- --------------------------------------------------------------------------------
K I R R , M A R B A C H P A R T N E R S
---------------------------------------
V A L U E F U N D
[GRAPH OMITTED]
MARCH 31, 2000 SEMI-ANNUAL REPORT
- --------------------------------------------------------------------------------
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
- --------------------------------------------------------------------------------
"NO WARNING CAN SAVE A PEOPLE DETERMINED
TO GROW SUDDENLY RICH."--Lord Overstone, 1846
"HISTORY DOES NOT REPEAT ITSELF: IT JUST RHYMES!"--Mark Twain
- --------------------------------------------------------------------------------
MAY 10, 2000
Dear Fellow Shareholder:
Studious readers of past Kirr, Marbach Partners Value Fund ("Fund") reports to
shareholders are not surprised that the stock market's "chickens" (i.e. "new
era" stocks with astronomical or infinite P/Es) came home to roost with a
vengeance as the first calendar quarter of the new century came to a close. An
increasing number of stocks from the internet IPO classes of 1998 and 1999 that
doubled, tripled or more on their first day of trading now sport "going concern"
qualifications from their auditors and single digit prices. The downdraft in
high P/E technology stocks has accelerated in the second calendar quarter,
interrupted by periodic attempts to rally. Margin debt has expanded to
unprecedented levels and, as surely as day follows night, forced liquidations of
falling stocks to meet margin calls has exacerbated the decline. Though the
NASDAQ Composite Index's (5) "bungee jump" has been positively frightening to
experience, the action in what we consider to be absurdly valued stocks confirms
our belief that buying the equity of money-losing companies, oftentimes with
borrowed money, is NOT a recipe for long-term investment success. The
speculative bubble in these stocks appears to be in the early stages of bursting
and we see the market's recent convulsions as a preview of a movie with an
unhappy ending for the new era crowd.
This is great news in that the bursting of the speculative bubble, along with a
confluence of other signs, points to a return of rationality to the market. We
think our value investment style will be a prime beneficiary as the market once
again assesses the value of stocks on the basis of fundamentals (not hype and
hope). Though we can't promise anything and there have surely been false starts
before (the second calendar quarter of 1999, to name but one), we believe the
Fund is poised for good investment performance over the next several years. As
of the end of the first calendar quarter, the Fund's portfolio had a median P/E
(based on 2000 estimated earnings) of 11.8 and an estimated earnings growth
rate of 14%. In contrast, the S&P 500 Index had a P/E of 26.6 and estimated
earnings growth of just 11%. We feel the combination of owning shares 1) in
good businesses, 2) trading at a 50% DISCOUNT to the S&P 500's P/E, but 3) with
underlying earnings growth 25% GREATER than that of the S&P 500, makes for a
good investment opportunity.
U.S. stocks experienced volatility in the six-month period ending March 31, 2000
that was extreme even by recent standards. The Fund had a total return of 4.9%
for the period (1). The Standard & Poor's 500 Index (2) gained 17.5% on a
total return basis for the period, while the Value Line Index (3) gained 3.5%
and the Standard & Poor's 400 Midcap Index (4) 32.1%. To give you some
perspective on NASDAQ's wild ride, consider that NASDAQ (5) was up 24%
year-to-date through March 10, but DOWN 17% year-to-date as we write this letter
on May 10 (a scant 2 months later).
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
<TABLE>
<CAPTION>
PERIODS ENDING FUND TOTAL S&P 500 VALUE LINE S&P 400 MIDCAP
MARCH 31, 2000 RETURN INDEX INDEX INDEX
- ------------------- ------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
3 months +3.7% +2.3% -0.1% +12.7%
6 months +4.9% +17.5% +3.5% +32.1%
9 months -10.2% +10.1% -6.9% +21.0%
12 months +3.5% +17.8% +6.4% +38.2%
- ------------------- ------------------- -------------------- -------------------- --------------------
</TABLE>
(1) Past performance does not reflect how the Fund may perform in the future.
(2) The S&P 500 Index is an unmanaged, capitalization-weighted index generally
representative of the U.S. market for large capitalization stocks.
(3) The Value Line Index is an unmanaged, equally-weighted index which includes
1700 U.S. stocks.
(4) The S&P 400 Midcap Index is an unmanaged, capitalization-weighted index
generally representative of the U.S. market for medium capitalization stocks.
