-------------------------
Microsoft Word 10.0.3416;UNITED STATES OMB APPROVAL
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
OMB Number: 3235-0570
Expires: Nov. 30, 2005
Estimated average
burden hours per
response: 5.0
-------------------------
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-04813
-------------------------------------------------------------------------------
Mellon Institutional Funds Investment Trust
- -------------------------------------------------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
One Boston Place, Boston, MA 02108
- ------------------------------------------------------------------------------------ ------------------------------------
(Address of principal executive offices) (Zip code)
Denise Kneeland
One Boston Place, Boston, MA 02108
- -------------------------------------------------------------------------------------------------------------------------
(Name and address of agent for service)
Registrant's telephone number, including area code: 800-221-4795
-----------------------------
Date of fiscal year end: 09/30/2003
--------------------------
Date of reporting period: 10/01/2002-09/30/2003
------------------------
Item 1. Reports to Stockholders.
(Annual Report for the period 10/01/02 through 9/30/03 is filed herewith).
Mellon Institutional Funds Investment Trust
November 28, 2003
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2003.
This year might best be summarized as one in which risk-taking returned to the
financial markets. For most of last year, market sentiment was notably bearish,
characterized by a flight to quality. It's worth recalling that the first half
of 2002 produced the worst six-month performance for the S&P 500 Index in more
than 30 years, with a loss of almost 14%.
In contrast, over the past 12 months, the greatest gains have been made by the
stock market and the lowest-rated corporate debt. For the 12 months ended
September 30, the S&P 500 has gained 22%, while the Merrill Lynch C-Rated High
Yield Index advanced 42%. In keeping with the risk-taking trend, small cap
stocks, as measured by the Russell 2000 Index, advanced 34%. International
stocks also have enjoyed a healthy rebound, advancing 9%, as measured by the
MSCI EAFE Index. In comparison, intermediate U.S. Treasuries had a total return
of just 3%, after providing a total return of 13% in 2002, as measured by the
Merrill Lynch 5-7 Yr. Treasury Index.
The financial markets were reacting to the increasing strength of the economy.
After several sluggish quarters, economic activity in the U.S. accelerated in
the summer months and remains strong. The sources of strength include a)
continuing monetary ease that has induced substantial mortgage refinancing and
housing activity, b) Federal fiscal stimulus from large new tax cuts and sharp
increases in defense spending, and c) a gradual improvement in business capital
spending after many quarters of stagnation. Soft spots to date include inventory
investment, employment, state and local spending, and net exports.
The renewal of economic strength has created a schizophrenic year for the bond
markets. Until late June, the market's tone had been set by an expectation of
continued sluggish growth. In June, the Fed made explicit its intent to keep
short-term interest rates low for a "considerable period." But the Fed
announcement was perceived as a disappointment by the market, which promptly
caused a sharp summer selloff in bonds. In September, bonds recouped some of
their losses, as market participants felt the selloff had been overdone. The
yield curve remains very steep, influenced by the Fed at the short end, but with
the intermediate maturities under pressure from the large volume of Treasury
financing in that sector. With the recent bump in yields and inflation still
relatively quiescent, real interest rates have increased to the lower end of
what have been the historic norms.
Looking ahead, it's clear that there are some serious distortions and imbalances
in world economies including structural problems in Japan and core Europe, the
U.S. current account deficit, and the leverage in the consumer balance sheet. It
is impossible to predict when these restraints might undermine economic
activity, but the latter part of 2004 or the year 2005 could be a period of
vulnerability when there will be a loss of incremental fiscal stimulus as well
as the lagged effect of higher interest rates.
Nevertheless, the near term economic outlook has brightened, business activity
has some significant momentum which should carry over into 2004. The result
should be favorable growth, especially in business investment. We expect
inflation to remain modest and corporate profit growth to be reasonably strong.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/ signed /
Patrick J. Sheppard
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Management Discussion and Analysis
September 2003
Steady coupon income enabled municipal bonds to post solid investment results,
even while interest rates fluctuated wildly in the spring and summer of 2003.
For the year ended September 30, 2003, the Standish Intermediate Tax Exempt Bond
Fund produced a total return after expenses of 3.89%. This result trailed the
benchmark performance index (Lehman Muni 3,5,7 and 10 Year Index) return of
4.30%.
Interest rates plunged in the first six months of 2003, causing investors
seeking incremental yield to focus on sectors and securities with more credit
risk. This quest was supported by new rating agency data showing that default
rates among rated municipals are historically miniscule. As rates hit 40-year
lows, however, retail investors' appetites for municipal bonds dwindled, and
funds flowed out of the tax-exempt market and into equities. Declining retail
buying was only partly offset by growing demand among property and casualty
insurers, spurred by renewed profitability in the insurance industry. Throughout
the year we witnessed extraordinary monthly swings in the Fund's returns as
inconsistent demand combined with heavy supply, gyrating interest rates and the
growing prominence of leveraged investors, such as hedge funds, combined to
escalate volatility in the municipal market.
Income-oriented sectors of the tax-free bond market were bid up in the
competition for excess income, and the Fund's holdings in hospital bonds, which
typically carry a significant yield premium, outperformed. In contrast, a large
allocation to lower-yielding triple-A rated insured bonds lagged. Housing bonds
turned in strong results when rates rose in the summer and generated favorable
relative returns for the 12-month period. The Fund continues to hold a large
strategic weighting in this more defensive sector.
Despite well-publicized state budget shortfalls across the country, tax-backed
general obligations were among the best performing municipal sectors. California
state general obligations, buffeted by a rating downgrade, massive new issuance
volume and the pending governor's recall election, reached their lowest relative
values in July. Nevertheless, valuations improved as uncertainties receded over
the state's rating and budget. We are confident California's creditworthiness
will improve over the next 12 months, but expect prices will fluctuate with the
steady barrage of political and economic news reports. New York City's general
obligation bonds saw steadily higher valuations after reaching a low point in
late 2002. By quickly and decisively balancing fiscal 2003 financial operations,
the City's administration was able to alleviate many investor concerns over
long-term creditworthiness. We used price weakness throughout the past year to
build substantial positions in the Fund in both California and New York City
general obligations.
With municipal yields still very low, we are maintaining our strategic emphasis
on high quality, intermediate term municipals. We will focus on sector and
security selection to produce consistently competitive returns by generating
excess income. In addition, it is important to note that municipals are usually
more defensive instruments, ordinarily holding their values better than
Treasuries do when rates begin to rise.
It has been our privilege to manage the Fund, and we thank you for your
continued support.
/s/ STEVEN W. HARVEY /s/ CHRISTINE TODD
Steven W. Harvey Christine Todd
- --------------------------------------------------------------------------------
Mellon Institutional Funds Investment Trust
Standish Mellon Intermediate Tax Exempt Bond Fund
Comparison of Change in Value of $100,000 Investment in
Standish Mellon Intermediate Tax Exempt Bond Fund, the
Lehman Muni 3-5-7-10 Index and the Lipper Intermediate Muni Debt Index
[DATA BELOW IS REPRESENTED BY A MOUNTAIN CHART IN THE ORIGINAL REPORT]
Standish Mellon
Intermediate Tax Lehman Muni Lipper Intermediate
Exempt Bond Fund 3-5-7-10 Index Muni Debt INdex
---------------- -------------- -------------------
1993 112,618 110,731 111,628
1994 111,220 109,486 108,820
1995 122,648 121,897 120,736
1996 129,195 127,603 125,915
1997 139,112 136,523 134,179
1998 148,484 146,046 142,977
1999 147,132 146,762 141,244
2000 156,435 156,230 150,337
2001 171,058 171,286 164,412
2002 179,718 181,166 172,267
2003 189,256 191,303 180,951
- --------------------------------------------------------------------------------
Average Annual Total Return
(for period ended 09/30/2003)
Since Inception
1 Year 3 Year 5 Year 10 Year 11/02/1992
- ------ ------ ------ ------- ----------
3.89% 6.82% 4.97% 5.35% 6.02%
- --------------------------------------------------------------------------------
Must be preceded or accompanied by a prospectus which contains more complete
information and should be read carefully before investing. Copyright 2003,
Mellon Funds Distributor, L.P. Member, NASD. The investment return and principal
value of an investment will fluctuate, and an investor's shares, when redeemed,
may be worth more or less than their original cost.
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$66,765,404) $70,444,845
Cash 84,838
Receivable for investments sold 150,000
Receivable for Fund shares sold 25,500
Interest receivable 871,558
Prepaid expenses 16,818
-----------
Total assets 71,593,559
LIABILITIES
Payable for investments purchased $400,000
Payable for Fund shares redeemed 3,582
Distributions payable 95,088
Payable for delayed delivery transactions (Note 7) 545,505
Accrued accounting, custody and transfer agent fees 11,755
Accrued trustees' fees and expenses (Note 2) 1,133
Accrued expenses and other liabilities 31,432
--------
Total liabilities 1,088,495
-----------
NET ASSETS $70,505,064
===========
NET ASSETS CONSIST OF:
Paid-in capital $65,031,019
Accumulated net realized gain 1,779,074
Undistributed net investment income 15,530
Net unrealized appreciation 3,679,441
-----------
TOTAL NET ASSETS $70,505,064
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,095,106
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Net Assets/Shares outstanding) $ 22.78
===========
The accompanying notes are an integral part of the financial statements.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Interest income $3,301,377
EXPENSES
Investment advisory fee (Note 2) $ 312,602
Accounting, custody, and transfer agent fees 119,199
Legal and audit services 37,770
Registration fees 22,571
Insurance expense 13,264
Trustees' fees and expenses (Note 2) 10,099
Miscellaneous 13,346
----------
Total expenses 528,851
Deduct:
Waiver of investment advisory fee (Note 2) (20,927)
----------
Net expenses 507,924
----------
Net investment income 2,793,453
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain
Investment security transactions 1,871,706
----------
Net realized gain 1,871,706
Change in unrealized appreciation (depreciation)
Investment securities (1,679,548)
----------
Change in net unrealized appreciation (depreciation) (1,679,548)
----------
Net realized and unrealized gain 192,158
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,985,611
==========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment income $ 2,793,453 $ 3,359,933
Net realized gain 1,871,706 378,753
Change in net unrealized appreciation (depreciation) (1,679,548) 2,447,146
------------ ------------
Net increase in net assets from investment operations 2,985,611 6,185,832
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1D)
From net investment income (2,788,661) (3,358,682)
From net realized gains on investments (195,884) --
------------ ------------
Total distributions to shareholders (2,984,545) (3,358,682)
------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 23,850,640 13,610,240
Value of shares issued to shareholders in payment of
distributions declared 1,576,355 1,525,643
Cost of shares redeemed (37,084,670) (18,158,984)
------------ ------------
Net decrease in net assets from Fund share transactions (11,657,675) (3,023,101)
------------ ------------
TOTAL DECREASE IN NET ASSETS (11,656,609) (195,951)
NET ASSETS
At beginning of year 82,161,673 82,357,624
------------ ------------
At end of year (including undistributed net investment
income of $15,530 and $8,843) $ 70,505,064 $ 82,161,673
============ ============
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR $ 22.78 $ 22.04 $ 21.11 $ 21.11 $ 22.30
------- ------- ------- ------- -------
FROM INVESTMENT OPERATIONS:
Net investment income*(1) 0.81 0.90 0.93 0.95 0.92
Net realized and unrealized gain (loss) on investments 0.07 0.74 0.93 0.06 (0.99)
------- ------- ------- ------- -------
Total from investment operations 0.88 1.64 1.86 1.01 (0.07)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.81) (0.90) (0.93) (0.95) (0.92)
From net realized gain on investments (0.07) -- -- (0.06) (0.20)
------- ------- ------- ------- -------
Total distributions to shareholders (0.88) (0.90) (0.93) (1.01) (1.12)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 22.78 $ 22.78 $ 22.04 $ 21.11 $ 21.11
======= ======= ======= ======= =======
TOTAL RETURN+ 3.88% 7.65% 9.00% 4.91% (0.33)%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 0.65% 0.65% 0.62% 0.64% 0.63%
Net Investment Income (to average daily net assets)* 3.58% 4.09% 4.30% 4.54% 4.24%
Portfolio Turnover 42% 17% 43% 28% 43%
Net Assets, End of Year (000's omitted) $70,505 $82,162 $82,358 $79,329 $81,918
- -----------------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed
the Fund for a portion of its operating expenses. If this voluntary action
had not been taken, the investment income per share and ratios would have
been:
Net investment income per share(1) $ 0.80 $ 0.90 N/A N/A N/A
Ratios (to average daily net assets):
Expenses 0.68% 0.66% N/A N/A N/A
Net investment income 3.55% 4.08% N/A N/A N/A
(1) Calculated based on average shares outstanding.
+ Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
BONDS -- 94.5%
GENERAL OBLIGATIONS -- 14.2%
Alpine UT School District 5.000% 03/15/2011 $ 25,000 $ 27,397
California State NCL 5.000% 03/01/2009 500,000 551,330
California State NCL 5.000% 10/01/2009 1,000,000 1,110,050
California State NCL 6.600% 02/01/2009 1,000,000 1,176,890
Commonwealth of Massachusetts 5.000% 12/01/2007 1,000,000 1,122,190
Commonwealth of Massachusetts Prerefunded - Series A 7.500% 06/01/2004 95,000 99,122
Goose Creek TX Independent School District 7.000% 08/15/2009 600,000 739,440
Grand Central NY District Management 5.000% 01/01/2006 25,000 25,701
Honolulu HI City & County 5.400% 09/27/2007 500,000 565,800
New York NY NCL 5.250% 11/01/2009 1,000,000 1,115,230
New York NY NCL 5.500% 08/15/2008 1,000,000 1,121,730
New York NY NCL 5.500% 08/01/2010 1,000,000 1,119,230
New York State NCL 5.000% 03/01/2005 15,000 15,784
Northeast TX Independent School District NCL 7.000% 02/01/2009 1,000,000 1,215,180
-----------
Total General Obligations (Cost $9,491,311) 10,005,074
-----------
GOVERNMENT BACKED -- 4.0%
Commonwealth of Massachusetts - Series A 7.500% 06/01/2004 5,000 5,217
District of Columbia NCL 5.800% 06/01/2004 40,000 41,288
District of Columbia Prerefunded MBIA NCL 5.750% 06/01/2010 10,000 11,781
Long Beach CA Aquarium of the Pacific Revenue 5.750% 07/01/2005 145,000 152,518
Mashantucket CT Western Pequot 6.500% 09/01/2005 995,000 1,096,321
Met Govt Nashville & Davidson TN Industrial Development
Board Revenue Prerefunded 7.500% 11/15/2010 1,000,000 1,271,640
Port Jervis NY IDA 5.250% 11/01/2006 100,000 110,759
Tucson AZ COP Asset Guaranty 6.000% 07/01/2004 110,000 112,359
-----------
Total Government Backed (Cost $2,591,116) 2,801,883
-----------
HOUSING REVENUE -- 6.2%
ABAG CA Odd Fellows Homes 5.700% 08/15/2014 1,000,000 1,078,190
California HFA MBIA FHA AMT - Series G 5.650% 08/01/2025 30,000 30,059
California HFA SFM 5.050% 02/01/2017 215,000 216,763
Florida Housing Finance Corp. FSA 5.750% 01/01/2017 195,000 200,283
Hawaii Housing Finance and Development SFM FNMA 7.000% 07/01/2031 460,000 462,857
New Mexico Mortgage Finance Authority AMT 5.750% 07/01/2014 60,000 60,311
New York Mortgage Agency SFM AMT NCL 5.750% 04/01/2004 650,000 661,849
Pennsylvania HFA SFM 5.350% 10/01/2008 130,000 138,180
Rhode Island Housing & Mortgage Finance Corp. 4.950% 10/01/2016 175,000 177,385
Tennessee Housing Development Agency NCL(a) 0.000% 07/01/2007 1,500,000 1,325,025
Virginia Housing Development Authority Multi Family Insured
Mortgage(a) 0.000% 11/01/2017 10,000 2,645
-----------
Total Housing Revenue (Cost $4,201,731) 4,353,547
-----------
INDUSTRIAL DEVELOPMENT -- 5.1%
Broward County FL Resource Recovery 5.000% 12/01/2007 1,000,000 1,095,680
Connecticut Gaming Authority Mohegan Tribe 5.375% 01/01/2011 1,000,000 1,046,600
Gloucester NJ Resource Recovery 6.850% 12/01/2029 500,000 563,905
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT (CONTINUED)
Hendersonville TN Kroger 5.950% 12/15/2008 $ 305,000 $ 314,095
Mass DFA Waste Management Resource Recovery 6.900% 12/01/2029 500,000 553,575
-----------
Total Industrial Development (Cost $3,316,907) 3,573,855
-----------
INSURED BOND -- 42.0%
Birmingham AL Refunding and Capital Improvements AMBAC NCL 5.000% 12/01/2006 1,500,000 1,662,450
California Intercommunity HFA COP ACA 5.000% 11/01/2005 770,000 820,835
Charleston SC COP MBIA 6.000% 12/01/2008 1,000,000 1,185,300
Cook County IL High School FGIC 7.875% 12/01/2014 750,000 1,029,037
Cook County IL School District FSA NCL 6.750% 05/01/2010 1,750,000 2,134,527
Corpus Christi TX Business & Job Development Corp. Sales Tax
Revenue AMBAC NCL 5.000% 09/01/2011 1,215,000 1,358,929
Denver CO Airport MBIA AMT 7.500% 11/15/2006 500,000 540,510
District of Columbia FSA NCL 5.500% 06/01/2011 1,500,000 1,714,380
District of Columbia MBIA NCL 5.750% 06/01/2010 15,000 17,395
Douglas County CO School District MBIA 7.000% 12/15/2012 625,000 798,944
Fort Pierce FL Utilities Authority Revenue AMBAC NCL 5.000% 10/01/2013 1,000,000 1,118,070
Garland TX Independent School District PSF-GTD NCL# 5.000% 02/15/2010 500,000 554,685
Georgia Municipal Electric Authority Power FGIC NCL 6.250% 01/01/2012 1,150,000 1,369,638
Harris County TX Toll Revenue FGIC NCL 6.000% 08/01/2012 1,000,000 1,185,470
Hawaii State FGIC NCL 5.500% 08/01/2008 2,000,000 2,289,280
Hawaii State MBIA NCL 5.250% 09/01/2013 1,000,000 1,137,020
Hillsborogh FL University of Tampa Bay Asset Guaranty 5.750% 04/01/2018 720,000 797,933
Illinois Metropolitan Pier & Exposition Authority MBIA(a) 0.000% 12/15/2016 2,000,000 1,103,300
Jefferson County OH Asset Guaranty 6.625% 12/01/2005 140,000 147,480
NJ Transportation Corp. COP AMBAC NCL 5.500% 09/15/2007 1,000,000 1,130,660
Nassau County NY FGIC 6.000% 07/01/2010 25,000 29,483
New Jersey Health Care Facilities Financing Authority
Revenue AMBAC 4.800% 08/01/2021 1,000,000 1,069,370
New York Dormitory Authority Presbyterian Hospital AMBAC 4.400% 08/01/2013 115,000 121,592
New York Dormitory Authority State University Educational
Facilities MBIA 6.000% 05/15/2015 1,000,000 1,177,840
Orange County CA COP MBIA 5.800% 07/01/2016 400,000 444,868
Palm Beach County FL Solid Waste AMBAC 6.000% 10/01/2009 60,000 71,513
Pasco County FL Solid Waste AMBAC NCL 6.000% 04/01/2010 1,000,000 1,121,250
Phoenix AZ Water System Revenue FGIC NCL 5.250% 07/01/2010 1,000,000 1,138,440
Stafford TX Economic Development FGIC 6.000% 09/01/2015 525,000 634,148
Teton County WY St. John Hospital ACA 5.000% 12/01/2004 535,000 555,202
Texas Municipal Power Agency MBIA(b) 0.000% 09/01/2016 2,000,000 1,127,680
-----------
Total Insured Bond (Cost $27,916,388) 29,587,229
-----------
LEASE REVENUE -- 1.7%
New York Dormitory Authority Roswell Park 6.000% 07/01/2006 400,000 446,032
New York State Urban Development Corp. MBIA-IBC NCL 5.250% 01/01/2011 700,000 789,775
-----------
Total Lease Revenue (Cost $1,176,786) 1,235,807
-----------
REVENUE BONDS -- 19.7%
Arizona Transportation Board Highway Revenue NCL 8.000% 07/01/2005 1,685,000 1,881,859
California State Department of Water Resources Power Supply
NCL 5.500% 05/01/2009 250,000 282,798
California State Department of Water Resources Power Supply
NCL 5.500% 05/01/2010 250,000 282,278
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
REVENUE BONDS (CONTINUED)
Camden NJ Cooper Hospitals 5.600% 02/15/2007 $ 195,000 $ 189,294
Golden State Tobacco Securitization Corp. 5.000% 06/01/2021 1,000,000 982,000
Golden State Tobacco Securitization Corp. 5.250% 06/01/2016 1,000,000 1,024,700
Illinois Health Facility Authority Decatur Memorial Hospital 5.500% 10/01/2009 1,055,000 1,160,173
Illinois Health Facility Authority Silver Cross Hospital and
Medical Center 5.250% 08/15/2015 650,000 671,431
Illinois HEFA Condell Medical Center 6.000% 05/15/2010 500,000 544,815
Illinois HEFA Northwestern University(c) 5.050% 11/01/2032 725,000 816,742
Iowa Finance Authority Revenue NCL 5.500% 08/01/2007 1,000,000 1,133,460
Mass DFA Williston School AMT 6.000% 10/01/2013 240,000 247,836
Mass IFA Berkshire Retirement Development(c) 6.000% 07/01/2018 500,000 517,725
Met Govt Nashville & Davidson TN Vanderbilt 6.000% 05/01/2008 610,000 709,936
Michigan State Hospital Finance Authority 5.250% 11/15/2010 1,000,000 1,091,700
Montana Student Assistance Corp. 5.950% 12/01/2012 60,000 60,736
New Hampshire HEFA Monadnock Hospital 5.250% 10/01/2007 280,000 278,905
New Mexico State Hospital Equipment Loan Revenue
Presbyterian Healthcare Services 5.750% 08/01/2012 1,000,000 1,122,110
New York Medical Center Mt. Sinai FHA 5.950% 08/15/2009 20,000 20,369
New York Medical Center St. Luke's FHA 5.600% 08/15/2013 390,000 402,285
Scranton PA Allied Rehabilitation 7.125% 07/15/2005 475,000 481,132
Wisconsin State Transportation 5.500% 07/01/2010 15,000 17,186
-----------
Total Revenue Bonds (Cost $13,235,789) 13,919,470
-----------
SPECIAL REVENUES -- 1.6%
New York City Transitional Financial Authority Revenue 5.500% 02/15/2011 1,000,000 1,167,980
-----------
Total Special Revenues (Cost $1,035,376) 1,167,980
-----------
TOTAL BONDS (COST $62,965,404) 66,644,845
-----------
SHORT-TERM INVESTMENTS -- 5.4%
SHORT TERM BONDS -- 5.4%
Grand Forks ND Hospital Facility Revenue(c) 1.160% 12/01/2016 400,000 400,000
Kansas State Transportation Highway Revenue - Series B-1(c) 1.130% 09/01/2020 700,000 700,000
University of North Carolina Hospital Chapel Hill Revenue(c) 1.140% 02/15/2031 2,700,000 2,700,000
-----------
3,800,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $3,800,000) 3,800,000
-----------
TOTAL INVESTMENTS -- 99.9% (COST $66,765,404) $70,444,845
OTHER ASSETS, LESS LIABILITIES -- 0.1% 60,219
-----------
NET ASSETS -- 100.0% $70,505,064
===========
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
NOTES TO SCHEDULE OF INVESTMENTS:
ACA - American Capital Access Holdings, Inc.
AMBAC - American Municipal Bond Assurance Corp.
AMT - Alternative Minimum Tax
COP - Certification of Participation
DFA - Development Finance Agency
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
GTD - Guaranteed
HEFA - Health & Educational Facilities Authority
HFA - Housing Finance Authority
IBC - Insured Bond Certificate
IDA - Industrial Development Authority
IFA - Industrial Finance Authority
MBIA - Municipal Bond Insurance Association
NCL - Non-callable
PSF - Permanent School Fund
SFM - Single Family Mortgage
(a) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date. The rate shown is the rate at
period end. The maturity date shown is the ultimate maturity.
(b) Zero coupon security.
(c) Variable Rate Security; rate indicated is as of 9/30/03. Variable rate
securities that reset monthly or more frequently are considered short-term
securities for reporting purposes.
# Delayed delivery contract.
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Mellon Intermediate Tax Exempt Bond Fund (the "Fund") is
a separate non-diversified investment series of the Trust.
The objective of the Fund is to provide a high level of interest income
exempt from federal income taxes, while seeking preservation of capital.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in tax exempt municipal
securities issued by states, territories, and possessions of the United
States, the District of Columbia and their political subdivisions,
agencies and instrumentalities.
On June 21, 2003, by vote of the Trustees, the name of the Standish
Intermediate Tax Exempt Bond Fund was changed to Standish Mellon
Intermediate Tax Exempt Bond Fund. In addition, the Declaration of Trust
was amended to change the name of the Trust from Standish, Ayer & Wood
Investment Trust to Mellon Institutional Funds Investment Trust. The name
changes became effective July 1, 2003.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. INVESTMENT SECURITY VALUATIONS
Municipal bonds are normally valued on the basis of valuations furnished
by a pricing service. Taxable fixed income obligations, if any, for which
price quotations are readily available are normally valued at the last
sales prices on the exchange or market on which they are primarily traded,
or if not listed or no sale, at the last quoted bid prices. Securities
(including restricted securities) for which quotations are not readily
available are valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Trustees.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Fund are valued at amortized cost. If the Fund
acquires a short-term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized value based upon
the value on such date unless the Trustees determine during such sixty-day
period that amortized value does not represent fair value.
B. REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession of, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Collateral for certain tri-party repurchase agreements is
held at the custodian in a segregated account for the benefit of the Fund
and the counterparty. Additionally, procedures have been established by
the Fund to monitor on a daily basis, the market value and accrued
interest of the repurchase agreement's underlying investments to ensure
the existence of a proper level of collateral.
C. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of trade date. Interest income is
determined on the basis of interest accrued, adjusted for accretion of
discount or amortization of premium using the yield-to-maturity method on
long-term debt securities. Realized gains and losses from securities sold
are recorded on the identified cost basis.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions on shares of the Fund are declared daily from net investment
income and distributed monthly. Distributions from capital gains, if any,
will be distributed annually by the Fund. Distributions from net
investment income and capital gains, if any, are automatically reinvested
in additional shares of the applicable Fund unless the shareholder elects
to receive them in cash. Distributions are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in distribution reclassifications, are primarily due to
differing treatments for non-taxable dividends, capital loss
carryforwards, post-October losses, losses deferred due to wash sales and
net operating losses.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income (loss), accumulated net realized gain (loss) and paid in
capital. Undistributed net investment income and accumulated net realized
gain (loss) on investments may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable or
tax-exempt income or gain remaining at fiscal year end is distributed in
the following year.
E. EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon Asset Management
Company LLC ("Standish Mellon"), a wholly-owned subsidiary of Mellon
Financial Corporation, for overall investment advisory, administrative
services, and general office facilities, is paid at an annual rate of
0.40% of the Fund's average daily net assets. Standish Mellon voluntarily
agreed to limit the total Fund operating expenses (excluding litigation,
indemnification and other extraordinary expenses) to 0.65% of the Fund's
average daily net assets for the year ended September 30, 2003. Pursuant
to this agreement, for the year ended September 30, 2003, Standish Mellon
voluntarily waived a portion of its advisory fee in the amount of $20,927.
This agreement is voluntary and temporary and may be discontinued or
revised by Standish Mellon at any time.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
investments, for the year ended September 30, 2003 were $32,143,303 and
$47,875,497, respectively. For the year ended September 30, 2003, the Fund
did not purchase or sell any long-term U.S. Government securities.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
Shares sold 1,067,097 618,679
Shares issued to shareholders in payment of
distributions declared 69,868 69,126
Shares redeemed (1,647,943) (817,983)
---------- --------
Net decrease (510,978) (130,178)
========== ========
At September 30, 2003, the Fund had one shareholder of record owning
approximately 18% of the Fund's outstanding shares. Investment activity of
this shareholder could have a material impact on the Fund.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
Dividends paid by the Fund from net interest earned on tax-exempt
municipal bonds are not includable by shareholders as gross income for
federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay exempt-interest
dividends.
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2003 was as follows:
Unrealized appreciation $3,834,806
Unrealized depreciation (155,365)
----------
Net unrealized appreciation/depreciation 3,679,441
Undistributed tax-exempt income 107,980
Undistributed ordinary income 2,638
Undistributed capital gains 1,652,249
----------
Total distributable earnings $5,442,308
==========
Cost for federal income tax purposes $66,765,404
The tax character of distributions paid during the fiscal year ended
September, 30 2003, was as follows:
AMOUNT
----------
Distributions paid from:
Tax-exempt income $2,788,210
Ordinary income 451
Capital gains 195,884
(6) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more fully
in the Fund's Prospectus and Statement of Additional Information.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Fund may trade the following financial instruments with off-balance
sheet risk:
FUTURES CONTRACTS
The Fund may enter into financial futures contracts for the delayed sale
or delivery of securities or contracts based on financial indices at a
fixed price on a future date. Pursuant to the margin requirements, the
Fund deposits either cash or securities in an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the
value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Fund. There are several
risks in connection with the use of futures contracts as a hedging device.
The change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not correlate
with changes in the value of hedged investments. Buying futures tends to
increase the Fund's exposure to the underlying instrument, while selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund investments. In addition, there is the risk that the
Fund may not be able to enter into a closing transaction because of an
illiquid secondary market. Losses may arise if there is an illiquid
secondary market or if the counterparties do not perform under the
contract's terms. The Fund enters into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
securities prices and foreign currencies. Gains and losses are realized
upon the expiration or closing of the futures contracts. Futures contracts
are valued at the quoted daily settlement prices established by the
exchange on which they trade.
At September 30, 2003, the Fund held no outstanding futures contracts.
(7) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase securities on a "when-issued", "delayed delivery" or
"forward commitment" basis. Delivery and payment for such securities
typically take longer than the customary settlement periods. The payment
obligation and interest rates on the securities are fixed at the time the
fund enters into such commitments, but interest will not accrue to the
fund until delivery of and payment for the securities. The fund may
receive compensation for such forgone interest. Although the fund will
only make commitments to purchase when-issued, delayed delivery or forward
commitment securities with the intention of actually acquiring the
securities, the fund may sell the securities before the settlement date if
deemed advisable by the investment adviser. The fund offsets in its
Statement of Assets and Liabilities the payables and receivables
associated with the purchases and sales of when-issued, delayed delivery
or forward commitment securities that have the same coupon, settlement
date and broker. When-issued, delayed delivery or forward commitment
securities that are purchased from or sold to different brokers are
reflected as both payables and receivables in the fund's Statement of
Assets and Liabilities.
Unless the fund has entered into an offsetting agreement to sell the
securities, cash or liquid obligations with a market value at least equal
to the amount of the fund's commitment will be segregated with the fund's
custodian bank. If the market value of these securities declines,
additional cash or securities will be segregated daily so that the
aggregate market value of the segregated securities equals the amount of
the fund's commitment.
Securities purchased on a when-issued, delayed delivery or forward
commitment basis may have a market value on delivery that is less than the
amount paid by the fund. The fund may also sell portfolio securities on a
delayed delivery basis. The market value of the securities when they are
delivered may be more than the amount to be received by the fund.
See Schedule of Investments for outstanding delayed delivery transactions.
(8) LINE OF CREDIT:
The Fund, other funds in the Trust and subtrusts in the Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties
to a committed line of credit facility, which enables each portfolio/fund
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating portfolio/fund based on its borrowings at a rate equal
to the Federal Funds effective rate plus 1/2 of 1%. In addition, a
commitment fee, computed at an annual rate of .065 of 1% on the daily
unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended September 30, 2003, the expense related to the commitment fee was
$3,454 for the Fund.
During the year ended September 30, 2003, the Fund had no borrowings under
the credit facility.
16
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Intermediate Tax Exempt Bond Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Mellon
Institutional Funds Investment Trust: Standish Mellon Intermediate Tax Exempt
Bond Fund (formerly, Standish Intermediate Tax Exempt Bond Fund) (the
"Fund"), at September 30, 2003, and the results of its operations, the
changes in its net assets and the financial highlights for each of the
periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 21, 2003
17
TRUSTEES AND OFFICERS
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies as of September 30, 2003. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing Mellon Institutional Funds at P.O. Box 51407, Boston, MA 02205-1407 or
calling toll free 1-800-221-4795. The same persons serve as trustees and
officers of the Portfolio Trust in the same capacities.
INDEPENDENT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the 28 Port Financial
c/o Decision Resources, 11/3/1986 Board and Chief Corp.
Inc. Executive Officer,
1100 Winter Street Decision Resources,
Waltham, MA 02154 Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex 28 None
c/o Essex Street 11/3/1986 Street Associates
Associates (family investment
400 Essex Street trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 28 None
c/o Harvard University 9/13/1986 Maier, Professor of
Cambridge, MA 02138 Political Economy,
8/5/44 Harvard University
John H. Hewitt Trustee Trustee since Trustee, The Peabody 28 None
P.O. Box 233 11/3/1986 Foundation; Trustee,
New London, NH 03257 Mertens House, Inc.
