As filed with the Securities and Exchange Commission on September 8, 2008
- ------------------------------------------------------------------------------
==============================================================================
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, 2008
Date of reporting period: June 30, 2008
[GRAPHIC OMITTED]
THE BERKSHIRE FUNDS
2008 Semi-Annual Report
This report is provided for the general information of the 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.
*
-------------------------------
FUND OVERVIEW - BERKSHIRE FOCUS FUND
June 30, 2008 (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 6/30/08)
- -------------------------------------------------------------------
YTD(1) 1 Year 3 Year 5 Year 10 Year Since Inception(2)
BERKSHIRE FOCUS FUND -22.12% 2.02% 12.77% 10.95% -2.10% -0.63%
- -----------------------------------------------------------------------------------------
Dow Jones Industrial Average -13.38% -13.27% 5.82% 7.18% 4.51% 5.73%
S&P 500(R) Index -11.91% -13.12% 4.40% 7.57% 2.88% 5.10%
Nasdaq Composite Index -13.18% -11.19% 4.51% 7.90% 2.45% 4.83%
- -----------------------------------------------------------------------------------------
NET ASSETS
- ---------------------------------------
6/30/08 $16.9 Million
NET ASSET VALUE
- ---------------------------------------
Net Asset Value Per Share $8.59
TOP TEN HOLDINGS(3)
- -------------------------------------------------
Apple, Inc. 22.23%
Research In Motion Ltd. 14.27%
Google, Inc. (Class A) 12.92%
Broadcom Corp. (Class A) 4.90%
First Solar, Inc. 4.89%
Marvell Technology Group Ltd. 4.88%
Skyworks Solutions, Inc. 4.81%
QUALCOMM, Inc. 4.78%
Salesforce.com, Inc. 4.73%
Baidu.com, Inc. ADR 4.52%
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 10,796 10,000
AUG-97 10,191 9,950
SEP-97 10,749 10,050
OCT-97 10,390 9,500
NOV-97 10,871 9,510
DEC-97 11,058 8,738
JAN-98 11,180 9,699
FEB-98 11,986 10,174
MAR-98 12,600 10,174
APR-98 12,727 10,346
MAY-98 12,508 10,043
JUN-98 13,016 11,539
JUL-98 12,878 11,560
AUG-98 11,016 9,314
SEP-98 11,722 11,287
OCT-98 12,675 11,620
NOV-98 13,443 14,078
DEC-98 14,218 17,822
JAN-99 14,812 20,835
FEB-99 14,352 19,177
MAR-99 14,926 22,776
APR-99 15,504 23,741
MAY-99 15,138 20,976
JUN-99 15,978 23,036
JUL-99 15,480 21,735
AUG-99 15,403 24,001
SEP-99 14,981 24,749
OCT-99 15,929 26,884
NOV-99 16,253 31,405
DEC-99 17,210 43,289
JAN-00 16,346 44,376
FEB-00 16,036 62,228
MAR-00 17,605 60,273
APR-00 17,075 53,253
MAY-00 16,725 45,712
JUN-00 17,137 56,317
JUL-00 16,869 57,013
AUG-00 17,917 71,627
SEP-00 16,971 67,248
OCT-00 16,900 56,719
NOV-00 15,567 36,118
DEC-00 15,643 36,346
JAN-01 16,198 36,813
FEB-01 14,721 19,841
MAR-01 13,789 13,973
APR-01 14,860 19,624
MAY-01 14,960 17,418
JUN-01 14,596 16,440
JUL-01 14,452 13,398
AUG-01 13,547 10,257
SEP-01 12,453 6,498
OCT-01 12,691 8,845
NOV-01 13,664 10,518
DEC-01 13,784 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 11,970 5,911
JUL-02 11,037 5,140
AUG-02 11,109 4,564
SEP-02 9,902 3,455
OCT-02 10,774 4,194
NOV-02 11,408 5,400
DEC-02 10,738 4,140
JAN-03 10,456 4,183
FEB-03 10,300 4,281
MAR-03 10,400 4,183
APR-03 11,256 4,857
MAY-03 11,849 5,791
JUN-03 12,000 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
JAN-05 14,947 6,748
FEB-05 15,262 6,661
MAR-05 14,991 6,302
APR-05 14,707 5,987
MAY-05 15,175 6,911
JUN-05 15,197 6,509
JUL-05 15,762 6,878
AUG-05 15,618 6,900
SEP-05 15,744 7,215
OCT-05 15,482 7,660
NOV-05 16,067 8,236
DEC-05 16,073 8,269
JAN-06 16,498 8,943
FEB-06 16,543 8,573
MAR-06 16,749 8,877
APR-06 16,974 8,845
