UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form N-CSR
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-6727
Dominion Funds, Inc.
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(Exact name of registrant as specified in charter)
35955 Huntland Farm Road, Middleburg, VA 20117
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(Address of principal executive offices)(Zip code)
Paul Dietrich, 35955 Huntland Farm Road, Middleburg, VA 20117
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(Name and address of agent for service)
Registrant's telephone number, including area code: (800) 416-2053
Date of fiscal year end: June 30
Date of reporting period: 07/01/04 --- 06/30/05
Item 1. Reports to Stockholders.
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SHEPHERD FUNDS
ANNUAL REPORT
JUNE 30, 2005
SHEPHERD LARGE CAP GROWTH FUND
A SERIES OF DOMINION FUNDS, INC.
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AUGUST 29, 2005
SHEPHERD LARGE CAP GROWTH FUND
Dear Fund Shareholders,
As of July 29, 2004, the SHEPHERD LARGE CAP GROWTH FUND had increased by 6.37%
compared to the S&P 500 Index that was only up 1.84% for the same period. I am
very pleased with our performance so far this year!
THE ECONOMY CONTINUES TO OUTPERFORM
Market analysts expect second-quarter operating earnings on the S&P 500 to be
reported at a respectable 8% above the same period in 2004. Although that would
be a retreat from the double-digit percentage gains seen in each of the past 12
quarters, they see a return to larger earnings gains in the second half of 2005.
The economy continues to do well with unemployment at its lowest rate since
September 2001; earnings continue to exceed estimates; despite high oil prices
inflation seems to be contained (for now) and the overall economy continues to
grow at a rate higher than analyst estimates.
The Federal Reserve continues to tighten the Federal Funds rate from 3% to
3.25%. This still leaves borrowing costs low enough to keep the economic ball
rolling in the last six months of this year.
The good news is the "up cycle" in rates may be getting close at hand. The Fed
will probably raise rates once or twice more in the next few months.
CONCLUSION
Given our policy of only investing in first-rate, ethical companies that meet
our conservative Values Based screening process, I am cautiously optimistic that
your SHEPHERD FUND will outperform as the economy recovers and starts to expand
once again.
Again, if history is a guide, barring any major terrorist attacks or major
political or foreign policy disasters, the market should stay strong and we
should see a good gain by the end of this year.
Until then....
Patience!
Paul Dietrich
President & Chief Investment Officer
Opinions expressed are those of Foxhall Capital Management, Inc. and are subject
to change, are not guaranteed and should not be considered a recommendation to
buy or sell any security.
Mutual fund investing involves risk; loss of principal is possible. This report
is intended for shareholder use only and must be preceded or accompanied by a
prospectus. Read it carefully before investing or sending money.
Automatic investment plans do not assure a profit and do not protect against a
loss in declining markets.
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SHEPHERD FUNDS
TABLE OF CONTENTS
Page
INVESTMENT HIGHLIGHTS........................................................2
EXPENSE EXAMPLE..............................................................5
Schedule of Investments......................................................6
Statement of Assets and Liabilities..........................................8
Statement of Operations......................................................9
Statements of Changes in Net Assets.........................................10
Financial Highlights........................................................11
Notes to Financial Statements...............................................12
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM.....................16
ADDITIONAL INFORMATION......................................................17
INVESTMENT HIGHLIGHTS
For the year fiscal year June 30, 2004 to June 30, 2005, the Fund slightly
underperformed the S&P 500 Index by about 1.8%. During this period, it was a
challenging environment for the stock market, with high oil prices, the unstable
situation in Iraq and the Middle East, the close U.S. presidential elections and
the potential threat last year of new terrorist attacks against U.S. targets.
FOXHALL CAPITAL'S investment strategies actively attempt to manage the risks
posed by these volatilities by increasing the cash in the Fund's portfolio when
the market is going down and by selling stocks if they hit their "STOP-LOSS
TARGET PRICES."
Unfortunately, in 2004 while riding a market that had four major upswings and
four major downswings, moving back and fourth from cash to stocks generated more
trading and turnover in the Fund than is normal.
Also, FOXHALL CAPITAL has always believed that in an uncertain market like we
experienced in 2004, it is always more prudent to have the avoidance of severe
losses in your Fund as your first investment goal, rather than striving for
exceptional gains. In the end, that is always the key to success over a full
market cycle.
However, because we only take action "AFTER" the stock market has moved in one
direction or the other, we are always slightly late getting out of a "DOWN"
market and slightly late getting into an "UP" market. Normally, this is not much
of a problem unless you encounter a year like 2004 where you have four "UP" and
four "DOWN" markets all in the same year.
This fact accounts for our slightly underperforming the stock indices for the
period June 30, 2004 to June 30, 2005.
