- ------------------------------------------------------------------------------
==============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-08043
-----------------------------------------------------------
THE BERKSHIRE FUNDS
(Exact name of registrant as specified in charter)
475 Milan Drive, Suite #103
San Jose, CA 95134-2453
(Address of principal executive offices)(Zip code)
-----------------------------------------------------------
MALCOLM R. FOBES III
The Berkshire Funds
475 Milan Drive, Suite #103
San Jose, CA 95134-2453
(Name and address of agent for service)
1-408-526-0707
Registrant's telephone number, including area code
-----------------------------------------------------------
Date of fiscal year end: December 31, 2003
Date of reporting period: June 30, 2003
ITEM 1. REPORT TO STOCKHOLDERS
[GRAPHIC OMITTED]
THE BERKSHIRE FUNDS
2003 Semi-Annual Report
This report is provided for the general information of Berkshire Funds
shareholders. It is not authorized for distribution unless preceded or
accompanied by an effective prospectus, which contains more complete
information about the Funds. Please read it carefully before you invest.
In recent years, returns have sustained significant gains and losses due to
market volatility in the technology sector. Due to market volatility, current
performance may be lower than the figures shown. Call 1-877-526-0707 or visit
berkshirefunds.com for more current performance information. Past performance
is no guarantee of future results and investment results and principal value
will fluctuate so that shares, when redeemed, may be worth more or less than
their original cost. The returns shown do not reflect the deduction of taxes
that a shareholder would pay on Fund distributions or the redemption of Fund
shares. Total return includes reinvestment of dividends and capital gain
distributions.
The Dow Jones Industrial Average is a measurement of general market price
movement for 30 widely-held stocks primarily listed on the New York Stock
Exchange. The S&P 500 Index(R) is a registered trademark of Standard & Poor's
Corporation and is a market-weighted index of common stock prices for 500
large U.S. companies. The Nasdaq Composite Index is a capitalization-weighted
index of over 5,000 common stocks listed on the Nasdaq Stock Market. Each
index represents an unmanaged, broad-based basket of stocks. These indices are
typically used as benchmarks for overall market performance.
Portfolio composition is subject to change at any time and references to
specific securities, industries and sectors are not recommendations to
purchase or sell any particular security.
Funds distributed by Rafferty Capital Markets, LLC.
Cover: "Off to the Races"
Kentucky Derby at Churchill Downs
*
-------------------------------
FUND OVERVIEW - BERKSHIRE FOCUS FUND
June 30, 2003 (unaudited)
The Fund normally concentrates its investments in a core group of 20-30 common
stocks selected for their long-term growth potential.
PERFORMANCE COMPARISON (Average annual total returns as of 6/30/03)
- -------------------------------------------------------------------
YTD(1) 1 Year 3 Year 5 Year Since Inception(2)
FOCUS FUND 34.12% -6.07% -53.80% -13.61% -9.34%
- --------------------------------------------------------------------------------------
Dow Jones Industrial Average 9.01% -0.48% -3.03% 1.91% 4.53%
S&P 500 Index(R) 11.76% 0.25% -11.19% -1.61% 3.09%
NASDAQ Composite Index 21.81% 11.42% -25.50% -2.73% 2.33%
- --------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------
6/30/03 $32.2 Million
NET ASSET VALUE
