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 811-6727
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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
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Date of fiscal year end: June 30
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Date of reporting period: 07/01/06 --- 6/30/07
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Item 1. Reports to Stockholders.
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SHEPHERD -------- FUNDS
ANNUAL REPORT
JUNE 30, 2007
SHEPHERD LARGE CAP GROWTH FUND
A SERIES OF DOMINION FUNDS, INC.
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AUGUST 29, 2007
SHEPHERD LARGE CAP GROWTH FUND
Dear Fund Shareholders,
For the year ended June 30, 2007, the SHEPHERD LARGE CAP GROWTH FUND increased
13.64% compared to the S&P 500 Index which increased 18.36% for the same period.
I am very pleased with our performance so far this year! Our performance for the
first six months of 2007 was 14.42% compared to the S&P 500 Index of only 6.00%
for the same period.
ECONOMIC FORECAST FOR 2007 AND EARLY 2008
FIRST, I DO NOT BELIEVE THAT THE ECONOMIC `SOFT PATCH' CAUSED BY THE SUB-PRIME
LOAN CRISIS IS A FORERUNNER OF A RECESSION. Our primary FOXHALL computer model
does not indicate that we are entering into a recession or major bear market.
In early 2008, we should see a pickup of economic growth, in part because of the
probable bottoming out in the housing down cycle and a restoration of some
stability to the global energy markets. I also expect the Federal Reserve to
provide a bit more support in the form of a reduction in borrowing costs in
early 2008, or if they surprise me, as early as next month.
As for consumer spending, high debt levels and slowing payroll growth may hold
retailing to a mild uptrend, at best, next year. Finally the capital goods
market and commercial construction may do well, but will just be steady rather
than explosive. STANDARD AND POORS predicts U.S. GDP growth of 2.5% next year,
which would still be somewhere below the long-term trend of the U.S. economy.
The good news is that Asia and emerging markets will continue to grow two to
four times faster than the U.S. and that will help major U.S. corporate profits.
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!
/s/ Paul Dietrich
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.
1630 DUKE STREET, SUITE 200, ALEXANDRIA, VIRGINIA 22314
703/683-8575 FAX 703/683-9083
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SHEPHERD -------- FUNDS
TABLE OF CONTENTS
Page
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INVESTMENT HIGHLIGHTS..................................................... 3
EXPENSE EXAMPLE........................................................... 6
Schedule of Investments................................................... 7
Statement of Assets and Liabilities....................................... 9
Statement of Operations................................................... 10
Statement of Changes in Net Assets........................................ 11
Financial Highlights...................................................... 12
Notes to Financial Statements............................................. 13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM................... 17
ADDITIONAL INFORMATION.................................................... 18
1630 DUKE STREET, SUITE 200, ALEXANDRIA, VIRGINIA 22314
703/683-8575 FAX 703/683-9083
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SHEPHERD -------- FUNDS
INVESTMENT HIGHLIGHTS
For the fiscal year June 30, 2006 to June 30, 2007, the Fund underperformed the
S&P 500 Index by 13.64% to 18.36%%. During this period, it has been a
challenging investment environment for the stock market, with high oil prices
causing a major pull back in the late summer of 2006, along with a slowing
economy and an unstable situation in Iraq and the Middle East.
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." The Fund also manages risk by being globally diversified.
Also, FOXHALL CAPITAL has always believed that in uncertain markets, 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.
The fact that we held at some times a significant percentage of the Fund in cash
and other conservative defensive stocks during the year for risk management
purposes accounts for our underperforming the stock indices for the period June
30, 2006 to June 30, 2007.
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 approximately 70% 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 Fund includes U.S. stocks and international stocks. The Fund's investment
advisor manages risk in the Fund by increasing the allocation of the money
market securities when the stock market is going thru a recession or major
correction. The investment advisor also manages risks and limits losses by
internationally diversifying the overall investment portfolio, so individual
country risk (including country risk in the US), is minimized.
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.
