N-CSR 1 ncsr0412.txt ANNUAL REPORT Manor Investment Funds, Inc. 15 Chester Commons, Malvern, PA 19355 610-722-0900 800-787-3334 Annual Report December 31, 2004 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, 2004 Dear Fellow Shareholders: I am pleased to report that combined shareholder assets in the Funds have grown to more than $7 million on the strength of shareholder contributions and strong investment performance. I am also pleased to report that the Growth Fund was awarded a 5 Star rating for the trailing three years ending September 30, 2004, from MorningStar an independent mutual fund rating organization. The 5 Star rating is the highest rating that MorningStar awards based on the return of a mutual fund compared to other funds in its peer group. The Manor Fund was also awarded a 4 Star rating over the same time period, the second highest rating that MorningStar awards. A Years Work - - in Just Two Months When I last wrote this report at the end of September 2004 the stock market had given up most of the gains that it earned earlier in the year, and it declined further during October. The battle between the bulls and bears was a stalemate, yielding next to nothing for investors despite strong economic growth. Investors were fixated on worries about politics, terrorism, international events, and corporate scandals. There wasn't much to get excited about, unless you were Elliot Spitzer. It seemed that he had a press conference every other day to announce another indictment against some business executive, corporation, or industry. He targeted the New York Stock Exchange, the insurance industry, and numerous executives. On the heels of indictments against the mutual fund industry, investors had to wonder if their money was safe anywhere. In this kind of environment who could blame investors for sitting on the sidelines. But against this backdrop the stock market took on a life of its own. As some of the uncertainty regarding the election subsided the market began to rally. The rally continued well past the election and into the end of the year. The market gained 4.05% in the month of November, and 3.40% in December, to end the year up 10.87%, as measured by the S&P 500 index. That is a pretty good return for the stock market, especially compared to the yields on bonds and money market funds. The Manor Fund The Manor Fund rose 13.06%, net of all fees and expenses, during the quarter ending December 31, 2004, outperforming the S&P 500 index, 9.23% and comparable mutual funds as measured by the Lipper Large-Cap Core mutual fund index, 8.50%. The Fund also outperformed the S&P 500 and the Lipper Large-Cap Core mutual fund index for the trailing 1-year, 3-year and 5-year periods ending December 31, 2004, with returns of 13.55%, 5.98% and -1.65%, compared to the S&P 500 (10.87%, 3.57%, and -2.28%), and Lipper (8.29%, 2.10%, and -2.98%). During the 4th quarter of 2004 the Fund was helped by gains in Wellpoint Health, Vornado Realty Trust, Kaufman & Broad Home, Cardinal Health, and Citrix Systems. Wellpoint Health rose after completeing the merger that conbined Anthem and wellpoint. Vornado Realty Trust rose after the announced merger between Kmart and Sears. Vornado has substantial holding of Sears real estate and should benefit from the combination. Kaufman & Broad rose, despite several interest rate hikes by the Fed, on continued strong demand in the real estate market. The Fed rate hikes also helped Vornado Realty Trust because longer-term interest rates declined, thereby improving the cash flow of this real estate investment trust. Cardinal Health rebounded from weak performance earlier in the year as earnings stabilized for this pharmacy benefits manager. Citrix Systems also rebounded from poor performance earlier in the year after reporting stronger revenue and earnings growth. Norfolk Southern, a recent addition to the Fund, rose as economic growth raised the prospect of higher revenues and earnings. Notable laggards during the 4th quarter include Pfizer, Boeing, Alcan, Cisco Systems, and Hewlett-Packard. Pfizer declined after a study showed increased risk of heart attacks for patients using Celebrex. This news came soon after Merck pulled a similar drug, Vioxx, from the market after a study showed increased heart risk. Pfizer's risk is lower because the study was based on usage up to 4 times the normal dosage. Boeing declined as progress on the new 7E7 plane and customer interest waned. Alcan declined as Fed interest rate hikes threatened economic growth and pricing for this aluminum can producer. Cisco Systems and Hewlett-Packard declined on weakness in the technology sector. There were no significant purchases or sales for the Fund portfolio during the quarter. The Fund was fully invested, with minimal cash balances, to take advantage of the strong equity market. The Growth Fund The Growth Fund rose 11.21%, net of all fees and expenses, during the quarter ending December 31, 2004, outperforming both the S&P 500 index, 9.23%, and comparable mutual funds as measured by the Lipper Large-Cap Growth mutual fund index, 9.99%. The Fund also outperformed the S&P 500 and the Lipper Large-Cap Growth mutual fund index for the trailing 1-year, and 3- year periods ending December 31, 2004, with returns of 11.93%, and 4.86%, compared to the S&P 500 (10.87%, 3.57%), and Lipper (7.45%, -0.65%). The Fund was helped by gains in Coach, TXU Corporation, Ebay, Chelsea Property Trust, and Dell. Coach, a recent addition to the Fund, rose after reporting strong sales in the early holiday shopping season. TXU, another recent addition to the Fund, continued to rally as