0001413042-17-000070.txt : 20170301 0001413042-17-000070.hdr.sgml : 20170301 20170301142551 ACCESSION NUMBER: 0001413042-17-000070 CONFORMED SUBMISSION TYPE: N-CSR PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 20161231 FILED AS OF DATE: 20170301 DATE AS OF CHANGE: 20170301 EFFECTIVENESS DATE: 20170301 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PARADIGM FUNDS CENTRAL INDEX KEY: 0001196878 IRS NUMBER: 000000000 STATE OF INCORPORATION: OH FILING VALUES: FORM TYPE: N-CSR SEC ACT: 1940 Act SEC FILE NUMBER: 811-21233 FILM NUMBER: 17653303 BUSINESS ADDRESS: STREET 1: NINE ELK STREET CITY: ALBANY STATE: NY ZIP: 12207 BUSINESS PHONE: 5184313516 0001196878 S000005314 Paradigm Value Fund C000014505 Paradigm Value Fund PVFAX 0001196878 S000005315 Paradigm Opportunity Fund C000014506 Paradigm Opportunity Fund PFOPX 0001196878 S000005316 Paradigm Select Fund C000014507 Paradigm Select Fund PFSLX 0001196878 S000020362 Paradigm Micro-Cap Fund C000057148 Paradigm Micro-Cap Fund PVIVX N-CSR 1 paradigmn-csrannual2016.htm Paradigm Funds

 

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, 2016

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.

 

Item 1. Reports to Stockholders.


Paradigm Funds

Paradigm Value Fund
Paradigm Select Fund
Paradigm Opportunity Fund
Paradigm Micro-Cap Fund
For Investors Seeking Long-Term Capital Appreciation


A
NNUAL REPORT
December 31, 2016                                                                                                                                           

 

 

 

 

 

 

 

 

 

 

 

 

 


Table of Contents   
 
 
 
PARADIGM FUNDS   
Letter to Shareholders  2 
Sector Allocation  5 
Performance Information  7 
Schedules of Investments  11 
Statements of Assets and Liabilities  21 
Statements of Operations  21 
Statements of Changes in Net Assets  23 
Financial Highlights  25 
NOTES TO FINANCIAL STATEMENTS  27 
DISCLOSURE OF EXPENSES  33 
ADDITIONAL INFORMATION  35 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  37 
TRUSTEES & OFFICERS  38 

 

 

 

 

2016 Annual Report 1


Letter to Shareholders

Dear Fellow Shareholders:

In our prior year-end letter, we expressed optimism that small-cap outperformance was likely to rebound after two previous years of underperformance. We are happy to report that in 2016 we finally saw a reversal of the equity market trends from 2014 and 2015, when large-cap outperformed small-cap, and Growth outperformed Value. In 2016, however, small-cap finally outperformed large-cap and Value outperformed Growth across all market-cap buckets. In a clear illustration of this trend, the Russell 2000 Index returned 21.31%, with the Russell 2000 Growth Index returning 11.32% versus 31.74% for the Russell 2000 Value Index—a massive 20-point differential. This small-cap value resurgence is consistent with our investment strategy, and a welcome contrast to the anomalous 2014-2015 period.

While we were gratified to see a reversal of the market trends that had been challenging in prior years, we would also be the first to acknowledge that the US equity market—small-cap in particular—has come very far very fast. When considering that 20-point spread between Value and Growth, and the more than 30-point spread between the Russell 2000’s low and high within 2016, this by definition gives us pause for thought. Clearly such a rapid ascent in the markets causes investors—ourselves included—to question if fundamentals have truly changed as quickly as the market has repriced them.

The US economy as a whole remains on solid footing, with sustained improvements in all of the key areas, such as GDP growth, employment data, housing and construction growth, and ISM data. Clearly the outcome of the US election drove strength in small-cap stocks as the presumed beneficiary of a Trump presidency. In our conversations with our portfolio holdings’ CFOs, there is a general assessment of a less onerous (and thus less costly) regulatory environment, potential lower corporate tax rates, as well as the possibility of a more favorable offshore cash repatriation policy. These factors all bode well for corporate America. Moreover, recent headlines have highlighted large corporations such as Ford and Amazon bringing more jobs back to the US from lower-cost geographies.

Despite all of these positives, there are still several headwinds from our view. The US consumer environment remains challenging, as retailers navigate what it means to provide an omnichannel shopping experience. The consumer may enjoy the convenience, but the costs of fulfilling this demand can be prohibitive for a traditional specialty retailer. Healthcare was the only negative sector in the Russell 2000 in 2016 and remains under pressure in 2017. Concerns around pharmaceutical pricing and the repeal of the Affordable Care Act have thrown the share prices of many healthcare companies into a tailspin. The energy and commodity price landscape remains an unknown to us, confirming our typical underweight exposure to these areas. The Technology sector, as our top contributor for 2016, has performed exceptionally well, but we would question how much further near-term upside there is from here, as the sector appears well priced at present.

It is clearly still a thematic market, in which industries that are well loved (optical components to name one) seem to have a self-propelling momentum. Small-cap equities appear to also have momentum in light of a more US-centric presidential administration, as well as the perception that they should be more immune to global turmoil and trade issues.

Given the above cross-currents, while we are constructive for 2017, we do not see it as a cakewalk. The new presidential administration remains a total unknown, and we do view that as a risk for equity markets. This wild-card aspect means that global markets could be roiled by any number of one-off comments, geopolitical tensions, or saber-rattling. We see

 

2016 Annual Report 2


this new risk element as one that we must overweight in the near-term transition. The silver lining to this unknown is that volatility does create opportunities, particularly in the more inefficient pockets of the market, such as small-cap. For example, the recent broad-based sell-off in healthcare should provide investment opportunities for those with a long-term outlook.

 

Paradigm Value Fund

The Paradigm Value Fund (PVFAX) appreciated 17.29% in 2016, compared to a gain of 31.74% for the benchmark Russell 2000 Value.

The soaring benchmark Financials sector appreciated 34.82% but the portfolio sector surpassed with a return of 39.17%, making that sector the portfolio’s biggest contributor for the year. This was offset by an underweight to the sector.

Stock selection also drove the Industrials sector, with portfolio holdings’ 40.50% return ahead of the benchmark sector’s 31.44% gain.

Consumer Discretionary and Health Care proved more challenging, however, and portfolio holdings lagged benchmark peers materially in both sectors.

 

Paradigm Select Fund

The Paradigm Select Fund (PFSLX) gained 15.98% in 2016, compared to a gain of 17.59% for the benchmark Russell 2500.

Strong stock selection in the Information Technology sector was the top contributor to relative and absolute performance in 2016 by a large margin. Portfolio holdings gained 30.28%, compared to a gain of 17.83% for the benchmark sector.

Industrials holdings proved more challenging, with modest stock selection underperfor-mance compounded by an underweight to a high-performing sector.

 

Paradigm Opportunity Fund

The Paradigm Opportunity Fund (PFOPX) gained 14.58% in 2016, compared to a gain of 21.31% for the benchmark Russell 2000.

The Fund’s concentration in the Information Technology sector made that sector the top absolute contributor in 2016.

Health Care was the top performer on a relative basis. Portfolio holdings slipped 0.86% over the course of the year, compared to a drop of 7.84% for the benchmark sector.

While the Financials sector was 2016’s top-performing benchmark sector, Financials were a detractor to the Fund’s performance relative to the Russell 2000, primarily due to the Fund’s significant underweight to the sector.

 

2016 Annual Report 3


Paradigm Micro-Cap Fund

The Paradigm Micro-Cap Fund (PVIVX) gained 27.33% in 2016, compared to a gain of 20.37% for the benchmark Russell Microcap.

The portfolio outperformed in three of the four sectors where it has traditionally focused: Information Technology, Health Care, and Industrials. The Information Technology sector was the major driver of returns in 2016. Portfolio holdings in the Information Technology sector appreciated 43.33%, more than double the benchmark sector’s 18.52% gain.

Ongoing upheaval in retail made the Consumer Discretionary sector a detractor for the year, with that sector’s portfolio holdings’ 16.29% gain lagging the benchmark sector’s 20.52% increase. The portfolio’s Specialty Retail industry holdings did outperform their peers in the benchmark industry, however.

Sincerely,

                                                      

Candace King Weir
President and Chief Investment Officer
Paradigm Funds Advisor LLC

Amelia F. Weir
Senior Vice President
Paradigm Funds Advisor LLC


 

 

 

2016 Annual Report 4


Paradigm Funds (Unaudited)                                                                                                         

                                                 PARADIGM VALUE FUND
                                    Sector Allocation as of December 31, 2016
                                   
(As a Percentage of Equity Securities Held)

                

                                                PARADIGM SELECT FUND
                                   Sector Allocation as of December 31, 2016 
                                  
(As a Percentage of Equity Securities Held)

              

2016 Annual Report 5


Paradigm Funds (Unaudited)                                                                                                          

                                     PARADIGM OPPORTUNITY FUND 
                            Sector Allocation as of December 31, 2016
                          
(As a Percentage of Equity Securities Held)

       

                                     PARADIGM MICRO-CAP FUND
                           Sector Allocation as of December 31, 2016
                         
(As a Percentage of Equity Securities Held)

             

2016 Annual Report 6


Paradigm Value Fund (Unaudited)                                                                                                 

                   

PERFORMANCE INFORMATION

Average Annual Rate of Return (%) for The Periods Ended December 31, 2016.

December 31, 2016 NAV $48.10

  1 Year(A)   3 Year(A)   5 Year(A)   10 Year(A)  
Paradigm Value Fund  17.29%   6.79%     9.87%   6.21%  
Russell 2000® Value Index(B)  31.74%   8.31%   15.07%   6.26%  

(A) 1 Year, 3 Year, 5 Year and 10 Year 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.

Per the Fund’s most recent prospectus, the Fund’s total annual operating expense ratio (before any fee waiver) is 2.00%, and 1.50% post waiver. The Advisor has contractually agreed to waive management fees and reimburse expenses 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 1.50% of its average daily net assets through April 30, 2017.

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.

2016 Annual Report 7


Paradigm Select Fund (Unaudited)                                                                                            

             

PERFORMANCE INFORMATION

Average Annual Rate of Return (%) for The Periods Ended December 31, 2016.

December 31, 2016 NAV $33.49

  1 Year(A)   3 Year(A)   5 Year(A)   10 Year(A)  
Paradigm Select Fund  15.98%   7.29%   11.66%   7.17%  
Russell 2500® Index(B)  17.59%   6.93%   14.54%   7.69%  

(A) 1 Year, 3 Year, 5 Year and 10 Year 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.

