Adirondack Small Cap Fund (ADKSX) N-CSR Certified annual shareholder report (management investment company)

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: 811-21691

Adirondack Funds

(Exact name of registrant as specified in charter)

2390 Western Avenue, Guilderland, NY  12084

(Address of principal executive offices)

(Zip code)

Gregory A. Roeder, Adirondack Research and Management, Inc.

2390 Western Avenue, Guilderland, NY  12084

 (Name and address of agent for service)

Copy to:

JoAnn M. Strasser, Thompson Hine LLP

312 Walnut Street, 14^th Floor, Cincinnati, Ohio  45202

Registrant's telephone number, including area code: (518) 690-0470

Date of fiscal year end: March 31

Date of reporting period: March 31, 2012

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.

Item 1.  Reports to Stockholders.

The Adirondack Small Cap Fund

ADKSX

ANNUAL REPORT

MARCH 31, 2012

May 18, 2012

Dear Fellow Shareholder:

The twelve months ending March 31, 2012 proved to be difficult for the small cap asset class.  The overall market began its precipitous fall in August 2011 due to domestic and European debt issues but was able to rally in late fall and continued to rise into the first quarter of 2012 thanks to strong corporate earnings.  Unfortunately, the rally was not strong enough to push twelve month returns for small caps into positive territory.  The Fund was no exception.  The net asset value (NAV) of the Adirondack Small Cap Fund declined 1.7% during the 2012 fiscal year (04/01/11 to 03/31/12).  During the same period, its benchmark, the Russell 2000 Value Index®, declined 1.1%.

Three positions significantly contributed to our underperformance during this period.  Two of those positions (Exide Technologies & AbitibiBowater Inc.) have been exited and the other (NN Inc.) remains in the portfolio.  In hindsight, once we decided to exit or trim back those positions, we should have moved more swiftly.  In both cases the Fund would been much better off had we completely exited those positions on the day we first decided to sell.  We take some comfort in the fact that the stocks of the companies that we exited have continued to decline in value while the shares of NN Inc. have held ground.  This tells us that our analysis was good but our trading execution could have been better.  It is important to note that we visited NN Inc’s operations in Tennessee earlier this year and came away impressed with the progress they were making in turning around a poorly performing division.  NN Inc. makes mechanical parts and benefits from higher automobile production rates around the world.

We realize that not trying to disprove your own beliefs can be dangerous.  The economist Peter Bernstein once said “the riskiest moment is when you are right.”  Remaining vigilant on all positions, large and small, winners and losers, is critical.  We are constantly looking for ways to improve risk/reward.  We have avoided the temptation to make outsized investments in any one company/industry and have generally stuck to investing in companies whose financials we can analyze.  That rule has kept us from the more speculative elements of the market like Biotechnology, Oil & Gas Exploration, and IPOs.       

The Fund finished the fiscal year with 74 holdings, fairly consistent with the 77 positions held at the end of FY 2011.  As the economic outlook continues to remain subdued, we feel it is prudent to maintain less portfolio concentration than in past years.  The Fund’s top ten holdings represented 21.9% of Fund assets up from 18.3% last year.  No single equity holding comprises more than 2.4%. As stocks declined during the second half of last year, we deployed more cash reducing the Fund’s cash level from 9.6% to 6.1%.      

At 27.2% of the portfolio, Financial Services is now the Fund’s largest sector, increasing from 20.2% last year.  We executed on our previously mentioned plan to take advantage of the value within this sector.  The Fund still remains underweight compared to the Russell 2000 Value Index’s 37.5% weighting.  Insurance and Capital Markets are the industry groups within this sector that we continue to emphasize.  We like the improving balance sheets and wide discounts to tangible book value that many of these stocks offer.  The individual companies within these groups have swiftly adjusted their business models to operate more effectively in a post financial crisis world.    

The Fund’s investment in technology companies represented 22.7% of the portfolio at FYE, roughly in line with the 23.3% weighting at the end of last year.  The Technology sector represents our largest overweight variance from the RUJ which holds about 9.7% in the sector.  For various reasons, technology stocks are an area that traditional value investors typically underweight.  The field is highly competitive and product cycles can be brutally short.  Yet we find that small cap technology stocks tend to be some of the more inefficiently priced stocks in the market.  The herd mentality in technology investing often yields interesting risk/reward situations.  From the moment they go public most technology companies are priced for perfection.  When they hit the inevitable bump in the road, their core investor base tends to flee thereby driving these stocks down to very compelling valuation levels.  Historically, we have done quite well exploiting these turnaround stories.  For example, of the 35 fund holdings that were taken out through acquisition (since inception), 14 (40%) were in the technology space resulting in average gains of slightly more than 70%.  We are still finding an abundance of excellent ideas in this sector.  

General uncertainty and fear are creating interesting opportunities for patient investors.  We view U.S. equities as a great place to invest for those with longer time horizons.  We continue to find companies with strong balance sheets, generating double digit cash flow yields despite lackluster economic conditions.  Warren Buffet said it best, “the most common cause of low stock prices is pessimism, sometimes specific to a company or industry.  We want to do business in such an environment, not because we like pessimism but because we like the prices it produces.  It’s optimism that is the enemy of the rational buyer.”  

Thank you for your continued investment in The Adirondack Small Cap Fund and sticking with us during these challenging times.  For the most up-to-date information on your investment, please visit our website at www.adirondackfunds.com.  As always, please don’t hesitate to pick up the phone and call us at (518) 690-0470.   

