UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21233
PARADIGM FUNDS
(Exact name of registrant as specified in charter)
Nine Elk Street, Albany, NY 12207-1002
(Address of principal executive offices) (Zip code)
Robert A. Benton
Nine Elk Street, Albany, NY 12207-1002
(Name and address of agent for service)
Registrant's telephone number, including area code: (518) 431-3500
Date of fiscal year end: December 31
Date of reporting period: December 31, 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 Micro-Cap Fund
For Investors Seeking Long-Term Capital Appreciation
ANNUAL REPORT
December 31, 2011
Table of Contents | |
PARADIGM FUNDS | |
Letter to Shareholders | 2 |
Sector Allocation | 6 |
Performance Information | 8 |
Schedules of Investments | 12 |
Statements of Assets and Liabilities | 22 |
Statements of Operations | 22 |
Statements of Changes in Net Assets | 24 |
Financial Highlights | 26 |
NOTES TO FINANCIAL STATEMENTS | 28 |
DISCLOSURE OF EXPENSES | 34 |
ADDITIONAL INFORMATION | 35 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | 36 |
TRUSTEES & OFFICERS | 37 |
2011 Annual Report 1
Letter to Shareholders
Dear Fellow Shareholders:
2011 was a year of extraordinarily volatile markets. It was a year in which investor sentiment dramatically shifted from "risk-on" in the spring to "risk-off" by the fall. We continued to focus on executing our investment strategy in a disciplined manner in this volatile environment. We took advantage of the downturn in mid-2011 to add to those positions in which we had the most confidence, and also to acquire new positions in several businesses that we believed were trading at significant discounts to intrinsic value.
We would be the first to acknowledge why it was a more "risk-off" market in 2011. It was a difficult year for investors to navigate given the array of external macro events and supply chain disruptions. Key events of 2011 included the Middle East/North Africa political uprisings, the Japan tsunami, the US debt debacle and subsequent ratings downgrade, severe floods in Thailand, and the Eurozone sovereign debt crisis. These were not events that could be easily anticipated, nor were their ramifications immediately or fully clear. In the fourth quarter in particular, the focal point of the market's concern was the Eurozone debt crisis, and markets swung in both directions around each day's headlines and rumors.
That being said, economic data in the fourth quarter suggests that the US economy is gaining traction. ISM manufacturing data remain in expansionary territory, while a particular bright spot has been the continued improvement in the employment picture. Recent jobless claims reports have improved, and the 4-week average has remained below the key 400-thousand level for several consecutive weeks now. In contrast to the US, however, the Eurozone employment picture is much less rosy. Unemployment levels in the Eurozone hit a new record in November, with ~16 million people unemployed, or 10.3% of the work force. This level is unprecedented in the period that the data has been recorded. Moreover, European manufacturing data remain mixed, fostering continued concerns about the possibility of a recession in Europe.
Despite the headwinds of 2011, we believe there are several reasons to be optimistic about prospects for 2012, particularly for small-cap stocks. First, as stated above, we do believe that increased traction in the U.S. economy is truly happening. While they received little credit for it in 2011, corporate America is executing very well despite the macro headwinds, with improved balance sheets and leaner cost structures. Additional upside drivers for 2012 could include lower commodity costs such as cotton and natural gas, confirmation of a US housing bottom, the presidential election year, and a resolution to the Eurozone debt crisis.
Second, there has been an array of statistical data suggesting that equities are due for an upswing. For example, a recent JP Morgan report cited the equity risk premium at a 60-year high, surpassing levels seen in 2009, 1982, and even 1974. Furthermore, the same report included data confirming that since 2007 cumulative fund flows have been positive for corporate debt and negative for equities — a classic contrarian indicator.
Third, we believe that small-caps in particular have been oversold and under bought. For example, small-cap funds have seen record levels of outflows, while conversely small-cap companies have undertaken record levels of share buybacks in 2011. Moreover, Russell 2000 companies trade at a discount to their historical averages across every valuation metric, while the index trades at a discount to minus, 10-year Treasuries, and CDs. This disconnect indicates an unprecedented and likely unsustainable implied multiple divergence.
Lastly, in our own portfolios, we continue to have confidence in our core holdings and their fundamentals. Among our conversations with company managements, most are looking ahead to a better 2012. While no one thinks that it will be a cakewalk, our companies typically have lean operating structures with aggressive cost controls. Many have also undertaken significant steps to improve their balance sheets and capital structures. As a result, they tend to have less debt, more cash, and continue to add to these balances with strong free cash flows. Given these strong cash positions, we also expect to see continued aggressive share repurchase activity, as well as M&A activity. Our companies have been both acquirers and acquirees, and we expect this trend to continue into 2012.
2011 Annual Report 2
Thank you for your continued confidence in Paradigm Capital Management. We are grateful to our clients for your continued trust in us and our process. As always, we welcome any questions or requests for additional information.
Paradigm Value Fund
The Paradigm Value Fund declined 3.22% in 2011, compared to a decline of 5.50% for its benchmark, the Russell 2000 Value Index. Over the past three years on an annualized basis, the Fund has returned 17.99%, compared to 12.36% for the benchmark. Since inception (January 1, 2003) on an annualized basis, the Fund has returned 14.77%, compared to 8.62% for the benchmark.
The Fund's outperformance in 2011 was driven by strong stock selection in the Consumer Discretionary and Materials sectors. The portfolio's positions in Consumer Discretionary returned 12.18% and outperformed the benchmark holdings by 21.90% . Men's Wearhouse, a leading retailer of men's tailored clothing and tuxedo rentals, capitalized on improving employment trends and a strong fashion cycle in men's apparel to deliver earnings growth north of 50%. Foot Locker, a leading retailer of athletic footwear and apparel and a Fund holding since early 2009, was able to build upon operational improvements put in place in 2010 by new management to deliver over 50% earnings growth in 2011.
Materials played an important role in performance again this year as it has in past years. The Fund's positions in the Materials sector returned 11.61%, and outperformed the benchmark holdings by 19.45% . Smurfit-Stone Container, a containerboard manufacturer we purchased in 2010, experienced strong price increases in the second half of 2010 and in 2011, and was purchased by competitor Rock-Tenn in June. Tronox, which makes titanium dioxide, a pigment widely used in paints, was a new purchase for us in 2011. Tronox shares fell by nearly 50% after the company announced plans to acquire its main titanium ore supplier. We believed the sell-off was overdone and our industry checks indicated that titanium ore was in tight supply, so the purchase made sense strategically. Shares have appreciated by approximately 80% since our purchase this fall.
Mergers and acquisitions have historically been one of the advantages of investing in small-cap companies, and our focus on quality, cash-generating companies was rewarded as the market saw a rebound in M&A activity. In addition to Smurfit-Stone, Lawson Software, Verigy, Arch Chemicals, and CKX Entertainment were acquired in 2011.
The Fund's most challenging sector in 2011 was Health Care, with a decline of 8.08% compared to a positive 2.54% return for the benchmark sector holdings. Health Care, however, has been a strong performer for us over the longer term, and the Fund's Health Care portfolio sector has had an annualized return of 20.46% over the last three years, compared to 14.94% for the benchmark's Health Care sector over the same period. Two of our holdings, Life Technologies and Perkin Elmer, delivered solid earnings growth in 2011, but their stock prices declined due to concerns that a reduction in government funding for life sciences research could negatively impact their long-term growth potential. The Energy sector was also an underperformer for us, down 21.30% compared to a decline of 13.96% for sector companies in the benchmark. The portfolio was affected by a sharp decline in Venoco shares during the summer correction. Venoco's Board of Directors subsequently recommended the acceptance of a take-private offer from its Chairman and CEO in early 2012 and the shares rallied substantially.
Paradigm Select Fund
The Paradigm Select Fund returned 1.97% in 2011, compared to a decline of 2.51% for its benchmark, the Russell 2500 Index. Over the past three years on an annualized basis, the Fund has returned 18.01% compared to 18.46% for the benchmark. Since inception (January 1, 2005) on an annualized basis, the Fund has returned 6.67% compared to 4.23% for the benchmark.
Consumer Discretionary was the top-performing sector with a return of 19.04% and outperformed the benchmark holdings by 21.21% . Top contributors included Men's Wearhouse, Foot Locker, and Big Lots. We highlighted Big Lots in the 2011 semi-annual report as an
2011 Annual Report 3
underperformer due to the Board's decision to not pursue a sale of the company. The stock rallied significantly in the second half of 2011 to finish the year with a return of 24%. The market reacted favorably to a stabilization of business trends and the Board's aggressive deployment of free cash flow to repurchase shares in an effort to improve shareholder value.
Materials was the second-best performing sector with a return of 7.81%, outperforming the benchmark holdings by 14.82% . Smurfit-Stone Container, Royal Gold, and Innospec were top performing stocks in the sector. Royal Gold receives royalties on major gold properties throughout the world. Gold royalties have historically been attractive places to invest because they provide cash flow from gold production without incurring many of the costs and risks associated with mining. We trimmed our position and took profits as gold prices rose this year.
Energy was a challenging sector for the Fund with a decline of 21.14%, compared to a decline of 3.51% for the benchmark sector. Energy was affected by the collapse of the leveraged buyout of EXCO Resources, and also by a sharp decline in Venoco shares during the summer correction. Venoco's Board of Directors subsequently recommended the acceptance of a take-private offer from its Chairman and CEO in early 2012 and the shares rallied substantially.
Paradigm Opportunity Fund
The Paradigm Opportunity Fund declined 1.34% in 2011, compared to a decline of 4.18% for its benchmark, the Russell 2000 Index. Over the past three years on an annualized basis, the Fund has returned 22.34%, compared to 15.63% for the benchmark. Since inception (January 1, 2005) on an annualized basis, the Fund has returned 4.32%, compared to 3.21% for the benchmark.
Consumer Discretionary was the top-performing sector with a return of 14.45%, and outperformed the benchmark sector holdings by 21.63% . Top contributors included Men's Wearhouse, Foot Locker, and Big Lots.
Information Technology was the second-best performing sector on a relative basis, with the Fund down 0.39% compared to a 7.09% decline for the benchmark sector companies. The Fund's top performing stock in the sector and overall portfolio for 2011 was IAC/InterActive Corp. The stock was purchased in January 2011 and delivered significantly better-than-expected results throughout 2011, driven by strong subscriber and profit growth in its Match.com online personal business, coupled with robust growth and profitability in its search business. Overall, the company expanded earnings by more than 75% in 2011.
Energy was a challenging sector for the Fund with a decline of 28.84%, compared to a decline of 8.19% in the benchmark sector holdings. Energy was affected by a sharp drop in Venoco shares during the summer correction. Venoco's Board of Director's subsequently recommended the acceptance of a take-private offer from its Chairman and CEO in early 2012 and the shares rallied substantially.