Investment Objective; Principal Investment Strategy and Policies
The Fund is a mutual fund whose only investment objective is growth of capital.
The Fund invests in a diversified portfolio of common stocks of companies that
meet the Fund's investment and social criteria. Under normal circumstances, the
Fund will invest at least 80% of its assets in common stocks of large cap
companies that the Fund's investment advisor believes have a good potential for
capital growth. The Fund defines "large cap" companies as those whose market
capitalization falls within the range of the S&P 500, which at the time of this
report was approximately $5 billion to $285 billion. The investment advisor uses
a bottom-up approach to choosing investments, emphasizing a stock selection
process favoring positions in leading U.S. companies that are global leaders in
their industry. These global U.S. companies generally have high returns on
equity, dominant competitive positions, pricing power and predictable and
consistent earnings growth. These stocks typically demonstrate considerably
higher growth in earnings, dividends, reinvestment rates and high rates of free
cash flow generation.
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SHEPHERD FUNDS
The Fund invests with the philosophy that long-term rewards to investors will
come from those organizations whose products, services, and methods enhance
traditional American values. To that end, the Fund's advisor uses a
"values-based" non-financial investment analysis intended to specifically seek
out companies that support positive values such as the respect for human life
and dignity, responsible management, and environmental stewardship, while
avoiding industries and activities like abortion, pornography, gambling, alcohol
and tobacco production. The Fund also seeks to identify and invest in those
companies that support traditional pro-family values.
Top Ten Holdings and Asset Allocation
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June 30, 2005
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Top Ten Holdings (% of Net Assets)*
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Cerner Corp 5.7%
Satyam Computers Services Ltd 5.4%
American Movil SA 5.3%
Constellation Energy 5.2%
CVS Corp 5.2%
Empire Financial Holding Co. 5.2%
ITT Industries 5.2%
IVAX Corp 5.1%
Winnebago Industries Inc. 4.9%
Franklin Resources Inc. 4.9%
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52.1%
=====
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Asset Allocation by Sector (% of Net Assets)*
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Technology 20.2%
Financial 12.9%
Services 10.5%
Conglomerate 9.9%
Health Care 8.0%
Capital Goods 7.1%
Consumer Cyclical 5.2%
Utilities 5.2%
Transportation 2.8%
Basic Material 2.3%
Consumer Non-Cyclical 2.3%
Other Assets Less Liabilities 13.6%
-----
100.0%
=====
* Excludes net liabilities
Fund Performance
During the fiscal year ended June 30, 2005, the total return of the Fund shares
was 2.56%. The Fund's return is attributable to FOXHALL CAPITAL'S cautious
investment strategies to actively attempt to manage the risks posed by a very
volatile stock market during the period by increasing the cash in the Fund's
portfolio when the market is going down and by selling stocks if they hit their
"STOP-LOSS TARGET PRICES." These defensive strategies were executed several
times during this period.
The line graph below compares the initial account value and subsequent account
values for the Fund at the end of each of the periods indicated to the same
investment over the same periods in the S&P 500 Index. The graph assumes an
initial $10,000 investment at the beginning of the first fiscal year and, in the
case of the investment in the Fund, net of the Fund's sales load.
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SHEPHERD FUNDS
The S&P 500 is used for comparison to reflect the Fund's strategy of investing
primarily in large cap stocks. The S&P 500 Index includes 500 common stocks,
most of which are listed on the New York Stock Exchange. The Index is a market
capitalization-weighted index representing approximately two-thirds of the total
market value of all domestic common stocks. One cannot invest directly in an
index. Sector allocations are subject to change.
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE GRAPH IN THE PRINTED MATERIAL.]
