UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4813
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MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
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(Exact name of registrant as specified in charter)
Mellon Financial Center, One Boston Place, Boston, Massachusetts 02108
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(Address of principal executive offices) (Zip code)
Barbara A. McCann
Vice President and Secretary
One Boston Place, Boston, MA 02108
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(Name and address of agent for service)
with a copy to:
Christopher P. Harvey, Esq.
Wilmer Cutler Pickering Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
Registrant's telephone number, including area code: (617) 248-6000
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Date of fiscal year end: September 30
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Date of reporting period: September 30, 2004
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Item 1. Reports to Stockholders.
[LOGO] Mellon
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Mellon Institutional Funds
Annual Report THE BOSTON COMPANY
INTERNATIONAL CORE EQUITY FUND
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YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
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Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
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September 2004
The Boston Company International Core Equity Fund (the "International Core
Equity Fund") return for the twelve months ended September 30, 2004 was 27.04%
versus 22.08% for its benchmark, the MSCI EAFE index. This was the second
consecutive year of better than 27% returns for the Fund. The Fund's 1 Year, 3
Year and 5 Year average annual total returns have exceeded the benchmark by
solid margins since the change of strategy to actively manage individual stock
holdings in 1996.
All but one EAFE market (Finland) posted double-digit annual returns, as
measured in US dollars. Norway proved to be the highest performing market with a
return of 65%. Finland's market lagged with a return of 5%. Energy stocks rose
the most with a 38.8% return, while Information Technology stocks rose the least
with a 4.5% return. Not surprisingly, Norway's market is heavily weighted toward
energy, and Finland's is dominated by technology, primarily Nokia. Energy stocks
were buoyed by oil prices that remained much higher than anticipated. Very
strong demand, especially from developing markets, and supply concerns due to
unrest in Iraq and elsewhere combined to keep oil prices high. Technology stocks
were depressed by very intense price competition, industry overcapacity,
reluctance of buyers to invest in new products, and valuation levels that still
appear to be too high relative to other sectors.
The International Core Equity Fund outperformed its index during the period,
largely due to our process of disciplined stock selection. Contribution to the
positive relative performance was broad based. The Fund outperformed the
benchmark in every region and in 17 of 21 countries. In addition the Fund
outperformed the benchmark in nine of 10 economic sectors. The Fund trailed its
benchmark only in the Health Care sector, and that by only a very modest amount
The portfolio continues to reflect our approach of investing in stocks of
companies that are attractively valued and exhibit improving business momentum.
The global economy is growing. Policy makers have begun the process of removing
the massive stimulus pumped into the system following the last recession and the
September 11 terrorist attacks. While policy has not yet moved into restrictive
territory, the combination of higher rates and higher oil prices may undermine
the strength of the economic expansion. Corporate profits are expected to grow,
but at a slower pace. It remains unclear whether investors will be encouraged by
the growth, or discouraged by the slowdown in the rate of growth. Overall,
valuation levels seem reasonable.
/s/ Remi J. Browne /s/ Peter Carpenter
- ------------------ -------------------
Remi J. Browne Peter Carpenter
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
INTERNATIONAL CORE EQUITY FUND AND MSCI EAFE INDEX
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[DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC International MSCI EAFE
Core Equity Fund Index
----------------- ---------
Beginning $100,000 $100,000
1994
Quarter3 $102,835 $100,096
Quarter4 $98,851 $99,075
1995
Quarter1 $93,848 $100,920
Quarter2 $96,253 $101,653
Quarter3 $98,569 $105,890
Quarter4 $100,971 $110,178
1996
Quarter1 $103,373 $113,362
Quarter2 $108,424 $115,156
Quarter3 $107,181 $115,012
Quarter4 $108,485 $116,842
1997
Quarter1 $106,619 $115,012
Quarter2 $119,256 $129,938
Quarter3 $116,779 $129,024
Quarter4 $105,805 $118,921
1998
Quarter1 $128,562 $136,414
Quarter2 $133,092 $137,863
Quarter3 $113,364 $118,267
Quarter4 $131,757 $142,702
1999
Quarter1 $129,008 $144,687
Quarter2 $133,360 $148,363
Quarter3 $137,464 $154,875
Quarter4 $155,276 $181,180
2000
Quarter1 $153,904 $180,990
Quarter2 $154,531 $173,820
Quarter3 $147,188 $159,798
Quarter4 $147,876 $155,511
2001
Quarter1 $135,625 $134,194
Quarter2 $141,985 $132,792
Quarter3 $124,514 $114,201
Quarter4 $130,028 $122,165
2002
Quarter1 $134,148 $122,786
Quarter2 $139,027 $120,183
Quarter3 $116,082 $96,467
Quarter4 $121,607 $102,691
2003
Quarter1 $115,852 $94,257
Quarter2 $136,274 $112,419
Quarter3 $148,891 $121,556
Quarter4 $173,520 $142,316
2004
Quarter1 $185,001 $148,491
Quarter2 $185,748 $148,810
Quarter3 $189,040 $148,396
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 12/08/1988
- --------------------------------------------------------------------------------
27.04% 14.93% 6.58% 6.28% 6.40%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
SHAREHOLDER EXPENSE EXAMPLE
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As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- -------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,021.80 $5.66
Hypothetical (5% return per year
before expenses) $1,000.00 $1,019.40 $5.65
- -----------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.12%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).THE EXAMPLE REFLECTS THE
COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS
ALL ITS ASSETS.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2004
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ASSETS
Investment in The Boston Company International
Core Equity Portfolio ("Portfolio"), at value (Note 1A) $124,401,585
Receivable for Fund shares sold 290,355
Prepaid expenses 9,636
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Total assets 124,701,576
LIABILITIES
Accrued transfer agent fees $ 3,992
Accrued trustees' fees and expenses 1,000
Other liabilities 21,892
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Total liabilities 26,884
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NET ASSETS $124,674,692
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NET ASSETS CONSIST OF:
Paid-in capital $104,299,708
Accumulated net realized gain 2,093,960
Undistributed net investment income 366,203
Net unrealized appreciation 17,914,821
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TOTAL NET ASSETS $124,674,692
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Shares of beneficial interest outstanding 4,612,866
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 27.03
============
The accompanying notes are an integral part of the financial statements.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income allocated from Portfolio (net of foreign withholding taxes of $272,321) $ 2,153,396
Interest income allocated from Portfolio 96,538
Expenses allocated from Portfolio (999,966)
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Net investment income allocated from Portfolio 1,249,968
EXPENSES
Transfer agent fees (Note 2) $ 7,691
Legal and audit services 30,741
Registration fees 21,976
Shareholders reports 7,600
Trustees' fees and expenses (Note 2) 1,889
Miscellaneous 7,955
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Total expenses 77,852
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Net investment income 1,172,116
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REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions and financial futures contracts 15,537,985
Change in unrealized appreciation (depreciation) on investments allocated from Portfolio 5,250,294
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Net realized and unrealized gain on investments 20,788,279
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NET INCREASE IN NET ASSETS FROM OPERATIONS $21,960,395
===========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,172,116 $ 747,952
Net realized gain (loss) 15,537,985 (763,919)
Change in net unrealized appreciation 5,250,294 16,226,851
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Net increase (decrease) in net assets from operations 21,960,395 16,210,884
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1D)
From net investment income (1,441,503) (847,624)
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Total distributions to shareholders (1,441,503) (847,624)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 47,227,583 18,786,883
Value of shares issued to shareholders
in payment of distributions declared 939,636 513,688
Cost of shares redeemed (21,738,718) (8,023,768)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions 26,428,501 11,276,803
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 46,947,393 26,640,063
NET ASSETS
At beginning of period 77,727,299 51,087,236
------------ ------------
At end of period (including undistributed
net investment income of $366,203 and $608,298) $124,674,692 $ 77,727,299
============ ============
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2004 2003 2002 2001 2000
-------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF PERIOD $ 21.62 $ 17.10 $ 18.53 $ 23.45 $ 23.77
-------- ------- ------- ------- -------
FROM INVESTMENT OPERATIONS:
Net investment income(* (1)) 0.31 0.23 0.25 0.24 0.24
Net realized and unrealized gains (loss) on investments 5.49 4.55 (1.48) (3.63) 1.42
-------- ------- ------- ------- -------
Total from investment operations 5.80 4.78 (1.23) (3.39) 1.66
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.39) (0.26) (0.20) (0.20) (0.43)
From net realized gains on investments -- -- -- (1.33) (1.55)
-------- ------- ------- ------- -------
Total distributions to shareholders (0.39) (0.26) (0.20) (1.53) (1.98)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 27.03 $ 21.62 $ 17.10 $ 18.53 $ 23.45
======== ======= ======= ======= =======
TOTAL RETURN 27.04% 28.23%+ (6.77)%+ (15.40)%+ 7.07%+
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) * 1.12% 1.16% 1.00% 1.00% 1.00%
Net Investment Income (to average daily net assets) * 1.22% 1.21% 1.29% 1.13% 0.98%
Portfolio Turnover (2) N/A 17% 87% 74% 112%
Net Assets, End of Period (000's omitted) $124,675 $77,727 $51,087 $48,227 $39,230
- --------------
* For the periods indicated, the investment advisor 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) N/A $ 0.19 $ 0.18 $ 0.16 $ 0.15
Ratios (to average daily net assets):
Expenses N/A 1.34% 1.33% 1.37% 1.36%
Net investment income N/A 1.03% 0.96% 0.76% 0.62%
(1) Calculated based on average shares outstanding.
(2) Portfolio turnover represents activity while the Fund was investing
directly in securities until January 27, 2003. The portfolio turnover for
the period since the Fund transferred substantially all of its investable
assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
(+) 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
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
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(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 International Core Equity Fund (the "Fund") is a separate
diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest of The Boston
Company International Core Equity Portfolio (the "Portfolio"), a subtrust
of Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"),
which is organized as a New York trust, and has the same investment
objective as the Fund. The Portfolio seeks to achieve its objective by
investing, under normal circumstances, at least 80% of net assets in equity
securities of companies located in the foreign countries represented in the
MSCI Europe, Australia, Far East Index and Canada. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio (approximately 98.5% at September 30, 2004)
. The performance of the Fund is directly affected by the performance of
the Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements.
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
The Fund records its investment in the Portfolio at value. The method by
which the Portfolio values its securities is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Currently, the
Fund's net investment income consists of the Fund's pro rata share of the
net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with accounting principles
generally accepted in the United States of America. All realized and
unrealized gains and losses of the Portfolio are allocated pro rata among
the investors in the Portfolio.
C. INVESTMENT RISK
The Fund's investment in the Portfolio involves certain additional risks
due to the fact that the Portfolio may invest in foreign securities that
were not inherent in investments in domestic securities. These risks may
involve adverse political and economic developments, including the possible
imposition of capital controls or other foreign governmental laws or
restrictions. In addition, the securities of some foreign companies and
securities markets are less liquid and at times may be more volatile than
securities of comparable U.S. companies and U.S. securities markets. The
risks described above apply to an even greater extent to investments in
emerging markets. The securities markets of emerging countries are
generally smaller, less developed, less liquid, and more volatile than the
securities markets of the U.S. and developed foreign markets.
D. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on 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. In determining the amounts of its dividends, the Fund will take
into account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a 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 foreign currency transactions, passive foreign
investment companies (PFICs), post-October loss deferrals, wash sales and
capital loss carryovers and redemptions in-kind. In 2004, the fund incurred
a redemption in-kind which resulted in a realized gain of $4,426,312, which
will be deferred indefinitely for tax purposes.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 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:
The Fund does not directly pay any investment advisory fees, but indirectly
bears its pro rata share of the compensation paid by the Portfolio to The
Boston Company Asset Management, LLC ("TBCAM") a wholly owned subsidiary of
Mellon Institutional Asset Management, for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $3,500 during the year ended September
30, 2004.
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio 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 Portfolio Trust pays the legal fees for the independent
counsel of the Trustees.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 30, 2004. The fund also bears its
pro rata share of the renumeration paid to the Trustees by the Portfolio.
See Note 2 of the Portfolio's notes to financial statements which are
included elsewhere in this report.
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $500
Benjamin M. Friedman $500
John H. Hewitt $500
Caleb Loring, III $500
Patrick J. Sheppard 0
Richard S. Wood (*) 0
* Mr. Wood resigned from the Board of Trustees on October 7, 2003.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2004 aggregated $48,077,039 and $23,245,417,
respectively.
(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:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 1,806,181 1,014,405
Shares issued to shareholders in payment
of distributions declared 38,181 27,860
Shares redeemed (826,070) (434,512)
---------- ----------
Net increase 1,018,292 607,753
========== ==========
At September 30, 2004, one shareholder of record held approximately 34% of
the total outstanding shares of the Fund. Investment activities of this
shareholder could have a material impact on the Fund.
The Fund imposes 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. For the year ended September 30, 2004, the Fund received no
redemption fees.
(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.
As of September 30, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $3,098,536
Tax character of distributions paid during the fiscal year ended ended
September 30, 2004 was as follows:
Ordinary income 1,441,503
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company International Core Equity Fund:
In our opinion, the accompanying statement of assets and liabilities, 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
The Boston Company International Core Equity Fund (the "Fund") at September 30,
2004, 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 investment in the Portfolio at September
30, 2004 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Net Assets
----------------------------------------------------------------------------------------------------------
Vodafone Group United Kingdom Telecomm. Svcs. 2.3
BP PLC United Kingdom Energy 1.7
Barclays PLC United Kingdom Financials 1.6
Toyota Motor Corp. Japan Consumer Discret. 1.6
Total SA France Energy 1.5
Societe Generale France Financials 1.3
ING Groep NV CVA Netherlands Financials 1.3
BNP Paribas France Financials 1.3
Royal Bank of Scotland Group United Kingdom Financials 1.3
Continental AG Germany Consumer Discret. 1.2
-----
15.1
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
---------------------------------------------
Consumer Discretionary 13.5
Consumer Staples 6.9
Energy 8.1
Financials 23.4
Health Care 7.0
Industrials 10.5
Information Technology 6.6
Materials 7.3
Telecommunication Services 7.2
Utilities 3.9
Short-term and Net Other Assets 5.6
-----
100.0
Percentage of
Geographic Region Allocation* Net Assets
---------------------------------------------
Europe ex U.K. 42.3
U.K. 22.8
Asia ex Japan 8.7
Japan 20.6
-----
94.4
* Excluding short-term investments and investment of cash collateral.
The Portfolio is actively managed. Current holdings and allocation may
be different than those presented above.
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES--94.4%
AUSTRALIA--5.2%
Boral Ltd. 259,000 $ 1,298,40
Caltex Australia Ltd. 83,000 559,823
Insurance Australia Group Ltd. 338,000 1,278,830
Oil Search Ltd. 501,300 543,471
QBE Insurance Group Ltd. 109,400 1,042,753
West Australian Newspaper Holdings (a) 106,000 585,383
Westpac Banking Corp. 56,000 722,419
WMC Resources Ltd. 136,100 530,781
-----------
Total Cost (Cost $5,269,756) 6,561,869
-----------
AUSTRIA--1.7%
Boehler-Uddeholm 8,000 739,475
OMV AG 6,300 1,453,099
------------
Total Cost (Cost $1,406,926) 2,192,574
------------
BELGIUM--1.7%
Colruyt NV Right * 3,500 4,787
Colruyt SA (a) 3,500 491,765
KBC Bankverzekeringshold 12,200 794,881
Mobistar SA * 11,200 800,750
-----------
Total Cost (Cost $1,959,027) 2,092,183
-----------
DENMARK--0.7%
Novo Nordisk A/S 16,200 888,161
-----------
Total Cost (Cost $887,523)
FINLAND--1.7%
Fortum Oyj 69,000 965,189
Kesko Oyj (a) 34,800 762,423
Rautaruukki Oyj 39,200 382,619
-----------
Total Cost (Cost $1,584,816) 2,110,231
-----------
FRANCE--8.2%
Arcelor 28,800 532,852
BNP-Paribas 25,600 1,655,214
Bouygues SA * 28,000 1,051,419
Essilor International SA 9,300 598,417
Renault SA 17,500 1,432,863
Sanofi-Synthelabo SA (a) 9,400 682,577
Societe Generale 19,200 1,700,971
Total SA 9,455 1,928,041
Vinci SA 6,200 714,246
-----------
Total Cost (Cost $8,641,033) 10,296,600
-----------
GERMANY--6.2%
Continental AG 28,800 1,567,400
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
GERMANY (CONTINUED)
Deutsche Telekom AG 27,700 $ 514,566
E.ON AG 17,700 1,307,286
Hannover Rueckversicherung AG 16,700 541,961
Merck KGaA 11,800 675,504
Metro AG 17,000 759,481
Puma AG 3,210 861,006
SAP AG 4,500 699,972
Thyssenkrupp AG 44,800 874,001
-----------
Total Cost (Cost $5,546,917) 7,801,177
-----------
GREECE--1.6%
Alpha Bank A.E 46,900 1,196,633
Cosmote Mobile Tele S.A 50,900 840,479
-----------
Total Cost (Cost $1,480,509) 2,037,112
-----------
HONG KONG--2.0%
Esprit Holdings Ltd. 82,000 416,484
Global Biochem Tech 482,000 367,835
Kerry Properties Ltd. 202,000 380,853
Orient Overseas International Ltd. 112,000 448,190
Smartone Telecommunication 482,000 519,297
The Wharf(Holdings) Ltd. 114,000 383,816
-----------
Total Cost (Cost $2,340,848) 2,516,475
-----------
IRELAND--1.3%
Anglo Irish Bank Corp. PLC 47,500 871,157
CRH PLC 33,000 787,669
-----------
Total Cost (Cost $1,138,748) 1,658,826
-----------
ITALY--2.0%
Banca Intesa Spa 217,933 829,193
Eni Spa 43,500 975,746
Mediaset Spa 40,900 464,815
Unipol Spa 122,100 311,988
-----------
Total Cost (Cost $2,249,391) 2,581,742
-----------
JAPAN--20.6%
Asahi Breweries Ltd. 50,000 510,000
Bridgestone Corp. 39,000 725,045
Canon, Inc 16,000 753,455
Casio Computer Co., Ltd. (a) 54,000 637,691
Central Glass Co., Ltd. 50,000 367,273
Citizen Electronics Co. Ltd. 20,000 1,054,545
Daiwa Securities Group 83,000 526,673
Diamond Lease Co., Ltd. 9,700 342,145
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
JAPAN (CONTINUED)
Eisai Co. Ltd. (a) 24,500 $ 668,18
Fujitsu Ltd. (a) 121,000 700,700
Hisamitsu Pharamaceutical 21,000 377,045
Ito-Yokado Co Ltd. 10,000 343,636
Kawasaki Kisen Kaisha Ltd. (a) 114,000 781,418
KDDI Corp. (a) 188 914,364
Kikkoman Corp. 65,000 573,773
Kirin Beverage Corp. 32,900 702,864
Kobe Steel Ltd. 502,000 730,182
Komatsu Ltd. (a) 62,000 399,055
Kyocera Corp. 14,500 1,021,591
Kyushu Electric Power Co., Inc. (a) 19,700 369,823
Mitsubishi Corp. 65,000 703,773
Mitsubishi Tokyo Financial Group, Inc 112 935,709
Mitsui O.S.K. Lines, Ltd. 154,000 925,400
Nissan Motor Co., Ltd. 120,000 1,309,091
Nisshin Seifun Group, Inc. (a) 54,000 522,327
NSK Ltd. 107,000 460,100
NTT Corp. 172 686,436
Ono Pharmaceutical Co., Ltd. 14,000 622,364
Promise Co., Ltd. (a) 5,100 334,282
Sanyo Shinpan Finance Co., Ltd. 8,000 429,091
Seino Transportation Co., Ltd. 63,000 564,136
Sompo Japan Insurance 71,000 602,855
Sumitomo Rubber Industries, Inc. (a) 88,000 852,800
Takeda Pharmaceutical Co., Ltd. (a) 16,700 759,091
TDK Corp. 11,000 734,000
Terumo Corp. (a) 14,600 333,145
Tokyo Gas Corp., Ltd. (a) 201,600 716,596
Toyota Motor Corp. (a) 53,400 2,048,618
-----------
Total Cost (Cost $23,473,462) 26,039,274
-----------
NETHERLANDS--4.6%
ABN Amro Holding NV 53,000 1,205,315
ASM Lithography Holding NV * 29,200 376,143
Hunter Douglas NV 7,500 344,950
ING Groep NV CVA 67,300 1,700,394
Koninklijke Philips Electronics NV 38,900 891,911
Koninklijke Wessanen NV 31,000 413,592
Royal KPN NV 120,400 902,723
-----------
Total Cost (Cost $5,736,179) 5,835,028
-----------
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
NEW ZEALAND--0.6%
Fletcher Building Ltd. (Cost $470,013) 189,500 $ 766,24
-----------
NORWAY--1.1%
Norsk Hydro ASA 12,800 935,170
Orkla Asa 18,400 510,288
-----------
Total Cost (Cost $1,221,732) 1,445,458
-----------
SINGAPORE--0.9%
Fraser and Neave Ltd. 64,630 533,403
Keppel Co., Ltd. 119,900 562,409
-----------
Total Cost (Cost $671,083) 1,095,812
-----------
SPAIN--2.6%
ACS Actividades 43,500 793,469
Corp. Mapfre SA 55,100 647,432
Gamesa Corp Tecnological 52,500 770,939
Repsol YPF SA 50,900 1,118,951
-----------
Total Cost (Cost $2,405,095) 3,330,791
-----------
SWEDEN--2.6%
Ericsson LM 437,500 1,358,640
Skandinaviska Enskilda Banken AB 72,500 1,120,749
Volvo AB, Class B 23,100 815,761
-----------
Total Cost (Cost $2,814,343) 3,295,150
-----------
SWITZERLAND--6.3%
Baloise Holdings 7,200 279,059
Credit Suisse Group 33,600 1,075,556
Geberit AG 1,170 911,639
Kudelski SA * 14,500 413,487
Logitech International SA * 11,700 568,600
Micronas Semiconductor Holdings * 14,600 621,576
Novartis AG 19,370 905,562
Saurer AG 12,200 666,399
Serono SA B 850 526,428
Sulzer AG 2,500 751,064
UBS AG Registered Shares 10,600 748,446
Zurich Financial Services AG 3,200 457,547
-----------
Total Cost (Cost $7,079,167) 7,925,363
-----------
UNITED KINGDOM--22.8%
Aggregate Industries PLC 530,500 917,857
Alliance Unichem PLC 45,300 546,997
Anglo American PLC 23,900 573,720
AstraZeneca PLC 11,500 471,903
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
UNITED KINGDOM (CONTINUED)
Aviva PLC 115,800 $1,148,627
BAA PLC 47,400 475,316
BAE Systems PLC 133,400 543,178
Balfour Beatty PLC 126,700 639,276
Barclays PLC 214,700 2,061,552
Barratt Developments PLC 66,200 678,830
Boots Group PLC 28,600 332,650
BP PLC 223,900 2,139,749
Cookson Group PLC 524,100 284,854
Dixons Group PLC 227,200 702,838
Friends Provident PLC 332,200 838,072
George Wimpey PLC 122,500 892,172
HBOS PLC 54,100 731,177
Inchcape PLC 33,500 946,188
Johnston Press PLC 39,900 402,276
Kelda Group PLC 81,500 790,685
Man Group PLC 15,300 329,579
Old Mutual PLC 309,800 641,245
Reckitt Benckiser PLC 19,800 485,702
Royal Bank of Scotland Group PLC 56,585 1,636,140
SABMiller PLC 80,200 1,059,951
Scottish Power PLC 98,700 755,492
Shell Transport & Trading Company PLC 82,900 609,020
Shire Pharmaceuticals Group PLC 88,400 837,207
Tesco PLC 133,200 688,361
United Business Media PLC 83,400 705,240
Vodafone Group PLC 1,208,400 2,895,294
Whitbread PLC 38,800 579,222
Wolseley PLC 41,500 709,376
Xstrata PLC 48,200 793,334
-----------
Total Cost (Cost $25,018,322) 28,843,080
-----------
TOTAL EQUITIES (Cost $101,394,890) 119,313,146
-----------
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Rate Maturity Par Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.1%
U.S. GOVERNMENT--0.4%
U.S. Treasury Bill+ 1.640% 12/16/2004 $ 470,000 $ 468,383
INVESTMENT COMPANIES--0.7% Shares
-----------
Dreyfus Institutional Preferred Plus Money Market Fund++ 887,387 887,387
------------
Total Short Term Investments (Cost $1,355,770) 1,355,770
------------
INVESTMENT OF CASH COLLATERAL--8.2%
Dreyfus Cash Management Plus Money Market Fund++ (Cost $10,352,104) 10,352,104 10,352,104
------------
TOTAL INVESTMENTS--103.7% (Cost $113,102,764) 131,021,020
LIABILITIES IN EXCESS OF OTHER ASSETS--(3.7)% (4,724,770)
------------
NET ASSETS--100% $126,296,250
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Security, or a portion thereof, was on loan at 9/30/04.
* Non-income producing security.
+ Denotes all or part of security segregated as collateral.
++ Affiliated institutional money market fund.
At September 30, 2004 the Portfolio held the following futures contracts.
Underlying Face Unrealized
Contract Position Expiration Date Amount At Value Gain (Loss)
- ------------------------------------------------------------------------------------------------------------------------------
MSCI Pan-Euro (252 contracts) Long 12/17/2004 $5,108,449 $ (31,235)
Topix Futures (17 contracts) Long 12/9/2004 1,711,661 (11,254)
---------
$ (42,489)
=========
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in securities (Note 1A) (including securities
on loan, valued at $9,806,048) (Note 6):
Unaffiliated issuers, at value (identified cost $101,863,273) $119,781,529
Affiliated issuers, at value (identified cost $11,239,491) (Note 1G) 11,239,491
Foreign currency, at value (identified cost, $5,336,593) 5,403,974
Receivable for investments sold 984,286
Interest and dividends receivable 324,152
Prepaid expenses 5,076
------------
Total assets 137,738,508
LIABILITIES
Liability for securities on loan (Note 6) $ 10,352,104
Payable for investments purchased 1,023,985
Payable for variation margin on open financial futures contracts (Note 5)
9,945
Accrued accounting and custody fees 22,593
Accrued trustees' fees and expenses 2,223
Accrued expenses and other liabilities 31,408
------------
Total liabilities 11,442,258
------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $126,296,250
============
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income (net of foreign withholding taxes of $275,643) $ 2,177,737
Interest income (including securities lending income of $64,099) (Note 6) 97,721
-----------
Total investment income 2,275,458
EXPENSES
Investment advisory fee (Note 2) $ 778,145
Accounting and custody fees (Note 2) 156,587
Legal and audit services 40,819
Trustees' fees and expenses (Note 2) 18,553
Insurance expense 9,712
Miscellaneous expenses 5,780
-----------
Total expenses 1,009,596
-----------
Net investment income 1,265,862
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 15,501,687
Financial futures contracts 348,274
Foreign currency and forward foreign currency exchange contracts (200,841)
-----------
Net realized gain 15,649,120
Investment securities 5,207,303
Financial futures contracts 56,569
Foreign currency and forward foreign currency exchange contracts 3,056
-----------
Net change in unrealized appreciation (depreciation) 5,266,928
-----------
Net realized and unrealized gain 20,916,048
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $22,181,910
===========
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the period
January 28, 2003
For the (Commencement of
Year Ended Operations) to
September 30, 2004 September 30, 2003
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,265,862 $ 797,821
Net realized gain 15,649,120 1,041,685
Change in net unrealized appreciation (depreciation) 5,266,928 13,981,959
------------ -----------
Net increase in net assets from operations 22,181,910 15,821,465
------------ -----------
CAPITAL TRANSACTIONS
Assets contributed by The Boston Company International Core
Equity Fund (including unrealized appreciation of $0 and $1,307,052) -- 55,577,761
Contributions 50,826,021 10,906,317
Withdrawals (24,372,009) (4,645,215)
------------ -----------
Net increase in net assets from capital transactions 26,454,012 61,838,863
------------ -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 48,635,922 77,660,328
NET ASSETS
At beginning of period 77,660,328 --
------------ -----------
At end of period $126,296,250 $77,660,328
============ ===========
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
For the (commencement of
Year Ended operations) to
September 30, 2004 September 30, 2003
------------------- -------------------
TOTAL RETURN+ 27.12%++ 22.46%(1)++
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 1.04% 1.17%(2)
Net Investment Income (to average daily net assets)* 1.30% 1.81%(2)
Portfolio Turnover 80% 63%(1)
Net Assets, End of Period (000's omitted) $126,296 $77,660
- -----------------
* For the periods indicated, the investment advisor voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the
Portfolio for all or a portion of its operating expenses. If this voluntary
action had not been taken, the per share ratios would have been:
Ratios (to average daily net assets):
Expenses N/A 1.20%(2)
Net investment income N/A 1.78%(2)
+ Total return for the Portfolio has been calculated based on the total
return for the investor Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements.
++ Total return would have been lower in the absence of expense waivers
(1) Not annualized
(2) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York on
January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The Boston
Company International Core Equity Portfolio (the "Portfolio"), a separate
diversified investment series of the Portfolio Trust, commenced operations
on January 28, 2003.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of companies
that are located in the foreign countries represented in the MSCI Europe,
Australia, Far East Index and Canada.
At September 30, 2004, there were two funds, The Boston Company
International Core Equity Fund and Dreyfus Premier International Equity
Fund, invested in the Portfolio. The value of the funds' investment in the
Portfolio reflects the funds' proportionate interests in the net assets of
the Portfolio. At September 30, 2004, The Boston Company International Core
Equity Fund and the Dreyfus Premier International Equity Fund held
approximately 98.5% and 1.5% interests in the Portfolio, respectively.
The following is a summary of significant accounting policies followed by
the Portfolio 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 normally traded. Because foreign markets may be open at
different times than the New York Stock Exchange, the value of the
Portolio's shares may change on days when shareholders are not able to buy
or sell them. Many securities markets and exchanges outside the U.S. close
prior to the close of the New York Stock Exchange and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect the events that occur after such close but before the close of the
New York Stock Exchange.
If market quotations are not readily available or do not accurately reflect
fair value, or the value of a security has been materially affected by
events occurring after the close of the exchange or market on which the
security is principally traded (for example, a foreign exchange or market),
the Portfolio may value its assets by a method the Trustees believe
accurately reflects the fair value. The Trustees have adopted fair value
pricing procedures, which, among other things, require the Portfolio to
fair value such secutities if there has been a movement in the U.S. market
that exceeds a specified threshold. Although the threshold may be revised
from time to time and the number of days on which fair value prices will be
used will depend on market activity, it is possible that fair value prices
for foreign securities will be used by each fund to a significant extent.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio 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. 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.
Dividend income is recorded on the ex-dividend date. Realized gains and
losses from securities sold are recorded on the identified cost basis. The
Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Portfolio's books and the
U.S. dollar equivalent amounts usually received or paid.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
C. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since at least one of
the Portfolio's investors is a regulated investment company that invests
all or substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio allocates
at least annually among its investors each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss deduction or credit.
D. FOREIGN CURRENCY TRANSACTIONS
Investment security valuations, other assets, and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based upon
current currency exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
Section 988 of the Internal Revenue Code provides that gains or losses on
certain transactions attributable to fluctuations in foreign currency
exchange rates must be treated as ordinary income or loss. For financial
statement purposes, such amounts are included in net realized gains or
losses.
E. INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed foreign
markets.
F. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve future
claims that may be made against the Portfolio that have not yet occurred.
However, based on experience, the Portfolio expects the risks of loss to be
remote.
G. AFFILIATED ISSUERS
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
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 Portfolio's average daily net assets. For
the year ended September 30 2004, the Portfolio paid $778,145 in investment
advisory fees to TBCAM.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a whollly
owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM,
to provide a custody, fund administration and fund accounting services for
the Portfolio. For these services the Portfolio pays Mellon Bank a fixed
fee plus fees that are asset and transaction based, as well as,
out-of-pocket expenses. Pursuant to this agreement the Portfolio was
charged $150,179 during the year ended September 30, 2004.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio for serving as an officer or
Trustee of the Trust. The Portfolio 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 Portfolio Trust pays the legal fees for the
independent counsel of the Trustees.
The following table sets forth all remuneration paid to the Trustees by the
Portfolio for the fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $2,443
Benjamin M. Friedman $2,443
John H. Hewitt $2,443
Caleb Loring, III $2,639
Patrick J. Sheppard 0
Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2004 were $97,530,191 and
$74,266,266, respectively. For the year ended September 30, 2004, the
Portfolio did not purchase or sell any long-term U.S. Government
securities.
(4) 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 cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $113,561,881
============
Gross unrealized appreciation $ 19,122,466
Gross unrealized depreciation (1,663,323)
------------
Net unrealized appreciation $ 17,459,143
============
(5) 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 Portfolio Trust's registration statement.
The Portfolio may trade the following financial 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 Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Portfolio's exposure to
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
the underlying instrument. Buying puts and writing calls tend to decrease
the Portfolio's exposure to the underlying instrument, or hedge other
Portfolio investments. Options, both held and written by the Portfolio, 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 year 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 Portfolio is exercised, the premium reduces
the cost basis of the securities purchased by the Portfolio. The Portfolio,
as a 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 Portfolio did not enter into option transactions during the year ended
September 30, 2004.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At September 30, 2004, the Portfolio held forward foreign currency exchange
contracts. See Schedule of Investments for further detail.
FUTURES CONTRACTS
The Portfolio 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 margin requirements the Portfolio
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 Portfolio 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 Portfolio. 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 Portfolio's exposure to the underlying instrument, while
selling futures tends to decrease the Portfolio's exposure to the
underlying instrument or hedge other investments. In addition, there is the
risk that the Portfolio 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 counterparty does not perform under the
contract's terms. The Portfolio enters into financial futures transactions
primarily to seek 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, 2004, the Portfolio held futures contracts. See Schedule
of Investments for further detail.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(6) SECURITY LENDING:
The Portfolio entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Portfolio's lending agent.
Pursuant to this agreement Mellon Bank receives an agreed upon percentage
of the net lending revenues. This compensation is a standard form of
compensation received by securities lending agents with respect to
non-affiliated entities.
The Portfolio may lend its securities to financial institutions which the
Portfolio 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 Portfolio on the next business day. For the duration of a
loan, the Portfolio 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 Portfolio 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 Portfolio. In the event of
borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in the
event it was delayed or prevented from exercising its rights to dispose of
the collateral. The Portfolio also bears the risk in the event that the
interest and/or dividends received on invested collateral is not sufficient
to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended September 30, 2004
resulting in $64,099 worth of security lending income. At September 30,
2004 the Portfolio had securities valued at $9,806,048 on loan.