Regards,

Matt Reiner, CFA®

Greg Roeder, CFA®                                                                                       

Portfolio Manager

Portfolio Manager

mreiner@adirondackfunds.com

groeder@adirondackfunds.com

THE ADIRONDACK SMALL CAP FUND

TOP TEN HOLDINGS, as a Percentage of the Fund’s Net Assets

MARCH 31, 2012 (Unaudited)

1.	Journal Communications, Inc.	2.35%
2.	Callaway Golf Corp.	2.30%
3.	Knight Capital Group, Inc.	2.24%
4.	Genworth Financial, Inc.	2.23%
5.	First Merit Corp.	2.22%
6.	CTS Corp.	2.22%
7.	Owens & Minor, Inc.	2.14%
8.	Coca-Cola Bottling Co.	2.10%
9.	UniSource Energy Corp.	2.07%
10.	CNO Financial Group, Inc.	2.03%

THE ADIRONDACK SMALL CAP FUND

PERFORMANCE ILLUSTRATION

MARCH 31, 2012 (UNAUDITED)

Comparison of the Change in Value of a $10,000 Investment in the Adirondack Small Cap Fund, the Russell 2000 Index and the Russell 2000 Value Index.

	1 Year	3 Year	Since Inception
Adirondack Small Cap Fund *	-1.74%	36.49%	8.82%
Russell 2000 Index **	-0.19%	26.87%	5.79%
Russell 2000 Value Index ***	-1.07%	25.33%	4.57%

(a)  The total returns shown do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the redemption of fund shares.

* Initial public offering of shares was April 6, 2005.

**The Russell 2000 is by far the most common benchmark for mutual funds that identify themselves as "small-cap".  It is the most widely quoted measure of the overall performance of the small-cap to mid-cap company shares.

***Russell 2000 Value Index: Measures the performance of those Russell 2000 companies with lower price/book ratios and lower predicted growth rates.

This chart assumes an initial investment of $10,000 made on April 6, 2005. Past performance doesn't guarantee future results. Investment return and principal value will fluctuate so that shares, when redeemed, maybe worth more or less then their original cost.  All returns reflect reinvested dividends but do not reflect the impact of taxes.

Current performance may be higher or lower than the performance quoted.  Performance information current to the most recent month-end may be obtained by calling 1-888-686-2729.

THE ADIRONDACK SMALL CAP FUND

GRAPHICAL ILLUSTRATION

March 31, 2012 (Unaudited)

The following chart gives a visual breakdown of the Fund by the industry sectors the underlying securities represent as a percentage of the portfolio of investments.