- ------------------------------------------
Net Asset Value Per Share $5.11
TOP TEN HOLDINGS(3)
- ------------------------------------------
Broadcom Corp., (Class A) 5.60%
Juniper Networks, Inc. 5.20%
Applied Micro Circuits Corp. 4.95%
McDATA Corp., (Class A) 4.74%
Analog Devices, Inc. 4.67%
Marvell Technology Group Ltd. 4.66%
PMC-Sierra, Inc. 4.54%
Linear Technology Corp. 4.53%
Intersil Corp., (Class A) 4.51%
EMC Corp. 4.47%
GROWTH OF $10,000(4)
- ---------------------------------------------
BERKSHIRE FOCUS FUND vs. THE S&P 500 INDEX(R)
[GRAPHIC OMITTED]
S&P 500 BERKSHIRE FOCUS
INDEX(R) FUND
MONTH $ AMOUNT $ AMOUNT
- ------ --------- -------------
JUN-97 $ 10,000 $ 10,000
JUL-97 10,795 10,000
AUG-97 10,191 9,950
SEP-97 10,748 10,050
OCT-97 10,390 9,500
NOV-97 10,870 9,510
DEC-97 11,057 8,738
JAN-98 11,179 9,699
FEB-98 11,985 10,174
MAR-98 12,598 10,174
APR-98 12,725 10,346
MAY-98 12,506 10,043
JUN-98 13,014 11,539
JUL-98 12,876 11,560
AUG-98 11,017 9,314
SEP-98 11,722 11,287
OCT-98 12,675 11,620
NOV-98 13,443 14,078
DEC-98 14,217 17,822
JAN-99 14,811 20,835
FEB-99 14,351 19,177
MAR-99 14,925 22,776
APR-99 15,503 23,740
MAY-99 15,138 20,976
JUN-99 15,977 23,036
JUL-99 15,479 21,735
AUG-99 15,402 24,001
SEP-99 14,980 24,749
OCT-99 15,928 26,884
NOV-99 16,252 31,405
DEC-99 17,208 43,289
JAN-00 16,344 44,376
FEB-00 16,035 62,228
MAR-00 17,602 60,272
APR-00 17,073 53,253
MAY-00 16,723 45,712
JUN-00 17,135 56,317
JUL-00 16,867 57,013
AUG-00 17,914 71,627
SEP-00 16,969 67,248
OCT-00 16,897 56,719
NOV-00 15,566 36,118
DEC-00 15,642 36,346
JAN-01 16,197 36,813
FEB-01 14,721 19,841
MAR-01 13,789 13,973
APR-01 14,859 19,624
MAY-01 14,959 17,418
JUN-01 14,595 16,440
JUL-01 14,451 13,397
AUG-01 13,548 10,257
SEP-01 12,454 6,498
OCT-01 12,691 8,845
NOV-01 13,665 10,518
DEC-01 13,785 10,116
JAN-02 13,583 10,464
FEB-02 13,321 8,171
MAR-02 13,822 9,649
APR-02 12,984 8,258
MAY-02 12,888 7,389
JUN-02 11,971 5,911
JUL-02 11,039 5,139
AUG-02 11,111 4,564
SEP-02 9,905 3,455
OCT-02 10,776 4,194
NOV-02 11,409 5,400
DEC-02 10,738 4,140
JAN-03 10,457 4,183
FEB-03 10,300 4,281
MAR-03 10,400 4,183
APR-03 11,257 4,857
MAY-03 11,850 5,791
JUN-03 12,002 5,552
SECTOR ALLOCATION(5)
- ------------------------------------------
Semiconductors 48.29%
Storage Devices 23.85%
Networking Equipment 11.62%
Semiconductor Capital Equipment 10.26%
Software 3.28%
Fiber Optic Components 2.85%
(1) Not annualized.
(2) The Fund's inception date was July 1, 1997.
(3) Stated as a percentage of total net assets as of 6/30/03. The holdings
information provided should not be construed as a recommendation to
purchase or sell a particular security and may not be representative of
the Fund's current or future investments.
(4) This chart assumes an initial investment of $10,000 made on July 1,
1997 (inception). Past performance does not guarantee future results.
Investment return and principal value will fluctuate so that shares,
when redeemed, may be worth more or less than their original cost. All
returns reflect reinvested dividends but do not reflect the impact of
taxes.
(5) Stated as a percentage of total net assets as of 6/30/03. The holdings
by sector are presented to illustrate examples of the sectors in which
the Fund has bought securities and may not be representative of the
Fund's current or future investments.
This Fund may concentrate its investments in the technology industry.
As a result, the Fund is subject to greater risk than more diversified
funds because of its concentration of investments in fewer companies
and certain segments of a single industry.