3
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SHEPHERD -------- FUNDS
Top Ten Holdings and Asset Allocation
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June 30, 2007
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(% of Net (% of Net
Top Ten Holdings Assets) Asset Allocation by Sector Assets)
Terra Industries Inc. 4.8% Industrials 43.6%
AK Steel Holding Corp. 4.7% Exchange Traded Funds 14.5%
CNH Global N.V. 4.3% Short-Term Investments 13.6%
Siliconware Precision Hardware 11.0%
Industries 4.1% Business Services 10.5%
Amkor Technology Inc. 4.1% Consumer Services 3.7%
Greif Inc. 4.0% Financial 3.4%
Northern Dynasty Minerals Ltd. 4.0% Liabilities in excess of
Arcelor Mittal (Netherlands) 3.9% Other assets (0.3%)
Owens-Illinois, Inc. 3.8% --------
MSCI Emerging Markets Index 3.7% 100.0%
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41.4%
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4
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SHEPHERD -------- FUNDS
Fund Performance
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.
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 information was depicted as a line graph in the printed material]
Shepherd Large Cap Growth Fund S&P 500 Index
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6/30/1997 $ 9,525.00 $10,000.00
9/30/1997 $12,824.67 $10,702.04
12/2/1997 $10,411.75
12/31/1997 $ 9,769.20 $10,963.58
3/31/1998 $11,740.51 $12,447.18
6/30/1998 $10,954.48 $12,809.73
9/30/1998 $ 9,725.53 $11,489.82
12/3/1998 $10,698.71
12/31/1998 $12,434.02 $13,887.41
3/31/1999 $13,567.00 $14,532.96
6/25/1999 $12,919.58
6/30/1999 $13,745.00 $15,508.39
9/30/1999 $14,850.34 $14,491.61
12/3/1999 $19,573.89
12/31/1999 $21,809.60 $16,599.07
3/31/2000 $26,025.51 $16,930.43
6/30/2000 $23,242.28 $16,433.56
9/30/2000 $22,594.38 $16,229.18
12/1/2000 $16,886.83
12/31/2000 $15,869.79 $14,916.06
3/31/2001 $ 9,921.01 $13,109.00
6/30/2001 $10,726.98 $13,832.61
9/30/2001 $ 6,697.16 $11,760.17
12/31/2001 $ 8,980.73 $12,970.60
3/31/2002 $ 8,213.14 $12,962.81
6/30/2002 $ 6,562.84 $11,182.64
9/30/2002 $ 5,699.31 $ 9,210.86
12/31/2002 $ 5,641.74 $ 9,939.90
3/31/2003 $ 5,507.41 $ 9,582.44
6/30/2003 $ 6,351.75 $11,009.67
9/30/2003 $ 6,620.41 $11,252.12
12/31/2003 $ 7,061.77 $12,562.08
3/31/2004 $ 7,522.32 $12,723.52
6/30/2004 $ 6,754.73 $12,888.81
9/30/2004 $ 6,370.94 $12,592.13
12/31/2004 $ 6,931.58 $13,691.85
3/31/2005 $ 6,869.87 $13,337.89
6/30/2005 $ 6,927.44 $13,459.23
9/30/2005 $ 7,777.25 $13,882.66
12/31/2005 $ 7,790.97 $14,102.74
3/31/2006 $ 8,817.92 $14,628.42
6/30/2006 $ 8,443.42 $14,350.27
9/30/2006 $ 7,714.21 $15,091.85
12/31/2006 $ 8,385.85 $16,023.45
3/31/2007 $ 8,750.45 $16,052.38
6/30/2007 $ 9,594.79 $16,984.32
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 6/30/07
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1 Year 5 Years 10 Years
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8.24% -3.15% -1.26%
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5
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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, 2007 through June 30, 2007).
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, 2007
January 1, 2007 June 30, 2007 to June 30, 2007
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Actual $1,000.00 $1,144.16 $11.96
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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).
