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: June 30, 2011
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
SEMI-ANNUAL REPORT
June 30, 2011
| Table of Contents | |
| PARADIGM FUNDS | |
| Letter to Shareholders | 2 |
| Sector Allocation | 5 |
| Performance Information | 7 |
| Schedules of Investments | 9 |
| Statements of Assets and Liabilities | 19 |
| Statements of Operations | 19 |
| Statements of Changes in Net Assets | 21 |
| Financial Highlights | 23 |
| NOTES TO FINANCIAL STATEMENTS | 25 |
| DISCLOSURE OF EXPENSES | 31 |
| ADDITIONAL INFORMATION | 33 |
2011 Semi-Annual Report 1
Letter to Shareholders:
Strong corporate profits, mergers and acquisitions, and a gradually recovering global economy continued to drive markets higher in the first half of 2011. However, there was a sharp correction in the middle of the second quarter as the Greek debt crisis finally caught the media's attention. The market recovered in June, but has remained volatile since.
Markets don't like uncertainty, and, unfortunately, there is no shortage of uncertainty in the world right now. On the current list of worries is the possibility of contagion in the sovereign debt crisis in Europe; fears of a decelerating recovery in the US; and the increasingly fractious nature of the negotiations over the budget and debt ceiling in Washington. Overall, economic indicators seem to place us in the middle stages of the business cycle. As is often the case as a recovery matures, the growth rate will likely decelerate.
However, uncertainty also creates opportunity. We are fundamental, long-term value investors, and we have often operated in turbulent environments (whether macroeconomic or industry or company specific.) We are convinced that companies with sustainable competitive advantages, strong management teams, and business models that generate excess cash flow prosper over time-even when there is uncertainty in the markets. We are taking advantage of current market sentiment to identify new potential holdings.
Paradigm Value Fund Portfolio Commentary
The Paradigm Value Fund appreciated 4.76% in the six months ended June 30, 2011 compared to an increase of 3.77% for its benchmark, the Russell 2000 Value Index. Over the past three years on an annualized basis, the Fund appreciated 9.02% versus 7.09% for the benchmark. Over the past five years on an annualized basis, the Fund appreciated 6.74% versus 2.24% for the benchmark. Since inception (January 1, 2003), the Fund has generated an annualized return of 16.79% compared to 10.33% for the Russell 2000 Value Index.
M&A activity continued to be a major contributor to the Fund's performance in the first half of 2011, as four of our portfolio companies were acquired during this period (Smurfit-Stone Container, CKx Entertainment, Lawson Software and Verigy.) We have built a portfolio of what we believe to be high-quality companies with sustainable competitive advantages, strong and consistent cash flow generation, and proven management teams. These types of businesses are attractive to both strategic and financial buyers.
Our top two performing stocks were AMERIGROUP and Smurfit-Stone Container. The Fund purchased managed Medicaid provider AMERIGROUP in 2008 when the stock sold off due to general uncertainty surrounding health care reform. The company has subsequently been successful in controlling costs, and the health care reform process has opened up new opportunities.
Containerboard manufacturer Smurfit-Stone Container is a good example of the kind of special situation investing we do. Smurfit-Stone had over-leveraged itself and then fell into bankruptcy during the financial crisis. We took a position in the company as it emerged from Chapter 11. It was attractively priced and misunderstood by the market. This year, Smurfit-Stone received a buyout offer from competitor RockTenn Corp.
Our top two detracting stocks were Lender Processing Services and Big Lots. Lender Processing Services declined 28.69% for the first half of 2011. We used the decline in Lender's shares to add to our position. Lender provides mortgage facilitation and foreclosure services to the banking industry. The stock has been buffeted by headlines relating to the foreclosure industry over the past year. However, we believe Lender provides a necessary service to the banking industry. The stock currently sells for 6X free cash flow, a valuation we believe is extremely cheap.
2011 Semi-Annual Report 2
Big Lots declined 24% for the quarter. Sales trends have been lackluster due to adverse weather and the negative impact of higher gas prices. Additionally, the company's Board chose to not pursue a sale of the company. We believe Big Lots' balance sheet and strong cash flow provide downside support for the stock, with material upside to a sales recovery.
Paradigm Select Fund Portfolio Commentary
The Paradigm Select Fund appreciated 6.70% in the six months ended June 30, 2011 compared to an increase of 8.06% for its benchmark, the Russell 2500 Index. Over the past three years on an annualized basis, the Fund appreciated 8.24% versus 8.17% for the benchmark. Over the past five years on an annualized basis, the Fund appreciated 6.21% versus 5.20% for the benchmark. Since inception (January 1, 2005), the Fund has generated an annualized return of 7.96% compared to 6.23% for the Russell 2500 Index.
Our top two performing stocks were AMERIGROUP and Smurfit-Stone Container. The Fund purchased managed Medicaid provider AMERIGROUP in 2008 when the stock sold off due to higher utilization rates during the H1N1 scare and general uncertainty surrounding health care reform. The company has subsequently been successful in controlling costs, and the health care reform process has opened up new opportunities, as we had initially predicted.
Containerboard manufacturer Smurfit-Stone Container is a good example of the kind of special situation investing we do. Smurfit-Stone had over-leveraged itself and then fell into bankruptcy during the financial crisis. We took a position in the company as it emerged from Chapter 11. It appeared attractively priced and misunderstood by the market. This year, Smurfit-Stone received a buyout offer from competitor RockTenn Corp.
Lender Processing Services and Knight Capital were the two biggest detractors from Fund performance. Lender Processing Services declined 28.69% for the first half of 2011. We used the decline in Lender's shares to add to our position. Lender provides mortgage facilitation and foreclosure services to the banking industry. The stock appears to have been buffeted by headlines relating to the foreclosure industry over the past year. However, we believe Lender provides a necessary service to the banking industry, and is selling at a valuation, we feel, is extremely cheap.
Shares of Knight Capital declined 20.09% due to anemic US equity trading volumes and low volatility. We added to our position, and we continue to believe that the company has strong earnings power, driven by several new growth initiatives. We anticipate that any improvement in volume and volatility will directly benefit the company's bottom line.
Paradigm Opportunity Fund Portfolio Commentary
The Paradigm Opportunity Fund appreciated 6.25% in the six months ended June 30, 2011 compared to an increase of 6.21% for its benchmark, the Russell 2000 Index. Over the past three years on an annualized basis, the Fund appreciated 10.96% versus 7.77% for the benchmark. Over the past five years on an annualized basis, the Fund appreciated 6.69% versus 4.08% for the benchmark. Since inception (January 1, 2005), the Fund has generated an annualized return of 5.87% compared to 5.11% for the Russell 2000 Index.
Top-performing stocks for the first half of the year included IAC/InterActiveCorp and Men's Wearhouse. IAC/Interactive Corp returned 60.45% in the first half of 2011. The company delivered significantly better-than-expected quarterly results, driven by strong subscriber growth in its Match.com business. Additionally, the company extended its agreement with Google for its Search products through 2016, which appears to provide strong visibility into future free cash flow.
2011 Semi-Annual Report 3
Men's Wearhouse returned 36.01% for first half of the year. The company reported better-than-expected quarterly results and a positive outlook. Replenishment demand has picked up for men's suits, consumers are responding favorably to the company's promotional offerings, and high margin tux rentals are strong.
The largest detractors in the first half included Knight Capital and Hawaiian Holdings. Shares of Knight Capital declined 20.09% due to anemic US equity trading volumes and low volatility. We added to our position, and we continue to believe that the company has strong earnings power, driven by several new growth initiatives. We anticipate that any improvement in volume and volatility will directly benefit the company's bottom line.
We liked the valuations and cash flow potential of Hawaiian Holdings, but exited the position in the first quarter on concerns about leisure travel and the impact of the tsunami in Japan. This proved to be a good decision as the stock has continued to decline on rising jet fuel costs and persistent weakness in tourist travel.
Paradigm Intrinsic Value Fund Portfolio Commentary
The Paradigm Intrinsic Value Fund appreciated 5.33% in the six months ended June 30, 2011 compared to an increase of 6.35% for its benchmark, the Russell 3000 Index. Over the past three years on an annualized basis, the Fund appreciated 5.93% versus 4.00% for the benchmark. Since inception (January 1, 2008), the Fund has generated an annualized return of 3.53% compared to a increase of 0.02% for the Russell 3000 Index.
The Fund's two most significant sectors on a relative basis for the six months ended June 30, 2011 were Materials and Financials, with the largest contribution to relative return coming from strong stock selection in the Materials sector. The Fund's Materials sector returned 18.72%, outperforming the benchmark sector by 14.58% . The Fund's Financials sector appreciated 4.32% in the first half of the year, compared to a 1.69% decline in the benchmark sector.
Fuel additive manufacturer Innospec appreciated 64.75% in the first half of the year, making it the Fund's top individual contributor. Investors were attracted to the stock as it became apparent that management's turnaround efforts showed signs of success.
The Energy sector was the most challenging sector for the Fund in the first half of the year. Energy was the second-best performer in the broad benchmark, but the Fund's energy sector holdings increase of 1.94% lagged the benchmark sector's increase of 11.04% by 9.10 percentage points. Exco Resources was the largest single detractor in the sector. Exco had received a buyout offer from the company's CEO. Unfortunately, he was unable to arrange adequate financing and the deal fell apart.
Sincerely,
Candace King Weir | Amelia F. Weir |
2011 Semi-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)
2011 Semi-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)
2011 Semi-Annual Report 6
Paradigm Value Fund (Unaudited)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended June 30, 2011
June 30, 2011 NAV $57.71
| Since | ||||||||
| 1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |||||
| Paradigm Value Fund | 36.43% | 9.02% | 6.74% | 16.79% | ||||
| Russell 2000® Value Index(B) | 31.35% | 7.09% | 2.24% | 10.33% |
(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 THAT 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.
Paradigm Select Fund (Unaudited)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended June 30, 2011
June 30, 2011 NAV $31.70
| Since | ||||||||
| 1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |||||
| Paradigm Select Fund | 36.85% | 8.24% | 6.21% | 7.96% | ||||
| Russell 2500® Index(B) | 39.28% | 8.17% | 5.20% | 6.23% |
(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 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 THAT 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.
