As filed with the Securities and Exchange Commission on February 25, 2005
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==============================================================================
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
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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
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Date of fiscal year end: December 31, 2004
Date of reporting period: December 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS
[GRAPHIC OMITTED]
THE BERKSHIRE FUNDS
2004 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.
*
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FUND OVERVIEW - BERKSHIRE FOCUS FUND
December 31, 2004
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 12/31/04)
- -------------------------------------------------------------------
1 Year 3 Year 5 Year Since Inception(1)
BERKSHIRE FOCUS FUND 3.62% -10.88% -30.22% -4.35%
- --------------------------------------------------------------------------------------
Dow Jones Industrial Average 5.31% 4.70% 0.68% 6.60%
S&P 500(R) Index 10.88% 3.58% -2.30% 5.84%
Nasdaq Composite Index 9.15% 4.20% -11.42% 6.02%
- --------------------------------------------------------------------------------------
NET ASSETS
- ------------------------------------------
12/31/04 $29.5 Million
NET ASSET VALUE
- ------------------------------------------
Net Asset Value Per Share $6.59
TOP TEN HOLDINGS(2)
- -------------------------------------------------
Apple Computer, Inc. 15.86%
Google, Inc. (Class A) 15.41%
eBay, Inc. 9.25%
Yahoo! Inc. 9.13%
TIBCO Software, Inc. 4.96%
Research In Motion Ltd. 4.94%
Overstock.com, Inc. 4.76%
XM Satellite Radio Hldg., Inc. (Class A) 4.63%
VeriSign, Inc. 4.29%
Websense, Inc. 4.15%
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 15,504 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 17,603 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 14,452 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
JUL-04 13,820 5,607
AUG-04 13,876 5,303
SEP-04 14,026 5,770
OCT-04 14,240 6,335
NOV-04 14,816 7,128
DEC-04 15,321 7,161
SECTOR ALLOCATION(4)
- ------------------------------------------
Internet Software & Services 44.98%
Computer Hardware 15.86%
Software 11.42%
Broadcast Services & Programming 8.24%
Semiconductors 7.85%
Communications Equipment 4.94%
Networking & Telecom Equipment 3.94%
Electronic Instruments & Controls 2.22%
Storage Devices 0.10%
(1) The Fund's inception date was July 1, 1997.
(2) Stated as a percentage of total net assets as of 12/31/04. 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.
(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 12/31/04. 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
12/31/2004
- ------------------------------------------------------------------------------
*
2
*
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LETTER TO THE SHAREHOLDERS
[PHOTO]
Dear Fellow Shareholders,
For the twelve month period ended December 31, 2004, the Berkshire Focus Fund
posted a total return of 3.62%. For comparative purposes, the Dow Jones Indus-
trial Average gained 5.31%, the S&P 500(R) Index increased 10.88%, and the
Nasdaq Composite Index advanced 9.15% 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 includes reinvested dividends but do
not reflect the impact of taxes.
After trading in a sideways motion for much of the first half of 2004, the
equity markets sagged in the third quarter as investors weighed mixed economic
news and disappointing earnings reports against a backdrop of record-breaking
oil prices, uncertainty over the upcoming presidential election and continued
hostilities in Iraq. This amalgam led to cautious consumer spending, partic-
ularly among the less affluent, causing retail sales to slow and contributing
to the "soft patch" that the economy experienced during the summer. Despite
this apparent pause in the recovery, however, the Federal Reserve signaled its
continued confidence in the economy by boosting interest rates 50 basis points
to 1.75% during the period. In the fourth quarter, the stock market reversed
course, staging a powerful rally that regained much of the ground lost in the
previous months. The quick, decisive resolution of the presidential election,
coupled with a drop in oil prices from their all-time highs, served as the
primary catalysts. In addition, signs of improvement in the labor market and a
rebound in consumer confidence after months of declines helped to jump-start
retail sales. This brightening economic picture was reflected in GDP growth of
4.4% for the calendar year 2004 - clocking in at its fastest clip since 1999.
The Federal Reserve, in turn, boosted interest rates another 50 basis points
to 2.25% to prevent the economy from overheating.