(5) The NASDAQ Composite Index is an unmanaged, capitalization-weighted index of
all NASDAQ National Market and SmallCap stocks.
We mentioned in the introduction a confluence of positive signs that value
investing is poised to enter a period (long, we hope) of ascendancy. We're not
Pollyannas by nature and it's certainly not been easy to maintain a positive
outlook, but we do believe the table is in the process of being set for us and,
more importantly, our fellow shareholders.
o We've discussed the virtues of value and the pitfalls of "anti-value" until
we're blue in the face. We are quite sure you're tired of reading about it in
these pages, so we'll refer you to prior reports to shareholders for our
thoughts, which haven't changed. There are many advocating the position we're in
a "new era" for investing where valuation doesn't matter. They would say we
(value managers) just don't get it and are doomed to extinction, just like the
dinosaurs. For the past 18-24 months, they've been right and we've been wrong.
Still, we beg to differ. Valuation doesn't matter, until it does. Our poster
child for this apparent incongruity is Procter & Gamble, for many years a
paragon of virtue to its growth stock cult following. When P&G announced an
unanticipated earnings shortfall on March 7, the punishment to its stock was
swift and severe, a 31% drop translating into a hit of $36 billion in market
capitalization. Growth investors paid an ever-increasing multiple for P&G's
supposed "bulletproof" earnings growth. As long as P&G delivered the expected
(albeit relatively modest) earnings gains and the stock had positive momentum
(i.e. kept going up), all was right with the world and valuation didn't matter.
That all changed on March 7 as P&G was transformed from life-long growth stock
paragon to pariah (we know the feeling all too well). Valuation suddenly DID
matter and its stock free fell to a level deemed attractive, on the "outdated"
fundamental metrics, to the ever shrinking group of investors still paying
attention to valuation. Again, valuation doesn't matter, until it does. We'll go
further and argue that at the end of the day, valuation is the ONLY thing that
matters.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
o As alluded to in the prior bullet point, the body count of "formerly
brilliant, but now washed-up" investment managers folding their tents or having
their tents folded for them mounts daily. Hedge fund titan Julian Robertson shut
down Tiger Management, saying that in an "irrational market," where "earnings
and price considerations take a back seat to mouse clicks and momentum," the
logic of value investing "does not count for much." Robert Sanborn and George
Vanderheiden went from the mutual fund equivalent of "rock stars" to dolts in
the space of 24 months and were replaced as portfolio managers at Oakmark and
Fidelity, respectively. Gary Brinson, founder of Brinson Partners and an
individual of significant renown in both the academic and investing worlds, was
unceremoniously dumped by the Swiss bank that had acquired his firm (who wanted
to "get growthy"). If the bottom of a bear market is marked by extreme
pessimism, massive capital flight and virtual total capitulation, value
investing must be getting awfully close.
o The trend of the "private market" seeing exceptional investment potential
in value stocks, which the public market largely disdains, is accelerating. The
result has been an increase in the pace of merger/acquisition/going private
transactions as some of the lowest public market valuations in twenty years or
more leave companies vulnerable to takeover and/or management disillusionment
with the stock price. This increased level of activity has been accompanied by
an increasing transaction premium. Mergerstat reported median premium paid in
1998 was 20.4%. The premium expanded to 32.7% in 1999. Financial players have
amassed LBO (leveraged buyout) funds aggregating in the hundreds of billions of
dollars over the past decade. We believe a good portion of this "hot" money
chased the "10- to 20-bagger" type returns formerly available in "dot com" land.
Even if just a portion of this money starts focussing on our value sector, the
potential for lightening striking our portfolio with greater frequency and
intensity increases. The NEW YORK TIMES referred to this process as "Turning
Ugly Ducklings Into Golden Geese."
To summarize, we believe the seeds of a value revival have been sown. The market
is learning the painful lesson that, while this is undoubtedly a new economy,
the old metrics of stock valuation still apply. Psychologically, the market has
thrown in the collective towel on value investing. Finally, if the public market
won't recognize value, the private market may step in and pay a premium.
Although the market doesn't ring a bell at the bottom, we hear sounds in the
wind that indicate to us that value investing has reached or will soon reach a
bottom.
