Terrence O. Davis
Item 1. REPORTS TO STOCKHOLDERS.
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Cavalier Funds (the "Funds"). The Funds' shares are not deposits or obligations of, or guaranteed by, any depository institution. The Funds' shares are not insured by the FDIC, Federal Reserve Board or any other agency, and are subject to investment risks, including possible loss of principal amount invested. Neither the Funds nor the Funds' distributor is a bank.
The Cavalier Funds are distributed by Capital Investment Group, Inc., Member FINRA/SIPC, 100 E. Six Forks Road, Suite 200, Raleigh, NC, 27609. There is no affiliation between the Cavalier Funds, including their principals, and Capital Investment Group, Inc.
Cavalier Funds
Notes to Financial Statements
1. Organization and Significant Accounting Policies
The Cavalier Funds ("Funds"), formerly known as the RiskX Funds, are a series of the Starboard Investment Trust ("Trust"). The name change of the Funds from the RiskX Funds to the Cavalier Funds was effective August 4, 2015. 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. Each Fund is a separate, diversified series of the Trust.
The Funds seek to achieve each Fund's investment objective by principally investing in no-load, institutional, and exchange-traded products registered under the Investment Company Act of 1940 ("Underlying Funds"), common stocks, preferred stocks, and fixed income securities. Although each Fund principally invests in Underlying Funds with no sales related expenses or very low sales related expenses, the Funds are not precluded from investing in Underlying Funds with sales-related expenses, and/or service fees in excess of 0.25%.
Each Fund currently has an unlimited number of authorized shares, which are divided into two classes – Institutional Class Shares and Advisor Class Shares. Each class of shares has equal rights to assets of the Funds, and the classes are identical except for differences in ongoing distribution and service fees. The Advisor Class Shares are subject to distribution plan fees as described in Note 3. Each Fund's Advisor Class Shares are sold without an initial sales charge; however, they are subject to a contingent deferred sales charge of 1.00% paid to Capital Investment Group, Inc. (the "Distributor"). 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.
The Date of Initial Public Investment for each Fund and Class of Shares is as follows:
| Fund | Institutional Class Shares | | Advisor Class Shares |
| | | | |
Dividend Income Fund | September 20, 2012 | | | September 26, 2012 |
| Dynamic Growth Fund | October 2, 2009 | | | February 18, 2011 |
| Global Opportunities Fund | September 20, 2012 | | | September 26, 2012 |
| Fundamental Growth Fund | October 17, 2013 | | | November 4, 2013 |
| Hedged Equity Fund | September 20, 2012 | | | September 26, 2012 |
| Hedged High Income Fund | September 20, 2012 | | | September 26, 2012 |
| Multi Strategist Fund | September 20, 2012 | | | September 26, 2012 |
| Stable Income Fund | October 2, 2009 | | | February 25, 2011 |
| Tactical Rotation Fund | September 20, 2012 | | | September 26, 2012 |
| | | | | |
The following is a summary of significant accounting policies consistently followed by the Funds. The policies are in conformity with accounting principles generally accepted in the United States of America ("GAAP").
Investment Valuation
Each Fund's investments in securities are carried at fair value. Securities listed on an exchange or quoted on a national market system are valued at the last 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 portfolio security is principally traded closes early or if trading of the particular portfolio security is halted during the day and does not resume prior to each Fund's net asset value calculation) or which cannot be accurately valued using each Fund's normal pricing procedures are valued at fair value as determined in good faith under policies approved by the Trustees. A portfolio security's "fair value" price may differ from the price next available for that portfolio security using each Fund's normal pricing procedures. Instruments with maturities of 60 days or less are valued at amortized cost, which approximates market value.
(Continued)
Cavalier Funds
Notes to Financial Statements
Each Fund may invest in portfolios of open-end investment companies (the "Underlying Funds"). The Underlying Funds value securities in their portfolios for which market quotations are readily available at their market values (generally the last reported sale price) and all other securities and assets at their fair value to the methods established by the boards of directors of the Underlying Funds. Open-ended funds are valued at their respective net asset values as reported by such investment companies.
