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 811-09067
Kirr, Marbach Partners Funds, Inc.
(Exact name of registrant as specified in charter)
621 Washington Street, Columbus, IN 47201
(Address of principal executive offices) (Zip code)
Kirr, Marbach & Company, LLC, 621 Washington Street, Columbus, IN 47201
(Name and address of agent for service)
(812) 376-9444
Registrant's telephone number, including area code
Date of fiscal year end: September 30, 2012
Date of reporting period: March 31, 2012
Item 1. Report to Stockholders.
Kirr, Marbach Partners
Value Fund
Semi-Annual Report | |
www. kmpartnersfunds.com | March 31, 2012 |
KIRR, MARBACH PARTNERS
VALUE FUND
“This is the one thing I can never understand. When stocks go down and you can get more for your money, people don’t like them anymore.”
— Warren Buffett
May 22, 2012
Dear Fellow Shareholders:
What a difference six months makes! Following the third quarter of 2011, we reported the S&P 500 and Russell 3000 Indexes had both been crushed (with total returns for the quarter of -15.28% and -13.87%, respectively). Sheer panic gripped investors worldwide as headlines and talking heads blared the U.S. economy was stumbling towards a “double-dip” recession (which would concurrently drag the world economy down) and the European Union was headed towards a debt-induced meltdown. Like a herd of sheep, investors fled stocks and other risk assets en masse for the perceived safety of U.S. Government bonds.
We expressed bitter disappointment at what we saw as a massive disconnect between the mostly still-solid operating performances of our portfolio companies and plummeting stock prices. Buffett also said at the time the 70+ businesses owned by Berkshire-Hathaway were doing “very well” and thought it was “very, very unlikely we’ll go back into a recession.” We stated our belief that in times of extreme anxiety and turmoil, it was critically important to stay focused on our process for generating outstanding long-term returns and not become whip-sawed by the terrible short-term outcome.
We thought company fundamentals would eventually matter again to investors. It was possible the seeds of the next market recovery were being sown. Finally, expectations were so low that if things turned-out to be only not quite so dire, it would be a pleasant surprise and stocks could move higher. As it turned out, the headlines changed 180 degrees in six months, trumpeting the first quarter of 2012 as the best opening quarter since 1998.
It wasn’t easy for us to walk the talk of the need to remain patient, unemotional and opportunistic investors. We know it was even more difficult for you. We are invested alongside you and are as relieved as you the panic has subsided. This is not to say we’re out of the woods and it will be clear sailing ahead. The fears from last summer/fall could reignite at any time. In addition, new items like higher gasoline prices will continually be added to investors’ list of worries. Finally, even though we’re pleased a degree of “normalcy” has returned and company fundamentals are once again driving stock prices, we’re still going to have to be correct in our assessment and evaluation of our portfolio companies’ fundamentals.
Periods ending | Value Fund(1) | Russell 3000(2) | S&P 500(3) |
March 31, 2012(4) | Total Return | Index | Index |
3-months | 17.94% | 12.87% | 12.59% |
6-months | 33.96% | 26.55% | 25.89% |
One-year | 3.75% | 7.18% | 8.54% |
Two-years | 18.91% | 12.18% | 12.04% |
Three-years | 34.95% | 24.26% | 23.42% |
Five-years | 1.85% | 2.18% | 2.01% |
Ten-years | 5.24% | 4.67% | 4.12% |
Since Inception (December 31, 1998) | 6.61% | 3.51% | 2.87% |
1
KIRR, MARBACH PARTNERS
VALUE FUND
The Fund’s Annual Operating Expenses were 1.67% according to the Prospectus dated January 31, 2012. Until February 28, 2013, the Adviser has contractually agreed to waive its management fee and/or reimburse the Fund’s other expenses to the extent necessary to ensure that the total annual operating expenses do not exceed 1.45% of its average net assets. Investment performance reflects waivers in effect. In the absence of such waivers, total return would be reduced.
Performance data quoted represents past performance; past performance is no guarantee of future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance of the fund may be lower or higher than the performance quoted. Performance data current to the most recent month-end may be obtained by calling 1-800-870-8039. The fund imposes a 1.00% redemption fee on shares held less than 30 days. Performance data quoted does not reflect the redemption fee. If reflected, total returns would be reduced.
(1) | The performance data quoted assumes the reinvestment of capital gains and income distributions. The performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. |
(2) | The Russell 3000 Index is an unmanaged, capitalization-weighted index generally representative of the overall U.S. stock market. This Index cannot be invested in directly. |
(3) | The S&P 500 Index is an unmanaged, capitalization-weighted index generally representative of the U.S. market for large capitalization stocks. This Index cannot be invested in directly. |
(4) | One-year, two-year, three-year, five-year, ten-year and Since Inception returns are Average Annualized Returns. |
Commentary
We believe the valuations of stocks held in Value Fund’s portfolio are still attractive and we remain fully invested. Still, we recognize that following the stock market’s recovery over the past two quarters, the overall valuation of the market and those of our stocks are, by definition, less compelling than at the panic-induced lows. In addition, we get the sense that Wall Street analysts’ earnings expectations are becoming more optimistic, so it will be more difficult for earnings to surprise on the upside going forward.