investors recognized the impact of improved operating results. Ebay rose after reporting strong growth in revenues and earnings. Chelsea Property Trust rallied because Fed rate hikes helped to lower long-term interest rates, improving cash flow at this real estate investment trust. Dell rose after reporting higher growth in revenues and earnings. Only three stocks in the portfolio declined during the 4th quarter; Ivax Corp., American International Group, and Forest Labs. Ivax and Forest labs suffered from an overall decline in the drug sector and company-specific events. Ivax, a generic drug manufacturer, was hurt when another generic manufacturer won approval for a competing product. Forest Labs declined when a clinical study did not support its application for a new drug product. Jones Apparel lagged the market as weak consumer demand hurt results at this retailer of clothing for women. During the quarter we sold Amerisource Bergen, Barnes & Noble, First Data Corp., and Vishay. We used the proceeds of these sales to purchase Baker Hughes, an oil exploration company, Coach, a retailer of accessories for women, Etrade Financial, a discount stock broker, Golden West Financial, a thrift bank, and News Corp., a media company. The Fund was fully invested, with minimal cash balances, to take advantage of the strong stock market. The Bond Fund The Bond Fund generated a return of -0.38%, net of all fees and expenses, for the quarter ending December 31, 2004, less than the return of the Lehman Intermediate Treasury Index and the Lipper US Government mutual fund index (0.72% and 0.06%, respectively). For the year ending December 31, 2004 the Fund generated a return of -0.09% less than the Lehman Intermediate Treasury Index (3.35%) and the Lipper US Government mutual fund index (2.84%). This poor performance was frustrating since the Fund's investment portfolio of US Treasury securities was managed with a short maturity and duration on the expectation of interest rate hikes by the Fed. Unfortunately, when the Fed raised rates longer term bonds rallied, thereby improving bond market performance. The Fund's US Treasury portfolio remains conservative with an average yield to maturity of 3.1%, an average maturity of approximately 3.4 years, and an average duration of 2.6 years. The duration of a bond portfolio is a measure of risk, with a lower duration indicating a lower level of risk. The Fund is managed to provide a low-risk alternative for conservative investors. Next Years' Work At year end I find it helpful to review the past year and consider the possibilities for the one upcoming. The market action last year, especially the 4th quarter, shows that it is highly problematic to try to pick market tops or bottoms. It reinforces my belief that it is very difficult to "time the market". But as I review my year end analysis, I conclude that the stock market is not a bargain, and may be somewhat overvalued. So, at this point I expect to reduce some holdings that have appreciated, and reinvest the proceeds in stocks with conservative valuations. Sincerely, Daniel A. Morris MANOR INVESTMENT FUNDS, INC. Manor Fund December 31, 2004 Top Holdings & Sectors Top Company Holdings Company % of Net Assets KB Home 3.8 % Occidental Petrol 3.7 % Freddie Mac 3.7 % Wellpoint Health 3.7 % Alcan 3.3 % Top Industry Sectors Industry % of Net Assets Finance 22.1 % Medical 12.2 % Computer 11.0 % Oil 9.4 % Consumer Staples 6.1 % Fund Performance Quarter and Annualized Total Return for Periods Ending December 31, 2004 Manor Fund S&P 500Index Lipper LCCore Funds 4th Quarter 13.06 % 9.23 % 8.50 % 1 Year 13.55 % 10.87 % 8.29 % 3 Year Annualized 5.98 % 3.57 % 2.10 % 5 Year Annualized -1.65 % -2.28 % -2.98 % Annualized since inception 5.42 % 9.95 % 6.30 % 12/31/93 The S&P 500 Index is a capital-weighted index, representing the aggregate market value of the common equity of 500 stocks primarily traded on the New York Stock Exchange. The Lipper LC Core mutual fund index is an index of mutual funds managed with a similar investment style. Both are computed on a total return basis. The chart assumes an initial gross investment of $10,000 on 9/25/1995 (commencement of operations). Returns shown include the reinvestment of dividends. Past performance does not predict future performance. Investment return and principal value will fluctuate, so your shares at redemption may be worth more or less than the original cost. MANOR INVESTMENT FUNDS, INC. Growth Fund December 31, 2004 Top Holdings & Sectors Top Company Holdings Company % of Net Assets Ebay 4.3 % TXU Corp. 4.2 % Coach Inc. 3.8 % Qualcomm 3.8 % Dell Computer 3.8 % Top Industry Sectors Industry % of Net Assets Finance 19.0 % Computer 17.9 % Retail 12.8 % Medical 12.7 % Consumer Staples 8.7 % Fund Performance Quarter and Annualized Total Return for Periods Ending December 31, 2004 Growth Fund S&P 500 Index Lipper LC Growth Funds 4th Quarter 11.21 % 9.23 % 9.99 % 1 Year 11.93 % 10.87 % 7.45 % 3 Year Annualized 4.86 % 3.57 % -0.65 % 5 Year Annualized -2.51 % -2.28 % -9.71 % Annualized since inception 0.57 % -0.74 % -6.73 % 6/30/93 The S&P 500 Index is a capital-weighted index, representing the aggregate market value of the common equity of 500 stocks primarily traded on the New York Stock Exchange. The Lipper LC Growth mutual fund index is an index of mutual funds managed with a similar investment style. Both are computed on a total return basis. The chart assumes an initial gross investment of $10,000 on 6/30/1999 (commencement of operations). Returns shown include the reinvestment of dividends. Past performance does not predict future performance. Investment