UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21233
PARADIGM FUNDS
(Exact name of registrant as specified in charter)
Nine Elk Street, Albany, NY 12207-1002
(Address of principal executive offices) (Zip code)
Robert A. Benton
Nine Elk Street, Albany, NY 12207-1002
(Name and address of agent for service)
Registrant's telephone number, including area code: (518) 431-3500
Date of fiscal year end: December 31
Date of reporting period: December 31, 2009
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e -1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Paradigm Funds
Paradigm Value Fund
Paradigm Select Fund
Paradigm Opportunity Fund
Paradigm Intrinsic Value Fund
For Investors Seeking Long-Term Capital Appreciation
ANNUAL REPORT
December 31, 2009
| Table of Contents | ||
| PARADIGM FUNDS | ||
Letter to Shareholders | 2 | |
| Sector Allocation | 5 | |
| Performance Information | 7 | |
| Schedules of Investments | 11 | |
| Statements of Assets and Liabilities | 21 | |
| Statements of Operations | 21 | |
| Statements of Changes in Net Assets | 23 | |
| Financial Highlights | 25 | |
NOTES TO FINANCIAL STATEMENTS | 27 | |
DISCLOSURE OF EXPENSES | 33 | |
ADDITIONAL INFORMATION | 35 | |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 36 | |
TRUSTEES & OFFICERS | 38 | |
2009 Annual Report 1
Letter to Shareholders
2009 saw a strong recovery in the financial markets. We are, nonetheless, relieved to have it behind us, as it was nothing short of a grueling year. Stocks responded in the spring to a combination of bank bailouts in the United States and Europe; stimulus packages announced around the world; and to unprecedented monetary policies enacted by the Federal Reserve and by foreign central banks. As the year progressed, the stock market also moved in anticipation of an eventual economic recovery. The latter point is normal for recessions: the stock market usually rallies before an actual recovery sets in.
As we look at the state of the economy at the end of the year, we remain somewhat cautious and believe that the recovery will be muted. We do not believe the recession we just experienced would be characterized as a typical recession by most people. As of December 31, the national unemployment rate was 10%. According to a recent New York Times article, one in eight Americans currently depends on food stamps, an all-time high. Moreover, housing continues to be a serious problem in many parts of the country. 90-day delinquent prime mortgages totaled 4.98% in October (from Fannie Mae data), up from 1.89% last year. Delinquent non-prime mortgages rose to 32%, up from 25% last year.
The recent purchases of two companies reflect the changed economic landscape, Big Lots and American Italian Pasta Company. Big Lots is a national deep-discount, close-out retailer. American Italian Pasta Company is the largest pasta manufacturer in the country, and a key supplier to Wal-Mart. Both companies were purchased at modest multiples of earnings. Both have grown impressively over the years by offering real value to budget-conscious consumers.
On a more positive note, industrial activity had picked up at the end of the year, albeit off of a very low base. The ISM factory index rose to 55.9 in December, its highest level since 2006. It appears to us that American industry did a good job of generating cash and deleveraging during this crisis. We recognize, however, that cost-cutting in itself can only work as a strategy for a limited amount of time. Thus, we are focused on identifying businesses that can generate relatively consistent cash flow over a full cycle, that will have revenue growth even in a lackluster economy, and that can leverage operating earnings to modest levels of revenue growth. Free cash flow has always been a core metric used by the Advisor in evaluating potential investments, and several of our top performing companies this year managed to generate impressive levels of cash, including Vishay Intertechnology, Micros Systems, and Mednax.
Mergers and acquisitions (“M&A”) have historically been an important source of value realization for small-cap investors, and the Paradigm Funds have benefited from several take-outs over the years. The financial crisis put a halt to the M&A marketplace, and we are pleased to see it come back to life, especially with one of our own companies, 3Com Corp, which was acquired by Hewlett Packard. We believe M&A activity will increase significantly this year, based on pent-up demand from the previous years.
We believe 2010 will be a year of winners and losers, with a wide earnings gulf separating the two. Our mandate remains clear: Use fundamental research to identify those companies whose true earnings leverage is misunderstood by the market and not accurately factored into stock prices.
We appreciate the faith you have placed in Paradigm Funds, and we wish you all the best for the New Year.
2009 Annual Report 2
Paradigm Value Fund
Portfolio Performance
The Paradigm Value Fund appreciated 31.50% in 2009 compared to 20.58% for its benchmark, the Russell 2000 Value Index. Over the past three years on an annualized basis, the Fund declined 2.98% versus an 8.22% decline for the benchmark. Over the past five years on an annualized basis, the Fund has appreciated 5.41% versus -0.01% for the benchmark. Since inception (1/1/03), the Fund has generated an annualized return of 15.63% compared to 8.63% for the Russell 2000 Value Index.
The Fund's top three performing sectors in 2009 were the Information Technology (64.77%), Energy (63.33%), and Consumer Discretionary (49.26%) sectors. Stocks in these three sectors accounted for seven out of our top ten positions. The Fund's Financials sector holdings also were a significant driver of relative returns, with a gain of 18.26% versus a decline of 2.25% for the benchmark sector.
Our top-performing stock in the fourth quarter and 2009 was 3Com Corporation. We were attracted to 3Com in early 2009 because of the company's leading market position in China, reduced cost structure, new products, and robust free cash flow generation. The stock was trading at 6X earnings and 6X free cash flow and covered by only one sell-side analyst. 3Com competes with Cisco and had been written off by the market, which did not understand the transformation that had taken place over the past few years. The market began to reevaluate 3Com in the second quarter of 2009, and the stock doubled from $2.50 to $5.00. Hewlett Packard recognized the strength of its technology and leading position in China, which resulted in an offer to acquire the company in the fourth quarter for $7.90.
Paradigm Select Fund
Portfolio Performance
The Paradigm Select Fund appreciated 28.92% in 2009 compared to 34.39% for its benchmark, the Russell 2500 Index. Over the past three years on an annualized basis, the Fund declined 3.32% versus a 4.86% decline for the benchmark. Since inception (1/1/05), the Fund has generated an annualized return of 4.26%, compared to 1.58% for the Russell 2500 Index.
The Fund's top three performing sectors in 2009 were the Energy (71.20%), Information Technology (49.49%), and Consumer Discretionary (48.50%) sectors. The Fund's Financials sector holdings also were a significant driver of relative returns with a gain of 17.52% versus 6.90% for the benchmark sector. The Fund's defensive positioning in stable, cash-flow-generating businesses drove outperformance during the first half of 2009 but failed to keep pace with the market's surge in the second half of the year. However, the returns continue to be less volatile and outperform the benchmark over the past three years and since inception.
Our top-performing stock in 2009 was Life Technologies. The company was formed with the merger of Invitrogen and Applied Biosystems in the fourth quarter of 2008, creating a leading provider of technology, equipment, and supplies to the life sciences industry. The market was concerned about the integration risk and debt related to the merger. Our knowledge of the industry and understanding of the potential benefits of the merger, coupled with our confidence in management, led to the purchase of shares throughout the market's sell-off in late 2008. The company rewarded us by delivering solid organic revenue growth and 10% earnings growth over the past three quarters.
2009 Annual Report 3
Paradigm Opportunity Fund
Portfolio Performance
The Paradigm Opportunity Fund appreciated 47.14% in 2009 compared to 27.17% for its benchmark, the Russell 2000 Index. Over the past three years on an annualized basis, the Fund declined 3.42% versus a 6.07% decline for the benchmark. Since inception (1/1/05), the Fund has generated an annualized return of 1.56%, compared to 0.51% for the Russell 2000 Index.
The Fund's top three performing sectors in 2009 were the Information Technology (66.44%), Health Care (50.77%), and Energy (48.45%) sectors. The Fund's Financials sector holdings also were a significant driver of relative returns with a gain of 38.81% versus a decline of 1.00% for the benchmark sector.
Our top-performing stock in the fourth quarter and 2009 was 3Com Corporation. We were attracted to 3Com in early 2009 because of the company's leading market position in China, reduced cost structure, new products, and robust free cash flow generation. The stock was trading at 6X earnings and 6X free cash flow and covered by only one sell-side analyst. 3Com competes with Cisco and had been written off by the market, which did not understand the transformation that had taken place over the past few years. The market began to reevaluate 3Com in the second quarter of 2009, and the stock doubled from $2.50 to $5.00. Hewlett Packard recognized the strength of its technology and leading position in China, which resulted in an offer to acquire the company in the fourth quarter for $7.90.
Paradigm Intrinsic Value Fund
Portfolio Performance
The Paradigm Intrinsic Value Fund appreciated 29.44% in 2009 compared to 26.47% for its benchmark, the S&P 500 Index. Since inception (1/1/08), on an annualized basis, the Fund has declined 4.87% compared to a 10.72% annualized decline for the S&P 500 Index.
The Fund's top three sectors in 2009 were the Consumer Discretionary (75.48%), Information Technology (60.94%), and Energy (55.68%) sectors. The Fund's Industrials sector holdings also were a significant driver of relative returns with a gain of 34.90% versus a gain of 21.85% for the benchmark sector.
The Fund's top-performing stock in 2009 was Vishay Intertechnology Inc., which appreciated 150% during the year. Vishay manufactures semiconductors and passive components for the industrial and auto markets, among others. The stock sold off dramatically in 2008 over concerns about debt and exposure to cyclical industries. Management was astute in removing costs from the business and using the resulting cash flows for deleveraging, and investors have been handsomely rewarded as a result.
Sincerely,
Candace King Weir | Amelia F. Weir |
2009 Annual Report 4
Paradigm Funds (Unaudited)
PARADIGM VALUE FUND
Sector Allocation (Unaudited)
(As a Percentage of Equity Securities Held)
PARADIGM SELECT FUND
Sector Allocation (Unaudited)
(As a Percentage of Equity Securities Held)
2009 Annual Report 5
Paradigm Funds (Unaudited)
PARADIGM OPPORTUNITY FUND
Sector Allocation (Unaudited)
(As a Percentage of Equity Securities Held)
PARADIGM INTRINSIC VALUE FUND
Sector Allocation (Unaudited)
(As a Percentage of Equity Securities Held)
2009 Annual Report 6
Paradigm Value Fund (Unaudited)
The Value of a $10,000 Investment In Paradigm Value Fund
From January 1, 2003 to December 31, 2009
As Compared To The Russell 2000 Value Index
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended December 31, 2009
December 31, 2009 NAV $42.75
| Since | ||||||||
| 1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |||||
| Paradigm Value Fund | 31.50% | (2.98)% | 5.41% | 15.63% | ||||
| Russell 2000® Value Index(B) | 20.58% | (8.22)% | (0.01)% | 8.63% |
(A)1 Year, 3 Years, 5 Years and Since Inception returns include change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The inception date of the Paradigm Value Fund was January 1, 2003.
(B)The Russell 2000® Value Index (whose composition is different from the Fund) is an unmanaged index of small-capitalization stocks with lower price-to-book ratios and lower forecasted growth values than the total population of small-capitalization stocks.
For purposes of the graph and the accompanying table, it is assumed that all dividends and distributions were reinvested.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-239-0732 OR VISIT OUR WEBSITE AT www.paradigm-funds.com.
2009 Annual Report 7
Paradigm Select Fund (Unaudited)
The Value of a $10,000 Investment In Paradigm Select Fund
From January 1, 2005 to December 31, 2009
As Compared To The Russell 2500 Index
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended December 31, 2009
| December 31, 2009 NAV $23.82 | ||||||
| Since | ||||||
| 1 Year(A) | 3 Year(A) | Inception(A) | ||||
| Paradigm Select Fund | 28.92% | (3.32)% | 4.26% | |||
| Russell 2500® Index(B) | 34.39% | (4.86)% | 1.58% |
(A)1 Year, 3 Year and Since Inception returns include change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The inception date of the Paradigm Select Fund was January 1, 2005.
(B)The Russell 2500® Index (whose composition is different from the Fund) measures the performance of the small to mid-cap segment of the U.S. equity universe, commonly referred to as "mid" cap. The Russell 2500 Index is a subset of the Russell 3000® Index. It includes approximately 2,500 of the smallest securities based on a combination of their market cap and current index membership.
For purposes of the graph and the accompanying table, it is assumed that all dividends and distributions were reinvested.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-239-0732 OR VISIT OUR WEBSITE AT www.paradigm-funds.com.