Paradigm Micro-Cap Fund
The Paradigm Intrinsic Value Fund was renamed the Paradigm Microcap Fund on December 27, 2011. The principal investment objective remained the same, but the principal investment strategy has changed. The Fund will focus primarily on companies in the market capitalization range of the Russell Microcap Index, whose average market capitalization was $310 million as of December 30, 2011.
In 2011, the Fund declined 0.90%, compared to an increase of 1.03% for its prior benchmark, the Russell 3000 Index. Over the past three years the Fund has returned 14.96% on an annualized basis, compared to 14.88% for the benchmark.
The Financials sector was the top performer on a relative basis. The Fund's positions in the sector declined 3.22%, compared to a drop of 13.70% for Financials in the Russell 3000
2011 Annual Report 4
Index. ViewPoint Financial Group was the best performer in the sector, appreciating 11.90% in light of the Texas bank's solid post-demutualization prospects.
Consumer Discretionary was the second-best performing sector on a relative basis in 2011 with a return of 20.02%, beating the Consumer Discretionary sector companies in the Russell 3000 Index by 16.61% . Top contributors included West Marine Inc., CKX Inc., and Big Lots Inc.
Energy was a challenging sector for the Fund with a decline of 15.40% compared to an increase of 3.46% for the Energy companies in the Russell 3000 Index. EXCO Resources was the largest single detractor in the sector and the Fund due to market concerns about natural gas supply.
Sincerely,
Candace King Weir Amelia F. Weir
President and Chief Investment Officer Senior Vice President
Paradigm Funds Advisor LLC Paradigm Funds Advisor LLC
2011 Annual Report 5
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 Annual Report 6
Paradigm Funds (Unaudited)
PARADIGM OPPORTUNITY FUND
Sector Allocation (Unaudited)
(As a Percentage of Equity Securities Held)
PARADIGM MICRO-CAP FUND
Sector Allocation (Unaudited)
(As a Percentage of Equity Securities Held)
2011 Annual Report 7
Paradigm Value Fund (Unaudited)
![](https://capedge.com/proxy/N-CSR/0001413042-12-000062/paradigmn-csrannual2011x10x1.jpg)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended December 31, 2011.
December 31, 2011 NAV $52.54
Since | ||||
1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |
Paradigm Value Fund | (3.22)% | 17.99% | 2.67% | 14.76% |
Russell 2000® Value Index(B) | (5.50)% | 12.36% | (1.87)% | 8.59% |
(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.
2011 Annual Report 8
Paradigm Select Fund (Unaudited)
![](https://capedge.com/proxy/N-CSR/0001413042-12-000062/paradigmn-csrannual2011x11x1.jpg)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended December 31, 2011.
December 31, 2011 NAV $30.24
Since | ||||
1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |
Paradigm Select Fund | 1.97% | 18.01% | 2.87% | 6.66% |
Russell 2500® Index(B) | (2.51)% | 18.41% | 1.24% | 4.23% |
(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 Annual Report 9
Paradigm Opportunity Fund (Unaudited) ��
![](https://capedge.com/proxy/N-CSR/0001413042-12-000062/paradigmn-csrannual2011x12x1.jpg)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Periods Ended December 31, 2011.
December 31, 2011 NAV $25.04
Since | ||||
1 Year(A) | 3 Years(A) | 5 Years(A) | Inception(A) | |
Paradigm Opportunity Fund | (1.34)% | 22.34% | 2.31% | 4.31% |
Russell 2000® Index(B) | (4.18)% | 15.63% | 0.15% | 3.20% |
(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.
2011 Annual Report 10
Paradigm Micro-Cap Fund (Unaudited)
![](https://capedge.com/proxy/N-CSR/0001413042-12-000062/paradigmn-csrannual2011x13x1.jpg)
PERFORMANCE INFORMATION
Average Annual Rate of Return (%) for The Period Ended December 31, 2011.
December 31, 2011 NAV $21.01 | ||||||
Since | ||||||
1 Year(A) | 3 Years(A) | Inception(A) | ||||
Paradigm Micro-Cap Fund | (0.90)% | 14.96% | 1.51% | |||
Russell Microcap® Index(B) | (9.27)% | 14.23% | (2.66)% | |||
S&P 500® Index(C) | 2.11% | 14.13% | (1.63)% |
(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 Micro-Cap Fund was January 1, 2008. Effective December 27, 2011, the name of the Paradigm Intrinsic Value Fund was changed to the Paradigm Micro-Cap Fund.
(B) The Russell Microcap® Index measures the performance of the microcap segment of the U.S. equity market. Microcap stocks make up less than 3% of the U.S. equity market (by market cap) and consist of the smallest 1,000 securities in the small-cap Russell 2000® Index, plus the next smallest eligible securities by market cap. The Russell Microcap is completely reconstituted annually to ensure larger stocks do not distort performance and characteristics of the true microcap opportunity set. Effective December 27, 2011 the Fund changed its investment strategy. Under normal circumstances, the Micro-Cap Fund invests at least 80% of its net assets in common stocks of U.S. micro-cap companies. Therefore, the primary comaprative index was changed from the S&P 500® Index to the Russell Microcap® Index.
(C)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. Effective December 27, 2011 the S&P 500® Index became the secondary comparison index. Previously the Russell 3000® Index was the secondary comparison index.
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 Annual Report 11
Paradigm Value Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Agriculture Production - Crops | |||||
161,400 | Dole Food Company Inc. * | $ 1,396,110 | 0.59 | % | |
Agriculture Production - Livestock & Animal Specialties | |||||
91,000 | Cal-Maine Foods, Inc. | 3,327,870 | 1.42 | % | |
Bituminous Coal & Lignite Surface Mining | |||||
69,000 | Cloud Peak Energy Inc. * | 1,333,080 | 0.57 | % | |
Chemical & Allied Products | |||||
63,348 | Innospec Inc. * | 1,778,178 | |||
205,400 | Olin Corp. | 4,036,110 | |||
5,814,288 | 2.48 | % | |||
Computer Communications Equipment | |||||
416,700 | Emulex Corporation * | 2,858,562 | |||
365,300 | QLogic Corp. * | 5,479,500 | |||
8,338,062 | 3.55 | % | |||
Construction - Special Trade Contractors | |||||
241,102 | Matrix Service Co. * | 2,276,003 | 0.97 | % | |
Crude Petroleum & Natural Gas | |||||
301,200 | McMoRan Exploration Co. * | 4,382,460 | |||
372,200 | PetroQuest Energy Inc. * | 2,456,520 | |||
265,100 | Resolute Energy Corporation * | 2,863,080 | |||
198,000 | Venoco, Inc. * | 1,340,460 | |||
11,042,520 | 4.69 | % | |||
Drilling Oil & Gas Wells | |||||
72,400 | Atwood Oceanics Inc. * | 2,880,796 | 1.23 | % | |
Electrical Work | |||||
168,200 | EMCOR Group Inc. | 4,509,442 | 1.92 | % | |
Electronic Components & Accessories | |||||
670,400 | Vishay Intertechnology Inc.* | 6,026,896 | 2.57 | % | |
Fabricated Plater Work (Boiler Shops) | |||||
177,573 | Global Power Equipment Group Inc. * | 4,217,359 | 1.80 | % | |
Fire, Marine & Casualty Insurance | |||||
135,400 | Aspen Insurance Holdings Limited (Bermuda) | 3,588,100 | |||
171,400 | Montpelier Re Holdings Ltd. (Bermuda) | 3,042,350 | |||
6,630,450 | 2.82 | % | |||
In Vitro & In Vivo Diagnostic Substances | |||||
238,800 | Myriad Genetics, Inc. * | 5,000,472 | 2.13 | % | |
Industrial Inorganic Chemicals | |||||
24,300 | Tronox Inc. * | 2,916,000 | 1.24 | % | |
Industrial Organic Chemicals | |||||
173,377 | Sensient Technologies Corp. | 6,570,988 | 2.80 | % | |
Laboratory Analytical Instruments | |||||
129,500 | PerkinElmer Inc. | 2,590,000 | 1.10 | % | |
Life Insurance | |||||
19,825 | National Western Life Insurance Co. Class A | 2,699,372 | 1.15 | % | |
Motor Vehicle Parts & Accessories | |||||
128,600 | Superior Industries International Inc. | 2,127,044 | 0.91 | % | |
Orthopedic, Prosthetic & Surgical Appliances & Supplies | |||||
311,926 | Symmetry Medical, Inc. * | 2,492,289 | 1.06 | % | |
Pharmaceutical Preparations | |||||
128,100 | Endo Pharmaceuticals Holdings Inc. * | 4,423,293 | |||
620,830 | Vanda Pharmaceuticals, Inc. * | 2,955,151 | |||
7,378,444 | 3.14 | % |
* Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 12
Paradigm Value Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Plastic Materials, Synth Resin/Rubber, Cellulos (No Glass) | |||||
273,300 | Chemtura Corp. * | $ 3,099,222 | 1.32 | % | |
Retail - Apparel & Accessory Stores | |||||
198,600 | Express Inc. * | 3,960,084 | |||
120,700 | The Men's Wearhouse, Inc. | 3,911,887 | |||
7,871,971 | 3.35 | % | |||
Retail - Family Clothing Stores | |||||
296,500 | American Eagle Outfitters, Inc. | 4,533,485 | 1.93 | % | |
Retail - Miscellaneous Retail | |||||
138,700 | EZCORP Inc. Class A * | 3,657,519 | 1.56 | % | |
Retail - Retail Stores, NEC | |||||
95,800 | IAC/InterActiveCorp. | 4,081,080 | 1.74 | % | |
Retail - Shoe Stores | |||||
175,500 | Foot Locker, Inc. | 4,183,920 | 1.78 | % | |
Retail - Variety Stores | |||||