Fair Value Measurement
Each Fund has adopted ASC Topic 820, Fair Value Measurements. ASC Topic 820 defines fair value, establishes a framework for measuring fair value and expands disclosure about fair value measurements.
Various inputs are used in determining the value of each Fund's investments. These inputs are summarized in the three broad levels listed below:
Level 1: Unadjusted 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 each 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.
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 tables summarize the inputs as of May 31, 2016 for each Fund's investments measured at fair value:
Dividend Income Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Exchange-Traded Products | $ | 1,672,296 | $ | 1,672,296 | $ | - | $ | - |
| Short-Term Investment | | 107,854 | | 107,854 | | - | | - |
| Total | $ | 1,780,150 | $ | 1,780,150 | $ | - | $ | - |
Dynamic Growth Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Common Stocks* | $ | 5,144,259 | $ | 5,144,259 | $ | - | $ | - |
| Exchange-Traded Products | | 6,701,907 | | 6,701,907 | | - | | - |
| Total | $ | 11,846,166 | $ | 11,846,166 | $ | - | $ | - |
(Continued)
Cavalier Funds
Notes to Financial Statements
Fundamental Growth Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Common Stocks* | $ | 52,331,781 | $ | 52,331,781 | $ | - | $ | - |
| Short-Term Investment | | 87,995 | | 87,995 | | - | | - |
| Total | $ | 52,419,776 | $ | 52,419,776 | $ | - | $ | - |
Global Opportunities Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Exchange-Traded Products | $ | 13,431,863 | $ | 13,431,863 | $ | - | $ | - |
| Short-Term Investment | | 846,400 | | 846,400 | | - | | - |
| Total | $ | 14,278,263 | $ | 14,278,263 | $ | - | $ | - |
Hedged Equity Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Exchange-Traded Products | $ | 5,423,413 | $ | 5,423,413 | $ | - | $ | - |
| Short-Term Investment | | 1,175,087 | | 1,175,087 | | - | | - |
| Total | $ | 6,598,500 | $ | 6,598,500 | $ | - | $ | - |
Hedged High Income Fund
| Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Exchange-Traded Products | $ | 7,659,213 | $ | 7,659,213 | $ | - | $ | - |
| Short-Term Investment | | 542,891 | | 542,891 | | - | | - |
| Total | $ | 8,202,104 | $ | 8,202,104 | $ | - | $ | - |
Multi Strategist Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Common Stocks* | $ | 208,280 | $ | 208,280 | $ | - | $ | - |
| Exchange-Traded Products | | 3,891,937 | | 3,891,937 | | - | | - |
| Short-Term Investment | | 175,392 | | 175,392 | | - | | - |
| Total | $ | 4,275,609 | $ | 4,275,609 | $ | - | $ | - |
Stable Income Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Exchange-Traded Products | $ | 6,383,205 | $ | 6,383,205 | $ | - | $ | - |
| Short-Term Investment | | 2,083,486 | | 2,083,486 | | - | | - |
| Total | $ | 8,466,691 | $ | 8,466,691 | $ | - | $ | - |
Tactical Rotation Fund
Assets | | Total | | Level 1 | | Level 2 | | Level 3 |
| Exchange-Traded Products | $ | 82,035,438 | $ | 82,035,438 | $ | - | $ | - |
| Short-Term Investment | | 7,706,872 | | 7,706,872 | | - | | - |
| Total | $ | 89,742,310 | $ | 89,742,310 | $ | - | $ | - |
*Refer to the Schedules of Investments for a breakdown by sector.
(Continued)
Cavalier Funds
Notes to Financial Statements
The Funds had no significant transfers into or out of Level 1, 2, or 3 during the year ended May 31, 2016. It is the Funds' policy to recognize transfers 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 and amortization of discounts and 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
Each Fund will distribute its income and realized gains to its shareholders every year. Income dividends paid by the Funds derived from net investment income, if any, will generally be paid monthly or quarterly and capital gains distributions, if any, will be made at least 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 reporting period. Actual results could differ from those estimates.