We look at buying stocks like we're buying a business. We try to buy good
businesses whose stocks are trading at a significant discount to intrinsic value
(the present value of the total sum of the cash flow the business will generate
in its lifetime). In general, if the price you pay for a business is low in
relation to those cash flows, the investment return will be high. This is an
Investments 101 concept, but one we think will become increasingly important as
"old" becomes "new" again. To say the growth versus value performance disparity
has been extreme is an understatement, but extreme conditions don't endure. We
recognize that markets are irrational in the short run and we can't change that.
However, we know irrationality in the market is always followed by a return to
reason, so we try to exploit it.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
We'll close with some thoughts from the one of the greatest investors of modern
time (until recently), Warren Buffet. Buffet had this to say in Berkshire
Hathaway's annual report about his self-proclaimed "D" investment performance in
1999:
"We don't own stocks of tech companies, even though we share the general view
that our society will be transformed by their products and services. Our
problem, which we can't solve by studying up, is that we have no insights into
which participants in the tech field possess a truly DURABLE (emphasis added)
competitive advantage. If we have a strength, it is in recognizing when we are
operating well within our circle of competence and when we are approaching the
perimeter. Predicting the long-term economics of companies that operate in
fast-changing industries is simply far beyond our perimeter. If others claim
predictive skill in those industries, and seem to have their claims validated by
the behavior of the stock market, we neither envy nor emulate them. Instead, we
just stick to what we understand. If we stray, we will have done so
inadvertently, not because we got restless and substituted hope for rationality.
Fortunately, it's almost certain there will be opportunities from time to time
for Berkshire to do well within the circle we've staked out."
We are confident that our fellow shareholders and we will do well within OUR
circle for many years to come and truly appreciate your investment in the Kirr,
Marbach Partners Value Fund.
Regards,
/s/ Mark D. Foster /s/ Mickey Kim
Mark D. Foster, CFA Mickey Kim, CFA
President Vice President, Treasurer and Secretary
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
<TABLE>
<CAPTION>
STATEMENT OF ASSETS AND LIABILITIES STATEMENT OF OPERATIONS
MARCH 31, 2000 FOR THE SIX MONTHS ENDED MARCH 31, 2000
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
ASSETS: INVESTMENT INCOME:
Investments, at current value Dividend income
(cost $17,070,592) $18,858,488 (net of withholding of $207) $ 101,565
Receivable for investments sold Interest income 42,763
56,248
---------------
Dividends receivable Total Investment Income 144,328
17,020
---------------
Interest receivable
1,824
Other assets EXPENSES:
12,815
---------------
Total Assets 18,946,395 Investment Adviser fee 89,666
---------------
Shareholder servicing and
LIABILITIES: accounting costs 31,753
Payable for securities purchased Administration fee 20,484
170,700
Payable to Custodian Professional fees 10,856
93,186
Payable to Adviser Federal and state registration 7,270
9,709
Accrued expenses Custody fee 3,741
53,661
---------------
Total Liabilities Distribution fees 15,544
327,256
---------------
Reports to shareholders 7,304
NET ASSETS $18,619,139 Directors fees 2,928
===============
Other 3,261
---------------
NET ASSETS CONSIST OF: Total expenses before
Capital stock $18,749,055 reimbursement 192,807
Undistributed net investment Less: Reimbursement from
loss Investment Adviser (58,308)
(34,872)
---------------
Undistributed net realized loss Net Expenses 134,499
---------------
on investments (1,882,940)
Net unrealized appreciation/ NET INVESTMENT INCOME 9,829
---------------
(depreciation) on investments
1,787,896
---------------
Total Net Assets $18,619,139 REALIZED AND UNREALIZED
===============
GAIN/(LOSS) ON INVESTMENTS:
Shares outstanding (500,000,000 Net realized loss on investments (1,250,890)
shares of $0.01 par value Change in unrealized appreciation/
authorized) (depreciation) on investments 2,097,025
1,800,003
--------------- ---------------
Net realized and unrealized gain
Net asset value, redemption price on investments 846,135
---------------
and offering price per share $ 10.34
===============
NET INCREASE IN NET ASSETS
RESULTING FROM
OPERATIONS $ 855,964
===============
</TABLE>
See notes to the financial statements.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
<TABLE>
<CAPTION>
STATEMENT OF CHANGES IN NET ASSETS
SIX MONTHS ENDED DECEMBER 31, 1998(1)
