank agree as follows:
ARTICLE 1
DEFINITION OF TERMS
1.01. DEFINED TERMS. For the purposes of this Loan Agreement, unless the context otherwise requires, the terms set forth in Appendix A attached hereto, which is incorporated by reference herein and made a part hereof, shall have the respective meanings assigned to them in said Appendix A or in the section referred to in said Appendix A.
1.02. OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Loan Agreement shall have the meanings defined in said Appendix A when used in the Notes or any Loan Documents, certificate, report or other document made or delivered pursuant to this Loan Agreement, unless the context therein shall otherwise require.
(b) Defined terms used herein in the singular shall mean the plural and vice versa.
(c) The words "hereof", "herein", "hereunder" and similar terms when used in this Loan Agreement shall refer to this Loan Agreement as a whole and not to any particular provision of this Loan Agreement.
ARTICLE 2
CREDIT FACILITIES
2.01 CREDIT FACILITIES
(a) REAL ESTATE LOAN. Subject to the terms and conditions and relying on the representations and warranties contained in this Loan Agreement and other Loan Documents, Bank agrees to extend to Borrower a term loan in the amount of ONE MILLION ONE HUNDRED NINE
THOUSAND EIGHT HUNDRED TWENTY SEVEN AND 14/100 DOLLARS ($1,109,827.14), the proceeds of which will be used to renew and extend the amounts left owing and unpaid on that certain Promissory Note dated June 30, 1994, as previously extended and modified in the stated principal amount of $1,375,385.38 (the "Real Estate Loan"). The Real Estate Loan made by Bank under this Section 2.01(a) shall be evidenced by a promissory note (the "Real Estate Note") of even date herewith. The Real Estate Note shall be repayable as follows;
(1) commencing March 1, 2001 and continuing through the installment due August 1, 2001, in equal monthly installments of principal including interest in the amount of $12,319.70; and
(2) commencing September 1, 2001, and continuing on the 1st day of each month thereafter until the Maturity Date, monthly principal including interest installments shall be due in an amount necessary to amortize the balance of principal and accrued but unpaid interest over a twelve (12) year period. The unpaid principal amount of the Real Estate Note shall be due and payable on the "Maturity Date" as defined therein.
(b) REVOLVING CREDIT LOAN. Subject to the terms and conditions and relying on the representations and warranties contained in this Loan Agreement and the other Loan Documents, Bank agrees to extend to Borrower a revolving line of credit, the proceeds of which will be used to support Borrower's working capital needs, and the amount of which outstanding at any time shall not exceed the Commitment Amount (the "Revolving Credit Loan"). Subject to the limits and conditions hereof, Borrower may borrow, repay and reborrow hereunder. Each request for an advance under the Revolving Credit Loan shall be made on a Business Day and shall specify the aggregate amount of the advance which Borrower desires for Bank to make and the requested date of such advance, which date must be a Business Day. The Borrower shall make a request for an advance in writing or by telephone before 1:00 p.m. on the requested date of such advance. Each advance shall be in the aggregate principal amount of $5,000.00 or an integral multiple thereof. After receiving notice of a request for an advance in the manner provided herein, Bank shall, to the extent Borrower is entitled to receive such advance, make the funds available to Borrower on the requested borrowing date at Bank's principal banking office in San Antonio, Texas. The Revolving Credit Loan made by Bank under this Section 2.01(b) shall be evidenced by a revolving line of credit note (the "Revolving Credit Note") of even date herewith. If at any time the aggregate principal amount outstanding under the Revolving Credit Loan shall exceed the Borrowing Base, Borrower agrees to immediately repay Bank such excess amount, plus all accrued but unpaid interest thereon. Interest on the unpaid principal amount of each advance shall be payable monthly as it accrues on the 1st day of each month hereafter commencing March 1, 2001, and on the "Maturity Date" as defined therein. The unpaid principal balance of the Revolving Credit Note shall be due and payable on the Maturity Date.
2.02. INTEREST RATE.
a) REVOLVING CREDIT NOTE. The Revolving Credit Note shall bear interest from the date thereof until maturity at a fluctuating rate per annum which shall from day to day be equal to the lesser of (i) the Maximum Rate (as hereinafter defined), or (ii) the Prime Rate of interest ("PRIME RATE") defined as a rate per annum equal to the prime rate of interest announced from time to time by Bank (which is not necessarily the lowest rate charged any customer or its parent), changing when as the Prime Rate changes.
b) REAL ESTATE NOTE.Through August 31, 2001, the Real Estate Note shall bear interest at a fluctuating rate per annum which shall from day to day be equal to the lesser of (i) the Maximum Rate (as hereinafter defined), or (ii) the Prime Rate of interest ("PRIME RATE") defined as a rate per annum equal to the prime rate of interest announced from time to time by Bank (which is not necessarily the lowest rate charged any customer or its parent), changing when as the Prime Rate changes. Commencing September, 2001, the Real Estate Note shall bear interest at a fixed rate per annum equal to the lesser of (i) the Maximum Rate (as hereinafter defined) or (ii) the Prime Rate as announced by Bank on September 1, 2001.
2.03. PAYMENT PROCEDURE. All payments and prepayments under the Notes or this Loan Agreement shall be made to Bank. All payments under the Notes shall be made at Bank's address set forth in the Notes in immediately available funds before 2:00 p.m., San Antonio, Texas time, on the date that such payment is required to be made. Any payment received and accepted by Bank after such time shall be considered for all purposes (including the calculation of interest, to the extent permitted by law) as having been made on Bank's next following Business Day.
2.04. BUSINESS DAY. If the date for any payment hereunder falls on a day which is not a Business Day, then for all purposes of the Notes, this Loan Agreement and the other Loan Documents the same shall be deemed to have fallen on the next following Business Day, and such extension of time shall in such case be included in the computation of payments of interest or fees, as the case may be.
2.05. PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. The Borrower may, without premium or penalty, prepay all or part of the principal of the Notes then outstanding, in whole or in part, at any time or from time to time.
(b) GENERAL PREPAYMENT PROVISIONS. Any prepayment of the Notes hereunder shall be made together with interest accrued (through the date of such prepayment) on the principal amount prepaid, and applied to the indebtedness owing under such Notes in such order and manner as Bank may from time to time determine in its sole discretion.
2.06. CALCULATION OF INTEREST RATE. Interest on the unpaid principal of the Notes shall be calculated using a daily rate equal to 1/360 of the applicable rate of interest per annum, not to exceed, however, the Maximum Rate.
2.07. MANNER AND APPLICATION OF PAYMENTS. Except for prepayments, which are applied in accordance with Section 2.05, all payments made on the Notes shall be credited, to the extent of the amount thereof, in the following manner: (i) first, against the amount of interest accrued and unpaid on the respective Note as of the date of such payment; (ii) second, against all principal (if any) due and owing on the respective Note as of the date of such payment; and (iii) third, as a prepayment of principal not yet due and owing under the respective Note.
ARTICLE 3
SECURITY FOR THE NOTES
As collateral and security for the indebtedness evidenced by the Revolving Credit Note:
3.01. SECURITY AGREEMENT. Borrower shall execute and deliver to Bank a Security Agreement of even date herewith (the "Security Agreement") granting to Bank a first and prior lien and security interest in:
all present and future accounts of Borrower, defined as accounts receivable, including any right to payment for services rendered, work done or labor performed by Borrower, together with any and all books of account, customer lists and other records relating in any way to the foregoing (including, without limitation, computer software, whether on tape, disk, card, strip, cartridge or any other form), but excluding mutual fund shareholder lists, records, files and accounts, (the "Accounts").
including all PRODUCTS and PROCEEDS of all of the foregoing (including without limitation, insurance payable by reason of loss or damage to the foregoing property) and any property, securities, guaranties or monies of Borrower which may at any time come into the possession of Bank.
3.02 DEED OF TRUST. As collateral and security for the indebtedness evidenced by the Real Estate Note, Borrower shall execute and deliver to Bank a Deed of Trust, Security Agreement and Assignment of Rents and Leases (the "Deed of Trust ") granting to Bank a first and prior lien and security interest in the Mortgaged Property including an assignment of any leases on any portion of the Mortgaged Property.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
To induce Bank to make the Real Estate Loan and the Revolving Credit Loan hereunder, Borrower represents and warrants to Bank that:
4.01. ORGANIZATION AND GOOD STANDING. Borrower is a corporation duly formed, validly existing and in good standing under the laws of the State of Texas, and all other states where it is doing business and has the requisite power and authority to own its properties and assets and to transaction their business in which it is engaged and is or will be qualified in those states wherein it purposes to transact business in the future.
4.02. AUTHORIZATION AND POWER. Borrower, has the power and requisite authority to execute, deliver and perform this Loan Agreement, the Notes, and the other Loan Documents to be executed by and on behalf of Borrower, is duly authorized to, and has taken all action necessary to, execute, deliver and perform this Loan Agreement, the Notes, and such other Loan Documents, and is and will continue to be duly authorized to perform this Agreement, the Notes, and such other Loan Documents.
4.03. NO CONFLICTS OR CONSENTS. Neither the execution and delivery of this Loan Agreement, the Notes, or the other Loan Documents, nor the consummation of any of the transactions herein or therein contemplated, nor compliance with the terms and provisions hereof or with the terms and provisions thereof, will contravene or materially conflict with any provision of law, statute or regulation to which Borrower is subject, or any judgment, license, order or permit applicable to Borrower, or any indenture, loan agreement, mortgage, deed of trust, or other agreement or instrument to which Borrower is a party or by which Borrower may be bound, or to which Borrower may be subject, or violate any provision of the articles of incorporation or bylaws of Borrower. No consent, approval, authorization or order of any court or Governmental Authority or third party is required in connection with the execution and delivery by Borrower of the Loan Documents or to consummate the transactions contemplated hereby or thereby.
4.04. ENFORCEABLE OBLIGATIONS. This Loan Agreement, the Notes, and the other Loan Documents are the legal and binding obligations of Borrower, enforceable in accordance with their respective terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors' rights.
4.05. NO LIENS. Except for Permitted Liens, all of the properties and assets of Borrower are free and clear of all mortgages, liens and encumbrances and other adverse claims of any nature.
4.06. NO LEGAL BAR OR RESULTANT LIEN. Neither the execution, the delivery nor the performance by Borrower of the Notes, or any of the Loan Documents (including this Agreement) to which it is a party will violate any contract, agreement, instrument or governmental requirement to which Borrower is subject, or result in the creation or imposition of any Lien upon any of its properties, other than those permitted by this Agreement.
4.07. FINANCIAL CONDITION. Each financial statement of Borrower supplied to Bank is true and correct, in all material respects fairly presents the financial condition of Borrower as of such date and has been prepared in accordance with sound accounting principles applied on a basis consistent with that of prior periods; as of the date hereof, there are no obligations, liabilities or indebtedness (including contingent and indirect liabilities and obligations or unusual forward or long-term commitments) of Borrower which are (separately or in the aggregate) material and are not reflected in such financial statements or returns; no changes having a Material Adverse Effect have occurred in the financial condition of Borrower or business of Borrower since the date of the most recent comprehensive financial information supplied by Borrower to Bank.
4.08. FULL DISCLOSURE. There is no material fact that Borrower has not disclosed to Bank which could have a Material Adverse Effect on the properties, business, prospects or condition (financial or otherwise) of Borrower. To the best of Borrower's actual knowledge, neither the financial statements and returns referred to in Section 4.07 hereof, nor any certificate or statement delivered herewith or heretofore by Borrower to Bank in connection with negotiations of this Loan Agreement, contain any untrue statement of a material fact or omits to state any material fact necessary to keep the statements contained herein or therein from being misleading.
4.09. NO DEFAULT. No event has occurred and is continuing which constitutes an Event of Default or which, with the lapse of time or giving of notice or both, would constitute an Event of Default.
4.10. MATERIAL AGREEMENTS. The Borrower is not in default in any material respect under any loan agreement, indenture, mortgage, security agreement or other material agreement or obligation to which it is a party or by which any of its properties are bound.
4.11. NO LITIGATION. To the best of Borrower's actual knowledge, there are no actions, suits or legal, equitable, arbitration or administrative proceedings pending, or to the knowledge of Borrower threatened, against Borrower, other than those arising out of Borrower's ordinary course of business or that has not otherwise been disclosed on Borrower's Form 10-Q or Form 10-K filings with the Securities and Exchange Commission.
4.12. LICENSES. Borrower has received all registrations, permits, authorizations, and licenses (collectively called "Licenses") necessary for the operation of its business as presently conducted, and there are no actions pending which will subject any Licenses to revocation, forfeiture or restriction.
4.13. USE OF PROCEEDS; MARGIN STOCK. The proceeds of the loans represented by the Notes will be used by Borrower solely for the purposes specified in this Loan Agreement. None of such proceeds will be used for the purpose of purchasing or carrying any "Margin Stock" as defined in Regulation U or G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 221 and 207), or for the purpose of reducing or retiring any indebtedness which was originally incurred to purchase or carry a margin stock or for any other purpose which might constitute this transaction a "purpose credit" within the meaning of Regulation U or G.
4.14. TAXES. All tax returns required to be filed by Borrower in any jurisdiction have been filed and all taxes (including mortgage recording taxes), assessments, fees and other governmental charges upon Borrower or upon any of its properties, income or franchises have been paid prior to the time that such taxes could give rise to a Lien thereon. There is no proposed tax assessment against Borrower and there is no basis for such assessment.
4.15. PRINCIPAL OFFICE, ETC. The principal office and place of business of Borrower is 7900 Callaghan Road, San Antonio, Texas 78229. The Borrower maintains its principal records and books at such address.
4.16. COMPLIANCE WITH LAW. To the best of Borrower's knowledge, Borrower is, in all material respects, in compliance with all laws, rules, regulations, orders and decrees which are applicable to Borrower, or its properties (collectively, "Applicable Laws").
4.17. TITLES, ETC. The Borrower has good title to all its properties which are, individually or in the aggregate, material to its business and operations, in each case free and clear of all Liens except (i) Liens referred to in the financial statements from time to time, (ii) Current or future Liens granted in compliance with this Loan Agreement and as disclosed to Bank, (iii) Liens and minor irregularities in title which do not materially interfere with the occupation, use and enjoyment by Borrower of its properties in the normal course of business as presently conducted or materially impair the value thereof for such business, or (iv) Liens otherwise permitted or contemplated by this Loan Agreement or the other Loan Documents.
4.18. EXISTENCE OF REPRESENTATIONS AND WARRANTIES. Each request for borrowing by Borrower under the Revolving Credit Loan shall constitute, without the necessity of specifically containing a written statement, a representation and warranty by Borrower that no Event of Default exists other than as disclosed to Bank, and that all representations and warranties contained in this Article 4 or in any of the other Loan Documents are true and correct at and as of the date the borrowing is to be made.
4.19. SURVIVAL OF REPRESENTATIONS, ETC. All representations and warranties by Borrower herein shall survive delivery of the Notes and the making of the Loans, and any investigation at any time made by or on behalf of Bank shall not diminish Bank's right to rely thereon.
4.20. NO MATERIAL MISSTATEMENTS. No information, exhibit or report furnished to Bank by Borrower in connection with the negotiation of this Loan Agreement contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statement contained therein not misleading.
4.21. FINANCIAL CAPABILITIES. As of the date hereof, and after giving effect to this Loan Agreement and the Loan Documents and the obligations evidenced hereby and thereby, (i) Borrower is and will be solvent, (ii) the fair saleable value of Borrower's assets exceeds and will continue to exceed its liabilities (both fixed and contingent), and (iii) Borrower has and will continue to have sufficient capital to carry on its business and all businesses in which it is about to engage.
ARTICLE 5
CONDITIONS PRECEDENT
5.01. LOANS. The obligation of Bank to make the Loans hereunder, is subject to the condition precedent that, on or before the date of such Loans, Bank shall have received the following, in form and substance satisfactory to Bank and its counsel:
(a) REAL ESTATE LOAN. The duly executed Real Estate Note made payable to the order of Bank described in Section 2.01(a).
(b) REVOLVING CREDIT LOAN. The duly executed Revolving Credit Note made payable to the order of Bank described in Section 2.01(b).
(c) SECURITY AGREEMENT. The duly executed Security Agreement described in Section 3.01.
(d) FINANCING STATEMENTS. UCC-1 Financing Statements and other such documents as may be necessary or appropriate to create and perfect the security interest described in Article 3.
(e) CORPORATE RESOLUTIONS. Resolutions duly adopted by the Board of Directors of Borrower in form satisfactory to Bank, approving the execution, delivery and performance of this Loan Agreement, the Notes, and the other Loan Documents, and the transactions contemplated herein and therein, which sets forth the identity of all of the officers of Borrower and accompanied by a certificate of its Secretary stating that the resolutions are true and correct, have not been altered or repealed and are in full force and effect.
(f) BUSINESS ACCOUNTS. Borrower's business checking accounts and other operating accounts will be established with Bank no later than closing, and will be maintained with Bank until such time as the Notes are paid in full.
(g) COMMITMENT FEE. Payment to Bank by Borrower in immediately available funds at closing, the sum $1,000.00.
(h) CERTIFICATES OF INSURANCE. Receipt by Bank of certificates of
insurance evidencing the existence of the insurance coverage required in
Section 6.12 of this Loan Agreement. Bank shall be named as an additional
insured under such policies of insurance with the exception of any errors
and omission and directors and officers policies, and fidelity bonds
carried by the Borrower.
(i) ADDITIONAL INFORMATION. Such other information and documents as may reasonably be required by Bank.
5.02. ALL ADVANCES. The obligation of Bank to make any advance under the Notes and this Loan Agreement (including the initial advance) shall be subject to the following conditions precedent:
(a) NO DEFAULTS. As of the date of the making of such advance, there exists no Event of Default or event which with notice or lapse of time or both could constitute an Event of Default.
(b) COMPLIANCE WITH LOAN AGREEMENT. The Borrower shall have performed and complied with all agreements and conditions contained herein which are required to be performed or complied with by Borrower before or at the date of such advance unless waived by Bank from time to time.
(c) NO MATERIAL ADVERSE CHANGE. As of the date of making such advance, no material adverse change has occurred in the business or financial condition of Borrower except as may be disclosed to Bank.
(d) BORROWING BASE AND COMPLIANCE CERTIFICATES. With respect to advances requested under the Revolving Credit Loan, Bank shall have received from Borrower a Borrowing Base Certificate in the form attached hereto as EXHIBIT B signed by a duly authorized officer of Borrower, and a Compliance Certificate, in the form attached hereto as EXHIBIT A, attached hereto, signed by a duly authorized officer of Borrower, all of the statements of which shall be true and correct, certifying that, as of the date thereof, (i) all of the representations and warranties of Borrower contained in this Loan Agreement and each of the Loan Documents executed by Borrower are true and correct, (ii) no event has occurred and is continuing, or would result from the Borrowing, which constitutes an Event of Default
or which, with the lapse of time or giving of notice of both, would constitute an Event of Default, (iii) an affirmative statement by Borrower that no portion of an advance requested under the Revolving Credit Note will be used to purchase securities, and (iv) such other facts as Bank may reasonably request.
(e) REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Article 4 hereof shall be true in all respects on the date of making of such advance, with the same force and effect as though made on and as of that date.
(f) BANKRUPTCY PROCEEDINGS. No proceeding or case under the United States Bankruptcy Code or similar insolvency proceedings shall have been commenced by or against Borrower.