2009 Annual Report 8
Paradigm Opportunity Fund (Unaudited)
The Value of a $10,000 Investment In Paradigm
Opportunity Fund From January 1, 2005 to December 31, 2009
As Compared To The Russell 2000 Index
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended December 31, 2009
December 31, 2009 NAV $20.29
| Since | ||||||
| 1 Year(A) | 3 Year(A) | Inception(A) | ||||
| Paradigm Opportunity Fund | 47.14% | (3.42)% | 1.56% | |||
| Russell 2000® Index(B) | 27.17% | (6.07)% | 0.51% |
(A)1 Year, 3 Year and Since Inception returns include change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The inception date of the Paradigm Opportunity Fund was January 1, 2005.
(B)The Russell 2000® Index (whose composition is different from the Fund) consists of the smallest 2,000 companies in the Russell 3000 Index (which represents approximately 98% of the investable U.S. equity market). The Index is an unmanaged index generally considered as the premier of small capitalization stocks.
For purposes of the graph and the accompanying table, it is assumed that all dividends and distributions were reinvested.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-239-0732 OR VISIT OUR WEBSITE AT www.paradigm-funds.com.
2009 Annual Report 9
Paradigm Intrinsic Value Fund (Unaudited)
The Value of a $10,000 Investment In Paradigm
Intrinsic Value Fund From January 1, 2008 to December 31, 2009
As Compared To The S&P 500
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Period Ended December 31, 2009
December 31, 2009 NAV $17.99
| Since | ||||
| 1 Year(A) | Inception(A) | |||
| Paradigm Intrinsic Value Fund | 29.44% | (4.87)% | ||
| S&P 500® Index(B) | 26.47% | (10.72)% | ||
| Russell 3000® Index(C) | 28.34% | (10.30)% |
(A)Since Inception returns include change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The inception date of the Paradigm Intrinsic Value Fund was January 1, 2008.
(B)The S&P 500® Index (whose composition is different from the Fund) is an umanaged index which measures the performance of 500 companies chosen by Standard & Poor’s to represent the large cap U.S. equity market.
(C)The Russell 3000® Index is an unmanaged index which measures the performance of the 3000 largest companies in the U.S. Equity Market. It is used as a market wide proxy.
For purposes of the graph and the accompanying table, it is assumed that all dividends and distributions were reinvested.
PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. INVESTMENT RETURN AND PRINCIPAL VALUE WILL FLUCTUATE SO THAT SHARES, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST. RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND SHARES. CURRENT PERFORMANCE MAY BE LOWER OR HIGHER THAN THE PERFORMANCE DATA QUOTED. TO OBTAIN PERFORMANCE DATA CURRENT TO THE MOST RECENT MONTH END, PLEASE CALL 1-800-239-0732 OR VISIT OUR WEBSITE AT www.paradigm-funds.com.
2009 Annual Report 10
| Paradigm Value Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Agriculture Production - Crops | ||||||
| 142,500 | Dole Food Company Inc. * | $ 1,768,425 | ||||
| 77,300 | Fresh Del Monte Produce Inc. * | 1,708,330 | ||||
| 3,476,755 | 2.83% | |||||
| Aircraft Part & Auxiliary Equipment | ||||||
| 137,600 | LMI Aerospace Inc. * | 1,830,080 | 1.49% | |||
| Apparel & Other Finished Products of Fabrics & Similar Materials | ||||||
| 107,844 | Volcom Inc. * | 1,805,309 | 1.47% | |||
| Chemical & Allied Products | ||||||
| 62,800 | Arch Chemicals Inc. | 1,939,264 | ||||
| 108,500 | Innospec Inc. | 1,094,765 | ||||
| 82,500 | Olin Corp. | 1,445,400 | ||||
| 4,479,429 | 3.64% | |||||
| Communications Equipment, NEC | ||||||
| 146,900 | Iridium Communications Inc. * | 1,179,607 | 0.96% | |||
| Computer Communications Equipment | ||||||
| 101,800 | QLogic Corp. * | 1,920,966 | 1.56% | |||
| Construction - Special Trade Contractors | ||||||
| 158,100 | Matrix Service Co. * | 1,683,765 | 1.37% | |||
| Crude Petroleum & Natural Gas | ||||||
| 164,800 | Resolute Energy Corporation * | 1,898,496 | ||||
| 51,000 | St. Mary Land & Exploration Co. | 1,746,240 | ||||
| 19,300 | Whiting Petroleum Corp. * | 1,378,985 | ||||
| 5,023,721 | 4.08% | |||||
| Deep Sea Foreign Transportation of Freight | ||||||
| 11,100 | Seacor Holdings Inc. * | 846,375 | 0.69% | |||
| Drilling Oil & Gas Wells | ||||||
| 49,800 | Atwood Oceanics Inc. * | 1,785,330 | 1.45% | |||
| Electrical Work | ||||||
| 74,900 | EMCOR Group Inc. * | 2,014,810 | 1.64% | |||
| Electronic Components & Accessories | ||||||
| 202,900 | Vishay Intertechnology * | 1,694,215 | 1.38% | |||
| Electronic Components, NEC | ||||||
| 198,800 | Spectrum Control Inc. * | 1,882,636 | 1.53% | |||
| Fire, Marine & Casualty Insurance | ||||||
| 49,000 | American Financial Group Inc. | 1,222,550 | ||||
| 46,600 | Harleysville Group Inc. | 1,481,414 | ||||
| 115,300 | Hilltop Holdings Inc. * | 1,342,092 | ||||
| 4,046,056 | 3.29% | |||||
| Food and Kindred Products | ||||||
| 66,350 | Flowers Foods Inc. | 1,576,476 | 1.28% | |||
| Grain Mill Products | ||||||
| 63,100 | Corn Products International Inc. | 1,844,413 | 1.50% | |||
| Hospital & Medical Service Plans | ||||||
| 72,000 | AMERIGROUP Corporation * | 1,941,120 | 1.58% | |||
| Industrial Organic Chemicals | ||||||
| 67,000 | Sensient Technologies Corp. | 1,762,100 | 1.43% | |||
| Laboratory Analytical Instruments | ||||||
| 102,900 | PerkinElmer Inc. | 2,118,711 | 1.72% | |||
| Life Insurance | ||||||
| 8,100 | National Western Life Insurance Co. Class A | 1,406,322 | 1.14% | |||
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 11
| Paradigm Value Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Men's & Boy's Furnishings, Work Clothing & Allied Garments | ||||||
| 40,800 | Phillips-Van Heusen Corp. | $ 1,659,744 | 1.35% | |||
| Metal Cans | ||||||
| 38,500 | Silgan Holdings Inc. | 2,228,380 | 1.81% | |||
| Mining & Quarrying of Nonmetallic Minerals (No Fuels) | ||||||
| 22,275 | Compass Minerals International Inc. | 1,496,657 | 1.22% | |||
| Miscellaneous Food Preparations & Kindred Products | ||||||
| 37,200 | American Italian Pasta Co. Class A * | 1,294,188 | 1.05% | |||
| Motor Vehicle Parts & Accessories | ||||||
| 41,400 | Superior Industries International Inc. | 633,420 | 0.51% | |||
| Orthopedic, Prosthetic & Surgical Appliances & Supplies | ||||||
| 53,400 | Steris Corp. | 1,493,598 | 1.21% | |||
| Pharmaceutical Preparations | ||||||
| 109,700 | Endo Pharmaceuticals Holdings Inc. * | 2,251,044 | 1.83% | |||
| Photographic Equipment & Supplies | ||||||
| 105,300 | Avid Technology, Inc. * | 1,343,628 | 1.09% | |||
| Retail - Apparel & Accessory Stores | ||||||
| 98,600 | Pacific Sunwear of California Inc. * | 392,428 | 0.32% | |||
| Retail - Eating Places | ||||||
| 159,500 | Ruby Tuesday, Inc. * | 1,148,400 | 0.93% | |||
| Retail - Family Clothing Stores | ||||||
| 114,600 | American Eagle Outfitters | 1,945,908 | 1.58% | |||
| Retail - Miscellaneous Retail | ||||||
| 110,600 | EZCORP Inc. Class A * | 1,902,320 | 1.55% | |||
| Retail - Shoe Stores | ||||||
| 149,300 | Foot Locker, Inc. | 1,663,202 | 1.35% | |||
| Retail - Variety Stores | ||||||
| 37,300 | Big Lots Inc. * | 1,080,954 | 0.88% | |||
| Savings Institution, Federally Chartered | ||||||
| 116,700 | United Financial Bancorp | 1,529,937 | ||||
| 102,400 | Westfield Financial Inc. | 844,800 | ||||
| 2,374,737 | 1.93% | |||||
| Security Brokers, Dealers & Flotation Companies | ||||||
| 88,200 | Jefferies Group Inc. | 2,092,986 | ||||
| 35,800 | Piper Jaffray Companies * | 1,811,838 | ||||
| 3,904,824 | 3.17% | |||||
| Semiconductors & Related Devices | ||||||
| 168,000 | Verigy, Ltd. * (Singapore) | 2,160,480 | 1.76% | |||
| Services - Business Services | ||||||
| 63,200 | Fair Isaac Corp. | 1,346,792 | ||||
| 249,805 | Premiere Global Services, Inc. * | 2,060,891 | ||||
| 3,407,683 | 2.77% | |||||
| Services - Computer Integrated Systems Design | ||||||
| 161,600 | Convergys Corp. * | 1,737,200 | ||||
| 49,300 | MICROS Systems, Inc. * | 1,529,779 | ||||
| 3,266,979 | 2.66% | |||||
| Services - Computer Programming, Data Processing, Etc. | ||||||
| 256,262 | EarthLink Inc. | 2,129,537 | 1.73% | |||
| Services - Educational Services | ||||||
| 72,000 | Career Education Corp. * | 1,678,320 | 1.36% | |||
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 12
| Paradigm Value Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Services - Hospitals | ||||||
| 64,200 | Magellan Health Services Inc. * | $ 2,614,866 | ||||
| 28,700 | MEDNAX, Inc. * | 1,725,157 | ||||
| 4,340,023 | 3.53% | |||||
| Services - Motion Picture Theaters | ||||||
| 185,000 | Regal Entertainment Group Class A | 2,671,400 | 2.17% | |||
| Services - Prepackaged Software | ||||||
| 318,800 | Compuware Corp. * | 2,304,924 | ||||
| 278,500 | Lawson Software, Inc. * | 1,852,025 | ||||
| 48,400 | Sybase, Inc. * | 2,100,560 | ||||
| 6,257,509 | 5.08% | |||||
| Surgical & Medical Instruments & Apparatus | ||||||
| 84,900 | Cantel Medical Corp. * | 1,713,282 | 1.39% | |||
| Transportation Services | ||||||
| 65,100 | GATX Corp. | 1,871,625 | 1.52% | |||
| Wholesale - Industrial Machinery & Equipment | ||||||
| 101,500 | DXP Enterprises Inc. * | 1,326,605 | 1.08% | |||
| Wholesale - Machinery, Equipment & Supplies | ||||||
| 50,100 | Kaman Corp. | 1,156,809 | 0.94% | |||
| Total for Common Stock (Cost $87,467,821) | $ 103,111,880 | 83.80% | ||||
| REAL ESTATE INVESTMENT TRUSTS | ||||||
| 228,500 | Anworth Mortgage Asset Corp. | 1,599,500 | ||||
| 74,400 | Invesco Mortgage Capital Inc. | 1,693,344 | ||||
| 220,200 | MFA Mortgage Investments Inc. | 1,618,470 | ||||
| 37,400 | Mid-America Apartment Communities Inc. | 1,805,672 | ||||
| 108,900 | Walter Investment Management Corp. | 1,560,537 | ||||
| Total for Real Estate Investment Trusts (Cost $8,292,973) | 8,277,523 | 6.73% | ||||
| MONEY MARKET FUNDS | ||||||
| 11,449,005 | SEI Daily Income Treasury Government CL B 0.05% *** | 11,449,005 | 9.30% | |||
| (Cost $11,449,005) | ||||||
| Total Investment Securities | 122,838,408 | 99.83% | ||||
| (Cost $107,209,799) | ||||||
| Other Assets In Excess of Liabilities | 204,857 | 0.17% | ||||
| Net Assets | $ 123,043,265 | 100.00% | ||||
*Non-Income Producing Securities. |
2009 Annual Report 13
| Paradigm Select Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Agriculture Production - Crops | ||||||
| 3,100 | Dole Food Company Inc. * | $ 38,471 | ||||
| 1,800 | Fresh Del Monte Produce Inc. * | 39,780 | ||||
| 78,251 | 2.89% | |||||
| Biological Products, (No Diagnostic Substances) | ||||||