Though valuations are higher and the level of panic lower, as contrarians we are encouraged investors are behaving as though they remain quite skeptical. The Investment Company Institute figures indicate domestic U.S. equity mutual funds continue to suffer consistent outflows, while bond funds continue to enjoy inflows.
As panic subsided and signs of economic growth became more consistent, intermediate- and longer-term interest rates ticked slightly higher from year-end 2011 levels. As we’ve stated ad nauseam, with interest rates still at historically low levels, rates are more likely to move higher (and bond prices lower). We think investors who are still piling into bond funds may be in for disappointment somewhere down the road.
2
KIRR, MARBACH PARTNERS
VALUE FUND
Summary
We are pleased the strong performance from the fourth quarter of 2011 continued through the first quarter of 2012. Though satisfied with this short-term performance, we’ll continue to manage your precious assets with the singular goal of generating outstanding long-term returns. We thank you for your trust and business.
Regards,
Mark D. Foster, CFA | Mickey Kim, CFA. |
President | Vice-President, Treasurer and Secretary |
Value Fund invests in foreign securities, which involves greater volatility and political, economic and currency risks and differences in accounting methods. Value Fund may also invest in small- and medium-capitalization companies, which tend to have more limited liquidity and greater price volatility than large-capitalization companies.
Please refer to the Schedule of Investments for complete fund holdings information.
The information provided herein represents the opinion of Value Fund’s investment adviser and is not intended to be a forecast of future events, a guarantee of future results, nor investment advice.
This material must be preceded or accompanied by a current Prospectus.
Quasar Distributors, LLC is the Distributor for Value Fund.
For further information about Value Fund and/or an account application, please call Matt Kirr at Value Fund at (812) 376-9444 or (800) 808-9444 or write to Value Fund at 621 Washington Street, Columbus, IN 47202-1729.
3
KIRR, MARBACH PARTNERS
VALUE FUND
This chart assumes an initial investment of $10,000. Performance reflects fee waivers in effect. In the absence of fee waivers, total return would be reduced. Past performance is not predictive of future performance. Investment return and principal value will fluctuate, so that your shares, when redeemed maybe worth more or less than their original cost. Performance assumes the reinvestment of capital gains and income distributions. The performance does not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares.
Average Annual Rate of Return (%) | ||||
One Year Ended | Five Years Ended | Ten Years Ended | Since Inception* to | |
March 31, 2012 | March 31, 2012 | March 31, 2012 | March 31, 2012 | |
Kirr Marbach Partners Value Fund | 3.75% | 1.85% | 5.24% | 6.61% |
Russell 3000 Index** | 7.18% | 2.18% | 4.67% | 3.51% |
S&P 500*** | 8.54% | 2.01% | 4.12% | 2.87% |
* | December 31, 1998 | |
** | The Russell 3000 Index is an unmanaged, capitalization-weighted index generally representative of the overall U.S. stock market. This Index cannot be invested in directly. | |
*** | The Standard & Poor’s 500 Index (S&P 500) is an unmanaged, capitalization-weighted index generally representative of the U.S. market for large capitalization stocks. This Index cannot be invested in directly. |
4
KIRR, MARBACH PARTNERS
VALUE FUND
Expense Example – March 31, 2012
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments, reinvested dividends, or other distributions; redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution and/or service fees; and other Fund expenses. This Example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The Example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period (October 1, 2011 – March 31, 2012).
Actual Expenses
The first line of the table below provides information about actual account values and actual expenses. Although the Fund charges no sales load or transaction fees, you will be assessed fees for outgoing wire transfers, returned checks and stop payment orders at prevailing rates charged by U.S. Bancorp Fund Services, LLC, the Fund’s transfer agent. If you request that a redemption be made by wire transfer, currently a $15.00 fee is charged by the Fund’s transfer agent. You will be charged a transaction fee equal to 1.00% of the net amount of the redemption if you redeem your shares within 30 days of purchase. IRA accounts will be charged a $15.00 annual maintenance fee. To the extent the Fund invests in shares of other investment companies as part of its investment strategy, you will indirectly bear your proportionate share of any fees and expenses charged by the underlying funds in which the Fund invests in addition to the expenses of the Fund. Actual expenses of the underlying funds are expected to vary among the various underlying funds. These expenses are not included in the example below. The example below includes, but is not limited to, management fees, shareholder servicing fees, fund accounting, custody and transfer agent fees. However, the example below does not include portfolio trading commissions and related expenses, interest expense and other extraordinary expenses as determined under generally accepted accounting principles. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads), 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.