6
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SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Schedule of Investments
June 30, 2007
Shares Value
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COMMON STOCKS - 72.2%
Agriculture - 4.8%
Terra Industries Inc. * 17,050 $ 433,411
Agriculture Machinery - 4.3%
CNH Global N.V. (Netherlands) 7,685 391,605
Automotive Retail - 3.7%
Carmax Inc. * 13,210 336,855
Building Materials - 3.8%
Owens-Illinois, Inc. * 9,945 348,075
Business Support - 3.5%
Teletech Holdings Inc. * 9,705 315,218
Distributors - 3.5%
Avnet Inc. * 7,960 315,534
Financial - 3.4%
Empire Financial Holding Co. * 200,000 290,000
Waterside Capital Corporation * 4,300 20,296
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310,296
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Basic Materials - 4.0%
Northern Dynasty Minerals Ltd. * 30,700 361,032
Mining (Non-Ferrous & Non-Metals) - 3.5%
Vulcan Materials 2,750 314,985
Paper - 7.6%
Greif Inc. 6,160 367,198
Temple-Inland Inc. 5,210 320,571
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687,769
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1630 DUKE STREET, SUITE 200, ALEXANDRIA, VIRGINIA 22314
703/683-8575 FAX 703/683-9083
7
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SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Schedule of Investments (Continued)
June 30, 2007
Shares Value
-------------- --------------
Semiconductors - 6.9%
Amkor Technology Inc. * 23,445 $ 369,259
On Semiconductor Corp. * 24,515 262,801
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632,060
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Semiconductor Equipment - 4.1%
Siliconware Precision Industries Co. Ltd. 34,269 376,959
Specialty-Natural Resources - 3.5%
SPDR S&P Metals & Mining 5,104 318,285
Steel/Iron - 8.5%
AK Steel Holding Corp. * 11,355 424,336
Arcelor Mittal * (Netherlands) 5,645 352,248
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776,584
--------------
Truck Makers - 3.6%
Navistar International Corp. * 5,070 334,620
Water Transport - 3.5%
Ship Finance International Ltd. 10,701 317,606
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TOTAL COMMON STOCKS (Cost $5,511,487) -72.2% 6,570,894
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EXCHANGE TRADED FUNDS - 14.5%
IShares MSCI Austria 8,150 326,326
MSCI Emerging Markets Index Fund 2,580 338,935
WisdomTree Europe Small Cap Dividend 4,365 317,597
WisdomTree Pacific ex-Japan
Hi-Yield Equity 4,510 330,312
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TOTAL EXCHANGE TRADED FUNDS (Cost $1,198,581) 1,313,170
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SHORT TERM INVESTMENTS - 13.6%
Tamarack US Government Money Market
Fund - 4.59% 1,235,979
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TOTAL INVESTMENTS (Cost $7,946,047) -100.3% 9,120,043
Liabilities in excess of other assets -
Net - (0.3%) (23,782)
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NET ASSETS - 100% $ 9,096,261
==============
* Non-income producing during the year.
** Variable rate security. The rate shown was the rate as of June 30, 2007.
The accompanying notes are an integral part of these financial statements
8
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SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Statement of Assets and Liabilities
June 30, 2007
ASSETS
Investments in securities, at value
(cost of $7,946,047) $ 9,120,043
Dividends and interest receivable 2,797
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Total Assets 9,122,840
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LIABILITIES
Payable to custodian 9,920
Payable to advisor 5,093
Payable to administrator 11,566
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Total Liabilities 26,579
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NET ASSETS $ 9,096,261
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NET ASSETS CONSIST OF:
Capital stock - par value $ 1,820
Paid in capital 11,760,584
Accumulated net realized loss (3,840,140)
Net unrealized appreciation 1,173,997
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NET ASSETS $ 9,096,261
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CAPITAL SHARES OUTSTANDING
(200,000,000 authorized shares; $.001 par value) 1,819,615
==============
NET ASSET VALUE PER SHARE $ 5.00
==============
OFFERING PRICE PER SHARE (net asset value plus
sales charge of 4.75% of the offering price) $ 5.25
==============
The accompanying notes are an integral part of these financial statements.