Federal Income Taxes
No provision for income taxes is included in the accompanying financial statements, as each 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 Related Parties and Service Providers
Advisor
Effective August 1, 2015, each Fund pays a monthly advisory fee to Cavalier Investments (the "Advisor") based upon the average daily net assets and calculated at an annual rate. See the table below for the advisory fee rate and amounts paid to the Advisor for each Fund during the fiscal year ended May 31, 2016:
| Fund | Advisory Fee Rate | Amount Incurred | Amount Waived by Advisor | Expenses Reimbursed by Advisor |
Dividend Income Fund | 0.90% | $ 17,810 | $ 17,810 | $ 136,314 |
| Dynamic Growth Fund | 0.45% | 54,830 | 54,830 | 27,678 |
| Fundamental Growth Fund | 0.45% | 455,600 | 196,841 | - |
| Global Opportunities Fund | 1.00% | 116,155 | 106,352 | - |
| Hedged Equity Fund | 0.45% | 26,551 | 26,551 | 82,529 |
| Hedged High Income Fund | 0.45% | 40,713 | 40,713 | 81,867 |
| Multi Strategist Fund | 0.45% | 19,097 | 19,097 | 122,425 |
| Stable Income Fund | 1.00% | 49,130 | 49,130 | 90,828 |
| Tactical Rotation Fund | 0.45% | 702,386 | 121,235 | - |
| | | | | |
(Continued)
Cavalier Funds
Notes to Financial Statements
For the period from June 1, 2015 through July 31, 2015, FolioMetrix, LLC served as the advisor to the Funds. During this period, each Fund paid a monthly advisory fee to FolioMetrix, LLC based upon the average daily net assets and calculated at an annual rate. A breakdown of these fees is provided in the schedule below.
| Fund | Advisory Fee Rate | Amount Incurred | Amount Waived by Advisor | Expenses Reimbursed by Advisor |
Dividend Income Fund | 0.90% | $ 6,610 | $ 6,610 | $ 18,202 |
| Dynamic Growth Fund | 0.45% | 22,894 | 7 | - |
| Fundamental Growth Fund | 0.45% | 105,400 | 30,257 | - |
| Global Opportunities Fund | 1.00% | 37,347 | 4,175 | - |
| Hedged Equity Fund | 0.45% | 18,697 | 15,001 | - |
| Hedged High Income Fund | 0.45% | 24,768 | 20,120 | - |
| Multi Strategist Fund | 0.45% | 6,297 | 6,297 | 13,726 |
| Stable Income Fund | 1.00% | 16,940 | 16,940 | 3,388 |
| Tactical Rotation Fund | 0.45% | 166,156 | 28,657 | - |
| | | | | |
The Advisor has engaged Navellier & Associates, Inc. as sub-advisor to provide day to day portfolio management for the Fundamental Growth Fund. The sub-advisor is paid directly by the Advisor.
During the fiscal year ended May 31, 2016, the Advisor entered into a contractual agreement (the "Expense Limitation Agreement") with the Trust, on behalf of the Funds, under which it had agreed to waive or reduce its fees and to assume other expenses of the Funds, if necessary, in amounts that limit the Funds' total operating expenses (exclusive of interest, taxes, brokerage commissions, borrowing costs, other expenditures which are capitalized in accordance with GAAP, other extraordinary expenses not incurred in the ordinary course of the Funds' business, and amounts, if any, payable under a Rule 12b-1 distribution plan, and acquired fund fees and expenses) to not more than the following percentages of the average daily net assets of the Funds:
| Fund | | | | Expense Limitation |
Dividend Income Fund | | | | 1.88% |
| Dynamic Growth Fund | | | | 1.40% |
| Fundamental Growth Fund | | | | 1.10% |
| Global Opportunities Fund | | | | 1.10% |
| Hedged Equity Fund | | | | 1.99% |
| Hedged High Income Fund | | | | 1.44% |
| Multi Strategist Fund | | | | 1.48% |
| Stable Income Fund | | | | 1.30% |
| Tactical Rotation Fund | | | | 1.45% |
| | | | | |
There shall be no recoupment of fees waived or reimbursed by the Advisor. The rates in the Expense Limitation Agreement (also noted above) remained unchanged during the fiscal year from June 1, 2015 through May 31, 2016. The Advisor reimbursed the Funds for the acquired fund fees and expenses for the period from June 1, 2015 through December 17, 2015. The Expense Limitation Agreement was updated to exclude acquired fund fees and expenses from the waiver effective December 18, 2015.
