N-CSR/A 1 ncsr0312.txt REPORT TO SHAREHOLDERS 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 811-09134 Manor Investment Funds, Inc. (Exact name of registrant as specified in charter) 15 Chester Commons, Malvern, PA 19355 (Address of principal executive offices) Daniel A. Morris 15 Chester Commons, Malvern, PA 19355 (Name and address of agent for service) Registrant's telephone number, including area code: 610-722-0900 Date of fiscal year end: December 31 Date of reporting period: December 31, 2003 Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270-30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection and policymaking roles. A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection if information under the clearance requirement of 44 U.S.C. 3507. Item 1. Reports to Stockholders. Manor Investment Funds, Inc. 15 Chester Commons, Malvern, PA 19355 610-722-0900 800-787-3334 Semi-Annual Report December 31, 2003 Fund Office: 15 Chester Commons Malvern, PA 19355 610-722-0900 800-787-3334 www.manorfunds.com Managed by: Morris Capital Advisors, Inc. Manor Investment Funds, Inc. 15 Chester Commons Malvern, PA 19355 December 31, 2003 Dear Fellow Shareholders: The stock market finished 2003 on a positive note, capping off a strong year. In fact, the Manor Fund registered its best calendar year performance since the Fund was established more than 8 years ago. The stock market rally, and inflows from shareholders boosted Fund assets over $6.9 million. The Market Conspiracy The financial markets seem to conspire to inflict the maximum amount of pain on the maximum number of people. The market decline that started in 2000 was a classic example. After years of spectacular returns, investors became so enamored by the stock market that they ignored the risk and continued to invest. The market didn't decline until enthusiasm for stocks was universal. The decline was brutal by any measure. It was long and difficult, lasting 3 years and dropping more than 50% from the top. Sharp sell offs in July and October of 2002 brought stocks to 5-year lows. That's a lot of pain for a lot of people. In the Fall of 2002, the Dow set new lows at 7,286 and Bill Gross, a prominent bond manager, wrote a widely publicized piece calling for Dow 5,000. The news was full of corporate scandals (Enron, Worldcom, Tyco, and Adelphia), economic uncertainties, terrorism, nuclear confrontations, and conflicts in Afghanistan and Iraq. The stock market faced high valuations, excess capacity at many companies, and highly publicized conflicts of interest among Wall Street analysts. Investors expected only a modest rebound during 2003, at best. But last year stocks rose more than 28%, recovering all of the decline in the S&P 500 the year before, and then some. So, now what? This year I expect that reasonable valuations and stronger economic growth will contribute to another year of above average returns in the stock markets. Reasonable Valuation It is important to get some measure of market valuation when projecting future performance. I monitor the relationship between earnings on the S&P 500 Index and the yield of the 10-year Treasury Note. This indicator, known as the P-Stat, is also used by Alan Greenspan at the Fed. On the first chart the bold line charts P-Stat. The higher the line the greater the risk of overvaluation in the market. In fact, the peak of this measure above the year 2000 coincides with the speech when Alan Greenspan expressed his concern about the markets when he said that there were signs of "irrational exuberance" by investors. At present, this measure is very close to the lower band, illustrating that the market is reasonably valued at this point. The slight uptick at the end of the graph demonstrates the impact on this measure assuming a rise in interest rates this year and a modest increase in earnings. The P-Stat will remain low if rates remain low, or if earnings increase more than expected, demonstrating that valuations are reasonable for the current year. The second graph illustrates the earnings