2011 Semi-Annual Report 7
Paradigm Opportunity Fund (Unaudited)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended June 30, 2011
June 30, 2011 NAV $27.19
| Since | ||||||||
| 1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |||||
| Paradigm Opportunity Fund | 36.56% | 10.96% | 6.69% | 5.87% | ||||
| Russell 2000® Index(B) | 37.41% | 7.77% | 4.08% | 5.11% |
(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 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 THAT 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.
Paradigm Intrinsic Value Fund (Unaudited)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Period Ended June 30, 2011
June 30, 2011 NAV $22.33
| Since | ||||||
| 1 Year(A) | 3 Years(A) | Inception(A) | ||||
| Paradigm Intrinsic Value Fund | 31.95% | 5.93% | 3.53% | |||
| S&P 500® Index(B) | 30.69% | 3.34% | -0.81% | |||
| Russell 3000® Index(C) | 32.37% | 4.00% | 0.02% |
(A)1 Year, 3 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 Intrinsic Value Fund was January 1, 2008.
(B)The S&P 500® Index (whose composition is different from the Fund) is an unmanaged 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 THAT 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.
2011 Semi-Annual Report 8 |
| Paradigm Value Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Agriculture Production - Crops | ||||
| 359,100 | Dole Food Company Inc. * | $ 4,855,032 | 1.52 | % |
| Agriculture Production - Livestock & Animal Specialties | ||||
| 55,400 | Cal-Maine Foods, Inc. | 1,770,584 | 0.56 | % |
| Biological Products, (No Diagnostic Substances) | ||||
| 61,600 | Life Technologies Corporation * | 3,207,512 | 1.01 | % |
| Chemical & Allied Products | ||||
| 96,100 | Arch Chemicals Inc. | 3,309,684 | ||
| 88,548 | Innospec Inc. * | 2,976,098 | ||
| 293,400 | Olin Corp. | 6,648,444 | ||
| 12,934,226 | 4.06 | % | ||
| Computer Communications Equipment | ||||
| 481,300 | QLogic Corp. * | 7,662,296 | 2.40 | % |
| Construction - Special Trade Contractors | ||||
| 309,102 | Matrix Service Co. * | 4,135,785 | 1.30 | % |
| Crude Petroleum & Natural Gas | ||||
| 105,400 | Carrizo Oil & Gas Inc. * | 4,400,450 | ||
| 209,100 | McMoRan Exploration Co. * | 3,864,168 | ||
| 457,000 | PetroQuest Energy Inc. * | 3,208,140 | ||
| 124,900 | Resolute Energy Corporation * | 2,018,384 | ||
| 234,200 | Venoco, Inc. * | 2,983,708 | ||
| 16,474,850 | 5.17 | % | ||
| Drilling Oil & Gas Wells | ||||
| 77,000 | Atwood Oceanics Inc. * | 3,398,010 | 1.07 | % |
| Electrical Work | ||||
| 200,800 | EMCOR Group Inc. * | 5,885,448 | 1.85 | % |
| Electronic Components & Accessories | ||||
| 382,700 | Vishay Intertechnology Inc.* | 5,755,808 | 1.81 | % |
| Fabricated Plater Work (Boiler Shops) | ||||
| 188,873 | Global Power Equipment Group Inc. * | 5,008,912 | 1.57 | % |
| Hospital & Medical Service Plans | ||||
| 58,200 | AMERIGROUP Corporation * | 4,101,354 | 1.29 | % |
| In Vitro & In Vivo Diagnostic Substances | ||||
| 226,400 | Myriad Genetics, Inc. * | 5,141,544 | 1.61 | % |
| Industrial Organic Chemicals | ||||
| 213,677 | Sensient Technologies Corp. | 7,921,006 | 2.49 | % |
| Laboratory Analytical Instruments | ||||
| 178,400 | PerkinElmer Inc. | 4,800,744 | 1.51 | % |
| Life Insurance | ||||
| 21,125 | National Western Life Insurance Co. Class A | 3,368,804 | 1.06 | % |
| Men's & Boy's Furnishings, Work Clothing & Allied Garments | ||||
| 37,300 | Phillips-Van Heusen Corp. | 2,442,031 | 0.77 | % |
| Mineral Royalty Traders | ||||
| 64,000 | Royal Gold, Inc. | 3,748,480 | 1.18 | % |
| Miscellaneous Transportation Equipment | ||||
| 967,125 | Force Protection, Inc. * | 4,796,940 | 1.51 | % |
| Motor Vehicle Parts & Accessories | ||||
| 117,400 | Superior Industries International Inc. | 2,595,714 | 0.81 | % |
| Oil & Gas Field Services, NEC | ||||
| 158,300 | North American Energy Partners Inc. * (Canada) | 1,212,578 | 0.38 | % |
| Operative Builders | ||||
| 197,600 | Avatar Holdings Inc. * | 3,005,496 | 0.94 | % |
| Orthopedic, Prosthetic & Surgical Appliances & Supplies | ||||
| 440,926 | Symmetry Medical, Inc. * | 3,955,106 | 1.24 | % |
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 9
| Paradigm Value Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Pharmaceutical Preparations | ||||
| 100,600 | Endo Pharmaceuticals Holdings Inc. * | $ 4,041,102 | ||
| 730,918 | Vanda Pharmaceuticals, Inc. * | 5,218,755 | ||
| 9,259,857 | 2.91 | % | ||
| Plastic Materials, Synth Resin/Rubber, Cellulos (No Glass) | ||||
| 271,500 | Chemtura Corp. * | 4,941,300 | 1.55 | % |
| Retail - Apparel & Accessory Stores | ||||
| 289,800 | Express Inc. * | 6,317,640 | ||
| 126,000 | The Men's Wearhouse, Inc. | 4,246,200 | ||
| 10,563,840 | 3.31 | % | ||
| Retail - Family Clothing Stores | ||||
| 498,100 | American Eagle Outfitters, Inc. | 6,350,775 | 1.99 | % |
| Retail - Miscellaneous Retail | ||||
| 150,600 | EZCORP Inc. Class A * | 5,358,348 | 1.68 | % |
| Retail - Retail Stores, NEC | ||||
| 163,800 | IAC/InterActiveCorp. * | 6,252,246 | 1.96 | % |
| Retail - Shoe Stores | ||||
| 125,000 | Foot Locker, Inc. | 2,970,000 | 0.93 | % |
| Retail - Variety Stores | ||||
| 144,100 | Big Lots Inc. * | 4,776,915 | 1.50 | % |
| Savings Institution, Federally Chartered | ||||
| 386,800 | SI Financial Group, Inc. | 3,906,680 | ||
| 347,100 | United Financial Bancorp | 5,355,753 | ||
| 445,900 | Viewpoint Financial Group | 6,153,420 | ||
| 372,500 | Westfield Financial Inc. | 3,024,700 | ||
| 18,440,553 | 5.79 | % | ||
| Secondary Smelting & Refining of Nonferrous Metals | ||||
| 731,000 | Metalico Inc. * | 4,312,900 | 1.35 | % |
| Security Brokers, Dealers & Flotation Companies | ||||
| 616,500 | Knight Capital Group Inc. * | 6,793,830 | 2.13 | % |
| Semiconductors & Related Devices | ||||
| 100,100 | Diodes Incorporated * | 2,612,610 | ||
| 684,012 | GSI Technology, Inc. * | 4,924,886 | ||
| 307,400 | Kulicke & Soffa Industries Inc. * (Singapore) | 3,424,436 | ||
| 271,100 | Microsemi Corporation * | 5,557,550 | ||
| 16,519,482 | 5.18 | % | ||
| Services - Business Services | ||||
| 226,500 | Lender Processing Services, Inc. | 4,736,115 | ||
| 458,152 | Premiere Global Services Inc. * | 3,656,053 | ||
| 8,392,168 | 2.63 | % | ||
| Services - Computer Integrated Systems Design | ||||
| 502,400 | Convergys Corp. * | 6,852,736 | 2.15 | % |
| Services - Educational Services | ||||
| 232,900 | Career Education Corp. * | 4,925,835 | 1.55 | % |
| Services - Hospitals | ||||
| 114,500 | Magellan Health Services Inc. * | 6,267,730 | ||
| 69,000 | MEDNAX, Inc. * | 4,981,110 | ||
| 11,248,840 | 3.53 | % | ||
| Services - Management Consulting Services | ||||
| 51,600 | FTI Consulting, Inc. * | 1,957,704 | 0.61 | % |
| Services - Motion Picture Theaters | ||||
| 392,230 | Regal Entertainment Group Class A | 4,844,041 | 1.52 | % |
| Services - Prepackaged Software | ||||
| 392,500 | Compuware Corp. * | 3,830,800 | 1.20 | % |
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 10
| Paradigm Value Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Special Industry Machinery | ||||
| 101,000 | Cymer, Inc. * | $ 5,000,510 | 1.57 | % |
| State Commercial Banks | ||||
| 477,300 | Oritani Financial Corp. | 6,104,667 | 1.92 | % |
| Transportation Services | ||||
| 73,800 | GATX Corp. | 2,739,456 | 0.86 | % |
| Wholesale - Chemicals & Allied Products | ||||
| 74,600 | Innophos Holdings Inc. | 3,640,480 | 1.14 | % |
| Wholesale - Electronic Parts & Equipment, NEC | ||||
| 830,900 | Brightpoint, Inc. * | 6,738,599 | 2.10 | % |
| Wholesale - Miscellaneous Durable Goods | ||||
| 84,500 | Schnitzer Steel Industries, Inc. | 4,867,200 | 1.52 | % |
| Total for Common Stock (Cost $242,482,859) | $ 285,861,342 | 89.69 | % | |
| REAL ESTATE INVESTMENT TRUSTS | ||||
| 867,000 | Anworth Mortgage Asset Corp. | 6,511,170 | ||
| 222,000 | Invesco Mortgage Capital Inc. | 4,690,860 | ||
| 307,600 | MFA Financial, Inc. | 2,473,104 | ||
| 70,800 | Mid-America Apartment Communities Inc. | 4,776,876 | ||
| Total for Real Estate Investment Trusts (Cost $16,514,690) | 18,452,010 | 5.79 | % | |
| MONEY MARKET FUNDS | ||||
| 12,697,815 | SEI Daily Income Treasury Government CL B 0.05% *** | 12,697,815 | 3.98 | % |
| (Cost $12,697,815) | ||||
| Total Investment Securities | 317,011,167 | 99.46 | % | |
| (Cost $271,695,364) | ||||