82,500 | Big Lots Inc. * | 3,115,200 | 1.33 | % | |
Savings Institution, Federally Chartered | |||||
101,200 | Capitol Federal Financial | 1,167,848 | |||
272,900 | SI Financial Group, Inc. | 2,688,065 | |||
237,300 | United Financial Bancorp | 3,818,157 | |||
223,100 | Viewpoint Financial Group | 2,902,531 | |||
306,200 | Westfield Financial Inc. | 2,253,632 | |||
12,830,233 | 5.46 | % | |||
Secondary Smelting & Refining of Nonferrous Metals | |||||
909,400 | Metalico Inc. * | 2,991,926 | 1.27 | % | |
Security Brokers, Dealers & Flotation Companies | |||||
397,050 | Knight Capital Group Inc. Class A * | 4,693,131 | 2.00 | % | |
Semiconductors & Related Devices | |||||
109,700 | Diodes Incorporated * | 2,336,610 | |||
312,800 | Kulicke & Soffa Industries Inc. * (Singapore) | 2,893,400 | |||
172,500 | Microsemi Corporation * | 2,889,375 | |||
309,700 | TriQuint Semiconductor, Inc. * | 1,508,239 | |||
9,627,624 | 4.10 | % | |||
Services - Business Services | |||||
156,600 | Lender Processing Services, Inc. | 2,359,962 | |||
456,852 | Premiere Global Services Inc. * | 3,869,536 | |||
6,229,498 | 2.65 | % | |||
Services - Computer Integrated Systems Design | |||||
484,700 | Convergys Corp. * | 6,189,619 | 2.64 | % | |
Services - Hospitals | |||||
88,000 | Magellan Health Services Inc. * | 4,353,360 | |||
67,500 | MEDNAX, Inc. * | 4,860,675 | |||
9,214,035 | 3.92 | % | |||
Services - Motion Picture Theaters | |||||
446,430 | Regal Entertainment Group Class A | 5,330,374 | 2.27 | % | |
Services - Prepackaged Software | |||||
440,700 | Actuate Corporation * | 2,582,502 | |||
378,800 | Compuware Corp. * | 3,151,616 | |||
5,734,118 | 2.44 | % | |||
Special Industry Machinery | |||||
95,000 | Cymer, Inc. * | 4,727,200 | 2.01 | % | |
Transportation Services | |||||
89,700 | GATX Corp. | 3,916,302 | 1.67 | % |
* Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 13
Paradigm Value Fund | ||||||
Schedule of Investments | ||||||
December 31, 2011 | ||||||
Shares | Fair Value | % of Net Assets | ||||
COMMON STOCKS | ||||||
Wholesale - Chemicals & Allied Products | ||||||
97,200 | Innophos Holdings Inc. | $ 4,720,032 | 2.01 | % | ||
Wholesale - Electronic Parts & Equipment, NEC | ||||||
606,400 | Brightpoint, Inc. * | 6,524,864 | 2.78 | % | ||
Wholesale - Machinery, Equipment & Supplies | ||||||
118,792 | Applied Industrial Technologies | 4,177,915 | 1.78 | % | ||
Wholesale - Miscellaneous Durable Goods | ||||||
86,400 | Schnitzer Steel Industries, Inc. Class A | 3,652,992 | 1.55 | % | ||
Total for Common Stock (Cost $187,153,207) | $ 210,669,745 | 89.70 | % | |||
REAL ESTATE INVESTMENT TRUSTS | ||||||
815,100 | Anworth Mortgage Asset Corp. | 5,118,828 | ||||
289,200 | MFA Financial, Inc. | 1,943,424 | ||||
69,200 | Mid-America Apartment Communities Inc. | 4,328,460 | ||||
Total for Real Estate Investment Trusts (Cost $10,825,075) | 11,390,712 | 4.85 | % | |||
MONEY MARKET FUNDS | ||||||
12,985,386 | SEI Daily Income Treasury Government CL B 0.02% ** | 12,985,386 | 5.53 | % | ||
(Cost $12,985,386) | ||||||
Total Investment Securities | 235,045,843 | 100.08 | % | |||
(Cost $210,963,668) | ||||||
Liabilities In Excess of Other Assets | (196,715 | ) | -0.08 | % | ||
Net Assets | $ 234,849,128 | 100.00 | % |
* Non-Income Producing Securities. |
2011 Annual Report 14
Paradigm Select Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Agriculture Production - Crops | |||||
6,400 | Dole Food Company Inc. * | $ 55,360 | 0.70 | % | |
Agriculture Production - Livestock & Animal Specialties | |||||
2,800 | Cal-Maine Foods, Inc. | 102,396 | 1.29 | % | |
Biological Products, (No Diagnostic Substances) | |||||
2,500 | Life Technologies Corporation * | 97,275 | 1.23 | % | |
Bituminous Coal & Lignite Surface Mining | |||||
2,100 | Cloud Peak Energy Inc. * | 40,572 | 0.51 | % | |
Canned Fruits, Vegetables, Preserves, Jams & Jellies | |||||
1,200 | The J. M. Smucker Company | 93,804 | 1.18 | % | |
Chemical & Allied Products | |||||
1,700 | Innospec Inc. * | 47,719 | |||
5,800 | Olin Corp. | 113,970 | |||
161,689 | 2.04 | % | |||
Computer & Office Equipment | |||||
4,300 | Lexmark International, Inc. | 142,201 | 1.79 | % | |
Computer Communications Equipment | |||||
12,900 | Emulex Corporation * | 88,494 | |||
11,700 | QLogic Corp. * | 175,500 | |||
263,994 | 3.33 | % | |||
Construction - Special Trade Contractors | |||||
7,700 | Matrix Service Co. * | 72,688 | 0.92 | % | |
Crude Petroleum & Natural Gas | |||||
12,100 | PetroQuest Energy Inc. * | 79,860 | |||
2,200 | Plains Exploration & Production Company * | 80,784 | |||
3,500 | Resolute Energy Corporation * | 37,800 | |||
7,900 | Venoco, Inc. * | 53,483 | |||
2,000 | Whiting Petroleum Corp. * | 93,380 | |||
345,307 | 4.35 | % | |||
Electrical Work | |||||
5,300 | EMCOR Group Inc. | 142,093 | 1.79 | % | |
Electronic Components & Accessories | |||||
16,960 | Vishay Intertechnology Inc. * | 152,471 | 1.92 | % | |
Fire, Marine & Casualty Insurance | |||||
409 | Alleghany Inc. * | 116,684 | |||
3,200 | American Financial Group Inc. | 118,048 | |||
4,500 | Aspen Insurance Holdings Limited (Bermuda) | 119,250 | |||
150 | Markel Corp. * | 62,200 | |||
7,000 | Montpelier Re Holdings Ltd. (Bermuda) | 124,250 | |||
540,432 | 6.82 | % | |||
In Vitro & In Vivo Diagnostic Substances | |||||
8,000 | Myriad Genetics, Inc. * | 167,520 | 2.11 | % | |
Industrial Inorganic Chemicals | |||||
800 | Tronox Inc. * | 96,000 | 1.21 | % | |
Industrial Organic Chemicals | |||||
5,300 | Sensient Technologies Corporation | 200,870 | |||
2,700 | Westlake Chemical Corp. | 108,648 | |||
309,518 | 3.90 | % | |||
Iron & Steel Foundries | |||||
600 | Precision Castparts Corp. | 98,874 | 1.25 | % | |
Laboratory Analytical Instruments | |||||
4,100 | PerkinElmer Inc. | 82,000 | 1.03 | % |
* Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 15
Paradigm Select Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Men's & Boy's Furnishings, Work Clothing & Allied Garments | |||||
2,480 | PVH Corp. | $ 174,815 | 2.20 | % | |
Mineral Royalty Traders | |||||
1,100 | Royal Gold, Inc. | 74,173 | 0.94 | % | |
Paperboard Containers & Boxes | |||||
1,101 | Rock-Tenn Co. Class A | 63,528 | 0.80 | % | |
Pharmaceutical Preparations | |||||
4,000 | Endo Pharmaceuticals Holdings Inc. * | 138,120 | 1.74 | % | |
Plastic Materials, Synth Resin/Rubber, Cellulos (No Glass) | |||||
8,500 | Chemtura Corp. * | 96,390 | 1.22 | % | |
Plastics Products | |||||
2,400 | AptarGroup Inc. | 125,208 | 1.58 | % | |
Retail - Apparel & Accessory Stores | |||||
5,900 | Express Inc. * | 117,646 | |||
3,700 | The Men's Wearhouse, Inc. | 119,917 | |||
237,563 | 3.00 | % | |||
Retail - Family Clothing Stores | |||||
9,200 | American Eagle Outfitters, Inc. | 140,668 | 1.77 | % | |
Retail - Miscellaneous Retail | |||||
4,300 | EZCORP Inc. Class A * | 113,391 | 1.43 | % | |
Retail - Retail Stores, NEC | |||||
3,000 | IAC/InterActiveCorp. | 127,800 | 1.61 | % | |
Retail - Shoe Stores | |||||
5,400 | Foot Locker, Inc. | 128,736 | 1.62 | % | |
Retail - Variety Stores | |||||
2,600 | Big Lots Inc. * | 98,176 | 1.24 | % | |
Savings Institution, Federally Chartered | |||||
10,600 | Capitol Federal Financial | 122,324 | 1.54 | % | |
Security Brokers, Dealers & Flotation Companies | |||||
13,500 | Knight Capital Group Inc. Class A * | 159,570 | 2.01 | % | |
Semiconductors & Related Devices | |||||
2,700 | Diodes Incorporated * | 57,510 | |||
9,700 | Kulicke & Soffa Industries Inc. * (Singapore) | 89,725 | |||
7,200 | Marvell Technology Group Ltd. * (Bermuda) | 99,720 | |||
5,300 | Microsemi Corporation * | 88,775 | |||
9,400 | TriQuint Semiconductor, Inc. * | 45,778 | |||
381,508 | 4.81 | % | |||
Services - Business Services | |||||
5,489 | Lender Processing Services, Inc. | 82,719 | |||
14,170 | Premiere Global Services Inc. * | 120,020 | |||
202,739 | 2.56 | % | |||
Services - Computer Integrated Systems Design | |||||
16,700 | Convergys Corp. * | 213,259 | 2.69 | % | |
Services - Hospitals | |||||
3,200 | Magellan Health Services Inc. * | 158,304 | |||
2,100 | MEDNAX, Inc. * | 151,221 | |||
309,525 | 3.90 | % | |||
Services - Management Consulting Services | |||||
2,300 | FTI Consulting, Inc. * | 97,566 | 1.23 | % | |
Services - Motion Picture Theaters | |||||
13,800 | Regal Entertainment Group Class A | 164,772 | 2.08 | % |
* Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 16
Paradigm Select Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Services - Prepackaged Software | |||||
12,700 | Compuware Corp. * | $ 105,664 | 1.33 | % | |
Special Industry Machinery | |||||
2,700 | Cymer, Inc. * | 134,352 | 1.69 | % | |
Wholesale - Electronic Parts & Equipment, NEC | |||||
5,800 | Avnet, Inc. * | 180,322 | |||
17,700 | Brightpoint, Inc. * | 190,452 | |||
370,774 | 4.69 | % | |||
Wholesale - Machinery, Equipment & Supplies | |||||
