Summary of U S GLOBAL INVESTORS INC

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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.
Recent Trends and Continuing Disruptions in Worldwide Financial Markets Due to the consequences of the meltdown in the subprime mortgage market beginning in 2007, the worldwide financial markets have encountered intense volatility due to uncertainty and disruption within the credit markets. This disruption has moved into 2008 causing global equities to decline worldwide. The Company's investment advisory fees and operating revenue primarily depend on the value of our assets under management, and continued global market fluctuations impact the funds' asset levels thereby affecting income and results of operations.
This global strain has resulted in a seizing of the international credit markets resulting in unprecedented worldwide governmental actions. For instance, on September 7, 2008, the U.S. Government moved to guarantee the outstanding debt of Fannie Mae and Freddie Mac. On September 19, 2008, the U.S. Treasury Department (the "Treasury") announced a temporary guarantee program (Temporary Guarantee Program for Money Market Funds) for publicly available money market funds which elected to participate in the program.
Furthermore, on October 3, 2008, the U.S. Congress enacted the Emergency Economic Stabilization Act of 2008, which sanctioned the Treasury Secretary to create the Troubled Assets Relief Program and authorize the purchase of up to $700 billion of troubled assets. Despite these aggressive governmental programs and actions, the global financial markets continue to remain extremely volatile. This unsettled financial environment has had an impact on the Company's assets under management. Total assets under management at June 30, 2008 were $5.753 billion versus $3.330 billion at September 30, 2008, of which $178 million was from the Endeavour account. Total assets under management at September 30, 2008 were $3.330 billion versus $5.378 billion at September 30, 2007. As of October 31, 2008, total assets under management were approximately $2.260 billion
BUSINESS SEGMENTS
The Company, 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. Although the Company generates the majority of its revenues from its investment advisory segment, the Company holds a significant amount of its total assets in investments. The following is a brief discussion of the Company's two business segments. Investment Management Products and Services The Company generates substantially all of its operating revenues from managing and servicing USGIF, USGAF and other advisory clients. 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. The Company provides advisory services to various offshore clients. The Company generally receives a monthly advisory fee and a quarterly or annual performance fee, if any, based on an agreed-upon performance measurement. The contracts between the Company and the remaining offshore clients expire periodically, and except as discussed in Note 6, management anticipates that its offshore clients will renew the contracts.

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U.S. Global Investors, Inc.
September 30, 2008, Quarterly Report on Form 10-Q Page 12 of 21

At September 30, 2008, total assets under management as of period end, including both SEC-registered funds and offshore clients, were $3.330 billion versus $5.378 billion at September 30, 2007. During the three months ended September 30, 2008, average assets under management were $4.474 billion versus $5.040 billion for the same period ended September 30, 2007. This decrease was primarily due to a decrease in the natural resources and foreign equity funds under management. Total assets under management at June 30, 2008 were $5.753 billion versus $3.330 billion at September 30, 2008. Investment Activities
Management believes it can more effectively manage the Company's cash position by broadening the types of investments used in cash management and continues to believe that such activities are in the best interest of the Company. Company compliance and operational personnel review and monitor these activities, and various reports are provided to investment advisory clients. Investment income (loss) from the Company's investments includes:
• realized gains and losses on sales of securities;

• unrealized gains and losses on trading securities;

• realized foreign currency gains and losses;

• other-than-temporary impairments on available-for-sale securities; and

• dividend and interest income.