MAY-06 16,486 7,747
JUN-06 16,508 7,736
JUL-06 16,609 7,258
AUG-06 17,004 7,704
SEP-06 17,443 7,943
OCT-06 18,011 8,301
NOV-06 18,353 9,062
DEC-06 18,611 8,617
JAN-07 18,892 8,573
FEB-07 18,523 8,443
MAR-07 18,730 8,280
APR-07 19,560 8,258
MAY-07 20,242 8,780
JUN-07 19,906 9,149
JUL-07 19,289 9,497
AUG-07 19,578 9,736
SEP-07 20,310 10,735
OCT-07 20,633 12,528
NOV-07 19,770 11,942
DEC-07 19,633 11,985
JAN-08 18,456 8,943
FEB-08 17,856 8,443
MAR-08 17,779 8,584
APR-08 18,645 9,866
MAY-08 18,886 10,507
JUN-08 17,294 9,334
SECTOR ALLOCATION(5)
- ------------------------------------------
Internet Software & Services 26.19%
Computer Hardware 22.69%
Communications Equipment 20.57%
Semiconductors 19.47%
Alternative Energy 4.90%
Exchange Traded Funds 2.99%
Medical Appliances & Equipment 2.02%
Networking & Telecom Equipment 0.93%
Software 0.01%
(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 6/30/08. 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 6/30/08. 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
*
- ------------------------------------------------------------------------------
BERKSHIRE FOCUS FUND
Performance and Portfolio Discussion
6/30/2008
- ------------------------------------------------------------------------------
*
2
*
-------------------------------
LETTER TO THE SHAREHOLDERS
[PHOTO]
Dear Fellow Shareholders,
For the six month period ended June 30, 2008, the Berkshire Focus Fund posted
a total return of -22.12%. For comparative purposes, the Dow Jones Industrial
Average fell by 13.38%, the S&P 500(R) Index lost 11.91% and the Nasdaq
Composite Index declined by 13.18% 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.
The first quarter of 2008 was extraordinarily difficult for technology-
oriented mutual funds such as ours. After delivering outsized returns for
calendar year 2007 - driven in large part by the significant outperformance of
large, growth-oriented technology companies - many of our Fund's best-
performing investments suddenly became our worst. Continued weakness in the
housing market and additional subprime-related write-offs by financial insti-
tutions began to weigh heavily on investor sentiment. In addition, a series of
tepid economic reports revealing slowing consumer spending trends and a
softening labor market, accompanied by soaring commodity prices and rising
inflation expectations, stoked fears that a slowdown in the economy would
manifest into a recession. Investors, faced with a seemingly endless stream of
negative events, finally succumbed to a crisis of confidence which ignited
several broad market sell-offs during the period. Stocks reached their lows in
mid-March after the near collapse of Bear Sterns and on subsequent news that
the purchase of the investment bank by JP Morgan was orchestrated by the
Federal Reserve. Going into the end of the quarter, the financial markets
finally showed signs of stability as a result of the central bank slashing
interest rates from 4.25% to 2.25% throughout this period of turmoil.
The second quarter began with high hopes that the worst of the credit crisis
was over. The equity markets staged a powerful spring rally as investors began
to look ahead to a possible economic recovery. Those hopes were shattered by
mid-May, however, as the effects of the credit crisis lingered and oil reached
yet another record high, this time, above $143 a barrel. With worries about
inflation mounting and continued fallout from the housing slump, investors
acknowledged the grim reality and stocks once again began their rapid descent.