| Other Assets In Excess of Liabilities | 1,705,243 | 0.54 | % | |
| Net Assets | $ 318,716,410 | 100.00 | % | |
*Non-Income Producing Securities. |
2011 Semi-Annual Report 11
| Paradigm Select Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Agriculture Production - Crops | ||||
| 7,500 | Dole Food Company Inc. * | $ 101,400 | 1.49 | % |
| Agriculture Production - Livestock & Animal Specialties | ||||
| 1,300 | Cal-Maine Foods, Inc. | 41,548 | 0.61 | % |
| Biological Products, (No Diagnostic Substances) | ||||
| 1,400 | Life Technologies Corporation * | 72,898 | 1.07 | % |
| Canned Fruits, Vegetables, Preserves, Jams & Jellies | ||||
| 900 | The J. M. Smucker Company | 68,796 | 1.01 | % |
| Chemical & Allied Products | ||||
| 1,900 | Innospec Inc. * | 63,859 | ||
| 4,800 | Olin Corp. | 108,768 | ||
| 172,627 | 2.54 | % | ||
| Computer Communications Equipment | ||||
| 9,900 | QLogic Corp. * | 157,608 | 2.32 | % |
| Construction - Special Trade Contractors | ||||
| 6,300 | Matrix Service Co. * | 84,294 | 1.24 | % |
| Crude Petroleum & Natural Gas | ||||
| 2,175 | Carrizo Oil & Gas Inc. * | 90,806 | ||
| 5,400 | EXCO Resources Inc. | 95,310 | ||
| 8,900 | PetroQuest Energy Inc. * | 62,478 | ||
| 2,850 | Plains Exploration & Production Company * | 108,642 | ||
| 2,800 | Resolute Energy Corporation * | 45,248 | ||
| 5,000 | Venoco, Inc. * | 63,700 | ||
| 1,100 | Whiting Petroleum Corp. * | 62,601 | ||
| 528,785 | 7.79 | % | ||
| Electrical Work | ||||
| 4,000 | EMCOR Group Inc. * | 117,240 | 1.73 | % |
| Electronic Components & Accessories | ||||
| 9,100 | Vishay Intertechnology Inc. * | 136,864 | 2.02 | % |
| Fire, Marine & Casualty Insurance | ||||
| 309 | Alleghany Inc. * | 102,931 | ||
| 2,700 | American Financial Group Inc. | 96,363 | ||
| 1,700 | Harleysville Group Inc. | 52,989 | ||
| 150 | Markel Corp. * | 59,521 | ||
| 311,804 | 4.59 | % | ||
| Guided Missiles & Space Vehicles & Parts | ||||
| 1,300 | Alliant Techsystems Inc. * | 92,729 | 1.37 | % |
| Hospital & Medical Service Plans | ||||
| 1,200 | AMERIGROUP Corporation * | 84,564 | 1.25 | % |
| In Vitro & In Vivo Diagnostic Substances | ||||
| 5,100 | Myriad Genetics, Inc. * | 115,821 | 1.71 | % |
| Industrial Organic Chemicals | ||||
| 3,800 | Sensient Technologies Corporation | 140,866 | ||
| 2,000 | Westlake Chemical Corp. | 103,800 | ||
| 244,666 | 3.60 | % | ||
| Iron & Steel Foundries | ||||
| 400 | Precision Castparts Corp. | 65,860 | 0.97 | % |
| Laboratory Analytical Instruments | ||||
| 3,800 | PerkinElmer Inc. | 102,258 | 1.51 | % |
| Men's & Boy's Furnishings, Work Clothing & Allied Garments | ||||
| 1,880 | Phillips-Van Heusen Corp. | 123,084 | 1.81 | % |
| Mineral Royalty Traders | ||||
| 1,800 | Royal Gold, Inc. | 105,426 | 1.55 | % |
| Mining & Quarrying of Nonmetallic Minerals (No Fuels) | ||||
| 400 | Compass Minerals International Inc. | 34,428 | 0.51 | % |
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 12
| Paradigm Select Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Paperboard Containers & Boxes | ||||
| 1,901 | Rock-Tenn Co. | $ 126,112 | 1.86 | % |
| Pharmaceutical Preparations | ||||
| 2,100 | Endo Pharmaceuticals Holdings Inc. * | 84,357 | 1.24 | % |
| Plastic Materials, Synth Resin/Rubber, Cellulos (No Glass) | ||||
| 5,700 | Chemtura Corp. * | 103,740 | 1.53 | % |
| Plastics Products | ||||
| 1,900 | AptarGroup Inc. | 99,446 | 1.47 | % |
| Retail - Apparel & Accessory Stores | ||||
| 5,600 | Express Inc. * | 122,080 | ||
| 2,700 | The Men's Wearhouse, Inc. | 90,990 | ||
| 213,070 | 3.14 | % | ||
| Retail - Family Clothing Stores | ||||
| 9,800 | American Eagle Outfitters, Inc. | 124,950 | 1.84 | % |
| Retail - Miscellaneous Retail | ||||
| 3,100 | EZCORP Inc. Class A * | 110,298 | 1.63 | % |
| Retail - Retail Stores, NEC | ||||
| 3,500 | IAC/InterActiveCorp. * | 133,595 | 1.97 | % |
| Retail - Shoe Stores | ||||
| 2,400 | Foot Locker, Inc. | 57,024 | 0.84 | % |
| Retail - Variety Stores | ||||
| 3,200 | Big Lots Inc. * | 106,080 | 1.56 | % |
| Savings Institution, Federally Chartered | ||||
| 9,500 | Capitol Federal Financial | 111,720 | 1.65 | % |
| Security Brokers, Dealers & Flotation Companies | ||||
| 3,600 | Jefferies Group Inc. | 73,440 | ||
| 12,700 | Knight Capital Group Inc. * | 139,954 | ||
| 213,394 | 3.14 | % | ||
| Semiconductors & Related Devices | ||||
| 2,100 | Diodes Incorporated * | 54,810 | ||
| 6,300 | Kulicke & Soffa Industries Inc. * (Singapore) | 70,182 | ||
| 5,500 | Microsemi Corporation * | 112,750 | ||
| 237,742 | 3.50 | % | ||
| Services - Business Services | ||||
| 5,089 | Lender Processing Services, Inc. | 106,411 | ||
| 8,370 | Premiere Global Services Inc. * | 66,793 | ||
| 173,204 | 2.55 | % | ||
| Services - Computer Integrated Systems Design | ||||
| 10,600 | Convergys Corp. * | 144,584 | 2.13 | % |
| Services - Educational Services | ||||
| 4,600 | Career Education Corp. * | 97,290 | 1.43 | % |
| Services - Hospitals | ||||
| 2,400 | Magellan Health Services Inc. * | 131,376 | ||
| 1,500 | MEDNAX, Inc. * | 108,285 | ||
| 239,661 | 3.53 | % | ||
| Services - Management Consulting Services | ||||
| 1,800 | FTI Consulting, Inc. * | 68,292 | 1.01 | % |
| Services - Motion Picture Theaters | ||||
| 9,100 | Regal Entertainment Group Class A | 112,385 | 1.66 | % |
| Services - Prepackaged Software | ||||
| 8,800 | Compuware Corp. * | 85,888 | 1.27 | % |
| Special Industry Machinery | ||||
| 2,600 | Cymer, Inc. * | 128,726 | 1.90 | % |
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 13
| Paradigm Select Fund | |||||
| Schedule of Investments | |||||
| June 30, 2011 (Unaudited) | |||||
| Shares | Fair Value | % of Net Assets | |||
| COMMON STOCKS | |||||
| Wholesale - Electronic Parts & Equipment, NEC | |||||
| 16,100 | Brightpoint, Inc. * | $ 130,571 | 1.93 | % | |
| Wholesale - Miscellaneous Durable Goods | |||||
| 1,700 | Schnitzer Steel Industries, Inc. | 97,920 | 1.44 | % | |
| Total for Common Stock (Cost $4,888,336) | $ 5,762,749 | 84.91 | % | ||
| REAL ESTATE INVESTMENT TRUSTS | |||||
| 17,200 | Anworth Mortgage Asset Corp. | 129,172 | |||
| 4,600 | Invesco Mortgage Capital Inc. | 97,198 | |||
| 13,500 | MFA Financial, Inc. | 108,540 | |||
| 1,600 | Mid-America Apartment Communities Inc. | 107,952 | |||
| Total for Real Estate Investment Trusts (Cost $419,714) | 442,862 | 6.53 | % | ||
| MONEY MARKET FUNDS | |||||
| 664,557 | SEI Daily Income Treasury Government CL B 0.05% *** | 664,557 | 9.78 | % | |
| (Cost $664,557) | |||||
| Total Investment Securities | 6,870,168 | 101.22 | % | ||
| (Cost $5,972,607) | |||||
| Liabilities In Excess of Other Assets | (83,057 | ) | -1.22 | % | |
| Net Assets | $ 6,787,111 | 100.00 | % | ||
*Non-Income Producing Securities. |
2011 Semi-Annual Report 14
| Paradigm Opportunity Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Agriculture Production - Crops | ||||
| 10,500 | Dole Food Company Inc. * | $ 141,960 | 2.73 | % |
| Agriculture Production - Livestock & Animal Specialties | ||||
| 1,900 | Cal-Maine Foods, Inc. | 60,724 | 1.17 | % |
| Biological Products, (No Diagnostic Substances) | ||||
| 2,100 | Life Technologies Corporation * | 109,347 | 2.10 | % |
| Computer Communications Equipment | ||||
| 14,700 | QLogic Corp. * | 234,024 | 4.50 | % |
| Construction - Special Trade Contractors | ||||
| 10,300 | Matrix Service Co. * | 137,814 | 2.65 | % |
| Crude Petroleum & Natural Gas | ||||
| 3,300 | Carrizo Oil & Gas Inc. * | 137,775 | ||
| 13,400 | PetroQuest Energy Inc. * | 94,068 | ||
| 7,400 | Venoco, Inc. * | 94,276 | ||
| 326,119 | 6.27 | % | ||
| Electrical Work | ||||
| 5,700 | EMCOR Group Inc. * | 167,067 | 3.21 | % |
| Hospital & Medical Service Plans | ||||
| 2,000 | AMERIGROUP Corporation * | 140,940 | 2.71 | % |
| Industrial Organic Chemicals | ||||
| 6,000 | Sensient Technologies Corporation | 222,420 | 4.28 | % |
| Laboratory Analytical Instruments | ||||
| 5,300 | PerkinElmer Inc. | 142,623 | 2.74 | % |
| Orthopedic, Prosthetic & Surgical Appliances & Supplies | ||||
| 12,600 | Symmetry Medical, Inc. * | 113,022 | 2.17 | % |
| Pharmaceutical Preparations | ||||
| 2,800 | Endo Pharmaceuticals Holdings Inc. * | 112,476 | 2.16 | % |
| Retail - Apparel & Accessory Stores | ||||
| 8,300 | Express Inc. * | 180,940 | ||