ARTICLE 6
AFFIRMATIVE COVENANTS
6.01. FINANCIAL STATEMENTS AND REPORTS
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available, but in no event later than one hundred twenty (120) days after the end of each fiscal year, a statement of condition or balance sheet, a cash flow statement and a statement of contingent liabilities of Borrower as of the end of each fiscal year.
(b) COMPLIANCE CERTIFICATE. As soon as available, but in no event later than ninety (90) days following the end of each quarter, and one hundred twenty days (120) following the end of Borrower's fiscal year end, Borrower shall deliver to Bank a certificate in the form attached hereto as EXHIBIT A, signed by an authorized officer of Borrower, stating that Borrower is in full compliance with all of its obligations under this Loan Agreement and all of the Loan Documents and is not in default of any term or provision hereof or thereof, and demonstrating compliance with all of the financial covenants set forth in this Loan Agreement.
(c) BORROWING BASE CERTIFICATE. As soon as available, but in no event later than forty five (45) days following the end of each month, Borrower shall deliver to Bank a borrowing base certificate in the form attached hereto as EXHIBIT B, signed by an authorized officer of Borrower, along with such supporting documentation as Bank may request, including without limitation, an accounts receivable aging report and/or a list or schedule of Borrower's accounts receivable.
6.02. FINANCIAL COVENANTS.
(a) DEBT SERVICE COVERAGE. Borrower will maintain, as of the end of each fiscal quarter, a ratio of (a) net income, plus amortization, depreciation, and interest expense, plus or minus, as applicable, unrealized losses or gains on securities, minus cash paid for taxes, for Borrower's fiscal year-to-date, to (b) principal paid on all debt instruments including capitalized leases and annuities, plus interest expense, plus dividend payments, for Borrower's fiscal year-to-date, of not less than 1.50:1.00.
(b) TANGIBLE NET WORTH. While this Loan Agreement is in effect,
Borrower will maintain, as of the last day of each fiscal quarter
commencing June 30, 2001, its Tangible Net Worth in an amount not less than
(i) $6,000,000.00.
(c) TOTAL LIABILITIES/TANGIBLE NET WORTH. Borrower will maintain, as
of the last day of each fiscal quarter, a ratio of (a) total liabilities to
(b) Tangible Net Worth, of less than: .75 :1.00.
(d) SEC REPORT. Borrower further covenants and agrees with Bank that, while this Loan Agreement is in effect, (i) within 120 days after the end of each fiscal year end, Borrower will furnish to Bank a copy of Borrower's annual 10-K report filed with the Securities Exchange Commission (`SEC"), and (ii) within 45 days after the end of each fiscal quarter, Borrower will furnish to Bank a copy of Borrower's quarterly 10-Q report filed with the SEC.
6.03. PAYMENT OF TAXES AND OTHER INDEBTEDNESS. The Borrower will pay and discharge and promptly thereafter provide Bank receipts evidencing payment and discharge of (i) all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits, or upon any property belonging to it, before delinquent, (ii) all lawful claims (including claims for labor, materials and supplies), which, if unpaid, might become a Lien upon any of its property, and (iii) all of its other Indebtedness.
6.04. MAINTENANCE OF EXISTENCE AND RIGHTS; CONDUCT OF BUSINESS. The Borrower will preserve and maintain its existence and all of its rights, privileges and franchises necessary or desirable in the normal conduct of its business, and conduct its business in an orderly and efficient manner consistent with good business practices, and in accordance in all material respects with all valid regulations and orders of any Governmental Authority.
6.05. NOTICE OF DEFAULT. The Borrower will furnish to Bank, immediately upon becoming aware of the existence of any condition or event which constitutes an Event of Default or which, with the lapse of time or giving of notice, or both, would become an Event of Default, a written
notice specifying the nature and period of existence thereof and the action which Borrower is taking or proposes to take with respect thereto.
6.06. OTHER NOTICES. The Borrower will promptly notify Bank of (a) any material adverse change in its financial condition or its business, (b) any default under any material agreement, contract or other instrument to which Borrower is a party or by which any of their properties are bound, or any acceleration of the maturity of any Indebtedness owing by Borrower, (c) any actual or potential material adverse claim against or affecting Borrower or any of its properties, including contingent liabilities, involving an amount or amounts, in the aggregate, exceeding $100,000.00, and (d) the commencement of, and any material determination in, any litigation with any third party or any proceeding before any Governmental Authority affecting Borrower involving an amount or amounts, in the aggregate, exceeding $100,000.00.
6.07. COMPLIANCE WITH LOAN DOCUMENTS. The Borrower will promptly comply with any and all covenants and provisions of this Loan Agreement, the Notes, and the Loan Documents.
6.08. COMPLIANCE WITH MATERIAL AGREEMENTS. The Borrower will comply in all material respects with all material agreements, indentures, mortgages or documents binding on it or affecting its properties or business.
6.09. OPERATIONS AND PROPERTIES. The Borrower will act prudently and in accordance with customary standards in managing or operating its assets, properties, business and investments; Borrower will keep in good working order and condition, ordinary wear and tear excepted, all of its assets and properties which are necessary to the conduct of its business.
6.10. BOOKS AND RECORDS; ACCESS. Upon written notice, Borrower will give an authorized representative of Bank access during all business hours to, and permit such representative to examine, copy or make excerpts from, any and all books, records and documents in the possession of Borrower and relating to its affairs, and to inspect any of the properties of Borrower in accordance with applicable law. In this regard, Borrower shall allow such representative of Bank access to all computer hardware and/or software used by Borrower to maintain such books and records, and shall provide an employee of Borrower to cooperate with such representative of Bank in accessing information stored using such computer hardware and/or software in accordance with applicable law. The Borrower will maintain complete and accurate books and records of its transactions in accordance with Generally Accepted Accounting Principles.
6.11. COMPLIANCE WITH LAW. The Borrower will comply with all applicable laws, rules, regulations, and all orders of any Governmental Authority applicable to it or any of its property, business operations or transactions.
6.12. INSURANCE. During the term of this Loan Agreement, Borrower will maintain public liability insurance and insurance on its properties, assets and business, now owned or hereafter
acquired, against such casualties, risks and contingencies, and in such types and amounts, as are consistent with customary practices and standards of companies engaged in similar businesses.
6.13. AUTHORIZATIONS AND APPROVALS. The Borrower will promptly obtain, from time to time at its own expense, all such governmental licenses, authorizations, consents, permits and approvals as may be required to enable it to comply with its obligations hereunder and under the other Loan Documents.
6.14. ERISA COMPLIANCE. Borrower will (i) at all times, make prompt payment of all contributions required under all Plans as is required to meet the minimum funding standard set forth in ERISA with respect to its Plans; (ii) upon the request of Bank, furnish to Bank each annual report/return (Form 5500 Series), as well as all schedules and attachments required to be filed with the Department of Labor and/or the Internal Revenue Service pursuant to ERISA, and the regulations promulgated thereunder, in connection with each of its Plans for each Plan Year; (iii) notify Bank immediately of any fact, including, but not limited to, any reportable event arising in connection with any of its Plans, which might constitute grounds for termination thereof by the PBGC or for the appointment by the appropriate United States District Court of a trustee to administer such Plan, together with a statement, if requested by Bank, as to the reason therefor and the action, if any, proposed to be taken with respect thereto; (iv) furnish to Bank, upon its request, such additional information concerning any of its Plans as may be reasonably requested.
6.15. FURTHER ASSURANCES. The Borrower will make, execute or endorse, and acknowledge and deliver or file or cause the same to be done, all such vouchers, invoices, notices, certifications and additional agreements, undertakings, or other assurances, and take and all such other action, as Bank may, from time to time, deem reasonably necessary or proper in connection with the Loan Agreement or any of the other Loan Documents, the obligations of Borrower hereunder or thereunder, or for better assuring and confirming unto Bank all or any part of the security for any of such obligations, or for granting to Bank any security for the Obligation which Bank may request from time to time.
6.16 AVAILABILITY FEE. The Borrower shall pay to Bank an availability fee (the `Availability Fee") with respect to each calendar quarter during the term of the Revolving Credit Note, based on the unused amount of such Note. The Availability Fee shall be an amount equal to A x (B-C) x (D/E), where A is equal 1/4%; B equals the original amount of the Revolving Credit Note; C equals the average daily outstanding principal balance of the Revolving Credit Loan during the calendar quarter; D equal the actual number of days elapsed during the calendar quarter; and E equals 360. Each Availability Fee shall be due and payable to Bank quarterly, in arrears, within fifteen (15) days after Borrower's receipt of an invoice for the Availability Fee from Bank.
6.17 REVOLVING CREDIT LOAN CLEARANCE. The Borrower shall, at least once during the term of the Revolving Credit Note ending on each anniversary date hereof, reduce and maintain the
outstanding principal balance of the Revolving Credit Note at $0.00 for a period of at least thirty (30) consecutive calendar days.
ARTICLE 7
NEGATIVE COVENANTS
So long as the Notes shall remain unpaid, (unless Bank shall otherwise consent in writing):
7.01. NEGATIVE PLEDGE. Except for Permitted Liens, Borrower will not create or suffer to exist any mortgage, pledge, security interest, conditional sale or other title retention agreement, charge, encumbrance or other Lien (whether such interest is based on common law, statute, other law or contract) upon any of the property or assets designated as security for the Notes under Sections 3.01 and 3.02, unless Bank shall otherwise consent in writing.
7.02. LIMITATIONS ON SALE OF PROPERTIES. The Borrower will not (a) sell, assign, convey, exchange, lease or otherwise dispose of any of its properties, rights, assets or business, whether now owned or hereafter acquired, except in the ordinary course of its business and for a fair consideration; or (b) sell, assign or discount any accounts receivable unless Bank shall otherwise consent in writing.
7.03 FISCAL YEAR AND ACCOUNTING METHOD. The Borrower will not change its fiscal year or method of accounting without first advising Bank of such change.
7.04. CHANGE IN MANAGEMENT. The Borrower will not permit a change in its chief executive officer without advising Bank of such change.
7.05. LIQUIDATION, MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF SUBSTANTIAL ASSETS. The Borrower will not dissolve or liquidate, or become a party to any merger or consolidation, or acquire by purchase, lease or otherwise all or substantially all of the assets or capital stock of any Person, or sell, transfer, lease, or otherwise dispose of all or any substantial part of its property or assets or business without first advising Bank of such change or transaction.
7.06. NATURE OF BUSINESS. The Borrower will not make any material change in the nature of its business as carried on as of the date of this Loan Agreement without first advising Bank of such change.
7.07 TRANSACTIONS WITH AFFILIATES. Borrower will not enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of business and upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arm's length transaction with a Person not an Affiliate. ARTICLE 8
ARTICLE 8
EVENTS OF DEFAULT
8.01. EVENTS OF DEFAULT. An "Event of Default" shall exist if any one or more of the following events (herein collectively called "Events of Default") shall occur and be continuing:
(a) Borrower shall fail to pay any principal or interest on the Notes, or shall fail to pay any fee, expense or other payment required hereunder and such failure shall continue for a period of fifteen (15) days following the date such payment is due;
(b) any representation or warranty made under this Loan Agreement, or any of the other Loan Documents, or in any certificate or statement furnished or made to Bank pursuant hereto or in connection herewith or with the Loan hereunder, shall prove to be untrue or inaccurate in any material respect as of the date on which such representation or warranty is made;
(c) default shall occur in the performance of any of the covenants or agreements of Borrower contained herein, or in any of the other Loan Documents (except for defaults specified in Section 8.01(a) hereof); provided, however, Borrower shall have thirty (30) days after Bank notifies Borrower in writing of such default within which to cure such default;
(d) default shall occur in the payment of any Indebtedness of Borrower and such default shall continue for more than the period of grace, if any, specified therein; and any such Indebtedness shall become due before its stated maturity by acceleration of the maturity thereof or shall become due by its terms and shall not be paid or extended;
(e) any of the Loan Documents shall cease to be legal, valid, binding agreements enforceable against any party executing the same in accordance with the respective terms thereof or shall in any way be terminated or become or be declared ineffective or inoperative or shall in any way whatsoever cease to give or provide the respective liens, security interest, rights, titles, interest, remedies, powers or privileges intended to be created thereby;
(f) Borrower shall (i) apply for or consent to the appointment of a
receiver, trustee, custodian, intervenor or liquidator of itself or of all
or a substantial part of its assets, (ii) file a voluntary petition in
bankruptcy or admit in writing that it is unable to pay its debts as they
become due, (iii) make a general assignment for the benefit of creditors,
(iv) file a petition or answer seeking reorganization of an arrangement
with creditors or to take advantage of any bankruptcy or insolvency laws,
(v) file an answer admitting the material allegations of, or consent to, or
default in answering, a petition filed against it in any bankruptcy,
reorganization or insolvency proceeding, or (vi) take corporate action for
the purpose of effecting any of the foregoing;
(g) an involuntary petition or complaint shall be filed against Borrower seeking bankruptcy or reorganization of such Borrower or the appointment of a receiver, custodian, trustee, intervenor or liquidator of such Borrower, or all or substantially all of its assets, without being permanently dismissed or discharged within sixty (60) days following the date of its filing, or an order, order for relief, judgment or decree shall be entered by any court of competent jurisdiction or other competent authority approving a petition or complaint seeking reorganization of such Borrower or appointment a receiver, custodian, trustee, intervenor or liquidator of such Borrower, or of all or substantially all of its assets without being vacated within ten (10) days following the date of its entry;
(h) any final judgment(s) for the payment of money in excess of the sum of TWO HUNDRED FIFTY THOUSAND AND NO/ DOLLARS ($250,000.00) in the aggregate shall be rendered against Borrower and such judgment or judgments shall not be satisfied or discharged at least ten (10) days prior to the date on which any of its assets could be lawfully sold to satisfy such judgment.
8.02. REMEDIES UPON EVENT OF DEFAULT. If an Event of Default shall have occurred and be continuing following the expiration of any applicable cure period, then Bank shall and may exercise any one or more of the following rights and remedies, and any other remedies provided in any of the Loan Documents, as Bank in its sole discretion may deem necessary or appropriate: (i) declare the principal of, and all interest then accrued on, the Notes and any other liabilities hereunder to be forthwith due and payable, whereupon the same shall forthwith become due and payable without presentment, demand, protest, notice of default, notice of acceleration or of intention to accelerate or other notice of any kind all of which Borrower hereby expressly waives, anything contained herein or in the Note to the contrary notwithstanding, (ii) reduce any claim to judgment, and/or (iii) without notice of default or demand, pursue and enforce any of Bank's rights and remedies under the Loan Documents, or otherwise provided under or pursuant to any applicable law or agreement.
8.03. PERFORMANCE BY BANK. Should Borrower fail to perform any covenant, duty or agreement contained herein or in any of the Loan Documents, Bank may, at its option, perform or attempt to perform such covenant, duty or agreement on behalf of Borrower. In such event, Borrower shall, at the request of Bank, promptly pay any amount expended by Bank in such performance or attempted performance to Bank at its principal office in San Antonio, Texas together with interest thereon at the highest lawful rate from the date of such expenditure until paid. Notwithstanding, the foregoing, it is expressly understood that Bank does not assume any liability or responsibility for the performance of any duties of Borrower hereunder or under any of the Loan Documents or other control over the management and affairs of Borrower.
ARTICLE 9
MISCELLANEOUS
9.01. MODIFICATION. All modifications, consents, amendments or waivers of any provision of any Loan Document, or consent to any departure by Borrower therefrom, shall be effective only if the same shall be in writing and concurred in by Bank and then shall be effective only in the specific instance and for the purpose for which given.
9.02. ACCOUNTING TERMS AND REPORTS. All accounting terms not specifically defined in this Loan Agreement shall be construed in accordance with Generally Accepted Accounting Principles consistently applied on the basis used by Borrower in prior years. All financial reports furnished by Borrower to Bank pursuant to this Loan Agreement shall be prepared in such form and such detail as shall be reasonably satisfactory to Bank, and shall be prepared on the same basis as those prepared by Borrower in prior years.
9.03. WAIVER. No failure to exercise, and no delay in exercising, on the part of Bank, any right hereunder shall operate as a waiver thereof nor shall any single or partial exercise thereof preclude any other further exercise thereof or the exercise of any other right. The rights of Bank hereunder and under the Loan Documents shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Loan Agreement, the Notes or any Loan Documents, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.
9.04. PAYMENT OF EXPENSES. The Borrower agrees to pay all costs and expenses of Bank (including without limitation, the reasonable attorney's fees of Bank's legal counsel) incurred by Bank in connection with the preservation and enforcement of and Bank's rights under this Loan Agreement, the Notes, and the other Loan Documents. Borrower will also pay the legal fees incurred by Bank in connection with the preparation of this Loan Agreement and the other Loan Documents prepared by Bank's legal counsel.
9.05. NOTICES. Any notices or other communications required or permitted to be given by this Loan Agreement or any other documents and instruments referred to herein must be (i) given in writing and personally delivered or mailed by prepaid first class, certified or registered mail, or (ii) made by facsimile transmission delivered or transmitted to the party to whom such notice or communication is directed, to the address of such party as follows:
(a) Borrower: U.S. Global Investors, Inc. 7900 Callaghan Road San Antonio, Texas 78229 Attn.: Chief Financial Officer with a copy to: President (b) Bank: Bank One, Texas, N.A. 105 S. St. Mary's P.O. Box 900 San Antonio, Texas 78293 Facsimile (210) 271-6588 Attn: Mr. Clay D. Jett, Vice President with a copy to: Barry G. Benton Benton Clark & Taylor, P.C. 105 S. St. Mary's Street, Suite 905 San Antonio, Texas 78205 Facsimile (210) 472-1872 |
9.06. GOVERNING LAW. This Loan Agreement has been prepared, is being executed and delivered, and is intended to be performed in the State of Texas, and the substantive laws of such state and the applicable federal laws of the United States of America shall govern the validity, construction, enforcement and interpretation of this Loan Agreement and all of the other Loan Documents.
9.07. CHOICE OF FORUM AND JURISDICTION. Subject to the terms of the arbitration provision in Section 9.15, any suit, action or proceeding against Borrower with respect to this Loan Agreement, the Notes or any judgment entered by any court in respect thereof, may be brought in the courts of the State of Texas, County of Bexar, or in the United States courts located in the State of Texas as Bank in its sole discretion may elect and Borrower hereby submits to the non-exclusive jurisdiction of such courts for the purpose of any such suit action or proceeding. The Borrower hereby irrevocably waives any objections which it may now or hereafter have to placing venue of any suit, action or proceeding arising out of or relating to this Loan Agreement, the Notes or the any of the Loan Documents brought in the courts located in the State of Texas, County of Bexar, and hereby further irrevocably waives any claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum.
9.08. INVALIDITY. If any provision of any Loan Document is held to be illegal, invalid or unenforceable under present or future laws during the term of this Loan Agreement, such provision shall be fully severable; such Loan Document shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of such Loan Document; and the
remaining provisions of such Loan Document shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from such Loan Document. Furthermore, in lieu of each such illegal, invalid or unenforceable provision there shall be automatically added as part of such Loan Document a provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible and such provision shall be legal, valid and enforceable, provided that such automatically added provision shall not be more burdensome upon Borrower as such illegal, invalid or unenforceable provision.