	The Adirondack Small Cap Fund
	Schedule of Investments
	March 31, 2012
Shares		Value
COMMON STOCKS - 91.15%
Accident & Health Insurance - 2.03%
238,978	CNO Financial Group, Inc. *	$       1,859,249
Agriculture Production - Crops - 1.99%
66,700	Dole Food Company, Inc. *	665,666
50,674	Fresh Del Monte Produce, Inc. (Cayman Islands)	1,157,394
		1,823,060
Agriculture Production - Livestock & Animal Specialties - 0.87%
20,798	Cal-Maine Foods, Inc.	795,731
Ball & Roller Bearings - 1.31%
147,062	NN, Inc. *	1,200,026
Biotechnology Research & Products - 1.86%
159,882	Trinity Biotech Plc. (Ireland)	1,705,941
Bottled & Canned Soft Drinks Carbonated Waters - 2.10%
30,555	Coca-Cola Bottling Co.	1,917,021
Business Services, NEC - 1.05%
34,846	Keynote Systems, Inc.	688,557
61,352	Spark Network, Inc. *	276,084
		964,641
Calculating & Accounting Machines (No Electronic Computers) - 1.37%
57,891	NCR Corp. *	1,256,814
Cogeneration Services & Small Power Producers - 1.26%
71,200	Covanta Holding Corp.	1,155,576
Commercial Banks - 2.22%
120,543	First Merit Corp.	2,032,355
Commercial Physical & Biological Research - 0.87%
295,467	Albany Molecular Research, Inc. *	797,761
Computer Communications Equipment - 0.79%
25,678	Steel Excel, Inc. *	718,984
Computer Peripheral Equipment, NEC - 1.86%
295,200	Brocade Communications Systems, Inc. *	1,697,400
Computer Processing & Data Preparation - 0.97%
340,414	Ipass, Inc. *	885,076
Computer Programming, Data Processing, Etc.  - 0.67%
633,906	Autobytel, Inc. *	614,762
Computer Programming Services - 1.32%
68,000	Compuware Corp. *	624,920
58,251	Realnetworks, Inc.	579,015
		1,203,935
Construction Special Trade Contractors  - 1.09%
70,882	Matrix Service Co. *	993,057
Crude Petroleum & Natural Gas - 0.48%
46,505	Tetra Technologies, Inc. *	438,077
Electric Services - 2.75%
33,966	PNM Resources, Inc.	621,578
51,700	UniSource Energy Corp.	1,890,669
		2,512,247
Electric Lighting & Wiring Equipment - 1.74%
216,692	LSI Industries, Inc.	1,588,352
Electronic Components & Accessories - 2.95%
193,150	CTS Corp.	2,031,938
264,980	Pulse Electronics Corp.	665,100
		2,697,038
Electrical Work - 0.75%
24,934	Emcor Group, Inc.	691,170
Financial Services - 1.55%
59,200	Broadridge Financial Solutions, Inc.	1,415,472
Fire, Marine & Casualty Insurance - 4.60%
38,158	Endurance Specialty Holdings Ltd. (Bermuda)	1,551,504
61,000	Montpelier Re Holdings Ltd. (Bermuda)	1,178,520
84,184	Selective Insurance Group, Inc.	1,482,480
		4,212,504
Food & Kindred Products - 3.38%
57,500	Sara Lee Corp.	1,237,975
281,017	Smart Balance, Inc. *	1,857,522
		3,095,497
Gold And Silver Ores - 0.69%
26,500	Coeur D'Alene Mines Corp. *	629,110
Home Health Care - 1.36%
1,771,826	Hooper Holmes, Inc. *	1,240,278
Investment Advice - 1.49%
153,068	Janus Capital Group, Inc.	1,363,836
Leisure Time - 2.30%
311,439	Callaway Golf Corp.	2,105,328
Life Insurance - 5.42%
245,400	Genworth Financial, Inc. Class A	2,041,728
574,364	Phoenix Companies, Inc. *	1,407,192
131,831	Presidential Life Corp.	1,506,828
		4,955,748
Machine Tools, Metal Cutting Types - 0.22%
21,301	Hardinge, Inc.	201,507
Meat Packing Plants - 1.46%
684	Seaboard Corp. *	1,334,484
Medical & Dental Instruments & Supply - 4.31%
176,502	Cryolife, Inc. *	930,166
64,451	Owens & Minor, Inc.	1,959,955
97,693	Vascular Solutions, Inc. *	1,054,107
		3,944,228
Operative Builders - 0.62%
22,088	MDC Holdings, Inc.	569,650
Pharmaceutical Preparations - 0.87%
20,500	Endo Pharmaceuticals Holdings, Inc. *	793,965
Plastics Products, NEC - 1.39%
85,908	Myers Industries, Inc.	1,267,143
Prepackaged Software - 1.03%
95,976	Saba Software, Inc. *	941,525
Printed Circuit Boards - 3.89%
60,930	Benchmark Electronics, Inc. *	1,004,736
132,601	DDI Corp.	1,617,732
81,600	Sanmina-Sci Corp. *	934,320
		3,556,788
Production Technology Equipment - 0.75%
45,896	Electro Scientific Industries, Inc.	688,899
Publishing-Newspapers - 2.35%
382,667	Journal Communications, Inc. Class A *	2,154,415
Radio & TV Broadcasting & Communications Equipment - 1.05%
123,625	Seachange International, Inc. *	961,803
Refuse Systems - 0.75%
109,573	Casella Waste Systems, Inc. Class A *	682,640
Retail Stores, NEC - 2.15%
235,496	Christopher & Banks Corp.	438,023
31,200	IAC/Interactive Corp.	1,531,608
		1,969,631
Savings Institution, Federally Chartered - 1.68%
163,938	Brookline Bancorp, Inc.	1,536,099
Security Brokers, Dealers, & Flotation Companies - 5.16%
471,206	Cowen Group, Inc. Class A *	1,276,968
368,903	GFI Group, Inc.	1,387,075
159,600	Knight Capital Group, Inc. Class A *	2,054,052
		4,718,095
Semiconductors & Related Devices - 2.38%
174,643	AXT, Inc. *	1,108,983
154,675	Triquint Semiconductor, Inc. *	1,066,484
		2,175,467
Services-Misc Health & Allied Services - 1.00%
47,500	Wright Medical Group, Inc. *	917,700
Services-Motion Picture & Video Tape Production - 0.95%
218,665	Gaiam, Inc. Class A *	870,287
Services-Prepackaged Software - 1.64%
107,947	Intralinks Holding, Inc. *	571,040
90,382	Rosetta Stone, Inc. *	932,742
		1,503,782
Surety Insurance - 1.53%
84,500	Assured Guaranty Ltd. (Bermuda)	1,395,940
Telephone & Telegraph Apparatus - 1.58%
357,245	Tellabs, Inc.	1,446,842
Title Insurance - 1.30%
83,916	Stewart Information Services, Corp.	1,192,446
TOTAL FOR COMMON STOCKS (Cost $72,576,422) - 91.15%		83,389,382
PREFERRED STOCKS - 2.72%
33,400	Delphi Financial Group 7.376% 05/15/37	827,318
50,444	Phoenix Companies, Inc. 7.45% 01/15/32	1,115,821
21,959	Pulte Homes, Inc. 7.375%  06/01/46	548,097
TOTAL FOR PREFERRED STOCKS (Cost $2,026,031) - 2.72%		2,491,236
SHORT-TERM INVESTMENTS - 7.44%
6,809,820	Huntington U.S. Treasury Money Market IV 0.00% **	6,809,820
TOTAL SHORT-TERM INVESTMENTS (Cost $6,809,820) - 7.44%		6,809,820
TOTAL INVESTMENTS (Cost $81,412,273) - 101.31%		92,690,438
LIABILITIES IN EXCESS OF OTHER ASSETS - (1.31)%		(1,205,250)
NET ASSETS - 100.00%		$      91,485,188
* Non-income producing securities during the period.
** Variable rate security; the money market rate shown represents the yield at March 31, 2012.
The accompanying notes are an integral part of these financial statements.