(Continued)
Cavalier Funds
Notes to Financial Statements
Administrator
Each Fund pays a monthly fee to the Administrator, The Nottingham Company, based upon the average daily net assets of each Fund and calculated at the annual rates as shown in the schedule below subject to a minimum of $1,000 per month for the period from June 1, 2015 through April 14, 2016 and $2,000 per month for the period from April 15, 2016 through May 31, 2016. The Administrator also receives a fee as to procure and pay the Fund's custodian, additional compensation for fund accounting and recordkeeping services, and additional compensation for certain costs involved with the daily valuation of securities and as reimbursement for out-of-pocket expenses. A breakdown of these fees is provided in the following table:
| Administration Fees* | Custody Fees* | Fund Accounting Fees (base fee) (monthly fee) | Fund Accounting Fees (asset-based fee) | Blue Sky Administration Fees (annual) |
Average Net Assets | Annual Rate | Average Net Assets | Annual Rate |
| First $250 million | 0.100% | First $100 million | 0.020% | $2,250 plus $500/additional share class | 0.01% | $150 per state |
| Next $250 million | 0.080% | Over $100 million | 0.009% | | | |
| Next $250 million | 0.060% | | | | | |
| Next $250 million | 0.050% | *Minimum monthly fees of $2,000 and $416 for Administration and Custody, respectively. |
| On the next $1 billion | 0.040% |
| On all assets over $2 billion | 0.035% | |
Compliance Services
Cipperman Compliance Services, LLC provides services as the Trust's Chief Compliance Officer. Cipperman Compliance Services, LLC is entitled to receive customary fees from the Funds for their services pursuant to the Compliance Services agreement with the Funds.
Transfer Agent
Nottingham Shareholder Services, LLC ("Transfer Agent"), an affiliate of the Administrator, 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 Fund pursuant to the Transfer Agent's fee arrangements with the Fund.
Distributor
Capital Investment Group, Inc. serves as the Funds' principal underwriter and distributor. For its services, the Distributor is entitled to receive compensation from the Funds pursuant to the Funds' fee arrangements with the Distributor.
Certain officers of the Trust are also officers of the Advisor or the Administrator.
Because the underlying funds have varied expense and fee levels and the Funds may own different proportions of underlying funds at different times, the amount of fees and expense incurred indirectly by the Funds will vary.
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 Advisor Class 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 each Fund may incur certain costs, which may not exceed 1.00% per annum of the average daily net assets of the Advisor Class 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 Advisor Class Shares or servicing of Advisor Class shareholder accounts.
(Continued)
Cavalier Funds
Notes to Financial Statements
See the table below for the Distribution and Service Fees of the Advisor Class Shares for each Fund during the fiscal year ended May 31, 2016:
| Fund | | | | Amount Incurred |
Dividend Income Fund | | | | $ 962 |
| Dynamic Growth Fund | | | | 11,780 |
| Fundamental Growth Fund | | | | 79,301 |
| Global Opportunities Fund | | | | 65,432 |
| Hedged Equity Fund | | | | 5,627 |
| Hedged High Income Fund | | | | 6,417 |
| Multi Strategist Fund | | | | 3,324 |
| Stable Income Fund | | | | 10,477 |
| Tactical Rotation Fund | | | | 87,821 |
| | | | | |
4. Purchases and Sales of Investment Securities
For the fiscal year ended May 31, 2016, 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 |
| Dividend Income Fund | | $ | 2,984,158 | $ | 6,230,949 |
| Dynamic Growth Fund | | | 49,383,844 | 56,064,391 |
| Fundamental Growth Fund | | | 92,975,515 | 95,143,969 |
| Global Opportunities Fund | | | 71,502,931 | 100,370,377 |
| Hedged Equity Fund | | | 25,031,262 | 41,121,539 |
| Hedged High Income Fund | | | 44,555,554 | 67,986,777 |
| Multi Strategist Fund | | | 9,152,148 | 16,223,110 |
| Stable Income Fund | | | 31,044,660 | 44,017,203 |
| Tactical Rotation Fund | | | 479,414,555 | 493,807,832 |
| | | | | |
There were no long-term purchases or sales of U.S. Government Obligations during the fiscal year ended May 31, 2016.
