NOTE 5. INVESTMENT MANAGEMENT, TRANSFER AGENT
AND OTHER FEES
The Company serves as investment adviser to U.S. Global Investors Funds (“USGIF”) and receives a fee based on a specified
percentage of net assets under management.
USSI also serves as transfer agent to USGIF and receives fees based on the number of shareholder
accounts as well as transaction and activity-based fees. Additionally, the Company receives certain miscellaneous fees directly from USGIF shareholders. Fees for providing investment management, administrative, distribution and transfer agent
services to USGIF continue to be the Company’s primary revenue source.
The advisory agreement for the nine equity funds provides for a
base advisory fee that is adjusted upwards or downwards by 0.25 percent when there is a performance difference of 5 percent or more between a fund’s performance and that of its designated benchmark index over the prior rolling 12 months. For
the three and nine months ended March 31, 2012, the Company adjusted its base advisory fees downward by $1,137,345 and $1,787,199. For the corresponding periods in fiscal 2011, base advisory fees were increased by $925,897 and $2,005,984.
The Company has voluntarily waived or reduced its fees and/or agreed to pay expenses on all thirteen funds. These caps will continue on a
voluntary basis at the Company’s discretion. Effective with the March 1, 2010, offering of institutional class shares in three USGIF funds, the Company voluntarily agreed to waive all institutional class-specific expenses. The aggregate
fees waived and expenses borne by the Company for the three and nine months ended March 31, 2012, were $773,394 and $2,372,547 compared with $741,991 and $2,280,301, respectively, for the corresponding periods in fiscal 2011.
The above waived fees include
amounts waived under an agreement whereby the Company has voluntarily agreed to waive fees and/or reimburse the U.S. Treasury Securities Cash Fund and the U.S. Government Securities Savings Fund to the extent necessary to maintain the respective
fund’s yield at a certain level as determined by the Company (Minimum Yield). Yields on such products have declined to record lows as a result of the decline in the federal funds’ rate pursuant to the Federal Reserve’s economic policy
to spur economic growth through low interest rates and quantitative easing. For the three and nine months ended March 31, 2012, total fees waived and/or expenses reimbursed as a result of this agreement were $349,661 and $1,150,573. For the
corresponding periods in fiscal year 2011, the total fees waived and/or expenses reimbursed were $384,954 and $1,140,710.
The Company may
recapture any fees waived and/or expenses reimbursed within three years after the end of the funds’ fiscal year of such waiver and/or reimbursement to the extent that such recapture would not cause the funds’ yield to fall below the
Minimum Yield. Thus, $1,047,980 of these waivers is recoverable by the Company through December 31, 2012; $1,562,956 through December 31, 2013; $1,605,619 through December 31, 2014; and $349,661 through December 31, 2015.
Management believes that these potential recoveries will be realized only in a rising interest rate environment and that these waivers could increase in the future. Such increases in fee waivers could be significant and will negatively impact the
Company’s revenues and net income. Management cannot predict the impact of the waivers and/or reimbursements due to the number of variables and the range of potential outcomes.
The Company provides advisory services for three offshore clients and receives monthly advisory fees based on the net asset values of the clients and quarterly performance fees, if any, based on the
overall increase in net asset values. The Company recorded advisory fees from these clients totaling $86,536 and $263,634 for the three and nine months ended March 31, 2012. The Company recorded advisory and performance fees totaling $116,907
and $1,276,285 for the corresponding periods in fiscal 2011. The performance fees for these clients are calculated and recorded quarterly in accordance with the terms of the advisory agreements. These fees may fluctuate significantly from year to
year based on factors that may be out of the Company’s control. Frank Holmes, CEO, serves as a director of the offshore clients.
Company receives additional revenue from several sources including custodial fee revenues, mailroom operations, and investment income.
Substantially all of the cash and cash equivalents included in the balance sheet at March 31, 2012, and June 30, 2011, is invested in USGIF
money market funds.