Shepherd
Large Cap
Growth Fund S&P 500 Index
10/27/1992 $9,525.00 $10,000.00
12/31/1992 $9,816.88 $10,411.48
3/31/1993 $9,680.67 $10,792.85
6/30/1993 $10,653.60 $10,765.61
9/30/1993 $12,609.19 $10,966.33
12/31/1993 $11,616.80 $11,146.02
3/31/1994 $10,819.00 $10,651.87
6/30/1994 $9,962.82 $10,616.02
9/30/1994 $11,247.09 $11,056.66
12/31/1994 $11,014.03 $10,974.46
3/31/1995 $11,431.63 $11,964.68
6/30/1995 $14,125.11 $13,017.04
9/30/1995 $16,902.10 $13,964.73
12/31/1995 $18,149.83 $14,717.91
3/31/1996 $18,985.75 $15,424.50
6/30/1996 $21,802.70 $16,024.99
9/30/1996 $21,275.95 $16,424.05
12/31/1996 $20,189.93 $17,700.30
3/31/1997 $16,755.23 $18,091.71
6/30/1997 $20,012.49 $21,150.80
9/30/1997 $26,945.25 $22,635.67
12/31/1997 $20,525.57 $23,188.85
3/31/1998 $24,667.38 $26,326.79
6/30/1998 $23,015.90 $27,093.60
9/30/1998 $20,433.82 $24,301.89
12/31/1998 $26,124.49 $29,372.98
3/31/1999 $28,504.92 $30,738.37
6/30/1999 $28,878.92 $32,801.50
9/30/1999 $31,201.29 $30,650.91
12/31/1999 $45,823.03 $35,108.37
3/31/2000 $54,680.87 $35,809.22
6/30/2000 $48,833.16 $34,758.30
9/30/2000 $47,471.89 $34,326.03
12/31/2000 $33,343.19 $31,548.66
3/31/2001 $20,844.54 $27,726.59
6/30/2001 $22,537.90 $29,257.09
9/30/2001 $14,071.07 $24,873.71
12/31/2001 $18,868.94 $27,433.87
3/31/2002 $17,256.21 $27,417.38
6/30/2002 $13,788.84 $23,652.18
9/30/2002 $11,974.52 $19,481.71
12/31/2002 $11,853.57 $21,023.68
3/31/2003 $11,571.34 $20,267.63
6/30/2003 $13,345.34 $23,286.34
9/30/2003 $13,909.80 $23,799.13
12/31/2003 $14,837.12 $26,569.81
3/31/2004 $15,804.75 $26,911.28
6/30/2004 $14,192.02 $27,260.87
9/30/2004 $13,385.66 $26,633.37
12/31/2004 $14,563.61 $28,959.35
3/31/2005 $14,433.93 $28,210.71
6/30/2005 $14,554.89 $28,467.35
Past performance does not predict future performance. The investment return and
principal value will fluctuate so that an investor's shares, when redeemed, may
be worth more or less than original cost. Current performance of the Fund may be
lower or higher than the performance quoted. The graph above and table below do
not reflect the deduction of taxes that a shareholder would pay on Fund
distributions or the redemption of Fund shares.
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Average annual total return of the Fund as of 6/30/05
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1 Year 5 Years 10 Years
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2.56% -21.50% 2.61%
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Sales loads are not reflected in the total return chart shown at the left and,
if they were reflected, returns would be less than those shown.
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SHEPHERD FUNDS
EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including sales charges (loads) on purchase payments; and (2) ongoing
costs, including advisory fees and other Fund expenses. 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 at the beginning of the
period and held for the entire period (January 1, 2005 through June 30, 2005).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. In addition to the sales load, you will be assessed
fees for outgoing wire transfers, returned checks and stop payment orders at
prevailing rates charged by Fund Services, Inc., the Funds' transfer agent.
Redemption proceeds can be sent via overnight "express" mail (such as Federal
Express), if requested, for a $20.00 service charge, or can be sent by wire
transfer for a $15.00 fee. 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 below 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
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% 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, such as sales
charges (loads). 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 this transactional cost were included,
your costs would have been higher.
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Expenses Paid
Beginning Ending During Period*
Account Value Account Value January 1, 2005 to
January 1, 2005 June 30, 2005 June 30, 2005
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Actual $1,000.00 $1,000.00 $11.16
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Hypothetical (5% return before expenses) $1,000.00 $1,013.64 $11.23
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* Expenses are equal to the Fund's annualized expense ratio of 2.25%, multiplied
by the average account value over the period, multiplied by 181/365 (to reflect
the one-half year period).
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Schedule of Investments
June 30, 2005
Shares Value
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COMMON STOCKS - 86.4%
Basic Materials - 2.3%
Northern Dynasty Minerals Ltd. * 37,500 $ 147,750
----------
147,750
----------
Capital Goods - 7.1%
Brookfield Homes Corp. 3,140 143,184
Winnebago Industries Inc. 9,510 311,453
----------
454,637
----------
Conglomerate - 9.9%
ITT Industries Inc. 3,380 329,989
Pentair Inc. 7,005 299,884
----------
629,873
----------
Consumer Cyclical - 5.2%
Applied Industrial Technologies Inc. 5,005 161,612
Gildan Activeware Inc. * 6,480 170,748
----------
332,360
----------
Consumer Non-Cyclical - 2.3%
United Natural Foods Inc. * 4,890 148,509
----------
148,509
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Financial - 12.9%
Empire Financial Holding Co. *# 200,000 330,000
Franklin Resources Inc. 4,035 310,614
ICICI Bank Ltd. 7,310 159,724
Waterside Capital Corp. * 5,300 22,313
----------
822,651
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Schedule of Investments (Continued)
June 30, 2005
Shares Value
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Health Care - 8.0%
IVAX Corp. * 15,190 $ 326,585
LCA Vision Inc. 3,750 181,725
----------
508,310
----------
Services - 10.5%
America Movil SA 5,710 340,373
CVS Corp. 11,340 329,654
----------
670,027
----------
Technology - 20.2%
Autodesk Inc. 8,410 289,052
Cerner Corp. * 5,355 363,979
Nokia Oyj 17,505 291,283
Satyam Computers Services Ltd. 13,165 342,290
----------
1,286,604
----------
Transportation - 2.8%
USA Truck Inc. 7,195 178,076
----------
178,076
----------
Utilities - 5.2%
Constellation Energy Group Inc. 5,755 332,006
----------
332,006
----------
TOTAL COMMON STOCKS (Cost $5,339,855) - 86.4% 5,510,803
Other Assets Less Liabilities - Net - 13.6% 869,384
----------
NET ASSETS - 100% $6,380,187
==========
* Non-income producing during the year.