1
*
- ------------------------------------------------------------------------------
BERKSHIRE FOCUS FUND
Performance and Portfolio Discussion
6/30/2003
- ------------------------------------------------------------------------------
*
2
*
-------------------------------
LETTER TO THE SHAREHOLDERS
[PHOTO]
Dear Fellow Shareholders,
For the six month period ended June 30, 2003, the Berkshire Focus Fund posted
a total return of 34.12%. For comparative purposes, the Dow Jones Industrial
Average gained 9.01%, the S&P 500 Index(R) increased 11.76%, and the Nasdaq
Composite Index advanced 21.81% over the same period. Please see the
accompanying financial statements for the Fund's longer-term performance. As
always, all return data includes reinvested dividends but do not reflect the
impact of taxes.
It goes without saying that the past three years have been particularly
difficult for investors in concentrated portfolios such as ours. With that
said, we are pleased to report that since the markets hit bottom in early
October our concentrated style of investing, coupled with our focus in the
technology sector, resulted in the significant outperformance of our Fund
relative to our equity market benchmarks. Turning to the first quarter of
2003, stocks struggled to maintain their footing almost from the outset due to
the looming war with Iraq and the lingering economic effects from the outbreak
of SARS. The market's slide would prove to be short-lived, however, as the
indices quickly regained much of the ground lost in the weeks immediately
preceding the war. Against the backdrop of aggressive tax cuts, historically
low interest rates, a modest uptick in the economy and the conclusion of the
war - investors rushed to embrace stocks. By the end of the second quarter,
the markets had turned in their strongest three-month performance since 1998.
Turning to the portfolio, our biggest percentage gainers during the period
were concentrated in the Networking Equipment sector which included Foundry
Networks (FDRY), Juniper Networks (JNPR) and Nortel Networks (NT). The
Semiconductor sector, once again the Fund's most heavily weighted area, also
turned in a decidedly strong performance. Applied Micro Circuits (AMCC),
Broadcom (BRCM), Intersil (ISIL), Marvell Technology (MRVL) and PMC-Sierra
(PMCS) all posted outsized gains in anticipation of a strong recovery in the
Comm IC space. Also helping to boost our relative outperformance were our
investments in the Storage Devices sector. Companies from this area included
Brocade (BRCD), EMC (EMC), McDATA (MCDTA) and Network Appliance (NTAP).
Finally, some new additions to the portfolio during the first half of the year
included Altera (ALTR), Analog Devices (ADI), Foundry Networks (FDRY), McDATA
(MCDTA), Nortel Networks (NT) and Vitesse Semiconductor (VTSS).
We remain confident that over the next several years, the technology sector
will once again be the leading driver of economic growth. Moreover, we believe
that our investors will be rewarded for their commitment to a long-term
investment strategy. As always, we thank you for your investment and continued
confidence in our abilities.
/s/ Malcolm R. Fobes III
Malcolm R. Fobes III
Chairman & Chief Executive Officer
3
*
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
(unaudited)
6/30/2003
- ------------------------------------------------------------------------------
*
4
*
-------------------------------
PORTFOLIO OF INVESTMENTS - BERKSHIRE FOCUS FUND
June 30, 2003 (unaudited)
Shares Value
COMMON STOCKS - 100.15% $ 32,286,697
---------------------------------------------------------
(Cost $27,691,895)
FIBER OPTIC COMPONENTS - 2.85% 919,975
---------------------------------------------------------
262,850 JDS Uniphase Corp.* 919,975
NETWORKING EQUIPMENT - 11.62% 3,746,467
---------------------------------------------------------
8,375 Cisco Systems, Inc.* 140,616
78,700 Foundry Networks, Inc.* 1,123,049
134,525 Juniper Networks, Inc.* 1,677,527
298,250 Nortel Networks Corp.* 805,275
SEMICONDUCTORS - 48.29% 15,567,418
---------------------------------------------------------
81,800 Altera Corp.* 1,343,974
43,200 Analog Devices, Inc.* 1,504,224
264,250 Applied Micro Circuits Corp.* 1,596,070
72,475 Broadcom Corp., (Class A)* 1,805,352
54,625 Intersil Corp., (Class A)* 1,453,571
45,085 Linear Technology Corp. 1,459,852
43,705 Marvell Technology Group Ltd.* 1,501,267
39,120 Maxim Integrated Products, Inc. 1,333,992
124,900 PMC-Sierra, Inc.* 1,465,077
153,500 Vitesse Semiconductor Corp.* 750,615