5. Concentration of Investments
The Hedged Equity Fund and Hedged High Income Fund currently seek to achieve their investment objectives by investing a portion of their assets in the iShares 1-3 Year Treasury Bond ETF (the "iShares ETF"). The iShares ETF is a registered open-end management investment company organized as a Delaware statutory trust. The Hedged Equity Fund and Hedged High Income Fund may redeem their investments from the iShares ETF at any time if the Advisor determines that it is in the best interest of the Hedged Equity Fund and Hedged High Income Fund and each Fund's shareholders to do so. The latest financial statements for the iShares ETF can be found at www.sec.gov. The performance of the Hedged Equity Fund and Hedged High Income Fund may be directly affected by the performance of the iShares ETF. As of May 31, 2016, the percentage of net assets invested in the iShares ETF by the Hedged Equity Fund and Hedged High Income Fund was 43.51% and 39.72%, respectively.
(Continued)
Cavalier Funds
Notes to Financial Statements
The Hedged High Income Fund also currently seeks to achieve its investment objective by investing a portion of its assets in the SPDR Barclays High Yield Bond ETF (the "SPDR ETF"). The SPDR ETF is a registered open-end management investment company organized as a Delaware statutory trust. The Hedged High Income Fund may redeem its investment from the SPDR ETF at any time if the Advisor determines that it is in the best interest of the Hedged High Income Fund and its shareholders to do so. The latest financial statements for the SPDR ETF can be found at www.sec.gov. The performance of the Hedged High Income Fund may be directly affected by the performance of the SPDR ETF. As of May 31, 2016, the percentage of net assets invested in the SPDR ETF by the Hedged High Income Fund was 29.84%.
6. Federal Income Tax
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.
Management 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 May 31,
2016, open taxable years consisted of the taxable years ended May 31, 2013 through May 31, 2016. No examination of tax returns is currently in progress for any of the Funds.
Reclassifications relate primarily to differing book/tax treatment of ordinary net investment losses, dividends paid/received, partnership adjustments, and PFIC mark-to-market adjustments and have no impact on the net assets of the Funds. For the year ended May 31, 2016, the following reclassifications were necessary:
| | Paid-in Capital | Accumulated Net Investment Income (Loss) | Accumulated Net Realized Gain (Loss) on Investments |
| Dividend Income Fund | $ (9,653) | $ 9,653 | $ - |
| Dynamic Growth Fund | - | 25,324 | (25,324) |
| Fundamental Growth Fund | (56,913) | 83,260 | (26,347) |
| Global Opportunities Fund | - | - | - |
| Hedged Equity Fund | (30,582) | 30,582 | - |
| Hedged High Income Fund | - | - | - |
| Multi Strategist Fund | (13,394) | 13,394 | - |
| Stable Income Fund | - | - | - |
| Tactical Rotation Fund | (25,324) | 25,324 | - |
Cavalier Funds
Notes to Financial Statements
Distributions during the fiscal years ended were characterized for tax purposes as follows:
| | | Distributions from |
| Fund | Fiscal year ended | Ordinary Income | Long-Term Capital Gains |
| Dividend Income Fund | 05/31/2016 | $ 36,763 | $ - |
| | 05/31/2015 | 274,880 | 369 |
| Dynamic Growth Fund | 05/31/2016 | 1,831,137 | 753,946 |
| | 05/31/2015 | 1,291,733 | 648,924 |
| Fundamental Growth Fund | 05/31/2016 | 65,347 | - |
| | 05/31/2015 | - | - |
| Global Opportunities Fund | 05/31/2016 | 146,070 | 405,772 |
| | 05/31/2015 | 107,704 | 790,897 |
| Hedged Equity Fund | 05/31/2016 | 19,742 | - |
| | 05/31/2015 | 184,890 | 32,819 |
| Hedged High Income Fund | 05/31/2016 | 375,083 | 147,624 |
| | 05/31/2015 | 1,810,791 | 117,626 |
| Multi Strategist Fund | 05/31/2016 | - | 160,981 |
| | 05/31/2015 | 100,184 | 313,597 |