The Fund advanced against this backdrop led by our substantial investments in
the Internet Software & Services sector. Within this segment, Yahoo! (YHOO),
Google (GOOG) and eBay (EBAY) all posted outsized gains as the companies con-
tinued to demonstrate spectacular sales and earnings growth. Perhaps the
single best-performing investment for the Fund in 2004 was our top holding,
Apple Computer (AAPL). The company benefitted from explosive growth in demand
for its cultural phenomenon - the iPod MP3 player. Meanwhile, the Software
sector turned in a decidedly strong performance with our investments in TIBCO
Software (TIBX), Websense (WBSN) and F5 Networks (FFIV). Also giving a boost
to the portfolio were Marvell Technology (MRVL) and SigmaTel (SGTL) in the
Semiconductor sector. Finally, some new additions to the portfolio during the
second half of the year included InfoSpace (INSP), Overstock.com (OSTK),
VeriSign (VRSN), Research In Motion (RIMM), Sirius Satellite Radio (SIRI) and
XM Satellite Radio Holdings (XMSR).
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
*
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AUDITED FINANCIAL STATEMENTS
12/31/2004
- ------------------------------------------------------------------------------
*
4
*
-------------------------------
PORTFOLIO OF INVESTMENTS - BERKSHIRE FOCUS FUND
December 31, 2004
Shares Value
COMMON STOCKS - 99.55% $ 29,409,420
---------------------------------------------------------
(Cost $24,678,905)
BROADCAST SERVICES & PROGRAMMING - 8.24% 2,434,342
---------------------------------------------------------
139,785 Sirius Satellite Radio, Inc.* 1,065,162
36,395 XM Satellite Radio Holdings, Inc. (Class A)* 1,369,180
COMMUNICATIONS EQUIPMENT - 4.94% 1,460,070
---------------------------------------------------------
17,715 Research In Motion Ltd.* 1,460,070
COMPUTER HARDWARE - 15.86% 4,686,388
---------------------------------------------------------
72,770 Apple Computer, Inc.* 4,686,388
ELECTRONIC INSTRUMENTS & CONTROLS - 2.22% 655,024
---------------------------------------------------------
21,420 Synaptics, Inc.* 655,024
INTERNET SOFTWARE & SERVICES - 44.98% 13,287,609
---------------------------------------------------------
23,495 eBay, Inc.* 2,733,408
23,610 Google, Inc. (Class A)* 4,551,772
13,250 InfoSpace, Inc.* 630,037
20,375 Overstock.com, Inc.* 1,405,875
37,740 VeriSign, Inc.* 1,268,064
71,615 Yahoo! Inc.* 2,698,453
NETWORKING & TELECOM EQUIPMENT - 3.94% 1,163,732
---------------------------------------------------------
42,800 Juniper Networks, Inc.* 1,163,732
SEMICONDUCTORS - 7.85% 2,319,319
---------------------------------------------------------
33,310 Marvell Technology Group Ltd.* 1,181,506
13,020 PortalPlayer, Inc.* 321,334
22,980 SigmaTel, Inc.* 816,479
SOFTWARE - 11.42% 3,372,750
---------------------------------------------------------
12,755 F5 Networks, Inc.* 621,423
975 MicroStrategy, Inc. (Class A)* 58,744
109,870 TIBCO Software, Inc.* 1,465,666
24,190 Websense, Inc.* 1,226,917
STORAGE DEVICES - 0.10% 30,186
---------------------------------------------------------
2,030 EMC Corp.* 30,186
TOTAL INVESTMENT SECURITIES - 99.55% 24,409,420
---------------------------------------------------------
(Cost $24,678,905)
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.45% 132,998
---------------------------------------------------------
NET ASSETS - 100.00% $ 29,542,418
---------------------------------------------------------
Equivalent to $6.59 per share
*Non-income producing
(See accompanying notes to financial statements)
5
*
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
December 31, 2004
BERKSHIRE
FOCUS FUND
ASSETS
- ---------------------------------------------------------------------
Investment securities:
At acquisition cost $ 24,678,905
=============
At market value $ 29,409,420
Receivable for capital shares sold 1,643
Receivable for securities sold 1,126,193
Interest receivable 230
-------------
TOTAL ASSETS 30,537,486
-------------
LIABILITIES
- ---------------------------------------------------------------------
Payable for capital shares redeemed 106,898
Payable for securities purchased 452,898
Payable to affiliate (Note 4) 51,144
Payable to custodian 383,263
Accrued expenses 865
-------------
TOTAL LIABILITIES 995,068
-------------
NET ASSETS $ 29,542,418
=====================================================================
Net assets consist of:
Paid-in-capital $ 448,545,155
Accumulated net realized losses
from security transactions (423,733,252)
Net unrealized appreciation on investments 4,730,515
-------------
NET ASSETS $ 29,542,418
=============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, no par value) 4,486,173