return and principal value will fluctuate, so your shares at redemption may be worth more or less than the original cost. MANOR INVESTMENT FUNDS, INC. Asset Allocation Manor Fund and Growth Fund December 31, 2004 Manor Fund Industry Sectors Industry % of Net Assets Finance 22.1 % Medical 12.2 % Computer 11.0 % Oil 9.4 % Consumer Staples 6.1 % Multi-Industry 6.0 % Retail 5.9 % Index Equivalent 5.9 % Construction 3.7 % Basic Material 3.3 % Transportation 3.1 % Utility 3.0 % Industrial Products 2.6 % Aerospace 2.2 % Auto 1.8 % Cash Equivalents 1.7 % ------- 100.0 % ======= Growth Fund Industry Sectors Industry % of Net Assets Finance 19.0 % Computer 16.1 % Retail 12.8 % Medical 12.7 % Consumer Staples 8.7 % Consumer Discretionary 7.5 % Oil 6.3 % Utility 4.2 % Index Equivalent 4.2 % Cash Equivalent 3.0 % Transportation 2.8 % Multi-Industry 2.7 % ------- 100.0 % ======= MANOR INVESTMENT FUNDS, INC. Manor Fund and Growth Fund Expenses December 31, 2004 As a shareholder of the Fund, you incur indirect costs, such as management fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs," (in dollars) of investing in the Fund, and to compare these costs with the ongoing costs of investing in other mutual funds. This example is based on an investment of $1,000 invested at the beginning of the period and held for the 6 month period of July 1, 2004 through December 31, 2004. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, 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 "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical example for comparison purposes The second line of the table provides information about hypothetical account values and hypothetical expense based on the Funds' actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Funds' 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 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 other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direst costs, such as wire fees or low balance fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would be higher. Beginning Ending Expenses Paid Account Value Account Value During Period * July 1, 2004 December 31, 2004 January 1, 2004 - December 31, 2004 Manor Fund Actual Manor Fund $1,000.00 $1,122.20 $7.92 Hypothetical 1,000.00 1,017.35 7.65 (5% return before expenses) Growth Fund Actual Growth Fund 1,000.00 1,053.10 7.70 Hypothetical 1,000.00 1,017.35 7.65 (5% return before expenses) * Expenses are equal to the Funds' annualized expense ratios, capped at 1.5%, which is net of any expenses paid indirectly, multiplied by the average account value over the period. The ending account value for each Fund in the table is based on its actual total return for the 6 month period of July 1, 2004 to December 31, 2004, 11.22% for the Manor Fund, and 5.31% for the Growth Fund. MANOR INVESTMENT FUNDS, INC. Bond Fund December 31, 2004 Top Holdings Security % of Net Assets US Treasury 1.875% due 11/30/05 19.5 % US Treasury 3.250% due 8/15/07 13.1 % US Treasury 1.500% due 2/28/05 13.1 % US Treasury 3.500% due 12/15/09 13.0 % US Treasury 3.125% due 10/15/08 12.9 % Fund Performance Quarter and Annualized Total Return for Periods Ending December 31, 2004 Lipper Lehman US Gov't Intermediate Bond Fund Fund Index Gov't Index 4th Quarter -0.38 % 0.72 % 0.06 % 1 Year -0.09 % 3.35 % 2.84 % 3 Year Annualized 2.25 % 4.95 % 4.73 % 5 Year Annualized 4.27 % 6.64 % 6.45 % Annualized since inception 3.92 % 6.08 % 6.04 % 6/30/99 The Lehman Intermediate Government Index is represents the aggregate market value of the US Government securities with a maximum maturity of 10 years. The Lipper US Government mutual fund index is an index of mutual funds managed using US Government securities. Both are computed on a total return basis. The chart assumes an initial gross investment of $10,000 on 6/30/1999 (commencement of operations). Returns shown include the reinvestment of dividends. Past performance does not predict future performance. Investment return and principal value will fluctuate, so your shares at redemption may be worth more or less than the original cost. MANOR INVESTMENT FUNDS, INC. Bond Fund Expenses December 31, 2004 As a shareholder of the Fund, you incur indirect costs, such as management fees, and other Fund operating expenses. This example is intended to help you understand your indirect costs, also referred to as "ongoing costs," (in dollars) of investing in the Fund, and to compare these costs with the ongoing costs of investing in other mutual funds. This example is based on an investment of $1,000 invested at the beginning of the period and held for the entire 6 month period of July 1, 2004 through December 31, 2004. Actual Expenses The first line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested at the beginning of the period, 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 "Expenses Paid During Period" to estimate the expenses you paid on your account during this period. Hypothetical example for comparison purposes The second line of the table provides information about hypothetical account values and hypothetical expense 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 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 other funds. Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any direst costs, such as wire fees or low balance fees. Therefore, the second line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these direct costs were included, your costs would be higher. Beginning Ending Expenses Paid Account Value Account Value During Period * July 1, 2004 December 31, 2004 January 1, 2004 - December 31, 2004 Bond Fund Actual Bond Fund $1,000.00 $999.55 $5.00 Hypothetical 1,000.00 1,019.80 5.20 (5% return before expenses) * Expenses are equal to the Fund's annualized expense ratio, capped at 1.0%, which is net of any expenses paid indirectly, multiplied by the average account value over the period. The ending account value for the Fund in the table is based on its actual total return for the 6 month period of July 1, 2004 to December 31, 2004, of -0.09%. Manor Investment Funds, Inc. Financial Statements December 31, 2004 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and Board of Directors of the Manor Investment Funds, Inc. We have audited the accompanying statements of assets and liabilities of Manor Fund, Growth Fund and Bond Fund (collectively the "Funds"), the funds comprising the Manor Investment Funds, Inc., including the schedules of investments, as of December 31, 2004 and the related statements of operations, for the year then ended, and the statements of changes in net assets and the financial highlights for each of the two years in the period then ended. These financial statements and financial highlights are the responsibility of the Funds' management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial highlights for each of the three years in the period then ended, were audited by other auditors whose report dated January 28, 2003 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 December 31, 2004, 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 positions of the Funds as of December 31, 2004, 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 /s/ Sanville & Company February 1, 2005 Certified Public Accountants MANOR INVESTMENT FUNDS, Inc. MANOR FUND Schedule of Investments December 31, 2004 Description Shares Market Value COMMON STOCKS 92.5% Consumer Staples 6.1% Pepsico Inc. 1,560 $81,432 Reebok Int'l Ltd. 2,090 91,960 ----------- 173,392 ----------- Retail 5.9% Best Buy Co., Inc. 1,550 92,101 Cardinal Health Inc 1,305 75,886 ----------- 167,987 ----------- Medical 12.2% Johnson & Johnson 1,350 85,617 Manor Care, Inc. 2,590 91,764 Pfizer, Inc. 2,350 63,192 Wellpoint Inc.* 920 105,800 ----------- 346,373 ----------- Automobile 1.8% Paccar, Inc. 630 50,702 ----------- 50,702 ----------- Basic Materials 3.3% Alcan Inc. 1,940 95,138 ----------- 95,138 ----------- Industrial Products 2.6% Deere & Co. 980 72,912 ----------- 72,912 ----------- Construction 3.8% KB Home 1,020 106,488 ----------- 106,488 ----------- Multi-Industry 6.0% General Electric 2,270 82,855 Tyco Int'l Ltd 2,440 87,206 ----------- 170,061 ----------- Computer 11.0% Cisco Systems* 2,350 45,402 Citrix Systems* 2,570 62,862 Hewlett-Packard 1,960 41,101 Intel 2,980 69,702 International Business Machines 950 93,651 ----------- 312,718 ----------- Aerospace 2.2% Boeing 1,230 63,677 ----------- 63,677 ----------- Oil 9.4% Devon Energy 2,440 94,965 Nabors Industries* 1,310 67,190 Occidental Pet. 1,820 106,215 ----------- 268,370 ----------- Finance 22.1% Allstate Corp. 1,830 94,648 Citigroup Inc. 1,969 94,866 Fannie Mae 1,120 79,755 Freddie Mac 1,440 106,128 MBNA Corp. 3,070 86,543 Shurguard Storage 2,060 90,661 Vornado Realty Tr. 1,010 76,891 ----------- 629,492 ----------- Utilities 3.0% Exelon Corp. 1,940 85,496 ----------- 85,496 ----------- Transportation 3.1% Norfolk So. Corp 2,410 87,218 ----------- 87,218 ----------- Total Common Stocks (cost $2,005,326) 2,630,024 INDEX SECURTIES - 5.9% ishares S&P 500 Barra Value Index 1,340 84,259 SPDR Trust Series 1 690 83,400 ----------- TOTAL INDEX SECURITIES (Cost $126,877) 167,659 ----------- SHORT-TERM INVESTMENTS - 1.2% 1st Amer. Gov't Obligation Fund 33,144 33,144 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $33,144) 33,144 ----------- TOTAL INVESTMENTS - 99.6% (Cost $2,165,347) 2,830,827 Other Assets less Liabilities - Net - 0.4% 11,998 ----------- NET ASSETS - 100% $2,842,825 =========== *Non-income producing during the year The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, Inc. GROWTH FUND Schedule of Investments December 31, 2004 Description Shares Market Value Common Stocks - 94.6% Consumer Staples 8.7% Coach* 1,990 $112,236 Jones Apparel Group 1,270 46,444 News Corp., Inc.* 5,030 96,576 ----------- 255,256 ----------- Consumer Disc. 7.5% Cendent Corp 3,910 91,416 InterActive Corp* 1,570 43,363 Mohawk Industries* 920 83,950 ----------- 218,729 ----------- Retail 12.9% Bed, Bath, Beyond 1,700 67,711 Ebay, Inc.* 1,080 125,647 Gap, Inc. 4,020 84,902 Staples* 2,890 97,422 ----------- 375,682 ----------- Medical 12.7% Cytyc Corp* 3,230 89,051 Express Scripts* 1,230 94,021 Forest Labs* 940 42,169 Ivax Corp 3,553 56,208 Quest Diagnostics* 950 90,773 ----------- 372,222 ----------- Multi-Industry 2.7% Fortune Brands Inc. 1,030 79,496 ----------- 79,496 ----------- Computer 17.9% Dell Inc. 2,630 110,828 Intel Corp. 3,200 74,848 Microsoft Corp. 3,260 87,107 Qualcomm Inc. 2,640 111,936 Tech Select SPDR 2,400 50,664 Xilinx Inc.