9
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SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Statement of Operations
For the Year Ended June 30, 2007
Investment Income
Dividends (net of foreign taxes withheld of $1,197) $ 115,564
Interest 60,378
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Total investment income 175,942
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Expenses
Advisory and management fees (Note 2) 81,025
Administrative expenses (Note 2) 101,858
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Total expenses 182,883
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Net Investment Loss (6,941)
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Realized and Unrealized Gain
on Investments (Note 4)
Net realized gain on investments 1,060,808
Capital gain distributions from underlying fund 1,385
Net change in unrealized appreciation on investments 160,207
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Net realized and unrealized gain on Investments 1,222,400
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Net Increase in Net Assets Resulting from Operations $ 1,215,459
==============
The accompanying notes are an integral part of these financial statements.
10
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SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Statement of Changes in Net Assets
For the Years Ended June 30, 2007 and 2006
2007 2006
-------------- --------------
Increase in Net Assets from Operations
Net investment loss $ (6,941) $ (93,270)
Net realized gain on investments 1,060,808 573,436
Capital gain distributions from
underlying fund 1,385 --
Net change in unrealized
appreciation/(depreciation)on
investments 160,207 842,842
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Net increase in net assets resulting
from Operations 1,215,459 1,323,008
Distributions to shareholders -- --
Capital Share Transactions (Note 5) 701,811 (524,204)
-------------- --------------
Total Increase 1,917,270 798,804
Net Assets
Beginning of year 7,178,991 6,380,187
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End of year (includes undistributed net
investment loss - $0 and $0,
respectively) $ 9,096,261 $ 7,178,991
============== ==============
The accompanying notes are an integral part of these financial statements.
11
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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,
- --------------------------------------------------------------------------------------------------------------
2007 2006 2005 2004 2003
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PER SHARE DATA
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Net asset value, beginning of period $ 4.40 $ 3.61 $ 3.52 $ 3.31 $ 3.42
- --------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment loss (a) (0.00) (0.06) (0.04) (0.05) (0.04)
Net realized and unrealized
gain (loss) on investments 0.60 0.85 0.13 0.26 (0.07)
--------- --------- --------- --------- ---------
Total from investment operations 0.60 0.79 0.09 0.21 (0.11)
- --------------------------------------------------------------------------------------------------------------
Less distributions -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------
Net asset value, end of period $ 5.00 $ 4.40 $ 3.61 $ 3.52 $ 3.31
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Total Return (b) 13.64% 21.88% 2.56% 6.34% (3.22)%
- --------------------------------------------------------------------------------------------------------------
Ratios and Supplemental Data:
Net assets, end of period (000's) $ 9,096 $ 7,179 $ 6,380 $ 4,990 $ 3,739
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 (0.09)% (1.33)% (1.28)% (1.37)% (1.33)%
Portfolio turnover rate 382.33% 190.31% 487.33% 258.84% 235.79%
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(a) Per share net investment loss has been determined on the basis of average
number of shares outstanding during the period.
(b) Sales load is not reflected in total return
The accompanying notes are an integral part of these financial statements.
12
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SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements
June 30, 2007
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.
Foreign currency: Investment securities and other assets and liabilities
denominated in foreign currencies are translated into U.S. dollar amounts
at the date of valuation. Purchases and sales of investment securities and
income and expense items denominated in foreign currencies are translated
into U.S. dollar amounts on the respective dates of such transactions.
The Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held.
Such fluctuations are included with the net realized and unrealized gain
or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales of
foreign currencies, currency gains or losses realized between the trade
and settlement dates on securities transactions, and the difference
between the amounts of dividends, interest, and foreign withholding taxes
recorded on the Fund's books and the U.S. dollar equivalent of the amounts
actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the fair values of assets and liabilities,
other than investments in securities at fiscal period end, resulting from
changes in exchange rates.
13
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- ----------------------------------- SHEPHERD -----------------------------------
SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements (continued)
June 30, 2007
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
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.