9.09. MAXIMUM INTEREST RATE. Regardless of any provision contained in any of the Loan Documents, Bank shall never be entitled to receive, collect or apply as interest on the Notes or any obligation hereunder any amount in excess of the Maximum Rate, and, in the event that Bank receives, collects or applies as interest any such excess, the amount which would be excessive interest shall be deemed to be a partial prepayment of principal and treated hereunder as such; and, if the principal amount of the Obligations is paid in full, any remaining excess shall forthwith be paid to Borrower. In determining whether or not the interest paid or payable under any specific contingency exceeds the Maximum Rate, Borrower and Bank shall, to the maximum extent permitted under applicable law, (i) characterize any nonprincipal payment as an expense, fee or premium rather than as interest; (ii) exclude voluntary prepayments and the effects thereof; and (iii) amortize, prorate, allocate and spread, in equal parts, the total amount of interest throughout the entire contemplated term of the Notes so that the interest rate is uniform throughout the entire term; provided that, if the Notes are paid and performed in full prior to the end of the full contemplated term thereof, and if the interest received for the actual period of existence thereof exceeds the Maximum Rate, Bank shall refund to Borrower the amount of such excess or credit the amount of such excess against the principal amount of the Notes and, in such event, Bank shall not be subject to any penalties provided by any laws for contracting for, charging, taking, reserving or receiving interest in excess of the Maximum Rate.
9.10. BINDING EFFECT. The Loan Documents shall be binding upon and inure to the benefit of Borrower, Bank and their respective successors, assigns and legal representatives; provided, however, that the Borrower may not, without the prior written consent of Bank, assign any rights, powers, duties or obligations hereunder.
9.11. ENTIRETY. The Loan Documents embody the entire agreement between the parties and supersede all prior agreements and understandings, if any, relating to the subject matter hereof and thereof.
9.12. HEADINGS. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Loan Agreement.
9.13. SURVIVAL. All representations and warranties made by Borrower herein shall survive delivery of the Notes and the making of the Loan.
9.14. NO THIRD PARTY BENEFICIARY. The parties do not intend the benefits of this Agreement to inure to any third party, nor shall this Agreement be construed to make or render Bank liable to any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Borrower, or for debts or claims accruing to any such Persons against Borrower. Notwithstanding anything contained herein or in the Notes, or in any other Loan Document, or any conduct or course of conduct by any or all of the parties hereto, before or after signing this Agreement or any of the other Loan Documents, neither this Agreement nor any other Loan Document shall be construed as creating any right, claim or cause of action against Bank, or any of its officers, directors, agents or employees, in favor of any materialman, supplier, contractor, subcontractor, purchaser or lessee of any property owned by Borrower, nor to any other Person or entity other than Borrower.
9.15. ARBITRATION. BANK AND BORROWER AGREE THAT UPON THE WRITTEN DEMAND OF EITHER PARTY, WHETHER MADE BEFORE OR AFTER THE INSTITUTION OF ANY LEGAL PROCEEDINGS, BUT PRIOR TO THE RENDERING OF ANY JUDGMENT IN THAT PROCEEDING, ALL DISPUTES, CLAIMS AND CONTROVERSIES BETWEEN THEM, WHETHER INDIVIDUAL, JOINT, OR CLASS IN NATURE, ARISING FROM THIS LOAN AGREEMENT, ANY NOTE OR OTHER LOAN DOCUMENT OR OTHERWISE, INCLUDING WITHOUT LIMITATION CONTRACT DISPUTES AND TORT CLAIMS, SHALL BE RESOLVED BY BINDING ARBITRATION PURSUANT TO THE COMMERCIAL RULES OF THE AMERICAN ARBITRATION ASSOCIATION, ("AAA"). ANY ARBITRATION PROCEEDING HELD PURSUANT TO THIS ARBITRATION PROVISION SHALL BE CONDUCTED IN THE CITY NEAREST THE BORROWER'S ADDRESS HAVING AN AAA REGIONAL OFFICE, OR AT ANY OTHER PLACE SELECTED BY MUTUAL AGREEMENT OF THE PARTIES. NO ACT TO TAKE OR DISPOSE OF ANY COLLATERAL (AS DEFINED IN THE LOAN AGREEMENT) SHALL CONSTITUTE A WAIVER OF THIS ARBITRATION AGREEMENT OR BE PROHIBITED BY THIS ARBITRATION AGREEMENT. THIS ARBITRATION PROVISION SHALL NOT LIMIT THE RIGHT OF EITHER PARTY DURING ANY DISPUTE, CLAIM OR CONTROVERSY TO SEEK, USE, AND EMPLOY ANCILLARY, OR PRELIMINARY RIGHTS AND/OR REMEDIES, JUDICIAL OR OTHERWISE, FOR THE PURPOSES OF REALIZING UPON, PRESERVING, PROTECTING, FORECLOSING UPON OR PROCEEDING UNDER FORCIBLE ENTRY AND DETAINER FOR POSSESSION OF, ANY REAL OR PERSONAL PROPERTY, AND ANY SUCH ACTION SHALL NOT BE DEEMED AN ELECTION OF REMEDIES. SUCH REMEDIES INCLUDE, WITHOUT LIMITATION, OBTAINING INJUNCTIVE RELIEF OR A TEMPORARY RESTRAINING ORDER, INVOKING A POWER OF SALE UNDER ANY DEED OF TRUST OR MORTGAGE, OBTAINING A WRIT OF ATTACHMENT OR IMPOSITION OF A RECEIVERSHIP, OR EXERCISING ANY RIGHTS RELATING TO PERSONAL PROPERTY, INCLUDING EXERCISING THE RIGHT OF SET-OFF, OR TAKING OR DISPOSING OF SUCH PROPERTY WITH OR WITHOUT JUDICIAL PROCESS PURSUANT TO THE UNIFORM COMMERCIAL CODE. ANY DISPUTES, CLAIMS OR CONTROVERSIES CONCERNING THE LAWFULNESS OR REASONABLENESS OF AN ACT, OR EXERCISE OF ANY RIGHT OR REMEDY CONCERNING ANY COLLATERAL, INCLUDING ANY CLAIM TO RESCIND,
REFORM, OR OTHERWISE MODIFY ANY AGREEMENT RELATING TO THE COLLATERAL, SHALL ALSO BE ARBITRATED; PROVIDED, HOWEVER, THAT NO ARBITRATOR SHALL HAVE THE RIGHT OR THE POWER TO ENJOIN OR RESTRAIN ANY ACT OF EITHER PARTY. JUDGMENT UPON ANY AWARD RENDERED BY ANY ARBITRATOR MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. THE STATUTE OF LIMITATIONS, ESTOPPEL, WAIVER, LACHES AND SIMILAR DOCTRINES WHICH WOULD OTHERWISE BE APPLICABLE IN AN ACTION BROUGHT BY A PARTY SHALL BE APPLICABLE IN ANY ARBITRATION PROCEEDING, AND THE COMMENCEMENT OF AN ARBITRATION PROCEEDING SHALL BE DEEMED THE COMMENCEMENT OF ANY ACTION FOR THESE PURPOSES. THE FEDERAL ARBITRATION ACT (TITLE 9 OF THE UNITED STATES CODE) SHALL APPLY TO THE CONSTRUCTION, INTERPRETATION AND ENFORCEMENT OF THIS ARBITRATION PROVISION.
JURY WAIVER. THE UNDERSIGNED AND BANK (BY ITS ACCEPTANCE HEREOF) HEREBY VOLUNTARILY, KNOWINGLY, IRREVOCABLY AND UNCONDITIONALLY WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE (WHETHER BASED UPON CONTRACT, TORT OR OTHERWISE) BETWEEN OR AMONG THE UNDERSIGNED AND BANK ARISING OUT OF OR IN ANY WAY RELATED TO THIS DOCUMENT, ANY OTHER RELATED DOCUMENT, OR ANY RELATIONSHIP BETWEEN BANK AND THE UNDERSIGNED. THIS PROVISION IS A MATERIAL INDUCEMENT TO BANK TO PROVIDE THE FINANCING DESCRIBED HEREIN OR IN THE OTHER LOAN DOCUMENTS.
9.16. NO ORAL AGREEMENTS. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
IN WITNESS WHEREOF, the undersigned have executed this Loan Agreement as of the day and year first above written.
"Borrower"
U.S. GLOBAL INVESTORS, INC.
By: /s/ Frank E. Holmes -------------------------------- Name: Frank E. Holmes Title: Chairman and Chief Executive Officer |
"Bank"
BANK ONE, NA
By: /s/ Clay D. Jett, Vice President -------------------------------- Clay D. Jett, Vice-President |
LIST OF EXHIBITS
Exhibit A Compliance Certificate Exhibit B Borrowing Base Certificate
APPENDIX A
DEFINITION OF TERMS
1. "Accounts": Section 3.01(ii).
2. "Affiliate" of any person shall mean any Person which, directly or indirectly, controls, is controlled by, or is under common control with, such Person. For the purposes of this definition, "control" (including the terms "controlled by" and "under common control with"), as used with respect to any Person, shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of interest in such Person or by contract or otherwise.
3. "Applicable Laws": Section 4.16.
4. "Availability Fee": Section 6.16
5. "Borrowing Base" shall mean eighty percent (80%) of the Eligible Accounts Receivable.
6. "Business Day" shall mean a day other than a Saturday or Sunday or legal holiday for commercial banks under the laws of the State of Texas in San Antonio, Texas.
7. "Commitment Amount" shall mean the amount available to Borrower for borrowing under the Revolving Credit Note which shall not exceed, at any time, the lesser of (i) $1,000,000.00, or (ii) the Borrowing Base.
8. "Deed of Trust": shall mean the Deed of Trust, Security Agreement and Assignment of Rents and Leases of even date herewith by Borrower to Barbara D. Christian, Trustee, covering real property more particularly described therein.
9. "Eligible Accounts" shall mean at any time, an amount equal to the aggregate net invoice or ledger amount owing on all of Borrower's trade accounts receivable of Borrower for goods sold or leased or services rendered in the ordinary course of business, in which Bank has a perfected, first priority lien, after deducting (without duplication): (i) each such account that is unpaid 60 days or more after the original invoice date thereof, (ii) the amount of all discounts, allowances, rebates, credits and adjustments to such accounts, (iii) the amount of all contra accounts, setoffs, defenses or counterclaims asserted by or available to the account debtors, (iv) all accounts with respect to which goods are placed on consignment or subject to a guaranteed sale or other term by reason of which payment by the account debtor may be conditional, (v) all accounts owing by account debtors for which there has been instituted a proceeding in bankruptcy or reorganization under the United States Bankruptcy Code or other law, whether state or federal, now or hereafter
existing for relief of debtors, (vi) all accounts owing by any subsidiary of Borrower, or related to Borrower's officers or directors, or in which the account debtor is an officer, employee or agent of Borrower, (vii) all accounts in which the account debtor is the United States or any department, agency or instrumentality of the United States, except to the extent an acknowledgment of assignment to Bank of such account in compliance with the Federal Assignment of Claims Act and other applicable laws has been received by Bank, (viii) all accounts due Borrower by any account debtor whose principal place of business is located outside the United States of America and its territories (ix) all accounts subject to any provision prohibiting assignment or requiring notice of or consent to such assignment, and (x) all accounts with respect to which Bank, in its sole discretion, deems the creditworthiness or financial condition of the account debtor to be unsatisfactory.
10. "ERISA" means the Employee Retirement Income Act of 1974, as amended, together with all regulations issued pursuant thereto.
11. "Event of Default": Section 8.01.
12. "Generally Accepted Accounting Principles" shall mean those generally accepted accounting principles and practices which are recognized as such by the American Institute of Certified Public Accountants acting through its Accounting Principles Board or by the Financial Accounting Standards Board or through other appropriate boards or committees thereof and which are consistently applied for all periods after the date hereof so as to properly reflect the financial condition, and the results of operations and changes in financial position, of Borrower, except that any accounting principle or practice required to be changed by the said Accounting Principles Board or Financial Accounting Standards Board (or other appropriate board or committee of the said Boards) in order to continue as a generally accepted accounting principle or practice may so be changed.
13. "Governmental Authority" shall mean any government (or any political subdivision or jurisdiction thereof), court, bureau, agency or other governmental authority having jurisdiction over Borrower or a subsidiary or any of its business, operations or properties.
14. "Indebtedness" shall mean the indebtedness evidenced by the Notes, including all principal and accrued interest thereon, together with all liabilities, costs, and expenses for which Borrower is responsible under this Loan Agreement or under any of the Loan Documents.
15. "Investment" in any Person shall mean any investment, whether by means of share purchase, loan, advance, extension of credit, capital contribution or otherwise, in or to such Person, the Guaranty of any Indebtedness of such Person, or the subordination of any claim against such Person to other Indebtedness of such Person.
16. "Licenses": Section 4.12
17. "Lien" shall mean any lien, mortgage, security interest, tax lien, pledge, encumbrance, conditional sale or title retention arrangement, or any other interest in property designed to secure the repayment of Indebtedness, whether arising by agreement or under any statute or law, or otherwise.
18. "Loan Documents" shall mean this Loan Agreement, the Notes (including any renewals, extension and refundings thereof), the Security Agreement, the Deed of Trust, and any agreements (including, without limitation, security agreements), certificates or documents (and with respect to this Loan Agreement, and such other agreements and documents, any amendments or supplements thereto or modifications thereof) executed or delivered pursuant to the terms of this Loan Agreement.
19. "Material Adverse Effect" shall mean any circumstance or event which
(i) could have any adverse effect upon the validity, performance or
enforceability of any Loan Documents, (ii) is or might be material and adverse
to the financial condition or business operations of Borrower, (iii) could
impair the ability of Borrower to fulfill its obligations under the Loan
Documents, or (iv) causes an Event of Default or any event which, with notice or
lapse of time or both, could become an Event of Default.
20. "Maximum Rate" shall mean on any day, the highest nonusurious rate of interest (if any) permitted by applicable law on such day. Bank hereby notifies the Borrower that, and discloses to the Borrower that, for purposes of this Note, the "applicable rate ceiling" shall be the "weekly rate" ceiling from time to time in effect referred to and as limited by Section 303.21 of the Texas Finance Code, as supplemented by the Texas Credit Title provided, however, that to the extent permitted by applicable law, Bank reserves the right to change the "applicable rate ceiling" from time to time by further notice and disclosure to the Borrower and, provided further, that the highest nonusurious rate of interest permitted by applicable law for purposes of this Note shall not be limited to the applicable rate ceiling under Section 303.21 of the Texas Finance Code if federal laws or other state laws now or hereafter in effect and applicable to this Note (and the interest contracted for, charged and collected hereunder) shall permit a higher rate of interest.
21. "Notes" shall mean the Real Estate Note and the Revolving Credit Note.
22. "Obligation" shall mean all present and future indebtedness, obligations and liabilities of Borrower to Bank, and all renewals and extensions thereof, or any part thereof, arising pursuant to this Loan Agreement or represented by the Notes, and all interest accruing thereon, and attorneys' fees incurred in the enforcement or collection thereof, regardless of whether such indebtedness, obligations and liabilities are direct, indirect, fixed, contingent, joint, several or joint and several; together with all indebtedness, obligations and liabilities of Borrower evidenced or arising pursuant to any of the other Loan Documents, and all renewals and extensions thereof, or part thereof.
23. "PBGC" shall mean the Pension Benefit Guaranty Corporation, and any successor to all or any of the Pension Benefit Guaranty Corporation's functions under ERISA.
24. "Permitted Liens" shall mean: (i) pledges or deposits made to secure
payment of Worker's Compensation (or to participate in any fund in connection
with Worker's Compensation), unemployment insurance, pensions or Social Security
programs; (ii) Liens imposed by mandatory provision of law such as for
materialmen's mechanics, warehousemen's and other like Liens arising in the
ordinary course of business, securing Indebtedness whose payment is not yet due;
(iii) Liens for taxes, assessments and governmental charges or levies imposed
upon a Person or upon such Person's income or profits or property, if the same
are not yet due and payable or if the same are being contested in good faith and
as to which adequate reserves have been provided; (iv) good faith deposits in
connection with leases, real estate bids or contracts (other than contracts
involving the borrowing of money), pledges or deposits to secure public or
statutory obligations, deposits to secure (or in lieu of) surety, stay, appeal
or customs bonds and deposits to secure the payment of taxes, assessments,
customs duties or other similar charges; (v) current or future Liens granted in
compliance with this Loan Agreement and as disclosed to Bank, or (vi)
encumbrances consisting of zoning restrictions, easements, or other restrictions
on the use of real property, provided that such do not impair the use of such
property for the uses intended, and none of which is violated by existing or
proposed structures or land use.
25. "Person" shall include an individual, a corporation, a joint venture, a partnership, a trust, an unincorporated organization or any agency or political subdivision thereof.
26. "Plan" shall mean an employee benefit plan or other plan maintained by Borrower for its employees and covered by Title IV of ERISA, or subject to the minimum funding standards under Section 412 of the Internal Revenue Code of 1954, as amended.
27. "Prime Rate": Section 2.02.
28. "Real Estate Loan"; Section 2.01(a).
29. "Real Estate Note": Section 2.01(a).
30. "Revolving Credit Loan": Section 2.01(b).
31. "Revolving Credit Note": Section 2.01(b).
32. "Security Agreement": Section 3.01
33. "Tangible Net Worth" shall mean, as of any date, Borrower's stated book equity minus intangible assets.
34. "Temporary Cash Investment" shall mean any Investment (i) in direct obligations of the United States of America or any agency thereof, or obligations fully guaranteed by the United States of America or any agency thereof, provided that such obligations mature within 90 days of the date of acquisition thereof, (ii) commercial paper rated in the highest grade by two or more national credit rating agencies and maturing not more than 90 days from the date of creation thereof, and (iii) time deposits with, and certificates of deposit and banker's acceptances issued by, any United States bank whose deposits are insured by the Federal Deposit Insurance Corporation.
EXHIBIT "A"
BORROWING BASE (COVENANT) COMPLIANCE CERTIFICATE
(FOR THE MONTH/QUARTER/YEAR ENDING )
Pursuant to the Business Loan Agreement/Credit Agreement dated February 1, 2001 (the "Agreement") between U.S. Global Investors, Inc. ("Borrower") and Bank One, NA ("Bank One"), the undersigned hereby certifies as follows. Unless otherwise defined herein, the terms used in this Certificate have the meaning(s) assigned to it/them in the Agreement.
1. I am the duly appointed President or Chief Financial Officer of Borrower;
2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision a detailed review of the transactions and condition of the Borrower during the accounting period covered by the financial statements being furnished concurrently with this Certificate;
3. The Borrower is in full compliance with all terms, conditions, covenants and provisions of the Agreement, except as follows:
4. The Borrower reports its compliance with the financial covenants contained in the Agreement as follows:
SECTION COVENANT REQUIRED / PERMITTED ACTUAL ------- -------- -------- ---------------- ------ Tangible Net Worth ("TNW") $6,000,000.00 Ratio of Debt to TNW < .75 : 1.00 - Debt Service Coverage Ratio > 1.5 : 1.00 - |
5. Each of the representations contained in the Agreement are correct as of this date.
6. The financial statements of Borrower as of ______________, 20____, and for the fiscal year then ended, and the financial statements as of ______________, 20____, and for the partial fiscal year then ended, present fairly the financial condition of Borrower and the results of its operations as of the dates of such statements and for the fiscal periods then ended, and since the date of the latest of such statements there has been no material adverse change in its financial position or its operations.
