As filed with the Securities and Exchange Commission on March 1, 2004
- ------------------------------------------------------------------------------
==============================================================================
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 811-08043
-----------------------------------------------------------
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: December 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS
[GRAPHIC OMITTED]
THE BERKSHIRE FUNDS
2003 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(R) Index 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: "Backlit diagram of an integrated circuit"
*
-------------------------------
FUND OVERVIEW - BERKSHIRE FOCUS FUND
December 31, 2003
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 12/31/03)
- -------------------------------------------------------------------
1 Year 3 Year 5 Year Since Inception(1)
BERKSHIRE FOCUS FUND 66.93% -42.50% -17.26% -5.53%
- --------------------------------------------------------------------------------------
Dow Jones Industrial Average 28.29% 1.02% 4.56% 6.82%
S&P 500(R) Index 28.68% -4.04% -0.57% 5.10%
NASDAQ Composite Index 50.77% -6.35% -1.45% 5.56%
- --------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------
12/31/03 $36.7 Million
NET ASSET VALUE
- ------------------------------------------
Net Asset Value Per Share $6.36
TOP TEN HOLDINGS(2)
- ------------------------------------------
Analog Devices, Inc. 4.04%
Texas Instruments, Inc. 3.93%
Applied Materials, Inc. 3.91%
Cypress Semiconductor Corp. 3.87%
PMC-Sierra, Inc. 3.84%
Juniper Networks, Inc. 3.83%
National Semiconductor Corp. 3.41%
Linear Technology Corp. 3.37%
Broadcom Corp., (Class A) 3.36%
Lam Research Corp. 3.35%
GROWTH OF $10,000(3)
- ---------------------------------------------
BERKSHIRE FOCUS FUND vs. THE S&P 500(R) INDEX
[GRAPHIC OMITTED]
S&P 500(R) BERKSHIRE FOCUS
INDEX 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
JUL-03 12,212 5,672
AUG-03 12,450 6,509
SEP-03 12,318 5,878
OCT-03 13,015 6,943
NOV-03 13,129 7,280
DEC-03 13,818 6,911
SECTOR ALLOCATION(4)
- ------------------------------------------
Semiconductors 50.37%
Semiconductor Capital Equipment 20.57%
Networking & Telecom Equipment 15.07%
Storage Devices 7.80%
Internet Software & Services 3.00%
Fiber Optic Components 2.64%
(1) The Fund's inception date was July 1, 1997.
(2) Stated as a percentage of total net assets as of 12/31/03. 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.
(3) 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.
(4) Stated as a percentage of total net assets as of 12/31/03. 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 concentrates 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
*
-------------------------------
LETTER TO THE SHAREHOLDERS
[PHOTO]
Dear Fellow Shareholders,
During the twelve month period ended December 31, 2003, the Berkshire Focus
Fund posted a total return of 66.93%. For comparative purposes, the Dow Jones
Industrial Average gained 28.29%, the S&P 500 Index increased 28.68%, and the
Nasdaq Composite Index advanced 50.77% 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 does not reflect the
impact of taxes.
YEAR IN REVIEW
After three consecutive years of backbreaking declines, calendar year 2003
will go down in history as the stock market's first up year of the new
millennium. The seemingly endless stream of psychological shocks to the
economy - the bursting of the technology bubble, terrorist attacks of 9/11,
corporate governance scandals and the war with Iraq - finally succumbed to a
virtuous cycle of recovery thanks to the one-two punch of sizeable federal tax
cuts and massive liquidity injections by the Federal Reserve.
The first quarter of 2003 got off to a rocky start however, as uncertainty
surrounding the potential war with Iraq and the lingering effects from the
outbreak of SARS overshadowed the economy for much of the period. Not
surprisingly, stocks reacted by falling nearly across the board and investor
sentiment soured significantly - further contributing to a broad decline in
the markets. Consequently, as the quarter came to a close, stocks failed to
gain any traction and all three major stock market indices finished the period
modestly lower.
The market indices hit a trough and never looked back after the hostilities in
Iraq began in mid-March. When the major fighting in Iraq abated, the economy
and the markets rebounded sharply. By the end of the second quarter, real GDP
had increased at an annual rate of 3.2%. Against this backdrop, the stock
market - led by technology stocks - staged a powerful rally that quickly
regained much of the ground lost in the months immediately preceding the war.