(7) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in the
Mellon Institutional Funds Investment Trust (the "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 facility fee,
computed at an annual rate of .060 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, 2004, the
facility fee was $1,805.
During the year ended September 30, 2004, the Portfolio had no borrowings
under the credit facility.
28
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL CORE EQUITY PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company International Core Equity Portfolio:
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 The Boston Company International
Core Equity Portfolio (the "Portfolio") at September 30, 2004, 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 Portfolio'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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
29
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
30
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
31
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32
THIS PAGE INTENTIONALLY LEFT BLANK
33
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0924AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report THE BOSTON COMPANY
SMALL CAPITALIZATION EQUITY FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
The level of uncertainty in the equity markets has diverted investor attention
from investment fundamentals (e.g., earnings and earnings growth), to investment
behavior that is more emotionally driven. The current unsettled climate is
fostered by terrorist threats, the election puzzle, oil price uncertainty,
inflation fears and interest rate concerns. The economy continues to perform
relatively well and concerns about slowing economic growth and the resultant
slowing corporate profit growth seem to be somewhat overblown.
For the twelve months ended September 30, 2004 The Boston Company Small
Capitalization Equity Fund had a total return of 18.78%. This was well ahead of
the Russell 2000 Growth Index at 11.92% for the period. The Fund has had strong
relative performance in recent months as our holdings have been somewhat more
risk averse but, at the same time, it has participated fully in the recent
positive move. Within the markets, smaller stocks again performed better than
large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up 13.87%),
and value has outpaced growth, especially in smaller stocks where the Russell
2000 Value Index was up more than twice that of the Russell 2000 Growth index.
Our risk averse approach continues to be a rewarding strategy in this very
volatile market environment. We are finding many companies we believe are truly
undervalued, not just cheap for an obvious reason. These potentially rewarding
opportunities seem to be a by-product of the prevailing market caution,
bordering on pessimism.
The US economy slowed a bit in the summer as higher energy prices and interest
rates, along with the uncertainty surrounding the election and its potential
market impact, reduced consumer and investor confidence and put a modest damper
on the stock market. We continue to view the economic landscape positively and
expect corporate capital spending to remain relatively strong.
Our best performing sectors relative to the index have been health care,
industrials and consumer discretionary. We expect strong earnings in these
sectors and continue to emphasize them in our portfolio allocation decisions.
Our energy holdings have been reduced at the margin as these stocks have done
well. We continue carry a market weight in this sector because of our long-term
positive outlook for energy prices. Our emphasis here continues to be on energy
services and exploration companies.
2
We continue to deemphasize financials as most of these stocks are fully valued
in our view. Business momentum is neutral at best and rising interest rates will
further narrow spreads and put more pressure on earnings in coming quarters.
Stocks in the industrials sector are attractive because of the positive outlook
for corporate capital spending. We look for several more quarters of relatively
strong earnings from this group and remain significantly overweight here.
Our general outlook remains positive. We continue to find many companies in our
research universe we believe are undervalued with strong fundamentals and good
earnings prospects. With a good chance for continued economic growth and modest
inflation, capital spending should be robust for several quarters. The major
concerns were highlighted earlier but we believe our fundamental approach,
emphasizing strong business momentum and undervaluation, will yield good returns
even in this more volatile equity environment.
/s/ B. Randall Watts /s/ P. Hans Von Der Loft
- -------------------- ------------------------
B. Randall Watts P. Hans Von Der Loft
3
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 REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000
Equity Fund Growth Index
------------- ------------
Beginning $100,000 $100,000
1994
Quarter3 $105,894 $109,324
Quarter4 $104,400 $108,515
1995
Quarter1 $110,692 $114,466
Quarter2 $113,499 $125,821
Quarter3 $131,854 $140,128
Quarter4 $135,546 $142,199
1996
Quarter1 $144,496 $150,367
Quarter2 $159,330 $159,153
Quarter3 $154,580 $157,796
Quarter4 $159,082 $158,214
1997
Quarter1 $139,467 $141,620
Quarter2 $168,573 $166,481
Quarter3 $203,500 $194,649
Quarter4 $183,191 $178,696
1998
Quarter1 $207,647 $199,928
Quarter2 $193,094 $188,447
Quarter3 $148,157 $146,312
Quarter4 $186,330 $180,895
1999
Quarter1 $198,990 $177,857
Quarter2 $218,038 $204,082
Quarter3 $213,374 $194,048
Quarter4 $333,726 $258,847
2000
Quarter1 $410,733 $282,871
Quarter2 $373,021 $262,018
Quarter3 $357,703 $251,609
Quarter4 $269,394 $200,787
2001
Quarter1 $212,186 $170,259
Quarter2 $252,513 $200,862
Quarter3 $191,084 $144,460
Quarter4 $227,660 $182,257
2002
Quarter1 $226,253 $178,686
Quarter2 $201,166 $150,639
Quarter3 $166,701 $118,224
Quarter4 $174,684 $127,102
2003
Quarter1 $166,946 $122,174
Quarter2 $199,069 $151,675
Quarter3 $222,502 $167,552
Quarter4 $255,322 $188,802
2004
Quarter1 $275,745 $199,340
Quarter2 $275,040 $199,525
Quarter3 $264,023 $187,532
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 01/01/1988
- ------------------------------------------------------------------------------
18.78% 11.38% 4.35% 9.57% 13.03%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $957.50 $4.80
Hypothetical (5% return per year
before expenses) $1,000.00 $1,020.10 $4.95
- --------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.98%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Percentage of
Top Ten Equity Holdings* Sector Net Assets
----------------------------------------------------------------------------------------
MSC Indl Direct Inc. Industrials 2.4
Cooper Cos Inc. Health Care 2.2
Fisher Scientific Intl Inc. Health Care 2.0
Lions Gate Entertainment Corp. Consumer Discretionary 1.9
UTI Worldwide Inc. Industrials 1.9
Matria Healthcare Inc. Health Care 1.6
Laureate Education Inc. Industrials 1.6
Anteon Intl Corep Technology 1.6
Zoran Corp. Technology 1.5
McAfee Inc. Technology 1.4
----
18.1
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
--------------------------------------------
Consumer Discretionary 14.2
Consumer Staples 5.9
Energy 8.2
Financials 7.1
Health Care 23.2
Industrials 14.3
Materials 1.6
Technology 19.6
Short-term and Net Other Assets 5.9
-----
100.0
The Portfolio is actively managed. Current holdings may be different
than those presented above.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES--94.1%
CONSUMER DISCRETIONARY--14.2%
A.C. Moore Arts & Crafts, Inc. * 5,910 $ 146,154
American Woodmark Corp. * 1,600 59,240
Books-A-Million, Inc. * 21,100 169,011
California Pizza Kitchen, Inc. * 12,600 275,310
Christopher & Banks Corp. * 5,800 92,858
Citadel Broadcasting Co. * 5,800 74,356
Entravision Communications Corp. * 22,800 173,508
Fairmount Hotels & Resorts * 3,700 101,084
JAKKS Pacific, Inc. * 5,100 117,300
Lions Gate Entertainment Corp. * 42,600 370,620
Nautilus Group, Inc. (a) 8,580 193,822
Nu Skin Enterprises, Inc. 4,400 103,444
Pacific Sunware of California * 8,800 185,240
Panera Bread Co. * (a) 6,300 236,502
Peet's Coffee & Tea, Inc. * 6,600 154,374
Quicksilver, Inc. * 3,200 81,344
Rare Hospitality International, Inc. * 3,700 98,605
Speedway Motorsports, Inc. * 2,800 93,324
----------
2,726,096
----------
CONSUMER STAPLES--5.9%
Arden Group, Inc. * 967 82,195
Church & Dwight Co., Inc. * 3,150 88,389
Delta & Pine Land Co. * 2,400 64,200
Hain Celestial Group, Inc. * 12,000 212,160
Jarden Corp. * 4,150 151,434
Provide Commerce, Inc. * 9,000 188,010
The Yankee Candle Co. * 7,850 227,336
United Natural Foods, Inc. * 4,600 122,360
----------
1,136,084
----------
ENERGY--8.2%
Brigham Exploration Co. * 20,100 188,940
Consol Energy, Inc. 5,400 188,406
Dril-Quip, Inc. * 2,600 57,980
FMC Technologies, Inc. * 7,900 263,860
Grey Wolf, Inc. * 43,500 212,715
Oil States International, Inc. * 11,100 207,570
Penn Virginia Corp. * 2,930 115,999
RPC, Inc. * 13,200 236,016
Vintage Petroleum, Inc. * 5,330 106,973
----------
1,578,459
----------
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL
CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
FINANCIAL--7.1%
Affiliated Managers Group * 1,850 $ 99,04
Bristol West Holdings, Inc. 3,800 65,132
Cathay General Bancorp * 2,600 96,694
Center Financial Corp. * 2,752 52,343
Commercial Capital Bancorp, Inc. 4,900 111,181
Cullen/Frost Bankers, Inc. * 2,800 130,116
First Community Bancorp, Inc., Class A 2,400 98,400
First Midwest Bancorp, Inc. * 4,750 164,160
Investors Financial Services Corp. * 2,350 106,056
Mercantile Bank Corp. * 4,305 149,986
Southwest Bancorporation of Texas 7,200 145,008
Triad Guaranty, Inc. * 2,500 138,700
----------
1,356,825
----------
HEALTH CARE--23.2%
Able Laboratories, Inc. * 5,900 113,044
American Medical Systems Holdings, Inc. * 3,600 130,572
Bone Care International, Inc. * 3,200 77,760
Connetics Corp. * 4,300 116,186
Cooper Cos, Inc. * 6,250 428,438
Covance, Inc. * 6,600 263,802
Coventry Health Care, Inc. * 2,400 128,088
Discovery Laboratories, Inc. * 13,800 92,460
Fisher Scientific International * (a) 6,500 379,145
Flamel Technologies SA ADR * 5,000 73,350
Harvard Bioscience, Inc. * 25,200 110,880
Inveresk Research Group, Inc. * 4,700 173,383
Inverness Medical Innovation * (a) 9,400 195,520
Matria Healthcare, Inc. * 11,200 317,072
Medicines Co. * 5,400 130,356
Merit Medical Systems, Inc. * 8,700 131,457
Nabi Biopharmaceuticals * 6,500 86,970
PSS World Medical, Inc. * 17,200 172,688
Resmed, Inc. * 2,700 128,547
Respironics, Inc. * 4,100 219,104
Select Medical Corp. * 7,600 102,068
Steris Corp. * 8,500 186,490
Sybron Dental Specialties, Inc. * 4,700 139,543
Telik, Inc. * 4,100 91,430
Triad Hospitals * 3,100 106,764
VCA Antech, Inc. * 6,900 142,347
VISX, Inc. * 3,800 78,280
Zoll Medical Corp. * 4,400 146,916
----------
4,462,660
----------
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
INDUSTRIAL--14.3%
Applied Industrial Technologies 3,050 $ 109,007
Celadon Group, Inc. * 5,500 104,775
Charles River Associates, Inc. * 4,200 160,818
Educate, Inc. * (a) 6,400 75,456
Forward Air Corp. * 3,880 155,278
Hudson Highland Group * 3,200 93,408
Laureate Education, Inc. * 8,500 316,370
LECG Corp. * 11,000 186,010
MSC Industrial Direct Co., Inc. * 13,300 453,264
Navigant Consulting, Inc. * 8,900 195,444
Old Dominion Freight Line * 3,500 100,835
SCS Transportation, Inc. * 4,900 92,806
The Princeton Review, Inc. * 9,897 74,228
US Home Systems, Inc. * 10,400 72,176
UTI Worldwide, Inc. 6,200 364,622
Waste Connections * 5,850 185,328
----------
2,739,825
----------
MATERIALS--1.6%
Spartech Corp. 1,000 25,100
Agrium, Inc. * 10,100 179,376
Glamis Gold Ltd. * 6,000 112,380
----------
316,856
----------
TECHNOLOGY--19.6%
Advanced Power Technology, Inc. * 10,900 92,759
Anteon International Corp. * 8,600 315,190
Avocent Corp. * 4,300 111,929
BearingPoint, Inc. * 9,600 85,824
Borland Software Corp. * 11,200 93,520
Cymer, Inc. * 6,700 192,022
Formfactor, Inc. * 8,500 164,645
Forrester Research, Inc. * 10,400 158,496
Foundry Networks, Inc. * 7,050 66,905
Helix Technology Corp. * 6,400 87,008
Infocrossing, Inc. * (a) 7,200 113,868
Ingram Micro, Inc., Class A * 11,400 183,540
Internet Security Systems * 12,800 217,600
Lam Research Corp. * (a) 5,900 129,092
Macromedia, Inc. * 9,400 188,752
ManTech International Corp., Class A * 5,050 94,536
McAfee, Inc. * 13,800 277,380
Online Resources Corp. * 13,600 96,560
Paxar Corp. * 4,290 97,297
Power Integrations, Inc. * 12,000 245,160
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, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
Progress Software Corp. * 12,600 $ 250,740
Verisign, Inc. * 11,400 226,632
Zoran Corp. * 17,900 281,386
-----------
3,770,841
-----------
TOTAL EQUITIES (Cost $15,952,273) 18,087,646
-----------
SHORT-TERM INVESTMENTS--5.8% Rate Maturity Par Value
----- -------- ----------
U.S. GOVERNMENT--0.1%
U.S. Treasury Bill+ 1.64% 12/16/04 $ 30,000 29,897
Shares
----------
INVESTMENT COMPANIES--5.7%
Dreyfus Institutional Preferred Plus++ 1,093,472 1,093,472
-----------
TOTAL SHORT TERM INVESTMENTS (Cost $1,123,369) 1,123,369
-----------
INVESTMENT OF CASH COLLATERAL--7.4%
Dreyfus Cash Management Plus
Money Market Fund++ (Cost $1,420,594) 1,420,594 1,420,594
-----------
TOTAL INVESTMENTS--107.3% (COST $18,496,236) 20,631,609
LIABILITIES IN EXCESS OF OTHER ASSETS--(7.3)% (1,409,927)
-----------
NET ASSETS--100% $19,221,682
===========
NOTES TO SCHEDULE OF INVESTMENTS:
ADR--American Depository Receipt
(a) Security, or a portion thereof, was on loan at 9/30/04.
* Non-income producing security.
+ Denotes all or part of security pledged as collateral.
++ Affiliated institutional money market fund.
At September 30, 2004, the Fund held the following outstanding futures
contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount At Value Gain
- ------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index (4 Contracts) Long 12/17/2004 $ 566,625 $ 7,366
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $1,372,944) (Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $15,982,170) $18,117,543
Affiliated issuers, at value (Note 1A and Note 7) (cost $2,514,066) (Note 1F) 2,514,066
Receivable for investments sold 237,818
Interest and dividends receivable 3,646
Variation margin receivable for futures contracts (Note 6) 2,500
Prepaid expenses 10,026
-----------
Total assets 20,885,599
LIABILITIES
Liability for securities on loan $1,420,594
Payable for investments purchased 185,626
Accrued accounting, custody and transfer agent fees 13,917
Accrued trustees' fees and expenses 755
Accrued expenses and other liabilities 43,025
-----------
Total liabilities 1,663,917
-----------
NET ASSETS $19,221,682
===========
NET ASSETS CONSIST OF:
Paid-in capital $22,552,082
Accumulated net realized loss on investments (5,472,756)
Undistributed net investment loss (383)
Net unrealized appreciation on investments 2,142,739
----------
TOTAL NET ASSETS $19,221,682
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,706,432
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 11.26
===========
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income (net of foreign withholding tax of $22) $ 53,862
Interest income (including securities lending income of $2,130) (Note7) 8,138
----------
Total investment income 62,000
EXPENSES
Investment advisory fee (Note 2) $ 127,265
Accounting, custody, and transfer agent fees (Note 2) 78,114
Professional fees 38,873
Registration fees 18,888
Trustees' fees and expenses (Note 2) 5,197
Insurance expense 5,840
Miscellaneous 7,366
----------
Total expenses 281,543
DEDUCT:
Waiver of investment advisory fee (Note 2) (74,380)
----------
Net expenses 207,163
----------
Net investment income (loss) (145,163)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment security transactions 4,787,782
Futures contracts (2,430)
----------
Net realized gain 4,785,352
Change in unrealized appreciation (depreciation) of:
Investment securities (522,986)
Futures contracts 7,366
----------
Change in net unrealized appreciation (depreciation) (515,620)
----------
Net realized and unrealized gain (loss) on investments 4,269,732
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,124,569
==========
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST THE BOSTON COMPANY SMALL
CAPITALIZATION EQUITY FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income (loss) $ (145,163) $ (32,308)
Net realized gains 4,785,352 2,411,138
Change in net unrealized appreciation (depreciation) (515,620) 3,436,310
----------- -----------
Net increase (decrease) in net assets from operations 4,124,569 5,815,140
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income -- (1,316)
----------- -----------
Total distributions to shareholders -- (1,316)
----------- -----------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 302,435 180,799
Value of shares issued to shareholders in payment of distributions declared -- 1,007
Cost of shares redeemed (7,057,508) (3,004,570)
----------- -----------
Net decrease in net assets from Fund share transactions (6,755,073) (2,822,764)
----------- -----------
TOTAL DECREASE IN NET ASSETS (2,630,504) 2,991,060
NET ASSETS
At beginning of year 21,852,186 18,861,126
----------- -----------
At end of year (including undistributed
net investment income (loss) of ($383) and $21) $19,221,682 $21,852,186
=========== ===========
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------------------
2004 2003 2002 2001(5) 2000(5)
------- ------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF YEAR $ 9.48 $ 7.10 $ 8.15 $230.48 $ 163.38
------- ------- ------- ------- --------
From Operations:
Net investment income (loss)*(1) (0.08) (0.01) (0.02) (0.07) (1.29)
Net realized and unrealized
gains (loss) on investments 1.86(6) 2.39(6) (1.03)(6) (54.83)(6) 101.69
------- ------- ------- ------- --------
Total from operations 1.78 2.38 (1.05) (54.90) 100.40
------- ------- ------- ------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (0.00)(2) -- -- --
From net realized gains on investments -- -- -- (167.43) (33.30)
------- ------- ------- ------- --------
Total distributions to shareholders -- 0.00 -- (167.43) (33.30)
------- ------- ------- ------- --------
NET ASSET VALUE, END OF PERIOD $ 11.26 $ 9.48 $ 7.10 $ 8.15 $ 230.48
======= ======= ======= ======= ========
TOTAL RETURN+ 18.78% 33.54% (12.88)% (46.58)% 67.64%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 0.98% 0.74% 0.74% 0.74% 0.74%(3)
Net Investment Income (to average daily net assets)* (0.69)% (0.17)% (0.24)% (0.33)% (0.57)%
Portfolio Turnover 157% 252%(4) 248%(4) 136%(4) 153%(4)
Net Assets, End of Year (000's omitted) $19,222 $21,852 $18,861 $17,073 $151,063
- -------
* For the years indicated, the investment advisor 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 income (loss) per share (1) $ (0.12) $ (0.07) $ (0.08) $ (0.14) $ (0.45)
Ratios (to average daily net assets):
Expenses 1.33% 1.40% 1.46% 1.08% 0.77%(3)
Net investment loss (1.04)% (0.83)% (0.96)% (0.67)% (0.6)%
(1) Calculated using the average shares outstanding.
(2) Calculates to less than $0.01 per share.
(3) Includes the Fund's share of The Boston Company Small Capitalization Equity
Portfolio's allocated expenses for the periods from May 3, 1996 to January
27, 2000.
(4) Represents portfolio turnover of The Boston Company Small Capitalization
Equity Fund while the Fund was investing directly in securities.
(5) Amounts were adjusted to reflect a 1:3 reverse share split effective
December 14, 2000.
(6) Amounts include litigation proceeds received by the Fund of $.03 for the
year ended September 30, 2004 and $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.
+ Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
14
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.
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 normally 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. 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.
C. 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.
D. 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.
E. 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.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
F. AFFILIATED ISSUERS
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
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. Effective
November 30, 2003, 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, 2004. Prior to that date the voluntary rate was 0.74%.
Pursuant to this agreement, for the year ended September 30, 2004, TBCAM
collectively and voluntarily waived a portion of its investment advisory
fee in the amount of $74,380. This agreement is voluntary and temporary and
may be discontinued or revised by TBCAM at any time.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $3,500 during the year ended September
30, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide custody, fund administration and fund accounting services for the
Fund. For these services the Fund pays Mellon Bank a fixed fee plus asset
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $67,883 during the year ended September
30, 2004.
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.
The following table sets forth all remuneration paid to the Trustees for
the Fund's fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $746
Benjamin M. Friedman $746
John H. Hewitt $746
Caleb Loring, III $796
Patrick J. Sheppard 0
Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations for the year ended September 30, 2004, were $32,067,708 and
$39,223,319, respectively. For the year ended September 30, 2004, the Fund
did not purchase or sell any long-term U.S. Government securities.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY 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:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 26,941 23,955
Shares issued to shareholders in payment of distributions declared -- 130
Shares redeemed (624,714) (374,824)
-------- --------
Net increase (decrease) (597,773) (350,739)
======== ========
At September 30, 2004, two shareholders of record held approximately 39%
and 37% 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.
The Fund imposes 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. For the year ended September 30, 2004, the Fund received no
redemption fees.
(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.
The tax basis components of distributable earnings and the federal tax cost
as of September 30, 2004, was as follows:
Unrealized appreciation $ 2,704,372
Unrealized depreciation (578,423)
----------
Net unrealized appreciation/depreciation 2,125,949
Undistributed ordinary income (383)
Capital loss carry-forward (5,455,967)
----------
Total distributable earnings $(3,330,401)
===========
Cost for federal income tax purposes $18,505,660
At September 30, 2004, 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
------------- ---------------
$4,714,881 9/30/2010
$ 741,086 9/30/2011
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION 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, 2004.
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, 2004, the Fund held futures contracts. See Schedule of
Investments for further details.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(7) SECURITY LENDING:
The Fund entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Fund's lending agent.
Pursuant to this agreement the Mellon Bank receives an agreed upon
percentage of the net lending revenues. This compensation is a standard
form of compensation received by securities lending agents with respect to
non-affiliated entities.
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, 2004
resulting in security lending income of $2,130. At September 30, 2004, the
Fund had $1,372,944 worth of securities on loan.
See Schedule of Investments for further detail on the security positions 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 facility fee, computed at an annual rate of .060 of 1% comitted amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended September 30, 2004, the facility fee was
$490 for the Fund.
During the year ended September 30, 2004, the Fund borrowed under the
credit facility, and incurred $149 of interest expense.
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAPITALIZATION EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
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 The Boston Company Small
Capitalization Equity Fund (the "Fund") at September 30, 2004 and the results of
its operations, the changes in its net assets, and 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
20
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
21
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
22
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0928AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report THE BOSTON COMPANY
LARGE CAP CORE FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
Investor focus has clearly shifted to the prevailing economic conditions over
the past year. Nudged along by steadily escalating oil prices and a close US
presidential race, a conservatism has emerged that has manifest itself in
weakening consumption, rising interest rates and corporate America's reluctance
to be excessively leveraged. Equity markets have languished as year-over-year
trading volumes have declined over 10%, and the Lehman Brothers Aggregate bond
index has more than doubled the return of the S&P 500 thus far in 2004.
For the 12 months ended September 30, 2004, The Boston Company Large Cap Core
Fund (formerly known as Standish Select Value Fund) had a total return of
13.23%. This put the Large Cap Core Fund slightly behind both the S&P 500 at
13.87% and the Russell 1000 Value Index, which returned 20.5%. The bulk of this
annual return is imbedded in the fourth quarter of 2003, as the broad market
rose only 1.5% through the first nine months of 2004.
Within the markets, results have been a mixed bag as well, with return
leadership still centered in mid and smaller capitalization ranges (below $10b),
while value has outperformed growth. From an absolute return perspective, energy
has been the best performing sector, and from a contribution to portfolio return
standpoint, it was the consumer staples sector.
Over the course of the past year the US markets have transitioned from a drastic
rebound to a more cautious advance, as the memories of the recent downturn are
still fresh in investors' minds. Interest rates bottomed out at 40-year lows,
global tension escalated in the Middle East, and oil prices soared beyond
$50/barrel. GDP has slowed its hasty rate of growth in 2003 to a more moderate
level. Increasing corporate expenditures, sinking jobless claims, and improving
fundamentals underpinned an increasingly cautious, albeit sustainable, advance
by US equities.
Regardless of the direction of the economy or the markets, the disciplined
investment approach used to manage the Large Cap Core Fund does not vary. Our
unwavering focus is on finding undervalued companies with improving business
momentum. The process begins with a computerized ranking of approximately 1000
large and liquid stocks. The computer modeling identifies those companies that
have the most attractive combination of low valuations and business strength.
Using this list of ranked candidates the analysts conduct further research to
identify those companies in the best position to maintain their business
momentum. The process ensures that the Large Cap Core Fund's holdings have an
attractive combination of better than average business strength and better than
average valuations. The strategy does not guarantee superior performance, but we
believe that over time it will prove to be successful.
2
Although less robust than 2003, we expect the economy to continue to grow at a
more modest 3-4% annual rate as measured by GDP. Stock valuations have tightened
up in various segments of the equity markets, highlighting our fundamental
research and stock selection. Our portfolio team is focusing on the most
severely discounted stocks across all sectors. On a broader level there has been
a distinct shift away from a consumer driven economic expansion as the credit
tightening cycle is underway and energy prices have commanded a greater portion
of household income. Outlooks have admittedly shifted to 2005 and the
expectations that equity markets will rise moderately in an earnings driven
environment.
Thank you for your continued support.
/s/ David Cameron /s/ Sean Fitzgibbon
- ----------------- -------------------
David Cameron Sean Fitzgibbon
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
LARGE CAP CORE FUND, THE S&P 500, AND THE RUSSELL 1000 VALUE INDEX
- --------------------------------------------------------------------------------
[DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Large Cap S&P 500 Russell 1000
Core Equity Fund Index Value Index
---------------- ------- ------------
Beginning $100,000 $100,000 $100,000
1994
Quarter3 $103,221 $104,889 $102,553
Quarter4 $101,674 $104,873 $100,931
1995
Quarter1 $110,579 $115,084 $110,524
Quarter2 $122,863 $126,070 $120,426
Quarter3 $134,608 $136,088 $130,948
Quarter4 $139,856 $144,281 $139,638
1996
Quarter1 $149,418 $152,025 $147,544
Quarter2 $153,431 $158,848 $150,085
Quarter3 $161,040 $163,759 $154,448
Quarter4 $177,397 $177,409 $169,855
1997
Quarter1 $179,479 $182,164 $174,208
Quarter2 $211,103 $213,967 $199,889
Quarter3 $239,712 $229,993 $219,796
Quarter4 $241,738 $236,598 $229,613
1998
Quarter1 $272,295 $269,602 $256,379
Quarter2 $267,216 $278,505 $257,526
Quarter3 $217,353 $250,802 $227,692
Quarter4 $259,159 $304,214 $265,500
1999
Quarter1 $241,062 $319,372 $269,304
Quarter2 $260,398 $341,882 $299,675
Quarter3 $244,063 $320,534 $270,315
Quarter4 $258,706 $368,226 $285,009
2000
Quarter1 $272,716 $376,671 $286,367
Quarter2 $268,222 $366,664 $272,946
Quarter3 $284,381 $363,113 $294,412
Quarter4 $307,243 $334,701 $304,997
2001
Quarter1 $290,679 $295,021 $287,138
Quarter2 $296,012 $312,287 $301,153
Quarter3 $263,950 $266,449 $268,171
Quarter4 $282,263 $294,919 $287,944
2002
Quarter1 $288,644 $295,730 $299,726
Quarter2 $262,718 $256,110 $274,192
Quarter3 $217,241 $211,865 $222,719
Quarter4 $232,802 $229,741 $243,246
2003
Quarter1 $223,758 $222,505 $231,413
Quarter2 $259,021 $256,756 $271,387
Quarter3 $264,507 $263,550 $276,991
Quarter4 $296,119 $295,641 $316,294
2004
Quarter1 $302,297 $300,647 $325,877
Quarter2 $303,631 $305,821 $328,743
Quarter3 $299,297 $300,112 $333,817
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 1/03/1991
- -------------------------------------------------------------------------------------
13.23% 4.28% 4.16% 11.23% 12.41%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- -------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $990.10 $4.13
Hypothetical (5% return per year
before expenses) $1,000.00 $1020.85 $4.19
- ---------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.83%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). THE EXAMPLE REFLECTS THE
COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS
ALL ITS ASSETS.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in The Boston Company Large Cap Core Portfolio ("Portfolio"), at value (Note 1A) $56,034,183
Receivable for Fund shares sold 49,887
Prepaid expenses 5,290
-----------
Total assets 56,089,360
LIABILITIES
Accrued transfer agent fees $ 3,103
Accrued trustees' fees 999
Accrued expenses and other liabilities 18,695
-----------
Total liabilities 22,797
-----------
NET ASSETS $56,066,563
-----------
NET ASSETS CONSIST OF:
Paid-in capital $53,292,470
Accumulated net realized loss on investments (1,495,032)
Undistributed net investment income 138,723
Net unrealized appreciation on investments 4,130,402
-----------
TOTAL NET ASSETS $56,066,563
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,590,902
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 35.24
===========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Dividend income allocated from Portfolio (net of foreign withholding taxes of $1,174) $ 876,713
Interest income allocated from Portfolio 9,993
Expenses allocated from Portfolio (429,075)
-----------
Net investment income allocated from Portfolio 457,631
EXPENSES
Transfer agent fees (Note 2) $ 8,057
Professional fees 19,476
Registration fees 23,535
Trustees' fees and expenses (Note 2) 2,000
Shareholder reports 7,500
Insurance expense 1,007
Miscellaneous 5,746
----------
Total expenses 67,321
DEDUCT:
Reimbursement of Fund operating expenses (Note 2) (7,419)
----------
Net expenses 59,902
-----------
Net investment income 397,729
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on Investments:
Investment securities 4,929,409
Futures contracts 107,512
----------
Net realized gain 5,036,921
Change in unrealized appreciation (depreciation) allocated from Portfolio 2,262,590
-----------
Net realized and unrealized gain on investments 7,299,511
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 7,697,240
===========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 397,729 $ 679,484
Net realized gains (loss) allocated from Portfolio 5,036,921 (3,244,390)
Change in net unrealized appreciation allocated from Portfolio 2,262,590 12,889,324
------------- ------------
Net increase in net assets from operations 7,697,240 10,324,418
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (568,427) (675,158)
------------- ------------
Total distributions to shareholders (568,427) (675,158)
------------- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 6,450,338 11,259,233
Value of shares issued to shareholders in payment of distributions declared 401,721 566,287
Cost of shares redeemed (22,063,953) (12,354,505)
------------- ------------
Net decrease in net assets from Fund share transactions (15,211,894) (528,985)
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,083,081) 9,120,275
NET ASSETS
At beginning of year 64,149,644 55,029,369
------------- ------------
At end of year (including undistributed
net investment income of $138,723 and $309,103) $ 56,066,563 $ 64,149,644
============= ============
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR $ 31.43 $ 26.13 $ 34.00 $ 41.71 $ 37.79
------- ------- ------- ------- -------
FROM OPERATIONS:
Net investment income*(1) 0.23 0.36 0.32 0.39 0.29
Net realized and unrealized gains (loss) on investments 3.92(3) 5.30 (5.77)(2) (2.77) 5.73
------- ------- ------- ------- -------
Total from operations 4.15 5.66 (5.45) (2.38) 6.02
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.34) (0.36) (0.21) (0.29) (0.23)
From net realized gains on investments -- -- (2.21) (5.04) (1.87)
------- ------- ------- ------- -------
Total distributions to shareholders (0.34) (0.36) (2.42) (5.33) (2.10)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 35.24 $ 31.43 $ 26.13 $ 34.00 $ 41.71
======= ======= ======= ======= =======
TOTAL RETURN+ 13.23% 21.76% (17.70)% (7.18)% 16.52%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(4) 0.83% 0.71% 0.71% 0.71% 0.71%
Net Investment Income (to average daily net assets) 0.67% 1.23% 0.96% 1.00% 0.76%
Net Assets, End of Year (000's omitted) $56,067 $64,150 $55,029 $75,489 $93,315
- -----------
* For the years indicated, the investment advisor 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) $ 0.23 $ 0.29 $ 0.27 $ 0.38 $ 0.28
Ratios (to average daily net assets):
Expenses(4) 0.84% 0.93% 0.83% 0.73% 0.73%
Net investment income 0.66% 1.01% 0.84% 0.98% 0.74%
(1) Calculated based on average shares outstanding.
(2) Amount includes litigation proceeds received by the Fund of $0.02.
(3) Amount includes litigation proceeds received by the Fund of $0.06.
(4) Includes the Fund's share of The Boston Company Large Cap Core Portfolio's
allocated expenses.
+ Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE 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 Large Cap Core 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 invests all of its investable assets in an interest of The Boston
Company Large Cap Core Portfolio (the "Portfolio"), a subtrust of Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and which has the same investment objective
as the Fund. The Portfolio seeks to achieve its objective by investing,
under normal circumstances, at least 80% of net assets in equity securities
in companies that appear to be undervalued relative to underlying business
fundamentals. The value of the Fund's investment in the Portfolio reflects
the Fund's proportionate interest in the net assets of the Portfolio. As of
September 30, 2004 the Fund owned approximately 100% of the Portfolio's net
assets. The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the Fund's
financial statements.
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
The Fund records its investment in the Portfolio at value based on the net
asset value of the Portfolio. The method by which the Portfolio values its
securities is discussed in Note 1A of the Portfolio's Notes to Financial
Statements, which are included elsewhere in this report.
B. SECURITIES TRANSACTIONS AND INCOME
Investment transactions are recorded as of the trade date. Currently, the
Fund's net investment income consists of the Fund's pro rata share of the
net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with accounting principles
generally accepted in the United States of America. All realized and
unrealized gains and losses of the Portfolio are allocated pro rata among
the investors in the Portfolio.
C. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on 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. In determining the amounts of its dividends, the Fund will take
into account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a 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, post-October losses and realized and
unrealized gains or losses on futures.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to undistributed net
investment income, 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 income
or gain remaining at fiscal year end is distributed in the following year.
D. 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.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. COMMITMENT 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:
The Fund does not directly pay any investment advisory fees, but indirectly
bears its pro rata share of the compensation paid by the Portfolio to The
Boston Company Asset Management, LLC ("TBCAM") a wholly-owned subsidiary of
Mellon Financial Corporation, for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report. Effective November 1, 2003 TBCAM voluntarily agreed to limit
the total operating expenses of the Fund and its pro rata share of the
Portfolio expenses (excluding commissions, taxes and extraordinary
expenses) to 0.90% of the Fund's average daily net assets for the year
ended September 30, 2004. Prior to that date the voluntary expense
limitation rate was 0.71%. Pursuant to this agreement, for the year ended
September 30, 2004, TBCAM voluntarily reimbursed the Fund for $7,419 of its
operating expenses. This agreement is temporary and voluntary and may be
discontinued or revised by TBCAM at any time.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $3,500 during the year ended September
30, 2004.