| 3,700 | The Men's Wearhouse, Inc. | 124,690 | ||
| 305,630 | 5.88 | % | ||
| Retail - Family Clothing Stores | ||||
| 14,700 | American Eagle Outfitters, Inc. | 187,425 | 3.60 | % |
| Retail - Miscellaneous Retail | ||||
| 4,500 | EZCORP Inc. Class A * | 160,110 | 3.08 | % |
| Retail - Retail Stores, NEC | ||||
| 5,700 | IAC/InterActiveCorp. * | 217,569 | 4.18 | % |
| Retail - Shoe Stores | ||||
| 3,600 | Foot Locker, Inc. | 85,536 | 1.64 | % |
| Retail - Variety Stores | ||||
| 4,900 | Big Lots Inc. * | 162,435 | 3.12 | % |
| Security Brokers, Dealers & Flotation Companies | ||||
| 18,800 | Knight Capital Group Inc. * | 207,176 | 3.98 | % |
| Semiconductors & Related Devices | ||||
| 9,300 | Kulicke & Soffa Industries Inc. * (Singapore) | 103,602 | ||
| 7,900 | Microsemi Corporation * | 161,950 | ||
| 265,552 | 5.10 | % | ||
| Services - Business Services | ||||
| 13,100 | Premiere Global Services Inc. * | 104,538 | 2.01 | % |
| Services - Computer Integrated Systems Design | ||||
| 15,800 | Convergys Corp. * | 215,512 | 4.14 | % |
| Services - Educational Services | ||||
| 6,500 | Career Education Corp. * | 137,475 | 2.64 | % |
| *Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 15
| Paradigm Opportunity Fund | |||||
| Schedule of Investments | |||||
| June 30, 2011 (Unaudited) | |||||
| Shares | Fair Value | % of Net Assets | |||
| COMMON STOCKS | |||||
| Services - Hospitals | |||||
| 3,800 | Magellan Health Services Inc. * | $ 208,012 | |||
| 2,200 | MEDNAX, Inc. * | 158,818 | |||
| 366,830 | 7.05 | % | |||
| Services - Motion Picture Theaters | |||||
| 13,500 | Regal Entertainment Group Class A | 166,725 | 3.21 | % | |
| Service - Prepackaged Software | |||||
| 12,500 | Compuware Corp. * | 122,000 | 2.36 | % | |
| Total for Common Stock (Cost $3,677,011) | $ 4,613,049 | 88.68 | % | ||
| REAL ESTATE INVESTMENT TRUSTS | |||||
| 2,400 | Mid-America Apartment Communities Inc. | 161,928 | |||
| Total for Real Estate Investment Trusts (Cost $91,196) | 161,928 | 3.11 | % | ||
| MONEY MARKET FUNDS | |||||
| 437,563 | SEI Daily Income Treasury Government CL B 0.05% *** | 437,563 | 8.41 | % | |
| (Cost $437,563) | |||||
| Total Investment Securities | 5,212,540 | 100.20 | % | ||
| (Cost $4,205,770) | |||||
| Liabilities In Excess of Other Assets | (10,448 | ) | -0.20 | % | |
| Net Assets | $ 5,202,092 | 100.00 | % | ||
| *Non-Income Producing Securities. ***Variable Rate Security; the rate shown was the rate at June 30, 2011. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 16
| Paradigm Intrinsic Value Fund | ||||
| Schedule of Investments | ||||
| June 30, 2011 (Unaudited) | ||||
| Shares | Fair Value | % of Net Assets | ||
| COMMON STOCKS | ||||
| Chemicals & Allied Products | ||||
| 1,800 | Innospec Inc. * | $ 60,498 | 1.70 | % |
| Crude Petroleum & Natural Gas | ||||
| 7,230 | EXCO Resources Inc. | 127,610 | ||
| 3,020 | Plains Exploration & Production Company * | 115,122 | ||
| 2,570 | Resolute Energy Corporation * | 41,531 | ||
| 284,263 | 8.00 | % | ||
| Electronic Components & Accessories | ||||
| 10,010 | Vishay Intertechnology * | 150,550 | 4.24 | % |
| Fire, Marine & Casualty Insurance | ||||
| 700 | Berkshire Hathaway Inc. Class B * | 54,173 | 1.53 | % |
| Food and Kindred Products | ||||
| 1,652 | Nestle SA ** | 102,920 | 2.90 | % |
| In Vitro & In Vivo Diagnostic Substances | ||||
| 2,580 | Myriad Genetics, Inc. * | 58,592 | 1.65 | % |
| Iron & Steel Foundries | ||||
| 490 | Precision Castparts Corp. | 80,678 | 2.27 | % |
| Laboratory Analytical Instruments | ||||
| 3,225 | PerkinElmer Inc. | 86,785 | 2.44 | % |
| Men's & Boys' Furnishings, Work Clothing, and Allied Garments | ||||
| 1,720 | Phillips-Van Heusen Corp. | 112,608 | 3.17 | % |
| Newspapers: Publishing or Publishing & Printing | ||||
| 1,990 | News Corp. Class A | 35,223 | 0.99 | % |
| Oil & Gas Field Services, NEC | ||||
| 1,455 | North American Energy Partners Inc. * (Canada) | 11,145 | 0.31 | % |
| Paperboard Containers & Boxes | ||||
| 1,631 | Rock-Tenn Co. | 108,201 | 3.05 | % |
| Pharmaceutical Preparations | ||||
| 10,180 | Vanda Pharmaceuticals Inc. * | 72,685 | 2.05 | % |
| Plastic Materials, Synth Resin/Rubber, Cellulos (No Glass) | ||||
| 5,850 | Chemtura Corp. * | 106,470 | 3.00 | % |
| Railroads, Line-Haul Operating | ||||
| 1,220 | Canadian National Railway Company (Canada) | 97,478 | 2.74 | % |
| Retail - Drug Stores and Proprietary Stores | ||||
| 2,775 | CVS Caremark Corporation | 104,284 | 2.94 | % |
| Retail - Family Clothing Stores | ||||
| 6,775 | American Eagle Outfitters | 86,381 | 2.43 | % |
| Retail - Retail Stores, NEC | ||||
| 3,510 | IAC/InterActiveCorp. * | 133,977 | 3.77 | % |
| Savings Institution, Federally Chartered | ||||
| 2,075 | Kearny Financial Corp. | 18,903 | ||
| 11,420 | SI Financial Group, Inc. | 115,342 | ||
| 9,520 | Viewpoint Financial Group | 131,376 | ||
| 265,621 | 7.48 | % | ||
| Secondary Smelting & Refining of Nonferrous Metals | ||||
| 12,670 | Metalico Inc. * | 74,753 | 2.10 | % |
| Security Brokers, Dealers & Flotation Companies | ||||
| 3,725 | Jefferies Group Inc. | 75,990 | 2.14 | % |
| Semiconductors & Related Devices | ||||
| 15,750 | GSI Technology, Inc. * | 113,400 | 3.19 | % |
| Services - Business Services | ||||
| 2,925 | Lender Processing Services, Inc. | 61,162 | 1.72 | % |
| *Non-Income Producing Securities. **ADR - American Depositary Receipt. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 17
| Paradigm Intrinsic Value Fund | |||||
| Schedule of Investments | |||||
| June 30, 2011 (Unaudited) | |||||
| Shares | Fair Value | % of Net Assets | |||
| COMMON STOCKS | |||||
| Services - Hospitals | |||||
| 1,525 | Magellan Health Services Inc. * | $ 83,479 | 2.35 | % | |
| Ship & Boat Building & Repairing | |||||
| 1,415 | General Dynamics Corp. | 105,446 | 2.97 | % | |
| Wholesale - Chemicals & Allied Products | |||||
| 1,920 | Innophos Holdings Inc. | 93,696 | 2.64 | % | |
| Wholesale - Electronic Parts & Equipment, NEC | |||||
| 1,590 | Avnet Inc. * | 50,689 | |||
| 16,170 | Brightpoint, Inc. * | 131,139 | |||
| 181,828 | 5.12 | % | |||
| Wholesale - Miscellaneous Durable Goods | |||||
| 1,270 | Schnitzer Steel Industries, Inc. | 73,152 | 2.07 | % | |
| Total for Common Stock (Cost $2,346,821) | $ 2,875,438 | 80.96 | % | ||
| EXCHANGE TRADED FUNDS | |||||
| 11,650 | iShares COMEX Gold Trust * | 170,556 | |||
| Total for Exchange Traded Funds (Cost - $103,692) | 170,556 | 4.81 | % | ||
| REAL ESTATE INVESTMENT TRUSTS | |||||
| 9,210 | Anworth Mortgage Asset Corp. | 69,167 | |||
| 8,865 | MFA Financial, Inc. | 71,275 | |||
| Total for Real Estate Investment Trusts (Cost - $127,318) | 140,442 | 3.95 | % | ||
| MONEY MARKET FUNDS | |||||
| 401,833 | SEI Daily Income Treasury Government CL B 0.05% *** | 401,833 | 11.31 | % | |
| (Cost $401,833) | |||||
| Total Investment Securities | 3,588,269 | 101.03 | % | ||
| (Cost $2,979,664) | |||||
| Liabilities In Excess of Other Assets | (36,713 | ) | -1.03 | % | |
| Net Assets | $ 3,551,556 | 100.00 | % | ||
| *Non-Income Producing Securities. ***Variable Rate Security; the rate shown was the rate at June 30, 2011. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 18
| Paradigm Funds | ||||
| Statements of Assets and Liabilities (Unaudited) | Value | Select | ||
| June 30, 2011 | Fund | Fund | ||
| Assets: | ||||
| Investment Securities at Fair Value* | $ 317,011,167 | $ 6,870,168 | ||
| Cash | 808,864 | 5,000 | ||
| Receivable for Fund Shares Sold | 848,294 | 36 | ||
| Receivable for Securities Sold | 1,044,910 | 8,889 | ||
| Dividends Receivable | 241,164 | 4,672 | ||
| Interest Receivable | 565 | 36 | ||
| Total Assets | 319,954,964 | 6,888,801 | ||
| Liabilities: | ||||
| Payable for Securities Purchased | 195,986 | 4,234 | ||
| Payable for Fund Shares Redeemed | 647,171 | 91,000 | ||
| Payable to Advisor | 395,397 | 6,456 | ||
| Total Liabilities | 1,238,554 | 101,690 | ||
| Net Assets | $ 318,716,410 | $ 6,787,111 | ||
| Net Assets Consist of: | ||||
| Paid In Capital | $266,888,515 | $5,846,064 | ||
| Accumulated Net Investment Income (Loss) | (849,852 | ) | (3,973 | ) |
| Accumulated Realized Gain (Loss) on Investments - Net | 7,361,944 | 47,459 | ||
| Unrealized Appreciation (Depreciation) in Value of Investment Securities - Net | 45,315,803 | 897,561 | ||