7. No Event of Default has occurred and Borrower is not aware of any facts which might result in an Event of Default.
Dated: Borrower: ------------------- U.S. Global Investors, Inc. By: ------------------------------------ Its: ------------------------------------ |
EXHIBIT "B"
BORROWING BASE COMPLIANCE (DRAW) CERTIFICATE
1. Total Accounts Receivable (AR) $ -------------------------------------------
a) Less: Accounts more than 60 days past DOI $ -------------------------
b) Less: Accounts with 10% of balance 60 days $ ------------------------
c) Less: Accounts representing 25% of total AR $ -----------------------
d) Less: 100% of uninsured Foreign Accounts $ --------------------------
e) Total Eligible Accounts Receivable $ --------------------------------
2. Available borrowing advance
A. Accounts Receivable @ 80% of line 1(e) $ ----------------------------
3. Total Eligible Collateral (line 2A) $ --------------------------------------
4. Amount of Promissory Note $ -------------------------------------------
5. Lesser of line 3 or line 4 $ -------------------------------------------
6. Present Promissory Note balance (principal outstanding) $ ------------------
7. Principal Balance available for borrowing $--------------------------------- (line 5 minus line 6) (If line 7 is a negative number, then a "pay down" in accordance with the Agreement is required)
Pursuant to that certain Business Loan Agreement/Credit Agreement dated February 2, 2001 ("Agreement") as entered into by and between U.S. Global, Investors, Inc. ("Borrower") and Bank One, NA ("Bank One"), Borrower submits the foregoing information for the purpose of inducing Bank One to advance money to Borrower from the balance of funds available (if any) under Borrower's Promissory Note dated February 1, 2001 in the original principal amount of $1,000,000.00. Borrower hereby certifies and affirms that the information contained in this Borrowing Base Compliance (Draw) Certificate is true, complete and correct according to the financial records of the Borrower and is properly available as collateral for advances pursuant to the Agreement and the representations and warranties set forth therein. As of the date of this Certificate Borrower is in full compliance with all terms, conditions, covenants and provisions of the Business
Loan Agreement/Credit Agreement. Borrower is not aware of any Event of Default under the Agreement or any facts or circumstances which might give rise to any Event of Default. The terms used in this Certificate have the same meaning as assigned to them in the Agreement. Borrower further certifies that all withholding taxes and FICA Taxes have been paid in full as of the date of this Certificate.
Borrower:
U.S. Global Investors, Inc.
AMENDMENT TO THE CUSTODIAN AGREEMENT
THIS AMENDMENT, dated as of June 30, 2001, between U.S. GLOBAL INVESTORS FUNDS, a Massachusetts Business Trust with one or more series of shares (the "Trust"), and an open-end management investment company registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), on behalf of each of the portfolios listed on Appendix A hereto as the same may be amended from time to time (each a "Fund" and collectively the "Funds"), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&CO. or the CUSTODIAN), amends the Custodian Agreement by and between the parties dated as of November 1, 1997 (the "Custodian Agreement").
W I T N E S S E T H:
WHEREAS, the Fund has employed BBH&Co. to act as custodian for the Fund and to provide related services, all as provided in the Custodian Agreement;
WHEREAS, the SEC has promulgated Rules 17f-5 and 17f-7 under the 1940 Act which establish rules regarding the Fund's Investments held outside the United States at Subcustodians or through Securities Depositories; and
WHEREAS, BBH&CO is willing to provide services in connection with such Rules in accordance with the terms of this Amendment to the Custodian Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Trust and BBH&Co. hereby agree, as follows:
1. That Section 7 of the Custodian Agreement shall be amended and restated in its entirety as follows:
"7. SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The Trust hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of a Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or clearing agency), notwithstanding any provisions of this Amendment to the Custodian Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form, in accordance with (a) governmental regulations, (b) rules of Securities Depositories and clearing agencies, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of Proper Instructions.
7.1 DOMESTIC SUBCUSTODIANS AND SECURITIES DEPOSITORIES. The
Custodian may deposit and/or maintain, either directly or through one
or more agents appointed by the Custodian, Investments of a Fund in
any Securities Depository in the United States, including The
Depository Trust Company, provided such depository meets applicable
requirements of the Federal Reserve Bank or of the SEC. The Custodian
may, at any time and from time to time, appoint any bank as defined in
Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and
regulations thereunder, to act on behalf of a Fund as a Subcustodian
for purposes of holding Investments of a Fund in the United States.
7.2 FOREIGN SUBCUSTODIANS AND SECURITIES DEPOSITORIES. Unless instructed otherwise by the Trust, the Custodian may deposit and/or maintain Foreign Assets of the Fund in any non-U.S. Securities Depository provided that the Custodian has determined that such Securities Depository meets the requirements of an "eligible securities depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule 17f-7") or which
by order of the SEC is exempted therefrom. Prior to the time that securities are placed with such depository, the Custodian shall have prepared an analysis of the custody risks associated with maintaining assets with the Securities Depository and shall have established a system to monitor such risks on a continuing basis in accordance with subsection 7.2.3 of this Section. Additionally, the Custodian may, in accordance with the terms of the 17f-5 Delegation Schedule to this Agreement together with any amendments thereto at any time and from time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Rule 17f-5 or which by order of the SEC is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of a Fund as a Subcustodian for purposes of holding Investments of the Fund outside the United States. Such appointment of foreign Subcustodians shall be subject to approval of the Fund in accordance with Subsections 7.2.1 and 7.2.2 hereof, and use of non-U.S. Securities Depositories shall be subject to the terms of Subsections 7.2.3 hereof. A Proper Instruction to open an account in a given country shall comprise authorization of the Custodian to hold assets in such country in accordance with the terms of this Agreement. The Custodian shall not be required to make independent inquiry as to the authorization of the Fund to invest in such country.
7.2.1. BOARD APPROVAL OF FOREIGN SUBCUSTODIANS. Unless and except to the extent that the Board has delegated to, and the Custodian has accepted delegation of, review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 7.2.2, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Foreign Assets of the Fund, obtain written confirmation of the approval of the Board of Trustees of the Trust with respect to (a) the identity of a Subcustodian, and (b) the subcustodian agreement which shall govern such appointment, such approval to be signed by an authorized person.
7.2.2. DELEGATION OF BOARD REVIEW OF SUBCUSTODIANS. The Custodian's duties and obligations with respect to the review of Subcustodians and subcustodian contracts will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement.
7.2.3. MONITORING AND RISK ASSESSMENT OF NON-U.S. SECURITIES DEPOSITORIES. Prior to the placement of any assets of a Fund with a non-U.S. Securities Depository, the Custodian: (a) shall determine that the non-U.S. Securities Depository is an Eligible Securities Depository; (b) shall provide to the Fund or its Investment Adviser an assessment of the custody risks associated with maintaining assets within such Securities Depository in accordance with Rule 17f-7(a)(1)(i)(A); and (c) shall have established a system to monitor the custody risks associated with maintaining assets with such Securities Depository on a continuing basis and to promptly notify the Fund or its Investment Adviser of any material changes in such risk in accordance with rule 17f-7(a)(1)(i)(B) or the qualification of such Securities Depository as an Eligible Securities Depository. In performing its duties under this subsection, the Custodian shall exercise reasonable care, prudence and diligence and consistent with the exercise of reasonable care, prudence and diligence may reasonably rely on such reasonable sources of information as may be available including but not limited
to: (i) published ratings; (ii) information supplied by a Subcustodian that is a participant in such Securities Depository; (iii) industry surveys or publications; (iv) information supplied by the depository itself, by its auditors (internal or external) or by the relevant Foreign Financial Regulatory Authority. It is acknowledged that information procured through some or all of these sources may not be independently verifiable by the Custodian and that direct access to Securities Depositories is limited under most circumstances. Accordingly, the Custodian shall not be responsible for errors or omissions in its duties hereunder provided that it has performed its monitoring and assessment duties with reasonable care, prudence and diligence. The risk assessment shall be provided to the Fund or its Investment Adviser by such means as the parties shall agree. Advice of material change in such assessment may be provided by the Custodian in the manner established as customary between the Trust and the Custodian for transmission of material market information.
7.3 RESPONSIBILITY FOR SUBCUSTODIANS. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed Investment which is to be held in a country in which no Subcustodian is authorized to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a subcustodial arrangement in accordance herewith. In the event, however, the Custodian is unable to establish such arrangements prior to the time such Investment is to be acquired, the Custodian shall so notify the Trust and, upon receipt of Proper Instructions, appoint any person designated by the Trust in such instruction to hold such security or other asset. In the absence of such Proper Instructions, the security or Foreign Asset may be left at its settlement location or moved to another agent for the purpose of safekeeping, provided that the Custodian shall be responsible to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Trust of such claim. No more than thirty
(30) calendar days after written notice to the Trust of the Custodian's
intention to make such payment, the Fund will reimburse the Custodian the amount
of such payment except in respect of any negligence or misconduct of the
Custodian or any Subcustodian.
The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company as its agent (an "Agent") to carry out such of the provisions of this Agreement as the Custodian may from time to time direct, provided, however,
that the appointment of such Agent shall not relieve the Custodian of any of its responsibilities under this Agreement. The Custodian shall be responsible for the actions of any Agent other than a Subcustodian as if it performed such action itself.
Except as provided in the last sentence of this Paragraph, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred. The liability of the Custodian in respect of the countries and Subcustodians listed on the Global Custody Network listing and such countries and Subcustodians which the Custodian may from time to time designate, shall be subject to the additional condition that the Custodian actually recovers such loss or damage from the Subcustodian."
2. In addition, that the definitions under Section 2 of the Custodian Agreement shall be amended with the additional modification of the following:
"FOREIGN FINANCIAL REGULATORY AUTHORITY shall have the meaning given by
Section 2(a)(50) of the 1940 Act.
GLOBAL CUSTODY NETWORK LISTING shall mean the Countries and Subcustodians approved for Investments in non-U.S. Markets.
SECURITIES DEPOSITORY shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a non-U.S. Securities Depository, meets the definition of Rule 17f-7 under the 1940 Act, and (ii) if a domestic Securities Depository, meets the definition of Rules 17f-4 and 17f-7 under the 1940 Act.
ELIGIBLE FOREIGN CUSTODIAN means an entity that is incorporated or organized under the laws of a country other than the United States and that is a Qualified Foreign Bank (as defined herein) or a majority-owned direct or indirect subsidiary of a U.S. Bank (as defined herein) or bank-holding company.
FOREIGN ASSETS means any Investments (including foreign currencies) for which the primary market is outside the United States, and any cash and cash equivalents that are reasonable necessary to effect the Fund's transactions in those Investments.
FOREIGN CUSTODY MANAGER means a Fund's board of trustees or any person serving as the board's delegate under paragraphs (b) or (d) of Rule 17f-5.
QUALIFIED FOREIGN BANK means a banking institution or trust company, incorporated or organized under the laws of a country other than the United States, that is regulated as such by the country's government or an agency of the country's government.
U.S. BANK means an entity that is:
(i) A banking institution organized under the laws of the United States;
(ii) A member bank of the Federal Reserve System;
(iii) Any other banking institution or trust company organized under the laws of any state or of the United States, whether incorporated or not, doing business under the laws of any state or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined by state or federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of Rule 17f-5;
(iv) A receiver, conservator, or other liquidating agent of any institution or firm included in paragraphs (i), (ii), or (iii) above; or
(v) A banking institution in accordance with Section 17(f) of the 1940 Act."
3. All defined terms used herein shall have the meaning given in the Custodian Agreement as amended by this Amendment.
4. Other than as amended and appended hereby, all terms and provisions of the Custodian Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.
5. By signing below, the Trust ratifies and affirms that all of its representations and warranties set forth in the Custodian Agreement each remain true and correct as of the date hereof.
6. Upon receipt by the Custodian of a fully executed copy of this Amendment, this Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 14.6 of the Custodian Agreement. This Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Amendment.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed as of the date first above written.
U.S. GLOBAL INVESTORS FUNDS
By: /s/ Frank E. Holmes --------------------------------- Name: Frank E. Holmes Title: Chief Executive Officer |
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Susan C. Livingston --------------------------------- Name: Susan C. Livingston Title: Partner |
APPENDIX A
List of Funds
17F-5 DELEGATION SCHEDULE
By its execution of this Delegation Schedule as of June 30, 2001, U.S. GLOBAL INVESTORS FUNDS (the "Trust"), a Massachusetts Business Trust with one or more series of shares, and an open-end management investment company registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 as amended (the "1940 Act"), on behalf of each of the portfolios listed on Appendix A hereto as the same may be amended from time to time (each a "Fund" and collectively the "Funds"), acting through its Board of Trustees or its duly authorized representative, hereby appoints BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts (the "Delegate") as its delegate to perform certain functions with respect to the custody of the Funds' Assets.
WHEREAS, the Trust has appointed the Delegate as Custodian of the Trust's Property in a Custodian Agreement dated as of November 1, 1997 by and between the Delegate and the Trust (as amended, the "Custodian Agreement");
WHEREAS, the Board of Trustees of the Trust (the "Board") wishes to implement arrangements under Rule 17f-5 of the 1940 Act for the safekeeping of Foreign Assets;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Trust and the Delegate agree as follows. Capitalized terms which are not defined in Section 12 of this Delegation Schedule shall have the meanings ascribed to them in the Custodian Agreement.
1. MAINTENANCE OF FUNDS' ASSETS ABROAD. Delegate may place and maintain the Funds' Foreign Assets in the countries listed on the Global Custody Network Listing hereto only pursuant to Proper Instructions under the terms of the Custodian Agreement and in accordance with this Delegation Schedule. The Global Custody Network Listing may be amended upon the mutual written agreement of the parties. With respect to amendments to the Global Custody Network Listing, the Trust acknowledges that, depending on the conditions in the particular country, advance notice may be required before the Delegate is able to perform its duties
hereunder in or with respect to such country (such advance notice to be reasonable in light of the specific facts and circumstances attendant to performance of duties in such country).
2. APPOINTMENT. Pursuant to the provisions of Rule 17f-5, the Trust hereby
appoints the Delegate as "Foreign Custody Manager" as defined under Rule 17f-5
and the Delegate hereby accepts such appointment and agrees to perform, only
those duties set forth in this Delegation Schedule concerning the safekeeping of
each Fund's Foreign Assets in each of the countries set forth in the Global
Custody Network Listing, as amended from time to time, in accordance with
Section 1of this Delegation Schedule. The Delegate is hereby authorized to take
such actions as are reasonably required to discharge its duties under this
Delegation Schedule, including, without limitation, to cause a Fund's Foreign
Assets to be placed with a particular Eligible Foreign Custodian in accordance
herewith.
3. SELECTION OF ELIGIBLE FOREIGN CUSTODIAN AND CONTRACT ADMINISTRATION. The Delegate shall perform the following duties with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing the Trust's foreign custodial arrangements:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Delegation Schedule and the requirements of Rule 17f-5, the Delegate shall place and maintain a Fund's Foreign Assets with an Eligible Foreign Custodian in accordance with the Global Custody Network Listing PROVIDED that the Delegate shall have determined that the Fund's Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market after considering all factors relevant to the safekeeping of such assets, including, without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Fund's Foreign Assets including, but not limited to, the adequacy of the Eligible Foreign Custodian's capital with regard to protecting a Fund's assets against the risk of loss due to such Eligible Foreign
Custodian's insolvency;
(iii) The Eligible Foreign Custodian's general reputation and standing; and
(iv) Whether the Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign Custodian in the United States or such Eligible Foreign Custodian's consent to services of process in the United States, appointment of an agent for service of process in the United States or consent to jurisdiction in the United States.
The Delegate shall be required to make the foregoing determinations to the best of its knowledge and belief based only on information reasonably available to it in accordance with the standard of care set forth in Section 8 of this Delegation Schedule.
(b) CONTRACT ADMINISTRATION. For each Eligible Foreign Custodian selected by the Delegate pursuant to this Section 3, the Delegate shall enter into a written contract governing each Fund's foreign custody arrangements. The Delegate shall determine that each such written contract with an Eligible Foreign Custodian provides reasonable care for the Fund's Foreign Assets based on the standard of care specified in subsection (a) of this Section 3. Each written contract with an Eligible Foreign Custodian shall, except as set forth in the last paragraph of this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Trust will be adequately protected against the risk of loss of a Fund's Foreign Assets held in accordance with such contract;
(ii) That each Fund's Foreign Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors except, a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Eligible Foreign Custodian arising under bankruptcy, insolvency or similar laws;
(iii) That beneficial ownership of each Fund's Foreign Assets will be freely transferable without the payment of money or value other than for safe custody or administration;
(iv) That adequate records will be maintained by the Eligible Foreign Custodian identifying each Fund's Foreign Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund;
(v) That the Trust's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of those records; and
(vi) That the Trust will receive sufficient and timely periodic reports with respect to the safekeeping of each Fund's Foreign Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing assets held for the benefit of a Fund.
Such contract may contain, in lieu of any or all of the provisions specified in this Section 3(b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for each Fund's Foreign Assets as the specified provisions, in their entirety.
(c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in this Delegation Schedule to the contrary, the duties under this Section 3 shall apply only to Eligible Foreign Custodians selected by the Delegate and shall not apply to Securities Depositories or to any Eligible Foreign Custodian that the Delegate is directed to use pursuant to Section 7 of this Delegation Schedule. Nothing in this Delegation Schedule shall require the Delegate to consider Country Risk as part of its duties under this Section 3.
4. MONITORING. In addition to determining the appropriateness of placing a Fund's Foreign Assets in accordance with Section 3(a) of this Delegation Schedule and monitoring the continuing appropriateness of the contract governing a Fund's foreign custody arrangements in accordance with Section 3(b) of this Delegation Schedule, the Delegate shall establish and maintain a system to continuously monitor: (i) the appropriateness of maintaining Foreign Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule; (ii) each such Eligible Foreign Custodian's continuing compliance with the standards set forth in Rule 17f-5 and this Delegation Schedule; and (iii) material changes to the Trust's foreign custody arrangements, as defined in Section 6 below (the "Monitoring System").
5. REPORTING. The Delegate shall provide to the Board and the Trust's Investment Adviser written reports specifying placement of a Fund's Foreign Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule; and of any material changes in a Fund's foreign custody arrangements effected by the Delegate pursuant to Section 3, including, but not limited to: (i) any withdrawal of a Fund's Foreign Assets under Section 6 of this Delegation Schedule, (ii) any event that may adversely and materially affect an Eligible Foreign Custodian's financial or operational strength, (iii) a change in control of an Eligible Foreign Custodian, (iv) the failure of an Eligible Foreign Custodian to comply with the standards in Rule 17f-5 or its contract governing the Trust's foreign custody arrangements; and (v) a material change in any information provided to the Board regarding the Delegate's expertise in foreign custody issues and risks, the Delegate's use of third-party experts to perform its foreign custody responsibilities, the Board's ability to monitor the Delegate's performance, the Delegate's financial strength or its ability to indemnify the Trust; the Delegate's inability to perform its duties in accordance with any standard of care under this Delegation Schedule or any notice with respect to information regarding prevailing Country Risk provided to the Board and/or the Investment Adviser under Section 17 of this Delegation Schedule. Such reports shall be provided to the Board at its regularly scheduled meeting next following the event being reported, or more frequently as requested by the Board, provided that, if the Delegate determines that any matter should be reported sooner, it shall promptly, following the occurrence of the event, direct such report to the Fund's President for forwarding to the Board. The Delegate will prepare such reports with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 of this Delegation Schedule only to the extent specifically agreed to with respect to the particular situation. Nothing in this Section shall limit the Delegate's duty to report the location of a Fund's Foreign Assets as part of its normal reporting under the Custodian Agreement whether or not they have been placed by the Delegate pursuant to Section 3 of this Delegation Schedule.