# Restricted security
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Statement of Assets and Liabilities
June 30, 2005
ASSETS
Investments in securities, at value
(cost of $5,339,855) $ 5,510,803
Cash 849,896
Receivables: Capital stock sold 29,997
Dividends 959
Interest 25
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Total Assets 6,391,680
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LIABILITIES
Payable to advisor 5,188
Payable to administrator 6,305
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Total Liabilities 11,493
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NET ASSETS $ 6,380,187
============
NET ASSETS CONSIST OF:
Capital stock - par value $ 1,768
Paid in capital 11,683,240
Accumulated net realized loss (5,475,769)
Net unrealized appreciation 170,948
------------
NET ASSETS $ 6,380,187
============
CAPITAL SHARES OUTSTANDING
(200,000,000 authorized shares; $.001 par value) 1,767,586
============
NET ASSET VALUE PER SHARE $ 3.61
============
OFFERING PRICE PER SHARE (net asset value plus
sales charge of 4.75% of the offering price) $ 3.79
============
The accompanying notes are an integral part of these financial statements.
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Statement of Operations
For the Year Ended June 30, 2005
Investment Income
Dividends $ 35,901
Interest 19,729
---------
Total investment income 55,630
---------
Expenses
Advisory and management fees (Note 2) 57,243
Administrative expenses (Note 2) 71,554
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Total expenses 128,797
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Net Investment Loss (73,167)
---------
Realized and Unrealized Gain
on Investments (Note 5)
Net realized gain on investments 32,822
Net change in unrealized appreciation on investments 218,730
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Net realized and unrealized gain on
Investments 251,552
---------
Net Increase in Net Assets Resulting from Operations $ 178,385
=========
The accompanying notes are an integral part of these financial statements.
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Statements of Changes in Net Assets
For the Years Ended June 30, 2005 and 2004
2005 2004
Increase in Net Assets from Operations
Net investment loss $ (73,167) $ (68,759)
Net realized gain on investments 32,822 804,433
Net change in unrealized appreciation/(depreciation)
on investments 218,730 (416,302)
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Net increase in net assets resulting from
Operations 178,385 319,372
Distributions to shareholders -- --
Capital Share Transactions (Note 6) 1,211,544 932,038
----------- -----------
Total Increase 1,389,929 1,251,410
Net Assets
Beginning of year 4,990,258 3,738,848
----------- -----------
End of year $ 6,380,187 $ 4,990,258
=========== ===========
The accompanying notes are an integral part of these financial statements.
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND.
Financial Highlights
For a share of capital stock outstanding throughout the period
For the years ended June 30,
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2005 2004 2003 2002 2001
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PER SHARE DATA
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Net asset value, beginning of period $ 3.52 $ 3.31 $ 3.42 $ 5.59 25.47
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Income from investment operations:
Net investment loss (0.04) (0.05) (0.04) (0.08) (0.24)
Net realized and unrealized
gain (loss) on investments 0.13 0.26 (0.07) (2.09) (9.93)
--------- --------- --------- --------- -----
Total from investment operations 0.09 0.21 (0.11) (2.17) (10.17)
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Less distributions -- -- -- -- (9.71)
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Net asset value, end of period $ 3.61 $ 3.52 $ 3.31 $ 3.42 $ 5.59
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Total Return (a) 2.56% 6.34% (3.22)% (38.82)% (53.85)%
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Ratios and Supplemental Data:
Net assets, end of period (000's) $ 6,380 $ 4,990 $ 3,739 $ 3,615 $ 6,994
Ratio of expenses to average net assets 2.25% 2.25% 2.25% 2.25% 2.25%
Ratio of net investment loss to average net assets (1.28)% (1.37)% (1.33)% (1.94)% (2.03)%
Portfolio turnover rate 487.33% 258.84% 235.79% 99.77% 19.96%
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(a) Sales load is not reflected in total return
The accompanying notes are an integral part of these financial statements.
