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: December 31
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Date of reporting period: December 31, 2004
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ITEM 1. REPORTS TO STOCKHOLDERS.
Annual Report STANDISH MELLON
HIGH YIELD BOND FUND
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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 HIGH YIELD BOND FUN
MANAGEMENT DISCUSSION AND ANALYSIS
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For the year 2004 the Standish Mellon High Yield Bond Fund has returned 9.56%
while the Merrill Lynch Master II High Yield Index was up 10.87%. The 10-year US
Treasury yield closed the month at 4.22%, down from 4.35% at the November close
and basically coming full circle from its starting point (4.25%) at the start of
the year. The Lehman Aggregate Index gained .92% in December and finished with a
2004 return of 4.34%. On an index comparison basis high yield has bested higher
quality fixed income by over 600 basis points in 2004. With a strong fourth
quarter, equities had a good year in 2004 as the S&P 500 gained 10.74% and small
cap stocks performed significantly better than that. The other star in the fixed
income asset class was Emerging Markets, which, along with high yield closed the
year with a string of good months and recorded a 2004 return of close to 12%.
During the year the Index benchmark for the Fund was changed from the Lehman
Brothers US High Yield Index to the Merrill Lynch Master II High Yield Index.
Both indexes use similar methodology but the change was made for reasons of
market acceptance, usability and transparency to outside investors. The Lehman
High Yield Index returned 11.13% for 2004.
As the high yield rally has continued in the last four months, lower quality
names have led performance. For December CCC-rated bonds returned a healthy
+3.09%, and as they did in November, October and September, clearly outdistanced
both the BB (+1.24%) and B (+1.16%) quality sectors. The hot performance of
CCC's in the last four months of 2004 has left the relative performance
situation in high yield an almost miniature repeat of 2003, with lower-priced,
higher-yielding bonds significantly outperforming issues from stronger credits.
For the year BB's reported a YTD result of +9.33%, B's stand at +10.44% and
CCC's finished with a remarkable return of +15.75%.
The lower quality theme favoring higher yields and lower dollar prices during
2004 was even more clearly demonstrated by the performance of the market's
distressed credits. Looking at credit quality on a ratings-blind basis shows
distressed credits (those with spreads greater than 1,000 basis points over
Treasuries) had another huge month in December at +7.44% as compared to
non-distressed names return of 1.24%. Spreads on the non-distressed cohort
widened a small bit in December from +271 to +279. With strong performance in
the fourth quarter, bonds categorized as distressed (+24.78% annual return)
outperformed their non-distressed peers (+10.23%) in 2004.
As was the case in the previous two months, outperformance by speculative,
distressed credits dominated the top industry returns in December, primarily
driven by snapbacks in some of the sectors that have struggled for most of the
year. Air Transport again topped this list as labor negotiation progress and
some relief on the fuel cost front boosted optimism and produced a monthly
return of 7.23%. Airlines remain as the only losing sector on the year at -.40%.
Telecom was another winner in December at +2.28%. No industries had negative
returns for the month. Some of the weaker December performances were turned in
by some of the market's more stable sectors including Consumer Products (.57%),
Gaming (+.75%) and the previously strong Building Materials sector (+.50%).
2
Generally speaking industry returns were quite closely bunched in 2004 with
Airlines being the only industry without a positive yearly return. The Fund had
a small exposure to the airline sector through some EETC holdings in Continental
and Northwest Airlines, two of the more liquid companies in a tough industry.
Those holdings were actually a small positive for performance as they were
purchased at favorable prices. The snap back dynamic among sectors that
underperformed in 2003 sponsored the year's big industry winners as Textile and
Apparel (+28.08 2004 return), Steel (+19.32%) and Chemicals (+15.48%) topped
the yearly return chart. With the exception of Chemicals none of these
industries represents a large part of the high yield market.
On an issuer specific basis the largest index contributions came from three
sources: 1) recovering pipelines and utilities (El Paso, Williams and Edison
International) 2) Wireline Telecom (AT&T, Quest and MCI) and 3) large distressed
issuers (Charter, Calpine and Levi Strauss). The Fund had large exposures to the
pipeline and utility area which was helpful to performance although our holdings
were concentrated more in the regulated operating pipeline and first mortgage
utility bonds than in the holding company issues that provided the very largest
returns. Although we did have investments (where permitted by ratings
guidelines) to the wireline telecom providers our exposure was smaller than the
index and focused on the safety of operating-company and shorter-maturity bonds.
Our stance here was dictated by continued competition and the technological
threats to the business model of these companies. Lastly, Standish portfolios
are never highly exposed to distressed issuers. We did not like in 2004 and
continue not to like for 2005, the finances of Charter or Calpine. Neither
company looks like it can come close to supporting its current debt load and
both situations appear to contain large risks to the capital of bondholders
despite the two issuers ability to solve liquidity problems by accessing the
high yield market by issuing various types of secured paper.
MARKET ENVIRONMENT
In 2004 high yield investors were once more handsomely rewarded for
concentrating on the highest yielding opportunities in the market. Risk seeking
investors also had a big hand in shaping the composition of the new issues that
came to market as speculative-grade issues represented a large share of new
deals. In 2004 new global high yield issuance hit an all-time record of over
$160 billion. Almost 20% of that new issuance was rated speculative grade CCC or
lower. As a contrast in 2003 about 7% of new issuance carried speculative
ratings and, in the credit stressed environment of 2001 and 2002, the share was
around 3%. An interesting note on the demand side was the fervent search for
high yield bonds that took place despite annual outflows of over $4 billion from
high yield mutual funds. Yield-thirsty institutional investors and other
constituencies such, as hedge funds and structured credit vehicles, more than
made up for the slide in retail demand as compared to 2003 when mutual funds had
significant inflows.
3
PORTFOLIO STRATEGY AND OUTLOOK
On the year high yield spreads tightened over 100 basis points as the broad ML
Master II Index spread fell from 418 bp at the close of 2003 to +310 at year-end
2004. Much of this spread tightening took place in the fourth quarter of the
year. High yield is now at a point where the market looks overpriced on the
basis of historically very low yields (the average B-rated bond yields about
6.80%) and spreads, combined with a risky overall ratings profile given the
expansion of speculative rated securities. The broad Merrill Lynch Index now has
14% of its market value in CCC and lower rated securities and the similar Lehman
index reports over 17%. This extreme valuation situation is more stable than it
appears however as a number of positive market forces derived from stable credit
conditions and an acute lack of attractive yield-oriented investment
alternatives have provided supporting technicals and comfort to investors
holding credit risk.
Over the last half of 2004 the credit risk of the Standish portfolio has been
reduced a bit and even more focus has been placed on identifying improving
credit situations. The portfolio also now holds a number of floating-rate high
yield bond issues and these should continue to provide good performance and
serve as a counterbalance to some of the longer duration investments that have
been made in improving credits where spreads are expected to tighten. As always
credit vigilance will be high and that should be the driver of portfolio returns
in 2005.
/s/Jonathan Uhrig
Jonathan Uhrig
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON HIGH
YIELD BOND FUND, THE MERRILL LYNCH HIGH YIELD MASTER II INDEX AND THE LEHMAN
BROTHERS HIGH YIELD INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 06/02/1997
- ------------------------------------------------------------------------------------------------------------------------------------
9.56% 11.80% 7.85% 6.37%
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.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND 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 (July 1, 2004 to December 31, 2004).
ACTUAL EXPENSES
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JULY 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,089.00 $2.63
Hypothetical (5% return
per year before expenses) $1,000.00 $1,022.62 $2.54
(
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((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.50%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(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.
6
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2004 (UNAUDITED)
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PERCENTAGE OF
SUMMARY OF COMBINED RATINGS INVESTMENTS
--------------------------------------------
QUALITY BREAKDOWN
--------------------------------------------
Treasury 1.9%
AA 0.3
BBB 3.4
BB 37.0
B 49.2
CCC 6.2
C/D/NR 2.0
_____
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
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Douglas Dynamics LLC 144A 7.750% 1/15/2012 1.5%
Sovereign Capital Trust IV CVT Pfd 4.375 3/1/2034 1.5
Chevy Chase Bank FSB 6.875 12/1/2013 1.4
AES Corp. 144A 8.750 5/15/2013 1.3
Crown Cork & Seal Co, Inc. 7.375 12/15/2026 1.2
Freescale Semiconductor Inc. 6.875 7/15/2011 1.2
Echostar DBS Corp. 5.750 10/1/2008 1.2
Speedway Motorsports, Inc. 6.750 6/1/2013 1.2
Rite Aid Corp. 12.500 9/15/2006 1.1
Stater Brothers Holding 8.125 6/15/2012 1.1
_____
12.7%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
------------------------------------------------------------------------
Banking 3.2%
Basic industry 11.4
Brokerage 0.0
Capital goods 11.8
Consumer cyclical 3.1
Consumer non-cyclical 8.1
Energy 11.2
Finance 0.5
Insurance 0.0
Media 10.3
Real estate 0.6
Services cyclical 15.6
Services non-cyclical 1.8
Technology 1.6
Telecommunications 6.7
Utility 8.8
Emerging markets 3.1
Agency 0.3
Cash & equivalents 1.9
_____
100.0%
The Portfolio is actively managed. Current holdings and allocation may
be different than those presented above.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
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ASSETS
Investment in Standish Mellon High Yield Bond Portfolio (Portfolio), at value (Note 1A) $ 56,728,086
Receivable for Fund shares sold 15,073
Prepaid expenses 7,700
___________
Total assets 56,750,859
LIABILITIES
Payable for Fund shares redeemed $ 1,354
Distributions payable 68,135
Accrued transfer agent fees (Note 2) 4,809
Accrued other expenses and other liabilities 3,251
___________
Total liabilities 77,549
___________
NET ASSETS $ 56,673,310
___________
___________
NET ASSETS CONSIST OF:
Paid-in capital $ 63,871,333
Accumulated net realized loss (10,187,341)
Distributions in excess of net investment income (107,560)
Net unrealized appreciation 3,096,878
___________
TOTAL NET ASSETS $ 56,673,310
___________
___________
Shares of beneficial interest outstanding 3,430,830
___________
___________
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 16.52
___________
___________
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
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INVESTMENT INCOME (NOTE 1B)
Interest income allocated from Portfolio $4,328,199
Dividend income allocated from the Portfolio 38,029
Expenses allocated from Portfolio (281,571)
_________
Net investment income allocated from Portfolio 4,084,657
EXPENSES
Transfer agent fees (Note 2) $ 11,780
Registration fees 13,300
Professional fees 21,953
Trustees' fees (Note 2) 1,999
Shareholder reports 7,541
Analytical service fees 4,998
Miscellaneous 1,831
_________
Total expenses 63,402
Deduct:
Reimbursement of Fund operating expenses (Note 2) (63,250)
_________
Net expenses 152
_________
Net investment income 4,084,505
_________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment, swap and foreign currency transactions 1,476,264
Change in unrealized appreciation (depreciation) allocated from Portfolio (438,129)
_________
Net realized and unrealized loss on investments 1,038,135
_________
NET INCREASE IN NET ASSETS FROM OPERATIONS $5,122,640
_________
_________
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
STATEMENT OF CHANGES IN NET ASSETS
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FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS:
FROM INVESTMENT OPERATIONS
Net investment income $ 4,084,505 $ 4,069,056
Net realized gains 1,476,264 1,480,913
Change in net unrealized appreciation (438,129) 4,617,621
____________ ___________
Net increase in net assets from investment operations 5,122,640 10,167,590
____________ ___________
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (3,992,711) (4,091,517)
____________ ___________
Total distributions to shareholders (3,992,711) (4,091,517)
____________ ___________
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 6,909,820 13,539,738
Value of shares issued to shareholders in reinvestment of distributions 3,688,577 3,716,831
Cost of shares redeemed (12,091,090) (10,355,582)
____________ ___________
Net increase (decrease) in net assets from Fund share transactions (1,492,693) 6,900,987
____________ ___________
TOTAL INCREASE (DECREASE) IN NET ASSETS (362,764) 12,977,060
NET ASSETS
At beginning of year 57,036,074 44,059,014
____________ ___________
At end of year (including distributions in excess of
net investment income of $107,560 and $169,652) $ 56,673,310 $ 57,036,074
____________ ___________
____________ ___________
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
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YEAR ENDED DECEMBER 31,
____________________________________________________________
2004 2003 2002 2001 2000
_______ _______ ________ _______ _______
NET ASSET VALUE, BEGINNING OF YEAR $ 16.19 $ 14.34 $ 14.88 $ 15.88 $ 17.39
_______ _______ ________ _______ _______
FROM INVESTMENT OPERATIONS:
Net investment income(* (1)) 1.18 1.21 1.26 1.40 1.64
Net realized and unrealized gains (loss) on investments 0.31 1.85 (0.59) (1.18) (1.19)
_______ _______ ________ _______ _______
Total from investment operations 1.49 3.06 0.67 0.22 0.45
_______ _______ ________ _______ _______
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.16) (1.21) (1.21) (1.21) (1.93)
From tax return of capital -- -- -- (0.01) (0.03)
_______ _______ ________ _______ _______
Total distributions to shareholders (1.16) (1.21) (1.21) (1.22) (1.96)
_______ _______ ________ _______ _______
NET ASSET VALUE, END OF YEAR $ 16.52 $ 16.19 $ 14.34 $ 14.88 $ 15.88
_______ _______ ________ _______ _______
_______ _______ ________ _______ _______
TOTAL RETURN((+)) 9.56% 21.76% 4.70% 1.52% 2.84%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*(2)) 0.50% 0.50% 0.50% 0.50% 0.37%
Net Investment Income (to average daily net assets)(*) 7.28% 7.79% 8.68% 8.86% 10.41%
Net Assets, End of Year (000's omitted) $56,673 $57,036 $44,059 $46,302 $31,807
- -------
* For the periods indicated, the investment advisor voluntarily agreed not to
impose a portion of the Portfolio 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) $ 1.12 $ 1.13 $ 1.21 $ 1.33 $ 1.64
Ratios (to average daily net assets):
Expenses(2) 0.87% 1.00% 1.01% 0.97% 1.11%
Net investment income 6.91% 7.29% 8.17% 8.39% 9.67%
(a) The Fund has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
decrease net investment income per share by $0.05, increase net realized and
unrealized gains and losses per share by $0.05 and decrease the ratio of net
investment income to average net assets from 9.20% to 8.86%. Per share data and
ratios/supplemental data for the periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's share of the Standish Mellon High Yield Bond
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.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
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.
Standish Mellon High Yield Bond Fund (the "Fund") is a separate diversified
investment series of the Trust.
The objective of the Fund is to maximize total return, consisting primarily
of a high level of income. The Fund seeks to achieve its objective by
investing all of its investable assets in an interest of the Standish
Mellon High Yield Bond Portfolio (the "Portfolio"), a subtrust of the
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 fixed
income securities issued by U.S. and foreign governments, companies and
banks, as well as tax-exempt securities, preferred stocks and warrants. The
value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (approximately
100% at December 31, 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. INVESTMENT TRANSACTIONS AND INCOME
Investment transactions in the Portfolio are recorded as of the settlement
date of shareholder transactions. The Fund's net investment income consists
of the Fund's pro rata share of the net investment income of the Portfolio,
less all 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 the ex-dividend date.
Dividends from net investment income will be declared daily and distributed
monthly. 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 capital loss carryforwards and amortization and/or
accretion of premiums and discounts on certain securities.
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 and foreign currency transactions 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 or Portfolio Trust are directly
identifiable to an individual fund or Portfolio. 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 or Portfolios.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
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 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
Standish Mellon Asset Management Company LLC ("Standish Mellon"), 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. Standish Mellon 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 0.50% of the Fund's average daily net assets. This agreement
is voluntary and temporary and may be discontinued or revised by Standish
Mellon at any time. Pursuant to this agreement, for the year ended December
31, 2004, Standish Mellon voluntarily reimbursed the Fund for $63,250 of
its operating expenses.