At least annually, the Delegate shall provide to the Trust a written statement as may be reasonably required to document its compliance with the terms of this Delegation Schedule as well as information regarding the following factors: (i) the Delegate's expertise in foreign custody issues and risks; (ii) the Delegate's use of third-party experts to perform its foreign custody responsibilities; (iii) the Board's ability to monitor the Delegate's performance; and (iv)
the Delegate's financial strength and its ability to indemnify the Trust if necessary.
6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an arrangement
with a specific Eligible Foreign Custodian selected by the Delegate under
Section 3 of this Delegation Schedule no longer meets the requirements of said
Section, the Delegate shall promptly notify the Trust of such fact and shall
withdraw the Foreign Assets from the non-complying arrangement and make
arrangements for the custody of such Foreign Assets with a successor Eligible
Foreign Custodian in accordance with the terms of this Delegation Schedule as
soon as reasonably practicable; PROVIDED, however, that if in the reasonable
judgment of the Delegate, such withdrawal would require liquidation of any of a
Fund's Foreign Assets or would materially impair the liquidity, value or other
investment characteristics of a Fund's Foreign Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Proper Instructions with respect to such
liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this Delegation Schedule, the Trust acting through its Board, its Investment Adviser, or its authorized representative, may direct the Delegate to place and maintain the Fund's Foreign Assets with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Delegate will not provide delegation services. In such event, the Delegate shall be entitled to rely on any such instruction as a Proper Instruction under the terms of the Custodian Agreement and shall have no duties under this Delegation Schedule with respect to such arrangement save those included under Section 16 of this Delegation Schedule and that it may undertake specifically in writing with respect to each particular instance.
8. STANDARD OF CARE. In carrying out its duties under this Delegation Schedule, the Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping of a Fund's Foreign Assets would exercise. The Delegate agrees to promptly notify the Board and the Trust's Investment Adviser if, at any time, the Delegate believes it cannot perform its duties hereunder in accordance with the foregoing standard of care.
9. REPRESENTATIONS.The Delegate hereby represents and warrants that it is a U.S.
Bank and that this Delegation Schedule has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate and that the Delegate has established and agrees to maintain during the term of this Delegation Schedule, the Monitoring System.
The Trust hereby represents and warrants that this Delegation Schedule has been duly authorized, executed and delivered by the Trust and is a legal, valid and binding agreement of the Trust.
10. EFFECTIVENESS; TERMINATION. This Delegation Schedule shall be effective as of the date on which this Delegation Schedule shall have been accepted by the Delegate, as indicated by the date set forth below the Delegate's signature. This Delegation Schedule may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 90th calendar day after the date of delivery or mailing of such notice (or such other period as may be agreed between the parties). The foregoing to the contrary notwithstanding, this Delegation Schedule shall be deemed to have been terminated concurrently with the termination of the Custodian Agreement.
11. NOTICES.Notices and other communications under this Delegation Schedule are to be made in accordance with the arrangements designated for such purpose under the Custodian Agreement unless otherwise indicated in a writing referencing this Delegation Schedule and executed by both parties.
12. DEFINITIONS. Capitalized terms in this Delegation Schedule have the following meanings:
a. COUNTRY RISKS - means the systemic risks arising from holding assets in a particular country, including, those arising from a country's financial infrastructure, prevailing custody and settlement practices, expropriation, nationalization or other governmental actions, and laws applicable to the safekeeping and recovery of assets held in custody in such country.
b. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in Rule 17f-5(a)(1) of the 1940 Act and shall also include a U.S. Bank.
c. FOREIGN ASSETS - shall have the meaning set forth in Rule 17f-5(a)(2) of the 1940 Act.
d. PROPER INSTRUCTIONS - shall have the meaning set forth in the Custodian Agreement.
e. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule 17f-7(b)(1) of the 1940 Act.
f. U.S. BANK - shall have the meaning set forth in Rule 17f-5(a)(7) of the 1940 Act and Section 17(f) of the 1940 Act.
13. GOVERNING LAW AND JURISDICTION. This Delegation Schedule shall be construed in accordance with the federal laws of the United States and to the extent not governed thereby, the laws of the Commonwealth of Massachusetts. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of New York or the Commonwealth of Massachusetts or the state courts of New York or Massachusetts.
14. FEES. Delegate shall perform its functions under this Delegation Schedule for the compensation determined under the Custodian Agreement.
15. INTEGRATION. This Delegation Schedule sets forth all of the Delegate's duties with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties. This Delegation Schedule constitutes the entire agreement between the Fund and Delegate with respect to the subject matter hereof. Accordingly, this Delegation Schedule supercedes the Foreign Custody Manager Delegation Agreement heretofore in effect. The terms of the Custodian Agreement shall apply generally as to matters not expressly covered in this Delegation Schedule, including dealings with the Eligible Foreign Custodians in the course of discharge of the Delegate's obligations under the
Custodian Agreement. In the event of a conflict between the terms of this Delegation Schedule and the Custodian Agreement, the terms of this Delegation Schedule shall control with respect to the services covered herein.
16. PROVISION OF INFORMATION. The Delegate agrees to provide annually to the
Trust or a Fund's Investment Adviser, such information as is specified in
Appendix 1 hereto, as may be amended from time to time by the parties. With
respect to each Eligible Foreign Custodian employed by the Trust pursuant to
Section 7 herein, the Delegate agrees to provide the Trust or its Investment
Adviser, any information it possesses regarding Country Risk or the risks
associated with placing or maintaining Foreign Assets with the Eligible Foreign
Custodian. The Delegate shall be responsible to use reasonable care in the
gathering of such information but shall not be deemed to warranty the
completeness or specific accuracy of such information. The Delegate agrees to
promptly notify the Board or the Fund's Investment Adviser at any time that the
Delegate becomes aware of a material change to the information provided
hereunder or if the Delegate learns that any information previously provided is
incomplete or inaccurate.
17. LIMITATION OF LIABILITY; SATISFACTION OF CLAIMS. The Delegate shall be responsible under this Delegation Schedule for any direct loss, claim, damage or liability incurred or suffered by the Trust or its officers, directors, employees or agents that results from the Delegate's failure to exercise any standard of care set forth in this Delegation Schedule, or the Delegate's willful misfeasance or bad faith in the performance of its duties under this Delegation Schedule. The Delegate shall indemnify and hold the Trust harmless from and against any and all direct claims, costs, expenses (including attorney's fees), losses, damages, charges, payments and liabilities of any sort or kind (excluding consequential, special or punitive damages) which may be asserted against the Trust, or for which the Trust may be held liable in connection with the Delegate's performance hereunder (a "Claim"), unless such Claim resulted from bad faith or gross negligence by the Trust in performance of its duties and obligations hereunder. Notwithstanding the foregoing, the Delegate shall not be liable for any loss, claim, damage or liability arising as a result of any acts of God, earthquakes, fires, flood, storms or other disturbances of nature, strikes, riots, nationalization, expropriation, currency restrictions or revaluations, investment or repatriation restrictions, imposition of taxes or changes in applicable laws, acts of war, civil war or terrorism, insurrection, the interruption, loss or malfunction of utilities, transportation or
computers and computer facilities, the unavailability of energy sources and other similar happenings or events that are not within Delegate's reasonable control. Nothing in this Section 17 shall be deemed to preclude the Trust or other party from pursuing any rights it may have in law and equity.
The Delegate agrees that claims made against each Fund respectively under this Delegation Schedule shall be satisfied only from assets of such Fund, and not from the assets of any separate Fund held hereunder; that any person executing this Delegation Schedule has executed it on behalf of the Trust and not individually, and that the obligations of the Trust arising out of this Delegation Schedule are not binding upon such person or the Trust's shareholders individually, but binding upon the Property and other assets of the Trust; that no shareholders, trustees directors or officers of the Trust may be held personally liable or responsible for any obligations of the Trust arising out of this Delegation Schedule.
18. MOST FAVORED CLIENT. If at any time the Delegate shall be a party to an agreement to serve as "Foreign Custody Manager" (as defined in Rule 17f-5(a)(2) of the 1940 Act) to an investment company, that provides for either: (a) a standard of care with respect to the selection of Eligible Foreign Custodians in any jurisdiction higher than that set forth in Section 3 of this Delegation Schedule or (b) a standard of care with respect to exercise of the Delegate's duties other than that set forth in Section 8 of this Delegation Schedule, the Delegate agrees to notify the Trust of this fact and to raise the applicable standard of care hereunder to the standard specified in such other agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Delegation Schedule to be duly executed as of the date first above written.
U.S. GLOBAL INVESTORS FUNDS
By: /s/ Frank E. Holmes --------------------------------- Name: Frank E. Holmes Title: Chief Executive Officer |
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Susan C. Livingston --------------------------------- Name: Sisam C. Livingston Title: Partner |
FUNDS TRANSFER SERVICES SCHEDULE TO CUSTODIAN AGREEMENT
1. EXECUTION OF PAYMENT ORDERS. Brown Brothers Harriman & Co. (the Custodian) is hereby instructed by U. S. GLOBAL INVESTORS FUNDS (the Company) to execute each payment order, whether denominated in United States dollars or other applicable currencies, received by the Custodian in the Company's name as sender and authorized and confirmed by an authorized person as described in a Custodian Agreement dated as of November 1, 1997 by and between the Custodian and the Company, as amended or restated from time thereafter (the Agreement), provided that the Company has sufficient available funds on deposit in a Principal Account as defined in the Agreement and provided that the order (i) is received by the Custodian in the manner specified in this Funds Transfer Services Schedule or any amendment hereafter; (ii) complies with any written instructions and restrictions of the Company as set forth in this Funds Transfer Services Schedule or any amendment hereafter; (iii) is authorized by the Company or is verified by the Custodian in compliance with a security procedure set forth in Paragraph 2 below for verifying the authenticity of a funds transfer communication sent to the Custodian in the name of the Company or for the detection of errors set forth in any such communication; and (iv) contains sufficient data to enable the Custodian to process such transfer.
2. SECURITY PROCEDURE. The Company hereby elects to use the procedure selected below as its security procedure (the Security Procedure). The Security Procedure will be used by the Custodian to verify the authenticity of a payment order or a communication amending or canceling a payment order. The Custodian will act on instructions received provided the instruction is authenticated by the Security Procedure. The Company agrees and acknowledges in connection with (i) the size, type and frequency of payment orders normally issued or expected to be issued by the Company to the Custodian, (ii) all of the security procedures offered to the Company by the Custodian, and (iii) the usual security procedures used by customers and receiving banks similarly situated, that authentication through the Security Procedure shall be deemed commercially reasonable for the authentication of all payment orders submitted to the Custodian. The Company hereby elects (PLEASE CHOOSE ONE) the following Security Procedure as described below:
[X] BIDS AND BIDS WORLDVIEW PAYMENT PRODUCTS. BIDS and BIDS Worldview
Payment Products, are on-line payment order authorization facilities with built-in authentication procedures. The Custodian and the Company shall each be responsible for maintaining the confidentiality of passwords or other codes to be used by them in connection with BIDS. The Custodian will act on instructions received through BIDS without duty of further confirmation unless the Company notifies the Custodian that its password is not secure.
[ ] SWIFT. The Custodian and the Company shall comply with SWIFT's authentication procedures. The Custodian will act on instructions received via SWIFT provided the instruction is authenticated by the SWIFT system.
[ ] TESTED TELEX. The Custodian will accept payment orders sent by tested telex, provided the test key matches the algorithmic key the Custodian and Company have agreed to use.
[ ] COMPUTER TRANSMISSION. The Custodian is able to accept transmissions sent from the Company's computer facilities to the Custodian's computer facilities provided such
transmissions are encrypted and digitally certified or are otherwise authenticated in a reasonable manner based on available technology. Such procedures shall be established in an operating protocol between the Custodian and the Company.
[X] TELEFAX INSTRUCTIONS. A payment order transmitted to the Custodian by telefax transmission shall transmitted by the Company to a telephone number specified from time to time by the Custodian for such purposes. If it detects no discrepancies, the Custodian will then either:
1. If the telefax requests a repetitive payment order, the Custodian may call the Company at its last known telephone number, request to speak to the Company or Authorized Person, and confirm the authorization and the details of the payment order (a "Callback"); or
2. If the telefax requests a non-repetitive order, the Custodian will perform a Callback.
All faxes must be accompanied by a fax cover sheet which indicates the sender's name, company name, telephone number, fax number, number of pages, and number of transactions or instructions attached.
[ ] TELEPHONIC. A telephonic payment order shall be called into the Custodian at the telephone number designated from time to time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person. The Custodian shall obtain the payment order data from the caller. The Custodian shall then:
1. If a telephonic repetitive payment order, the Custodian may perform a Callback; or
2. If a telephonic non-repetitive payment order, the Custodian will perform a Callback.
(sl)[X] BRAIDS
(sbm)
In the event the Company chooses a procedure which is not a Security Procedure as described above, the Company agrees to be bound by any payment order (whether or not authorized) issued in its name and accepted by the Custodian in compliance with the procedure selected by the Company.
3. REJECTION OF PAYMENT ORDERS. The Custodian shall give the Company timely notice of the Custodian's rejection of a payment order. Such notice may be given in writing or orally by telephone, each of which is hereby deemed commercially reasonable. In the event the Custodian fails to execute a properly executable payment order and fails to give the Company notice of the Custodian's non-execution, the Custodian shall be liable only for the Company's actual damages and only to the extent that such damages are recoverable under UCC 4A (as defined in Paragraph 7 below). Notwithstanding anything in this Funds Transfer Services Schedule and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential or special damages under this Funds Transfer Services Schedule, whether or not such damages relate to services covered by UCC 4A, even if the Custodian has been advised of the possibility of such damages. Whenever compensation in the form of interest is payable by the Custodian to the Company pursuant to this Funds Transfer Services Schedule, such compensation will consist of interest payable in accordance with UCC 4A.
4. CANCELLATION OF PAYMENT ORDERS. The Company may cancel a payment order but the Custodian shall have no liability for the Custodian's failure to act on a cancellation instruction unless the Custodian has received such cancellation instruction at a time and in a manner affording the Custodian reasonable opportunity to act prior to the Custodian's execution of the order. Any cancellation shall be sent and confirmed in the manner set forth in Paragraph 2 above.
5. RESPONSIBILITY FOR THE DETECTION OF ERRORS AND UNAUTHORIZED PAYMENT ORDERS.
Except as may be provided, the Custodian is not responsible for detecting any
Company error contained in any payment order sent by the Company to the
Custodian. In the event that the Company's payment order to the Custodian either
(i) identifies the beneficiary by both a name and an identifying or bank account
number and the name and number identify different persons or entities, or (ii)
identifies any bank by both a name and an identifying number and the number
identifies a person or entity different from the bank identified by name,
execution of the payment order, payment to the beneficiary, cancellation of the
payment order or actions taken by any bank in respect of such payment order may
be made solely on the basis of the number. The Custodian shall not be liable for
interest on the amount of any payment order that was not authorized or was
erroneously executed unless the Company so notifies the Custodian within thirty
(30) business days following the Company's receipt of notice that such payment
order had been processed. If a payment order in the name of the Company and
accepted by the Custodian was not authorized by the Company, the liability of
the parties will be governed by the applicable provisions of UCC 4A.
6. LAWS AND REGULATIONS. The rights and obligations of the Custodian and the Company with respect to any payment order executed pursuant to this Funds Transfer Services Schedule will be governed by any applicable laws, regulations, circulars and funds transfer system rules, the laws and regulations of the United States of America and of other relevant countries including exchange control regulations and limitations on dealings or other sanctions, and including without limitation those sanctions imposed under the law of the United States of America by the Office of Foreign Assets Control. Any taxes, fines, costs, charges or fees imposed by relevant authorities on such transactions shall be for the account of the Company.
7. MISCELLANEOUS. All accounts opened by the Company or its authorized agents at the Custodian subsequent to the date hereof shall be governed by this Funds Transfer Schedule. All terms used in this Funds Transfer Services Schedule shall have the meaning set forth in Article 4A of the Uniform Commercial Code as currently in effect in the State of New York (UCC 4A) unless otherwise set forth herein. The terms and conditions of this Funds Transfer Services Schedule are in addition to, and do not modify or otherwise affect, the terms and conditions of the Agreement and any other agreement or arrangement between the parties hereto.
8. INDEMNIFICATION. The Custodian does not recommend the sending of instructions by telefax or telephonic means as provided in Paragraph 2. BY ELECTING TO SEND INSTRUCTIONS BY TELEFAX OR TELEPHONIC MEANS, THE COMPANY AGREES TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM.
OPTIONAL: The Custodian will perform a Callback if instructions are sent by telefax or telephonic means as provided in Paragraph 2. THE COMPANY MAY, AT ITS OWN RISK AND BY HEREBY AGREEING TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL
LOSSES THEREFROM, ELECT TO WAIVE A CALLBACK BY THE CUSTODIAN BY INITIALLING HERE:____
Accepted and agreed:
BROWN BROTHERS HARRIMAN & CO. U.S. GLOBAL INVESTORS FUNDS
By: /s/ Susan Livingston By: /s/ Frank E. Holmes -------------------------- -------------------------- Name: Susan Livingston Name: Frank E. Holmes Title: Partner Title: Chief Executive Officer Date: July 19, 2001 Date: July 12, 2001 |
APPENDIX 1
INFORMATION REGARDING COUNTRY RISK
1. To aid the Trust or its delegate in its consideration of Country Risks, the Delegate shall furnish the Trust annually and upon the initial placement of Foreign Assets into a country, the following information:
a. Opinions of local counsel concerning whether applicable foreign law would restrict the: (i) access afforded the Trust's independent public accountants to books and records kept by an Eligible Foreign Custodian located in that country; (ii) the Trust's ability to recover its Foreign Assets in the event of bankruptcy of an Eligible Foreign Custodian that country; or (iii) the Trust's ability to recover Foreign Assets that are lost while under the control of an Eligible Foreign Custodian located in that country.
b. Written information concerning (i) the likelihood of expropriation, nationalization, freezes, or confiscation of the Trust's Foreign Assets and (ii) whether difficulties in converting the Trust's cash and cash equivalents to U.S. dollars are foreseeable.
c. A MARKET PRACTICE MANUAL with respect to the following topics: (i) securities regulatory environment; (ii) foreign ownership restrictions; (iii) foreign exchange; (iv) securities settlement and registration; and (v) taxation.
2. To aid the Trust in monitoring Country Risk, the Delegate shall furnish the Trust with the following information: GLOBAL UPDATES, including with respect to changes in the information contained in the above MARKET PRACTICE MANUAL.