=============
Net asset value, offering price and redemption
price per share $ 6.59
=============
(see accompanying notes to financial statements)
6
*
-------------------------------
STATEMENT OF OPERATIONS
For the Year Ended December 31, 2004
BERKSHIRE
FOCUS FUND
INVESTMENT INCOME
- ---------------------------------------------------------------------
Dividends $ 11,621
Interest 559
-------------
TOTAL INVESTMENT INCOME 12,180
-------------
EXPENSES
- ---------------------------------------------------------------------
Investment advisory fees 447,800
Administrative fees 149,266
Interest expense 5,189
-------------
TOTAL EXPENSES 602,255
-------------
NET INVESTMENT LOSS (590,075)
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED
GAINS ON INVESTMENTS
- ---------------------------------------------------------------------
Net realized gains from security transactions 415,197
Net change in unrealized appreciation on investments 404,856
------------
NET REALIZED AND UNREALIZED
GAINS ON INVESTMENTS 820,053
------------
NET INCREASE IN NET ASSETS
FROM OPERATIONS $ 229,978
=============
(see accompanying notes to financial statements)
7
*
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS - BERKSHIRE FOCUS FUND
For the Years Ended December 31, 2004 and December 31, 2003
Year Year
Ended Ended
12/31/04 12/31/03
FROM OPERATIONS:
- ----------------------------------------------------------------------------------------------
Net investment loss $ (590,075) $ (600,795)
Net realized gains from security transactions 415,197 3,443,973
Net change in unrealized appreciation on investments 404,856 11,705,033
--------------------------------
Net increase in net assets from operations 229,978 14,548,211
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
- ----------------------------------------------------------------------------------------------
Proceeds from shares sold 10,026,083 20,948,711
Payments for shares redeemed (17,370,457) (21,329,303)
--------------------------------
Net decrease in net assets from capital share transactions (7,344,374) (380,592)
--------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (7,114,396) 14,167,619
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period 36,656,814 22,489,195
--------------------------------
End of period $ 29,542,418 $ 36,656,814
================================
Including accumulated undistributed
net investment income: $ 0 $ 0
================================
CAPITAL SHARE ACTIVITY:
- ----------------------------------------------------------------------------------------------
Shares sold 1,559,871 4,025,057
Shares redeemed (2,840,556) (4,154,706)
--------------------------------
Net decrease in shares outstanding (1,280,685) (129,649)
Shares outstanding, beginning of period 5,766,858 5,896,507
--------------------------------
Shares outstanding, end of period 4,486,173 5,766,858
================================
(see accompanying notes to financial statements)
8
*
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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
12/31/04 12/31/03 12/31/02 12/31/01 12/31/00
NET ASSET VALUE,
BEGINNING OF PERIOD $ 6.36 $ 3.81 $ 9.31 $ 33.45 $ 39.84
- -------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- -------------------------------------------------------------------------------------------------------------
Net investment loss (0.13)(A) (0.10)(A) (0.14)(A) (0.31)(A) (0.40)(A)
Net realized and unrealized gains
(losses) on investments 0.36 2.65 (5.36) (23.83) (5.99)
-----------------------------------------------------------------
Total from investment operations 0.23 2.55 (5.50) (24.14) (6.39)
-----------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 6.59 $ 6.36 $ 3.81 $ 9.31 $ 33.45
=============================================================================================================
TOTAL RETURN(B) 3.62% 66.93% (59.08%) (72.17%) (16.04%)
=============================================================================================================
SUPPLEMENTAL DATA AND RATIOS:
- -------------------------------------------------------------------------------------------------------------
Net assets at end of period (thousands) $ 29,542 $ 36,657 $ 22,489 $ 71,347 $ 279,607
Ratio of expenses to average net assets 2.00%(G) 2.00%(F) 1.99%(E) 1.97%(D) 1.95%(C)
Ratio of net investment loss
to average net assets (1.98%) (1.93%) (1.97%) (1.89%) (1.75%)
Portfolio turnover rate(H) 316.5% 251.1% 165.8% 222.7% 166.4%
(A) Net investment loss per share is calculated using ending balances prior to consideration
or adjustment for permanent book and tax differences.