Beginning | Ending | Expenses Paid | |
Account Value | Account Value | During Period | |
10/1/11 | 3/31/12 | 10/1/11 – 3/31/12(1) | |
Actual | $1,000.00 | $1,339.60 | $8.48 |
Hypothetical (5% return before expenses) | 1,000.00 | 1,017.75 | 7.31 |
(1) | Expenses are equal to the Fund’s annualized expense ratio after expense reimbursement of 1.45% multiplied by the average account value over the period, multiplied by 183/366 to reflect the one-half year period. The annualized expense ratio prior to expense reimbursement was 1.70%. |
5
KIRR, MARBACH PARTNERS
VALUE FUND
Allocation of Portfolio Net Assets
March 31, 2012
Top Ten Equity Holdings
as of March 31, 2012 (% of net assets)
Coach, Inc. | 5.4% |
Rosetta Resources, Inc. | 5.3% |
Cognizant Technology Solutions Corp. - Class A | 4.5% |
Alliance Data Systems Corp. | 4.2% |
Dollar Tree, Inc. | 4.1% |
WABCO Holdings, Inc. | 3.7% |
NCR Corp. | 3.5% |
Ascent Capital Group, Inc. - Class A | 3.5% |
LyondellBasell Industries NV - Class A | 2.9% |
Time Warner Cable, Inc. - Class A | 2.9% |
6
KIRR, MARBACH PARTNERS
VALUE FUND
Schedule of Investments
March 31, 2012 (Unaudited)
Number | |||||||
of Shares | Value | ||||||
COMMON STOCKS - 97.8% | |||||||
Basic Materials - 8.3% | |||||||
20,984 | Buckeye Technologies, Inc. | $ | 712,826 | ||||
31,050 | Innospec, Inc.* | 943,299 | |||||
32,367 | LyondellBasell Industries | ||||||
NV - Class A - f | 1,412,820 | ||||||
4,975 | NewMarket Corp. | 932,315 | |||||
4,001,260 | |||||||
Communications - 10.4% | |||||||
33,691 | Amdocs Ltd.* - f | 1,063,962 | |||||
28,299 | Harris Corp. | 1,275,719 | |||||
14,685 | Liberty Media Corp. - Class A* | 1,294,483 | |||||
17,290 | Time Warner Cable, Inc. - Class A | 1,409,135 | |||||
5,043,299 | |||||||
Consumer Cyclical - 20.0% | |||||||
35,697 | Ascent Capital Group, | ||||||
Inc. - Class A* | 1,688,111 | ||||||
3,648 | AutoZone, Inc.* | 1,356,326 | |||||
34,012 | Coach, Inc. | 2,628,447 | |||||
21,065 | Dollar Tree, Inc.* | 1,990,432 | |||||
35,465 | Express, Inc.* | 885,916 | |||||
61,270 | Pier 1 Imports, Inc.* | 1,113,889 | |||||
9,663,121 | |||||||
Consumer Non Cyclical - 6.3% | |||||||
16,014 | Alliance Data Systems Corp.* | 2,017,124 | |||||
18,696 | Covidien PLC - f | 1,022,297 | |||||
3,039,421 | |||||||
Energy - 8.2% | |||||||
27,834 | Energy Partners Ltd.* | 462,323 | |||||
17,741 | Ensco PLC - ADR - f | 939,031 | |||||
52,039 | Rosetta Resources, Inc.* | 2,537,422 | |||||
3,938,776 | |||||||
Financial - 5.9% | |||||||
55,740 | Janus Capital Group, Inc. | 496,643 | |||||
11,870 | Loews Corp. | 473,257 | |||||
1,726 | Markel Corp.* | 774,870 | |||||
15,511 | Portfolio Recovery Associates, Inc.* | 1,112,449 | |||||
2,857,219 | |||||||
Industrial - 24.0% | |||||||
34,291 | Aecom Technology Corp.* | 767,090 | |||||
25,294 | Atlas Air Worldwide Holdings, Inc.* | 1,244,718 | |||||
16,253 | Canadian Pacific Railway Ltd. - f | 1,234,415 | |||||
43,017 | EMCOR Group, Inc. | 1,192,431 | |||||
29,266 | EnerSys* | 1,014,067 | |||||
39,618 | KBR, Inc. | 1,408,420 | |||||
26,560 | MasTec, Inc.* | 480,470 | |||||
55,557 | Titan International, Inc. | 1,313,923 | |||||
20,506 | Tyco International Ltd. - f | 1,152,027 | |||||
29,228 | WABCO Holdings, Inc.* | 1,767,710 | |||||
11,575,271 | |||||||
Technology - 14.7% | |||||||
28,014 | Cognizant Technology | ||||||
Solutions Corp. - Class A* | 2,155,677 | ||||||
37,587 | eBay, Inc.* | 1,386,584 | |||||
29,781 | Intel Corp. | 837,144 | |||||
31,865 | Microsoft Corp. | 1,027,646 | |||||
78,414 | NCR Corp.* | 1,702,368 | |||||
7,109,419 | |||||||
TOTAL COMMON STOCKS | |||||||
(Cost $27,933,123) | 47,227,786 | ||||||
Principal | |||||||
Amount | |||||||
SHORT TERM INVESTMENT - 0.1% | |||||||
Variable Rate Demand Note** - 0.1% | |||||||
$ | 50,000 | American Family, 0.10% | 50,000 | ||||
TOTAL SHORT TERM | |||||||
INVESTMENT (Cost $50,000) | 50,000 | ||||||
Total Investments | |||||||
(Cost $27,983,123) - 97.9% | 47,277,786 | ||||||
Other Assets and | |||||||
Liabilities, Net - 2.1% | 1,037,269 | ||||||
TOTAL NET ASSETS - 100.0% | $ | 48,315,055 |
* | - | Non-income producing security. |
** | - | Rate in effect as of March 31, 2012. |
ADR | - | American Depository Receipt. |
f | - | Foreign security. |
See Notes to the Financial Statements
7
KIRR, MARBACH PARTNERS