MARCH 31, 2000 THROUGH
(UNAUDITED) SEPTEMBER 30, 1999
----------------------- --------------------------
<S> <C> <C>
OPERATIONS:
Net investment income $ 9,829 $ 29,205
Net realized loss on investments (1,250,890) (632,050)
Change in unrealized appreciation/(depreciation)
on investments 2,097,025 (309,129)
---------------- ----------------
Net increase/(decrease) in net assets resulting
from operations 855,964 (911,974)
---------------- ----------------
CAPITAL SHARE TRANSACTIONS:
Proceeds from shares sold 1,055,940 19,310,833
Shares issued to holders in reinvestment of dividends 95,116
-
Cost of shares redeemed (1,462,387) (225,888)
---------------- ----------------
Net increase/(decrease) in net assets from
capital share transactions (311,331) 19,084,945
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (98,465)
-
---------------- ----------------
TOTAL INCREASE IN NET ASSETS 446,168 18,172,971
---------------- ----------------
NET ASSETS:
Beginning of period 18,172,971
-
---------------- ----------------
End of period $ 18,619,139 $ 18,172,971
================ ================
CHANGES IN SHARES OUTSTANDING:
Shares sold 109,353 1,854,244
Shares issued to holders in reinvestment of dividends 9,637
-
Shares redeemed (152,520) (20,711)
---------------- ----------------
Net increase/(decrease) (33,530) 1,833,533
================ ================
</TABLE>
(1) Commencement of operations.
See notes to the financial statements.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
For a Fund share outstanding throughout the period
SIX MONTHS ENDED DECEMBER 31, 1998(1)
MARCH 31, 2000 THROUGH
(UNAUDITED) SEPTEMBER 30, 1999
----------------------- --------------------------
<S> <C> <C>
PER SHARE DATA:
Net asset value, beginning of period $9.91 $10.00
---------------- ----------------
Income from investment operations:
Net investment income
- 0.04
Net realized and unrealized gain/(loss) on investments
0.48 (0.13)
---------------- ----------------
Total from investment operations
0.48 (0.09)
---------------- ----------------
Less distributions:
Dividends from net investment income
(0.05) -
---------------- ----------------
Net asset value, end of period $10.34 $9.91
================ ================
TOTAL RETURN 4.90% (2) (0.90)% (2)
SUPPLEMENTAL DATA AND RATIOS:
Net assets, end of period $18,619,139 $18,172,971
Ratio of expenses to average net assets:
Before expense reimbursement 2.15% (3) 3.01% (3)
After expense reimbursement 1.50% (3) 1.50% (3)
Ratio of net investment income/(loss) to average net assets:
Before expense reimbursement (0.54)% (3) (0.76)% (3)
After expense reimbursement 0.11% (3) 0.75% (3)
Portfolio turnover rate 56.58% 77.79%
</TABLE>
(1) Commencement of operations.
(2) Not annualized.
(3) Annualized.
See notes to the financial statements.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS
MARCH 31, 2000
(UNAUDITED)
NUMBER NUMBER
OF SHARES VALUE OF SHARES VALUE
- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C>
COMMON STOCKS - 98.2% ENERGY / NATURAL RESOURCES - 6.8%
APPAREL - 1.3% 17,300 Kinder Morgan, Inc. $596,850
19,600 The Warnaco Group, Inc. $ 231,525 70,000 Santa Fe Snyder Corporation* 673,750
--------------
--------------
1,270,600
--------------
AUTO & TRANSPORTATION - 0.9%
12,300 Coachmen Industries, Inc. 169,894 FINANCIAL SERVICES - 8.8%
--------------
14,800 Allied Capital Corporation 258,075
BUSINESS SERVICES - 6.2% 26,200 Commercial Federal
Deluxe Corporation 159,000 Corporation 435,575
6,000
22,300 Pittston Brink's Group 379,100 8,900 Equifax, Inc. 224,725
16,400 SunGard Data Systems, Inc.* 619,100 12,300 H&R Block, Inc. 550,425
--------------
1,157,200
22,100 Sovereign Bancorp, Inc. 167,131
--------------
--------------
1,635,931
--------------
BUSINESS SUPPLIES - 1.8%
21,000 Daisytek International FOOD & BEVERAGE - 2.7%
Corporation* 332,062 12,200 Darden Restaurants, Inc. 217,312
--------------
18,200 International Home Foods, Inc.* 291,200
--------------
COMMUNICATIONS & MEDIA - 8.0% 508,512
--------------
Adelphia Communications
6,543
Corporation - Class A* 320,607 INSURANCE - 3.6%
14,000 Emmis Communications 7,150 MBIA, Inc. 372,247
Corporation - Class A* 651,000 13,200 Torchmark Corporation 305,250
--------------
MediaOne Group, Inc.* 510,300 677,497
6,300
-------------- --------------
1,481,907
--------------
MANUFACTURING / PRODUCTION - 11.7%
COMPUTERS & SOFTWARE- 5.1% 9,700 The B.F. Goodrich Company 278,269
Diebold, Incorporated 209,000 23,100 EMCOR Group, Inc.* 485,100
7,600
International Business Machines 23,900 Engelhard Corporation 361,487
4,075
Corporation (IBM) 480,850 13,200 Great Lakes Chemical
10,100 Unisys Corporation* 257,550 Corporation 448,800
--------------
947,400 8,800 Precision Castparts Corp. 321,200
--------------
9,200 The Sherwin-Williams Company 201,825
CONSUMER PRODUCTS - 3.4% 1,400 Southdown, Inc.