New Accounting Pronouncements- In June 2006, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 48 - Accounting for
Uncertainty in Income Taxes that requires the tax effects of certain tax
positions to be recognized. These tax positions must meet a "more likely
than not" standard that based on their technical merits, they have a more
than 50 percent likelihood of being sustained upon examination. FASB
Interpretation No. 48 is effective for fiscal periods beginning after
December 15, 2006. At adoption, the financial statements must be adjusted
to reflect only those tax positions that are more likely than not of being
sustained. Management of the Fund is currently evaluating the impact that
FASB Interpretation No. 48 will have on the Fund's financial statements.
In September 2006, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 157, "Fair Value
Measurements". The Statement defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles
("GAAP"), and expands disclosures about fair value measurements. The
Statement establishes a fair value hierarchy that distinguishes between
(1) market participant assumptions developed based on market data obtained
from sources independent of the reporting entity (observable inputs) and
(2) the reporting entity's own assumptions about market participant
assumptions developed based on the best information available in the
circumstances (unobservable inputs). The Statement is effective for
financial statements issued for fiscal years beginning after November 15,
2007, and is to be applied prospectively as of the beginning of the fiscal
year in which this Statement is initially applied. At this time,
management is evaluating the implications of FAS 157, and the impact, if
any, of this standard on the Fund's financial statements has not yet been
determined.
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, 2007 the Fund has
recorded a permanent book/tax differences of $2,614,034, 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.
14
--------
- ----------------------------------- SHEPHERD -----------------------------------
SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements (continued)
June 30, 2007
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued)
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, 2007 the Advisor earned advisory fees of
$81,025. At June 30, 2007 the Fund owed the Advisor $5,093 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, 2007 the Administrator earned fees of $101,858.
At June 30, 2007 the Fund owed the Administrator $11,566 in administrative
fees.
2. INVESTMENT ADVISORY AGREEMENT AND ADMINISTRATION AGREEMENT (Continued)
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, 2007 no such payments were made.
Certain directors and officers of the Fund are also directors and officers
of the Advisor and Administrator.
3. INVESTMENT TRANSACTIONS
Investment transactions, excluding short-term investments, for the year
ended June 30, 2007 were as follows:
Purchases $ 25,178,609
Proceeds from sales $ 24,604,331
15
--------
- ----------------------------------- SHEPHERD -----------------------------------
SHEPHERD -------- FUNDS
DOMINION FUNDS, INC.
SHEPHERD LARGE CAP GROWTH FUND
Notes to Financial Statements (continued)
June 30, 2007
4. 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. The
difference between federal tax cost of investments and book cost is due to
wash sales, which are temporary book tax differences.
Federal tax cost of investments, including short
term investments $ 7,954,025
==============
Gross tax appreciation of investments $ 1,228,953
Gross tax depreciation of investments (46,979)
--------------
Net tax appreciation $ 1,181,974
==============
Undistributed ordinary income $ --
Undistributed capital gain income $ --
Accumulated capital losses $ 3,840,140
The accumulated capital loss carryovers listed above expire as follows:
Amount
--------------
2009 $ 2,960,582
2010 $ 879,558
5. CAPITAL SHARE TRANSACTIONS
As of June 30, 2007 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 capital totaled $11,762,404. Transactions in capital stock were as
follows:
June 30, 2007 June 30, 2006
-------------------------- --------------------------
Shares Amount Shares Amount
----------- ----------- ----------- -----------
Shares sold 980,246 $ 4,240,041 316,611 $ 1,357,131
Shares issued in
Reinvestment of
dividends -- -- -- --
Shares redeemed (793,763) (3,538,230) (451,064) (1,881,335)
----------- ----------- ----------- -----------
Net increase
(decrease) 186,483 $ 701,811 (134,453) $ (524,204)
=========== =========== =========== ===========
6. CONTROL AND 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. As of
June 30, 2007, FTC & CO. owned approximately 48% of the Fund, for the
benefit of others.