Per the Fund’s most recent prospectus, the Fund’s total annual operating expense ratio (before any fee waiver) is 1.50%, and 1.15% post waiver. The Advisor has contractually agreed to waive management fees and reimburse expenses 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 April 30, 2017.

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.

2016 Annual Report 8


Paradigm Opportunity Fund (Unaudited)                                                                             

            

PERFORMANCE INFORMATION

Average Annual Rate of Return (%) for The Periods Ended December 31, 2016.

December 31, 2016 NAV $35.68

  1 Year(A)   3 Year(A)   5 Year(A)   10 Year(A)  
Paradigm Opportunity Fund  14.58%   6.37%   10.02%   6.10%  
Russell 2000® Index(B)  21.31%   6.74%   14.46%   7.07%  

(A) 1 Year, 3 Year, 5 Year and 10 Year returns include change in share prices and in each case includes reinvestment of any dividends, capital gain distributions and return of capital. 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.

Per the Fund’s most recent prospectus, the Fund’s total annual operating expense ratio (before any fee waiver) is 2.00%, and 1.25% post waiver. The Advisor has contractually agreed to waive management fees and reimburse expenses 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 1.25% of its average daily net assets through April 30, 2017.

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.

2016 Annual Report 9


Paradigm Micro-Cap Fund (Unaudited)                                                                                    

                 

PERFORMANCE INFORMATION

Average Annual Rate of Return (%) for The Period Ended December 31, 2016.

December 31, 2016 NAV $29.89

                 Since  
  1 Year(A)   3 Year(A)   5 Year(A)   Inception(A)  
Paradigm Micro-Cap Fund  27.33%   5.26%   12.87%   7.67%  
Russell Microcap® Index(B)  20.37%   5.77%   15.59%   7.09%  

(A) 1 Year, 3 Year, 5 Year and Since Inception returns include change in share prices and in each case includes reinvestment of any dividends and capital gain distributions. The inception date of the Paradigm 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 comparative index was changed from the S&P 500® Index to the Russell Microcap® Index.

For purposes of the graph and the accompanying table, it is assumed that all dividends and distributions were reinvested.

Per the Fund’s most recent prospectus, the Fund’s total annual operating expense ratio is 1.25% .

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.

2016 Annual Report 10


 
Paradigm Value Fund         
      Schedule of Investments
      December 31, 2016
Shares    Fair Value  % of Net Assets
 
COMMON STOCKS         
Air Courier Services         
90,000  Air Transport Services Group, Inc. *  $ 1,436,400  2.31
Aircraft Parts & Auxiliary Equipment, NEC         
40,000  Ducommun Incorporated *    1,022,400  1.65
Cable & Other Pay Television Services         
33,700  TiVo Solutions Inc. *    704,330  1.13
Communications Equipment, NEC         
20,000  Vocera Communications, Inc. *    369,800  0.60
Computer Communications Equipment         
66,200  A10 Networks, Inc. *    550,122     
400,000  Extreme Networks, Inc. *    2,012,000     
      2,562,122  4.13
Construction - Special Trade Contractors         
74,800  Matrix Service Co. *    1,697,960  2.73
Deep Sea Foreign Transportation of Freight         
122,100  Ardmore Shipping Corporation (Ireland)    903,540  1.46
Electrical Work         
26,400  EMCOR Group Inc.    1,868,064  3.01
Electronic Computers         
10,000  Omnicell, Inc. *    339,000  0.55
Heavy Construction Other Than Building Construction - Contractors         
25,000  Granite Construction Incorporated    1,375,000  2.21
Industrial Organic Chemicals         
21,100  Sensient Technologies Corp.    1,658,038  2.67
Laboratory Analytical Instruments         
29,600  PerkinElmer Inc.    1,543,640  2.49
Motor Vehicle Parts & Accessories         
63,100  Tower International, Inc.    1,788,885  2.88
Motor Vehicles & Passenger Car Bodies         
40,000  Federal Signal Corporation    624,400  1.01
National Commercial Banks         
48,700  First Merchants Corporation    1,833,555     
29,436  National Bank Holdings Corporation - Class A    938,714     
      2,772,269  4.46
Orthopedic, Prosthetic & Surgical Appliances & Supplies         
113,200  RTI Surgical, Inc. *    367,900  0.59
Paper Mills           
10,000  KapStone Paper and Packaging Corporation    220,500  0.36
Printed Circuit Boards         
10,000  Jabil Circuit, Inc.    236,700  0.38
Radio & TV Broadcasting & Communications Equipment         
10,000  ARRIS International plc *    301,300     
120,000  Mitel Networks Corporation * (Canada)    816,000     
      1,117,300  1.80
Retail - Apparel & Accessory Stores         
30,000  Citi Trends, Inc.    565,200     
85,400  Express Inc. *    918,904     
33,400  Tailored Brands, Inc.    853,370     
      2,337,474  3.76
Retail - Family Clothing Stores         
80,400  American Eagle Outfitters, Inc.    1,219,668  1.96
Retail - Retail Stores, NEC         
24,500  IAC/InterActiveCorp. *    1,587,355  2.56


 

* Non-Income Producing Securities.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 11


 
Paradigm Value Fund
      Schedule of Investments
      December 31, 2016
Shares    Fair Value    % of Net Assets
 
COMMON STOCKS         
Retail - Shoe Stores         
24,400  Foot Locker, Inc.  $ 1,729,716  2.79
Retail - Women's Clothing Stores         
60,000  New York & Company, Inc. *    136,200  0.22
Savings Institution, Federally Chartered         
40,300  LegacyTexas Financial Group, Inc.    1,735,318  2.79
Semiconductors & Related Devices         
3,488  Cavium, Inc. *    217,791     
73,700  EMCORE Corporation *    641,190     
12,000  Finisar Corporation *    363,240     
51,400  Kulicke & Soffa Industries Inc. * (Singapore)    819,830     
50,000  Lattice Semiconductor Corporation *    368,000     
33,700  Microsemi Corporation *    1,818,789     
30,000  NeoPhotonics Corporation    324,300     
40,000  Oclaro, Inc. *    358,000     
29,900  Qorvo, Inc. *    1,576,627     
      6,487,767  10.44
Services - Business Services, NEC         
33,500  Rightside Group, Ltd. *    277,045  0.45
Services - Computer Integrated Systems Design         
52,600  Convergys Corp.    1,291,856     
44,300  Quality Systems, Inc. *    582,545     
      1,874,401  3.02
Services - Equipment Rental & Leasing, NEC         
30,000  Neff Corporation - Class A *    423,000  0.68
Services - Help Supply Services         
66,100  Kforce Inc.    1,526,910  2.46
Services - Hospitals         
22,900  Magellan Health Services Inc. *    1,723,225     
23,100  MEDNAX, Inc. *    1,539,846     
      3,263,071  5.25
Services - Management Services         
100,000  Accretive Health, Inc. *    225,000  0.36
Services - Motion Picture Theaters         
65,300  Regal Entertainment Group Class A    1,345,180  2.17
Special Industry Machinery, NEC         
107,000  Brooks Automation, Inc.    1,826,490  2.94
State Commercial Banks         
30,000  Banner Corporation    1,674,300     
34,000  Renasant Corporation    1,435,480     
      3,109,780  5.01
Surgical & Medical Instruments & Apparatus         
60,000  MiMedx Group, Inc. *    531,600  0.86
Telegraph & Other Message Communications         
22,500  j2 Global, Inc.    1,840,500  2.96
Transportation Services         
19,500  GATX Corp.    1,200,810  1.93
Total for Common Stocks (Cost $32,527,001)  $ 55,285,533  89.03
REAL ESTATE INVESTMENT TRUSTS         
58,000  Blackstone Mortgage Trust, Inc. - Class A  $ 1,744,060     
120,928  Gramercy Property Trust Inc.    1,110,119     
15,550  Mid-America Apartment Communities Inc.    1,522,656     
Total for Real Estate Investment Trusts (Cost $2,885,995)    4,376,835  7.05


 

* Non-Income Producing Securities.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 12


Paradigm Value Fund
    Schedule of Investments
    December 31, 2016
Shares    Fair Value     % of Net Assets
 
MONEY MARKET FUNDS           
     2,521,016 SEI Daily Income Trust Government Fund CL A 0.32% **    2,521,016   4.06
                                 (Cost $2,521,016)           
Total Investment Securities    62,183,384   100.14
                                     (Cost $37,934,012) ***           
Liabilities in Excess of Other Assets    (87,355 -0.14
Net Assets  $ 62,096,029   100.00

 

 


 

** The Yield Rate shown represents the 7-day yield at December 31, 2016.
*** At December 31, 2016, tax basis cost of the Fund’s investments was $38,071,347 and the unrealized
appreciation and depreciation were $25,871,389 and ($1,759,352), respectively, with a net unrealized
appreciation of $24,112,037.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 13


Paradigm Select Fund         
      Schedule of Investments
      December 31, 2016
Shares    Fair Value  % of Net Assets
 
COMMON STOCKS         
Air Transportation, Nonscheduled         
3,400  Air Methods Corporation *  $ 108,290  0.47
Aircraft & Parts         
6,000  Triumph Group, Inc.    159,000  0.70
Cable & Other Pay Television Services         
31,000  TiVo Solutions Inc. *    647,900  2.83
Chemical & Allied Products         
575  Innospec Inc.    39,388     
1,625  Olin Corp.    41,616     
      81,004  0.35
Construction - Special Trade Contractors         
23,800  Matrix Service Co. *    540,260  2.36
Electrical Work         
5,700  EMCOR Group Inc.    403,332  1.76
Electromedical & Electrotherapeutic Apparatus         
13,700  Masimo Corporation *    923,380  4.04
Electronic Computers         
6,000  Omnicell, Inc. *    203,400  0.89
Fire, Marine & Casualty Insurance         
300  Alleghany Corporation *    182,436     
2,850  American Financial Group Inc.    251,142     
4,350  Aspen Insurance Holdings Limited (Bermuda)    239,250     
733  Endurance Specialty Holdings Ltd. (Bermuda)    67,729     
      740,557  3.24
Footwear (No Rubber)         
4,700  Caleres, Inc.    154,254  0.67
Household Furniture         
4,000  La-Z-Boy Incorporated    124,200  0.54
Industrial Instruments for Measurement, Display, and Control         
3,400  MKS Instruments, Inc.    201,960  0.88
Industrial Organic Chemicals         
4,100  Sensient Technologies Corporation    322,178     
3,850  Westlake Chemical Corp.    215,562     
      537,740  2.35
Instruments For Measurement & Testing of Electricity & Electric Signals       
17,875  Teradyne, Inc.    454,025  1.99
Laboratory Analytical Instruments         
9,600  PerkinElmer Inc.    500,640  2.19
Millwood, Veneer, Plywood, & Structural Wood Members         
5,400  Ply Gem Holdings, Inc. *    87,750  0.38
Miscellaneous Manufacturing Industries         
5,400  Hillenbrand, Inc.    207,090  0.91
Motor Vehicle Parts & Accessories         
1,500  Visteon Corporation *    120,510  0.53
National Commercial Banks         
3,600  KeyCorp    65,772  0.29
Paper Mills           
10,000  KapStone Paper and Packaging Corporation    220,500  0.96
Plastics Products         
1,900  AptarGroup Inc.    139,555     
10,000  Entegris, Inc. *    179,000     
      318,555  1.39