As the year progressed, the economic outlook continued to improve - most
notably with real GDP growing at an annualized rate of 8.2% in the third
quarter. This clearly had a positive impact on the equity markets with all
three major stock market indices ringing up double-digit returns. During the
final quarter of 2003, the momentum only continued with stocks adding upon
their already impressive year-to-date gains. By year-end, the stock markets
had turned in one of their strongest performances in nearly a decade.
2
*
-------------------------------
LETTER TO THE SHAREHOLDERS
FOCUS FUND DISCUSSION
We are pleased to report the Focus Fund enjoyed a year of exceptional
performance. We met our goal of delivering superior returns to our
shareholders by posting a gain of 66.93%, significantly outperforming all of
our equity market benchmarks. Naturally, we are enthusiastic about our recent
returns after enduring three exceedingly difficult years. We feel it is
prudent however, to remind our shareholders that such strong results are
unsustainable - especially since we feel most of the low-hanging fruit has
already been picked in terms of stock performance. Nevertheless, 2003 was
certainly a year that we will never forget and we hope that you enjoyed the
rewards for your patience as a long-term investor in the Fund.
Turning to the portfolio, this was a good year for the Focus Fund not only in
terms of absolute and relative performance, but also in terms of breadth.
Every segment within the technology sector was a contributor to the Fund's
strong results. That said, the most important theme of the Fund for 2003 was
overweighting our investments in companies having the most earnings leverage
and price sensitivity to an improvement in economic conditions. Using this
criteria as our guide, Semiconductors were the Fund's most heavily-weighted
sector throughout the period. Applied Micro Circuits (AMCC), Broadcom (BRCM),
Marvell Technology (MRVL), PMC-Sierra (PMCS) and Vitesse Semiconductor (VTSS)
all posted outsized gains in anticipation of pickup in demand for
high-performance chipsets to the networking industry. Meanwhile, our
investments in analog semiconductor companies - Analog Devices (ADI), Intersil
(ISIL), Linear Technology (LLTC), Maxim Integrated (MXIM) and National
Semiconductor (NSM) - turned in decidedly strong performances as a result of
much improved underlying fundamentals. Also giving a boost to our relative
outperformance were our investments in the Semiconductor Capital Equipment
sector. Within this segment Applied Materials (AMAT), ASML Holdings (ASML),
KLA-Tencor (KLAC), Kulicke & Soffa (KLIC), Lam Research (LRCX) and Novellus
Systems (NVLS) all strengthened on anticipation of stronger-than-expected
operating leverage. The Fund's biggest percentage gainers in 2003 were
concentrated in the Networking Equipment sector - this included Cisco Systems
(CSCO), Foundry Networks (FDRY), Juniper Networks (JNPR) and Nortel Networks
(NT). The Storage Device sector also posted solid results led by EMC (EMC),
Network Appliance (NTAP) and Qlogic (QLGC). Finally, rounding out the Fund's
portfolio were the Fiber Optic Component and Internet Software & Services
sectors, represented by JDS Uniphase (JDSU) and Yahoo! (YHOO), respectively.
Looking ahead, we remain confident that over the next several years the
technology sector will be the leading driver of economic growth. As a result,
we believe our investors will continue to be rewarded for their commitment to
a long-term investment strategy. As always, we appreciate your confidence in
our abilities and thank you for your investment in the Berkshire Funds.