3,600 | Applied Industrial Technologies | 126,612 | 1.60 | % | |
Wholesale - Miscellaneous Durable Goods | |||||
2,100 | Schnitzer Steel Industries, Inc. Class A | 88,788 | 1.12 | % | |
Total for Common Stock (Cost $6,256,387) | $ 6,960,215 | 87.77 | % | ||
REAL ESTATE INVESTMENT TRUSTS | |||||
21,200 | Anworth Mortgage Asset Corp. | 133,136 | |||
16,100 | MFA Financial, Inc. | 108,192 | |||
2,100 | Mid-America Apartment Communities Inc. | 131,355 | |||
Total for Real Estate Investment Trusts (Cost $387,509) | 372,683 | 4.70 | % | ||
MONEY MARKET FUNDS | |||||
582,105 | SEI Daily Income Treasury Government CL B 0.02% ** | 582,105 | 7.34 | % | |
(Cost $582,105) | |||||
Total Investment Securities | 7,915,003 | 99.81 | % | ||
(Cost $7,226,001) | |||||
Other Assets In Excess of Liabilities | 14,714 | 0.19 | % | ||
Net Assets | $ 7,929,717 | 100.00 | % |
* Non-Income Producing Securities. ** Variable Rate Security; the rate shown was the rate at December 31, 2011. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 17
Paradigm Opportunity Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Agriculture Production - Crops | |||||
6,000 | Dole Food Company Inc. * | $ 51,900 | 1.16 | % | |
Agriculture Production - Livestock & Animal Specialties | |||||
3,300 | Cal-Maine Foods, Inc. | 120,681 | 2.69 | % | |
Biological Products, (No Diagnostic Substances) | |||||
2,900 | Life Technologies Corporation * | 112,839 | 2.51 | % | |
Bituminous Coal & Lignite Surface Mining | |||||
2,500 | Cloud Peak Energy Inc. * | 48,300 | 1.08 | % | |
Computer Communications Equipment | |||||
15,300 | Emulex Corporation * | 104,958 | |||
13,500 | QLogic Corp. * | 202,500 | |||
307,458 | 6.85 | % | |||
Construction - Special Trade Contractors | |||||
8,900 | Matrix Service Co. * | 84,016 | 1.87 | % | |
Crude Petroleum & Natural Gas | |||||
13,800 | PetroQuest Energy Inc. * | 91,080 | |||
7,300 | Venoco, Inc. * | 49,421 | |||
140,501 | 3.13 | % | |||
Electrical Work | |||||
6,200 | EMCOR Group Inc. | 166,222 | 3.70 | % | |
Industrial Organic Chemicals | |||||
6,400 | Sensient Technologies Corporation | 242,560 | 5.40 | % | |
Laboratory Analytical Instruments | |||||
4,800 | PerkinElmer Inc. | 96,000 | 2.14 | % | |
Orthopedic, Prosthetic & Surgical Appliances & Supplies | |||||
9,800 | Symmetry Medical, Inc. * | 78,302 | 1.74 | % | |
Pharmaceutical Preparations | |||||
4,000 | Endo Pharmaceuticals Holdings Inc. * | 138,120 | 3.08 | % | |
Retail - Apparel & Accessory Stores | |||||
6,900 | Express Inc. * | 137,586 | |||
4,400 | The Men's Wearhouse, Inc. | 142,604 | |||
280,190 | 6.24 | % | |||
Retail - Family Clothing Stores | |||||
10,900 | American Eagle Outfitters, Inc. | 166,661 | 3.71 | % | |
Retail - Miscellaneous Retail | |||||
4,800 | EZCORP Inc. Class A * | 126,576 | 2.82 | % | |
Retail - Retail Stores, NEC | |||||
3,500 | IAC/InterActiveCorp. | 149,100 | 3.32 | % | |
Retail - Shoe Stores | |||||
5,500 | Foot Locker, Inc. | 131,120 | 2.92 | % | |
Retail - Variety Stores | |||||
2,400 | Big Lots Inc. * | 90,624 | 2.02 | % | |
Security Brokers, Dealers & Flotation Companies | |||||
14,700 | Knight Capital Group Inc. Class A * | 173,754 | 3.87 | % | |
Semiconductors & Related Devices | |||||
11,500 | Kulicke & Soffa Industries Inc. * (Singapore) | 106,375 | |||
6,300 | Microsemi Corporation * | 105,525 | |||
11,100 | TriQuint Semiconductor, Inc. * | 54,057 | |||
265,957 | 5.92 | % | |||
Services - Business Services | |||||
16,700 | Premiere Global Services Inc. * | 141,449 | 3.15 | % | |
Services - Computer Integrated Systems Design | |||||
17,900 | Convergys Corp. * | 228,583 | 5.09 | % |
* Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 18
Paradigm Opportunity Fund | ||||||
Schedule of Investments | ||||||
December 31, 2011 | ||||||
Shares | Fair Value | % of Net Assets | ||||
COMMON STOCKS | ||||||
Services - Hospitals | ||||||
4,600 | Magellan Health Services Inc. * | $ 227,562 | ||||
2,700 | MEDNAX, Inc. * | 194,427 | ||||
421,989 | 9.39 | % | ||||
Services - Motion Picture Theaters | ||||||
17,000 | Regal Entertainment Group Class A | 202,980 | 4.52 | % | ||
Service - Prepackaged Software | ||||||
13,500 | Compuware Corp. * | 112,320 | 2.50 | % | ||
Total for Common Stock (Cost $3,511,063) | $ 4,078,202 | 90.82 | % | |||
REAL ESTATE INVESTMENT TRUSTS | ||||||
2,500 | Mid-America Apartment Communities Inc. | 156,375 | ||||
Total for Real Estate Investment Trusts (Cost $96,166) | 156,375 | 3.48 | % | |||
MONEY MARKET FUNDS | ||||||
260,528 | SEI Daily Income Treasury Government CL B 0.02% ** | 260,528 | 5.80 | % | ||
(Cost $260,528) | ||||||
Total Investment Securities | 4,495,105 | 100.10 | % | |||
(Cost $3,867,757) | ||||||
Liabilities In Excess of Other Assets | (4,490 | ) | -0.10 | % | ||
Net Assets | $ 4,490,615 | 100.00 | % |
]
* Non-Income Producing Securities. ** Variable Rate Security; the rate shown was the rate at December 31, 2011. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 19
Paradigm Micro-Cap Fund | |||||
Schedule of Investments | |||||
December 31, 2011 | |||||
Shares | Fair Value | % of Net Assets | |||
COMMON STOCKS | |||||
Chemicals & Allied Products | |||||
900 | Innospec Inc. * | $ 25,263 | 0.36 | % | |
Communications Services, NEC | |||||
48,000 | Kratos Defense & Security Solutions, Inc. * | 286,560 | 4.08 | % | |
Computer Peripheral Equipment, NEC | |||||
20,000 | Intermec, Inc. * | 137,200 | |||
50,000 | RadiSys Corporation * | 253,000 | |||
390,200 | 5.55 | % | |||
Electromedical & Electrotherapeutic Apparatus | |||||
11,000 | Natus Medical Inc. * | 103,730 | 1.48 | % | |
Footwear, (No Rubber) | |||||
32,000 | Brown Shoe Co. Inc. | 284,800 | 4.05 | % | |
Industrial Instruments for Measurement, Display and Control | |||||
32,000 | Rudolph Technologies Inc. * | 296,320 | 4.22 | % | |
Instruments for Measuring & Testing of Electricity & Electric Signals | |||||
12,000 | LeCroy Corp. * | 100,920 | 1.44 | % | |
Iron & Steel Foundries | |||||
490 | Precision Castparts Corp. | 80,747 | 1.15 | % | |
Laboratory Analytical Instruments | |||||
45,000 | MFC Industrial Ltd. (Canada) | 315,450 | 4.49 | % | |
Men's & Boys' Furnishings, Work Clothing, and Allied Garments | |||||
2,235 | PVH Corp. | 157,545 | 2.24 | % | |
Miscellaneous Electrical Machinery, Equipment & Supplies | |||||
152,000 | Exide Technologies * | 399,760 | 5.69 | % | |
Oil & Gas Field Exploration Services | |||||
45,000 | TGC Industries Inc. * | 321,300 | 4.57 | % | |
Orthopedic, Prosthetic & Surgical Appliances & Supplies | |||||
17,000 | Exactech Inc. * | 279,990 | 3.98 | % | |
Paper Mills | |||||
16,000 | KapStone Paper and Packaging Corporation * | 251,840 | 3.58 | % | |
Pharmaceutical Preparations | |||||
30,000 | Obagi Medical Products, Inc. * | 304,800 | 4.34 | % | |
Railroads, Line-Haul Operating | |||||
1,220 | Canadian National Railway Company (Canada) | 95,843 | 1.36 | % | |
Retail - Auto Dealers & Gasoline Stations | |||||
25,000 | West Marine Inc. * | 290,750 | 4.14 | % | |
Retail - Catalog & Mail-Order Houses | |||||
17,000 | Insight Enterprises Inc. * | 259,930 | 3.70 | % | |
Retail - Family Clothing Stores | |||||
46,000 | Stein Mart Inc. * | 313,260 | 4.46 | % | |
Retail - Furniture Stores | |||||
44,000 | Haverty Furniture Companies Inc. | 483,120 | 6.88 | % | |
Retail - Retail Stores, NEC | |||||
3,510 | IAC/InterActiveCorp. | 149,526 | |||
21,000 | Kirkland's Inc. * | 279,300 | |||
428,826 | 6.10 | % | |||
Retail - Women's Clothing Stores | |||||
70,000 | Wet Seal Inc. Class A * | 228,200 | 3.25 | % | |
Services - Computer Integrated Systems Design | |||||
21,000 | Dynamics Research Corp. * | 238,140 | 3.39 | % |
* Non-Income Producing Securities. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 20
Paradigm Micro-Cap Fund | ||||||
Schedule of Investments | ||||||
December 31, 2011 | ||||||
Shares | Fair Value | % of Net Assets | ||||
COMMON STOCKS | ||||||
Special Industry Machinery (No Metalworking Machinery) | ||||||
5,000 | Kadant Inc. * | $ 113,050 | 1.61 | % | ||
Surgical & Medical Instruments | ||||||
64,000 | Alphatec Holdings, Inc. * | 110,080 | 1.57 | % | ||
Wholesale - Electronic Parts & Equipment, NEC | ||||||
6,260 | Avnet Inc. * | 194,624 | ||||
25,670 | Brightpoint, Inc. * | 276,209 | ||||
8,000 | Richardson Electronics Ltd. | 98,320 | ||||
569,153 | 8.10 | % | ||||
Total for Common Stock (Cost $6,202,362) | $ 6,729,577 | 95.78 | % | |||
EXCHANGE TRADED FUNDS | ||||||
3,200 | iShares Gold Trust * | 48,736 | ||||
Total for Exchange Traded Funds (Cost - $26,018) | 48,736 | 0.69 | % | |||
MONEY MARKET FUNDS | ||||||
252,002 | SEI Daily Income Treasury Government CL B 0.02% ** | 252,002 | 3.59 | % | ||
(Cost $252,002) | ||||||
Total Investment Securities | 7,030,315 | 100.06 | % | |||
(Cost $6,480,382) | ||||||
Liabilities In Excess of Other Assets | (3,990 | ) | -0.06 | % | ||