| Net Assets | $ 318,716,410 | $ 6,787,111 | ||
| Net Asset Value and Offering Price (Note 2) | $ 57.71 | $ 31.70 | ||
| * Investments at Identified Cost | $ 271,695,364 | $ 5,972,607 | ||
| Shares Outstanding (Unlimited number of shares | 5,522,547 | 214,111 | ||
| authorized without par value) | ||||
| Statements of Operations (Unaudited) | ||||
| For the six month period ended June 30, 2011 | ||||
| Investment Income: | ||||
| Dividends | $ 1,663,922 | $ 33,131 | ||
| Interest | 8,693 | 176 | ||
| Total Investment Income | 1,672,615 | 33,307 | ||
| Expenses: | ||||
| Investment Advisor Fees | 3,066,851 | 44,357 | ||
| Total Expenses | 3,066,851 | 44,357 | ||
| Less: Expenses Waived | (544,384 | ) | (7,077 | ) |
| Net Expenses | 2,522,467 | 37,280 | ||
| Net Investment Income (Loss) | (849,852 | ) | (3,973 | ) |
| Realized and Unrealized Gain (Loss) on Investments: | ||||
| Net Realized Gain (Loss) on Investments | 13,881,344 | 288,292 | ||
| Net Change in Unrealized Appreciation (Depreciation) on Investments | 97,874 | (800 | ) | |
| Net Realized and Unrealized Gain (Loss) on Investments | 13,979,218 | 287,492 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ 13,129,366 | $ 283,519 | ||
| The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 19
| Paradigm Funds | ||||
| Statements of Assets and Liabilities (Unaudited) | Opportunity | Intrinsic Value | ||
| June 30, 2011 | Fund | Fund | ||
| Assets: | ||||
| Investment Securities at Fair Value* | $ 5,212,540 | $ 3,588,269 | ||
| Dividends Receivable | - | 1,129 | ||
| Interest Receivable | 21 | 8 | ||
| Total Assets | 5,212,561 | 3,589,406 | ||
| Liabilities: | ||||
| Payable for Securities Purchased | 4,234 | 34,256 | ||
| Payable to Advisor | 6,235 | 3,594 | ||
| Total Liabilities | 10,469 | 37,850 | ||
| Net Assets | $ 5,202,092 | $ 3,551,556 | ||
| Net Assets Consist of: | ||||
| Paid In Capital | $ 4,244,118 | $ 3,093,249 | ||
| Accumulated Net Investment Income (Loss) | (22,630 | ) | (4,896 | ) |
| Accumulated Realized Gain (Loss) on Investments - Net | (26,166 | ) | (145,402 | ) |
| Unrealized Appreciation (Depreciation) in Value of Investment Securities - Net | 1,006,770 | 608,605 | ||
| Net Assets | $ 5,202,092 | $ 3,551,556 | ||
| Net Asset Value and Offering Price (Note 2) | $ 27.19 | $ 22.33 | ||
| * Investments at Identified Cost | $ 4,205,770 | $ 2,979,664 | ||
| Shares Outstanding (Unlimited number of shares | 191,309 | 159,075 | ||
| authorized without par value) | ||||
| Statements of Operations (Unaudited) | ||||
| For the six month period ended June 30, 2011 | ||||
| Investment Income: | ||||
| Dividends (Net of foreign withholding tax** and fees of $0 and $516, respectively) | $ 15,462 | $ 17,156 | ||
| Interest | 100 | 69 | ||
| Total Investment Income | 15,562 | 17,225 | ||
| Expenses: | ||||
| Investment Advisor Fees | 50,923 | 22,121 | ||
| Total Expenses | 50,923 | 22,121 | ||
| Less: Expenses Waived | (12,731 | ) | - | |
| Net Expenses | 38,192 | 22,121 | ||
| Net Investment Income (Loss) | (22,630 | ) | (4,896 | ) |
| Realized and Unrealized Gain (Loss) on Investments: | ||||
| Net Realized Gain (Loss) on Investments | 489,173 | 168,618 | ||
| Net Change in Unrealized Appreciation (Depreciation) on Investments | (158,070 | ) | 17,979 | |
| Net Realized and Unrealized Gain (Loss) on Investments | 331,103 | 186,597 | ||
| Net Increase (Decrease) in Net Assets from Operations | $ 308,473 | $ 181,701 | ||
| ** Foreign withholding taxes on foreign dividends have been provid- ed for in accordance with the Funds’ understanding of the applica- ble country's tax rules and rates. The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 20
| Paradigm Funds | ||||||||||||
| Statements of Changes in Net Assets | Value Fund | Select Fund | ||||||||||
| (Unaudited) | (Unaudited) | |||||||||||
| 1/1/2011 | 1/1/2010 | 1/1/2011 | 1/1/2010 | |||||||||
| to | to | to | to | |||||||||
| 6/30/2011 | 12/31/2010 | 6/30/2011 | 12/31/2010 | |||||||||
| From Operations: | ||||||||||||
| Net Investment Income (Loss) | $ | (849,852 | ) | $ | (256,163 | ) | $ | (3,973 | ) | $ | (6,212 | ) |
| Net Realized Gain (Loss) on Investments | 13,881,344 | 18,143,844 | 288,292 | 274,580 | ||||||||
| Change in Net Unrealized Appreciation (Depreciation) | 97,874 | 29,589,320 | (800 | ) | 484,130 | |||||||
| Increase (Decrease) in Net Assets from Operations | 13,129,366 | 47,477,001 | 283,519 | 752,498 | ||||||||
| From Distributions to Shareholders: | ||||||||||||
| Net Investment Income | - | (417,251 | ) | - | (9,549 | ) | ||||||
| Net Realized Gain from Security Transactions | - | - | - | - | ||||||||
| Total Distributions to Shareholders | - | (417,251 | ) | - | (9,549 | ) | ||||||
| From Capital Share Transactions: | ||||||||||||
| Proceeds From Sale of Shares | 147,171,078 | 125,199,934 | 3,085,249 | 745,813 | ||||||||
| Proceeds from Redemption Fees (Note 2) | 67,130 | 20,531 | 77 | 10 | ||||||||
| Shares Issued on Reinvestment of Dividends | - | 410,720 | - | 9,549 | ||||||||
| Cost of Shares Redeemed | (97,150,438 | ) | (40,234,926 | ) | (498,572 | ) | (291,079 | ) | ||||
| Net Increase (Decrease) from Shareholder Activity | 50,087,770 | 85,396,259 | 2,586,754 | 464,293 | ||||||||
| Net Increase (Decrease) in Net Assets | 63,217,136 | 132,456,009 | 2,870,273 | 1,207,242 | ||||||||
| Net Assets at Beginning of Period | 255,499,274 | 123,043,265 | 3,916,838 | 2,709,596 | ||||||||
| Net Assets at End of Period | $ | 318,716,410 | $ | 255,499,274 | $ | 6,787,111 | $ | 3,916,838 | ||||
| Accumulated Net Investment Income (Loss) | $ | (849,852 | ) | $ | - | $ | (3,973 | ) | $ | - | ||
| Share Transactions: | ||||||||||||
| Issued | 2,595,524 | 2,628,120 | 98,311 | 29,513 | ||||||||
| Reinvested | - | 7,437 | - | 320 | ||||||||
| Redeemed | (1,711,083 | ) | (875,756 | ) | (16,025 | ) | (11,739 | ) | ||||
| Net Increase (Decrease) in Shares | 884,441 | 1,759,801 | 82,286 | 18,094 | ||||||||
| Shares Outstanding Beginning of Period | 4,638,106 | 2,878,305 | 131,825 | 113,731 | ||||||||
| Shares Outstanding End of Period | 5,522,547 | 4,638,106 | 214,111 | 131,825 | ||||||||
The accompanying notes are an integral part of these |
2011 Semi-Annual Report 21
| Paradigm Funds | |||||||||||||
| Statements of Changes in Net Assets | Opportunity Fund | Intrinsic Value Fund | |||||||||||
| (Unaudited) | (Unaudited) | ||||||||||||
| 1/1/2011 | 1/1/2010 | 1/1/2011 | 1/1/2010 | ||||||||||
| to | to | to | to | ||||||||||
| 6/30/2011 | 12/31/2010 | 6/30/2011 | 12/31/2010 | ||||||||||
| From Operations: | |||||||||||||
| Net Investment Income (Loss) | $ | (22,630 | ) | $ | (23,244 | ) | $ | (4,896 | ) | $ | (2,202 | ) | |
| Net Realized Gain (Loss) on Investments | 489,173 | 546,219 | 168,618 | 73,772 | |||||||||
| Change in Net Unrealized Appreciation (Depreciation) | (158,070 | ) | 465,618 | 17,979 | 449,644 | ||||||||
| Increase (Decrease) in Net Assets from Operations | 308,473 | 988,593 | 181,701 | 521,214 | |||||||||
| From Distributions to Shareholders: | |||||||||||||
| Net Investment Income | - | - | - | (17,498 | ) | ||||||||
| Net Realized Gain from Security Transactions | - | - | - | - | |||||||||
| Total Distributions to Shareholders | - | - | - | (17,498 | ) | ||||||||
| From Capital Share Transactions: | |||||||||||||
| Proceeds From Sale of Shares | 8,123 | 562,603 | 22,126 | 385,083 | |||||||||
| Proceeds from Redemption Fees (Note 2) | - | 10 | - | - | |||||||||
| Shares Issued on Reinvestment of Dividends | - | - | - | 17,498 | |||||||||
| Cost of Shares Redeemed | (53,710 | ) | (305,306 | ) | (100,000 | ) | (33,840 | ) | |||||
| Net Increase (Decrease) from Shareholder Activity | (45,587 | ) | 257,307 | (77,874 | ) | 368,741 | |||||||
| Net Increase (Decrease) in Net Assets | 262,886 | 1,245,900 | 103,827 | 872,457 | |||||||||
| Net Assets at Beginning of Period | 4,939,206 | 3,693,306 | 3,447,729 | 2,575,272 | |||||||||
| Net Assets at End of Period | $ | 5,202,092 | $ | 4,939,206 | $ | 3,551,556 | $ | 3,447,729 | |||||
| Accumulated Net Investment Income (Loss) | $ | (22,630 | ) | $ | - | $ | (4,896 | ) | $ | - | |||
| Share Transactions: | |||||||||||||
| Issued | 300 | 25,915 | 997 | 20,556 | |||||||||
| Reinvested | - | - | - | 826 | |||||||||
| Redeemed | (2,031 | ) | (14,884 | ) | (4,528 | ) | (1,958 | ) | |||||