/s/ Malcolm R. Fobes III
Malcolm R. Fobes III
Chairman & Chief Executive Officer
3
*
- ------------------------------------------------------------------------------
AUDITED FINANCIAL STATEMENTS
12/31/2003
- ------------------------------------------------------------------------------
*
4
*
-------------------------------
PORTFOLIO OF INVESTMENTS - BERKSHIRE FOCUS FUND
December 31, 2003
Shares Value
COMMON STOCKS - 99.45% $ 36,454,404
---------------------------------------------------------
(Cost $32,128,745)
FIBER OPTIC COMPONENTS - 2.64% 966,238
---------------------------------------------------------
265,450 JDS Uniphase Corp.* 966,238
INTERNET SOFTWARE & SERVICES - 3.00% 1,097,831
---------------------------------------------------------
24,380 Yahoo! Inc.* 1,097,831
NETWORKING & TELECOM EQUIPMENT - 15.07% 5,524,507
---------------------------------------------------------
78,200 Avaya, Inc.* 1,011,908
49,100 Cisco Systems, Inc.* 1,189,693
36,875 Foundry Networks, Inc.* 1,007,794
75,125 Juniper Networks, Inc.* 1,403,335
215,550 Nortel Networks Corp.* 911,777
SEMICONDUCTORS - 50.37% 18,464,457
---------------------------------------------------------
56,350 Amkor Technology, Inc.* 1,022,189
32,480 Analog Devices, Inc. 1,482,712
127,025 Applied Micro Circuits Corp.* 758,339
168,450 Atmel Corp.* 1,012,384
36,250 Broadcom Corp., (Class A)* 1,233,225
66,350 Cypress Semiconductor Corp.* 1,417,236
34,545 Intersil Corp., (Class A) 858,443
29,335 Linear Technology Corp. 1,234,123
24,915 Marvell Technology Group Ltd.* 945,026
22,510 Maxim Integrated Products, Inc. 1,116,046
40,325 Micron Technology, Inc.* 543,178
31,755 National Semiconductor Corp.* 1,251,465
70,000 PMC-Sierra, Inc.* 1,407,000
97,230 RF Micro Devices, Inc.* 978,134
49,035 Texas Instruments, Inc. 1,440,648
144,050 TriQuint Semiconductor, Inc.* 1,018,434
127,500 Vitesse Semiconductor Corp.* 745,875
SEMICONDUCTOR CAPITAL EQUIPMENT - 20.57% 7,541,556
---------------------------------------------------------
63,920 Applied Materials, Inc.* 1,434,365
55,375 ASML Holding N.V.* 1,110,269
8,800 KLA-Tencor Corp.* 515,152
76,200 Kulicke & Soffa Industries, Inc.* 1,095,756
37,975 Lam Research Corp.* 1,226,592
25,710 Novellus Systems, Inc.* 1,081,105
42,370 Teradyne, Inc.* 1,078,317
STORAGE DEVICES - 7.80% 2,859,815
---------------------------------------------------------
74,275 EMC Corp.* 959,633
47,550 Network Appliance, Inc.* 971,922
18,000 QLogic Corp.* 928,260
TOTAL INVESTMENT SECURITIES - 99.45% 36,454,404
---------------------------------------------------------
(Cost $32,128,745)
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.55% 202,410
---------------------------------------------------------
NET ASSETS - 100.00% $ 36,656,814
---------------------------------------------------------
Equivalent to $6.36 per share
*Non-income producing
(See accompanying notes to financial statements)
5
*
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2003
BERKSHIRE
FOCUS FUND
ASSETS
- ---------------------------------------------------------------------
Investment securities:
At acquisition cost $ 32,128,745
=============
At market value $ 36,454,404
Receivable for capital shares sold 58,517
Receivable for securities sold 1,007,464
Interest receivable 4
-------------
TOTAL ASSETS 37,520,389
-------------
LIABILITIES
- ---------------------------------------------------------------------
Payable for capital shares redeemed 96,481
Payable for securities purchased 646,695
Payable to affiliates (Note 4) 63,422
Payable to custodian 56,182
Accrued expenses 795
-------------
TOTAL LIABILITIES 863,575
-------------
NET ASSETS $ 36,656,814
=====================================================================
Net assets consist of:
Paid-in-capital $ 456,479,604
Accumulated net realized losses
from security transactions (424,148,449)
Net unrealized appreciation on investments 4,325,659
-------------
NET ASSETS $ 36,656,814
=============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 5,766,858
=============
Net asset value, offering price and redemption
price per share $ 6.36
=============
(See accompanying notes to financial statements)
6
*
-------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2003
BERKSHIRE
FOCUS FUND
INVESTMENT INCOME
- ---------------------------------------------------------------------
Dividends $ 24,805
Interest 908
-------------
TOTAL INVESTMENT INCOME 25,713
-------------
EXPENSES
- ---------------------------------------------------------------------
Investment advisory fees 467,462
Administrative fees 155,820
Interest expense 3,226
-------------
TOTAL EXPENSES 626,508
-------------
NET INVESTMENT LOSS (600,795)
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
- ---------------------------------------------------------------------
Net realized gains from security transactions 3,443,973
Net change in unrealized appreciation on investments 11,705,033
------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 15,149,006
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 14,548,211
=============