Net Assets | $ 7,026,325 | 100.00 | % |
* Non-Income Producing Securities. ** Variable Rate Security; the rate shown was the rate at December 31, 2011. The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 21
Paradigm Funds | ||||
Statements of Assets and Liabilities | Value | Select | ||
December 31, 2011 | Fund | Fund | ||
Assets: | ||||
Investment Securities at Fair Value* | $ 235,045,843 | $ 7,915,003 | ||
Cash | - | 1,301 | ||
Receivable for Fund Shares Sold | 179,934 | 10,429 | ||
Dividends Receivable | 325,880 | 10,564 | ||
Interest Receivable | 1,185 | 46 | ||
Total Assets | 235,552,842 | 7,937,343 | ||
Liabilities: | ||||
Payable for Fund Shares Redeemed | 401,055 | - | ||
Payable to Advisor | 302,659 | 7,626 | ||
Total Liabilities | 703,714 | 7,626 | ||
Net Assets | $ 234,849,128 | $ 7,929,717 | ||
Net Assets Consist of: | ||||
Paid In Capital | $ 214,054,575 | $ 7,283,387 | ||
Accumulated Realized Gain (Loss) on Investments - Net | (3,287,622 | ) | (42,672 | ) |
Unrealized Appreciation (Depreciation) in Value of Investment Securities - Net | 24,082,175 | 689,002 | ||
Net Assets | $ 234,849,128 | $ 7,929,717 | ||
Net Asset Value and Offering Price (Note 2) | $ 52.54 | $ 30.24 | ||
* Investments at Identified Cost | $ 210,963,668 | $ 7,226,001 | ||
Shares Outstanding (Unlimited number of shares | 4,469,874 | 262,210 | ||
authorized without par value) | ||||
Statements of Operations | ||||
For the fiscal year ended December 31, 2011 | ||||
Investment Income: | ||||
Dividends | $ 3,663,011 | $ 91,240 | ||
Interest | 12,644 | 367 | ||
Total Investment Income | 3,675,655 | 91,607 | ||
Expenses: | ||||
Investment Advisor Fees | 5,457,312 | 97,467 | ||
Total Expenses | 5,457,312 | 97,467 | ||
Less: Expenses Waived | (993,902 | ) | (19,470 | ) |
Net Expenses | 4,463,410 | 77,997 | ||
Net Investment Income (Loss) | (787,755 | ) | 13,610 | |
Realized and Unrealized Gain (Loss) on Investments: | ||||
Net Realized Gain (Loss) on Investments | 6,680,547 | 198,161 | ||
Net Change in Unrealized Appreciation (Depreciation) on Investments | (21,135,754 | ) | (209,355 | ) |
Net Realized and Unrealized Gain (Loss) on Investments | (14,455,207 | ) | (11,194 | ) |
Net Increase (Decrease) in Net Assets from Operations | $ (15,242,962 | ) | $ 2,416 |
The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 22
Paradigm Funds | ||||
Statements of Assets and Liabilities | Opportunity | Micro-Cap | ||
December 31, 2011 | Fund | Fund | ||
Assets: | ||||
Investment Securities at Fair Value* | $ 4,495,105 | $ 7,030,315 | ||
Cash | - | 330 | ||
Dividends Receivable | 1,199 | 855 | ||
Interest Receivable | 19 | 105 | ||
Total Assets | 4,496,323 | 7,031,605 | ||
Liabilities: | ||||
Payable to Advisor | 5,708 | 5,280 | ||
Total Liabilities | 5,708 | 5,280 | ||
Net Assets | $ 4,490,615 | $ 7,026,325 | ||
Net Assets Consist of: | ||||
Paid In Capital | $ 3,921,118 | $ 6,592,486 | ||
Accumulated Realized Gain (Loss) on Investments - Net | (57,851 | ) | (116,094 | ) |
Unrealized Appreciation (Depreciation) in Value of Investment Securities - Net | 627,348 | 549,933 | ||
Net Assets | $ 4,490,615 | $ 7,026,325 | ||
Net Asset Value and Offering Price (Note 2) | $ 25.04 | $ 21.01 | ||
* Investments at Identified Cost | $ 3,867,757 | $ 6,480,382 | ||
Shares Outstanding (Unlimited number of shares | 179,311 | 334,399 | ||
authorized without par value) | ||||
Statements of Operations | ||||
For the fiscal year ended December 31, 2011 | ||||
Investment Income: | ||||
Dividends (Net of foreign withholding tax** and fees of $0 and $711, respectively) | $ 35,800 | $ 36,806 | ||
Interest | 189 | 226 | ||
Total Investment Income | 35,989 | 37,032 | ||
Expenses: | ||||
Investment Advisor Fees | 97,323 | 44,153 | ||
Total Expenses | 97,323 | 44,153 | ||
Less: Expenses Waived | (24,331 | ) | - | |
Net Expenses | 72,992 | 44,153 | ||
Net Investment Income (Loss) | (37,003 | ) | (7,121 | ) |
Realized and Unrealized Gain (Loss) on Investments: | ||||
Net Realized Gain (Loss) on Investments | 494,674 | 197,926 | ||
Net Change in Unrealized Appreciation (Depreciation) on Investments | (537,492 | ) | (40,694 | ) |
Net Realized and Unrealized Gain (Loss) on Investments | (42,818 | ) | 157,232 | |
Net Increase (Decrease) in Net Assets from Operations | $ (79,821 | ) | $ 150,111 |
** 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 Annual Report 23
Paradigm Funds | ||||||||
3Statements of Changes in Net Assets | Value Fund | Select Fund | ||||||
1/1/2011 | 1/1/2010 | 1/1/2011 | 1/1/2010 | |||||
to | to | to | to | |||||
12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | |||||
From Operations: | ||||||||
Net Investment Income (Loss) | $ (787,755 | ) | $ (256,163 | ) | $ 13,610 | $ (6,212 | ) | |
Net Realized Gain (Loss) on Investments | 6,680,547 | 18,143,844 | 198,161 | 274,580 | ||||
Change in Net Unrealized Appreciation (Depreciation) | (21,135,754 | ) | 29,589,320 | (209,355 | ) | 484,130 | ||
Increase (Decrease) in Net Assets from Operations | (15,242,962 | ) | 47,477,001 | 2,416 | 752,498 | |||
From Distributions to Shareholders: | ||||||||
Net Investment Income | - | (417,251 | ) | (14,165 | ) | (9,549 | ) | |
Net Realized Gain from Security Transactions | (3,448,769 | ) | - | - | - | |||
Total Distributions to Shareholders | (3,448,769 | ) | (417,251 | ) | (14,165 | ) | (9,549 | ) |
From Capital Share Transactions: | ||||||||
Proceeds From Sale of Shares | 199,045,263 | 125,199,934 | 4,955,030 | 745,813 | ||||
Proceeds from Redemption Fees (Note 2) | 129,958 | 20,531 | 77 | 10 | ||||
Shares Issued on Reinvestment of Dividends | 3,384,204 | 410,720 | 14,125 | 9,549 | ||||
Cost of Shares Redeemed | (204,517,840 | ) | (40,234,926 | ) | (944,604 | ) | (291,079 | ) |
Net Increase (Decrease) from Shareholder Activity | (1,958,415 | ) | 85,396,259 | 4,024,628 | 464,293 | |||
Net Increase (Decrease) in Net Assets | (20,650,146 | ) | 132,456,009 | 4,012,879 | 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 | $ 234,849,128 | $ 255,499,274 | $ 7,929,717 | $ 3,916,838 | ||||
Accumulated Net Investment Income (Loss) | $ - | $ - | $ - | $ - | ||||
Share Transactions: | ||||||||
Issued | 3,563,706 | 2,628,120 | 161,670 | 29,513 | ||||
Reinvested | 64,155 | 7,437 | 465 | 320 | ||||
Redeemed | (3,796,093 | ) | (875,756 | ) | (31,750 | ) | (11,739 | ) |
Net Increase (Decrease) in Shares | (168,232 | ) | 1,759,801 | 130,385 | 18,094 | |||
Shares Outstanding Beginning of Period | 4,638,106 | 2,878,305 | 131,825 | 113,731 | ||||
Shares Outstanding End of Period | 4,469,874 | 4,638,106 | 262,210 | 131,825 |
The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 24
Paradigm Funds | |||||||||
Statements of Changes in Net Assets | Opportunity Fund | Micro-Cap Fund | |||||||
1/1/2011 | 1/1/2010 | 1/1/2011 | 1/1/2010 | ||||||
to | to | to | to | ||||||
12/31/2011 | 12/31/2010 | 12/31/2011 | 12/31/2010 | ||||||
From Operations: | |||||||||
Net Investment Income (Loss) | $ (37,003 | ) | $ (23,244 | ) | $ (7,121 | ) | $ (2,202 | ) | |
Net Realized Gain (Loss) on Investments | 494,674 | 546,219 | 197,926 | 73,772 | |||||
Change in Net Unrealized Appreciation (Depreciation) | (537,492 | ) | 465,618 | (40,694 | ) | 449,644 | |||
Increase (Decrease) in Net Assets from Operations | (79,821 | ) | 988,593 | 150,111 | 521,214 | ||||
From Distributions to Shareholders: | |||||||||
Net Investment Income | - | - | - | (17,498 | ) | ||||
Net Realized Gain from Security Transactions | (37,186 | ) | - | - | - | ||||
Total Distributions to Shareholders | (37,186 | ) | - | - | (17,498 | ) | |||
From Capital Share Transactions: | |||||||||
Proceeds From Sale of Shares | 14,626 | 562,603 | 5,073,670 | 385,083 | |||||
Proceeds from Redemption Fees (Note 2) | - | 10 | - | - | |||||
Shares Issued on Reinvestment of Dividends | 37,186 | - | - | 17,498 | |||||
Cost of Shares Redeemed | (383,396 | ) | (305,306 | ) | (1,645,185 | ) | (33,840 | ) | |
Net Increase (Decrease) from Shareholder Activity | (331,584 | ) | 257,307 | 3,428,485 | 368,741 | ||||
Net Increase (Decrease) in Net Assets | (448,591 | ) | 1,245,900 | 3,578,596 | 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 | $ 4,490,615 | $ 4,939,206 | $ 7,026,325 | $ 3,447,729 | |||||
Accumulated Net Investment Income (Loss) | $ - | $ - | $ - | $ - | |||||
Share Transactions: | |||||||||
Issued | 555 | 25,915 | 251,925 | 20,556 | |||||
Reinvested | 1,476 | - | - | 826 | |||||
Redeemed | (15,760 | ) | (14,884 | ) | (80,132 | ) | (1,958 | ) | |
Net Increase (Decrease) in Shares | (13,729 | ) | 11,031 | 171,793 | 19,424 | ||||
Shares Outstanding Beginning of Period | 193,040 | 182,009 | 162,606 | 143,182 | |||||
Shares Outstanding End of Period | 179,311 | 193,040 | 334,399 | 162,606 |
The accompanying notes are an integral part of these
financial statements.