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
U.S. GLOBAL INVESTORS FUNDS
APPENDIX A TO THE CUSTODIAN AGREEMENT
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- AUSTRALIA NATIONAL AUSTRALIA BANK LTD.(NAB) Austraclear National Australia Bank Agt. 5/1/85 CHESS Agreement Amendment 2/13/92 RBA Omnibus Amendment 11/22/93 BELGIUM BANK BRUSSELS LAMBERT (BBL) CIK Banque Bruxelles Lambert Agt. 11/15/90 NBB Omnibus Amendment 3/1/94 CANADA ROYAL BANK OF CANADA (RBC) Bank of Canada The Royal Bank of Canada Agreement CDS 2/23/96 CHINA STANDARD CHARTERED BANK (SCB), SHANGHAI SSCCRC Standard Chartered Bank Agreement 2/18/92 Omnibus Amendment 6/13/94 Appendix 4/8/96 CHINA STANDARD CHARTERED BANK (SCB), SHENZHEN SSCC Standard Chartered Bank Agreement 2/18/92 Omnibus Amendment 6/13/94 Appendix 4/8/96 FRANCE CREDIT AGRICOLE INDOSUEZ (CAI) BdF Banque Indosuez Agreement 7/19/90 SICOVAM Omnibus Amendment 3/10/94 GERMANY DRESDNER BANK AG CBF Dresdner Bank Agreement 10/6/95 HONG KONG HONGKONG AND SHANGHAI BANKING CORP. CMU LTD (HSBC) HKSCC Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 1/10/01 PAGE 1 OF 3 524 |
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- IRELAND ALLIED IRISH BANKS PLC (AIB) CREST Allied Irish Banks Agreement 1/10/89 CBISSO Omnibus Amendment 4/8/94 ITALY BANCA COMMERCIALE ITALIANA (BCI) Monte Titoli Banca Commerciale Italiana Agreement S.P.A. 5/8/89 Agreement Amendment 10/8/93 Omnibus Amendment 12/14/93 JAPAN BANK OF TOKYO - MITSUBISHI, LTD. (BTM) BoJ Bank of Tokyo - Mitsubishi Agreement JASDEC 6/17/96 KOREA CITIBANK NA, SEOUL KSD Citibank, N.A., New York Agt. 7/16/81 New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 Citibank, Seoul Agreement Supplement 10/28/94 MEXICO BANCO SANTANDER MEXICANO SA (BSM) FOR Banxico BANCO DE SANTANDER Indeval Banco de Santander Agreement 12/14/88 Subsidiary Amendment 10/18/96 NETHERLANDS FORTIS BANK NECIGEF MeesPierson NV Agreement 6/4/99 PHILIPPINES CITIBANK NA, MANILA PCD Citibank, N.A., New York Agt. 7/16/81 ROSS New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 SINGAPORE HONGKONG & SHANGHAI BANKING CORP. LTD. CDP (HSBC), SINGAPORE Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 SOUTH AFRICA STANDARD BANK OF SOUTH AFRICA (SBSA) CDL Standard Bank of South Africa STRATE Agreement 3/11/94 1/10/01 PAGE 2 OF 3 524 |
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- SPAIN BANCO SANTANDER CENTRAL HISPANO SA (BSCH) Banco de Espana Banco de Santander Agreement 12/14/88 SCL THAILAND HONGKONG & SHANGHAI BANKING CORP. LTD. TSDC (HSBC), BANGKOK Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 TRANSNATIONAL BROWN BROTHERS HARRIMAN & CO. (BBH&CO.) CBL Euroclear UNITED KINGDOM HSBC BANK PLC CMO Midland Bank Agreement 8/8/90 CREST Omnibus Amendment 12-15-93 ZIMBABWE STANBIC BANK ZIMBABWE LTD FOR STANDARD None BANK OF SOUTH AFRICA (SBSA) Standard Bank of South Africa Agreement 3/11/94 Subsidiary Amendment 10/3/96 |
NOTES:
1.) The depositories in Panama and Venezuela are presently elective. It is not the current intention of Brown Brothers Harriman & Co. to use such depositories unless their use becomes compulsory. Euroclear is compulsory for fixed income obligations and elective for equities. Currently, Brown Brothers Harriman & Co. uses Euroclear for settlement of equities where we are instructed to do so. We do not use Euroclear for the ongoing safekeeping of equities.
2.) If you are authorizing investment in Bolivia, Costa Rica, Cyprus, Estonia, Ghana, Lithuania, Panama or Nigeria, these arrangements are the subject of additional information in Schedule A to the FCM report.
3.) This appendix reflects changes to the listed markets, subcustodians and/or central depositories which have been reported within the FCM report(s) through the date referenced in the lower left hand corner of this appendix.
I HEREBY CERTIFY THAT THE BOARD OR ITS DELEGATE HAS APPROVED THE COUNTRIES AND CENTRAL DEPOSITORIES LISTED ON THIS APPENDIX
/s/ Susan B. McGee ---------------------------------------- SIGNATURE NAME: Susan B. McGee TITLE: Executive Vice President DATE: September 24, 2001 |
1/10/01 PAGE 3 OF 3 524
APPENDIX B
U.S. GLOBAL INVESTORS FUNDS
The following authoried sources are to be used for pricing and foreign exchange quotations, corporate actions, dividends and rights offerings:
AUTHORIZED SOURCES
Bloomberg
Extel (London)
Fund Managers
Interactive Data Corporation
Reputable Brokers
Reuters
Subcustodian Banks
Telekurs
Valorinform (Geneva)
Reputable Financial Publications
Stock Exchanges
Financial Information Inc. Card
JJ Kenny
FRI Corporation
Merrill Lynch Pricing Service
Muller
Bridge
Approved: /s/ Susan B. McGee ------------------ Date: February 21, 01 |
AMENDMENT TO THE CUSTODIAN AGREEMENT
THIS AMENDMENT, dated as of June 30, 2001, between U.S. GLOBAL ACCOLADE FUNDS, a Massachusetts Business Trust with one or more series of shares (the "Trust"), and an open-end management investment company registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940, as amended (the "1940 Act"), on behalf of each of the portfolios listed on Appendix A hereto as the same may be amended from time to time (each a "Fund" and collectively the "Funds"), and BROWN BROTHERS HARRIMAN & CO., a limited partnership formed under the laws of the State of New York (BBH&CO. or the CUSTODIAN), amends the Custodian Agreement by and between the parties dated as of November 1, 1997 (the "Custodian Agreement").
W I T N E S S E T H:
WHEREAS, the Fund has employed BBH&Co. to act as custodian for the Fund and to provide related services, all as provided in the Custodian Agreement;
WHEREAS, the SEC has promulgated Rules 17f-5 and 17f-7 under the 1940 Act which establish rules regarding the Fund's Investments held outside the United States at Subcustodians or through Securities Depositories; and
WHEREAS, BBH&CO is willing to provide services in connection with such Rules in accordance with the terms of this Amendment to the Custodian Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Trust and BBH&Co. hereby agree, as follows:
1. That Section 7 of the Custodian Agreement shall be amended and restated in its entirety as follows:
"7. Subcustodians and Securities Depositories. The Trust hereby authorizes the Custodian to utilize Securities Depositories to act on behalf of a Fund and to appoint from time to time and to utilize Subcustodians. With respect to securities and funds held by a Subcustodian, either directly or indirectly (including by a Securities Depository or clearing agency), notwithstanding any provisions of this Amendment to the Custodian Agreement to the contrary, payment for securities purchased and delivery of securities sold may be made prior to receipt of securities or payment, respectively, and securities or payment may be received in a form, in accordance with (a) governmental regulations, (b) rules of Securities Depositories and clearing agencies, (c) generally accepted trade practice in the applicable local market, (d) the terms and characteristics of the particular Investment, or (e) the terms of Proper Instructions.
7.1 Domestic Subcustodians and Securities Depositories. The
Custodian may deposit and/or maintain, either directly or through one
or more agents appointed by the Custodian, Investments of a Fund in
any Securities Depository in the United States, including The
Depository Trust Company, provided such depository meets applicable
requirements of the Federal Reserve Bank or of the SEC. The Custodian
may, at any time and from time to time, appoint any bank as defined in
Section 2(a)(5) of the 1940 Act meeting the requirements of a
custodian under Section 17(f) of the 1940 Act and the rules and
regulations thereunder, to act on behalf of a Fund as a Subcustodian
for purposes of holding Investments of a Fund in the United States.
7.2 Foreign Subcustodians and Securities Depositories. Unless instructed otherwise by the Trust, the Custodian may deposit and/or maintain Foreign Assets of the Fund in any non-U.S. Securities Depository provided that the Custodian has determined that such Securities Depository meets the requirements of an "eligible securities depository" under Rule 17f-7 promulgated under the 1940 Act, or any successor rule or regulation ("Rule 17f-7") or which
by order of the SEC is exempted therefrom. Prior to the time that securities are placed with such depository, the Custodian shall have prepared an analysis of the custody risks associated with maintaining assets with the Securities Depository and shall have established a system to monitor such risks on a continuing basis in accordance with subsection 7.2.3 of this Section. Additionally, the Custodian may, in accordance with the terms of the 17f-5 Delegation Schedule to this Agreement together with any amendments thereto at any time and from time to time, appoint (a) any bank, trust company or other entity meeting the requirements of an "eligible foreign custodian" under Rule 17f-5 or which by order of the SEC is exempted therefrom, or (b) any bank as defined in Section 2(a)(5) of the 1940 Act meeting the requirements of a custodian under Section 17(f) of the 1940 Act and the rules and regulations thereunder, to act on behalf of a Fund as a Subcustodian for purposes of holding Investments of the Fund outside the United States. Such appointment of foreign Subcustodians shall be subject to approval of the Fund in accordance with Subsections 7.2.1 and 7.2.2 hereof, and use of non-U.S. Securities Depositories shall be subject to the terms of Subsections 7.2.3 hereof. A Proper Instruction to open an account in a given country shall comprise authorization of the Custodian to hold assets in such country in accordance with the terms of this Agreement. The Custodian shall not be required to make independent inquiry as to the authorization of the Fund to invest in such country.
7.2.1. Board Approval of Foreign Subcustodians. Unless and except to the extent that the Board has delegated to, and the Custodian has accepted delegation of, review of certain matters concerning the appointment of Subcustodians pursuant to Subsection 7.2.2, the Custodian shall, prior to the appointment of any Subcustodian for purposes of holding Foreign Assets of the Fund, obtain written confirmation of the approval of the Board of Trustees of the Trust with respect to (a) the identity of a Subcustodian, and (b) the subcustodian agreement which shall govern such appointment, such approval to be signed by an authorized person.
7.2.2. Delegation of Board Review of Subcustodians. The Custodian's duties and obligations with respect to the review of Subcustodians and subcustodian contracts will be performed in accordance with the terms of the attached 17f-5 Delegation Schedule to this Agreement.
7.2.3. Monitoring and Risk Assessment of Non-U.S. Securities Depositories. Prior to the placement of any assets of a Fund with a non-U.S. Securities Depository, the Custodian: (a) shall determine that the non-U.S. Securities Depository is an Eligible Securities Depository; (b) shall provide to the Fund or its Investment Adviser an assessment of the custody risks associated with maintaining assets within such Securities Depository in accordance with Rule 17f-7(a)(1)(i)(A); and (c) shall have established a system to monitor the custody risks associated with maintaining assets with such Securities Depository on a continuing basis and to promptly notify the Fund or its Investment Adviser of any material changes in such risk in accordance with rule 17f-7(a)(1)(i)(B) or the qualification of such Securities Depository as an Eligible Securities Depository. In performing its duties under this subsection, the Custodian shall exercise reasonable care, prudence and diligence and consistent with the exercise of reasonable care, prudence and diligence may reasonably rely on such reasonable sources of information as may be available including but not limited
to: (i) published ratings; (ii) information supplied by a Subcustodian that is a participant in such Securities Depository; (iii) industry surveys or publications; (iv) information supplied by the depository itself, by its auditors (internal or external) or by the relevant Foreign Financial Regulatory Authority. It is acknowledged that information procured through some or all of these sources may not be independently verifiable by the Custodian and that direct access to Securities Depositories is limited under most circumstances. Accordingly, the Custodian shall not be responsible for errors or omissions in its duties hereunder provided that it has performed its monitoring and assessment duties with reasonable care, prudence and diligence. The risk assessment shall be provided to the Fund or its Investment Adviser by such means as the parties shall agree. Advice of material change in such assessment may be provided by the Custodian in the manner established as customary between the Trust and the Custodian for transmission of material market information.
7.3 Responsibility for Subcustodians. The Fund shall be responsible for informing the Custodian sufficiently in advance of a proposed Investment which is to be held in a country in which no Subcustodian is authorized to act in order that the Custodian shall, if it deems appropriate to do so, have sufficient time to establish a subcustodial arrangement in accordance herewith. In the event, however, the Custodian is unable to establish such arrangements prior to the time such Investment is to be acquired, the Custodian shall so notify the Trust and, upon receipt of Proper Instructions, appoint any person designated by the Trust in such instruction to hold such security or other asset. In the absence of such Proper Instructions, the security or Foreign Asset may be left at its settlement location or moved to another agent for the purpose of safekeeping, provided that the Custodian shall be responsible to the Fund for the actions of such agent if and only to the extent the Custodian shall have recovered from such agent for any damages caused the Fund by such agent.
In the event the Custodian receives a claim from a Subcustodian under the
indemnification provisions of any subcustodian agreement, the Custodian shall
promptly give written notice to the Trust of such claim. No more than thirty
(30) calendar days after written notice to the Trust of the Custodian's
intention to make such payment, the Fund will reimburse the Custodian the amount
of such payment except in respect of any negligence or misconduct of the
Custodian or any Subcustodian.
The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company as its agent (an "Agent") to carry out such of the provisions of this Agreement as the Custodian may from time to time direct, provided, however,
that the appointment of such Agent shall not relieve the Custodian of any of its responsibilities under this Agreement. The Custodian shall be responsible for the actions of any Agent other than a Subcustodian as if it performed such action itself.
Except as provided in the last sentence of this Paragraph, the Custodian shall be liable to the Fund for any loss or damage to the Fund caused by or resulting from the acts or omissions of any Subcustodian to the extent that such acts or omissions would be deemed to be negligence, gross negligence or willful misconduct in accordance with the terms of the relevant subcustodian agreement under the laws, circumstances and practices prevailing in the place where the act or omission occurred. The liability of the Custodian in respect of the countries and Subcustodians listed on the Global Custody Network listing and such countries and Subcustodians which the Custodian may from time to time designate, shall be subject to the additional condition that the Custodian actually recovers such loss or damage from the Subcustodian."
2. In addition, that the definitions under Section 2 of the Custodian Agreement shall be amended with the additional modification of the following:
"FOREIGN FINANCIAL REGULATORY AUTHORITY shall have the meaning given by
Section 2(a)(50) of the 1940 Act.
GLOBAL CUSTODY NETWORK LISTING shall mean the Countries and Subcustodians approved for Investments in non-U.S. Markets.
SECURITIES DEPOSITORY shall mean a central or book entry system or agency established under Applicable Law for purposes of recording the ownership and/or entitlement to investment securities for a given market that, if a non-U.S. Securities Depository, meets the definition of Rule 17f-7 under the 1940 Act, and (ii) if a domestic Securities Depository, meets the definition of Rules 17f-4 and 17f-7 under the 1940 Act.
ELIGIBLE FOREIGN CUSTODIAN means an entity that is incorporated or organized under the laws of a country other than the United States and that is a Qualified Foreign Bank (as defined herein) or a majority-owned direct or indirect subsidiary of a U.S. Bank (as defined herein) or bank-holding company.
FOREIGN ASSETS means any Investments (including foreign currencies) for which the primary market is outside the United States, and any cash and cash equivalents that are reasonable necessary to effect the Fund's transactions in those Investments.
FOREIGN CUSTODY MANAGER means a Fund's board of trustees or any person serving as the board's delegate under paragraphs (b) or (d) of Rule 17f-5.
QUALIFIED FOREIGN BANK means a banking institution or trust company, incorporated or organized under the laws of a country other than the United States, that is regulated as such by the country's government or an agency of the country's government.
U.S. BANK means an entity that is:
(i) A banking institution organized under the laws of the United States;
(ii) A member bank of the Federal Reserve System;
(iii) Any other banking institution or trust company organized under the laws of any state or of the United States, whether incorporated or not, doing business under the laws of any state or of the United States, a substantial portion of the business of which consists of receiving deposits or exercising fiduciary powers similar to those permitted to national banks under the authority of the Comptroller of the Currency, and which is supervised and examined by state or federal authority having supervision over banks, and which is not operated for the purpose of evading the provisions of Rule 17f-5;
(iv) A receiver, conservator, or other liquidating agent of any institution or firm included in paragraphs (i), (ii), or (iii) above; or
(v) A banking institution in accordance with Section 17(f) of the 1940 Act."
3. All defined terms used herein shall have the meaning given in the Custodian Agreement as amended by this Amendment.
4. Other than as amended and appended hereby, all terms and provisions of the Custodian Agreement are hereby ratified and affirmed as of the date hereof and are hereby extended to give effect to the terms hereof.
5. By signing below, the Trust ratifies and affirms that all of its representations and warranties set forth in the Custodian Agreement each remain true and correct as of the date hereof.
6. Upon receipt by the Custodian of a fully executed copy of this Amendment, this Amendment shall be deemed to be executed as an instrument under seal and governed by such laws as provided in Section 14.6 of the Custodian Agreement. This Amendment may be executed in original counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same Amendment.
IN WITNESS WHEREOF, each of the parties hereto has caused this Amendment to be duly executed as of the date first above written.
U.S. GLOBAL ACCOLADE FUNDS
By:/s/ Frank E. Holmes ----------------------- Name: Frank E. Holmes Title: Chief Executive Officer |
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Susan C. Livingston ----------------------- Name: Susan C. Livingston Title: Partner |
APPENDIX A
List of Funds
17f-5 DELEGATION SCHEDULE
By its execution of this Delegation Schedule as of June 30, 2001, U.S. GLOBAL ACCOLADE FUNDS (the "Trust"), a Massachusetts Business Trust with one or more series of shares, and an open-end management investment company registered with the Securities and Exchange Commission ("SEC") under the Investment Company Act of 1940 as amended (the "1940 Act"), on behalf of each of the portfolios listed on Appendix A hereto as the same may be amended from time to time (each a "Fund" and collectively the "Funds"), acting through its Board of Trustees or its duly authorized representative, hereby appoints BROWN BROTHERS HARRIMAN & CO., a New York limited partnership with an office in Boston, Massachusetts (the "Delegate") as its delegate to perform certain functions with respect to the custody of the Funds' Assets.
WHEREAS, the Trust has appointed the Delegate as Custodian of the Trust's Property in a Custodian Agreement dated as of November 1, 1997 by and between the Delegate and the Trust (as amended, the "Custodian Agreement");
WHEREAS, the Board of Trustees of the Trust (the "Board") wishes to implement arrangements under Rule 17f-5 of the 1940 Act for the safekeeping of Foreign Assets;
NOW, THEREFORE, in consideration of the mutual covenants and agreements herein contained, the Trust and the Delegate agree as follows. Capitalized terms which are not defined in Section 12 of this Delegation Schedule shall have the meanings ascribed to them in the Custodian Agreement.
1. Maintenance of Funds' Assets Abroad. Delegate may place and maintain the Funds' Foreign Assets in the countries listed on the Global Custody Network Listing hereto only pursuant to Proper Instructions under the terms of the Custodian Agreement and in accordance with this Delegation Schedule. The Global Custody Network Listing may be amended upon the mutual written agreement of the parties. With respect to amendments to the Global Custody Network Listing, the Trust acknowledges that, depending on the conditions in the particular country, advance notice may be required before the Delegate is able to perform its duties
hereunder in or with respect to such country (such advance notice to be reasonable in light of the specific facts and circumstances attendant to performance of duties in such country).