(B) Total return represents the rate that the investor would have earned or (lost) on an
investment in the Fund assuming reinvestment of dividends.
(C) 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%.
(D) 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%.
(E) 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%.
(F) 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%.
(G) For the year ended December 31, 2004 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.02%.
(H) Portfolio turnover is greater than most funds due to the investment style of the Fund.
(see accompanying notes to financial statements)
9
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
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. Distributions to shareholders are recorded on the
ex-dividend date. 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, 2004
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. Accordingly, at December 31,
2004, $(590,075) has been reclassified from net investment loss to paid-in-
capital.
3. Investment Transactions
Purchases and sales of investment securities (excluding short-term instru-
ments) for the year ended December 31, 2004 were $95,174,543 and $103,039,580,
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 port-
folio investments as of December 31, 2004:
Gross unrealized appreciation $ 5,094,687
Gross unrealized depreciation (395,956)
--------------------------------------------------
Net unrealized appreciation $ 4,698,731
==================================================
Federal income tax cost $ 24,710,689
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, 2004
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, 2004, the Fund had the following capital loss carry-
forwards for tax purposes:
Capital Loss Carryforward Date of Expiration
----------------------------------------------------
$ 542,380 12/31/12
$ 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 non-interested
Trustees of the Fund were paid $1,348 in Trustee fees and expenses directly by
Berkshire Capital during the year ended December 31, 2004.
The Fund has an Investment Advisory Agreement (the "Advisory Agreement") and
a separate Administration Agreement with Berkshire Capital. Under the Advisory
Agreement, Berkshire Capital will determine what securities will be purchased,
retained or sold by the Fund on the basis of a continuous review of the port-
folio. For the services it provides under the 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 renders all adminis-
trative and supervisory services of the Fund, as well as facilities furnished
and expenses assumed. For these services, Berkshire Capital receives a fee 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, 2004, Berkshire Capital was paid an investment
advisory fee of $447,800 and an administration fee of $149,266 from the Fund.
The amount due to Berkshire Capital for these fees at December 31, 2004 total-
ed $51,144.
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,
2004, Charles Schwab & Co., Inc. and National Financial Services Corp. were
record owners of 26.76% and 26.07%, respectively of the Fund. As a record own-
er of more than 25% of the voting securities of a fund, there is not necessar-
ily a presumption of control of the fund.
12
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
6. Distributions to Shareholders
There were no distributions paid during the years ended December 31, 2004 and
December 31, 2003. As of December 31, 2004, 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) (423,701,468)
Unrealized appreciation (depreciation) 4,968,731
- -----------------------------------------------------------------------------
Total accumulated earnings (deficit) $ (418,732,737)
=============================================================================
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. Change of Accountants
On February 6, 2004, McCurdy & Associates CPA's, Inc. ("McCurdy") notified the
Fund of its intention to resign as the Fund's independent auditors upon
selection of replacement auditors.
On March 8, 2004, the Fund's Audit Committee and Board of Trustees selected
Cohen McCurdy, Ltd. ("Cohen") to replace McCurdy as the Fund's auditors for
the fiscal year ending December 31, 2004, to be effective upon the resignation
of McCurdy.