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 Standish Mellon, 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 paid $5,171 during the period ended
December 31, 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.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 2004, aggregated $10,724,449 and $16,197,718,
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
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
Shares sold 428,139 883,066
Shares issued to shareholders in
reinvestment of distributions declared 227,570 235,981
Shares redeemed (747,381) (668,446)
________ ________
Net increase (decrease) (91,672) 450,601
________ ________
________ ________
At December 31, 2004, two shareholders of record held approximately 77% 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 December 31, 2004, the Fund received $248
in redemption fees.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
2004
____________
Undistributed ordinary income $ 27,153
Accumulated losses (10,154,928)
At December 31, 2004, the Fund, for federal income tax purposes, has
capital loss carryovers of $10,154,928 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
___________ _________________
$ 1,473,489 12/31/2008
4,484,343 12/31/2009
4,197,096 12/31/2010
___________
$ 10,154,928
___________
___________
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003 were as follows:
2004 2003
_________ _________
Ordinary income $3,992,711 $4,091,517
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON HIGH YIELD BOND FUN
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon High Yield Bond 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 Standish Mellon High Yield Bond Fund (the "Fund") at
December 31, 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 agreement of the amount of the investment in the Portfolio at
December 31, 2004 to the Portfolio's records, provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--94.5%
CONVERTIBLE CORPORATE BONDS--0.7%
Centerpoint Energy 144A CVT 2.875% 1/15/2024 $ 75,000 $ 78,938
Royal Caribbean Cruises Step Up Notes CVT (a)* 0.000 5/18/2021 25,000 21,563
Meristar Hospitality Corp. REIT CVT 9.500 4/1/2010 175,000 232,750
Xcel Energy, Inc. 144A CVT 7.500 11/21/2007 40,000 61,900
___________
Total Convertible Corporate Bonds (Cost $302,189) 395,151
___________
CORPORATE--82.1%
BANKING--1.7%
Chevy Chase Bank FSB 6.875 12/1/2013 795,000 820,838
Colonial Bank 9.375 6/1/2011 100,000 118,634
___________
939,472
___________
BASIC INDUSTRY--9.4%
Airgas, Inc. 6.250 7/15/2014 35,000 35,700
Arch Western Finance (*) 6.750 7/1/2013 80,000 82,600
BCP Caylux Holdings Luxembourg SCA 144A 9.625 6/15/2014 260,000 293,150
Earle M Jorgenson Co. 9.750 6/1/2012 100,000 112,500
Equistar Chemicals LP/ Equistar Funding Corp. (*) 10.125 9/1/2008 140,000 161,350
Equistar Chemicals LP/Equistar Funding Corp. 10.625 5/1/2011 160,000 185,600
Freeport-McMoRan Copper & Gold, Inc. (*) 10.125 2/1/2010 175,000 199,938
Freeport-McMoRan Copper & Gold, Inc. 6.875 2/1/2014 115,000 114,281
Georgia-Pacific Corp. 7.375 7/15/2008 440,000 478,500
Georgia-Pacific Corp. 8.875 2/1/2010 460,000 535,325
Georgia-Pacific Corp. 8.000 1/15/2024 230,000 266,800
International Steel Group (*) 6.500 4/15/2014 225,000 241,313
KRATON Polymers LLC/Capital Corp. 144A 8.125 1/15/2014 20,000 20,850
Lubrizol Corp. 4.625 10/1/2009 225,000 224,653
Lubrizol Corp. 5.500 10/1/2014 300,000 301,768
Lyondell Chemical Co. (*) 9.625 5/1/2007 310,000 341,000
Nalco Co. (*) 8.875 11/15/2013 500,000 548,750
Neenah Paper, Inc. 144A 7.375 11/15/2014 20,000 20,300
Peabody Energy Corp. 6.875 3/15/2013 125,000 135,313
Steel Dynamics, Inc. 9.500 3/15/2009 325,000 355,875
Stone Container Corp. 8.375 7/1/2012 335,000 365,150
Westlake Chemical Corp. 8.750 7/15/2011 153,000 172,890
United States Steel Corp. 9.750 5/15/2010 109,000 124,260
___________
5,317,866
___________
CAPITAL GOODS--8.3%
Alliant Techsystems, Inc. 8.500 5/15/2011 105,000 114,975
Alliant Techsystems, Inc. 144A 2.750 2/15/2024 45,000 47,644
Ball Corp. 6.875 12/15/2012 30,000 32,250
Berry Plastics 10.750 7/15/2012 70,000 80,150
Crown Cork & Seal Co, Inc. 8.000 4/15/2023 270,000 265,950
Crown Cork & Seal Co, Inc. 7.375 12/15/2026 720,000 676,800
Esterline Technologies Corp. 7.750 6/15/2013 120,000 131,100
Goodman Global Holdings 144A (b) 5.760 6/15/2012 390,000 395,850
Leucadia National Corp. (*) 7.000 8/15/2013 370,000 381,100
L-3 Communications Corp. 6.125 7/15/2013 250,000 258,125
National Waterworks, Inc. 10.500 12/1/2012 90,000 101,250
Norcraft Finance Co. 9.000 11/1/2011 50,000 54,000
Owens-Brockway 7.750 5/15/2011 155,000 167,788
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
CAPITAL GOODS (CONTINUED)
Owens-Illinois, Inc. (*) 7.500% 5/15/2010 $290,000 $ 307,763
Owens-Illinois, Inc. 7.800 5/15/2018 355,000 369,200
SPX Corp. (*) 6.250 6/15/2011 80,000 84,400
SPX Corp. 7.500 1/1/2013 175,000 189,875
Silgan Holdings, Inc. 6.750 11/15/2013 110,000 114,400
Solo Cup Co.(*) 8.500 2/15/2014 70,000 72,800
Texas Industries, Inc. 10.250 6/15/2011 235,000 274,950
Trinity Industries, Inc. 6.500 3/15/2014 595,000 595,000
___________
4,715,370
___________
CONSUMER CYCLICAL--3.2%
Advanced Accessoy Systems LLC 10.750 6/15/2011 260,000 247,000
Affinia Group, Inc. 144A 9.000 11/30/2014 120,000 125,100
Couche-Tard 7.500 12/15/2013 100,000 107,250
Domino's, Inc. 8.250 7/1/2011 113,000 123,453
Douglas Dynamics LLC 144A 7.750 1/15/2012 865,000 876,894
Friendly Ice Cream Corp. (*) 8.375 6/15/2012 35,000 34,344
Keystone Automotive Operation 9.750 11/1/2013 105,000 112,350
Russell Corp. 9.250 5/1/2010 187,000 200,558
___________
1,826,949
___________
CONSUMER NONCYCLICAL--8.7%
Altria Group, Inc. (*) 7.000 11/4/2013 135,000 146,279
Chattem, Inc.( (b)) 5.400 3/1/2010 75,000 76,500
Chattem, Inc. 7.000 3/1/2014 215,000 221,450
Constellation Brands, Inc. 8.000 2/15/2008 130,000 141,375
Del Monte Corp. 8.625 12/15/2012 505,000 565,600
Elizabeth Arden, Inc. 7.750 1/15/2014 55,000 58,300
Ingles Markets, Inc. 8.875 12/1/2011 150,000 160,500
Marsh Supermarkets, Inc. (*) 8.875 8/1/2007 95,000 95,238
Medex, Inc. 8.875 5/15/2013 35,000 40,775
Mohegan Tribal Gaming 7.125 8/15/2014 550,000 578,875
Neighborcare, Inc. 6.875 11/15/2013 40,000 41,900
Pinnacle Foods Holding Corp. 144A (*) 8.250 12/1/2013 315,000 300,038
Rite Aid Corp. (*) 12.500 9/15/2006 570,000 641,250
Rite Aid Corp. 8.125 5/1/2010 310,000 327,825
Rite Aid Corp. 9.500 2/15/2011 135,000 148,163
RJ Reynolds Tobacco Holdings, Inc. (*) 7.750 5/15/2006 135,000 141,075
Scotts Co. 6.625 11/15/2013 85,000 89,463
Smithfield Foods, Inc. 7.750 5/15/2013 160,000 178,000
Standard Commercial Corp. 8.000 4/15/2012 75,000 77,063
Stater Brothers Holding (b) 5.990 6/15/2010 200,000 205,500
Stater Brothers Holding (*) 8.125 6/15/2012 595,000 629,213
True Temper Sports, Inc. 8.375 9/15/2011 100,000 93,000
___________
4,957,382
___________
ENERGY--9.5%
Amerigas Partners LP/Amerigas Eagle Finance Corp. 8.875 5/20/2011 200,000 218,000
ANR Pipeline Co. 7.375 2/15/2024 65,000 68,900
ANR Pipeline Co. 7.000 6/1/2025 35,000 35,438
Chesapeake Energy Corp. 8.125 4/1/2011 275,000 297,688
El Paso Natural Gas Co. 8.625 1/15/2022 275,000 320,719
El Paso Natural Gas Co. 7.500 11/15/2026 160,000 167,000
El Paso Natural Gas Co. 8.375 6/15/2032 140,000 155,925
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
ENERGY (CONTINUED)
El Paso Production Holding Co. 7.750% 6/1/2013 $160,000 $ 167,600
Enterprise Products Operating LP 144A 4.625 10/15/2009 480,000 479,248
Frontier Oil Corp. 144A 6.625 10/1/2011 100,000 102,000
Houston Exploration Co. 7.000 6/15/2013 150,000 159,000
Newfield Exploration Co. (*) 8.375 8/15/2012 170,000 190,400
Newfield Exploration Co. 144A 6.625 9/1/2014 180,000 190,350
Northwest Pipeline Corp. 6.625 12/1/2007 525,000 556,500
Pogo Producing Co. 8.250 4/15/2011 55,000 59,675
Premcor Refining Group, Inc. 9.500 2/1/2013 195,000 226,200
Southern Natural Gas Co. 7.350 2/15/2031 350,000 363,125
Southern Natural Gas Co. 8.875 3/15/2010 50,000 56,000
Tennessee Gas Pipeline Co. 8.375 6/15/2032 175,000 197,313
Tesoro Petroleum Corp. 8.000 4/15/2008 65,000 70,688
Transcont Gas Pipe Corp 7.000 8/15/2011 225,000 246,656
Transcontinental Gas Pipe Line Corp. 8.875 7/15/2012 325,000 395,281
Williams Cos., Inc. 7.875 9/1/2021 475,000 529,625
Williams Cos., Inc. * 7.750 6/15/2031 115,000 120,463
___________
5,373,794
___________
FINANCIAL--0.9%
Crystal US Holdings 3 LLC/Crystal US Sub 3 Corp. 144A (a) 0.000 10/1/2014 425,000 294,313
Glencore Funding LLC 144A 6.000 4/15/2014 200,000 193,496
___________
487,809
___________
INSURANCE--0.2%
Marsh & McLennan Cos., Inc. 5.375 7/15/2014 90,000 87,936
___________
MEDIA--8.4%
American Media Operation, Inc. 10.250 5/1/2009 135,000 142,256
Block Communications, Inc. 9.250 4/15/2009 130,000 141,700
Cablevision Systems Corp. 144A (b) 6.669 4/1/2009 340,000 360,400
CBD Media, Inc. 8.625 6/1/2011 150,000 158,625
CSC Holdings, Inc. (*) 8.125 8/15/2009 200,000 218,750
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 80,000 89,000
Dex Media West LLC/Dex Media Finance Co. 9.875 8/15/2013 78,000 89,895
Dex Media, Inc. (*) 8.000 11/15/2013 90,000 97,425
DirecTV Holdings LLC 8.375 3/15/2013 275,000 308,344
Echostar DBS Corp. 5.750 10/1/2008 649,000 657,113
Echostar DBS Corp. 9.125 1/15/2009 146,000 160,600
Entercom Radio LLC/Entercom Capital, Inc. 7.625 3/1/2014 50,000 53,813
Entravision Communications Corp. 8.125 3/15/2009 420,000 448,350
PX Escrow Corp. 9.625 2/1/2006 400,000 320,000
Quebecor Media, Inc. 11.125 7/15/2011 150,000 171,375
Radio One, Inc. 8.875 7/1/2011 60,000 65,325
RH Donnelley Finance Corp. 144A 8.875 12/15/2010 220,000 245,300
RH Donnelley Finance Corp. 144A 10.875 12/15/2012 320,000 380,000
Salem Communications Corp. 7.750 12/15/2010 390,000 421,688
Sinclair Broadcast Group, Inc. 4.875 7/15/2018 80,000 76,700
Spanish Broadcasting System 9.625 11/1/2009 190,000 199,500
___________
4,806,159
___________
REAL ESTATE--0.5%
BF Saul REIT 7.500 3/1/2014 300,000 309,000
___________
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SERVICES: CYCLICAL--12.3%
AMC Entertainment, Inc. 8.000% 3/1/2014 $200,000 $ 199,000
American Casino & Entertainment Properties LLC 7.850 2/1/2012 70,000 74,375
Ameristar Casinos, Inc. 10.750 2/15/2009 500,000 557,500
Argosy Gaming Co. (*) 7.000 1/15/2014 325,000 359,125
Carmike Cinemas (*) 7.500 2/15/2014 265,000 271,294
Chumash Casino & Resort Enterprises 144A 9.000 7/15/2010 515,000 570,363
Cinemark USA, Inc. (*) 9.000 2/1/2013 135,000 154,069
Continental Airlines, Inc. 8.307 4/2/2018 203,031 177,504
Continental Airlines, Inc. 6.795 8/2/2018 83,824 73,252
Corrections Corp Of America 7.500 5/1/2011 60,000 64,125
DR Horton, Inc. (*) 8.500 4/15/2012 50,000 55,750
Felcor Lodging LP REIT (b) 6.874 6/1/2011 160,000 168,000
Host Marriott LP 8.375 2/15/2006 115,000 120,175
Host Marriott LP 144A (*) 3.250 4/15/2024 130,000 149,500
Isle of Capri Casinos 7.000 3/1/2014 545,000 555,900
John Q Hammons Hotels LP/John Q Hammons Hotels Finance Corp. III 8.875 5/15/2012 350,000 395,500
Kansas City Southern Railway 7.500 6/15/2009 250,000 262,500
Meristar Hospitality Corp. (*) 9.000 1/15/2008 275,000 289,781
MeriStar Hospitality Operating Partnership
LP/MeriStar Hospitality Finance Corp. 10.500 6/15/2009 190,000 207,100
Mohegan Tribal Gaming Authority 8.000 4/1/2012 190,000 206,150
Northwest Airlines Corp. 8.304 9/1/2010 202,975 170,885
Pinnacle Entertainment, Inc. 8.750 10/1/2013 170,000 184,025
Six Flags, Inc. (*) 9.500 2/1/2009 270,000 280,800
Speedway Motorsports, Inc. 6.750 6/1/2013 620,000 652,550
Station Casinos 6.000 4/1/2012 325,000 331,094
Stena AB 9.625 12/1/2012 70,000 79,100
Stena AB 7.500 11/1/2013 70,000 73,325
Turning Stone Casino Resort Enterprise 144A 9.125 12/15/2010 250,000 270,625
___________
6,953,367
___________
SERVICES: NON-CYCLICAL--1.9%
Allied Waste North America 8.875 4/1/2008 275,000 294,250
Allied Waste North America 8.500 12/1/2008 150,000 159,000
Browning-Ferris Industries 9.250 5/1/2021 110,000 117,150
Fisher Scientific International 144A 6.750 8/15/2014 220,000 235,950
HCA, Inc. 8.850 1/1/2007 175,000 188,754
Kinetic Concepts, Inc. 7.375 5/15/2013 94,000 101,520
___________
1,096,624
___________
TECHNOLOGY & ELECTRONICS--1.6%
Communications & Power Industries, Inc. 8.000 2/1/2012 35,000 37,100
Freescale Semiconductor Inc. (b) 4.820 7/15/2009 170,000 177,013
Freescale Semiconductor Inc. 6.875 7/15/2011 630,000 675,675
___________
889,788
___________
TELECOMMUNICATIONS--5.2%
Airgate PCS, Inc. 144A (b) 5.850 10/15/2011 50,000 51,375
Alamosa Delaware, Inc. 8.500 1/31/2012 160,000 174,800
American Tower Corp. (*) 9.375 2/1/2009 79,000 83,543
AT&T Corp. 9.750 11/15/2031 150,000 179,063
Consolidated Communications Illinois/Texas Holdings, Inc. 144A 9.750 4/1/2012 245,000 264,600
Crown Castle International Corp. (*) 7.500 12/1/2013 140,000 150,500
MCI, Inc. 6.908 5/1/2007 183,000 187,346
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS (CONTINUED)
Nextel Communications, Inc. 6.875% 10/31/2013 $405,000 $ 439,425
Panamsat Corp. 144A 9.000 8/15/2014 110,000 122,788
Qwest Communications International 144A (b) 5.790 2/15/2009 200,000 202,500
Qwest Services Corp. 144A 13.500 12/15/2007 145,000 165,663
Qwest Corp. 144A 7.875 9/1/2011 300,000 325,500
Rural Cellular Corp. 8.250 3/15/2012 85,000 89,888
Ubiquitel Operating Co. 9.875 3/1/2011 170,000 190,825
Ubiquitel Operating Co. 144A 9.875 3/1/2011 75,000 84,188
US Unwired, Inc.( (b)) 6.740 6/15/2010 200,000 207,000
___________
2,919,004
___________
UTILITIES--10.3%
AES Corp. (*) 8.500 11/1/2007 85,000 86,275
AES Corp. (*) 8.875 2/15/2011 100,000 114,250
AES Corp. 144A 8.750 5/15/2013 635,000 721,519
AES Gener SA 144A 7.500 3/25/2014 325,000 341,250
CMS Energy Corp. 9.875 10/15/2007 400,000 447,000
CMS Energy Corp. 7.750 8/1/2010 150,000 164,063
CMS Energy Corp. 8.500 4/15/2011 95,000 107,944
DPL, Inc. (*) 6.875 9/1/2011 330,000 360,404
Dynergy Holdings, Inc. 144A 9.875 7/15/2010 485,000 541,988
FPL Energy Wind Funding LLC 144A 6.876 6/27/2017 132,440 136,579
Ipalco Enterprises, Inc. 8.375 11/14/2008 310,000 348,750
Monongahela Power 144A 6.700 6/15/2014 110,000 121,866
MSW Energy Holdings 7.375 9/1/2010 325,000 341,250
NRG Energy, Inc. 144A 8.000 12/15/2013 125,000 136,250
Nevada Power Co. 6.500 4/15/2012 135,000 142,763
Nevada Power Co. 144A 5.875 1/15/2015 275,000 277,063
Northwestern Corp. 144A 5.875 11/1/2014 80,000 81,838
Reliant Energy, Inc. 9.250 7/15/2010 80,000 89,200
Reliant Energy Inc. 6.750 12/15/2014 220,000 218,625
TECO Energy, Inc. 7.500 6/15/2010 70,000 77,350
Texas Genco LLC/Texas Genco Financing Corp. 144A 6.875 12/15/2014 200,000 206,750
Texas Utilities Corp. 144A 4.800 11/15/2009 250,000 250,448
Texas Utilities Corp. 144A 5.550 11/15/2014 510,000 506,639
___________
5,820,064
___________
Total Corporate Bonds (Cost $43,686,409) 46,500,584
___________
MUNICIPAL--0.1%
South Carolina Tobacco Settlement Authority (Cost $80,433) 6.000 5/15/2022 90,000 88,924