(See accompanying notes to financial statements)
7
*
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS - BERKSHIRE FOCUS FUND
For the Years Ended December 31, 2003 and December 31, 2002
Year Year
Ended Ended
12/31/03 12/31/02
FROM OPERATIONS:
- ----------------------------------------------------------------------------------------------
Net investment loss $ (600,795) $ (846,237)
Net realized gains (losses) from security transactions 3,443,973 (49,694,504)
Net change in unrealized appreciation on investments 11,705,033 11,954,232
--------------------------------
Net increase (decrease) in net assets from operations 14,548,211 (38,586,509)
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
- ----------------------------------------------------------------------------------------------
Proceeds from shares sold 20,948,711 31,249,035
Payments for shares redeemed (21,329,303) (41,520,820)
--------------------------------
Net decrease in net assets from capital share transactions (380,592) (10,271,785)
--------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 14,167,619 (48,858,294)
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period 22,489,195 71,347,489
--------------------------------
End of period $ 36,656,814 $ 22,489,195
================================
Undistributed net investment income: $ 0 $ 0
================================
CAPITAL SHARE ACTIVITY:
- ----------------------------------------------------------------------------------------------
Shares sold 4,025,057 4,841,345
Shares redeemed (4,154,706) (6,606,631)
--------------------------------
Net decrease in shares outstanding (129,649) (1,765,286)
Shares outstanding, beginning of period 5,896,507 7,661,793
--------------------------------
Shares outstanding, end of period 5,766,858 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
Year Year Year Year Year
Ended Ended Ended Ended Ended
12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
NET ASSET VALUE,
BEGINNING OF PERIOD $ 3.81 $ 9.31 $ 33.45 $ 39.84 $ 16.44
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------
Net investment loss (0.10)(A) (0.14)(A) (0.31)(A) (0.40)(A) (0.31)
Net realized and unrealized gains
(losses) on investments 2.65 (5.36) (23.83) (5.99) 23.80
-------------------------------------------------------------------
Total from investment operations 2.55 (5.50) (24.14) (6.39) 23.49
-------------------------------------------------------------------
LESS DISTRIBUTIONS:
- ------------------------------------------------------------------------------------------------------------------
Dividends from net investment income 0.00 0.00 0.00 0.00 0.00
Distributions from net realized gains 0.00 0.00 0.00 0.00 (0.09)
-------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 (0.09)
-------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 6.36 $ 3.81 $ 9.31 $ 33.45 $ 39.84
==================================================================================================================
TOTAL RETURN 66.93% (59.08%) (72.17%) (16.04%) 142.90%
==================================================================================================================
SUPPLEMENTAL DATA AND RATIOS:
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period (thousands) $ 36,657 $ 22,489 $ 71,347 $ 279,607 $ 33,600
Ratio of expenses to average net assets 2.00%(E) 1.99%(D) 1.97%(C) 1.95%(B) 1.89%
Ratio of net investment loss
to average net assets (1.93%) (1.97%) (1.89%) (1.75%) (1.71%)
Portfolio turnover rate 251.1% 165.8% 222.7% 166.4% 155.5%
(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 ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 1.96%.
(C) For the year ended December 31, 2001 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 1.98%.
(D) For the year ended December 31, 2002 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.01%.
(E) For the year ended December 31, 2003 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.01%.
(See accompanying notes to financial statements)
9
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
1. Organization
The Berkshire 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 accounting principles generally accepted in the United States.
Security transactions - Security transactions are accounted for on the trade
date. Securities sold are determined on a specific identification basis.
10
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities 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.
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 - Accounting principles generally accepted in the United States require
that permanent financial reporting tax differences relating to shareholder
distributions be reclassified to paid-in-capital. As of December 31, 2003,
$600,795 has been reclassified from net investment loss to paid-in-capital.
3. Investment Transactions
Purchases and sales of investment securities (excluding short-term
instruments) for the year ended December 31, 2003 were $76,712,823 and
$77,893,182, respectively. There were no purchases or sales of U.S. Government
securities for the Fund.