On March 23, 2004, upon receipt of notice that Cohen was selected as the
Fund's auditor, McCurdy, whose audit practice was acquired by Cohen, resigned
as independent auditors to the Fund. McCurdy's report dated January 3, 2004 on
The Berkshire Focus Fund's financial statements for the fiscal year ended
December 31, 2003 contained no adverse opinion or disclaimer of opinion nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles. During the period January 3, 2004 through the date of engagement
of Cohen, there were no disagreements with McCurdy on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure which, if not resolved to the satisfaction of McCurdy would have
caused McCurdy to make reference to the subject matter of the disagreements
in connection with its report on the Fund's financial statements for such
period.
Neither the Fund nor anyone on its behalf consulted with Cohen on items which
(i) concerned the application of accounting principles to a specified trans-
action, either completed or proposed, or the type of audit opinion that might
be rendered on the Fund's financial statements or (ii) concerned the subject
of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regula-
tion S-K) or a reportable event (as described in paragraph (a)(1)(v) of said
Item 304).
13
*
-------------------------------------------------
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees
The Berkshire Funds
San Jose, California
We have audited the accompanying statements of assets and liabilities of The
Berkshire Funds (comprised of the Berkshire Focus Fund), including the sche-
dule of portfolio investments, as of December 31, 2004, the related statements
of operations, changes in net assets, and the financial highlights for the
year then ended. These financial statements and financial highlights are the
responsibility of The Berkshire Funds' management. Our responsibility is to
express an opinion on these financial statements and financial highlights
based on our audit. The statement of changes in net assets for the year ended
December 31, 2003 and the financial highlights for the periods indicated prior
to December 31, 2004 were audited by McCurdy & Associates CPA's, Inc., whose
audit practice was acquired by Cohen McCurdy, Ltd. McCurdy & Associates CPA's,
Inc. expressed unqualified opinions on those statements.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 misstate-
ment. 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 as of December 31, 2004 by corres-
pondence 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 audit provides 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, 2004, the results of its operations,
changes in its net assets, and the financial highlights for the year then
ended in conformity with accounting principles generally accepted in the
United States of America.
Cohen McCurdy, Ltd.
Westlake, Ohio
February 14, 2005
14
*
-------------------------------
ADDITIONAL INFORMATION
(unaudited)
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, and (2) ongoing costs, including advisory fees, administrative fees and
interest expense. This Example is intended to help you understand your ongoing
costs (in dollars) of investing in the Fund and to compare these costs with
the ongoing costs of investing in other mutual funds. The Example is based on
an investment of $1,000 invested in the Fund on July 1, 2004 and held through
December 31, 2004.
Actual Expenses
The first line of the table on the following page provides information about
actual account values and actual expenses. Although the Fund charges no sales
load or transaction fees, you will be assessed fees for outgoing wire trans-
fers, returned checks and stop payment orders at prevailing rates charged by
Mutual Shareholder Services, LLC, the Fund's transfer agent. If you request
that a redemption be made by wire transfer, currently a $20.00 fee is charged
by the Fund's transfer agent. IRA accounts will be charged an $8.00 annual
maintenance fee. To the extent the Fund invests in shares of other investment
companies as part of its investment strategy, you will indirectly bear your
proportionate share of any fees and expenses charged by the underlying funds
in which the Fund invests in addition to the expenses of the Fund. Actual
expenses of the underlying funds are expected to vary among the various
underlying funds. These expenses are not included in the example. The example
includes advisory fees, administrative fees and interest expense. However, the
example does not include portfolio trading commissions and related expenses
and other extraordinary expenses as determined under generally accepted
accounting principles. You may use the information in this line, together with
the amount you invested, to estimate the expenses that you paid over the per-
iod. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The second line of the table provides information about hypothetical account
values and hypothetical expenses based on the Fund's actual expense ratio and
an assumed rate of return of 5% per year before expenses, which is not the
Fund's actual return. The hypothetical account values and expenses may not be
used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of in-
vesting in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5%
15
*
-------------------------------
ADDITIONAL INFORMATION
(unaudited)
hypothetical examples that appear in the shareholder reports of the other
funds. Please note that the expenses shown in the table are meant to highlight
your ongoing costs only and do not reflect any transactional costs. Therefore,
the second line of the table is useful in comparing ongoing costs only, and
will not help you determine the relative total costs of owning different
funds. In addition, if these transactional costs were included, your costs
would have been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value July 1, 2004 to
July 1, 2004 December 31, 2004 December 31, 2004
------------ ----------------- -----------------
Actual $1,000.00 $1,049.40 $10.43
Hypothetical $1,000.00 $1,014.95 $10.26
(5% annual return
before expenses)
*Expenses are equal to the Fund's annualized expense ratio of 2.02%,
multiplied by the average account value over the period, multiplied by 184/366
to reflect the one-half year period.