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.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 30, 2004. The fund also bears its
pro rata share of the renumeration paid to the Trustees by the Portfolio.
See Note 2 of the Portfolio's notes to financial statements which are
included elsewhere in this report.
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $500
Benjamin M. Friedman $500
John H. Hewitt $500
Caleb Loring, III $500
Patrick J. Sheppard 0
Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended aggregated $6,813,122 and $22,706,053, respectively. The Fund
receives a proportionate share of the Portfolio's income, expenses, and
realized and unrealized gains and losses based on applicable tax allocation
rules. Book/tax differences arise when changes in proportionate interest
for funds investing in the Portfolio occur. At September 30, 2004,
unrealized appreciation (depreciation) on the Portfolio was allocated in
the amount of $4,130,402 to the Fund and $1,219,888 to other entities
previously invested in the Portfolio but since ceased operations.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE 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:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 185,329 358,946
Shares issued to shareholders in
payment of distributions declared 11,699 19,336
Shares redeemed (647,475) (443,179)
-------- --------
Net decrease (450,447) (64,897)
======== ========
At September 30, 2004, two shareholders of record held approximately 12%
and 11% of the total outstanding shares of the Fund, respectively.
Investment activities 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.
As of September 30, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $ 136,255
Capital loss carry-forward (1,315,495)
At September 30, 2004, 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
------------- ---------------
$1,315,495 9/30/2011
Tax character of distributions paid during the fiscal year ended September
30, 2004, was as follows:
Distributions paid from:
Ordinary income $568,427
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY LARGE CAP CORE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company Large Cap Core Fund:
In our opinion, the accompanying statement of assets and liabilities, 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
The Boston Company Large Cap Core Fund (the "Fund") at September 30, 2004 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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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 investment in the Portfolio at September
30, 2004 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOP TEN HOLDINGS SECTOR NET ASSETS
-----------------------------------------------------------------------------------
Microsoft Corp. Technology 3.2
Citigroup Inc. Financials 3.2
Bank of America Financials 2.6
Exxon Mobil Corp. Energy 2.6
General Electric Co. Industrials 2.6
Cisco Systems, Inc. Technology 2.5
Pfizer, Inc. Health Care 2.5
Goldman Sachs Group Financials 1.9
Wal-Mart Stores Inc. Consumer Staples 1.8
Procter & Gamble Co. Consumer Staples 1.7
----
24.6
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION NET ASSETS
--------------------------------------------------
Consumer Discretionary 11.6
Consumer Staples 9.5
Energy 8.6
Financials 19.9
Health Care 13.4
Industrials 11.4
Materials 2.8
Technology 15.6
Telecommunication Services 2.4
Utilities 2.9
Short-term and Net Other Assets 1.9
-----
100.0
The Portfolio is actively managed. Current holdings may be different than
those presented above.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES--98.1%
CONSUMER DISCRETIONARY--11.6%
Black & Decker Corp. 5,600 $ 433,664
Carnival Corp. 12,400 586,396
Coach, Inc. 14,400 610,848
Comcast Corp. * 13,406 378,585
Marriott International, Class A 12,400 644,304
McDonalds Corp. 25,100 703,553
Petco Animal Supplies, Inc. 9,000 293,940
Staples, Inc. 21,200 632,184
Target Corp. 10,500 475,125
Time Warner, Inc. 33,400 539,076
Viacom, Inc., Class B 14,000 469,840
Walt Disney Co. 33,300 750,915
----------
6,518,430
----------
CONSUMER STAPLES--9.5%
Archer-Daniels-Midland Co. 26,600 451,668
Constellation Brands Inc., Class A * 13,500 513,810
Costco Wholesale Corp. 15,200 631,712
Dean Foods Corp. 11,700 351,234
Estee Lauder Companies, Class A 9,200 384,560
Kellogg Co. 13,700 584,442
Kimberly-Clark Corp. 6,700 432,753
Procter & Gamble Co. 18,000 974,160
Wal-Mart Stores, Inc. 18,500 984,200
----------
5,308,539
----------
ENERGY--8.6%
Anadarko Petroleum Corp. 4,900 325,164
BP PLC ADR 4,990 287,075
Chesapeake Energy Corp. 26,400 417,912
ChevronTexaco Corp. 5,732 307,464
ConocoPhillips 7,100 588,235
Devon Energy Corp. 5,600 397,656
Exxon Mobil Corp. 30,004 1,450,093
Newfield Exploration Co. 9,900 606,276
Weatherford Intl Ltd. * 9,000 459,180
----------
4,839,055
----------
FINANCIAL--19.9%
Ace Ltd. 13,500 540,810
American International Group 14,149 961,991
Bank of America Corp. 34,200 1,481,886
Boston Properties, Inc. REIT 5,400 299,106
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
Capital One Financial Corp. 9,200 $ 679,880
Chubb Corp. 8,200 576,296
Citigroup, Inc. 40,466 1,785,360
Franklin Resources, Inc. 16,500 920,040
Goldman Sachs Group, Inc. 11,500 1,072,260
JPMorgan Chase & Co. 18,000 715,140
Legg Mason, Inc. 6,450 343,592
Merrill Lynch & Co., Inc. 4,900 243,628
Morgan Stanley 5,400 266,220
Radian Group, Inc. 12,200 564,006
Wachovia Corp. 15,500 727,725
----------
11,177,940
----------
HEALTH CARE--13.4%
Amgen, Inc. 9,000 510,120
Boston Scientific Corp. 10,600 421,138
Charles River Laboratories 6,400 293,120
Davita, Inc. * 14,500 451,675
Fisher Scientific International 13,300 775,789
IVAX Corp. 16,900 323,635
Johnson & Johnson 7,900 445,007
Laboratory Corp. of America Holdings * 7,100 310,412
Manor Care, Inc. 8,200 245,672
Merck & Co., Inc. 5,800 191,400
Millipore Corp. 10,300 492,855
Pfizer, Inc. 45,520 1,392,912
Waters Corp. 9,300 410,130
Wellpoint Health Networks, Inc. 3,900 409,851
Wyeth 6,400 239,360
Zimmer Holdings, Inc. * 7,300 576,992
----------
7,490,068
----------
INDUSTRIAL--11.4%
Caterpillar, Inc. 6,900 555,105
Cendant Corp. 16,100 347,760
Deere & Co. 6,900 445,395
Eaton Corp. 11,200 710,192
FedEx Corp. 3,400 291,346
General Electric Corp. 43,000 1,443,940
Ingersoll-Rand Co., Class A 8,200 557,354
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
INDUSTRIAL (CONTINUED)
Norfolk Southern Corp. 19,100 $ 568,034
Paccar, Inc. 9,300 642,816
Textron, Inc. 4,700 302,069
United Technologies Corp. 5,800 541,604
----------
6,405,615
----------
MATERIALS--2.8%
Alcoa, Inc. 18,000 604,620
Dow Chemical Co. 13,500 609,930
El Du Pont de Nemours & Co. 7,700 329,560
----------
1,544,110
----------
TECHNOLOGY--15.6%
Accenture Ltd., Class A * 16,500 446,325
Alliance Data Systems Corp. 17,400 705,744
Altera Corp. 11,500 225,055
Analog Devices, Inc. 7,500 290,850
Autodesk, Inc. 6,000 291,780
Cisco Systems, Inc. * 78,100 1,413,610
Cognizant Technology Solutions Corp. 16,700 509,517
Corning, Inc. 31,800 352,344
Dell, Inc. * 7,700 274,120
Intel Corp. 35,600 714,136
International Business Machines Corp. 6,400 548,736
Microsoft Corp. 65,200 1,802,780
Qualcomm, Inc. 15,900 620,736
Symantec Corp. 9,900 543,312
----------
8,739,045
----------
TELECOMMUNICATION SERVICES--2.4%
SBC Communications, Inc. 18,000 467,100
Verizon Communications, Inc. 21,900 862,422
----------
1,329,522
----------
UTILITIES--2.9%
Constellation Energy Group, Inc. 14,400 573,696
Entergy Corp. 7,700 466,697
P G & E Corp. * 19,700 598,880
----------
1,639,273
----------
TOTAL EQUITIES (Cost $49,640,105) 54,991,597
----------
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Rate Maturity Par Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.9%
U.S. GOVERNMENT--0.2%
U.S. Treasury Bill+ 1.640% 12/16/2004 75,000 $ 74,742
Investment Companies--0.7% Shares
---------
Dreyfus Institutional Preferred Plus++ 402,553 402,553
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $477,295) 477,295
-----------
TOTAL INVESTMENTS--99.0% (COST $50,117,400) 55,468,892
OTHER ASSETS LESS LIABILITIES--1.0% 565,291
-----------
NET ASSETS--100% $56,034,183
===========
NOTES TO SCHEDULE OF INVESTMENTS:
ADR-American Depository Receipt
REIT--Real Estate Investment Trust
* Non-income producing security.
+ Denotes all or part of security pledged as collateral.
++ Affiliated institutional money market fund.
At September 30, 2004, the Portfolio held the following futures contract:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Loss
- -----------------------------------------------------------------------------------------------------------------
S&P 500 (1 Contract) Long 12/16/2004 $279,913 $(1,192)
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in securities
Unaffiliated issuers, at value (Note 1A) (cost $49,714,847) $55,066,339
Affiliated issuers, at value (Note 1E) (cost $402,553) 402,553
Receivable for investments sold 865,334
Interest and dividends receivable 43,035
Prepaid expenses 6,459
-----------
Total assets 56,383,720
LIABILITIES
Payable for investments purchased $ 280,750
Payable to investment advisor 3,826
Payable for variation margin on open futures contracts (Note 5) 75
Accrued accounting and custody fees 12,200
Accrued trustees' fees and expenses 2,390
Accrued expenses and other liabilities 50,296
---------
Total liabilities 349,537
-----------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $56,034,183
===========
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
STATEMENT OF OPERATIONS SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income (net of foreign withholding taxes of $1,174) $876,713
Interest income 9,993
----------
Total investment income 886,706
EXPENSES
Investment advisory fee (Note 2) $298,188
Accounting and custody fees (Note 2) 78,285
Professional fees 29,090
Trustees' fees and expenses (Note 2) 11,779
Insurance expense 9,128
Miscellaneous 2,605
----------
Total expenses 429,075
----------
Net investment income 457,631
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment securities 4,929,409
Futures contracts 107,512
----------
Net realized gain on investments 5,036,921
Change in unrealized appreciation (depreciation) of:
Investment securities 2,234,053
Futures contracts 28,537
----------
Change in net unrealized appreciation (depreciation) 2,262,590
----------
Net realized and unrealized gain on investments 7,299,511
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $7,757,142
==========
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 457,631 $ 679,488
Net realized gains (losses) on investments 5,036,921 (3,244,400)
Change in net unrealized appreciation (depreciation) of investments 2,262,590 12,889,366
----------- -----------
Net increase in net assets from operations 7,757,142 10,324,454
----------- -----------
CAPITAL TRANSACTIONS
Contributions 6,813,122 11,278,147
Withdrawals (22,706,053) (12,440,045)
----------- -----------
Net increase (decrease) in net assets from capital transactions (15,892,931) (1,161,898)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS (8,135,789) 9,162,556
NET ASSETS
At beginning of year 64,169,972 55,007,416
----------- -----------
At end of year $56,034,183 $64,169,972
=========== ===========
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2004 2003 2002 2001 2000
-------- ------- -------- -------- --------
TOTAL RETURN+ 13.34%++ 21.76%++ 17.69%++ (7.11)% 16.59%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 0.72% 0.71% 0.70% 0.64% 0.64%
Net Investment Income (to average daily net assets)* 0.77% 1.23% 0.97% 1.06% 0.83%
Portfolio Turnover 66% 104% 80% 62% 92%
Net Assets, End of Period (000's omitted) $56,034 $64,170 $55,007 $124,213 $146,105
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the
Portfolio 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:
Ratios (to average daily net assets):
Expenses N/A 0.77% 0.72% N/A N/A
Net investment income N/A 1.17% 0.95% N/A N/A
+ Total return for the Portfolio has been calculated based on the total
return for the investor Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements.
++ Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the state of New York on
January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The Boston
Company Large Cap Core Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
At September 30, 2004, there was one fund, The Boston Company Large Cap
Core Fund (the "Fund"), invested in the Portfolio. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. The Fund's proportionate interest at
September 30, 2004 was approximately 100%.
The objective of the Portfolio is long-term growth of capital. The
Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity and equity-related
securities of companies which appear to be undervalued relative to current
earnings growth.
The following is a summary of significant accounting policies followed by
the Portfolio 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 normally 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 Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio 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. SECURITIES TRANSACTION 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.
C. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since at least one of
the Portfolio's investors is a regulated investment company that invests
all or substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio allocates
at least annually among its investors each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss deduction or credit.
D. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve future
claims that may be made against the Portfolio that have not yet occurred.
However, based on experience, the Portfolio expects the risks of loss to be
remote.
E. AFFILIATED ISSUERS
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEE:
The investment advisory fee paid to TBCAM for overall investment advisory
and administrative services is paid monthly at the annual rate of 0.50% of
the Portfolio's average daily net assets. For the year ended September 30,
2004, the Portfolio paid $298,188 in investment advisory fees to TBCAM.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly
owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM,
to provide custody, fund administration and fund accounting services for
the Portfolio. For these services the Portfolio pays Mellon Bank a fixed
fee plus fees that are asset and transaction based, as well as,
out-of-pocket expenses. Pursuant to this agreement the Portfolio was
charged $75,579 during the year ended September 30, 2004.
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio for serving as an officer or
Trustee of the Trust. The Portfolio 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 Portfolio Trust pays the legal fees for the
independent counsel of the Trustees.
The following table sets forth all remuneration paid to the Trustees by the
Portfolio for the Portfolio's fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $1,689
Benjamin M. Friedman $1,689
John H. Hewitt $1,689
Caleb Loring, III $1,825
Patrick J. Sheppard 0
Richard S. Wood * 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2004, were $38,837,349 and
$53,126,917, respectively. For the year ended September 30, 2004, the
Portfolio did not purchase or sell any long-term U.S. Government
securities.
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $ 50,295,661
============
Gross unrealized appreciation $ 6,544,162
Gross unrealized depreciation (1,370,931)
------------
Net unrealized appreciation $ 5,173,231
============
(5) 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 Portfolio Trust's registration statement.
The Portfolio may trade the following financial instruments with
off-balance sheet risk:
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tends to increase the Portfolio's exposure to the underlying
instrument. Buying puts and writing calls tends to decrease the Portfolio's
exposure to the underlying instrument, or hedge other Portfolio
investments. Options, both held and written by the Portfolio, 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 Portfolio is exercised, the premium reduces
the cost basis of the securities purchased by the Portfolio. The Portfolio,
as a 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 Portfolio entered into no such transactions during the year ended
September 31, 2004.
FUTURES CONTRACTS
The Portfolio 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 margin requirements the Portfolio
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 Portfolio 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 Portfolio. 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 Portfolio's exposure to the underlying instrument, while
selling futures tends to decrease the Portfolio's exposure to the
underlying instrument or hedge other investments. In addition, there is the
risk that the Portfolio 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 counterparty does not perform under the
contract's terms. The Portfolio enters into financial futures transactions
primarily to seek 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, 2004, the Portfolio held futures contracts. See Schedule
of Investments for further detail.
(6) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust, as well as funds
in the Mellon Institutional Funds Investment Trust (the "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 facility fee, computed at an annual rate of 0.060 of 1% on the committed
amount, is allocated ratably among the participating portfolios/funds at
the end of each quarter. For the year ended September 30, 2004, the
facility fee was $1,368 for the Portfolio.
During the September 30, 2004, the Portfolio had borrowed under the credit
facility incurring $34 of interest expense.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY LARGE CAP CORE PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company Large Cap Core Portfolio:
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 The Boston Company Large Cap Core
Portfolio (the "Portfolio") at September 30, 2004, 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 Portfolio'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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
26
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
27
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
28
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30
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0930AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report STANDISH MELLON MASSACHUSETTS
INTERMEDIATE TAX EXEMPT BOND FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
Coupon income once again pushed municipal bond investment returns into positive
territory, more than offsetting the negative price impact of a modest increase
in interest rates. For the year ended September 30, 2004, the Standish Mellon
Massachusetts Intermediate Tax Exempt Bond Fund produced a total return after
expenses of 2.64%. This result trailed the benchmark performance index (Lehman
Muni 3,5,7 and 10 Year Index) return of 2.87%. Please note that the
Massachusetts Fund invests only in bonds the interest of which is exempt from
Massachusetts and federal income taxes, while the benchmark index is national in
scope.
Throughout the past year, bond market participants focused on how quickly the
Federal Reserve would hike short-term interest rates, and by how much. A steady
stream of strong employment and consumption data in early 2004 convinced
investors that the Fed would need to act aggressively to choke off any nascent
inflation. Consequently, all rates were pushed up in anticipation of the
pressures of a possibly overheating economy. The spike in yields was temporary,
and quickly reversed course as jobs and spending numbers weakened through the
summer months. By the end of the period, the Fed had abandoned its accommodative
policy, raising short rates by a total of three-quarters of a point. Yields on
longer maturities, however, were mostly unchanged from one year earlier,
reflecting the perceived deceleration in the U.S. economy.
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 addition,
underweighting lower-yielding pre-refunded securities proved a successful
strategy.
Although surging tax receipts caused city and state credit quality to improve
markedly in fiscal 2004, Massachusetts bonds lagged under the weight of heavy
potential supply to finance school construction. Recent economic indicators
remain positive. The state's non-farm employment increased 2.0% since January
2004, slightly trailing the nation's 2.3% growth rate. The Commonwealth's
revenue collections reflect these positive economic trends, with collections
from all major taxes above budget as well as last year's results.
The gap between short- and long-term interest rates should shrink somewhat as
short rates rise, but will likely remain wider than average. We are gradually
moving toward a mix of shorter and longer bonds, known as a barbell structure,
but only when we can establish it without sacrificing income. The Fund's
sensitivity to interest rate changes closely tracks the benchmark index. We
remain focused on sectors and securities that produce excess yield as the
primary sources of long-term outperformance.
It has been our privilege to manage the Fund, and we thank you for your
continued support.
Sincerely,
/s/ Steven W. Harvey /s/ Christine L. Todd
- -------------------- ---------------------
Steven W. Harvey Christine L. Todd
2
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 AND
THE LEHMAN BROTHERS 3-5-7-10 YEAR MINI INDEX
- --------------------------------------------------------------------------------
[DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
Standish Mellon Mass Lehman Brothers
Intermediate Tax 3-5-7-10 Year
Exempt Bond Fund Muni Index
-------------------- ---------------
Beginning $90,000 $90,000
1994
Quarter3 $90,453 $90,805
Quarter4 $89,427 $90,127
1995
Quarter1 $93,777 $94,411
Quarter2 $95,666 $96,837
Quarter3 $98,242 $99,473
Quarter4 $100,733 $101,773
1996
Quarter1 $100,101 $101,663
Quarter2 $100,870 $102,198
Quarter3 $102,447 $103,923
Quarter4 $104,829 $106,255
1997
Quarter1 $104,615 $106,320
Quarter2 $107,497 $109,066
Quarter3 $110,183 $111,694
Quarter4 $112,580 $113,896
1998
Quarter1 $113,773 $115,139
Quarter2 $115,179 $116,557
Quarter3 $118,386 $119,816
Quarter4 $119,085 $120,738
1999
Quarter1 $119,824 $121,814
Quarter2 $117,714 $120,088
Quarter3 $118,171 $121,108
Quarter4 $117,919 $121,128
2000
Quarter1 $119,706 $122,981
Quarter2 $121,115 $124,883
Quarter3 $123,753 $127,483
Quarter4 $127,671 $131,349
2001
Quarter1 $130,650 $134,755
Quarter2 $131,423 $135,889
Quarter3 $135,285 $139,566
Quarter4 $133,791 $138,769
2002
Quarter1 $134,407 $139,902
Quarter2 $139,529 $145,292
Quarter3 $144,874 $150,846
Quarter4 $144,775 $151,435
2003
Quarter1 $146,110 $153,084
Quarter2 $149,372 $156,332
Quarter3 $149,511 $157,333
Quarter4 $150,569 $158,247
2004
Quarter1 $152,443 $160,272
Quarter2 $149,042 $157,046
Quarter3 $153,459 $161,853
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 11/02/1992
- --------------------------------------------------------------------------------
2.64% 4.29% 5.36% 5.43% 5.35%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,006.70 $3.26
Hypothetical (5% return per year
before expenses) $1,000.00 $1,021.75 $3.29
- ---------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.65%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
SUMMARY OF COMBINED RATINGS
----------------------------------------------------------------
QUALITY BREAKDOWN VALUE (%)
----------------------------------------------------------------
AAA 36.4%
AA 38.0%
A 8.3%
BBB 15.9%
BB 1.4%
TOTAL 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors
Services. If a security receives split (different) ratings from multiple
rating organizations, the Fund treats the security as being rated in the
higer rating category.
Percentage of
Top Ten Holdings* Rate Maturity Net Assets
----------------------------------------------------------------------------------------------------------
Commonwealth of Massachusetts NCL 5.500% 12/01/2011 5.8
Mass Bay Transportation Authority FGIC 7.000% 03/01/2011 2.9
Mass HEFA Tufts University NCL 5.500% 08/15/2015 2.8
Mass Bay Transportation Authority FGIC 7.000% 03/01/2011 2.8
Foxborough MA Stadium 5.750% 06/01/2011 2.7
Mass Water Resource Authority NCL 6.500% 07/15/2009 2.6
Mass Port Authority MBIA NCL 5.750% 07/01/2012 2.6
Mass Special Obligation NCL 5.500% 06/01/2013 2.6
Commonwealth of Massachusetts AMBAC NCL AMT 5.750% 08/01/2010 2.6
Commonwealth of Massachusetts Prerefunded 5.625% 06/01/2018 2.6
-----
30.0
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
--------------------------------------------
General obligation 19.4
Gov't. backed 10.8
Insured 24.7
Letter of credit/GIC 1.3
Revenue
Housing 0.0
Industrial 3.0
Other revenue 39.4
Short-term and Other Net Assets 1.4
-----
100.0
The Portfolio is actively managed. Current holdings may be different than
those presented above.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value Note (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS--98.6%
GENERAL OBLIGATIONS--19.4%
Commonwealth of Massachusetts NCL 5.500% 12/1/2011 2,250,000 $ 2,561,828
Commonwealth of Massachusetts NCL 6.000 11/1/2011 850,000 993,786
Mass Bay Transportation Authority FGIC 7.000 3/1/2014 900,000 1,116,531
Mass College Building Authority 7.500 5/1/2007 450,000 510,890
Mass College Building Authority 7.500 5/1/2008 250,000 293,673
Puerto Rico Commonwealth Fuel Sales Tax Revenue 5.000 7/1/2018 750,000 807,053
Puerto Rico Commonwealth NCL 6.500 7/1/2013 500,000 597,695
Puerto Rico Public Building Authority Revenue 5.000 7/1/2028 250,000 269,973
Puerto Rico Public Financial Corp. LOC: Government
Development Bank For Puerto Rico 5.750 8/1/2027 250,000 281,430
University of Mass Building Authority State Guarantee 6.625 5/1/2007 1,000,000 1,113,510
-----------
8,546,369
-----------
GOVERNMENT BACKED--10.8%
Commonwealth of Massachusetts--Series C 5.250 8/1/2009 835,000 922,550
Commonwealth of Massachusetts NCL--Series B 6.500 8/1/2008 550,000 628,931
Commonwealth of Massachusetts Prerefunded 6.000 6/1/2014 565,000 649,055
Commonwealth of Massachusetts Prerefunded 5.625 6/1/2018 1,000,000 1,135,010
Mass HEFA Dana Farber Cancer Institute 6.500 12/1/2006 650,000 697,340
Mass Revenue Rail Connections, Inc. 0.000 7/1/2022 500,000 191,515
Massachusetts State Water Pollution Abatement Trust Prerefunded 5.250 8/1/2013 245,000 275,890
Puerto Rico Commonwealth & Aqueduct & Sewer
Authority FSA Prerefunded--Series A 9.000 7/1/2009 230,000 242,496
-----------
4,742,787
-----------
HOUSING REVENUE--0.0%
Mass HFA Multi-Family Unit FNMA 6.300 10/1/2013 15,000 15,067
-----------
INDUSTRIAL DEVELOPMENT--3.0%
Boston MA Industrial Development Financing Authority AMT 7.375 5/15/2015 750,000 753,210
Mass DFA Waste Management Resource Recovery AMT 6.900 12/1/2029 500,000 569,665
-----------
1,322,875
-----------
INSURED BOND--24.7%
Commonwealth of Massachusetts 5.000 12/1/2009 $250,000 276,293
Commonwealth of Massachusetts 5.000 12/1/2007 500,000 543,235
Commonwealth of Massachusetts AMBAC NCL AMT 5.750 8/1/2010 1,000,000 1,145,180
Commonwealth of Massachusetts MBIA NCL 5.500 11/1/2012 685,000 787,538
Mass Bay Transportation Authority FGIC 7.000 3/1/2011 1,055,000 1,285,539
Mass Bay Transportation Authority FGIC 7.000 3/1/2011 1,000,000 1,213,350
Mass DFA May Institute Asset Guaranty 5.500 9/1/2005 175,000 180,387
Mass HEFA Mass Eye and Ear ACA 5.000 7/1/2005 660,000 672,811
Mass HEFA Partners FSA 5.500 7/1/2007 635,000 690,029
Mass Port Authority MBIA NCL AMT 5.750 7/1/2007 500,000 541,080
Mass Port Authority MBIA NCL 5.750 7/1/2012 1,000,000 1,153,000
Mass Special Obligation NCL 5.000 12/15/2013 500,000 552,490
Mass Special Obligation Revenue Refunding Notes NCL 5.000 12/15/2011 500,000 550,025
Puerto Rico Commonwealth Highway & Transportation Authority MBIA 5.500 7/1/2013 640,000 744,774
Commonwealth of Massachusetts 5.250 8/1/2020 500,000 567,050
-----------
10,902,781
-----------
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
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value Note (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
LEASE REVENUE--1.8%
Puerto Rico Housing Bank Appropriation 5.125% 12/1/2005 750,000 $ 774,698
-----------
LOC--1.3%
Boston MA Industrial Development Financing
Authority Loc: Bank of New York AMT 5.875 4/1/2030 435,000 449,864
Mass IFA Amesbury LOC: Citizens Bank AMT 5.910 9/1/2005 140,000 143,532
-----------
593,396
-----------
REVENUE BONDS--26.4%
Mass DFA Biomedical Research 6.000 8/1/2011 550,000 616,061
Mass DFA Deerfield Academy 5.000 10/1/2013 400,000 443,856
Mass DFA Hampshire College 5.150 10/1/2014 450,000 469,080
Mass DFA Massachusetts College of Pharmacy 5.750 7/1/2006 280,000 293,278
Mass DFA Massachusetts College of
Pharmacy and Allied Health Sciences NCL 5.000 7/1/2009 425,000 449,395
Mass DFA Williston School 6.000 10/1/2013 415,000 430,857
Mass HEFA Baystate Medical Center NCL 5.000 7/1/2010 250,000 266,873
Mass HEFA Boston College NCL 5.000 6/1/2009 750,000 823,335
Mass HEFA Caritas Christi NCL 5.500 7/1/2005 500,000 505,665
Mass HEFA Milford Hospital NCL 5.250 7/15/2007 600,000 623,016
Mass HEFA No. Adams Regional Hospital 6.750 7/1/2009 600,000 613,992
Mass HEFA Tufts University NCL 5.500 8/15/2015 1,050,000 1,220,510
Mass IFA Berkshire Retirement Development (b) 6.000 7/1/2018 530,000 533,238
Mass IFA Wentworth Institute 5.050 10/1/2005 290,000 297,236
Mass Port Authority 6.000 7/1/2011 1,000,000 1,127,800
Mass Port Authority 5.750 7/1/2012 700,000 799,442
Mass Water Resource Authority NCL 6.500 7/15/2009 1,000,000 1,166,010
Massachusetts Commonwealth Water Pollution Abatement Trust 5.250 8/1/2013 5,000 5,595
Puerto Rico Electric Power Authority Revenue (a) 5.500 7/1/2016 250,000 284,085
Puerto Rico Industrial Tour Ed Anamendez University 5.000 2/1/2006 650,000 670,813
-----------
11,640,137
-----------
SPECIAL REVENUES--11.2%
Foxborough MA Stadium 5.750 6/1/2011 1,050,000 1,197,851
Mass Bay Transportation Authority Sales Tax Revenue 5.250 7/1/2010 100,000 111,931
Mass Bay Transportation Authority Sales Tax Revenue 5.250 7/1/2021 750,000 847,853
Mass Bay Transportation Authority Sales Tax Revenue NCL 5.250 7/1/2013 500,000 565,540
Mass Special Obligation NCL 5.500 6/1/2013 1,000,000 1,148,550
Virgin Islands Public Finance Authority 5.625 10/1/2010 1,000,000 1,076,795
-----------
4,948,520
-----------
TOTAL BONDS (Cost $41,429,156) 43,486,630
-----------
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
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value Note (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--0.7%
SHORT-TERM BONDS--0.7%
Mass DFA Boston University (b) 0.990 10/1/2042 300,000 $ 300,000
INVESTMENT COMPANIES--0.0% Shares
-------
Federated Massachusetts Municipal Cash Trust Fund 5,695 5,695
-----------
TOTAL SHORT-TERM INVESTMENTS (Cost $305,695) 305,695
-----------
TOTAL INVESTMENTS--99.3% (COST $41,734,851) 43,792,325
-----------
OTHER ASSETS, LESS LIABILITIES--0.7% 287,236
-----------
NET ASSETS--100% $44,079,561
===========
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.
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) Delayed delivery security.
(b) Variable Rate Security; rate indicated is as of 9/30/04. 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.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (cost $41,734,851) $43,792,325
Receivable for Fund shares sold 30,140
Interest receivable 617,784
Prepaid expenses 9,630
-----------
Total assets 44,449,879
LIABILITIES
Payable for investments purchased $ 278,628
Distributions payable 44,284
Accrued accounting, custody and transfer agent fees 14,186
Accrued trustees' fees and expenses 1,090
Accrued expenses and other liabilities 32,130
---------
Total liabilities 370,318
-----------
NET ASSETS $44,079,561
===========
NET ASSETS CONSIST OF:
Paid-in capital $41,769,053
Accumulated net realized gain 233,270
Undistributed net investment income 19,764
Net unrealized appreciation 2,057,474
-----------
TOTAL NET ASSETS $44,079,561
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,042,592
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 21.58
===========
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
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income $1,979,442
EXPENSES
Investment advisory fee (Note 2) $ 185,887
Accounting, custody, and transfer agent fees (Note 2) 85,859
Professional fees 41,974
Registration fees 5,650
Trustees' fees and expenses (Note 2) 9,646
Insurance expense 10,152
Miscellaneous 10,214
---------
Total expenses 349,382
DEDUCT:
Waiver of investment advisory fee (Note 2) (47,482)
---------
Net expenses 301,900
----------
Net investment income 1,677,542
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss) on:
Investment securities 270,520
Change in unrealized appreciation (depreciation)
Investment securities (706,976)
----------
Net realized and unrealized loss on investments (436,456)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,241,086
==========
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
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IAN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,677,542 $ 2,244,466
Net realized gains 270,520 1,266,092
Change in net unrealized appreciation (depreciation) on investments (706,976) (1,638,036)
------------ ------------
Net increase in net assets from operations 1,241,086 1,872,522
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (1,670,668) (2,244,466)
From net realized gain on investments (1,266,678) (113,195)
------------ ------------
Total distributions to shareholders (2,937,346) (2,357,661)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 2,234,159 5,014,924
Value of shares issued to shareholders
in payment of distributions declared 2,294,786 1,421,720
Cost of shares redeemed (10,485,190) (19,945,194)
------------ ------------
Net (decrease) in net assets from Fund share transactions (5,956,245) (13,508,550)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (7,652,505) (13,993,689)
NET ASSETS
At beginning of year 51,732,066 65,725,755
------------ ------------
At end of year (including undistributed
net investment income of $19,764 and $10,322) $ 44,079,561 $ 51,732,066
============ ============
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
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
NET ASSET VALUE, BEGINNING OF YEAR $ 22.36 $ 22.52 $ 21.89 $ 20.89 $ 20.85
--------- --------- --------- --------- ---------
FROM OPERATIONS:
Net investment income(* (1)) 0.79 0.82 0.88 0.91 0.92
Net realized and unrealized gains (loss) on investments (0.21) (0.12) 0.63 1.00 0.04
--------- --------- --------- --------- ---------
Total from investment operations 0.58 0.70 1.51 1.91 0.96
--------- --------- --------- --------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.79) (0.82) (0.88) (0.91) (0.92)
From net realized gains on investments (0.57) (0.04) -- -- --
--------- --------- --------- --------- ---------
Total distributions to shareholders (1.36) (0.86) (0.88) (0.91) (0.92)
--------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 21.58 $ 22.36 $ 22.52 $ 21.89 $ 20.89
========= ========= ========= ========= =========
TOTAL RETURN+ 2.64% 3.20% 7.09% 9.32% 4.72%
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)* 3.62% 3.68% 4.01% 4.23% 4.43%
Portfolio Turnover 16% 25% 13% 22% 23%
Net Assets, End of Year (000's omitted) $ 44,080 $ 51,732 $ 65,726 $ 64,246 $ 64,340
- -----------
* For the years indicated, the investment advisor voluntarily agreed not to
impose a portion of its 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) $ 0.77 $ 0.81 $ 0.87 $ 0.91 N/A
Ratios (to average daily net assets):
Expenses 0.75% 0.70% 0.68% 0.65% N/A
Net investment income 3.52% 3.63% 3.98% 4.23% N/A
(1) Calculated based on average shares outstanding.
+ Total return would have been lower in the absense of expense waivers.
The accompanying notes are an integral part of the financial statements.
12
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).
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
Tax-exempt bonds and notes are priced at fair value on the basis of
valuations furnished by an independent pricing service or dealers, approved
by the Trustees. Such services or dealers determine valuations for normal
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships,
generally recognized by institutional traders, between securities.
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. 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.
C. 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 adjustments under the AICPA audit guide and
distributions payable.
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 income
or gain remaining at fiscal year end is distributed in the following year.
D. 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.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. 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, 2004. Pursuant to
this agreement, for the year ended September 30, 2004, Standish Mellon
voluntarily waived a portion of its advisory fee in the amount of $47,482.