The following information is based upon the federal income tax cost of
portfolio investments as of December 31, 2003:
Gross unrealized appreciation $ 4,400,648
Gross unrealized depreciation (1,064,350)
--------------------------------------------------
Net unrealized appreciation $ 3,336,298
==================================================
Federal income tax cost $ 33,118,106
The difference between the acquisition cost and the federal income tax cost
of portfolio investments is due to certain timing differences in the
recognition of capital losses under accounting principles generally accepted
in the United States and income tax regulations.
11
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2003
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, 2003, the Fund had the following capital loss carry-
forwards for tax purposes:
Capital Loss Carryforward Date of Expiration
----------------------------------------------------
$ 10,452,456 12/31/11
$ 56,400,653 12/31/10
$ 292,752,183 12/31/09
$ 63,553,796 12/31/08
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 year ended December 31, 2003, Berkshire
Capital was paid an investment advisory fee of $467,462 and an administration
fee of $155,820 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 December 31,
2003, National Financial Services Corp. and Charles Schwab & Co., Inc. were
record owners of 30.85% and 26.25%, 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
December 31, 2003
6. Distributions to Shareholders
There were no distributions paid during the fiscal year ended December 31,
2003. The tax character of distributions paid during the fiscal years 2003 and
2002 was as follows:
Distributions paid from: 2003 2002
---------------------------------------------
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, 2003, 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) (423,159,088)
Unrealized appreciation (depreciation) 3,336,298
- -----------------------------------------------------------------------------
Total accumulated earnings (deficit) $ (419,822,790)
=============================================================================
The difference between the acquisition cost and the federal income tax cost
of unrealized appreciation is due to certain timing differences in the
recognition of capital losses under accounting principles generally accepted
in the United States and income tax regulations.
13
*
-------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Trustees
The Berkshire Funds
San Jose, California
We have audited the accompanying statement of assets and liabilities of The
Berkshire Funds (comprised of the Berkshire Focus Fund), including the
schedule of portfolio investments, as of December 31, 2003, and the related
statement of operations for the year then ended, the statement of changes in
net assets for each of the two years in the period then ended and financial
highlights for each of the five years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of investments and cash held by the custodian
and brokers as of December 31, 2003 by correspondence with the custodian and
brokers. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of The
Berkshire Funds as of December 31, 2003, 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.
McCurdy & Associates CPA's, Inc.
Westlake, Ohio 44145
January 3, 2004
14
*
-------------------------------
ADDITIONAL INFORMATION
(unaudited)
Information about Trustees and Officers
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Trustees. Information pertaining to the Trustees and Officers
of the Fund is set forth below. The SAI includes additional information about
the Fund's Trustees and Officers and is available, without charge upon
request, by calling toll-free 1-877-526-0707.
INTERESTED TRUSTEES AND OFFICERS
- --------------------------------------------------------------------------------------------------------------
Number of
portfolios
Term of in fund Other
office and Principal complex directorships
Position(s) held length of occupation during overseen held by trustee
Name, address and age with trust time served past five years by trustee and officer
===================== =============== =========== ==================== ========== ===============
Malcolm R. Fobes III* Trustee, Indefinite; Chairman and CEO; 1 None
475 Milan Drive President, Since 1996 Berkshire Capital
Suite #103 Treasurer and Holdings, Inc.
San Jose, CA 95134 Chief Financial (1993-present)
Age: 39 Officer
Ronald G. Seger, O.D.* Trustee and Indefinite; Optometrist; 1 None
1150 West El Camino Real Secretary Since 1996 Ronald G. Seger, O.D.
Mountain View, CA 94040 (1989-present)
Age: 54
- --------------------------------------------------------------------------------------------------------------
*Trustees who are considered "interested persons" as defined in Section 2(a)(19)
of the Investment Company Act of 1940 by virtue of their affiliation with the Investment Adviser.
NON-INTERESTED TRUSTEES
- --------------------------------------------------------------------------------------------------------------
Number of
portfolios
Term of in fund
office and Principal complex Other
Position held length of occupation during overseen directorships
Name, address and age with trust time served past five years by trustee held by trustee
===================== =============== =========== ==================== ========== ===============
Leland F. Smith Independent Indefinite; Chairman and CEO; 1 None
P.O. Box 3539 Trustee Since 1997 Elesco Ltd.*
Sunriver, OR 97707 (1989-present)
Age: 65
Andrew W. Broer Independent Indefinite; Global Data Center 1 None
325 East Tasman Drive Trustee Since 1998 Manager;
San Jose, CA 95134 Cisco Systems, Inc.