___________
SOVEREIGN BONDS--2.4%
Banco Nacional de Desenvolvimento Economic (b) 5.832 6/16/2008 45,000 46,013
Dominican Republic 144A (*) 9.500 9/27/2006 70,000 65,450
Republic of Argentina 6.000 3/31/2023 80,000 44,800
Republic of Argentina 12.000 6/19/2031 68,900 22,737
Republic of Brazil 10.125 5/15/2027 15,000 17,078
Republic of Brazil 11.000 8/17/2040 55,000 65,230
Republic of Brazil (b) 3.125 4/15/2012 79,412 75,640
Republic of Colombia 10.000 1/23/2012 15,000 17,325
Republic of Colombia 10.750 1/15/2013 15,000 17,925
Republic of Colombia (*) 9.750 4/23/2009 10,000 11,400
Republic of Colombia (*) 8.125 5/21/2024 55,000 53,350
Republic of Ecuador 12.000 11/15/2012 25,000 25,625
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SOVEREIGN BONDS (CONTINUED)
Republic of Ecuador 8.000% 8/15/2030 $ 40,000 $ 34,800
Republic of El Salvador 8.250 4/10/2032 35,000 35,350
Republic of Panama 9.625 2/8/2011 10,000 11,850
Republic of Panama 7.250 3/15/2015 15,000 15,525
Republic of Peru 9.125 2/21/2012 10,000 11,625
Republic of Peru 4.500 3/7/2017 25,000 23,375
Republic of Peru (b) 5.000 3/7/2017 57,200 54,340
Republic of Turkey 11.750 6/15/2010 10,000 12,565
Republic of Turkey 9.000 6/30/2011 75,000 85,459
Republic of Turkey 11.500 1/23/2012 20,000 25,719
Republic of Turkey 11.875 1/15/2030 20,000 28,800
Republic of Turkey 8.000 2/14/2034 25,000 25,866
Republic of Uruguay 7.500 3/15/2015 88,000 86,020
Republic of Venezuela 5.375 8/7/2010 75,000 70,425
Republic of Venezuela (b) 3.090 4/20/2011 40,000 36,300
Republic of Venezuela (*) 9.250 9/15/2027 30,000 31,650
Russian Federation 3.000 5/14/2008 70,000 64,925
Russian Federation 5.000 3/31/2030 130,000 134,063
Salomon Brothers AF for OAO Siberian Oil Co. 10.750 1/15/2009 40,000 42,600
Serbian Government (#) 3.750 11/15/2024 45,000 37,463
Ukraine Government Senior Notes 11.000 3/15/2007 42,001 45,020
___________
Total Sovereign Bonds (Cost $1,286,862) 1,376,313
___________
YANKEE BONDS--6.0%
Bombardier, Inc. 144A (*) 6.300 5/1/2014 150,000 130,125
Crown European Holdings SA 9.500 3/1/2011 400,000 456,000
GT Group Telecom, Inc. Senior Step Up Notes (~) (a)@ 13.250 2/1/2010 925,000 93
INVISTA 144A 9.250 5/1/2012 360,000 401,400
Jean Coutu Group PLC, Inc. 144A 7.625 8/1/2012 75,000 79,313
JSG Funding PLC 9.625 10/1/2012 150,000 167,250
Norampac, Inc. (*) 6.750 6/1/2013 80,000 84,200
Nova Chemicals Corp. 6.500 1/15/2012 70,000 74,200
Petroleum Geo-Services ASA 10.000 11/5/2010 260,000 296,400
Rogers Wireless, Inc. 144A(*) 8.000 12/15/2012 145,000 153,338
Rogers Wireless, Inc. 144A (b) 5.525 12/15/2010 160,000 167,600
Royal Caribbean Cruises Ltd. 8.000 5/15/2010 150,000 169,500
Royal Caribbean Cruises Ltd. 8.750 2/2/2011 460,000 543,375
Russel Metals, Inc. 6.375 3/1/2014 70,000 71,050
Telenet Group Holding NV 144A Senior Step Up Notes(a) 0.000 6/15/2014 210,000 159,600
Tembec Industries, Inc. (*) 7.750 3/15/2012 240,000 232,200
Tyco International Group SA 144A 3.125 1/15/2023 120,000 201,600
___________
Total Yankee Bonds (Cost $3,691,091) 3,387,244
___________
FOREIGN DENOMINATED--3.2%
EURO--3.2%
Culligan Finance Corp., BV 144A 8.000 10/1/2014 EUR 150,000 213,665
Eircom Funding 8.250 8/15/2013 155,000 238,660
Hornbach Baumarkt AG 144A 6.125 11/15/2014 35,000 48,134
MTU Aero Engines 144A 8.250 4/1/2014 85,000 129,148
NTL Cable Plc 144A (*) 8.750 4/15/2014 175,000 264,707
Remy Cointreau S.A. 144A 6.500 7/1/2010 60,000 86,483
Rockwood Specialties Group. 144A 7.625 11/15/2014 50,000 69,780
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
EURO (CONTINUED)
Telenet Communications NV 144A (a) 9.000% 12/15/2013 EUR 270,000 $ 406,573
Valentia Telecommunications Ltd. 7.250 8/15/2013 245,000 373,082
___________
1,830,232
___________
FRENCH FRASNC--0.0%
Ivory Coast FLIRB (~) 2.000 3/29/2018 FRF 1,000,000 32,056
___________
Total Foreign Denominated (Cost $1,490,528) 1,862,288
___________
TOTAL BONDS AND NOTES (Cost $50,537,512) 53,610,504
___________
COMMON STOCKS--0.1% SHARES
_______
MCI, Inc. (Cost $0) 2,811 56,670
___________
CONVERTIBLE PREFERRED STOCKS--2.5%
Fannie Mae 5.375% CVT Pfd 1 105,750
Fannie Mae 7.00% CVT Pfd 950 53,853
Ford Motor Co. Capital Trust II 6.50% CVT Pfd 2,000 105,580
General Motors Corp. Series C 6.25% CVT Pfd 2,300 61,318
Kansas City Southern 4.25% 144A CVT Pfd 290 190,711
Omnicare, Inc. 4.00% CVT Pfd 1,000 54,750
Sovereign Capital Trust IV 4.375% CVT Pfd 17,500 853,097
___________
TOTAL CONVERTIBLE BONDS (Cost $ 1,358,279) 1,425,059
___________
WARRANTS--0.0%
COMMUNICATIONS--0.0%
GT Group Telecom, Inc., 02/01/2010 (@) 925 9
McLeod USA, Inc., 04/16/2007 (@) 3,379 710
___________
TOTAL WARRANTS (Cost $60,043) 719
___________
SHORT TERM INVESTMENTS--14.1%
INVESTMENT COMPANIES--1.4%
Dreyfus Institutional Preferred Plus((+)) 765,113 765,113
INVESTMENT OF CASH COLLATERAL--12.7%
BlackRock Cash Strategies L.L.C. (**) 7,214,703 7,214,70
___________
TOTAL SHORT TERM INVESTMENTS--(Cost $7,979,816) 7,979,816
___________
TOTAL INVESTMENTS--111.2% (COST $59,935,650) 63,072,768
LIABILITIES IN EXCESS OF OTHER ASSETS--(11.2%) (6,344,682)
___________
NET ASSETS--100.0% $56,728,086
___________
___________
NOTES TO SCHEDULE OF INVESTMENTS:
(a) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specific rate and date. The rate shown is the rate at period
end. The maturity date shown is the ultimate maturity
(b) Variable Rate Security, rate indicated is as of 12/31/2004.
EUR--Euro
FRF--French franc
REIT--Real Estate Investment Trust
(+) Affiliated institutional money market fund.
* Security, or a portion of thereof, was on loan at December 31, 2004.
** Money market fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
# Delayed delivery security
Step Up--Coupon rate increases in increments to maturity. Rate disclosed is as
of December 31, 2004. Maturity date disclosed is the ultimate maturity.
@ Non-income producing
~ Defaulted security
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO STANDISH MELLON HIGH YIELD BOND
PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE DECEMBER 31, 2004 TO RECEIVE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 1,929,000 3/16/2005 $2,618,928 $2,568,740 $(50,188)
At December 31, 2004, the Portfolio held the following open swap contracts:
NOTIONAL AMOUNT EXPIRATION DATE DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
510,000 USD 6/20/09 Agreement with Merrill Lynch, dated 7/14/04
to receive 1.60% per year times the notional amount.
The Portfolio makes payment only upon a credit
event by Georgia Pacific Corp., the notional amount
times the difference between the par value and the
then-market of Georgia Pacific Corp., 8.125% due 5/15/11. $ 14,675
55,000 USD 12/20/07 Agreement with Bear Stearns, dated 12/08/04
to receive 2.05% per year times the notional amount.
The Portfolio makes payment only upon a credit event
by Republic of Turkey, the notional amount times
the difference between the par value and the then-market
of Republic of Turkey, 11.875% due 1/15/30. 618
80,000 USD 12/20/09 Agreement with Bear Stearns, dated 11/17/04
to receive 2.84% per year times the notional amount.
The Portfolio makes payment only upon a credit event
by Ukraine Government, the notional amount times
the difference between the par value and the then-market
of Ukraine Government, 7.65% due 6/11/13. 1,152
510,000 USD 6/20/09 Agreement with Merrill Lynch, dated 7/14/04
to pay 0.77% per year times the notional amount.
by Mead Westvaco Corp., the notional amount times the
difference between the par value and the then-market of
Mead Westvaco Corp., 6.85% due 4/01/12. (8,947)
80,000 USD 11/19/09 Agreement with Bear Stearns, dated 11/17/04
to receive the notional amount multiplied by 3.90700%
and to pay the notional amount multiplied by the
3 month LIBOR. (172)
55,000 USD 12/20/05 Agreement with Bear Stearns, dated 12/08/04
to pay 1.05% per year times the notional amount.
The Portfolio receives payment only upon a credit event
by Republic of Turkey, the notional amount times
the difference between the par value and the then-market
of Republic of Turkey, 11.875% due 1/15/2030. (68)
________
Total Swap Value $ 7,258
________
________
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $7,043,099
(Note 6))
Unaffiliated issuers, at value (Note 1A) (cost $59,170,537) $62,307,655
Affiliated issuers, at value (Note 1A) (cost $765,113) (Note 1H) 765,113
Cash 5,385
Foreign currency, at value (identified cost, $13,981) 14,651
Open swap contracts, at value (Note 5) 7,258
Receivable for investments sold 33,181
Interest and dividends receivable 944,435
Prepaid expenses 1,789
___________
Total assets 64,079,467
LIABILITIES
Collateral for securities on loan (Note 6) $ 7,214,703
Payable for investments purchased 37,463
Unrealized depreciation on forward foreign
currency exchange contracts (Note 5)
50,188
Accrued accounting, administration and
custody fees (Note 2) 10,583
Accrued trustees' fees and expenses (Note 2) 3,569
Accrued expenses and other liabilities 34,875
___________
Total liabilities 7,351,381
___________
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $56,728,086
___________
The accompanying notes are an integral part of the financial statements.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (including securities lending income of $16,920 (Note 6)) $4,315,270
Income from affiliated investments (Note 1H) 12,929
Dividend income (net of foreign withholding taxes of $338) 38,029
__________
Total investment Income 4,366,228
EXPENSES
Investment advisory fee (Note 2) $ 281,571
Accounting, administration and custody fees (Note 2) 78,323
Professional fees 41,192
Trustees' fees and expenses (Note 2) 12,976
Insurance expense 8,865
Miscellaneous 2,395
_________
Total expenses 425,322
DEDUCT:
Waiver of investment advisory fee (Note 2) (143,751)
_________
Net expenses 281,571
__________
Net investment income 4,084,657
__________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 1,724,115
Swap transactions 1,576
Foreign currency transactions and forward
foreign currency exchange contracts (249,427)
__________
Net realized gain 1,476,264
Change in unrealized appreciation (depreciation)
Investment securities (496,973)
Swaps (2,578)
Foreign currency and forward
currency exchange contracts 61,422
__________
Change in net unrealized appreciation (depreciation) (438,129)
__________
Net realized and unrealized gain (loss) 1,038,135
__________
NET INCREASE IN NET ASSETS FROM OPERATIONS $5,122,792
__________
__________
The accompanying notes are an integral part of the financial statements.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS:
FROM INVESTMENT OPERATIONS
Net investment income $ 4,084,657 $ 4,069,100
Net realized gains 1,476,264 1,480,920
Change in net unrealized appreciation (depreciation) (438,129) 4,617,633
___________ ___________
Net increase in net assets from investment operations 5,122,792 10,167,653
___________ ___________
CAPITAL TRANSACTIONS
Contributions 10,724,449 13,400,767
Withdrawals (16,197,718) (10,633,906)
___________ ___________
Net increase (decrease) in net assets from capital transactions (5,473,269) 2,766,861
___________ ___________
TOTAL INCREASE (DECREASE) IN NET ASSETS (350,477) 12,934,514
NET ASSETS
At beginning of year 57,078,563 44,144,049
___________ ___________
At end of year $56,728,086 $57,078,563
___________ ___________
___________ ___________
The accompanying notes are an integral part of the financial statements.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
____________________________________________________________
2004 2003 2002 2001(A) 2000
________ ________ _________ ________ ________
TOTAL RETURN((+)) 9.56% 21.76% 4.71% 1.54% 2.84%
RATIOS:
Expenses (to average daily net assets)(*) 0.50% 0.50% 0.50% 0.50% 0.37%
Net Investment Income (to average daily net assets)(*) 7.28% 7.79% 8.66% 8.87% 10.37%
Portfolio Turnover 51% 80% 130% 117% 148%
Net Assets, End of Year (000's omitted) $56,728 $57,079 $44,144 $47,048 $31,818
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Ratios (to average daily net assets):
Expenses 0.76% 0.85% 0.82% 0.81% 0.89%
Net investment income 7.02% 7.44% 8.34% 8.56% 9.85%
(a) The Portfolio has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
decrease the ratio of the net investment income to average net assets from 9.20%
to 8.87%. Ratios for the periods prior to January 1, 2001 have not been restated
to reflect this change in presentation.
(+) Total return for the Portfolio has been calculated based on the total
return for the invested 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.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND 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. Standish
Mellon High Yield Bond Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to maximize total return, consisting
primarily of a high level of income. The Portfolio seeks to achieve its
objective by investing, under normal circumstances, at least 80% of net
assets in fixed income securities issued by U.S. and foreign governments,
companies and banks, as well as tax-exempt securities, preferred stocks and
warrants.
At December 31, 2004 there was one fund, Standish Mellon High Yield Bond
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
December 31, 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 in the
principal market in which such securities are normally traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 trade date of shareholder
transactions. 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 and
short-term securities with greater than sixty days to maturity. 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 actually received or paid.
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.
28
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. 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.
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
Affiliated issuers represent issuers in which the Portfolio held
investments in other investment companies advised by Standish Mellon Asset
Management Company LLC ("Standish Mellon"), a wholly-owned subsidiary of
Mellon Financial Corporation, or its affiliates
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon 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. Standish Mellon
voluntarily agreed to limit the Portfolio's total annual operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.50% of the Portfolio's average daily net assets for the year ended
December 31, 2004. Pursuant to this agreement, for the year ended December
31, 2004, Standish Mellon voluntarily did not impose $143,751 of its
investment advisory fees. This agreement is voluntary and temporary and may
be discontinued or revised by Standish Mellon at any time.
The Portfolio compensates Mellon Bank, N.A. under a custody, administration
and accounting services agreement for providing custody, fund
administration and fund accounting services for the Portfolio. Pursuant to
this agreement the Portfolio paid $69,985 during the year ended December
31, 2004.