 

* Non-Income Producing Securities.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 14


Paradigm Select Fund         
      Schedule of Investments
      December 31, 2016
Shares    Fair Value  % of Net Assets
 
COMMON STOCKS         
Printed Circuit Boards         
19,200  Jabil Circuit, Inc.  $ 454,464     
14,600  TTM Technologies, Inc. *    198,998     
      653,462  2.86
Radio & TV Broadcasting & Communications Equipment         
7,400  ARRIS International plc *    222,962     
30,000  Mitel Networks Corporation * (Canada)    204,000     
      426,962  1.87
Retail - Apparel & Accessory Stores         
17,300  Express Inc. *    186,148     
8,950  Tailored Brands, Inc.    228,672     
      414,820  1.81
Retail - Family Clothing Stores         
22,800  American Eagle Outfitters, Inc.    345,876  1.51
Retail - Lumber & Other Building Materials Dealers         
16,100  BMC Stock Holdings, Inc. *    313,950  1.37
Retail - Radio, TV & Consumer Electronics Stores         
11,600  Best Buy Co., Inc.    494,972  2.16
Retail - Retail Stores, NEC         
7,300  IAC/InterActiveCorp.    472,967  2.07
Retail - Shoe Stores         
8,400  Foot Locker, Inc.    595,476  2.60
Savings Institution, Federally Chartered         
7,800  Capitol Federal Financial, Inc.    128,388  0.56
Savings Institution, Not Federally Chartered         
4,000  Berkshire Hills Bancorp, Inc.    147,400  0.64
Search, Detection, Navigation, Guidance, Aeronautical Systems         
6,000  Garmin Ltd. (Switzerland)    290,940  1.27
Semiconductors & Related Devices         
7,300  Finisar Corporation *    220,971     
13,500  Kulicke & Soffa Industries Inc. * (Singapore)    215,325     
17,725  Marvell Technology Group Ltd. (Bermuda)    245,846     
15,500  Microsemi Corporation *    836,535     
26,200  Oclaro, Inc. *    234,490     
11,000  Qorvo, Inc. *    580,030     
5,800  Skyworks Solutions, Inc.    433,028     
      2,766,225  12.10
Services - Auto Rental & Leasing         
1,200  Ryder System, Inc.    89,328  0.39
Services - Computer Integrated Systems Design         
20,600  Allscripts Healthcare Solutions, Inc. *    210,326     
18,800  Convergys Corp.    461,728     
14,000  Quality Systems, Inc. *    184,100     
      856,154  3.74
Services - Help Supply Services         
12,525  Kelly Services, Inc. - Class A    287,073     
9,750  Kforce Inc.    225,225     
      512,298  2.24
Services - Hospitals         
8,200  Magellan Health Services Inc. *    617,050     
13,400  MEDNAX, Inc. *    893,244     
      1,510,294  6.60
Services - Motion Picture Theaters         
17,000  Regal Entertainment Group Class A    350,200  1.53


 

* Non-Income Producing Securities.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 15


Paradigm Select Fund
      Schedule of Investments
      December 31, 2016
Shares    Fair Value   % of Net Assets
 
COMMON STOCKS           
Services - Prepackaged Software           
             2,625  Progress Software Corporation  $ 83,816   0.37
Steel Pipe & Tubes           
             6,800  Allegheny Technologies Incorporated    108,324   0.47
Steel Works, Blast Furnaces & Rolling Mills (Coke Ovens)           
             2,100  Carpenter Technology Corporation    75,957   0.33
Surety Insurance           
10,500  MGIC Investment Corporation *    106,995      
             8,200  Radian Group Inc.    147,436      
      254,431   1.11
Surgical & Medical Instruments & Apparatus           
26,800  Globus Medical, Inc. - Class A *    664,908      
15,000  MiMedx Group, Inc. *    132,900      
             3,600  NuVasive, Inc. *    242,496      
      1,040,304   4.56
Telegraph & Other Message Communications           
             6,700  j2 Global, Inc.    548,060   2.41
Telephone & Telegraph Apparatus           
             9,100  Ciena Corporation *    222,131      
             5,500  Fabrinet * (Thailand)    221,650      
      443,781   1.95
Title Insurance             
             5,900  Fidelity National Financial, Inc.    200,364      
             6,700  Fidelity National Financial Ventures *    91,790      
      292,154   1.28
Transportation Services           
             2,400  GATX Corporation    147,792   0.65
Wholesale - Computers & Peripheral Equipment & Software           
900  SYNNEX Corporation    108,918   0.48
Wholesale - Electrical Apparatus & Equipment, Wiring Supplies           
             2,200  EnerSys    171,820   0.75
Wholesale - Lumber & Other Construction Materials           
             8,400  Boise Cascade Company *    189,000   0.83
Total for Common Stocks (Cost $17,681,878)  $ 20,634,188   90.23
REAL ESTATE INVESTMENT TRUSTS           
             5,200  Mid-America Apartment Communities Inc.    509,184   2.23
Total for Real Estate Investment Trusts (Cost $433,746)           
MONEY MARKET FUNDS           
2,255,932  SEI Daily Income Trust Government Fund CL A 0.32% **    2,255,932   9.86
  (Cost $2,255,932)           
Total Investment Securities    23,399,304   102.32
  (Cost $20,371,556) ***           
Liabilities in Excess of Other Assets    (530,227 -2.32
Net Assets    $ 22,869,077   100.00


 

* Non-Income Producing Securities.
** The Yield Rate shown represents the 7-day yield at December 31, 2016.
*** At December 31, 2016, tax basis cost of the Fund’s investments was $20,422,484 and the unrealized
appreciation and depreciation were $3,343,962 and ($367,142), respectively, with a net unrealized
appreciation of $2,976,820.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 16


Paradigm Opportunity Fund         
      Schedule of Investments
      December 31, 2016
Shares    Fair Value  % of Net Assets
 
COMMON STOCKS         
Cable & Other Pay Television Services         
13,700  TiVo Solutions Inc. *  $ 286,330  4.27
Computer Communications Equipment         
13,400  A10 Networks, Inc. *    111,354  1.66
Construction - Special Trade Contractors         
8,600  Matrix Service Co. *    195,220  2.91
Electrical Work         
2,825  EMCOR Group Inc.    199,897  2.98
Industrial Organic Chemicals         
2,550  Sensient Technologies Corporation    200,379  2.99
Instruments For Measurement & Testing of Electricity & Electric Signals       
7,075  Teradyne, Inc.    179,705  2.68
Laboratory Analytical Instruments         
2,850  PerkinElmer Inc.    148,628  2.22
Miscellaneous Manufacturing Industries         
5,500  Hillenbrand, Inc.    210,925  3.15
Retail - Apparel & Accessory Stores         
9,475  Express Inc. *    101,951     
4,900  Tailored Brands, Inc.    125,195     
      227,146  3.39
Retail - Department Stores         
1,400  Dillard's, Inc. - Class A    87,766  1.31
Retail - Family Clothing Stores         
12,200  American Eagle Outfitters, Inc.    185,074  2.76
Retail - Lumber & Other Building Materials Dealers         
8,700  BMC Stock Holdings, Inc. *    169,650  2.53
Retail - Retail Stores, NEC         
3,250  IAC/InterActiveCorp. *    210,568  3.14
Retail - Shoe Stores         
2,200  DSW Inc. - Class A    49,830     
4,500  Foot Locker, Inc.    319,005     
      368,835  5.51
Rolling Drawing & Extruding of Nonferrous Metals         
2,131  Alcoa, Inc.    59,838  0.89
Semiconductors & Related Devices         
8,300  Kulicke & Soffa Industries Inc. * (Singapore)    132,385     
6,500  Microsemi Corporation *    350,805     
4,900  Qorvo, Inc. *    258,377     
3,400  Skyworks Solutions, Inc.    253,844     
      995,411  14.86
Services - Computer Integrated Systems Design         
8,350  Convergys Corp.    205,076  3.06
Services - Help Supply Services         
7,600  Kelly Services, Inc. - Class A    174,192  2.60
Services - Hospitals         
3,150  Magellan Health Services Inc. *    237,037     
2,600  MEDNAX, Inc. *    173,316     
      410,353  6.13
Services - Motion Picture Theaters         
11,475  Regal Entertainment Group Class A    236,385  3.53
Services - Prepackaged Software         
6,700  Progress Software Corporation    213,931  3.19
Special Industry Machinery (No Metalworking Machinery)         
2,000  Kadant Inc.    122,400  1.83


 

* Non-Income Producing Securities.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 17


Paradigm Opportunity Fund
      Schedule of Investments
      December 31, 2016
Shares    Fair Value   % of Net Assets
 
COMMON STOCKS           
Special Industry Machinery, NEC           
17,625  Brooks Automation, Inc.  $ 300,859   4.49
Surgical & Medical Instruments & Apparatus           
10,125  AtriCure, Inc. *    198,146      
16,800  Avinger, Inc. *    62,160      
      260,306   3.90
Telegraph & Other Message Communications           
3,775  j2 Global, Inc.    308,795   4.61
Total for Common Stocks (Cost $3,478,574)  $ 6,069,023   90.59
REAL ESTATE INVESTMENT TRUSTS           
2,825  Mid-America Apartment Communities Inc.    276,624      
Total for Real Estate Investment Trusts (Cost $121,247)    276,624   4.13
MONEY MARKET FUNDS           
366,086  SEI Daily Income Trust Government Fund CL A 0.32% **    366,086   5.47
  (Cost $366,086)           
Total Investment Securities    6,711,733   100.19
  (Cost $3,965,907) ***           
Liabilities in Excess of Other Assets    (13,003 -0.19
Net Assets    $ 6,698,730   100.00

 


 

  * Non-Income Producing Securities.
** The Yield Rate shown represents the 7-day yield at December 31, 2016.
*** At December 31, 2016, tax basis cost of the Fund’s investments was $3,988,010 and the unrealized
appreciation and depreciation were $2,856,646 and ($132,923), respectively, with a net unrealized
appreciation of $2,723,723.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 18