82,600
--------------
26,100 Tupperware Corporation 412,706 2,179,281
--------------
20,400 U.S. Industries, Inc. 225,675
--------------
638,381 MEDICAL - 5.1%
--------------
14,300 St. Jude Medical, Inc.* 369,119
25,200 Tenet Healthcare Corporation* 579,600
--------------
948,719
--------------
</TABLE>
See notes to the financial statements.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
<TABLE>
<CAPTION>
SCHEDULE OF INVESTMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
NUMBER PRINCIPAL
OF SHARES VALUE AMOUNT VALUE
- -------------- -------------- ------------ ---------------
<S> <C> <C> <C> <C>
PHARMACEUTICALS - 3.7% SHORT-TERM INVESTMENTS - 3.1%
8,100 Elan Corporation plc ADR* $ 384,750 VARIABLE RATE DEMAND NOTES**
11,000 ICN Pharmaceuticals, Inc. 299,750
--------------
684,500 $396,745 Firstar Bank, 5.88% $ 396,745
--------------
153,729 Warner-Lambert Co., 5.77%
153,729
PUBLISHING - 2.5% 26,088 Sara Lee Corp., 5.73%
26,088
---------------
13,000 The Reader's Digest
Association, Inc. - Class A 459,875 Total short-term investments
--------------
(cost $576,562)
576,562
---------------
RETAIL - 6.5%
19,900 AutoZone, Inc.* 552,225 Total investments - 101.3%
22,000 Kmart Corporation* 213,125 (cost $17,070,592) 18,858,488
11,500 New Dixons Group plc ADR 158,785
19,600 Saks, Inc.* 284,200 Liabilities in excess
-------------- of other assets - (1.3)% (239,349)
1,208,335 ---------------
-------------- TOTAL NET ASSETS - 100.0% $18,619,139
===============
TECHNOLOGY - 5.1%
1,100 MIPS Technologies,
Inc. - Class A* 61,188
9,900 NYFIX, Inc.* 498,713 * -- Non-income producing security.
17,600 Sensormatic Electronics ** -- Variable rate security. The rates
listed are as of March 31, 2000.
Corporation* 394,900
-------------- ADR -- American Depository Receipt.
954,801
--------------
TELECOMMUNICATIONS - 4.0%
2,050 British Telecommunications
plc ADR 385,656
9,600 Broadwing, Inc.* 357,000
--------------
742,656
--------------
UTILITIES & RELATED - 11.0%
9,900 Calpine Corporation* 930,600
6,500 Cinergy Corp. 139,750
60,000 Citizens Utilities
Company - Class B* 982,500
--------------
2,052,850
--------------
Total common stocks 18,281,926
(cost $16,494,030) --------------
</TABLE>
See notes to the financial statements.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
NOTES TO THE FINANCIAL STATEMENTS
MARCH 31, 2000
(UNAUDITED)
1. ORGANIZATION AND The Kirr Marbach Partners Fund, Inc. (the
SIGNIFICANT ACCOUNTING "Corporation") was organized as a Maryland
POLICIES 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 - Common stocks and other
equity-type securities that are listed on a
securities exchange are valued at the last quoted
sales price at the close of regular trading on
the day the valuation is made. Price information,
on listed stocks, is taken from the exchange
where the security is primarily traded.