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. See Note 6 for further details.
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.
29
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
____________ ____________
Investments (non-U.S. Government Securities) $27,927,854 $29,882,808
____________ ____________
____________ ____________
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $59,968,063
__________
__________
Gross unrealized appreciation 4,028,597
Gross unrealized depreciation (923,892)
__________
Net unrealized appreciation $ 3,104,705
__________
(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 any option transactions during the year
ended December 31, 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
30
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
The Portfolio held foreign currency exchange contracts at December 31,
2004. See Schedule of Investments for further details.
SWAP AGREEMENTS
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated by
another instrument. The Portfolio 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 Portfolio
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 Portfolio may use credit
default swaps to provide a measure of protection against defaults of
issuers (i.e., to reduce risk where the Portfolio 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 Portfolio 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, if any, are included
as part of realized gain or loss. Entering into these agreements 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 December 31, 2004 the Portfolio held swap contracts. See Schedule of
Investments for further details.
(6) SECURITY LENDING:
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 December 31, 2004
resulting in $16,920 of security lending income. At December 31, 2004, the
Portfolio had securities valued at $7,043,099 on loan. See the Statement of
Investments for further detail on the security positions on loan and
collateral held.
(7) DELAYED DELIVERY TRANSACTIONS:
The Portfolio may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Portfolio
instructs its custodian to segregate securities having value at least equal
to the amount of the purchase commitment.
The Portfolio may enter into to be announced ("TBA") purchase commitments
to purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Portfolio holds, and maintains until settlement date, cash or
31
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the Portfolio may enter into offsetting contracts for the forward
sale of other securities it owns. Income on the securities will not be
earned until settlement date. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Unsettled
TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Investment security valuations" above.
The Portfolio may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Portfolio as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into. See Schedule of Investments for further details.
(8) CONCENTRATION OF RISK:
The Portfolio invests in low rated (non-investment grade) and comparable
quality unrated high yield securities. Investments in high yield securities
are accompanied by a greater degree of credit risk and the value of high
yield securities tends to be more sensitive to economic conditions than
higher rated securities. The risk of loss due to default of an issuer may
be significantly greater for holders of high yield securities, because such
securities are generally unsecured and are often subordinated to other
creditors of the issuer.
There are certain additional considerations and risks associated with
investing in foreign securities and currency transactions that are not
inherent with investments of domestic origin. The Portfolio's investment in
emerging market countries may involve greater risks than investments in
more developed markets and the price of such investments may be volatile.
These risks of investing in foreign and emerging markets may include
foreign currency exchange rate fluctuations, perceived credit risk, adverse
political and economic developments and possible adverse foreign government
intervention.
(9) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in 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 daily unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended December 31, 2004, a facility fee of $1,817 was allocated to the
Portfolio.
During the year ended December 31, 2004, the Portfolio had average
borrowings outstanding of $30,667 on a total of nine days and incurred $13
of interest expense.
32
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and
Investors of Standish Mellon High Yield Bond 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
Standish Mellon High Yield Bond Portfolio (the "Portfolio") at December 31,
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 December 31, 2004
by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
33
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive Portfolio: $1,653
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None Fund: $500
c/o Essex Street Associates 11/3/1986 Associates (family Portfolio: $1,786
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None Fund: $500
c/o Harvard University 9/13/1986 Professor of Political Portfolio: $1,653
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $1,653
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer, Portfolio: $0
Asset Management Executive 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
34
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON HIGH YIELD BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
35
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One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
Annual Report STANDISH MELLON
SHORT-TERM FIXED INCOME FUND
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
Thank you for your business and confidence in Mellon Institutional Funds. Please
feel free to contact us with questions or comments.
Sincerely,
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A MELLON ASSET MANAGEMENT COMPANY
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Economic activity maintained a healthy pace in 2004. The employment picture
improved with monthly job gains averaging approximately 185,000. Investment
spending and capacity utilization picked up and despite higher interest rates,
the housing market and consumer spending kept pace. Amid rising oil prices and a
weaker dollar, the Federal Reserve maintained a tame inflation outlook. Bond
market volatility was low as the Fed hiked interest rates in a predictable and
steady fashion from 1% to 2.25% by the end of the year. The unusual aspect of
this tightening cycle has been the decline in 10- and 30-year yields as short
rates have risen. So while the yield curve has flattened similarly to previous
cycles, long-term interest rates have moved to lower levels than expected. To a
large degree, the massive foreign purchases of U.S. Treasuries have kept
long-term interest rates lower than anticipated during a period of tighter
monetary policy.
Over the past year, broad sectors outperformed Treasuries with particularly
strong excess returns from investment grade corporate bonds. Spread sectors,
especially mortgages, benefited from declining interest rate volatility. The
credit sector fared well amid steady economic activity. Treasury
inflation-protected securities (TIPS) outperformed nominal Treasuries as both
actual and expected levels of inflation rose.
The prospects for economic growth in 2005 are good. We expect reasonably strong
economic data will support continued rate hikes by the Fed. Under tighter
monetary conditions, we anticipate upward pressure on interest rates and a
flatter yield curve. With today's low volatility environment and narrow yield
spreads, many sectors appear overvalued.
For the year, performance for the fund was 1.03% versus the Merrill Lynch 1-3
year Treasury benchmark of 0.91%. Performances for the fund and its benchmark
were negatively impacted by the increase in short-term interest rates throughout
the year. Although long-term interest rates ended the year near where they
began, short-term interest rates rose 125 basis points, in line with the Fed's
actions. The fund outperformed its benchmark for the year due primarily to the
fact that, for most of the year, its duration was 10 to 20 basis points shorter
than its benchmark. This duration difference was consistent with our belief that
the Fed would raise rates. In addition, the fund was able to take advantage of
spread product, such as corporate notes and asset-backed securities which are
not represented in its Treasury-based benchmark.
/s/ Laurie Carroll /S/ Johnson Moore
Laurie Carroll Johnson Moore
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
SHORT-TERM FIXED INCOME FUND AND THE MERRILL LYNCH 1-3 YEAR INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR YEAR ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 07/01/1995
- ------------------------------------------------------------------------------------------------------------------------------------
1.03% 3.29% 5.07% 5.33%
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 SHORT-TERM FIXED
INCOME 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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JULY 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,010.90 $1.52
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.63 $1.53
(
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.30%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(TO REFLECT THE ONE-HALF YEAR PERIOD).
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
FUND INFORMATION AS OF DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
SUMMARY OF COMBINED RATINGS
--------------------------------------------
PERCENTAGE OF
QUALITY BREAKDOWN INVESTMENTS
--------------------------------------------
Treasury Agency 50.9%
AAA 19.6
AA 1.7
A 20.5
BBB 7.3
_____
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
----------------------------------------------------------------------------------------------------------
U.S. Treasury Inflation-Indexed Note (TIPS) 3.375% 1/15/2007 5.9%
Federal Home Loan Bank Notes 2.875 9/15/2006 5.0
U.S. Treasury Note 2.750 8/15/2007 4.9
Federal Home Loan Bank Notes 2.750 12/15/2006 4.0
Federal Home Loan Bank MBS 6.000 7/1/2011 3.9
U.S. Treasury Note 3.000 12/31/2006 3.1
Federal National Mortgage Association Notes 2.375 2/15/2007 3.1
Goldman Sachs Group, Inc. 7.625 8/17/2005 2.6
Fleet Boston Financial Corp. 7.250 9/15/2005 2.6
Alabama Power Co. Senior Notes 5.490 11/1/2005 2.5
_______
TOTAL 37.6%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
--------------------------------------------
Treasury 22.6%
Agency 23.2
Credit 34.2
Mortgage pass-thru 5.1
Asset-backed 14.6
Cash & equivalents 0.3
_____
100.0%
The Fund is actively managed. Current holdings may be different than
those presented above.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--99.7%
ASSET BACKED--14.6%
Bank One Issuance Trust 2002-A4 A4 2.940% 6/16/2008 $100,000 $ 99,930
BMW Vehicle Owner Trust 2004-A A3 2.670 3/25/2008 50,000 49,639
Capital Auto Receivables Asset Trust 2003-1 A3A 2.750 4/16/2007 100,000 99,656
Chase Manhattan Auto Owner Trust 2003-B A3 1.820 7/16/2007 75,000 74,414
Chase Manhattan Auto Owner Trust 2003-B A4 2.570 2/16/2010 30,000 29,470
Citibank Credit Card Issuance Trust 2003-A2 A2 2.700 1/15/2008 100,000 99,555
GS Auto Loan Trust 2004-1 A4 2.650 5/16/2011 35,000 34,324
M & I Auto Loan Trust 2003-1 A4 2.970 4/20/2009 15,000 14,844
Nissan Auto Receivables Owner Trust 2002-C A3 2.600 8/15/2006 25,615 25,607
World Omni Auto Receivables Trust 2.870 11/15/2010 60,000 59,007
_________
Total Asset Backed (Cost $588,865) 586,446
_________
CORPORATE--26.4%
BANKING--5.5%
Fleet Boston Financial Corp. 7.250 9/15/2005 100,000 102,904
National City Bank Of Indiana 2.375 8/15/2006 40,000 39,406
Washington Mutual, Inc. 2.400 11/3/2005 50,000 49,678
Zions Bancorporation 2.700 5/1/2006 30,000 29,744
_________
221,732
_________
BROKERAGES--3.4%
Goldman Sachs Group, Inc. 7.625 8/17/2005 100,000 102,945
JPMorgan Chase & Co. 5.625 8/15/2006 30,000 31,080
_________
134,025
_________
CONSUMER NONCYCLICAL--3.1%
Coca-Cola Enterprises 2.500 9/15/2006 50,000 49,283
Pepsi Americas, Inc. 5.950 2/15/2006 50,000 51,460
Sara Lee Corp. 1.950 6/15/2006 25,000 24,526
_________
125,269
_________
FINANCIAL--3.8%
Boeing Capital Corp. 5.750 2/15/2007 50,000 52,219
John Deere Capital Corp. 3.625 5/25/2007 50,000 49,998
SLM Corp. 3.500 9/30/2006 50,000 50,066
_________
152,283
_________
HEALTH CARE--1.3%
Unitedhealth Group, Inc. 3.375 8/15/2007 25,000 24,808
Wellpoint Inc. 144A 3.750 12/14/2007 25,000 24,987
_________
49,795
_________
INSURANCE--1.9%
American International Group, Inc. 2.850 12/1/2005 40,000 39,953
Metlife, Inc. 5.250 12/1/2006 35,000 36,120
_________
76,073
_________
TECHNOLOGY--1.2%
IBM Corp. 2.375 11/1/2006 50,000 49,293
_________
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
TELECOMMUNICATIONS--1.3%
Verizon Wireless Capital 5.375% 12/15/2006 $ 50,000 $ 51,790
_________
TRANSPORTATION--1.2%
Fedex Corp. 2.650 4/1/2007 50,000 48,971
_________
UTILITIES--3.7%
Alabama Power Co. Senior Notes 5.490 11/1/2005 100,000 101,977
Virginia Electric and Power Co. 5.750 3/31/2006 45,000 46,325
_________
148,302
_________
Total Corporate (Cost $1,058,212) 1,057,533
_________
U.S. GOVERNMENT AGENCY--28.3%
GOVERNMENT BACKED--21.1%
Federal Home Loan Bank 2.875 8/15/2006 100,000 99,539
Federal Home Loan Bank 2.875 9/15/2006 200,000 199,291
Federal Home Loan Bank 2.750 12/15/2006 160,000 158,503
FNMA 2.125 4/15/2006 100,000 98,802
FNMA 3.125 7/15/2006 70,000 69,975
FNMA 2.375 2/15/2007 125,000 122,687
FNMA 3.000 8/15/2007 100,000 99,008
_________
Total Government Backed (Cost $850,842) 847,805
_________
PASS THRU SECURITIES--7.2%
FHLMC 5.000 8/1/2007 49,361 50,425
FHLMC 6.000 7/1/2011 147,300 154,566
FHLMC 2.614 7/15/2011 44,902 44,392
FHLMC 5.500 10/15/2018 25,000 25,619
FHLMC 5.000 1/15/2023 15,000 15,364
_________
Total Pass Thru Securities (Cost $280,029) 290,366
_________
Total U.S. Government Agency (Cost $1,130,871) 1,138,171
_________
U.S. TREASURY OBLIGATIONS--25.7%
U.S. Treasury Note 1.625 10/31/2005 40,000 39,658
U.S. Treasury Note 2.000 5/15/2006 75,000 74,115
U.S. Treasury Note 2.500 5/31/2006 100,000 99,426
U.S. Treasury Note 2.375 8/31/2006 85,000 84,153
U.S. Treasury Note 2.875 11/30/2006 81,000 80,747
U.S. Treasury Note 3.000 12/31/2006 124,000 123,835
U.S. Treasury Note 2.250 2/15/2007 95,000 93,389
U.S. Treasury Note 2.750 8/15/2007 200,000 197,805
U.S. Treasury Inflation-Indexed Note (TIPS) 3.375 1/15/2007 222,870 236,042
_________
Total U.S. Treasury Obligations (Cost $1,035,722) 1,029,170
_________
YANKEE BONDS--4.7%
Deutsche Telekom International Finance 8.250 6/15/2005 25,000 25,583
France Telecom 7.950 3/1/2006 50,000 52,498
HBOS Treasury Services PLC 144A 2.250 5/1/2006 70,000 69,221
Kredit Wiederauf 3.250 7/16/2007 40,000 39,849
_________
Total Yankee Bonds (Cost $188,211) 187,151
_________
TOTAL BONDS AND NOTES (COST $4,001,881) 3,998,471
_________
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--3.4%
INVESTMENT COMPANIES--3.4%
Dreyfus Institutional Preferred Plus Money Market Fund ((+))(Cost $ 136,016) 136,016 $ 136,016
_________
TOTAL INVESTMENTS--103.1% (Cost $4,137,897) 4,134,487
LIABILITIES IN EXCESS OF OTHER ASSETS--(3.1%) (122,989)
_________
NET ASSETS-100% $4,011,498
_________
_________
NOTES TO SCHEDULE OF INVESTMENTS:
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration
to qualified buyers.
FHLMC-Federal Home Loan Mortgage Company
FNMA-Federal National Mortgage Association
((+)) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (Note 1A)
Unaffiliated issuers, at value (cost $4,001,881) $3,998,471
Affiliated issuers, at value (cost $136,016) (Note 1F) 136,016
Cash 23,614
Receivable for Fund shares sold 300
Interest receivable 32,551
Prepaid expenses 8,166
_________
Total assets 4,199,118
LIABILITIES
Payable for investments purchased $ 148,414
Accrued accounting, custody, administration
and transfer agent fees (Note 2) 9,197
Accrued trustees' fees and expenses (Note 2) 759
Accrued professional fees 24,258
Accrued expenses and other liabilities 4,992
_________
Total liabilities 187,620
_________
NET ASSETS $4,011,498
_________
_________
NET ASSETS CONSIST OF:
Paid-in capital $4,016,289
Accumulated net realized loss (1,381)
Net unrealized depreciation (3,410)
_________
TOTAL NET ASSETS $4,011,498
_________
_________
SHARES OF BENEFICIAL INTEREST OUTSTANDING 252,103
_________
_________
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) 15.91
_________
_________
The accompanying notes are an integral part of the financial statements.