Paradigm Micro-Cap Fund         
      Schedule of Investments
      December 31, 2016
Shares    Fair Value  % of Net Assets
 
COMMON STOCKS         
Aircraft Parts & Auxiliary Equipment, NEC         
40,000  Ducommun Incorporated *  $ 1,022,400     
140,500  LMI Aerospace, Inc. *    1,211,110     
      2,233,510  4.32
Communications Equipment, NEC         
100,000  Vocera Communications, Inc. *    1,849,000  3.58
Computer Communications Equipment         
467,800  Extreme Networks, Inc. *    2,353,034  4.55
Computer Peripheral Equipment, NEC         
250,000  RadiSys Corporation *    1,107,500  2.14
Electromedical & Electrotherapeutic Apparatus         
1,300  Cutera, Inc. *    22,555  0.04
Electronic Computers         
30,000  Omnicell, Inc. *    1,017,000  1.97
Footwear (No Rubber)         
50,000  Caleres, Inc.    1,641,000  3.18
Guided Missiles & Space Vehicles & Parts         
150,000  Kratos Defense & Security Solutions, Inc. *    1,110,000  2.15
Household Furniture         
20,000  Hooker Furniture Corporation    759,000  1.47
Millwood, Veneer, Plywood, & Structural Wood Members         
80,000  Ply Gem Holdings, Inc. *    1,300,000  2.52
Miscellaneous Manufacturing Industries         
146,542  Summer Infant, Inc. *    293,084  0.57
Motor Vehicles & Passenger Car Bodies         
100,000  Federal Signal Corporation    1,561,000  3.02
Orthopedic, Prosthetic & Surgical Appliances & Supplies         
400,000  RTI Surgical, Inc. *    1,300,000  2.52
Pharmaceutical Preparations         
100,000  Nature's Sunshine Products    1,500,000  2.90
Printed Circuit Boards         
100,000  TTM Technologies, Inc. *    1,363,000  2.64
Radio & TV Broadcasting & Communications Equipment         
200,000  Mitel Networks Corporation * (Canada)    1,360,000  2.63
Retail - Apparel & Accessory Stores         
120,000  Citi Trends, Inc.    2,260,800     
80,000  Francesca’s Holdings Corporation *    1,442,400     
135,800  Vince Holding Corp. *    549,990     
      4,253,190  8.23
Retail - Catalog & Mail-Order Houses         
43,567  PC Connection, Inc.    1,223,797     
10,000  PCM, Inc. *    225,000     
      1,448,797  2.80
Retail - Furniture Stores         
40,000  Haverty Furniture Companies, Inc.    948,000  1.83
Retail - Retail Stores, NEC         
88,000  Kirkland's, Inc.    1,364,880  2.64
Retail - Women's Clothing Stores         
550,000  New York & Company, Inc. *    1,248,500  2.42


 

* Non-Income Producing Securities.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 19


Paradigm Micro-Cap Fund
      Schedule of Investments
      December 31, 2016
Shares    Fair Value   % of Net Assets
 
COMMON STOCKS           
Semiconductors & Related Devices           
340,000  EMCORE Corporation *  $ 2,958,000      
40,000  Finisar Corporation *    1,210,800      
100,000  Lattice Semiconductors Corporation *    736,000      
60,000  MaxLinear, Inc. - Class A *    1,308,000      
200,000  Oclaro, Inc. *    1,790,000      
      8,002,800   15.49
Services - Computer Integrated Systems Design           
160,000  Allscripts Healthcare Solutions, Inc. *    1,633,600      
120,000  Quality Systems, Inc. *    1,578,000      
      3,211,600   6.22
Services - Equipment Rental & Leasing, NEC           
40,000  Neff Corporation *    564,000   1.09
Services - Management Services           
600,000  Accretive Health, Inc. *    1,350,000   2.61
Special Industry Machinery (No Metalworking Machinery)           
15,000  Kadant Inc.    918,000   1.78
Surgical & Medical Instruments & Apparatus           
20,000  AtriCure, Inc. *    391,400      
200,000  Avinger, Inc. *    740,000      
60,000  Globus Medical, Inc. - Class A *    1,488,600      
180,000  MiMedx Group, Inc. *    1,594,800      
      4,214,800   8.16
Telephone & Telegraph Apparatus           
160,000  Shoretel, Inc. *    1,144,000   2.21
Wholesale - Lumber & Other Construction Materials           
50,000  Huttig Building Products, Inc. *    330,500   0.64
Total for Common Stocks (Cost $41,220,392)  $ 49,768,750   96.32
CONTINGENT VALUE RIGHTS           
50,000  Synergetics USA, Inc. * +    -   0.00
  (Cost $0)           
MONEY MARKET FUNDS           
2,111,879  SEI Daily Income Trust Government Fund CL A 0.32% **    2,111,879   4.09
  (Cost $2,111,879)           
Total Investment Securities    51,880,629   100.41
  (Cost $43,332,271) ****           
Liabilities in Excess of Other Assets    (210,730 -0.41
 
Net Assets    $ 51,669,899   100.00

 


 

* Non-Income Producing Securities.
** The Yield Rate shown represents the 7-day yield at December 31, 2016.
*** At December 31, 2016, tax basis cost of the Fund’s investments was $43,332,271 and the unrealized
appreciation and depreciation were $10,462,632 and ($1,914,274), respectively, with a net unrealized
appreciation of $8,548,358.
+ Under the terms of the Contingent Value Rights (“CVR”), the holder has the right to receive cash pay-
ments of between $0.50 and $1.00 if Synergetic’s ophthalmology business achieves certain revenue per-
formance milestones.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 20


 
 Paradigm Funds
 
Statements of Assets and Liabilities    Value     Select  
   December 31, 2016    Fund     Fund  
 
Assets:             
   Investment Securities at Fair Value*  $ 62,183,384   $ 23,399,304  
   Cash    -     279  
   Receivable for Fund Shares Sold    1,022     -  
   Dividends Receivable    73,980     3,981  
   Interest Receivable    215     269  
           Total Assets    62,258,601     23,403,833  
Liabilities:             
   Payable for Fund Shares Redeemed    47,960     -  
   Payable for Securities Purchased    34,563     512,379  
   Payable to Advisor    80,049     22,377  
           Total Liabilities    162,572     534,756  
Net Assets  $ 62,096,029   $ 22,869,077  
Net Assets Consist of:             
   Paid In Capital  $ 37,893,571   $ 19,888,146  
   Accumulated Realized Loss on Investments - Net    (46,914   (46,817
   Unrealized Appreciation in Value of Investment Securities - Net    24,249,372     3,027,748  
Net Assets  $ 62,096,029   $ 22,869,077  
 
Net Asset Value, Offering and Redemption Price (Note 2)  $ 48.10   $ 33.49  
 
* Investments at Identified Cost  $ 37,934,012   $ 20,371,556  
 
 Shares Outstanding (Unlimited number of shares    1,290,929     682,951  
         authorized without par value)             
 
Statements of Operations             
   For the fiscal year ended December 31, 2016             
 
Investment Income:             
   Dividends (Net of foreign withholding taxes** of $0 and $0, respectively)  $ 865,214   $ 83,265  
   Interest    2,098     2,258  
         Total Investment Income    867,312     85,523  
Expenses:             
   Investment Advisor Fees    1,202,039     126,540  
         Total Expenses    1,202,039     126,540  
   Less: Expenses Waived    (300,510   (29,526
         Net Expenses    901,529     97,014  
 
 
Net Investment Loss    (34,217   (11,491
 
Realized and Unrealized Gain on Investments:             
   Net Realized Gain on Investments    3,302,080     167,631  
   Net Change in Unrealized Appreciation on Investments    5,946,334     1,605,144  
Net Realized and Unrealized Gain on Investments    9,248,414     1,772,775  
 
Net Increase in Net Assets from Operations  $ 9,214,197   $ 1,761,284  


 

** 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.

2016 Annual Report 21


 Paradigm Funds
 
Statements of Assets and Liabilities    Opportunity     Micro-Cap  
   December 31, 2016    Fund     Fund  
 
Assets:             
   Investment Securities at Fair Value*  $ 6,711,733   $ 51,880,629  
   Dividends Receivable    849     18,313  
   Interest Receivable    34     110  
           Total Assets    6,712,616     51,899,052  
Liabilities:             
   Payable for Fund Shares Redeemed    -     30,435  
   Payable for Securities Purchased    6,744     143,100  
   Payable to Advisor    7,142     55,618  
           Total Liabilities    13,886     229,153  
Net Assets  $ 6,698,730   $ 51,669,899  
Net Assets Consist of:             
   Paid In Capital  $ 4,141,375   $ 43,120,699  
   Accumulated Undistributed Realized Gain (Loss) on Investments - Net    (188,471   842  
   Unrealized Appreciation in Value of Investment Securities - Net    2,745,826     8,548,358  
Net Assets  $ 6,698,730   $ 51,669,899  
 
Net Asset Value, Offering and Redemption Price (Note 2)  $ 35.68   $ 29.89  
 
* Investments at Identified Cost  $ 3,965,907   $ 43,332,271  
 
 Shares Outstanding (Unlimited number of shares    187,737     1,728,738  
         authorized without par value)             
 
Statements of Operations             
   For the fiscal year ended December 31, 2016             
 
Investment Income:             
   Dividends (Net of foreign withholding taxes** of $0 and $0, respectively)  $ 71,101   $ 255,352  
   Interest    357     2,466  
         Total Investment Income    71,458     257,818  
Expenses:             
   Investment Advisor Fees    121,796     558,064  
         Total Expenses    121,796     558,064  
   Less: Expenses Waived    (45,674   -  
         Net Expenses    76,122     558,064  
 
 
Net Investment Loss    (4,664   (300,246
 
Realized and Unrealized Gain on Investments:             
   Net Realized Gain on Investments    53,024     2,286,331  
   Net Change in Unrealized Appreciation on Investments    807,613     9,440,597  
Net Realized and Unrealized Gain on Investments    860,637     11,726,928  
 
Net Increase in Net Assets from Operations  $ 855,973   $ 11,426,682  


 

