FINANCIAL HIGHLIGHTS BERKSHIRE FOCUS FUND
Selected Per Share Data and Ratios for a Share Outstanding Throughout Each Period
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Year
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Year
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Year
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Year
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Year
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Ended
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Ended
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Ended
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Ended
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Ended
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12/31/12
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12/31/11
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12/31/10
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12/31/09
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12/31/08
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NET ASSET VALUE,
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BEGINNING OF PERIOD
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$
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11.67
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$
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12.61
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$
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8.66
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$
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4.71
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$
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11.03
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INCOME FROM INVESTMENT OPERATIONS:
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Net investment loss
(a)
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(0.22
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)
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(0.28
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)
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(0.14
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)
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(0.09
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)
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(0.16
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)
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Net realized and unrealized gains
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(losses) on investments
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2.59
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(0.73
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)
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4.09
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|
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4.03
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(6.17
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)
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Total from investment operations
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|
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2.37
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|
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(1.01
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)
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3.95
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3.94
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|
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(6.33
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)
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Proceeds from redemption fees
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0.01
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0.07
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0.00
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(b)
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0.01
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.0
0.01
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NET ASSET VALUE,
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END OF PERIOD
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$
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14.05
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$
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11.67
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$
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12.61
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$
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8.66
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$
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4.71
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TOTAL RETURN
(c)
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20.39
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%
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(7.45
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%)
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45.61
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%
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83.86
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%
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(
57.30
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%)
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|
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SUPPLEMENTAL DATA AND RATIOS:
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Net assets at end of period (thousands) $
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53,903
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$
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30,191
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$
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30,562
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$
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18,819
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$
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7,404
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Ratio of expenses to average net assets
(d)
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2.00
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%
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2.01
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%
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2.00
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%
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2.00
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%
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2.01
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%
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Ratio of net investment loss to
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average net assets
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|
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(1.64
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%)
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(1.88
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%)
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(1.87
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%)
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(1.50
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%)
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(1.68
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%)
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Portfolio turnover rate
(e)
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613.8
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%
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796.3
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%
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950.5
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%
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833.0
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%
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539.9
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%
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(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 per share.
(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) The ratio of expenses to average net assets includes interest expense. The ratio excluding interest expense would be 2.00%.
(e) 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, 2012
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 Funds investment objective is to seek long-term growth of capital primarily through investments in equity securities.
2. Significant Accounting Policies
The following is a summary of the Trusts 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 Trust has adopted accounting standards which establish an authoritative definition of fair value and set out a hierarchy for measuring fair value. These standards require additional disclosures about the various inputs and valuation techniques used to develop the measurements of fair value and a discussion of changes in valuation techniques and related inputs during the period. These standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value hierarchy is organized into three levels based upon the assumptions (referred to as inputs) used in pricing the asset or liability. These standards state that observable inputs reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources and unobservable inputs reflect an entity's own assumptions about the assumptions market participants would use in pricing the asset or liability. These inputs are summarized in the three broad levels listed 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 Funds own assumptions in determining the fair value of investments).
10
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following table summarizes the valuation of the Funds investments by the above fair value hierarchy levels as of December 31, 2012:
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Level 1
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Level 2
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Level 3
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Total
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Common Stocks
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|
|
|
|
|
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Internet Software & Services
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$
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30,717,809
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|
|
$
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30,717,809
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Computer Hardware
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|
13,184,586
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|
|
|
13,184,586
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Apparel Clothing
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|
3,369,049
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|
|
|
3,369,049
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Software
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|
859,564
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|
|
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859,564
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Grocery Stores
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270,289
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|
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270,289
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Retail
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138,939
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|
|
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138,939
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Biotechnology
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1,792
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|
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1,792
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Beverages
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|
268
|
|
|
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268
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Total Common Stocks
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|
48,542,296
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|
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48,542,296
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Exchange Traded Funds
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4,527,384
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|
|
|
4,527,384
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Total Investments
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$
|
53,069,680
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|
|
$
|
53,069,680
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There were no transfers into or out of Level 1, Level 2 or Level 3 fair value measurements during the reporting period, as compared to their classification from the most recent annual report. It is the Funds policy to consider transfers into or out of Level 1, Level 2 or Level 3 as of the end of the reporting period. The Fund did not hold any derivative instruments during the reporting period.
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 GAAP.
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 of America (GAAP) requires management to make estimates and 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 reporting period. Actual results could differ from those estimates.
11
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
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.
As of and during the year ended December 31, 2012, the Fund did not have a liability for any unrecognized tax benefits. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as other expense on the statement of operations. During the year, the Fund did not incur any tax-related interest or penalties. The Fund is not subject to examination by U.S. federal tax authorities for tax years before 2009.