2011 Annual Report 25
Paradigm Value Fund | ||||||||||
Financial Highlights - Paradigm Value Fund | ||||||||||
Selected data for a share outstanding | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008 | 1/1/2007 | |||||
throughout the period: | to | to | to | to | to | |||||
12/31/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | ||||||
Net Asset Value - Beginning of Period | $ 55.09 | $ 42.75 | $ 32.51 | $ 49.27 | $ 48.55 | |||||
Net Investment Income (Loss) (a) | (0.15 | ) | (0.07 | ) | 0.16 | (0.22 | ) | (0.40 | ) | |
Net Gains (Loss) on Securities (Realized and Unrealized) | (1.64 | ) | 12.49 | 10.07 | (16.52 | ) | 2.84 | |||
Total from Investment Operations | (1.79 | ) | 12.42 | 10.23 | (16.74 | ) | 2.44 | |||
Distributions (From Net Investment Income) | - | (0.09 | ) | - | - | - | ||||
Distributions (From Capital Gains) | (0.78 | ) | - | - | (0.07 | ) | (1.73 | ) | ||
Total Distributions | (0.78 | ) | (0.09 | ) | 0.00 | (0.07 | ) | (1.73 | ) | |
Proceeds from Redemption Fee (Note 2) | 0.02 | 0.01 | 0.01 | 0.05 | 0.01 | |||||
Net Asset Value - End of Period | $ 52.54 | $ 55.09 | $ 42.75 | $ 32.51 | $ 49.27 | |||||
Total Return (b) | (3.22 | )% | 29.08 | % | 31.50 | % | (33.88 | )% | 5.03 | % |
Ratios/Supplemental Data | ||||||||||
Net Assets - End of Period (Thousands) | $ 234,849 | $ 255,499 | $ 123,043 | $ 85,018 | $ 116,247 | |||||
Before Reimbursement | ||||||||||
Ratio of Expenses to Average Net Assets | 1.83 | % | 1.89 | % | 1.98 | % | 1.99 | % | 2.02 | % |
After Reimbursement | ||||||||||
Ratio of Expenses to Average Net Assets (c) ++ | 1.50 | % | 1.50 | % | 1.63 | % | 1.99 | % | 2.02 | % |
Ratio of Net Investment Income (Loss) to Average | ||||||||||
Net Assets (c) ++ | -0.26 | % | -0.14 | % | 0.43 | % | -0.52 | % | -0.78 | % |
Portfolio Turnover Rate | 83.95 | % | 81.17 | % | 69.85 | % | 67.84 | % | 59.75 | % |
Paradigm Select Fund | ||||||||||
Financial Highlights - Paradigm Select Fund | ||||||||||
Selected data for a share outstanding throughout the period: | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008 | 1/1/2007 | |||||
to | to | to | to | to | ||||||
12/31/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | ||||||
Net Asset Value - Beginning of Period | $ 29.71 | $ 23.82 | $ 18.53 | $ 27.91 | $ 26.48 | |||||
Net Investment Income (Loss) (a) | 0.06 | (0.05 | ) | 0.08 | 0.03 | (0.06 | ) | |||
Net Gains (Loss) on Securities (Realized and Unrealized) | 0.52 | 6.01 | 5.28 | (9.41 | ) | 1.54 | ||||
Total from Investment Operations | 0.58 | 5.96 | 5.36 | (9.38 | ) | 1.48 | ||||
Distributions (From Net Investment Income) | (0.05 | ) | (0.07 | ) | (0.07 | ) | - | - | ||
Distributions (From Capital Gains) | - | - | - | - | (0.05 | ) | ||||
Total Distributions | (0.05 | ) | (0.07 | ) | (0.07 | ) | - | (0.05 | ) | |
Proceeds from Redemption Fee (Note 2) | - | + | - | + | - | + | - | - | ||
Net Asset Value - End of Period | $ 30.24 | $ 29.71 | $ 23.82 | $ 18.53 | $ 27.91 | |||||
Total Return (b) | 1.97 | % | 25.03 | % | 28.92 | % | (33.61 | )% | 5.57 | % |
Ratios/Supplemental Data | ||||||||||
Net Assets - End of Period (Thousands) | $ 7,930 | $ 3,917 | $ 2,710 | $ 2,031 | $ 11,109 | |||||
Before Reimbursement | ||||||||||
Ratio of Expenses to Average Net Assets | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % |
After Reimbursement | ||||||||||
Ratio of Expenses to Average Net Assets ++ | 1.20 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % |
Ratio of Net Investment Income/(Loss) to Average | ||||||||||
Net Assets ++ | 0.21 | % | -0.20 | % | 0.42 | % | 0.13 | % | -0.23 | % |
Portfolio Turnover Rate | 58.40 | % | 65.77 | % | 65.57 | % | 47.71 | % | 64.68 | % |
(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%, 0.00%, 0.00%, 0.00% (Amount calculated less than 0.005%) and 0.02% for the years ended 12/31/2011 - 2007, respectively. + Amount calculated is less than $0.005. ++ Such percentages reflect an expense waiver by the Advisor (for Value since 2009 and for Select since 2011). |
The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 26
Paradigm Opportunity Fund | ||||||||||
Financial Highlights - Paradigm Opportunity Fund | ||||||||||
Selected data for a share outstanding throughout the period: | 1/1/2011 | 1/1/2010 | 1/1/2009 | 1/1/2008 | 1/1/2007 | |||||
to | to | to | to | to | ||||||
12/31/2011 | 12/31/2010 | 12/31/2009 | 12/31/2008 | 12/31/2007 | ||||||
Net Asset Value - Beginning of Period | $ 25.59 | $ 20.29 | $ 13.79 | $ 22.94 | $ 23.21 | |||||
Net Investment Income (Loss) (a) | (0.20 | ) | (0.12 | ) | (0.01 | ) | (0.13 | ) | (0.04 | ) |
Net Gains (Loss) on Securities (Realized and Unrealized) | (0.14 | ) | 5.42 | 6.51 | (9.02 | ) | 0.47 | |||
Total from Investment Operations | (0.34 | ) | 5.30 | 6.50 | (9.15 | ) | 0.43 | |||
Distributions (From Net Investment Income) | - | - | - | - | - | |||||
Distributions (From Capital Gains) | (0.21 | ) | - | - | - | (0.70 | ) | |||
Total Distributions | (0.21 | ) | - | - | - | (0.70 | ) | |||
Proceeds from Redemption Fee (Note 2) | - | - | + | - | - | + | - | |||
Net Asset Value - End of Period | $ 25.04 | $ 25.59 | $ 20.29 | $ 13.79 | $ 22.94 | |||||
Total Return (b) | (1.34 | )% | 26.12 | % | 47.14 | % | (39.89 | )% | 1.85 | % |
Ratios/Supplemental Data | ||||||||||
Net Assets - End of Period (Thousands) | $ 4,491 | $ 4,939 | $ 3,693 | $ 2,425 | $ 5,613 | |||||
Before Reimbursement | ||||||||||
Ratio of Expenses to Average Net Assets | 2.00 | % | 2.00 | % | 2.00 | % | 2.00 | % | 2.00 | % |
After Reimbursement | ||||||||||
Ratio of Expenses to Average Net Assets (c) | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % | 1.50 | % |
Ratio of Net Investment Income/(Loss) to Average | ||||||||||
Net Assets (c) | -0.76 | % | -0.56 | % | -0.04 | % | -0.67 | % | -0.17 | % |
Portfolio Turnover Rate | 65.44 | % | 96.20 | % | 135.62 | % | 164.89 | % | 169.26 | % |
Paradigm Micro-Cap Fund | ||||||||
Financial Highlights - Paradigm Micro-Cap Fund | ||||||||
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 | |||||
12/31/2011 | 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) | (0.04 | ) | (0.01 | ) | 0.14 | 0.15 | ||
Net Gains (Loss) on Securities (Realized and Unrealized) | (0.15 | ) | 3.33 | 3.98 | (6.17 | ) | ||
Total from Investment Operations | (0.19 | ) | 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 | $ 21.01 | $ 21.20 | $ 17.99 | $ 13.98 | ||||
Total Return (b) | (0.90 | )% | 18.44 | % | 29.44 | % | (30.10 | )% |
Ratios/Supplemental Data | ||||||||
Net Assets - End of Period (Thousands) | $ 7,026 | $ 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 | -0.20 | % | -0.08 | % | 0.92 | % | 0.86 | % |
Portfolio Turnover Rate | 126.43 | % ++ | 77.78 | % | 79.35 | % | 70.57 | % |
* Commencement of operations. (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 Fund's portfolio turnover rate increased due to the change in the Fund's principal investment strategy to invest (under normal circumstances) at least 80% of its net assets in the common stocks of U.S. micro-cap companies effective December 27, 2011. |
The accompanying notes are an integral part of these financial statements. |
2011 Annual Report 27
NOTES TO FINANCIAL STATEMENTS
PARADIGM FUNDS
December 31, 2011
1.) ORGANIZATION
The Paradigm Funds (the "Trust”) is an open-end management investment company organized in Ohio as a business trust on September 13, 2002 that may offer shares of beneficial interest in a number of separate series, each series representing a distinct fund with its own investment objectives and policies. The Paradigm Value Fund (“Value”) commenced operations on January 1, 2003. The Paradigm Value Fund's investment objective is long-term capital appreciation. The Paradigm Opportunity Fund (“Opportunity”) and Paradigm Select Fund (“Select”) both commenced operations on January 1, 2005 with long-term capital appreciation as their objective. The Paradigm Micro-Cap Fund (“Micro-Cap”) commenced operations on January 1, 2008. Effective December 27, 2011, the name of the Paradigm Intrinsic Value Fund was changed to the Pardigm Micro-Cap Fund. The Paradigm Micro-Cap Fund's investment objective is long-term capital appreciation. Under normal circumstances, the Micro-Cap Fund invests at least 80% of its net assets in the common stocks of U.S. micro-cap companies. Prior to December 27, 2011, the principal investment strategy of the Fund was to invest primarily in the common stocks of small, mid or large capitalization companies that the Advisor believed had the potential for capital appreciation. Value, Opportunity, Select and Micro-Cap are all diversified funds. The advisor to Value, Opportunity, Select and Micro-Cap (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 fiscal year ended December 31, 2011 proceeds from redemption fees were $129,958, $77, $0 and $0 for Value, Select, Opportunity and Micro-Cap, 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
2011 Annual Report 28
Notes to Financial Statements - continued
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 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 year ended December 31, 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. For the fiscal year ended December 31, 2011, net investment losses of $787,755, $555, $37,003 and $7,121 were reclassified to paid in capital for Value, Select, Opportunity and Micro-Cap, respectively.