** 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.

2016 Annual Report 22


Paradigm Funds
 
Statements of Changes in Net Assets  Value Fund Select Fund
 
 
    1/1/2016     1/1/2015     1/1/2016     1/1/2015    
    to     to     to     to  
    12/31/2016     12/31/2015     12/31/2016     12/31/2015    
From Operations:                         
   Net Investment Income (Loss)  $ (34,217 $ (36,184 $ (11,491 $ 12,404    
   Net Realized Gain on Investments    3,302,080     10,102,364     167,631     455,515  
   Change in Net Unrealized Appreciation    5,946,334     (8,943,339   1,605,144     (502,967
   Increase (Decrease) in Net Assets from Operations    9,214,197     1,122,841     1,761,284     (35,048
From Distributions to Shareholders:                         
     Net Investment Income    -     -     (3,424   (9,124
     Net Realized Gain from Security Transactions    (2,927,866   (8,355,645   (165,344   (456,985
     Total Distributions to Shareholders    (2,927,866   (8,355,645   (168,768   (466,109
From Capital Share Transactions:                         
   Proceeds From Sale of Shares    3,997,611     3,224,508     16,625,834     485,080  
   Proceeds from Redemption Fees (Note 2)    212     2,584     211     500  
   Shares Issued on Reinvestment of Dividends    2,812,610     8,044,376     166,931     446,727  
   Cost of Shares Redeemed    (17,931,904   (33,269,143   (915,039    (1,569,443
   Net Increase (Decrease) from Shareholder Activity    (11,121,471   (21,997,675   15,877,937     (637,136
Net Increase (Decrease) in Net Assets    (4,835,140   (29,230,479   17,470,453     (1,138,293  
 
Net Assets at Beginning of Period    66,931,169     96,161,648     5,398,624     6,536,917  
 
Net Assets at End of Period  $ 62,096,029   $ 66,931,169   $ 22,869,077   $ 5,398,624    
 
Accumulated Undistributed Net Investment Income  $ -   $ 3,078   $ -   $ 3,421    
 
 
Share Transactions:                         
   Issued    90,447     65,850     523,164     14,617  
   Reinvested    58,293     184,886     4,958     15,195  
   Redeemed    (413,801   (684,272   (30,738   (47,255
Net Increase (Decrease) in Shares    (265,061   (433,536   497,384     (17,443
Shares Outstanding Beginning of Period    1,555,990     1,989,526     185,567     203,010  
Shares Outstanding End of Period    1,290,929     1,555,990     682,951     185,567  

 


 

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 23


Paradigm Funds
 
Statements of Changes in Net Assets  Opportunity Fund Micro-Cap Fund
 
 
    1/1/2016     1/1/2015     1/1/2016     1/1/2015    
    to     to     to     to  
    12/31/2016     12/31/2015     12/31/2016     12/31/2015    
From Operations:                         
   Net Investment Loss  $ (4,664 $ (12,427 $ (300,246 $ (148,705
   Net Realized Gain (Loss) on Investments    53,024     (201,820   2,286,331     395,501  
   Change in Net Unrealized Appreciation (Depreciation)    807,613     (86,400   9,440,597     (5,063,818
   Increase (Decrease) in Net Assets from Operations    855,973     (300,647   11,426,682     (4,817,022
From Distributions to Shareholders:                         
     Net Investment Income    -     -     -     -  
     Net Realized Gain from Security Transactions    -     (872   (1,798,512   (543,398
     Total Distributions to Shareholders    -     (872   (1,798,512   (543,398
From Capital Share Transactions:                         
   Proceeds From Sale of Shares    5,171     394,205     3,577,443     23,904,401  
   Proceeds from Redemption Fees (Note 2)    -     556     253     -  
   Shares Issued on Reinvestment of Dividends    -     870     1,796,975     543,357  
   Cost of Shares Redeemed    (181,798   (768,997   (5,727,837   (2,792,347
   Net Increase (Decrease) from Shareholder Activity    (176,627   (373,366   (353,166   21,655,411  
Net Increase (Decrease) in Net Assets    679,346     (674,885   9,275,004     16,294,991  
 
Net Assets at Beginning of Period    6,019,384     6,694,269     42,394,895     26,099,904  
 
Net Assets at End of Period  $ 6,698,730   $ 6,019,384   $ 51,669,899   $ 42,394,895  
 
Accumulated Undistributed Net Investment Income  $ -   $ -   $ -   $ -  
 
 
Share Transactions:                         
   Issued    170     11,226     135,485     881,559  
   Reinvested    -     28     60,059     22,115  
   Redeemed    (5,747   (22,648   (209,844   (113,529
Net Increase (Decrease) in Shares    (5,577   (11,394   (14,300   790,145  
Shares Outstanding Beginning of Period    193,314     204,708     1,743,038     952,893  
Shares Outstanding End of Period    187,737     193,314     1,728,738     1,743,038  

 


 

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 24


 Paradigm Value Fund
 
Financial Highlights - Paradigm Value Fund                               
 
Selected data for a share outstanding    1/1/2016     1/1/2015     1/1/2014     1/1/2013     1/1/2012  
throughout the period:    to     to     to     to     to  
    12/31/2016     12/31/2015     12/31/2014     12/31/2013     12/31/2012  
Net Asset Value - Beginning of Period  $ 43.02   $ 48.33   $ 56.37   $ 56.47   $ 52.54  
Net Investment Income (Loss) (a)    (0.02   (0.02   (0.05   (0.19   0.15  
Net Gain (Loss) on Securities (Realized and Unrealized)    7.46     0.74     1.50     12.45     4.01  
   Total from Investment Operations    7.44     0.72     1.45     12.26     4.16  
Distributions (From Net Investment Income)    -     -     -     -     (0.16
Distributions (From Capital Gains)    (2.36   (6.03   (9.49   (12.37   -  
Distributions (From Return of Capital)    -     -     -     -     (0.07
   Total Distributions    (2.36   (6.03   (9.49   (12.37   (0.23
Proceeds from Redemption Fee (Note 2)    -   +   -   +   -   +   0.01     -   +
Net Asset Value - End of Period  $ 48.10   $ 43.02   $ 48.33   $ 56.37   $ 56.47  
Total Return (b)    17.29%     1.35%     2.44%     21.82%     7.93%  
 
Ratios/Supplemental Data                               
Net Assets - End of Period (Thousands)  $ 62,096   $ 66,931   $ 96,162   $ 133,113   $ 244,606  
Before Reimbursement                               
   Ratio of Expenses to Average Net Assets    2.00%     2.00%     1.97%     1.91%     1.84%  
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)    (0.06)%     (0.05)%     (0.09)%     (0.31)%     0.26%  
Portfolio Turnover Rate    12.68%     14.35%     31.47%     48.01%     62.22%  

 Paradigm Select Fund
 
Financial Highlights - Paradigm Select Fund                               
 
Selected data for a share outstanding throughout the period:    1/1/2016     1/1/2015     1/1/2014     1/1/2013     1/1/2012  
    to     to     to     to     to  
    12/31/2016     12/31/2015     12/31/2014     12/31/2013     12/31/2012  
Net Asset Value - Beginning of Period  $ 29.09   $ 32.20   $ 37.05   $ 32.50   $ 30.24  
Net Investment Income (a)    (0.04   0.07     -   +   0.06     0.24  
Net Gain (Loss) on Securities (Realized and Unrealized)    4.69     (0.45   2.98     9.29     2.49  
Total from Investment Operations    4.65     (0.38   2.98     9.35     2.73  
Distributions (From Net Investment Income)    (0.01   (0.05   -     (0.05   (0.28
Distributions (From Capital Gains)    (0.24   (2.68   (7.83   (4.75   (0.19
   Total Distributions    (0.25   (2.73   (7.83   (4.80   (0.47
Proceeds from Redemption Fee (Note 2)    -   +   -   +   -     -   +   -   +
 
Net Asset Value - End of Period  $ 33.49   $ 29.09   $ 32.20   $ 37.05   $ 32.50  
Total Return (b)    15.98%     (1.26)%     7.86%     28.83%     9.07%  
Ratios/Supplemental Data                               
Net Assets - End of Period (Thousands)  $ 22,869   $ 5,399   $ 6,537   $ 8,181   $ 9,462  
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 (c)    1.15%     1.15%     1.15%     1.15%     1.15%  
   Ratio of Net Investment Income (Loss) to Average                               
Net Assets (c)    (0.14)%     0.21%     0.00%    +   0.16%     0.73%  
Portfolio Turnover Rate    31.47%     19.57%     36.25%     46.80%     86.71%  

(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. See Note 4.
+ Amount calculated is less than $0.005/0.005% .

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 25


 Paradigm Opportunity Fund
 
Financial Highlights - Paradigm Opportunity Fund                            
 
Selected data for a share outstanding throughout the period:    1/1/2016     1/1/2015       1/1/2014     1/1/2013     1/1/2012  
    to     to       to     to     to  
    12/31/2016     12/31/2015        12/31/2014     12/31/2013     12/31/2012  
Net Asset Value - Beginning of Period  $ 31.14   $ 32.70     $ 31.25   $ 26.44   $ 25.04  
Net Investment Loss (a)    (0.02   (0.06     (0.05   (0.08   (0.03
Net Gain (Loss) on Securities (Realized and Unrealized)    4.56     (1.50     3.27     6.82     1.71  
Total from Investment Operations    4.54     (1.56     3.22     6.74     1.68  
Distributions (From Net Investment Income)    -     -       -     -     -  
Distributions (From Capital Gains)    -     -     (1.77   (1.93   (0.28
Distributions (From Return of Capital)    -     -       -     -     -   +
   Total Distributions    -     -       (1.77   (1.93   (0.28
Proceeds from Redemption Fee (Note 2)    -     -     -   +   -     -  
Net Asset Value - End of Period  $ 35.68   $ 31.14     $ 32.70   $ 31.25   $ 26.44  
Total Return (b)    14.58%     (4.76)%       10.28%     25.54%     6.72%  
 
Ratios/Supplemental Data                                 
Net Assets - End of Period (Thousands)  $ 6,699   $ 6,019     $ 6,694   $ 6,036   $ 4,807  
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)    1.25%     1.25%       1.25%     1.25%     1.33%  
   Ratio of Net Investment Loss to Average                                 
Net Assets (c)    (0.08)%     (0.19)%       (0.15)%     (0.28)%     (0.10)%  
Portfolio Turnover Rate    10.65%     16.21%       7.59%     44.00%     61.11%  

 Paradigm Micro-Cap Fund
 
Financial Highlights - Paradigm Micro-Cap Fund                             
 
Selected data for a share outstanding throughout the period:    1/1/2016       1/1/2015     1/1/2014     1/1/2013     1/1/2012  
    to     to     to     to     to  
    12/31/2016      12/31/2015     12/31/2014     12/31/2013     12/31/2012  
Net Asset Value - Beginning of Period  $  24.32   $ 27.39   $ 30.35   $ 23.24   $ 21.01  
Net Investment Income (Loss) (a)    (0.18   (0.11   (0.17   (0.06   0.09  
Net Gain (Loss) on Securities (Realized and Unrealized)    6.83     (2.64   0.74     9.69     2.23  
Total from Investment Operations    6.65     (2.75   0.57     9.63     2.32  
Distributions (From Net Investment Income)    -     -     -     -     (0.09
Distributions (From Capital Gains)    (1.08   (0.32   (3.53   (2.52   -  
   Total Distributions    (1.08   (0.32   (3.53   (2.52   (0.09
Proceeds from Redemption Fee (Note 2)    -   +   -     -     -     -   +
Net Asset Value - End of Period  $  29.89   $ 24.32   $ 27.39   $ 30.35   $ 23.24  
Total Return (b)    27.33%     (10.05)%     1.81%     41.41%     11.06%  
 
Ratios/Supplemental Data                               
Net Assets - End of Period (Thousands)  $  51,670   $ 42,395   $ 26,100   $ 27,210   $ 17,598  
   Ratio of Expenses to Average Net Assets    1.25%     1.25%     1.25%     1.25%     1.25%  
   Ratio of Net Investment Income (Loss) to Average                               
     Net Assets    (0.67)%     (0.41)%     (0.58)%     (0.21)%     0.38%  
Portfolio Turnover Rate    88.88%     70.95%     101.19%     70.07%     60.47%  

(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. See Note 4.
+ Amount calculated is less than $0.005.