| Net Increase (Decrease) in Shares | (1,731 | ) | 11,031 | (3,531 | ) | 19,424 | |||||||
| Shares Outstanding Beginning of Period | 193,040 | 182,009 | 162,606 | 143,182 | |||||||||
| Shares Outstanding End of Period | 191,309 | 193,040 | 159,075 | 162,606 | |||||||||
| The accompanying notes are an integral part of these financial statements. |
2011 Semi-Annual Report 22
| Paradigm Value Fund | ||||||||||||
| Financial Highlights - Paradigm Value Fund | ||||||||||||
| (Unaudited) | ||||||||||||
| Selected data for a share outstanding | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008 | 1/1/2007 | 1/1/2006 | ||||||
| throughout the period: | to | to | to | to | to | to | ||||||
| 6/30/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | 12/31/2006 | |||||||
| Net Asset Value - Beginning of Period | $55.09 | $42.75 | $32.51 | $49.27 | $48.55 | $42.90 | ||||||
| Net Investment Income/(Loss) (a) | (0.14 | ) | (0.07 | ) | 0.16 | (0.22 | ) | (0.40 | ) | (0.47 | ) | |
| Net Gains (Loss) on Securities (Realized and Unrealized) | 2.75 | 12.49 | 10.07 | (16.52 | ) | 2.84 | 8.69 | |||||
| Total from Investment Operations | 2.61 | 12.42 | 10.23 | (16.74 | ) | 2.44 | 8.22 | |||||
| Distributions (From Net Investment Income) | - | (0.09 | ) | - | - | - | - | |||||
| Distributions (From Capital Gains) | - | - | - | (0.07 | ) | (1.73 | ) | (2.58 | ) | |||
| Total Distributions | 0.00 | (0.09 | ) | 0.00 | (0.07 | ) | (1.73 | ) | (2.58 | ) | ||
| Proceeds from Redemption Fee (Note 2) | 0.01 | 0.01 | 0.01 | 0.05 | 0.01 | 0.01 | ||||||
| Net Asset Value - End of Period | $57.71 | $55.09 | $42.75 | $32.51 | $49.27 | $48.55 | ||||||
| Total Return (b) | 4.76% | *** | 29.08% | 31.50% | (33.88)% | 5.03% | 19.19% | |||||
| Ratios/Supplemental Data | ||||||||||||
| Net Assets - End of Period (Thousands) | $318,716 | $255,499 | $123,043 | $85,018 | $116,247 | $56,743 | ||||||
| Before Reimbursement | ||||||||||||
| Ratio of Expenses to Average Net Assets | 1.82% | ** | 1.89% | 1.98% | 1.99% | 2.02% | 2.02% | |||||
| After Reimbursement | ||||||||||||
| Ratio of Expenses to Average Net Assets (c) ++ | 1.50% | ** | 1.50% | 1.63% | 1.99% | 2.02% | 2.02% | |||||
| Ratio of Net Investment Income (Loss) to Average | ||||||||||||
| Net Assets (c) ++ | -0.50% | ** | -0.14% | 0.43% | -0.52% | -0.78% | -1.02% | |||||
| Portfolio Turnover Rate | 37.33% | *** | 81.17% | 69.85% | 67.84% | 59.75% | 69.95% | |||||
| Paradigm Select Fund | ||||||||||||
| Financial Highlights - Paradigm Select Fund | ||||||||||||
| (Unaudited) | ||||||||||||
| Selected data for a share outstanding throughout the period: | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008 | 1/1/2007 | 1/1/2006 | ||||||
| to | to | to | to | to | to | |||||||
| 6/30/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | 12/31/2006 | |||||||
| Net Asset Value - Beginning of Period | $29.71 | $23.82 | $18.53 | $27.91 | $26.48 | $22.33 | ||||||
| Net Investment Income/(Loss) (a) | (0.02 | ) | (0.05 | ) | 0.08 | 0.03 | (0.06 | ) | (0.08 | ) | ||
| Net Gains (Loss) on Securities (Realized and Unrealized) | 2.01 | 6.01 | 5.28 | (9.41 | ) | 1.54 | 4.92 | |||||
| Total from Investment Operations | 1.99 | 5.96 | 5.36 | (9.38 | ) | 1.48 | 4.84 | |||||
| Distributions (From Net Investment Income) | - | (0.07 | ) | (0.07 | ) | - | - | - | ||||
| Distributions (From Capital Gains) | - | - | - | - | (0.05 | ) | (0.69 | ) | ||||
| Total Distributions | - | (0.07 | ) | (0.07 | ) | - | (0.05 | ) | (0.69 | ) | ||
| Proceeds from Redemption Fee (Note 2) | - | + | - | + | - | + | - | - | - | |||
| Net Asset Value - End of Period | $31.70 | $29.71 | $23.82 | $18.53 | $27.91 | $26.48 | ||||||
| Total Return (b) | 6.70% | *** | 25.03% | 28.92% | (33.61)% | 5.57% | 21.67% | |||||
| Ratios/Supplemental Data | ||||||||||||
| Net Assets - End of Period (Thousands) | $6,787 | $3,917 | $2,710 | $2,031 | $11,109 | $6,674 | ||||||
| Before Reimbursement | ||||||||||||
| Ratio of Expenses to Average Net Assets | 1.50% | ** | 1.50% | 1.50% | 1.50% | 1.50% | 1.50% | |||||
| After Reimbursement | ||||||||||||
| Ratio of Expenses to Average Net Assets ++ | 1.26% | ** | 1.50% | 1.50% | 1.50% | 1.50% | 1.50% | |||||
| Ratio of Net Investment Income/(Loss) to Average | ||||||||||||
| Net Assets ++ | -0.13% | ** | -0.20% | 0.42% | 0.13% | -0.23% | -0.30% | |||||
| Portfolio Turnover Rate | 32.02% | *** | 65.77% | 65.57% | 47.71% | 64.68% | 72.15% | |||||
| ** Annualized. *** Not Annualized. (a) Per share amount calculated using the average shares method. (b) 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. (c) Includes dividend expense on securities sold short and interest expense of 0.00% for the six months ended 6/30/2011, and 0.00% 0.00%, 0.00% (Amount calculated less than 0.005%), 0.02% and 0.02% for the years ended 12/31/2010 - 2006, 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. |
2011 Semi-Annual Report 23
| Paradigm Opportunity Fund | ||||||||||||
| Financial Highlights - Paradigm Opportunity Fund | ||||||||||||
| (Unaudited) | ||||||||||||
| Selected data for a share outstanding throughout the period: | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008 | 1/1/2007 | 1/1/2006 | ||||||
| to | to | to | to | to | to | |||||||
| 6/30/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | 12/31/2006 | |||||||
| Net Asset Value - Beginning of Period | $25.59 | $20.29 | $13.79 | $22.94 | $23.21 | $21.33 | ||||||
| Net Investment Income (Loss) (a) | (0.12 | ) | (0.12 | ) | (0.01 | ) | (0.13 | ) | (0.04 | ) | (0.04 | ) |
| Net Gains (Loss) on Securities (Realized and Unrealized) | 1.72 | 5.42 | 6.51 | (9.02 | ) | 0.47 | 2.47 | |||||
| Total from Investment Operations | 1.60 | 5.30 | 6.50 | (9.15 | ) | 0.43 | 2.43 | |||||
| Distributions (From Net Investment Income) | - | - | - | - | - | - | ||||||
| Distributions (From Capital Gains) | - | - | - | - | (0.70 | ) | (0.55 | ) | ||||
| Total Distributions | - | - | - | - | (0.70 | ) | (0.55 | ) | ||||
| Proceeds from Redemption Fee (Note 2) | - | - | + | - | - | + | - | - | ||||
| Net Asset Value - End of Period | $27.19 | $25.59 | $20.29 | $13.79 | $22.94 | $23.21 | ||||||
| Total Return (b) | 6.25% | *** | 26.12% | 47.14% | (39.89)% | 1.85% | 11.39% | |||||
| Ratios/Supplemental Data | ||||||||||||
| Net Assets - End of Period (Thousands) | $5,202 | $4,939 | $3,693 | $2,425 | $5,613 | $3,719 | ||||||
| Before Reimbursement | ||||||||||||
| Ratio of Expenses to Average Net Assets | 2.00% | ** | 2.00% | 2.00% | 2.00% | 2.00% | 2.00% | |||||
| Ratio of Net Investment Loss to Average Net Assets | -1.39% | ** | -1.06% | -0.54% | -1.17% | -0.67% | -0.68% | |||||
| After Reimbursement | ||||||||||||
| Ratio of Expenses to Average Net Assets (c) | 1.50% | ** | 1.50% | 1.50% | 1.50% | 1.50% | 1.50% | |||||
| Ratio of Net Investment Income/(Loss) to Average | ||||||||||||
| Net Assets (c) | -0.89% | ** | -0.56% | -0.04% | -0.67% | -0.17% | -0.18% | |||||
| Portfolio Turnover Rate | 38.94% | *** | 96.20% | 135.62% | 164.89% | 169.26% | 122.62% | |||||
| Paradigm Intrinsic Value Fund | ||||||||
| Financial Highlights - Paradigm Intrinsic Value Fund | ||||||||
| (Unaudited) | ||||||||
| Selected data for a share outstanding throughout the period: | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008* | ||||
| to | to | to | to | |||||
| 6/30/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | |||||
| Net Asset Value - Beginning of Period | $21.20 | $17.99 | $13.98 | $20.00 | ||||
| Net Investment Income (Loss) (a) | (0.03 | ) | (0.01 | ) | 0.14 | 0.15 | ||
| Net Gains (Loss) on Securities (Realized and Unrealized) | 1.16 | 3.33 | 3.98 | (6.17 | ) | |||
| Total from Investment Operations | 1.13 | 3.32 | 4.12 | (6.02 | ) | |||
| Distributions (From Net Investment Income) | - | (0.11 | ) | (0.11 | ) | - | ||
| Distributions (From Capital Gains) | - | - | - | - | ||||
| Total Distributions | - | (0.11 | ) | (0.11 | ) | - | ||
| Proceeds from Redemption Fee (Note 2) | - | - | - | + | - | |||
| Net Asset Value - End of Period | $22.33 | $21.20 | $17.99 | $13.98 | ||||
| Total Return (b) | 5.33% | *** | 18.44% | 29.44% | (30.10)% | |||
| Ratios/Supplemental Data | ||||||||
| Net Assets - End of Period (Thousands) | $3,552 | $3,448 | $2,575 | $1,620 | ||||