growth in the S&P 500 index on a year-over-year basis. As illustrated on the far right of the chart, the growth assumption used in the P-Stat measure above is not inconsistent with the typical growth rate of earnings over the last several decades. Economic Growth The economy is well positioned to continue the rebound that began during 2003. Interest rates are low and the Fed has stated its desire to keep them low. Low interest rates, combined with a weak dollar, lean inventories, and improved productivity will feed economic growth. Accelerating growth will spur employment, once corporations overcome their reluctance to expand capacity. Better economic growth will fuel earnings growth. Combining higher earnings, low interest rates and improving investor psychology, will provide the fuel to sustain the market advance. The Manor Fund The Manor Fund rose 12.06% during the quarter, and 31.56% for the year, outperforming the S&P 500 during the trailing year, and the Lipper Large-Cap Core mutual fund index during both time periods. The Fund was helped by gains in Alcan, KB Home, General Motors, Occidental Petroleum, and Tyco International. Alcan rallied as the growing economy contributed to accelerated revenues and earnings at this maker of aluminum products. KB Home continued its strong performance as residential home sale remained strong despite expectations of a slowdown. General Motors rallied as concerns about their under-funded pension plan abated. The company increased funding for the plan earlier in the year by borrowing at low interest rates to increase funding and then investing those funds at an opportune time in the markets. Occidental Petroleum rallied as persistently high oil prices contributed to strong earnings. Tyco International continued to rebound as new management refocused this company on the operating strengths of the core business segments. The Fund was hurt by weak performance by Citrix Systems, PepsiCo, Johnson & Johnson, Exelon, and Anthem. Citrix declined during the quarter, but it recorded one of the best gains in the portfolio for the year. PepsiCo lagged on sluggish top line revenue growth, while Johnson & Johnson languished on investor concerns about prospects a major new product. Exelon, an electric utility company lagged the market as would be expected in a strong market rally. Anthem also underperformed as investors shifted funds from the defensive medical sector to invest in more growth oriented technology companies. During the quarter we took some gains in Best Buy, one of our top performers, to prevent this holding from becoming too heavily weighted in the portfolio. Later in the quarter we increased our position in Intel, for the first time since January 1999, as the company is beginning to show signs of improved earnings growth. The Growth Fund The Growth Fund rose 12.58% during the quarter and 30.23% for the year, outperforming the S&P 500 and the Lipper Large-Cap Growth mutual fund index for each time period since inception. The Fund was helped by gains in Xlinix, Vishay Intertechnology, Ebay, Qualcomm, and Hospitality Properties. Xlinix and Vishay both rallied as increased demand for communications equipment boosted revenue. Xilinx makes communications chips that can be programmed by the user to perform specific functions, while Vishay makes many of the basic resistors and capacitors used in electronic devices. Demand for Vishay products is often a good indicator of the direction computer equipment. Ebay continues to be one of our strongest performers due to the continued growth of the internet auction business. Qualcomm rose on increased demand for their CDMA technology used in cellular telephones. Hospitality Properties, a manager of real estate for the travel industry also rose on improved profitability and several new management agreements. The Fund was hurt by declines in Cytec, Monster Worldwide, Global SanteFe, Mohawk, and Microsoft. Cytec declined despite reporting strong sales and earnings growth from its proprietary cancer testing process. Monster Worldwide