53,495 Xilinx, Inc.* 1,353,424
SEMICONDUCTOR CAPITAL EQUIPMENT - 10.26% 3,306,140
---------------------------------------------------------
83,925 Applied Materials, Inc.* 1,329,372
13,025 KLA-Tencor Corp.* 605,142
37,425 Novellus Systems, Inc.* 1,371,626
SOFTWARE - 3.28% 1,057,406
---------------------------------------------------------
36,690 VERITAS Software Corp.* 1,057,406
STORAGE DEVICES - 23.85% 7,689,291
---------------------------------------------------------
185,490 Brocade Communications Systems, Inc.* 1,096,246
137,600 EMC Corp.* 1,440,672
48,025 Emulex Corp.* 1,093,529
104,400 McDATA Corp., (Class A)* 1,529,460
76,750 Network Appliance, Inc.* 1,234,140
26,850 QLogic Corp.* 1,295,244
CASH EQUIVALENTS - 0.40% 128,019
---------------------------------------------------------
128,019 First American Treasury Obligations Fund 128,019
TOTAL INVESTMENT SECURITIES - 100.55% 32,414,716
---------------------------------------------------------
(Cost $27,819,914)
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.55%) (175,937)
---------------------------------------------------------
NET ASSETS - 100.00% $ 32,238,779
---------------------------------------------------------
Equivalent to $5.11 per share
*Non-income producing
(See accompanying notes to financial statements)
5
*
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2003 (unaudited)
BERKSHIRE
FOCUS FUND
ASSETS
- ---------------------------------------------------------------------
Investment securities:
At acquisition cost $ 27,819,914
=============
At market value $ 32,414,716
Cash 46,366
Receivable for capital shares sold 3,403
Receivable for securities sold 158,701
Interest receivable 150
-------------
TOTAL ASSETS 32,623,336
-------------
LIABILITIES
- ---------------------------------------------------------------------
Payable for capital shares redeemed 169,334
Payable for securities purchased 159,914
Payable to affiliates (Note 4) 55,035
Accrued expenses 274
-------------
TOTAL LIABILITIES 384,557
-------------
NET ASSETS $ 32,238,779
=====================================================================
Net assets consist of:
Paid-in-capital $ 459,860,831
Accumulated net investment loss (254,243)
Accumulated net realized losses
from security transactions (431,962,611)
Net unrealized appreciation on investments 4,594,802
-------------
NET ASSETS $ 32,238,779
=============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 6,310,513
=============
Net asset value, offering price and redemption
price per share $ 5.11
=============
(See accompanying notes to financial statements)
6
*
-------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2003 (unaudited)
BERKSHIRE
FOCUS FUND
INVESTMENT INCOME
- ---------------------------------------------------------------------
Dividends $ 9,496
Interest 641
-------------
TOTAL INVESTMENT INCOME 10,137
-------------
EXPENSES
- ---------------------------------------------------------------------
Investment advisory fees 197,408
Administrative fees 65,803
Interest expense 1,169
-------------
TOTAL EXPENSES 264,380
-------------
NET INVESTMENT LOSS (254,243)
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS
- ---------------------------------------------------------------------
Net realized losses from security transactions (4,370,189)
Net change in unrealized appreciation on investments 11,974,176
------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 7,603,987
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 7,349,744
=============
(See accompanying notes to financial statements)
7
*
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS - BERKSHIRE FOCUS FUND
For the Periods Ended June 30, 2003 (unaudited) and December 31, 2002
Six Months Year
Ended Ended
6/30/03 12/31/02
FROM OPERATIONS:
- ----------------------------------------------------------------------------------------------
Net investment loss $ (254,243) $ (846,237)
Net realized losses from security transactions (4,370,189) (49,694,504)
Net change in unrealized appreciation on investments 11,974,176 11,954,232
--------------------------------
Net increase (decrease) in net assets from operations 7,349,744 (38,586,509)
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
- ----------------------------------------------------------------------------------------------
Proceeds from shares sold 11,135,238 31,249,035
Payments for shares redeemed (8,735,398) (41,520,820)
--------------------------------
Net increase (decrease) in net assets from
