1. | Organization and Significant Accounting Policies |
The Roumell Opportunistic Value Fund ("Fund") is a series of the Starboard Investment Trust ("Trust"). The Trust is organized as a Delaware statutory trust and is registered under the Investment Company Act of 1940, as amended (the "1940 Act"), as an open-end management investment company. The Fund is a separate non-diversified series of the Trust.
The Fund commenced operations on December 31, 2010. The investment objective of the Fund is to seek capital appreciation and income. Roumell Asset Management, LLC ("Roumell Asset Management" or the "Advisor") seeks to achieve the Fund's investment objective by using an opportunistic investment strategy. The Advisor is an opportunistic capital allocator (OCA) with a deep value bias in selecting individual securities. The Advisor will wait until an investment situation is presented where, in its opinion, the odds of success are favorable relative to the risks. In the absence of such situations, the Fund will stay liquid and on the sidelines invested in Cash and Cash Equivalents. The Advisor's approach to opportunistic investing emphasizes purchasing securities at a meaningful, quantifiable discount to its calculation of intrinsic value taking into consideration the understandability of the business model, the safety of the capital structure, and the competency of the company's management. Using this opportunistic strategy, however, may result in the Advisor finding many suitable investment opportunities for the Fund during certain periods, but finding very few during other periods.
The Fund currently has an unlimited number of authorized shares, which are available to three classes - Institutional Class Shares, Class A Shares, and Class C Shares. Each class of shares has equal rights as to assets of the Fund, and the classes are identical except for differences in sales charges and ongoing distribution and service fees. Class A Shares are subject to an initial sales charge of 4.50%. Class C Shares are subject to a contingent deferred sales charge of 1% of the proceeds redeemed within one year of the purchase date. Class A Shares and Class C Shares are subject to distribution plan fees, which are further discussed in Note 3. All share classes are subject to redemption fees within 60 days of the issuance of such shares of 1.00%. Income, expenses (other than distribution and service fees), and realized and unrealized gains or losses on investments are allocated to each class of shares based upon its relative net assets. All classes have equal voting privileges, except where otherwise required by law or when the Trustees determine that the matter to be voted on affects only the interests of the shareholders of a particular class.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
The following accounting policies have been consistently followed by the Fund and are in conformity with accounting principles generally accepted in the United States of America ("GAAP").
Investment Valuation
The Fund's investments in securities are carried at value. Securities listed on an exchange or quoted on a national market system are valued at the last sales price as of 4:00 p.m. Eastern Time. Securities traded in the NASDAQ over-the-counter market are generally valued at the NASDAQ Official Closing Price. Other securities traded in the over-the-counter market and listed securities for which no sale was reported on that date are valued at the most recent bid price. Securities and assets for which representative market quotations are not readily available (e.g., if the exchange on which the security is principally traded closes early or if trading of the particular security is halted during the day and does not resume prior to the Fund's net asset value calculation) or which cannot be accurately valued using the Fund's normal pricing procedures are valued at fair value as determined in good faith under policies approved by the Trustees. A security's "fair value" price may differ from the price next available for that security using the Fund's normal pricing procedures. Instruments with maturities of 60 days or less are valued at amortized cost, which approximates market value.
Fair Value Measurement
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1: quoted prices in active markets for identical securities
Level 2: other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.)
Level 3: significant unobservable inputs (including the Fund's own assumptions in determining fair value of investments)
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. The following table summarizes the inputs as of August 31, 2015 for the Fund's assets measured at fair value:
Investments in Securities (a) | | Total | | Level 1 | | Level 2 | | Level 3(b) |
Common Stocks* | $ | 30,506,598 | $ | 30,505,250 | $ | 1,348 | $ | - |
Convertible Bond | | 170,730 | | - | | 170,730 | | - |
Corporate Bonds | | 3,369,862 | | - | | 3,369,862 | | - |
Warrant | | 6,142 | | - | | - | | 6,142 |
Short-Term Investment | | 8,056,895 | | 8,056,895 | | - | | - |
Total | $ | 42,110,227 | $ | 38,562,145 | $ | 3,541,940 | $ | 6,142 |
*Refer to Schedule of Investments for breakdown by Sector.
(a) The Fund had no significant transfers into or out of Level 1, 2, or 3 during the year ended August 31, 2015. It is the Fund's policy to record transfers at the end of the year.
(b) At the beginning and the end of the reporting period, Level 3 investments were not considered a material portion of the Fund, and hence, reconciliation is not provided.