| 800 | Life Technologies Corporation * | 41,776 | 1.54% | |||
| Canned, Fruits, Vegetables, Preserves, Jams & Jellies | ||||||
| 800 | The J. M. Smucker Company | 49,400 | 1.82% | |||
| Chemical & Allied Products | ||||||
| 2,700 | Innospec Inc. | 27,243 | ||||
| 1,800 | Olin Corp. | 31,536 | ||||
| 58,779 | 2.17% | |||||
| Communications Equipment, NEC | ||||||
| 3,300 | Iridium Communications Inc. * | 26,499 | 0.98% | |||
| Computer Communications Equipment | ||||||
| 2,200 | QLogic Corp. * | 41,514 | 1.53% | |||
| Construction - Special Trade Contractors | ||||||
| 2,700 | Matrix Service Co. * | 28,755 | 1.06% | |||
| Crude Petroleum & Natural Gas | ||||||
| 2,400 | EXCO Resources Inc. | 50,952 | ||||
| 1,150 | Plains Exploration & Production Company * | 31,809 | ||||
| 3,500 | Resolute Energy Corporation * | 40,320 | ||||
| 1,200 | St. Mary Land & Exploration Co. | 41,088 | ||||
| 500 | Whiting Petroleum Corp. * | 35,725 | ||||
| 199,894 | 7.38% | |||||
| Electric & Other Services Combined | ||||||
| 1,600 | CMS Energy Corp. | 25,056 | 0.92% | |||
| Electrical Work | ||||||
| 1,600 | EMCOR Group Inc. * | 43,040 | 1.59% | |||
| Electronic Components & Accessories | ||||||
| 3,500 | Vishay Intertechnology * | 29,225 | 1.08% | |||
| Fire, Marine & Casualty Insurance | ||||||
| 164 | Alleghany Inc. * | 45,264 | ||||
| 1,100 | American Financial Group Inc. | 27,445 | ||||
| 500 | Everest Re Group Ltd. | 42,840 | ||||
| 1,200 | Harleysville Group Inc. | 38,148 | ||||
| 2,700 | Hilltop Holdings Inc. * | 31,428 | ||||
| 50 | Markel Corp. * | 17,000 | ||||
| 202,125 | 7.46% | |||||
| Food & Kindred Products | ||||||
| 1,475 | Flowers Foods Inc. | 35,046 | 1.29% | |||
| Games, Toys & Children's Vehicles (No Dolls & Bicycles) | ||||||
| 1,300 | Hasbro Inc. | 41,678 | 1.54% | |||
| Grain Mill Products | ||||||
| 1,300 | Corn Products International Inc. | 37,999 | 1.40% | |||
| Guided Missiles & Space Vehicles & Parts | ||||||
| 400 | Alliant Techsystems Inc. * | 35,308 | 1.30% | |||
| Hospital & Medical Service Plans | ||||||
| 1,700 | AMERIGROUP Corporation * | 45,832 | 1.69% | |||
| Industrial Organic Chemicals | ||||||
| 600 | Sensient Technologies Corporation | 15,780 | 0.58% | |||
| Iron & Steel Foundries | ||||||
| 400 | Precision Castparts Corp. | 44,140 | 1.63% | |||
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 14
| Paradigm Select Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Laboratory Analytical Instruments | ||||||
| 2,250 | PerkinElmer Inc. | $ 46,328 | 1.71% | |||
| Life Insurance | ||||||
| 105 | National Western Life Insurance Co. Class A | 18,230 | 0.67% | |||
| Men's & Boy's Furnishings, Work Clothing & Allied Garments | ||||||
| 980 | Phillips-Van Heusen Corp. | 39,866 | 1.47% | |||
| Metal Cans | ||||||
| 700 | Silgan Holdings Inc. | 40,516 | 1.50% | |||
| Mining & Quarrying of Nonmetallic Minerals (No Fuels) | ||||||
| 500 | Compass Minerals International Inc. | 33,595 | 1.24% | |||
| Miscellaneous Food Preparations & Kindred Products | ||||||
| 800 | American Italian Pasta Co. Class A * | 27,832 | 1.03% | |||
| Miscellaneous Industrial & Commercial Machinery & Equipment | ||||||
| 800 | Curtiss-Wright Corp. | 25,056 | 0.92% | |||
| Orthopedic, Prosthetic & Surgical Appliances & Supplies | ||||||
| 1,200 | Steris Corp. | 33,564 | 1.24% | |||
| Pharmaceutical Preparations | ||||||
| 2,200 | Endo Pharmaceuticals Holdings Inc. * | 45,144 | 1.67% | |||
| Plastics Products | ||||||
| 600 | AptarGroup Inc. | 21,444 | 0.79% | |||
| Pumps & Pumping Equipment | ||||||
| 900 | Robbins & Myers Inc. | 21,168 | 0.78% | |||
| Radiotelephone Communications | ||||||
| 1,000 | Telephone & Data Systems Inc. | 30,200 | 1.11% | |||
| Retail - Apparel & Accessory Stores | ||||||
| 2,100 | Pacific Sunwear of California Inc. * | 8,358 | 0.31% | |||
| Retail - Computer & Computer Software | ||||||
| 1,500 | GameStop Corp. Class A * | 32,910 | 1.21% | |||
| Retail - Family Clothing Stores | ||||||
| 2,500 | American Eagle Outfitters | 42,450 | 1.57% | |||
| Retail - Miscellaneous Retail | ||||||
| 2,500 | EZCORP Inc. Class A * | 43,000 | 1.59% | |||
| Retail - Shoe Stores | ||||||
| 3,300 | Foot Locker, Inc. | 36,762 | 1.36% | |||
| Retail - Variety Stores | ||||||
| 900 | Big Lots Inc. * | 26,082 | 0.96% | |||
| Security Brokers, Dealers & Flotation Companies | ||||||
| 1,900 | Jefferies Group Inc. | 45,087 | ||||
| 800 | Piper Jaffray Companies * | 40,488 | ||||
| 85,575 | 3.16% | |||||
| Semiconductors & Related Devices | ||||||
| 3,600 | Verigy, Ltd. * (Singapore) | 46,296 | 1.71% | |||
| Services - Business Services | ||||||
| 1,400 | Fair Isaac Corp. | 29,834 | ||||
| 5,300 | Premiere Global Services Inc. * | 43,725 | ||||
| 73,559 | 2.71% | |||||
| Services - Computer Integrated Systems Design | ||||||
| 3,600 | Convergys Corp. * | 38,700 | ||||
| 1,100 | MICROS Systems, Inc. * | 34,133 | ||||
| 72,833 | 2.69% | |||||
| Services - Computer Programming, Data Processing, Etc. | ||||||
| 4,300 | EarthLink Inc. | 35,733 | 1.32% | |||
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 15
| Paradigm Select Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Services - Educational Services | ||||||
| 1,500 | Career Education Corp. * | $ 34,965 | 1.29% | |||
| Services - Hospitals | ||||||
| 1,500 | Magellan Health Services Inc. * | 61,095 | ||||
| 700 | MEDNAX, Inc. * | 42,077 | ||||
| 103,172 | 3.81% | |||||
| Services - Miscellaneous Health & Allied Services, NEC | ||||||
| 1,100 | Lincare Holdings Inc. * | 40,843 | 1.51% | |||
| Services - Motion Picture Theaters | ||||||
| 3,800 | Regal Entertainment Group Class A | 54,872 | 2.03% | |||
| Services - Prepackaged Software | ||||||
| 6,700 | Compuware Corp. * | 48,441 | ||||
| 1,000 | Sybase, Inc. * | 43,400 | ||||
| 91,841 | 3.39% | |||||
| Soap, Detergents, Cleaning Preparations, Perfumes, Cosmetics | ||||||
| 700 | Church & Dwight Co., Inc. | 42,315 | 1.56% | |||
| Wholesale - Industrial Machinery & Equipment | ||||||
| 1,000 | DXP Enterprises Inc. * | 13,070 | 0.48% | |||
| Total for Common Stock (Cost $1,929,490) | $ 2,347,676 | 86.64% | ||||
| REAL ESTATE INVESTMENT TRUSTS | ||||||
| 5,100 | Anworth Mortgage Asset Corp. | 35,700 | ||||
| 4,800 | MFA Mortgage Investments Inc. | 35,280 | ||||
| 2,300 | Walter Investment Management Corp. | 32,959 | ||||
| Total for Real Estate Investment Trusts (Cost $107,894) | 103,939 | 3.84% | ||||
| MONEY MARKET FUNDS | ||||||
| 223,870 | SEI Daily Income Treasury Government CL B 0.05% *** | 223,870 | 8.26% | |||
| (Cost $223,870) | ||||||
| Total Investment Securities | 2,675,485 | 98.74% | ||||
| (Cost $2,261,254) | ||||||
| Other Assets In Excess of Liabilities | 34,111 | 1.26% | ||||
| Net Assets | $ 2,709,596 | 100.00% | ||||
*Non-Income Producing Securities. |
2009 Annual Report 16
| Paradigm Opportunity Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Agriculture Production - Crops | ||||||
| 7,500 | Dole Food Company Inc. * | $ 93,075 | ||||
| 4,300 | Fresh Del Monte Produce Inc. * | 95,030 | ||||
| 188,105 | 5.09% | |||||
| Aircraft Parts & Auxiliary Equipment | ||||||
| 8,400 | LMI Aerospace Inc. * | 111,720 | 3.02% | |||
| Apparel & Other Finished Products of Fabrics & Similar Materials | ||||||
| 6,400 | Volcom Inc. * | 107,136 | 2.90% | |||
| Biological Products, (No Diagnostic Substances) | ||||||
| 2,100 | Life Technologies Corporation * | 109,662 | 2.97% | |||
| Communications Equipment, NEC | ||||||
| 11,200 | Iridium Communications Inc. * | 89,936 | 2.44% | |||
| Computer Communications Equipment | ||||||
| 5,500 | QLogic Corp. * | 103,785 | 2.81% | |||
| Construction - Special Trade Contractors | ||||||
| 10,500 | Matrix Service Co. * | 111,825 | 3.03% | |||
| Crude Petroleum & Natural Gas | ||||||
| 8,000 | Resolute Energy Corporation * | 92,160 | ||||
| 2,900 | St. Mary Land & Exploration Co. | 99,296 | ||||
| 191,456 | 5.18% | |||||
| Electrical Work | ||||||
| 4,200 | EMCOR Group Inc. * | 112,980 | 3.06% | |||
| Electronic Components, NEC | ||||||
| 9,800 | Spectrum Control Inc. * | 92,806 | 2.51% | |||
| Hospital & Medical Service Plans | ||||||
| 4,400 | AMERIGROUP Corporation * | 118,624 | 3.21% | |||
| Laboratory Analytical Instruments | ||||||
| 5,200 | PerkinElmer Inc. | 107,068 | 2.90% | |||
| Metal Cans | ||||||
| 4,300 | Crown Holdings Inc. * | 109,994 | 2.98% | |||
| Pharmaceutical Preparations | ||||||
| 5,400 | Endo Pharmaceuticals Holdings Inc. * | 110,808 | 3.00% | |||
| Retail - Eating Places | ||||||
| 9,800 | Ruby Tuesday, Inc. * | 70,560 | 1.91% | |||
| Retail - Family Clothing Stores | ||||||
| 6,700 | American Eagle Outfitters | 113,766 | 3.08% | |||
| Retail - Miscellaneous Retail | ||||||
| 4,800 | EZCORP Inc. Class A * | 82,560 | 2.24% | |||
| Retail - Shoe Stores | ||||||
| 8,700 | Foot Locker, Inc. | 96,918 | 2.62% | |||
| Retail - Variety Stores | ||||||
| 2,300 | Big Lots Inc. * | 66,654 | 1.80% | |||
| Semiconductors & Related Devices | ||||||
| 9,200 | Verigy, Ltd. * (Singapore) | 118,312 | 3.20% | |||
| Services - Business Services | ||||||
| 13,400 | Premiere Global Services Inc. * | 110,550 | 2.99% | |||
| Services - Computer Integrated Systems Design | ||||||
| 9,600 | Convergys Corp. * | 103,200 | ||||
| 3,500 | MICROS Systems, Inc. * | 108,605 | ||||
| 211,805 | 5.73% | |||||
| Services - Educational Services | ||||||
| 3,900 | Career Education Corp. * | 90,909 | 2.46% | |||
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 17
| Paradigm Opportunity Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Services - Hospitals | ||||||
| 2,700 | Magellan Health Services Inc. * | $ 109,971 | ||||
| 1,600 | MEDNAX, Inc. * | 96,176 | ||||
| 206,147 | 5.59% | |||||
| Services - Motion Picture Theaters | ||||||
| 8,500 | Regal Entertainment Group Class A | 122,740 | 3.33% | |||
| Service - Prepackaged Software | ||||||
| 14,600 | Compuware Corp. * | 105,558 | ||||
| 16,400 | Lawson Software, Inc. * | 109,060 | ||||
| 214,618 | 5.82% | |||||
| Total for Common Stock (Cost $2,516,757) | $ 3,171,444 | 85.87% | ||||
| REAL ESTATE INVESTMENT TRUSTS | ||||||
| 14,000 | MFA Mortgage Investments Inc. | 102,900 | ||||
| 2,300 | Mid-America Apartment Communities Inc. | 111,044 | ||||
| Total for Real Estate Investment Trusts (Cost $169,409) | 213,944 | 5.79% | ||||
| MONEY MARKET FUNDS | ||||||
| 312,420 | SEI Daily Income Treasury Government CL B 0.05% *** | 312,420 | 8.46% | |||
| (Cost $312,420) | ||||||
| Total Investment Securities | 3,697,808 | 100.12% | ||||