* 2,930 86,933 ----------- 522,316 ----------- Oil 6.3% Baker-Hughes Inc. 1,920 81,926 Valero Energy 2,280 103,512 ----------- 185,438 ----------- Finance 19.0% Ace Limited 2,130 91,058 American Int'l Grp 1,160 76,177 Capital One Fin. 1,290 108,631 E Trade Group 6,060 90,597 Golden West Fin 1,560 95,815 Hospitality Prop Tr 2,020 92,920 ----------- 555,198 ----------- Utilities 4.2% TSU Corp. 1,890 122,019 ----------- 122,019 ----------- Transportation 2.7% Fedex 820 80,762 ----------- 80,762 ----------- TOTAL COMMON STOCKS (Cost $2,298,960) 2,767,118 INDEX SECURITIES - 2.5% i shares S&P 500 Barra Cost Index 1,240 71,610 ----------- TOTAL INDEX SECURITIES (Cost $65,266) 71,610 ----------- SHORT-TERM INVESTMENTS - 2.2% 1st Amer. Gov't Obligation Fund 64,426 64,426 ----------- TOTAL SHORT-TERM INVESTMENTS (Cost $64,426) 64,426 ----------- TOTAL INVESTMENT - 99.3% (Cost $2,428,652) 2,903,154 Other Assets less Liabilities - Net - 0.7% 19,846 ----------- NET ASSETS - 100% $2,923,000 =========== *Non-income producing during the year The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, Inc. BOND FUND Schedule of Investments December 31, 2004 Face Market Description Amount Value U. S. GOVERNMENT BONDS - 94.3% U.S. Treasury 1.500% Due 02-28-05 $200,000 $199,840 U.S. Treasury 5.875% Due 11-15-05 50,000 51,330 U.S. Treasury 1.875% Due 11-30-05 300,000 297,562 U.S. Treasury 2.250% Due 02-15-07 100,000 98,313 U.S. Treasury 3.250% Due 08-15-07 200,000 200,250 U.S. Treasury 3.125% Due 10-15-08 200,000 197,813 U.S. Treasury 3.500% Due 12-15-09 200,000 199,000 U.S. Treasury 3.875% Due 02-15-13 200,000 197,375 ----------- TOTAL U.S. GOVERNMENT BONDS 1,441,483 (Cost $1,450,549) ----------- SHORT-TERM INVESTMENTS - 2.4% 1st American Treasury Obligation Fund 36,146 36,146 ----------- TOTAL SHORT-TERM INVESTMENTS 36,146 (Cost $36,146) ----------- TOTAL INVESTMENTS - 96.7% 1,477,629 (Cost $1,486,695) ----------- Other Assets less Liabilities - Net - 3.3% 50,630 ----------- NET ASSETS - 100% $1,528,259 =========== The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. Statements of Assets and Liabilities December 31, 2004 ManorFund GrowthFund BondFund ASSETS Investments in Securities, at value (cost of $2,165,347, $2,428,652 and $1,486,695, respectively) $2,830,827 $2,903,154 $1,477,629 Cash and Cash equivalents 10,042 19,304 41,662 Receivables: Dividends 4,606 4,210 - 0 - Interest 54 29 9,894 Prepaids 601 601 601 ------------ ------------ ----------- Total Assets 2,846,130 2,927,298 1,529,786 ------------ ------------ ----------- LIABILITIES Payable to Advisor 2,338 2,419 151 Accrued Expenses 967 1,879 1,376 ------------ ------------ ---------- Total Liabilities 3,305 4,298 1,527 ------------ ------------ ---------- NET ASSETS $2,842,825 $2,923,000 $1,528,259 ============= ============ ========== NET ASSETS CONSIST OF: Capital Stock - par value $181 $283 $147 Paid in capital 2,359,768 2,757,236 1,537,690 Undistributed net investment income 2,765 - 0 - 611 Accumulated net realized (loss) gain (185,369) (309,021) (1,123) Net unrealized appreciation (depreciation) 665,480 474,502 (9,066) ------------ ------------ ----------- NET ASSETS $2,842,825 $2,923,000 $1,528,259 ============== ============ ========== CAPITAL SHARES OUTSTANDING 181,167 283,196 147,311 (10,000,000 authorized shares $.001 par value) ------------ ------------ ---------- NET ASSET VALUE PER SHARE $15.69 $10.32 $10.37 The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. Statements of Operations December 31, 2004 ManorFund GrowthFund BondFund Investment Income Dividends, net of foreign taxes withheld of $175, $ - , and $ - , respectively $46,731 $35,293 $ - Interest 754 1,128 42,400 ------------ ----------- ---------- Total Investment Income 47,485 36,421 42,400 ------------ ----------- ---------- Expenses Advisory and Management Fees (Note 2) 26,616 26,931 8,118 Professional Fees 7,542 7,958 5,955 Custodian Fees 3,982 3,010 2,999 Insurance 875 856 597 Postage and Printing 733 1,576 358 Registration 200 268 480 Taxes 34 150 124 Other 215 - - ------------ ----------- ---------- Total Expenses 40,197 40,749 18,631 ------------ ----------- ---------- Reimbursement by Advisor (Note 2) - - (500) Net Expenses 40,197 40,749 18,131 ------------ ----------- ---------- Net Investment Income (Loss) 7,288 (4,328) 24,269 ------------ ----------- ---------- Realized & Unrealized Gain (Loss) on Investments (Note 4) Net Realized gain (loss) on investments (61,455) (2,469) (1,123) Net Change in unrealized appreciation/(depreciation) on Investments 401,002 314,571 (28,436) ------------ ----------- ----------- Net realized and unrealized gain (loss) on investments 339,547 312,102 (29,559) ------------ ----------- ----------- Net Increase (Decrease) in Net Assets Resulting from Operations $346,835 $307,774 $(5,290) The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. Statements of Changes in Net Assets For the Years Ended December 31, 2004 and 2003 Manor Fund 2004 2003 Increase (Decrease) in Net Assets from Operations Net investment income (loss) $7,288 $967 Net realized gain (loss) on investments (61,455) 3,292 Net change in unrealized appreciation/(depreciation) on investments 401,002 579,503 --------- --------- Net increase/(decrease) in net assets resulting from operations 346,835 583,762 Distributions to Shareholders (4,523) - --------- --------- Capital Share Transactions Proceeds from shares sold 201,066 384,827 Reinvestment of distributions 4,523 - Payments for shares redeemed (319,818) (103,388) --------- --------- Net increase (decrease) in net assets from capital share transactions (114,229) 281,439 --------- --------- Total Increase (Decrease) in Net Assets 28,083 865,201 Net Assets: Beginning of Year 2,614,742 1,749,541 --------- --------- End of Year 2,842,825 2,614,742 =========== ========== Transactions in Shares of the Fund Sold 14,154 31,318 Issued in reinvestment of distributions 290 - Redeemed (22,197) (8,732) ----------- ---------- Net increase (decrease) in outstanding shares of the Fund (7,753) 22,586 ============ ========= MANOR INVESTMENT FUNDS, INC. Statements of Changes in Net Assets (con't) For the Years Ended December 31, 2004 and 2003 The accompanying notes are an integral part of these financial statements. Growth Fund 2004 2003 Increase (Decrease) in Net Assets from Operations Net investment income (loss) $(4,328) $(12,882) Net realized gain (loss) on investments (2,469) (58,098) Net change in unrealized appreciation/(depreciation) on investments 314,571 607,361 Net increase/(decrease) in net assets resulting from operations 307,774 536,381 Distributions to Shareholders - - Capital Share Transactions Proceeds from shares sold 230,662 458,285 Reinvestment of distributions - - Payments for shares redeemed (171,155) (75,630) ----------- ---------- Net increase (decrease) in net assets from capital share transactions 59,507 382,655 ---------- ---------- Total Increase (Decrease) in Net Assets 367,281 919,036 Net Assets: Beginning of Year 2,555,719 1,636,683 ----------- ---------- End of Year $2,923,000 $2,555,719 ========== =========== Transactions in Shares of the Fund Sold 23,991 55,777 Issued in reinvestment of distributions - - Redeemed (18,042) (9,606) ----------- ---------- Net increase (decrease) in outstanding shares of the Fund 5,949 46,171 =========== ========== The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. Statements of Changes in Net Assets (con't) For the Years Ended December 31, 2004 and 2003 Bond Fund 2004 2003 Increase (Decrease) in Net Assets from Operations Net investment income (loss) $24,269 $41,863 Net realized gain (loss) on investments (1,123) 37,918 Net change in unrealized appreciation/(depreciation0 on investments (28,436) (63,072) ----------- ---------- Net increase/(decrease) in net assets resulting from operations (5,290) 16,709 ----------- ---------- Distributions to Shareholders (28,867) (78,435) ----------- ---------- Capital Share Transactions Proceeds from shares sold 971,571 161,855 Reinvestment of distributions 28,867 78,435 Payments for shares redeemed (1,207,292) (371,299) ----------- ---------- Net increase (decrease) in net assets from capital share transactions (206,854) (131,009) ----------- ---------- Total Increase (Decrease) in Net Assets (241,011) (192,735) Net Assets: Beginning of Year 1,769,270 1,962,005 ----------- ---------- End of Year $1,528,259 $1,769,270 ========== ========== Transactions in Shares of the Fund Sold 91,541 14,687 Issued in reinvestment of distributions 2,784 7,414 Redeemed (114,136) (33,746) ---------- ---------- Net increase (decrease) in outstanding shares of the Fund (19,811) (11,645) ========== ========== The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. Notes to Financial Statements December 31, 2004 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization: Manor Investment Funds, Inc. (the "Company") is a non- diversified regulated investment company and was incorporated in the Commonwealth of Pennsylvania on September 13, 1995. The primary investment objective of each of the Funds follows: Manor Fund - conservative capital appreciation and current income, investing primarily in common stocks of large corporations in the United States; Growth Fund - long-term capital appreciation, investing primarily in common stocks of U.S. corporations; Bond Fund - intermediate-term fixed income, investing primarily in U.S. Government obligations. The following is a summary of the Funds' 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. 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. Reclassifications: In accordance with SOP-93-2, the Growth Fund recorded a reclassification in the capital accounts. As of December 31, 2004, the Growth Fund has recorded a permanent book/tax difference of $4,328, from net investment loss to paid-in-capital. This reclassification has no impact on the net asset value of the Fund and is designed generlly to present undistributed income and net realized gains on a tax basis, which is considered to be more informative to shareholders. 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 when determined to be material. 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. 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 revenues and expenses during the year. Actual results could differ from these estimates 2. INVESTMENT ADVISORY AGREEMENT The Fund has an investment advisory agreement (the "agreement") with Morris Capital Advisors, Inc. (the "Advisor"), with whom certain officers and directors of the Funds are affiliated, to furnish investment management services to the Funds. Under the terms of the agreement, the Funds will pay the Advisor a monthly fee based on the Funds' average daily net assets at the annual rate of 1.00% for Manor Fund and Growth Fund and 0.5% for Bond Fund. For the fiscal year ended December 31, 2004 the Advisor earned advisory fees from the Manor, Growth and Bond Funds of $26,616, 26,931 and $8,118 respectively. Under the terms of the agreement if the aggregate expenses of the Funds are equal to or greater than 1.5% for Manor Fund and Growth Fund and 1.00% for Bond Fund of the Funds' net assets the Advisor will reimburse the Funds for these expenses. At December 31, 2004 the Advisor reimbursed the Bond Fund $500 for expenses. 