2. Appointment. Pursuant to the provisions of Rule 17f-5, the Trust hereby
appoints the Delegate as "Foreign Custody Manager" as defined under Rule 17f-5
and the Delegate hereby accepts such appointment and agrees to perform, only
those duties set forth in this Delegation Schedule concerning the safekeeping of
each Fund's Foreign Assets in each of the countries set forth in the Global
Custody Network Listing, as amended from time to time, in accordance with
Section 1of this Delegation Schedule. The Delegate is hereby authorized to take
such actions as are reasonably required to discharge its duties under this
Delegation Schedule, including, without limitation, to cause a Fund's Foreign
Assets to be placed with a particular Eligible Foreign Custodian in accordance
herewith.
3. Selection of Eligible Foreign Custodian and Contract Administration. The Delegate shall perform the following duties with respect to the selection of Eligible Foreign Custodians and administration of certain contracts governing the Trust's foreign custodial arrangements:
(a) Selection of Eligible Foreign Custodians. Subject to the provisions of this Delegation Schedule and the requirements of Rule 17f-5, the Delegate shall place and maintain a Fund's Foreign Assets with an Eligible Foreign Custodian in accordance with the Global Custody Network Listing PROVIDED that the Delegate shall have determined that the Fund's Assets will be subject to reasonable care based on the standards applicable to custodians in the relevant market after considering all factors relevant to the safekeeping of such assets, including, without limitation:
(i) The Eligible Foreign Custodian's practices, procedures, and internal controls, including, but not limited to, the physical protections available for certificated securities (if applicable), the controls and procedures for dealing with any Securities Depository, the method of keeping custodial records, and the security and data protection practices;
(ii) Whether the Eligible Foreign Custodian has the requisite financial strength to provide reasonable care for the Fund's Foreign Assets including, but not limited to, the adequacy of the Eligible Foreign Custodian's capital with regard to protecting a Fund's assets against the risk of loss due to such Eligible Foreign
Custodian's insolvency;
(iii) The Eligible Foreign Custodian's general reputation and standing; and
(iv) Whether the Fund will have jurisdiction over and be able to enforce judgments against the Eligible Foreign Custodian, such as by virtue of the existence of any offices of such Eligible Foreign Custodian in the United States or such Eligible Foreign Custodian's consent to services of process in the United States, appointment of an agent for service of process in the United States or consent to jurisdiction in the United States.
The Delegate shall be required to make the foregoing determinations to the best of its knowledge and belief based only on information reasonably available to it in accordance with the standard of care set forth in Section 8 of this Delegation Schedule.
(b) Contract Administration. For each Eligible Foreign Custodian selected by the Delegate pursuant to this Section 3, the Delegate shall enter into a written contract governing each Fund's foreign custody arrangements. The Delegate shall determine that each such written contract with an Eligible Foreign Custodian provides reasonable care for the Fund's Foreign Assets based on the standard of care specified in subsection (a) of this Section 3. Each written contract with an Eligible Foreign Custodian shall, except as set forth in the last paragraph of this subsection (b), include provisions that provide:
(i) For indemnification or insurance arrangements (or any combination of the foregoing) such that the Trust will be adequately protected against the risk of loss of a Fund's Foreign Assets held in accordance with such contract;
(ii) That each Fund's Foreign Assets will not be subject to any right, charge, security interest, lien or claim of any kind in favor of the Eligible Foreign Custodian or its creditors except, a claim of payment for their safe custody or administration or, in the case of cash deposits, liens or rights in favor of creditors of such Eligible Foreign Custodian arising under bankruptcy, insolvency or similar laws;
(iii) That beneficial ownership of each Fund's Foreign Assets will be freely transferable without the payment of money or value other than for safe custody or administration;
(iv) That adequate records will be maintained by the Eligible Foreign Custodian identifying each Fund's Foreign Assets as belonging to the Fund or as being held by a third party for the benefit of the Fund;
(v) That the Trust's independent public accountants will be given access to those records described in (iv) above or confirmation of the contents of those records; and
(vi) That the Trust will receive sufficient and timely periodic reports with respect to the safekeeping of each Fund's Foreign Assets, including, but not limited to, notification of any transfer to or from the Fund's account or a third party account containing assets held for the benefit of a Fund.
Such contract may contain, in lieu of any or all of the provisions specified in this Section 3(b), such other provisions that the Delegate determines will provide, in their entirety, the same or a greater level of care and protection for each Fund's Foreign Assets as the specified provisions, in their entirety.
(c) LIMITATION TO DELEGATED SELECTION. Notwithstanding anything in
this Delegation Schedule to the contrary, the duties under this Section 3
shall apply only to Eligible Foreign Custodians selected by the Delegate
and shall not apply to Securities Depositories or to any Eligible Foreign
Custodian that the Delegate is directed to use pursuant to Section 7 of
this Delegation Schedule. Nothing in this Delegation Schedule shall require
the Delegate to consider Country Risk as part of its duties under this
Section 3.
4. MONITORING. In addition to determining the appropriateness of placing a Fund's Foreign Assets in accordance with Section 3(a) of this Delegation Schedule and monitoring the continuing appropriateness of the contract governing a Fund's foreign custody arrangements in accordance with Section 3(b) of this Delegation Schedule, the Delegate shall establish and maintain a system to continuously monitor: (i) the appropriateness of maintaining Foreign Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule; (ii) each such Eligible Foreign Custodian's continuing compliance with the standards set forth in Rule 17f-5 and this Delegation Schedule; and (iii) material changes to the Trust's foreign custody arrangements, as defined in Section 6 below (the "Monitoring System").
5. REPORTING. The Delegate shall provide to the Board and the Trust's Investment Adviser written reports specifying placement of a Fund's Foreign Assets with each Eligible Foreign Custodian selected by the Delegate pursuant to Section 3 of this Delegation Schedule; and of any material changes in a Fund's foreign custody arrangements effected by the Delegate pursuant to Section 3, including, but not limited to: (i) any withdrawal of a Fund's Foreign Assets under Section 6 of this Delegation Schedule, (ii) any event that may adversely and materially affect an Eligible Foreign Custodian's financial or operational strength, (iii) a change in control of an Eligible Foreign Custodian, (iv) the failure of an Eligible Foreign Custodian to comply with the standards in Rule 17f-5 or its contract governing the Trust's foreign custody arrangements; and (v) a material change in any information provided to the Board regarding the Delegate's expertise in foreign custody issues and risks, the Delegate's use of third-party experts to perform its foreign custody responsibilities, the Board's ability to monitor the Delegate's performance, the Delegate's financial strength or its ability to indemnify the Trust; the Delegate's inability to perform its duties in accordance with any standard of care under this Delegation Schedule or any notice with respect to information regarding prevailing Country Risk provided to the Board and/or the Investment Adviser under Section 17 of this Delegation Schedule. Such reports shall be provided to the Board at its regularly scheduled meeting next following the event being reported, or more frequently as requested by the Board, provided that, if the Delegate determines that any matter should be reported sooner, it shall promptly, following the occurrence of the event, direct such report to the Fund's President for forwarding to the Board. The Delegate will prepare such reports with respect to any Eligible Foreign Custodian that the Delegate has been instructed to use pursuant to Section 7 of this Delegation Schedule only to the extent specifically agreed to with respect to the particular situation. Nothing in this Section shall limit the Delegate's duty to report the location of a Fund's Foreign Assets as part of its normal reporting under the Custodian Agreement whether or not they have been placed by the Delegate pursuant to Section 3 of this Delegation Schedule.
At least annually, the Delegate shall provide to the Trust a written statement as may be reasonably required to document its compliance with the terms of this Delegation Schedule as well as information regarding the following factors: (i) the Delegate's expertise in foreign custody issues and risks; (ii) the Delegate's use of third-party experts to perform its foreign custody responsibilities; (iii) the Board's ability to monitor the Delegate's performance; and (iv)
the Delegate's financial strength and its ability to indemnify the Trust if necessary.
6. WITHDRAWAL OF FUND'S ASSETS. If the Delegate determines that an arrangement
with a specific Eligible Foreign Custodian selected by the Delegate under
Section 3 of this Delegation Schedule no longer meets the requirements of said
Section, the Delegate shall promptly notify the Trust of such fact and shall
withdraw the Foreign Assets from the non-complying arrangement and make
arrangements for the custody of such Foreign Assets with a successor Eligible
Foreign Custodian in accordance with the terms of this Delegation Schedule as
soon as reasonably practicable; PROVIDED, however, that if in the reasonable
judgment of the Delegate, such withdrawal would require liquidation of any of a
Fund's Foreign Assets or would materially impair the liquidity, value or other
investment characteristics of a Fund's Foreign Assets, it shall be the duty of
the Delegate to provide information regarding the particular circumstances and
to act only in accordance with Proper Instructions with respect to such
liquidation or other withdrawal.
7. DIRECTION AS TO ELIGIBLE FOREIGN CUSTODIAN. Notwithstanding this Delegation Schedule, the Trust acting through its Board, its Investment Adviser, or its authorized representative, may direct the Delegate to place and maintain the Fund's Foreign Assets with a particular Eligible Foreign Custodian, including without limitation with respect to investment in countries as to which the Delegate will not provide delegation services. In such event, the Delegate shall be entitled to rely on any such instruction as a Proper Instruction under the terms of the Custodian Agreement and shall have no duties under this Delegation Schedule with respect to such arrangement save those included under Section 16 of this Delegation Schedule and that it may undertake specifically in writing with respect to each particular instance.
8. STANDARD OF CARE. In carrying out its duties under this Delegation Schedule, the Delegate agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for safekeeping of a Fund's Foreign Assets would exercise. The Delegate agrees to promptly notify the Board and the Trust's Investment Adviser if, at any time, the Delegate believes it cannot perform its duties hereunder in accordance with the foregoing standard of care.
9. REPRESENTATIONS. The Delegate hereby represents and warrants that it is a U.S.
Bank and that this Delegation Schedule has been duly authorized, executed and delivered by the Delegate and is a legal, valid and binding agreement of the Delegate and that the Delegate has established and agrees to maintain during the term of this Delegation Schedule, the Monitoring System.
The Trust hereby represents and warrants that this Delegation Schedule has been duly authorized, executed and delivered by the Trust and is a legal, valid and binding agreement of the Trust.
10. EFFECTIVENESS; TERMINATION. This Delegation Schedule shall be effective as of the date on which this Delegation Schedule shall have been accepted by the Delegate, as indicated by the date set forth below the Delegate's signature. This Delegation Schedule may be terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Such termination shall be effective on the 90th calendar day after the date of delivery or mailing of such notice (or such other period as may be agreed between the parties). The foregoing to the contrary notwithstanding, this Delegation Schedule shall be deemed to have been terminated concurrently with the termination of the Custodian Agreement.
11. NOTICES. Notices and other communications under this Delegation Schedule are to be made in accordance with the arrangements designated for such purpose under the Custodian Agreement unless otherwise indicated in a writing referencing this Delegation Schedule and executed by both parties.
12. DEFINITIONS. Capitalized terms in this Delegation Schedule have the following meanings:
a. COUNTRY RISKS - means the systemic risks arising from holding assets in a particular country, including, those arising from a country's financial infrastructure, prevailing custody and settlement practices, expropriation, nationalization or other governmental actions, and laws applicable to the safekeeping and recovery of assets held in custody in such country.
b. ELIGIBLE FOREIGN CUSTODIAN - shall have the meaning set forth in Rule 17f-5(a)(1) of the 1940 Act and shall also include a U.S. Bank.
c. FOREIGN ASSETS - shall have the meaning set forth in Rule 17f-5(a)(2) of the 1940 Act.
d. PROPER INSTRUCTIONS - shall have the meaning set forth in the Custodian Agreement.
e. SECURITIES DEPOSITORY - shall have the meaning set forth in Rule 17f-7(b)(1) of the 1940 Act.
f. U.S. BANK - shall have the meaning set forth in Rule 17f-5(a)(7) of the 1940 Act and Section 17(f) of the 1940 Act.
13. GOVERNING LAW AND JURISDICTION. This Delegation Schedule shall be construed in accordance with the federal laws of the United States and to the extent not governed thereby, the laws of the Commonwealth of Massachusetts. The parties hereby submit to the exclusive jurisdiction of the Federal courts sitting in the State of New York or the Commonwealth of Massachusetts or the state courts of New York or Massachusetts.
14. FEES. Delegate shall perform its functions under this Delegation Schedule for the compensation determined under the Custodian Agreement.
15. INTEGRATION. This Delegation Schedule sets forth all of the Delegate's duties with respect to the selection and monitoring of Eligible Foreign Custodians, the administration of contracts with Eligible Foreign Custodians, the withdrawal of assets from Eligible Foreign Custodians and the issuance of reports in connection with such duties. This Delegation Schedule constitutes the entire agreement between the Fund and Delegate with respect to the subject matter hereof. Accordingly, this Delegation Schedule supercedes the Foreign Custody Manager Delegation Agreement heretofore in effect. The terms of the Custodian Agreement shall apply generally as to matters not expressly covered in this Delegation Schedule, including dealings with the Eligible Foreign Custodians in the course of discharge of the Delegate's obligations under the
Custodian Agreement. In the event of a conflict between the terms of this Delegation Schedule and the Custodian Agreement, the terms of this Delegation Schedule shall control with respect to the services covered herein.
16. PROVISION OF INFORMATION. The Delegate agrees to provide annually to the
Trust or a Fund's Investment Adviser, such information as is specified in
Appendix 1 hereto, as may be amended from time to time by the parties. With
respect to each Eligible Foreign Custodian employed by the Trust pursuant to
Section 7 herein, the Delegate agrees to provide the Trust or its Investment
Adviser, any information it possesses regarding Country Risk or the risks
associated with placing or maintaining Foreign Assets with the Eligible Foreign
Custodian. The Delegate shall be responsible to use reasonable care in the
gathering of such information but shall not be deemed to warranty the
completeness or specific accuracy of such information. The Delegate agrees to
promptly notify the Board or the Fund's Investment Adviser at any time that the
Delegate becomes aware of a material change to the information provided
hereunder or if the Delegate learns that any information previously provided is
incomplete or inaccurate.
17. LIMITATION OF LIABILITY; SATISFACTION OF CLAIMS. The Delegate shall be responsible under this Delegation Schedule for any direct loss, claim, damage or liability incurred or suffered by the Trust or its officers, directors, employees or agents that results from the Delegate's failure to exercise any standard of care set forth in this Delegation Schedule, or the Delegate's willful misfeasance or bad faith in the performance of its duties under this Delegation Schedule. The Delegate shall indemnify and hold the Trust harmless from and against any and all direct claims, costs, expenses (including attorney's fees), losses, damages, charges, payments and liabilities of any sort or kind (excluding consequential, special or punitive damages) which may be asserted against the Trust, or for which the Trust may be held liable in connection with the Delegate's performance hereunder (a "Claim"), unless such Claim resulted from bad faith or gross negligence by the Trust in performance of its duties and obligations hereunder. Notwithstanding the foregoing, the Delegate shall not be liable for any loss, claim, damage or liability arising as a result of any acts of God, earthquakes, fires, flood, storms or other disturbances of nature, strikes, riots, nationalization, expropriation, currency restrictions or revaluations, investment or repatriation restrictions, imposition of taxes or changes in applicable laws, acts of war, civil war or terrorism, insurrection, the interruption, loss or malfunction of utilities, transportation or
computers and computer facilities, the unavailability of energy sources and other similar happenings or events that are not within Delegate's reasonable control. Nothing in this Section 17 shall be deemed to preclude the Trust or other party from pursuing any rights it may have in law and equity.
The Delegate agrees that claims made against each Fund respectively under this Delegation Schedule shall be satisfied only from assets of such Fund, and not from the assets of any separate Fund held hereunder; that any person executing this Delegation Schedule has executed it on behalf of the Trust and not individually, and that the obligations of the Trust arising out of this Delegation Schedule are not binding upon such person or the Trust's shareholders individually, but binding upon the Property and other assets of the Trust; that no shareholders, trustees directors or officers of the Trust may be held personally liable or responsible for any obligations of the Trust arising out of this Delegation Schedule.
18. MOST FAVORED CLIENT. If at any time the Delegate shall be a party to an agreement to serve as "Foreign Custody Manager" (as defined in Rule 17f-5(a)(2) of the 1940 Act) to an investment company, that provides for either: (a) a standard of care with respect to the selection of Eligible Foreign Custodians in any jurisdiction higher than that set forth in Section 3 of this Delegation Schedule or (b) a standard of care with respect to exercise of the Delegate's duties other than that set forth in Section 8 of this Delegation Schedule, the Delegate agrees to notify the Trust of this fact and to raise the applicable standard of care hereunder to the standard specified in such other agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this Delegation Schedule to be duly executed as of the date first above written.
U.S. ACCOLADE FUNDS
By:/s/ Frank E. Holmes ------------------------ Name: Frank E. Holmes Title: Chief Executive Officer |
BROWN BROTHERS HARRIMAN & CO.
By: /s/ Susan C. Livingston ------------------------ Name: Susan C. Livingston Title: Partner |
FUNDS TRANSFER SERVICES SCHEDULE TO CUSTODIAN AGREEMENT
1. EXECUTION OF PAYMENT ORDERS. Brown Brothers Harriman & Co. (the Custodian) is hereby instructed by U. S. GLOBAL ACCOLADE FUNDS (the Company) to execute each payment order, whether denominated in United States dollars or other applicable currencies, received by the Custodian in the Company's name as sender and authorized and confirmed by an authorized person as described in a Custodian Agreement dated as of November 1, 1997 by and between the Custodian and the Company, as amended or restated from time thereafter (the Agreement), provided that the Company has sufficient available funds on deposit in a Principal Account as defined in the Agreement and provided that the order (i) is received by the Custodian in the manner specified in this Funds Transfer Services Schedule or any amendment hereafter; (ii) complies with any written instructions and restrictions of the Company as set forth in this Funds Transfer Services Schedule or any amendment hereafter; (iii) is authorized by the Company or is verified by the Custodian in compliance with a security procedure set forth in Paragraph 2 below for verifying the authenticity of a funds transfer communication sent to the Custodian in the name of the Company or for the detection of errors set forth in any such communication; and (iv) contains sufficient data to enable the Custodian to process such transfer.
2. SECURITY PROCEDURE. The Company hereby elects to use the procedure selected below as its security procedure (the Security Procedure). The Security Procedure will be used by the Custodian to verify the authenticity of a payment order or a communication amending or canceling a payment order. The Custodian will act on instructions received provided the instruction is authenticated by the Security Procedure. The Company agrees and acknowledges in connection with (i) the size, type and frequency of payment orders normally issued or expected to be issued by the Company to the Custodian, (ii) all of the security procedures offered to the Company by the Custodian, and (iii) the usual security procedures used by customers and receiving banks similarly situated, that authentication through the Security Procedure shall be deemed commercially reasonable for the authentication of all payment orders submitted to the Custodian. The Company hereby elects (please choose one) the following Security Procedure as described below:
[X] BIDS AND BIDS WORLDVIEW PAYMENT PRODUCTS. BIDS and BIDS Worldview
Payment Products, are on-line payment order authorization facilities with built-in authentication procedures. The Custodian and the Company shall each be responsible for maintaining the confidentiality of passwords or other codes to be used by them in connection with BIDS. The Custodian will act on instructions received through BIDS without duty of further confirmation unless the Company notifies the Custodian that its password is not secure.
[ ] SWIFT. The Custodian and the Company shall comply with SWIFT's authentication procedures. The Custodian will act on instructions received via SWIFT provided the instruction is authenticated by the SWIFT system.
[ ] TESTED TELEX. The Custodian will accept payment orders sent by tested telex, provided the test key matches the algorithmic key the Custodian and Company have agreed to use.