The Dow Jones Industrial Average reached bear market territory after falling
19.9% from its October 2007 highs, and Wall Street was left in tatters as the
first-half ended.
Although technology stocks suffered a tremendous rout during the period, we
continue to believe that the technology sector holds the greatest long-term
growth potential. Our near-term focus then, will be to take advantage of the
market's recent dislocations by adding to our positions at substantial dis-
counts. We will also be looking to establish new positions in companies we
believe will rebound the strongest once the economy regains its footing. As a
result, you can expect us to remain committed to our aggressive, high-growth
style of investing just as we have in the past. We thank you for your confi-
dence and continued investment in the Berkshire Focus Fund.
/s/ Malcolm R. Fobes III
Malcolm R. Fobes III
Chairman & Chief Executive Officer
3
*
- ------------------------------------------------------------------------------
FINANCIAL STATEMENTS
(unaudited)
6/30/2008
- ------------------------------------------------------------------------------
*
4
*
-------------------------------
PORTFOLIO OF INVESTMENTS - BERKSHIRE FOCUS FUND
June 30, 2008 (unaudited)
Shares Value
COMMON STOCKS - 96.78% $ 16,399,127
=========================================================
(Cost $17,229,024)
ALTERNATIVE ENERGY - 4.90% 830,093
---------------------------------------------------------
3,040 First Solar, Inc.* 829,373
10 SunPower Corp.* 720
COMMUNICATIONS EQUIPMENT - 20.57% 3,486,186
---------------------------------------------------------
11,170 Corning, Inc. 257,469
18,270 QUALCOMM, Inc. 810,640
20,685 Research In Motion Ltd.* 2,418,077
COMPUTER HARDWARE - 22.69% 3,844,522
---------------------------------------------------------
22,500 Apple, Inc.* 3,767,400
5,250 EMC Corp.* 77,122
INTERNET SOFTWARE & SERVICES - 26.19% 4,437,815
---------------------------------------------------------
9,275 Amazon.com, Inc.* 680,136
2,450 Baidu.com, Inc. ADR* 766,752
4,160 Google, Inc. (Class A)* 2,189,907
11,740 Salesforce.com, Inc.* 801,020
MEDICAL APPLIANCES & EQUIPMENT - 2.02% 342,138
---------------------------------------------------------
1,270 Intuitive Surgical, Inc.* 342,138
NETWORKING & TELECOM EQUIPMENT - 0.93% 156,965
---------------------------------------------------------
3,325 Cisco Systems, Inc.* 77,339
3,590 Juniper Networks, Inc.* 79,626
SEMICONDUCTORS - 19.47% 3,300,061
---------------------------------------------------------
30,430 Broadcom Corp. (Class A)* 830,435
26,540 Cypress Semiconductor Corp.* 656,865
3,990 Intel Corp. 85,705
46,790 Marvell Technology Group Ltd.* 826,311
10 NVIDIA Corp.* 187
82,540 Skyworks Solutions, Inc.* 814,670
3,050 Texas Instruments, Inc.* 85,888
SOFTWARE - 0.01% 1,347
---------------------------------------------------------
25 VMware, Inc.* 1,347
WIRELESS COMMUNICATIONS - 0.02% 4,343
---------------------------------------------------------
50 China Mobile Ltd. 4,343
EXCHANGE TRADED FUNDS - 2.99% 506,307
=========================================================
(Cost $529,464)
40 Internet HOLDRs Trust 2,031
5 PowerShares QQQ 226
17,000 Semiconductor HOLDRs Trust 504,050
CASH EQUIVALENT - 0.14% 24,886
=========================================================
(Cost $24,886)
24,886 First American Treasury
Obligations Fund (1.93%)** 24,886
TOTAL INVESTMENT SECURITIES - 99.91% 16,930,320
=========================================================
(Cost $17,783,374)
OTHER ASSETS IN EXCESS OF LIABILITIES - 0.09% 14,760
---------------------------------------------------------
NET ASSETS - 100.00% $ 16,945,080
=========================================================
Equivalent to $8.59 per share
*Non-income producing
**Variable Rate Security: The rate shown represents the rate at 6/30/08
ADR American Depositary Receipt
(See accompanying notes to financial statements)
5
*
-------------------------------
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2008 (unaudited)
BERKSHIRE
FOCUS FUND
ASSETS
- ---------------------------------------------------------------------
Investment securities:
At acquisition cost $ 17,783,374
=============
At market value $ 16,930,320
Receivable for capital shares sold 5,232
Receivable for securities sold 1,148,638