	The Adirondack Small Cap Fund
	Statement of Assets and Liabilities
	March 31, 2012
Assets:
Investments in Securities, at Value (Cost $81,412,273)		$      92,690,438
Receivables:
Securities Sold		318,919
Dividends and Interest		82,690
Shareholder Subscriptions		58,833
Prepaid Expenses		17,466
Total Assets		93,168,346
Liabilities:
Securities Purchased		1,491,950
Shareholder Redemptions		68,617
Due to Advisor		98,175
Accrued Expenses		24,416
Total Liabilities		1,683,158
Net Assets		$      91,485,188
Net Assets Consist of:
Paid In Capital		$      80,532,492
Undistributed Net Investment Income		4,639
Accumulated Realized Loss on Investments		(330,108)
Unrealized Appreciation in Value of Investments		11,278,165
Net Assets, for 5,812,353 Shares Outstanding		$      91,485,188
Net Asset Value Per Share		$              15.74
Minimum Redemption Price Per Share ($15.74 * 0.99) (Note 4) *		$              15.58
* The Fund will deduct a 1.00% redemption fee on shares purchased and redeemed within 30 days.
The accompanying notes are an integral part of these financial statements.

	The Adirondack Small Cap Fund
	Statement of Operations
	For the year ended March 31, 2012
Investment Income:
Dividends		$           929,461
Interest		152,377
Total Investment Income		1,081,838
Expenses:
Advisory Fees (Note 3)		908,107
Transfer Agent Fees		43,750
Legal Fees		19,367
Custodian Fees		23,901
Auditing Fees		17,977
Trustee Fees		6,103
Chief Compliance Officer Fees		9,336
Insurance Fees		8,128
Registration Fees		30,182
Printing & Mailing Fees		13,158
Miscellaneous Fees		7,468
Total Expenses		1,087,477
Advisory Fees Waived (Note 3)		(10,278)
Net Expenses		1,077,199
Net Investment Income		4,639
Realized and Unrealized Gain (Loss) on Investments:
Realized Loss on Investments		(210,983)
Net Change in Unrealized Appreciation on Investments		712,633
Realized and Unrealized Gain on Investments		501,650
Net Increase in Net Assets Resulting from Operations		$           506,289
The accompanying notes are an integral part of these financial statements.

The Adirondack Small Cap Fund
Statements of Changes in Net Assets
	Years Ended
	3/31/2012	3/31/2011
Increase (Decrease) in Net Assets From Operations:
Net Investment Income (Loss)	$          4,639	$    (103,139)
Net Realized Gain (Loss) on Investments	(210,983)	2,217,202
Unrealized Appreciation Investments	712,633	7,635,872
Net Increase in Net Assets Resulting from Operations	506,289	9,749,935
Distributions to Shareholders: (Note 6)
Net Investment Income	-	-
Realized Gains	(1,691,564)	-
Total Dividends and Distributions Paid to Shareholders	(1,691,564)	-
Capital Share Transactions (Note 4)	34,281,350	30,388,914
Total Increase in Net Assets	33,096,075	40,138,849
Net Assets:
Beginning of Period	58,389,113	18,250,264
End of Period (Including Undistributed Net Investment Income of $4,639 and $0, respectively)
	$  91,485,188	$   58,389,113
The accompanying notes are an integral part of these financial statements.

The Adirondack Small Cap Fund
Financial Highlights
Selected data for a share outstanding throughout the period.
	Years Ended
	3/31/2012	3/31/2011	3/31/2010	3/31/2009	3/31/2008
Net Asset Value, at Beginning of Year	$           16.38	$         12.77	$           6.33	$         11.01	$         13.75
Income From Investment Operations:
Net Investment Income (Loss) *	0.00	(0.04)	(0.02)	0.02	(0.08)
Net Gain (Loss) on Securities (Realized and Unrealized)	(0.33)	3.65	6.47	(4.50)	(1.65)
Total from Investment Operations	(0.33)	3.61	6.45	(4.48)	(1.73)
Distributions:
Net Investment Income	-	-	(0.01)	-	-
Realized Gains	(0.31)	-	-	(0.20)	(1.01)
Total from Distributions	(0.31)	-	(0.01)	(0.20)	(1.01)
Proceeds from Redemption Fees †	-	-	-	-	-
Net Asset Value, at End of Year	$           15.74	$         16.38	$          12.77	$          6.33	$         11.01
Total Return **	(1.74)%	28.27%	101.91%	(40.86)%	(13.08)%
Ratios/Supplemental Data:
Net Assets at End of Year (Thousands)	$         91,485	$       58,389	$        18,250	$         5,773	$         8,798
Ratio of Expenses to Average Net Assets
Before Waivers	1.50%	1.64%	1.84%	2.17%	1.99%
After Waivers	1.48%	1.49%	1.54%	1.70%	1.70%
Ratio of Net Investment Income (Loss) to Average Net Assets
Before Waivers	(0.01)%	(0.47)%	(0.49)%	(0.27)%	(0.90)%
After Waivers	0.01%	(0.31)%	(0.19)%	0.21%	(0.62)%
Portfolio Turnover	33.00%	22.95%	61.01%	72.01%	87.74%
* Per share net investment income (loss) has been determined on the basis of average shares outstanding during the period.
** Assumes reinvestment of dividends.  Not annualized for periods of less than one year.
† Amount less than $0.005 per share.
The accompanying notes are an integral part of these financial statements.