capital share transactions 2,399,840 (10,271,785)
--------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 9,749,584 (48,858,294)
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period 22,489,195 71,347,489
--------------------------------
End of period $ 32,238,779 $ 22,489,195
================================
Undistributed net investment income (loss): $ (254,243) $ 0
================================
CAPITAL SHARE ACTIVITY:
- ----------------------------------------------------------------------------------------------
Shares sold 2,424,117 4,841,345
Shares redeemed (2,010,111) (6,606,631)
--------------------------------
Net increase (decrease) in shares outstanding 414,006 (1,765,286)
Shares outstanding, beginning of period 5,896,507 7,661,793
--------------------------------
Shares outstanding, end of period 6,310,513 5,896,507
================================
(See accompanying notes to financial statements)
8
*
-------------------------------
FINANCIAL HIGHLIGHTS - BERKSHIRE FOCUS FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
Six Months Year Year Year Year Year
Ended Ended Ended Ended Ended Ended
6/30/03 12/31/02 12/31/01 12/31/00 12/31/99 12/31/98
(unaudited)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 3.81 $ 9.31 $ 33.45 $ 39.84 $ 16.44 $ 8.64
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (0.04)(A) (0.14)(A) (0.31)(A) (0.40)(A) (0.31) 0.03
Net realized and unrealized gains
(losses) on investments 1.34 (5.36) (23.83) (5.99) 23.80 8.97
----------------------------------------------------------------------
Total from investment operations 1.30 (5.50) (24.14) (6.39) 23.49 9.00
----------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income 0.00 0.00 0.00 0.00 0.00 (0.02)
Distributions from net realized gains 0.00 0.00 0.00 0.00 (0.09) (1.18)
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.09) (1.20)
----------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 5.11 $ 3.81 $ 9.31 $ 33.45 $ 39.84 $ 16.44
==================================================================================================================
TOTAL RETURN 34.12%(F) (59.08%) (72.17%) (16.04%) 142.90% 104.17%
==================================================================================================================
SUPPLEMENTAL DATA AND RATIOS:
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period (thousands) $ 32,239 $ 22,489 $ 71,347 $ 279,607 $ 33,600 $ 353
Ratio of expenses to average net assets:
Before fee waiver 2.00%(E)(G) 1.99%(D) 1.97%(C) 1.95%(B) 1.89% 1.93%
After fee waiver 2.00%(E)(G) 1.99%(D) 1.97%(C) 1.95%(B) 1.89% 0.00%
Ratio of net investment income (loss)
to average net assets:
Before fee waiver (1.93%)(G) (1.97%) (1.89%) (1.75%) (1.71%) (1.66%)
After fee waiver (1.93%)(G) (1.97%) (1.89%) (1.75%) (1.71%) 0.26%
Portfolio turnover rate 90.7%(F) 165.8% 222.7% 166.4% 155.5% 136.0%
(A) Net investment loss per share is calculated using ending balances prior to consideration
or adjustment for permanent book and tax differences.
(B) For the year ended December 31, 2000 the ratios of expenses to average net assets excludes
interest expense. The ratios before and after expense reimbursement, including interest expense,
would be 1.96% and 1.96% respectively.
(C) For the year ended December 31, 2001 the ratios of expenses to average net assets excludes
interest expense. The ratios before and after expense reimbursement, including interest expense,
would be 1.98% and 1.98% respectively.
(D) For the year ended December 31, 2002 the ratios of expenses to average net assets excludes
interest expense. The ratios before and after expense reimbursement, including interest expense,
would be 2.01% and 2.01% respectively.
(E) For the six months ended June 30, 2003 the ratios of expenses to average net assets excludes
interest expense. The ratios before and after expense reimbursement, including interest expense,
would be 2.01% and 2.01% respectively.
(F) Not annualized.
(G) Annualized.
(See accompanying notes to financial statements)
9
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
1. Organization
The Focus Fund (the "Fund") is a non-diversified series of The Berkshire Funds
(the "Trust"), an open-end management investment company registered under the
Investment Company Act of 1940, as amended (the "1940 Act"). The Trust was
organized as a Delaware business trust on November 25, 1996. The Fund
commenced operations on July 1, 1997. The Fund's investment objective is to
seek long-term capital appreciation through investments in equity securities.