Interest receivable 157
-------------
TOTAL ASSETS 18,084,347
-------------
LIABILITIES
- ---------------------------------------------------------------------
Payable for capital shares redeemed 45,945
Payable for securities purchased 1,062,359
Payable to affiliate (Note 4) 30,305
Accrued expenses 658
-------------
TOTAL LIABILITIES 1,139,267
-------------
NET ASSETS $ 16,945,080
=====================================================================
Net assets consist of:
Paid-in-capital $ 433,435,332
Accumulated net investment loss (141,732)
Accumulated net realized losses
from security transactions (415,495,466)
Net unrealized depreciation on investments (853,054)
-------------
NET ASSETS $ 16,945,080
=============
Shares of beneficial interest outstanding (unlimited
number of shares authorized, without par value) 1,973,510
=============
Net asset value, offering price and redemption
price per share $ 8.59
=============
(see accompanying notes to financial statements)
6
*
-------------------------------
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2008 (unaudited)
BERKSHIRE
FOCUS FUND
INVESTMENT INCOME
- ---------------------------------------------------------------------
Interest $ 3,867
Dividends 25,486
-------------
TOTAL INVESTMENT INCOME 29,353
-------------
EXPENSES
- ---------------------------------------------------------------------
Investment advisory fees 127,864
Administrative fees 42,621
Interest expense 600
-------------
TOTAL EXPENSES 171,085
-------------
NET INVESTMENT LOSS (141,732)
- ---------------------------------------------------------------------
REALIZED AND UNREALIZED
LOSSES ON INVESTMENTS
- ---------------------------------------------------------------------
Net realized losses from security transactions (2,618,811)
Net change in unrealized depreciation on investments (2,270,063)
------------
NET REALIZED AND UNREALIZED
LOSSES ON INVESTMENTS (4,888,874)
------------
NET DECREASE IN NET ASSETS
FROM OPERATIONS $ (5,030,606)
=============
(see accompanying notes to financial statements)
7
*
-------------------------------
STATEMENTS OF CHANGES IN NET ASSETS - BERKSHIRE FOCUS FUND
For the Periods Ended June 30, 2008 (unaudited) and December 31, 2007
Six Months Year
Ended Ended
6/30/08 12/31/07
FROM OPERATIONS:
- ----------------------------------------------------------------------------------------------
Net investment loss $ (141,732) $ (276,193)
Net realized gains (losses) from security transactions (2,618,811) 3,653,268
Net change in unrealized appreciation
(depreciation) on investments (2,270,063) 995,502
--------------------------------
Net increase (decrease) in net assets from operations (5,030,606) 4,372,577
--------------------------------
FROM CAPITAL SHARE TRANSACTIONS:
- ----------------------------------------------------------------------------------------------
Proceeds from shares sold 5,951,058 12,910,487
Proceeds from redemption fees (Note 7) 17,443 0
Payments for shares redeemed (5,518,299) (10,188,706)
--------------------------------
Net increase in net assets from capital share transactions 450,202 2,721,781
--------------------------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (4,580,404) 7,094,358
- ----------------------------------------------------------------------------------------------
NET ASSETS:
- ----------------------------------------------------------------------------------------------
Beginning of period 21,525,484 14,431,126
--------------------------------
End of period $ 16,945,080 $ 21,525,484
================================
Including accumulated undistributed
net investment loss: $ 0 $ 0
================================
CAPITAL SHARE ACTIVITY:
- ----------------------------------------------------------------------------------------------
Shares sold 661,155 1,243,547
Shares redeemed (639,227) (1,111,556)
--------------------------------
Net increase in shares outstanding 21,928 131,991
Shares outstanding, beginning of period 1,951,582 1,819,591
--------------------------------
Shares outstanding, end of period 1,973,510 1,951,582
================================
(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
6/30/08 12/31/07 12/31/06 12/31/05 12/31/04 12/31/03
(unaudited)
NET ASSET VALUE,
BEGINNING OF PERIOD $ 11.03 $ 7.93 $ 7.61 $ 6.59 $ 6.36 $ 3.81