THE ADIRONDACK SMALL CAP FUND

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2012

Note 1. Organization

The Adirondack Small Cap Fund (the “Fund”), is a diversified series of Adirondack Funds (the “Trust”), an open-end investment company that was organized as an Ohio business trust on December 8, 2004.  The Trust is permitted to issue an unlimited number of shares of beneficial interest of separate series. The Fund is the only series currently authorized by the Board of Trustees. The Fund commenced investment operations April 6, 2005. The Fund’s investment objective is long-term capital appreciation. The Fund’s principal investment strategy is to invest in a diversified portfolio of equity securities of small capitalization companies that the Fund’s investment adviser, Adirondack Research & Management, Inc. (the “Advisor”), believes are undervalued. 

Note 2. Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Fund in the preparation of its financial statements.  These policies are in conformity with accounting principles generally accepted in the United States of America.

Security Valuations: Equity securities generally are valued on the basis of prices furnished by a pricing service when the Advisor believes such prices accurately reflect the fair market value of such securities.  Securities that are traded on any stock exchange or on the NASDAQ over-the-counter market are generally valued by a pricing service at the last quoted sale price.  Lacking a last sale price, an equity security is generally valued by a pricing service at its last bid price.  When market quotations are not readily available from a pricing service, when the Advisor determines that the market quotation or the price provided by the pricing service does not accurately reflect the current market value, when restricted or illiquid securities are being valued, or when an event occurs after the close of trading (but prior to the time the NAV is calculated) that materially affects fair value, such securities are fair valued as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Board of Trustees of the Trust.

Fixed income securities generally are valued on the basis of prices furnished by a pricing service when the Advisor believes such prices accurately reflect the fair market 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.  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, which the Board has determined will represent fair value.

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.  No single standard exists 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 accord 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 Board of Trustees annually reviews and approves the use of the pricing services.  The Board will initially approve and annually reapprove use of a pricing service if it is satisfied that use of the pricing service will result in the accurate valuation of Fund securities.

Foreign currency: Investment securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollar amounts at the date of valuation. Purchases and sales of investment securities and income and expense items denominated in foreign currencies are translated into U.S. dollar amounts on the respective dates of such transactions.  The Fund does not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations are included with the net realized and unrealized gain or loss from investments.

Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Fund's books and the U.S. dollar equivalent of the amounts actually received or paid. Net unrealized foreign exchange gains and losses arise from changes in the fair values of assets and liabilities, other than investments in securities at fiscal period end, resulting from changes in exchange rates.

Financial futures contracts: The Fund may invest in financial futures contracts solely for the purpose of hedging its existing portfolio securities, or securities that the Fund intends to purchase, against fluctuations in fair value caused by changes in prevailing securities markets or interest rates. Upon entering into a financial futures contract, the Fund is required to pledge to the broker an amount of cash, U.S. government securities, or other assets, equal to a certain percentage of the contract amount (initial margin deposit). Subsequent payments, known as “variation margin,” are made or received by the Fund each day, depending on the daily fluctuations in the fair value of the underlying security. The Fund recognizes a gain or loss equal to the change in daily variation margin. Should market conditions move unexpectedly, the Fund may not achieve the anticipated benefits of the financial futures contracts and may realize a loss. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates, and the underlying hedged assets.  The Fund did not invest in any financial futures contracts during the year ended March 31, 2012.  

Federal Income Taxes:  The Fund’s 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 its taxable income to its shareholders. Therefore, no federal income tax provision is required.

In addition, Generally Accepted Accounting Principles (“GAAP”) requires management of the Fund to analyze all open tax years, fiscal years 2009-2012, as defined by IRS statute of limitations for all major industries, including federal tax authorities and certain state tax authorities. As of and during the period ended March 31, 2012, the Fund did not have a liability for any unrecognized tax benefits. The Fund has no examination in progress and is not aware of any tax positions for which it is reasonably possible that the total tax amounts of unrecognized tax benefits will significantly change in the next twelve months.

Distributions to Shareholders:  The Fund intends to distribute to its shareholders substantially all of its net realized capital gains and net investment income, if any, at year-end. Distributions will be recorded on ex-dividend date.

Other:  The Fund follows industry practice and records security transactions on the trade date.  The specific identification method is used for determining gains or losses for financial statements and income tax purposes.  Dividend income is recorded on the ex-dividend date and interest income is recorded on an accrual basis. Discounts and premiums are amortized over the useful lives of the respective securities. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

Use of Estimates:  The preparation of financial statements in conformity with generally accepted accounting principles 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 these estimates.  

Subsequent Events:  Management has evaluated the impact of all subsequent events on the Fund through the issuance of these financial statements and has noted no such events requiring disclosure.

expenses during the year. Actual results could differ from these estimates.

Note 3. Investment Management Agreement

The Fund has a management agreement (the “Agreement”) with the Advisor to furnish investment advisory and management services to the Fund. Gregory A. Roeder and Matthew Reiner, each a Trustee and an officer of the Fund, are shareholders of the Advisor. Stephen Gonick and Louis Morizio are also shareholders of the Advisor.  Under the Agreement, the Advisor earns a monthly fee from the Fund at the annual rate of 1.25% of the Fund’s average daily net assets.  Effective August 1, 2009, the Advisor agreed to waive fees or reimburse the Fund should the total operating expenses of the Fund exceed 1.49% until July 31, 2011. Effective August 1, 2011 the Advisor contractually agreed to waive fees or reimburse the Fund should the total operating expenses of the Fund exceed 1.48% until July 31, 2012. The Advisor’s obligation to waive fees or reimburse expenses excludes brokerage fees and commissions, borrowing costs (such as (a) interest and (b) dividend expenses on securities sold short), taxes, extraordinary expenses, and costs of acquired funds.  Any waiver or reimbursement by the Advisor is subject to repayment by the Fund within three fiscal years following the fiscal year in which the waived and/or reimbursed expenses occurred, if the Fund is able to make repayment without exceeding its current expense limitations and the repayment is approved by the Board of Trustees.  For the year ended March 31, 2012, the Advisor earned advisory fees of $908,107.  The Fund owed the Advisor $98,175 as of March 31, 2012.