4/11/35
INTERESTED TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice 28 None
c/o Standish Mellon Asset and Chief President and Chief
Management Company LLC, Executive Officer Operating Officer,
One Boston Place Mellon Institutional
Boston, MA 02108 Asset Management;
7/24/65 formerly Vice
President and Chief
Financial Officer,
Mellon Institutional
Asset Management
18
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Beverly E. Banfield Vice President and Vice President since Director and 28 None
c/o Standish Mellon Asset Secretary 1996; Secretary Secretary;
Management, since 2002 Compliance Officer,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
7/6/56
Steven M. Anderson Vice President and Vice President since Vice President and 28 None
c/o Standish Mellon Asset Treasurer 1999; Treasurer Mutual Funds
Management, since 2002 Controller, Standish
One Boston Place Mellon Asset
Boston, MA 02108 Management
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 28 None
c/o Standish Mellon Asset President Manager, Mutual
Management, Funds Operations,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
8/19/51
Lisa Kane Assistant Vice Since 1999 Vice President and 28 None
c/o Standish Mellon Asset President Client Service
Management, Professional,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
6/25/70
Assistant Vice Since 2001 Assistant Manager, 28 None
Cara E. Hultgren, President Mutual Fund
c/o Standish Mellon Asset Operations since
Management, 2001; Shareholder
One Boston Place Representative,
Boston, MA 02108 Standish Mellon
1/19/71 Asset Management
Scott Simonds, Assistant Vice Since 2002 Compliance Analyst, 28 None
c/o Standish Mellon Asset President Boston Partners;
Management, Fund Accountant,
One Boston Place Mellon Financial
Boston, MA 02108 Corp.
8/17/60
19
Mellon Institutional Funds Investment Trust
November 28, 2003
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2003.
This year might best be summarized as one in which risk-taking returned to the
financial markets. For most of last year, market sentiment was notably bearish,
characterized by a flight to quality. It's worth recalling that the first half
of 2002 produced the worst six-month performance for the S&P 500 Index in more
than 30 years, with a loss of almost 14%.
In contrast, over the past 12 months, the greatest gains have been made by the
stock market and the lowest-rated corporate debt. For the 12 months ended
September 30, the S&P 500 has gained 22%, while the Merrill Lynch C-Rated High
Yield Index advanced 42%. In keeping with the risk-taking trend, small cap
stocks, as measured by the Russell 2000 Index, advanced 34%. International
stocks also have enjoyed a healthy rebound, advancing 9%, as measured by the
MSCI EAFE Index. In comparison, intermediate U.S. Treasuries had a total return
of just 3%, after providing a total return of 13% in 2002, as measured by the
Merrill Lynch 5-7 Yr. Treasury Index.
The financial markets were reacting to the increasing strength of the economy.
After several sluggish quarters, economic activity in the U.S. accelerated in
the summer months and remains strong. The sources of strength include a)
continuing monetary ease that has induced substantial mortgage refinancing and
housing activity, b) Federal fiscal stimulus from large new tax cuts and sharp
increases in defense spending, and c) a gradual improvement in business capital
spending after many quarters of stagnation. Soft spots to date include inventory
investment, employment, state and local spending, and net exports.
The renewal of economic strength has created a schizophrenic year for the bond
markets. Until late June, the market's tone had been set by an expectation of
continued sluggish growth. In June, the Fed made explicit its intent to keep
short-term interest rates low for a "considerable period." But the Fed
announcement was perceived as a disappointment by the market, which promptly
caused a sharp summer selloff in bonds. In September, bonds recouped some of
their losses, as market participants felt the selloff had been overdone. The
yield curve remains very steep, influenced by the Fed at the short end, but with
the intermediate maturities under pressure from the large volume of Treasury
financing in that sector. With the recent bump in yields and inflation still
relatively quiescent, real interest rates have increased to the lower end of
what have been the historic norms.
Looking ahead, it's clear that there are some serious distortions and imbalances
in world economies including structural problems in Japan and core Europe, the
U.S. current account deficit, and the leverage in the consumer balance sheet. It
is impossible to predict when these restraints might undermine economic
activity, but the latter part of 2004 or the year 2005 could be a period of
vulnerability when there will be a loss of incremental fiscal stimulus as well
as the lagged effect of higher interest rates.
Nevertheless, the near term economic outlook has brightened, business activity
has some significant momentum which should carry over into 2004. The result
should be favorable growth, especially in business investment. We expect
inflation to remain modest and corporate profit growth to be reasonably strong.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/ signed /
Patrick J. Sheppard
Mellon Institutional Funds Investment Trust
Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund
Management Discussion and Analysis
September 2003
Steady coupon income enabled municipal bonds to post solid investment results,
even while interest rates fluctuated wildly in the spring and summer of 2003.
For the year ended September 30, 2003, the Standish Mellon Massachusetts
Intermediate Tax Exempt Bond Fund produced a total return after expenses of
3.20%. This result trailed the benchmark performance index (Lehman Muni 3,5,7
and 10 Year Index) return of 4.30%. Please note that the Massachusetts Fund
invests only in bonds where interest is exempt from Massachusetts and federal
income taxes, while the benchmark index is national in scope.
Interest rates plunged in the first six months of 2003, causing investors
seeking incremental yield to focus on sectors and securities with more credit
risk. This quest was supported by new rating agency data showing that default
rates among rated municipals are historically miniscule. As rates hit 40-year
lows, however, retail investors' appetites for municipal bonds dwindled, and
funds flowed out of the tax-exempt market and into equities. Declining retail
buying was only partly offset by growing demand among property and casualty
insurers, spurred by renewed profitability in the insurance industry. Throughout
the year we witnessed extraordinary monthly swings in the Fund's returns as
inconsistent demand combined with heavy supply, gyrating interest rates and the
growing prominence of leveraged investors, such as hedge funds, combined to
escalate volatility in the municipal market.
Income-oriented sectors of the tax-free bond market were bid up in the
competition for excess income, and the Fund's holdings in hospital bonds, which
typically carry a significant yield premium, outperformed. In contrast, a large
allocation to lower-yielding triple-A rated insured bonds lagged. Housing bonds
turned in strong results when rates rose in the summer and generated favorable
relative returns for the 12-month period. The Fund continues to hold a large
strategic weighting in this more defensive sector.
Massachusetts bonds benefited from scarcity as fewer new bonds were offered for
sale. Despite suggestions of continuing budget problems in fiscal 2004,
Massachusetts state general obligations performed well, which was favorable for
the Fund's relative returns. Light new issue volume, combined with strong demand
from individual investors, also caused government-backed pre-refunded bonds to
register strong results. An underweight position in this sector detracted from
the Fund's performance.
With municipal yields still very low, we are maintaining our strategic emphasis
on high quality, intermediate term municipals. We will focus on sector and
security selection to produce consistently competitive returns by generating
excess income. In addition, it is important to note that municipals are usually
more defensive instruments, ordinarily holding their values better than
Treasuries do when rates begin to rise.
It has been our privilege to manage the Fund, and we thank you for your
continued support.
/s/ STEVEN W. HARVEY /s/ CHRISTINE L. TODD
Steven W. Harvey Christine L. Todd
- --------------------------------------------------------------------------------
Mellon Institutional Funds Investment Trust
Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund
Comparison of Change in Value of $100,000 Investment in
Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund, the
Lehman Muni 3-5-7-10 Index and the Lipper Intermediate Muni Debt Index
[DATA BELOW IS REPRESENTED BY A MOUNTAIN CHART IN THE ORIGINAL REPORT]
Standish Mellon
Massachusetts Lipper
Intermediate Tax Lehman Muni Intermediate
Exempt Bond Fund 3-5-7-10 Index Muni Debt Index
---------------- -------------- ---------------
1993 111,047 110,488 111,449
1994 109,667 110,416 110,030
1995 119,110 120,957 119,600
1996 124,208 126,367 124,755
1997 133,587 135,817 133,591
1998 143,533 145,693 142,974
1999 143,272 147,264 142,240
2000 150,039 155,016 149,099
2001 164,021 169,708 162,851
2002 175,648 183,416 174,918
2003 181,270 191,303 180,951
- ------------------------------------------------------------------------------
Average Annual Total Return
(for period ended 09/30/2003)
Since Inception
1 Year 3 Year 5 Year 10 Year 11/02/1992
- ------ ------ ------ ------- ----------
3.20% 6.51% 4.78% 5.02% 5.60%
- ------------------------------------------------------------------------------
Must be preceded or accompanied by a prospectus which contains more complete
information and should be read carefully before investing. Copyright 2003,
Mellon Funds Distributor, L.P. Member, NASD. The investment return and principal
value of an investment will fluctuate, and an investor's shares, when redeemed,
may be worth more or less than their original cost.
Past performance is not predictive of future performance.
- --------------------------------------------------------------------------------
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$48,298,723) $51,063,173
Receivable for investments sold 30,000
Receivable for Fund shares sold 290
Interest receivable 721,357
Prepaid expenses 9,734
-----------
Total assets 51,824,554
LIABILITIES
Distributions payable $45,062
Accrued accounting, custody and transfer agent fees 11,379
Accrued trustees' fees and expenses (Note 2) 1,090
Accrued expenses and other liabilities 34,957
------
Total liabilities 92,488
-----------
NET ASSETS $51,732,066
===========
NET ASSETS CONSIST OF:
Paid-in capital $47,727,866
Accumulated net realized gain 1,229,428
Undistributed net investment income 10,322
Net unrealized appreciation 2,764,450
-----------
TOTAL NET ASSETS $51,732,066
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,313,801
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Net Assets/Shares outstanding) $ 22.36
===========
The accompanying notes are an integral part of the financial statements.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Interest income $2,640,920
EXPENSES
Investment advisory fee (Note 2) $ 243,971
Accounting, custody, and transfer agent fees 106,903
Legal and audit services 40,653
Registration fees 4,204
Insurance expense 12,333
Trustees' fees and expenses (Note 2) 8,895
Miscellaneous 12,752
----------
Total expenses 429,711
Deduct:
Waiver of investment advisory fee (Note 2) (33,257)
----------
Net expenses 396,454
----------
Net investment income 2,244,466
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain
Investment security transactions 1,266,092
----------
Net realized gain 1,266,092
Change in unrealized appreciation (depreciation)
Investment securities (1,638,036)
----------
Change in net unrealized appreciation (depreciation) (1,638,036)
----------
Net realized and unrealized loss (371,944)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,872,522
==========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
--------------------- ---------------------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment income $ 2,244,466 $ 2,606,342
Net realized gain 1,266,092 88,542
Change in net unrealized appreciation (depreciation) (1,638,036) 1,791,653
------------ -----------
Net increase in net assets from investment operations 1,872,522 4,486,537
------------ -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1D)
From net investment income (2,244,466) (2,606,362)
From net realized gains on investments (113,195) --
------------ -----------
Total distributions to shareholders (2,357,661) (2,606,362)
------------ -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 5,014,924 5,060,578
Value of shares issued to shareholders in payment of
distributions declared 1,421,720 1,410,185
Cost of shares redeemed (19,945,194) (6,870,952)
------------ -----------
Net decrease in net assets from Fund share transactions (13,508,550) (400,189)
------------ -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (13,993,689) 1,479,986
NET ASSETS
At beginning of year 65,725,755 64,245,769
------------ -----------
At end of year (including undistributed net investment
income of $10,322 and $1,160) $ 51,732,066 $65,725,755
============ ===========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR $ 22.52 $ 21.89 $ 20.89 $ 20.85 $ 21.78
------- ------- ------- ------- -------
FROM INVESTMENT OPERATIONS:
Net investment income*(1) 0.82 0.88 0.91 0.92 0.90
Net realized and unrealized gain (loss) on investments (0.12) 0.63 1.00 0.04 (0.93)
------- ------- ------- ------- -------
Total from investment operations 0.70 1.51 1.91 0.96 (0.03)
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.82) (0.88) (0.91) (0.92) (0.90)
From net realized gain on investments (0.04) -- -- -- --
------- ------- ------- ------- -------
Total distributions to shareholders (0.86) (0.88) (0.91) (0.92) (0.90)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 22.36 $ 22.52 $ 21.89 $ 20.89 $ 20.85
======= ======= ======= ======= =======
TOTAL RETURN+ 3.20% 7.09% 9.32% 4.72% (0.18)%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 0.65% 0.65% 0.65% 0.65% 0.65%
Net Investment Income (to average daily net assets)* 3.68% 4.01% 4.23% 4.43% 4.19%
Portfolio Turnover 25% 13% 22% 23% 22%
Net Assets, End of Year (000's omitted) $51,732 $65,726 $64,246 $64,340 $63,005
- -----------------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the Fund
for all or a portion of its operating expenses. If this voluntary action
had not been taken, the investment income per share and the ratios would
have been:
Net investment income per share(1) $ 0.81 $ 0.87 $ 0.91 N/A N/A
Ratios (to average daily net assets):
Expenses 0.70% 0.68% 0.65% N/A N/A
Net investment income 3.63% 3.98% 4.23% N/A N/A
(1) Calculated based on average shares outstanding.
+ Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ----------------------------------------------------------------------------------------------------------
BONDS -- 97.1%
GENERAL OBLIGATIONS -- 27.3%
Brockton MA State Qualified 5.650% 12/15/2004 $ 300,000 $ 315,222
Commonwealth of Massachusetts 5.000% 12/01/2007 1,000,000 1,122,190
Commonwealth of Massachusetts 5.000% 12/01/2009 500,000 566,355
Commonwealth of Massachusetts 5.000% 12/01/2010 500,000 563,710
Commonwealth of Massachusetts NCL 5.500% 12/01/2011 2,250,000 2,590,020
Commonwealth of Massachusetts NCL 5.750% 10/01/2007 500,000 572,465
Commonwealth of Massachusetts NCL 6.000% 11/01/2011 850,000 1,007,173
Commonwealth of Massachusetts Prerefunded 5.625% 06/01/2018 1,000,000 1,163,940
Commonwealth of Massachusetts Prerefunded 6.000% 06/01/2014 1,000,000 1,193,180
Commonwealth of Massachusetts Prerefunded - Series A 7.500% 06/01/2004 235,000 245,197
Commonwealth of Massachusetts - Series C 5.250% 08/01/2009 835,000 938,649
Mass Bay Transportation Authority 7.000% 03/01/2011 1,000,000 1,236,500
Mass College Building Authority 7.500% 05/01/2006 500,000 575,570
Mass College Building Authority 7.500% 05/01/2007 450,000 535,725
Mass College Building Authority 7.500% 05/01/2008 250,000 305,860
University of Mass Building Authority State Guarantee 6.625% 05/01/2007 1,000,000 1,164,170
-----------
Total General Obligations (Cost $13,253,660) 14,095,926
-----------
GOVERNMENT BACKED -- 2.6%
Commonwealth of Massachusetts NCL - Series B 6.500% 08/01/2008 550,000 657,294
Commonwealth of Massachusetts - Series A 7.500% 06/01/2004 25,000 26,085
Mass HEFA Youville Hospital FHA Prerefunded - Series B 6.125% 02/15/2015 340,000 353,260
Puerto Rico Commonwealth Aqueduct & Sewer Authority FSA
Prerefunded - Series A 9.000% 07/01/2009 280,000 312,298
-----------
Total Government Backed (Cost $1,266,366) 1,348,937
-----------
HOUSING REVENUE -- 0.1%
Mass HFA Multi-Family Unit FNMA 6.300% 10/01/2013 50,000 51,214
-----------
Total Housing Revenue (Cost $50,965) 51,214
-----------
INDUSTRIAL DEVELOPMENT -- 2.6%
Boston MA Industrial Development Financing Authority AMT 7.375% 05/15/2015 805,000 808,606
Mass DFA Waste Management Resource Recovery 6.900% 12/01/2029 500,000 553,575
-----------
Total Industrial Development (Cost $1,305,000) 1,362,181
-----------
INSURED BOND -- 21.3%
Commonwealth of Massachusetts AMBAC NCL AMT 5.750% 08/01/2010 1,000,000 1,168,020
Commonwealth of Massachusetts MBIA NCL 5.500% 11/01/2012 685,000 788,154
Mass Bay Transportation Authority FGIC 7.000% 03/01/2011 1,055,000 1,308,422
Mass Bay Transportation Authority FGIC 7.000% 03/01/2014 900,000 1,136,151
Mass DFA Curry College ACA 4.100% 03/01/2004 45,000 45,481
Mass DFA May Institute Asset Guaranty 5.500% 09/01/2004 280,000 290,822
Mass DFA May Institute Asset Guaranty 5.500% 09/01/2005 175,000 187,861
Mass HEFA Cape Cod Healthcare Asset Guaranty 5.250% 11/15/2012 600,000 655,992
Mass HEFA Mass Eye and Ear ACA 5.000% 07/01/2005 660,000 696,914
Mass HEFA Partners FSA 5.500% 07/01/2007 635,000 714,775
Mass HFA Multi-Family Unit MBIA NCL 5.550% 12/01/2004 500,000 519,640
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
INSURED BOND (CONTINUED)
Mass Port Authority MBIA NCL 5.750% 07/01/2012 $1,000,000 $ 1,165,290
Mass Port Authority MBIA NCL AMT 5.750% 07/01/2007 500,000 561,145
Puerto Rico Commonwealth FSA 5.500% 07/01/2012 400,000 464,860
Puerto Rico Commonwealth Highway & Transportation Authority
MBIA 5.500% 07/01/2013 1,140,000 1,328,465
-----------
Total Insured Bond (Cost $10,280,241) 11,031,992
-----------
LEASE REVENUE -- 1.6%
Puerto Rico Housing Bank Appropriation 5.125% 12/01/2005 750,000 805,425
-----------
Total Lease Revenue (Cost $747,268) 805,425
-----------
LOC -- 1.3%
Boston MA IFA LOC: Bank of New York 5.875% 04/01/2030 440,000 462,264
Mass IFA Amesbury LOC: Citizens Bank AMT 5.910% 09/01/2005 211,250 224,443
-----------
Total LOC (Cost $651,250) 686,707
-----------
REVENUE BONDS -- 30.6%
Mass Bay Transportation Authority Sales Tax Revenue 5.250% 07/01/2010 1,100,000 1,254,451
Mass DFA Biomedical Research 6.000% 08/01/2011 550,000 627,841
Mass DFA Deerfield Academy 5.000% 10/01/2013 500,000 555,245
Mass DFA Massachusetts College of Pharmacy 5.750% 07/01/2006 280,000 303,979
Mass DFA Massachusetts College of Pharmacy and Allied Health
Sciences NCL 5.000% 07/01/2009 425,000 457,130
Mass DFA Williston School AMT 6.000% 10/01/2013 415,000 428,550
Mass HEFA Amherst College NCL 6.000% 11/01/2005 510,000 559,750
Mass HEFA Baystate Medical Center NCL 5.000% 07/01/2010 250,000 268,602
Mass HEFA Boston College NCL 5.000% 06/01/2009 1,000,000 1,126,540
Mass HEFA Caritas Christi NCL 5.500% 07/01/2005 500,000 516,235
Mass HEFA Dana Farber Cancer Institute 6.500% 12/01/2006 650,000 720,752
Mass HEFA Milford Hospital NCL 5.250% 07/15/2007 600,000 633,606
Mass HEFA No. Adams Regional Hospital 6.750% 07/01/2009 600,000 602,520
Mass HEFA Tufts University NCL 5.500% 08/15/2015 1,050,000 1,224,436
Mass HEFA Winchester Hospital 5.750% 07/01/2024 500,000 520,525
Mass IFA Berkshire Retirement Development(a) 6.000% 07/01/2018 530,000 548,788
Mass IFA Wentworth Institute 5.050% 10/01/2005 290,000 307,502
Mass Port Authority 5.750% 07/01/2012 700,000 804,328
Mass Port Authority 6.000% 07/01/2011 1,000,000 1,145,880
Mass Water Resource Authority NCL 6.500% 07/15/2009 1,000,000 1,205,070
New England Education Loan Marketing Corp. NCL 5.700% 07/01/2005 1,000,000 1,073,280
Puerto Rico Industrial Tour Ed Anamendez University 5.000% 02/01/2005 250,000 260,510
Puerto Rico Industrial Tour Ed Anamendez University 5.000% 02/01/2006 650,000 695,806
-----------
Total Revenue Bonds (Cost $15,225,074) 15,841,326
-----------
SPECIAL REVENUES -- 9.7%
Foxborough MA Stadium 5.750% 06/01/2011 1,050,000 1,221,423
Mass Special Obligation NCL 5.000% 12/15/2013 500,000 556,405
Mass Special Obligation NCL 5.375% 06/01/2011 850,000 974,253
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ----------------------------------------------------------------------------------------------------------
SPECIAL REVENUES (CONTINUED)
Mass Special Obligation NCL 5.500% 06/01/2013 $1,000,000 $ 1,158,780
Virgin Islands Public Finance Authority 5.625% 10/01/2010 1,000,000 1,083,710
-----------
Total Special Revenues (Cost $4,674,005) 4,994,571
-----------
TOTAL BONDS (COST $47,453,829) 50,218,279
-----------
SHORT-TERM INVESTMENTS -- 1.6%
SHORT TERM BONDS -- 1.5%
Mass DFA Boston University(a) 1.080% 10/01/2042 500,000 500,000
Mass HEFA Wellesley College(a) 1.150% 07/01/2039 300,000 300,000
-----------
800,000
-----------
REPURCHASE AGREEMENTS -- 0.1%
Tri-party repurchase agreement dated 09/30/03 with Salomon Smith Barney, Inc. and
Investors Bank and Trust Company, due 10/01/03, with a maturity value of $44,895
and an effective yield of 0.70%, collaterized by a U.S. Government Obligation
with a rate of 8.125%, a maturity date of 8/15/21 and a market value of $45,807. 44,894
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $844,894) 844,894
-----------
TOTAL INVESTMENTS -- 98.7% (COST $48,298,723) $51,063,173
OTHER ASSETS, LESS LIABILITIES -- 1.3% 668,893
-----------
NET ASSETS -- 100.0% $51,732,066
===========
NOTES TO SCHEDULE OF INVESTMENTS:
ACA - American Capital Access Holdings, Inc.