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements
June 30, 2005
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: Dominion Funds, Inc. (the "Company") is a diversified
regulated investment company and was incorporated in the State of Texas on
June 5, 1992. The Company may designate one or more series of common
stock; however, at this time the Shepherd Large Cap Growth Fund (the
"Fund") is the only series of the Company. The primary investment
objective of the Fund is growth of capital. The Fund will invest in a
diversified portfolio of common stock of companies that meet the Fund's
investment and social criteria. The following is a summary of the Fund's
significant accounting policies.
Security Valuations: Equity securities generally are valued by using
market quotations, but may be valued on the basis of prices furnished by a
pricing service when the Advisor believes such prices accurately reflect
the fair market value of such securities. Securities that are traded on
any stock exchange or on the NASDAQ over-the-counter market are generally
valued by the pricing service at the last quoted sale price. Lacking a
last sale price, an equity security is generally valued by the pricing
service at its last bid price. When market quotations are not readily
available, when the Advisor determines that the market quotation or the
price provided by the pricing service does not accurately reflect the
current market value, or when restricted or illiquid securities are being
valued, such securities are valued as determined in good faith by the
Board of Directors. The Board has adopted guidelines for good faith
pricing, and has delegated to the Advisor the responsibility for
determining fair value prices, subject to review by the Board of
Directors.
Fixed income securities generally are valued by using market quotations,
but may be valued on the basis of prices furnished by a pricing service
when the Advisor believes such prices accurately reflect the fair market
value of such securities. A pricing service utilizes electronic data
processing techniques based on yield spreads relating to securities with
similar characteristics to determine prices for normal institutional-size
trading units of debt securities without regard to sale or bid prices. If
the Advisor decides that a price provided by the pricing service does not
accurately reflect the fair market value of the securities, when prices
are not readily available from a pricing service, or when restricted or
illiquid securities are being valued, securities are valued at fair value
as determined in good faith by the Advisor, subject to review by the Board
of Directors. Short term investments in fixed income securities with
maturities of less than 60 days when acquired, or which subsequently are
within 60 days of maturity, are valued by using the amortized cost method
of valuation, which the Board has determined will represent fair value.
Federal Income Taxes: The Fund's policy is to comply with the requirements
of the Internal Revenue Code that are applicable to regulated investment
companies and to distribute all its taxable income to its shareholders.
Therefore, no federal income tax provision is required.
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements (continued)
June 30, 2005
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
Distributions to Shareholders: The Fund intends to distribute to its
shareholders substantially all of its net realized capital gains and net
investment income, if any, at year-end. Distributions will be recorded on
ex-dividend date.
Other: The Fund follows industry practice and records security
transactions on the trade date. The specific identification method is used
for determining gains or losses for financial statements and income tax
purposes. Dividend income is recorded on the ex-dividend date and interest
income is recorded on an accrual basis. Discounts and premiums are
amortized over the useful lives of the respective securities. Withholding
taxes on foreign dividends will be provided for in accordance with the
Fund's understanding of the applicable country's tax rules and rates.
Reclassifications: In accordance with SOP-93-2, the Fund has recorded a
reclassification in the capital accounts. As of June 30, 2005 the Fund has
recorded a permanent book/tax differences of $2,513,823, from net
investment loss to paid-in-capital. This reclassification has no impact on
the net asset value of the Fund and is designed generally to present
undistributed income and net realized gains on a tax basis, which is
considered to be more informative to shareholders.
Use of Estimates: The preparation of financial statements in conformity
with generally accepted accounting principles 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 increases and
decreases in net assets from operations during the year. Actual results
could differ from these estimates
2. INVESTMENT ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT
The Fund has an investment advisory agreement (the "agreement") with
Foxhall Capital Management (the "Advisor"), formerly Nye, Parnell &
Emerson Capital Management, Inc. The Advisor provides the Fund with
investment advice and recommendations for investments. Under the terms of
the agreement, the Fund will pay the Advisor a monthly fee based on the
Fund's average daily net assets at the annual rate of 1.00%. For the
fiscal year ended June 30, 2005 the Advisor earned advisory fees of
$57,243. At June 30, 2005 the Fund owed the Advisor $5,188 in advisory
fees.
The Fund has an administration agreement with Foundation Management, Inc.,
an affiliate of the Advisor, (the "Administrator"). The Administrator is
responsible for the administration of the Fund and overall management of
the Fund's business affairs. Under the terms of the administrative
agreement, the Fund will pay the Administrator a monthly fee based on the
Fund's average daily net assets at the annual rate of 1.25%. For the
fiscal year ended June 30, 2005 the Administrator earned fees of $71,554.