Foreign Currency Translation
Portfolio securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the exchange rate of such currencies against U.S. dollars on the date of valuation. Purchases and sales of securities and income items denominated in foreign currencies are translated into U.S. dollars at the exchange rate in effect on the transaction date.
The Fund does not separately report the effect of changes in foreign exchange rates from changes in market prices on securities held. Such changes are included in net realized and unrealized gain or loss from investments.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
Realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions and the difference between the recorded amounts of dividends, interest, and foreign withholding taxes, and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in foreign exchange rates on foreign denominated assets and liabilities other than investments in securities held at the end of the reporting period.
Investment Transactions and Investment Income
Investment transactions are accounted for as of the date purchased or sold (trade date). Dividend income is recorded on the ex-dividend date. Certain dividends from foreign securities will be recorded as soon as the Fund is informed of the dividend if such information is obtained subsequent to the ex-dividend date. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. Gains and losses are determined on the identified cost basis, which is the same basis used for federal income tax purposes.
Expenses
The Fund bears expenses incurred specifically on its behalf as well as a portion of general expenses, which are allocated according to methods reviewed annually by the Trustees.
Distributions
The Fund may declare and distribute dividends from net investment income (if any) quarterly. Distributions from capital gains (if any) are generally declared and distributed annually. Dividends and distributions to shareholders are recorded on ex-date.
Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in the net assets from operations during the reported period. Actual results could differ from those estimates.
Fees on Redemptions
The Fund charges a redemption fee of 1.00% on redemptions of Fund shares occurring within 60 days following the issuance of such shares. The redemption fee is not a fee to finance sales or sales promotion expenses, but is paid to the Fund to defray the costs of liquidating an investor and discouraging short-term trading of the Fund's shares. No redemption fee will be imposed on the redemption of shares representing dividends or capital gains distributions, or on amounts representing capital appreciation of shares.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements, as the Fund intends to distribute to shareholders all taxable investment income and realized gains and otherwise comply with Subchapter M of the Internal Revenue Code applicable to regulated investment companies.
2. | Transactions with Affiliates and Service Providers |
Advisor
As full compensation for the investment advisory services provided to the Fund, the Advisor receives a monthly fee equal to an annualized rate of 0.92% of the Fund's average daily net assets. The fee paid to the Advisor is calculated by multiplying the average daily net assets of the Fund, computed at the end of each month and payable within five days thereafter.
Administrator
Fund Accounting and Administration Agreement: The Administrator provides the Fund with administrative, fund accounting, and compliance services. The Administrator receives compensation from the Fund at a maximum annual rate of 0.31% and is responsible for the coordination and payment of vendor services and other Fund expenses from such compensation. Pursuant to this arrangement, the Administrator pays the following expenses: (i) compensation and expenses of any employees of the Trust and of any other persons rendering any services to the Fund; (ii) clerical and shareholder service staff salaries; (iii) office space and other office expenses; (iv) fees and expenses incurred by the Fund in connection with membership in investment company organizations; (v) fees and expenses of counsel to the Trustees who are not interested persons of the Fund and Trust; (vi) fees and expenses of counsel to the Fund and Trust engaged to assist with preparation of Fund and Trust documents and filings and provide other ordinary legal services; (vii) fees and expenses of independent public accountants to the Fund, including fees and expense for tax preparation; (viii) expenses of registering shares under federal and state securities laws; (ix) insurance expenses; (x) fees and expenses of the custodian, shareholder servicing, dividend disbursing and transfer agent, administrator, distributor, and accounting and pricing services agents of the Fund; (xi) compensation for a chief compliance officer for the Trust; (xii) expenses, including clerical expenses, of issue, sale, redemption, or repurchase of shares of the Fund; (xiii) the cost of preparing and distributing reports and notices to shareholders; (xiv) the cost of printing or preparing prospectuses and statements of additional information for delivery to the Fund's current shareholders; (xv) the cost of printing or preparing documents, statements or reports to shareholders; and (xvi) other expenses not specifically assumed by the Fund or Advisor. The Administrator cannot recoup from the Fund any Fund expenses in excess of the administration fees payable under the Fund Accounting and Administration Agreement.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
Operating Plan: The Advisor has entered into an Operating Plan with the Administrator under which it has agreed to make the following payments to the Administrator: (i) when the Fund's assets are below $77 million, the Advisor pays the Administrator a fee based on the daily average net assets of the Fund; and (ii) when the consolidated fee collected by the Administrator is less than a designated minimum operating cost, then the Advisor pays the Administrator a fee that makes up the difference. The Advisor is also obligated to pay the following Fund expenses under the Operating Plan: (i) marketing, distribution, and servicing expenses related to the sale or promotion of Fund shares that the Fund is not authorized to pay pursuant to the Investment Company Act; (ii) expenses incurred in connection with the organization and initial registration of shares of the Fund; (iii) expenses incurred in connection with the dissolution and liquidation of the Fund; (iv) expenses related to shareholder meetings and proxy solicitations; (v) fees and expenses related to legal, auditing, and accounting services that are outside of the scope of ordinary services; and (vi) hiring employees and retaining advisers and experts as contemplated by Rule 0-1(a)(7)(vii) of the Investment Company Act.