9
PAGE>
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (including securities lending income of $514 (Note 7)) $107,786
Interest income from affiliated investment (Note 1F) 2,682
________
Total investment income 110,468
EXPENSES
Investment advisory fee (Note 2) $10,924
Accounting, custody, administration and
transfer agent fees (Note 2) 41,512
Professional fees 33,147
Registration fees 14,580
Trustees' fees and expenses (Note 2) 2,995
Insurance expense 3,920
Miscellaneous 7,897
_________
Total expenses 114,975
Deduct:
Waiver of investment advisory fee (Note 2) (10,924)
Reimbursement of Fund operating expenses (Note 2) (93,127)
_________
Total expense deductions (104,051)
_________
Net expenses 10,924
________
Net investment income 99,544
________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 16,386
_________
Net realized gain 16,386
Change in unrealized appreciation (depreciation)
Investment securities (70,563)
_________
Change in net unrealized appreciation (depreciation) (70,563)
________
Net realized and unrealized loss on investments (54,177)
________
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 45,367
________
________
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 99,544 $ 398,500
Net realized gains 16,386 650,911
Change in net unrealized appreciation (depreciation) (70,563) (544,868)
___________ ___________
Net increase in net assets from investment operations 45,367 504,543
___________ ___________
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (97,666) (408,533)
From net realized gains on investments (17,781) (915,753)
From return of capital (2,442) --
___________ ___________
Total distributions to shareholders (117,889) (1,324,286)
___________ ___________
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 3,246,765 4,896,201
Value of shares issued to shareholders in reinvestment of distributions 114,532 1,049,509
Cost of shares redeemed (3,285,026) (23,384,843)
___________ ___________
Net increase (decrease) in net assets from Fund share transactions 76,271 (17,439,133)
___________ ___________
TOTAL INCREASE (DECREASE) IN NET ASSETS 3,749 (18,258,876)
NET ASSETS
At beginning of year 4,007,749 22,266,625
___________ ___________
At end of year (including distributions
in excess of net investment income of $0 and $2,350) $ 4,011,498 $ 4,007,749
___________ ___________
___________ ___________
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
____________________________________________________________
2004 2003 2002 2001(A) 2000
______ ______ ________ _______ _______
NET ASSET VALUE, BEGINNING OF THE YEAR $16.25 $20.03 $ 19.86 $ 19.57 $ 19.36
______ ______ ________ _______ _______
FROM INVESTMENT OPERATIONS:
Net investment income(* (1)) 0.43 0.61 0.85 1.13 1.28
Net realized and unrealized gain (loss) on investments (0.27) (0.10)(2) 0.38 0.34 0.21
______ ______ ________ _______ _______
Total from investment operations 0.16 0.51 1.23 1.47 1.49
______ ______ ________ _______ _______
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.42) (1.16) (0.96) (1.18) (1.28)
From net realized gain on investments (0.07) (3.13) (0.10) -- --
From return of capital (0.01) -- -- -- --
______ ______ ________ _______ _______
Total distributions to shareholders (0.50) (4.29) (1.06) (1.18) (1.28)
______ ______ ________ _______ _______
Net Asset Value, End of Year $15.91 $16.25 $ 20.03 $ 19.86 $ 19.57
______ ______ ________ _______ _______
______ ______ ________ _______ _______
TOTAL RETURN((+)) 1.03% 2.62% 6.31% 7.66% 7.93%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*) 0.30% 0.30% 0.30% 0.30% 0.30%
Net Investment Income (to average daily net assets)(*) 2.75% 3.06% 4.24% 5.64% 6.66%
Portfolio Turnover 133% 186% 251% 149% 170%
Net Assets, End of Year (000's omitted) $4,011 $4,008 $22,267 $41,169 $45,232
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Net investment income (loss) per share (1) $ (0.02) $ 0.40 $ 0.75 $ 1.07 $ 1.21
Ratios (to average daily net assets):
Expenses 3.17% 1.36% 0.78% 0.60% 0.69%
Net investment income (0.12)% 2.00% 3.76% 5.34% 6.27%
(a) The Fund has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
increase net investment income per share by less than $0.001, decrease net
realized and unrealized gains and losses per share by less than $0.001 and
increase the ratio of net investment income to average net assets by less than
0.01%. Per share data and ratios/supplemental data for the periods prior to
January 1, 2001 have not been restated to reflect this change in presentation.
(1) Calculated based on average shares outstanding,
(2) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/loss for the period due to the timing
of purchases and redemptions of Fund shares in relation to the fluctuating
market values of the Fund.
(+) Total return would have been lower in the absence of expense waivers.
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME 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 Short-Term Fixed Income Fund (the "Fund") is a separate
diversified investment series of the Trust.
The objective of the Fund is to maximize total return, consistent with
preserving principal and liquidity, while seeking a relatively high level
of current income. The Fund seeks to achieve its objective by investing,
under normal circumstances, at least 80% of net assets in fixed income
securities of U.S. companies and the U.S. government.
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 in the
principal market in which such securities are primarily traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 coupon interest accrued, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis
C. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
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
of amortization and/or accretion of premiums and discounts on certain
securities and paydown gains and losses.
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.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
F. AFFILIATED ISSUERS
Affiliated issuers represent investments held in the Fund in other
investment companies advised by Standish Mellon Asset Management Company
LLC ("Standish Mellon"), a wholly-owned subsidiary of Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 0.30% of the Fund's average daily net assets.
Standish Mellon voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.30% of the Fund's average daily net assets for the year ended December
31, 2004. Pursuant to this agreement, for the year ended December 31, 2004,
Standish Mellon collectively and voluntarily waived its investment advisory
fee in the amount of $10,924 and reimbursed the Fund for $93,127 of its
operating expenses. This agreement is voluntary and temporary and may be
discontinued or revised by Standish Mellon 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 Standish Mellon, 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 paid $2,382 during the period ended
December 31, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, 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 paid $31,369 during the year
ended December 31, 2004.
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.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, excluding short-term
securities, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
__________ __________
U.S. Government Securities $3,702,813 $3,382,552
__________ __________
__________ __________
Investments (non-U.S. Government Securities) $1,127,249 $1,321,715
__________ __________
__________ __________
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME 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
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ __________________
Shares sold 200,671 246,481
Shares issued to shareholders in
payment of distributions declared 7,147 59,783
Shares redeemed (202,420) (1,171,136)
_________ ___________
Net increase (decrease) 5,398 (864,872)
_________ ___________
_________ ___________
At December 31, 2004, two shareholders of record held approximately 83% of
the total outstanding shares of the Fund. Investment activity of these
shareholders could have a material impact on the Fund.
A significant portion of the Fund's shares represent investments by
fiduciary accounts over which Standish Mellon and its affiliates have
either sole or joint investment discretion.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax cost
as of December 31, 2004, was as follows:
Unrealized appreciation $ 15,126
Unrealized depreciation (19,574)
__________
Net unrealized appreciation/depreciation (4,448)
Cost for federal income tax purposes $4,138,935
Tax character of distributions paid during the fiscal year ended December
31, 2004 and December 31, 2003, were as follows:
2004 2003
Distributions paid from: AMOUNT AMOUNT
________ _________
Ordinary income $97,666 $626,211
Capital gains 17,781 698,075
Return of capital 2,442 --
(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 writte
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 any option contracts during the year ended
December 31, 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.
The Fund did not enter into any futures contracts during the year ended
December 31, 2004.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to the
Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment of
the collateral. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears the
risk in the event that the interest and/or dividends received on invested
collateral is not sufficient to meet the Fund's obligations due on the
loans. The Fund loaned securities during the year ended December 31, 2004
resulting in security lending income of $514. At December 31, 2004, the
Fund had no securities on loan.
(8) LINE OF CREDIT:
The Fund, and other funds in the Trust and subtrusts in the Mellon
Institutional Funds Master Portfolio Trust (the "Portfolio Trust") are
parties to a committed line of credit facility, which enables each
portfolio/fund to borrow, in the aggregate, up to $35 million. Interest is
charged to each participating portfolio/fund based on its borrowings at a
rate equal to the Federal Funds effective rate plus 1/2 of 1%. In addition,
a facility fee, computed at an annual rate of .060 of 1% committed amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended December 31, 2004, the facility fee
allocated to the Fund was $40.
During the year ended December 31, 2004, the Fund did not borrow under the
credit facility.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON SHORT-TERM FIXED
INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Short-Term Fixed Income 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 Short-Term Fixed Income Fund (the "Fund") at December 31,
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 December 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $537
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 Fund: $546
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 Fund: $537
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 Fund: $537
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer,
Asset Management Executive 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
18
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 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
THIS PAGE INTENTIONALLY LEFT BLANK
THIS PAGE INTENTIONALLY LEFT BLANK
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0936AR1204
Annual Report STANDISH MELLON
GLOBAL FIXED INCOME FUND
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its' 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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
One Boston Place * Boston, MA 02108-4402
A MELLON ASSET MANAGEMENT COMPANY
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Global bond markets produced modest, positive returns in 2004. The Standish
Mellon Global Fixed Income Fund returned 4.98% for the year, after all expenses,
compared to a return of 4.90% for the Lehman Global Aggregate Hedged Index.
A return of close to 5% for hedged global bonds is perhaps surprising
considering that at the beginning of the year, the consensus expectation was
that bond yields would rise as central banks raised interest rates. Indeed, bond
yields did rise early in the year and in particular the U.S. bond market
experienced a vicious sell-off in the first half. However, as the year
progressed, it became apparent that core inflation was well contained in the
U.S., the job market strengthened but not as much as anticipated, and growth in
large economies overseas was anemic. Bond yields fell during the second half of
the year, and in the end, despite the volatility, bond investors managed to earn
a bit more than their coupon.
The non-government sectors of the global bond markets were a pleasant surprise
producing returns well above government bonds for the second year in a row. The
star performers were corporate bonds, particularly the high-yield sector, and
emerging markets. A number of factors contributed to the outperformance of the
corporate and emerging sectors particularly global growth, low inflation, low
interest rates and in the case of the commodity laden emerging markets, high
commodity prices. The high yield corporate and emerging market indices both had
returns of over 10% for the year. Other non-government sectors also performed
well including mortgages, agencies and asset-backed securities.
The range of returns in hedged terms for government bond markets as measured by
the JP Morgan Government Bond Indices was modest for the year with only 534
basis points, separating the best market Italy (+8.00%) from the worst, Japan
(+2.66%). The U.S. component of the index returned 3.75% while European markets
returned 6.77% on average. The U.S. dollar had traded in a modest range for most
of the year however it fell sharply in the final quarter. The decline of the
dollar was the sharpest relative to the European currencies against which it
declined by more than 7%. The U.S. dollar has been under pressure since 2002 as
the mix of loose fiscal and monetary policy and the large current account
deficit made the currency unattractive to global investors.
The Fund outperformed its benchmark during the year. Our position in investment
grade and high yield corporate bonds and emerging market securities was the
largest positive contributor relative to our benchmarks. Our country selection
was also positive as we were overweight European markets, which produced the
best returns. Although Japan was the worst performing market in the index, our
zero weighting in the market was a slight drag on performance as Japan did
produce a positive return. In currencies, our small primarily, option-based
positions detracted a modest amount from our performance.
Our outlook for 2005 is favorable for global bonds. We believe that the
performance of global economies will be close to trend, yet the behavior of
central banks around the world could be quite different. The Fed will continue
to raise interest rates at least in the first half of the year and this will
flatten the yield curve but we expect longer dated bonds to be fairly stable.
Opportunities for value-added can be found in Europe and
2
in some of the smaller index components such as Australia, New Zealand and the
U.K. In the latter three markets, the central banks have been raising interest
rates for some time and those increases now appear to be having an effect. These
economies have housing markets that are vulnerable to price declines and if the
economies soften, we believe bonds in these markets will perform well.
Non-government sectors such as corporate and emerging market bonds have richened
quite a bit over the past two years and we believe that these sectors will not
perform as well as in the past but that the sector still offers opportunities to
add-value through security selection.
We appreciate your continued support and look forward to working on your behalf
over the next year.
/s/ W. Charles Cook
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
GLOBAL FIXED INCOME FUND AND THE LEHMAN BROTHERS GLOBAL INDEX
- --------------------------------------------------------------------------------
[LINE CHART]
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 01/03/1994
- -------------------------------------------------------------------------------------------------------------------------
4.98% 6.10% 6.50% 8.07% 6.59%
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
STANDISH MELLON GLOBAL FIXED INCOME 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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JULY 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
- -------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,045.20 $3.34
Hypothetical (5% return
per year before expenses) $1,000.00 $1,021.87 $3.30
- -------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.65%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/366 (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 FUND
STANDISH MELLON GLOBAL FIXED INCOME FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOP TEN HOLDINGS(*) RATE MATURITY NET ASSETS
------------------------------------------------------------------------------------------
UK Gilt 4.000% 3/7/2009 7.9%
Australian Government Bond 7.500 9/15/2009 4.8
Italy Buoni Poliennali Del Tesoro 4.500 3/1/2007 4.2
Belgium Government Bond 4.250 9/28/2013 3.7
Singapore Government 5.625 7/1/2008 3.6
French Treasury Note BTAN 5.000 1/12/2006 3.2
New Zealand Government Bond 6.500 4/15/2013 3.2
New Zealand Government Bond 7.000 7/15/2009 3.1
U.S. Treasury Note 3.250 8/15/2008 2.8
U.S. Treasury Note 4.000 11/15/2012 2.6
-----
39.1%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
TOP TEN COUNTRIES INVESTMENTS
-----------------------------------------------
United States 30.6%
Euro 37.1
U.K. 11.6
Canada 0.7
Denmark 1.3
Australia 6.9
New Zealand 6.3
Singapore 3.6
Switzerland 1.9
-----
100.0%
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
----------------------------------------------
Government 55.8%
Credit 37.0
Mortgage pass thru 1.9
Collateralized 1.3
ABS/CMBS/CMO 0.0
Emerging Markets 4.0
-----
100.0%
The Portfolio is actively managed. Current holdings may be different
than those presented above.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in Standish Mellon Global Fixed Income Portfolio (Portfolio), at value (Note 1A) $73,072,628
Receivable for Fund shares sold 100,000
Prepaid expenses 11,046
-----------
Total assets 73,183,674
LIABILITIES
Distribution payable $ 910,396
Payable for Fund shares redeemed 11,743
Accrued transfer agent fees (Note 2) 5,994
Accrued trustees' fees(Note 2) 500
Accrued expenses and other liabilities 13,927
-----------
Total liabilities 942,560
-----------
NET ASSETS $72,241,114
===========
NET ASSETS CONSIST OF:
Paid-in capital $89,748,447
Accumulated net realized loss (22,457,453)
Distributions in excess of net investment income (1,048,644)
Net unrealized appreciation 5,998,764
-----------
TOTAL NET ASSETS $72,241,114
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,677,744
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 19.64
===========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income allocated from Portfolio $ 4,334,472
Expenses allocated from Portfolio (588,244)
-----------
Net investment income allocated from Portfolio 3,746,228
EXPENSES
Transfer agent fees (Note 2) $ 12,720
Registration fees 17,750
Professional fees 26,375
Trustees' fees and expenses (Note 2) 1,999
Insurance expense 1,523
Analytical service fees 4,510
Miscellaneous 2,713
-----------
Total expenses 67,590
Deduct:
Reimbursement of Fund operating expenses (Note 2) (31,222)
-----------
Net expenses 36,368
-----------
Net investment income 3,709,860
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain allocated from Portfolio 8,814,993
Change in unrealized appreciation (depreciation) allocated from Portfolio (7,922,754)
-----------
Net realized and unrealized gain allocated from Portfolio 892,239
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,602,099
===========
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 3,709,860 $ 5,973,675
Net realized gain (loss) 8,814,993 (1,376)
Change in net unrealized appreciation (depreciation) (7,922,754) 3,796,089
------------ ------------
Net increase in net assets from investment operations 4,602,099 9,768,388
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (6,932,393) --
------------ ------------
Total distributions to shareholders (6,932,393) --
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 2,287,428 10,566,938
Value of shares issued to shareholders in reinvestment of distributions 6,021,997 --
Cost of shares redeemed (79,923,935) (38,731,401)
------------ ------------
Net decrease in net assets from Fund share transactions (71,614,510) (28,164,463)
------------ ------------
TOTAL DECREASE IN NET ASSETS (73,944,804) (18,396,075)
NET ASSETS
At beginning of year 146,185,918 164,581,993
------------ ------------
At end of year (including distributions in excess of
net investment income of $1,048,644 and $3,586,640) $ 72,241,114 $146,185,918
============ ============
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003 2002 2001(A) 2000
------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF THE YEAR $ 20.67 $ 19.43 $ 18.45 $ 18.53 $ 18.76
FROM INVESTMENT OPERATIONS:
Net investment income(* (1)) 0.83 0.75 0.82 0.84 1.06
Net realized and unrealized gain (loss) on investments 0.20 0.49 0.44 (0.01)(2) 0.71
------- -------- -------- -------- --------
Total from investment operations 1.03 1.24 1.26 0.83 1.77
------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2.06) -- (0.27) (0.91) (2.00)
From tax return of capital -- -- (0.01) -- --
------- -------- -------- -------- --------
Total distributions to shareholders (2.06) -- (0.28) (0.91) (2.00)
------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 19.64 $ 20.67 $ 19.43 $ 18.45 $ 18.53
======= ======== ======== ======== ========
TOTAL RETURN((+)) 4.98% 6.38% 6.94% 4.51% 9.79%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*(3)) 0.65% 0.65% 0.60% 0.56% 0.56%
Net Investment Income (to average daily net assets)(*) 3.86% 3.74% 4.43% 4.46% 5.59%
Net Assets, End of Year (000's omitted) $72,241 $146,186 $164,582 $359,358 $373,739
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose a portion of its investment advisory fee payable to the Portfolio
and/ or reimbursed the Fund for a portion of its operating expenses. If
this voluntary action had not been taken, the investment income per share
and the ratios would have been:
Net investment income per share (1) $ 0.83 $ 0.74 N/A N/A N/A
Ratios (to average daily net assets):
Expenses (3) 0.68% 0.70% N/A N/A N/A
Net investment income 3.83% 3.69% N/A N/A N/A
(a) Through its investment in the Portfolio, the Fund has adopted the
provisions of the revised AICPA Audit and Accounting Guide for Investment
Companies effective January 1, 2001 and began amortizing premium and
discount on all debt securities on an effective yield basis. The effect of
this change for the year ended December 31, 2001 was to decrease net
investment income per share by $0.007, increase net realized and unrealized
gains and losses per share by $0.007 and decrease the ratio of net
investment income to average net assets from 4.50% to 4.46%. Per share data
and ratios/supplemental data for the periods prior to January 1, 2001 have
not been restated to reflect this change in presentation.