VALUE FUND
Statement of Assets and Liabilities
March 31, 2012
(Unaudited)
ASSETS: | ||||
Investments, at current value | ||||
(cost $27,983,123) | $ | 47,277,786 | ||
Cash | 1,448,611 | |||
Receivable for investment securities sold | 387,064 | |||
Other receivable | 35,258 | |||
Receivable for Fund shares sold | 20,618 | |||
Prepaid expenses | 19,881 | |||
Dividends receivable | 17,798 | |||
Interest receivable | 4 | |||
Total Assets | 49,207,020 | |||
LIABILITIES: | ||||
Payable for securities purchased | 484,260 | |||
Payable for capital shares redeemed | 313,228 | |||
Accrued expenses | 39,821 | |||
Payable to Adviser | 35,310 | |||
Accrued distribution fees | 19,346 | |||
Total Liabilities | 891,965 | |||
NET ASSETS | $ | 48,315,055 | ||
NET ASSETS CONSIST OF: | ||||
Capital Stock | $ | 41,984,776 | ||
Undistributed net investment loss | (54,432 | ) | ||
Undistributed net realized loss on investments | (12,909,942 | ) | ||
Net unrealized appreciation on investments | 19,294,653 | |||
Total Net Assets | $ | 48,315,055 | ||
Shares outstanding (500,000,000 of | ||||
$0.01 par value authorized) | 3,061,684 | |||
Net asset value, redemption price | ||||
and offering price per share | $ | 15.78 |
Statement of Operations | ||||
Six Months Ended March 31, 2012 | ||||
(Unaudited) | ||||
INVESTMENT INCOME: | ||||
Dividend income | ||||
(net of withholding of $29,678) | $ | 316,868 | ||
Interest income | 24 | |||
Total Investment Income | 316,892 | |||
EXPENSES: | ||||
Investment Adviser fees | 256,086 | |||
Distribution fees | 42,858 | |||
Legal fees | 31,158 | |||
Administration fees | 22,374 | |||
Transfer agent fees | 19,689 | |||
Federal and state registration fees | 18,020 | |||
Fund accounting fees | 14,016 | |||
Custody fees | 10,410 | |||
Audit fees | 10,317 | |||
Directors fees | 6,027 | |||
Postage & printing fees | 3,735 | |||
Other | 2,004 | |||
Total expenses before reimbursement | 436,694 | |||
Less: reimbursement from Investment Adviser | (65,370 | ) | ||
Net Expenses | 371,324 | |||
NET INVESTMENT LOSS | (54,432 | ) | ||
REALIZED AND UNREALIZED | ||||
GAIN (LOSS) ON INVESTMENTS: | ||||
Net realized loss on investments | (3,254,394 | ) | ||
Change in unrealized appreciation/ | ||||
depreciation on investments | 20,167,277 | |||
Net realized and unrealized | ||||
gain on investments | 16,912,883 | |||
NET INCREASE IN NET ASSETS | ||||
RESULTING FROM OPERATIONS | $ | 16,858,451 |
See Notes to the Financial Statements
8
KIRR, MARBACH PARTNERS
VALUE FUND
Statement of Changes in Net Assets
Six Months Ended | ||||||||
March 31, 2012 | Year Ended | |||||||
(UNAUDITED) | September 30, 2011 | |||||||
OPERATIONS: | ||||||||
Net investment loss | $ | (54,432 | ) | $ | (531,592 | ) | ||
Net realized gain (loss) on investments | (3,254,394 | ) | 2,482,458 | |||||
Change in unrealized appreciation/depreciation on investments | 20,167,277 | (9,004,635 | ) | |||||
Net increase (decrease) in net assets resulting from operations | 16,858,451 | (7,053,769 | ) | |||||
CAPITAL SHARE TRANSACTIONS: | ||||||||
Proceeds from shares sold | 3,785,603 | 59,249,615 | ||||||
Proceeds from reinvestment of distributions | — | — | ||||||
Payments for shares redeemed | (38,651,786 | ) | (14,926,509 | ) | ||||
Redemption fees | 2,134 | 6,847 | ||||||
Net increase (decrease) in net assets resulting from capital share transactions | (34,864,049 | ) | 44,329,953 | |||||
DISTRIBUTIONS TO SHAREHOLDERS: | ||||||||
From net investment income | — | — | ||||||
From net realized gains | — | — | ||||||
Total distributions to shareholders | — | — | ||||||
TOTAL INCREASE (DECREASE) IN NET ASSETS | (18,005,598 | ) | 37,276,184 | |||||
NET ASSETS: | ||||||||
Beginning of period | 66,320,653 | 29,044,469 | ||||||
End of period (including undistributed net investment | ||||||||
loss of ($54,432) and $0, respectively) | $ | 48,315,055 | $ | 66,320,653 | ||||
CHANGES IN SHARES OUTSTANDING: | ||||||||
Shares sold | 257,492 | 4,205,200 | ||||||
Shares issued to holders in reinvestment of dividends | — | — | ||||||
Shares redeemed | (2,823,561 | ) | (1,096,521 | ) | ||||
Net increase (decrease) | (2,566,069 | ) | 3,108,679 |
See Notes to the Financial Statements
9
KIRR, MARBACH PARTNERS
VALUE FUND
Financial Highlights
For a Fund share outstanding throughout the period.
