As filed with the Securities and Exchange Commission on September 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, 2004
Date of reporting period: June 30, 2004
ITEM 1. REPORT TO STOCKHOLDERS
[GRAPHIC OMITTED]
THE BERKSHIRE FUNDS
2004 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(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: "Undulating road through autumnal forest"
*
-------------------------------
FUND OVERVIEW - BERKSHIRE FOCUS FUND
June 30, 2004 (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 6/30/04)
- -------------------------------------------------------------------
YTD(1) 1 Year 3 Year 5 Year Since Inception(2)
BERKSHIRE FOCUS FUND -1.26% 22.90% -25.41% -21.60% -5.31%
- --------------------------------------------------------------------------------------
Dow Jones Industrial Average 0.80% 18.63% 1.92% 0.90% 6.43%
S&P 500 (R) Index 3.44% 19.11% -0.69% -2.20% 5.23%
NASDAQ Composite Index 2.43% 26.79% -1.35% -4.94% 5.51%
- --------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------
6/30/04 $30.2 Million
NET ASSET VALUE
- ------------------------------------------
Net Asset Value Per Share $6.28
TOP TEN HOLDINGS(3)
- ------------------------------------------
Yahoo! Inc. 15.09%
Nortel Networks Corp. 9.78%
Broadcom Corp., (Class A) 6.63%
Juniper Networks, Inc. 5.87%
Microsoft Corp. 4.98%
Amazon.com, Inc. 4.81%
eBay, Inc. 4.48%
JDS Uniphase Corp. 4.45%
Ask Jeeves, Inc. 4.30%
Applied Micro Circuits Corp. 4.26%
GROWTH OF $10,000(4)
- ---------------------------------------------
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 23,741
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 60,273
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 13,398
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 5,140
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
JAN-04 14,071 7,552
FEB-04 14,267 7,291
MAR-04 14,052 6,791
APR-04 13,831 5,726
MAY-04 14,021 6,346
JUN-04 14,294 6,824
SECTOR ALLOCATION(5)
- ------------------------------------------
Internet Software & Services 38.07%
Semiconductors 23.12%
Networking & Telecom Equipment 17.57%
Software 8.97%
Fiber Optics 6.94%
Storage Devices 3.20%
Computer Hardware 1.90%
(1) Not annualized for periods of less than one full year.
(2) The Fund's inception date was July 1, 1997.
(3) Stated as a percentage of total net assets as of 6/30/04. 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 6/30/04. 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
*
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BERKSHIRE FOCUS FUND
Performance and Portfolio Discussion
6/30/2004
- ------------------------------------------------------------------------------
*
2
*
-------------------------------
LETTER TO THE SHAREHOLDERS
[PHOTO]
Dear Fellow Shareholders,
For the six month period ended June 30, 2004, the Berkshire Focus Fund posted
a total return of -1.26%. For comparative purposes, the Dow Jones Industrial
Average edged up 0.80%, the S&P 500 Index increased 3.44%, and the Nasdaq
Composite Index advanced 2.43% over the same period. Please see the Fund
Overview section and the accompanying financial statements for the Fund's
longer-term performance. All return data include reinvested dividends but do
not reflect the impact of taxes.
As we entered the new year, the markets saw a continuation of the powerful
rally in technology stocks that began back in March of 2003. The middle of
January, however, marked the peak of the technology-laden Nasdaq Composite
Index as investors began to grapple with the uncertainty surrounding the
timing and magnitude of interest rate hikes by the Federal Reserve. In
addition, escalating violence in Iraq against U.S. military and civilian
targets were cause for further concern. Not surprisingly, the equity markets
struggled to maintain their footing throughout the period while investors
weighed generally positive economic news and strong corporate profits against
the specter of rising interest rates and interminable geopolitical unrest. The
second quarter of 2004 began much in the same way as it did in January - a
modest rally based on improving investor sentiment. The rally was short-lived
though, as new concerns began to emerge about the threat of inflation,
record-breaking oil prices and uncertainty over the upcoming U.S. President-
ial election. Against this harsh backdrop, confidence in the markets continued
to erode - sending technology stocks into another tailspin. By the end of the
quarter, the Fed raised interest rates by 25 basis points and the major stock
indices rebounded sharply to finish with modest positive returns.