| Stable Income Fund | 05/31/2016 | 160,315 | - |
| | 05/31/2015 | 211,679 | - |
| Tactical Rotation Fund | 05/31/2016 | 2,025,325 | 214,852 |
| | 05/31/2015 | 2,446,547 | - |
| | | | |
Cavalier Funds
Notes to Financial Statements
At May 31, 2016, the tax-basis cost of investments and components of distributable earnings were as follows:
| | Dividend Income Fund | Dynamic Growth Fund | Fundamental Growth Fund | Global Opportunities Fund | Hedged Equity Fund |
Cost of Investments | $1,704,386 | $11,664,667 | $48,951,852 | $13,705,466 | $6,602,995 |
| | | | | | |
| Gross Unrealized Appreciation | 76,502 | 442,260 | 4,345,694 | 600,041 | 668 |
| Gross Unrealized Depreciation | (738) | (260,761) | (877,770) | (27,244) | (5,163) |
| Net Unrealized Appreciation (Depreciation) | 75,764 | 181,499 | 3,467,924 | 572,797 | (4,495) |
| | | | | | |
Undistributed Ordinary Income | - | 556,146 | - | 25,470 | - |
Distributions in Excess of Net Investment Income | - | - | - | - | - |
Accumulated Net Capital Losses | (372,469) | - | - | (4,283,768) | (533,442) |
Deferred Post October Capital Losses | - | (147,175) | (4,033,822) | - | - |
Deferred Late Year Ordinary Losses | (7,659) | (9,025) | - | - | (58,535) |
| Other Book/Tax Differences | - | - | - | - | - |
| | | | | | |
| Distributable Earnings (Accumulated Deficit) | $ (304,364) | $ 581,445 | $ (565,898) | $(3,685,501) | $ (596,472) |
| | Hedged High Income Fund | Multi Strategist Fund | Stable Income Fund | Tactical Rotation Fund |
Cost of Investments | $8,210,113 | $4,273,144 | $8,292,858 | $88,662,505 |
| | | | | |
| Gross Unrealized Appreciation | - | 127,310 | 185,305 | 1,295,800 |
| Gross Unrealized Depreciation | (8,009) | (124,845) | (11,472) | (215,995) |
| Net Unrealized Appreciation (Depreciation) | (8,009) | 2,465 | 173,833 | 1,079,805 |
| | | | | |
| Undistributed Ordinary Income | 21,986 | - | - | - |
| Distributions in Excess of Net Investment Income | - | - | - | - |
| Accumulated Net Capital Losses | (2,417,210) | (55,911) | (586,549) | (3,405,364) |
| Deferred Post October Capital Losses | - | (172,410) | - | - |
| Deferred Late Year Ordinary Losses | - | (14,952) | (4,764) | (82,251) |
| Other Book/Tax Differences | - | - | - | (4) |
| | | | | |
| Distributable Earnings (Accumulated Deficit) | $ (2,403,233) | $ (240,808) | $ (417,480) | $(2,407,814) |
The difference between book-basis and tax-basis net unrealized appreciation (depreciation) is attributable to the deferral of losses from wash sales. Accumulated capital losses noted above represent net capital loss carryovers as of May 31, 2016 that are available to offset future realized capital gains, if any, and thereby reduce future taxable gain distributions. The Dividend Income Fund has a loss carryforward of $372,469, of which $113,754 is short term in nature and $258,715 of which is long term in nature. The Global Opportunities Fund has a loss carryforward of $4,283,768, of which $4,272,882 is short term in nature and $10,886 is long term in nature. The Hedged Equity Fund has a loss carryforward of $533,442, of which $438,711 is short term in nature and $94,731 is long term in nature. The Hedged High Income Fund has a loss carryforward of $2,417,210, of which $1,966,140 is short term in nature and $451,070 is long term in nature. The Multi Strategist Fund has a loss carryforward of $55,911, of which all is short term in nature. The Stable Income Fund has a loss carryforward of $586,549, of which $468,106 is short term in nature and $118,443 is long term in nature. The Tactical Rotation Fund has a loss carryforward of $3,405,364, of which all is short term in nature. The capital loss carryforwards have no expiration date. In addition, realized losses reflected in the accompanying financial statements include net capital losses realized between November 1 and the Funds' fiscal year-end that have not been recognized for tax purposes (Deferred Post October Capital Losses).
