Form N-CSR KIRR MARBACH PARTNERS For: Sep 30

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)

Registrant's telephone number, including area code

Date of fiscal year end: September 30, 2022

Date of reporting period:  September 30, 2022

(a)

Kirr, Marbach Partners

Value Fund

“Long as I remember, the rain been comin’ down. Clouds of mystery pourin’, confusion on the ground.

Good men through the ages, tryin’ to find the sun. And I wonder, still I wonder. Who’ll stop the rain?”

— Creedence Clearwater Revival

 

November 16, 2022

 

Dear Fellow Shareholders:

 

The financial markets and economy have been hit by their own metaphorical Hurricane Ian in 2022. Following a brief respite in July, stocks ended the fiscal year ending September 30, 2022 firmly in “bear market” territory (down more than 20%). Bonds, historically considered “safe” investments compared with stocks, have also been crushed, as the yield on the 10-year U.S. Treasury Bond (UST) more than doubled from about 1.5% at the start of the year to almost 4%. Mortgage rates track the UST, so the average interest rate on 30-year mortgages has surged from about 3.1% at the start of 2022 to 6.7% (highest since 2007), slamming the brakes on housing and refinancing.

 

The root cause of this pain has been inflation, which we have all been encountering in our daily lives, whether it’s at the grocery store or gas pump. The inflation the Federal Reserve (Fed) confidently forecast was “transitory” (i.e. soon to self-correct) in 2021 soared to levels not seen in 40-years in 2022, compelling the Fed to violently reverse course by raising its target for short-term interest rates from around 0% at the start of the year to 3.00%-3.25% (in increments of 0.25% (March), 0.5% (May), 0.75% (June), 0.75% (July) and 0.75% (September)), while signaling more increases to come (possibly peaking as high as 4.6% in 2023). The Fed also reversed course from its policy of “quantitative easing” (massive purchases of bonds, which held down long-term interest rates) to “quantitative tightening.”

 

 

 

When the inevitable storm hits, rely on your plan—not unreliable forecasts

 

In stressful and frightening times like these, it’s natural investors hunger for certainty to important questions like 1) how much lower will stocks go, 2) how much higher will interest rates go, 3) how much will the Fed have to raise interest rates to tame inflation and 4) are we in or headed for a recession and how deep will it be.

 

Unfortunately, the financial media was built to satiate this appetite as an “all-you-can-eat” buffet of forecasts offered by a veritable army of financial “experts,” pundits, carnival barkers and soothsayers. Forecasters know fear sells and their forecasts are “click bait” to be monetized. Competing for eyeballs, an outlandish, but seemingly well-reasoned doomsday prediction is catnip to the fearful.

 

It’s almost enough to cause you to abandon your long-term plan. Don’t do it! Two of the greatest minds in investing believe economic and market forecasts offer only the illusion of certainty and you should never base your decisions on them.

 

Howard Marks is Co-Founder/Co-Chair of Oaktree Capital Management. His memo The Illusion of Knowledge started with a quote from famed economist John Kenneth Galbraith: “There are two kinds of forecasters: those who don’t know and those who don’t know they don’t know.”

 

 

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According to Marks, the trouble with trying to model the economy or financial markets is they are incredibly complex. There are literally a million moving pieces which are both interdependent and can change in importance depending on the mood of the day. The law of gravity says an apple falling from a tree drops down, not up or sideways (ask Sir Isaac Newton). 1+1=2, every time. If the economy and markets moved based strictly on data, they might be easier to understand and predict. Unfortunately, while NASA can land a spacecraft on a moving object a billion miles away, nobody can model or consistently and accurately predict the economy or markets.

 

Marks referred to the Fed as the “home of more than 400 Ph.D. economists” and one of the world’s biggest producers of economic forecasts. Marks cited economist Gary Shilling, who wrote: “The Federal Reserve’s forward guidance program has been a disaster, so much that it has strained the central bank’s credibility. Chair Jerome Powell seems to agree that providing estimates of where the Fed sees interest rates, economic growth and inflation at different points in the future should be junked.”

 

In short, the Fed has shifted its focus 180 degrees, from not worrying about inflation to only worrying about inflation. That doesn’t exactly lead to confidence the Fed’s apparent current belief inflation can be bludgeoned into submission by an unrelenting series of massive rate hikes without simultaneously crushing the economy.

 

Marks believes it’s better to acknowledge “you can’t know the future; you don’t have to know the future; and the proper goal is to do the best possible job of investing in the absence of knowledge.” Navigate, don’t predict.