As of March 31, 2012, the following is subject to repayment by the Fund to the Advisor:

Fiscal Year Ended	Recoverable Through	Fund
March 31, 2010	March 31, 2013	$33,033
March 31, 2011	March 31, 2014	$52,056
March 31, 2012	March 31, 2015	$10,278

Note 4. Capital Share Transactions

The Fund is authorized to issue an unlimited number of shares of separate series.  The total paid-in capital was $80,532,492 as of March 31, 2012.  Transactions in capital for the years ended March 31, 2012 and March 31, 2011, were as follows:

	March 31, 2012		March 31, 2011
	Shares	Amount	Shares	Amount
Shares sold	3,896,917	$ 58,679,311	2,728,692	$38,736,233
Shares reinvested	119,432	1,660,108	-	-
Shares redeemed	(1,767,690)	(26,058,069)	(593,762)	(8,347,319)
Net increase	2,248,659	$ 34,281,350	2,134,930	$30,388,914

Shareholders will be subject to a Redemption Fee on redemptions and exchanges equal to 1.00% of the net asset value of the Fund shares redeemed within 30 days after their purchase.  For the year ended March 31, 2012, $2,405 redemption fees were collected by the Fund from shareholder transactions and included in paid-in-capital.  Proceeds from redemption fees were less that $0.005 per share.  

Note 5. Investment Transactions

For the year ended March 31, 2012, purchases and sales of investment securities other than U.S. Government obligations and short-term investments aggregated $55,044,270 and $22,192,684, respectively.   

Note 6. Tax Matters

As of March 31, 2012, the tax basis components of unrealized appreciation (depreciation) and cost of investment securities were as follows:

Federal tax cost of investments, including short-term investments *                        $81,517,021

Gross tax appreciation of investments                                                                           $ 14,390,115                     

Gross tax depreciation of investments                                                                            $ (3,216,699)                       

Net tax appreciation of investments

                                                                              $ 11,173,416

The Fund’s tax basis capital gains and losses and undistributed ordinary income are determined only at the end of each fiscal year.  For tax purposes, at March 31, 2012, the following represents the tax basis capital gains and losses and undistributed ordinary income:

Undistributed ordinary income

$       4,639

Short-term capital loss carry-forward +

$ (225,871)  

Accumulated realized gains

$              -

* The difference between the book cost and tax cost of investments represents disallowed wash sales for tax purposes.

+ The capital loss carry-forwards will be used to offset any capital gains realized by the Fund in future years through the expiration dates.  The Fund will not make distributions from capital gains while a capital loss carry-forward remains.

The Regulated Investment Company Modernization Act of 2010 generally allows capital losses incurred in a taxable year beginning after December 22, 2010 (post-enactment year) to be carried forward for an unlimited period to the extent not utilized.  However, any capital loss carry-forward generated in a post-enactment year must be carried forward to offset subsequent year net capital gains before any capital loss carry-forward from a pre-enactment year can be used.  This may increase the risk that a capital loss generated in a pre-enactment year will expire unutilized.

Income and long-term capital gain distributions are determined in accordance with Federal income tax regulations, which may differ from accounting principles generally accepted in the United States.

On December 29, 2011, the Fund declared a distribution of $.2345 per share of long term capital gain and $.0791 of short term capital gain.

The tax character of distributions paid during the years ended March 31, 2012 and 2011 were as follows:

2012

2011

Ordinary Income

        $    426,667

 $ --           

Long-term Gain

        $ 1,264,897   

 $ --                  

Permanent book and tax differences relating to shareholder distributions may result in reclassifications to paid in capital and may affect the per-share allocation between net investment income and realized and unrealized gain/loss.  Undistributed net investment income and accumulated undistributed net realized gain/loss on investment transactions may include temporary book and tax differences which reverse in subsequent periods.  Any taxable income or gain remaining at fiscal year-end is distributed in the following year.

Note 7. Control and Ownership

The beneficial ownership, either directly or indirectly, of more than 25% of the voting securities of a fund creates a presumption of control of the Fund, under section 2 (a) (9) of the Investment Company Act of 1940, as amended.  As of March 31, 2012, Charles Schwab & Co. for the benefit of its customers owned over 40.95% of the Fund. As of March 31, 2012, National Financial Service Corp., for the benefit of its customers, owned 35.08% of the Fund.  