Compliance Services
Cipperman Compliance Services, LLC provides services as the Trust Chief Compliance Officer. Cipperman Compliance Services, LLC is entitled to receive customary fees from the Administrator for their services pursuant to the Compliance Services agreement with the Fund.
Transfer Agent
Nottingham Shareholder Services, LLC ("Transfer Agent") serves as transfer, dividend paying, and shareholder servicing agent for the Fund. For its services, the Transfer Agent is entitled to receive compensation from the Administrator pursuant to the Administrator's fee arrangements with the Fund.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
Distributor
Capital Investment Group, Inc. (the "Distributor") serves as the Fund's principal underwriter and distributor. For its services, the Distributor is entitled to receive compensation from the Administrator pursuant to the Administrator's fee arrangements with the Fund.
Certain officers of the Trust may also be officers of the Administrator.
3. | Distribution and Service Fees |
The Board of Trustees, including a majority of the Trustees who are not "interested persons" as defined in the 1940 Act, adopted a distribution and service plan pursuant to Rule 12b-1 of the 1940 Act (the "Plan") for the Class A Shares and Class C Shares. The 1940 Act regulates the manner in which a registered investment company may assume costs of distributing and promoting the sales of its shares and servicing of its shareholder accounts. The Plan provides that the Fund may incur certain costs, which may not exceed 0.25% per annum of the average daily net assets of the Class A Shares and 1.00% per annum of the average daily net assets of the Class C Shares for each year elapsed subsequent to adoption of the Plan, for payment to the Distributor and others for items such as advertising expenses, selling expenses, commissions, travel, or other expenses reasonably intended to result in sales of the Class A Shares and Class C Shares or servicing of Class A Shares and Class C Shares shareholder accounts.
4. | Purchases and Sales of Investment Securities |
For the fiscal year ended August 31, 2015, the aggregate cost of purchases and proceeds from sales of investment securities (excluding short-term securities) were as follows:
Purchases of Securities | Proceeds from Sales of Securities |
$31,764,758 | $21,476,091 |
There were no long-term purchases or sales of U.S. Government Obligations during the fiscal year ended August 31, 2015.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
The following table shows the realized gains and losses that resulted from sales of securities during the fiscal year ended August 31, 2015:
Description | | Cost ($) | | Sales Proceeds ($) | Realized Gain (Loss) Percentage | | Realized Gain (Loss)($) |
Aeropostale, Inc. | | 862,954 | | 276,557 | (67.95)% | | (586,397) |
Apple, Inc. | | 598,462 | | 1,048,905 | 75.27% | | 450,443 |
Clayton Williams Energy, Inc.** | | 876,702 | | 858,443 | (2.08)% | | (18,259) |
Compuware Corp. | | 639,775 | | 665,368 | 4.00% | | 25,593 |
Diversified Real Asset Income | | | | | | | |
Fund | | 1,183,199 | | 1,295,660 | 9.50% | | 112,461 |
DSP Group, Inc. | | 1,399,042 | | 2,067,129 | 47.75% | | 668,087 |
EnerNOC, Inc. | | 2,014,702 | | 1,791,732 | (11.07)% | | (222,970) |
Gordon Creek Energy, Inc.** | | 52,782 | | 1,116 | (97.89)% | | (51,666) |
International Business Machines | | 1,797,916 | | 1,838,259 | 2.24% | | 40,343 |
InterOil Corp. | | 898,923 | | 1,117,351 | 24.30% | | 218,428 |
Itamar Medical Ltd. | | 193,316 | | 200,958 | 3.95% | | 7,642 |
Keck Seng Investments | | 1,193,803 | | 1,266,619 | 6.10% | | 72,816 |
Lai Sun Development Company Ltd.* | | 3,189,970 | | 3,023,067 | (5.23)% | | (166,903) |
MVC Capital, Inc.** | | 893,571 | | 885,898 | (0.86)% | | (7,673) |
Oxford Lane Capital, Inc.** | | 1,708,773 | | 1,643,718 | (3.85)% | | (65,055) |
Paratek Pharmaceuticals, Inc. | | 381,253 | | 313,718 | (17.71)% | | (67,535) |
Quantum Corp. | | 492,583 | | 640,064 | 29.94% | | 147,481 |
Resolute Energy Corp.** | | 986,534 | | 686,511 | (30.41)% | | (300,023) |
Rosetta Stone, Inc. | | 481,396 | | 323,511 | (32.80)% | | (157,885) |
Sandridge Energy, Inc.** | | 773,720 | | 303,758 | (60.74)% | | (469,962) |
Sandstorm Gold Ltd. | | 151,205 | | 95,647 | (36.74)% | | (55,558) |
Sizmek, Inc. | | 356,072 | | 353,851 | (0.62)% | | (2,221) |
Village Main Reef Ltd.* | | 668,298 | | 665,264 | (0.45)% | | (3,034) |
WCI Communities, Inc. | | 1,310,200 | | 1,536,668 | 17.29% | | 226,468 |
Net Realized Loss | | | | | - | $ | (205,379) |
*Includes settlement of foreign currency sales.