At June 30, 2005 the Fund owed the Administrator $6,305 in administrative
fees.
The Fund has adopted a distribution plan (the "Plan").Under the Plan, if
the payment of administration fees by the Fund to the Administrator is
deemed to be indirect financing by the Fund of the distribution of its
shares, such payment is authorized by the Plan. The Plan specifically
recognizes that the Administrator may use its administration fee, to pay
for expenses incurred in connection with providing services intended to
result in the sale of Fund shares and/or shareholder support services. For
the fiscal year ended June 30, 2005 no such payments were made.
Certain directors and officers of the Fund are also directors and officers
of the Advisor and Administrator.
13
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements (continued)
June 30, 2005
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year
ended June 30, 2005 were as follows:
Purchases $21,522,201
Proceeds from sales $18,909,301
4. RESTRICTED SECURITIES
The Fund may not invest more than 15% of its net assets in securities
which are subject to legal or contractual restrictions on resale. At June
30, 2005 the Fund owned the following restricted securities (constituting
5.17% of net assets) which may not be publicly sold without registration
under the Securities Act of 1933. The Fund does not have the right to
demand that such securities be registered. The value of these securities
is determined by valuations supplied by pricing services or brokers, or if
not available, in good faith by or at the direction of the Board of
Directors. The Fund owns 200,000 shares of Empire Financial Holding Co
which it acquired November 28, 2003 at an acquisition cost of $250,000.
The market value at June 30, 2005 is $330,000.
5. FEDERAL INCOME TAXES
Income and long-term capital gain distributions are determined in
accordance with Federal income tax regulations, which may differ from
accounting principles generally accepted in the United States.
Federal tax cost of investments, including
short term investments $ 5,339,855
===========
Gross tax appreciation of investments $ 273,855
Gross tax depreciation of investments (102,907)
-----------
Net tax appreciation (depreciation) $ 170,948
===========
Undistributed ordinary income $ --
Undistributed capital gain income $ --
Accumulated capital losses $ 5,475,769
The accumulated capital loss carryovers listed above expire as follows:
Amount
----------
2008 $ 605,410
2009 $3,990,801
2010 $ 879,557
14
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SHEPHERD FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements (continued)
June 30, 2005
6. CAPITAL SHARE TRANSACTIONS
As of June 30, 2005 there were 1,000,000,000 shares of $.001 par value
capital stock authorized, of which 200,000,000 shares are classified as
the Fund's series; the balance is unclassified. The total par value and
paid-in totaled $11,342,794. Transactions in capital stock were as
follows:
June 30, 2005 June 30, 2004
Shares Amount Shares Amount
---------------------------- ----------------------------
Shares sold 773,913 $ 2,688,938 855,615 $ 3,059,355
Shares issued in
Reinvestment of dividends -- -- -- --
Shares redeemed (425,142) (1,477,394) (565,421) (2,127,317)
----------- ----------- ----------- -----------
Net increase 348,771 $ 1,211,544 290,194 $ 932,038
=========== =========== =========== ===========
15
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SHEPHERD FUNDS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Directors
of the Dominion Funds, Inc.
We have audited the accompanying statement of assets and liabilities of
Shepherd Large Cap Growth Fund (the "Fund"), the Fund comprising the Dominion
Funds, Inc., including the schedule of investments, as of June 30, 2005 and the
related statement of operations, the statement of changes in net assets and the
financial highlights for the year then ended. These financial statements and
financial highlights are the responsibility of the Fund's management. Our
responsibility is to express an opinion on these financial statements based on
our audit. The statement of changes for the year ended June 30, 2004 and the
financial highlights for each of the four years in the period then ended, were
audited by other auditors whose report dated August 5, 2004 expressed an
unqualified opinion on this information.
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 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 June 30, 2005, by correspondence with the
custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
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
Fund as of June 30, 2005, the results of its operations for the year then ended,
the changes in its net assets and the financial highlights for the period
indicated therein, in conformity with accounting principles generally accepted
in the United States of America.
Abington, Pennsylvania Sanville & Company
August 17, 2005
16
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SHEPHERD FUNDS
ADDITIONAL INFORMATION
Information about Directors
The business and affairs of the Fund are managed under the direction of the
Fund's Board of Directors. Information pertaining to the directors of the Fund
is set forth below. The SAI includes additional information about the Fund's
directors and is available, without charge, upon request by calling (800) 416
2053.