Note 8. New Accounting Pronouncement

In May 2011 the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) No. 2011-04 “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. Generally Accepted Accounting Principles (“GAAP”) and International Financial Reporting Standards (“IFRS”). ASU 2011-04 includes common requirements for measurement of and disclosure about fair value between U.S. GAAP and IFRS.  ASU 2011-04 will require reporting entities to disclose additional information for fair value measurements categorized within Level 3 of the fair value hierarchy. In addition, ASU 2011-04 will require reporting entities to make disclosures about amounts and reasons for all transfers in and out of Level 1 and Level 2 fair value measurements. The new and revised disclosures are effective for interim and annual reporting periods beginning after December 15, 2011. Management is currently evaluating the implications of ASU No. 2011-04 and its impact on the financial statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Trustees

  of The Adirondack Small Cap Fund,

  a Series of the Adirondack Funds

We have audited the accompanying statement of assets and liabilities of The Adirondack Small Cap Fund, a Series of the Adirondack Funds (the “Fund”), including the schedule of investments, as of March 31, 2012 and the related statement of operations for the year then ended, statements of changes in net assets for each of the two years in the period then ended, and financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management.  Our responsibility is to express an opinion on these financial statements 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 and cash owned as of March 31, 2012, by correspondence with the custodian and brokers.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of The Adirondack Small Cap Fund, a Series of the Adirondack Funds as of March 31, 2012, the results of its operations for the year then ended, the changes in its 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, in conformity with accounting principles generally accepted in the United States of America.

Abington, Pennsylvania                                                     May 18, 2012  

The Adirondack Small Cap Fund
Expense Illustration
March 31, 2012 (Unaudited)
Expense Example
As a shareholder of The Adirondack Small Cap Fund, you incur ongoing costs which typically consist of: (1) management fees, custody fees, transfer agent fees, and other Fund expenses and (2) potential redemption fees for redemption of shares within 30 days of purchase. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period, October 1, 2011 through March 31, 2012.
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled "Expenses Paid During Period" to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in this Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.  Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect the 1.00% redemption fee imposed on redemptions within 30 days of purchase.  Therefore, the second line of the table is useful in comparing your ongoing costs only, and will not help you determine the relative total costs of owning different funds.  If the transactional costs were included where applicable, your costs may be higher.
	Beginning Account Value	Ending Account Value	Expenses Paid During the Period *
	October 1, 2011	March 31, 2012	October 1, 2011 to March 31, 2012
Actual	$1,000.00	$1,239.04	$8.28
Hypothetical (5% Annual Return before expenses)
	$1,000.00	$1,017.60	$7.47
* Expenses are equal to the Fund's annualized expense ratio of 1.48%, multiplied by the average account value over the period, multiplied by 183/366 (to reflect the one-half year period).

THE ADIRONDACK SMALL CAP FUND

TRUSTEES AND OFFICERS

MARCH 31, 2012 (UNAUDITED)

The following table provides information regarding each Trustee who is not an “interested person” of the Trust, as defined in the 1940 Act.

Name, Address and Year of Birth	Position & Length of Time Served with the Trust	Number of Portfolios Overseen	Principal Occupations and Directorships During Past 5 Years
Kevin Gallagher 2390 Western Avenue, Guilderland, NY 12084 Year of Birth: 1964	Trustee since March 2005	1	Owner and Managing Partner of Panurgy NY Metro, LLC (information technology services firm) since 2004.
Wade Coton 2390 Western Avenue, Guilderland, NY 12084 Year of Birth: 1968	Trustee since March 2005	1	Home Builder and Developer, Richard H. List, Inc. from 1995 to 2007; Home Builder and Developer, LDM Management Group Inc. since January 2007.
Norman Joseph Plourde 2390 Western Avenue, Guilderland, NY 12084 Year of Birth: 1963	Trustee since March 2005	1	Principal and General Manager of Operations, Ideal Wood Products since 2006.

THE ADIRONDACK SMALL CAP FUND

TRUSTEES AND OFFICERS

MARCH 31, 2012 (UNAUDITED)

The following table provides information regarding each Trustee who is an “interested person” of the Trust, as defined in the 1940 Act, and each officer of the Trust.

Each Trustee serves as a trustee until the termination of the Trust unless the Trustee dies, resigns, retires or is removed.

Name, Address and Year of Birth	Position & Length of Time Served with the Trust	Number of Portfolios Overseen	Principal Occupations and Directorships During Past 5 Years
Gregory A. Roeder 2390 Western Avenue, Guilderland, NY 12084 Year of Birth: 1963	President since March 2005	N/A	President and Portfolio Manager, Adirondack Research & Management, Inc. from 2004 to present.
Jarrod H. Becker 617 Comstock Rd., Suite 2 Berlin, VT 05602 Year of Birth: 1977	Secretary since 2011; Chief Compliance Officer since 2010	1	Business Manager, Northern Vermont Resource Conservation and Development Council, Inc. (non-profit) since April 2005
Matthew P. Reiner 2390 Western Avenue, Guilderland, NY 12084 Year of Birth: 1965	Treasurer and Principal Financial Officer since March 2005	N/A	CFO and Portfolio Manager, Adirondack Research & Management, Inc. from February 2005 to present.

The Fund’s Statement of Additional Information contains additional information about the Trustees and Officers and is available, without charge by calling (888) 686-2729.

Board of Trustees

Wade Coton

Kevin Gallagher

Norman Joseph Plourde

Investment Adviser

Adirondack Research and Management, Inc.

2390 Western Avenue

Guilderland, NY 12084

Dividend Paying Agent,

Shareholders’ Servicing Agent,

Transfer Agent

Mutual Shareholder Services, LLC

8000 Town Centre Drive, Suite 400

Broadview Heights, OH  44147

Custodian

The Huntington National Bank, NA

41 South High Street

Columbus, OH  43216

Independent Registered Public Accounting Firm

Sanville & Company

1514 Old York Road

Abington, PA  19001

Legal Counsel

Thompson Hine LLP

312 Walnut Street, 14^th Floor

Cincinnati, OH  45202

This report is provided for the general information of the shareholders of the Adirondack Small Cap Fund. This report is not intended for distribution to prospective investors in the Fund, unless preceded or accompanied by an effective prospectus.