 

According to Warren Buffett, in addition to economists being lousy forecasters, “something different happens all the time. And that’s one reason economic predictions just don’t enter into our decisions. Charlie Munger – my partner – and I in 54 years now never made a decision based on an economic prediction. We make business predictions about what individual businesses will do over time, and we compare that to what we had to pay for them.

 

“But we have never said “yes” to something because we thought the economy was going to do well in the next year or two years. And we have never said “no” to anything because we were right in the middle of a panic. There’ are so many variables. I mean, in the hard sciences, you know that if an apple falls from a tree, that it isn’t going to change over the centuries because of anything or political developments or 400 other variables that go in. But when you get into economics, there’s so many variables, and the truth is, you’ve got to expect good times and bad times in business.”

 

Buffett buys “great businesses with great managers,” who will be able to succeed during difficult times just as they would during good times. “We’re going to have good years, bad years, in-between years and maybe a disastrous year some year,” he said. “We care a lot about the price. We do not care about the next 12 months.”

 

For us, this means we invest in businesses, not stock ticker symbols. Although stock prices are driven by fear and greed and are very volatile, the value of the underlying businesses don’t change that much from day-to-day. The businesses we own are profitable now, generate more cash than they consume and generally have “pricing power.” They also generally have “clean” balance sheets with lower-than-average debt levels. We believe stocks of companies with these characteristics will fare much better in an environment of higher inflation/interest rates than those whose eventual profitability is many years down the road (if at all) and were dependent on an endless stream of cheap credit.

 

“Fear of loss” is human nature, as is the primal instinct to “flee to safety” in times of danger. We understand the uneasiness and are impacted by those same feelings. However, if you’ve built and own a great business, would you sell it just because there might be tough economic times ahead? We think the answer is a resounding “no.”

 

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That’s why it’s critically important to distinguish between a “permanent” loss (caused by company’s business prospects suffering a mortal blow) versus a “temporary” loss (caused by stock market volatility).

 

Temporary losses are an unpleasant, but normal part of investing in stocks. Unfortunately, many investors turn temporary losses into permanent losses by selling during downdrafts. Our primary charge as your investment adviser is to navigate and guide you through the inevitable short-term storms that appear along your long-term investment journey and encourage you to stay the course and stick to your plan.

 

Looking Forward

 

 

 

For illustrative purposes only and not indicative of fund performance.

 

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Periods ending September 30, 2022⁽²⁾

(Total Returns-Dividends Reinvested in Index-Annualized)

The Fund’s Gross Expense Ratio and Net Expense Ratio were 1.60% and 1.45%, respectively, according to the Prospectus dated January 27, 2022. Contractual fee waivers are in effect until February 28, 2023.

 

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.

 

Percent Change in Top Ten Holdings from Book Cost (as of 9/30/2022)

 

Performance quoted represents past performance and is no guarantee of future results.

 

Fund holdings and sector allocations are subject to change and are not recommendations to buy or sell any security.

 

Regards,

 

Past performance is not a guarantee of future results.

 

Mutual fund investing involves risk. Principal loss is possible.

 

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.

 

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Value of $10,000 Investment (Unaudited)

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.

 

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Expense Example

September 30, 2022 (Unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, which may include redemption fees; and exchange fees; and (2) ongoing costs, including management fees; distribution 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 (April 1, 2022 - September 30, 2022).

 

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, doing business as U.S. Bank Global Fund Services, 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 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.

 

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Allocation of Portfolio Net Assets (Unaudited)

September 30, 2022

Top Ten Equity Holdings (Unaudited)

as of September 30, 2022

(% of net assets)

Schedule of Investments

September 30, 2022

See Notes to the Financial Statements

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Statement of Assets and Liabilities

September 30, 2022

Statement of Operations

Year Ended September 30, 2022

See Notes to the Financial Statements

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Statements of Changes in Net Assets

See Notes to the Financial Statements

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Financial Highlights

For a Fund share outstanding throughout the year.

See Notes to the Financial Statements

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Notes to the Financial Statements

September 30, 2022

 

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 Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946 “Financial Services-Investment Companies.” The one series presently authorized is 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. These policies are in conformity with generally accepted accounting principles in the United States of America (“GAAP”).

 

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Notes to the Financial Statements (Continued)

September 30, 2022

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Notes to the Financial Statements (Continued)

September 30, 2022

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Notes to the Financial Statements (Continued)

September 30, 2022

2. INVESTMENT TRANSACTIONS

 

The aggregate purchases and sales of securities, excluding short-term investments, by the Fund for the period ended September 30, 2022, were as follows:

 

At September 30, 2022, the components of distributable earnings on a tax basis were as follows:

 

As of September 30, 2022, the Fund did not have any capital loss carryovers. A regulated investment company may elect for any taxable year to treat any portion of any qualified late year loss as arising on the first day of the next taxable year. Qualified late year losses are certain capital, and ordinary losses which occur during the portion of the Fund’s taxable year subsequent to October 31. For the taxable year ended September 30, 2022, the Fund had $438,159 in qualified late year losses.