(1) Calculated based on average shares outstanding,
(2) The amount shown for a share outstanding does not correspond with the
aggregate net realized and unrealized gain/loss for the period due to the
timing of purchases and redemptions of Fund shares in relation to the
fluctuating market values for the Fund.
(3) Includes the Fund's share of the 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.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON GLOBAL FIXED INCOME
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 Global Fixed Income Fund (the "Fund") is a separate
non-diversified investment series of the Trust.
The objective of the Fund is to maximize total return while realizing a
market level of income consistent with preserving principal and liquidity.
The Fund seeks to achieve its objective by investing all of its investable
assets in an interest of Standish Mellon Global Fixed Income Portfolio (the
"Portfolio"), a subtrust of the 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 investment objective by investing, under normal circumstances,
at least 80% of its net assets in U.S. and non-U.S. dollar denominated
fixed income securities of U.S. and foreign governments and companies
located in the U.S. and various countries, including 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
100% at December 31, 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
Transactions of the Portfolio 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 the ex-dividend date.
Dividends from net investment income will be declared and distributed
quarterly. 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 losses deferred due to wash
sales, foreign currency gains and losses, post-October losses, amortization
and/or accretion of premiums and discounts on certain securities and the
timing of recognition of gains and losses on futures contracts.
Permanent book and tax basis differences 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 and foreign currency
transactions 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 or Portfolio Trust are directly
identifiable to an individual fund or portfolio. 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 or portfolios.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME 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 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
Standish Mellon Asset Management Company LLC ("Standish Mellon"), 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. Standish Mellon voluntarily agreed to
limit the total operating expenses of the Fund and it's pro rata share of
the Portfolio expenses (excluding commissions, taxes and extraordinary
expenses) to 0.65% of the Fund's average daily net assets. This agreement
is voluntary and temporary and may be discontinued or revised by Standish
Mellon at any time. Pursuant to this agreement, for the year ended December
31, 2004, Standish Mellon voluntarily reimbursed the Fund for $31,222 of
its operating expenses.
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 Standish Mellon, 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 paid $4,889 during the period ended
December 31, 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.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 2004, aggregated $8,539,443and $93,677,645
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
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
Shares sold 123,648 523,070
Shares issued to shareholders in reinvestment
of distributions 306,932 --
Shares redeemed (3,825,212) (1,921,020)
---------- ----------
Net increase (decrease) (3,394,632) (1,397,950)
========== ==========
At December 31, 2004, two shareholders of record held approximately 69% of
the total outstanding shares of the Fund. Investment activity of these
shareholders could have a material impact on the Fund.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
AMOUNT
------------
Capital loss carryovers $22,396,767
At December 31, 2004, the Fund, for federal income tax purposes, has
capital loss carry overs of $22,396,767 which will reduce the Fund's
taxable income arising from net realized gain on investments, if any, to
the extent permitted by the Internal Revenue Code and thus will reduce the
amount of distributions to shareholders which would otherwise be necessary
to relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are as follows:
CAPITAL LOSS
CARRY OVER EXPIRATION DATE
------------- -----------------
$ 3,266,175 12/31/2007
15,100,842 12/31/2008
408,689 12/31/2009
3,621,061 12/31/2010
-------------
$22,396,767
=============
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003, were as follows:
2004 2003
AMOUNT AMOUNT
------------ ------------
Ordinary income $6,932,393 0
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON GLOBAL FIXED INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Global Fixed Income 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 Standish Mellon Global Fixed Income Fund (the "Fund")
at December 31, 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 agreement of the amount of the investment in the Portfolio at
December 31, 2004 to the Portfolio's records, provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--99.0%
CORPORATE--16.0%
BASIC MATERIALS--1.0%
Freeport-McMoRan Copper & Gold, Inc. 10.125% 2/1/2010 USD 130,000 $ 148,525
Georgia-Pacific Corp. 8.875 2/1/2010 115,000 133,831
ICI Wilmington, Inc. 4.375 12/1/2008 250,000 251,411
International Paper Co. 5.300 4/1/2015 195,000 197,288
------------
731,055
COMMUNICATIONS--2.8%
COX Communications Inc. 7.125 10/1/2012 295,000 330,654
CSC Holdings, Inc. 7.875 12/15/2007 155,000 166,238
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 70,000 77,875
Dex Media West LLC/Dex Media Finance Co. 9.875 8/15/2013 69,000 79,523
DirecTV Holdings LLC 8.375 3/15/2013 120,000 134,550
News America Holdings(*) 9.250 2/1/2013 180,000 231,970
RH Donnelley Finance Corp. 8.875 12/15/2010 50,000 55,750
RH Donnelley Finance Corp. 10.875 12/15/2012 90,000 106,875
Salem Communications Corp. 7.750 12/15/2010 90,000 97,313
Sprint Capital Corp. 8.375 3/15/2012 420,000 511,620
Univision Communications, Inc. 7.850 7/15/2011 200,000 235,971
------------
2,028,339
------------
CONSUMER CYCLICAL--0.7%
Lear Corp. 8.110 5/15/2009 150,000 170,123
Mohegan Tribal Gaming Authority 8.000 4/1/2012 100,000 108,500
Office Depot, Inc. 6.250 8/15/2013 145,000 154,723
Yum! Brands, Inc. 8.875 4/15/2011 75,000 92,664
------------
526,010
------------
CONSUMER NONCYCLICAL--0.3%
Kroger Co. 8.000 9/15/2029 185,000 230,359
------------
ENERGY--1.7%
Chesapeake Energy Corp. 8.125 4/1/2011 100,000 108,250
Halliburton Co. 5.500 10/15/2010 325,000 342,315
Petronas Capital Ltd. 7.875 5/22/2022 160,000 198,697
Transcontinental Gas Pipe Line Corp. 6.125 1/15/2005 325,000 325,000
Southern Natural Gas Co. 8.875 3/15/2010 100,000 112,000
Pemex Project Funding Master Trust(*) 3.790 6/15/2010 155,000 159,030
------------
1,245,292
------------
FINANCIAL--4.8%
Amvescap PLC 5.375 2/27/2013 130,000 131,160
Amvescap PLC 5.375 12/15/2014 205,000 204,332
Boston Properties Inc. 6.250 1/15/2013 85,000 92,220
Chevy Chase Bank FSB 6.875 12/1/2013 295,000 304,588
EOP Operating LP 7.000 7/15/2011 250,000 281,936
EOP Operating LP 7.875 7/15/2031 155,000 187,882
FleetBoston Financial Corp. 7.375 12/1/2009 210,000 239,853
Ford Motor Credit Co. 6.875 2/1/2006 130,000 133,926
Ford Motor Credit Co.(*) 5.625 10/1/2008 85,000 86,884
General Motors Acceptance Corp. 6.875 9/15/2011 90,000 92,231
Glencore Funding LLC 6.000 4/15/2014 95,000 91,910
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
Jefferies Group, Inc. 5.500% 3/15/2016 USD 110,000 $ 109,355
Morgan Stanley 4.750 4/1/2014 200,000 194,882
National City Corp. 6.875 5/15/2019 80,000 91,422
Nationwide Mutual Insurance 144A 7.875 4/1/2033 215,000 256,151
Nordea Bank 144A 7.500 1/30/2007 445,000 474,781
Salomon Brothers AF for OAO Siberian Oil Co. 10.750 1/15/2009 200,000 213,000
Union Planters Bank NA 5.125 6/15/2007 105,000 109,347
Wells Fargo & Co.(*) 5.000 11/15/2014 175,000 176,995
------------
3,472,855
------------
INDUSTRIAL--1.8
American Standard, Inc. 7.375 2/1/2008 145,000 159,040
Ispat Inland 9.750 4/1/2014 137,000 169,195
Jefferson Smurfit Corp. US 8.250 10/1/2012 15,000 16,350
Oakmont Asset Trust 4.514 12/22/2008 400,000 403,273
Raytheon Co. 5.500 11/15/2012 90,000 95,022
Republic Services, Inc. 6.750 8/15/2011 150,000 168,491
Waste Management, Inc. 6.875 5/15/2009 245,000 271,454
------------
1,282,825
------------
TECHNOLOGY--0.1%
Freescale Semiconductor Inc. 4.820 7/15/2009 100,000 104,125
------------
UTILITIES--2.8%
AES Corp. 8.750 5/15/2013 100,000 113,625
FirstEnergy Corp. 6.450 11/15/2011 560,000 608,423
Niagara Mohawk Power Corp. 7.750 10/1/2008 175,000 196,872
Nisource Finance Corporation(*) 6.150 3/1/2013 150,000 162,607
Pepco Holdings, Inc. 6.450 8/15/2012 85,000 93,923
PPL Capital Funding Trust I 7.290 5/18/2006 315,000 328,614
Progress Energy Inc. 7.000 10/30/2031 230,000 254,719
TXU Energy Co. 7.000 3/15/2013 270,000 301,550
2,060,333
------------
Total Corporate (Cost $11,197,426) 11,681,193
------------
SOVEREIGN BONDS--2.8%
Banco Nacional de Desenvolvimento Economic 5.832 6/16/2008 85,000 86,913
Republic of Brazil 3.125 4/15/2012 119,119 113,460
Republic of Brazil (a) 3.063 4/15/2024 135,000 124,875
Republic of Colombia 10.000 1/23/2012 65,000 75,075
Republic of El Salvador 8.500 7/25/2011 160,000 182,800
Republic of Panama 9.625 2/8/2011 25,000 29,625
Republic of Panama 7.250 3/15/2015 35,000 36,225
Republic of Panama 8.875 9/30/2027 170,000 188,700
Republic of Peru 4.500 3/7/2017 85,000 79,475
Republic of South Africa 9.125 5/19/2009 60,000 70,864
Republic of South Africa 7.375 4/25/2012 120,000 136,636
Republic of Turkey 9.000 6/30/2011 265,000 301,954
Russian Federation 5.000 3/31/2030 325,000 335,156
Serbian Government (#) 3.750 11/15/2024 140,000 116,550
Ukraine Government Senior Notes 11.000 3/15/2007 67,669 72,533
United Mexican States 8.300 8/15/2031 95,000 111,150
------------
Total Sovereign Bonds (Cost $1,965,818) 2,061,991
------------
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS--3.6%
Amvescap PLC 5.900% 1/15/2007 USD 140,000 $ 146,489
Barclays Bank PLC 8.550 6/15/2011 80,000 97,415
Carnival Corp. 3.750 11/15/2007 265,000 265,312
Deutsche Telekom International Finance BV 8.500 6/15/2010 375,000 446,765
Deutsche Telekom International Finance BV 5.250 7/22/2013 90,000 92,575
French Telecom 8.500 3/1/2011 205,000 244,545
HBOS PLC 5.375 11/1/2013 225,000 230,694
Inco Ltd.(*) 7.750 5/15/2012 205,000 242,716
Industrial Bank of Korea 144A 4.000 5/19/2014 175,000 171,168
Potash Corp. of Saskatchewan 4.875 3/1/2013 170,000 170,876
Rogers Wireless Inc. 144A 7.250 12/15/2012 235,000 249,100
Rogers Wireless Inc. 144A 7.500 3/15/2015 45,000 47,475
Royal Caribbean Cruises Ltd. 8.250 4/1/2005 100,000 101,000
Teck Cominco Ltd. 7.000 9/15/2012 85,000 94,212
----------
Total Yankee Bonds (Cost $2,500,711) 2,600,342
----------
U.S. GOVERNMENT AGENCY--7.7% PASS THRU SECURITIES--1.9%
FNMA 5.500 1/1/2034 580,152 589,482
FNMA(TBA)(#) 6.500 1/1/2035 760,000 796,813
----------
Total U.S. Government Agency (Cost$1,389,405) 1,386,295
----------
U.S. TREASURY OBLIGATIONS--5.8%
U.S. Treasury Note 3.250 8/15/2008 2,050,000 2,040,472
U.S. Treasury Note 4.000 11/15/2012 1,910,000 1,906,791
U.S. Treasury Note(*) 6.250 5/15/2030 270,000 322,808
----------
Total U.S. Treasury Obligations (Cost $ 4,239,174) 4,270,071
----------
Total U.S. Government Agency (Cost $ 5,628,579) 5,656,366
----------
FOREIGN DENOMINATED--68.9%
AUSTRALIA--6.8%
Australian Government Bond 7.500 9/15/2009 AUD 4,125,000 3,529,896
Australian Government Bond 6.250 4/15/2015 1,750,000 1,466,762
----------
4,996,658
----------
CANADA--0.7%
Canadian Pacific Railway Ltd. 4.900 6/15/2010 CAD 620,000 528,657
----------
SWISS FRANC--1.9%
Philip Morris Capital Corp. 4.000 5/31/2006 CHF 1,530,000 1,369,909
----------
DENMARK--1.3%
Realkredit Danmark A/S 4.000 1/1/2006 DKK 5,140,000 951,543
----------
EURO--36.8%
Allied Domecq Financial Services PLC 5.875 6/12/2009 EUR 145,000 215,468
Autostrade SpA 2.621 6/9/2011 300,000 408,670
Bank of America Corp. 4.750 5/6/2019 210,000 298,437
Belgium Government Bond 4.250 9/28/2013 1,875,000 2,667,851
Bertelsmann US Finance, Inc. 4.625 6/3/2010 60,000 85,201
Bundesobligation(*) 3.000 4/11/2008 980,000 1,337,662
Bundesobligation 144 3.250 4/17/2009 980,000 1,345,263
Citigroup Inc 2.324 6/3/2011 370,000 500,463
Deutsche Bundesrepublik 5.000 7/4/2011 905,000 1,349,137
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
EURO (CONTINUED)
Deutsche Republic 4.125% 7/4/2008 EUR 130,000 $ 183,732
Deutsche Republic 5.250 1/4/2011 110,000 165,584
Deutsche Republic 4.500 1/4/2013 315,000 456,657
Deutsche Telekom International Finance BV 8.125 5/29/2012 95,000 163,409
FBG Treasury Europe 5.750 3/17/2005 32,000 43,682
FCE Bank PLC 2.578 6/28/2006 260,000 349,752
France Telecom 7.250 1/28/2013 280,000 462,232
France Telecom 8.125 1/28/2033 400,000 768,921
French Treasury Note 4.500 7/12/2006 1,115,000 1,560,584
French Treasury Note BTAN 5.000 1/12/2006 1,675,000 2,335,084
GE Capital Euro Funding (a) 2.278 5/4/2011 370,000 499,731
General Motors Acceptance Corp. 3.904 7/5/2005 255,000 347,248
Glencore Finance Europe SA/Luxembourg 5.375 9/30/2011 560,000 763,570
Hilton Group Finance PLC 6.500 7/17/2009 125,000 190,840
HJ Heinz BV 5.125 4/10/2006 100,000 139,912
Household Finance Corp. 6.500 5/5/2009 300,000 459,297
International Paper Co. 5.375 8/11/2006 135,000 190,056
Italy Buoni Poliennali Del Tesoro 4.500 3/1/2007 2,155,000 3,045,402
Kappa Beheer BV 10.625 7/15/2009 135,000 193,672
KFW Group 3.500 4/17/2009 435,000 603,412
Lear Corp. 8.125 4/1/2008 205,000 312,379
MPS Capital Trust 7.990 2/7/2011 85,000 139,238
Nalco Co. 7.750 11/15/2011 100,000 147,191
National Westminster Bank PLC 6.625 10/5/2009 70,000 107,463
Netherlands Government Bond 5.500 7/15/2010 1,120,000 1,701,570
NGG Finance PLC 5.250 8/23/2006 190,000 267,992
Nordea Bank Sweden AB 6.000 12/13/2010 140,000 195,818
Owens-Brockway Glass Containers 6.750 12/1/2014 95,000 134,999
Parker Hannifin Corp. 6.250 11/21/2005 75,000 105,020
Pemex Project Funding Master Trust 144A 6.625 4/4/2010 180,000 271,903
Sara Lee Corp. 6.125 7/27/2007 125,000 182,800
Telecom Italia Finance SA 7.250 4/20/2011 185,000 295,708
Telefonica Europe BV 5.125 2/14/2013 195,000 287,109
Telenet Communications NV 9.000 12/15/2013 275,000 414,102
ThyssenKrupp Finance Nederland BV 7.000 3/19/2009 160,000 244,687
Transco PLC 5.250 5/23/2006 245,000 344,012
Tyco Intl Group SA 5.500 11/19/2008 140,000 204,394
Veolia Environnement 4.875 5/28/2013 135,000 194,512
West LB Covered Bond Bank 4.000 3/25/2014 150,000 207,415
----------
26,889,241
----------
NEW ZEALAND--6.3%
New Zealand Government Bond 6.500 4/15/2013 NZD 3,135,000 2,324,581
New Zealand Government Bond 7.000 7/15/2009 3,010,000 2,242,789
----------
4,567,370
----------
SINGAPORE--3.6%
Singapore Government 5.625% 7/1/2008 SGD 3,780,000 $ 2,611,38
----------
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--11.5%
Inco 15.750 7/15/2006 GBP 200,000 $ 421,45
UK Gilt 4.000 3/7/2009 3,085,000 5,806,386
UK Gilt 8.000 9/27/2013 645,000 1,542,831
UK Gilt 4.250 6/7/2032 325,000 605,428
------------
8,376,099
------------
Total Foreign Denominted (Cost $44,344,776) 50,290,865
------------
TOTAL BONDS AND NOTES (COST $65,637,310) 72,290,757
------------
CONVERTIBLE PREFERRED STOCKS--0.2% SHARES
-------
Fannie Mae 7.00% CVT Pfd 1,200 68,025
Fannie Mae 5.375% CVT Pfd 1 105,750
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $160,000) 173,775
------------
PURCHASED OPTIONS--0.0% CONTRACT SIZE
--------------
EUR Put/USD Call Strike, Price 1.3, 2/9/2005 800,000 1,480
EUR Put/USD Call Strike, Price 1.29, 2/10/2005 750,000 825
GBP Put/USD Call Strike, Price 1.875, 2/10/2005 750,000 4,086
AUD Put/USD Call Strike, Price .705, 3/10/2005 750,000 900
CHF Put/USD Call Strike, Price 1.21, 3/10/2005 750,000 1,928
------------
TOTAL PURCHASED OPTIONS (COST $ 20,960) 9,219
------------
SHORT-TERM INVESTMENTS--3.9% SHARES
-------
INVESTMENT COMPANIES--1.2%
Dreyfus Institutional Preferred Plus Money Market Fund((+)) 870,406 870,406
------------
INVESTMENT OF CASH COLLATERAL--2.7%
BlackRock Cash Strategies L.L.C.** 1,971,943 1,971,943
------------
TOTAL SHORT TERM INVESTMENTS (Cost $2,842,349) 2,842,349
------------
TOTAL INVESTMENTS--103.1% (Cost $68,660,619) 75,316,100
LIABILTIES IN EXCESS OF OTHER ASSETS--(3.1%) (2,243,472)
------------
NET ASSETS--100% $ 73,072,628
============
NOTES TO SCHEDULE OF INVESTMENTS:
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933.these securities may be resold in transactions exempt from registration
to qualified buyers.