3.INVESTMENT TRANSACTIONS Investment transactions, excluding short-term investments, for the year ended December 31, 2004, were as follows: Manor Fund Growth Fund Bond Fund Purchases $233,482 $1,074,030 $1,200,875 Proceeds from sales $185,220 $736,786 $1,380,391 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. Manor Fund Growth Fund Bond Fund Federal tax cost of investments, including short term investments $2,165,347 $2,428,652 $1,486,695 ---------- ---------- ---------- Gross tax appreciation of investments $727,806 $601,252 $1,655 Gross tax depreciation of investments (62,326) (126,750) (10,721) ---------- ---------- ---------- Net tax appreciation (depreciation) $665,480 $474,502 $(9,066) ========== ========== ========== Undistributed ordinary income $2,765 $ - $611 Undistributed capital gain income $ - $ - $ - Accumulated capital losses $(185,369) $(309,021) $(1,123) The accumulated capital loss carryovers listed above expire as follows: Manor Fund Growth Fund Bond Fund 2007 $40,300 $3,668 $ - 2008 $ - $151,266 $ - 2009 $78,780 $45,013 $ - 2010 $4,835 $48,507 $ - 2011 $ - $58,098 $ - 2012 $61,455 $2,469 $1,123 The tax character of distributions paid during the years ended December 31, 2004 and 2003 were as follows: Manor Fund Growth Fund Bond Fund 2004 2003 2004 2003 2004 2003 Ordinary Income $4,523 - - - $28,867 $40,658 Long-term capital gain - - - - $ - $37,777 MANOR INVESTMENT FUNDS, INC. MANOR FUND Financial Highlights For a share of capital stock outstanding throughout the period For the years ended December 31, ______________________________________________________________________________ 2004 2003 2002 2001 2000 ______________________________________________________________________________ PER SHARE DATA ______________________________________________________________________________ Net asset value, beginning of period $13.84 $10.52 $13.20 $15.76 $17.08 ______________________________________________________________________________ Income from investment operations: Net investment income (loss) 0.035 0.00 (0.01) (0.02) (0.06) Net realized and Unrealized gain (loss) on investments 1.840 3.32 (2.67) (2.54) (1.26) ------- ------- ------- ------- ------- Total from investment operations 1.875 3.32 (2.68) (2.56) (1.32) ______________________________________________________________________________ Less distributions (0.025) -- -- -- -- ------- ------- ------- ------- ------- Total distributions (0.025) -- -- -- -- ______________________________________________________________________________ Net asset value, end of period $15.69 $13.84 $10.52 $13.20 $15.76 ______________________________________________________________________________ Total Return 13.55 % 31.56 % -20.30 % -16.24 % -7.73 % ______________________________________________________________________________ Ratios and Supplemental Data: Net assets, end of period (000) $2,843 $2,615 $1,750 $2,087 $2,569 Ratio of expenses to average net assets: before reimbursements 1.50 % 1.52 % 1.50 % 1.50 % 1.50 % net of reimbursements 1.50 % 1.50 % 1.50 % 1.50 % 1.50 % Ratio of net investment income/(loss) to average net assets 0.27 % 0.04 % (0.08)% (0.11)% (0.32)% Portfolio Turnover Rate 7.32 % 4.26 % 26.0 % 28.0 % 16.0 % _______________________________________________________________________________ The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. GROWTH FUND Financial Highlights For a share of capital stock outstanding throughout the period For the years ended December 31, ______________________________________________________________________________ 2004 2003 2002 2001 2000 ______________________________________________________________________________ PER SHARE DATA ______________________________________________________________________________ Net asset value, beginning of period $9.22 $7.08 $8.95 $9.54 $11.72 ______________________________________________________________________________ Income from investment operations: Net investment income (loss) (0.02) (0.05) (0.06) (0.05) (0.05) Net realized and unrealized gain (loss) on investments 1.12 2.19 (1.81) (0.54) (2.13) ------- ------- ------- ------- ------- Total from investment Operations 1.10 2.14 (1.87) (0.59) (2.18) ______________________________________________________________________________ Less distributions -- -- -- -- -- Total distributions -- -- -- -- -- ______________________________________________________________________________ Net asset value, end of period $10.32 $9.22 $7.08 $8.95 $9.54 Total Return 11.93 % 30.23 % -20.89 % -6.18 % -18.60 % Ratios and Supplemental Data: Net assets, end of period (000) $2,923 $2,556 $1,638 $1,522 $1,528 Ratio of expenses to average net assets: Before Reimbursements 1.50 % 1.52 % 1.50 % 1.50 % 1.52 % net of reimbursements 1.50 % 1.50 % 1.50 % 1.50 % 1.52 % Ratio of net investment income/ (loss) to average net assets (0.16)% (0.66)% (0.70)% (0.53)% (0.44)% Portfolio turnover Rate 30.42% 6.53% 13.2% 33.6% 16.0% The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. BOND FUND Financial Highlights For a share of capital stock outstanding throughout the period For the years ended December 31, ______________________________________________________________________________ 2004 2003 2002 2001 2000 ______________________________________________________________________________ PER SHARE DATA ______________________________________________________________________________ Net asset value, beginning of period $10.58 $10.98 $10.63 $10.39 $9.90 ______________________________________________________________________________ Income from Investment operations: Net investment income (loss) 0.17 0.26 0.32 0.43 0.46 Net realized and nrealized gain (loss) on investments (0.18) (0.17) 0.39 0.23 0.47 ------- ------- ------- ------- ------- Total from Investment Operations (0.01) 0.09 0.71 0.66 0.93 ______________________________________________________________________________ Less distributions (0.20) (0.49) (0.36) (0.42) (0.44) ------- ------- ------- ------- ------- Total distributions (0.20) (0.49) (0.36) (0.42) (0.44) Net asset value, end of period $10.37 $10.58 $10.98 $10.63 $10.39 Total Return -0.09 % 0.82 % 6.69 % 6.35 % 9.39 % ______________________________________________________________________________ Ratios and Supplemental Data: Net assets, end of period (000) $1,528 $1,769 $1,962 $1,476 $803 