AMBAC - American Municipal Bond Assurance Corp.
AMT - Alternative Minimum Tax
DFA - Development Finance Agency
FGIC - Financial Guaranty Insurance Co.
FHA - Federal Housing Authority
FNMA - Federal National Mortgage Association
FSA - Financial Security Assurance
HEFA - Health & Educational Facilities Authority
HFA - Housing Finance Authority
IFA - Industrial Finance Authority
LOC - Letter of Credit
MBIA - Municipal Bond Insurance Association
NCL - Non-callable
(a) Variable Rate Security; rate indicated is as of 9/30/03. Variable rate
securities that reset monthly or more frequently are considered short- term
securities for reporting purposes.
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Mellon Massachusetts Intermediate Tax Exempt Bond Fund
(the "Fund") is a separate non-diversified investment series of the Trust.
The objective of the Fund is to provide a high level of interest income
exempt from Massachusetts and federal income taxes, while seeking
preservation of capital. The Fund seeks to achieve its objective by
investing, under normal circumstances, at least 80% of net assets in tax
exempt municipal securities of Massachusetts issuers and other qualifying
issuers (such as Puerto Rico, the U.S. Virgin Islands, and Guam).
Since the Fund may invest a substantial portion of its assets in issuers
located in one state, it will be more susceptible to factors adversely
affecting issuers of that state than would be a comparable general
tax-exempt mutual fund.
On June 21, 2003, by vote of the Trustees, the name of the Standish
Massachusetts Intermediate Tax Exempt Bond Fund was changed to Standish
Mellon Massachusetts Intermediate Tax Exempt Bond Fund. In addition, the
Declaration of Trust was amended to change the name of the Trust from
Standish, Ayer & Wood Investment Trust to Mellon Institutional Funds
Investment Trust. The name changes became effective July 1, 2003.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. INVESTMENT SECURITY VALUATIONS
Municipal bonds are normally valued on the basis of valuations furnished
by a pricing service. Taxable fixed income obligations, if any, for which
price quotations are readily available are normally valued at the last
sales prices on the exchange or market on which they are primarily traded,
or if not listed or no sale, at the last quoted bid prices. Securities
(including restricted securities) for which quotations are not readily
available are valued at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Trustees.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Fund are valued at amortized cost. If the Fund
acquires a short-term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized value based upon
the value on such date unless the Trustees determine during such sixty-day
period that amortized value does not represent fair value.
B. REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession of, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Collateral for certain tri-party repurchase agreements is
held at the custodian in a segregated account for the benefit of the Fund
and the counterparty. Additionally, procedures have been established by
the Fund to monitor on a daily basis, the market value and accrued
interest of the repurchase agreement's underlying investments to ensure
the existence of a proper level of collateral.
C. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of trade date. Interest income is
determined on the basis of interest accrued, adjusted for accretion of
discount or amortization of premium using the yield-to-maturity method on
long-term debt securities. Realized gains and losses from securities sold
are recorded on the identified cost basis.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions on shares of the Fund are declared daily from net investment
income and distributed monthly. Distributions from capital gains, if any,
will be distributed annually by the Fund. Distributions from net
investment income and capital gains, if any, are automatically reinvested
in additional shares of the applicable Fund unless the shareholder elects
to receive them in cash. Distributions are recorded on the ex-dividend
date.
Income and capital gains distributions are determined in accordance with
income tax regulations which may differ from accounting principles
generally accepted in the United States of America. These differences,
which may result in distribution reclassifications, are primarily due to
differing treatments for non-taxable dividends, capital loss
carryforwards, post-October losses, losses deferred due to wash sales and
net operating losses.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income (loss), accumulated net realized gain (loss) and paid in
capital. Undistributed net investment income and accumulated net realized
gain (loss) on investments may include temporary book and tax basis
differences which will reverse in a subsequent period. Any taxable or
tax-exempt income or gain remaining at fiscal year end is distributed in
the following year.
E. EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon Asset Management
Company LLC ("Standish Mellon"), a wholly-owned subsidiary of Mellon
Financial Corporation, for overall investment advisory, administrative
services, and general office facilities, is paid at an annual rate of
0.40% of the Fund's average daily net assets. Standish Mellon voluntarily
agreed to limit the total Fund operating expenses (excluding litigation,
indemnification and other extraordinary expenses) to 0.65% of the Fund's
average daily net assets for the year ended September 30, 2003. Pursuant
to this agreement, for the year ended September 30, 2003, Standish Mellon
voluntarily waived a portion of its advisory fee in the amount of $33,257.
This agreement is voluntary and temporary and may be discontinued or
revised by Standish Mellon at any time.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
investments, for the year ended September 30, 2003 were $14,716,321 and
$27,313,027, respectively. For the year ended September 30, 2003, the Fund
did not purchase or sell any long-term U.S. Government securities.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
--------------------- ---------------------
Shares sold 226,054 233,126
Shares issued to shareholders in payment of
distributions declared 64,015 64,586
Shares redeemed (895,193) (314,178)
-------- --------
Net decrease (605,124) (16,466)
======== ========
At September 30, 2003, the Fund had one shareholder of record owning
approximately 30% of the Fund's outstanding shares. Investment activity of
this shareholder could have a material impact on the Fund.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
Dividends paid by the Fund from net interest earned on tax-exempt
municipal bonds are not includable by shareholders as gross income for
federal income tax purposes because the Fund intends to meet certain
requirements of the Internal Revenue Code applicable to regulated
investment companies which will enable the Fund to pay exempt-interest
dividends.
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2003 was as follows:
Unrealized appreciation $2,840,885
Unrealized depreciation (76,435)
----------
Net unrealized appreciation/depreciation 2,764,450
Undistributed tax-exempt income 55,384
Undistributed capital gains 1,229,428
----------
Total distributable earnings $4,049,262
==========
Cost for federal income tax purposes $48,298,723
The tax character of distributions paid during the fiscal year ended
September 30, 2003, was as follows:
AMOUNT
----------
Distributions paid from:
Tax-exempt income $2,244,407
Ordinary income 59
Capital gains 113,195
(6) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more fully
in the Fund's Prospectus and Statement of Additional Information.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Fund may trade the following financial instruments with off-balance
sheet risk:
FUTURES CONTRACTS
The Fund may enter into financial futures contracts for the delayed sale
or delivery of securities or contracts based on financial indices at a
fixed price on a future date. Pursuant to the margin requirements, the
Fund deposits either cash or securities in an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the
value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Fund. There are several
risks in connection with the use of futures contracts as a hedging device.
The change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not correlate
with changes in the value of hedged investments. Buying futures tends to
increase the Fund's exposure to the underlying instrument, while selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund investments. In addition, there is the risk that the
Fund may not be able to enter into a closing transaction because of an
illiquid secondary market. Losses may arise if there is an illiquid
secondary market or if the counterparties do not perform under the
contract's terms. The Fund enters into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
securities prices and foreign currencies. Gains and losses are realized
upon the expiration or closing of the futures contracts. Futures contracts
are valued at the quoted daily settlement prices established by the
exchange on which they trade.
At September 30, 2003, the Fund held no outstanding futures contracts.
(7) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase securities on a "when-issued", "delayed delivery" or
"forward commitment" basis. Delivery and payment for such securities
typically take longer than the customary settlement periods. The payment
obligation and interest rates on the securities are fixed at the time the
fund enters into such commitments, but interest will not accrue to the
fund until delivery of and payment for the securities. The fund may
receive compensation for such forgone interest. Although the fund will
only make commitments to purchase when-issued, delayed delivery or forward
commitment securities with the intention of actually acquiring the
securities, the fund may sell the securities before the settlement date if
deemed advisable by the investment adviser. The fund offsets in its
Statement of Assets and Liabilities the payables and receivables
associated with the purchases and sales of when-issued, delayed delivery
or forward commitment securities that have the same coupon, settlement
date and broker. When-issued, delayed delivery or forward commitment
securities that are purchased from or sold to different brokers are
reflected as both payables and receivables in the fund's Statement of
Assets and Liabilities.
Unless the fund has entered into an offsetting agreement to sell the
securities, cash or liquid obligations with a market value at least equal
to the amount of the fund's commitment will be segregated with the fund's
custodian bank. If the market value of these securities declines,
additional cash or securities will be segregated daily so that the
aggregate market value of the segregated securities equals the amount of
the fund's commitment.
Securities purchased on a when-issued, delayed delivery or forward
commitment basis may have a market value on delivery that is less than the
amount paid by the fund. The fund may also sell portfolio securities on a
delayed delivery basis. The market value of the securities when they are
delivered may be more than the amount to be received by the fund.
At September 30, 2003, the Fund had no outstanding delayed delivery
transactions.
(8) LINE OF CREDIT:
The Fund, other funds in the Trust and subtrusts in the Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties
to a committed line of credit facility, which enables each portfolio/fund
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating portfolio/fund based on its borrowings at a rate equal
to the Federal Funds effective rate plus 1/2 of 1%. In addition, a
commitment fee, computed at an annual rate of .065 of 1% on the daily
unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended September 30, 2003, the expense related to the commitment fee was
$2,719 for the Fund.
During the year ended September 30, 2003, the Fund had no borrowings under
the credit facility.
15
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Massachusetts Intermediate Tax Exempt Bond
Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Mellon
Institutional Funds Investment Trust: Standish Mellon Massachusetts
Intermediate Tax Exempt Bond Fund (formerly, Standish Massachusetts
Intermediate Tax Exempt Bond Fund) (the "Fund"), at September 30, 2003, and
the results of its operations, the changes in its net assets and the
financial highlights for each of the periods indicated, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits, which included confirmation of securities at September 30, 2003
by correspondence with the custodian and brokers, provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 21, 2003
16
TRUSTEES AND OFFICERS
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies as of September 30, 2003. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing Mellon Institutional Funds at P.O. Box 51407, Boston, MA 02205-1407 or
calling toll free 1-800-221-4795. The same persons serve as trustees and
officers of the Portfolio Trust in the same capacities.
INDEPENDENT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the 28 Port Financial
c/o Decision 11/3/1986 Board and Chief Corp.
Resources, Inc. Executive Officer,
1100 Winter Street Decision Resources,
Waltham, MA 02154 Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex 28 None
c/o Essex Street 11/3/1986 Street Associates
Associates (family investment
400 Essex Street trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 28 None
c/o Harvard University 9/13/1986 Maier, Professor of
Cambridge, MA 02138 Political Economy,
8/5/44 Harvard University
John H. Hewitt Trustee Trustee since Trustee, The Peabody 28 None
P.O. Box 233 11/3/1986 Foundation; Trustee,
New London, NH 03257 Mertens House, Inc.
4/11/35
INTERESTED TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice 28 None
c/o Standish Mellon Asset and Chief President and Chief
Management Company LLC, Executive Officer Operating Officer,
One Boston Place Mellon Institutional
Boston, MA 02108 Asset Management;
7/24/65 formerly Vice
President and Chief
Financial Officer,
Mellon Institutional
Asset Management
17
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Beverly E. Banfield Vice President and Vice President since Director and 28 None
c/o Standish Mellon Asset Secretary 1996; Secretary Secretary;
Management, since 2002 Compliance Officer,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
7/6/56
Steven M. Anderson Vice President and Vice President since Vice President and 28 None
c/o Standish Mellon Asset Treasurer 1999; Treasurer Mutual Funds
Management, since 2002 Controller, Standish
One Boston Place Mellon Asset
Boston, MA 02108 Management
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 28 None
c/o Standish Mellon Asset President Manager, Mutual
Management, Funds Operations,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
8/19/51
Lisa Kane Assistant Vice Since 1999 Vice President and 28 None
c/o Standish Mellon Asset President Client Service
Management, Professional,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
6/25/70
Assistant Vice Since 2001 Assistant Manager, 28 None
Cara E. Hultgren, President Mutual Fund
c/o Standish Mellon Asset Operations since
Management, 2001; Shareholder
One Boston Place Representative,
Boston, MA 02108 Standish Mellon
1/19/71 Asset Management
Scott Simonds, Assistant Vice Since 2002 Compliance Analyst, 28 None
c/o Standish Mellon Asset President Boston Partners;
Management, Fund Accountant,
One Boston Place Mellon Financial
Boston, MA 02108 Corp.
8/17/60
18
Mellon Institutional Funds Investment Trust
November 28, 2003
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2003.
This year might best be summarized as one in which risk-taking returned to the
financial markets. For most of last year, market sentiment was notably bearish,
characterized by a flight to quality. It's worth recalling that the first half
of 2002 produced the worst six-month performance for the S&P 500 Index in more
than 30 years, with a loss of almost 14%.
In contrast, over the past 12 months, the greatest gains have been made by the
stock market and the lowest-rated corporate debt. For the 12 months ended
September 30, the S&P 500 has gained 22%, while the Merrill Lynch C-Rated High
Yield Index advanced 42%. In keeping with the risk-taking trend, small cap
stocks, as measured by the Russell 2000 Index, advanced 34%. International
stocks also have enjoyed a healthy rebound, advancing 9%, as measured by the
MSCI EAFE Index. In comparison, intermediate U.S. Treasuries had a total return
of just 3%, after providing a total return of 13% in 2002, as measured by the
Merrill Lynch 5-7 Yr. Treasury Index.