This source of revenue does not remain consistent and is dependent on market fluctuations, the Company's ability to participate in investment opportunities, and timing of transactions.
As of September 30, 2008, the Company held investments with a market value of approximately $6.9 million and a cost basis of approximately $9.3 million. The market value of these investments is approximately 16.2 percent of the Company's total assets. The Company currently has no investments in debt securities or mortgage-backed securities.
The following summarizes investment income (loss) reflected in earnings for the periods discussed:

                                                                       THREE MONTHS ENDED SEPTEMBER 30,
Investment Income (Loss)                                                 2008                      2007
Unrealized gains (losses) on trading securities                   $        (2,239,756 )       $      496,944
Realized foreign currency gains (losses)                                       (1,803 )                    -
Dividend and interest income                                                  173,205                265,024

Total Investment (Loss)                                           $        (2,068,354 )       $      761,968

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2008, AND 2007 The Company posted a net after-tax loss of $1,845,149 ($0.12 loss per share) for the three months ended September 30, 2008, compared with a net after-tax income of $2,408,832 ($0.16 income per share) for the three months ended September 30, 2007.
Revenues
Total consolidated revenues for the three months ended September 30, 2008, decreased $4,103,228, or 31.7 percent, compared with the three months ended September 30, 2007. This decrease was primarily attributable to the following:
• Investment income decreased by approximately $2,830,000 primarily as a result of declines in the market value of trading securities in the natural resources and emerging markets sectors; and

• Investment advisory fees decreased by approximately $1,417,000 primarily as a result of decreased assets under management in the gold, natural resources and emerging markets sectors.

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U.S. Global Investors, Inc.
September 30, 2008, Quarterly Report on Form 10-Q Page 13 of 21

Expenses
Total consolidated expenses for the three months ended September 30, 2008, increased $2,255,639, or 24.2 percent, compared with the three months ended September 30, 2007. This was largely attributable to the following:
• General and administrative expenses increased by approximately $2,877,000 primarily due to proxy-related costs associated with the merger of the USGIF and USGAF trusts. Please refer to Note 6 in Notes to Consolidated Financial Statements for further details.

• This increase was partially offset by decreases in subadvisory fees of approximately $574,000 due to decreased assets under management in the Eastern European Fund.

LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2008, the Company had net working capital (current assets minus current liabilities) of approximately $31.0 million and a current ratio (current assets divided by current liabilities) of 6.3 to 1. With approximately $27.0 million in cash and cash equivalents and approximately $6.9 million in marketable securities, the Company has adequate liquidity to meet its current obligations. Total shareholders' equity was approximately $36.4 million, with cash, cash equivalents, and marketable securities comprising 80.1 percent of total assets.
As of September 30, 2008, the Company has no long-term liabilities. The Company has access to a $1 million credit facility with a one-year maturity for working capital purposes. The credit agreement requires the Company to maintain certain quarterly financial covenants to access the line of credit. As of September 30, 2008, this credit facility remained unutilized by the Company.
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 opportunities for growth whenever available. Market volatility may cause the price of the Company's publicly traded class A shares to fluctuate, which in turn may allow the Company an opportunity to buy back stock at favorable prices.
A special meeting of shareholders of USGIF and USGAF was held on September 23, 2008 to consider several proposals. The new proposals were approved effective October 1, 2008, and include (i) a reorganization of the USGIF and USGAF funds from two separate Massachusetts business trusts into a single Delaware statutory trust under the name USGIF, (ii) a new advisory agreement for the USGIF funds and (iii) a new distribution plan for the nine equity USGIF funds under which U.S. Global Brokerage, Inc. would be paid a fee at an annual rate of 0.25 percent of the average daily net assets of each fund. A full discussion of the proposals is set forth in proxy materials filed with the SEC by USGIF and USGAF. The Company incurred a total of $3.74 million in merger-related costs, of which $3.57 million was recorded in the first quarter of fiscal 2009. The new advisory agreement for the nine equity USGIF funds provides for a base advisory fee that will be adjusted upwards or downwards by 0.25 percent if 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 12 months. With respect to four equity funds, the new advisory agreement also will increase the base advisory fee and make changes to the advisory fee breakpoints. In addition, administrative services that are part of the current advisory agreement will be removed and become the subject of a separate agreement. Under the new administrative services agreement, the USGIF funds will no longer reimburse the Company for certain legal and administrative services, but instead will pay the Company compensation at an annual rate of 0.08 percent of the average daily net assets of each fund for administrative services provided by the Company to USGIF.
The Company has agreed to cap the expenses of each fund through September 30, 2009. Beginning October 1, 2009 the Company and the USGIF Board of Trustees will negotiate the amounts of these expense caps annually during the consideration of the renewal of the advisory agreement.
The Company provides advisory services to several offshore clients. The Company generally receives a monthly advisory fee and a quarterly or annual performance fee, if any, based on an agreed-upon performance measurement. The contracts between the Company and the offshore clients expire periodically, and except as discussed in Note 6, management anticipates that its offshore clients will renew the contracts.
The Company receives additional revenue from several sources including custodial fee revenues, revenues from miscellaneous transfer agency activities including lockbox functions, mailroom operations, as well as investment income.