declined after strong performance earlier in the year, while Global SanteFe did not experience increased exploration demand despite persistently high oil prices. Mohawk struggled despite a strong housing market. Microsoft has not participated in the rebound in technology shares because investors are concerned about the ability of the company to increase growth and the relatively high valuation implied by the stock price. During the quarter we sold our position in Sun Microsystems, Greenpoint Financial, and Global SanteFe to remove some of our underperformers. We purchased Staples, a retailer of office supplies, that should be well positioned as economic growth continues to improve. The Bond Fund The Bond Fund rose 0.92% for the trailing year. The fund portfolio is managed to preserve principal in this volatile market so as to provide shareholders with a low risk alternative to stocks. The fund's investment portfolio of US Treasury securities is very conservative, with an average maturity for the entire portfolio of only 2.1 years, an average duration of 1.98 years, and an average yield to maturity of 1.86%. Portfolio Strategy for the Beginning of 2004 I expect to make several portfolio adjustments as the new year begins to better position the Manor and Growth Funds. I will increase existing positions when appropriate, and add new holdings to reduce the cash held in low-yielding money market funds. Since I anticipate a rise in interest rates as economic growth strengthens, I will maintain the very conservative portfolio in the Bond Fund to protect principal. Sincerely, Daniel A. Morris Manor Fund December 31, 2003 Portfolio of Investments Description Shares Market Value Common & Preferred Stock Consumer Staples 5.9% Pepsico 1,560 72,727 Reebok 2,090 82,179 ---------- 154,906 Consumer Disc. 2.0% AOL Time Warner 2,930 52,711 ---------- 52,711 Retail 6.1% Best Buy 1,550 80,972 Cardinal Health 1,305 79,814 ---------- 160,786 Medical 11.6% Anthem 920 69,000 Manor Care 2,590 89,536 Johnson&Johnson 1,350 69,741 Pfizer 2,130 75,253 ---------- 303,530 Automobile 2.4% General Motors 1,190 63,546 ---------- 63,546 Basic Materials 3.5% Alcan 1,940 91,083 ---------- 91,083 Industrial Products 2.3% Tyco Intl Ltd. 2,240 59,360 ---------- 59,360 Construction 3.6% KB Home 1,310 95,001 ---------- 95,001 Multi-Industry 2.7% General Electric 2,270 70,325 ---------- 70,325 Computer 13.0% Cisco 2,350 57,081 Citrix Systems 2,570 54,510 Hewlett-Packard 1,960 45,021 Intel 2,980 95,956 IBM 950 88,046 ---------- 340,614 Aerospace 2.0% Boeing 1,230 51,832 ---------- 51,832 Oil 7.7% Devon Energy 1,220 69,857 Nabors 1,310 54,365 Occidental Pet. 1,820 76,877 ---------- 201,099 Finance 21.0% Allstate Ins. 1,830 78,727 Citigroup 1,769 85,867 Fed Nat Mtg Assoc 1,120 84,067 Freddie Mac 920 53,655 Shurgard Storage 2,060 77,559 Vornado Rlty Trst 1,710 93,623 MBNA Corp. 3,070 76,289 ---------- 549,787 Utilities 2.5% Exelon 970 64,369 ---------- 64,369 Other Assets 5.8% S&P500 SPDR 690 76,783 S&P500 Barra Val 1,340 74,142 ---------- 150,925 Cash and Equiv. 7.9% 1st Am. Gov't Obl. 203,526 Accrued Dividends 2,456 ---------- 205,982 ---------- Total Portfolio 2,615,856 Manor Fund December 31, 2003 Top Five Holdings Company Industry % of Net Assets Intel Computer 3.7 % KB Home Construction 3.6 % Vornado Rlty Trst Finance 3.6 % Alcan Basic Materials 3.5 % Manor Care Medical 3.4 % Top Five Industries Industry % of Net Assets Finance 21.0 % Computer 13.0 % Medical 11.6 % Oil 7.7 % Retail 6.1 % Fund Performance Total Return 3 Months Trailing Year Annualized Since Inception ------------------------------------------------------ Manor Fund 12.06 % 31.56 % 4.48 % Lipper LCC Index 10.85 % 24.80 % 6.06 % S&P 500 Index 12.18 % 28.69 % 9.85 % Growth Fund December 31, 2003 Portfolio of Investments Description Shares Market Value Common & Preferred Stock Consumer Staples 1.7% Jones Apparel 1,270 44,742 ---------- 44,742 Consumer Disc. 10.6% Barnes & Noble 1,980 65,043 Cendant Corp. 3,910 87,076 Mohawk Inc. 920 64,897 Interactive Corp. 1,570 53,270 ---------- 270,286 Retail 11.6% Amerisource Berg. 1050 58,957 Bed, Bath, Beyond 1,400 60,690 Staples 2,890 78,897 Ebay 1520 98,177 ---------- 296,721 Medical 15.6% Andrx Group 1,120 26,925 Cytyc Corp 3,230 44,445 Express Scripts 1230 81,709 Forest Labs 940 58,092 Ivac Corp 2,843 67,891 Quest Diagnostics 700 51,177 Universal Health 1,270 68,224 ---------- 398,463 Computer 25.3% Cisco 620 15,060 Concord EFS 1,740 25,822 Dell Computer 2,130 72,335 Intel 2,500 80,500 Microsoft Corp. 2,660 73,256 Qualcomm 1,320 71,187 Tech Select SPDR 2,400 48,912 Vishay 4,170 95,493 Waters Corp. 1,510 50,072 Xilinx 2,930 113,508 ---------- 646,145 Oil 2.5% Valero Energy 1,380 63,949 ---------- 63,949 Finance 13.7% American Intl Grp 1,160 76,885 Chelsea Prop Tr. 1,460 80,023 Hospitality Prop. Tr. 2,020 83,385 T. Rowe Price 790 37,454 Washington Mutual 1,800 72,216 ---------- 349,963 Transportation 1.0% Tidewater 830 24,800 ---------- 24,800 Business Services 0.9% Monster Wrldwide 1,000 21,960 ---------- 21,960 Other Assets 5.5% S&P500 Barra Growth 2,220 67,832 S&P500 SPDR 660 73,445 ---------- 141,277 Cash and Equiv. 11.7% 1st Am. Gov't Obl. 297,071 Accrued Dividends 1,944 ---------- 299,015 ---------- Total Portfolio 2,557,321 Growth Fund December 31, 2003 Top Five Holdings Company Industry % of Net Assets Xilinx Computer 4.4 % Ebay Retail 3.8 % Vishay Intertec Computer 3.7 % Cendant Corp. Consumer Disc. 3.4 % Hospitality Prop Finance 3.3 % Top Five Industries Industry % of Net Assets Computer 25.3 % Medical 15.6 % Finance 13.7 % Retail 11.6 % Consumer Disc. 10.6 % Fund Performance Total Return 3 Months Trailing Year Annualized Since Inception ------------------------------------------------------ Growth Fund 12.58 % 30.23 % -1.79 % Lipper LCGrthIdx 10.09 % 26.96 % -9.61 % S&P 500 Index 12.18 % 28.69 % -3.15 % Bond Fund December 31, 2003 Portfolio of Investments Description Par Val. Market Val. Government Bonds 94.0 % Less than 1 year to maturity U.S. Treasury 5.250% Due 05-15-04 80,000 81,250 U.S. Treasury 6.000% Due 08-15-04 100,000 103,000 U.S. Treasury 2.000% Due 11-30-04 300,000 301,875 1 to 3 years to maturity U.S. Treasury 1.500% Due 02-28-05 200,000 200,438 U.S. Treasury 5.875% Due 11-15-05 50,000 53,797 U.S. Treasury 1.875% Due 11-30-05 300,000 300,562 U.S. Treasury 5.625% Due 02-15-06 100,000 107,750 3 to 5 years to maturity U.S. Treasury 3.250% Due 08-15-07 200,000 204,000 U.S. Treasury 3.125% Due 10-15-08 300,000 299,437 Accrued Interest 11,796 --------- 1,663,905 Cash and Equiv. 6.0 % 1st American Treasury Obligations 105,521 --------- 105,521 --------- Total Portfolio 1,769,426 Bond Fund December 31, 2003 Top Five Holdings Security % of Net Assets US Treasury 2.000% due 11/30/04 17.1 % US Treasury 1.875% due 11/30/05 17.0 % US Treasury 3.125% due 10/15/08 16.9 % US Treasury 3.250% due 8/15/07 11.5 % US Treasury 1.500% due 2/28/05 11.3 % Fund Performance Total Return 3 Months Trailing Year Annualized Since Inception ------------------------------------------------------ Bond Fund -0.18 % 0.92 % 4.85 % Lipper US Govt. -0.11 % 1.73 % 6.70 % Lehman Inter. Gov't Index -0.24 % 2.21 % 6.76 % Manor Investment Funds, Inc. Statement of Assets and Liabilities December 31, 2003 Year Ending December 31, 2003 ASSETS Manor Fund Growth Fund Bond Fund ------ ---------- ----------- ---------- Investments in Securities $2,409,874 $ 2,258,306 $1,652,109 Cash 203,526 297,071 105,521 Dividends & Interest Receivable 2,619 2,196 11,860 ---------- ----------- ---------- Total Assets 2,616,019 2,557,573 1,769,490 LIABILITIES ----------- Expenses Payable (1,527) (2,229) (219) ---------- ----------- ---------- Total Liabilities (1,527) (2,229) (219) ---------- ----------- ---------- NET ASSETS $2,614,492 $ 2,555,344 $1,769,271 NET ASSETS CONSIST OF: Capital Stock (par value and paid-in capital) $2,485,211 $2,741,043 $1,744,690 Accumulated net investment income(loss) (11,283) (39,077) 4,369 Accumulated net realized (loss) (123,914) (306,552) 841 Net unrealized appreciation (depreciation) 264,478 159,930 19,371 ---------- ----------- ---------- NET