- ---------------------------------------------------------------------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS:
- ---------------------------------------------------------------------------------------------------------------------------------
Net investment loss (0.07)(A) (0.15)(A) (0.02)(A) (0.14)(A) (0.13)(A) (0.10)(A)
Net realized and unrealized gains
(losses) on investments (2.37) 3.25 0.34 1.16 0.36 2.65
-------------------------------------------------------------------------------------
Total from investment operations (2.44) 3.10 0.32 1.02 0.23 2.55
-------------------------------------------------------------------------------------
Proceeds from redemption fees 0.00(B) - - - - -
-------------------------------------------------------------------------------------
NET ASSET VALUE,
END OF PERIOD $ 8.59 $ 11.03 $ 7.93 $ 7.61 $ 6.59 $ 6.36
=================================================================================================================================
TOTAL RETURN(C) (22.12%)(K) 39.09% 4.20% 15.48% 3.62% 66.93%
=================================================================================================================================
SUPPLEMENTAL DATA AND RATIOS:
- ---------------------------------------------------------------------------------------------------------------------------------
Net assets at end of period (thousands) $ 16,945 $ 21,525 $ 14,431 $ 22,291 $ 29,542 $ 36,657
Ratio of expenses to average net assets 2.00%(I) 2.00%(H) 2.00%(G) 2.00%(F) 2.00%(E) 2.00%(D)
Ratio of net investment loss to
average net assets (1.66%) (1.94%) (0.21%) (1.99%) (1.98%) (1.93%)
Portfolio turnover rate(J) 293.1%(K) 446.6% 386.2% 284.1% 316.5% 251.1%
(A) Net investment loss per share is calculated using ending balances prior to
consideration or adjustment for permanent book and tax differences.
(B) Amount is less than $0.01.
(C) Total return represents the rate that the investor would have earned or (lost) on an
investment in the Fund assuming reinvestment of dividends.
(D) 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%.
(E) 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%.
(F) For the year ended December 31, 2005 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.02%.
(G) For the year ended December 31, 2006 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.02%.
(H) For the year ended December 31, 2007 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.01%.
(I) For the six months ended June 30, 2008 the ratio of expenses to average net assets excludes
interest expense. The ratio including interest expense would be 2.01%.
(J) Portfolio turnover is greater than most funds due to the investment style of the Fund.
(K) Not annualized for periods of less than one full year.
(see accompanying notes to financial statements)
9
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2008 (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.
The Fund adopted Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 157, Fair Value Measurements ("FAS 157"), effective
January 1, 2008. In accordance with FAS 157, fair value is defined as the
price that the Fund would receive to sell an asset or pay to transfer a lia-
bility in an orderly transaction between market participants at the measure-
ment date. FAS 157 also establishes a framework for measuring fair value, and
a three-level hierarchy for fair value measurements based upon the transpar-
ency of inputs to the valuation of an asset or liability. Inputs may be
observable or unobservable and refer broadly to the assumptions that market
participants would use in pricing the asset or liability. Observable inputs
reflect the assumptions market participants would use in pricing the asset or
liability based on market data obtained from sources independent of the Fund.
Unobservable inputs reflect the Fund's own assumptions about the assumptions
that market participants would use in pricing the asset or liability developed
based on the best information available in the circumstances. Each investment
is assigned a level based upon the observability of the inputs which are
significant to the overall valuation. The three-tier hierarchy of inputs is
summarized below:
Level 1 - quoted prices in active markets for identical investments.
