Note 5. Investments

As of June 30, 2013, the Company held investments with a fair value of $13,811,331 and a cost basis of $13,522,891. The market value of these investments is approximately 35.7 percent of the Company’s total assets.

Investments in securities classified as trading are reflected as current assets on the Consolidated Balance Sheet at their fair market value. Unrealized holding gains and losses on trading securities are included in earnings in the Consolidated Statements of Operations and Comprehensive Income. Substantially all of the cash and cash equivalents included in the balance sheet on June 30, 2013, and June 30, 2012, are invested in USGIF money market funds.

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

The Company records security transactions on trade date. Realized gains (losses) from security transactions are calculated on the first-in/first-out cost basis, unless otherwise identifiable, and are recorded in earnings on the date of sale.

Investment Activity

The following table summarizes investment activity over the last three fiscal years:


	Year Ended June 30,
	2013		2012		2011
Realized losses on sale of trading securities	$	(244,627)	$	(2,638)	$	-
Trading securities, at cost		5,457,989		5,960,634		5,963,272
Trading securities, at fair value ¹		4,758,220		5,216,139		5,703,916
Net change in unrealized gains (losses) on trading securities (included in earnings)		44,728		(485,139)		631,192
Available-for-sale securities, at cost		8,064,902		8,117,844		3,081,439
Available-for-sale securities, at fair value ¹		9,053,111		8,824,311		4,660,928
Gross realized gains on sale of available-for-sale securities		265,641		179,379		139,458
Gross unrealized gains recorded in shareholders’ equity		1,289,689		951,631		1,596,949
Gross unrealized losses recorded in shareholders’ equity		(301,480)		(245,164)		(17,460)
Losses on available-for-sale securities deemed to have other-than-temporary declines in value		(47,459)		(19,073)		(3,699)

These categories of securities are comprised primarily of equity investments, including those investments discussed in Note 17 regarding related party transactions.

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


Investment Income (Loss)	Year Ended June 30,
Investment Income (Loss)	2013		2012		2011
Realized losses on sales of trading securities	$	(244,627)	$	(2,638)	$	-
Realized gains on sales of available-for-sale securities		265,641		179,379		139,458
Unrealized gains (losses) on trading securities		44,728		(485,139)		631,192
Realized foreign currency gains (losses)		1,255		(1,583)		3,013
Other-than-temporary declines in available-for-sale securities		(47,459)		(19,073)		(3,699)
Dividend and interest income		188,501		152,093		238,604

Total Investment Income (Loss)	$	208,039	$	(176,961)	$	1,008,568

Unrealized Losses

The following tables summarize equity investments that are in an unrealized loss position at each balance sheet date, categorized by how long they have been in a continuous loss position. These investments do not include trading securities or those available-for-sale securities with declines in value deemed other than temporary as their unrealized losses are recognized in earnings.


	June 30, 2013 (in thousands)
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale securities
Common stock	$	95	$	(5)	$	-	$	-	$	95	$	(5)
Venture capital investments		163		(5)		-		-		163		(5)
Offshore fund		-		-		4,712		(288)		4,712		(288)
Mutual funds		3		(3)		-		-		3		(3)

Total available-for-sale securities	$	261	$	(13)	$	4,712	$	(288)	$	4,973	$	(301)


	June 30, 2012 (in thousands)
	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available-for-sale securities
Common stock	$	135	$	(52)	$	-	$	-	$	135	$	(52)
Offshore fund		4,811		(189)		-		-		4,811		(189)
Mutual funds		16		(4)		-		-		16		(4)

Total available-for-sale securities	$	4,962	$	(245)	$	-	$	-	$	4,962	$	(245)

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

Fair Value Hierarchy

ASC 820, Fair Value Measurement and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 establishes a hierarchy that prioritizes inputs to valuation techniques used to measure fair value and requires companies to disclose the fair value of their financial instruments according to a fair value hierarchy (i.e., Levels 1, 2, and 3 inputs, as defined below). The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. Additionally, companies are required to provide enhanced disclosures regarding instruments in the Level 3 category (which have inputs to the valuation techniques that are unobservable and require significant management judgment), including a reconciliation of the beginning and ending values separately for each major category of assets or liabilities.

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

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

Level 2 – Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, directly or indirectly.

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

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.