The financial markets were reacting to the increasing strength of the economy.
After several sluggish quarters, economic activity in the U.S. accelerated in
the summer months and remains strong. The sources of strength include a)
continuing monetary ease that has induced substantial mortgage refinancing and
housing activity, b) Federal fiscal stimulus from large new tax cuts and sharp
increases in defense spending, and c) a gradual improvement in business capital
spending after many quarters of stagnation. Soft spots to date include inventory
investment, employment, state and local spending, and net exports.
The renewal of economic strength has created a schizophrenic year for the bond
markets. Until late June, the market's tone had been set by an expectation of
continued sluggish growth. In June, the Fed made explicit its intent to keep
short-term interest rates low for a "considerable period." But the Fed
announcement was perceived as a disappointment by the market, which promptly
caused a sharp summer selloff in bonds. In September, bonds recouped some of
their losses, as market participants felt the selloff had been overdone. The
yield curve remains very steep, influenced by the Fed at the short end, but with
the intermediate maturities under pressure from the large volume of Treasury
financing in that sector. With the recent bump in yields and inflation still
relatively quiescent, real interest rates have increased to the lower end of
what have been the historic norms.
Looking ahead, it's clear that there are some serious distortions and imbalances
in world economies including structural problems in Japan and core Europe, the
U.S. current account deficit, and the leverage in the consumer balance sheet. It
is impossible to predict when these restraints might undermine economic
activity, but the latter part of 2004 or the year 2005 could be a period of
vulnerability when there will be a loss of incremental fiscal stimulus as well
as the lagged effect of higher interest rates.
Nevertheless, the near term economic outlook has brightened, business activity
has some significant momentum which should carry over into 2004. The result
should be favorable growth, especially in business investment. We expect
inflation to remain modest and corporate profit growth to be reasonably strong.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/ signed /
Patrick J. Sheppard
Mellon Institutional Funds Investment Trust
The Boston Company Small Capitalization Equity Fund
Management Discussion and Analysis
September 2003
The Boston Company Small Capitalization Equity Fund's return for the fiscal year
ended September 30, 2003 was 33.54% versus 41.72% for the Russell 2000 Growth
Index. The strong absolute performance was the fund's best since the fiscal year
ended September 2000. The fund lagged on a relative basis, following
outperformance in the prior fiscal year.
Market Environment
Equity markets were positive during the year, with smaller stocks leading large
and growth outperforming value. The broad Russell 3000 Index, which encompasses
large and small companies, was up 25.9%. Smaller companies, as measured by the
Russell 2000, were up 36.5%, while the large cap Russell 1000 gained 25.1%.
While growth outperformed value across all capitalization ranges, the widest
spread was in the smallest stocks - in both the small cap and mid cap indices
growth outpaced value by over 10 percentage points.
Strong stock returns were driven by a firming economic outlook, albeit one with
little job creation. GDP growth increased during the year to a 3.3% annual rate
in the quarter ended June 30, up from 1.4% in the prior quarter, spurred by a
7.3% jump in business spending. Leading indicators continue to foretell
expansion, up 2.4% in the six months through August. The recovery's soft spot
remains employment. While initial claims for unemployment ticked down in August
to around 400,000, a level considered the dividing line between job creation and
job loss, we have not yet seen a robust improvement in the jobs market.
Portfolio Strategy & Results
The last twelve months were a particularly difficult period for active managers
as the lowest quality stocks drove index returns. Recent work done by Merrill
Lynch shows that the lowest quality companies, as ranked by Standard and Poor's,
were up 57.8% in the nine months ended September 30, while the highest quality
companies were up 13.4%. Further, a majority of these stocks have
characteristics that do not appeal to many investors - low earnings, high
multiples and weak fundamentals. Historically, these lower quality stocks tend
to lead coming out of a recession as investors make an asset allocation trade
into more risky assets. In small caps, this was seen most recently through the
sharply increased trading volume in exchange traded funds (ETFs) that focus on
smaller company indexes. Specifically, Russell 2000 ETF volume more than doubled
to $4.7 billion from December 2002 to August 2003.
The portfolio's relative underperformance during this period was concentrated
primarily in technology and services. In technology a combination of an
underweight position (generally reduced throughout the year) and weak stock
selection had a negative impact on performance. The underperformance in services
was driven by selection. Specifically, positions in Central Parking and
Scholastic had a negative impact on returns. Central Parking's focus on parking
lots in metropolitan areas led to poor results as fewer people drove to work
during the downturn and corporate layoffs continued. Scholastic's book clubs
proved to be more economically sensitive than expected, pulling down earnings.
On the positive side, retail holdings such as Children's Place and Linens `n'
Things contributed to outperformance in the consumer sector. Similarly, the
fund's energy holdings more than doubled the returns of those in the benchmark,
helped by positions in Patina Oil & Gas and Key Energy Services.
Outlook
Investors' increasing love of risk over the last 12 months has led to a near
term focus on the lowest rated, most leveraged, most expensive companies. We
believe that, for the market to sustain its upward momentum, higher quality
companies - those with strong growth rates, real earnings, and reasonable
valuations relative to their growth rates - will likely assume market
leadership. This would result in a shift away from some of the best performing
sectors, like technology and biotech, to areas that exhibit recognizable,
sustainable sources of earnings. These areas, which could include consumer
staples and industrial companies, are those we believe hold the best long-term
potential for our investors.
Sincerely,
/s/ W. RANDALL WATTS
W. Randall Watts
- --------------------------------------------------------------------------------
Mellon Institutional Funds Investment Trust
The Boston Company Small Capitalization Equity Fund
Comparison of Change in Value of $100,000 Investment in The Boston Company
Small Capitalization Equity Fund and the Russell 2000 Growth Index
[DATA BELOW IS REPRESENTED BY A MOUNTAIN CHART IN THE ORIGINAL REPORT]
TBC Small Cap Russell 2000
Equity Fund Growth Index
------------- ------------
1988 125,625 121,430
1989 163,655 149,975
1990 120,245 110,628
1991 205,080 166,800
1992 220,679 166,433
1993 296,860 215,006
1994 312,249 216,890
1995 388,795 278,003
1996 455,807 313,055
1997 600,058 386,168
1998 436,869 290,271
1999 629,175 384,975
2000 1,054,755 499,173
2001 563,448 286,597
2002 491,548 234,546
2003 656,090 332,411
- --------------------------------------------------------------------------------
Average Annual Total Return
(for period ended 09/30/2003)
Since
Inception
1 Year 3 Year 5 Year 10 Year 01/01/1988*
------ ------ ------ ------- -----------
33.54% -14.64% 8.47% 8.25% 12.69%
- --------------------------------------------------------------------------------
*Combined Limited Partnership and Mutual Fund Performance
Must be preceded or accompanied by a prospectus which contains more complete
information and should be read carefully before investing. Copyright 2003,
Mellon Funds Distributor, L.P. Member, NASD. The investment return and principal
value of an investment will fluctuate, and an investor's shares, when redeemed,
may be worth more or less than their original cost.
Past performance is not predictive of future performance.
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$19,261,775) $21,920,134
Cash 337
Receivable for investments sold 634,977
Interest and dividends receivable 4,638
Prepaid expenses 10,079
-----------
Total assets 22,570,165
LIABILITIES
Payable for investments purchased $614,507
Payable for Fund shares redeemed 50,000
Accrued accounting, custody and transfer agent fees 8,667
Accrued trustees' fees and expenses (Note 2) 582
Accrued expenses and other liabilities 44,223
-------
Total liabilities 717,979
-----------
NET ASSETS $21,852,186
===========
NET ASSETS CONSIST OF:
Paid-in capital $29,453,557
Accumulated net realized loss (10,259,751)
Undistributed net investment income 21
Net unrealized appreciation 2,658,359
-----------
TOTAL NET ASSETS $21,852,186
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,304,205
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Net Assets/Shares outstanding) $ 9.48
===========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Dividend income (net of foreign withholding taxes of $294) $ 104,332
Interest income (including securities lending income of
$5,666 (Note 7)) 7,854
----------
Total investment income 112,186
EXPENSES
Investment advisory fee (Note 2) $ 117,157
Accounting, custody, and transfer agent fees 87,259
Legal and audit services 43,984
Registration fees 8,340
Insurance expense 5,358
Trustees' fees and expenses (Note 2) 2,710
Miscellaneous 9,182
---------
Total expenses 273,990
Deduct:
Waiver of investment advisory fee (Note 2) (117,157)
Reimbursement of Fund operating expenses (Note 2) (12,339)
---------
Total expense deductions (129,496)
---------
Net expenses 144,494
----------
Net investment loss (32,308)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain
Investment security transactions 2,330,320
Financial futures contracts 80,818
---------
Net realized gain 2,411,138
Change in unrealized appreciation (depreciation)
Investment securities 3,405,645
Financial futures contracts 30,665
---------
Change in net unrealized appreciation (depreciation) 3,436,310
----------
Net realized and unrealized gain 5,847,448
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $5,815,140
==========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment loss $ (32,308) $ (48,368)
Net realized gain (loss) 2,411,138 (3,865,376)
Change in net unrealized appreciation (depreciation) 3,436,310 1,379,506
----------- -----------
Net increase (decrease) in net assets from investment
operations 5,815,140 (2,534,238)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1D)
From net investment income (1,316) --
----------- -----------
Total distributions to shareholders (1,316) --
----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 180,799 5,938,831
Value of shares issued to shareholders in payment of
distributions declared 1,007 --
Cost of shares redeemed (3,004,570) (1,616,649)
----------- -----------
Net increase (decrease) in net assets from Fund share
transactions (2,822,764) 4,322,182
----------- -----------
TOTAL INCREASE IN NET ASSETS 2,991,060 1,787,944
NET ASSETS
At beginning of year 18,861,126 17,073,182
----------- -----------
At end of year (including undistributed net investment
income of $21 and $0) $21,852,186 $18,861,126
=========== ===========
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
-------------------------------------------------------------------
2003 2002 2001(6) 2000(6) 1999(6)
------- ------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF YEAR $ 7.10 $ 8.15 $ 230.48 $ 163.38 $ 125.22
------- ------- -------- -------- --------
FROM INVESTMENT OPERATIONS:
Net investment loss*(1) (0.01) (0.02) (0.07) (1.29) (0.84)
Net realized and unrealized gain (loss) on investments 2.39(7) (1.03)(7) (54.83)(7) 101.69 53.31
------- ------- -------- -------- --------
Total from investment operations 2.38 (1.05) (54.90) 100.40 52.47
------- ------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.00)(2) -- -- -- --
From net realized gain on investments -- -- (167.43) (33.30) (14.31)
------- ------- -------- -------- --------
Total distributions to shareholders (0.00) -- (167.43) (33.30) (14.31)
------- ------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 9.48 $ 7.10 $ 8.15 $ 230.48 $ 163.38
======= ======= ======== ======== ========
TOTAL RETURN+ 33.54% (12.88)% (46.58)% 67.64% 44.02%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)*(3) 0.74% 0.74% 0.74% 0.74% 0.74%
Net Investment Loss (to average daily net assets)* (0.17)% (0.24)% (0.33)% (0.57)% (0.56)%
Portfolio Turnover 252%(5) 248%(5) 136%(5) 153%(5) 173%(4)
Net Assets, End of Year (000's omitted) $21,852 $18,861 $ 17,073 $151,063 $147,332
- -----------------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed
the Fund for a portion of its operating expenses. If this voluntary action
had not been taken, the investment loss per share and the ratios would have
been:
Net investment loss per share(1) $ (0.07) $ (0.08) $ (0.14) $ (0.45) $ (0.30)
Ratios (to average daily net assets):
Expenses(3) 1.40% 1.46% 1.08% 0.77% 0.80%
Net investment loss (0.83)% (0.96)% (0.67)% (0.60)% (0.62)%
+ Total return would have been lower in the absense of expense waivers.
(1) Calculated using average shares outstanding.
(2) Calculates to less than $0.01 per share.
(3) Includes the Fund's share of the The Boston Company Small Capitalization
Equity Portfolio's allocated expenses for the periods from May 3, 1996 to
January 27, 2000.
(4) Represents activity of The Boston Company Small Capitalization Equity
Portfolio while the Fund was invested in The Boston Company Small
Capitalization Equity Portfolio.
(5) Represents portfolio turnover of the The Boston Company Small
Capitalization Equity Fund while the Fund was investing directly in
securities.
(6) Amounts were adjusted to reflect a 1:3 reverse share split effective
December 14, 2000.
(7) Amounts include litigation proceeds received by the Fund of $0.01 for the
year ended September 30, 2003 relating to securities litigation, $0.15 for
the year ended September 30, 2002 relating to the settlement of multiple
class action lawsuits and $0.14 for the year ended September 30, 2001
relating to NASDAQ recovery.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- ---------------------------------------------------------------------------------
EQUITIES -- 96.5%
BASIC INDUSTRY -- 1.7%
CUNO, Inc.* 2,900 $ 113,651
Glamis Gold Ltd.* 8,400 110,880
Stake Technology Ltd.* 15,200 140,752
-----------
365,283
-----------
CAPITAL GOODS -- 6.5%
FMC Technologies, Inc.* 5,300 113,526
Herley Industries, Inc.* 11,400 199,728
MSC Industrial Direct Co., Inc., Class A 15,900 331,515
Sauer-Danfoss, Inc. 9,200 129,720
United Defense Industries, Inc.* 10,200 289,578
Universal Compression Holdings, Inc.* 5,800 124,816
Wabtec Corp. 14,500 229,825
-----------
1,418,708
-----------
CONSUMER STABLE -- 3.1%
Delta & Pine Land Co. 9,150 210,541
Dial Corp. 11,100 239,094
NBTY, Inc.* 5,000 116,750
United Natural Foods, Inc.* 3,300 109,527
-----------
675,912
-----------
EARLY CYCLICAL -- 3.4%
Fleetwood Enterprises, Inc.* 9,590 88,899
Jarden Corp.* 2,900 109,475
Nu Skin Asia Pacific, Inc., Class A 18,700 238,425
RedEnvelope, Inc.* 9,600 134,400
Yankee Candle Co., Inc.* 6,600 168,168
-----------
739,367
-----------
ENERGY -- 4.3%
Arch Coal, Inc. 10,300 228,763
Evergreen Resources, Inc.* 4,300 116,100
Key Energy Services, Inc.* 11,200 108,080
KFX, Inc.* 29,000 145,580
Patina Oil & Gas Corp. 3,237 117,309
Quicksilver Resources, Inc.* 4,500 109,935
Western Gas Resources, Inc. 2,800 106,400
-----------
932,167
-----------
FINANCIAL -- 11.6%
BOK Financial Corp.* 5,098 192,042
City National Corp. 2,200 112,112
Community First Bankshares, Inc. 3,650 96,469
Cullen/Frost Bankers, Inc. 4,400 163,812
CVB Financial Corp. 9,012 171,228
First Community Bancorp 6,500 217,685
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- ---------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
First Midwest Bancorp, Inc. 5,350 $ 158,948
Investors Financial Services Corp. 3,350 105,190
Jefferies Group, Inc. 2,800 80,500
Knight Trading Group, Inc.* 20,800 238,160
Mercantile Bank Corp. 3,500 116,200
New York Community Bancorp, Inc. 9,133 287,781
PrivateBancorp, Inc. 3,400 112,574
Scottish Re Group Ltd. 6,400 154,560
Southwest Bancorp of Texas, Inc. 2,650 96,751
Triad Guaranty, Inc.* 4,900 240,492
-----------
2,544,504
-----------
GROWTH CYCLICAL -- 9.6%
Brookstone, Inc.* 6,300 124,929
Charlotte Russe Holding, Inc.* 7,100 73,059
Coldwater Creek, Inc.* 15,150 148,773
Dick's Sporting Goods, Inc.* 6,400 238,976
Hibbet Sporting Goods, Inc.* 4,600 110,032
Ingram Micro, Inc., Class A* 32,500 424,125
Inter Parfums, Inc. 3,000 30,000
Linens 'N Things, Inc.* 8,700 206,886
Marine Products Corp. 8,900 131,008
Quiksilver, Inc.* 6,400 102,080
Rare Hospitality International, Inc.* 9,150 227,926
Ruby Tuesday, Inc. 4,450 107,289
Steven Madden Ltd.* 9,300 176,421
-----------
2,101,504
-----------
HEALTH CARE -- 21.2%
Adolor Corp.* 7,000 128,450
Advanced Neuromodulation Systems, Inc.* 3,150 125,685
Celgene Corp.* 5,000 216,650
Community Health Systems, Inc.* 7,200 156,240
Connetics Corp.* 10,000 180,600
Cooper Companies, Inc. 2,850 116,137
Covance, Inc.* 5,100 114,138
Coventry Health Care, Inc.* 3,200 168,768
Digene Corp.* 3,500 143,010
Flamel Technologies SA Sponsored ADR* 8,100 273,051
Idexx Laboratories, Inc.* 3,900 165,711
K-V Pharmaceutical Co., Class A* 6,450 145,125
Kensey Nash Corp.* 2,400 56,352
Medicines Co. (The)* 4,900 127,400
Nektar Therapeutics* 17,500 224,000
Neurocrine Biosciences, Inc.* 2,800 138,656
NPS Pharmaceuticals, Inc.* 4,650 129,503
Orthofix International NV* 4,900 179,340
Pain Therapeutics, Inc.* 14,800 91,020
Pharmaceutical Resources, Inc.* 2,700 184,194
Respironics, Inc.* 7,800 325,884
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- ---------------------------------------------------------------------------------
HEALTH CARE (CONTINUED)
Select Medical Corp.* 13,650 $ 393,120
Sicor, Inc.* 5,500 106,040
STERIS Corp.* 7,300 168,046
Therasense, Inc.* 9,550 119,280
Triad Hospitals, Inc.* 5,400 163,512
United Therapeutics Corp.* 5,800 131,022
Vicuron Pharmaceuticals, Inc.* 9,700 171,690
-----------
4,642,624
-----------
REAL ESTATE -- 0.8%
Innkeepers USA Trust, REIT 20,200 175,740
-----------
SERVICES -- 14.3%
Arbitron, Inc.* 2,700 95,310
Celadon Group, Inc.* 10,900 140,065
Charles River Associates, Inc.* 3,300 94,149
Citadel Broadcasting Corp.* 5,440 107,494
Cumulus Media, Inc.* 5,900 100,595
Devry, Inc.* 4,600 108,836
Emmis Broadcasting Corp., Class A* 11,400 230,052
Forrester Research, Inc.* 6,600 94,578
Harris Interactive, Inc. 5,600 39,424
Heidrick & Struggles International, Inc.* 10,500 177,765
Hollywood Entertainment Corp.* 6,600 112,200
Inforte Corp.* 25,200 211,680
Internet Security Systems, Inc.* 13,200 165,000
JB Hunt Transport Services, Inc.* 9,600 249,792
Korn/Ferry International* 11,450 94,463
Lions Gate Entertainment Corp.* 90,000 269,100
Mid Atlantic Medical Sevices, Inc.* 3,150 162,005
MPS Group, Inc.* 23,810 214,290
Quanta Services, Inc.* 18,500 152,995
Sylvan Learning Systems, Inc.* 3,900 106,392
VCA Antech, Inc.* 8,550 201,353
-----------
3,127,538
-----------
TECHNOLOGY -- 20.0%
ADC Telecommunications, Inc.* 43,200 100,656
Applied Micro Circuits Corp.* 40,050 195,044
Centillium Communications, Inc.* 16,800 118,776
Cypress Semiconductor Corp.* 12,600 222,768
Digital Theater Systems, Inc.* 4,970 141,551
FileNet Corp.* 5,600 112,392
Fisher Scientific International, Inc.* 8,800 349,272
FormFactor, Inc.* 5,850 126,536
Foundry Networks, Inc.* 9,850 211,874
Global Imaging Systems, Inc.* 4,300 105,780
GlobespanVirata, Inc.* 20,800 150,176
Helix Technology Corp. 12,200 199,714
Lam Research Corp.* 9,400 208,210
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- ---------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
Manhattan Associates, Inc.* 7,600 $ 196,764
ManTech International Corp., Class A* 11,650 289,852
Manufacturers' Services Ltd.* 42,800 214,000
Manugistics Group, Inc.* 29,400 161,112
Netgear, Inc.* 9,900 164,736
NetScreen Technologies, Inc.* 4,600 102,258
Networks Associates, Inc.* 15,800 217,407
ScanSoft, Inc.* 46,700 195,673
SI International, Inc.* 12,600 205,380
SM&A* 5,800 66,758
Sycamore Networks, Inc.* 35,150 172,235
Verisign, Inc.* 10,200 137,394
-----------
4,366,318
-----------
TOTAL EQUITIES (COST $18,431,306) 21,089,665
-----------
PAR
RATE MATURITY VALUE
------ ---------- ------
SHORT-TERM INVESTMENTS -- 3.8%
U.S. GOVERNMENT -- 0.2%
U.S. Treasury Bill 0.881% 12/18/2003 $50,000 49,905
-----------
REPURCHASE AGREEMENTS -- 3.6%
Tri-party repurchase agreement dated 09/30/03 with Salomon Smith Barney, Inc.