Securities which are listed on an exchange but
which are not traded on the valuation date are
valued at the mean of the most recent bid and
asked prices. Unlisted securities for which
market quotations are readily available are
valued at the latest quoted bid price. Debt
securities are valued at the latest bid prices
furnished by independent pricing services. Other
assets and securities for which no quotations are
readily available are valued at fair value as
determined in good faith under the supervision of
the Board of Directors of the Corporation.
Short-term instruments (those with remaining
maturities of 60 days or less) are valued at
amortized cost, which approximates market.
b) Federal 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.
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.
e) Use of Estimates - The preparation of
financial statements in conformity with generally
accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and
liabilities and disclosure of contingent assets
and liabilities at the date of the financial
statements and the reported amounts of 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.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(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. Generally
accepted accounting principles require that
permanent financial reporting and tax differences
be reclassified to capital stock.
2. INVESTMENT TRANSACTIONS The aggregate purchases and sales of securities,
excluding short-term investments, by the Fund for
the six months ended March 31, 2000, were as
follows:
PURCHASES SALES
U.S. Government.............................$ - $ -
Other.......................................$12,077,829 $ 9,213,519
At March 31, 2000, gross unrealized appreciation
and depreciation of investments for tax purposes
were as follows:
Appreciation $ 3,045,498
(Depreciation) (1,257,602)
------------
Net appreciation on investments $ 1,787,896
============
At March 31, 2000, the cost of investments for
federal income tax purposes was $17,070,592.
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.
Until February 28, 2001, the Investment Adviser
has contractually agreed to waive its management
fee and/or reimburse the Funds other expenses to
the extent necessary to ensure that the Fund's
total annual operating expenses do not exceed
1.50% of its average daily net assets.
Accordingly, for the six months ended March 31,
2000, the Investment Adviser waived advisory fees
to reimburse the Fund for other expenses in the
amount of $58,308. The Investment Adviser may
decide to continue the agreement, or revise the
total annual operating expense limitations after
February 28, 2001. 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 1.50%, 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.
Rafferty Capital Markets, Inc., (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
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2000
(UNAUDITED)
Corporation to pay the Distributor 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, 2000, the Fund incurred expenses of
$15,544 pursuant to the 12b-1 Plan.
Firstar Mutual Fund Services, LLC serves as
transfer agent, administrator and accounting
services agent for the Fund. Firstar Bank, N.A.
serves as custodian for the Fund.
K I R R , M A R B A C H P A R T N E R S
- --------------------------------------------------------------------------------
V A L U E F U N D
D I R E C T O R S
MARK D. FOSTER
MICKEY KIM
JEFFREY N. BROWN
MARK E. CHESNUT
JOHN F. DORENBUSCH
P R I N C I P A L O F F I C E R S
MARK D. FOSTER, President
MICKEY KIM, Vice President, Treasurer and Secretary
I N V E S T M E N T A D V I S E R
KIRR, MARBACH & COMPANY, LLC
621 WASHINGTON STREET
COLUMBUS, INDIANA 47201
D I S T R I B U T O R
RAFFERTY CAPITAL MARKETS, INC.
1311 MAMARONECK AVENUE
WHITE PLAINS, NEW YORK 10605
C U S T O D I A N
FIRSTAR BANK, N.A.
THIRD FLOOR
615 E. MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
A D M I N I S T R A T O R ,
T R A N S F E R A G E N T A N D
D I V I D E N D - D I S B U R S I N G A G E N T
FIRSTAR MUTUAL FUND SERVICES, LLC
THIRD FLOOR
615 E. MICHIGAN STREET
MILWAUKEE, WISCONSIN 53202
I N D E P E N D E N T A C C O U N T A N T S
KPMG LLP
303 E. WACKER DRIVE
CHICAGO, ILLINOIS 60601
L E G A L C O U N S E L
GODFREY & KAHN, S.C.
780 N. WATER STREET
MILWAUKEE, WISCONSIN 53202
THIS REPORT SHOULD BE ACCOMPANIED OR PRECEDED BY A PROSPECTUS.