ASSETS $2,614,492 $2,555,344 $1,769,271 ---------- ----------- ---------- CAPITAL SHARES OUTSTANDING 188,920 277,247 167,122 (10,000,000 authorized shares; $.001 par value) NET ASSET VALUE PER SHARE $ 13.84 $ 9.22 $ 10.59 ---------- ----------- ---------- Manor Investment Funds, Inc. Statement of Operations December 31, 2003 Year Ending December 31, 2003 Investment Income Manor Fund Growth Fund Bond Fund ----------------- ---------- ----------- ---------- Dividends $ 29,611 $ 13,170 $ - 0 - Interest 2,361 3,491 59,932 ---------- ----------- ---------- Total Investment Income $ 31,972 $ 16,661 $ 59,932 Expenses -------- Management Fees 19,885 18,884 7,260 Professional Fees 6,169 5,058 6,217 Trustee Fees 3,044 3,085 3,460 Registration Fees 405 100 375 Taxes 281 150 378 Miscellaneous Fees 1,470 2,641 379 ---------- ----------- ---------- Total Expenses 31,254 29,918 18,069 ---------- ----------- ---------- Net Investment Income (Loss) 718 (13,257) 41,863 Realized & Unrealized Gain (Loss) on Investments ------------------------------------------------ Net Realized gain (loss) on Investments 3,292 (58,098) 37,918 Net Change in Unrealized Appreciation/Depreciation on Investments 579,502 607,361 (63,072) Net realized and Unrealized Gain (Loss) on Investments 582,794 549,263 (25,154) ---------- ----------- ---------- Net Increase (Decrease) in Net Assets Resulting from Operations $ 583,512 $ 536,006 $ 16,709 ---------- ----------- ---------- Manor Investment Funds, Inc. Statement of Changes in Net Assets December 31, 2003 Year Ending December 31, 2003 Increase (Decrease) in Net Assets from Operations Manor Fund Growth Fund Bond Fund -------------------------- ---------- ----------- ---------- Net Investment (Loss) Income 718 (13,257) 41,863 Net realized gain (Loss) on investments 3,292 (58,098) 37,918 Net Change in Unrealized Appreciation/Depreciation on Investments 579,502 607,361 (63,072) ---------- ----------- ---------- Net increase/decrease in net assets resulting from operations 583,512 536,006 16,709 Distributions to Shareholders from Net Investment Income - 0 - - 0 - (40,658) Net Realized Gain - 0 - - 0 - (37,777) ---------- ----------- ---------- Total Distributions - 0 - - 0 - (78,435) Capital Share Transactions Proceeds from shares sold 384,826 458,284 161,856 Proceeds From Reinvestment of Distributions - 0 - - 0 - 78,435 Payments for shares Redeemed (103,389) (75,630) (371,299) ---------- ----------- ---------- Net Increase in Net Assets From Capital Share Transactions 281,437 382,654 (131,008) ---------- ----------- ---------- Total Increase in Net Assets 864,949 918,660 (192,734) Net Assets: Beginning of Year 1,749,542 1,636,684 1,962,005 ---------- ----------- ---------- End of Year 2,614,491 2,555,344 1,769,271 ---------- ----------- ---------- Transactions in Shares of Fund Sold 31,318 55,777 14,687 Issued in reinvestment of distributions - 0 - - 0 - 7,413 Redeemed (8,732) (9,606) (33,746) ---------- ----------- ---------- Net increase/decrease in outstanding-shares of the Fund 22,586 46,171 (11,646) ---------- ----------- ---------- Manor Investment Funds, Inc. Financial Highlights Manor Fund December 31, 2003 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ PER SHARE DATA (1) Net asset value, beginning of year $ 10.52 $ 13.20 $ 15.76 $ 17.08 $ 15.46 ------ ------ ------ ------ ------ Investment Operations Net investment (loss) Income - 0 - (0.01) (0.02) (0.06) 0.07 Net realized and unrealized(loss) gain on investments 3.32 (2.67) (2.54) (1.26) 1.62 ------ ------ ------ ------ ------ Total from investment operations 3.32 (2.67) (2.56) (1.26) 1.69 ------ ------ ------ ------ ------ Distributions Dividends from net investment income - 0 - - 0 - - 0 - - 0 - (0.07) Distributions from realized capital gains - 0 - - 0 - - 0 - - 0 - - 0 - ------ ------ ------ ------ ------ Total Distributions - 0 - - 0 - - 0 - - 0 - (0.07) ------ ------ ------ ------ ------ Net (decrease) increase in net asset value 3.32 (2.68) (2.56) (1.32) 1.62 ------ ------ ------ ------ ------ Net asset