This agreement is voluntary and temporary and may be discontinued or
revised by Standish Mellon at any time.
Effective February 23, 2004, the Fund compensates Dreyfus Transfer, Inc., a
wholly owned subsidiary of The Dreyfus Corporation, an affiliate of
Standish Mellon, under a transfer agency agreement for providing personnel
and facilities to perform transfer agency services for the Fund. Pursuant
to this agreement the Fund was charged $3,500 during the year ended
September 30, 2004.
The Fund compensates Mellon Bank, N.A., an affiliate of Standish Mellon,
under a custody, administration and accounting services agreement for
providing custody, fund administration and fund accounting services for the
Fund. Pursuant to this agreement the Fund was charged $75,400 during the
year ended September 30, 2004.
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.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $1,307
Benjamin M. Friedman $1,307
John H. Hewitt $1,307
Caleb Loring, III $1,422
Patrick J. Sheppard 0
Richard S. Wood * 0
* Mr. Wood resigned from the Board of Trustees on October 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
investments, for the year ended September 30, 2004 were $7,068,374 and
$12,982,063, respectively. For the year ended September 30, 2004, the Fund
did not purchase or sell any long-term U.S. Government securities.
14
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:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 103,349 226,054
Shares issued to shareholders in
payment of distributions declared 106,046 64,015
Shares redeemed (480,604) (895,193)
-------- --------
Net increase (decrease) (271,209) (605,124)
-------- --------
At September 30, 2004, the Fund had two shareholders of record owning
approximately 29% and 10% of the Fund's outstanding shares. 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 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, 2004, was as follows:
Unrealized appreciation $ 2,104,692
Unrealized depreciation (44,650)
-----------
Net unrealized appreciation/depreciation 2,060,042
Undistributed ordinary income 61,480
Undistributed capital gains 223,270
-----------
Total distributable earnings $ 2,344,792
===========
Cost for federal income tax purposes $41,732,283
Tax character of distributions paid during the fiscal year ended September
30, 2004, was as follows:
Distributions paid from: Amount
----------
Tax-exempt income $1,670,668
Capital gains 1,266,678
(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 MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
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, 2004, 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, 2004 the Fund held a delayed delivery security. See
Schedule of Investments for further detail.
(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 facility fee,
computed at an annual rate of .060 of 1% on the committed amount, is
allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended September 30, 2004, the expense related to
the facility fee was $1,334 for the Fund.
During the year ended September 30, 2004, the Fund borrowed under the
credit facility and incurred $140 of interest expense.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON MASSACHUSETTS INTERMEDIATE TAX EXEMPT BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
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 Standish Mellon Massachusetts
Intermediate Tax Exempt Bond Fund (the "Fund") at September 30, 2004, 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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
18
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
19
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THIS PAGE INTENTIONALLY LEFT BLANK
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0932AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report STANDISH MELLON
INTERMEDIATE TAX EXEMPT BOND FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
Coupon income once again pushed municipal bond investment returns into positive
territory, more than offsetting the negative price impact of a modest increase
in shorter interest rates. For the year ended September 30, 2004, the Standish
Intermediate Tax Exempt Bond Fund produced a total return after expenses of
2.76%. This result trailed the benchmark performance index (Lehman Muni 3,5,7
and 10 Year Index) return of 2.87%.
Throughout the past year, bond market participants focused on how quickly the
Federal Reserve would hike short-term interest rates, and by how much. A steady
stream of strong employment and consumption data in early 2004 convinced
investors that the Fed would need to act aggressively to choke off any nascent
inflation. Consequently, all rates were pushed up in anticipation of the
pressures of a possibly overheating economy. The spike in yields was temporary,
and quickly reversed course as jobs and spending numbers weakened through the
summer months. By the end of the period, the Fed had abandoned its accommodative
policy, raising short rates by a total of three-quarters of a point. Yields on
longer maturities, however, were mostly unchanged from one year earlier,
reflecting the perceived deceleration in the U.S. economy.
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 addition,
underweighting lower-yielding pre-refunded securities proved a successful
strategy. Security selection in the housing bonds also generated favorable
relative returns for the 12-month period. The Fund continues to hold a large
strategic weighting in this more defensive sector.
City and state credit quality improved markedly in fiscal 2004, driven primarily
by surging tax receipts. Ratings upgrades and favorable budget news proved
positive for California general obligation bond valuations in the third quarter.
And New York City's creditworthiness showed steady gains as the City's economy
rebounded, causing its bonds to outperform as well. We expect both California
and New York City will see further economic and fiscal gains, and are holding
large positions in each of these prominent credits in the Fund.
The gap between short- and long-term interest rates should shrink somewhat as
short rates rise, but will likely remain wider than average. We are gradually
moving toward a mix of shorter and longer bonds, known as a barbell structure,
but only when we can establish it without sacrificing income. The Fund's
sensitivity to interest rate changes closely tracks the benchmark index. We
remain focused on sectors and securities that produce excess yield as the
primary sources of long-term outperformance.
It has been our privilege to manage the Fund, and we thank you for your
continued support.
Sincerely,
/s/ Steven W. Harvey /s/ Christine L. Todd
- -------------------- ---------------------
Steven W. Harvey Christine L. Todd
2
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
AND THE LEHMAN BROTHERS 3-5-7-10 YEAR MINI INDEX
- --------------------------------------------------------------------------------
[DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
Standish Mellon Lehman Brothers
Intermediate Tax 3-5-7-10 Year
Exempt Bond Fund Muni Index
---------------- ---------------
Beginning $100,000 $100,000
1994
Quarter3 $100,970 $100,894
Quarter4 $99,671 $100,141
1995
Quarter1 $104,272 $104,901
Quarter2 $106,312 $107,597
Quarter3 $109,248 $110,526
Quarter4 $112,277 $113,081
1996
Quarter1 $111,803 $112,959
Quarter2 $112,822 $113,554
Quarter3 $115,004 $115,470
Quarter4 $117,626 $118,061
1997
Quarter1 $117,610 $118,133
Quarter2 $121,104 $121,185
Quarter3 $124,516 $124,105
Quarter4 $127,119 $126,551
1998
Quarter1 $128,316 $127,932
Quarter2 $129,964 $129,508
Quarter3 $133,532 $133,129
Quarter4 $133,992 $134,154
1999
Quarter1 $134,900 $135,349
Quarter2 $132,586 $133,431
Quarter3 $133,089 $134,565
Quarter4 $132,838 $134,587
2000
Quarter1 $135,271 $136,645
Quarter2 $136,911 $138,759
Quarter3 $139,623 $141,648
Quarter4 $144,049 $145,943
2001
Quarter1 $147,233 $149,728
Quarter2 $148,261 $150,988
Quarter3 $152,195 $155,073
Quarter4 $151,136 $154,188
2002
Quarter1 $152,214 $155,447
Quarter2 $157,491 $161,435
Quarter3 $163,830 $167,607
Quarter4 $164,210 $168,261
2003
Quarter1 $165,945 $170,093
Quarter2 $169,607 $173,702
Quarter3 $170,194 $174,814
Quarter4 $171,328 $175,830
2004
Quarter1 $173,223 $178,080
Quarter2 $169,686 $174,495
Quarter3 $174,888 $179,837
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 11/02/1992
- ------------------------------------------------------------------------------------------
2.76% 4.74% 5.61% 5.65% 5.74%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- ----------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,009.60 $2.51
Hypothetical (5% return per year
before expenses $1,000.00 $1,022.50 $2.53
- ---------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.50%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Summary of Combined Ratings
----------------------------------------------------------------
Quality Breakdown Value (%)
----------------------------------------------------------------
AAA 53.9%
AA 24.4%
A 13.7%
BBB 8.0%
TOTAL 100.0%
Based on ratings from Standard & Poor's and/or Moody's Investors
Services. If a security receives split (different) ratings from
multiple rating organizations, the Fund treats the security as
being rated in the higer rating category.
Percentage of
Top Ten Holdings* Rate Maturity Net Assets
----------------------------------------------------------------------------------------------------------
Texas United Independent School District NCL 5.00% 08/15/2012 3.8
Jea FL St. Johns River Power Park AMBAC NCL 5.00% 10/01/2009 3.4
Northeast TX Independent School District NCL 5.00% 08/01/2010 3.0
Puerto Rico Commonwealth Fuel Sales Tax Revenue (a) 5.00% 07/01/2018 2.9
Puerto Rico Public Financial Corp. LOC:
Government Development Bank For Puerto Rico 5.75% 08/01/2027 2.2
Colorado HFA Single Family Project AMT (a) 6.80% 02/01/2031 2.1
New York Dormitory Authority State University
Educational Facilities MBIA IBC 5.25% 05/15/2015 2.0
Commonwealth of Massachusetts NCL 5.25% 08/01/2014 2.0
Miami-Dade County FL School District NCL 5.20% 08/01/2007 2.0
Lubbock TX 5.00% 07/01/2008 1.9
----
25.3
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
---------------------------------------------------------------------------
General obligation 26.5
Gov't. backed 1.3
Insured 29.2
Revenue
Housing 6.4
Industrial 4.3
Other revenue 27.3
Short-term and Net Other Assets 5.0
-----
100.0
The Portfolio is actively managed. Current holdings may be different than
those presented above.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value Note (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS--95.0%
GENERAL OBLIGATIONS--26.5%
ABAG CA Odd Fellows Homes 5.700% 8/15/2014 1,000,000 $ 1,081,780
California State 5.000 10/1/2011 300,000 325,773
California State NCL 5.000 2/1/2009 1,000,000 1,085,560
California State NCL 6.600 2/1/2009 1,000,000 1,145,800
California State NCL 5.750 11/1/2011 300,000 344,010
College Station Texas Independent School District NCL 5.000 2/15/2013 1,000,000 1,107,390
Commonwealth of Massachusetts NCL 6.000 11/1/2010 1,350,000 1,563,449
Commonwealth of Massachusetts NCL 5.250 8/1/2014 2,000,000 2,259,540
Goose Creek TX Independent School District 7.000 8/15/2009 600,000 712,110
Lake County IL First Preserve District (b) 0.000 12/1/2007 1,250,000 1,149,275
New York NY NCL 5.250 11/1/2009 1,000,000 1,100,900
New York NY NCL 5.500 8/1/2010 1,000,000 1,116,620
Northeast TX Independent School District NCL 7.000 2/1/2009 1,000,000 1,171,670
Northeast TX Independent School District NCL 5.000 8/1/2010 3,000,000 3,307,710
Plano TX Independent School District NCL 5.000 2/15/2010 1,000,000 1,100,200
Puerto Rico Commonwealth Fuel Sales Tax Revenue (a) 5.000 7/1/2018 3,000,000 3,228,210
Puerto Rico Public Building Authority Revenue 5.000 7/1/2028 1,000,000 1,079,890
Puerto Rico Public Financial Corp. LOC:
Government Development Bank For Puerto Rico 5.750 8/1/2027 2,250,000 2,532,870
Texas United Independent School District NCL 5.000 8/15/2012 3,835,000 4,250,215
------------
29,662,972
------------
GOVERNMENT BACKED--1.3%
Alpine UT School District 5.00 3/15/2011 25,000 27,482
District of Columbia Prerefunded MBIA NCL 5.750 6/1/2010 10,000 11,471
Long Beach CA Aquarium of the Pacific Revenue 5.750 7/1/2005 70,000 72,139
Met Govt Nashville & Davidson TN Industrial
Development Board Revenue Prerefunded 7.500 11/15/2010 1,000,000 1,227,280
Palm Beach County FL Solid Waste AMBAC 6.000 10/1/2009 60,000 69,457
Texas Municipal Power Agency MBIA (b) 0.000 9/1/2016 5,000 3,048
------------
1,410,877
------------
HOUSING REVENUE--6.4%
California HSG SFM 5.050 2/1/2017 180,000 181,111
Colorado HFA Single Family Project AMT (a) 6.800 2/1/2031 2,305,000 2,383,255
Colorado HFA Single Family Project AMT (a) 6.600 8/1/2032 1,965,000 2,032,498
Florida Housing Finance Corp. FSA 5.750 1/1/2017 95,000 96,033
Hawaii Housing Finance and Development SFM FNMA 7.000 7/1/2031 460,000 466,077
Nebraska Investment Finance Authority SFM FHA VA AMT 6.700 9/1/2026 415,000 428,322
Ohio HFA Mortgage Revenue AMT GNMA 5.350 9/1/2018 760,000 785,034
Pennsylvania HFA SFM 5.350 10/1/2008 115,000 117,424
Rhode Island Housing & Mortgage Finance Corp. 4.950 10/1/2016 160,000 160,128
Utah HFA SFM AMT (a) 5.400 7/1/2020 455,000 466,421
------------
7,116,303
------------
INDUSTRIAL DEVELOPMENT--4.3%
Connecticut Gaming Authority Mohegan Tribe 5.375 1/1/2011 1,000,000 1,054,590
Gloucester NJ Resource Recovery (a) 6.850 12/1/2029 500,000 566,255
Golden State Tobacco Securitization Corp. 5.000 6/1/2021 1,835,000 1,836,908
Hendersonville TN Kroger 5.950 12/15/2008 265,000 274,853
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value Note (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
INDUSTRIAL DEVELOPMENT (CONTINUED)
Mass DFA Waste Management Resource Recovery AMT 6.900% 12/1/2029 500,000 $ 569,665
Michigan State Strategic Funding AMT NCL 3.750 8/1/2027 500,000 508,565
------------
4,810,836
------------
INSURED BOND--29.2%
California State 6.000 4/1/2016 1,000,000 1,202,840
Charleston SC COP MBIA 6.000 12/1/2008 1,000,000 1,134,770
Cook County IL High School FGIC NCL 7.875 12/1/2014 750,000 1,015,133
Cook County IL School District FSA NCL 6.750 5/1/2010 1,750,000 2,080,225
Corpus Christi TX Business & Job Development Corp.
Sales Tax Revenue AMBAC NCL 5.000 9/1/2011 1,215,000 1,347,982
Denver CO Airport MBIA AMT 7.500 11/15/2006 500,000 513,210
District of Columbia FSA NCL 5.500 6/1/2011 1,500,000 1,700,505
District of Columbia MBIA NCL 5.750 6/1/2010 15,000 17,070
Douglas County CO School District MBIA 7.000 12/15/2012 625,000 785,956
Georgia Municipal Electric Authority (a) 5.000 1/1/2026 1,000,000 1,086,480
Georgia Municipal Electric Authority Power FGIC NCL 6.250 1/1/2012 1,150,000 1,361,290
Harris County TX Toll Revenue FGIC NCL 6.000 8/1/2012 1,000,000 1,175,960
Intermountain Power Agency UT NCL 6.500 7/1/2010 1,000,000 1,177,340
Jea FL St. Johns River Power Park AMBAC NCL 5.000 10/1/2009 3,500,000 3,846,675
Jefferson County CO School District FSA NCL 5.000 12/15/2010 1,350,000 1,495,017
Jefferson County OH Asset Guaranty 6.625 12/1/2005 95,000 97,566
Miami-Dade County FL School District NCL 5.200 8/1/2007 2,070,000 2,243,114
Nassau County NY FGIC 6.000 7/1/2010 25,000 28,866
New Jersey Health Care Facilities Financing Authority Revenue AMBAC 4.800 8/1/2021 1,000,000 1,051,170
New York Dormitory Authority Presbyterian Hospital AMBAC 4.400 8/1/2013 90,000 92,499
New York Dormitory Authority State University Educational Facilities MBIA 6.000 5/15/2015 1,000,000 1,151,520
New York Dormitory Authority State University Educational Facilities MBIA IBC 5.250 5/15/2015 2,000,000 2,282,540
NJ Transportation Corp. COP AMBAC NCL 5.500 9/15/2007 1,000,000 1,090,580
Orange County CA COP MBIA 5.800 7/1/2016 400,000 436,396
Pasco County FL Solid Waste AMBAC AMT NCL 6.000 4/1/2010 1,000,000 1,110,480
Richland-Beanblossom IN School Building Corp. 5.000 7/15/2013 1,765,000 1,954,261
Stafford TX Economic Development FGIC 6.000 9/1/2015 525,000 628,740
Teton County WY St. John Hospital ACA 5.000 12/1/2004 535,000 537,274
------------
32,645,459
------------
LEASE REVENUE--5.1%
Golden State Tobacco Securitization Corp. 5.250 6/1/2016 1,000,000 1,017,700
New Jersey Economic Development Authority
Revenue School Facilities Construction NCL 5.000 9/1/2012 1,000,000 1,099,350
New York Dormitory Authority Revenue 5.250 11/15/2023 1,000,000 1,107,010
New York Dormitory Authority Roswell Park 6.000 7/1/2006 400,000 427,124
New York Urban Development Corp.
Correctional and Youth Facilities Service 5.250 1/1/2021 500,000 546,320
Tobacco Settlement Funding Corp. NY 5.500 6/1/2009 1,500,000 1,539,555
------------
5,737,059
------------
REVENUE BONDS--20.3%
Arizona State Transit Highway Revenue NCL 5.000 7/1/2014 1,500,000 1,681,065
Broward County FL Resource Recovery 5.000 12/1/2007 1,000,000 1,070,970
California State Department of Water Resources Power Supply NCL 5.500 5/1/2010 250,000 279,493
California State Department Transportation Revenue NCL 5.000 2/1/2015 1,000,000 1,112,120
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
SCHEDULE OF INVESTMENTS--SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value Note (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
REVENUE BONDS (CONTINUED)
Camden NJ Cooper Hospitals NCL 5.600% 2/15/2007 175,000 $ 180,443
Illinois HEFA Condell Medical Center 6.000 5/15/2010 500,000 541,065
Illinois HEFA Northwestern University (a) 5.050 11/1/2032 725,000 795,463
Illinois DFA Depaul University NCL 5.500 10/1/2011 1,000,000 1,113,920
Jicarilla NM Apache Nation Revenue 5.000 9/1/2013 500,000 539,230
Lubbock TX Health Facilities Development
St. Joseph Healthcare System 5.000 7/1/2008 2,000,000 2,151,400
Mass DFA Williston School 6.000 10/1/2013 240,000 249,170
Mass HEFA Partners NCL 5.000 7/1/2012 1,250,000 1,369,200
Mass IFA Berkshire Retirement Development (a) 6.000 7/1/2018 500,000 503,055
Mesa AZ Utility System Revenue NCL 6.000 7/1/2020 1,250,000 1,534,938
Miami-Dade County Florida Special Obligation
Capital Asset Acquisition MBIA NCL 5.000 4/1/2014 1,755,000 1,950,314
Michigan State Hospital Finance Authority 5.250 11/15/2010 1,000,000 1,084,500
New Hampshire HEFA Monadnock Hospital 5.250 10/1/2007 280,000 280,764
New Jersey State Transportation NCL (c) 5.250 12/15/2014 500,000 556,135
New Mexico State Hospital Equipment
Loan Revenue Presbyterian Healthcare Services 5.750 8/1/2012 1,000,000 1,119,440
New York Medical Center St. Luke's FHA 5.600 8/15/2013 230,000 242,494
Puerto Rico Electric Power Authority Revenue (c) 5.500 7/1/2016 500,000 568,170
Reedy Creek FL Improvements District NCL 5.250 10/1/2011 1,000,000 1,126,890
Scranton PA Allied Rehabilitation 7.125 7/15/2005 245,000 246,754
South Carolina Transit Infrastructure Bank Revenue AMBAC NCL 5.250 10/1/2015 1,000,000 1,146,430
Texas Municipal Power Agency MBIA (b) 0.000 9/1/2016 1,995,000 1,192,691
Wisconsin State Transportation 5.500 7/1/2010 15,000 16,863
------------
22,652,977
------------
SPECIAL REVENUE--1.9%
California State Economic Recovery 3.500 7/1/2023 1,000,000 1,034,010
California State Economic Recovery NCL 5.250 7/1/2014 1,000,000 1,128,840
------------
2,162,850
------------
TOTAL BONDS (Cost$103,682,334) 106,199,333
------------
SHORT-TERM INVESTMENTS--3.6%
SHORT-TERM BONDS--3.6%
Grand Forks ND Hospital Facilties Revenue LOC: LaSalle National Bank (a) 1.610% 12/1/2016 1,400,000 1,400,000
Idaho HFA St. Luke's Medical Center FSA (a) 1.700 7/1/2030 100,000 100,000
Kansas State Department of Transit Highway Revenue (a) 1.660 9/1/2020 1,900,000 1,900,000
University of North Carolina Hospital Chapel Hill Revenue SPA (a) 1.660 2/15/2031 600,000 600,000
------------
4,000,000
------------
INVESTMENT COMPANIES--0.0% Shares
--------
Wells Fargo National Tax-Free Money Market Fund (Cost $70,482) 70,482 70,482
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $4,070,482) 4,070,482
------------
TOTAL INVESTMENTS--98.6% (COST $107,752,816) 110,269,815
------------
OTHER ASSETS, LESS LIABILITIES--1.4% 1,616,769
------------
NET ASSETS--100% $111,886,584
============
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, 2004
- --------------------------------------------------------------------------------
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.
FNMA--Federal National Mortgage Association
FSA--Financial Security Assurance
GNMA--Government National Mortgage Association
HEFA--Health & Educational Facilities Authority
HFA--Housing Finance Authority
IBC--Insured Bond Certificate
LOC--Letter of Credit
MBIA--Municipal Bond Insurance Association
NCL--Non-callable
SFM--Single Family Mortgage
(a) Variable Rate Security; rate indicated is as of 9/30/04. Variable rate
securities that reset monthly or more are considered short term securities
for reporting purposes.
(b) Zero coupon security.
(c) Delayed delivery security.
At September 30, 2004, the Fund held the following open swap agreement:
Net Unrealized
Notional Amount Appreciation
Portfolio/counterparty Expiration Date Description (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------------
1,900,000 USD 11/27/14 Agreement with JP Morgan Chase, dated 8/27/04 $(19,684)
to pay the notional amount multiplied by Fixed
10 Year TBMA-Muni Swap Index Rate of
3.672% and receive the notional amount
multiplied by quarterly average of the
weekly floating TBMA-Muni Swap Index.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (cost $107,752,816) $110,269,815
Receivable for Fund shares sold 1,249,901
Interest receivable 1,298,592
Receivable for investments sold 665,146
Prepaid expenses 14,891
------------
Total assets 113,498,345
LIABILITIES
Payable for investments purchased $ 1,118,765
Payable for Fund shares redeemed 330,333
Distributions payable 79,622
Unrealized depreciation on open swap contract 19,684
Accrued accounting, custody and transfer agent fees 19,188
Accrued trustees' fees and expenses 3,865
Accrued expenses and other liabilities 40,304
------------
Total liabilities 1,611,761
------------
NET ASSETS $111,886,584
============
NET ASSETS CONSIST OF:
Paid-in capital $109,147,122
Accumulated net realized gain 224,040
Undistributed net investment income 18,107
Net unrealized appreciation 2,497,315
------------
TOTAL NET ASSETS $111,886,584
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 5,074,340
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 22.05
============
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income (Note 1B) $ 3,587,636
EXPENSES
Investment advisory fee (Note 2) $ 393,554
Accounting, custody, and transfer agent fees (Note 2) 114,015
Professional fees 52,434
Registration fees 63,053
Trustees' fees and expenses (Note 2) 20,615
Insurance expense 10,715
Miscellaneous 14,521
----------
Total expenses 668,907
DEDUCT:
Waiver of investment advisory fee (Note 2) (180,781)
----------
Net expenses 488,126
------------
Net investment income 3,099,510
------------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain on:
Investments 340,187
Change in unrealized appreciation (depreciation) on:
Investments (1,162,442)
Swap contract (19,684)
----------
Change in unrealized appreciation (depreciation) (1,182,126)
------------
Net realized and unrealized loss on investments (841,939)
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,257,571
============
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 3,099,510 $ 2,793,453
Net realized gain on investments 340,187 1,871,706
Net change in net unrealized appreciation (depreciation)
on investments and swap contract (1,182,126) (1,679,548)
------------- -------------
Net increase in net assets from operations 2,257,571 2,985,611
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (3,101,811) (2,788,661)
From net realized gains on investments (1,895,222) (195,884)
------------- -------------
Total distributions to shareholders (4,997,033) (2,984,545)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 69,591,991 23,850,640
Value of shares issued to shareholders in payment of distributions declared 3,848,008 1,576,355
Cost of shares redeemed (29,319,017) (37,084,670)
------------- -------------
Net increase (decrease) in net assets from Fund share transactions 44,120,982 (11,657,675)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 41,381,520 (11,656,609)
NET ASSETS
At beginning of year 70,505,064 82,161,673
------------- -------------
At end of year (including undistributed
net investment income of $18,107 and $15,530) $ 111,886,584 $ 70,505,064
============= =============
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
--------------------------------------------------------
2004 2003 2002 2001 2000
-------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR $ 22.78 $ 22.78 $ 22.04 $ 21.11 $ 21.11
-------- ------- ------- ------- -------
FROM OPERATIONS:
Net investment income*(1) 0.69 0.81 0.90 0.93 0.95
Net realized and unrealized gains (loss) on investments (0.08) 0.07 0.74 0.93 0.06
-------- ------- ------- ------- -------
Total from operations 0.61 0.88 1.64 1.86 1.01
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.71) (0.81) (0.90) (0.93) (0.95)
From net realized gains on investments (0.63) (0.07) -- -- (0.06)
-------- ------- ------- ------- -------
Total distributions to shareholders (1.34) (0.88) (0.90) (0.93) (1.01)
-------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 22.05 $ 22.78 $ 22.78 $ 22.04 $ 21.11
======== ======= ======= ======= =======
TOTAL RETURN((+)) 2.76% 3.88% 7.65% 9.00% 4.91%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 0.50% 0.65% 0.65% 0.62% 0.64%
Net Investment Income (to average daily net assets)* 3.16% 3.58% 4.09% 4.30% 4.54%
Portfolio Turnover 72% 42% 17% 43% 28%
Net Assets, End of Year (000's omitted) $111,887 $70,505 $82,162 $82,358 $79,329
- -----------
* For the years indicated , the investment advisor voluntarily agreed not to
impose all or a portion of its investment advisory fee and/or reimbursed
the Fund for a portion of it's 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) $ 0.65 $ 0.80 $ 0.90 N/A N/A
Ratios (to average daily net assets):
Expenses 0.68% 0.68% 0.66% N/A N/A
Net investment income 2.97% 3.55% 4.08% 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.
13
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.
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
Tax-exempt bonds and notes are priced at fair value on the basis of
valuations furnished by an independent pricing service or dealers, approved
by the Trustees. Such services or dealers determine valuations for normal
institutional-size trading units of such securities using methods based on
market transactions for comparable securities and various relationships,
generally recognized by institutional traders, between securities.
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. 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.
C. 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 adjustments under the AICPA audit guide and
distributions payable.
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 income
or gain remaining at fiscal year end is distributed in the following year.
D. 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.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. 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. Effective January 28, 2004,
Standish Mellon voluntarily agreed to limit the total Fund operating
expenses (excluding litigation, indemnification and other extraordinary
expenses) to 0.45% of the Fund's average daily net assets for the year
ended September 30, 2004. Prior to that date the rate was 0.65%. Pursuant
to this agreement, for the year ended September 30, 2004, Standish Mellon
voluntarily waived a portion of its advisory fee in the amount of $180,781.
This agreement is voluntary and temporary and may be discontinued or
revised by Standish Mellon at any time.
Effective February 23, 2004, the Fund compensates Dreyfus Transfer, Inc., a
wholly owned subsidiary of Dreyfus, an affiliate of Standish Mellon, under
a transfer agency agreement for providing personnel and facilities to
perform transfer agency services for the Fund. Pursuant to this agreement
the Fund was charged $3,500 during the year ended September 30, 2004.
The Fund compensates Mellon Bank, N.A., an affiliate of Standish Mellon
under a custody, administration and accounting services agreement for
providing custody, fund administration and fund accounting services for the
Fund. Pursuant to this agreement the Fund was charged $102,617 during the
year ended September 30, 2004.
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.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 31, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $2,473
Benjamin M. Friedman $2,473
John H. Hewitt $2,473
Caleb Loring, III $2,661
Patrick J. Sheppard 0
Richard S. Wood* 0
* Mr. Wood resigned rrom the Board of Trustees on October 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
investments, for the year ended September 30, 2004 were $108,472,923 and
$67,221,880, respectively. For the year ended September 30, 2004, the Fund
did not purchase or sell any long-term U.S. Government securities.
15
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. Transactions in Fund
shares were as follows:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 3,137,202 1,067,097
Shares issued to shareholders in
payment of distributions declared 174,989 69,868
Shares redeemed (1,332,957) (1,647,943)
---------- ----------
Net increase (decrease) 1,979,234 (510,978)
---------- ----------
At September 30, 2004, the Fund had two shareholders of record owning
approximately 42% and 10% of the Fund's outstanding shares. 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 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, 2004, was as follows:
Unrealized appreciation $ 2,916,339
Unrealized depreciation (399,340)
------------
Net unrealized appreciation/depreciation 2,516,999
Undistributed ordinary income 2,638
Undistributed tax exempt income 95,091
Undistributed capital gains 224,040
------------
Total distributable earnings $ 2,838,768
============
Cost for federal income tax purposes $107,752,816
Tax character of distributions paid during the fiscal year ended September
30, 2004, was as follows:
Distributions paid from: Amount
Tax-exempt income $3,098,871
Ordinary income 2,940
Capital gains 1,895,222
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND 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 investments are set forth more fully
in the Fund's Prospectus and Statement of Additional Information.
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, 2004, the Fund held no outstanding futures contracts.
SWAP AGREEMENTS
The Fund may invest in swap agreements. A swap is an agreement to exchange
the return generated by one instrument for the return generated by another
instrument. The Fund may enter into interest rate and credit default swap
agreements to manage its exposure to interest rates and credit risk.
Interest rate swap agreements involve the exchange by the Fund with another
party of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect to
a notional amount of principal. In a credit default swap, one party makes a
stream of payments to another party in exchange for the right to receive a
specified return in the event of a default by a third party on its
obligation. The Fund may use credit default swaps to provide a measure of
protection against defaults of issuers (i.e., to reduce risk where the Fund
owns or has exposure to the corporate or sovereign issuer) or to take an
active long or short position with respect to the likelihood of a
particular corporate or sovereign issuer's default. In connection with
these agreements, cash or securities may be set aside as collateral in
accordance with the terms of the swap agreement. The Fund earns interest on
cash set aside as collateral. Swaps are marked to market daily based upon
quotations from market makers and change in value, if any, is recorded as
unrealized gain or loss in the Statement of Operations. These financial
instruments are not actively traded on financial markets. The values
assigned to these instruments are based upon the best available information
and because of the uncertainty of the valuation, these values may differ
significantly from the values that would have been realized had a ready
market for these instruments existed, and differences could be material.
Payments received or made from credit default swaps at the end of the
measurement period are recorded as realized gain or loss in the Statement
of Operations. Net payments of interest on interest rate swap agreements
are included as part of realized gain in the Statement of Operations.
Entering into these agreements, if any, involves, to varying degrees,
elements of credit, market, and documentation risk in excess of the amounts
recognized on the Statement of Assets and Liabilities. Such risks involve
the possibility that there will be no liquid market for these agreements,
that the counterparty to the agreements may default on its obligation to
perform or disagree as to the meaning of contractual terms in the
agreements, and that there may be unfavorable changes in interest rates.
At September 30, 2004, the Fund had one swap agreement outstanding. See
Schedule of Investments for detail.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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, 2004 the Fund held delayed delivery securities. See
Schedule of Investments for further detail.
(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 facility fee,
computed at an annual rate of .060 of 1% on the committed amount, is
allocated ratably among the participating portfolios/funds at the end of
each quarter.
For the year ended September 30, 2004, the expense related to the facility
fee was $1,991 for the Fund.
During the year ended September 30, 2004, the Fund had no borrowings under
the credit facility.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERMEDIATE TAX EXEMPT BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
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 Standish Mellon Intermediate Tax
Exempt Bond Fund (the "Fund") at September 30, 2004, 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
20
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
21
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0933AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report THE BOSTON COMPANY
SMALL CAP TAX-SENSITIVE EQUITY FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
The level of uncertainty in the equity markets has diverted investor attention
from investment fundamentals (e.g., earnings and earnings growth), to investment
behavior that is more emotionally driven. The current unsettled climate is
fostered by terrorist threats, the election puzzle, oil price uncertainty,
inflation fears and interest rate concerns. The economy continues to perform
relatively well and concerns about slowing economic growth and the resultant
slowing corporate profit growth seem to be somewhat overblown.
For the twelve months ended September 30, 2004 The Boston Company Small Cap Tax
Sensitive Equity Fund had a total return of 17.34%. This was well ahead of the
Russell 2000 Growth Index at 11.92% for the period. The Fund has had strong
relative performance in recent months as our holdings have been somewhat more
risk averse but, at the same time, it has participated fully in the recent
positive move. Within the markets, smaller stocks again performed better than
large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up 13.87%),
and value has outpaced growth, especially in smaller stocks where the Russell
2000 Value Index was up more than twice that of the Russell 2000 Growth index.
Our risk averse approach continues to be a rewarding strategy in this very
volatile market environment. We are finding many companies we believe are truly
undervalued, not just cheap for an obvious reason. These potentially rewarding
opportunities seem to be a by-product of the prevailing market caution,
bordering on pessimism. The US economy slowed a bit in the summer as higher
energy prices and interest rates, along with the uncertainty surrounding the
election and its potential market impact, reduced consumer and investor
confidence and put a modest damper on the stock market. We continue to view the
economic landscape positively and expect corporate capital spending to remain
relatively strong.
Our best performing sectors relative to the index have been health care,
industrials and consumer discretionary. We expect strong earnings in these
sectors and continue to emphasize them in our portfolio allocation decisions.
Our energy holdings have been reduced at the margin as the stocks have done
well. We continue to carry a market weight in this sector because of our
long-term positive outlook for energy prices. Our emphasis here continues to be
on energy services and exploration companies.
We continue to deemphasize financials as most of these stocks are fully valued
in our view. Business momentum is neutral at best and rising interest rates will
further narrow spreads and put more pressure on earnings in coming quarters.
Stocks in the industrials sector are attractive because of the positive outlook
for corporate capital spending. We look for several more quarters of relatively
strong earnings from this group and remain significantly overweight here.
2
Our general outlook remains positive. We continue to find many companies in our
research universe we believe are undervalued with strong fundamentals and good
earnings prospects. With a good chance for continued economic growth and modest
inflation, capital spending should be robust for several quarters. The major
concerns were highlighted earlier but we believe our fundamental approach,
emphasizing strong business momentum and undervaluation, will yield good returns
even in this more volatile equity environment.