3.) SECURITIES VALUATIONS
The Funds utilize various methods to measure the fair value 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 NAS-DAQ 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 reflect the current value or when restricted securities are being valued,
2011 Annual Report 29
Notes to Financial Statements - continued
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 market funds. Money market funds 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 December 31, 2011:
Value: | ||||
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Common Stock | $210,669,745 | $0 | $0 | $210,669,745 |
Real Estate Investment Trusts | 11,390,712 | 0 | 0 | 11,390,712 |
Money Market Funds | 12,985,386 | 0 | 0 | 12,985,386 |
Total | $235,045,843 | $0 | $0 | $235,045,843 |
Select: | ||||
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Common Stock | $6,960,215 | $0 | $0 | $6,960,215 |
Real Estate Investment Trusts | 372,683 | 0 | 0 | 372,683 |
Money Market Funds | 582,105 | 0 | 0 | 582,105 |
Total | $7,915,003 | $0 | $0 | $7,915,003 |
Opportunity: | ||||
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Common Stock | $4,078,202 | $0 | $0 | $4,078,202 |
Real Estate Investment Trusts | 156,375 | 0 | 0 | 156,375 |
Money Market Funds | 260,528 | 0 | 0 | 260,528 |
Total | $4,495,105 | $0 | $0 | $4,495,105 |
Micro-Cap: | ||||
Valuation Inputs of Assets | Level 1 | Level 2 | Level 3 | Total |
Common Stock | $6,729,577 | $0 | $0 | $6,729,577 |
Exchange Traded Funds | 48,736 | 0 | 0 | 48,736 |
Money Market Funds | 252,002 | 0 | 0 | 252,002 |
Total | $7,030,315 | $0 | $0 | $7,030,315 |
Refer to each Funds’ Schedule of Investments for a listing of securities by industry. The Funds did not hold any level 3 assets during the fiscal year ended December 31, 2011. There were no transfers into or out of level 1 or level 2 during the year ended December 31, 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.
The Funds did not invest in derivative instruments during the fiscal year ended December 31, 2011.
2011 Annual Report 30
Notes to Financial Statements - 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 Micro-Cap. 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 fiscal year ended December 31, 2011, the Advisor earned management fees (before the waivers described below) totaling $5,457,312, $97,467, $97,323 and $44,153 for Value, Select, Opportunity, and Micro-Cap, respectively. At December 31, 2011, $302,659, $7,626, $5,708 and $5,280 was due to the Advisor from Value, Select, Opportunity and Micro-Cap, 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 $993,902, $19,470 and $24,331 was waived with no recapture provision for the fiscal year ended December 31, 2011 for Value, Select and Opportunity, respectively.
5.) RELATED PARTY TRANSACTIONS
Certain officers and shareholders of the Advisor are also officers and/or a Trustee of the Trust. These individuals may receive benefits from the Advisor resulting from management fees paid to the Advisor from the Funds.
The Trustees who are not interested persons of the Funds were paid $2,000 per meeting for the fiscal year ended December 31, 2011 for the Trust. Under the Management Agreements, the Advisor pays these fees.
6.) INVESTMENTS
For the fiscal year ended December 31, 2011, purchases and sales of investment securities other than U.S. Government obligations and short-term investments were as follows:
Value | Select | Opportunity | Micro-Cap | |||||
Purchases | $235,751,653 | $7,222,190 | $2,980,329 | $7,962,970 | ||||
Sales | $232,171,143 | $3,504,455 | $3,317,405 | $4,323,420 |
There were no purchases or sales of U.S. Government obligations.
For federal income tax purposes, at December 31, 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 | Micro-Cap | ||||||
Cost of Investments | $214,251,994 | $7,268,306 | $3,925,889 | $6,480,444 | |||||
Gross Unrealized Appreciation | $36,272,114 | $1,002,242 | $762,281 | $580,053 | |||||
Gross Unrealized Depreciation | ($15,478,265 | ) | ($355,545 | ) | ($193,065 | ) | ($30,182 | ) | |
Net Unrealized Appreciation | |||||||||
(Depreciation) on Investments | $20,793,849 | $646,697 | $569,216 | $549,871 |
7.) CAPITAL SHARES
At December 31, 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 December 31, 2011:
2011 Annual Report 31
Notes to Financial Statements - continued | ||||
Value | Select | Opportunity | Micro-Cap | |
Shares Issued | ||||
and Outstanding | 4,469,874 | 262,210 | 179,311 | 334,399 |
Paid in Capital | $214,054,575 | $7,283,387 | $3,921,118 | $6,592,486 |
8.) DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the fiscal years ended December 31, 2011 and 2010 were as follows:
Fiscal Year Ended | Fiscal Year Ended | |
December 31, 2011 | December 31, 2010 | |
PARADIGM VALUE FUND | ||
Ordinary Income | $ - | $417,251 |
Long-term Capital Gain | 3,448,769 | - |
$3,448,769 | $417,251 | |
PARADIGM SELECT FUND | ||
Ordinary Income | $ 14,165 | $ 9,549 |
Long-term Capital Gain | - | - |
$ 14,165 | $ 9,549 | |
PARADIGM OPPORTUNITY FUND | ||
Ordinary Income | $ - | $ - |
Long-term Capital Gain | 37,186 | - |
$ 37,186 | $ - | |
PARADIGM MICRO-CAP FUND | ||
Ordinary Income | $ - | $ 17,498 |
Long-term Capital Gain | - | - |
$ - | $ 17,498 |
As of December 31, 2011, the components of distributable earnings/(accumulated losses) on a tax basis were as follows:
Value | Select | |||
Undistributed ordinary | ||||
income/(accumulated losses) | $ -0 | - | $ -0 | - |
Undistributed long-term capital | ||||
gain/(accumulated losses) | 704 | (367 | ) | |
Unrealized appreciation/(depreciation) | 20,793,849 | 646,697 | ||
$20,794,553 | $ 646,330 | |||
Opportunity | Micro-Cap | |||
Undistributed ordinary | ||||
income/(accumulated losses) | $ -0 | - | $ -0 | - |
Undistributed long-term capital | ||||
gain/(accumulated losses) | 281 | (116,032 | ) | |
Unrealized appreciation/(depreciation) | 569,216 | 549,871 | ||
$ 569,497 | $ 433,839 |
The difference between book basis and tax basis unrealized appreciation/(depreciation) is attributable to the tax deferral of losses on wash sales and tax treatment of grantor trusts.
9.) CAPITAL LOSS CARRYFORWARD
At December 31, 2011, Value, Select, Opportunity and Micro-Cap Funds had available for federal tax purposes unused capital losses of $0, $367, $0 and $116,032 respectively, all of which expires in 2017. Under the Regulated Investment Company Modernization Act of 2010 (the “Act”), net capital losses incurred in taxable years beginning after December 22, 2010 may now be carried forward indefinitely, and retain the character of the original loss. Under pre-enacted laws, capital losses could be carried forward for eight years, and carried forward as short-term capital, irrespective of the character of the original loss. As a transition rule, the Act requires that post-enactment net capital losses be used before pre-enactment net capital losses. To the extent that these carryforwards are used to offset future capital gains it is probable that the amount which is offset will not be distributed to shareholders.
2011 Annual Report 32
Notes to Financial Statements - continued
10.) CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the voting shares of a fund creates a presumption of control of the fund, under section 2(a)(9) of the Investment Company Act of 1940. At December 31, 2011, Charles Schwab & Co., Inc., located at 101 Mongomery Street, San Francisco, California 94101 and National Financial Services, LLC, located at 200 Liberty Street, New York, New York 10281, both for the benefit of its customers, held, in aggregate, 31.02% and 32.81%, respectively, of Value, and therefore each may be deemed to control Value. Charles Schwab & Co., Inc., located at 101 Mongomery Street, San Francisco, California 94101, held, for the benefit of its customers, in aggregate, 30.36% of Select, and therefore may be deemed to control Select. Candace King Weir, beneficial owner located at 9 Elk Street, Albany, New York 12207, held, in aggregate, 87.40%, of Opportunity, and therefore may be deemed to control Opportunity. Also, Candace King Weir, beneficial owner located at 9 Elk Street, Albany, New York 12207, held, in aggregate, 96.99% of Micro-Cap, and therefore may be deemed to control Micro-Cap.
11.) ACCOUNTING PRONOUNCEMENT
In May 2011, FASB issued Accounting Standards Update ("ASU") 2011-04. The amendments in this update are the results of the work of FASB and the International Accounting Standards Board to develop common requirements for measuring fair value and for disclosing information about fair value measurements, which are effective during interim and annual periods beginning after December 15, 2011. Consequently, these amendments improve the comparability of fair value measurements presented and disclosed in the financial statements prepared in accordance with GAAP and International Financial Reporting Standards. At this time, the Fund's management is evaluating the implications of ASU 2011-04.
2011 Annual Report 33
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 Micro-Cap 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 July 1, 2011 and held through December 31, 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 | July 1, 2011 to | ||||
July 1, 2011 | December 31, 2011 | December 31, 2011 | ||||
Actual | $1,000.00 | $923.88 | $7.27 | |||
Hypothetical | $1,000.00 | $1,017.64 | $7.63 | |||
(5% annual return | ||||||
before expenses) |
* Expenses are equal to the Fund’s annualized expense ratio of 1.50%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
PARADIGM SELECT FUND | ||||||
Expenses Paid | ||||||
Beginning | Ending | During the Period* | ||||
Account Value | Account Value | July 1, 2011 to | ||||
July 1, 2011 | December 31, 2011 | December 31, 2011 | ||||
Actual | $1,000.00 | $955.65 | $5.67 | |||
Hypothetical | $1,000.00 | $1,019.41 | $5.85 | |||
(5% annual return | ||||||
before expenses) |
* Expenses are equal to the Fund’s annualized expense ratio of 1.15%, multiplied by the average
|
2011 Annual Report 34
Disclosure of Expenses (Unaudited) - continued | ||||||
PARADIGM OPPORTUNITY FUND | ||||||
Expenses Paid | ||||||
Beginning | Ending | During the Period* | ||||
Account Value | Account Value | July 1, 2011 to | ||||
July 1, 2011 | December 31, 2011 | December 31, 2011 | ||||
Actual | $1,000.00 | $928.57 | $7.29 | |||
Hypothetical | $1,000.00 | $1,017.64 | $7.63 | |||
(5% annual return | ||||||
before expenses) |
* Expenses are equal to the Fund’s annualized expense ratio of 1.50%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
PARADIGM MICRO-CAP FUND | ||||||
Expenses Paid | ||||||
Beginning | Ending | During the Period* | ||||
Account Value | Account Value | July 1, 2011 to | ||||
July 1, 2011 | December 31, 2011 | December 31, 2011 | ||||
Actual | $1,000.00 | $940.89 | $6.12 | |||
Hypothetical | $1,000.00 | $1,018.90 | $6.36 | |||
(5% annual return | ||||||
before expenses) |
* Expenses are equal to the Fund’s annualized expense ratio of 1.25%, multiplied by the average account value over the period, multiplied by 184/365 (to reflect the one-half year period). |
ADDITIONAL INFORMATION
December 31, 2011
AVAILABILITY OF QUARTERLY SCHEDULE OF INVESTMENTS
(Unaudited)
The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission ("SEC") for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-Q are available on the SEC's Web site at http://www.sec.gov. The Funds’ Forms N-Q may also be reviewed and copied at the SEC's Public Reference Room in Washington, DC. Information on the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330.