value, end of year $ 13.84 $ 10.52 $ 13.20 $ 15.76 $ 17.08 ------ ------ ------ ------ ------ (1) Selected data based on a share outstanding throughout the year. Total Investment Return 31.56% -20.30% -16.24% -7.73% 10.95% ------ ------ ------ ------ ------ RATIOS (to Average Net Assets) Investment income-net 0.03% -0.08% -0.11% -0.32% 0.44% ------ ------ ------ ------ ------ Expenses 1.50% 1.50% 1.50% 1.50% 1.50% ------ ------ ------ ------ ------ Portfolio Turnover Rate 3.7% 26% 28% 16% 19% ------ ------ ------ ------ ------ The accompanying notes are an integral part of these financial statements. Manor Investment Funds, Inc. Financial Highlights Growth Fund December 31, 2003 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ PER SHARE DATA (1) Net asset value, beginning of year $ 7.08 $ 8.95 $ 9.54 $ 11.72 $ 10.00 ------ ------ ------ ------ ------ Investment Operations Net investment (loss) income (0.05) (0.06) (0.05) (0.05) - 0 - Net realized and Unrealized(loss) gain on investments 2.19 (1.81) (0.54) (2.13) 1.72 ------ ------ ------ ------ ------ Total from investment operations 2.14 (1.87) (0.59) (2.18) 1.72 ------ ------ ------ ------ ------ Distributions Dividends from net investment income - 0 - - 0 - - 0 - - 0 - - 0 - Distributions from realized capital gains - 0 - - 0 - - 0 - - 0 - - 0 - ------ ------ ------ ------ ------ Total Distributions - 0 - - 0 - - 0 - - 0 - - 0 - ------ ------ ------ ------ ------ Net (decrease) increase In net asset value 2.14 (1.87) (0.59) (2.18) 1.72 ------ ------ ------ ------ ------ Net asset value, end of year $ 9.22 $ 7.08 $ 8.95 $ 9.54 $ 11.72 ------ ------ ------ ------ ------ (1) Selected data based on a share outstanding throughout the year. Total Investment Return 30.23% -20.89% -6.18% -18.60% 17.20% ------ ------ ------ ------ ------ RATIOS (to Average Net Assets) (2) Investment income-net -0.54% -0.70% -0.53% -0.44% 0.01% ------ ------ ------ ------ ------ Expenses 1.50% 1.50% 1.50% 1.52% 1.49% ------ ------ ------ ------ ------ Portfolio Turnover Rate 5.2% 13.2% 33.6% 16.0% 4.0% ------ ------ ------ ------ ------ (2) Annualized * For the period 6/30 - 12/31/99 The accompanying notes are an integral part of these financial statements. Manor Investment Funds, Inc. Financial Highlights Bond Fund December 31, 2003 2003 2002 2001 2000 1999 ------ ------ ------ ------ ------ PER SHARE DATA (1) Net asset value, beginning of year $ 10.98 $ 10.63 $ 10.39 $ 9.90 $ 10.00 ------ ------ ------ ------ ------ Investment Operations Net investment (loss) Income 0.25 0.32 0.43 0.46 0.18 Net realized and Unrealized(loss) gain on investments (0.15) 0.33 0.17 0.45 (0.16) ------- ------ ------ ------ ------ Total from investment operations 0.10 0.65 0.60 0.91 0.02 ------ ------ ------ ------ ------ Distributions Dividends from net investment income (0.25) (0.27) (0.36) (0.42) (0.12) Distributions from realized capital gains (0.24) (0.03) - 0 - - 0 - - 0 - ------ ------ ------ ------ ------ Total Distributions (0.49) (0.30) (0.36) (0.42) (0.12) ------ ------ ------ ------ ------ Net (decrease) increase in net asset value (0.39) 0.35 0.24 0.49 (0.10) ------ ------ ------ ------ ------ Net asset value, end of year $ 10.59 $ 10.98 $ 10.63 $ 10.39 $ 9.90 ------ ------ ------ ------ ------ (1) Selected data based on a share outstanding throughout the year. Total Investment Return 0.92% 6.11% 5.77% 9.19% 0.23% ------ ------ ------ ------ ------ RATIOS (to Average Net Assets) (2) Investment income-net 2.26% 2.96% 4.01% 4.45% 3.58% ------ ------ ------ ------ ------ Expenses 1.00% 1.00% 1.00% 1.00% 1.00% ------ ------ ------ ------ ------ Portfolio Turnover Rate 44.1% 26.3% 0.0% 0.0% 0.0% ------ ------ ------ ------ ------ (2) Annualized * For the period 6/30 - 12/31/99 The accompanying notes are an integral part of these financial statements. Manor Investment Funds, Inc. Notes to Financial Statements December 31, 2003 Note 1-Organization Incorporated in Pennsylvania on September 13, 1995, Manor Investment Funds, Inc. (the Company) was in the initial stages of development