| (Cost $2,998,586) | ||||||
| Liabilities In Excess of Other Assets | (4,502) | -0.12% | ||||
| Net Assets | $ 3,693,306 | 100.00% | ||||
*Non-Income Producing Securities. |
2009 Annual Report 18
| Paradigm Intrinsic Value Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Beverages | ||||||
| 745 | Pepsico, Inc. | $ 45,296 | 1.76% | |||
| Chemicals & Allied Products | ||||||
| 1,625 | Arch Chemicals Inc. | 50,180 | ||||
| 5,005 | Innospec Inc. | 50,500 | ||||
| 100,680 | 3.91% | |||||
| Computer Communications Equipment | ||||||
| 1,465 | QLogic Corp. * | 27,644 | 1.07% | |||
| Crude Petroleum & Natural Gas | ||||||
| 275 | Cenovus Energy Inc. (Canada) | 6,930 | ||||
| 275 | EnCana Corp. | 8,907 | ||||
| 4,740 | EXCO Resources Inc. * | 100,630 | ||||
| 650 | Plains Exploration & Production Company * | 17,979 | ||||
| 4,355 | Resolute Energy Corporation * | 50,170 | ||||
| 184,616 | 7.17% | |||||
| Electronic Components & Accessories | ||||||
| 6,360 | Vishay Intertechnology * | 53,106 | 2.06% | |||
| Fire, Marine & Casualty Insurance | ||||||
| 1,395 | American Financial Group Inc. | 34,805 | ||||
| 12 | Berkshire Hathaway Inc. Class B * | 39,432 | ||||
| 74,237 | 2.88% | |||||
| Food and Kindred Products | ||||||
| 1,762 | Nestle SA ** | 85,157 | 3.31% | |||
| Grain Mill Products | ||||||
| 2,410 | Corn Products International Inc. | 70,444 | 2.74% | |||
| Guided Missiles & Space Vehicles & Parts | ||||||
| 495 | Alliant Techsystems Inc. * | 43,694 | 1.70% | |||
| Iron & Steel Foundries | ||||||
| 625 | Precision Castparts Corp. | 68,969 | 2.68% | |||
| Laboratory Analytical Instruments | ||||||
| 2,735 | PerkinElmer Inc. | 56,314 | 2.19% | |||
| Men's & Boys' Furnishings, Work Clothing, and Allied Garments | ||||||
| 1,095 | Phillips-Van Heusen Corp. | 44,545 | 1.73% | |||
| Metal Cans | ||||||
| 1,285 | Silgan Holdings Inc. | 74,376 | 2.89% | |||
| Mineral Royalty Traders | ||||||
| 875 | Royal Gold, Inc. | 41,204 | 1.60% | |||
| Misccellaneous Industrial & Commercial Machinery & Equipment | ||||||
| 1,475 | Curtiss-Wright Corp. | 46,197 | 1.79% | |||
| Newspapers: Publishing or Publishing & Printing | ||||||
| 4,175 | News Corp. Class A | 57,156 | 2.22% | |||
| Petroleum Refining | ||||||
| 220 | ConocoPhillips | 11,235 | 0.44% | |||
| Railroads, Line-Haul Operating | ||||||
| 1,035 | Canadian National Railway Company (Canada) | 56,263 | 2.18% | |||
| Retail - Computer & Computer Software | ||||||
| 3,185 | GameStop Corp. * Class A | 69,879 | 2.71% | |||
| Retail - Drug Stores and Proprietary Stores | ||||||
| 2,355 | CVS Caremark Corporation | 75,855 | 2.95% | |||
| Security Brokers, Dealers & Flotation Companies | ||||||
| 3,160 | Jefferies Group Inc. | 74,987 | 2.91% | |||
| *Non-Income Producing Securities. **ADR - American Depositary Receipt. The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 19
| Paradigm Intrinsic Value Fund | ||||||
| Schedule of Investments | ||||||
| December 31, 2009 | ||||||
| Shares/Principal Amount | Fair Value | % of Net Assets | ||||
| COMMON STOCKS | ||||||
| Semiconductors & Related Devices | ||||||
| 2,230 | Applied Materials Inc. | $ 31,086 | 1.21% | |||
| Services - Business Services | ||||||
| 1,125 | Fair Isaac Corp. | 23,974 | 0.93% | |||
| Services - Computer Programming, Data Processing, Etc. | ||||||
| 10,935 | EarthLink Inc. | 90,870 | 3.53% | |||
| Services - Hospitals | ||||||
| 1,295 | Magellan Health Services Inc. * | 52,745 | 2.05% | |||
| Service - Prepackaged Software | ||||||
| 6,840 | Compuware Corp. * | 49,453 | 1.92% | |||
| Ship & Boat Building & Repairing | ||||||
| 1,200 | General Dynamics Corp. | 81,804 | 3.18% | |||
| State Commercial Banks | ||||||
| 1,685 | The Bank of New York Mellon Corporation | 47,129 | 1.83% | |||
| Wholesale - Electronic Parts & Equipment, NEC | ||||||
| 2,700 | Avnet Inc. * | 81,432 | 3.15% | |||
| Total for Common Stock (Cost $1,713,163) | $ 1,820,347 | 70.69% | ||||
| EXCHANGE TRADED FUNDS | ||||||
| 990 | iShares COMEX Gold Trust * | 106,296 | ||||
| 1,025 | SPDR Trust Series 1 | 114,226 | ||||
| Total for Exchange Traded Funds (Cost - $197,934) | 220,522 | 8.56% | ||||
| REAL ESTATE INVESTMENT TRUSTS | ||||||
| 6,510 | Anworth Mortgage Asset Corp. | 45,570 | ||||
| 8,980 | MFA Mortgage Investments Inc. | 66,003 | ||||
| Total for Real Estate Investment Trusts (Cost - $100,363) | 111,573 | 4.33% | ||||
| MONEY MARKET FUNDS | ||||||
| 419,503 | SEI Daily Income Treasury Government CL B 0.05% *** | 419,503 | 16.29% | |||
| (Cost $419,503) | ||||||
| Total Investment Securities | 2,571,945 | 99.87% | ||||
| (Cost $2,430,963) | ||||||
| Other Assets In Excess of Liabilities | 3,327 | 0.13% | ||||
| Net Assets | $ 2,575,272 | 100.00% | ||||
*Non-Income Producing Securities. |
2009 Annual Report 20
| Paradigm Funds | ||||
| Statements of Assets and Liabilities | Value | Select | ||
| December 31, 2009 | Fund | Fund | ||
| Assets: | ||||
| Investment Securities at Fair Value* | $ 122,838,408 | $ 2,675,485 | ||
| Cash | 317,580 | - | ||
| Receivable for Securities Sold | - | 38,481 | ||
| Receivable for Fund Shares Sold | 158,171 | - | ||
| Dividend Receivable | 289,666 | 4,306 | ||
| Interest Receivable | 422 | 6 | ||
| Total Assets | 123,604,247 | 2,718,278 | ||
| Liabilities: | ||||
| Payable for Securities Purchased | 372,079 | 5,324 | ||
| Payable for Fund Shares Redeemed | 37,036 | - | ||
| Payable to Advisor | 151,867 | 3,358 | ||
| Total Liabilities | 560,982 | 8,682 | ||
| Net Assets | $ 123,043,265 | $ 2,709,596 | ||
| Net Assets Consist of: | ||||
| Paid In Capital | $ 131,660,648 | $ 2,801,529 | ||
| Accumulated Undistributed Net Investment Income | 417,252 | 9,249 | ||
| Accumulated Realized Loss on Investments - Net | (24,663,244) | (515,413) | ||
| Unrealized Appreciation (Depreciation) in Value of Investment Securities - Net | 15,628,609 | 414,231 | ||
| Net Assets | $ 123,043,265 | $ 2,709,596 | ||
| Net Asset Value and Offering Price (Note 2) | $ 42.75 | $ 23.82 | ||
| * Investments at Identified Cost | $ 107,209,799 | $ 2,261,254 | ||
| Shares Outstanding (Unlimited number of shares | 2,878,305 | 113,731 | ||
| authorized without par value) | ||||
| Statements of Operations | ||||
| For year ended December 31, 2009 | ||||
| Investment Income: | ||||
| Dividends | $ 1,949,132 | $ 42,444 | ||
| Interest | 51,463 | 150 | ||
| Total Investment Income | 2,000,595 | 42,594 | ||
| Expenses: | ||||
| Investment Advisor Fees | 1,926,068 | 33,352 | ||
| Total Expenses | 1,926,068 | 33,352 | ||
| Less: Expenses Waived | (342,725) | - | ||
| Net Expenses | 1,583,343 | 33,352 | ||
| Net Investment Income | 417,252 | 9,242 | ||
| Realized and Unrealized Gain (Loss) on Investments: | ||||
| Net Realized Gain (Loss) on Investments | (10,391,010) | (97,878) | ||
| Net Change in Unrealized Appreciation (Depreciation) on Investments | 36,815,592 | 675,543 | ||
| Net Realized and Unrealized Gain (Loss) on Investments | 26,424,582 | 577,665 | ||
| Net Increase in Net Assets from Operations | $ 26,841,834 | $ 586,907 | ||
The accompanying notes are an integral part of these |
2009 Annual Report 21
| Paradigm Funds | ||||
| Statements of Assets and Liabilities | Opportunity | Intrinsic Value | ||
| December 31, 2009 | Fund | Fund | ||
| Assets: | ||||
| Investment Securities at Fair Value* | $ 3,697,808 | $ 2,571,945 | ||
| Receivable for Fund Shares Sold | 2,500 | - | ||
| Dividend Receivable | 4,380 | 5,923 | ||
| Interest Receivable | 13 | 14 | ||
| Total Assets | 3,704,701 | 2,577,882 | ||
| Liabilities: | ||||
| Payable for Securities Purchased | 6,816 | - | ||
| Payable to Advisor | 4,579 | 2,610 | ||
| Total Liabilities | 11,395 | 2,610 | ||
| Net Assets | $ 3,693,306 | $ 2,575,272 | ||
| Net Assets Consist of: | ||||
| Paid In Capital | $ 4,055,642 | $ 2,804,814 | ||
| Accumulated Undistributed Net Investment Income | - | 17,362 | ||
| Accumulated Realized Loss on Investments - Net | (1,061,558) | (387,886) | ||
| Unrealized Appreciation (Depreciation) in Value of Investment Securities - Net | 699,222 | 140,982 | ||
| Net Assets | $ 3,693,306 | $ 2,575,272 | ||
| Net Asset Value and Offering Price (Note 2) | $ 20.29 | $ 17.99 | ||
| * Investments at Identified Cost | $ 2,998,586 | $ 2,430,963 | ||
| Shares Outstanding (Unlimited number of shares | 182,009 | 143,182 | ||
| authorized without par value) | ||||
| Statements of Operations | ||||
| For year ended December 31, 2009 | ||||
| Investment Income: | ||||
| Dividends (Net of foreign withholding tax and fees of $0 and $322, respectively) | $ 42,921 | $ 40,444 | ||
| Interest | 117 | 185 | ||
| Total Investment Income | 43,038 | 40,629 | ||
| Expenses: | ||||
| Investment Advisor Fees | 59,169 | 23,338 | ||
| Total Expenses | 59,169 | 23,338 | ||
| Less: Expenses Waived | (14,837) | - | ||
| Net Expenses | 44,332 | 23,338 | ||
| Net Investment Income (Loss) | (1,294) | 17,291 | ||
| Realized and Unrealized Gain (Loss) on Investments: | ||||
| Net Realized Gain (Loss) on Investments | (331,430) | (154,813) | ||
| Net Change in Unrealized Appreciation (Depreciation) on Investments | 1,495,258 | 623,104 | ||
| Net Realized and Unrealized Gain (Loss) on Investments | 1,163,828 | 468,291 | ||
| Net Increase in Net Assets from Operations | $ 1,162,534 | $ 485,582 | ||
The accompanying notes are an integral part of these |
2009 Annual Report 22
| Paradigm Funds | ||||||||
| Statements of Changes in Net Assets | Value Fund | Select Fund | ||||||
| 1/1/2009 | 1/1/2008 | 1/1/2009 | 1/1/2008 | |||||
| to | to | to | to | |||||
| 12/31/2009 | 12/31/2008 | 12/31/2009 | 12/31/2008 | |||||
| From Operations: | ||||||||
| Net Investment Income (Loss) | $ 417,252 | $ (581,716) | $ 9,242 | $ 7,832 | ||||
| Net Realized Gain (Loss) on Investments and Short Positions | (10,391,010) | (14,224,732) | (97,878) | (410,099) | ||||
| Change in Net Unrealized Appreciation (Depreciation) | 36,815,592 | (30,472,841) | 675,543 | (1,584,796) | ||||
| Increase (Decrease) in Net Assets from Operations | 26,841,834 | (45,279,289) | 586,907 | (1,987,063) | ||||
| From Distributions to Shareholders: | ||||||||
| Net Investment Income | - | - | (7,825) | - | ||||
| Net Realized Gain from Security Transactions | - | (174,123) | - | - | ||||
| Total Distributions to Shareholders | - | (174,123) | (7,825) | - | ||||
| From Capital Share Transactions: | ||||||||
| Proceeds From Sale of Shares | 42,333,512 | 64,736,515 | 291,985 | 237,464 | ||||