AUD-Australian Dollar
CAD-Canadian Dollar
CHF-Swiss Franc
EUR-Euro
DKK-Danish Krone
GBP-British Pound
NZD-New Zealand Dollar
SGD-Singapore Dollar
USD-United States Dollar
(a) Variable Rate Security, rate indicated is as of 12/31/2004.
* Security, or a portion of thereof, was on loan at December 31, 2004.
** Money market fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
# Delayed delivery security
(+) Affiliated institutional money market fund.
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held the following forward foreign currency
contracts:
LOCAL
PRINCIPAL CONTRACT VALUE USD AMOUNT UNREALIZED
CONTRACTS TO RECEIVE AMOUNT VALUE DATE AT DECEMBER 31, 2004 TO DELIVER GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 1,130,000 3/16/2005 $1,534,157 $ 1,515,346 $18,811
LOCAL
PRINCIPAL CONTRACT VALUE USD AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE AT DECEMBER 31, 2004 TO RECEIVE GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Australian Dollar 6,230,000 3/16/2005 $ 4,844,432 4,738,761 $(105,671)
Canadian Dollar 620,000 3/16/2005 516,770 507,781 (8,989)
Swiss Franc 1,610,000 3/16/2005 1,418,676 1,401,218 (17,458)
Danish Krone 101 1/3/2005 18 18 0
Danish Krone 7,820,000 3/16/2005 1,428,415 1,392,004 (36,411)
Euro 44,708 1/3/2005 60,652 60,692 40
Euro 21,018,000 3/16/2005 28,535,318 27,965,905 (569,413)
British Pound Sterling 6,936 12/31/2004 13,303 13,264 (39)
British Pound Sterling 4,140,000 3/16/2005 7,902,701 7,934,351 31,650
New Zealand Dollar 6,500,000 3/16/2005 4,625,303 4,597,987 (27,316)
New Zealand Dollar 25,799 1/25/2005 18,458 18,356 (102)
Singapore Dollar 4,320,000 3/16/2005 2,653,848 2,619,372 (34,476)
----------- ---------- ---------
Total $52,017,894 $51,249,709 $(768,185)
=========== =========== =========
At December 31, 2004 the Portfolio held the following cross currency exchange
contracts:
VALUE IN VALUE CONTRACT UNREALIZED
CONTRACTS TO DELIVER AT DECEMBER 31, 2004 EXCHANGE FOR AT DECEMBER 31, 2004 VALUE DATE GAIN (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Australian Dollar 1,475,058 New Zealand Dollar $1,462,134 1/25/2005 $(12,924)
New Zealand Dollar 1,443,677 Australian Dollar 1,475,058 1/25/2005 31,381
---------- ---------- ---------
2,918,735 $2,937,192 $ 18,457
========== ========== =========
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held the following open swap contracts:
NOTIONAL AMOUNT EXPIRATION DATE DESCRIPTION VALUE
- -----------------------------------------------------------------------------------------------------------------------
150,000 USD 11/19/2009 Agreement with Bear Stearns, dated 11/17/04 to
receive the notional amount multiplied by 3.90700%
and to pay the notional amount multiplied by the
3 month LIBOR. $ (322)
150,000 USD 12/20/2007 Agreement with Bear Stearns, dated 12/08/04 to
receive 2.05% per year times the notional amount. The
Portfolio makes payment only upon a credit event
by Republic of Turkey, an amount equal to the notional
amount times the difference between the par value and the
then-market of Republic of Turkey, 11.875% due 1/15/30. 1,685
150,000 USD 12/20/2009 Agreement with Bear Stearns, dated 11/17/04 to receive
2.84% per year times the notional amount. The Portfolio
makes payment only upon a credit event by Ukraine
Government, an amount equal to the notional amount times
the difference between the par value and the then-market of
Ukraine Government, 7.65% due 6/11/13. 2,161
150,000 USD 12/20/2005 Agreement with Bear Stearns, dated 12/08/04 to pay
1.05% per year times the notional amount. The Portfolio
receives payment only upon a credit event by Republic of
Turkey, an amount equal to the notional amount times the
difference between the par value and the then-market of
Republic of Turkey, 11.875% due 1/15/2030. (185)
----------
Total Swap Value $ 3,339
==========
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $1,911,153)
(Note 6)
Unaffiliated issuers, at value (Note 1A) (cost $67,790,213) $74,445,694
Affiliated issuers, at value (Note 1A) (cost $870,406) (Note 1H) 870,406
Foreign currency (cost $183,247) 186,472
Unrealized appreciation on forward foreign currency exchange contracts (Note 5 81,882
Receivable for investments sold 559,515
Interest receivable 1,394,977
Open swap contracts, at value (Note 5) 3,339
Prepaid expenses 2,599
-----------
Total assets 77,544,884
LIABILITIES
Collateral for securities on loan (Note 6) $ 1,971,943
Payable for securities purchased 1,592,360
Unrealized depreciation on forward foreign
currency exchange contracts (Note 5)
812,799
Accrued accounting, administration,
and custody fees (Note 2) 15,499
Accrued trustee fees and expenses (Note 2) 5,410
Accrued expenses and other liabilities 74,245
-----------
Total liabilities 4,472,256
-----------
Net Assets (applicable to investors' beneficial interest) $73,072,628
===========
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
STATEMENTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (net of foreign withholding tax of $13,724 and including
securities lending income of $9,485) (Note 6) $ 4,292,491
Interest income from affiliated investments (Note 1H) 41,981
-----------
Total investment income 4,334,472
EXPENSES
Investment advisory fee (Note 2) $ 386,793
Accounting, administration and custody fees (Note 2) 112,685
Professional fees 49,022
Trustees' fees and expenses (Note 2) 24,140
Insurance expense 13,705
Miscellaneous 1,899
-----------
Total expenses 588,244
-----------
Net investment income 3,746,228
-----------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) on:
Investment securities 13,610,783
Foreign currency and forward foreign currency exchange contracts (4,772,167)
Written Option transactions (23,623)
-----------
Net realized gain 8,814,993
Change in unrealized appreciation (depreciation)
Investment securities (10,062,071)
Written Option transactions 103,694
Swaps contracts 3,339
Foreign currency and forward foreign currency exchange contracts 2,032,284
-----------
Change in net unrealized appreciation (depreciation) (7,922,754)
-----------
Net realized and unrealized gain 892,239
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 4,638,467
===========
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS FROM INVESTMENT OPERATIONS
Net investment income $ 3,746,228 $ 5,997,419
Net realized gains (loss) 8,814,993 (1,377)
Change in net unrealized appreciation (depreciation) (7,922,754) 3,796,094
------------ ------------
Net increase in net assets from investment operations 4,638,467 9,792,136
------------ ------------
CAPITAL TRANSACTIONS
Contributions 8,539,443 10,566,938
Withdrawals (93,677,695) (31,376,618)
------------ ------------
Net decrease in net assets from capital transactions (85,138,252) (20,809,680)
------------ ------------
TOTAL DECREASE IN NET ASSETS (80,499,785) (11,017,544)
NET ASSETS
At beginning of year 153,572,413 164,589,957
------------ ------------
At end of year $ 73,072,628 $153,572,413
============ ============
The accompanying notes are an integral part of the financial statements.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003 2002 2001(A) 2000
------- -------- --------- -------- --------
TOTAL RETURN((+)) 5.00% 6.40% 6.98% 4.54% 9.82%
RATIOS:
Expenses (to average daily net assets) 0.63% 0.63% 0.56% 0.53% 0.53%
Net Investment Income (to average daily net assets) 3.89% 3.75% 4.47% 4.49% 5.61%
Portfolio Turnover 130% 222% 205% 251% 236%
Net Assets, End of Year (000's omitted) $73,073 $153,572 $164,590 $364,068 $375,348
- -------
(a) The Portfolio has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and
began amortizing premium and discount on all debt securities on an
effective yield basis. The effect of this change for the year ended
December 31, 2001 was to decrease the ratio of the net investment income to
average net assets from 4.53% to 4.49%. Ratios for the periods prior to
January 1, 2001 have not been restated to reflect this change in
presentation.
(+) Total return for the Portfolio has been calculated based on the total
return for the invested Fund, assuming all distributions were reinvested,
and adjusted for the difference in expenses as set out in the notes to the
financial statements.
The accompanying notes are an integral part of the financial statements.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME 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. Standish
Mellon Global Fixed Income Portfolio (the "Portfolio") is a separate
non-diversified investment series of the Portfolio Trust.
The objective of the Portfolio is to maximize total return while realizing
a market level of income consistent with preserving principal and
liquidity. The Portfolio seeks to achieve its objective by investing, under
normal circumstances, at least 80% of its net assets in U.S. and non-U.S.
dollar denominated fixed income securities of U.S. and foreign governments
and companies located in the U.S. and various countries, including emerging
markets.
At December 31, 2004 there was one fund, Standish Mellon Global Fixed
Income 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 December 31, 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 in the
principal market in which such securities are normally traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield - to - maturity
method on long-term debt securities and short-term securities with greater
than sixty days to maturity. Realized gains and losses from securities sold
are recorded on the identified cost basis.The Fund does not isolate that
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss from investments. 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 Fund's books and the U.S. dollar equivalent amounts actually received
or paid.
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.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. EXPENSES
The majority of expenses of the Trust or Portfolio are directly
identifiable to an individual fund or Portfolio. 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 or Portfolio.
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
Affiliated issuers represent issuers in which the Fund held investments in
other investment companies advised by Standish Mellon Asset Management
Company LLC ("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services is paid monthly at the annual rate of
0.40% of the Portfolio's average daily net assets
The Portfolio compensates Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation, under a custody, administration
and accounting services agreement for providing custody, fund
administration and fund accounting services for the Portfolio. Pursuant to
this agreement the Portfolio paid $98,030 during the year ended December
31, 2004.
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. See Note 6 for further details.
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.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
------------ ------------
U.S. Government Securities $ 30,590,581 $ 28,475,379
============ ============
Investments (non-U.S.
Government Securities) $ 92,886,066 $163,814,245
============ ============
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $68,686,712
===========
Gross unrealized appreciation 6,671,946
Gross unrealized depreciation (42,558)
-----------
Net unrealized appreciation $ 6,629,388
===========
(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.
28
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Portfolio had entered into options transactions during the year ended
December 31, 2004. The option transactions were as follows:
NUMBER OF
WRITTEN PUT OPTION TRANSACTIONS CONTRACTS PREMIUMS
---------- ----------
Outstanding, beginning of year 3 $ 69,112
Options written 12 201,669
Options expired (7) (119,327)
Options closed (8) (151,454)
---------- ----------
Outstanding, end of year 0 0
========== ==========
NUMBER OF
WRITTEN CALL OPTION TRANSACTIONS CONTRACTS PREMIUMS
---------- ----------
Outstanding, beginning of year 0 0
Options written 1 $ 26,381
Options closed (1) (26,381)
---------- ----------
Outstanding, end of year 0 0
========== ==========
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 December 31, 2004 the Portfolio held forward foreign currency exchange
contracts. See Schedule of Investments for further details.
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 December 31, 2004 the Portfolio did not have any futures contracts
outstanding.
29
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated by
another instrument. The Portfolio 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 Portfolio
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 Portfolio may use credit
default swaps to provide a measure of protection against defaults of
issuers (i.e., to reduce risk where the Portfolio 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 Portfolio 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, if any, are included
as part of realized gain or loss. Entering into these agreements 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 December 31, 2004 the Portfolio held swap contracts. See Schedule of
Investments for further details.
(6) SECURITY LENDING:
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 December 31, 2004
resulting in $9,485 of security lending income. At December 31, 2004, the
Portfolio had securities valued at $1,911,153 on loan. See the Statement of
Investments for further detail on the security positions on loan and
collateral held.
(7) DELAYED DELIVERY TRANSACTIONS:
The Portfolio may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Portfolio
instructs its custodian to segregate securities having value at least equal
to the amount of the purchase commitment.
The Portfolio may enter into to be announced ("TBA") purchase commitments
to purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Portfolio holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the Portfolio may enter into offsetting contracts for the forward
sale of other securities it owns. Income on the securities will not be
earned until settlement date. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Unsettled
TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Investment security valuations" above.
30
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Portfolio may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Portfolio as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into.
At December 31, 2004 the Portfolio held delayed delivery securities. See
Schedule of Investments for further details.
(8) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in 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 daily unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended December 31, 2004, a facility fee of $1,227 was allocated to the
Portfolio.
During the year ended December 31, 2004, the Portfolio had average
borrowings outstanding of $221,500 on a total of four days and incurred $68
of interest expense.
31
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON GLOBAL FIXED INCOME PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and
Investors of Standish Mellon Global Fixed Income 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
Standish Mellon Global Fixed Income Portfolio (the "Portfolio") at December
31, 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 December 31, 2004
by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
32
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive Portfolio: $3,575
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None Fund: $500
c/o Essex Street Associates 11/3/1986 Associates (family Portfolio: $3,876
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None Fund: $500
c/o Harvard University 9/13/1986 Professor of Political Portfolio: $3,575
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $3,575
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer, Portfolio: $0
Asset Management Executive 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
33
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- -----------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
34
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One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0934AR1204
Annual Report STANDISH MELLON
INTERNATIONAL FIXED INCOME FUND
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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
One Boston Place * Boston, MA 02108-4402
A MELLON ASSET MANAGEMENT COMPANY
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
International bond markets produced modest, positive returns in 2004. The
Standish Mellon International Fixed Income Fund returned 4.88% for the year,
after all expenses, compared to a return of 5.21% for the J.P. Morgan Hedged
Non-U.S. Government Bond Index.
A return of close to 5% for hedged international bonds is perhaps surprising
considering that at the beginning of the year, the consensus expectation was
that bond yields would rise as central banks raised interest rates. Indeed, bond
yields did rise early in the year, and this rise was lead by the U.S. bond
market, which experienced a vicious sell-off in the first half. However, as the
year progressed, it became apparent that core inflation was well contained in
the U.S., the job market strengthened but not as much as anticipated, and growth
in large economies overseas was anemic. Bond yields in the U.S. and overseas
fell during the second half of the year, and in the end, despite the volatility,
bond investors managed to earn a bit more than their coupon.
The non-government sectors of the international bond markets were a pleasant
surprise, producing returns well above government bonds for the second year in a
row. The star performers were corporate bonds, particularly the high-yield
sector, and emerging markets. A number of factors contributed to the
outperformance of the corporate and emerging sectors, particularly global
growth, low inflation, low interest rates and in the case of the commodity laden
emerging markets, high commodity prices. The high yield corporate and emerging
market indices both had returns of over 10% for the year. Other non-government
sectors also performed well, including mortgages, agencies and asset-backed
securities.