Level 2 - other significant observable inputs (including quoted prices for
similar investments, interest rates, prepayment speeds, credit risk, etc.).
Level 3 - significant unobservable inputs (including the Fund's own assump-
tions in determining the fair value of investments).
10
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2008 (unaudited)
The inputs or methodology used for valuing securities are not necessarily an
indication of the risk associated with investing in those securities. Money
market securities are valued using amortized cost, in accordance with rules
under the Investment Company Act of 1940. Generally, amortized cost approx-
imates the current fair value of a security, but since the value is not
obtained from a quoted price in an active market, such securities are reflect-
ed as Level 2.
The following table summarizes the valuation of the Fund's investments by the
above fair value hierarchy levels as of June 30, 2008:
OTHER
INVESTMENT IN FINANCIAL
DESCRIPTION SECURITIES INSTRUMENTS*
==============================================================================
Level 1 - Quoted prices $ 16,905,434 $ 0
Level 2 - Other significant observable inputs 24,886 0
Level 3 - Significant unobservable inputs 0 0
- --------------------------------------------- ----------- -----------
Total $ 16,930,320 $ 0
*Other financial instruments are derivative instruments not reflected in the
Portfolio of Investments, such as futures forwards and swap contracts, which
are valued at the unrealized appreciation/depreciation on the instrument.
In March 2008, the Financial Accounting Standards Board issued the Statement
of Financial Accounting Standards No.161, "Disclosures about Derivative
Instruments and Hedging Activities" ("SFAS 161"). SFAS 161 is effective for
fiscal years and interim periods beginning after November 15, 2008. SFAS 161
requires enhanced disclosures about the Fund's derivative and hedging activi-
ties, including how such activities are accounted for and their effect on the
Fund's financial position, performance and cash flows. Management is currently
evaluating the impact the adoption of SFAS 161 will have on the Fund's finan-
cial statements and related disclosures.
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.
Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States requires
management to make estimates and
11
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2008 (unaudited)
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of income and expenses during the report-
ing 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.
Effective June 29, 2007, the Fund adopted Financial Accounting Standards Board
("FASB") Interpretation No. 48 ("FIN 48"), Accounting for Uncertainty in In-
come Taxes, a clarification of FASB Statement No. 109, Accounting for Income
Taxes. FIN 48 establishes financial reporting rules regarding recognition and
measurement of tax positions taken or expected to be taken on a tax return.
FIN 48 was applied to all open tax years as of the effective date. The adopt-
ion of FIN 48 had no impact on the Fund's net assets or results of operations.
As of and during the period ended June 30, 2008 the fund did not have a lia-
bility for any unrecognized tax benefits. The fund recognizes interest and
penalties, if any, related to unrecognized tax benefits as income tax expense
on the statement of operations. During the period, the fund did not incur any
interest or penalties. The fund is not subject to examination by U.S. federal
tax authorities for tax years before 2003.
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 - The treatment for financial reporting purposes of distributions made
to shareholders during the year from net investment income or net realized
capital gains may differ from their ultimate treatment for federal income tax
purposes. These differences are caused primarily by differences in the timing
of the recognition of certain components of income, expense or realized
capital gain for federal income tax purposes. Where such differences are perm-
anent in nature, they are reclassified in the components of the net assets
based on their ultimate characterization for federal income tax purposes. Any
such reclassifications will have no effect on net assets, results of opera-
tions or net asset value per share of the Fund. For the fiscal year ended
December 31, 2007, net investment loss of $276,193 for the Fund was reclass-
ified to paid-in-capital.
12
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2008 (unaudited)
3. Investment Transactions
Purchases and sales of investment securities (excluding short-term instru-
ments) for the six months ended June 30, 2008 were $52,054,526 and
$50,810,873, 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, 2007:
Gross unrealized appreciation $ 1,986,868
Gross unrealized depreciation (627,043)
--------------------------------------------------
Net unrealized appreciation $ 1,359,825
==================================================
Federal income tax cost $ 20,027,953
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.