**Excludes interest earned over the holding period.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
The difference between the realized gain (loss) amount in the table above, totaling $(205,379), and the amount found in the Statement of Operations, totaling $(199,871), is attributable to foreign currency gain on income, totaling $5,508.
Distributions are determined in accordance with Federal income tax regulations, which differ from GAAP, and, therefore, may differ significantly in amount or character from net investment income and realized gains for financial reporting purposes. Financial reporting records are adjusted for permanent book/tax differences to reflect tax character but are not adjusted for temporary differences.
The Fund has reviewed all taxable years / periods that are open for examination (i.e., not barred by the applicable statute of limitations) by taxing authorities of all major jurisdictions, including the Internal Revenue Service. As of August 31, 2015, open taxable years consisted of the taxable year ended August 31, 2012, August 31, 2013, August 31, 2014, and August 31, 2015. No examination of tax returns is currently in progress for the Fund.
Reclassifications relate primarily to differing book/tax treatment of foreign currency transactions. For the year ended August 31, 2015, the following reclassifications were made:
Undistributed Net Investment Income | $ (7,978) |
Accumulated Net Realized Gain on Investments | | $ 7,978 |
Distributions during the fiscal years ended were characterized for tax purposes as follows:
| Distributions from |
For the Fiscal Years Ended | Ordinary Income | | Long-Term- Capital Gains |
08/31/2015 | $ 1,326,571 | | $ 3,006,274 |
08/31/2014 | $ 388,527 | | $ 2,158,352 |
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
At August 31, 2015, the tax-basis cost of investments and components of distributable earnings were as follows:
Cost of Investments | $ | 54,791,898 |
| | |
Gross Unrealized Appreciation | $ | 1,294,460 |
Gross Unrealized Depreciation | | (13,977,210) |
Net Unrealized Depreciation | | (12,682,750) |
| | |
Undistributed Ordinary Income | | - |
Accumulated Capital Losses | | - |
Other Book/Tax Differences | | (374,949) |
| | |
Accumulated Deficit | $ | (13,057,699) |
The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to foreign currency depreciation totaling $1,079, the tax deferral of losses from wash sales, and the deferral of post-October and late year losses totaling $374,949.
6. | Commitments and Contingencies |
Under the Trust's organizational documents, its officers and Trustees are indemnified against certain liabilities arising out of the performance of their duties to the Fund. In addition, in the normal course of business, the Trust entered into contracts with its service providers, on behalf of the Fund, and others that provide for general indemnifications. The Fund's maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Fund. The Fund expects risk of loss to be remote.
7. | Underlying Investments in Other Investment Companies |
The Fund currently invests a portion of its assets in the Federated Treasury Obligations Fund. The Fund may redeem its investment from the Federated Treasury Obligations Fund at any time if the Advisor determines that it is in the best interest of the Fund and its shareholders to do so.
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ROUMELL OPPORTUNISTIC VALUE FUND
Notes to Financial Statements
The performance of the Fund may be directly affected by the performance of the Federated Treasury Obligations Fund. The financial statements of the Federated Treasury Obligations Fund, including the portfolio of investments, can be found at Federated's website, federatedinvestors.com or the Securities and Exchange Commission's website at sec.gov, and should only be read in conjunction with the Fund's financial statements. As of August 31, 2015, the percentage of the Fund's net assets invested in the Federated Treasury Obligations Fund was 18.98%.
The Fund has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of issuance of these financial statements. This evaluation did not result in any additional subsequent events that necessitated disclosures and/or adjustments.
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