| Proceeds from Redemption Fees (Note 2) | 28,816 | 118,899 | 219 | - | ||||
| Shares Issued on Reinvestment of Dividends | - | 171,705 | 7,825 | - | ||||
| Cost of Shares Redeemed | (31,178,990) | (50,802,151) | (200,548) | (7,328,411) | ||||
| Net Increase (Decrease) from Shareholder Activity | 11,183,338 | 14,224,968 | 99,481 | (7,090,947) | ||||
| Net Increase (Decrease) in Net Assets | 38,025,172 | (31,228,444) | 678,563 | (9,078,010) | ||||
| Net Assets at Beginning of Period | 85,018,093 | 116,246,537 | 2,031,033 | 11,109,043 | ||||
| Net Assets at End of Period | $123,043,265 | $85,018,093 | $ 2,709,596 | $ 2,031,033 | ||||
| Accumulated Undistributed Net Investment Income | $ 417,252 | $ - | $ 9,249 | $ 7,832 | ||||
| Share Transactions: | ||||||||
| Issued | 1,152,252 | 1,523,593 | 14,285 | 9,419 | ||||
| Reinvested | - | 5,425 | 326 | - | ||||
| Redeemed | (889,119) | (1,273,065) | (10,486) | (297,807) | ||||
| Net Increase (Decrease) in Shares | 263,133 | 255,953 | 4,125 | (288,388) | ||||
| Shares Outstanding Beginning of Period | 2,615,172 | 2,359,219 | 109,606 | 397,994 | ||||
| Shares Outstanding End of Period | 2,878,305 | 2,615,172 | 113,731 | 109,606 | ||||
The accompanying notes are an integral part of these |
2009 Annual Report 23
| Paradigm Funds | ||||||||
| Statements of Changes in Net Assets | Opportunity Fund | Intrinsic Value Fund | ||||||
| 1/1/2009 | 1/1/2008 | 1/1/2009 | 1/1/2008* | |||||
| to | to | to | to | |||||
| 12/31/2009 | 12/31/2008 | 12/31/2009 | 12/31/2008 | |||||
| From Operations: | ||||||||
| Net Investment Income (Loss) | $ (1,294) | $ (25,513) | $ 17,291 | $ 15,123 | ||||
| Net Realized Gain (Loss) on Investments | (331,430) | (728,182) | (154,813) | (233,074) | ||||
| Change in Net Unrealized Appreciation (Depreciation) | 1,495,258 | (1,000,597) | 623,104 | (482,121) | ||||
| Increase (Decrease) in Net Assets from Operations | 1,162,534 | (1,754,292) | 485,582 | (700,072) | ||||
| From Distributions to Shareholders: | ||||||||
| Net Investment Income | - | - | (15,052) | - | ||||
| Net Realized Gain from Security Transactions | - | - | - | - | ||||
| Total Distributions to Shareholders | - | - | (15,052) | - | ||||
| From Capital Share Transactions: | ||||||||
| Proceeds From Sale of Shares | 141,464 | 48,186 | 495,676 | 2,336,408 | ||||
| Proceeds from Redemption Fees (Note 2) | - | 385 | 50 | - | ||||
| Shares Issued on Reinvestment of Dividends | - | - | 15,052 | - | ||||
| Cost of Shares Redeemed | (35,784) | (1,481,767) | (25,913) | (16,459) | ||||
| Net Increase (Decrease) from Shareholder Activity | 105,680 | (1,433,196) | 484,865 | 2,319,949 | ||||
| Net Increase (Decrease) in Net Assets | 1,268,214 | (3,187,488) | 955,395 | 1,619,877 | ||||
| Net Assets at Beginning of Period | 2,425,092 | 5,612,580 | 1,619,877 | - | ||||
| Net Assets at End of Period | $ 3,693,306 | $ 2,425,092 | $ 2,575,272 | $ 1,619,877 | ||||
| Accumulated Undistributed Net Investment Income | $ - | $ - | $ 17,362 | $ 15,123 | ||||
| Share Transactions: | ||||||||
| Issued | 8,258 | 2,364 | 28,321 | 116,689 | ||||
| Reinvested | - | - | 832 | - | ||||
| Redeemed | (2,067) | (71,262) | (1,832) | (828) | ||||
| Net Increase (Decrease) in Shares | 6,191 | (68,898) | 27,321 | 115,861 | ||||
| Shares Outstanding Beginning of Period | 175,818 | 244,716 | 115,861 | - | ||||
| Shares Outstanding End of Period | 182,009 | 175,818 | 143,182 | 115,861 | ||||
*Commencement of operations. |
2009 Annual Report 24
| Paradigm Value Fund | ||||||||||
| Financial Highlights - Paradigm Value Fund | ||||||||||
| Selected data for a share outstanding | 1/1/2009 | 1/1/2008 | 1/1/2007 | 1/1/2006 | 1/1/2005 | |||||
| throughout the period: | to | to | to | to | to | |||||
| 12/31/2009 | 12/31/2008 | 12/31/2007 | 12/31/2006 | 12/31/2005 | ||||||
| Net Asset Value - Beginning of Period | $ 32.51 | $ 49.27 | $ 48.55 | $ 42.90 | $ 37.51 | |||||
| Net Investment Income/(Loss) ** | 0.16 | (0.22) | (0.40) | (0.47) | (0.40) | |||||
| Net Gains (Loss) on Securities (realized and unrealized) | 10.07 | (16.52) | 2.84 | 8.69 | 7.75 | |||||
| Total from Investment Operations | 10.23 | (16.74) | 2.44 | 8.22 | 7.35 | |||||
| Distributions (From Net Investment Income) | - | - | - | - | - | |||||
| Distributions (From Capital Gains) | - | (0.07) | (1.73) | (2.58) | (1.96) | |||||
| Total Distributions | 0.00 | (0.07) | (1.73) | (2.58) | (1.96) | |||||
| Proceeds from Redemption Fee (Note 2) | 0.01 | 0.05 | 0.01 | 0.01 | - | |||||
| Net Asset Value - End of Period | $ 42.75 | $ 32.51 | $ 49.27 | $ 48.55 | $ 42.90 | |||||
| Total Return *** | 31.50% | (33.88)% | 5.03% | 19.19% | 19.61% | |||||
| Ratios/Supplemental Data | ||||||||||
| Net Assets - End of Period (Thousands) | $ 123,043 | $ 85,018 | $ 116,247 | $ 56,743 | $ 24,002 | |||||
| Before Reimbursement | ||||||||||
| Ratio of Expenses to Average Net Assets | 1.98% | 1.99% | 2.02% | 2.02% | 2.06% | |||||
| After Reimbursement | ||||||||||
| Ratio of Expenses to Average Net Assets **** ++ | 1.63% | 1.99% | 2.02% | 2.02% | 2.06% | |||||
| Ratio of Net Investment Income (Loss) to Average | ||||||||||
| Net Assets **** ++ | 0.43% | -0.52% | -0.78% | -1.02% | -0.98% | |||||
| Portfolio Turnover Rate | 69.85% | 67.84% | 59.75% | 69.95% | 67.39% | |||||
| Paradigm Select Fund | ||||||||||
| Financial Highlights - Paradigm Select Fund | ||||||||||
| Selected data for a share outstanding throughout the period: | 1/1/2009 | 1/1/2008 | 1/1/2007 | 1/1/2006 | 1/1/2005* | |||||
| to | to | to | to | to | ||||||
| 12/31/2009 | 12/31/2008 | 12/31/2007 | 12/31/2006 | 12/31/2005 | ||||||
| Net Asset Value - Beginning of Period | $ 18.53 | $ 27.91 | $ 26.48 | $ 22.33 | $ 20.00 | |||||
| Net Investment Income/(Loss) ** | 0.08 | 0.03 | (0.06) | (0.08) | (0.08) | |||||
| Net Gains (Loss) on Securities (realized and unrealized) | 5.28 | (9.41) | 1.54 | 4.92 | 2.49 | |||||
| Total from Investment Operations | 5.36 | (9.38) | 1.48 | 4.84 | 2.41 | |||||
| Distributions (From Net Investment Income) | (0.07) | - | - | - | - | |||||
| Distributions (From Capital Gains) | - | - | (0.05) | (0.69) | (0.08) | |||||
| Total Distributions | (0.07) | $ - | (0.05) | (0.69) | (0.08) | |||||
| Proceeds from Redemption Fee (Note 2) | - | + | - | - | - | - | ||||
| Net Asset Value - End of Period | $ 23.82 | $ 18.53 | $ 27.91 | $ 26.48 | $ 22.33 | |||||
| Total Return *** | 28.92% | (33.61)% | 5.57% | 21.67% | 12.06% | |||||
| Ratios/Supplemental Data | ||||||||||
| Net Assets - End of Period (Thousands) | $ 2,710 | $ 2,031 | $ 11,109 | $ 6,674 | $ 2,521 | |||||
| Ratio of Expenses to Average Net Assets | 1.50% | 1.50% | 1.50% | 1.50% | 1.50% | |||||
| Ratio of Net Investment Income/(Loss) to Average Net Assets | 0.42% | 0.13% | -0.23% | -0.30% | -0.36% | |||||
| Portfolio Turnover Rate | 65.57% | 47.71% | 64.68% | 72.15% | 68.56% | |||||
| * Commencement of operations. ** Per share amount calculated using the average shares method. *** Total return in the above table represents the rate that the investor would have earned or lost on an investment in the Fund assuming reinvestment of dividends. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares. **** Includes dividend expense on securities sold short and interest expense of 0.00% for the fiscal year ended 12/31/2009, and 0.00% (Amount calculated less than 0.005%), 0.02%, 0.02% and 0.06% for the years ended 12/31/2008 - 2005, respectively. + Amount calculated is less than $0.005. ++ Such percentages reflect an expense waiver by the Advisor. |
| The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 25
| Paradigm Opportunity Fund | ||||||||||
| Financial Highlights - Paradigm Opportunity Fund | ||||||||||
| Selected data for a share outstanding | 1/1/2009 | 1/1/2008 | 1/1/2007 | 1/1/2006 | 1/1/2005* | |||||
| throughout the period: | to | to | to | to | to | |||||
| 12/31/2009 | 12/31/2008 | 12/31/2007 | 12/31/2006 | 12/31/2005 | ||||||
| Net Asset Value - Beginning of Period | $ 13.79 | $ 22.94 | $ 23.21 | $ 21.33 | $ 20.00 | |||||
| Net Investment Income (Loss) ** | (0.01) | (0.13) | (0.04) | (0.04) | 0.04 | |||||
| Net Gains (Loss) on Securities (realized and unrealized) | 6.51 | (9.02) | 0.47 | 2.47 | 1.49 | |||||
| Total from Investment Operations | 6.50 | (9.15) | 0.43 | 2.43 | 1.53 | |||||
| Distributions (From Net Investment Income) | - | - | - | - | (0.02) | |||||
| Distributions (From Capital Gains) | - | - | (0.70) | (0.55) | (0.18) | |||||
| Total Distributions | $ - | $ - | (0.70) | (0.55) | (0.20) | |||||
| Proceeds from Redemption Fee (Note 2) | - | - | - | - | - | |||||
| Net Asset Value - End of Period | $ 20.29 | $ 13.79 | $ 22.94 | $ 23.21 | $ 21.33 | |||||
| Total Return *** | 47.14% | (39.89)% | 1.85% | 11.39% | 7.65% | |||||
| Ratios/Supplemental Data | ||||||||||
| Net Assets - End of Period (Thousands) | $ 3,693 | $ 2,425 | $ 5,613 | $ 3,719 | $ 3,289 | |||||
| Before Reimbursement | ||||||||||
| Ratio of Expenses to Average Net Assets | 2.00% | 2.00% | 2.00% | 2.00% | 2.00% | |||||
| Ratio of Net Investment Loss to Average Net Assets | -0.54% | -1.17% | -0.67% | -0.68% | -0.11% | |||||
| After Reimbursement | ||||||||||
| Ratio of Expenses to Average Net Assets **** | 1.50% | 1.50% | 1.50% | 1.50% | 1.69% | |||||
| Ratio of Net Investment Income/(Loss) to Average | ||||||||||
| Net Assets **** | -0.04% | -0.67% | -0.17% | -0.18% | 0.21% | |||||
| Portfolio Turnover Rate | 135.62% | 164.89% | 169.26% | 122.62% | 129.06% | |||||
| Paradigm Intrinsic Value Fund | ||||
| Financial Highlights - Paradigm Intrinsic Value Fund | ||||
| Selected data for a share outstanding throughout the period: | 1/1/2009 | 1/1/2008* | ||
| to | to | |||
| 12/31/2009 | 12/31/2008 | |||
| Net Asset Value - Beginning of Period | $ 13.98 | $ 20.00 | ||
| Net Investment Income (Loss) ** | 0.14 | 0.15 | ||
| Net Gains (Loss) on Securities (realized and unrealized) | 3.98 | (6.17) | ||
| Total from Investment Operations | 4.12 | (6.02) | ||
| Distributions (From Net Investment Income) | (0.11) | - | ||
| Distributions (From Capital Gains) | - | - | ||
| Total Distributions | (0.11) | - | ||
| Proceeds from Redemption Fee (Note 2) | - | + | - | |
| Net Asset Value - End of Period | $ 17.99 | $ 13.98 | ||
| Total Return *** | 29.44% | (30.10)% | ||
| Ratios/Supplemental Data | ||||
| Net Assets - End of Period (Thousands) | $ 2,575 | $ 1,620 | ||
| Ratio of Expenses to Average Net Assets | 1.25% | 1.25% | ||
| Ratio of Net Investment Income to Average Net Assets | 0.92% | 0.86% | ||