16
--------
- ----------------------------------- SHEPHERD -----------------------------------
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, 2007 and the
related statements of operations for the year then ended, changes in net assets
for each of the two years in the period then ended and financial highlights for
each of the three years in the period 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 and
financial highlights based on our audits. The financial highlights for each of
the two years in the year ended June 30, 2004, were audited by other auditors
whose report dated August 5, 2004 expressed an unqualified opinion on the
financial highlights.
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 June 30, 2007, 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
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
Fund as of June 30, 2007, 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 31, 2007
17
--------
- ----------------------------------- SHEPHERD -----------------------------------
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 Statement of Additional Information includes additional
information about the Fund's directors and is available, without charge, upon
request by calling (800) 416 2053.
Term of Other
Position Office and Directorships
Name, Held with Length of Principal Occupation(s) Held by
Address and Age Fund Time Served During Past 5 Years Director
- ---------------------------------------------------------------------------------------------------------------------
Interested Directors
Paul Dietrich * Chairman, Indefinite President and Managing Director None
10308 Jacksontown Road President, term; of Eton Court Asset Management,
Delaplane, VA 20144 Director Director Ltd. ("Eton Court") (parent of
Age: 58 since 2001; Foxhall Capital Management, Inc.,
Chairman the Fund's investment advisor)
since 2002; and President of Foundation
President Management, Inc., the Fund's
since 2003 administrator (1999 - present).
Non-Interested Directors
Douglas W. Powell Director Indefinite Registered representative of New None
4101 McEwen term; Investor World Incorporated (2000
Suite 110 Director - present); COO/CFO NIW Holdings,
Dallas, TX 75244 since 1999 Inc. (2002 - Present); CEO
Age: 67 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.
18
--------
- ----------------------------------- SHEPHERD -----------------------------------
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.
Advisory Contract Renewal
On September 27, 2006, the Board of the Directors of the Fund approved the
continuance for one additional year of the Fund's investment advisory agreement
dated November 1, 1999 (the "Advisory Agreement") with the Advisor.
In connection with such approval, the Board of Directors considered such matters
as it considered relevant, including the following:
1. The terms and conditions of Advisory Agreement, including the
nature, quality and scope of the investment management services and
the fees charged for their services;
2. The Directors' legal duties in approving the Advisory Agreement;
3. The Advisor's investment performance;
4. The Advisor's personnel and method of analysis;
5. Possible conflicts of interest;
6. Overall Fund expenses; and
7. Brokerage and portfolio transactions.
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.
19
--------
- ----------------------------------- SHEPHERD -----------------------------------
SHEPHERD -------- FUNDS
ANNUAL REPORT
JUNE 30, 2007
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 Registered Public Legal Counsel
Accounting Firm
Foundation Management, Inc. Frederick C. Summers, III, P.C.
10308 Jacksontown Road Sanville & Company Attorney at Law
Delaplane, VA 20144 Certified Public Accountants 8235 Douglas Ave., Suite 1111
(800) 416 2053 1514 Old York Road Dallas, TX 75225
Abington, PA 19001
Officers Directors Custodian
Paul Dietrich Paul Dietrich RBC Dain Rauscher, Inc.
Chairman, President 510 Marquette Ave.
Douglas W. Powell Minneapolis, MN 55402-1106
20
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.
The Registrant will provide to any person without charge, upon request, a copy
of such code of ethics, by calling the Registrant at 1-800-416-2053.
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,
2006 2007
$9,200 $11,000
(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,
2006 2007
$-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,
2006 2007
$1,000 $1,200
The nature of the services comprising the fees disclosed under this category was
preparation of tax returns.
(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,
2006 2007
$-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,
2006 2007
$-0- $-0-
(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 11. 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 12. Exhibits.
(a) Any code of ethics. Previously filed.
(b) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Filed 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 authorized.
Dominion Funds, Inc.
By: /S/ Paul Dietrich
------------------------
Paul Dietrich, President
Date: September 5, 2007
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: September 5, 2007