Term of Other
Office and Directorships
Name, Position Held Length of Principal Occupation(s) Held by
Address and Age with Fund Time Served During Past 5 Years Director
- -----------------------------------------------------------------------------------------------------------------------------------
Interested Directors
Paul Dietrich * Chairman, Indefinite President and Managing Director of None
35955 Huntland Farm Road President, term; Director Eton Court Asset Management, Ltd.
Middleburg, VA 20117 Director since 2001; ("Eton Court") (parent of Foxhall
Age: 56 Chairman since Capital Management, Inc., the
2002; President Fund's investment advisor) and
since 2003 President of Foundation
Management, Inc., the Fund's
administrator (1999 - present).
Non-Interested Directors
Douglas W. Powell Director Indefinite Registered representative of New None
4101 McEwen term; Director Investor World Incorporated (2000
Suite 110 since 1999 - present); COO/CFO NIW Holdings,
Dallas, TX 75244 Inc. (2002 - Present); CEO
Age: 65 Rushmore Investment Management
Corp. (2001 -2002); Chairman and
Chief Executive Officer of
Northstar Financial Group (1995 -
2001).
* This director is considered an "interested person" as defined in the
Investment Company Act of 1940 because of his affiliations with Foxhall
Capital Management, Inc., the Fund's investment advisor, and Foundation
Management, Inc., the Fund's administrator.
Quarterly Portfolio Schedule
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 without charge, upon request, by calling 1-800-416-2053. The Forms
N-Q are also available on the SEC's website at http://www.sec.gov and may be
reviewed and copied at the SEC's Public Reference Room in Washington, DC, and
information on the operation of the Public Reference Room may be obtained by
calling 1-800-SEC-0330.
17
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SHEPHERD FUNDS
Proxy Voting Policies and Procedures
The Fund has adopted proxy voting policies and procedures that delegate to
Foxhall Capital Management, Inc., the Fund's investment advisor (the "Advisor"),
the authority to vote proxies. A description of the Fund's proxy voting policies
and procedures is available without charge, upon request, by calling the Fund
toll free at 1-800-416-2053. A description of these policies and procedures is
also included in the Fund's Statement of Additional Information, which is
available on the SEC's website at http://www.sec.gov.
Proxy Voting Record
The actual voting records relating to portfolio securities during the most
recent twelve month period ended June 30 are available without charge by calling
1-800-416-2053 or by accessing the SEC's website at http://www.sec.gov.
Change of Principal Independent Accountant
On June 15, 2005, Brad A. Kinder, CPA resigned as the Fund's principal
independent accountant. The decision to change accountants was recommended or
approved by the board of directors. The principal accountant's report on the
financial statements for each of the past two years did not contain an adverse
opinion or a disclaimer of opinion, nor was it qualified or modified as to
uncertainty, audit scope, or accounting principles. During the Fund's two most
recent fiscal years and any subsequent interim period preceding such
resignation, there were no disagreements with the former accountant on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope of procedure, which disagreement(s), if not resolved to the
satisfaction of the former accountant, would have caused it to make reference to
the subject matter of the disagreement(s) in connection with its report.
On July 6, 2005, the Fund's Board of Directors engaged Sanville & Company
("Sanville") as the Fund's auditor for the fiscal year ending June 30, 2005.
Neither the Fund nor anyone on its behalf consulted with Sanville on items which
(i) concerned the application of accounting principles to a specified
transaction, 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 or a reportable event (as described in paragraph
(a)(1)(v) of said Item 304).
A Note on Forward Looking Statements
Except for historical information contained in the annual report for the Fund,
the matters discussed in this report may constitute forward-looking statements
made pursuant to the safe-harbor provisions of the Private Securities Litigation
Reform Act of 1995. These include any advisor or portfolio manager predictions,
assessments, analyses or outlooks for individual securities, industries, market
sectors and/or markets. These statements involve risks and uncertainties. In
addition to the general risks described for the Fund in the current Prospectus,
other factors bearing on this report include the accuracy of the advisor's or
portfolio manager's forecasts and predictions, and the appropriateness of the
investment programs designed by the advisor or portfolio manager to implement
their strategies efficiently and effectively. Any one or more of these factors,
as well as other risks affecting the securities markets and investment
instruments generally, could cause the actual results of the Fund to differ
materially as compared to benchmarks associated with the Fund.
18
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SHEPHERD FUNDS
ANNUAL REPORT
JUNE 30, 2005
Investment Advisor Transfer Agent Distributor
------------------ -------------- -----------
Foxhall Capital Management, Inc. Fund Services, Inc. Cullum & Burks Securities, Inc.
1613 Duke Street 8730 Stony Point Pkwy 13355 Noel Road, Suite 1300,
Alexandria, VA 22314 Suite 205 One Galleria Tower
(800) 416 2053 Richmond, VA 23235 Dallas, TX 75240
(800) 628 4077 (972) 755 0270
Administrator Independent Auditors Legal Counsel
------------- -------------------- -------------
Foundation Management, Inc. Sanville & Company Frederick C. Summers, III, P.C.