PROXY VOTING GUIDELINES
(Unaudited)
Paradigm Funds Advisor LLC, the Funds’ Advisor, is responsible for exercising the voting rights associated with the securities held by the Funds. A description of the policies and procedures used by the Advisor in fulfilling this responsibility is available without charge on the Funds’ web site at www.paradigm-funds.com. It is also included in the Funds’ Statement of Additional Information, which is available on the Securities and Exchange Commission’s web site at http://www.sec.gov.
Information regarding how the Funds voted proxies, Form N-PX, relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge, upon request, by calling our toll free number(1-800-239-0732). This information is also available on the Securities and Exchange Commission’s web site at http://www.sec.gov.
ADDITIONAL INFORMATION
You will find more information about the Funds at www.paradigm-funds.com. For shareholder inquiries, please call toll-free in the U.S. at 1-800-239-0732.
2011 Annual Report 35
Cohen Fund Audit Services, Ltd. | 800 Westpoint Pkwy, Ste 1100 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
Paradigm Funds
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Paradigm Funds (the "Funds"), comprising Paradigm Value Fund, Paradigm Select Fund, Paradigm Opportunity Fund and Paradigm Micro-Cap Fund as of December 31, 2011, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended for Paradigm Value Fund, Paradigm Select Fund and Paradigm Opportunity Fund, and for each of the four periods in the period then ended for Paradigm Micro-Cap Fund. These financial statements and financial highlights are the responsibility of Fund management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2011 by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the funds constituting Paradigm Funds as of December 31, 2011, the results of their operations for the year then ended, the changes in their net assets for each of the two years in the period then ended, and the financial highlights for each of the periods indicated, in conformity with accounting principles generally accepted in the United States of America.
![](https://capedge.com/proxy/N-CSR/0001413042-12-000062/paradigmn-csrannual2011x38x1.jpg)
COHEN FUND AUDIT SERVICES, LTD.
Westlake, Ohio
February 28, 2012
2011 Annual Report 36
TRUSTEES AND OFFICERS (Unaudited)
The Board of Trustees supervises the business activities of the Trust. Each Trustee serves as a trustee until the termination of the Trust unless the Trustee dies, resigns, retires or is removed.
The following table provides information regarding each Trustee who is an "interested person" of the Trust, as defined in the Investment Company Act of 1940, and each officer of the Trust as of December 31, 2011.
Interested Trustees and Officers
Number of | Other | ||||
Name, | Position(s) | Term of | Principal | Portfolios | Directorships |
Address1, | Held with | Office and | Occupation(s) | Overseen | Held By |
and Year of Birth | theTrust | Length of | During the | By | Trustee or |
Time Served | Past 5 Years | Trustee | Officer | ||
Candace King | President | Indefinite Term, | Investment Manager of PCM Ventures Intl., LLC (Nov. 2001 | 4 | Director, |
Weir2, (1944) | and Trustee | Since 2002 | - current) and PCM Ventures II, LLC (June 2003 - current); | Nature's | |
Investment Manager and principal of PCM Ventures LLC | Sunshine | ||||
(Jan. 1997 - current); Director and President of Paradigm | Products | ||||
Capital Management, Inc. (1993 - current); Director and | |||||
President of C.L. King & Associates, a registered broker | |||||
dealer (1972 - current); CEO, Portfolio Manager and | |||||
Member of PCM Advisors LLC (Dec. 2004 - current); CEO | |||||
and Member of Paradigm Funds Advisor LLC (July 2005 - | |||||
current); Director and Member of PCM Growth Advisors, | |||||
Inc. (Feb. 2007 - current). | |||||
Amelia F. Weir | Secretary | Indefinite Term, | Portfolio Manager and Director of Research Paradigm | N/A | N/A |
(1975) | Since 2009 | Capital Management (2008 - current), Portfolio Manager at | |||
William D. Witter, Inc. (2006 - 2008), Equity Analyst and | |||||
Assistant Portfolio Manager at Tocqueville Asset | |||||
Management (2005). | |||||
Carl A. Florio, | Trustee | Indefinite Term, | Director and Vice Chairman of Paradigm Funds Advisors | 4 | Director, |
CPA3, (1948) | Since 2005 | LLC and affiliated entities (2008 - current); Eastern | American Bio | ||
Regional President of First Niagara Bank (2005 - 2007); | Medical; Dir., | ||||
President and Chief Executive Officer of Hudson River | First Niagara | ||||
Bank & Trust Company (1996 - 2005). | Financial Group | ||||
John V. Gulick | Chief | Indefinite Term, | VP and CCO of Paradigm Funds Advisor LLC and affiliat- | N/A | N/A |
(1972) | Compliance | Since 2006 | ed advisors (February 2007 - current), Compliance Officer | ||
Officer | of Paradigm Capital Management, Inc. (April 2005 - Feb. | ||||
2007); Senior Compliance Analyst of GE Asset | |||||
Management, Inc. (Feb. 2001 - March 2005). | |||||
Robert A. | Treasurer | Indefinite Term, | SVP and CFO of Paradigm Funds Advisor LLC and affili- | N/A | N/A |
Benton, CPA | and Chief | Since 2002 | ated advisors (May 2006 - current), SVP and CFO of C.L. | ||
(1954) | Financial | King & Associates, a registered broker dealer (February | |||
Officer | 2001 - current); SVP and CFO of Paradigm Capital | ||||
Management, Inc. (February 2001 - March 2004). |
Independent Trustees
Term of | Principal | Number of | Other | ||
Name, | Position(s) | Office and | Occupation(s) | Portfolios | Directorships |
Address1, | Held with | Length of | During | Overseen | Held By |
and Year of Birth | the Trust | Time Served | Past 5 Years | By Trustee | Trustee |
Peter H. | Trustee | Indefinite Term, | Peter H. Heerwagen, Attorney at Law (2009 - current). | 4 | None |
Heerwagen | Since 2009 | Executive Vice President of Ayco / Goldman Sachs | |||
(1945) | (2003 - 2009). | ||||
Anthony J. | Trustee | Indefinite Term, | President and Chairman of the Board of Cool Insuring | 4 | None |
Mashuta, (1956) | Since 2004 | Agency, Inc. (1988 - current). | |||
William P. | Trustee | Indefinite Term, | Chief Executive Officer of Bright Hub, Inc. (2006 - cur- | 4 | Director, MTI |
Phelan4, (1956) | Since 2007 | rent); Chief Executive Officer of OneMade, Inc. (1999 - | Corporation | ||
2004). |
1 The address of each trustee and officer is c/o Paradigm Funds, Nine Elk Street, Albany, NY 12207.
2 Candace King Weir is considered an "interested person" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, by virtue of her affiliation with the Trust's investment advisor, Paradigm Funds Advisor LLC. Ms. Weir resigned her position with Nature's Sunshine Products on August 6, 2010.
3 Carl A. Florio is considered an "interested person" as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended, because he is an officer of the Trust's investment advisor, Paradigm Funds Advisor LLC. Carl A. Florio is a member of the Board of Directors of a non-profit foundation that recently retained Paradigm Capital Management, Inc. to manage a portion of the foundation's assets. Candace King Weir is a Director and the President of Paradigm Capital Management, Inc.; and an interested Trustee of the Trust; and CEO of the Trust's investment advisor, Paradigm Funds Advisor LLC.
4 William P. Phelan is a limited partner in PCM Partners, LP II. As of December 31, 2009 he owned 0.92% of the PCM Partners, LP II partnership, the value of which was $1.968 million. Candace King Weir is the general partner of PCM Partners, LP II; an interested Trustee of the Trust; and CEO of the Trust's investment advisor, Paradigm Funds Advisor LLC.
The Statement of Additional Information includes additional information about the Funds’ Trustees and may be obtained without charge by calling 1-800-239-0732.
2011 Annual Report 37
Board of Trustees
|
This report is provided for the general information of the shareholders of the Paradigm Funds. This report is not intended for distribution to prospective investors in the Funds, unless preceded or accompanied by an effective prospectus. |
Item 2. Code of Ethics.
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer and the principal financial officer. The registrant has not made any amendments to its code of ethics during the covered period. The registrant has not granted any waivers from any provisions of the code of ethics during the covered period. A copy of the registrant’s Code of Ethics is filed herewith.
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has determined that William P. Phalen is an audit committee financial expert. Mr. Phalen is independent for purposes of this Item 3.
Item 4. Principal Accountant Fees and Services.
(a-d) The following table details the aggregate fees billed for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant to the registrant. The principal accountant has provided no services to the adviser or any entity controlled by, or under common control with the adviser that provides ongoing services to the registrant.
FYE 12/31/11 | FYE 12/31/10 | |||
Audit Fees | $36,870 | $34,000 | ||
Audit-Related Fees | $0 | $0 | ||
Tax Fees | $8,000 | $8,000 | ||
All Other Fees | $2,500 | $2,800 |
Nature of Tax Fees: preparation of Excise Tax Statement and 1120 RIC.
Nature of All Other Fees: Review of Semi-Annual Report.
(e) (1) The audit committee approves all audit and non-audit related services and, therefore, has not adopted pre-approval policies and procedures described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
(e) (2) None of the services described in paragraph (b) through (d) of this Item were approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) All of the principal accountant’s hours spent on auditing the registrant’s financial statements were attributed to work performed by full-time permanent employees of the principal accountant.
(g) The following table indicates the aggregate non-audit fees billed by the registrant’s principal accountant for services to the registrant , the registrant’s investment adviser (not sub-adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant, for the last two years.
Non-Audit Fees | FYE 12/31/11 | FYE 12/31/10 | ||
Registrant | $10,500 | $10,800 | ||
Registrant’s Investment Adviser | $0 | $0 |
(h) The principal accountant provided no services to the investment adviser or any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant.
Item 5. Audit Committee of Listed Companies. Not applicable.
Item 6. Schedule of Investments. Schedule filed with Item 1.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies. Not applicable.
Item 8. Portfolio Managers of Closed End Management Investment Companies. Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Companies and Affiliated Purchasers. Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
The registrant has not adopted procedures by which shareholders may recommend nominees to the registrant’s board of trustees.
Item 11. Controls and Procedures.
(a) The registrant’s president and chief financial officer concluded that the disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) were effective as of a date within 90 days of the filing date of this report, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the registrant’s second fiscal quarter of the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12. Exhibits.
(a)(1) Code of Ethics. Filed herewith.
(a)(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(b) Certification pursuant to Section 906 Certification of the Sarbanes-Oxley Act of 2002. Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Paradigm Funds |
By: /s/Candace King Weir Candace King Weir President |
Date: 3-6-2012 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/Candace King Weir Candace King Weir President |
Date: 3-6-2012 |
By: /s/Robert A. Benton Robert A. Benton Chief Financial Officer |
Date: 3-6-2012 |