The tax character of distributions paid during the year ended September 30, 2022, were as follows:

 

The tax character of distributions paid during the year ended September 30, 2021, were as follows:

 

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.

 

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Notes to the Financial Statements (Continued)

September 30, 2022

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 (excluding acquired fund fees and expenses, interest, taxes, brokerage commissions and extraordinary expenses) do not exceed 1.45% of its average daily net assets until February 28, 2023. The Investment Adviser may decide to continue the agreement, or revise the total annual operating expense limitations after February 28, 2023. 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 thirty-six months following the date on which such fee waiver or expense reimbursement was made. Waived/reimbursed fees and expenses subject to potential recovery by month of expiration are as follows:

 

As of September 30, 2022, 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”), a wholly-owned broker-dealer subsidiary of Foreside serves as principal underwriter of the shares of the Fund and is not affiliated with U.S. Bancorp. 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 year ended September 30, 2022, the Fund incurred expenses of $58,487 pursuant to the 12b-1 Plan.

 

U.S Bancorp Fund Services, LLC, doing business as U.S. Bank Global Fund Services (the “Administrator”), 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 1.00% redemption fee on shares held 30 days or less. For the year ended September 30, 2022 and the year ended September 30, 2021, the Fund collected $1 and $0, respectively, in redemption fees.

 

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors of Kirr, Marbach Partners Value Fund

 

Opinion on the Financial Statements

 

We have audited the accompanying statement of assets and liabilities of Kirr, Marbach Partners Value Fund (the “Fund”), including the schedule of investments, as of September 30, 2022, the related statement 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, financial highlights for each of the five years in the period then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2022, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We have served as the Fund’s auditor since 2006.

 

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation of securities owned as of September 30, 2022 by correspondence with the custodian.  We believe that our audit provides a reasonable basis for our opinion.

 

 

TAIT, WELLER & BAKER LLP

 

Philadelphia, Pennsylvania

November 16, 2022

 

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Additional Information

September 30, 2022 (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 Part F of Form N-PORT, which is available on the SEC’s website at www.sec.gov. The Fund’s Part F of Form N-PORT 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.

 

 

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.

 

 

QUALIFIED DIVIDEND INCOME/DIVIDENDS RECEIVED DEDUCTION

 

For the fiscal year ended September 30, 2022, certain dividends paid by the Fund may be reported as qualified dividend income (QDI) and may be eligible for taxation at capital gains rates. The percentage of dividends declared from ordinary income designated as QDI was 59.77% for the Fund.

 

For corporate shareholders, the percent of ordinary income distributions qualifying for the corporate dividends received deduction for the fiscal year ended September 30, 2022, was 40.27% for the Fund.

 

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Additional Information (Continued)

September 30, 2022 (Unaudited)

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(This Page Intentionally Left Blank.)

 

Directors

Mark Foster, CFA

Mickey Kim, CFA

Jeffrey N. Brown

John Elwood

Tom J. Thornburg

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

111 East Kilbourn Ave., Suite 2200

Milwaukee, WI 53202

Custodian

U.S. Bank, N.A.

1555 North RiverCenter Drive, Suite 302

Milwaukee, WI 53212

Administrator, Transfer Agent and

Dividend – Disbursing Agent

U.S. Bancorp Fund Services, LLC

615 East Michigan Street

Milwaukee, WI 53202

Independent Registered Public Accounting Firm

Tait, Weller & Baker LLP

Two Liberty Place

50 South 16th Street, Suite 2900

Philadelphia, PA 19102

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,

is available without charge upon request by calling 1-800-808-9444 or on the SEC’s website, at www.sec.gov.

Annual Report

September 30, 2022

	FYE  09/30/2022	FYE  09/30/2021
Audit Fees	$19,000	$19,000
Audit-Related Fees	$0	$0
Tax Fees	$3,200	$3,200
All Other Fees	$0	$0

	FYE  09/30/2022	FYE  09/30/2021
Audit-Related Fees	0%	0%
Tax Fees	0%	0%
All Other Fees	0%	0%

Non-Audit Related Fees	FYE  09/30/2022	FYE  09/30/2021
Registrant	$0	$0
Registrant’s Investment Adviser	$0	$0