(Continued)
Cavalier Funds
Notes to Financial Statements
Under federal tax law, qualified late year ordinary losses realized after December 31 may be deferred and treated as occurring on the first day of the following fiscal year. For the fiscal year ended May 31, 2016, the Dividend Income Fund, Dynamic Growth Fund, Hedged Equity Fund, Multi Strategist Fund, Stable Income Fund, and Tactical Rotation Fund incurred late year ordinary losses of $7,659, $9,025, $58,535, $14,952, $4,764, and $82,251, respectively, which they will elect to defer to the fiscal year ended May 31, 2017.
7. Affiliated Investments
| | Forward International Dividend Fund |
| 5/31/15 Value | $ | 3,360,488 |
| Purchases | | 24,994 |
| Sales | | (3,133,588) |
| Change in Unrealized Appreciation | | 212,641 |
| Net Realized Loss | | (464,535) |
| 5/31/16 Value | $ | - |
| Dividend Income | $ | 24,994 |
| Shares held as of 5/31/16 | | - |
| | | |
(Continued)
Cavalier Funds
Notes to Financial Statements
During the year ended May 31, 2016, the following portfolio company is considered to have been an affiliate of the Hedged Equity Fund. This portfolio company is deemed to be an affiliate due to the fact that the Hedged Equity Fund held more than 5% of the outstanding voting shares of the portfolio company. The Hedged Equity Fund held 0.00% of the outstanding shares and 0.00% of the net assets as of May 31, 2016. The Hedged Equity Fund liquidated the position as of August 27, 2015. Transactions in this company during the year ended May 31, 2016 were as follows:
| | QuantShares US Market Neutral Anti- Beta Fund |
| 5/31/15 Value | $ | 937,920 |
| Purchases | | - |
| Sales | | (969,413) |
| Change in Unrealized Appreciation | | 33,579 |
| Net Realized Loss | | (2,086) |
| 5/31/16 Value | $ | - |
| Dividend Income | $ | - |
| Shares held as of 5/31/16 | | - |
| | | |
8. 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 Funds. In addition, in the normal course of business, the Trust entered into contracts with its service providers, on behalf of the Funds, and others that provide for general indemnifications. The Funds' maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Funds. The Funds expect the risk of loss to be remote.
9. Subsequent Events
The Funds have evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date of issuance of these financial statements.
Distributions
Per share distributions during the subsequent period were as follows:
| | | | | Distributions from |
| Fund | Share Class | Record Date | Pay Date | Ordinary Income |
Stable Income Fund | Institutional | 6/29/2016 | 6/30/2016 | $ 0.01348 |
Advisor | 6/29/2016 | 6/30/2016 | 0.00543 |
Management has concluded there are no additional matters, other than those noted above, requiring recognition or disclosure.