OTHER INFORMATION
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 and a record of the Fund's proxy votes for the twelve
months ended June 30, 2004 are available without charge, upon request, by
calling toll free 1-877-526-0707. They are also available on the Securities
and Exchange Commission's ("SEC") Website at http://www.sec.gov.
Quarterly Filing of Portfolio Holdings
The Fund files its complete schedule of portfolio holdings with the SEC for
the first and third quarters of each fiscal year on Form N-Q. The Fund's Forms
N-Q are available on the SEC's Website at http://www.sec.gov. The Fund's Forms
N-Q may also be reviewed and copied at the SEC's Public Reference Room in
Washington, DC. Information on the operation of the Public Reference Room may
be obtained by calling 1-800-SEC-0330.
16
*
-------------------------------
ADDITIONAL INFORMATION
(unaudited)
TRUSTEE AND OFFICER INFORMATION
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, Holdings, Inc.
San Jose, CA 95134 Chief Compliance (1993-present)
Age: 40 Officer and
Chief Financial
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: 55
- --------------------------------------------------------------------------------------------------------------
*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: 66
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: 39 (1996-present)
- --------------------------------------------------------------------------------------------------------------
*Elesco Ltd. provides consulting services for corporations and government agencies in the field of
land-use management.
17
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.
826 Westpoint Parkway
Suite #1250
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
WEBSITE
www.berkshirefunds.com
ITEM 2. CODE OF ETHICS
The registrant has adopted a code of ethics that applies to the reg-
istrant's principal executive officer and principal financial off-
icer. The registrant has not made any amendments to its code of
ethics during the period covered by this report. The registrant has
not granted any waivers from any provisions of the code of ethics
during the period covered by this report.
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 commit-
tee. At this time, the registrant believes that the experience pro-
vided 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 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 connec-
tion with statutory and regulatory filings or engagements for those
fiscal years. The following table details the aggregate fees billed
for each of the last two fiscal years for audit fees by the principal
accountant.
---------------------------------------------------------------------
FYE 12/31/2004 FYE 12/31/2003
---------------------------------------------------------------------
Audit Fees $15,554 $14,913
---------------------------------------------------------------------
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 for the last two years. The audit commit-
tee 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 12/31/2004 FYE 12/31/2003
---------------------------------------------------------------------
Registrant $0 $0
Registrant's Investment Adviser $0 $0
---------------------------------------------------------------------
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable to open-end investment companies.
ITEM 6. SCHEDULE OF INVESTMENTS
Schedule of Investments is included as part of the report to share-
holders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES
Not applicable to open-end investment companies.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable to open-end investment companies.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS
Not applicable to open-end investment companies.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 11. CONTROLS AND PROCEDURES
(a) The Registrant's President, Treasurer and Chief Financial Officer
has concluded that the Registrant's disclosure controls and pro-
cedures (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 dis-
closure 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
controls over financial reporting that occurred during the Regis-
trant'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 12. EXHIBITS
(a) (1) Any code of ethics or amendment thereto that is the subject
of the disclosure required by Item 2, to the extent that the
registrant intends to satisfy Item 2 requirements through
filing an exhibit. Incorporated by reference to the Regis-
trant's Form N-CSR filed March 1, 2004.
(2) Certifications 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 report 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: February 25, 2005
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: February 25, 2005
THE BERKSHIRE FUNDS
EXHIBIT INDEX FOR FORM N-CSR
AS FILED ON FEBRUARY 25, 2005
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