| Ratio of Expenses to Average Net Assets | 1.25% | ** | 1.25% | 1.25% | 1.25% | |||
| Ratio of Net Investment Income/(Loss) to Average Net Assets | -0.28% | ** | -0.08% | 0.92% | 0.86% | |||
| Portfolio Turnover Rate | 43.77% | *** | 77.78% | 79.35% | 70.57% | |||
| * Commencement of operations. ** Annualized. *** Not Annualized. (a) Per share amount calculated using the average shares method. (b) 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. (c) 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. |
2011 Semi-Annual Report 24
NOTES TO THE FINANCIAL STATEMENTS
PARADIGM FUNDS
June 30, 2011
(UNAUDITED)
1.) ORGANIZATION
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. Value, Opportunity, Select and Intrinsic Value are all diversified funds. The advisor to Value, Opportunity, Select and Intrinsic Value (collectively the “Funds”) is Paradigm Funds Advisor 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 income 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 six month period ended June 30, 2011 proceeds from redemption fees were $67,130, $77, $0 and $0 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 (2008-2010), or expected to be taken on the Funds’ 2011 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 positions for which they are reasonably possible that the total amounts of unrecognized tax benefits
2011 Semi-Annual Report 25
Notes to the Financial Statements (Unaudited) - continued
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 six month period ended June 30, 2011, 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.
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 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
2011 Semi-Annual Report 26
Notes to the Financial Statements (Unaudited) - continued
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 other methods.
The following tables summarize the inputs used to value the Funds’ assets measured at fair value as of June 30, 2011:
| Value: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $285,861,342 | $0 | $0 | $285,861,342 | ||||
| Real Estate Investment Trusts | 18,452,010 | 0 | 0 | 18,452,010 | ||||
| Money Market Funds | 12,697,815 | 0 | 0 | 12,697,815 | ||||
| Total | $317,011,167 | $0 | $0 | $317,011,167 | ||||
| Select: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $5,762,749 | $0 | $0 | $5,762,749 | ||||
| Real Estate Investment Trusts | 442,862 | 0 | 0 | 442,862 | ||||
| Money Market Funds | 664,557 | 0 | 0 | 664,557 | ||||
| Total | $6,870,168 | $0 | $0 | $6,870,168 | ||||
| Opportunity: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $4,613,049 | $0 | $0 | $4,613,049 | ||||
| Real Estate Investment Trusts | 161,928 | 0 | 0 | 161,928 | ||||
| Money Market Funds | 437,563 | 0 | 0 | 437,563 | ||||
| Total | $5,212,540 | $0 | $0 | $5,212,540 | ||||
| Intrinsic Value: | ||||||||
| Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total | ||||
| Common Stock | $2,875,438 | $0 | $0 | $2,875,438 | ||||
| Exchange Traded Funds | 170,556 | 0 | 0 | 170,556 | ||||
| Real Estate Investment Trusts | 140,442 | 0 | 0 | 140,442 | ||||
| Money Market Funds | 401,833 | 0 | 0 | 401,833 | ||||
| Total | $3,588,269 | $0 | $0 | $3,588,269 | ||||
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 six month period ended June 30, 2011. There were no transfers into or out of level 1 or level 2 during the six month period ended June 30, 2011. It is the Funds’ policy to consider transfers into or out of level 1 and level 2 as of the end of the reporting period.
2011 Semi-Annual Report 27
Notes to the Financial Statements (Unaudited) - continued
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 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. 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 pays the Advisor an annual 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 six month period ended June 30, 2011, the Advisor earned management fees (before the waivers described below) totaling $3,066,851, $44,357, $50,923 and $22,121 for Value, Select, Opportunity, and Intrinsic Value, respectively. At June 30, 2011, $395,397, $6,456, $6,235 and $3,594 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 Value and Opportunity to the extent necessary to maintain total annual operating expenses of the Funds (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, 2012. Effective March 15, 2011 the Advisor has contractually agreed to waive management fees and reimburse expenses of Select 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 the indirect costs of investing in acquired funds) at 1.15% of its average daily net assets through May 1, 2012. A total of $544,384, $7,077 and $12,731 was waived for the six month period ended June 30, 2010 for Value, Select and Opportunity, respectively.
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 six month period ended June 30, 2011 for the Trust. Under the Management Agreements, the Advisor pays these fees.
5.) INVESTMENTS
For the six month period ended June 30, 2011, 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 | $172,653,858 | $4,046,869 | $1,857,012 | $1,457,121 | ||||
| Sales | $115,282,806 | $1,755,719 | $2,029,009 | $1,438,811 |
There were no purchases or sales of U.S. Government obligations.
For federal income tax purposes, at June 30, 2011 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 | $271,695,364 | $5,972,607 | $4,205,770 | $2,979,664 | ||||
| Gross Unrealized Appreciation | $56,249,254 | $1,142,114 | $1,161,952 | $708,294 | ||||
| Gross Unrealized Depreciation | ($10,933,451 | ) | ($244,553 | ) | ($155,182 | ) | ($99,689 | ) |
| Net Unrealized Appreciation | ||||||||
| (Depreciation) on Investments | $45,315,803 | $897,561 | $1,006,770 | $608,605 | ||||
6.) CAPITAL SHARES
At June 30, 2011, 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 June 30, 2011:
2011 Semi-Annual Report 28
Notes to the Financial Statements (Unaudited) - continued
| Value | Select | Opportunity | Intrinsic Value | |||||
| Shares Issued | ||||||||
| and Outstanding | 5,522,547 | 214,111 | 191,309 | 159,075 | ||||
| Paid in Capital | $266,888,515 | $5,846,064 | $4,244,118 | $3,093,249 |
7.) DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the six month period ended June 30, 2011 and fiscal years ended December 31, 2010 were as follows:
| Six Months Ended | Fiscal Year Ended | ||
| June 30, 2011 | December 31, 2010 | ||
| PARADIGM VALUE FUND | |||
| Ordinary Income | $ - | $ 417,251 | |
| Short-term Capital Gain | - | - | |
| Long-term Capital Gain | - | - | |
| $ - | $ 417,251 | ||
| PARADIGM SELECT FUND | |||
| Ordinary Income | $ - | $ 9,549 | |
| Short-term Capital Gain | - | - | |
| Long-term Capital Gain | - | - | |
| $ - | $ 9,549 | ||
| PARADIGM OPPORTUNITY FUND | |||
| Ordinary Income | $ - | $ - | |
| Short-term Capital Gain | - | - | |
| Long-term Capital Gain | - | - | |
| $ - | $ - | ||
| PARADIGM INTRINSIC VALUE FUND | |||
| Ordinary Income | $ - | $ 17,498 | |
| Short-term Capital Gain | - | - | |
| Long-term Capital Gain | - | - | |
| $ - | $ 17,498 | ||
8.) 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 June 30, 2011, Charles Schwab & Co., Inc., held, for the benefit of its customers, in aggregate, 30.85% of Value, and therefore each may be deemed to control Value. Charles Schwab & Co. and TD Ameritrade, both for the benefit of its customers, held, in aggregate, 29.67% and 25.16%, respectively, of Select, and therefore each may be deemed to control Select. Candace King Weir, beneficial owner, held, in aggregate, 81.25%, of Opportunity, and therefore may be deemed to control Opportunity. Also, Candace King Weir, beneficial owner, and Charles Schwab & Co., for the benefit of its customers, held, in aggregate, 46.68% and 47.67%, respectively, of Intrinsic Value, and therefore each may be deemed to control Intrinsic Value.
9.) CAPITAL LOSS CARRYFORWARD
At December 31, 2010, Value, Select, Opportunity and Intrinsic Value Funds had available for federal tax purposes unused capital losses of $4,989,384, $207,155, $443,258 and $313,958 respectively, of which $0, $114,060, $119,828 and $139,271, respectively, expire in 2016 and $4,989,384, $93,095, $323,430 and $174,687, respectively, expire in 2017. Capital loss carryforwards 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.