The following tables present fair value measurements, as of each balance sheet date, for the three major categories of U.S. Global’s investments measured at fair value on a recurring basis:


	Fair Value Measurement using (in thousands)
	June 30, 2013
	Quoted Prices (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading securities
Common stock	$	22	$	-	$	-	$	22
Mutual funds		3,950		-		-		3,950
Offshore fund		-		786		-		786

Total trading securities		3,972		786		-		4,758

Available-for-sale securities
Common stock		1,299		-		95		1,394
Venture capital investments		-		-		163		163
Mutual funds		2,784		-		-		2,784
Offshore fund		-		4,712		-		4,712

Total available-for-sale securities		4,083		4,712		258		9,053

Total Investments	$	8,055	$	5,498	$	258	$	13,811


	Fair Value Measurement using (in thousands)
	June 30, 2012
	Quoted Prices (Level 1)		Significant Other Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Trading securities
Common stock	$	185	$	26	$	-	$	211
Mutual funds		3,980		-		-		3,980
Offshore fund		-		1,025		-		1,025

Total trading securities		4,165		1,051		-		5,216

Available-for-sale securities
Common stock		1,228		-		-		1,228
Venture capital investments		-		-		168		168
Mutual funds		2,617		-		-		2,617
Offshore fund		-		4,811		-		4,811

Total available-for-sale securities		3,845		4,811		168		8,824

Total Investments	$	8,010	$	5,862	$	168	$	14,040

Approximately 58 percent of the Company’s financial assets, measured at fair value, are derived from Level 1 inputs, including SEC-registered mutual funds and equity securities traded on an active market; 40 percent of the Company’s financial assets, measured at fair value, are derived from Level 2 inputs, including investments in two offshore funds; and the remaining two percent are Level 3 inputs. The Company recognizes transfers between levels at the end of each quarter. The Company did not transfer any securities between Level 1 and Level 2 during fiscal year 2013.

In Level 2, the Company has an investment in an offshore fund with a fair value of $785,990 that invests in companies in the energy and natural resource sectors. The Company may redeem this investment on the first business day of each month after providing a redemption notice at least forty-five days prior to the proposed redemption date.

The Company also has a Level 2 investment in an offshore fund with a fair value of $4,712,205 that invests in dividend-paying equity and debt securities of companies located around the world. The Company may redeem this investment on the first business day of each month after providing a redemption notice at least forty-five days prior to the proposed redemption date.

In Level 3, the Company held investments in one private company and one venture capital investment. These investments are measured at fair value using significant unobservable inputs on June 30, 2013. Fair value is based on cost adjusted for known changes in value.

During the quarter ended March 31, 2012, the Company redeemed its Level 3 investment in a venture capital investment that primarily invests in companies in the energy and precious metals sectors for a realized gain of $179,379.

The Company has a venture capital investment with a fair value of approximately $162,841 that primarily invests in companies in the medical and medical technology sectors. The Company may redeem this investment with general partner approval. As of June 30, 2013, the Company has an unfunded commitment of $62,500 related to this investment.

The Company also has an investment in restricted shares of a private sports entertainment company with a fair value of approximately $95,066.

The following table presents additional information about investments measured at fair value on a recurring basis and for which the Company has utilized unobservable inputs to determine fair value:


Changes in Level 3 Assets Measured at Fair Value on a Recurring Basis
	Year Ended June 30,
	2013					2012
(Dollars in Thousands)	Venture Capital Investments			Common Stock		Venture Capital Investments			Common Stock
Beginning Balance	$	168		$	-	$	243		$	-
Return of capital		-			-		(19	)		-
Total gains or losses (realized/unrealized)
Included in earnings (investment income)		-			-		160			-
Included in other comprehensive income		(5	)		-		(108	)		-
Purchases, sales, issuances, and settlements		-			95		(108	)		-
Transfers in and/or out of Level 3		-			-		-			-

Ending Balance	$	163		$	95	$	168		$	-

As discussed in Note 3, on March 31, 2013, the Company purchased 50% of the issued and outstanding shares of Galileo Global Equity Advisors Inc., a privately held Toronto-based asset management firm for $600,000. The Company accounts for its interest in Galileo under the equity method with its share of Galileo’s profit or loss recognized in earnings. Included in other income in fiscal year 2013 is $54,528 of equity method earnings of Galileo.