Ratio of expenses to average net assets: before reimbursements 1.05 % 1.04 % 1.00 % 1.00 % 1.00 % net of reimbursements 1.00 % 1.00 % 1.00 % 1.00 % 1.00 % Ratio of net investment income to average net assets 1.37 % 2.30 % 2.96 % 4.01 % 4.45 % Portfolio turnover rate 75.57 % 50.61 % 26.3 % 0.0 % 0.0 % The accompanying notes are an integral part of these financial statements. MANOR INVESTMENT FUNDS, INC. ADDITIONAL INFORMATION Proxy Voting Procedures The Company's Board of Directors has approved proxy voting procedures forth guidelines and procedures for the voting of proxies relating to securities held by the Fund. Records of the Fund's proxy voting records are maintained and are available for inspection. The Board is responsible for overseeing the implementation of the procedures. The proxy voting record of the Fund can be reviewed on the web site of the Fund at www.ManorFunds.com. The Proxy voting history is located under Fund Information, Proxy Voting. Quarterly Portfolio Schedule The Company now files a complete schedule of investments with the SEC for the first and third quarters of each fiscal year on Form N-Q. These forms are available on the SEC'S website at http://www.sec.gov. They may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the Public Reference Room may be obtained by calling 1-800-723-0330. Compensation of Board of Directors The members of the Board of Directors serves without compensation. Daniel A. Morris, President of Manor Investment Funds, Inc. ("the Funds"), and President of Morris Capital Advisors, Inc., adviser to the Funds, and an Interested Director of the Funds, receives no compensation directly from the Funds. He is compensated through the management fee paid to the adviser to the Funds. Change of Auditor Manor Investment Funds, Inc. ("the Funds") retained a new independent auditing firm, Sanville & Co., effective December 31, 2003, replacing the previous auditor, Claude B. Granese, CPA, auditor of the Funds since inception. The previous audits of the Funds contained no adverse opinion, modification or qualification. The change was approved by the Audit Committee of the Board of Directors, and the full Board of Directors. During the two most recent fiscal years there were no disagreements with the former independent accountant. Board of Directors Information Manor Investment Funds, Inc. December 31, 2004 The business and affairs of the Fund are managed under the direction of the Funds' Board of Directors. Information pertaining to the Directors of the Fund are set forth below. The Statement of Additional Information includes addition information about the Funds' Directors, and is available without charge, by calling 1-800-787-3334. Each director may be contacted by writing to the director c/o Manor Investment Funds, Inc., 15 Chester Commons, Malvern, PA 19355. Independent Directors JAMES MCFADDEN James McFadden is a Director of the Fund, and Chairman of the Audit Committee. He serves a one-year term, and stands for re-election annually. He has been a Director since 9/25/1995. Mr. McFadden is Vice President of Marketing for MBNA Corporation. He is not a Director for any other public companies. JOHN MCGINN John McGinn is a Director of the Fund, and serves on the Audit Committee. He serves a one-year term, and stands for re-election annually. He has been a Director since 11/5/2002.Mr. McGinn is head of Credit Review for Vertex, Inc. He is not a Director for any other public companies. FRED MYERS Fred Myers is a Director of the Fund. He serves a one-year term, and stands for re-election annually. He has been a Director since 9/25/1995. Mr. Myers is founding Partner of the accounting firm of Myers & Associates, CPA's. He is not a Director for any other public companies. EDWARD SZKUDLAPSKI Edward Szkudlapski is a Director of the Fund. He serves a one-year term, and stands for re-election annually. He has been a Director since 5/15/2000. Mr. Szkudlapski is President of Eclipse Business Systems. He is not a Director for any other public companies. DONALD THOMPSON Donald Thompson is a Director of the Fund. He serves a one-year term, and stands for re-election annually. He has been a Director since 4/20/1999. Mr. Thompson is a Network Administrator and Healthcare Consultant. He is not a Director for any other public companies. ALAN WEINTRAUB Alan Weintraub is a Director of the Fund. He serves a one-year term, and stands for re-election annually. He has been a Director since 9/25/1995. Mr. Weintraub is a Chief Technical Officer with Qumas, Cork, Ireland. He is not a Director for any other public companies. Interested Directors DANIEL A. MORRIS Daniel A. Morris is a Director of the Fund, and President of Morris Capital Advisors, Inc., advisor to the Fund. He serves a one-year term, and stands for re-election annually. He has been a Director since 9/25/1995. Prior to founding Morris Capital Advisors, Inc., he was Senior Vice President of Consistent Asset Management Company, an investment adviser for separate accounts and registered investment companies. As President of the Fund, he is considered an Interested Director. He is not a Director for any other public companies. BRUCE LAVERTY Bruce Laverty is a Director of the Fund, and serves as legal counsel to the Fund. He serves a one-year term, and stands for re-election annually. He has been a Director since 9/25/1995. Mr. Laverty is a Partner of the law firm Valocchi, Fischer & Laverty legal counsel to the Fund. He is not a Director for any other public companies. Manor Investment Funds, Inc. Fund Office: 15 Chester County Commons Malvern, PA 19355 610-722-0900 800-787-3334 www.manorfunds.com