The accompanying notes are an integral part of these
financial statements.

2016 Annual Report 26


NOTES TO FINANCIAL STATEMENTS
PARADIGM FUNDS
December 31, 2016


1.) ORGANIZATION
Paradigm Funds (the “Trust”) is an open-end management investment company that was 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. Value’s investment objective is long-term capital appreciation. The Paradigm Select Fund (“Select”) and Paradigm Opportunity Fund (“Opportunity”) 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. Micro-Cap’s investment objective is long-term capital appreciation. Under normal circumstances, Micro-Cap 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 (defined below) believed had the potential for capital appreciation. Value, Select, Opportunity and Micro-Cap are all diversified funds. The advisor to Value, Select, Opportunity and Micro-Cap (each a “Fund” and collectively the “Funds”) is Paradigm Funds Advisor LLC (the “Advisor”).

2.) SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION: The Funds are investment companies and accordingly follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946 Financial Services - Investment Companies. 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 for financial statement reporting purposes. 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.

The Funds may hold investments in master limited partnerships (“MLPs”). It is common for distributions from MLPs to exceed taxable earnings and profits resulting in the excess portion of such dividend to be designated as return of capital. Annually, income or loss from MLPs is reclassified upon receipt of the MLPs K-1. For financial reporting purpose management does not estimate the tax character of MLP distributions for which actual information has not been reported.

SHARE VALUATION: The net asset value (the “NAV”) is 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, 2016 proceeds from redemption fees were $212, $211, $0 and $253 for Value, Select, Opportunity and Micro-Cap, respectively.

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 posi-

 

2016 Annual Report 27


Notes to Financial Statements - continued

tions, 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. The Funds identify their major tax jurisdictions as U.S. Federal and New York State tax authorities; the Funds are not aware of any tax positions for which it is 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 fiscal year ended December 31, 2016, 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 Funds may utilize earnings and profits distributed to shareholders on redemptions of shares as part of the dividends paid deduction. 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. At December 31, 2016, the following permanent adjustments were recorded. Such adjustments were attributed to the reclassification of net investment loss, distribution adjustments and the usage of equalization for tax purposes.

Value       
Paid In Capital    $365,515  
Accumulated Undistributed Net Investment Income    $31,139  
Accumulated Realized Loss on Investments - Net    ($396,654 ) 
 
Select       
Accumulated Undistributed Net Investment Income    $11,494  
Accumulated Realized Loss on Investments - Net    ($11,494 ) 
 
Opportunity       
Paid In Capital    ($4,664 ) 
Accumulated Undistributed Net Investment Income    $4,664  
 
Micro-Cap       
Accumulated Undistributed Net Investment Income    $300,246  
Accumulated Undistributed Realized Gain on Investments - Net    ($300,246 ) 

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.

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’ best information about the assumptions a market participant would use in valuing the assets or liabilities.

The availability of 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.

 

2016 Annual Report 28


Notes to Financial Statements - continued

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 measured at fair value on a recurring basis follows.

Equity securities (common stocks, real estate investment trusts and contingent value rights).Equity securities that are traded on any exchange or on the NASDAQ over-the-counter market are valued at the last quoted sale price. Lacking a last sale price, a long security is valued at its last bid price except when, in the Advisor’s opinion, the last bid price does not accurately reflect the current value of the long security. To the extent these securities are actively traded and valuation adjustments are not applied, they are classified in level 1 of the fair value hierarchy. When market quotations are not readily available, when the Advisor determines the last bid price does not accurately reflect the current value or when restricted securities are being valued, such securities are valued as determined in good faith by the Advisor, in conformity with guidelines adopted by and subject to review of the Trust’s Board of Trustees (the “Trustees” or the “Board”) and are categorized in level 2 or level 3, when appropriate.

Money market funds. Money market funds are valued at net asset value and are classified in level 1 of the fair value hierarchy.

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, 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, 2016:

Value:             
Valuation Inputs of Assets    Level 1  Level 2  Level 3    Total 
Common Stocks    $55,285,533  $ -  $ -    $55,285,533 
Real Estate Investment Trusts    4,376,835  -  -    4,376,835 
Money Market Funds        2,521,016     -     -        2,521,016 
Total    $62,183,384  $ -  $ -    $62,183,384 
 
Select:             
Valuation Inputs of Assets    Level 1  Level 2  Level 3    Total 
Common Stocks    $20,634,188  $ -  $ -    $20,634,188 
Real Estate Investment Trusts    509,184  -  -    509,184 
Money Market Funds        2,255,932     -      -        2,255,932 
Total    $23,399,304  $ -  $ -    $23,399,304 
 
Opportunity:             
Valuation Inputs of Assets    Level 1  Level 2  Level 3    Total 
Common Stocks    $6,069,023  $ -  $ -    $6,069,023 
Real Estate Investment Trusts    276,624  -  -    276,624 
Money Market Funds         366,086     -     -         366,086 
Total    $6,711,733  $ -  $ -    $6,711,733 
 
Micro-Cap:             
Valuation Inputs of Assets    Level 1  Level 2  Level 3    Total 
Common Stocks    $49,768,750  $ -  $ -    $49,768,750 
Contingent Value Rights    -  -  -    - 
Money Market Funds        2,111,879     -     -        2,111,879 
Total    $51,880,629  $ -  $ -    $51,880,629 


 

2016 Annual Report 29


Notes to Financial Statements - continued

Refer to each Fund’s 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, 2016. There were no transfers into or out of the levels during the fiscal year ended December 31, 2016. It is the Funds’ policy to consider transfers into or out of the levels as of the end of the reporting period.

The Funds did not invest in derivative instruments during the fiscal year ended December 31, 2016.

4.) INVESTMENT ADVISORY AGREEMENTS
The Trust, with respect to 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 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 interest and dividend expenses on securities sold short) and such extraordinary or non-recurring expenses as may arise, including litigation to which the Fund may be a party and indemnification of the Trust’s Trustees and officers with respect thereto. The Funds will also pay expenses that they are authorized to pay pursuant to Rule 12b-1 under the Investment Company Act of 1940 (none are currently authorized). 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, 2016, the Advisor earned management fees (before the waivers described below) totaling $1,202,039, $126,540, $121,796 and $558,064 for Value, Select, Opportunity, and Micro-Cap, respectively. At December 31, 2016, $80,049, $22,377, $7,142 and $55,618 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, Select 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%, 1.15% and 1.25%, respectively, of daily net assets through April 30, 2017. The Advisor waived $300,510, $29,526 and $45,674 for the fiscal year ended December 31, 2016 for Value, Select and Opportunity, respectively. There is no recapture provision to these waivers.

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 each paid $8,000, for a total of $24,000, in Trustees fees for the fiscal year ended December 31, 2016 for the Trust. Under the Management Agreements, the Advisor pays these fees.

6.) INVESTMENTS
For the fiscal year ended December 31, 2016, 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    $7,502,837    $16,660,987    $624,698    $38,373,240 
Sales    $23,988,082       $2,478,010    $832,798    $41,086,984 
 
There were no purchases or sales of U.S. Government obligations.     

7.) CAPITAL SHARES
At December 31, 2016, 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, 2016:

    Value    Select    Opportunity    Micro-Cap 
Shares Issued                 
   and Outstanding    1,290,929    682,951    187,737    1,728,738 
Paid in Capital    $37,893,571    $19,888,146    $4,141,375    $43,120,699 

 


 

2016 Annual Report 30


Notes to Financial Statements - continued

8.) CONTROL OWNERSHIP
The beneficial ownership, either directly or indirectly, of more than 25% of the voting shares of a fund creates a presumption of control of the fund, under section 2(a)(9) of the Investment Company Act of 1940. At December 31, 2016, National Financial Services, LLC, located at 200 Liberty Street, New York, New York, for the benefit of its customers, held, in aggregate, 39.13% of Value, and therefore also may be deemed to control Value. Candace King Weir, beneficial owner located at 9 Elk Street, Albany, New York 12207, held, in aggregate, 62.93%, 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, 94.46%, of Opportunity, and therefore may be deemed to control Opportunity. Candace King Weir, beneficial owner located at 9 Elk Street, Albany, New York 12207, held, in aggregate, 60.66% of Micro-Cap, and therefore may be deemed to control Micro-Cap.