| Portfolio Turnover Rate | 79.35% | 70.57% | ||
| * Commencement of operations. ** Per share amount calculated using the average shares method. *** Total return in the above table represents the rate that the investor would have earned or lost on an investment in the fund assuming reinvestment of dividends. Returns do not reflect the deduction of taxes a shareholder would pay on Fund distributions or redemption of Fund shares. **** Such percentages reflect an expense waiver by the Advisor. + Amount calculated is less than $0.005. |
| The accompanying notes are an integral part of these financial statements. |
2009 Annual Report 26
NOTES TO THE FINANCIAL STATEMENTS
PARADIGM FUNDS
December 31, 2009
1.) ORGANIZATION
The Paradigm Funds (the "Trust”) is an open-end management investment company organized in Ohio as a business trust on September 13, 2002 that may offer shares of beneficial interest in a number of separate series, each series representing a distinct fund with its own investment objectives and policies. The Paradigm Value Fund (“Value”) commenced operations on January 1, 2003. The Paradigm Value Fund's investment objective is long-term capital appreciation. The Paradigm Opportunity Fund (“Opportunity”) and Paradigm Select Fund (“Select”) both commenced operations on January 1, 2005 with long-term capital appreciation as their objective. The Paradigm Intrinsic Value Fund (“Intrinsic Value”) commenced operations on January 1, 2008. The Paradigm Intrinsic Value Fund's investment objective is long-term capital appreciation. The Advisor to Value, Opportunity, Select and Intrinsic Value (collectively the “Funds”) is Paradigm Funds Ad visor LLC (the “Advisor”).
2.) SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION: All investments in securities are recorded at their estimated fair value, as described in note 3.
SECURITY TRANSACTIONS AND OTHER: Security transactions are recorded based on a trade date. Dividend income is recognized on the ex-dividend date. Interest income is recognized on an accrual basis. The Funds use the highest cost basis in computing gain or loss on sale of investment securities. Discounts and premiums on fixed income securities purchased are amortized over the lives of the respective securities. Withholding taxes on foreign dividends have been provided for in accordance with the Funds’ understanding of the applicable country’s tax rules and rates. The Funds may invest in real estate investment trusts (“REITs”) that pay distributions to their shareholders based on available funds from operations. It is common for these distributions to exceed the REITs taxable earnings and profits resulting in the excess portion of such distribution to be designated as return of capital. Distributions received from REITs are generally recorded as dividend inc ome and, if necessary, are reclassified annually in accordance with tax information provided by the underlying REITs.
SHARE VALUATION: The net asset value (the “NAV”) is generally calculated as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. Eastern time) every day the Exchange is open. The NAV for each fund is calculated by taking the total value of the fund’s assets, subtracting its liabilities, and then dividing by the total number of shares outstanding, rounded to the nearest cent. The offering price and redemption price per share is equal to the net asset value per share, except that shares of each Fund are subject to a redemption fee of 2% if redeemed within 90 days of purchase. During the fiscal year ended December 31, 2009 proceeds from redemption fees were $28,816, $219, $0 and $50 for Value, Select, Opportunity and Intrinsic Value, respectively.
SHORT SALES: A Fund may sell a security it does not own in anticipation of a decline in the fair value of the security. When a Fund sells a security short, it must borrow the security sold short and deliver it to the broker-dealer through which it made the short sale. A gain, limited to the price at which a Fund sold the security short, or a loss, unlimited in size, will be recognized upon the termination of a short sale.
INCOME TAXES: The Funds’ policy is to continue to comply with the requirements of the Internal Revenue Code that are applicable to regulated investment companies and to distribute all of their taxable income to shareholders. Therefore, no federal income tax provision is required. It is the Funds’ policy to distribute annually, prior to the end of the calendar year, dividends sufficient to satisfy excise tax requirements of the Internal Revenue Code. This Internal Revenue Code requirement may cause an excess of distributions over the book year-end accumulated income. In addition, it is the Funds’ policy to distribute annually, after the end of the fiscal year, any remaining net investment income and net realized capital gains.
The Funds recognize the tax benefits of certain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. Management has analyzed the Funds’ tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken on returns filed for open tax years (2006-2008), or expected to be taken on the Funds’ 2009 tax return. The Funds identify their major tax jurisdictions as U.S. Federal and New York State tax authorities; however the Funds are not aware of any tax
2009 Annual Report 27
Notes to the Financial Statements - continued
positions for which they are reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next twelve months. The Funds recognize interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the statements of operations. During the period, the Funds did not incur any interest or penalties.
ESTIMATES: The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“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 net assets from operations during the reporting period. Actual results could differ from those estimates.
DISTRIBUTIONS TO SHAREHOLDERS: Distributions to shareholders, which are determined in accordance with income tax regulations, are recorded on the ex-dividend date. The treatment for financial reporting purposes of distributions made to shareholders during the year from net investment income or net realized capital gains may differ from their ultimate treatment for federal income tax purposes. These differences are caused primarily by differences in the timing of recognition of certain components of income, expense or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of the net assets based on their ultimate characterization for federal income tax purposes. Any such reclassification will have no effect on net assets, results of operations or net asset values per share of any Fund. As of December 31, 2009, the Opportunity Fund’s net investment loss of $1,294 was reclassified to pa id in capital.
SUBSEQUENT EVENTS: Management has evaluated subsequent events through February 25, 2010, the date the financial statements were issued.
3.) SECURITIES VALUATIONS
The Funds utilize various methods to measure the fair value of most of their investments on a recurring basis. GAAP establishes a hierarchy that prioritizes inputs to valuation methods. The three levels of inputs are:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the Funds have the ability to access.
Level 2 - Observable inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly or indirectly. These inputs may include quoted prices for the identical instrument on an inactive market, prices for similar instruments, interest rates, prepayment speeds, credit risk, yield curves, default rates and similar data.
Level 3 - Unobservable inputs for the asset or liability, to the extent relevant observable inputs are not available, representing the Funds’ own assumptions about the assumptions a market participant would use in valuating the assets or liabilities, and would be based on the best information available.
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.
FAIR VALUE MEASUREMENTS
A description of the valuation techniques applied to the Funds’ major categories of assets and liabilities measured at fair value on a recurring basis follows.
Equity securities (common stock, real estate investment trusts and exchange traded funds). Equity securities are carried at fair value. The market quotation used for equity securities, including those listed on the NASDAQ National Market System, is the last sale price on the date on which the valuation is made or, in the absence of sales, at the closing bid price. Over-the-counter securities will be
2009 Annual Report 28
Notes to the Financial Statements - continued
valued on the basis of the bid price at the close of each business day. Generally, if the security is traded in an active market and is valued at the last sale price, the security is categorized as a level 1 security. When the security position is not considered to be part of an active market or when the security is valued at the bid price, the position is generally categorized as level 2. When market quotations are not readily available, when the Advisor determines the last bid price does not accurately reflect the current value or when restricted securities are being valued, such securities are valued as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Board of Trustees (the “Trustees”) and are categorized in level 2 or level 3, when appropriate.
Money markets. Money market securities are valued at a net asset value of $1.00 and are classified in level 1 of the fair value hierarchy.
Fixed income securities. Fixed income securities generally are valued by using market quotations, but may be valued on the basis of prices furnished by a pricing service when the Advisor believes such prices accurately reflect the fair value of such securities. A pricing service utilizes electronic data processing techniques based on yield spreads relating to securities with similar characteristics to determine prices for normal institutional-size trading units of debt securities without regard to sale or bid prices. When prices are not readily available from a pricing service, or when restricted or illiquid securities are being valued, securities are valued at fair value as determined in good faith by the Advisor, subject to review of the Trustees. Short-term investments in fixed income securities with maturities of less than 60 days when acquired, or which subsequently are within 60 days of maturity, are valued by using the amortized cost method of valuation. Generally, fixed income securities are categorized as level 2.