[ ] COMPUTER TRANSMISSION. The Custodian is able to accept transmissions sent from the Company's computer facilities to the Custodian's computer facilities provided such
transmissions are encrypted and digitally certified or are otherwise authenticated in a reasonable manner based on available technology. Such procedures shall be established in an operating protocol between the Custodian and the Company.
[X] TELEFAX INSTRUCTIONS. A payment order transmitted to the Custodian by telefax transmission shall transmitted by the Company to a telephone number specified from time to time by the Custodian for such purposes. If it detects no discrepancies, the Custodian will then either:
1. If the telefax requests a repetitive payment order, the Custodian may call the Company at its last known telephone number, request to speak to the Company or Authorized Person, and confirm the authorization and the details of the payment order (a "Callback"); or
2. If the telefax requests a non-repetitive order, the Custodian will perform a Callback.
All faxes must be accompanied by a fax cover sheet which indicates the sender's name, company name, telephone number, fax number, number of pages, and number of transactions or instructions attached.
[ ] TELEPHONIC. A telephonic payment order shall be called into the Custodian at the telephone number designated from time to time by the Custodian for that purpose. The caller shall identify herself/himself as an Authorized Person. The Custodian shall obtain the payment order data from the caller. The Custodian shall then:
1. If a telephonic repetitive payment order, the Custodian may perform a Callback; or
2. If a telephonic non-repetitive payment order, the Custodian will perform a Callback.
(sbm)[X] BRAIDS
In the event the Company chooses a procedure which is not a Security Procedure as described above, the Company agrees to be bound by any payment order (whether or not authorized) issued in its name and accepted by the Custodian in compliance with the procedure selected by the Company.
3. REJECTION OF PAYMENT ORDERS. The Custodian shall give the Company timely notice of the Custodian's rejection of a payment order. Such notice may be given in writing or orally by telephone, each of which is hereby deemed commercially reasonable. In the event the Custodian fails to execute a properly executable payment order and fails to give the Company notice of the Custodian's non-execution, the Custodian shall be liable only for the Company's actual damages and only to the extent that such damages are recoverable under UCC 4A (as defined in Paragraph 7 below). Notwithstanding anything in this Funds Transfer Services Schedule and the Agreement to the contrary, the Custodian shall in no event be liable for any consequential or special damages under this Funds Transfer Services Schedule, whether or not such damages relate to services covered by UCC 4A, even if the Custodian has been advised of the possibility of such damages. Whenever compensation in the form of interest is payable by the Custodian to the Company pursuant to this Funds Transfer Services Schedule, such compensation will consist of interest payable in accordance with UCC 4A.
4. CANCELLATION OF PAYMENT ORDERS. The Company may cancel a payment order but the Custodian shall have no liability for the Custodian's failure to act on a cancellation instruction unless the Custodian has received such cancellation instruction at a time and in a manner affording the Custodian reasonable opportunity to act prior to the Custodian's execution of the order. Any cancellation shall be sent and confirmed in the manner set forth in Paragraph 2 above.
5. RESPONSIBILITY FOR THE DETECTION OF ERRORS AND UNAUTHORIZED PAYMENT ORDERS.
Except as may be provided, the Custodian is not responsible for detecting any
Company error contained in any payment order sent by the Company to the
Custodian. In the event that the Company's payment order to the Custodian either
(i) identifies the beneficiary by both a name and an identifying or bank account
number and the name and number identify different persons or entities, or (ii)
identifies any bank by both a name and an identifying number and the number
identifies a person or entity different from the bank identified by name,
execution of the payment order, payment to the beneficiary, cancellation of the
payment order or actions taken by any bank in respect of such payment order may
be made solely on the basis of the number. The Custodian shall not be liable for
interest on the amount of any payment order that was not authorized or was
erroneously executed unless the Company so notifies the Custodian within thirty
(30) business days following the Company's receipt of notice that such payment
order had been processed. If a payment order in the name of the Company and
accepted by the Custodian was not authorized by the Company, the liability of
the parties will be governed by the applicable provisions of UCC 4A.
6. LAWS AND REGULATIONS. The rights and obligations of the Custodian and the Company with respect to any payment order executed pursuant to this Funds Transfer Services Schedule will be governed by any applicable laws, regulations, circulars and funds transfer system rules, the laws and regulations of the United States of America and of other relevant countries including exchange control regulations and limitations on dealings or other sanctions, and including without limitation those sanctions imposed under the law of the United States of America by the Office of Foreign Assets Control. Any taxes, fines, costs, charges or fees imposed by relevant authorities on such transactions shall be for the account of the Company.
7. MISCELLANEOUS. All accounts opened by the Company or its authorized agents at the Custodian subsequent to the date hereof shall be governed by this Funds Transfer Schedule. All terms used in this Funds Transfer Services Schedule shall have the meaning set forth in Article 4A of the Uniform Commercial Code as currently in effect in the State of New York (UCC 4A) unless otherwise set forth herein. The terms and conditions of this Funds Transfer Services Schedule are in addition to, and do not modify or otherwise affect, the terms and conditions of the Agreement and any other agreement or arrangement between the parties hereto.
8. INDEMNIFICATION. The Custodian does not recommend the sending of instructions by telefax or telephonic means as provided in Paragraph 2. BY ELECTING TO SEND INSTRUCTIONS BY TELEFAX OR TELEPHONIC MEANS, THE COMPANY AGREES TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL LOSSES THEREFROM.
OPTIONAL: The Custodian will perform a Callback if instructions are sent by telefax or telephonic means as provided in Paragraph 2. THE COMPANY MAY, AT ITS OWN RISK AND BY HEREBY AGREEING TO INDEMNIFY THE CUSTODIAN AND ITS PARTNERS, OFFICERS AND EMPLOYEES FOR ALL
LOSSES THEREFROM, ELECT TO WAIVE A CALLBACK BY THE CUSTODIAN BY INITIALLING HERE:____
Accepted and agreed: BROWN BROTHERS HARRIMAN & CO. U.S. GLOBAL ACCOLADE FUNDS By: /s/ Susan Livingston By: /s/ Frank E. Hollmes ------------------------ ------------------------ Name: Susan Livingston Name: Frank E. Holmes Title: Partner Title: Chief Executive Officer Date: July 19, 2001 Date: July 12, 2001 |
APPENDIX 1
INFORMATION REGARDING COUNTRY RISK
1. To aid the Trust or its delegate in its consideration of Country Risks, the Delegate shall furnish the Trust annually and upon the initial placement of Foreign Assets into a country, the following information:
a. Opinions of local counsel concerning whether applicable foreign law would restrict the: (i) access afforded the Trust's independent public accountants to books and records kept by an Eligible Foreign Custodian located in that country; (ii) the Trust's ability to recover its Foreign Assets in the event of bankruptcy of an Eligible Foreign Custodian that country; or (iii) the Trust's ability to recover Foreign Assets that are lost while under the control of an Eligible Foreign Custodian located in that country.
b. Written information concerning (i) the likelihood of expropriation, nationalization, freezes, or confiscation of the Trust's Foreign Assets and (ii) whether difficulties in converting the Trust's cash and cash equivalents to U.S. dollars are foreseeable.
c. A MARKET PRACTICE MANUAL with respect to the following topics: (i) securities regulatory environment; (ii) foreign ownership restrictions; (iii) foreign exchange; (iv) securities settlement and registration; and (v) taxation.
2. To aid the Trust in monitoring Country Risk, the Delegate shall furnish the Trust with the following information: GLOBAL UPDATES, including with respect to changes in the information contained in the above MARKET PRACTICE MANUAL.
BROWN BROTHERS HARRIMAN & CO. - GLOBAL CUSTODY NETWORK
U.S. GLOBAL ACCOLADE FUNDS
APPENDIX A TO THE CUSTODIAN AGREEMENT
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- AUSTRALIA NATIONAL AUSTRALIA BANK LTD.(NAB) Austraclear National Australia Bank Agt. 5/1/85 CHESS Agreement Amendment 2/13/92 RBA Omnibus Amendment 11/22/93 BRAZIL BANKBOSTON NA, SAO PAULO CBLC The First National Bank of Boston Agreement 1/5/88 Omnibus Amendment 2/22/94 Amendment 7/29/96 BULGARIA ING BANK NV, SOFIA BNB ING Bank N.V. Agreement 9/15/97 CDAD CANADA ROYAL BANK OF CANADA (RBC) Bank of Canada The Royal Bank of Canada Agreement CDS 2/23/96 CZECH CITIBANK AS FOR CITIBANK NA CNB-TKD System REPUBLIC Citibank, N.A., New York Agt. 7/16/81 SCP New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 Citibank NA / Citibank AS Agreement 6/24/96 ESTONIA HANSAPANK, TALLINN FOR MERITA BANK ECDSL Merita Bank Agreement 12/1/97 ***BBH'S RESPONSIBILITY FOR THIS SUBCUSTODIAN IS CONDITIONED ON THE ABILITY OF BBH TO RECOVER FROM THE SUBCUSTODIAN.. IN ADDITION, BBH DOES NOT ACCEPT DELEGATION IN THIS MARKET.*** FINLAND MERITA BANK PLC FCSD Union Bank of Finland Agreement 2/27/89 Omnibus Amendment 4/6/94 FRANCE CREDIT AGRICOLE INDOSUEZ (CAI) BdF Banque Indosuez Agreement 7/19/90 SICOVAM Omnibus Amendment 3/10/94 1/10/01 PAGE 1 OF 5 525 |
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- GERMANY DRESDNER BANK AG CBF Dresdner Bank Agreement 10/6/95 HONG KONG HONGKONG AND SHANGHAI BANKING CORP. CMU LTD (HSBC) HKSCC Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 HUNGARY CITIBANK BUDAPEST RT. FOR CITIBANK NA KELER Ltd Citibank, N.A., New York Agt. 7/16/81 New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 Citibank, N.A. Subsidiary Amendment 10/19/95 Citibank, N.A. / Citibank Budapest Agreement 6/23/92 Citibank, N.A. / Citibank Budapest Amendment 9/29/92 INDONESIA CITIBANK NA, JAKARTA PT KSEI Citibank, N.A., New York Agt. 7/16/81 New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 ITALY BANCA COMMERCIALE ITALIANA (BCI) Monte Titoli Banca Commerciale Italiana Agreement S.P.A. 5/8/89 Agreement Amendment 10/8/93 Omnibus Amendment 12/14/93 JAPAN BANK OF TOKYO - MITSUBISHI, LTD. (BTM) BoJ Bank of Tokyo - Mitsubishi Agreement JASDEC 6/17/96 KOREA CITIBANK NA, SEOUL KSD Citibank, N.A., New York Agt. 7/16/81 New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 Citibank, Seoul Agreement Supplement 10/28/94 LATVIA MERITA BANK PLC, RIGA Bank of Latvia Union Bank of Finland Agreement 2/27/89 LCD Omnibus Amendment 4/6/94 Side Letter Agreement pending LATVIA HANSABANK, RIGA FOR MERITA BANK Bank of Latvia Merita Bank Agreement 12/1/97 LCD ***REQUIRES ADDITIONAL DOCUMENTATION PRIOR TO INVESTMENT.*** 1/10/01 PAGE 2 OF 5 525 |
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- LITHUANIA VILNIAUS BANKAS, VILNIUS FOR MERITA BANK CSDL Merita Bank Agreement 12/1/97 ***BBH'S RESPONSIBILITY FOR THIS SUBCUSTODIAN IS CONDITIONED ON THE ABILITY OF BBH TO RECOVER FROM THE SUBCUSTODIAN. IN ADDITION, BBH DOES NOT ACCEPT DELEGATION IN THIS MARKET.*** LUXEMBOURG KREDIETBANK LUXEMBOURG (KBL) CBL Kredietbank Luxembourg Agt. 4/7/98 MALAYSIA HSBC BANK MALAYSIA BERHAD (HBMB) FOR BNM HONGKONG SHANGHAI BANKING CORP. (HSBC) MCD Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 Malaysia Subsidiary Supplement 5/23/94 Side letter Agreement dated 7/28/97 MEXICO BANCO SANTANDER MEXICANO SA (BSM) FOR Banxico BANCO DE SANTANDER Indeval Banco de Santander Agreement 12/14/88 Subsidiary Amendment 10/18/96 NEW ZEALAND NATIONAL AUSTRALIA BANK LTD. (NAB), NZCSD AUCKLAND National Australia Bank Agt. 5/1/85 Agreement Amendment 2/13/92 Omnibus Amendment 11/22/93 New Zealand Addendum 3/7/89 NORWAY DEN NORSKE BANK VPS Den norske Bank Agreement 11/16/94 PHILIPPINES CITIBANK NA, MANILA PCD Citibank, N.A., New York Agt. 7/16/81 ROSS New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 POLAND CITIBANK (POLAND) SA FOR CITIBANK NA CRBS Citibank, N.A., New York Agt. 7/16/81 NDS New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 Citibank Subsidiary Amendment 10/30/95 Citibank, N.A. / Citibank Poland S.A. Agt. 11/6/92 PORTUGAL BANCO COMERCIAL PORTUGUES SA (BCP) CVM Banco Comercial Portugues 5/18/98 1/10/01 PAGE 3 OF 5 525 |
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- ROMANIA ING BANK NV, BUCHAREST BSE ING Bank N.V. Agreement 9/29/97 NBR SNCDD RUSSIA CITIBANK T/O FOR CITIBANK NA VTB Citibank, N.A., New York Agt. 7/16/81 NDC New York Agreement Amendment 8/31/90 New York Agreement Amendment 7/26/96 Citibank, N.A. Subsidiary Amendment 10/19/95 Citibank N.A. / Citibank T/O Agt. 6/16/97 Side Letter Agt. 8/18/97 ***REQUIRES SIGNED AMENDMENT TO THE CUSTODIAN AGREEMENT PRIOR TO INVESTMENT.*** RUSSIA CREDIT SUISSE FIRST BOSTON AO (CSFB AO) VTB FOR CREDIT SUISSE, ZURICH Credit Suisse First Boston Agreement 8/18/99 Credit Suisse, Zurich Agreement 4/30/96 ***REQUIRES SIGNED AMENDMENT TO THE CUSTODIAN AGREEMENT PRIOR TO INVESTMENT.*** SINGAPORE HONGKONG & SHANGHAI BANKING CORP. LTD. CDP (HSBC), SINGAPORE Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 SLOVAKIA ING BANK NV, BRATISLAVA NBS ING Bank N.V. Agreement 9/1/98 SCP SOUTH AFRICA STANDARD BANK OF SOUTH AFRICA (SBSA) CDL Standard Bank of South Africa STRATE Agreement 3/11/94 SPAIN BANCO SANTANDER CENTRAL HISPANO SA (BSCH) Banco de Espana Banco de Santander Agreement 12/14/88 SCL SRI LANKA HONGKONG & SHANGHAI BANKING CORP. LTD. CDS (HSBC), COLOMBO Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 SWITZERLAND UBS AG SIS Union Bank of Switzerland Agreement 12/20/88 Omnibus Amendment 11/29/94 1/10/01 PAGE 4 OF 5 525 |
COUNTRY SUBCUSTODIAN DEPOSITORIES -------------- ----------------------------------------- --------------- TAIWAN STANDARD CHARTERED BANK (SCB), TAIPEI TSCD Standard Chartered Bank Agreement 2/18/92 Omnibus Amendment 6/13/94 Appendix 4/8/96 THAILAND HONGKONG & SHANGHAI BANKING CORP. LTD. TSDC (HSBC), BANGKOK Hongkong & Shanghai Banking Corp. Agt. 4/19/91 Omnibus Supplement 12/29/93 Schedule 5/14/96 UNITED KINGDOM HSBC BANK PLC CMO Midland Bank Agreement 8/8/90 CREST Omnibus Amendment 12-15-93 |
NOTES:
1.) The depositories in Panama and Venezuela are presently elective. It is not the current intention of Brown Brothers Harriman & Co. to use such depositories unless their use becomes compulsory. Euroclear is compulsory for fixed income obligations and elective for equities. Currently, Brown Brothers Harriman & Co. uses Euroclear for settlement of equities where we are instructed to do so. We do not use Euroclear for the ongoing safekeeping of equities.
2.) If you are authorizing investment in Bolivia, Costa Rica, Cyprus, Estonia, Ghana, Lithuania, Panama or Nigeria, these arrangements are the subject of additional information in Schedule A to the FCM report.
3.) This appendix reflects changes to the listed markets, subcustodians and/or central depositories which have been reported within the FCM report(s) through the date referenced in the lower left hand corner of this appendix.
I HEREBY CERTIFY THAT THE BOARD OR ITS DELEGATE HAS APPROVED THE COUNTRIES AND CENTRAL DEPOSITORIES LISTED ON THIS APPENDIX
/s/ Susan B. McGee ---------------------------------------- SIGNATURE NAME: Susan B. McGee TITLE: Executive Vice President DATE: September 24, 2001 |
1/10/01 PAGE 5 OF 5 525
EXHIBIT 11 -- SCHEDULE OF COMPUTATION OF NET EARNINGS PER SHARE
Weighted average number of shares outstanding 7,524,913 7,408,821 6,562,140 during the year Basic income (loss) per share: Net income (loss) $ (0.11) $ 0.07 $ (0.28) =========== ========= ========== DILUTED Weighted average number of shares outstanding 7,524,913 7,408,821 6,562,140 during the year 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 ----------- --------- ---------- Weighted average number of shares used in calculation of diluted earnings per share 7,524,913 7,411,099 6,563,844 =========== ========= ========== Diluted income (loss) per share: Net income (loss) $ (0.11) $ 0.07 $ (0.28) =========== ========= ========== |
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. Security Trust & 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
7. iWeblabs, Inc. - incorporated in Texas and wholly owned by the Company
POWER OF ATTORNEY
We, the undersigned officers and directors of U.S. Global Investors, Inc. ("Company"), do hereby severally constitute and appoint Frank E. Holmes, Susan B. McGee, and Bobby D. Duncan and each of them acting singularly, as our true and lawful attorneys, with full powers to them and each of them to sign for us, in our names in the capacities indicated below, the Annual Report of the Company on Form 10-K, and any amendments thereto, to be filed with the Securities and Exchange Commission and to take such further action in respect thereto as they, in their sole discretion, deem necessary to enable the Trust to comply with the provisions of the Securities Act of 1933, as amended, the Securities Act of 1934, as amended, and all requirements and regulations of the Securities and Exchange Commission, hereby ratifying and confirming our signatures as they may be signed by our said attorneys to any and all documents related to said annual report.
IN WITNESS WHEREOF, we have hereunto set our hands on the dates indicated below.
SIGNATURE TITLE DATE /s/ Frank E. Holmes --------------------- Frank E. Holmes Chairman of the Board September 26, 2001 Chief Executive Officer Chief Investment Officer /s/ Thomas F. Lydon ------------------------ Thomas F. Lydon Director September 26, 2001 /s/ J. Stephen Penner ------------------------ J. Stephen Penner Director September 26, 2001 /s/ Jerold H. Rubinstein ------------------------ Jerold H. Rubinstein Director September 26, 2001 /s/ Roy D. Terracina ------------------------ Roy D. Terracina Director September 26, 2001 /s/ Bobby D. Duncan ------------------------ Bobby D. Duncan Chief Operating Officer September 26, 2001 Chief Financial Officer /s/ Tracy Peterson ------------------------ Tracy C. Peterson Chief Accounting Officer September 26, 2001 /s/ Susan B. McGee ------------------------ Susan B. McGee President September 26, 2001 General Counsel |