In order to avoid imposition of the excise tax applicable to regulated investment companies, it is also the Funds intention to declare as dividends in each calendar year at least 98% of its net investment income and 98.2% 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 permanent 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 operations or net asset value per share of the Fund. For the year ended December 31, 2012, the Fund increased accumulated net investment income by $808,313 and decreased paid in capital by $808,313.
3. Investment Transactions
Purchases and sales of investment securities (excluding short-term instruments) for the year ended December 31, 2012 were $313,321,644 and $296,162,139, respectively. There were no purchases or sales of U.S. Government securities for the Fund.
4. Tax Information
As of December 31, 2012, the components of accumulated earnings (deficit) on a tax basis were as follows:
Federal income tax cost
|
$
|
54,141,228
|
|
Gross unrealized appreciation
|
$
|
2,644,417
|
|
Gross unrealized depreciation
|
|
|
(3,715,965
|
)
|
Net unrealized depreciation
|
|
|
(1,071,548
|
)
|
Undistributed ordinary income
|
|
|
|
|
Accumulated losses
|
|
|
(2,291,935
|
)
|
Total accumulated losses
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$
|
|
(3,363,483
|
)
|
12
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
The cost basis of investments for tax and financial reporting purposes differs primarily due to the deferral of capital losses from wash sales.
There were no distributions paid during the year ended December 31, 2012 or the year ended December 31, 2011.
Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law.
At December 31, 2012, the Fund had accumulated net realized capital loss carryforwards of $2,291,935 which will expire on December 31, 2016. There were no short-term capital loss carryforwards with an indefinite expiration. 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 distributed to shareholders. During the year ended December 31, 2012, the Fund utilized $4,204,085 of its outstanding capital loss carryforward.
5. 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 $5,415 in Trustee fees and expenses directly by Berkshire Capital during the year ended December 31, 2012.
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 portfolio. 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 administrative 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 Funds 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 Funds daily net assets and is accrued each calendar day (including weekends and holidays). For the year ended December 31, 2012, Berkshire Capital was paid an investment advisory fee of $737,675 and an administration fee of $243,993 from the Fund. The amount due to Berkshire Capital for these fees at December 31, 2012 totaled $95,569.
13
NOTES TO FINANCIAL STATEMENTS
December 31, 2012
6. Redemption Fee
The Fund may impose a redemption fee of 2.00% on shares held for 90 days or less. For the year ended December 31, 2012, proceeds from redemption fees were $58,345.
7. Beneficial Ownership
The 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. At December 31, 2012, National Financial Services Corp. and Charles Schwab & Co. beneficially owned, in aggregate, 42.53% and 25.43% of the Fund, respectively.
8. Subsequent Events
In preparing these financial statements, management has performed an evaluation of subsequent events after December 31, 2012 and determined that there were no significant subsequent events that would require adjustment to or additional disclosure in the financial statements.
14
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 statement of assets and liabilities, including the portfolio of investments, of the Berkshire Focus Fund (the Fund), a series of The Berkshire Funds, for the year ended December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended. These financial statements and financial highlights are the responsibility of Fund management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with 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 misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and broker. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Berkshire Focus Fund, as of December 31, 2012, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended, and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States of America.
Cohen Fund Audit Services, Ltd.
Cleveland, Ohio
February 28, 2013
15
ADDITIONAL INFORMATION
(unaudited)
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, 2012 and held through December 31, 2012.
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 transfers, returned checks and stop payment orders at prevailing rates charged by Mutual Shareholder Services, LLC, the Funds transfer agent. If you request that a redemption be made by wire transfer, currently a $20.00 fee is charged by the Funds 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 period. 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 Funds 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 investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5%
16
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, 2012 to
|
|
|
July 1, 2012
|
|
December 31, 2012
|
|
December 31, 2012
|
Actual
|
$
|
1,000.00
|
$
|
986.70
|
$
|
9.99
|
|
Hypothetical
|
$
|
1,000.00
|
$
|
1,015.08
|
$
|
10.13
|
(5% annual return
|
|
|
|
|
|
|
before expenses)
|
|
|
|
|
|
|
*Expenses are equal to the Funds annualized expense ratio of 2.00%, 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 Funds Adviser, is responsible for exercising 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 Funds proxy votes for the most recent twelve month period ended June 30, are available without charge, upon request, by calling toll free 1-877-526-0707. They are also available on the Securities and Exchange Commissions (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 Funds Forms N-Q are available on the SECs website at http://www.sec.gov. The Funds Forms N-Q may also be reviewed and copied at the SECs 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).
17
ADDITIONAL INFORMATION
(unaudited)
|