/s/ B. Randall Watts /s/ Todd Wakefield
- -------------------- ------------------
B. Randall Watts Todd Wakefield
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
SMALL CAP TAX-SENSITIVE EQUITY FUND AND RUSSELL 2000 GROWTH INDEX
- --------------------------------------------------------------------------------
[DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000
Tax Sensitive Equity Growth Index
-------------------- ------------
Beginning $100,000 $100,000
1996
Quarter1 $107,550 $105,744
Quarter2 $120,750 $111,923
Quarter3 $117,948 $110,969
Quarter4 $121,231 $111,262
1997
Quarter1 $108,557 $99,593
Quarter2 $135,058 $117,076
Quarter3 $163,362 $136,885
Quarter4 $149,858 $125,666
1998
Quarter1 $168,288 $140,598
Quarter2 $163,756 $132,523
Quarter3 $130,421 $102,892
Quarter4 $165,821 $127,213
1999
Quarter1 $186,769 $125,076
Quarter2 $206,861 $143,519
Quarter3 $204,796 $136,462
Quarter4 $332,765 $182,031
2000
Quarter1 $409,302 $198,926
Quarter2 $377,054 $184,261
Quarter3 $381,323 $176,941
Quarter4 $286,899 $141,201
2001
Quarter1 $217,874 $119,733
Quarter2 $252,751 $141,254
Quarter3 $191,388 $101,590
Quarter4 $224,660 $128,170
2002
Quarter1 $223,201 $125,659
Quarter2 $197,444 $105,936
Quarter3 $164,463 $83,140
Quarter4 $170,739 $89,383
2003
Quarter1 $163,734 $85,917
Quarter2 $196,634 $106,664
Quarter3 $215,893 $117,829
Quarter4 $248,141 $132,773
2004
Quarter1 $266,458 $140,184
Quarter2 $264,500 $140,314
Quarter3 $253,252 $131,880
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 1/02/1996
- -------------------------------------------------------------------------------
17.34% 9.79% 4.34% 11.20%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- --------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $ 950.40 $5.02
Hypothetical (5% return per year
before expenses) $1,000.00 $1,019.85 $5.20
- ------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.03%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Sector Net Assets
-------------------------------------------------------------------------------------------
Cooper Cos. Health Care 2.7
MSC Industrial Direct Co., Inc. Industrials 2.3
FMC Technologies Energy 2.2
Fisher Scientific International Health Care 2.0
Lions Gate Entertainment Corp. Consumer Discretionary 2.0
UTI Worldwide Industrials 1.8
Covance Health Care 1.8
Matria Healthcare Health Care 1.7
Laureate Education Industrials 1.6
Respironics Health Care 1.6
-----
19.7
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
-----------------------------------------------------
Consumer Discretionary 13.2
Consumer Staples 5.4
Energy 7.4
Financials 7.5
Health Care 24.8
Industrials 13.6
Materials 2.1
Technology 19.6
Utilities 1.0
Short-term and Other Net Assets 5.4
-----
100.0
The Portfolio is actively managed. Current holdings may be different
than those presented above.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES--94.6%
CONSUMER DISCRETIONARY--13.2%
A.C. Moore Arts & Crafts, Inc. * 36,800 $ 910,064
California Pizza Kitchen, Inc. * 79,300 1,732,705
Christopher & Banks Corp. 37,800 605,178
Citadel Broadcasting Co. * 35,300 452,546
Entravision Communications Corp. * 102,600 780,786
Fairmount Hotels & Resorts 31,670 865,224
Lions Gate Entertainment Corp. 273,000 2,375,100
Nautilus Group, Inc. (a) 53,960 1,218,956
Nu Skin Enterprises, Inc. 28,900 679,439
Pacific Sunware of California 55,100 1,159,855
Panera Bread Co. (a) * 39,300 1,475,322
Peet's Coffee & Tea, Inc. 39,900 933,261
Petco Animal Supplies, Inc. 30,320 990,251
Quicksilver, Inc. * 20,300 516,026
Rare Hospitality International, Inc. 23,400 623,610
Speedway Motorsports, Inc. 17,400 579,942
----------
15,898,265
----------
CONSUMER STAPLES--5.4%
Arden Group, Inc. 5,994 509,490
Church & Dwight Co., Inc. 40,260 1,129,696
Delta & Pine Land Co. 15,700 419,975
Hain Celestial Group, Inc. 71,000 1,255,280
Jarden Corp. 26,100 952,389
The Yankee Candle Co. 49,690 1,439,022
United Natural Foods, Inc. 29,400 782,040
----------
6,487,892
----------
ENERGY--7.4%
Arch Coal, Inc. 26,900 954,681
Consol Energy, Inc. 35,700 1,245,573
Dril-Quip, Inc. 16,500 367,950
FMC Technologies, Inc. * 79,670 2,660,978
Oil States International, Inc. 70,200 1,312,740
Patterson-UTI Energy, Inc. 49,100 936,337
Penn Virginia Corp. 18,330 725,685
Vintage Petroleum, Inc. 33,240 667,127
----------
8,871,071
----------
FINANCIAL--7.5%
Affiliated Managers Group (a) * 12,450 666,573
Bristol West Holdings, Inc. 24,220 415,131
Cathay General Bancorp 16,200 602,478
Center Financial Corp. 17,231 327,734
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
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
City National Corp., Class A 9,950 $ 646,253
Commercial Capital Bancorp, Inc. 28,500 646,665
Cullen/Frost Bankers, Inc. 17,300 803,931
CVB Financial Corp. 1 24
First Community Bancorp, Inc., Class A 14,800 606,800
First Midwest Bancorp, Inc. 23,750 820,800
Investors Financial Services Corp. 15,350 692,746
Mercantile Bank Corp. 18,355 639,488
New York Community Bancorp (a) 4 87
R&G Financial Corp. 16,600 641,590
Southwest Bancorporation of Texas 32,600 656,564
Triad Guaranty, Inc. 15,400 854,392
----------
9,021,256
----------
HEALTH CARE--24.8%
Able Laboratories, Inc. * 38,815 743,695
American Medical Systems Holdings, Inc. * 24,200 877,734
Bone Care Intrenational, Inc. * 20,400 495,720
Community Health Systems, Inc. 32,100 856,428
Connetics Corp. 26,850 725,487
Cooper Cos, Inc. 48,150 3,300,683
Covance, Inc. 54,400 2,174,368
Coventry Health Care, Inc. 14,750 787,208
Discovery Laboratories, Inc. 95,400 639,180
Fisher Scientific International (a) 41,200 2,403,196
Flamel Technologies SA ADR (a) 32,100 470,907
Inveresk Research Group, Inc. 35,700 1,316,973
Inverness Medical Innovation (a) * 58,300 1,212,640
Matria Healthcare, Inc. 72,800 2,060,968
Medicines Co. (a) 30,600 738,684
Merit Medical Systems, Inc. 56,800 858,248
Nabi Biopharmaceuticals 40,500 541,890
PSS World Medical, Inc. * 112,300 1,127,492
Resmed, Inc. (a) 17,300 823,653
Respironics, Inc. 36,100 1,929,184
Select Medical Corp. 47,200 633,896
Steris Corp. 53,400 1,171,596
Sybron Dental Specialties, Inc. 22,700 673,963
Telik, Inc. * 26,800 597,640
Triad Hospitals * 18,950 652,638
VCA Antech, Inc. 42,600 878,838
VISX, Inc. * 24,400 502,640
Zoll Medical Corp. 18,800 627,732
----------
29,823,281
----------
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
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
INDUSTRIAL--13.6%
Applied Industrial Technologies 19,170 $ 685,136
Carlisle Companies, Inc. 9,900 632,907
Educate, Inc. (a) * 40,400 476,316
Forward Air Corp. 24,370 975,287
Hudson Highland Group 19,980 583,216
Iron Mountain, Inc. 23,825 806,476
Laureate Education, Inc. 52,200 1,942,884
LECG Corp. 69,600 1,176,936
MSC Industrial Direct Co., Inc. 81,000 2,760,480
Navigant Consulting, Inc. * 60,100 1,319,796
Old Dominion Freight Line 22,000 633,820
The Princeton Review, Inc. 63,464 475,980
SCS Transportation, Inc. * 31,000 587,140
UTI Worldwide, Inc. 37,000 2,175,970
Waste Connections 36,700 1,162,656
----------
16,395,000
----------
MATERIALS--2.1%
Agrium, Inc. 86,500 1,536,240
Glamis Gold Ltd 41,800 782,914
Spartech Corp. 6,400 160,640
----------
2,479,794
----------
TECHNOLOGY--19.6%
Avocent Corp. 27,800 723,634
Anteon International Corp. * 41,600 1,524,640
BearingPoint, Inc. * 103,600 926,184
Borland Software Corp. * 70,400 587,840
Cymer, Inc. 39,900 1,143,534
Formfactor, Inc. 54,100 1,047,917
Forrester Research, Inc. 65,100 992,124
Foundry Networks, Inc. * 44,400 421,356
Helix Technology Corp. 39,800 541,081
Ingram Micro,Inc., Class A 98,150 1,580,215
Internet Security Systems * 81,800 1,390,600
Lam Research Corp. 37,051 810,676
Macromedia, Inc. 60,200 1,208,816
Mcafee, Inc. 90,600 1,821,060
ManTech International Corp., Class A 34,800 651,456
Paxar Corp. 26,990 612,133
Polycom, Inc. * 43,400 860,188
Power Integrations, Inc. 75,500 1,542,465
Progress Software Corp. 79,700 1,586,030
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, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
Scientific-Atlanta, Inc. 18,600 $ 482,112
Verisign, Inc. * 74,350 1,478,078
Zoran Corp. * 108,100 1,699,332
------------
23,631,471
------------
UTILITIES--1.0%
AGL Resources, Inc. 39,780 1,224,031
------------
TOTAL EQUITIES (Cost $95,890,387) 113,832,061
------------
SHORT-TERM INVESTMENTS--4.9% Rate Maturity Par Value
----- -------- ---------
U.S. GOVERNMENT--0.3%
U.S. Treasury Bill ((+)) 1.640% 12/16/2004 $ 325,000 323,882
INVESTMENT COMPANIES--4.6% Shares
---------
Dreyfus Institutional Preferred Plus ++ 5,595,286 5,595,286
------------
Total Short Term Investments (Cost $5,919,168) 5,919,168
------------
INVESTMENT OF CASH COLLATERAL--5.1%
Dreyfus Cash Management Plus
Money Market Fund ++ (Cost $6,181,015) 6,181,015 6,181,015
------------
TOTAL INVESTMENTS--104.6% (COST $107,990,570) 125,932,244
LIABILITIES IN EXCESS OF OTHER ASSETS--(4.6%) (5,560,294)
------------
NET ASSETS--100% $120,371,950
============
NOTES TO SCHEDULE OF INVESTMENTS:
ADR--American Depositary Receipt
(a) Security, or a portion of thereof, was on loan at 9/30/04.
* Non-income producing security
+ Denotes all or part of security pledged as collateral.
++ Affiliated institutional money market fund.
At September 30, 2004, the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount At Value Gain
- ----------------------------------------------------------------------------------------------------------------------
Russell 2000 Index (9 contracts) Long 12/16/2004 $ 2,571,250 $ 11,709
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
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (Note 7)
Unaffiliated issuers, at value (Note 1A) (identified cost $96,214,269) $114,155,943
Affiliated issuers, at value (Note 1A) (cost $11,776,301) (Note 1F) 11,776,301
Cash 63,799
Receivable for investments sold 1,550,916
Receivable for Fund shares sold 123,079
Interest and dividends receivable 21,984
Variation margin receivable (Note 6) 45,450
Prepaid expenses 17,637
------------
Total assets 127,755,109
LIABILITIES
Liability for securities on loan $ 6,181,015
Payable for investments purchased 1,105,133
Payable for Fund shares redeemed 29,469
Accrued accounting, custody and transfer agent fees 19,901
Accrued trustees' fees and expenses 3,445
Accrued expenses and other liabilities 44,196
------------
Total liabilities 7,383,159
------------
NET ASSETS $120,371,950
============
NET ASSETS CONSIST OF:
Paid-in capital $104,916,999
Accumulated net realized loss (2,498,513)
Undistributed net investment income 82
Net unrealized appreciation 17,953,382
------------
TOTAL NET ASSETS $120,371,950
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,467,917
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 34.71
============
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
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income (net of $374 in foreign withholding tax paid) $ 297,939
Interest income (including securities lending income of $21,929) (Note 7) 76,845
-----------
Total investment Income 374,784
EXPENSES
Investment advisory fee (Note 2) $ 949,430
Accounting, custody, and transfer agent fees (Note 2) 115,266
Professional fees 58,700
Registration fees 29,202
Trustees' fees and expenses (Note 2) 26,177
Insurance expense 12,452
Miscellaneous 24,959
-----------
Total expenses 1,216,186
-----------
Net investment loss (841,402)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 15,799,398
Futures contracts (556,937)
-----------
Net realized gain 15,242,461
Change in unrealized appreciation (depreciation)
Investment securities 3,980,691
Futures contracts 197,698
-----------
Change in net unrealized appreciation (depreciation) 4,178,389
-----------
Net realized and unrealized gain on investments 19,420,850
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $18,579,448
===========
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
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment loss $ (841,402) $ (396,695)
Net realized gains 15,242,461 9,438,799
Change in net unrealized appreciation (depreciation) 4,178,389 17,026,734
------------ ------------
Net increase in net assets from operations 18,579,448 26,068,838
------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 19,103,910 19,249,572
Redemption fees credited to capital 242 --
Cost of shares redeemed (24,029,775) (21,069,623)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions (4,925,623) (1,820,051)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 13,653,825 24,248,787
NET ASSETS
At beginning of year 106,718,125 82,469,338
------------ ------------
At end of year (including undistributed
net investment income of $82 and $104) $120,371,950 $106,718,125
============ ============
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
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- ------- ------- --------
NET ASSET VALUE, BEGINNING OF YEAR $ 29.58 $ 22.53 $ 26.23 $ 63.32 $ 40.70
-------- -------- ------- ------- --------
FROM OPERATIONS:
Net investment income (loss)*(1) (0.24) (0.11) (0.13) (0.20) (0.39)
Net realized and unrealized
gains (loss) on investments 5.37(2) 7.16(2) (3.57)(2) (28.28) 33.65
-------- -------- ------- ------- --------
Total from operations 5.13 7.05 (3.70) (28.48) 33.26
-------- -------- ------- ------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on investments -- -- -- (8.61) (10.64)
-------- -------- ------- ------- --------
Total distributions to shareholders -- -- -- (8.61) (10.64)
-------- -------- ------- ------- --------
NET ASSET VALUE, END OF YEAR $ 34.71 $ 29.58 $ 22.53 $ 26.23 $ 63.32
======== ======== ======= ======= ========
TOTAL RETURN 17.34% 31.29%+ (14.11)%+ (49.81)%+ 86.20%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 1.03% 1.00% 1.00% 1.00% 0.87%
Net Investment (Loss) (to average daily net assets)* (0.71)% (0.43)% (0.47)% (0.54)% (0.60)%
Portfolio Turnover 150% 252% 241% 174% 182%
Net Assets, End of Year (000's omitted) $120,372 $106,718 $82,469 $81,711 $215,201
- --------------
* For the years indicated, the investment advisor 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) N/A $ (0.13) $ (0.15) $ (0.21) N/A
Ratios (to average daily net assets):
Expenses N/A 1.07% 1.08% 1.04% N/A
Net investment income N/A (0.50)% (0.55)% (0.58)% N/A
+ 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 $0.03
for the year ended September 30, 2004, 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.
14
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.
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 normally 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 Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio 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. 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.
C. 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.
D. 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.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. 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.
F. AFFILIATED ISSUERS
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
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. For the
year ended September 30, 2004, the Fund paid $949,430 in investment
advisory fees to TBCAM.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $3,500 during the year ended September
30, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of TBCAM, to
provide custody, fund administration and fund accounting services for the
Fund. For these services, the Fund pays Mellon Bank a fixed fee plus asset
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $106,106 during the year ended
September 30, 2004.
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.
The following table sets forth all remuneration paid to the Trustees for
the Fund's fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $3,442
Benjamin M. Friedman $3,442
John H. Hewitt $3,442
Caleb Loring, III $3,695
Patrick J. Sheppard 0
Richard S. Wood * 0
* Mr. Wood resigned from the Board of Trustees on October 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations for the year ended September 30, 2004, were $169,101,701 and
$176,724,398, respectively. For the year ended September 30, 2004, the Fund
did not purchase or sell any long-term U.S. Government securities.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY 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:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 553,482 766,053
Shares redeemed (692,914) (819,341)
-------- --------
Net increase (decrease) (139,432) (53,288)
======== ========
At September 30, 2004, two shareholders of record held approximately 44%
and 11% of the total outstanding shares of the Fund. Investment activity of
these shareholders could have a material impact on the Fund.
The Fund imposes 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. For the year ended September 30, 2004, the Fund received
$242 in redemption fees.
(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.
The tax basis components of distributable earnings and the federal tax cost
as of September 30, 2004, was as follows:
Cost for federal income tax purposes $108,070,932
------------
Unrealized appreciation $ 20,564,477
Unrealized depreciation (2,703,248)
------------
Net unrealized appreciation/depreciation 17,861,229
============
Undistributed ordinary income 82
Capital loss carry-forward (2,406,360)
At September 30, 2004, 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
------------- ---------------
$2,406,360 9/30/2011
17
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, 2004.
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, 2004, the Fund held financial futures contracts. See
Schedule of Investments for further detail.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(7) SECURITY LENDING:
The Fund entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Fund's lending agent.
Pursuant to this agreement Mellon Bank receives an agreed upon percentage
of the net lending revenues. This compensation is a standard form of
compensation received by securities lending agents with respect to
non-affiliated entities.
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, 2004
resulting in $21,929 of security lending income. At September 30, 2004, the
Fund had $5,986,620 worth of securities on loan.
See the Schedule of Investments for further detail of the security
positions 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 facility fee, computed at an annual rate of .060 of 1% on the committed
amount, is allocated ratably among the participating portfolios/funds at
the end of each quarter. For the year ended September 30, 2004, the
facility fee was $2,468.
During the year ended September 30, 2004, the Fund had borrowings under the
credit facility and incurred $72 of interest expense.
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP TAX-SENSITIVE EQUITY FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
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 The Boston Company Small Cap
Tax-Sensitive Equity Fund (the "Fund") at September 30, 2004 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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
20
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
21
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
22
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0938AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report THE BOSTON COMPANY
INTERNATIONAL SMALL CAP FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
The Boston Company International Small Cap Fund (the "International Small Cap
Fund") return for the twelve months ended September 30, 2004 was 33.35% versus
26.46% for its benchmark, the S&P Citigroup EMI ex. US index. The International
Small Cap Fund's 1 Year, 3 Year and 5 Year returns have exceeded the benchmark
by solid margins.
All EAFE markets were up this year, and all but Greece posted double-digit
annual returns, as measured in US dollars. Ireland proved to be the highest
performing market with a 108% return, due primarily to tremendous strength in
one stock, Elan, a pharmaceuticals company. Four other international equity
markets were up more than 50%. In general, energy producing countries benefited
at the relative expense of energy consuming countries. For example, oil rich
Norway witnessed its market produce annual returns of greater than 50%, while
oil dependent Japan's market was a relative laggard with only a 16.5% return for
the period.
From an economic sector perspective, it was an excellent year for energy stocks,
and a relative struggle for technology stocks. Energy stocks were up the most
with a return of 66%, buoyed by oil prices that remained much higher than
anticipated. Very strong demand, especially from developing markets, and supply
concerns, due to unrest in Iraq and elsewhere, combined to keep oil prices high.
Technology stocks were up only 6.5%, and were depressed by very intense price
competition, industry overcapacity, reluctance of buyers to invest in new
products, and valuations levels that still appear to be too high relative to
other sectors.
The International Small Cap Fund outperformed the index during the period,
largely due to our process of disciplined stock selection. Contribution to the
positive relative performance was broad based. The Fund had positive stock
selection versus the benchmark in 19 of 24 countries. In addition the Fund
outperformed the benchmark in eight of 10 economic sectors.
The portfolio continues to reflect our approach of investing in stocks of
companies that are attractively valued and exhibit improving business momentum.
The global economy is growing. Policy makers have begun the process of removing
the massive stimulus pumped into the system following the last recession and the
September 11 terrorist attacks. While policy has not yet moved into restrictive
territory, the combination of higher rates and higher oil prices may undermine
the strength of the economic expansion. Corporate profits are expected to grow,
but at a slower pace. It remains unclear whether investors will be encouraged by
the growth, or discouraged by the slowdown in the rate of growth. Overall,
valuation levels seem reasonable.
/s/ Daniel LeVan /s/ John Evers
- ---------------- --------------
Daniel LeVan John Evers
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
INTERNATIONAL SMALL CAP EQUITY FUND AND S&P/CITIGROUP EMI EX-US INDEX
- --------------------------------------------------------------------------------
[DATA BELOW REPRESENTS LINE CHART IN THE ORIGINAL DOCUMENT]
TBC International S&P / CitiGroup
Small Cap Fund EMI ex-US Index
----------------- ---------------
Beginning $100,000 $100,000
1996
Quarter1 $109,123 $105,745
Quarter2 $117,983 $110,417
Quarter3 $118,543 $107,917
Quarter4 $125,933 $107,249
1997
Quarter1 $129,050 $105,276
Quarter2 $144,933 $112,849
Quarter3 $147,408 $108,293
Quarter4 $127,767 $97,180
1998
Quarter1 $155,480 $113,897
Quarter2 $158,609 $113,484
Quarter3 $125,511 $96,313
Quarter4 $140,652 $108,988
1999
Quarter1 $153,742 $110,537
Quarter2 $175,694 $117,334
Quarter3 $193,860 $123,300
Quarter4 $198,510 $134,573
2000
Quarter1 $209,392 $137,310
Quarter2 $216,061 $134,913
Quarter3 $209,758 $127,812
Quarter4 $206,590 $120,702
2001
Quarter1 $187,102 $107,833
Quarter2 $200,451 $111,117
Quarter3 $173,819 $94,001
Quarter4 $186,603 $101,766
2002
Quarter1 $200,107 $107,879
Quarter2 $214,855 $110,042
Quarter3 $183,192 $90,656
Quarter4 $188,963 $94,345
2003
Quarter1 $184,006 $90,003
Quarter2 $220,558 $110,889
Quarter3 $250,224 $125,485
Quarter4 $290,085 $145,041
2004
Quarter1 $323,249 $158,702
Quarter2 $328,461 $160,101
Quarter3 $333,283 $160,202
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 1/02/96*
- -------------------------------------------------------------------------------
33.35% 24.23% 11.45% 14.75%
*COMBINED LP & MF PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,031.00 $6.45
Hypothetical (5% return per year before expenses) $1,000.00 $1,018.65 $6.41
- --------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.27%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). THE EXAMPLE REFLECTS THE
COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS
ALL ITS ASSETS.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in The Boston Company International
Small Cap Portfolio ("Portfolio"), at value (Note 1A) $211,828,916
Receivable for Fund shares sold 232,708
Prepaid expenses 6,320
------------
Total assets 212,067,944
LIABILITIES
Payable for Fund shares redeemed $ 8,830
Accrued transfer agent fees 3,253
Accrued trustees' fees and expenses 18
Accrued expenses and other liabilities 23,431
------------
Total liabilities 35,532
------------
NET ASSETS $212,032,412
------------
NET ASSETS CONSIST OF:
Paid-in capital $164,560,911
Accumulated net realized gain 14,084,367
Undistributed net investment income 949,027
Net unrealized appreciation 32,438,107
------------
TOTAL NET ASSETS $212,032,412
------------
Shares of beneficial interest outstanding 13,310,373
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 15.93
============
The accompanying notes are an integral part of the financial statements.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income allocated from Portfolio
(net of foreign withholding taxes of $322,835) $ 2,895,344
Interest income allocated from Portfolio
(including security lending income of $171,516) 237,754
Expenses allocated from Portfolio (1,666,703)
-----------
Net investment income allocated from Portfolio 1,466,395
EXPENSES
Transfer agent fees (Note 2) $ 7,833
Legal and audit services 34,632
Registration fees 24,745
Shareholder reports 17,200
Trustees' fees and expenses (Note 2) 2,034
Insurance expense 1,140
Miscellaneous 7,538
-----------
Total expenses 95,122
-----------
Net investment income 1,371,273
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions, foreign currency transactions
and forward foreign currency exchange contracts 18,477,139
Change in unrealized appreciation (depreciation)
on investments allocated from Portfolio 15,364,375
-----------
Net realized and unrealized gain on investments 33,841,514
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $35,212,787
===========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment income $ 1,371,273 $ 539,070
Net realized gains 18,477,139 1,815,495
Change in net unrealized appreciation 15,364,375 16,959,328
------------ ------------
Net increase in net assets from operations 35,212,787 19,313,893
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (1,083,002) (487,612)
------------ ------------
Total distributions to shareholders (1,083,002) (487,612)
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 102,193,352 44,415,601
Value of shares issued to shareholders
in payment of distributions declared 859,847 370,146
Redemption fees credited to capital 1,605 --
Cost of shares redeemed (14,722,174) (7,812,410)
------------ ------------
Net increase (decrease) in net assets
from Fund share transactions 88,332,630 36,973,337
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 122,462,415 55,799,618
NET ASSETS
At beginning of period 89,569,997 33,770,379
------------ ------------
At end of period (including undistributed net
investment income of $949,027 and $425,208) $212,032,412 $ 89,569,997
============ =============
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the Period
February 1, 2000
Year Ended September 30, (Commencement
------------------------------------------------ of Operations) to
2004 2003 2002 2001 September 30, 2000
-------- ------- ------- ------- -------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 12.05 $ 8.91 $ 8.55 $ 10.65 $ 10.00
-------- ------- ------- ------- -------
FROM INVESTMENT OPERATIONS:
Net investment income*(1) 0.14 0.10 0.09 0.11 0.09
Net realized and unrealized gains (loss) on investments 3.86 3.13 0.38 (1.89) 0.63
-------- ------- ------- ------- -------
Total from investment operations 4.00 3.23 0.47 (1.78) 0.72
-------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.12) (0.09) (0.11) (0.08) (0.07)
From net realized gains on investments -- -- -- (0.24) --
-------- ------- ------- ------- -------
Total distributions to shareholders (0.12) (0.09) (0.11) (0.32) (0.07)
-------- ------- ------- ------- -------
Net Asset Value, End of Period $ 15.93 $ 12.05 $ 8.91 $ 8.55 $ 10.65
======== ======= ======= ======= =======
TOTAL RETURN 33.35% 36.47%++ 5.39%++ (17.13)%++ 7.19%+
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)* 1.27% 1.39% 1.25% 1.25% 1.25%+
Net Investment Income (to average daily net assets)* 0.99% 1.01% 0.96% 1.10% 1.21%+
Portfolio Turnover (2) N/A 15% 69% 89% 70%
Net Assets, End of Period (000's omitted) $212,032 $89,570 $33,770 $22,386 $17,092
* For the periods indicated, the investment advisor voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the Fund
and Portfolio 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) N/A $ 0.08 $ 0.04 $ 0.04 $ 0.01
Ratios (to average daily net assets):
Expenses N/A 1.65% 1.82% 1.98% 2.29%+
Net investment income N/A 0.75% 0.39% 0.37% 0.17%+
(1) Calculated based on average shares outstanding.
(2) Portfolio turnover represents activity while the Fund was investing
directly in securities until January 27, 2003. The portfolio turnover for
the period since the Fund transferred substantially all of its investable
assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
+ Computed on an annualized basis.
++ Total return would have been lower in the absence of expense waivers
Returns for periods of less than one year have not been annualized.
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP 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 International Small Cap Fund (the "Fund") is a separate
diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest of The Boston
Company International Small Cap Portfolio (the "Portfolio"), a subtrust of
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"), which
is organized as a New York trust, and has the same investment objective as
the Fund. The Portfolio seeks to achieve its objective by investing, under
normal circumstances, at least 80% of net assets in equity securities in
companies that are located in foreign countries represented in the S&P
Citigroup EMI Ex-U.S. Index and, to a limited extent, emerging markets. The
value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (approximately
96.6% at September 30, 2004). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of
the Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
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
The Fund records its investment in the Portfolio at value. The method by
which the Portfolio values its securities is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. The Fund's net
investment income consists of the Fund's pro rata share of the net
investment income of the Portfolio, less all actual and accrued expenses of
the Fund determined in accordance with accounting principles generally
accepted in the United States of America. All realized and unrealized gains
and losses of the Portfolio are allocated pro rata among the investors in
the Portfolio.
C. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on 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. In determining the amounts of its dividends, the Fund will take
into account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a 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 foreign currency transactions, passive foreign
investment companies (PFICs) and capital loss carryovers and redemptions
in-kind. In 2004, the fund incurred a redemption in-kind which resulted in
a realized gain of $2,404,435, which will be deferred indefinitely for tax
purposes.
Permanent book and tax basis differences relating to shareholder
distributions, including distributions in kind, will result in
reclassifications among undistributed net investment income, 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 income or gain remaining at fiscal year end is
distributed in the following year. and redemptions in-kind. In 2004, the
fund incurred a redemption in-kind which resulted in a realized gain of
$2,404,435, which will be deferred indefinitely for tax purposes.
D. 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.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The Fund does not directly pay any investment advisory fees, but indirectly
bears its pro rata share of the compensation paid by the Portfolio to The
Boston Company Asset Management, LLC ("TBCAM") for such services. See Note
2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $3,500 during the year ended September
30, 2004.
The Fund imposes 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. For the year ended September 30, 2004, the Fund received
$1,605 in 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.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 30, 2004. The fund also bears its
pro rata share of the renumeration paid to the Trustees by the Portfolio.
See Note 2 of the Portfolio's notes to financial statements which are
included elsewhere in this report.
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $500
Benjamin M. Friedman $500
John H. Hewitt $500
Caleb Loring, III $500
Patrick J. Sheppard 0
Richard S. Wood * 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2004, aggregated $103,027,135 and $15,880,090,
respectively.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP 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:
for the for the
Year Ended Year Ended
Institutional Class: September 30, 2004 September 30, 2003
------------------ ------------------
Shares sold 6,808,462 4,394,538
Shares issued to shareholders in payment
of distributions declared 60,513 36,828
Shares redeemed (989,803) (788,597)
--------- ----------
Net increase 5,879,172 3,642,769
========= =========
At September 30, 2004, two shareholders of record held approximately 30%
and 15% of the total outstanding shares of the Fund. Investment activities
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.
As of September 30, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistributed ordinary income $15,018,686
Tax character of distributions paid during the fiscal year ended September
30, 2004, was as follows:
Distributions paid from:
Ordinary income $1,083,002
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY INTERNATIONAL SMALL CAP FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company International Small Cap Fund:
In our opinion, the accompanying statement of assets and liabilities, 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
The Boston Company International Small Cap Fund (the "Fund") at September 30,
2004, 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 the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements 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 investment in the Portfolio at September
30, 2004 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
12
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Country Sector Net Assets
----------------------------------------------------------------------------------------------------------
Puma AG Germany Consumer Discretionary 1.2
Sumisho Lease, Co., Ltd. Japan Financials 0.9
Continental AG Germany Consumer Discretionary 0.8
Nippon Shokubai Co. Japan Materials 0.8
Home Capital Group Canada Financials 0.8
Perpetual Trustees Australia Australia Financials 0.8
Keihin Corp. Japan Consumer Discretionary 0.8
Sims Group Ltd. Australia Materials 0.8
Jyske Bank Denmark Financials 0.8
Micronas Semiconductor Switzerland Information Technology 0.8
-----
8.5
Percentage of
Economic Sector Allocation Net Assets
-------------------------------------------------
Consumer Discretionary 19.7
Consumer Staples 6.2
Energy 4.2
Financials 17.5
Health Care 6.0
Industrials 18.8
Information Technology 7.6
Materials 10.5
Telecommunication Services 1.9
Utilities 1.8
Short-term and Net Other Assets 5.8
-----
100.0
Percentage of
Geographic Region Allocation* Net Assets
-------------------------------------------------
Europe ex U.K. 40.8
U.K. 20.0
Asia ex Japan 9.3
Japan 18.5
Americas ex U.S. 5.6
-----
94.2
* Excluding short-term investments and investment of cash collateral.
The Portfolio is actively managed. Current holdings may be different
than those presented above.