35955 Huntland Farm Road Certified Public Accountants Attorney at Law
Middleburg, VA 20117 1514 Old York Road 8235 Douglas Ave., Suite 1111
(800) 416 2053 Abington, PA 19001 Dallas, TX 75225
Officers Directors Custodian
-------- --------- ---------
Paul Dietrich Paul Dietrich First Southwest Company
Chairman, President 1700 Pacific, Suite 500
Douglas W. Powell Dallas, TX 75201
19
Item 2. Code of Ethics.
The Registrant has adopted a code of ethics that applies to its principal
executive officer, principal financial officer and principal accounting officer.
Item 3. Audit Committee Financial Expert.
The registrant does not have an audit committee financial expert. The registrant
does not have an audit committee financial expert because the small size of the
registrant limits the ability of the registrant's Administrator to engage an
audit committee financial expert.
Item 4. Principal Accountant Fees and Services.
(a) Audit Fees. The aggregate fees billed for each of the last two fiscal years
for professional services by the principal accountant for the audit of the
registrant's annual financial statements, or services that are normally provided
by the accountant in connection with statutory and regulatory filings or
engagements for those fiscal years, were as follows:
Year ended June 30,
2004 2005
$6,000 $6,000
(b) Audit-Related Fees. The aggregate fees billed in each of the last two fiscal
years for assurance and related services by the principal accountant that are
reasonably related to the performance of the audit of the registrant's financial
statements and are not reported under "Audit Fees" above were as follows:
Year ended June 30,
2004 2005
$-0- $-0-
(c) Tax Fees. The aggregate fees billed in each of the last two fiscal years for
professional services rendered by the principal accountant for tax compliance,
tax advice and tax planning were as follows:
Year ended June 30,
2004 2005
$2,000 $2,000
The nature of the services comprising the fees disclosed under this category was
the preparation of registrant's Federal income tax return.
(d) All Other Fees. The aggregate fees billed in each of the last two fiscal
years for products and services provided by the principal accountant, other than
the services reported in the above categories were as follows:
Year ended June 30,
2004 2005
$-0- $-0-
(e)(1) Disclose the audit committee's pre-approval policies and procedures
described in paragraph (c)(7) of Rule 2-01 of Regulation S-X.
The registrant does not have an audit committee.
(2) Disclose the percentage of services described in each of paragraphs (b)
through (d) of this Item that were approved by the audit committee pursuant to
paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
The registrant does not have an audit committee.
(f) If greater than 50 percent, disclose the percentage of hours expended on the
principal accountant's engagement to audit the registrant's financial statements
for the most recent fiscal year that were attributed to work performed by
persons other than the principal accountant's full-time, permanent employees.
- -Not applicable-
(g) Disclose the aggregate non-audit fees billed by the registrant's accountant
for services rendered to the registrant, and rendered to the registrant's
investment adviser, and any entity controlling, controlled by, or under common
control with the adviser that provides ongoing services to the registrant for
each of the last two fiscal years of the registrant.
Year ended June 30,
2004 2005
$2,000 $2,000
20
(h) Disclose whether the registrant's audit committee of the board of directors
has considered whether the provision of non-audit services that were rendered to
the registrant's investment adviser, and any entity controlling, controlled by,
or under common control with the investment adviser that provides ongoing
services to the registrant that were not pre-approved pursuant to paragraph
(c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the
principal accountant's independence.
The registrant does not have an audit committee.
Item 5. Audit Committee of Listed Registrants
Not applicable to open-end investment companies.
Item 6. Schedule of Investments
The schedule is included as part of the report to shareholders 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.
The registrant does not currently have procedures by which shareholders may
recommend nominees to the registrant's board of directors.
Item 10. Controls and Procedures.
(a) Based on their evaluation of registrant's disclosure controls and procedures
(as defined in rule 30a-3(c) under the Investment Company Act of 1940) as of the
filing date of this report, registrant's principal executive officer and
principal financial officer found such disclosure controls and procedures to be
effective.
(b) There were no significant changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment Company
Act of 1940) that occurred during the registrant's second fiscal quarter of the
period covered by this report that have materially affected, or are reasonably
likely to materially affect, the registrant's internal control over financial
reporting.
Item 11. Exhibits.
(a) Any code of ethics. Previously filed.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed herewith.
21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
Dominion Funds, Inc.
By: /S/ Paul Dietrich
------------------------
Paul Dietrich, President
Date: August 31, 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 persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /S/ Paul Dietrich
------------------------
Paul Dietrich, principal executive and principal financial officer
Date: August 31, 2005