March 31, 2012 | Year Ended September 30, | |||||||||||||||||||||||
(UNAUDITED)(1) | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||||||
PER SHARE DATA: | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 11.78 | $ | 11.53 | $ | 9.57 | $ | 10.54 | $ | 16.66 | $ | 15.56 | ||||||||||||
Investment operations: | ||||||||||||||||||||||||
Net investment income (loss) | (0.02 | ) | (0.09 | ) | (0.07 | ) | 0.11 | (0.04 | ) | (0.03 | ) | |||||||||||||
Net realized and unrealized | ||||||||||||||||||||||||
gain (loss) on investments | 4.02 | 0.34 | 2.14 | (1.08 | ) | (4.27 | ) | 1.74 | ||||||||||||||||
Total from investment operations | 4.00 | 0.25 | 2.07 | (0.97 | ) | (4.31 | ) | 1.71 | ||||||||||||||||
Less distributions: | ||||||||||||||||||||||||
Dividends from net investment income | — | — | (0.11 | ) | — | — | — | |||||||||||||||||
Dividends from net capital gains | — | — | — | — | (1.81 | ) | (0.61 | ) | ||||||||||||||||
Total distributions | — | — | (0.11 | ) | — | (1.81 | ) | (0.61 | ) | |||||||||||||||
Paid in capital from redemption fees | — | (2) | — | (2) | — | — | (2) | — | (2) | — | (2) | |||||||||||||
Net asset value, end of period | $ | 15.78 | $ | 11.78 | $ | 11.53 | $ | 9.57 | $ | 10.54 | $ | 16.66 | ||||||||||||
TOTAL RETURN | 33.96 | % | 2.17 | % | 21.79 | % | (9.20 | )% | (28.39 | )% | 11.14 | % | ||||||||||||
SUPPLEMENTAL DATA AND RATIOS: | ||||||||||||||||||||||||
Net assets, end of period (in millions) | $ | 48.3 | $ | 66.3 | $ | 29.0 | $ | 25.7 | $ | 36.2 | $ | 52.8 | ||||||||||||
Ratio of expenses to average net assets: | ||||||||||||||||||||||||
Before expense reimbursement | 1.70 | % | 1.66 | % | 1.90 | % | 1.99 | % | 1.54 | % | 1.51 | % | ||||||||||||
After expense reimbursement | 1.45 | % | 1.45 | % | 1.45 | % | 1.45 | % | 1.45 | % | 1.45 | % | ||||||||||||
Ratio of net investment income (loss) | ||||||||||||||||||||||||
to average net assets: | ||||||||||||||||||||||||
Before expense reimbursement | (0.46 | )% | (1.05 | )% | (1.12 | )% | 0.71 | % | (0.37 | )% | (0.24 | )% | ||||||||||||
After expense reimbursement | (0.21 | )% | (0.84 | )% | (0.67 | )% | 1.25 | % | (0.28 | )% | (0.18 | )% | ||||||||||||
Portfolio turnover rate | 4 | % | 15 | % | 23 | % | 48 | % | 34 | % | 32 | % |
(1) | All ratios for the six month period ended March 31, 2012 have been annualized, except total return and portfolio turnover. |
(2) | Less than $0.01 per share. |
See Notes to the Financial Statements
10
KIRR, MARBACH PARTNERS
VALUE FUND
Notes to the Financial Statements
March 31, 2012 (Unaudited)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES | ||
Kirr, Marbach Partners Funds, Inc. (the “Corporation”) was organized as a Maryland corporation on September 23, 1998 and is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end diversified management investment company issuing its shares in series, each series representing a distinct portfolio with its own investment objective and policies. The one series presently authorized is the Kirr, Marbach Partners Value Fund (the “Fund”). The investment objective of the Fund is to seek long-term capital growth. The Fund commenced operations on December 31, 1998. | ||
The following is a summary of significant accounting policies consistently followed by the Fund. |
a) | Investment Valuation – Securities listed on the Nasdaq National Market are valued at the Nasdaq Official Closing Price (“NOCP”). Other securities traded on a national securities exchange (including options on indices so traded) are valued at the last sales price on the exchange where the security is primarily traded. Exchange-traded securities for which there were no transactions and Nasdaq-traded securities for which there is no NOCP are valued at the mean of the bid and asked prices. Securities for which market quotations are not readily available are valued at fair value as determined in good faith under the supervision of the Board of Directors of the Corporation. Foreign securities have been issued by foreign private issuers registered on United States exchanges in accordance with Section 12 of the Securities Exchange Act of 1934. Debt securities maturing in 60 days or less valued at amortized cost, which approximates fair value. Debt securities having maturities over 60 days or for which amortized cost is not deemed to reflect fair value may be priced by independent pricing services that use prices provided by market makers or estimates of market values obtained from yield data relating to instruments or securities with similar characteristics. | ||
The Fund has performed an analysis of all existing investments to determine the significance and character of all inputs to their fair value determination. Various inputs are used in determining the value of each of the Fund’s investments. These inputs are summarized in the following three broad categories: |
Level 1 – | Quoted prices in active markets for identical securities. | ||
Level 2 – | Other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.). | ||
Level 3 – | Significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments). |
The availability of observable inputs can vary from security to security and is affected by a wide variety of factors, including, for example, the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets, and other characteristics particular to the security. To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. | ||