2. Significant Accounting Policies
The following is a summary of the Trust's significant accounting policies:
Securities valuation - The Fund's portfolio securities are valued as of the
close of the regular session of trading on the New York Stock Exchange (the
"NYSE"), normally 4:00 p.m., Eastern time. Securities which are traded on
stock exchanges or are quoted by NASDAQ are valued at the last reported sale
price as of the close of the regular session of trading on the NYSE, or, if
not traded, at the most recent bid price. Securities which are traded in the
over-the-counter market, and which are not quoted by NASDAQ, are valued at the
most recent bid price, as obtained from one or more of the major market makers
for such securities. Securities for which market quotations are not readily
available are valued at their fair value as determined in good faith in
accordance with consistently applied procedures established by and under the
general supervision of the Board of Trustees.
Share valuation - The net asset value per share for the Fund is calculated
daily by dividing the total value of the Fund's assets, less liabilities, by
the number of shares outstanding, rounded to the nearest cent. The offering
and redemption price per share is equal to the net asset value per share.
Investment income - Dividend income is recorded on the ex-dividend date.
Interest income is accrued as earned.
Distributions to shareholders - Distributions to shareholders arising from net
investment income and net realized capital gains, if any, are distributed at
least once each year. Dividends from net investment income and capital gain
distributions are determined in accordance with income tax regulations, which
may differ from generally accepted accounting principles.
Security transactions - Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
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 at
the date of the financial statements and the reported amounts of income and
expenses during the reporting period. Actual results could differ from those
estimates.
10
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
Federal income tax - The Fund intends to comply with the requirements of
Subchapter M of the Internal Revenue Code (the "Code") necessary to qualify as
a regulated investment company. As provided therein, in any fiscal year in
which the Fund so qualifies and distributes at least 90% of its taxable net
income, the Fund (but not the shareholders) will be relieved of federal
income tax on the income distributed. Accordingly, no provision for income
taxes has been made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year at least 98% of its net investment income and 98% of its
net realized capital gains plus undistributed amounts from prior years.
Other - Generally Accepted Accounting Principles require that permanent
financial reporting tax differences relating to shareholder distributions be
reclassified to paid-in-capital.
3. Investment Transactions
Purchases and sales of investment securities (excluding short-term
instruments) for the six months ended June 30, 2003 were $25,903,329 and
$23,706,376, respectively. There were no purchases or sales of U.S. Government
securities for the Fund.
Unrealized appreciation (depreciation) at June 30, 2003 based on cost of
securities for federal tax purposes is as follows:
Gross unrealized appreciation $ 6,103,600
Gross unrealized depreciation (1,508,798)
- --------------------------------------------------
Net unrealized appreciation 4,594,802
==================================================
Cost of investments $ 27,819,914
The Fund intends to utilize provisions of the federal income tax laws which
allow it to carry realized capital losses forward for eight years following
the year of loss and offset such losses against any future realized capital
gains. At December 31, 2002, the Fund had the following capital loss carry-
forwards for tax purposes:
Capital Loss Carryforward Date of Expiration
----------------------------------------------------
$ 56,400,653 12/31/10
$ 292,752,183 12/31/09
$ 63,553,796 12/31/08
11
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
4. Related Party Transactions, Investment Advisory and Administrative Fees
Certain officers and trustees of the Trust are also officers and directors of
Berkshire Capital Holdings, Inc. ("Berkshire Capital").
The Fund has an Investment Advisory Agreement and a separate Administration
Agreement with Berkshire Capital. Under the terms of the Investment Advisory
Agreement, Berkshire Capital receives a fee accrued each calendar day
(including weekends and holidays) at a rate of 1.50% per annum of the daily
net assets of the Fund. Under the Administration Agreement, Berkshire Capital
receives a fee as compensation for services rendered, facilities furnished and
expenses assumed at the annual rate of 0.50% of the Fund's average daily net
assets up to $50 million, 0.45% of average net assets from $50 million to $200
million, 0.40% of average net assets from $200 million to $500 million, 0.35%
of average net assets from $500 million to $1 billion and 0.30% of average
net assets in excess of $1 billion. Such fee is computed as a percentage of
the Fund's daily net assets and is accrued each calendar day (including
weekends and holidays). For the six months ended June 30, 2003, Berkshire
Capital was paid an investment advisory fee of $197,408 and an administration
fee of $65,803 from the Fund.