and Investors Bank & Trust Company, due 10/01/03, with a maturity value of
$780,580 and an effective yield of 0.70%, collateralized by a U.S. Government
Obligation with a rate of 8.125%, a maturity date of 08/15/21 and a market value
of $797,048. 780,564
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $830,469) 830,469
-----------
TOTAL INVESTMENTS -- 100.3% (COST
$19,261,775) $ 21,920,134
OTHER ASSETS, LESS LIABILITIES -- (0.3%) (67,948)
-------------
NET ASSETS -- 100.0% $ 21,852,186
=============
NOTES TO SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Small Capitalization Equity Fund (the "Fund")
is a separate diversified investment series of the Trust.
The objective of the Fund is to achieve long-term growth of capital. The
Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of small
cap U.S. companies with total market capitalizations equal to or less than
75% of the average total market capitalization of the largest companies
included in the Russell 2000 Growth Index measured at the end of each of
the previous twelve months.
On June 21, 2003, by vote of the Trustees, the name of the Standish Small
Capitalization Equity Fund was changed to The Boston Company Small
Capitalization Equity Fund. In addition, the Declaration of Trust was
amended to change the name of the Trust from Standish, Ayer & Wood
Investment Trust to Mellon Institutional Funds Investment Trust. The name
changes became effective July 1, 2003.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. INVESTMENT SECURITY VALUATIONS
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price, or the
NASDAQ official close if applicable, in the principal market in which such
securities are primarily traded. Securities (including illiquid
securities) for which quotations are not readily available are valued at
their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Trustees.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Fund are valued at amortized cost, which approximates
market value. If the Fund acquires a short-term instrument with more than
sixty days remaining to its maturity, it is valued at current market value
until the sixtieth day prior to maturity and will then be valued at
amortized value based upon the value on such date unless the Trustees
determine during such sixty-day period that amortized value does not
represent fair value.
B. REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession of, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Collateral for certain tri-party repurchase agreements is
held at the custodian in a segregated account for the benefit of the Fund
and the counterparty. Additionally, procedures have been established by
the Fund to monitor on a daily basis, the market value and accrued
interest of the repurchase agreement's underlying investments to ensure
the existence of a proper level of collateral.
C. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of interest accrued, adjusted for accretion of
discount or amortization of premium using the yield-to-maturity method on
long-term debt securities. Dividend income is recorded on the ex-dividend
date. Realized gains and losses from securities sold are recorded on the
identified cost basis. Dividends representing a return of capital are
reflected as a reduction of cost, when the amount of return of capital is
conclusively determined.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's dividends from short-term and long-term capital gains, if any,
after reduction of capital losses will be declared and distributed at
least annually. Dividends from net investment income and distributions
from capital gains, if any, are reinvested in additional shares of the
Fund unless the shareholder elects to receive them in cash. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from accounting principles generally accepted
in the United States of America. These differences, which may result in
distribution reclassifications, are primarily due to differing treatments
for losses deferred due to wash sales, excise tax regulations and capital
loss carryovers.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income, accumulated net realized gain (loss) and paid in
capital. Undistributed net investment income and accumulated undistributed
net realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
E. EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
On June 21, 2003, by vote of the Trustees, as part of a reorganization of
the investment management operations of certain Mellon Financial
Corporation's subsidiaries, Standish Mellon Asset Management Company LLC
("Standish Mellon") transferred all of its rights and obligations under
the investment advisory agreements between Standish Mellon and the Trust
on behalf of the Fund to The Boston Company Asset Management, LLC
("TBCAM"). The transfer of rights and obligations became effective
July 1, 2003. For the year ended September 30, 2003, the Fund paid $83,888
and $33,269 in investment advisory fees to Standish Mellon and TBCAM,
respectively.
The investment advisory fee paid to TBCAM for overall investment advisory,
administrative services, and general office facilities, is paid monthly at
the annual rate of 0.60% of the Fund's average daily net assets. Standish
Mellon and TBCAM voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.74% of the Fund's average daily net assets for the year ended
September 30, 2003. Pursuant to this agreement, for the year ended
September 30, 2003, Standish Mellon and TBCAM collectively and voluntarily
did not impose its investment advisory fee of $117,157 and reimbursed the
Fund for $12,339 of its operating expenses. Effective November 1, 2003,
the voluntary expense limitation was changed to 1.00% of the Fund's
average daily net assets. This agreement is voluntary and temporary and
may be discontinued or revised by TBCAM at any time.
Effective January 28, 2003, the Fund began imposing a redemption fee of 2%
of the net asset value of the shares, with certain exceptions, which are
redeemed or exchanged less than 90 days from the day of their purchase.
The redemption fee is paid directly to the Fund, and is designed to offset
brokerage commissions, market impact, and other costs
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
associated with short-term trading. The fee does not apply to shares that
were acquired through reinvestment of distributions. The redemption fee is
applicable to shares of the Fund purchased on or after January 28, 2003.
For the period ended September 30, 2003, the Fund received no redemption
fees.
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Fund for serving as an officer or
Trustee of the Trust. The Trust pays each Trustee who is not a director,
officer or employee of TBCAM or its affiliates an annual fee and a per
meeting fee as well as reimbursement for travel and out of pocket
expenses. In addition, the Trust pays the legal fees for the independent
counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations for the year ended September 30, 2003, were $47,904,391 and
$50,396,743, respectively. For the year ended September 30, 2003, the Fund
did not purchase or sell any long-term U.S. Government securities.
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
--------------------- ---------------------
Shares sold 23,955 739,360
Shares issued to shareholders in payment of
distributions declared 130 --
Shares redeemed (374,824) (179,134)
--------------- ---------------
Net increase (decrease) (350,739) 560,226
=============== ===============
At September 30, 2003, three shareholders held of record approximately
29%, 27%, and 12% of the total outstanding shares of the Fund. Investment
activity of these shareholders could have a material impact on the Fund.
A significant portion of the Fund's shares represent investments by
fiduciary accounts over which Standish Mellon and its affiliates have
either sole or joint investment discretion.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes substantially all of its taxable income for its
fiscal year.
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2003, was as follows:
Unrealized appreciation $ 2,909,847
Unrealized depreciation (295,253)
-----------
Net unrealized appreciation/depreciation 2,614,594
Capital loss carry-forward (10,215,965)
-----------
Total distributable earnings $(7,601,371)
===========
Cost for federal income tax purposes $19,305,540
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At September 30, 2003, the Fund, for federal income tax purposes, has
capital loss carryovers which will reduce the Fund's taxable income
arising from net realized gain on investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
CAPITAL LOSS
CARRY OVER EXPIRATION DATE
------------ ---------------
$3,406,176 9/30/2009
6,056,870 9/30/2010
752,919 9/30/2011
The tax character of distributions paid during the fiscal year ended
September 30, 2003, was as follows:
Distributions paid from:
Ordinary income $1,316
(6) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these instruments are set forth more fully
in the Fund's Prospectus and Statement of Additional Information.
The Fund may trade the following instruments with off-balance sheet risk:
OPTIONS
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at
a specified price. The Fund may use options to seek to hedge against risks
of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Fund's exposure to the underlying instrument.
Buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Assets and Liabilities at market value. The underlying face amount at
value of any open purchased options is shown in the Schedule of
Investments. This amount reflects each contract's exposure to the
underlying instrument at period end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contract or if the counterparty does not perform under the
contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of the
security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers.
The Fund did not enter into option transactions during the year ended
September 30, 2003.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may enter into financial futures contracts for the delayed sale
or delivery of securities or contracts based on financial indices at a
fixed price on a future date. Pursuant to the margin requirements, the
Fund deposits either cash or securities in an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the
value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Fund. There are several
risks in connection with the use of futures contracts as a hedging device.
The change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not correlate
with changes in the value of hedged investments. Buying futures tends to
increase the Fund's exposure to the underlying instrument, while selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund investments. In addition, there is the risk that the
Fund may not be able to enter into a closing transaction because of an
illiquid secondary market. Losses may arise if there is an illiquid
secondary market or if the counterparties do not perform under the
contract's terms. The Fund enters into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
securities prices and foreign currencies. Gains and losses are realized
upon the expiration or closing of the futures contracts. Futures contracts
are valued at the quoted daily settlement prices established by the
exchange on which they trade.
At September 30, 2003, the Fund held no outstanding financial futures
contracts.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to
the Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment
of the collateral. As with other extensions of credit, the Fund bears the
risk of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears
the risk in the event that the interest and/or dividends received on
invested collateral is not sufficient to meet the Fund's obligations due
on the loans.
The Fund loaned securities during the year ended September 30, 2003
resulting in security lending income. At September 30, 2003, the Fund had
no securities on loan.
(8) LINE OF CREDIT:
The Fund, and other funds in the Trust and subtrusts in the Mellon
Institutional Funds Master Portfolio Trust (the "Portfolio Trust") are
parties to a committed line of credit facility, which enables each
portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is
charged to each participating portfolio/fund based on its borrowings at a
rate equal to the Federal Funds effective rate plus 1/2 of 1%. In
addition, a commitment fee, computed at an annual rate of .065 of 1% on
the daily unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended September 30, 2003, the commitment fee was $810 for the Fund.
During the year ended September 30, 2003, the Fund had no borrowings under
the credit facility.
18
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company Small Capitalization Equity Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Mellon
Institutional Funds Investment Trust: The Boston Company Small Capitalization
Equity Fund (formerly, Standish Small Capitalization Equity Fund) (the
"Fund") at September 30, 2003, and the results of its operations, the changes
in its net assets and the financial highlights for the periods indicated, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at
September 30, 2003, by correspondence with the custodian and brokers, provide
a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 21, 2003
19
TRUSTEES AND OFFICERS
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies as of September 30, 2003. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing Mellon Institutional Funds at P.O. Box 51407, Boston, MA 02205-1407 or
calling toll free 1-800-221-4795. The same persons serve as trustees and
officers of the Portfolio Trust in the same capacities.
INDEPENDENT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the 28 Port Financial
c/o Decision 11/3/1986 Board and Chief Corp.
Resources, Inc. Executive Officer,
1100 Winter Street Decision Resources,
Waltham, MA 02154 Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex 28 None
c/o Essex Street 11/3/1986 Street Associates
Associates (family investment
400 Essex Street Beverly, trust office)
MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 28 None
c/o Harvard University 9/13/1986 Maier, Professor of
Cambridge, MA 02138 Political Economy,
8/5/44 Harvard University
John H. Hewitt Trustee Trustee since Trustee, The Peabody 28 None
P.O. Box 233 11/3/1986 Foundation; Trustee,
New London, NH 03257 Mertens House, Inc.
4/11/35
INTERESTED TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice 28 None
c/o Standish Mellon Asset and Chief President and Chief
Management Company LLC, Executive Officer Operating Officer,
One Boston Place Mellon Institutional
Boston, MA 02108 Asset Management;
7/24/65 formerly Vice
President and Chief
Financial Officer,
Mellon Institutional
Asset Management
20
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Beverly E. Banfield Vice President and Vice President since Director and 28 None
c/o Standish Mellon Asset Secretary 1996; Secretary Secretary;
Management, since 2002 Compliance Officer,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
7/6/56
Steven M. Anderson Vice President and Vice President since Vice President and 28 None
c/o Standish Mellon Asset Treasurer 1999; Treasurer Mutual Funds
Management, since 2002 Controller, Standish
One Boston Place Mellon Asset
Boston, MA 02108 Management
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 28 None
c/o Standish Mellon Asset President Manager, Mutual
Management, Funds Operations,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
8/19/51
Lisa Kane Assistant Vice Since 1999 Vice President and 28 None
c/o Standish Mellon Asset President Client Service
Management, Professional,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
6/25/70
Assistant Vice Since 2001 Assistant Manager, 28 None
Cara E. Hultgren, President Mutual Fund
c/o Standish Mellon Asset Operations since
Management, 2001; Shareholder
One Boston Place Representative,
Boston, MA 02108 Standish Mellon
1/19/71 Asset Management
Scott Simonds, Assistant Vice Since 2002 Compliance Analyst, 28 None
c/o Standish Mellon Asset President Boston Partners;
Management, Fund Accountant,
One Boston Place Mellon Financial
Boston, MA 02108 Corp.
8/17/60
21
Mellon Institutional Funds Investment Trust
November 28, 2003
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2003.
This year might best be summarized as one in which risk-taking returned to the
financial markets. For most of last year, market sentiment was notably bearish,
characterized by a flight to quality. It's worth recalling that the first half
of 2002 produced the worst six-month performance for the S&P 500 Index in more
than 30 years, with a loss of almost 14%.
In contrast, over the past 12 months, the greatest gains have been made by the
stock market and the lowest-rated corporate debt. For the 12 months ended
September 30, the S&P 500 has gained 22%, while the Merrill Lynch C-Rated High
Yield Index advanced 42%. In keeping with the risk-taking trend, small cap
stocks, as measured by the Russell 2000 Index, advanced 34%. International
stocks also have enjoyed a healthy rebound, advancing 9%, as measured by the
MSCI EAFE Index. In comparison, intermediate U.S. Treasuries had a total return
of just 3%, after providing a total return of 13% in 2002, as measured by the
Merrill Lynch 5-7 Yr. Treasury Index.
The financial markets were reacting to the increasing strength of the economy.