THE ADIRONDACK SMALL CAP FUND

ADDITIONAL INFORMATION

MARCH 31, 2012 (UNAUDITED)

Portfolio Holdings – The Fund files a complete schedule of investments with the SEC for the first and third quarter of each fiscal year on Form N-Q.  The Fund’s first and third fiscal quarters end on June 30 and December 31. The Form N-Q filing must be made within 60 days of the end of the quarter. The Fund’s Forms N-Q are available on the SEC’s website at www.sec.gov, or they may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC (call 1-800-732-0330 for information on the operation of the Public Reference Room).  You may also obtain copies by calling the Fund at 1-888-686-2729, free of charge.  

Proxy Voting - A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities and information regarding how the Fund voted proxies during the most recent 12-month period ended June 30, are available without charge upon request by (1) calling the Fund at (888) 686-2729 and (2) from Fund documents filed with the Securities and Exchange Commission ("SEC") on the SEC's website at www.sec.gov.  A review of how the Fund voted on company proxies can be obtained at our transfer agent’s website, www.mutualss.com.  

Additional Information - The Fund's Statement of Additional Information ("SAI") includes additional information about the trustees and is available, without charge, upon request.  You may call toll-free (888) 686-2729 to request a copy of the SAI or to make shareholder inquiries.

Item 2. Code of Ethics.

(a)

As of the end of the period covered by this report, the registrant has adopted a code of ethics that applies to the registrant's principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party.

A copy of registrant's code of ethics will be provided to any person without charge, upon request.  Please call 888-686-2729 to request information.

(b)

For purposes of this item, “code of ethics” means written standards that are reasonably designed to deter wrongdoing and to promote:

(1)

Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

(2)

Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, the Commission and in other public communications made by the registrant;

(3)

Compliance with applicable governmental laws, rules, and regulations;

(4)

The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and

(5)

Accountability for adherence to the code.

(c)

Amendments:  

During the period covered by the report, there have not been any amendments to the provisions of the code of ethics.

(d)

Waivers

During the period covered by the report, the registrant has not granted any express or implicit waivers from the provisions of the code of ethics.

Item 3. Audit Committee Financial Expert.

(a)

The registrant’s board of trustees has determined that Kevin Gallagher is an audit committee financial expert.  Kevin Gallagher is independent for purposes of this Item 3.  He has become an expert due to experience during his years as divisional manager at the Coca Cola Company.

Item 4. Principal Accountant Fees and Services.

[The information required by this Item is only required in an annual report.]

(a)

Audit Fees

FY 2012

$ 12,500

FY 2011

$ 12,000

(b)

Audit-Related Fees

Registrant

FY 2012

$ 0

FY 2011

$ 0

(c)

Tax Fees

Registrant

FY 2012

$ 2,000

FY 2011

$ 1,800

Nature of the fees:

Preparation and filing of taxes.

 (d)

All Other Fees

Registrant

FY 2012

$ 0

FY 2011

$ 0

(e)

(1)

Audit Committee’s Pre-Approval Policies

There’s no pre-approval policy in place.  The audit committee approves expenditures and engagements at he regular audit committee meetings.

(2)

Percentages of Services Approved by the Audit Committee

Registrant]

Audit-Related Fees:

100  %

Tax Fees:

100  %

All Other Fees:

N/A  %

(f)

During audit of registrant's financial statements for the most recent fiscal year, less than 50 percent of the hours expended on the principal accountant's engagement were attributed to work performed by persons other than the principal accountant's full-time, permanent employees.

(g)

The aggregate non-audit fees billed by the registrant's accountant for services rendered to the registrant, and rendered to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant:

Registrant

FY 2012

$ 2,000 [tax fees]

FY 2011

$ 1,800 [tax fees]

 (h)

The registrant's audit committee has not considered whether the provision of non-audit services to the registrant's investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant's independence.

Item 5. Audit Committee of Listed Companies.  Not applicable.

Item 6.  Schedule of Investments.

Not applicable – schedule filed with Item 1.

Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Funds.  Not applicable.

Item 8.  Portfolio Managers of Closed-End Funds.  Not applicable.

Item 9.  Purchases of Equity Securities by Closed-End Funds.  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)

Disclosure Controls & Procedures.  Principal executive and financial officers have concluded that Registrant’s disclosure controls & procedures are effective based on their evaluation as of a date within 90 days of the filing date of this report.

(b)

Internal Controls.  There were no significant changes in Registrant’s internal controls of in other factors that could significantly effect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Item 12.  Exhibits.  

(a)(1)

EX-99.CODE ETH.  Not applicable.

(a)(2)

EX-99.CERT.  Filed herewith.

(a)(3)

Any written solicitation to purchase securities under Rule 23c-1 under the Act (17 CFR 270.23c-1) sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons.  Not applicable.

(b)

EX-99.906CERT.  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.

Adirondack Funds

By /s/Gregory A. Roeder

*Gregory A. Roeder

President and Chief Compliance Officer

Date June 4, 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/Gregory A. Roeder

*Gregory A. Roeder

President and Chief Compliance Officer

Date June 4, 2012

By /s/Matthew Reiner

*Matthew Reiner

Treasurer and Principal Financial Officer

Date June 4, 2012

* Print the name and title of each signing officer under his or her signature.