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES--94.2%
AUSTRALIA--3.6%
Caltex Australia Ltd. 172,600 $ 1,164,16
Oil Search Ltd. 1,327,800 1,439,500
Perpetual Trustees Australia Ltd. 48,000 1,750,082
Sims Group Ltd. (a) 171,100 1,711,770
Southern Cross Broadcasting (Australia) Ltd. 99,100 897,709
West Australian Newspaper Holdings (a) 170,400 941,031
----------
Total Cost ($6,726,711) 7,904,253
----------
AUSTRIA--0.5%
Boehler-Uddeholm 11,500 1,062,995
----------
Total Cost ($733,722)
BELGIUM--1.7%
Colruyt NV Right 9,724 12,937
Colruyt SA (a) 9,724 1,366,263
Mobistar SA * 20,000 1,429,910
NV Union Miniere SA 13,400 978,867
---------
Total Cost ($2,443,222) 3,787,977
----------
CANADA--5.6%
Astral Media, Inc. 34,500 775,846
Axcan Pharma, Inc. 54,300 846,537
Canfor Corp. 76,400 966,283
CHC Helicopter Corp. 39,100 1,519,229
Ensign Resource Service Group, Inc. 52,100 956,399
GSI Lumonic, Inc. * 62,200 651,051
Home Capital Group, Inc. 92,900 1,753,984
Inmet Mining Corp.. * 78,400 1,361,478
Northbridge Financial 69,900 1,292,576
Trican Well Service Ltd. * 33,000 1,256,046
Wheaton River Minerals Ltd. * 265,800 836,750
----------
Total Cost ($9,960,686) 12,216,179
----------
DENMARK--1.7%
GN Store Nord A/S 93,500 945,518
Jyske Bank * 26,000 1,694,887
Topdanmark A/S * 17,200 1,106,858
----------
Total Cost ($3,119,880) 3,747,263
----------
FINLAND--2.0%
Kesko Oyj 55,400 1,213,742
Nokian Renkaat Oyj 12,700 1,381,728
Rautaruukki Oyj 99,000 966,308
YIT-Yhtyma Oyj 38,300 754,812
----------
Total Cost ($3,174,978) 4,316,590
----------
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
FRANCE--7.7%
Alten 49,500 $ 965,69
Ciments Francais (a) 11,100 966,122
Clarins 12,155 743,434
CNP Assurances 16,700 1,085,998
Eiffage 14,922 1,276,516
Elior 106,700 945,943
Essilor International SA 11,600 746,413
Euler Hermes SA 27,100 1,632,578
Iliad SA (a) 39,700 937,897
Imerys SA 21,100 1,404,924
Legardere SCA 12,800 794,821
Natexis Banques Populaires 11,900 1,356,835
Oberthur Card Systems (a) 86,400 585,492
SR Teleperformance 38,300 778,623
Vallourec 11,020 1,288,013
Vinci SA 11,300 1,301,771
----------
Total Cost ($14,848,479) 16,811,073
----------
GERMANY--6.3%
AWD Holding AG 22,600 748,606
Continental AG 32,900 1,790,537
Hannover Rueckversicherung AG 35,650 1,156,940
Hypo Real Estate Holding * 44,200 1,516,849
Krones AG 8,400 779,582
Mobilcom AG 58,300 845,961
MPC Capital AG 10,400 749,631
Puma AG 9,500 2,548,149
Rhoen Klinikum AG 14,500 716,665
Software AG 22,800 751,262
Thyssenkrupp AG 51,400 1,002,760
United Internet AG Registered Shares 36,414 783,295
Vossloh AG 11,300 441,886
----------
Total Cost ($10,547,612) 13,832,123
----------
GREECE--0.3%
Germanos SA 29,600 694,872
----------
Total Cost ($549,577)
HONG KONG--2.7%
Global Biochem Tech 1,379,000 1,052,375
Golden Meditech Co., Ltd. 3,629,200 763,386
Kerry Properties Ltd. 350,500 660,837
Orient Overseas International Ltd. 283,000 1,132,479
Skyworth Digital Holdings Ltd. 2,654,000 723,351
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
HONG KONG (CONTINUED)
Wing Hang Bank Ltd. 91,100 $ 595,906
Xinao Gas Holdings Ltd. * 1,898,000 967,659
----------
Total Cost ($5,379,338) 5,895,993
----------
IRELAND--1.4%
Fyffes PLC 508,400 1,131,539
Grafton Group PLC 115,200 1,071,433
Kerry Group PLC 35,700 790,131
----------
Total Cost ($2,388,106) 2,993,103
----------
ITALY--3.2%
Autostrada Torino-Milano Spa (a) 54,300 1,120,776
Banco Popolare di Verona e Novara 57,800 1,014,784
Davide Campari-Milano Spa 15,800 795,652
Fondiaria-Sai Spa (a) 24,900 562,555
Milano Assicurazioni Spa (a) 271,800 1,145,671
Pirelli & C Real Estate (a) 28,500 1,184,301
Saipem Spa 115,800 1,303,071
----------
Total Cost ($6,091,630) 7,126,810
----------
JAPAN--18.5%
Alpine Electronics, Inc. (a) 64,600 828,642
Central Glass Co., Ltd. 176,000 1,292,800
CMK Corp.. (a) 71,000 959,145
Cosmo Oil Co., Ltd. 249,000 724,364
Doshisha Co., Ltd. 30,200 1,051,509
Goldcrest Co., Ltd. 17,500 1,024,545
Hamamatsu Photonics KK (a) 44,700 751,773
Hisamitsu Pharamaceutical 60,000 1,077,273
Hitachi Construction Machinery Co., Ltd. (a) 53,000 646,600
Index Corp.. (a) 459 1,018,145
Izumi Co. Ltdronics, Inc. 30,600 613,391
Kawasaki Kisen Kaisha Ltd. (a) 190,200 1,303,735
Keihin Corp. 106,900 1,710,400
Kirin Beverage Corp. 42,700 912,227
Koito Manufacturing Co. (a) 160,000 1,360,000
Komeri Co., Ltd. 35,600 775,109
Koyo Seiko Co., Ltd. (a) 87,000 976,773
Kuroda Electric Co., Ltd. (a) 67,800 1,531,664
Kyowa Exeo Corp. 184,000 1,201,018
Makita Corp.. (a) 76,000 1,075,055
Nippon Shokubai Ltd. (a) 236,000 1,765,709
Nissan Chemical Industries Ltd. (a) 141,000 1,083,136
Nissen Co., Ltd. 45,100 856,900
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
JAPAN (CONTINUED)
Nisshin Seifun Group, Inc. (a) 109,000 $ 1,054,32
Nisshin Steel Co., Ltd. 608,000 1,348,655
Otsuka Corp. 22,400 1,179,055
Ricoh Leasing Co., Ltd. (a) 50,600 1,216,700
Sanyo Shinpan Finance Co., Ltd. 22,000 1,180,000
Seino Transportation Co., Ltd. 128,000 1,146,182
Shinko Electric Industrial 30,400 920,291
Sodick Co., Ltd. (a) 120,000 741,818
Sumisho Lease Co., Ltd. 53,100 1,921,255
Sumitomo Rubber Industries, Inc. (a) 157,000 1,521,473
Sysmex Corp. 25,100 928,700
Tamron Co., Ltd. (a) 24,800 919,855
Tokyo Tatemono Co., Ltd. 192,000 958,255
Tsuruha Co., Ltd. 34,900 920,091
----------
Total Cost ($36,742,452) 40,496,570
----------
NETHERLANDS--3.5%
Aalberts Industries NV 32,700 1,189,281
ASM International NV 44,000 588,675
Corio NV 30,800 1,478,636
Hunter Douglas NV 21,400 984,258
Koninklijke BAM Groep NV 26,400 981,490
Koninklijke Wessanen NV 64,400 859,204
Stork NV 48,200 1,153,089
VNU NV 20,300 522,489
----------
Total Cost ($6,548,326) 7,757,122
----------
NORWAY--0.9%
Leroy Seafood Group ASA 116,300 563,570
Tandberg Television ASA * 192,300 1,440,788
----------
Total Cost ($1,663,203) 2,004,358
----------
PORTUGAL--1.2%
Banco BPI SA 406,100 1,524,933
Jeronimo Martins, SGPS, S.A. * 88,700 1,000,326
----------
Total Cost ($2,350,075) 2,525,259
----------
SINGAPORE--1.0%
First Engineering Ltd. 1,323,000 989,776
Jurong Technologies Industrial 1,497,000 1,111,062
----------
Total Cost ($1,882,038) 2,100,838
----------
SOUTH KOREA--2.0%
Hanjin Shipping Corp. 46,600 795,560
Honam Petrochemical Corp. 21,900 867,628
Hyundai Mipo Dockyard 54,600 1,228,619
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
SOUTH KOREA (CONTINUED)
Interflex Co., Ltd. 39,700 $ 827,802
Korean Reinsurance Co. 193,330 663,470
----------
Total Cost ($3,735,003) 4,383,079
----------
SPAIN--4.0%
ACS Actividades 56,300 1,026,950
Aldeasa SA 32,100 987,850
Corp. Mapfre SA 55,200 648,607
Ebro Puleva, S.A (a) 63,400 744,170
Enagas 77,600 929,178
Gamesa Corp. Tecnological 101,000 1,483,140
Immobiliaria Urbis SA 125,400 1,437,604
Indra Sistemas SA 61,600 821,082
TPI Telefonica Publicidad e Informacion SA 101,100 707,735
----------
Total Cost ($6,965,707) 8,786,316
----------
SWEDEN--1.5%
Elekta AB * (a) 54,859 1,334,255
Getinge AB 83,400 1,014,208
Nobia AB 78,600 1,012,539
----------
Total Cost ($2,543,312) 3,361,002
----------
SWITZERLAND--4.9%
Actelion NV 6,800 699,173
Geberit AG 2,080 1,620,692
Logitech International SA * 19,610 953,012
Micronas Semiconductor Holdings * 39,100 1,664,632
Rieter Holding AG 4,600 1,248,936
Saurer AG 22,040 1,203,888
Sika AG 2,000 1,156,719
Straumann Holding AG 4,600 979,195
Syngenta AG 8,600 822,074
Vontobel Holding AG 23,300 483,818
----------
Total Cost ($8,375,203) 10,832,139
----------
UNITED KINGDOM--20.0%
Acambis PLC * 159,700 882,452
Aggregate Industries PLC 872,100 1,508,884
Alliance Unichem PLC 74,400 898,379
Balfour Beatty PLC 268,700 1,355,749
Barratt Developments PLC 78,300 802,906
BPB PLC 206,000 1,597,340
British Airways PLC * 129,700 487,578
Cairn Energy PLC * 35,500 932,573
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- ----------------------------------------------------------------------------------
UNITED KINGDOM (CONTINUED)
Close Brothers Group PLC 49,000 $ 614,755
Collins Stewart Tullett 98,400 713,085
Computacenter PLC 90,500 553,361
Cookson Group PLC 1,516,400 824,179
Crest Nicholson 102,500 664,803
Enterprise Inns PLC 123,100 1,271,216
FirstGroup PLC 173,000 919,900
Friends Provident PLC 504,200 1,271,992
Galen Holdings PLC 93,600 1,300,641
George Wimpey PLC 112,300 817,885
Grainger Trust 34,600 1,150,266
Greene King PLC 42,500 801,541
Hiscox PLC 532,900 1,600,242
HMV Group PLC 246,800 1,020,569
Inchcape PLC 45,100 1,273,823
Intertek Group PLC 90,800 987,014
iSOFT Group PLC 138,906 981,457
Johnston Press PLC 92,300 930,579
Kelda Group PLC 78,100 757,699
Kensington Group PLC 85,700 621,982
Kidde PLC 533,100 1,192,784
Kier Group PLC 92,400 1,217,843
Mcbride PLC 519,500 1,390,591
McCarthy & Stone PLC 102,200 1,110,934
Next PLC 52,500 1,553,216
SIG PLC 130,800 1,161,155
Speedy Hire PLC 153,200 1,221,231
Taylor Nelson Sofres PLC 221,500 890,867
Travis Perkins PLC 44,000 1,144,705
Ultra Electronics Holdings 66,600 804,797
United Business Media PLC 150,500 1,272,645
Viridian Group PLC 108,700 1,244,609
Whitbread PLC 70,300 1,049,467
WS Atkins PLC 106,900 1,254,983
-----------
Total Cost ($37,488,981) 44,052,677
-----------
TOTAL EQUITIES (Cost $174,258,241) 206,688,591
-----------
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Rate Maturity Par Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--3.0%
U.S. GOVERNMENT--0.3%
U.S. Treasury Bill ((+)) 1.640% 12/16/2004 $ 675,000 $ 672,677
INVESTMENT COMPANIES--2.7% Shares
----------
Dreyfus Institutional Preferred Plus Money Market Fund ++ 5,845,266 5,845,266
-----------
TOTAL SHORT TERM INVESTMENTS (Cost $6,517,943) 6,517,943
-----------
INVESTMENT OF CASH COLLATERAL--9.2%
Dreyfus Cash Management
Plus Money Market Fund ((+)(+)) (Cost $20,299,307) 20,299,307 20,299,307
-----------
TOTAL INVESTMENTS--106.4% (COST $201,075,491) 233,505,841
LIABILITIES IN EXCESS OF OTHER ASSETS--(6.4%) (14,137,871)
-----------
NET ASSETS--100% $219,367,970
============
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Security, or a portion of thereof, was on loan at 9/30/04.
* Non-income producing security
+ Denotes all or part of security segregated as collateral.
++ Affiliated institutional money market fund.
At September 30, 2004, the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount At Value Loss
- ---------------------------------------------------------------------------------------------------------------------
MSCI Pan-Euro (347 contracts) Long 12/17/2004 $7,007,068 $(31,869)
Topix Futures (21 contracts) Long 12/9/2004 2,137,902 (31,143)
--------
$(63,012)
========
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $19,274,168)
(Note 6):
Unaffiliated issuers, at value (Note 1A) (cost $174,930,918) $207,361,268
Affiliated issuers, at value (Note 1A) (cost $26,144,573) (Note 1H) 26,144,573
Foreign currency, at value (identified cost, $5,278,543) 5,364,153
Receivable for investment securities sold 336,507
Interest and dividends receivable 537,726
Prepaid expenses 12,727
------------
Total assets 239,756,954
LIABILITIES
Liability for securities on loan (Note 6) $20,299,307
Payable for variation margin
on open futures contracts (Note 5) 17,058
Accrued accounting and custody fees 36,899
Accrued trustees' fees and expenses 5,306
Accrued expenses and other liabilities 30,414
-----------
Total liabilities 20,388,984
------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $219,367,970
============
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income (net of foreign withholding taxes of $329,947) $ 2,960,708
Interest income (including securities lending income of $177,450) 243,145
-----------
Total investment income 3,203,853
EXPENSES
Investment advisory fee (Note 2) $1,416,138
Accounting and custody fees (Note 2) 210,328
Legal and audit services 33,950
Trustees' fees and expenses (Note 2) 24,169
Insurance expense 9,567
Miscellaneous 5,976
----------
Total expenses 1,700,128
-----------
Net investment income 1,503,725
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 18,989,770
Futures contracts 52,749
Foreign currency transactions and forward foreign currency exchange contracts (162,883)
----------
Net realized gain 18,879,636
Change in unrealized appreciation (depreciation)
Investment securities 15,276,111
Financial futures contracts 32,848
Foreign currency transactions and forward foreign currency exchange contracts 59,997
----------
Net change in unrealized appreciation (depreciation) 15,368,956
-----------
Net realized and unrealized gain 34,248,592
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $35,752,317
===========
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
(Commencement
For the of Operations)
Year Ended to
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income $ 1,503,725 $ 531,792
Net realized gains 18,879,636 2,795,189
Change in net unrealized appreciation 15,368,956 15,196,221
------------ ------------
Net increase in net assets from operations 35,752,317 18,523,202
------------ ------------
CAPITAL TRANSACTIONS
Assets contributed by Standish International Small Cap Fund
(including unrealized appreciation of $0 and $1,891,429) -- 39,701,792
Contributions 112,536,550 35,896,110
Withdrawals (18,465,788) (4,576,213)
------------ ------------
Net increase in net assets from capital transactions 94,070,762 71,021,689
------------ ------------
TOTAL INCREASE IN NET ASSETS 129,823,079 89,544,891
NET ASSETS
At beginning of period 89,544,891 --
------------ ------------
At end of period $219,367,970 $ 89,544,891
============ ============
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
For the (Commencement of
Year Ended Operations) to
September 30, 2004 September 30, 2003
------------------ ------------------
TOTAL RETURN+ 33.42% 36.44%(1)++
RATIOS:
Expenses (to average daily net assets)* 1.20% 1.46%(2)
Net Investment Income (to average daily net assets)* 1.06% 1.29%(2)
Portfolio Turnover 72% 46%(1)
Net Assets, End of Period (000's omitted) $219,368 $89,545
- -----------
* For the period indicated, the investment advisor voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the
Portfolio for a portion of its operating expenses. If this voluntary action
had not been taken, the ratios would have been:
Ratios (to average daily net assets):
Expenses N/A 1.49%(2)
Net investment income N/A 1.26%(2)
+ Total return for the Portfolio has been calculated based on the total
return for the investor Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements.
++ Total return for the Portfolio includes performance of The Boston Company
International Small Cap Fund prior to its conversion to a master-feeder
structure and contribution of its investments to the Portfolio. Total
return would have been lower in the absence of expense waivers.
(1) Not annualized.
(2) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York on
January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The Boston
Company International Small Cap Portfolio (the "Portfolio"), a separate
diversified investment series of the Portfolio Trust, commenced operations
on January 28, 2003.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in equity securities of companies
that are located in foreign countries represented in the Salomon Smith
Barney Extended Market Ex-U.S. Index and, to a limited extent, emerging
markets.
At September 30, 2004, there were two funds, The Boston Company
International Small Cap Fund and Dreyfus Premier International Small Cap
Fund invested in the Portfolio. The value of the funds' investment in the
Portfolio reflects the funds' proportionate interests in the net assets of
the Portfolio. At September 30, 2004, The Boston Company International
Small Cap Fund and the Dreyfus Premier International Small Cap Fund held
approximately 96.6% and 3.4% interests in the Portfolio, respectively.
The following is a summary of significant accounting policies followed by
the Portfolio 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 normally traded. Because foreign markets may be open at
different times than the New York Stock Exchange, the value of the
Portolio's shares may change on days when shareholders are not able to buy
or sell them. Many securities markets and exchanges outside the U.S. close
prior to the close of the New York Stock Exchange and therefore the closing
prices for securities in such markets or on such exchanges may not fully
reflect the events that occur after such close but before the close of the
New York Stock Exchange.
If market quotations are not readily available or do not accurately reflect
fair value, or the value of a security has been materially affected by
events occurring after the close of the exchange or market on which the
security is principally traded (for example, a foreign exchange or market)
, the Portfolio may value its assets by a method the Trustees believe
accurately reflects the fair value. The Trustees have adopted fair value
pricing procedures, which, among other things, require the Portfolio to
fair value such secutities if there has been a movement in the U.S. market
that exceeds a specified threshold. Although the threshold may be revised
from time to time and the number of days on which fair value prices will be
used will depend on market activity, it is possible that fair value prices
for foreign securities will be used by each fund to a significant extent.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio 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. 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.
Dividend income is recorded on the ex-dividend date. Realized gains and
losses from securities sold are recorded on the identified cost basis. The
Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from the
fluctuations arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or loss
from investments. Net realized gains and losses on foreign currency
transactions represent gains and losses on disposition of foreign
currencies and forward foreign currency exchange contracts, currency gains
and losses realized between the trade and settlement dates on securities
transactions, and the difference between the amount of investment income
and foreign withholding taxes recorded on the Portfolio's books and the
U.S. dollar equivalent amounts usually received or paid.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since at least one of
the Portfolio's investors is a regulated investment company that invests
all or substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio allocates
at least annually among its investors each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss deduction or credit.
E. FOREIGN CURRENCY TRANSACTIONS
Investment security valuations, other assets, and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based upon
current currency exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
Section 988 of the Internal Revenue Code provides that gains or losses on
certain transactions attributable to fluctuations in foreign currency
exchange rates must be treated as ordinary income or loss. For financial
statement purposes, such amounts are included in net realized gains or
losses.
F. INVESTMENT RISK
There are certain additional risks involved in investing in foreign
securities that are not inherent in investments in domestic securities.
These risks may involve adverse political and economic developments,
including the possible imposition of capital controls or other foreign
governmental laws or restrictions. In addition, the securities of some
foreign companies and securities markets are less liquid and at times may
be more volatile than securities of comparable U.S. companies and U.S.
securities markets. The risks described above apply to an even greater
extent to investments in emerging markets. The securities markets of
emerging countries are generally smaller, less developed, less liquid, and
more volatile than the securities markets of the U.S. and developed foreign
markets.
G. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve future
claims that may be made against the Portfolio that have not yet occurred.
However, based on experience, the Portfolio expects the risks of loss to be
remote.
H. AFFILIATED ISSUERS
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
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 1.00% of the Portfolio's average daily net assets. For
the year ended September 30, 2004, the Portfolio paid $1,416,138 in
investment advisory fees to TBCAM.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly
owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM,
to provide custody, fund administration and fund accounting services for
the Portfolio. For these services the Portfolio pays Mellon Bank a fixed
fee plus fees that are asset and transaction based, as well as,
out-of-pocket expenses. Pursuant to this agreement the Portfolio was
charged $209,622 during the year ended September 30, 2004.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio for serving as an officer or
Trustee of the Trust. The Portfolio 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 Portfolio Trust pays the legal fees for the
independent counsel of the Trustees.
The following table sets forth all remuneration paid to the Trustees by the
Portfolio for the fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $3,062
Benjamin M. Friedman $3,062
John H. Hewitt $3,062
Caleb Loring, III $3,293
Patrick J. Sheppard 0
Richard S. Wood * 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2004 were $182,962,215 and
$98,297,342, respectively. For the year ended September 30, 2004, the
Portfolio did not purchase or sell any long-term U.S. government
securities.
(4) 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 cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $201,075,491
============
Gross unrealized appreciation $ 35,337,997
Gross unrealized depreciation (2,907,647)
------------
Net unrealized appreciation $ 32,430,350
============
(5) 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 Portfolio Trust's registration statement.
The Portfolio may trade the following financial instruments with
off-balance sheet risk:
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Portfolio's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the Portfolio's
exposure to the underlying instrument, or hedge other Portfolio
investments. Options, both held and written by the Portfolio, 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 Portfolio is exercised, the premium reduces
the cost basis of the securities purchased by the Portfolio. The Portfolio,
as a 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 Portfolio did not enter into option transactions during the year ended
September 30, 2004.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
At September 30, 2004, the Portfolio did not hold any forward currency
exchange contracts.
FUTURES CONTRACTS
The Portfolio 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 margin requirements the Portfolio
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 Portfolio 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 Portfolio. 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 Portfolio's exposure to the underlying instrument, while
selling futures tends to decrease the Portfolio's exposure to the
underlying instrument or hedge other investments. In addition, there is the
risk that the Portfolio 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 counterparty does not perform under the
contract's terms. The Portfolio enters into financial futures transactions
primarily to seek 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, 2004, the Portfolio held the
following outstanding financial futures contracts:
At September 30, 2004, the Portfolio held futures contracts. See Schedule
of Investments for further details.
28
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(6) SECURITY LENDING:
The Portfolio entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Portfolio's lending agent.
Pursuant to this agreement the Mellon Bank receives an agreed upon
percentage of the net lending revenues. This compensation is a standard
form of compensation received by securities lending agents with respect to
non-affiliated entities.
The Portfolio may lend its securities to financial institutions which the
Portfolio 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 Portfolio on the next business day. For the duration of a
loan, the Portfolio 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 Portfolio 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 Portfolio. In the event of
borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in the
event it was delayed or prevented from exercising its rights to dispose of
the collateral. The Portfolio also bears the risk in the event that the
interest and/or dividends received on invested collateral is not sufficient
to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended September 30, 2004
resulting in $177,450 worth of security lending income. At September 30,
2004, the Portfolio had securities valued at $19,274,168 on loan.
(7) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in the
Mellon Institutional Funds Investment Trust (the "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 facility fee,
computed at an annual rate of .060 of 1% on the committed amount, is
allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended September 30, 2004, the facility fee was
$1,949.
During the year ended September 30, 2004, the Portfolio had no borrowings
under the credit facility.
29
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY INTERNATIONAL SMALL CAP PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Portfolio and Investors of The
Boston Company International Small Cap Portfolio:
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 The Boston Company International
Small Cap Portfolio (the "Portfolio") at September 30, 2004 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 Portfolio'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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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, 2004 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
30
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
31
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
31
THIS PAGE INTENTIONALLY LEFT BLANK
33
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0939AR0904
34
[LOGO] Mellon
-------------------------
Mellon Institutional Funds
Annual Report THE BOSTON COMPANY SMALL CAP GROWTH FUND
(INSTITUTIONAL AND SERVICE CLASS SHARES)
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
November 29, 2004
[LOGO] Mellon
-------------------
Mellon Institutional Funds
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND-INSTITUTIONAL AND SERVICE CLASSES
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
The level of uncertainty in the equity markets has diverted investor attention
from investment fundamentals (e.g., earnings and earnings growth) to investment
behavior that is more emotionally driven. The current unsettled climate is
fostered by terrorist threats, the election puzzle, oil price uncertainty,
inflation fears and interest rate concerns. The economy continues to perform
relatively well and concerns about slowing economic growth and the resultant
slowing corporate profit growth seem to be somewhat overblown.
For the twelve months ended September 30, 2004 The Boston Company Small Cap
Growth Fund-Institutional Class had a total return of 17.09% versus 11.92% for
the Russell 2000 Growth Index. The Boston Company Small Cap Growth Fund-Service
Class returned 16.76% as compared to the same benchmark. The Funds have had
strong relative performance in recent months as our holdings have been somewhat
more risk averse but, at the same time, they have participated fully in the
recent positive move. Within the markets, smaller stocks again performed better
than large stocks (the Russell 2000 was up 18.77% while the S&P 500 was up
13.87%), and value has outpaced growth, especially in smaller stocks where the
Russell 2000 Value Index was up more than twice that of the Russell 2000 Growth
index.
Our risk averse approach continues to be a rewarding strategy in this very
volatile market environment. We are finding many companies we believe are truly
undervalued, not just cheap for an obvious reason. These potentially rewarding
opportunities seem to be a by-product of the prevailing market caution,
bordering on pessimism. The US economy slowed a bit in the summer as higher
energy prices and interest rates, along with the uncertainty surrounding the
election and its potential market impact, reduced consumer and investor
confidence and put a modest damper on the stock market. We continue to view the
economic landscape positively and expect corporate capital spending to remain
relatively strong.
Our best performing sectors relative to the index have been health care,
industrials and consumer discretionary. We expect strong earnings in these
sectors and continue to emphasize them in our portfolio allocation decisions.
Our energy holdings have been reduced at the margin as the stocks have done
well. We continue to carry a market weight in this sector because of our
long-term positive outlook for energy prices. Our emphasis here continues to be
on energy services and exploration companies.
We continue to deemphasize financials as most of these stocks are fully valued
in our view. Business momentum is neutral at best and rising interest rates will
further narrow spreads and put more pressure on earnings in coming quarters.
Stocks in the industrials sector are attractive because of the positive outlook
for corporate capital spending. We look for several more quarters of relatively
strong earnings from this group and remain significantly overweight here.
Our general outlook remains positive. We continue to find many companies in our
research universe we believe are undervalued with strong fundamentals and good
earnings prospects. With a good chance for continued economic growth and modest
inflation, capital spending should be robust for several quarters. The major
concerns were highlighted earlier but we believe our fundamental approach,
emphasizing strong business momentum and undervaluation, will yield good returns
even in this more volatile equity environment.
/s/ B. Randall Watts /s/ Todd Wakefield
- -------------------- ------------------
B. Randall Watts Todd Wakefield
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND-INSTITUTIONAL CLASS
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
SMALL CAP GROWTH FUND INSTITUTIONAL CLASS AND THE RUSSELL 2000 GROWTH INDEX
- --------------------------------------------------------------------------------
[DATA WAS REPRESENTED BY A LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000
Growth Fund Growth Index
------------- ------------
Beginning $100,000 $100,000
1997
Quarter1 $91,266 $89,512
Quarter2 $116,634 $105,225
Quarter3 $142,935 $123,029
Quarter4 $130,864 $112,946
1998
Quarter1 $151,900 $126,366
Quarter2 $144,500 $119,109
Quarter3 $117,440 $92,477
Quarter4 $149,574 $114,336
1999
Quarter1 $175,419 $112,415
Quarter2 $199,996 $128,991
Quarter3 $202,163 $122,649
Quarter4 $340,533 $163,606
2000
Quarter1 $398,210 $178,790
Quarter2 $369,884 $165,610
Quarter3 $346,916 $159,031
Quarter4 $270,173 $126,909
2001
Quarter1 $216,630 $107,613
Quarter2 $251,397 $126,956
Quarter3 $189,567 $91,307
Quarter4 $222,198 $115,197
2002
Quarter1 $220,061 $112,939
Quarter2 $193,582 $95,212
Quarter3 $160,498 $74,724
Quarter4 $166,001 $80,336
2003
Quarter1 $159,203 $77,221
Quarter2 $191,054 $95,867
Quarter3 $209,881 $105,902
Quarter4 $241,078 $119,333
2004
Quarter1 $258,576 $125,994
Quarter2 $256,815 $126,111
Quarter3 $245,686 $118,531
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 12/23/1996
- --------------------------------------------------------------------------------
17.09% 9.03% 3.98% 12.43%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND-SERVICE CLASS
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
SMALL CAP GROWTH FUND SERVICE CLASS AND THE RUSSELL 2000 GROWTH INDEX
- --------------------------------------------------------------------------------
[DATA WAS REPRESENTED BY A LINE CHART IN THE ORIGINAL DOCUMENT]
TBC Small Cap Russell 2000
Growth Service Fund Growth Index
------------------- ------------
Beginning $100,000 $100,000
2000
Quarter3 $93,772 $96,027
Quarter4 $72,985 $76,631
2001
Quarter1 $58,489 $64,980
Quarter2 $67,820 $76,660
Quarter3 $51,119 $55,134
Quarter4 $59,872 $69,559
2002
Quarter1 $59,242 $68,196
Quarter2 $52,082 $57,492
Quarter3 $43,154 $45,120
Quarter4 $44,607 $48,509
2003
Quarter1 $42,751 $46,628
Quarter2 $51,290 $57,887
Quarter3 $56,302 $63,947
Quarter4 $64,646 $72,057
2004
Quarter1 $69,284 $76,079
Quarter2 $68,778 $76,150
Quarter3 $65,732 $71,572
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5/05/2000
- --------------------------------------------------------------------------------
16.76% 8.74% (7.74)%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
Institutional Shares April 1, 2004 September 30, 2004 September 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $ 950.20 $5.75
Hypothetical (5% return per year
before expenses) $1,000.00 $1,019.10 $5.96
- ------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.18%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
Service Shares April 1, 2004 September 30, 2004 September 30, 2004
- ------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $ 948.70 $6.97
Hypothetical (5% return per year
before expenses) $1,000.00 $1,017.85 $7.21
- ------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.43%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD). THE EXAMPLE REFLECTS THE
COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS
ALL ITS ASSETS.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in The Boston Company Small Cap
Growth Portfolio ("Portfolio"), at value (Note 1A) $ 32,769,399
Receivable for Fund shares sold 3,609
Prepaid expenses 10,219
------------
Total assets 32,783,227
LIABILITIES
Accrued transfer agent $ 8,794
Accrued service fees-Service Class (Note 3) 8,952
Accrued trustees' fees and expenses 2,055
Accrued expenses and other liabilities 29,868
---------
Total liabilities 49,669
------------
NET ASSETS $ 32,733,558
============
NET ASSETS CONSIST OF:
Paid-in capital $ 49,414,876
Accumulated net realized loss (20,492,300)
Net unrealized appreciation 3,810,982
------------
TOTAL NET ASSETS $ 32,733,558
============
NET ASSETS ATTRIBUTABLE TO:
Institutional Class $ 18,273,800
============
Service Class $ 14,459,758
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING
Institutional Class 481,542
============
Service Class 385,046
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding)
Institutional Class $ 37.95
============
Service Class $ 37.55
============
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income allocated from Portfolio (net of foreign withholding taxes of $106) $ 86,505
Interest income allocated from Portfolio (including security lending income of $5,911) 21,033
Expenses allocated from Portfolio (396,489)
----------
Net investment loss allocated from Portfolio (288,951)
EXPENSES
Professional fees $ 26,310
Registration fees 32,078
Service Fees--Service Class (Note 3) 33,217
Transfer agent fees--Institutional Class (Note 2) 6,564
Transfer agent fees--Service Class (Note 2) 6,285
Trustees' fees and expenses (Note 2) 2,001
Insurance expense 761
Shareholder reports 12,400
Miscellaneous 6,576
---------
Total expenses 126,192
DEDUCT:
Reimbursement of Fund operating expenses--Institutional Class (Note 2)
(46,892)
Reimbursement of Fund operating expenses--Service Class (Note 2) (34,772)
---------
Total expense deductions (81,664)
--------
Net expenses 44,528
----------
Net investment loss (333,479)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions 5,039,347
Financial futures contracts (51,871)
---------
Net realized gain 4,987,476
Change in unrealized appreciation
(depreciation) allocated from Portfolio 378,758
----------
Net realized and unrealized gain (loss) 5,366,234
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $5,032,755
==========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------ ------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment loss $ (333,479) $ (127,333)
Net realized gains allocated from Portfolio 4,987,476 2,646,711
Change in net unrealized appreciation allocated from Portfolio 378,758 4,670,966
----------- ------------
Net increase in net assets from operations 5,032,755 7,190,344
----------- ------------
FUND SHARE TRANSACTIONS (NOTE 5)
Net proceeds from sale of shares
Institutional Class 1,679,964 9,023,694
Service Class 7,576,844 2,573,894
Redemption fees credited to capital
Institutional Class 51 --
Cost of shares redeemed
Institutional Class (8,131,829) (11,987,346)
Service Class (3,512,445) (1,209,938)
----------- ------------
Net decrease in net assets from Fund share transactions (2,387,415) (1,599,696)
----------- ------------
TOTAL INCREASE IN NET ASSETS 2,645,340 5,590,648
NET ASSETS
At beginning of year 30,088,218 24,497,570
----------- ------------
At end of year (including undistributed net investment
income of $0 and $28) $32,733,558 $ 30,088,218
=========== ============
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
IHE BOSTON COMPANY SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS--INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
Year Ended September 30,
------------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
NET ASSET VALUE, BEGINNING OF YEAR $ 32.41 $ 24.78 $ 29.28 $ 60.87 $ 38.28
------- ------- ------- ------- -------
FROM OPERATIONS:
Net investment income* (1) (0.33) (0.11) (0.16) (0.19) (0.43)
Net realized and unrealized gains (loss) on investments 5.87(3) 7.74(3) (4.34)(3) (25.66) 26.82
------- ------- ------- ------- -------
Total from operations 5.54 7.63 (4.50) (25.85) 26.39
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on investments -- -- -- (5.74) (3.80)
------- ------- ------- ------- -------
Total distributions to shareholders -- -- -- (5.74) (3.80)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 37.95 $ 32.41 $ 24.78 $ 29.28 $ 60.87
======= ======= ======= ======= =======
TOTAL RETURN(+) 17.09% 30.79% (15.37)% (45.36)% 71.60%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(2) 1.18% 1.00% 1.00% 1.00% 0.98%
Net Investment Income (to average daily net assets) (0.87)% (0.42)% (0.52)% (0.48)% (0.70)%
Net Assets, End of Year (000's omitted) $18,274 $21,168 $18,780 $31,365 $82,840
- ------------
* For the years indicated, the investment advisor 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) $ (0.40) $ (0.30) $ (0.25) $ (0.28) N/A
Ratios (to average daily net assets):
Expenses(2) 1.37% 1.66% 1.29% 1.20% N/A
Net investment income (1.06)% (1.08)% (0.81)% (0.68)% N/A
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's share of the The Boston Company Small Cap Growth
Portfolio's allocated expenses.
(3) Amount includes securities litigation proceeds received by the Fund of
$0.06 for the year ended September 30, 2004, less than $0.01 for the year
ended September 30, 2003 and $0.01 for the year ended September 30, 2002.