In accordance with the Trust's good faith pricing guidelines, the Advisor is required to consider all appropriate factors relevant to the value of securities for which it has determined other pricing sources are not available or reliable as described above. There is no single standard for determining fair value controls, since fair value depends upon the circumstances of each individual case. As a general principle, the current fair value of an issue of securities being valued by the Advisor would appear to be the amount which the owner might reasonably expect to receive for them upon their current sale. Methods which are in accordance with this principle may, for example, be based on (i) a multiple of earnings; (ii) a discount from market of a similar freely traded security (including a derivative security or a basket of securities traded on other markets, exchanges or among dealers); or (iii) yield to maturity with respect to debt issues, or a combination of these and othe r methods.
The following tables summarize the inputs used to value the Funds’ assets measured at fair value as of December 31, 2009:
| Value: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $103,111,880 | $0 | $0 | $103,111,880 | ||||
| Real Estate Investment Trusts | 8,277,523 | 0 | 0 | 8,277,523 | ||||
| Money Market Funds | 11,449,005 | 0 | 0 | 11,449,005 | ||||
| Total | $122,838,408 | $0 | 0 | $122,838,408 | ||||
| Select: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $2,347,676 | $0 | $0 | $2,347,676 | ||||
| Real Estate Investment Trusts | 103,939 | 0 | 0 | 103,939 | ||||
| Money Market Funds | 223,870 | 0 | 0 | 223,870 | ||||
| Total | $2,675,485 | $0 | $0 | $2,675,485 | ||||
| Opportunity: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $3,171,444 | $0 | $0 | $3,171,444 | ||||
| Real Estate Investment Trusts | 213,944 | 0 | 0 | 213,944 | ||||
| Money Market Funds | 312,420 | 0 | 0 | 312,420 | ||||
| Total | $3,697,808 | $0 | $0 | $3,697,808 | ||||
| Intrinsic Value: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $1,820,347 | $0 | $0 | $1,820,347 | ||||
| Real Estate Investment Trusts | 111,573 | 0 | 0 | 111,573 | ||||
| Exchange Traded Funds | 220,522 | 0 | 0 | 220,522 | ||||
| Money Market Funds | 419,503 | 0 | 0 | 419,503 | ||||
| Total | $2,571,945 | $0 | $0 | $2,571,945 | ||||
2009 Annual Report 29
Notes to the Financial Statements - continued
Refer to each Funds’ Schedule of Investments for a listing of securities by industry. The Funds did not hold any Level 3 assets during the fiscal year ended December 31, 2009.
4.) INVESTMENT ADVISORY AGREEMENTS
Each of the Funds has an investment advisory agreement (collectively the "Management Agreements") with the Advisor. Under the terms of the Management Agreements, the Advisor manages the investment portfolios of the Funds, subject to policies adopted by the Trust’s Board of Trustees. Under the Management Agreements, the Advisor, at its own expense and without reimbursement from the Trust, furnishes office space and all necessary office facilities, equipment and executive personnel necessary for managing the assets of the Funds. The Advisor also pays the salaries and fees of all of its officers and employees that serve as officers and trustees of the Trust. For its services and payment of certain Fund expenses as described below, the Advisor receives an annual investment management fee of 1.50% of the average daily net assets from Select, 2.00% of the average daily net assets from Opportunity; and 1.25% of the average daily net assets from Intrinsic Value. Value receives an annu al investment management fee of 2.00% of the average daily net assets on assets up to and including $100 million and 1.75% of the average daily net assets over $100 million. As a result of the above calculations, for the fiscal year ended December 31, 2009, the Advisor earned management fees (before the waivers described below) totaling $1,926,068, $33,352, $59,169 and $23,338 for Value, Select, Opportunity, and Intrinsic Value, respectively. At December 31, 2009, $151,867, $3,358, $4,579 and $2,610 was due to the Advisor from Value, Select, Opportunity and Intrinsic Value, respectively. The Advisor has contractually agreed to waive management fees and/or reimburse Opportunity to the extent necessary to maintain total annual operating expenses of the Fund (excluding brokerage fees and commissions, interest and other borrowing expenses, taxes, extraordinary expenses and indirect costs of investing in acquired funds) at 1.50% of daily net assets through May 1, 2010. A total of $14,837 was waived for the fiscal year ended December 31, 2009 for Opportunity. Effective May 1, 2009, the Advisor has also contractually agreed to waive management fees and reimburse expenses to the extent necessary to maintain total annual operating expenses (excluding brokerage fees and commissions, interest and other borrowing expenses, taxes, extraordinary expenses and indirect costs of investing in Acquired Funds) at 1.50% of the Value Fund’s average daily net assets through May 1, 2010. A total of $342,725 was waived for the period of May 1, 2009 through December 31, 2009 for Value. The Advisor pays all operating expenses of the Funds with the exception of taxes, brokerage fees and commissions, borrowing costs (such as (a) interest and (b) dividend expenses on securities sold short) and extraordinary expenses as defined under accounting principles generally accepted in the United States of America.
Certain officers and a shareholder of the Advisor are also officers and/or a Trustee of the Trust. These individuals may receive benefits from the Advisor resulting from management fees paid to the Advisor from the Funds.
The Trustees who are not interested persons of the Funds were paid $2,000 per meeting for the fiscal year ended December 31, 2009 for the Trust. Under the Management Agreements, the Advisor pays these fees.
5.) INVESTMENTS
For the fiscal year ended December 31, 2009, purchases and sales of investment securities other than U.S. Government obligations and short-term investments were as follows:
| Value | Select | Opportunity | Intrinsic Value | |||||
| Purchases | $69,410,693 | $1,367,032 | $3,785,244 | $1,456,215 | ||||
| Sales | $62,226,040 | $1,387,097 | $3,891,579 | $1,272,555 |
There were no purchases or sales of U.S. Government obligations.
For federal income tax purposes, at December 31, 2009 the cost of securities on a tax basis and the composition of gross unrealized appreciation (the excess of value over tax cost) and depreciation (the excess of tax cost over value) were as follows:
| Value | Select | Opportunity | Intrinsic Value | |||||
| Cost of Investments | $108,708,114 | $2,300,100 | $3,145,040 | $2,432,709 | ||||
| Gross Unrealized Appreciation | $20,864,887 | $492,579 | $753,737 | $294,218 | ||||
| Gross Unrealized Depreciation | ($6,734,593) | ($117,194) | ($200,969) | ($154,982) | ||||
| Net Unrealized Appreciation | ||||||||
| (Depreciation) on Investments | $14,130,294 | $375,385 | $552,768 | $139,236 | ||||
2009 Annual Report 30
Notes to the Financial Statements - continued
6.) CAPITAL SHARES
At December 31, 2009, the Trust was authorized to issue an unlimited number of shares of beneficial interest. The following are the shares issued and paid in capital outstanding for the Funds at December 31, 2009:
| Value | Select | Opportunity | Intrinsic Value | |||||
| Shares Issued | ||||||||
| and Outstanding | 2,878,305 | 113,731 | 182,009 | 143,182 | ||||
| Paid in Capital | $131,660,648 | $2,801,529 | $4,055,642 | $2,804,814 |
7.) CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the voting shares of a fund creates a presumption of control of the fund, under section 2(a)(9) of the Investment Company Act of 1940. At December 31, 2009, Charles Schwab & Co., Inc. and National Financial Services, LLC, both held, for the benefit of its customers, in aggregate, 40.44% and 26.52%, respectively, of Value, and therefore each may be deemed to control the Fund. Candace King Weir held, in aggregate, 31.83% of Select, and therefore may be deemed to control the Fund. Candace King Weir held, in aggregate, 85.45%, of Opportunity, and therefore may be deemed to control the Fund. Also, Candace King Weir and Charles Schwab & Co., for the benefit of its customers, held, in aggregate, 52.69% and 42.96%, respectively, of Intrinsic Value, and therefore each may be deemed to control the Fund.
8.) DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal years ended December 31, 2009 and 2008 were as follows:
| Fiscal Year Ended | Fiscal Year Ended | |||
| December 31, 2009 | December 31, 2008 | |||
| PARADIGM VALUE FUND | ||||
| Ordinary Income | $ - | $ - | ||
| Short-term Capital Gain | - | - | ||
| Long-term Capital Gain | - | 174,123 | ||
| $ - | $ 174,123 | |||
| PARADIGM SELECT FUND | ||||
| Ordinary Income | $ 7,825 | $ - | ||
| Short-term Capital Gain | - | - | ||
| Long-term Capital Gain | - | - | ||
| $ 7,825 | $ - | |||
| PARADIGM OPPORTUNITY FUND | ||||
| Ordinary Income | $ - | $ - | ||
| Short-term Capital Gain | - | - | ||
| Long-term Capital Gain | - | - | ||
| $ - | $ - | |||
| PARADIGM INTRINSIC VALUE FUND | ||||
| Ordinary Income | $ 15,052 | $ - | ||
| Short-term Capital Gain | - | - | ||
| Long-term Capital Gain | - | - | ||
| $ 15,052 | $ - | |||
As of December 31, 2009, the components of distributable earnings/(accumulated losses) on a tax basis were as follows:
| Value | Select | |||
| Undistributed ordinary | ||||
| income/(accumulated losses) | $ 417,252 | $ 9,235 | ||
| Undistributed long-term capital | ||||
| gain/(accumulated losses) | (23,164,929) | (476,553) | ||
| Unrealized appreciation/(depreciation) | 14,130,294 | 375,385 | ||
| $(8,617,383) | $ (91,933) |
2009 Annual Report 31
Notes to the Financial Statements - continued
| Opportunity | Intrinsic Value | |||
| Undistributed ordinary | ||||
| income/(accumulated losses) | $ -0- | $ 17,291 | ||
| Undistributed long-term capital | ||||
| gain/(accumulated losses) | (915,104) | (386,069) | ||
| Unrealized appreciation/(depreciation) | 552,768 | 139,236 | ||
| $(362,336) | $(229,542) |
The difference between book basis and tax basis unrealized appreciation/(depreciation) is attributable to the tax deferral of losses on wash sales.
9.) CAPITAL LOSS CARRYFORWARD
At December 31, 2009, Value, Select, Opportunity and Intrinsic Value Funds had available for federal tax purposes unused capital losses of $23,164,929, $476,553, $915,104 and $386,069 respectively, of which $13,889,960, $383,458, $591,674 and $211,289, respectively, expire in 2016 and $9,274,969, $93,095, $323,430 and $174,780, respectively, expire in 2017. Capital loss carryfor-wards are available to offset future realized capital gains. To the extent that these carryforwards are used to offset future realized capital gains, it is probable that the amount which is offset will not be distributed to shareholders.
2009 Annual Report 32
| DISCLOSURE OF EXPENSES (Unaudited) |
Shareholders of the Paradigm Funds (the “Funds”) incur ongoing costs. The ongoing costs associated with the Paradigm Value Fund include management fees, interest expense and dividend expense on securities sold short. The ongoing costs associated with the Paradigm Opportunity Fund, Paradigm Select Fund and Paradigm Capital Appreciation Fund consist solely of management fees. Although the Funds charge no sales loads or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by Mutual Shareholder Services, LLC, the Funds’ transfer agent. IRA accounts will be charged an $8.00 annual maintenance fee. The following example is intended to help you understand your ongoing costs of investing in the Funds and to compare these costs with similar costs of investing in other mutual funds. The example is based on an investment of $1,000 invested in the Funds on July 1, 2009 and held through December 31, 2009.
The first line of the table below provides information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6) and then multiply the result by the number in the first line under the heading entitled "Expenses Paid During the Period."
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Funds’ actual expense ratios and an assumed rate of return of 5% per year before expenses, which is not the Funds’ actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses paid by a shareholder for the period. Shareholders may use this information to compare the ongoing costs of investing in the Funds and other funds. In order to do so, compare these 5% hypothetical examples with the 5% hypothetical examples that appear in other funds' shareholder reports.
PARADIGM VALUE FUND
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | July 1, 2009 to | ||||
| July 1, 2009 | December 31, 2009 | December 31, 2009 | ||||
| Actual | $1,000.00 | $1,181.27 | $8.25 | |||
| Hypothetical | $1,000.00 | $1,017.64 | $7.63 | |||
| (5% annual return | ||||||
| before expenses) | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of 1.50%, multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-half year period).