The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement falls in its entirety, is determined based on the lowest level input that is significant to the fair value measurement in its entirety. |
11
KIRR, MARBACH PARTNERS
VALUE FUND
Notes to the Financial Statements (Continued)
March 31, 2012 (Unaudited)
The inputs or methodology used for valuing securities are not an indication of the risk associated with investing in those securities. The following is a summary of the inputs used to value the Fund’s investments as of March 31, 2012:
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Common Stocks | $ | 47,227,786 | $ | — | $ | — | $ | 47,227,786 | ||||||||
Short-Term Investments | — | 50,000 | — | 50,000 | ||||||||||||
Total Investments | $ | 47,227,786 | $ | 50,000 | $ | — | $ | 47,277,786 |
Refer to the Schedule of Investments for industry classifications. | |||
Transfers between levels are recognized at the end of the reporting period. During the period ended March 31, 2012, the Fund recognized no transfers to/from Level 1 or Level 2. | |||
b) | Income Taxes – A provision, for federal income taxes or excise taxes, has not been made since the Fund has elected to be taxed as a “regulated investment company” and intends to distribute substantially all taxable income to its shareholders and otherwise comply with the provisions of the Internal Revenue Code applicable to regulated investment companies. There is no tax liability resulting from unrecognized tax benefits relating to uncertain income tax positions taken or expected to be taken on the tax return for the fiscal year ended September 30, 2011, or for any other tax years which are open for exam. As of September 30, 2011, open tax years include the tax years ended September 30, 2008 through September 30, 2011. The Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next twelve months. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations. During the period, the Fund did not incur any interest or penalties. | ||
c) | Income and Expense – The Fund is charged for those expenses that are directly attributable to the Fund, such as advisory, administration and certain shareholder service fees. | ||
d) | Distributions to Shareholders – Dividends from net investment income and distributions of net realized capital gains, if any, will be declared and paid at least annually. The character of distributions made during the period from net investment income or net realized gains may differ from the characterization for federal income tax purposes due to differences in the recognition of income, expense and gain items for financial statement and tax purposes. All short-term capital gains are included in ordinary income for tax purposes. | ||
e) | Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States 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 revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
f) | Repurchase Agreements – The Fund may enter into repurchase agreements with certain banks or non-bank dealers. The Adviser will monitor, on an ongoing basis, the value of the underlying securities to ensure that the value always equals or exceeds the repurchase price plus accrued interest. |
12
KIRR, MARBACH PARTNERS
VALUE FUND
Notes to the Financial Statements (Continued)
March 31, 2012 (Unaudited)
g) | Other – Investment and shareholder transactions are recorded on the trade date. The Fund determines the gain or loss realized from the investment transactions by comparing the original cost of the security lot sold with the net sales proceeds. Dividend income is recognized on the ex-dividend date or as soon as information is available to the Fund and interest income is recognized on an accrual basis. Accounting principles generally accepted in the United States require that permanent financial reporting and tax differences be reclassified to capital stock. | ||
h) | Events Subsequent to Period End – Management has evaluated fund related events and transactions that occurred subsequent to March 31, 2012 through the date of issuance of the Fund’s financial statements. There were no events or transactions that occurred during this period that materially impacted the amounts or disclosures in the Fund’s financial statements. |
2. INVESTMENT TRANSACTIONS | |||||||||
The aggregate purchases and sales of securities, excluding short-term investments, by the Fund for the year ended March 31, 2012, were as follows: |
Purchases | Sales | ||||||||
U.S. Government | $ | — | $ | — | |||||
Other | $ | 2,153,651 | $ | 37,211,275 |
At September 30, 2011, the components of accumulated earnings (losses) on a tax basis were as follows:
Cost of investments | $ | 67,325,502 | ||
Gross unrealized appreciation | $ | 9,837,668 | ||
Gross unrealized depreciation | $ | (11,640,161 | ) | |
Net unrealized appreciation | $ | (1,802,493 | ) | |
Undistributed ordinary income | $ | — | ||
Undistributed long-term capital loss | $ | — | ||
Total distributable earnings | $ | — | ||
Other accumulated gains/losses | $ | (8,725,679 | ) | |
Total accumulated earnings (losses) | $ | (10,528,172 | ) |
As of September 30, 2011, the Fund had capital loss carryforwards of $8,725,446, which if not offset by subsequent capital gains, $2,160,910 will expire September 30, 2017 and $6,564,536 will expire September 30, 2018. As of September 30, 2011, the Fund had $0 of deferred, on a tax basis, post-October losses.
The Fund paid no distributions during the six months ended March 31, 2012 and the year ended September 30, 2011.