(+) Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
FINANCIAL HIGHLIGHTS--SERVICE CLASS
- --------------------------------------------------------------------------------
For the Period
May 8, 2000
Year Ended September 30, (Commencement
----------------------------------------------- of Operations) to
2004 2003 2002 2001 September 30, 2000
------- ------ ------- ------- ------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 32.16 $24.65 $ 29.19 $ 60.83 $59.04
------- ------ ------- ------- ------
FROM INVESTMENT OPERATIONS:
Net investment income* (1) (0.41) (0.19) (0.23) (0.29) (0.21)
Net realized and unrealized gains (loss) on investments 5.80(3) 7.70(3) (4.31)(3) (25.63) 2.00
------- ------ ------- ------- ------
Total from investment operations 5.39 7.51 (4.54) (25.92) 1.79
------- ------ ------- ------- ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gains on investments -- -- -- (5.72) --
------- ------ ------- ------- ------
Total distributions to shareholders -- -- -- (5.72) --
------- ------ ------- ------- ------
NET ASSET VALUE, END OF YEAR $ 37.55 $32.16 $ 24.65 $ 29.19 $60.83
======= ====== ======= ======= ======
TOTAL RETURN+++ 16.76% 30.47% (15.55)% (45.49)% 3.03%++
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) * (2) 1.43% 1.25% 1.25% 1.25% 1.23%+
Net Investment Income (to average daily net assets) (1.12)% (0.68)% (0.74)% (0.75)% (0.84)%+
Net Assets, End of Year (000's omitted) $14,460 $8,921 $ 5,718 $ 6,156 $8,031
- -----------
* For the years indicated, the investment advisor 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) $ (0.51) $ (0.40) $ (0.35) $ (0.41) $(0.24)
Ratios (to average daily net assets):
Expenses(2) 1.70% 2.00% 1.66% 1.55% 1.36%(+)
Net investment income (1.38)% (1.43)% (1.15)% (1.05)% (0.97)%(+)
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's share of the The Boston Company Small Cap Growth
Portfolio's allocated expenses.
(3) Amount includes securities litigation proceeds received by the Fund of
$0.06 for the year ended September 30, 2004, less than $0.01 for the year
ended September 30, 2003 and $0.01 for the year ended September 30, 2002.
+ Computed on an annualized basis.
++ Not annualized.
+++ Total return would have been lower in the absence of expense waivers
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH 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 Growth 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 invests all of its investable assets in an interest in The Boston
Company Small Cap Growth Portfolio (the "Portfolio"), a subtrust of Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and has the same investment objective as the
Fund. The Portfolio seeks to achieve its investment objective by investing,
under normal circumstances, at least 80% of its net assets in equity
securities of small cap U.S. companies. The value of the Fund's investment
in the Portfolio reflects the Fund's proportionate interest in the net
assets of the Portfolio. As of September 30, 2004 the Fund owned
approximately 100% of the Portfolio assets. The performance of the Fund is
directly affected by the performance of the Portfolio. The financial
statements of the Portfolio are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The Fund currently offers two classes of shares: Institutional Class and
Service Class. Expenses of the Fund are borne pro-rata by the holders of
each class of shares, except for transfer agent fees and an account service
fee of 0.25% of the average daily net assets of the Service Class of
shares. Each class votes separately as a class only with respect to its own
distribution plan (Service Class only) or other matters that relate only to
that class. Shares of each class would receive their pro-rata share of the
net assets of the Fund (after satisfaction of any class-specific expenses)
if the Fund were liquidated. In addition, the Trustees declare separate
dividends on each class of shares.
Shares of the Service Class may be purchased by entities ("Account
Administrators") that provide omnibus accounting services for groups of
individuals who beneficially own Service Class shares ("Omnibus Accounts").
Omnibus Accounts include pension and retirement plans (such as 401(k)
plans, 457 plans and 403(b) plans), and programs through which personal and
or account maintenance services are provided to groups of individuals
whether or not such individuals invest on a tax-deferred basis. Individual
investors may only purchase Service Class shares through their Omnibus
Account Administrators.
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
The Fund records its investment in the Portfolio at value. The method by
which the Portfolio values its securities is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
Investment transactions are recorded as of the trade date. The Fund's net
investment income consists of the Fund's pro rata share of the net
investment income of the Portfolio, less all actual and accrued expenses of
the Fund determined in accordance with accounting principles generally
accepted in the United States of America. All realized and unrealized gains
and losses of the Portfolio are allocated pro rata among the investors in
the Portfolio.
C. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on ex-dividend date. The Fund's
distributions from short-term and long-term capital gains, if any, after
reduction of capital losses will be declared and distributed at least
annually. In determining the amounts of its distributions, the Fund will
take into account its share of the income, gains or losses, expenses, and
any other tax items of the Portfolio. Dividends from net investment income
and distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a 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, capital loss
carryovers and realized and unrealized gains or losses on futures.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to 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. The calculation of net investment income per share in the financial
highlights table excludes these reclassifications.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. ALLOCATION OF OPERATING ACTIVITY
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. Investment
income, common expenses and realized and unrealized gains and losses are
allocated among the share classes of the Fund based on the relative net
assets of each class. Transfer agent fees, which are directly attributable
to a class of shares, are charged to that class' operations. Service fees,
which are directly attributable to the Service Class shares, are charged to
the Service Class operations.
E. 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 Fund does not directly pay any investment advisory fees, but indirectly
bears its pro rata share of the compensation paid by the Portfolio to The
Boston Company Asset Management, LLC ("TBCAM") for such services. See Note
2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. TBCAM voluntarily agreed to limit the
Institutional Class operating expenses (excluding brokerage commission,
taxes and extraordinary expense) to 1.20% of the Institutional Class'
average daily net assets and the Service Class operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses), so
that the Service Class' annual operating expenses do not exceed the total
operating expenses of the Institutional Class (net of any expense
limitation) for the comparable period plus 0.25% (the maximum Service Fee).
Pursuant to this agreement, for the year ended September 30, 2004, TBCAM
reimbursed the Institutional Class $46,892 and the Service Class $34,772
for class-specific and Fund operating expenses. Prior to November 1, 2003,
the voluntary expense limitation was 1.00% for Institutional Class shares
and 1.25% for Service Class shares. This agreement is voluntary and
temporary and may be discontinued or revised by TBCAM at any time.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyfus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $7,000 during the year ended September
30, 2004.
The Fund imposes 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. For the year ended September 30, 2004, the Fund received $51
in 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.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 30, 2004. The fund also bears its
pro rata share of the renumeration paid to the Trustees by the Portfolio.
See Note 2 of the Portfolio's notes to financial statements which are
included elsewhere in this report.
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $500
Benjamin M. Friedman $500
John H. Hewitt $500
Caleb Loring, III $500
Patrick J. Sheppard 0
Richard S. Wood* 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) SERVICE FEE:
Pursuant to a service plan, the Service Class pays a service fee at an
aggregate annual rate of up to 0.25% of the class' average daily net
assets. The service fee is payable for the benefit of participants in the
omnibus accounts that are shareholders in the Service Class and is intended
to be compensation to Account Administrators for providing personal
services and/or account maintenance services to participants in omnibus
accounts that are the beneficial owners of Service Class shares.
(4) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2004 aggregated $9,465,370 and $11,682,896
respectively.
(5) 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:
For the For the
Year Ended Year Ended
Institutional Class: September 30, 2004 September 30, 2003
------------------- -------------------
Shares sold 43,938 337,618
Shares redeemed (215,460) (442,332)
-------- --------
Net decrease (171,522) (104,714)
======== ========
For the For the
Year Ended Year Ended
Service Class: September 30, 2004 September 30, 2003
------------------- -------------------
Shares sold 202,065 90,258
Shares redeemed (94,424) (44,827)
-------- ---------
Net increase 107,641 45,431
======== =========
At September 30, 2004, one shareholder of record held approximately 12% of
the total outstanding shares of the Institutional Class and one shareholder
held of record approximately 100% of the total outstanding shares of the
Service Class. Investment activity of these shareholders could have a
material impact on the Fund.
(6) 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.
As of September 30, 2004, the components of distributable earnings on a tax
basis were as follows:
Capital loss carry-forward (20,461,964)
-----------
At September 30, 2004, 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
------------- ---------------
$18,165,638 9/30/2010
$2,296,326 9/30/2011
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP GROWTH FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company Small Cap Growth Fund:
In our opinion, the accompanying statement of assets and liabilities, 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
The Boston Company Small Cap Growth Fund (the "Fund") at September 30, 2004 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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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 investment in the Portfolio at September
30, 2004 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOP TEN HOLDINGS(*) SECTOR NET ASSETS
----------------------------------------------------------------------------------------------------------
Cooper Cos Health Care 2.6
MSC Industrial Direct Co., Inc. Industrials 2.4
FMC Technologies Energy 2.1
Lions Gate Entertainment Corp. Consumer Discretionary 2.0
Covance Inc. Health Care 2.0
Fisher Scientific International Health Care 2.0
UTI Worldwide Industrials 1.9
Matria Healthcare Health Care 1.6
Laureate Education Industrials 1.6
Respironics Health Care 1.6
-----
19.8
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Net Assets
--------------------------------------------
Consumer Discretionary 13.2
Consumer Staples 5.5
Energy 7.2
Financials 7.6
Health Care 24.8
Industrials 14.0
Materials 2.0
Technology 19.9
Utilities 1.0
Short-term and Net Other Assets 4.8
-----
100.0
The Portfolio is actively managed. Current holdings may be different than
those presented above.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES--95.2%
CONSUMER DISCRETIONARY--13.2%
A.C. Moore Arts & Crafts, Inc.* 10,010 $ 247,547
California Pizza Kitchen, Inc.* 22,000 480,700
Christopher & Banks Corp. 9,900 158,499
Citadel Broadcasting Co.* 9,900 126,918
Entravision Communications Corp.* 27,400 208,514
Fairmount Hotels & Resorts 8,610 235,225
Lions Gate Entertainment Corp.* 74,700 649,890
Nautilus Group, Inc. (a) 14,710 332,299
Nu Skin Enterprises, Inc. 7,900 185,729
Pacific Sunware of California* 15,100 317,855
Panera Bread Co.* (a) 11,100 416,694
Peet's Coffee & Tea, Inc.* 10,800 252,612
Petco Animal Supplies, Inc.* 7,850 256,381
Quicksilver, Inc.* 5,600 142,352
Rare Hospitality International, Inc.* 6,600 175,890
Speedway Motorsports, Inc. 4,700 156,651
-----------
4,343,756
-----------
CONSUMER STAPLES--5.5%
Arden Group, Inc. 1,762 149,770
Church & Dwight Co., Inc. 10,975 307,959
Delta & Pine Land Co. 4,000 107,000
Hain Celestial Group, Inc.* 20,900 369,512
Jarden Corp.* 7,100 259,079
The Yankee Candle Co.* 13,390 387,774
United Natural Foods, Inc.* 7,900 210,140
-----------
1,791,234
-----------
ENERGY--7.2%
Arch Coal, Inc. (a) 7,200 255,528
Consol Energy, Inc. 9,200 320,988
Dril-Quip, Inc.* 4,500 100,350
FMC Technologies, Inc.* 20,690 691,046
Oil States International, Inc.* 18,200 340,340
Patterson-UTI Energy, Inc. 13,700 261,259
Penn Virginia Corp. 4,840 191,616
Vintage Petroleum, Inc. 9,140 183,440
-----------
2,344,567
-----------
FINANCIAL--7.6%
Affiliated Managers Group* 3,350 179,359
Bristol West Holdings, Inc. 6,800 116,552
Cathay General Bancorp 4,400 163,636
Center Financial Corp. 4,724 89,850
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
City National Corp., Class A 2,800 $ 181,860
Commercial Capital Bancorp, Inc. 8,200 186,058
Cullen/Frost Bankers, Inc. 4,900 227,703
First Community Bancorp, Inc., Class A 4,000 164,000
First Midwest Bancorp, Inc. 6,300 217,728
Investors Financial Services Corp. 4,500 203,085
Mercantile Bank Corp. 4,835 168,451
R&G Financial Corp. 4,300 166,195
Southwest Bancorporation of Texas 9,200 185,288
Triad Guaranty, Inc.* 4,300 238,564
-----------
2,488,329
-----------
HEALTH CARE--24.8%
Able Laboratories, Inc.* 10,300 197,348
American Medical Systems Holdings, Inc.* 6,500 235,755
Bone Care International, Inc.* 5,400 131,220
Community Health Systems, Inc.* 10,000 266,800
Connetics Corp.* 7,300 197,246
Cooper Cos, Inc. 12,500 856,875
Covance, Inc.* 16,200 647,514
Coventry Health Care, Inc.* 4,350 232,160
Discovery Laboratories, Inc.* 26,300 176,210
Fisher Scientific International* 11,000 641,630
Flamel Technologies SA ADR* (a) 8,500 124,695
Inveresk Research Group, Inc.* 9,600 354,144
Inverness Medical Innovation* (a) 15,900 330,720
Matria Healthcare, Inc.* 19,000 537,890
Medicines Co.* (a) 8,250 199,155
Merit Medical Systems, Inc.* 14,900 225,139
Nabi Biopharmaceuticals* 11,900 159,222
PSS World Medical, Inc.* 29,200 293,168
Resmed, Inc.* (a) 4,800 228,528
Respironics, Inc.* 9,900 529,056
Select Medical Corp. 13,000 174,590
Steris Corp.* 14,500 318,130
Sybron Dental Specialties, Inc.* 5,800 172,202
Telik, Inc.* 7,600 169,480
Triad Hospitals* 5,550 191,142
VCA Antech, Inc.* 12,000 247,560
VISX, Inc.* 6,800 140,080
Zoll Medical Corp.* 4,900 163,611
-----------
8,141,270
-----------
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
INDUSTRIAL--14.0%
Applied Industrial Technologies 5,230 $ 186,920
Carlisle Companies, Inc. 2,700 172,611
Educate, Inc.* (a) 11,000 129,690
Forward Air Corp.* 6,650 266,133
Hudson Highland Group* 5,490 160,253
Iron Mountain, Inc.* 6,875 232,719
Laureate Education, Inc.* 14,400 535,968
LECG Corp.* 18,600 314,526
MSC Industrial Direct Co., Inc. 23,200 790,656
Navigant Consulting, Inc.* 16,500 362,340
Old Dominion Freight Line* 6,000 172,860
SCS Transportation, Inc.* 8,600 162,884
The Princeton Review, Inc.* 17,286 129,645
UTI Worldwide, Inc. 10,600 623,386
Waste Connections* (a) 10,850 343,728
-----------
4,584,319
-----------
MATERIALS--2.0%
Agrium, Inc. 22,500 399,600
Glamis Gold Ltd.* 11,200 209,776
Spartech Corp. 1,700 42,670
-----------
652,046
-----------
TECHNOLOGY--19.9%
Anteon International Corp.* 10,900 399,485
Avocent Corp.* 8,100 210,843
BearingPoint, Inc.* 28,300 253,002
Borland Software Corp.* 19,200 160,320
Cymer, Inc.* 11,400 326,724
Forrester Research, Inc.* 18,100 275,844
Formfactor, Inc.* 14,300 276,991
Foundry Networks, Inc.* 12,250 116,253
Ingram Micro, Inc., Class A* 26,200 421,820
Internet Security Systems* 21,400 363,800
Helix Technology Corp. 11,600 157,702
Lam Research Corp.* (a) 10,600 231,928
Macromedia, Inc.* 15,900 319,272
ManTech International Corp., Class A* 9,400 175,968
McAfee, Inc.* 25,800 518,580
Paxar Corp.* 7,270 164,884
Polycom, Inc.* 11,800 233,876
Power Integrations, Inc.* 20,500 418,815
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
Progress Software Corp.* 21,700 $ 431,830
Scientific-Atlanta, Inc. 5,250 136,080
Verisign, Inc.* 21,300 423,444
Zoran Corp.* 32,000 503,040
-----------
6,520,501
-----------
UTILITIES--1.0%
AGL Resources, Inc. 10,310 317,238
-----------
TOTAL EQUITIES (Cost $27,374,019) 31,183,260
-----------
SHORT-TERM INVESTMENTS--4.6% Rate Maturity Par Value
----- -------- ---------
U.S. GOVERNMENT--0.6%
U.S. Treasury Bill + 1.640% 12/16/2004 190,000 189,346
INVESTMENT COMPANIES--4.0% Shares
---------
Dreyfus Institutional Preferred Plus ++ 1,318,156 1,318,156
-----------
Total Short Term Investments (Cost $1,507,502) 1,507,502
-----------
INVESTMENT OF CASH COLLATERAL--5.3%
Dreyfus Cash Management Plus
Money Market Fund (+)(+) (Cost $1,760,672) 1,760,672 1,760,672
-----------
TOTAL INVESTMENTS--105.1% (COST $30,642,193) 34,451,434
LIABILITIES IN EXCESS OF OTHER ASSETS--(5.1%) (1,682,035)
-----------
NET ASSETS--100% $32,769,399
===========
NOTES TO SCHEDULE OF INVESTMENTS:
ADR--American Depository Receipt
(a) Security, or a portion of thereof, was on loan at 9/30/04.
* Non-income producing security.
+ Denotes all or part of security segregated as collateral.
++ Affiliated institutional money market fund.
At September 30, 2004 the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount At Value Gain
- ------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index (2 Contracts) Long 12/16/2004 $574,000 $1,741
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in securities (including securities on loan, valued at $1,704,668)
(Note 6)
Unaffiliated issuers, at value (cost $27,563,365) $31,372,606
Affiliated issuers (Note 1A and E) (identified cost $3,078,828) 3,078,828
Receivable for investments sold 397,957
Interest and dividends receivable 5,723
Receivable for variation margin on open futures contracts (Note 5) 2,500
Prepaid expenses 6,040
-----------
Total assets 34,863,654
LIABILITIES
Liability for securities on loan (Note 6) $1,760,672
Payable for investments purchased 300,084
Accrued accounting and custody fees 14,789
Accrued trustees' fees and expenses 945
Accrued expenses and other liabilities 17,765
----------
Total liabilities 2,094,255
-----------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $32,769,399
===========
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income (net of foreign withholding taxes of $106) $ 86,505
Interest income (including securities lending income of $5,911) 21,033
----------
Total investment Income 107,538
EXPENSES
Investment advisory fee (Note 2) $ 276,922
Accounting and custody fees (Note 2) 88,095
Legal and audit services 25,741
Trustees' fees and expenses (Note 2) 6,524
Insurance expense 6,846
Miscellaneous 1,832
---------
Total expenses 405,960
DEDUCT:
Waiver of investment advisory fee (Note 2) (9,471)
---------
Net expenses 396,489
----------
Net investment loss (288,951)
----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 5,039,347
Futures contracts (51,871)
----------
Net realized gain (loss) 4,987,476
Change in unrealized appreciation (depreciation)
Investment security transactions 321,334
Futures contracts 57,321
----------
Net unrealized gain (loss) 378,655
----------
Net realized and unrealized gain (loss) 5,366,131
----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $5,077,180
==========
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment loss $ (288,951) $ (110,593)
Net realized gains 4,987,476 2,646,730
Change in net unrealized appreciation 378,655 4,670,997
------------- -------------
Net increase in net assets from operations 5,077,180 7,207,134
------------- -------------
CAPITAL TRANSACTIONS
Contributions 9,465,370 11,400,746
Withdrawals (11,682,896) (13,197,733)
------------- -------------
Net increase (decrease) in net assets from capital transactions (2,217,526) (1,796,987)
------------- -------------
TOTAL INCREASE IN NET ASSETS 2,859,654 5,410,147
NET ASSETS
At beginning of year 29,909,745 24,499,598
------------- -------------
At end of year $ 32,769,399 $ 29,909,745
============= =============
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Year Ended September 30,
-----------------------------------------------------------
2004 2003 2002 2001 2000
------- ------- ------- ------- -------
TOTAL RETURN(+) 17.12%++ 30.79%++ (15.37)%++ (45.36)%++ 71.67%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) 1.15% 1.00% 1.00% 1.00% 0.91%
Net Investment Income
(to average daily net assets) (0.83)% (0.42)% (0.51)% (0.49)% (0.63)%
Portfolio Turnover 153% 261% 239% 191% 305%
Net Assets, End of Year
(000's omitted) $32,769 $29,910 $24,500 $37,590 $91,114
- ------------
* For the periods indicated, the investment advisor 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:
Ratios (to average daily net assets):
Expenses 1.18% 1.28% 1.18% 1.08% N/A
Net investment income (0.86)% (0.70)% (0.69)% (0.57)% N/A
+ Total return for the Portfolio has been calculated based on the total
return for the investor Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements.
++ Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York on
January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The Boston
Company Small Cap Growth Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio seeks to achieve its objective by investing, under normal
circumstances, at least 80% of its net assets in equity securities of small
cap U.S. companies.
At September 30, 2004, there was one Fund, The Boston Company Small Cap
Growth Fund (the "Fund") invested in the Portfolio. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest in
the net assets of the Portfolio. The Fund's proportionate interest at
September 30, 2004 was approximately 100%.
The following is a summary of significant accounting policies followed by
the Portfolio 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 normally 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 Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio 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. 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.
C. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since at least one of
the Portfolio's investors is a regulated investment company that invests
all or substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio allocates
at least annually among its investors each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss deduction or credit.
D. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve future
claims that may be made against the Portfolio that have not yet occurred.
However, based on experience, the Portfolio expects the risks of loss to be
remote.
E. AFFILIATED ISSUERS
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to TBCAM, a wholly-owned subsidiary of
Mellon Financial Corporation, for overall investment advisory and
administrative services is paid monthly at the annual rate of 0.80% of the
Portfolio's average daily net assets. Effective November 1, 2003 TBCAM
voluntarily agreed to limit total Portfolio operating expenses (excluding
brokerage commissions, taxes and extraordinary expenses) to 1.20% effective
November 1, 2003, from 1.00% prior to that date, of the Portfolio's average
daily net assets. Pursuant to this agreement, for the year ended September
30, 2004, TBCAM voluntarily did not impose $9,471 of its investment
advisory fee. This agreement is voluntary and temporary and may be
discontinued or revised by TBCAM at any time.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly
owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM,
to provide custody, fund administration and fund accounting services for
the Portfolio. For these services the Portfolio pays Mellon Bank a fixed
fee plus fees that are asset and transaction based, as well as,
out-of-pocket expenses. Pursuant to this agreement the Portfolio was
charged $86,325 during the year ended September 30, 2004.
No director, officer or employee of TBCAM or its affiliates receives any
compensation from the Trust or the Portfolio for serving as an officer or
Trustee of the Trust. The Portfolio 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 Portfolio Trust pays the legal fees for the
independent counsel of the Trustees.
The following table sets forth all remuneration paid to the Trustees for
the Portfolio's fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $880
Benjamin M. Friedman $880
John H. Hewitt $880
Caleb Loring, III $951
Patrick J. Sheppard 0
Richard S. Wood* 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2004, were $50,161,289 and
$52,317,920, respectively. For the year ended September 30, 2004, the
Portfolio did not purchase or sell any long-term U.S. Government
securities.
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $30,670,788
===========
Gross unrealized appreciation $ 4,724,699
Gross unrealized depreciation (944,053)
-----------
Net unrealized appreciation $ 3,780,646
===========
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(5) 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 Portfolio Trust's registration statement.
The Portfolio may trade the following financial 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 Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Portfolio's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the Portfolio's
exposure to the underlying instrument, or hedge other Portfolio
investments. Options, both held and written by the Portfolio, 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 Portfolio is exercised, the premium reduces
the cost basis of the securities purchased by the Portfolio. The Portfolio,
as a 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 Portfolio did not enter into option transactions during the year ended
September 30, 2004.
See the Schedule of Investments for securities on loan as of 9/30/04.
FUTURES CONTRACTS
The Portfolio 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 margin requirements the Portfolio
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 Portfolio 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 Portfolio. 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 Portfolio's exposure to the underlying instrument, while
selling futures tends to decrease the Portfolio's exposure to the
underlying instrument or hedge other investments. In addition, there is the
risk that the Portfolio 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 counterparty does not perform under the
contract's terms. The Portfolio enters into financial futures transactions
primarily to seek 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, 2004, the Portfolio held financial futures contracts. See
Schedule of Investments for further detail.
(6) SECURITY LENDING:
The Portfolio entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Portfolio's Portfolio
lending agent. Pursuant to this agreement Mellon Bank receives an agreed
upon percentage of the net lending revenues. This compensation is a
standard form of compensation received by securities lending agents with
respect to non-affiliated entities.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Portfolio may lend its securities to financial institutions which the
Portfolio 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 Portfolio on the next business day. For the duration of a
loan, the Portfolio 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 Portfolio 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 Portfolio. In the event of
borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in the
event it was delayed or prevented from exercising its rights to dispose of
the collateral. The Portfolio also bears the risk in the event that the
interest and/or dividends received on invested collateral is not sufficient
to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended September 30, 2004
resulting in $5,911 worth of security lending income. At September 30,
2004, the Portfolio had $1,704,668 worth of securities on loan.
See the Schedule of Investments for securities on loan as of September 30,
2004.
(7) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in the
Mellon Institutional Funds Investment Trust (the "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 facility fee,
computed at an annual rate of .060 of 1% on the commited amount, is
allocated ratably among the participating portfolios/funds at the end of
each quarter.
For the year ended September 30, 2004, the facility fee was $716 for the
Portfolio.
During the year ended September 30, 2004, the Portfolio had borrowings
under the credit facility. As a result of these borrowings the Portfolio
incurred $38 of interest expense.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP GROWTH PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company Small Cap Growth Portfolio:
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, and in all
material respects, the financial position of The Boston Company Small Cap Growth
Portfolio (the "Portfolio") at September 30, 2004 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 Portfolio'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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
28
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
29
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
THIS PAGE INTENTIONALLY LEFT BLANK
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0941AR0904
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report THE BOSTON COMPANY
SMALL CAP VALUE FUND
- --------------------------------------------------------------------------------
YEAR ENDED SEPTEMBER 30, 2004
This report and the financial statements contained herein are submitted for the
general information of the shareholders of the Fund. This report is not
authorized for distribution to prospective investors in the Fund unless preceded
or accompanied by an effective prospectus.
Any information in this shareholder report regarding market or economic trends
or the factors influencing the Fund' s historical or future performance are
statements of the opinion of Fund management as of the date of this report.
These statements should not be relied upon for any other purposes. Past
performance is no guarantee of future results, and there is no guarantee that
market forecasts discussed will be realized.
Commencing with the fiscal quarter ending December 31, 2004, the Fund files its
complete schedule of portfolio holdings with the Securities and Exchange
Commission (SEC) for the first and third quarters of each fiscal year on Form
N-Q. Forms N-Q are available on the SEC's web site at http://www.sec.gov. The
Fund' s Forms N-Q may be reviewed and copied at the SEC's Public Reference Room
in Washington D.C. Information regarding the operation of the SEC's Public
Reference Room may be obtained by calling 1-800-SEC-0330.
To view the Fund' s proxy voting guidelines and proxy voting record for the
12-month period ended June 30, 2004, visit the SEC's web site at http:
//www.sec.gov. You may also call 1-800-221-4795 to request a free copy of the
proxy voting guidelines.
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
November 29, 2004
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
September 30, 2004.
The past 12 months have been largely positive ones for the financial markets, as
the economic expansion continued. However, as the year progressed, estimates of
the recovery's strength have been reined in, to the benefit of fixed income and
the detriment of stocks.
The S&P 500 finished 2003 and entered 2004 with a sharp 100-point climb to its
peak in March, fueled to a large degree by above-trend GDP growth and driven by
a potent mix of tax cuts, monetary policy and government spending. But the
momentum stalled, as the market dealt with the prospect of inflation and a new
tightening cycle by the Federal Reserve, and the uncertainties of a tight
presidential campaign. Since March, the S&P 500 has been largely range-bound,
except for booming oil stocks. Economic indicators increasingly painted a
picture of a slowdown to more normal growth, and corporate profits appeared
strong, but less robust than anticipated.
In the bond market, 2003 ended with much speculation about when and how the Fed
would end one of the longest stretches of easy monetary policy on record, which
had driven rates to historical lows. In the fall of 2003, the prospect of
deflation was still a factor in the Fed's deliberations, and was its stated
rationale for maintaining an accommodative stance. Soon, however, the Fed began
to refer to a "measured pace" of tightening. The market reacted by switching
gears dramatically, sending the 10-year U.S. Treasury note from 3.7% on March 16
to 4.9% on June 14. Since then, as the economic outlook softened, with
relatively tame inflation, yields have settled back to about 4%, roughly the
same as a year ago.
Looking ahead, it's clear that there are some causes for concern. Consumers are
weighted with debt and potentially vulnerable in a rising rate environment.
Companies are hoarding cash, and are being deliberate in boosting employment and
spending on plant and equipment, as federal stimulus is waning. Nevertheless,
business activity has some significant momentum, which should carry over into
2005, with reasonably strong profit growth and modest inflation.
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,
/s/ Patrick J. Sheppard
- -----------------------
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A Mellon Asset Management Company
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
September 2004
The level of uncertainty in the equity markets has diverted investor attention
from investment fundamentals (e.g., earnings and earnings growth), to investment
behavior that is more emotionally driven. The current unsettled climate is
fostered by terrorist threats, the election puzzle, oil price uncertainty,
inflation fears and interest rate concerns. The economy continues to perform
relatively well and concerns about slowing economic growth and the resultant
slowing corporate profit growth seem to be somewhat overblown.
For the twelve months ended September 30, 2004 The Boston Company Small Cap
Value Fund had a total return of 29.92%. This was well ahead of the Russell 2000
Value Index at 25.66% for the period. The Fund has had strong relative
performance in recent months as our holdings have been somewhat more risk averse
but, at the same time, it participated fully in the recent positive move. Within
the markets, smaller stocks again performed better than large stocks (the
Russell 2000 was up 18.77% while the S&P 500 was up 13.87%), and value has
outpaced growth, especially in smaller stocks where the Russell 2000 Value Index
was up more than twice that of the Russell 2000 Growth index.
Our value approach continues to be a rewarding strategy in this very volatile
market environment. We are finding many companies we believe are truly
undervalued, not just cheap for an obvious reason. These potentially rewarding
opportunities seem to be a by-product of the prevailing market caution,
bordering on pessimism.
The US economy slowed a bit in the summer as higher energy prices and interest
rates, along with the uncertainty surrounding the election and its potential
market impact, reduced consumer and investor confidence and put a modest damper
on the stock market. We continue to view the economic landscape positively and
expect corporate capital spending to remain relatively strong.
Our best performing sectors relative to the index have been health care and
information technology. We expect continued strength in these sectors and remain
overweight in both relative to the benchmark. Other overweight sectors include
consumer staples and industrials.
Our energy holdings have been reduced at the margin as the stocks have done
well. We continue to carry a market weight in this sector because of our
long-term positive outlook for energy prices. Our emphasis here continues to be
on energy services and exploration companies. We continue to deemphasize
financials as most of these stocks are fully valued in our view. Business
momentum is neutral at best and rising interest rates will further narrow
spreads and put more pressure on earnings in coming quarters. Stocks in the
industrials sector are attractive because of the positive outlook for corporate
capital spending. We look for several more quarters of relatively strong
earnings from this group and remain significantly overweight here.
2
Our general outlook remains positive. We continue to find many companies in our
research universe we believe are undervalued with strong fundamentals and good
earnings prospects. With a good chance for continued economic growth and modest
inflation, capital spending should be robust for several quarters. The major
concerns were highlighted earlier but we believe our fundamental approach,
emphasizing strong business momentum and undervaluation, will yield good returns
even in this more volatile equity environment.
/s/ Stephanie Brandaleone /s/ Joseph Corrado
- ------------------------- ------------------
Stephanie Brandaleone Joseph Corrado
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN THE BOSTON COMPANY
SMALL CAP VALUE FUND AND THE RUSSELL 2000 VALUE INDEX
- --------------------------------------------------------------------------------
[THE FOLLOWING DATA WAS REPRESENTED AS A LINE CHART IN THE ORIGINAL DOCUMENT.]
TBC Small Cap Russell 2000
Value Fund Value Index
------------- ------------
Beginning $100,000 $100,000
2000
Quarter2 $100,843 $101,951
Quarter3 $107,683 $109,435
Quarter4 $111,802 $118,304
2001
Quarter1 $108,929 $119,454
Quarter2 $126,736 $133,355
Quarter3 $111,044 $115,573
Quarter4 $134,837 $134,897
2002
Quarter1 $149,245 $147,818
Quarter2 $144,170 $144,685
Quarter3 $116,989 $113,880
Quarter4 $120,162 $119,484
2003
Quarter1 $112,611 $113,415
Quarter2 $137,985 $139,187
Quarter3 $151,696 $149,939
Quarter4 $174,883 $174,480
2004
Quarter1 $189,135 $186,553
Quarter2 $195,135 $188,134
Quarter3 $196,400 $188,415
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 9/30/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 2/01/2000
- ---------------------------------------------------------------------------------------------
29.92% 20.93% 19.72%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS. THE
$100,000 LINE GRAPH AND THE FUND'S RETURNS DO NOT REFLECT THE DEDUCTION OF TAXES
THAT A SHAREHOLDER WOULD PAY ON FUND DISTRIBUTIONS OR THE REDEMPTION OF FUND
SHARES. DURING PERIODS OF REIMBURSEMENT BY THE FUND'S INVESTMENT ADVISER (IF
APPLICABLE), THE FUND'S TOTAL RETURN WILL BE GREATER THAN IT WOULD BE HAD THE
REIMBURSEMENT NOT OCCURRED. PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE
PERFORMANCE.
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
SHAREHOLDER EXPENSE EXAMPLE
- --------------------------------------------------------------------------------
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs, including redemption fees, and (2) ongoing costs, including management
fees and other Fund expenses. This Example is intended to help you understand
your ongoing costs (in dollars) of investing in the Fund and to compare these
costs with the ongoing costs of investing in other mutual funds.
The Example is based on an investment of $1,000 invested at the beginning of the
period and held for the entire period (April 1, 2004 to September 30, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000.00=8.6), then multiply the result by the number
in the first line under the heading entitled "Expenses Paid During Period" to
estimate the expenses you paid on your account during this period.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The second line of the table below provides information about hypothetical
account values and hypothetical expenses based on the Fund's actual expenses
ratio and an assumed rate of return of 5% per year before expenses, which is not
the Fund's actual return. The hypothetical account values and expenses may not
be used to estimate the actual ending account balance or expenses you paid for
the period. You may use this information to compare the ongoing costs of
investing in the Fund and other funds. To do so, compare this 5% hypothetical
example with the 5% hypothetical examples that appear in the shareholder reports
of the other funds.
Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transaction costs. Therefore, the
second line of the table is useful in comparing ongoing costs and will not help
you determine the relative total costs of owning different funds. In addition,
if these transactional costs were included, your costs would have been higher.