Turning to the portfolio, the most important theme of the Fund for 2004 was
overweighting our investments in companies having long-term growth potential
as opposed to owning businesses most levered to an improving economy. Using
this criteria as our guide, Internet Software & Services was the Fund's most
heavily-weighted sector. Within this segment, Yahoo! (YHOO) and eBay (EBAY)
posted outsized gains as they continued to benefit from the tremendous growth
of the Internet. Also giving a boost to the portfolio on much stronger-than-
expected earnings results was Juniper Networks (JNPR) in the Networking & Tel-
ecom Equipment sector. The Semiconductor sector, meanwhile, turned in a
decidedly mixed performance with Broadcom (BRCM) and Marvell Technology (MRVL)
posting stellar returns. In contrast, PMC-Sierra (PMCS) was punished due to
deteriorating fundamentals. Finally, some new additions to the portfolio
during the first half of the year included Apple Computer (AAPL), Ask Jeeves
(ASKJ), Microsoft (MSFT) and Red Hat (RHAT).
As always, we thank you for your confidence and continued investment in the
Berkshire Funds.
/s/ Malcolm R. Fobes III
Malcolm R. Fobes III
Chairman & Chief Executive Officer
3
*
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
(unaudited)
6/30/2004
- ------------------------------------------------------------------------------
*
4
*
-------------------------------
PORTFOLIO OF INVESTMENTS - BERKSHIRE FOCUS FUND
June 30, 2004 (unaudited)
Shares Value
COMMON STOCKS - 99.77% $ 30,157,516
---------------------------------------------------------
(Cost $29,717,225)
COMPUTER HARDWARE - 1.90% 574,331
---------------------------------------------------------
17,650 Apple Computer, Inc.* 574,331
FIBER OPTICS - 6.94% 2,098,033
---------------------------------------------------------
57,625 Corning, Inc.* 752,583
355,000 JDS Uniphase Corp.* 1,345,450
INTERNET SOFTWARE & SERVICES - 38.07% 11,505,889
---------------------------------------------------------
65,485 Akamai Technologies, Inc.* 1,175,456
26,725 Amazon.com, Inc.* 1,453,840
33,300 Ask Jeeves, Inc.* 1,299,699
14,735 eBay, Inc.* 1,354,883
26,270 Netflix, Inc.* 945,720
21,690 SINA Corp.* 715,553
125,295 Yahoo! Inc.* 4,560,738
NETWORKING & TELECOM EQUIPMENT - 17.57% 5,311,292
---------------------------------------------------------
36,750 Avaya, Inc.* 580,282
72,250 Juniper Networks, Inc.* 1,775,183
592,350 Nortel Networks Corp.* 2,955,827
SEMICONDUCTORS - 23.12% 6,987,777
---------------------------------------------------------
17,880 Analog Devices, Inc. 841,790
242,025 Applied Micro Circuits Corp.* 1,287,573
43,010 Broadcom Corp., (Class A)* 2,004,266
42,360 Marvell Technology Group Ltd.* 1,131,012
24,200 National Semiconductor Corp.* 532,158
82,995 PMC-Sierra, Inc.* 1,190,978
SOFTWARE - 8.97% 2,712,049
---------------------------------------------------------
52,655 Microsoft Corp. 1,503,827
52,600 Red Hat, Inc.* 1,208,222
STORAGE DEVICES - 3.20% 968,145
---------------------------------------------------------
84,925 EMC Corp.* 968,145
CASH EQUIVALENTS - 0.24% 72,571
---------------------------------------------------------
72,571 First American Treasury Obligations Fund 72,571
TOTAL INVESTMENT SECURITIES - 100.01% 30,230,087
---------------------------------------------------------
(Cost $29,789,796)
LIABILITIES IN EXCESS OF OTHER ASSETS - (0.01%) (3,362)
---------------------------------------------------------
NET ASSETS - 100.00% $ 30,226,725
---------------------------------------------------------
Equivalent to $6.28 per share
*Non-income producing
(see accompanying notes to financial statements)
5
*
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2004 (unaudited)
BERKSHIRE
FOCUS FUND
ASSETS
- ---------------------------------------------------------------------
Investment securities:
At acquisition cost $ 29,789,796
=============
At market value $ 30,230,087
Receivable for capital shares sold 77,768
Receivable for securities sold 1,489,838
Interest receivable 1,752
-------------
TOTAL ASSETS 31,799,445
-------------
LIABILITIES
- ---------------------------------------------------------------------
Payable for capital shares redeemed 101,653
Payable for securities purchased 1,423,291
Payable to affiliates (Note 4) 46,816
Accrued expenses 960
-------------
TOTAL LIABILITIES 1,572,720
-------------
NET ASSETS $ 30,226,725
=====================================================================
Net assets consist of:
Paid-in-capital $ 450,806,838
Accumulated net investment loss (329,455)
Accumulated net realized losses
from security transactions (420,690,949)
Net unrealized appreciation on investments 440,291
-------------
NET ASSETS $ 30,226,725
=============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 4,809,529
=============