9.) TAX MATTERS
For federal income tax purposes, at December 31, 2016 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    $38,071,347     $20,422,484     $3,988,010     $43,332,271  
 
Gross Unrealized Appreciation    $25,871,389     $3,343,962     $2,856,646     $10,462,632  
Gross Unrealized Depreciation    ($1,759,352 )    ($367,142 )    ($132,923 )    ($1,914,274 ) 
Net Unrealized Appreciation                         
 (Depreciation) on Investments    $24,112,037     $2,976,820     $2,723,723     $8,548,358  

The tax character of distributions paid during the fiscal years ended December 31, 2016 and 2015 were as follows:

    Fiscal Year Ended    Fiscal Year Ended 
    December 31, 2016    December 31, 2015 
PARADIGM VALUE FUND         
     Ordinary Income    $  1,242,103    $    351,550 
     Long-term Capital Gain        1,685,763       8,004,095 
    $  2,927,866    $ 8,355,645 
 
PARADIGM SELECT FUND         
     Ordinary Income    $     138,692    $     71,087 
     Long-term Capital Gain            30,076         395,022 
    $    168,768    $   466,109 
 
PARADIGM OPPORTUNITY FUND         
     Ordinary Income    $              -    $          872 
     Long-term Capital Gain                    -                   - 
    $              -    $          872 
PARADIGM MICRO-CAP FUND         
     Ordinary Income    $ 1,798,512    $      11,095 
     Long-term Capital Gain                   -          532,303 
    $ 1,798,512    $     543,398 

As of December 31, 2016, the components of distributable earnings on a tax basis were as follows:

    Value     Select 
Undistributed ordinary income  $ 38,050   $ 4,111 
Undistributed capital gain    52,371     - 
Unrealized appreciation    24,112,037     2,976,820 
  $ 24,202,458   $ 2,980,931 
 
 
    Opportunity     Micro-Cap 
Undistributed ordinary income  $ -   $ 842 
Undistributed capital loss    (166,368 )    - 
Unrealized appreciation    2,723,723     8,548,358 
  $ 2,557,355   $ 8,549,200 

 

2016 Annual Report 31


Notes to Financial Statements - continued

The difference between book basis and tax basis unrealized appreciation/(depreciation) is attributable to the tax deferral of losses on wash sales.

10.) CAPITAL LOSS CARRYFORWARDS
As of December 31, 2016, Opportunity had available for federal tax purposes an unused capital loss carry-forward of $166,368, of which $42,136 is short-term with no expiration and $124,232 is long-term with no expiration. During the year ended December 31, 2016, Opportunity utilized $52,778 of capital loss carryfor-wards.

11.) PROXY VOTING RESULTS (Unaudited)
On November 30, 2016, a special meeting of the shareholders of the Funds was held at the offices of Mutual Shareholder Services, 8000 Town Centre Drive, Suite 400, Broadview Heights, Ohio 44147 for the following purpose:

          1. The election of four Trustees to the Board of Trustees of Paradigm Funds.

Below are the voting results from the special meeting:   
 
  For Approval  Withheld 
   1. Gary Greenhouse:  3,084,717  43,135 
   2. Peter Heerwagen:  3,082,810  45,042 
   3. Richard Koskey:  3,089,161  38,691 
   4. George Philip:  3,085,929  41,923 

12.) SUBSEQUENT EVENTS
Subsequent events after the date of the Statements of Assets and Liabilities have been evaluated through the date the financial statements were issued. Management has concluded that there is no impact requiring adjustment or disclosure in the financial statements.

 

 

 

 

 

2016 Annual Report 32


DISCLOSURE OF EXPENSES
(Unaudited)

     The ongoing costs to shareholders associated with the Paradigm Value Fund, Paradigm Select Fund, Paradigm Opportunity 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, 2016 and held through December 31, 2016.

     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.

     Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as the annual maintenance fee charged to IRA accounts, redemption fees, or exchange fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

PARADIGM VALUE FUND         
            Expenses Paid 
    Beginning    Ending    During the Period* 
    Account Value    Account Value    July 1, 2016 to 
    July 1, 2016    December 31, 2016    December 31, 2016 
 
           Actual    $1,000.00    $1,208.26    $8.33 
 
           Hypothetical    $1,000.00    $1,017.60    $7.61 
           (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 184/366 (to reflect the one-half year period).

PARADIGM SELECT FUND         
            Expenses Paid 
    Beginning    Ending    During the Period* 
    Account Value    Account Value    July 1, 2016 to 
    July 1, 2016    December 31, 2016    December 31, 2016 
 
           Actual    $1,000.00    $1,169.82    $6.27 
 
           Hypothetical    $1,000.00    $1,019.36    $5.84 
           (5% annual return             
           before expenses)             

* Expenses are equal to the Fund’s annualized expense ratio of 1.15%, multiplied by the average
account value over the period, multiplied by 184/366 (to reflect the one-half year period).

 

2016 Annual Report 33


Disclosure of Expenses (Unaudited) - continued

PARADIGM OPPORTUNITY FUND         
            Expenses Paid 
    Beginning             Ending    During the Period* 
    Account Value    Account Value    July 1, 2016 to 
    July 1, 2016    December 31, 2016    December 31, 2016 
 
           Actual  $ 1,000.00  $            1,161.08  $                6.79 
 
           Hypothetical  $ 1,000.00  $            1,018.85  $ 6.34 
           (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 184/366 (to reflect the one-half year period).

PARADIGM MICRO-CAP FUND         
            Expenses Paid 
    Beginning    Ending    During the Period* 
    Account Value    Account Value    July 1, 2016 to 
    July 1, 2016    December 31, 2016    December 31, 2016 
 
           Actual    $1,000.00    $1,280.69    $7.17 
 
           Hypothetical    $1,000.00    $1,018.85    $6.34 
           (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 184/366 (to reflect the one-half year period).

 

 

 

 

2016 Annual Report 34


ADDITIONAL INFORMATION
December 31, 2016

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.

 

 

 

2016 Annual Report 35


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2016 Annual Report 36


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Shareholders and Board of Trustees of
Paradigm Funds


We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of Paradigm Funds, comprising Paradigm Value Fund, Paradigm Select Fund, Paradigm Opportunity Fund, and Paradigm Micro-Cap Fund (the “Funds”) as of December 31, 2016, 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. These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2016, by correspondence with the custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of each of the Funds constituting Paradigm Funds as of December 31, 2016, 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 five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.


COHEN & COMPANY, LTD.
Cleveland, Ohio
February 24, 2017

 

 

 

 

2016 Annual Report 37


TRUSTEES AND OFFICERS (Unaudited)

     The Board of Trustees supervises the business activities of the Trust. Each Trustee serves as a trustee until the termination of the Trust unless the Trustee dies, resigns, retires or is removed.

     The following table provides information regarding each Trustee who is an “interested person” of the Trust, as defined in the Investment Company Act of 1940, and each officer of the Trust as of December 31, 2016.

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 Trustee 
and Year of Birth the Trust  Length of  During the  By  During the 
    Time Served  Past 5 Years  Trustee  Past 5 Years 
 
Candace King President  Indefinite Term,  Co-Portfolio Manager of Paradigm Micro-Cap Fund since  4  None 
Weir2, (1944) and Trustee  Since 2002  2011, Paradigm Value Fund, Paradigm Select Fund and     
      Paradigm Opportunity Fund since February 2013;     
      Director, President, Chief Investment Officer, and Portfolio     
      Manager of Paradigm Capital Management, Inc. since     
      1994; Director and President of C.L. King & Associates,     
      Inc. since 1972; Managing Member of PCM Ventures, LLC     
      since 1996, PCM Ventures International LLC since 2001,     
      PCM Ventures II, LLC since 2003, and PCM Ventures III,     
      LLC since 2010; Chief Executive Officer and Director of     
      PCM Advisors LLC 2004-2012, Paradigm Funds Advisors     
      LLC since 2005, and Paradigm Capital Management     
                                                                                  Growth Advisors, Inc. 2007-2012.
 
Amelia F. Weir Secretary  Indefinite Term,  Co-Portfolio Manager of Paradigm Micro-Cap Fund since  N/A  N/A 
(1975)   Since 2009  2011, Paradigm Value Fund, Paradigm Select Fund and     
      Paradigm Opportunity Fund since February 2013;     
      Portfolio Manager and Director of Research Paradigm     
                                                                                  Capital Management (2008 - current).
 
Carl A. Florio, Trustee  Indefinite Term,  Director and Vice Chairman of Paradigm Funds Advisor  4  Director, 
CPA3, (1948)   Since 2005  LLC and affiliated entities (2008 - current).    American Bio 
          Medical; Dir., 
          First Niagara 
          Financial Group 
 
Robert A. Treasurer,  Indefinite Term,  SVP and CFO of Paradigm Funds Advisor LLC and affili-  N/A  N/A 
Benton, (1954) Chief  Treasurer and  ated advisors (May 2006 - current), SVP and CFO of C.L.     
  Financial  Chief Financial  King & Associates, a registered broker dealer (February     
  Officer, and  Officer Since  2001 - current); SVP and CFO of Paradigm Capital     
  Chief  2002, Chief  Management, Inc. (February 2001 - March 2004); May 2006     
  Compliance   Compliance  - current.     
  Officer  Officer Since       
    June 2016       

Independent Trustees

    Term of  Principal  Number of  Other 
Name, Position(s)  Office and  Occupation(s)  Portfolios   Directorships 
Address1, Held with  Length of  During  Overseen  During the 
and Year of Birth the Trust  Time Served  Past 5 Years  By Trustee  Past 5 Years 
 
Gary Greenhouse Trustee  Indefinite Term,  Founder and President, Dr. Woods Products (a con-  4  None 
(1943)   Since 2016  sumer products company) (2006 - current); Founder and     
      Managing Partner, Sylvia Woods Food Company (2000 -     
      current).     
 
Peter H. Trustee  Indefinite Term,  Peter H. Heerwagen, Attorney at Law (2009 - current).  4  None 
Heerwagen   Since 2009       
(1945)          
 
Richard Koskey, Trustee  Indefinite Term,  Shareholder, Pattison, Koskey, Hose & Bucci, CPAs,  4  Director, 
CPA   Since 2016  P.C., (1968 - current).    American Bio 
(1939)         Medica 
          Corporation 
 
William P. Trustee  Indefinite Term,  Chief Executive Officer of Bright Hub, Inc. (2006 - cur-  4  Director, MTI 
Phelan4, CPA   Since 2007  rent).    Micro 
(1956)          
 
George M. Philip Trustee  Indefinite Term,  Retired (2013 - current); President, University of Albany,  4  Director, First 
(1947)   Since 2016  State University of New York (2007 - 2013).    Niagara 
          Financial Group 

1 The address of each trustee and officer is c/o Paradigm Funds, Nine Elk Street, Albany, NY 12207.

2 Candace King Weir is considered an “interested person” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as
amended, by virtue of her affiliation with the Trust’s investment advisor, Paradigm Funds Advisor LLC.

3 Carl A. Florio is considered an “interested person” as defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended,
because he is an officer of the Trust’s investment advisor, Paradigm Funds Advisor LLC. Carl A. Florio is a member of the Board of
Directors of a non-profit foundation that retains 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, 2016 he owned 1.19% of the PCM Partners, LP II part-
nership, the value of which was $2.95 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.