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U.S. Global Investors, Inc.
September 30, 2008, Quarterly Report on Form 10-Q Page 14 of 21

ACCOUNTING PRONOUNCEMENTS
The Company is subject to extensive and often complex, overlapping and frequently changing governmental regulation and accounting oversight. Moreover, financial reporting requirements, such as those listed below, and the processes, controls and procedures that have been put in place to address them, are comprehensive and complex. While management has focused considerable attention and resources on meeting these reporting requirements, interpretations by regulatory or accounting agencies that differ from those of the Company could negatively impact financial results.
In September 2006, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 157, "Fair Value Measurements." SFAS 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements because the FASB had previously concluded in those accounting pronouncements that fair value is the relevant measurement attribute. Accordingly, SFAS 157 does not require any new fair value measurements. In February 2008, the FASB issued an FSP to defer the effective date of SFAS 157 for one year for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. Management adopted the provisions of SFAS 157 related to all financial assets and liabilities and nonfinancial assets and liabilities recognized or disclosed at fair value on a recurring basis on July 1, 2008. Management continues to evaluate the impact this statement will have on the Consolidated Financial Statements once its provisions are adopted for nonfinancial assets and liabilities recognized or disclosed at fair value on a non-recurring basis. In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities - Including an Amendment of FASB Statement No. 115." SFAS 159 allows entities to voluntarily choose to measure many financial assets and liabilities at fair value. The election is made on an instrument-by-instrument basis and is irrevocable. Once the election is made for the instrument, all subsequent changes in fair value for that instrument must be reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. We have not elected to apply the provisions of SFAS 159 to any of our financial instruments; therefore, the adoption of SFAS 159 effective July 1, 2008, has not affected our financial position or results of operations. In June 2007, the Emerging Issues Task Force ("EITF") issued EITF Issue No. 06-11, "Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards," ("EITF 06-11"). Under the provisions of EITF 06-11, a realized income tax benefit from dividends or dividend equivalents that are charged to retained earnings and are paid to employees for equity classified nonvested equity shares, nonvested equity share units, and outstanding equity share options should be recognized as an increase to additional paid-in capital. The amount recognized in additional paid-in capital for the realized income tax benefit from dividends on those awards should be included in the pool of excess tax benefits available to absorb tax deficiencies on share-based payment awards. EITF 06-11 should be applied prospectively to the income tax benefits that result from dividends on equity-classified employee share-based payment awards that are declared in fiscal years beginning after December 15, 2007, and interim periods within those fiscal years. Accordingly, the Company adopted EITF 06-11 on July 1, 2008. The adoption of EITF 06-11 did not have a material effect on the Company's financial position or results of operations for the quarter ended September 30, 2008.
CRITICAL ACCOUNTING POLICIES
For a discussion of critical accounting policies that the Company follows, please refer to the notes to the consolidated financial statements included in the Annual Report on Form 10-K for the year ended June 30, 2008.

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U.S. Global Investors, Inc.
September 30, 2008, Quarterly Report on Form 10-Q Page 15 of 21