Net asset value, offering price and redemption
price per share $ 6.28
=============
(see accompanying notes to financial statements)
6
*
-------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2004 (unaudited)
BERKSHIRE
FOCUS FUND
INVESTMENT INCOME
- ---------------------------------------------------------------------
Dividends $ 11,621
Interest 126
-------------
TOTAL INVESTMENT INCOME 11,747
-------------
EXPENSES
- ---------------------------------------------------------------------
Investment advisory fees 253,033
Administrative fees 84,344
Interest expense 3,825
-------------
TOTAL EXPENSES 341,202
-------------
NET INVESTMENT LOSS (329,455)
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS (LOSSES) ON INVESTMENTS
- ---------------------------------------------------------------------
Net realized gains from security transactions 3,457,500
Net change in unrealized depreciation on investments (3,885,368)
------------
NET REALIZED AND UNREALIZED
LOSS ON INVESTMENTS (427,868)
------------
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (757,323)
=============
(see accompanying notes to financial statements)
7
*
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS - BERKSHIRE FOCUS FUND
For the Periods Ended June 30, 2004 (unaudited) and December 31, 2003
Six Months Year
Ended Ended
6/30/04 12/31/03
FROM OPERATIONS:
- ----------------------------------------------------------------------------------------------
Net investment loss $ (329,455) $ (600,795)
Net realized gains from security transactions 3,457,500 3,443,973
Net change in unrealized appreciation
(depreciation) on investments (3,885,368) 11,705,033
--------------------------------
Net increase (decrease) in net assets from operations (757,323) 14,548,211
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
- ----------------------------------------------------------------------------------------------
Proceeds from shares sold 5,487,421 20,948,711
Payments for shares redeemed (11,160,187) (21,329,303)
--------------------------------
Net decrease in net assets from capital share transactions (5,672,766) (380,592)
--------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (6,430,089) 14,167,619
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period 36,656,814 22,489,195
--------------------------------
End of period $ 30,226,725 $ 36,656,814
================================
Undistributed net investment income (loss): $ (329,455) $ 0
================================
CAPITAL SHARE ACTIVITY:
- ----------------------------------------------------------------------------------------------
Shares sold 812,842 4,025,057
Shares redeemed (1,770,171) (4,154,706)
--------------------------------
Net decrease in shares outstanding (957,329) (129,649)
Shares outstanding, beginning of period 5,766,858 5,896,507
--------------------------------
Shares outstanding, end of period 4,809,529 5,766,858
================================
(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
6/30/04 12/31/03 12/31/02 12/31/01 12/31/00 12/31/99
(unaudited)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.36 $ 3.81 $ 9.31 $ 33.45 $ 39.84 $ 16.44
- ------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- ------------------------------------------------------------------------------------------------------------------
Net investment loss (0.07)(A) (0.10)(A) (0.14)(A) (0.31)(A) (0.40)(A) (0.31)
Net realized and unrealized gains
(losses) on investments (0.01) 2.65 (5.36) (23.83) (5.99) 23.80
----------------------------------------------------------------------
Total from investment operations (0.08) 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 0.00
Distributions from net realized gains 0.00 0.00 0.00 0.00 0.00 (0.09)
----------------------------------------------------------------------
Total distributions 0.00 0.00 0.00 0.00 0.00 (0.09)
----------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 6.28 $ 6.36 $ 3.81 $ 9.31 $ 33.45 $ 39.84
==================================================================================================================
TOTAL RETURN (1.26%)(H) 66.93% (59.08%) (72.17%) (16.04%) 142.90%
==================================================================================================================
SUPPLEMENTAL DATA AND RATIOS:
- ------------------------------------------------------------------------------------------------------------------
Net assets at end of period (thousands) $ 30,227 $ 36,657 $ 22,489 $ 71,347 $ 279,607 $ 33,600
Ratio of expenses to average net assets 2.00%(F) 2.00%(E) 1.99%(D) 1.97%(C) 1.95%(B) 1.89%
Ratio of net investment loss
to average net assets (1.95%) (1.93%) (1.97%) (1.89%) (1.75%) (1.71%)
Portfolio turnover rate(G) 170.8%(H) 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%.