until January 27, 1996 when it began to sell shares of its stock to the public. The Company is an open-end, non-diversified management investment company, registered under the Investment Company Act of 1940. Manor Fund, Growth Fund, and Bond Fund (collectively referred to as the Funds) presently constitute Manor Investment Funds, Inc. The primary investment objectives of each of these Funds follow: Manor Fund: Conservative capital appreciation and current income, investing primarily in common stock of large corporations in the United States. Growth Fund: Long-term capital appreciation, investing primarily in common stock of U.S. corporations. Bond Fund: Intermediate-term fixed income, investing primarily in U. S. Government obligations. Note 2-Significant Accounting Policies Following is a summary of the Funds' significant accounting policies which are in conformity with generally accepted accounting principles for investment companies: Security Valuation and Accounting: Investments in securities traded on a national securities exchange (or reported on the NASDAQ national market) are stated at the last reported sales price on the day of valuation. The Funds follow industry practice and record security transactions on the trade date. Cash: Cash consists of checking and money market accounts with the custodian. As financial instruments, such accounts potentially subject the Funds to concentration of credit risk. The carrying value of these accounts approximates market value due to their short-term nature. Federal Income Taxes: The Funds intend to continue to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute substantially all of their taxable income. Accordingly, no provision for federal income tax or excise tax is required in these financial statements. Distributions: Each Fund generally pays, or intends to pay dividends from net investment income and to distribute net capital gains that it realizes. Distributions to shareholders are recorded on the ex-dividend date. Realized Gains and Losses on Investment Transactions: Gains or losses realized on investment transactions are determined by comparing the identified cost of the security lot sold with the net sales proceeds. Accounting Estimates: Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Other: Interest income is recognized on the accrual basis. When applicable, premiums and discounts on purchased U. S. government obligations are amortized or accreted to interest income over the life of the obligation. As mutual funds, the Funds' investments are subject to stock market risk, bond market risk and inflation risk. Manor Fund and Growth Fund will have higher exposure to stock market risk because of their significant investments in stocks. Bond Fund will have higher exposure to bond market risk and inflation risk because of its significant investments in U.S. Treasury Notes. Note 3-Related Party Transactions Daniel A. Morris, President of Manor Investment Funds, Inc., is also the sole shareholder, officer and director of Morris Capital Advisors, Inc. (Morris). Mr. Morris (and his wife) and other directors, own shares in the Funds. Each of the Funds has an investment management and advisory services agreement (the Agreements) with Morris. Monthly, the Funds pay Morris Capital Advisors a fee equivalent to one percent per annum of the daily average net assets of the Manor and Growth Funds and one half of one percent per annum of the daily average net assets of the Bond Fund. Each of the Funds bears expenses necessary and incidental to the conduct of its business. The Agreements must be approved annually by a majority vote of the Funds' non-interested Board of Directors. Note 4-Investment Transactions Purchases of investment securities for Manor, Growth and Bond aggregated $480,530, $757,811 and $799,375, respectively in 2003; sales aggregated $77,705, $103,375, and $832,281 for Manor, Growth, and Bond, respectively. For income tax purposes, Manor Fund has capital loss carryovers of $123,915 and Growth Fund capital losses total $306,552. Such losses