Age: 38 (1996-present)
- --------------------------------------------------------------------------------------------------------------
*Elesco Ltd. provides consulting services for corporations and government agencies in the field of
land-use management.
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
The registrant has adopted a code of ethics that applies to the regis-
trant's principal executive officer and principal financial officer.
The registrant has not made any amendments to its code of ethics
during the covered period. The registrant has not granted any waivers
from any provisions of the code of ethics during the covered period.
A copy of the registrant's Code of Ethics is filed herewith.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The registrant's Board of Trustees has determined that it does not
have an audit committee financial expert serving on its audit comm-
ittee. At this time, the registrant believes that the experience
provided by each member of the audit committee together offers the
registrant adequate oversight for the registrant's level of financial
complexity.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The registrant has engaged its principal accountant to perform audit
services, audit-related services, tax services and other services
during the past two fiscal years. "Audit services" refer to performing
an audit of the registrant's annual financial statements or services
that are normally provided by the accountant in connection with stat-
utory and regulatory filings or engagements for those fiscal years.
"Audit-related services" refer to the assurance and related services
by the principal accountant that are reasonably related to the perfor-
mance of the audit. "Tax services" refer to professional services ren-
dered by the principal accountant for tax compliance, tax advice, and
tax planning. The following table details the aggregate fees billed
for each of the last two fiscal years for audit fees, audit-related
fees, tax fees and other fees by the principal accountant.
----------------------------------------------------------------------
FYE 12/31/2003 FYE 12/31/2002 # of Hours spent
in FYE 2003
----------------------------------------------------------------------
Audit Fees $13,519 $21,142 40
Audit-Related Fees $ 635 $ 645 3
Tax Fees $ 0 $ 160 1
All Other Fees $ 0 $ 0 0
----------------------------------------------------------------------
The audit committee has adopted pre-approval policies and procedures
that require the audit committee to pre-approve all audit and non-
audit services of the registrant, including services provided to any
entity affiliated with the registrant. All of the principal account-
ant's hours spent on auditing the registrant's financial statements
were attributed to work performed by full-time permanent employees of
the principal accountant.
The following table indicates the non-audit fees billed by the regis-
trant's accountant for services to the registrant and to the regis-
trant's investment adviser (and any other controlling entity, etc.
-not sub-adviser) for the last two years. The Audit Committee of the
Board of Trustees has considered whether the provision of non-audit
services that were rendered to the registrant's investment adviser is
compatible with maintaining the principal accountant's independence
and has concluded that the provision of such non-audit services by the
accountant has not compromised the accountant's independence.
----------------------------------------------------------------------
Non-Audit Related Fees FYE 12/31/2003 FYE 12/31/2002
----------------------------------------------------------------------
Registrant $0 $160
Registrant's Investment Adviser $0 $ 0
----------------------------------------------------------------------
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. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASES
Not applicable to open-end investment companies.
ITEM 9. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable for periods ending before January 1, 2004.
ITEM 10.CONTROLS AND PROCEDURES
(a) The Registrant's President and Treasurer has concluded that the Regis-
trant's disclosure controls and procedures (as defined in Rule 30a-3
(c) under the Investment Company Act of 1940 (the "Act")) are eff-
ective as of a date within 90 days of the filing date of the report
that includes the disclosure required by this paragraph, based on the
evaluation of these controls and procedures required by Rule 30a-3(b)
under the Act.
(b) There were no changes in the Registrant's internal control over fin-
ancial reporting (as defined in Rule 30a-3(d) under the Act) that occ-
urred during the Registrant's last fiscal half-year that has material-
ly affected, or is reasonably likely to materially affect, the regis-
trant's internal control over financial reporting.
ITEM 11.EXHIBITS
(a) ANY CODE OF ETHICS OR AMENDMENT THERETO.
Filed herewith.
(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: March 1, 2004
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: March 1, 2004
THE BERKSHIRE FUNDS
EXHIBIT INDEX FOR FORM N-CSR
AS FILED ON MARCH 1, 2004
EXHIBIT INDEX
A. Code of Ethics for Principal Executive
and Senior Financial Officers................................EX.99.CODE ETH
B. Certification....................................................EX.99.CERT
C. Certification pursuant to Section 906
of the Sarbanes-Oxley Act....................................EX.99.906.CERT