(F) For the six months ended June 30, 2004 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.02%.
(G) Portfolio turnover is greater than most funds due to the investment style of the Fund.
(H) Not annualized for periods of less than one full year.
(see accompanying notes to financial statements)
9
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2004 (unaudited)
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
June 30, 2004 (unaudited)
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.
3. Investment Transactions
Purchases and sales of investment securities (excluding short-term
instruments) for the six months ended June 30, 2004 were $57,526,640 and
$63,395,660, respectively. There were no purchases or sales of U.S. Govern-
ment securities for the Fund.
The following information is based upon the federal income tax cost of port-
folio 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
June 30, 2004 (unaudited)
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 six months ended June 30, 2004, Berkshire
Capital was paid an investment advisory fee of $253,033 and an administration
fee of $84,344 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, 2004,
National Financial Services Corp. and Charles Schwab & Co., Inc. were record
owners of 26.81% and 26.67%, 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, 2004 (unaudited)
6. Distributions to Shareholders
There were no distributions paid during the six months ended June 30, 2004 and
the year ended December 31, 2003.
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.
7. Proxy Voting Guidelines
Berkshire Capital Holdings, Inc., the Fund's Adviser, is responsible for exer-
cising the voting rights associated with the securities held by the Fund. A
description of the policies and procedures used by the Adviser in fulfilling
this responsibility is available without charge, upon request, by calling toll
free 1-877-526-0707. It is also included in the Fund's Statement of Additional
Information, which is available on the SEC's website at www.sec.gov.
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
Cohen McCurdy, Ltd.
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. SCHEDULE OF INVESTMENTS
Not applicable for periods ending before July 9, 2004.
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.
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 "1940 Act") are
effective 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 1940 Act and Rules 15d-15(b) under the Securities Exchange
Act of 1934, as amended.
(b) There were no significant changes in the Registrant's internal con-
trols over financial reporting that occurred during the Registrant's
last fiscal half-year that has materially affected, or is reasonably
likely to materially affect, the Registrant's internal control over
financial reporting.
ITEM 11.EXHIBITS
(a) (1) ANY CODE OF ETHICS OR AMENDMENT THERETO, THAT IS SUBJECT OF THE
DISCLOSURE REQUIRED BY ITEM 2, TO THE EXTENT THAT THE REGISTRANT
INTENDS TO SATISFY ITEM 2 REQUIREMENTS THROUGH FILING AN EXHIBIT.
Not applicable.
(2) CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
OF 2002.
Filed herewith.
(3) ANY WRITTEN SOLICITATION TO PURCHASE SECURITIES UNDER RULE 23C-1
UNDER THE ACT SENT OR GIVEN DURING THE PERIOD COVERED BY THE RE-
PORT BY OR ON BEHALF OF THE REGISTRANT TO 10 OR MORE PERSONS.
Not applicable to open-end investment companies.
(b) CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF
2002.
Furnished herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934
and the Investment Company Act of 1940, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly author-
ized.
The Berkshire Funds
By: /s/ Malcolm R. Fobes III
--------------------
Malcolm R. Fobes III
President, Treasurer and Chief Financial Officer
Date: September 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 person on behalf of the registrant and in the capacities and on
the date indicated.
By: /s/ Malcolm R. Fobes III
--------------------
Malcolm R. Fobes III
President, Treasurer and Chief Financial Officer
Date: September 1, 2004
THE BERKSHIRE FUNDS
EXHIBIT INDEX FOR FORM N-CSR
AS FILED ON SEPTEMBER 1, 2004
EXHIBIT INDEX
A. Certification pursuant to Section 302
of the Sarbanes-Oxley Act of 2002................................EX.99.CERT
B. Certification pursuant to Section 906
of the Sarbanes-Oxley Act of 2002............................EX.99.906.CERT