were generally realized from 1999 through 2003 and will be carried forward to offset future realized capital gains. If not used, they will expire in 2007 through 2011. Each Fund portfolio consists of securities that have risen in value since their purchase (called unrealized gain), or securities that have fallen in value (unrealized loss) since their purchase. At December 31, 2003, net unrealized appreciation and depreciation of investment securities for financial reporting and federal income tax reporting were as follows: Manor Fund: Net unrealized appreciation of $264,478 consisted of unrealized gains of $434,301 and unrealized losses of $169,823. Growth Fund: Net unrealized appreciation of $159,930 consisted of unrealized gains of $356,214 and unrealized losses of $196,284. Bond Fund: Net unrealized appreciation of $19,370 consisted of unrealized gains of $19,979 and unrealized losses of $609 on U.S. Government obligations. Note 5-Custody Agreement Under an agreement, U.S Bank acts as the custodian for each of the Funds. U.S Bank charges fees in accordance with its standard rates for such services, payable monthly. Manor Investment Funds, Inc. Fund Office: 15 Chester County Commons Malvern, PA 19355 610-722-0900 800-787-3334 www.manorfunds.com ITEM 2. CODE OF ETHICS. The Registrant has adopted a code of ethics that applies to all Officers and Directors of the Fund. The Registrant has not granted any waivers form any provisions of the code of ethics during the covered period. A copy of the registrant's code of ethics is filed herewith. ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT. The Audit Committee is comprised of James McFadden, Fred Myers and John McGinn. James McFadden is a former FDIC Auditor and Fred Myers is a CPA with audit experience. Both are considered financial experts by the Board of Directors. ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES. The Registrant has engaged its principal accountant to perform audit services. "Audit Services" refer to performing an audit of the registrant's annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filing or engagements for those fiscal years. "Audit-related services" refer to the assurance and related services by the principal accountant that are reasonably related to the performance of the audit. "Tax services" refer to professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning. The following table details the aggregate fees gilled for each of the last two fiscal years for audit fees, audit-related fees, tax fees and other fees by the principal accountant. 12/31/2003 12/31/2002 Audit Fees $ 17,598 $ 13,810 Audit-Related Fees 0 0 Tax Fees 0 0 All Other Fees 0 0 Each year, the Registrant's Board of Directors recommend a principal accountant to perform audit service for the registrant. At the registrant's Annual Meeting, the shareholders vote to approve or disapprove the principal accountant recommended by the Board. ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTAS. Not applicable to open-end investment companies. ITEM 6. [RESERVED.] ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 8. PURCHASES OF EQUITY SECURITEIS BY CLOSED-END MANAGEMENT INVESTMENT COMPANIES. Not applicable to open-end investment companies. ITEM 9. CONTROLS AND PROCEDURES. a) The Registrant's president has concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act")) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934. b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act that occurred during the registrant's second fiscal half-year that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 10. EXHIBITS. (a) (1) Code of Ethics - referred to in Item 2 is attached hereto. (a) (2) Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. (b) Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. 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. Manor Investment Funds, Inc. By /s/ Daniel A. Morris President Date 2/9/2004 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/ Daniel A. Morris Daniel A. Morris President Date 2/9/2004