PARADIGM SELECT FUND
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | July 1, 2009 to | ||||
| July 1, 2009 | December 31, 2009 | December 31, 2009 | ||||
| Actual | $1,000.00 | $1,199.22 | $8.31 | |||
| Hypothetical | $1,000.00 | $1,017.64 | $7.63 | |||
| (5% annual return | ||||||
| before expenses) | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of 1.50%, multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-half year period).
2009 Annual Report 33
Disclosure of Expenses (Unaudited) - continued
PARADIGM OPPORTUNITY FUND
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | July 1, 2009 to | ||||
| July 1, 2009 | December 31, 2009 | December 31, 2009 | ||||
| Actual | $1,000.00 | $1,199.88 | $8.32 | |||
| Hypothetical | $1,000.00 | $1,017.64 | $7.63 | |||
| (5% annual return | ||||||
| before expenses) | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of 1.50%, multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-half year period).
PARADIGM INTRINSIC VALUE FUND
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | July 1, 2009 to | ||||
| July 1, 2009 | December 31, 2009 | December 31, 2009 | ||||
| Actual | $1,000.00 | $1,171.21 | $6.84 | |||
| Hypothetical | $1,000.00 | $1,018.90 | $6.36 | |||
| (5% annual return | ||||||
| before expenses) | ||||||
* Expenses are equal to the Fund’s annualized expense ratio of 1.25%, multiplied by the average
account value over the period, multiplied by 184/365 (to reflect the one-half year period).
2009 Annual Report 34
ADDITIONAL INFORMATION
December 31, 2009
AVAILABILITY OF QUARTERLY SCHEDULE OF INVESTMENTS
(Unaudited)
The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Funds’ Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
PROXY VOTING GUIDELINES
(Unaudited)
Paradigm Funds Advisor LLC, the Funds’ Advisor, is responsible for exercising the voting rights associated with the securities held by the Funds. A description of the policies and procedures used by the Advisor in fulfilling this responsibility is available without charge on the Funds’ web site at www.paradigm-funds.com. It is also included in the Funds’ Statement of Additional Information, which is available on the Securities and Exchange Commission’s web site at http://www.sec.gov.
Information regarding how the Funds voted proxies, Form N-PX, relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling our toll free number(1-800-239-0732). This information is also available on the Securities and Exchange Commission’s web site at http://www.sec.gov.
ADDITIONAL INFORMATION
You will find more information about the Funds at www.paradigm-funds.com. For shareholder inquiries, please call toll-free in the U.S. at 1-800-239-0732.
2009 Annual Report 35
Cohen Fund Audit Services, Ltd. | 800 Westpoint Pkwy, Ste 1100 |
To The Shareholders and Board of Trustees
Paradigm Funds
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees Paradigm Funds
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Paradigm Funds, comprising Paradigm Value Fund, Paradigm Select Fund, Paradigm Opportunity Fund and Paradigm Intrinsic Value Fund ("the Funds") as of December 31, 2009, and the related statements of operations for the year then ended, and the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended for the Paradigm Value Fund, Paradigm Select Fund and Paradigm Opportunity Fund, and for the two years in the period then ended for the Paradigm Intrinsic Value Fund. 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.
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 audit 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 December 31, 2009 by correspondence with the custodian and brokers. 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 each of the funds constituting Paradigm Funds, as of December 31, 2009, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and their financial highlights for the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America.
COHEN FUND AUDIT SERVICES, LTD.
Westlake, Ohio
February 25, 2010
2009 Annual Report 36
This page intentionally left blank.
2009 Annual Report 37
TRUSTEES AND OFFICERS (Unaudited)
The Board of Trustees supervises the business activities of the Trust. Each Trustee serves as a trustee until the termination of the Trust unless the Trustee dies, resigns, retires or is removed.
The following table provides information regarding each Trustee who is an "interested person" of the Trust, as defined in the Investment Company Act of 1940, and each officer of the Trust as of December 31, 2009.
Interested Trustees and Officers
| Number of | Other | |||||||||
| Name, | Position(s) | Term of | Principal | Portfolios Directorships | ||||||
| Address1, | Held with | Office and | Occupation(s) | Overseen | Held By | |||||
| and Year of Birth | theTrust | Length of | During the | By | Trustee or | |||||
| Time Served | Past 5 Years | Trustee | Officer | |||||||
| Candace King | President | Indefinite Term, | Investment Manager of PCM Ventures Intl., LLC (Nov. 2001 | 4 | Director, | |||||
| Weir2, (1944) | and Trustee | Since 2002 | - current) and PCM Ventures II, LLC (June 2003 - current); | Nature's | ||||||
| Investment Manager and principal of PCM Ventures LLC | Sunshine | |||||||||
| (Jan. 1997 - current); Director and President of Paradigm | Products | |||||||||
| Capital Management, Inc. (1993 - current); Director and | ||||||||||
| President of C.L. King & Associates, a registered broker | ||||||||||
| dealer (1972 - current); CEO, Portfolio Manager and | ||||||||||
| Member of PCM Advisors LLC (Dec. 2004 - current); CEO | ||||||||||
| and Member of Paradigm Funds Advisor LLC (July 2005 - | ||||||||||
| current); Director and Member of PCM Growth Advisors, | ||||||||||
| Inc. (Feb. 2007 - current). | ||||||||||
| Amelia F. Weir | Secretary | Indefinite Term, | Portfolio Manager and Director of Research Paradigm | 4 | N/A | |||||
| (1975) | Since 2009 | Capital Management (2008 - current), Portfolio Manager at | ||||||||
| William D. Witter, Inc. (2006 - 2008), Equity Analyst and | ||||||||||
| Assistant Portfolio Manager at Tocqueville Asset | ||||||||||
| Management (2005). | ||||||||||
| Carl A. Florio, | Trustee | Indefinite Term, | Director and Vice Chairman of Paradigm Funds Advisors | 4 | Director, | |||||
| CPA3, (1948) | Since 2005 | LLC and affiliated entities (2008 - current); Eastern | American Bio | |||||||
| Regional President of First Niagara Bank (2005 - 2007); | Medical; Dir., | |||||||||
| President and Chief Executive Officer of Hudson River | First Niagara | |||||||||
| Bank & Trust Company (1996 - 2005). | Financial Group | |||||||||
| John V. Gulick | Chief | Indefinite Term, | VP and CCO of Paradigm Funds Advisor LLC and affiliat- | N/A | N/A | |||||
| (1972) | Compliance | Since 2006 | ed advisors (February 2007 - current), Compliance Officer | |||||||
| Officer | of Paradigm Capital Management, Inc. (April 2005 - Feb. | |||||||||
| 2007); Senior Compliance Analyst of GE Asset | ||||||||||
| Management, Inc. (Feb. 2001 - March 2005). | ||||||||||
| Robert A. | Treasurer | Indefinite Term, | SVP and CFO of Paradigm Funds Advisor LLC and affili- | N/A | N/A | |||||
| Benton, CPA | and Chief | Since 2002 | ated advisors (May 2006 - current), SVP and CFO of C.L. | |||||||
| (1954) | Financial | King & Associates, a registered broker dealer (February | ||||||||
| Officer | 2001 - current); SVP and CFO of Paradigm Capital | |||||||||
| Management, Inc. (February 2001 - March 2004). | ||||||||||
Independent Trustees
| Term of | Principal | Number of | Other | |||||||
| Name, | Position(s) | Office and | Occupation(s) | Portfolios Directorships | ||||||
| Address1, | Held with | Length of | During | Overseen | Held By | |||||
| and Year of Birth | theTrust | Time Served | Past 5 Years | By Trustee | Trustee | |||||
| Peter H. | Trustee | Indefinite Term, | Peter H. Heerwagen, Attorney at Law (2009 - current). | 4 | None | |||||
| Heerwagen | Since 2009 | Executive Vice President of Ayco / Goldman Sachs | ||||||||
| (1945) | (2003 - 2009). | |||||||||
| Anthony J. | Trustee | Indefinite Term, | President and Chairman of the Board of Cool Insuring | 4 | None | |||||
| Mashuta, (1956) | Since 2004 | Agency, Inc. (1988 - current). | ||||||||
| William P. | Trustee | Indefinite Term, | Chief Executive Officer of Bright Hub, Inc. (2006 - cur- | 4 | Director, MTI | |||||
| Phelan4, (1956) | Since 2007 | rent); Chief Executive Officer of OneMade, Inc. (1999 - | Micro | |||||||
| 2004). | ||||||||||
1 The address of each trustee and officer is c/o Paradigm Funds, Nine Elk Street, Albany, NY 12207.
2 Candace King Weir is considered an "interested person" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, by virtue of her affiliation with the Trust's investment advisor, Paradigm Funds Advisor LLC.
3 Carl A. Florio is considered an "interested person" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, because he is an officer of the Trust's investment advisor, Paradigm Funds Advisor LLC. Carl A. Florio is a member of the Board of Directors of a non-profit foundation that recently retained Paradigm Capital Management, Inc. to manage a portion of the foundation's assets. Candace King Weir is a Director and the President of Paradigm Capital Management, Inc.; and an interested Trustee of the Trust; and CEO of the Trust's investment advisor, Paradigm Funds Advisor LLC.
4 William P. Phelan is a limited partner in PCM Partners, LP II. As of December 31, 2009 he owned 0.92% of the PCM Partners, LP II partnership, the value of which was $1.968 million. Candace King Weir is the general partner of PCM Partners, LP II; an interested Trustee of the Trust; and CEO of the Trust's investment advisor, Paradigm Funds Advisor LLC.
The Statement of Additional Information includes additional information about the Funds’ Trustees and may be obtained without charge by calling 1-800-239-0732.
2009 Annual Report 38
Board of Trustees
|
| This report is provided for the general information of the shareholders of the Paradigm Funds. This report is not intended for distribution to prospective investors in the Funds, unless preceded or accompanied by an effective prospectus. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and the principal financial officer. The registrant has not made any amendments to its code of ethics during the covered period. The registrant has not granted any waivers from any provisions of the code of ethics during the covered period. A copy of the registrant’s Code of Ethics is filed herewith.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has determined that William P. Phalen is an audit committee financial expert. Mr. Phalen is independent for purposes of this Item 3.
Item 4. Principal Accountant Fees and Services.
(a-d) The following table details the aggregate fees billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant to the registrant. The principal accountant has provided no services to the adviser or any entity controlled by, or under common control with the adviser that provides ongoing services to the registrant.
| FYE 12/31/09 | FYE 12/31/08 | |||
| Audit Fees | $34,000 | $34,100 | ||
| Audit-Related Fees | $0 | $0 | ||
| Tax Fees | $8,000 | $12,500 | ||
| All Other Fees | $2,800 | $2,600 |
Nature of Tax Fees: preparation of Excise Tax Statement and 1120 RIC. Nature of All Other Fees: Review of Semi-Annual Report.
(e) (1) The audit committee approves all audit and non-audit related services and, therefore, has not adopted pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(e) (2) None of the services described in paragraph (b) through (d) of this Item were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant.
(g) The following table indicates the aggregate non-audit fees billed by the registrant’s principal accountant for services to the registrant , the registrant’s investment adviser (not sub-adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant, for the last two years.
| Non-Audit Fees | FYE 12/31/09 | FYE 12/31/08 | ||
| Registrant | $10,800 | $15,100 | ||
| Registrant’s Investment Adviser | $0 | $0 |
(h) The principal accountant provided no services to the investment adviser or any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant.
Item 5. Audit Committee of Listed Companies. Not applicable.
Item 6. Schedule of Investments. Schedule filed with Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed End Management Investment Companies. Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers. Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant’s board of trustees.
Item 11. Controls and Procedures.
(a) The registrant’s president and chief financial officer concluded that the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) were effective as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics. Filed herewith.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(b) Certification pursuant to Section 906 Certification of the Sarbanes-Oxley Act of 2002. Filed herewith
| SIGNATURES |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Paradigm Funds |
| By: /s/ Candace King Weir Candace King Weir President |
| Date: 3-3-2010 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: /s/ Candace King Weir Candace King Weir President |
| Date: 3-3-2010 |
| By: /s/ Robert A. Benton |
| Date: 3-3-2010 |