5. Beneficial Ownership Disclosure
Beneficial ownership, either directly or indirectly, of more than 25% of the
voting securities of a fund creates a presumption of control of the fund under
Section 2(a)(9) of the Investment Company Act of 1940. As of June 30, 2003,
National Financial Services Corp. and Charles Schwab Corp. were record owners
of 29.39% and 29.16%, respectively of the Fund. As a record owner of more than
25% of the voting securities of a fund, there is not necessarily a presumption
of control of the fund.
12
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2003 (unaudited)
6. Distributions to Shareholders
There were no distributions paid during the fiscal year ended December 31,
2002. The tax character of distributions paid during the fiscal years 2002 and
2001 was as follows:
Distributions paid from: 2002 2001
- ---------------------------------------------
Ordinary income $ 0 $ 0
Short-term capital gain 0 0
Long-term capital gain 0 0
- ---------------------------------------------
Total distributions paid $ 0 $ 0
=============================================
As of December 31, 2002, the components of distributable earnings (accumulated
losses) on a tax basis were as follows:
Undistributed ordinary income $ 0
Undistributed long-term capital gain (accumulated losses) (412,706,632)
Unrealized appreciation (depreciation) (22,265,164)
- -----------------------------------------------------------------------------
Total accumulated earnings (deficit) $ (434,971,796)
=============================================================================
The difference between book basis and tax basis unrealized depreciation is
attributable primarily to the tax deferral of losses on wash sales.
13
*
-------------------------------
NOTES
14
*
-------------------------------
NOTES
15
*
-------------------------------
NOTES
16
THE BERKSHIRE FUNDS
475 Milan Drive
Suite #103
San Jose, CA 95134
(Toll-Free) 1-877-526-0707
BOARD OF TRUSTEES
Malcolm R. Fobes III, Chairman
Ronald G. Seger
Leland F. Smith
Andrew W. Broer
INVESTMENT ADVISER
Berkshire Capital Holdings, Inc.
475 Milan Drive
Suite #103
San Jose, CA 95134
COUNSEL
Thompson Hine LLP
312 Walnut Street
14th Floor
Cincinnati, OH 45202
INDEPENDENT AUDITOR
McCurdy & Associates CPA's, Inc.
27955 Clemens Road
Westlake, OH 44145
TRANSFER AGENT
Mutual Shareholder Services, LLC
8869 Brecksville Road
Suite C
Brecksville, OH 44141
CUSTODIAN
U.S. Bank, N.A
425 Walnut Street
Cincinnati, OH 45202
DISTRIBUTOR
Rafferty Capital Markets, LLC
59 Hilton Avenue
Garden City, NY 11530
WEBSITE
www.berkshirefunds.com
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
Not applicable for semi-annual reports.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to open-end investment companies.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable to open-end investment companies.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES
(a) Based on the evaluation of the Registrant's Disclosure Controls and
Procedures as of a date within 90 days of the Filing Date, the
Registrant's President and Treasurer/CFO has determined that the
Disclosure Controls and Procedures (as defined in Rule 30a-2(c) under
the Act) are designed to ensure that information required to be
disclosed by the Registrant is recorded, processed, summarized and
reported by the Filing Date, and that information required to be
disclosed in the report is communicated to the Registrant's
management, as appropriate, to allow timely decisions regarding
required disclosure.
(b) There were no significant changes in the Registrant's internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, and there were no
corrective actions with regard to significant deficiencies and mater-
ial weaknesses.
ITEM 10.EXHIBITS
(a) ANY CODE OF ETHICS OR AMENDMENT THERETO.
Not applicable until annual filing.
(b) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF
2002.
Filed herewith.
(c) 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.
The Berkshire Funds
By: /s/ Malcolm R. Fobes III
--------------------
Malcolm R. Fobes III
President, Treasurer and Chief Financial Officer
Date: September 5, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By: /s/ Malcolm R. Fobes III
--------------------
Malcolm R. Fobes III
President, Treasurer and Chief Financial Officer
Date: September 5, 2003