2016 Annual Report 38 


Board of Trustees
Carl A. Florio
Gary Greenhouse
Peter H. Heerwagen
Candace King Weir
Richard Koskey
William P. Phelan
George Philip

Investment Advisor
Paradigm Funds Advisor LLC
Nine Elk Street
Albany, NY 12207-1002

Counsel
Thompson Hine LLP
41 South High Street, Suite 1700
Columbus, OH 43215

Custodian
U.S. Bank, NA
425 Walnut Street
P.O. Box 1118
Cincinnati, OH 45201

Dividend Paying Agent,
Shareholders' Servicing Agent,
Transfer Agent
Mutual Shareholder Services
8000 Town Centre Dr., Suite 400
Broadview Hts., OH 44147

Fund Administrator
Premier Fund Solutions, Inc.
1939 Friendship Drive, Suite C
El Cajon, CA 92020

Independent Registered Public Accounting Firm
Cohen & Company, Ltd.
1350 Euclid Ave., Suite 800
Cleveland, OH 44115

 

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 12/31/16    FYE 12/31/15 
Audit Fees    $37,400    $37,400 
Audit-Related Fees    $0    $0 
Tax Fees    $10,000    $11,000 
All Other Fees    $1,800    $1,800 

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 12/31/16    FYE 12/31/15 
Registrant    $11,800    $12,800 
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.

(a)(3) Not applicable.

(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:            2/24/2017                                 

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:            2/24/2017                                   

 

 

By: /s/Robert A. Benton                                
Robert A. Benton
Chief Financial Officer

          Date:            2/24/2017                                   

EX-99.CODE ETH 2 paraofficerscode.htm Principal Officers Code

PARADIGM FUNDS


CODE OF ETHICS FOR PRINCIPAL EXECUTIVE AND

SENIOR FINANCIAL OFFICERS


I.

Covered Officers/Purpose of the Code


This code of ethics (this “Code”) for Paradigm Funds (the “Trust”) applies to the Trust’s Principal Executive Officer and Principal Financial Officer (the “Covered Officers” each of whom is set forth in Exhibit A) for the purpose of promoting:

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

  • full, fair, accurate, timely and understandable disclosure in reports and documents that the Trust files with, or submits to, the Securities and Exchange Commission (“SEC”) and in other public communications made by the Trust;

  • compliance with applicable laws and governmental rules and regulations;

  • the prompt internal reporting of violations of this Code to an appropriate person or persons identified in this Code; and

  • accountability for adherence to this Code.


Each Covered Officer should adhere to a high standard of business ethics and should be sensitive to situations that may give rise to actual as well as apparent conflicts of interest.


II.

Covered Officers Should Handle Ethically Actual and Apparent Conflicts of Interest


Overview.  A “conflict of interest” occurs when a Covered Officer’s private interests interfere with the interests of, or the Covered Officer’s service to, the Trust.  For example, a conflict of interest would arise if a Covered Officer, or a member of the Covered Officer’s family, receives improper personal benefits as a result of the Covered Officer’s position with the Trust.


Certain conflicts of interest arise out of the relationships between Covered Officers and the Trust and already are subject to conflict of interest provisions in the Investment Company Act of 1940 (“Investment Company Act”) and the Investment Advisers Act of 1940 (“Investment Advisers Act”).  For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other property) with the Trust because of their status as “affiliated persons” of the Trust.  This Code does not, and is not intended to, repeat or replace any compliance programs and procedures of the Trust or the investment adviser designed to prevent, or identify and correct, violations of the Investment Company Act and the Investment Advisers Act.  










Although typically not presenting an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between the Trust and the investment adviser or the administrator of which a Covered Officer is also an officer or employee.  As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties, whether formally for the Trust and/or for the adviser or the administrator, be involved in establishing policies and implementing decisions that will have different effects on the adviser or the administrator and the Trust.  The participation of the Covered Officers in such activities is inherent in the contractual relationship between the Trust and the adviser or the administrator and is consistent with the performance by the Covered Officers of their duties as officers of the Trust.  Thus, if performed in conformity with the provisions of the Investment Company Act and the Investment Advisers Act, such activities will be deemed to have been handled ethically.  In addition, it is recognized by the Trust’s Board of Trustees (“Board”) that the Covered Officers may also be officers or employees of one or more investment companies covered by other codes.  


Other conflicts of interest are covered by this Code, even if such conflicts of interest are not subject to provisions in the Investment Company Act and the Investment Advisers Act.  The following list provides examples of conflicts of interest under this Code, but Covered Officers should keep in mind that these examples are not exhaustive.  The overarching principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Trust.


Each Covered Officer must:

  • not use personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Trust whereby the Covered Officer would benefit personally to the detriment of the Trust;

  • not cause the Trust to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Trust;

  • not use material non-public knowledge of portfolio transactions made or contemplated for the Trust to trade personally or cause others to trade personally in contemplation of the market effect of such transactions;

  • report at least annually any affiliations or other relationships related to conflicts of interest that the Trust’s Trustees and Officers Questionnaire covers.


There are some conflict of interest situations that should always be discussed with the compliance officer of the Trust appointed by the Board (the “Compliance Officer”), if material.  Examples of these include:

  • service as a director on the board of any public company;

  • the receipt of any non-nominal gifts;


-2-






  • the receipt of any entertainment from any company with which the Trust has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any questions of impropriety;

  • any ownership interest in, or any consulting or employment relationship with, any of the Trust’s service providers, other than its investment adviser, principal underwriter, administrator or any affiliated person thereof; and

  • a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Trust for effecting portfolio transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership.


III.

Disclosure and Compliance

  • Each Covered Officer should familiarize himself with the disclosure requirements generally applicable to the Trust.

  • Each Covered Officer should not knowingly misrepresent, or cause others to misrepresent, facts about the Trust to others, whether within or outside the Trust, including to the Trust’s directors and auditors, and to governmental regulators and self-regulatory organizations.

  • Each Covered Officer should, to the extent appropriate within the Covered Officer’s area of responsibility, consult with other officers and employees of the Trust and of the adviser or the administrator with the goal of promoting full, fair, accurate, timely and understandable disclosure in the reports and documents the Trust files with, or submits to, the SEC and in other public communications made by the Trust.

  • It is the responsibility of each Covered Officer to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations.  


IV.

Reporting and Accountability


Each Covered Officer must:

  • upon adoption of this Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing to the Board , in substantially the form set forth on Exhibit B, that the Covered Officer has received, read, and understands this Code;

  • annually thereafter affirm to the Board, in substantially the form set forth on Exhibit C, that the Covered Officer has complied with the requirements of this Code;

  • not retaliate against any other Covered Officer or any employee of the Trust or their affiliated persons for reports of potential violations that are made in good faith; and


-3-






  • notify the Compliance Officer for the Trust promptly if the Covered Officer knows of any violation of this Code.  Failure to do so is itself a violation of this Code.  

The Compliance Officer for the Trust is responsible for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in any particular situation.  However, any approvals or waivers sought by a Covered Officer will be considered by the Audit Committee (the “Committee”), which will make recommendations to the Board.


The Trust will follow these procedures in investigating and enforcing this Code:

  • the Compliance Officer for the Trust will take all appropriate action to investigate any potential violations reported to the Compliance Officer;

  • the Compliance Officer will review with the outside legal counsel to the Trust the findings and conclusions of such investigation;

  • if, after such investigation and review, the Compliance Officer believes that no violation has occurred, the Compliance Officer is not required to take any further action;

  • any matter that the Compliance Officer believes is a violation will be reported to the Committee;

  • if the Committee concurs that a violation has occurred, it will inform and make a recommendation to the Board, which will consider appropriate action, which may include review of, and appropriate modifications to, applicable policies and procedures (including changes to this Code); notification of the violation to appropriate personnel of the investment adviser or the administrator or its board; or a recommendation to take disciplinary action against the Covered Officer, which may include, without limitation, dismissal;

  • the Board will be responsible for granting waivers, as appropriate; and

  • any changes to or waivers of this Code will, to the extent required, be disclosed as provided by SEC rules.


V.  

Other Policies and Procedures


This Code shall be the sole code of ethics adopted by the Trust for purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable to registered investment companies thereunder.  Insofar as other policies or procedures of the Trust, the Trust’s adviser, principal underwriter, the administrator or other service providers govern or purport to govern the behavior or activities of the Covered Officers who are subject to this Code, they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code.  The Trust’s and its investment adviser’s and principal underwriter’s codes of ethics under Rule 17j-1 under the Investment Company Act are separate requirements applying to the Covered Officers and others, and are not part of this Code.  


-4-








VI.  

Amendments


Any amendments to this Code, other than amendments to Exhibit A, must be approved or ratified by a majority vote of the Board, including a majority of independent trustees.


VII.  

Confidentiality


 To the extent possible, all records, reports and other information prepared, maintained or acquired pursuant to this Code will be treated as confidential, it being understood that it may be necessary or advisable, that certain matters be disclosed to third parties (e.g., to the board of directors or officers of the adviser or the administrator).  


VIII.  

Internal Use


This Code is intended solely for the internal use by the Trust and does not constitute an admission, by or on behalf of the Trust, as to any fact, circumstance, or legal conclusion.





Date: December 12, 2003



EX-99.CERT 3 ex99cert.htm ex99.cert

 

Exhibit 99.CERT


CERTIFICATIONS


I, Candace King Weir, certify that:


1.

I have reviewed this report on Form N-CSR of Paradigm Funds;


2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;


4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:


a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.

The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.




Date:          2/24/2017                           

/s/Candace King Weir                      

Candace King Weir

 President



Exhibit 99.CERT


CERTIFICATIONS


I, Robert A. Benton, certify that:


1.

I have reviewed this report on Form N-CSR of Paradigm Funds;


2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;


3.

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this report;


4.

The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have:


a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)

evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and

d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and


5.

The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):


a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.




Date:          2/24/2017                           

/s/Robert A. Benton                         

Robert A. Benton

Chief Financial Officer




EX-99.906 CERT 4 ex99906cert.htm EX-99.906 Cert

 

EX-99.906CERT



CERTIFICATION

Candace King Weir, President, and Robert A. Benton, Chief Financial Officer of Paradigm Funds (the “Registrant”), each certify to the best of his or her knowledge that:

1.

The Registrant’s periodic report on Form N-CSR for the period ended December 31, 2016 (the “Form N-CSR”) fully complies with the requirements of Sections 15(d) of the Securities Exchange Act of 1934, as amended; and

2.

The information contained in the Form N-CSR fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

President

Chief Financial Officer

Paradigm Funds

Paradigm Funds



/s/Candace King Weir                                                   /s/Robert A. Benton                                        

 


Candace King Weir

 Robert A. Benton



Date:               2/24/2017                                              Date:               2/24/2017                                           


A signed original of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to Paradigm Funds and will be retained by Paradigm Funds and furnished to the Securities and Exchange Commission (the “Commission”) or its staff upon request.


This certification is being furnished to the Commission solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Form N-CSR filed with the Commission.



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