(Continued)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Trustees of Starboard Investment Trust
and the Shareholders of Cavalier Dividend Income Fund, Cavalier Dynamic Growth Fund, Cavalier Fundamental Growth Fund, Cavalier Global Opportunities Fund, Cavalier Hedged Equity Fund, Cavalier Hedged High Income Fund, Cavalier Multi Strategist Fund, Cavalier Stable Income Fund, and Cavalier Tactical Rotation Fund
We have audited the accompanying statements of assets and liabilities of the Cavalier Dividend Income Fund f/k/a "Rx Dividend Income Fund", Cavalier Dynamic Growth Fund f/k/a "Rx Dynamic Growth Fund", Cavalier Fundamental Growth Fund f/k/a "Rx Fundamental Growth Fund), Cavalier Global Opportunities Fund f/k/a "Rx Traditional Equity Fund", Cavalier Hedged Equity Fund f/k/a "Rx Non Traditional Fund", Cavalier Hedged High Income Fund f/k/a "Rx High Income Fund", Cavalier Multi Strategist Fund f/k/a "Rx Premier Managers Fund", Cavalier Stable Income Fund f/k/a "Rx Dynamic Total Return Fund", and Cavalier Tactical Rotation Fund f/k/a "Rx Tactical Rotation Fund" (the "Funds"), each a series of shares of beneficial interest in the Starboard Investment Trust, including the schedules of investments, as of May 31, 2016, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the four-year period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The financial highlights for the year ended May 31, 2012, for Cavalier Dynamic Growth Fund and Cavalier Stable Income Fund have been audited by other auditors, whose report dated July 26, 2012, expressed an unqualified opinion on such financial highlights.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of May 31, 2016 by correspondence with the custodian and brokers or by other appropriate auditing procedures where responses from brokers were not received. 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 financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Cavalier Dividend Income Fund, Cavalier Dynamic Growth Fund, Cavalier Fundamental Growth Fund, Cavalier Global Opportunities Fund, Cavalier Hedged Equity Fund, Cavalier Hedged High Income Fund, Cavalier Multi Strategist Fund, Cavalier Stable Income Fund, and Cavalier Tactical Rotation Fund as of May 31, 2016, and the results of their operations for the year then ended, the changes in their net assets for each of the years in the two-year period then ended and their financial highlights for each of the years or periods in the four-year period then ended, in conformity with accounting principles generally accepted in the United States of America.
BBD, LLP
Philadelphia, Pennsylvania
July 29, 2016
A copy of the Trust's Proxy Voting and Disclosure Policy and the Advisor's Disclosure Policy are included as Appendix B to the Funds' Statement of Additional Information and are available, without charge, upon request, by calling 800-773-3863, and on the website of the Securities and Exchange Commission ("SEC") at sec.gov. Information regarding how each Fund voted proxies relating to portfolio securities during the most recent period ended June 30, is available (1) without charge, upon request, by calling the Funds at the number above and (2) on the SEC's website at sec.gov.
Each Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. Each Fund's Form N-Q is available on the SEC's website at sec.gov. You may review and make copies at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 800-SEC-0330. You may also obtain copies without charge, upon request, by calling the Fund at 800-773-3863.
We are required to advise you within 60 days of each Fund's fiscal year-end regarding the federal tax status of certain distributions received by shareholders during each fiscal year.
Each of the funds listed below had the following distribution information for the fiscal year ended May 31, 2016.
Dividend and distributions received by retirement plans such as IRAs, Keogh-type plans, and 403(b) plans need not be reported as taxable income. However, many retirement plans may need this information for their annual information meeting.
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including contingent deferred sales charges; and (2) ongoing costs, including management fees; distribution [and/or service] (12b-1) fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from December 1, 2015 through May 31, 2016.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
*Expenses are equal to the average account value over the period multiplied by each Fund's annualized expense ratio, multiplied by the number of days in the most recent period divided by the number of days in the fiscal year (to reflect the six month period).
The business and affairs of the Funds and the Trust are managed under the direction of the Board of Trustees of the Trust. Information concerning the Trustees and officers of the Trust and Funds is set forth below. Generally, each Trustee and officer serves an indefinite term or until certain circumstances such as their resignation, death, or otherwise as specified in the Trust's organizational documents. Any Trustee may be removed at a meeting of shareholders by a vote meeting the requirements of the Trust's organizational documents. The Statement of Additional Information of the Funds includes additional information about the Trustees and officers and is available, without charge, upon request by calling the Funds toll-free at 1-800-773-3863. The address of each Trustee and officer, unless otherwise indicated below, is 116 South Franklin Street, Rocky Mount, North Carolina 27804. The Independent Trustees each received aggregate compensation of $26,889 during the fiscal year ended May 31, 2016 for their services to the Funds and Trust.