At December 31, 2007, the Fund had the following capital loss carryforwards
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
$ 52,671,799 12/31/08
To the extent these loss carryforwards are used to offset future capital
gains, it is probable that the amount, which is offset, will not be distribut-
ed to shareholders.
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 not paid any Trustee fees and expenses directly by
Berkshire Capital during the period ended June 30, 2008.
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,
13
*
-------------------------------
NOTES TO FINANCIAL STATEMENTS
June 30, 2008 (unaudited)
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 admin-
istrative and supervisory services of the Fund, as well as facilities furnish-
ed 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 holi-
days). For the six months ended June 30, 2008, Berkshire Capital was paid an
investment advisory fee of $127,864 and an administration fee of $42,621 from
the Fund. The amount due to Berkshire Capital for these fees at June 30, 2008
totaled $30,305.
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, 2008,
Charles Schwab & Co., Inc. was a record owner of 29.27% 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.
6. Distributions to Shareholders
There were no distributions paid during the year ended December 31, 2007 or
the year ended December 31, 2006. As of December 31, 2007, the components of
distributable earnings (accumulated losses) on a tax basis were as follows:
Undistributed ordinary income $ 0
Accumulated losses (412,819,471)
Unrealized appreciation 1,359,825
---------------------------------------------------------
Total accumulated deficit $ (411,459,646)
=========================================================
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. Redemption Fee
On October 12, 2006 the Board of Trustees unanimously approved a redemption
fee of 2.00% on shares held for 90 days or less, to become effective January
1, 2008, or thereafter as reasonably practical. For the six months ended June
30, 2008 proceeds from redemption fees were $17,443.
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 January 1, 2008 and held
through June 30, 2008.
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 January 1, 2008 to
January 1, 2008 June 30, 2008 June 30, 2008
--------------- ------------- ------------------
Actual $1,000.00 $778.80 $8.89
Hypothetical $1,000.00 $1,014.94 $10.07
(5% annual return
before expenses)
*Expenses are equal to the Fund's annualized expense ratio of 2.01%,
multiplied by the average account value over the period, multiplied by 182/366
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, 2008 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 1-202-551-8090 (direct) or 1-800-SEC-0330 (general SEC
number).
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 REGISTERED
PUBLIC ACCOUNTING FIRM
Cohen Fund Audit Services, Ltd.
800 Westpoint Parkway
Suite #1100
Westlake, OH 44145
TRANSFER AGENT
Mutual Shareholder Services, LLC
8000 Town Centre Drive
Suite #400
Broadview Heights, OH 44147
CUSTODIAN
U.S. Bank, N.A.
1555 North RiverCenter Drive
Suite #302
Milwaukee, WI 53212
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 registrants who are not listed issuers (as
defined in Rule 10A-3 under the Securities Exchange Act of 1934).
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 reviewed the Registrant's disclosure controls and
procedures (as defined in Rule 30a-3(c) under the Investment
Company Act of 1940 (the "Act")) as of a date within 90 days of
the filing of this report, as required by Rule 30a-3(b) under the
Act and Rules 13a-15(b) or 15d-15(b) under the Securities Ex-
change Act of 1934. Based on this review, such officer has con-
cluded that the disclosure controls and procedures are effective
in ensuring that information required to be disclosed in this re-
port is appropriately recorded, processed, summarized and report-
ed and made known to them by others within the Registrant and by
the Registrant's service provider.
(b) There were no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act)
that occurred during the second fiscal quarter of the period
covered by this report that have materially affected, or are rea-
sonably 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.
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 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: September 8, 2008
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.
The Berkshire Funds
By: /s/ Malcolm R. Fobes III
--------------------
Malcolm R. Fobes III
President, Treasurer and Chief Financial Officer
Date: September 8, 2008
THE BERKSHIRE FUNDS
EXHIBIT INDEX FOR FORM N-CSR
AS FILED ON SEPTEMBER 8, 2008
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