After several sluggish quarters, economic activity in the U.S. accelerated in
the summer months and remains strong. The sources of strength include a)
continuing monetary ease that has induced substantial mortgage refinancing and
housing activity, b) Federal fiscal stimulus from large new tax cuts and sharp
increases in defense spending, and c) a gradual improvement in business capital
spending after many quarters of stagnation. Soft spots to date include inventory
investment, employment, state and local spending, and net exports.
The renewal of economic strength has created a schizophrenic year for the bond
markets. Until late June, the market's tone had been set by an expectation of
continued sluggish growth. In June, the Fed made explicit its intent to keep
short-term interest rates low for a "considerable period." But the Fed
announcement was perceived as a disappointment by the market, which promptly
caused a sharp summer selloff in bonds. In September, bonds recouped some of
their losses, as market participants felt the selloff had been overdone. The
yield curve remains very steep, influenced by the Fed at the short end, but with
the intermediate maturities under pressure from the large volume of Treasury
financing in that sector. With the recent bump in yields and inflation still
relatively quiescent, real interest rates have increased to the lower end of
what have been the historic norms.
Looking ahead, it's clear that there are some serious distortions and imbalances
in world economies including structural problems in Japan and core Europe, the
U.S. current account deficit, and the leverage in the consumer balance sheet. It
is impossible to predict when these restraints might undermine economic
activity, but the latter part of 2004 or the year 2005 could be a period of
vulnerability when there will be a loss of incremental fiscal stimulus as well
as the lagged effect of higher interest rates.
Nevertheless, the near term economic outlook has brightened, business activity
has some significant momentum which should carry over into 2004. The result
should be favorable growth, especially in business investment. We expect
inflation to remain modest and corporate profit growth to be reasonably strong.
We wish to thank you for your business and confidence in Mellon Institutional
Funds. Please feel free to contact us with questions or comments.
Sincerely,
/ signed /
Patrick J. Sheppard
Mellon Institutional Funds Investment Trust
The Boston Company Small Cap Tax Sensitive Equity Fund
Management Discussion and Analysis
September 2003
The Boston Company Small Cap Tax Sensitive Equity Fund's return for the fiscal
year ended September 30, 2003 was 31.29% versus 41.72% for the Russell 2000
Growth Index. The strong absolute performance was the fund's best since the
fiscal year ended September 2000. The fund lagged on a relative basis, following
outperformance in the prior fiscal year.
Market Environment
Equity markets were positive during the year, with smaller stocks leading large
and growth outperforming value. The broad Russell 3000 Index, which encompasses
large and small companies, was up 25.9%. Smaller companies, as measured by the
Russell 2000, were up 36.5%, while the large cap Russell 1000 gained 25.1%.
While growth outperformed value across all capitalization ranges, the widest
spread was in the smallest stocks - in both the small cap and mid cap indices
growth outpaced value by over 10 percentage points.
Strong stock returns were driven by a firming economic outlook, albeit one with
little job creation. GDP growth increased during the year to a 3.3% annual rate
in the quarter ended June 30, up from 1.4% in the prior quarter, spurred by a
7.3% jump in business spending. Leading indicators continue to foretell
expansion, up 2.4% in the six months through August. The recovery's soft spot
remains employment. While initial claims for unemployment ticked down in August
to around 400,000, a level considered the dividing line between job creation and
job loss, we have not yet seen a robust improvement in the jobs market.
Portfolio Strategy & Results
The last twelve months were a particularly difficult period for active managers
as the lowest quality stocks drove index returns. Recent work done by Merrill
Lynch shows that the lowest quality companies, as ranked by Standard and Poor's,
were up 57.8% in the nine months ended September 30, while the highest quality
companies were up 13.4%. Further, a majority of these stocks have
characteristics that do not appeal to many investors - low earnings, high
multiples and weak fundamentals. Historically, these lower quality stocks tend
to lead coming out of a recession as investors make an asset allocation trade
into more risky assets. In small caps, this was seen most recently through the
sharply increased trading volume in exchange traded funds (ETFs) that focus on
smaller company indexes. Specifically, Russell 2000 ETF volume more than doubled
to $4.7 billion from December 2002 to August 2003.
The portfolio's relative underperformance during this period was concentrated
primarily in technology and services. In technology a combination of an
underweight position (generally reduced throughout the year) and weak stock
selection had a negative impact on performance. The underperformance in services
was driven by selection. Specifically, positions in Central Parking and
Scholastic had a negative impact on returns. Central Parking's focus on parking
lots in metropolitan areas led to poor results as fewer people drove to work
during the downturn and corporate layoffs continued. Scholastic's book clubs
proved to be more economically sensitive than expected, pulling down earnings.
On the positive side, retail holdings such as Children's Place and Linens `n'
Things contributed to outperformance in the consumer sector. Similarly, the
fund's energy holdings more than doubled the returns of those in the benchmark,
helped by positions in Patina Oil & Gas and Key Energy Services.
Outlook
Investors' increasing love of risk over the last 12 months has led to a near
term focus on the lowest rated, most leveraged, most expensive companies. We
believe that, for the market to sustain its upward momentum, higher quality
companies - those with strong growth rates, real earnings, and reasonable
valuations relative to their growth rates - will likely assume market
leadership. This would result in a shift away from some of the best performing
sectors, like technology and biotech, to areas that exhibit recognizable,
sustainable sources of earnings. These areas, which could include consumer
staples and industrial companies, are those we believe hold the best long-term
potential for our investors.
Sincerely,
/s/ W. RANDALL WATTS
W. Randall Watts
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$93,103,132) $107,064,115
Cash 1,548
Receivable for investments sold 2,916,409
Receivable for Fund shares sold 29,945
Interest and dividends receivable 20,509
Prepaid expenses 19,849
------------
Total assets 110,052,375
LIABILITIES
Payable for investments purchased $3,186,455
Payable for Fund shares redeemed 60,404
Payable for variation margin on open financial futures
contracts (Note 6) 32,100
Accrued accounting, custody and transfer agent fees 15,268
Accrued trustees' fees and expenses (Note 2) 2,074
Accrued expenses and other liabilities 37,949
---------
Total liabilities 3,334,250
------------
NET ASSETS $106,718,125
============
NET ASSETS CONSIST OF:
Paid-in capital $110,696,675
Accumulated net realized loss (17,753,647)
Undistributed net investment income 104
Net unrealized appreciation 13,774,993
------------
TOTAL NET ASSETS $106,718,125
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,607,349
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE PER
SHARE
(Net Assets/Shares outstanding) $ 29.58
============
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Interest income (including securities lending income of
$27,215 (Note 7)) $ 43,082
Dividend income (net of foreign withholding taxes of
$1,068) 482,985
-----------
Total investment income 526,067
EXPENSES
Investment advisory fee (Note 2) $ 738,209
Accounting, custody, and transfer agent fees 137,769
Legal and audit services 50,248
Registration fees 18,604
Insurance expense 13,264
Trustees' fees and expenses (Note 2) 11,651
Miscellaneous 17,862
----------
Total expenses 987,607
Deduct:
Waiver of investment advisory fee (Note 2) (64,845)
----------
Net expenses 922,762
-----------
Net investment loss (396,695)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain
Investment security transactions 8,368,634
Financial futures contracts 1,070,165
----------
Net realized gain 9,438,799
Change in unrealized appreciation (depreciation)
Investment securities 17,063,902
Financial futures contracts (37,168)
----------
Change in net unrealized appreciation (depreciation) 17,026,734
-----------
Net realized and unrealized gain 26,465,533
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $26,068,838
===========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment loss $ (396,695) $ (443,507)
Net realized gain (loss) 9,438,799 (22,310,918)
Change in net unrealized appreciation (depreciation) 17,026,734 7,793,117
------------ ------------
Net increase (decrease) in net assets from investment
operations 26,068,838 (14,961,308)
------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 19,249,572 44,907,905
Cost of shares redeemed (21,069,623) (29,187,786)
------------ ------------
Net increase (decrease) in net assets from Fund share
transactions (1,820,051) 15,720,119
------------ ------------
TOTAL INCREASE IN NET ASSETS 24,248,787 758,811
NET ASSETS
At beginning of year 82,469,338 81,710,527
------------ ------------
At end of year (including undistributed net investment
income of $104 and $0) $106,718,125 $ 82,469,338
============ ============
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30,
------------------------------------------------------------
2003 2002 2001 2000 1999
-------- ------- ------- -------- --------
NET ASSET VALUE, BEGINNING OF YEAR $ 22.53 $ 26.23 $ 63.32 $ 40.70 $ 25.89
-------- ------- ------- -------- --------
FROM INVESTMENT OPERATIONS:
Net investment loss*(1) (0.11) (0.13) (0.20) (0.39) (0.21)
Net realized and unrealized gain (loss) on investments 7.16(2) (3.57)(2) (28.28) 33.65 15.02
-------- ------- ------- -------- --------
Total from investment operations 7.05 (3.70) (28.48) 33.26 14.81
-------- ------- ------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments -- -- (8.61) (10.64) --
-------- ------- ------- -------- --------
Total distributions to shareholders -- -- (8.61) (10.64) --
-------- ------- ------- -------- --------
NET ASSET VALUE, END OF YEAR $ 29.58 $ 22.53 $ 26.23 $ 63.32 $ 40.70
======== ======= ======= ======== ========
TOTAL RETURN+ 31.29% (14.11)% (49.81)% 86.20% 57.03%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 1.00% 1.00% 1.00% 0.87% 0.78%
Net Investment Loss (to average daily net assets)* (0.43)% (0.47)% (0.54)% (0.60)% (0.60)%
Portfolio Turnover 252% 241% 174% 182% 168%
Net Assets, End of Year (000's omitted) $106,718 $82,469 $81,711 $215,201 $143,075
- -----------------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed
the Fund for all or a portion of its operating expenses. If this voluntary
action had not been taken, the investment loss per share and ratios would
have been:
Net investment loss per share(1) $ (0.13) $ (0.15) $ (0.21) N/A $ (0.22)
Ratios (to average daily net assets):
Expenses 1.07% 1.08% 1.04% N/A 0.79%
Net investment loss (0.50)% (0.55)% (0.58)% N/A (0.61)%
+ Total return would have been lower in the absence of expense waivers.
(1) Calculated based on average shares outstanding.
(2) Amount includes securities litigation proceeds received by the Fund of less
than $0.01 for the year ended September 30, 2003 and $0.02 for the year
ended September 30, 2002.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- -----------------------------------------------------------------------------------
EQUITIES -- 95.4%
BASIC INDUSTRY -- 1.8%
CUNO, Inc.* 13,300 $ 521,228
Glamis Gold Ltd.* 41,000 541,200
SCS Transportation, Inc.* 53,500 807,850
------------
1,870,278
------------
CAPITAL GOODS -- 6.3%
Brunswick Corp. 19,700 505,896
FMC Technologies, Inc.* 23,900 511,938
Herley Industries, Inc.* 55,700 975,864
MSC Industrial Direct Co., Inc., Class A 77,500 1,615,875
United Defense Industries, Inc.* 49,750 1,412,402
Universal Compression Holdings, Inc.* 28,350 610,092
Wabtec Corp. 70,250 1,113,462
------------
6,745,529
------------
CONSUMER STABLE -- 3.1%
Delta & Pine Land Co. 43,150 992,881
Dial Corp. 54,500 1,173,930
NBTY, Inc.* 23,400 546,390
United Natural Foods, Inc.* 16,350 542,656
------------
3,255,857
------------
EARLY CYCLICAL -- 3.4%
Fleetwood Enterprises, Inc.* 44,730 414,647
Jarden Corp.* 14,400 543,600
Nu Skin Asia Pacific, Inc., Class A 91,700 1,169,175
RedEnvelope, Inc.* 47,300 662,200
Yankee Candle Co., Inc.* 32,400 825,552
------------
3,615,174
------------
ENERGY -- 3.9%
Arch Coal, Inc. 51,400 1,141,594
Evergreen Resources, Inc.* 20,800 561,600
Patina Oil & Gas Corp. 15,637 566,685
Patterson-UTI Energy, Inc.* 31,900 863,533
Quicksilver Resources, Inc.* 22,200 542,346
Western Gas Resources, Inc. 13,800 524,400
------------
4,200,158
------------
FINANCIAL -- 11.5%
BOK Financial Corp.* 22,299 840,003
City National Corp. 10,250 522,340
Community First Bankshares, Inc. 16,150 426,844
Cullen/Frost Bankers, Inc. 19,300 718,539
CVB Financial Corp. 43,887 833,853
First Community Bancorp 28,200 944,418
First Midwest Bancorp, Inc. 23,050 684,815
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- -----------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
Investors Financial Services Corp. 15,850 $ 497,690
Jefferies Group, Inc. 13,400 385,250
Knight Trading Group, Inc.* 97,950 1,121,527
Mercantile Bank Corp. 17,000 564,400
New York Community Bancorp, Inc. 42,133 1,327,611
PrivateBancorp, Inc. 15,400 509,894
Raymond James Financial, Inc. 14,700 534,345
Scottish Re Group Ltd. 31,300 755,895
Southwest Bancorp of Texas, Inc. 12,650 461,851
Triad Guaranty, Inc.* 23,000 1,128,840
------------
12,258,115
------------
GROWTH CYCLICAL -- 9.3%
Brookstone, Inc.* 31,200 618,696
Charlotte Russe Holding, Inc.* 33,700 346,773
Dick's Sporting Goods, Inc.* 31,300 1,168,742
Hibbet Sporting Goods, Inc.* 25,200 602,784
Ingram Micro, Inc., Class A* 149,450 1,950,322
Inter Parfums, Inc. 13,400 134,000
Linens 'N Things, Inc.* 42,500 1,010,650
Quiksilver, Inc.* 31,100 496,045
Rare Hospitality International, Inc.* 44,775 1,115,345
Reebok International, Ltd. 32,200 1,076,446
Ruby Tuesday, Inc. 21,200 511,132
Steven Madden Ltd.* 45,750 867,878
------------
9,898,813
------------
HEALTH CARE -- 20.6%
Adolor Corp.* 33,450 613,808
Advanced Neuromodulation Systems, Inc.* 14,850 592,515
Celgene Corp.* 21,700 940,261
Community Health Systems, Inc.* 35,100 761,670
Connetics Corp.* 46,250 835,275
Cooper Companies, Inc. 14,350 584,763
Covance, Inc.* 24,700 552,786
Coventry Health Care, Inc.* 15,400 812,196
Digene Corp.* 17,000 694,620
Flamel Technologies SA Sponsored ADR* 39,800 1,341,658
Idexx Laboratories, Inc.* 18,100 769,069
K-V Pharmaceutical Co., Class A* 29,550 664,875
Kensey Nash Corp.* 11,500 270,020
Medicines Co. (The)* 22,900 595,400
Nektar Therapeutics* 85,500 1,094,400
Neurocrine Biosciences, Inc.* 13,600 673,472
NPS Pharmaceuticals, Inc.* 22,650 630,803
Orthofix International NV* 22,500 823,500
Pain Therapeutics, Inc.* 72,500 445,875
Pharmaceutical Resources, Inc.* 13,100 893,682
Respironics, Inc.* 35,900 1,499,902
Select Medical Corp.* 62,350 1,795,680
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- -----------------------------------------------------------------------------------
HEALTH CARE (CONTINUED)
Sicor, Inc.* 25,950 $ 500,316
STERIS Corp.* 35,600 819,512
Therasense, Inc.* 46,100 575,789
Triad Hospitals, Inc.* 26,250 794,850
United Therapeutics Corp.* 27,400 618,966
Vicuron Pharmaceuticals, Inc.* 47,400 838,980
------------
22,034,643
------------
REAL ESTATE -- 0.8%
Innkeepers USA Trust, REIT 98,900 860,430
------------
SERVICES -- 13.1%
Arbitron, Inc.* 12,600 444,780
Charles River Associates, Inc.* 15,900 453,627
Citadel Broadcasting Corp.* 26,600 525,616
Cumulus Media, Inc.* 29,050 495,303
Devry, Inc.* 22,300 527,618
Emmis Broadcasting Corp., Class A* 55,600 1,122,008
Forrester Research, Inc.* 30,000 429,900
Harris Interactive, Inc. 27,200 191,488
Heidrick & Struggles International, Inc.* 47,500 804,175
Hollywood Entertainment Corp.* 32,100 545,700
Internet Security Systems, Inc.* 64,500 806,250
Iron Mountain, Inc.* 16,350 586,965
JB Hunt Transport Services, Inc.* 45,000 1,170,900
Korn/Ferry International* 55,940 461,505
Lions Gate Entertainment Corp.* 462,700 1,383,473
Mid Atlantic Medical Sevices, Inc.* 15,550 799,737
MPS Group, Inc.* 116,460 1,048,140
Quanta Services, Inc.* 90,700 750,089
Sylvan Learning Systems, Inc.* 19,100 521,048
VCA Antech, Inc.* 39,950 940,823
------------
14,009,145
------------
TECHNOLOGY -- 21.6%
ADC Telecommunications, Inc.* 203,600 474,388
Applied Micro Circuits Corp.* 189,250 921,648
Centillium Communications, Inc.* 82,000 579,740
Cognizant Technology Solutions Corp.* 23,100 842,457
Cypress Semiconductor Corp.* 61,770 1,092,094
Digital Theater Systems, Inc.* 24,300 692,088
FileNet Corp.* 27,300 547,911
Fisher Scientific International, Inc.* 42,500 1,686,825
FormFactor, Inc.* 27,150 587,255
Foundry Networks, Inc.* 48,300 1,038,933
Global Imaging Systems, Inc.* 21,200 521,520
GlobespanVirata, Inc.* 102,100 737,162
Helix Technology Corp. 59,900 980,563
Lam Research Corp.* 45,851 1,015,600
Manhattan Associates, Inc.* 37,100 960,519
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2003
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- -----------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
ManTech International Corp., Class A* 55,300 $ 1,375,864
Manufacturers' Services Ltd.* 210,000 1,050,000
Manugistics Group, Inc.* 143,700 787,476
Netgear, Inc.* 48,400 805,376
NetScreen Technologies, Inc.* 22,500 500,175
Networks Associates, Inc.* 78,400 1,078,784
ScanSoft, Inc.* 228,900 959,091
Scientific-Atlanta, Inc. 19,100 594,965
SI International, Inc.* 60,700 989,410
SM&A* 28,300 325,733
Sycamore Networks, Inc.* 168,300 824,670
Verisign, Inc.* 78,550 1,058,069
------------
23,028,316
------------
TOTAL EQUITIES (COST $87,815,476) 101,776,458
------------
PAR
RATE MATURITY VALUE
------ ---------- -------
SHORT-TERM INVESTMENTS -- 4.9%
U.S. GOVERNMENT -- 0.3%
U.S. Treasury Bill+ 0.881% 12/18/2003 $400,000 399,238
------------
REPURCHASE AGREEMENTS -- 4.6%
Tri-party repurchase agreement dated 09/30/03 with Salomon Smith Barney, Inc.
and Investors Bank and Trust Company, due 10/01/03, with a maturity value of
$4,888,514 and an effective yield of 0.70%, collateralized by a U.S. Government
Obligation with a rate of 8.125%, a maturity date of 08/15/21 and a market
value of $4,986,656. 4,888,419
------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,287,656) 5,287,657
------------
TOTAL INVESTMENTS -- 100.3% (COST
$93,103,132) $ 107,064,115
OTHER ASSETS, LESS LIABILITIES -- (0.3%) (345,990)
-------------
NET ASSETS -- 100.0% $ 106,718,125
=============
NOTES TO SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
* Non-income producing security.