Expenses Paid
Beginning Ending During Period+
Account Value Account Value April 1, 2004 to
April 1, 2004 September 30, 2004 September 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,038.40 $6.01
Hypothetical (5% return per year
before expenses) $1,000.00 $1,019.10 $5.96
- ------------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 1.18%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
183/366 (TO REFLECT THE ONE-HALF YEAR PERIOD).THE EXAMPLE REFLECTS THE
COMBINED EXPENSES OF THE FUND AND THE MASTER PORTFOLIO IN WHICH IT INVESTS
ALL ITS ASSETS.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in The Boston Company Small Cap Value Portfolio
("Portfolio"), at value (Note 1A) $61,140,507
Receivable for Fund shares sold 59,502
Prepaid expenses 6,700
-----------
Total assets 61,206,709
LIABILITIES
Accrued transfer agent fees $ 3,346
Accrued trustees' fees and expenses 563
Accrued expenses and other liabilities 21,063
--------
Total liabilities 24,972
-----------
NET ASSETS $61,181,737
===========
NET ASSETS CONSIST OF:
Paid-in capital $40,705,669
Accumulated net realized gain 9,823,185
Undistributed net investment income (loss) 2,846
Net unrealized appreciation 10,650,037
-----------
TOTAL NET ASSETS $61,181,737
===========
Shares of beneficial interest outstanding 2,792,718
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 21.91
===========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income allocated from Portfolio $ 466,365
Interest income allocated from Portfolio 35,505
Expenses allocated from Portfolio (553,932)
-----------
Net investment loss allocated from Portfolio (52,062)
EXPENSES
Transfer agent fees (Note 2) $ 7,828
Legal and audit services 24,179
Registration fees 22,715
Trustees' fees and expenses (Note 2) 1,043
Shareholder reports 8,600
Insurance expense 975
Miscellaneous 10,418
--------
Total expenses 75,758
-----------
Net investment income (loss) (127,820)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions 9,973,051
Change in unrealized appreciation (depreciation)
on investments allocated from Portfolio 3,761,962
-----------
Net realized and unrealized gain (loss) on investments 13,735,013
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $13,607,193
===========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 2004 SEPTEMBER 30, 2003
------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS:
FROM OPERATIONS
Net investment loss $ (127,820) $ (18,579)
Net realized gains 9,973,051 4,950,349
Change in net unrealized appreciation 3,761,962 5,875,996
----------- -----------
Net increase in net assets from operations 13,607,193 10,807,766
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income -- (57,917)
From net realized gains on investments (4,564,248) (43,792)
----------- -----------
Total distributions to shareholders (4,564,248) (101,709)
----------- -----------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 11,834,111 7,729,570
Value of shares issued to shareholders in payment of distributions declared 4,026,790 71,480
Cost of shares redeemed (9,027,160) (9,136,228)
----------- -----------
Net increase (decrease) in net assets from Fund share transactions 6,833,741 (1,335,178)
----------- -----------
TOTAL INCREASE IN NET ASSETS 15,876,686 9,370,879
NET ASSETS
At beginning of period 45,305,051 35,934,172
----------- -----------
At end of period (including undistributed
net investment income of $2,846 and $6,976) $61,181,737 $45,305,051
=========== ===========
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR THE PERIOD
FEBRUARY 1, 2000
YEAR ENDED SEPTEMBER 30, (COMMENCEMENT
----------------------------------------------- OF OPERATIONS) TO
2004 2003 2002 2001 SEPTEMBER 30, 2000
------- ------ ------- ------- -------------------
NET ASSET VALUE, BEGINNING OF YEAR $ 18.49 $14.30 $ 13.86 $ 14.01 $11.05
------- ------ ------- ------- ------
FROM INVESTMENT OPERATIONS:
Net investment income* (1) (0.05) (0.01) 0.05 0.10 0.04
Net realized and unrealized gains (loss) on investments 5.27 4.24 0.75 0.31 2.94
------- ------ ------- ------- ------
Total from investment operations 5.22 4.23 0.80 0.41 2.98
------- ------ ------- ------- ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (0.02) (0.04) (0.06) (0.02)
From net realized gains on investments (1.80) (0.02) (0.32) (0.50) --
------- ------ ------- ------- ------
Total distributions to shareholders (1.80) (0.04) (0.36) (0.56) (0.02)
------- ------ ------- ------- ------
NET ASSET VALUE, END OF PERIOD $ 21.91 $18.49 $ 14.30 $ 13.86 $14.01
======= ====== ======= ======= ======
TOTAL RETURN (+) 29.92% 29.64% 5.43% 3.12% 26.98%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) 1.18% 1.15% 1.00% 1.00% 1.00%**
Net Investment Income (loss) (to
average daily net assets) (0.24)% (0.05)% 0.32% 0.68% 0.50%**
Portfolio Turnover (2) N/A 51% 164% 149% 71%
Net Assets, End of Period (000's omitted) $61,182 $45,305 $35,934 $28,532 $3,764
- -------
* For the periods indicated, the investment advisor 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) N/A $ (0.03) $ 0.01 $ 0.05 $(0.26)
Ratios (to average daily net assets):
Expenses N/A 1.28% 1.24% 1.37% 4.51%(**)
Net investment income N/A (0.18)% 0.08% 0.31% (3.01)%(**)
(1) Calculated based on average shares outstanding.
(2) Portfolio turnover represents actitivy while the Fund was investing
directly in securities until January 27, 2003. The Portfolio turnover for
the period since the Fund transferred substantially all of its investable
assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
+ Total return would have been lower in the absence of expense waivers,
returns for periods of less than one year have not been annualized.
** Annualized for periods less than 1 year.
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE 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 Value Fund (the "Fund") is a separate diversified
investment series of the Trust.
The Fund invests all of its investable assets in an interest of The Boston
Company Small Cap Value Portfolio (the "Portfolio"), a subtrust of Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and has the same investment objective as the
Fund. The Portfolio 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. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets of
the Portfolio (approximately 92% at September 30, 2004). The performance of
the Fund is directly affected by the performance of the Portfolio. The
financial statements of the Portfolio are included elsewhere in this report
and should be read in conjunction with the Fund's financial statements.
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
The Fund records its investment in the Portfolio at value. The method by
which the Portfolio values its securities is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. The Fund's net
investment income consists of the Fund's pro rata share of the net
investment income of the Portfolio, less all actual and accrued expenses of
the Fund determined in accordance with accounting principles generally
accepted in the United States of America. All realized and unrealized gains
and losses of the Portfolio are allocated pro rata among the investors in
the Portfolio.
C. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on 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. In determining the amounts of its dividends, the Fund will take
into account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless a 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 realized and unrealized gains or losses on REITS
and wash sales.
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 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.
D. 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.
E. 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.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The Fund does not directly pay any investment advisory fees, but indirectly
bears its pro rata share of the compensation paid by the Portfolio to The
Boston Company Asset Management, LLC ("TBCAM"), a wholly owned subsidiary
of Mellon Institutional Asset Management, for such services. See Note 2 of
the Portfolio's Notes to Financial Statements which are included elsewhere
in this report.
Effective February 23, 2004, the Fund entered into an agreement with
Dreyfus Transfer, Inc., a wholly owned subsidiary of The Dreyfus
Corporation, a wholly owned subsidiary of Mellon Financial Corporation and
an affiliate of TBCAM, to provide personnel and facilities to perform
transfer agency and certain shareholder services for the Fund. For these
services the Fund pays Dreyus Transfer, Inc. a fixed fee plus per account
and transaction based fees, as well as, out-of-pocket expenses. Pursuant to
this agreement the Fund was charged $3,500 during the year ended September
30, 2004.
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. For the year ended September 30, 2004, 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.
The following table sets forth all remuneration paid to the Trustees by the
Fund for the fiscal year ended September 30, 2004. The fund also bears its
pro rata share of the renumeration paid to the Trustees by the Portfolio.
See Note 2 of the Portfolio's notes to financial statements which are
included elsewhere in this report.
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $500
Benjamin M. Friedman $500
John H. Hewitt $500
Caleb Loring, III $500
Patrick J. Sheppard 0
Richard S. Wood* 0
* MR. WOOD RESIGNED FROM THE BOARD OF TRUSTEES ON OCTOBER 7, 2003.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 2004 aggregated $16,001,574 and $13,717,798,
respectively.
(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:
For the For the
Year Ended Year Ended
September 30, 2004 September 30, 2003
------------------- -------------------
Shares sold 566,701 488,251
Shares issued to shareholders in
payment of distributions declared 215,710 4,747
Shares redeemed (440,530) (555,316)
--------- ---------
Net increase (decrease) 341,881 (62,318)
========= =========
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At September 30, 2004, two shareholders of record held approximately 12%
and 10% of the total outstanding shares of the Fund, respectively.
Investment activities 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.
As of September 30, 2004, the components of distributable earnings on a tax
basis were as follows:
Undistibuted capital gains $4,548,304
Undistributed ordinary income $5,315,315
Tax character of distributions paid during the fiscal year ended September
30, 2004, was as follows:
Distributions paid from:
Ordinary income $2,331,714
Capital gains $2,232,534
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
THE BOSTON COMPANY SMALL CAP VALUE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of The Boston Company Small Cap Value Fund:
In our opinion, the accompanying statement of assets and liabilities, 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
The Boston Company Small Cap Value Fund (the "Fund") at September 30, 2004, 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 the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements 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 investment in the Portfolio at September
30, 2004 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
PORTFOLIO INFORMATION AS OF SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings(*) Sector Net Assets
----------------------------------------------------------------------------------------------------------
The Brinks Co. Industrials 2.0
Ralcorp Consumer Consumer Staples 2.0
FMC Technologies Energy 1.9
Perot SYS Corp. Information Technology 1.8
Waste Connections Industrials 1.8
Toro Industrials 1.5
Knight Trading Group Financials 1.5
Metris Cos., Inc. Financials 1.5
Jones Lang LaSalle Financials 1.4
UGI Corp. Utilities 1.3
-----
16.7
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION NET ASSETS
--------------------------------------------
Consumer Discretionary 11.7
Consumer Staples 6.3
Energy 4.4
Financials 18.4
Health Care 8.5
Industrials 20.8
Information Technology 16.0
Materials 7.8
Telecom Services 1.0
Utilities 4.0
Short-term and Net Other Assets 1.1
-----
100.0
The Portfolio is actively managed. Current holdings and allocations may be
different than those presented above.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- --------------------------------------------------------------------------------
EQUITIES--98.9%
CONSUMER DISCRETIONARY--11.7%
American Greetings Corp., Class A 12,200 $ 306,464
Aztar Corp.* 17,000 450,500
Big 5 Sporting Goods Corp.* 23,200 528,960
Cache, Inc.* 22,600 339,000
Charming Shoppes, Inc.* 63,100 449,272
Circuit City Stores, Inc. 40,200 616,668
Courier Corp. 11,650 485,572
Gemstar-TV Guide International, Inc.* 114,500 646,925
Interface, Inc.* 32,500 260,650
JAKKS Pacific, Inc.* 14,200 326,600
K-Swiss Inc., Class A 14,700 282,975
Landry's Restaurants, Inc. 10,500 286,545
Lifetime Hoan Corp. (a) 14,500 215,325
Regis Corp. 13,600 546,992
Saks, Inc. 23,700 285,585
Stanley Furniture Co., Inc. 10,400 457,600
The Men's Wearhouse, Inc.* 10,000 290,500
The Yankee Candle Co.* 22,400 648,704
Too, Inc.* 17,800 321,646
-----------
7,746,483
-----------
CONSUMER STAPLES--6.3%
American Italian Pasta Co. (a) 13,200 345,180
Fresh Del Monte Produce 15,900 396,069
Green Mountain Coffee Roasters* 16,000 336,320
Hain Celestial Group, Inc.* 30,500 539,240
J & J Snack Food Corp.* 7,100 304,448
Longs Drug Stores Corp. 21,700 525,140
Performance Food Group Co.* 18,300 433,710
Ralcorp Holdings, Inc. 36,100 1,303,210
-----------
4,183,317
-----------
ENERGY--4.4%
Dril-Quip, Inc.* 18,800 419,240
FMC Technologies, Inc.* 36,800 1,229,120
Hydril Co.* 14,100 605,595
Tetra Technologies* 21,150 656,708
-----------
2,910,663
-----------
FINANCIAL--18.4%
Alabama National Bancorp/Del 5,000 299,350
Alexandria Real Estate Equities, Inc. REIT 8,600 565,192
American Home Mortgage Investment Corp. REIT 11,000 307,450
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
Aspen Insurance Holdings Ltd. 12,500 $ 287,625
Assured Guaranty Ltd. 18,000 299,880
Bank of Hawaii Corp. 8,900 420,525
Boykin Lodging Co. REIT 39,200 329,672
Capital Automotive REIT 19,500 609,765
First Republic Bank 12,200 561,200
Horace Mann Educators Corp. 26,500 465,870
Innkeepers USA Trust REIT 64,200 798,648
ITLA Capital Corp.* 6,400 295,680
Jones Lang Lasalle* 27,300 901,173
Knight Trading Group* (a) 107,200 989,456
Lasalle Hotel Properties REIT 17,000 469,200
Metris Cos, Inc.* 99,900 977,022
Pacific Capital Bancorp 14,500 428,910
Provident Bancorp, Inc. 23,100 271,194
Provident Bankshares Corp. 12,900 432,795
Santander BanCorp. 11,840 296,000
Scottish Annuity & Life Holding 24,600 520,782
SL Green Realty Corp. REIT 10,800 559,548
Southwest Bancorporation of Texas 24,600 495,444
Sterling Bancshares, Inc. 21,200 285,140
Summit Bancshares, Inc. (Texas) 10,000 332,500
------------
12,200,021
------------
HEALTH CARE--8.5%
Amedisys, Inc.* 13,200 395,340
Apria Healthcare Group, Inc.* 13,500 367,875
Discovery Partner International* 80,400 385,920
Hooper Holmes, Inc. 105,900 474,432
Inverness Medical Innovation* 23,000 478,400
Matthews International Corp., Class A 10,500 355,740
Medicines Co.* 10,800 260,712
Penwest Pharmaceuticals Co.* 20,100 226,929
Perrigo Co. 14,900 306,195
Polymedia Corp. 21,600 665,280
Res-Care Inc.* 28,100 332,985
Select Medical Corp. 25,100 337,093
Sierra Health Services* 9,520 456,294
U.S. Physical Therapy, Inc.* 24,100 327,519
United Therapeutics Corp.* 7,200 251,496
------------
5,622,210
------------
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
INDUSTRIAL--20.8%
AGCO Corp.* 13,800 $ 312,156
C&D Technologies, Inc. 32,400 616,248
Celadon Group, Inc.* 28,700 546,735
CIRCOR International, Inc. 13,400 261,300
Cubic Corp. 28,600 654,940
Dollar Thrifty Automotive Group* 22,600 549,858
Esterline Technologies Corp.* 18,200 556,738
Granite Construction, Inc. 20,800 497,120
GSI Lumonics Inc.* 32,900 344,134
Heico Corp. 18,300 323,544
Herley Industries, Inc.* 23,100 431,739
Insituform Technologies, Inc.* 30,400 567,568
Labor Ready* 30,900 433,218
Laidlaw International, Inc.* 37,600 618,520
Landstar System* 5,400 316,872
McGrath Rentcorp 14,000 511,700
Modtech Holdings Inc.* 26,500 199,810
Reliance Steel & Aluminum 11,400 452,580
School Specialty, Inc.* 12,200 480,802
Simpson Manufacturing 7,700 486,640
Sypris Solutions, Inc. 31,400 428,610
The Brink's Co. 45,000 1,357,650
Toro Co. 14,600 997,180
Trinity Industries 15,200 473,784
Ultralife Batteries, Inc.* 18,900 192,213
Waste Connections* (a) 37,050 1,173,744
------------
13,785,403
------------
INFORMATION TECHNOLOGY--16.0%
Actel Corp.(*) 18,300 278,160
Advanced Energy Industries* 30,200 280,558
Anaren, Inc.* 37,500 504,750
Borland Software Corp.(*) 43,600 364,060
Cabot Microelectronics* 9,300 337,125
Cymer, Inc.* 10,300 295,198
Digi International, Inc.* 26,700 305,181
EFunds Corp.* 28,300 526,097
Electronics for Imaging, Inc.* 21,900 355,656
EPIQ Systems, Inc.* 26,600 414,428
Exar Corp.* (a) 12,900 182,664
Hutchinson Technology, Inc.* 6,500 173,745
Komag, Inc.* 12,200 169,580
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
INFORMATION TECHNOLOGY (CONTINUED)
Macromedia, Inc.* 19,200 $ 385,536
ManTech International Corp., Class A* 32,900 615,888
Mentor Graphics Corp.* 19,100 209,432
Newport Corp.* 36,900 423,243
Paxar Corp.* 27,000 612,360
Perot Systems Corp., Class A* 73,100 1,173,986
Remec, Inc.* 71,700 337,707
SafeNet, Inc.* 25,700 677,966
Seachange International, Inc.* (a) 15,000 239,850
Sybase, Inc.* 39,000 537,810
The Bisys Group, Inc.* 27,600 403,236
THQ, Inc.* 26,800 521,528
Zoran Corp.* 17,500 275,100
-----------
10,600,844
-----------
MATERIALS--7.8%
Arch Coal, Inc.* (a) 15,500 550,095
Balchem Corp. 12,500 372,500
Compass Minerals International, Inc. 20,300 450,660
Cytec Industries, Inc. 4,500 220,275
Florida Rock Industries, Inc. 9,900 485,001
FMC Corp. 5,300 257,421
Hercules, Inc.* 20,800 296,400
Massey Energy 17,300 500,489
NN, Inc. 36,300 415,635
Octel Corp. 13,900 295,236
RTI International Metals, Inc.* 22,600 437,762
Spartech Corp. 19,500 489,450
Worthington Industries 17,500 373,625
-----------
5,144,549
-----------
TELECOMMUNICATIONS SERVICES--1.0%
Surewest Communications 14,800 424,316
Warwick Valley Telephone Co. 10,300 244,728
-----------
669,044
-----------
UTILITIES--4.0%
Cleco Corp. 48,400 834,416
Nicor, Inc. (a) 12,800 469,760
PNM Resources Inc. 21,700 488,467
UGI Corp. 23,700 883,061
-----------
Total (Cost $2,448,496) 2,675,704
-----------
TOTAL EQUITIES (Cost $54,672,140) 65,538,238
-----------
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--2.7%
INVESTMENT COMPANIES--2.7%
Dreyfus Institutional Preferred Plus **
(Cost $1,797,889) 1,797,889 $ 1,797,889
------------
INVESTMENT OF CASH COLLATERAL--4.9%
Dreyfus Cash Management Plus
Money Market Fund (**) (Cost $3,258,008) 3,258,008 3,258,008
------------
TOTAL INVESTMENTS (COST $59,728,037)--106.5% 70,594,135
LIABILITIES IN EXCESS OF OTHER ASSETS--(6.5%) (4,282,193)
------------
NET ASSETS--100% $ 66,311,942
============
NOTES TO SCHEDULE OF INVESTMENTS:
REIT--Real Estate Investment Trust
(a) Security, or a portion thereof, was on loan at 9/30/04.
* Non-income producing security.
** Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in securities (Note 1A) (including securities on loan, valued at
$3,122,542 (Note 6)
Unaffiliated issuers, at value (identified cost $54,672,140) $65,538,238
Affiliated investment (Note 1F) (identified cost $5,055,897) 5,055,897
Receivable for investments sold 1,778,805
Interest and dividends receivable 55,168
Prepaid expenses 4,548
-----------
Total assets 72,432,656
LIABILITIES
Liability for securities on loan (Note 6) $3,258,008
Payable for investments purchased 2,820,583
Accrued accounting and custody fees 14,007
Accrued trustees' fees and expenses 2,115
Accrued expenses and other liabilities 26,001
----------
Total liabilities 6,120,714
-----------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $66,311,942
===========
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Dividend income $ 481,098
Interest income (including securities lending income of $24,999) (Note 6) 35,596
-----------
Total investment income 516,694
EXPENSES
Investment advisory fee (Note 2) $ 441,974
Accounting and custody fees (Note 2) 76,754
Legal and audit services 29,031
Trustees' fees and expenses (Note 2) 11,052
Insurance expense 8,412
Miscellaneous 2,014
---------
Total expenses 569,237
-----------
Net investment loss (52,543)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 10,097,630
Change in unrealized appreciation (depreciation)
Investment securities 3,979,928
-----------
Net realized and unrealized gain on investments 14,077,558
-----------
NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $14,025,015
===========
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
for the (Commencement of
Year Ended Operations) to
September 30, 2004 September 30, 2003
------------------- -------------------
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net investment income (loss) $ (52,543) $ (19,540)
Net realized gains (losses) 10,097,630 4,435,792
Change in net unrealized appreciation (depreciation) 3,979,928 7,419,673
----------- -----------
Net increase in net assets from operations 14,025,015 11,835,925
----------- -----------
CAPITAL TRANSACTIONS
Assets contributed by Standish Small Cap Value Fund
(including unrealized appreciation/depreciation of $533,503) -- 36,721,319
Contributions 21,855,319 5,115,275
Withdrawals (14,941,264) (8,299,647)
----------- -----------
Net increase (decrease) in net assets from capital transactions 6,914,055 33,536,947
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 20,939,070 45,372,872
NET ASSETS
At beginning of year 45,372,872 --
----------- -----------
At end of year $66,311,942 $45,372,872
=========== ===========
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
For the Period
January 28, 2003
for the (Commencement of
Year Ended Operations) to
September 30, 2004 September 30, 2003
------------------- -------------------
TOTAL RETURN + 30.07% 29.85%(1)
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) 1.03% 1.10%(2)
Net Investment Income (to average daily net assets) (0.10)% (0.07)%(2)
Portfolio Turnover 123% 102%(1)
Net Assets, End of Period (000's omitted) $66,312 $45,373
- -----------
* For the periods indicated, the investment advisor 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 the voluntary action had
not been taken, the investment income per share and the ratios would have
been:
Ratios (to average daily net assets):
Expenses N/A 1.10%(2)
Net investment income N/A (0.07)%(2)
+ Total return for the Portfolio has been calculated based on the total
return for the investor Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements. Total return would have been lower in the absence of
expense waivers.
(1) Not annualized
(2) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Mellon Institutional Funds Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York on
January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. The Boston
Company Small Cap Value Portfolio (the "Portfolio"), a separate diversified
investment series of the Portfolio Trust, commenced operations on January
28, 2003.
The objective of the Portfolio is to achieve long-term growth of capital.
The Portfolio 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.
At September 30, 2004, there were two funds, The Boston Company Small Cap
Value Fund and Dreyfus Premier Small Cap Equity Fund invested in the
Portfolio. The value of the funds' investment in the Portfolio reflects the
funds' proportionate interests in the net assets of the Portfolio. At
September 30, 2004, The Boston Company Small Cap Value Fund and the Dreyfus
Premier Small Cap Equity Fund held approximately 92% and 8% interests in
the Portfolio, respectively.
The following is a summary of significant accounting policies followed by
the Portfolio 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 normally 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 Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio 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.
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 amortization of
premium or discount on long-term debt securities when required for federal
income tax purposes. 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.
D. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since at least one of
the Portfolio's investors is a regulated investment company that invests
all or substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification requirements
applicable to regulated investment companies (under the Internal Revenue
Code) in order for its investors to satisfy them. The Portfolio allocates
at least annually among its investors each investor's distributive share of
the Portfolio's net investment income, net realized capital gains, and any
other items of income, gain, loss deduction or credit.
E. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve future
claims that may be made against the Portfolio that have not yet occurred.
However, based on experience, the Portfolio expects the risks of loss to be
remote.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
F. AFFILIATED ISSUERS:
Issuers in which the Fund held investments in other investment companies
advised by The Boston Company Asset Management, LLC ("TBCAM") or its
affiliates.
(2) INVESTMENT ADVISORY AND OTHER TRANSACTIONS WITH AFFILIATES:
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 Portfolio's average daily net assets.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a whollly
owned subsidiary of Mellon Financial Corporation and an affiliate of TBCAM,
to provide a custody, fund administration and fund accounting services for
the Portfolio. For these services the Portfolio pays Mellon Bank a fixed
fee plus fees that are asset and transaction based, as well as,
out-of-pocket expenses. Pursuant to this agreement the Portfolio was
charged $73,447 during the year ended September 30, 2004.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Portfolio 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 Portfolio Trust pays the legal
fees for the independent counsel of the Trustees.
The following table sets forth all remuneration paid to the Trustees for
the Portfolio's fiscal year ended September 30, 2004:
NAME OF TRUSTEE
-------------------------------
Samuel C. Fleming $1,330
Benjamin M. Friedman $1,330
John H. Hewitt $1,330
Caleb Loring, III $1,441
Patrick J. Sheppard 0
Richard S. Wood* 0
* Mr. Wood Resigned from the Board of Trustees on October 7, 2003.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended September 30, 2004 were $74,313,053 and
$67,042,007, respectively. For the year ended September 30, 2004, the
Portfolio did not purchase or sell any long-term U.S. Government
securities.
(4) 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 cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $59,765,625
===========
Gross unrealized appreciation $11,889,141
Gross unrealized depreciation (1,060,631)
-----------
Net unrealized appreciation $10,828,510
===========
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(5) 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 Portfolio Trust's registration statement.
The Portfolio may trade the following financial 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 Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and buying
calls tend to increase the Portfolio's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the Portfolio's
exposure to the underlying instrument, or hedge other Portfolio
investments. Options, both held and written by the Portfolio, 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 Portfolio is exercised, the premium reduces
the cost basis of the securities purchased by the Portfolio. The Portfolio,
as a 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 Portfolio did not enter into option transactions during the year ended
September 30, 2004.
FUTURES CONTRACTS
The Portfolio 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 margin requirements the Portfolio
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 Portfolio 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 Portfolio. 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 Portfolio's exposure to the underlying instrument, while
selling futures tends to decrease the Portfolio's exposure to the
underlying instrument or hedge other investments. In addition, there is the
risk that the Portfolio 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 counterparty does not perform under the
contract's terms. The Portfolio enters into financial futures transactions
primarily to seek 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, 2004, the Portfolio held no outstanding financial futures
contracts.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(6) SECURITY LENDING:
The Portfolio entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Portfolio lending agent.
Pursuant to this agreement the Mellon Bank receives an agreed upon
percentage of the net lending revenues. This compensation is a standard
form of compensation received by securities lending agents with respect to
non-affiliated entities.
The Portfolio may lend its securities to financial institutions which the
Portfolio 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 Portfolio on the next business day. For the duration of a
loan, the Portfolio 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 Portfolio 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 Portfolio. In the event of
borrower default, the Portfolio generally has the right to use the
collateral to offset losses incurred. The Portfolio may incur a loss in the
event it was delayed or prevented from exercising its rights to dispose of
the collateral. The Portfolio also bears the risk in the event that the
interest and/or dividends received on invested collateral is not sufficient
to meet the Portfolio's obligations due on the loans.
The Fund loaned securities during the year ended September 30, 2004
resulting in security lending income of $24,999. At September 30, 2004, the
Fund had $3,122,542 worth of securities on loan.
See Schedule of Investments for further detail on the security positions on
loan.
(7) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in the
Mellon Institutional Funds Investment Trust (the "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 0.60 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, 2004, the
commitment fee was $1,038 for the Portfolio.
During the year ended September 30, 2004 the Portfolio had borrowed under
the credit facility incurring $54 of interest expense.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
THE BOSTON COMPANY SMALL CAP VALUE PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
The Boston Company Small Cap Value Portfolio:
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 The Boston Company Small Cap Value
Portfolio (the "Portfolio") at September 30, 2004, 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 Portfolio'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 the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements 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, 2004 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
November 19, 2004
28
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, 2004. The
Trust's Statement of Additional Information includes additional information
about the Trust's trustees and is available, without charge, upon request by
writing The Mellon Institutional Funds at P.O. Box 8585, Boston, MA 02266-8585
or calling toll free 1-800-221-4795.
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 Board 30 None
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None
c/o Harvard University 9/13/1986 Professor of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
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 President 30 None
Mellon Institutional and Chief and Chief Operating
Asset Management Executive Officer Officer, Mellon Institutional
One Boston Place Asset Management;
Boston, MA 02108 formerly Vice President
7/24/65 and Chief Financial Officer,
Mellon Institutional
Asset Management
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
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President 30 None
Mellon Institutional and Secretary and Head of Operations
Asset Management Mellon Institutional Asset
One Boston Place Management, formerly
Boston, MA 02108 First Vice President,
2/20/61 Mellon Institutional Asset
Management and Mellon
Global Investments
29
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES (CONTINUED)
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
- ------------------------------------------------------------------------------------------------------------------------------------
Steven M. Anderson Vice President Vice President Vice President and Mutual 30 None
Mellon Institutional and Treasurer since 1999; Funds Controller, Mellon
Asset Management Treasurer since Institutional Asset
One Boston Place 2002 Management
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and 30 None
Mellon Institutional President Manager, Mutual Funds
Asset Management Operations, Mellon
One Boston Place Institutional Asset
Boston, MA 02108 Management
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President 30 None
Mellon Institutional President and Manager, Shareholder
Asset Management Services, Mellon Institutional
One Boston Place Asset Management since 2001;
Boston, MA 02108 Shareholder Representative,
1/19/71 Standish Mellon
Asset Management
Jan F. Jumet Chief Since 2004 Senior Vice President and 30 None
Standish Mellon Assest Compliance Chief Compliance Officer
Management Company LLC Officer for Standish Mellon Asset
One Boston Place Management Company LLC;
Boston, MA 02108 formerly Director of
8/9/66 Compliance and
Administration and Chief
Administration Officer for
Standish Mellon Asset
Management Company LLC,
Senior Vice President and
Chief Administration Officer
for Mellon Bond Associates,
LLP, and First Vice President
and Senior Sales Associate
for Mellon Institutional
Asset Management
30
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[LOGO] Mellon
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Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0944AR0904
Item 2. Code of Ethics.
As of September 30, 2004, the Registrant has adopted a Code of Ethics,
as defined in Item 2(b) of Form N-CSR, that applies to the Principal
Executive Officer and Principal Financial Officer. For the fiscal year
ended September 30, 2004, there were no amendments to a provision of the
Code of Ethics nor were there any waivers granted from a provision of
the Code of Ethics. A copy of the Registrant's Code of Ethics that
applies to the Principal Executive Officer and Principal Financial
Officer is filed as an exhibit to this Form N-CSR under item 11 (a)(1).
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, as defined in Item 3
of Form N-CSR, serving on its audit committee. The audit committee
financial experts serving on the Registrant's audit committee are John
H. Hewitt and Caleb Loring III, both of whom are "independent" pursuant
to paragraph (a)(2) of Item 3 of Form N-CSR. Mr. Hewitt served at Morgan
Stanley as a securities analyst and also in a supervisory role regarding
analysis. He has held a chartered financial analyst designation, as well
as a master's degree in business administration from Harvard University.
He has been a member of the Registrant's audit committee since its
inception. Mr. Loring served as an executive in the commercial lending
division of the Bank of Boston, N.A., performing and supervising credit
analyses and reviewing financial statements of potential and existing
borrowers. Also, Mr. Loring has served as a private trustee in the Ayer
Family Office, where his duties involve financial statement analysis.
He has been a member of the Registrant's audit committee since its
inception, and has served on the audit committees of several privately
held companies.
Item 4. Principal Accountant Fees and Services.
(a) AUDIT FEES: The aggregate fees paid or accrued by the Registrant for
professional services rendered by the Registrant's principal
accountant, PricewaterhouseCoopers LLP, for the audit of the
Registrant's annual financial statements or services that are
normally provided by the accountant in connection with statutory and
regulatory filings or engagements for the fiscal years ended
September 30, 2004 and 2003 were $74,219 and $69,089, respectively.
(b) AUDIT-RELATED FEES: The aggregate fees paid or accrued by the
Registrant for the fiscal years ended September 30, 2004 and 2003
for assurance and related services by PricewaterhouseCoopers LLP
that are reasonably related to the performance of the audit of the
Registrant's financial statements and are not reported under
paragraph (a) of this Item were $34,211 and $30,653, respectively.
The nature of the services comprising the fees disclosed under this
Item included: the preparation of fiscal year end tax provisions and
distribution requirements necessary to prepare annual financial
statements.
(c) TAX FEES: The aggregate fees paid or accrued for the fiscal years
ended September 30, 2004 and 2003 for professional services rendered
by PricewaterhouseCoopers LLP for tax compliance, tax advice, and
tax planning were $85,985 and $84,216, respectively.
(d) ALL OTHER FEES: Other than the services reported in paragraphs (a)
through (c) of this Item, PricewaterhouseCoopers LLP billed no other
fees for products or services provided for the fiscal years ended
September 30, 2004 and 2003.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICY: The Registrant's audit
committee pre-approves all audit and non-audit services to be
performed by the Registrant's accountant before the accountant is
engaged by the Registrant to perform such services.
(e) (2) 100% of the services described in each of paragraphs (b) through
(d) of this Item 4 were pre-approved by the Registrant's audit
committee before the accountant was engaged by the Registrant to
perform such services.
(f) Not applicable.
(g) The aggregate non-audit fees billed by PricewaterhouseCoopers LLP
for services rendered to the Registrant and the Registrant's
investment advisers, and any entity controlling, controlled by or
under common control with the advisers that provides ongoing
services to the Registrant for the fiscal years ended September 30,
2004 and 2003 were $0 and $50,925, respectively.
(h) The Registrant's Audit Committee of the Board of Directors had
pre-approved all of the non-audit services that were rendered to the
Registrant's investment advisers and any entity controlling,
controlled by, or under common control with the investment advisers
that provides ongoing services to the Registrant, and no such
non-audit services were not pre-approved.
Item 5. Audit Committee of Listed Registrants.
Not applicable to the Registrant.
Item 6. Schedule of Investments
Included as part of the report to shareholders filed under Item 1 of
this Form N-CSR.
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies.
Not applicable to the Registrant.
Item 8. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable to the Registrant.
Item 9. Submission of Matters to a Vote of Security Holders.
There have been no material changes.
Item 10. 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" as
defined in Rule 30a-3(c) under the Investment Company Act of 1940).
(b) There were no changes in the Registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Investment
Company Act of 1940 that occurred during the Registrant's second fiscal
half-year that has materially affected, or is reasonably likely to
materially affect, the Registrant's internal control over financial
reporting.
Item 11. Exhibits.
(a)(1) Code of Ethics required by Item 2 is attached hereto as an
exhibit.
(a)(2) Certifications of the Principal Executive Officer and Principal
Financial Officer of the Registrant as required by Rule 30a-2(a) under
the Investment Company Act of 1940 are attached hereto as Exhibit
99CERT.302
(b) Certifications as required by Rule 30a-2(b) under the Investment
Company Act of 1940 and pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 are attached hereto as Exhibit 99CERT.906.
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.
(Registrant) Mellon Institutional Funds Investment Trust
By (Signature and Title): /s/ BARBARA A. MCCANN
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Barbara A. McCann, Vice President and Secretary
Date: December 9, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities, and on the
dates indicated.
By (Signature and Title): /s/ PATRICK J. SHEPPARD
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Patrick J. Sheppard, President and Chief Executive
Officer
Date: December 9, 2004
By (Signature and Title): /s/ STEVEN M. ANDERSON
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Steven M. Anderson, Vice President and Treasurer
Date: December 9, 2004