2011 Semi-Annual Report 29
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2011 Semi-Annual Report 30
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. If shares are redeemed within 90 days of purchase from the Funds, the shares are subject to a 2% redemption 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 January 1, 2011 and held through June 30, 2011.
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 | January 1, 2011 | ||||
| January 1, 2011 | June 30, 2011 | to June 30, 2011 | ||||
| Actual | $1,000.00 | $1,047.56 | $7.62 | |||
| Hypothetical | $1,000.00 | $1,017.36 | $7.50 | |||
| (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 181/365 (to reflect the one-half year period). |
| PARADIGM SELECT FUND | ||||||
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | January 1, 2011 | ||||
| January 1, 2011 | June 30, 2011 | to June 30, 2011 | ||||
| Actual | $1,000.00 | $1,066.98 | $6.46 | |||
| Hypothetical | $1,000.00 | $1,018.55 | $6.31 | |||
| (5% annual return | ||||||
| before expenses) | ||||||
| * Expenses are equal to the Fund’s annualized expense ratio of 1.26%, multiplied by the average account value over the period, multiplied by 181/365 (to reflect the one-half year period). |
2011 Semi-Annual Report 31
Disclosure of Expenses (Unaudited) - continued
| PARADIGM OPPORTUNITY FUND | ||||||
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | January 1, 2011 | ||||
| January 1, 2011 | June 30, 2011 | to June 30, 2011 | ||||
| Actual | $1,000.00 | $1,062.52 | $7.67 | |||
| Hypothetical | $1,000.00 | $1,017.36 | $7.50 | |||
| (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 181/365 (to reflect the one-half year period). |
| PARADIGM INTRINSIC VALUE FUND | ||||||
| Expenses Paid | ||||||
| Beginning | Ending | During the Period* | ||||
| Account Value | Account Value | January 1, 2011 | ||||
| January 1, 2011 | June 30, 2011 | to June 30, 2011 | ||||
| Actual | $1,000.00 | $1,053.30 | $6.36 | |||
| Hypothetical | $1,000.00 | $1,018.60 | $6.26 | |||
| (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 181/365 (to reflect the one-half year period). |
2011 Semi-Annual Report 32
ADDITIONAL INFORMATION
June 30, 2011
APPROVAL AND RENEWAL OF INVESTMENT ADVISORY AGREEMENTS
(Unaudited)
At a Meeting of the Board of Trustees held on February 17, 2011 (the “Meeting”) the Board of Trustees (the “Trustees”) considered the continuance of the Management Agreements (the “Agreements”) with Paradigm Funds Advisor LLC (the “Advisor”) for the Paradigm Value Fund, the Paradigm Select Fund, the Paradigm Opportunity Fund, and the Paradigm Intrinsic Value Fund. In renewing the Agreements, the Board of Trustees received material from the Advisor (the "Report") addressing the following factors: (i) the investment performance of the Funds and the Advisor; (ii) the nature, extent and quality of the services provided by the Advisor to the Funds; (iii) the cost of the services to be provided and the profits to be realized by the Advisor and its affiliates from the relationship with the Funds; (iv) the extent to which economies of scale will be realized as the Funds grow; and (v) whether the fee levels reflect these economies of scale to the benefit of shareholders.
As to the performance of the Funds, the Report provided prior to the Meeting to the Trustees included information regarding the performance of each Fund compared to a group of funds of similar size, style and objective where fees and expenses had not been completely waived by the advisors to the funds (the "Peer Group"). All performance data was through the period ended December 31, 2010. The Report also included comparative performance information for major indexes and other accounts managed by the Advisor. The Trustees noted that each of the Funds continued to perform well. The Report indicated that the Value Fund's one year, three year annualized, five year annualized and since inception returns were higher than its Peer Group average and comparative index. The Report indicated that the Select Fund's one year return, three year annualized and five year annualized returns were higher than its Peer Group average. The Report also indicated that the Select Fund's one year return and three year annualized returns were slightly below its comparative index, and its five year annualized and since inception returns were higher than its comparative index. The Report indicated that the Opportunity Fund's one year, three year annualized, and five year annualized returns exceeded its Peer Group average and closely followed the returns of its comparative index, with the Fund out performing its index for its three year annualized, five year annualized, and since inception periods. The Trustees then reviewed the Paradigm Intrinsic Value Fund's performance. It was noted that the Intrinsic Value Fund outperformed its index and Peer Group average for each of the periods reviewed (one year, three year annualized, and since inception). The Trustees concluded that the Funds' performance was either consistent with or above their expectations.
As to the nature, extent and quality of the services provided by the Advisor, the Trustees analyzed the Advisor's experience and capabilities. The representatives of the Advisor reviewed and discussed with the Trustees the Advisor's ADV and the Code of Ethics certifications. They summarized the information provided to the Trustees regarding matters such as the Advisor's research and investment personnel. They also discussed the portfolio managers' backgrounds and investment management experience. Furthermore, they reviewed the Advisor's financial information and discussed the firm's ability to meet its obligations under the Agreements. The Trustees concluded that the nature and extent of the services provided by the Advisor were consistent with their expectations, and that the quality of services, particularly those provided by the portfolio managers, was exceptional. The Trustees also concluded that the Advisor has the resources to provide quality advisory services to the Funds.
As to the costs of the services to be provided, the Trustees reviewed the fees under the Agreements compared to the applicable Peer Group. The Trustees noted that each Fund pays a unitary management fee out of which the Advisor pays Fund expenses. As a result, comparison of the total operating expenses is a relevant exercise. The Value Fund's expense ratio of 1.50% was found to be higher than its Peer Group's average expense ratio of 1.26%, but within the range of its peers. The report indicated that the Select Fund's audited expense ratio of 1.50% was lower than its Peer Group's average expense ratio of 1.88%, and that the Opportunity Fund's expense ratio of 1.50% was lower than its Peer Group's average expense ratio of 1.83% . The Intrinsic Value Fund's expense ratio of 1.25% was equal to its Peer Group's average expense ratio. Additionally, it was noted that while the Advisor's management fees were the highest in the peer groups when compared to advisory fees (not total expenses), the Advisor is responsible under the Agreements for paying all but a very small fraction of the Funds' expenses out of the management fees. The Trustees noted that while the Advisor does not manage any other accounts, Paradigm Capital Management, an affiliate of the Advisor, provides services to "hedge funds", institutional accounts, separately managed accounts and has a sub-advisory arrangement with a registered investment company. The Trustees reviewed the fees paid to Paradigm Capital Management. The Trustees concluded that the management fees were reasonable, and that the shareholders were receiv-
2011 Semi-Annual Report 33
Additional Information - continued
ing excellent value for the fees paid. The Trustees also reviewed a profit and loss analysis prepared by the Advisor that disclosed the direct and indirect expenses paid by the Advisor on behalf of each Fund, and the total revenue derived by the Advisor from the Funds. The Trustees reviewed a third-party research memo on advisor profitability. The Trustees then noted that the Advisor did not utilize an affiliated broker and received no soft dollar benefits. The Trustees concluded that the Advisor was not overly profitable.
As for potential economies of scale, the Trustees discussed and considered information regarding whether economies of scale have been realized with respect to the management of the Funds, whether the Funds have appropriately benefited from any economies of scale, and whether there is potential for realization of any further economies of scale. The Trustees noted that the Advisor has contractually agreed to waive management fees and reimburse expenses to the extent necessary to maintain total annual operating expenses of the Value Fund and the Opportunity Fund (excluding brokerage fees and commissions, interest and other borrowing expenses, taxes, extraordinary expenses and the indirect costs of investing in Acquired Funds) at 1.50% of their average daily net assets through May 1, 2012, thereby benefiting shareholders. As for the Select Fund and the Intrinsic Value Fund, the Advisor asserted, and the Trustees agreed, that the current small size of the Funds did not warrant any additional waivers. Next, the independent Trustees met in executive session to discuss the continuation of the Agreements. The officers of the Trust were excused during this discussion.
Upon reconvening the Meeting, it was the consensus of the Trustees, including the independent Trustees, that renewal of the Management Agreements would be in the best interests of each Fund and its shareholders.
Subsequent to the meeting of the Board of Trustees held on February 17, 2011, and effective March 15, 2011 the Advisor has contractually agreed to waive management fees and reimburse expenses of Select 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 the indirect costs of investing in acquired funds) at 1.15% of its average daily net assets through May 1, 2012.
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.para-digm-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.
2011 Semi-Annual Report 34
| Board of Trustees Carl A. Florio Peter H. Heerwagen Candace King Weir Anthony Mashuta William P. Phelan Investment Advisor Paradigm Funds Advisor LLC Nine Elk Street Albany, NY 12207-1002 Counsel Thompson Hine LLP 312 Walnut Street, 14th Floor Cincinnati, OH 45202 Custodian U.S. Bank, NA 425 Walnut Street P.O. Box 1118 Cincinnati, OH 45201 Dividend Paying Agent, Shareholders' Servicing Agent, Transfer Agent Mutual Shareholder Services 8000 Town Centre Dr., Suite 400 Broadview Hts., OH 44147 Fund Administrator Premier Fund Solutions, Inc. 1939 Friendship Drive, Suite C El Cajon, CA 92020 Independent Registered Public Accounting Firm Cohen Fund Audit Services, Ltd. 800 Westpoint Pkwy., Suite 1100 Westlake, OH 44145-1524 Distributor Rafferty Capital Markets, LLC 59 Hilton Avenue, Suite 101 Garden City, NY 11530 |
| 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. Not applicable.
Item 3. Audit Committee Financial Expert. Not applicable.
Item 4. Principal Accountant Fees and Services. Not applicable.
Item 5. Audit Committee of Listed Companies. Not applicable.
Item 6. Schedule of Investments. Not applicable. Schedule filed with Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds. Not applicable.
Item 8. Portfolio Managers of Closed End Funds. 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. Not applicable.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(b) Certification pursuant to Section 906 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: 8-29-2011 |
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: 8-29-2011 |
By: /s/Robert A. Benton |
| Date: 8-29-2011 |