3. AGREEMENTS |
The Fund has entered into an Investment Advisory Agreement with Kirr, Marbach & Company, LLC (the “Investment Adviser”). Pursuant to its advisory agreement with the Fund, the Investment Adviser is entitled to receive a fee, calculated daily and payable monthly, at the annual rate of 1.00% as applied to the Fund’s daily net assets. |
13
KIRR, MARBACH PARTNERS
VALUE FUND
Notes to the Financial Statements (Continued)
March 31, 2012 (Unaudited)
The Investment Adviser has contractually agreed to waive its management fee and/or reimburse the Fund’s other expenses to the extent necessary to ensure that the Fund’s total annual operating expenses do not exceed 1.45% of its average daily net assets until February 28, 2013. Accordingly, for the six months ended March 31, 2012, the Investment Adviser waived advisory fees in the amount of $65,370. The Investment Adviser may decide to continue the agreement, or revise the total annual operating expense limitations after February 28, 2013. Any waiver or reimbursement is subject to later adjustment to allow the Investment Adviser to recoup amounts waived or reimbursed to the extent actual fees and expenses for a period are less than the expense limitation cap of 1.45%, provided, however, that the Investment Adviser shall only be entitled to recoup such amounts for a period of three years from the date such amount was waived or reimbursed. Waived/reimbursed fees and expenses subject to potential recovery by year of expiration are as follows:
Year of expiration | Amount |
9/30/2012 | $122,876 |
9/30/2013 | $120,028 |
9/30/2014 | $133,379 |
9/30/2015 | $ 65,370 |
As of March 31, 2012, it was possible, but not probable, those amounts would be recovered by the Investment Adviser. At the end of each fiscal year in the future, the Fund will continue to assess the potential recovery of waived/reimbursed fees and expenses for financial reporting purposes.
Quasar Distributors, LLC, (the “Distributor”) serves as principal underwriter of the shares of the Fund pursuant to a Distribution Agreement between the Distributor and the Corporation. The Fund’s shares are sold on a no-load basis and, therefore, the Distributor receives no sales commission or sales load for providing services to the Fund. The Corporation has adopted a plan pursuant to Rule 12b-1 under the 1940 Act (the “12b-1 Plan”), which authorizes the Corporation to pay the Distributor and certain financial intermediaries who assist in distributing the Fund shares or who provided shareholder services to Fund shareholders a distribution and shareholder servicing fee of up to 0.25% of the Fund’s average daily net assets (computed on an annual basis). All or a portion of the fee may be used by the Fund or the Distributor to pay its distribution fee and costs of printing reports and prospectuses for potential investors and the costs of other distribution and shareholder servicing expenses. During the six months ended March 31, 2012, the Fund incurred expenses of $42,858 pursuant to the 12b-1 Plan.
U.S. Bancorp Fund Services, LLC serves as transfer agent, administrator and accounting services agent for the Fund. U.S. Bank, N.A. serves as custodian for the Fund.
The Fund imposes a 1% redemption fee on shares held 30 days or less. For the six months ended March 31, 2012 and the year ended September 30, 2011, the Fund collected $2,134 and $6,847, respectively, in redemption fees.
14
KIRR, MARBACH PARTNERS
VALUE FUND
Additional Information
March 31, 2012 (Unaudited)
BOARD APPROVAL OF INVESTMENT ADVISORY AGREEMENT
On, November 16, 2011, at an in-person meeting of the Board of Directors of the Kirr, Marbach Partners Fund, Inc. (the “Corporation”), the Directors, including a majority of the disinterested Directors, approved the continuation of the investment advisory agreement dated June 10, 2005 (the “Advisory Agreement”) between the Corporation and Kirr, Marbach & Company, LLC (the “Adviser”). It was noted that, as described in the Adviser’s memorandum, the Adviser has significant experience providing investment advice and is qualified to provide investment advisory services to the Fund. In addition, it was noted that the Adviser promoted a culture of compliance. It was noted that the Fund’s short-term performance was underperforming the benchmarks (i.e., the S&P 500 and the Russell 3000), but acceptable given the current extraordinary market conditions and turmoil, and showing near-term positive signs. The directors noted that the Fund’s long-term performance since inception has been good and outperformed the benchmarks. The directors also noted that a significant percentage of the Fund is owned by Adviser insiders and therefore the directors feel that the Adviser’s interests are aligned with other Fund shareholders. The directors considered information relating to the Fund’s fees, costs and expense ratios and compared such fees, costs and expense ratios to competitive industry fee structures and expense ratios. Specifically, the directors reviewed charts prepared by the administrator based on data compiled by a nationally recognized third party comparative data provider. In connection with this, the directors also considered the control of the Fund’s operating expenses through the expense cap agreement, and noted that the current expense cap agreement maintains an overall reasonable total expense level as evidenced by the comparative data presented at the meeting. In addition, the Board noted that the Adviser is providing substantially similar investment advisory services to the Fund and its other separate account clients and, with the current expense cap arrangement in place, providing such services to the Fund at substantially similar rates to those charged to the Adviser’s other clients. The directors considered whether the Adviser would receive any fall-out benefits through its relationship with the Fund, and it was noted that because none of the other service providers to the Fund are affiliated with the Adviser, there are no identifiable material fall-out benefits accruing to the Adviser. The directors considered the Adviser’s cost of providing services to the Fund and the profitability of its relationship to the Fund. It was noted that the Adviser’s profitability was in line with its profitability for providing investment advice to its separate account clients given the current expense cap agreement, and the directors noted that the Adviser’s profit in connection with its services to the Fund appeared reasonable. The directors considered whether economies of scale were being realized that could justify reduced expenses for the Fund. It was noted that current asset levels had not increased substantially from prior years and therefore the Fund had not realized any economies of scale. During the deliberations, the disinterested directors did not identify any single consideration or particular piece of information that was all important or controlling in determining whether to approve the Advisory Agreement. The disinterested directors evaluated all information presented to them and determined that the compensation paid to the Adviser under the Advisory Agreement was fair and reasonable in light of the services to be performed.