+ Denotes all or part of security segregated as collateral.
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Investment Trust (the "Trust") is organized as
a Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. The Boston Company Small Cap Tax-Sensitive Equity Fund (the
"Fund") is a separate diversified investment series of the Trust.
The objective of the Fund is to maximize after-tax total return,
consisting of long-term growth of capital. The Fund seeks to achieve its
objective by investing, under normal circumstances, at least 80% of net
assets in equity securities of small capitalization U.S. companies.
On June 21, 2003, by vote of the Trustees, the name of the Standish Small
Cap Tax-Sensitive Equity Fund was changed to The Boston Company Small Cap
Tax-Sensitive Equity Fund. In addition, the Declaration of Trust was
amended to change the name of the Trust from Standish, Ayer & Wood
Investment Trust to Mellon Institutional Funds Investment Trust. The name
changes became effective July 1, 2003.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with accounting principles generally
accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts and disclosures
in the financial statements. Actual results could differ from those
estimates.
A. INVESTMENT SECURITY VALUATIONS
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price, or the
NASDAQ official close if applicable, in the principal market in which such
securities are primarily traded. Securities (including illiquid
securities) for which quotations are not readily available are valued at
their fair value as determined in good faith under consistently applied
procedures under the general supervision of the Trustees.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Fund are valued at amortized cost, which approximates
market value. If the Fund acquires a short-term instrument with more than
sixty days remaining to its maturity, it is valued at current market value
until the sixtieth day prior to maturity and will then be valued at
amortized value based upon the value on such date unless the Trustees
determine during such sixty-day period that amortized value does not
represent fair value.
B. REPURCHASE AGREEMENTS
It is the policy of the Fund to require the custodian bank to take
possession of, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Collateral for certain tri-party repurchase agreements is
held at the custodian in a segregated account for the benefit of the Fund
and the counterparty. Additionally, procedures have been established by
the Fund to monitor on a daily basis, the market value and accrued
interest of the repurchase agreement's underlying investments to ensure
the existence of a proper level of collateral.
C. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of interest accrued, adjusted for accretion of
discount or amortization of premium using the yield-to-maturity method on
long-term debt securities. Dividend income is recorded on the ex-dividend
date. Realized gains and losses from securities sold are recorded on the
identified cost basis. Dividends representing a return of capital are
reflected as a reduction of cost, when the amount of return of capital is
conclusively determined.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's dividends from short-term and long-term capital gains, if any,
after reduction of capital losses will be declared and distributed at
least annually. Dividends from net investment income and distributions
from capital gains, if any, are reinvested in additional shares of the
Fund unless the shareholder elects to receive them in cash. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from accounting principles generally accepted
in the United States of America. These differences, which may result in
distribution reclassifications, are primarily due to differing treatments
for wash sales and realized and unrealized gains or losses on futures.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications among undistributed net
investment income, accumulated net realized gain (loss) and paid in
capital. Undistributed net investment income and accumulated undistributed
net realized gain (loss) on investments may include temporary book and tax
basis differences which will reverse in a subsequent period. Any taxable
income or gain remaining at fiscal year end is distributed in the
following year.
E. EXPENSES
The majority of expenses of the Trust are directly identifiable to an
individual fund. Expenses which are not readily identifiable to a specific
fund are allocated taking into consideration, among other things, the
nature and type of expense and the relative size of the funds.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
On June 21, 2003, by vote of the Trustees, as part of a reorganization of
the investment management operations of certain Mellon Financial
Corporation's subsidiaries, Standish Mellon Asset Management Company LLC
("Standish Mellon") transferred all of its rights and obligations under
the investment advisory agreements between Standish Mellon and the Trust
on behalf of the Fund to The Boston Company Asset Management, LLC
("TBCAM"). The transfer of rights and obligations became effective
July 1, 2003. For the year ended September 30, 2003, the Fund paid
$521,768 and $216,441 in investment advisory fees to Standish Mellon and
TBCAM, respectively.
The investment advisory fee paid to TBCAM for overall investment advisory,
administrative services, and general office facilities, is paid monthly at
the annual rate of 0.80% of the Fund's average daily net assets. Standish
Mellon and TBCAM voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
1.00% of the Fund's average daily net assets for the year ended
September 30, 2003. Pursuant to this agreement, for the year ended
September 30, 2003, Standish Mellon and TBCAM collectively and voluntarily
did not impose $64,845 of its investment advisory fee. Effective
November 1, 2003, the voluntary expense limitation was changed to 1.10% of
the Fund's average daily net assets. This agreement is voluntary and
temporary and may be discontinued or revised by TBCAM at any time.
Effective January 28, 2003, the Fund began imposing a redemption fee of 2%
of the net asset value of the shares, with certain exceptions, which are
redeemed or exchanged less than 90 days from the day of their purchase.
The redemption fee is paid directly to the Fund, and is designed to offset
brokerage commissions, market impact, and other costs associated with
short-term trading. The fee does not apply to shares that were acquired
through reinvestment of distributions. The redemption fee is applicable to
shares of the Fund purchased on or after January 28, 2003. For the period
ended September 30, 2003, the Fund received $84 in redemption fees.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Fund for serving as an officer or
Trustee of the Trust. The Trust pays each Trustee who is not a director,
officer or employee of TBCAM or its affiliates an annual fee and a per
meeting fee as well as reimbursement for travel and out of pocket
expenses. In addition, the Trust pays the legal fees for the independent
counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations for the year ended September 30, 2003, were $223,398,197 and
$224,243,091, respectively. For the year ended September 30, 2003, the
Fund did not purchase or sell any long-term U.S. Government securities.
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2003 SEPTEMBER 30, 2002
------------------ ------------------
Shares sold 766,053 1,594,518
Shares redeemed (819,341) (1,048,956)
--------- -----------
Net increase (decrease) (53,288) 545,562
========= ===========
At September 30, 2003, three shareholders held of record approximately
36%, 10% and 10% of the total outstanding shares of the Fund. Investment
activity of these shareholders could have a material impact on the Fund.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes substantially all of its taxable income for its
fiscal year.
The tax basis components of distributable earnings and the federal tax
cost as of September 30, 2003, was as follows:
Unrealized appreciation $15,092,383
Unrealized depreciation (1,395,315)
-----------
Net unrealized appreciation/depreciation 13,697,068
Undistributed ordinary income 0
Capital loss carry-forward (17,675,618)
-----------
Total distributable earnings $(3,978,550)
===========
Cost for federal income tax purposes $93,367,047
At September 30, 2003, the Fund, for federal income tax purposes, has
capital loss carryovers which will reduce the Fund's taxable income
arising from net realized gain on investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount of
distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
CAPITAL LOSS
CARRY OVER EXPIRATION DATE
------------ ---------------
$4,663,587 9/30/2009
4,882,602 9/30/2010
8,129,429 9/30/2011
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(6) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these instruments are set forth more fully
in the Fund's Prospectus and Statement of Additional Information.
The Fund may trade the following instruments with off-balance sheet risk:
OPTIONS
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at
a specified price. The Fund may use options to seek to hedge against risks
of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Fund's exposure to the underlying instrument.
Buying puts and writing calls tend to decrease the Fund's exposure to the
underlying instrument, or hedge other Fund investments. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Assets and Liabilities at market value. The underlying face amount at
value of any open purchased options is shown in the Schedule of
Investments. This amount reflects each contract's exposure to the
underlying instrument at period end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contract or if the counterparty does not perform under the
contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of the
security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers.
The Fund did not enter into option transactions during the year ended
September 30, 2003.
FUTURES CONTRACTS
The Fund may enter into financial futures contracts for the delayed sale
or delivery of securities or contracts based on financial indices at a
fixed price on a future date. Pursuant to the margin requirements, the
Fund deposits either cash or securities in an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, depending on the daily fluctuations in the
value of the underlying security, and are recorded for financial statement
purposes as unrealized gains or losses by the Fund. There are several
risks in connection with the use of futures contracts as a hedging device.
The change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not correlate
with changes in the value of hedged investments. Buying futures tends to
increase the Fund's exposure to the underlying instrument, while selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund investments. In addition, there is the risk that the
Fund may not be able to enter into a closing transaction because of an
illiquid secondary market. Losses may arise if there is an illiquid
secondary market or if the counterparties do not perform under the
contract's terms. The Fund enters into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
securities prices and foreign currencies. Gains and losses are realized
upon the expiration or closing of the futures contracts. Futures contracts
are valued at the quoted daily settlement prices established by the
exchange on which they trade.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At September 30, 2003, the Fund held the following financial futures
contracts.
UNDERLYING FACE
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE UNREALIZED LOSS
-----------------------------------------------------------------------------------------------
Russell 2000 Index (12 contracts) Long 12/18/2003 $2,927,100 $(185,990)
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to
the Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment
of the collateral. As with other extensions of credit, the Fund bears the
risk of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears
the risk in the event that the interest and/or dividends received on
invested collateral is not sufficient to meet the Fund's obligations due
on the loans.
The Fund loaned securities during the year ended September 30, 2003
resulting in security lending income. At September 30, 2003, the Fund had
no securities on loan.
(8) LINE OF CREDIT:
The Fund, and other funds in the Trust and subtrusts in the Mellon
Institutional Funds Master Portfolio Trust (the "Portfolio Trust") are
parties to a committed line of credit facility, which enables each
portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is
charged to each participating portfolio/fund based on its borrowings at a
rate equal to the Federal Funds effective rate plus 1/2 of 1%. In
addition, a commitment fee, computed at an annual rate of .065 of 1% on
the daily unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended September 30, 2003, the commitment fee was $3,727 for the Fund.
During the year ended September 30, 2003, the Fund had no borrowings under
the credit facility.
18
REPORT OF INDEPENDENT AUDITORS
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company Small Cap Tax-Sensitive Equity Fund:
In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of
operations and of changes in net assets and the financial highlights present
fairly, in all material respects, the financial position of Mellon
Institutional Funds Investment Trust: The Boston Company Small Cap
Tax-Sensitive Equity Fund (formerly, Standish Small Cap Tax-Sensitive Equity
Fund) (the "Fund"), at September 30, 2003, and the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods indicated, in conformity with accounting principles generally
accepted in the United States of America. These financial statements and
financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these financial statements in accordance with auditing
standards generally accepted in the United States of America, which require
that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 2003 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 21, 2003
19
TRUSTEES AND OFFICERS
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; and other
directorships they hold in companies subject to registration or reporting
requirements of the Securities Exchange Act of 1934 (generally called "public
companies") or in registered investment companies as of September 30, 2003. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing Mellon Institutional Funds at P.O. Box 51407, Boston, MA 02205-1407 or
calling toll free 1-800-221-4795. The same persons serve as trustees and
officers of the Portfolio Trust in the same capacities.
INDEPENDENT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the 28 Port Financial
c/o Decision 11/3/1986 Board and Chief Corp.
Resources, Inc. Executive Officer,
1100 Winter Street Decision Resources,
Waltham, MA 02154 Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex 28 None
c/o Essex Street 11/3/1986 Street Associates
Associates (family investment
400 Essex Street trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 28 None
c/o Harvard University 9/13/1986 Maier, Professor of
Cambridge, MA 02138 Political Economy,
8/5/44 Harvard University
John H. Hewitt Trustee Trustee since Trustee, The Peabody 28 None
P.O. Box 233 11/3/1986 Foundation; Trustee,
New London, NH 03257 Mertens House, Inc.
4/11/35
INTERESTED TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice 28 None
c/o Standish Mellon Asset and Chief President and Chief
Management Company LLC, Executive Officer Operating Officer,
One Boston Place Mellon Institutional
Boston, MA 02108 Asset Management;
7/24/65 formerly Vice
President and Chief
Financial Officer,
Mellon Institutional
Asset Management
20
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PRINCIPAL PORTFOLIOS IN OTHER
NAME, TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS OFFICER OFFICER
- ------------------------------------------------------------------------------------------------------------------------------
Beverly E. Banfield Vice President and Vice President since Director and 28 None
c/o Standish Mellon Asset Secretary 1996; Secretary Secretary;
Management, since 2002 Compliance Officer,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
7/6/56
Steven M. Anderson Vice President and Vice President since Vice President and 28 None
c/o Standish Mellon Asset Treasurer 1999; Treasurer Mutual Funds
Management, since 2002 Controller, Standish
One Boston Place Mellon Asset
Boston, MA 02108 Management
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 28 None
c/o Standish Mellon Asset President Manager, Mutual
Management, Funds Operations,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
8/19/51
Lisa Kane Assistant Vice Since 1999 Vice President and 28 None
c/o Standish Mellon Asset President Client Service
Management, Professional,
One Boston Place Standish Mellon
Boston, MA 02108 Asset Management
6/25/70
Assistant Vice Since 2001 Assistant Manager, 28 None
Cara E. Hultgren, President Mutual Fund
c/o Standish Mellon Asset Operations since
Management, 2001; Shareholder
One Boston Place Representative,
Boston, MA 02108 Standish Mellon
1/19/71 Asset Management
Scott Simonds, Assistant Vice Since 2002 Compliance Analyst, 28 None
c/o Standish Mellon Asset President Boston Partners;
Management, Fund Accountant,
One Boston Place Mellon Financial
Boston, MA 02108 Corp.
8/17/60
21
Item 2. Code of Ethics.
As of _11/26/03_, the Registrant has adopted a code of ethics that applies
to the Registrant's Principal Executive Officer and Principal Financial
Officer. For the year ended September 30, 2003, there were no amendments to
a provision of its code of ethics, nor were there any waivers granted from
a provision of the code of ethics. A copy of its code of ethics is filed
with this Form N-CSR under Item 10(a).
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Trustees has determined that the Registrant has
more than one audit committee financial expert serving on its audit
committee. The audit committee financial experts serving on the
Registrant's audit committee are John Hewitt and Caleb Loring III, both of
whom are independent.
Item 4. Principal Accountant Fees and Services.
Not applicable to this filing.
Item 5. Listed Company Audit Committees.
Not applicable to this filing.
Item 6. [Reserved]
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable to this registrant.
Items 8. [Reserved]
Item 9. Controls and Procedures.
(a) The Registrant's Principal Executive Officer and Principal Financial
Officer concluded that the Registrant's disclosure controls and procedures
are effective based on their evaluation of the Registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing
date of this report (the "Evaluation Date").
(b) There were no significant changes in the Registrant's internal controls
or in other factors that could significantly affect internal controls
subsequent to the Evaluation Date, including any corrective actions with
regard to significant deficiencies and material weaknesses.
Item 10. Exhibits.
(a) Code of ethics is attached.
(b) Certification letters are attached.
(c) Section 906 Certifications are attached.
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.
Mellon Institutional Funds Investment Trsut
By: /s/ Denise B. Kneeland
- -------- --------------------------------------
Denise B. Kneeland
Assistant Vice President
Date: 11/26/2003
------------------------------------
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/ Patrick J. Sheppard
- ----------------------------------------------
Patrick J. Sheppard
President and Chief Executive Officer
Date: 11/26/2003
------------------------------------
By: /s/ Steven M. Anderson
- ----------------------------------------------
Steven M. Anderson
Vice President and Treasurer
Date: 11/26/2003
------------------------------------