15
KIRR, MARBACH PARTNERS
VALUE FUND
Additional Information (Continued)
March 31, 2012 (Unaudited)
AVAILABILITY OF FUND PORTFOLIO INFORMATION
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available on the SEC’s website at www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington D.C. For information on the Public Reference Room call 1-800-SEC-0330. In addition, the Fund will post its complete schedule of portfolio holdings as of the end of its last completed fiscal quarter as part of its quarterly shareholder update on the Fund’s website on or soon after the 21st day after the end of each fiscal quarter.
AVAILABILITY OF PROXY VOTING INFORMATION
Both a description of the Fund’s Proxy Voting Policies and Procedures and information about the Fund’s proxy voting record will be available (1) without charge, upon request, by calling 1-800-870-8039, and (2) on the SEC’s website at www.sec.gov.
16
Directors
Mark D. Foster, CFA
Mickey Kim, CFA
Jeffrey N. Brown
Mark E. Chesnut
John F. Dorenbusch
Principal Officers
Mark D. Foster, CFA, President
Mickey Kim, CFA, Vice President, Treasurer and Secretary
Investment Adviser
Kirr, Marbach & Company, LLC
621 Washington Street
Columbus, IN 47201
Distributor
Quasar Distributors, LLC
615 East Michigan Street
Milwaukee, WI 53202
Custodian
U.S. Bank, N.A.
1555 North River Center Drive
Milwaukee, WI 53212
Administrator,
Transfer Agent and
Dividend – Disbursing Agent
U.S. Bancorp Fund Services, LLC
615 E. Michigan Street
Milwaukee, WI 53202
INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
Tait, Weller & Baker LLP
1818 Market Street, Suite 2400
Philadelphia, PA 19103
Legal Counsel
Kirkland & Ellis LLP
300 North LaSalle
Chicago, IL 60654
This report should be accompanied or preceded by a prospectus.
The Fund’s Statement of Additional Information contains additional information about the Fund’s directors and is available without charge upon request by
calling 1-800-808-9444.
The Fund’s Proxy Voting Policies and Procedures are available without charge upon request by calling 1-800-808-9444. A description of the Fund’s proxy voting policies and procedures is available on the Fund’s website, www.kmpartnersfunds.com, or on the SEC’s website, at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the twelve months ended June 30, 2011 is available without charge upon request by calling 1-800-808-9444 or on the SEC’s website, at www.sec.gov.
Semi-Annual Report
March 31, 2012
Item 2. Code of Ethics.
Not applicable for semi-annual reports.
Item 3. Audit Committee Financial Expert.
Not applicable for semi-annual reports.
Item 4. Principal Accountant Fees and Services.
Note applicable for semi-annual reports.
Item 5. Audit Committee of Listed Registrants.
Not applicable for semi-annual reports.
Item 6. Schedule of Investments.
Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable to open-end investment companies.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchases.
Not applicable to open-end investment companies.
Item 10. Submission of Matters to a Vote of Security Holders.
Not Applicable.
Item 11. Controls and Procedures.
(a) | The Registrant’s President and Treasurer have reviewed the Registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”)) as of a date within 90 days of the filing of this report, as required by Rule 30a-3(b) under the Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. Based on their review, such officers have concluded that the disclosure controls and procedures are effective in ensuring that information required to be disclosed in this report is appropriately recorded, processed, summarized and reported and made known to them by others within the Registrant and by the Registrant’s service provider. |
(b) | There were no significant changes in the Registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the Act) that occurred during the 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. |
Item 12. Exhibits.
(a) | (1) Any code of ethics or amendment thereto, that is subject of the disclosure required by Item 2, to the extent that the registrant intends to satisfy Item 2 requirements through filing an exhibit. Not applicable for semi-annual reports. |
(2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. Filed herewith.
(3) Any written solicitation to purchase securities under Rule 23c-1 under the Act sent or given during the period covered by the report by or on behalf of the registrant to 10 or more persons. Not applicable to open-end investment companies.
(b) | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Furnished 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.
(Registrant) Kirr, Marbach Partners Funds, Inc.
By (Signature and Title)* /s/Mr. Mark Foster
Mr. Mark Foster, President
Date June 5, 2012
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By (Signature and Title)* /s/Mr. Mark Foster
Mr. Mark Foster, President
Date June 5, 2012
By (Signature and Title)* /s/Mr. Mickey Kim
Mr. Mickey Kim, Treasurer
Date June 5, 2012
* Print the name and title of each signing officer under his or her signature.