The range of returns in hedged terms for government bond markets as measured by
the JP Morgan Government Bond Indices was modest for the year with only 534
basis points separating the best market, Italy, (+8.00%) from the worst, Japan
(+2.66%). The U.S. component of the index returned 3.75% while European markets
returned 6.77% on average. The U.S. dollar had traded in a modest range for most
of the year; however it fell sharply in the final quarter. The decline of the
dollar was the sharpest relative to the European currencies against which it
declined by more than 7%. The U.S. dollar has been under pressure since 2002 as
the mix of loose fiscal and monetary policy and the large current account
deficit made the currency unattractive to global investors.
The Fund underperformed its benchmark during the year. Our position in
investment grade and high yield corporate bonds and emerging market securities
was the largest positive contributor relative to our benchmark. The results of
our country weightings were mixed. We were overweight European markets, which
produced the best returns; however we had a zero weight in the Japanese bond
market which weighed on our performance. Although Japan was the worst performing
market in the index, our zero weighting in the market was a drag on performance
as Japan did produce a positive return. In currencies, our small primarily,
option-based positions detracted a modest amount from our performance.
2
Our outlook for 2005 is favorable for international bonds. We believe that the
performance of global economies will be close to trend, yet the behavior of
central banks around the world could be quite different. We expect that the Fed
will continue to raise interest rates at least in the first half of the year and
this will flatten the yield curve but we expect longer dated bonds to be fairly
stable. Opportunities for value-added can be found in Europe and in some of the
smaller index components such as Australia, New Zealand and the U.K. In the
latter three markets, the central banks have been raising interest rates for
some time and those increases now appear to be having an effect. These economies
have housing markets that are vulnerable to price declines and, if the economies
soften, we believe bonds in these markets will perform well. Non-government
sectors such as corporate and emerging market bonds have richened quite a bit
over the past two years, and we believe that these sectors will not perform as
well as in the past but that the sector still offers opportunities to add-value
through security selection.
We appreciate your continued support and look forward to working on your behalf
over the next year.
W. Charles Cook
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
INTERNATIONAL FIXED INCOME FUND AND THE J.P. MORGAN HEDGED NON-U.S. GOVERNMENT
BOND INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 01/02/1991
- ------------------------------------------------------------------------------------------------------------------------------------
4.88% 5.41% 5.98% 8.36% 8.47%
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 STANDISH MELLON INTERNATIONAL FIXED
INCOME 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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JUNE 1, 2004 TO
JUNE 1, 2004 DECEMBER 31, 2004 SEPTEMBER 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,042.40 $2.77
Hypothetical (5% return
per year before expenses) $1,000.00 $1,021.37 $2.90
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.54%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(TO REFLECT THE ONE-HALF YEAR PERIOD).
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOP TEN HOLDINGS(*) RATE MATURITY NET ASSETS
----------------------------------------------------------------------------------------------------------
UK Gilt 4.000 3/7/2009 10.6%
Australian Government Bond 7.500 9/15/2009 4.9
Republic of Austria 5.625 7/15/2007 4.6
French Treasury Note 4.500 7/12/2006 4.2
Deutsche Bundesrepublik 4.000 1/4/2028 4.1
Belgium Government Bond 4.250 9/28/2013 4.0
Netherlands Government Bond 5.500 7/15/2010 4.0
Bundesschatzanweisungen 2.750 6/23/2006 3.8
Singapore Government Bond 3.500 7/1/2012 3.8
New Zealand Government Bond 7.000 7/15/2009 3.4
------
47.4%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
TOP TEN COUNTRIES NET ASSETS
--------------------------------------------
United Kingdom 18.6%
United States 17.5
Germany 13.3
France 7.9
New Zealand 6.8
Australia 6.7
Netherlands 5.3
Austria 4.6
Brazil 4.1
Singapore 3.8
-----
88.6%
PERCENTAGE OF
INDUSTRY SECTOR INVESTMENTS
--------------------------------------------
Foreign Government 68.7%
Corporate 22.9
Mortgage 0.8
Emerging Markets 4.1
Asset backed 0.0
Cash & equivalents 3.5
-----
100.0%
The Fund is actively managed. Current holdings may be different than
those presented above.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--91.4%
CORPORATE--3.9%
BASIC MATERIALS--0.3%
International Steel Group (*) 6.500% 4/15/2014 USD 835,000 $ 895,538
------------
COMMUNCATIONS--0.7%
CSC Holdings, Inc. 7.875 12/15/2007 420,000 450,450
RH Donnelley Finance Corp. 144A 8.875 12/15/2010 125,000 139,375
RH Donnelley Finance Corp. 144A 10.875 12/15/2012 195,000 231,563
Sprint Capital Corp. 8.375 3/15/2012 1,100,000 1,339,956
------------
2,161,344
------------
CONSUMER CYCLICAL--0.4%
Mohegan Tribal Gaming Authority 8.000 4/1/2012 650,000 705,250
Yum! Brands, Inc. 8.875 4/15/2011 450,000 555,984
------------
1,261,234
------------
CONSUMER NON-CYCLICAL--0.7%
Aramark Services, Inc. 7.000 7/15/2006 2,040,000 2,136,425
------------
ENERGY--0.7%
Chesapeake Energy Corp. 8.125 4/1/2011 555,000 600,788
Pemex Project Funding Master Trust 144A 3.790 6/15/2010 515,000 528,390
Petronas Capital Ltd. 144A 7.875 5/22/2022 430,000 533,997
Salomon Brothers AF for OAO Siberian Oil Co. 10.750 1/15/2009 485,000 516,525
------------
2,179,700
------------
FINANCIAL--0.9%
Amvescap PLC 5.375 2/27/2013 245,000 247,185
Chevy Chase Bank FSB 6.875 12/1/2013 705,000 727,913
Glencore Funding LLC 144A 6.000 4/15/2014 1,625,000 1,572,152
------------
2,547,250
------------
UTILITIES--0.2%
AES Corp. 144A 8.750 5/15/2013 610,000 693,113
------------
Total Corporate (Cost $11,283,370) 11,874,604
------------
SOVEREIGN BONDS--3.4%
Banco Nacional de Desenvolvimento Economic (a) 5.832 6/16/2008 500,000 511,250
Republic of Brazil (a) 3.125 4/15/2012 529,416 504,269
Republic of Brazil (a) 3.063 4/15/2024 600,000 555,000
Republic of Colombia 10.000 1/23/2012 435,000 502,425
Republic of El Salvador 8.500 7/25/2011 510,000 582,675
Republic of El Salvador 8.250 4/10/2032 370,000 373,700
Republic of Panama 9.625 2/8/2011 135,000 159,975
Republic of Panama 7.250 3/15/2015 215,000 222,525
Republic of Panama 8.875 9/30/2027 500,000 555,000
Republic of Peru 4.500 3/7/2017 415,000 388,025
Republic of South Africa 9.125 5/19/2009 275,000 324,792
Republic of South Africa 7.375 4/25/2012 370,000 421,293
Republic of Turkey 9.000 6/30/2011 990,000 1,128,056
Republic of Turkey 11.500 1/23/2012 400,000 514,380
Russian Federation 11.000 7/24/2018 360,000 500,400
Russian Federation 12.750 6/24/2028 190,000 310,770
Russian Federation 5.000 3/31/2030 845,000 871,406
Serbian Government (#) 3.750 11/15/2024 625,000 520,313
Ukraine Government 144A (*) 7.650 6/11/2013 380,000 404,700
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SOVEREIGN BONDS (CONTINUED)
Ukraine Government Senior Notes 11.000% 3/15/2007 USD 294,008 $ 315,142
United Mexican States 8.300 8/15/2031 535,000 625,950
------------
Total Sovereign Bonds (Cost $9,981,671) 10,292,046
------------
YANKEE BONDS--2.0%
Amvescap PLC 5.900 1/15/2007 250,000 261,588
British Sky Broadcasting PLC 7.300 10/15/2006 1,035,000 1,099,486
HBOS PLC 144A 5.375 11/1/2013 1,575,000 1,614,857
Ispat Inland 9.750 4/1/2014 832,000 1,027,520
Rogers Wireless Inc. 144A 7.250 12/15/2012 1,380,000 1,462,800
Rogers Wireless Inc. 144A 7.500 3/15/2015 255,000 269,025
Royal Caribbean Cruises Ltd. 8.250 4/1/2005 225,000 227,250
------------
Total Yankee Bonds (Cost $5,819,325) 5,962,526
------------
FOREIGN DENOMINATED--82.1%
AUSTRALIA--6.7%
Australian Government Bond 7.500 9/15/2009 AUD 17,465,000 14,945,364
Australian Government Bond (*) 6.250 4/15/2015 6,480,000 5,431,212
------------
20,376,576
------------
CANADA--0.6%
Canadian Pacific Railway Ltd. 4.900 6/15/2010 CAD 2,000,000 1,705,344
------------
DENMARK--0.8%
Realkredit Danmark A/S 4.000 1/1/2006 DKK 13,965,000 2,585,271
------------
EURO--47.9%
Allied Domecq Financial Services PLC 5.875 6/12/2009 EUR 370,000 549,816
Autostrade SpA (a) 2.621 6/9/2011 900,000 1,226,009
Bank of America Corp 4.750 5/6/2019 780,000 1,108,481
Barclays BAnk PLC 7.500 12/15/2010 1,025,000 1,665,327
Belgium Government Bond 4.250 9/28/2013 8,600,000 12,236,541
Bundesobligation (*) 3.000 4/11/2008 3,555,000 4,852,435
Bundesschatzanweisungen 2.750 6/23/2006 8,375,000 11,421,389
Citigroup Inc. (a) 2.324 6/3/2011 1,250,000 1,690,753
Depfa ACS Bank 144A 3.875 7/15/2013 2,550,000 3,503,336
Deutsche Bundesrepublik 4.000 1/4/2028 8,755,000 12,372,198
Deutsche Bundesrepublik 4.500 1/4/2013 325,000 471,154
Deutsche Bundesrepublik 4.750 7/4/2034 5,795,000 8,465,063
Deutsche Cap Trust IV (a) 5.330 9/29/2049 600,000 874,437
Deutsche Telekom International Finance BV 8.125 5/29/2012 525,000 903,052
Dexia Municipal Agency 5.375 4/26/2007 2,355,000 3,388,771
FBG Treasury Europe 5.750 3/17/2005 81,000 110,570
FCE Bank PLC (a) 2.578 6/28/2006 880,000 1,183,778
France Telecom 7.250 1/28/2013 1,605,000 2,649,578
France Telecom 8.125 1/28/2033 1,760,000 3,383,252
French Treasury Note 4.500 7/12/2006 8,995,000 12,589,647
GE Capital Euro Funding (a) 2.278 5/4/2011 1,260,000 1,701,786
General Motors Acceptance Corp. 4.375 9/26/2006 440,000 601,793
General Motors Accpetance Corp. (a) 3.904 7/5/2005 865,000 1,177,918
Glencore Finance Europe SA/Luxembourg 5.375 9/30/2011 2,515,000 3,429,249
HBOS PLC 6.050 11/23/2049 390,000 598,118
Hilton Group Finance PLC 6.500 7/17/2009 565,000 862,595
HJ Heinz BV 5.125 4/10/2006 550,000 769,518
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
EURO (CONTINUED)
Household Finance Corp. 6.500% 5/5/2009 EUR 335,000 $ 512,882
International Paper Co. 5.375 8/11/2006 405,000 570,169
Kappa Beheer BV 10.625 7/15/2009 365,000 523,631
KFW Group 3.500 4/17/2009 1,435,000 1,990,565
Lear Corp. 8.125 4/1/2008 830,000 1,264,755
Morgan Stanley 5.750 4/1/2009 585,000 871,046
MPS Capital Trust 7.990 2/7/2011 550,000 900,952
Nalco Co. 7.750 11/15/2011 490,000 721,236
Natexis Banque 4.375 6/20/2013 615,000 859,765
National Westminster Bank PLC 6.625 10/5/2009 550,000 844,356
Netherlands Government Bond 5.500 7/15/2010 8,000,000 12,154,072
Owens-Brockway Glass Containers 144A 6.750 12/1/2014 520,000 738,940
Parker Hannifin Corp. 6.250 11/21/2005 200,000 280,054
Pemex Project Funding Master Trust 144A 6.625 4/4/2010 440,000 664,653
Republic of Austria 5.625 7/15/2007 9,555,000 13,865,281
Sara Lee Corp. 6.125 7/27/2007 545,000 797,010
Spain Government Bond 4.250 10/31/2007 4,705,000 6,646,904
Telecom Italia Finance SA 7.250 4/20/2011 985,000 1,574,446
Telefonica Europe BV 5.125 2/14/2013 545,000 802,432
Telenor ASA 5.875 12/5/2012 1,100,000 1,694,128
ThyssenKrupp Finance Nederland BV 7.000 3/19/2009 420,000 642,304
Tyco International Group SA 5.500 11/19/2008 760,000 1,109,569
Veolia Environnement 4.875 5/28/2013 620,000 893,313
------------
144,709,027
------------
NEW ZEALAND--6.8%
New Zealand Government Bond 6.500 4/15/2013 NZD 13,760,000 10,202,946
New Zealand Government Bond 7.000 7/15/2009 13,775,000 10,263,925
------------
20,466,871
------------
SINGAPORE--3.8%
Singapore Government Bond 3.500 7/1/2012 SGD 17,235,000 11,383,825
------------
UNITED KINGDOM--15.5%
Inco 15.750 7/15/2006 GBP 796,000 1,677,387
UK Gilt 4.000 3/7/2009 17,100,000 32,184,509
UK Gilt 8.000 9/27/2013 3,860,000 9,233,065
UK Gilt 4.250 6/7/2032 2,040,000 3,800,223
------------
46,895,184
------------
Total Foreign Denominated (Cost $225,331,322) 248,122,098
------------
TOTAL BONDS AND NOTES (COST $252,415,688) 276,251,274
------------
CONVERTIBLE PREFERRED STOCK--0.2% SHARES
-------------
Fannie Mae 7.00% CVT Pfd (Cost $502,500) 10,050 569,709
------------
PURCHASED OPTIONS--0.0% CONTRACT SIZE
-------------
EUR Put/USD Call, Strike Price 1.30, 2/9/05 (USD) 3,535,000 6,540
EUR Put/USD Call, Strike Price 1.29, 2/10/05 (USD) 3,295,000 3,625
GBP Put/USD Call, Strike Price 1.875, 2/10/05 (USD) 3,295,000 17,958
AUD Put/USD Call, Strike Price 0.705, 3/10/05 (USD) 3,215,000 3,858
CHF Put/USD Call, Strike Price 1.21, 3/10/05 (USD) 3,295,000 8,467
------------
TOTAL PURCHASED OPTIONS (Cost $91,714) 40,448
------------
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--9.5%
U.S. GOVERNMENT--5.1%
Treasury Bill((+)**) 2.215% 3/17/2005 USD 15,520,000 $ 15,454,13
------------
INVESTMENT COMPANIES--2.7% SHARES
-------------
Dreyfus Institutional Preferred Money Market Plus((+)(+)) 8,112,606 8,112,606
------------
INVESTMENT OF CASH COLLATERAL--1.7%
BlackRock Cash Strategies L.L.C *** 5,258,600 5,258,600
------------
TOTAL SHORT TERM INVESTMENTS--(Cost $28,822,633) 28,825,339
------------
TOTAL INVESTMENTS--101.1% (COST $281,832,535) 305,686,770
LIABILITIES IN EXCESS OF OTHER ASSETS--(1.1%) (3,280,653)
------------
NET ASSETS--100.0% $302,406,117
============
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified buyers.
AUD-Australian Dollar
CAD-Canadian Dollar
DKK-Danish Krone
EUR-Euro
GBP-British Pound
NZD-New Zealand Dollar
SGD-Singapore Dollar
USD-U.S. Dollar
(a) Variable Rate Security, rate indicated is as of 12/31/2004.
* Security, or a portion thereof, was on loan at December 31, 2004.
# Delayed delivery security.
(+) Security is pledged as collateral for futures contracts.
(+)(+) Affiliated institutional money market fund.
** Rate noted is yield to maturity.
*** Money Market Fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
At December 31, 2004 the Portfolio held the following futures contracts:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. 5 Year Note (205 Contracts) Short 3/21/2005 $22,453,906 $(162,783)
U.S. 10 Year Note (45 Contracts) Short 3/21/2005 5,037,188 (52,525)
---------
$(215,308)
=========
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO RECEIVE AMOUNT VALUE DATE DECEMBER 31, 2004 TO DELIVER GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 32,495,000 3/16/2005 $44,117,194 $43,847,056 $ 270,138
============
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE DECEMBER 31, 2004 TO RECEIVE GAIN/LOSS
- ------------------------------------------------------------------------------------------------------------------------------------
Australian Dollar 25,290,000 3/16/2005 $ 19,665,441 $ 19,259,357 $ (406,084)
Canadian Dollar 2,150,000 3/16/2005 1,792,025 1,760,852 (31,173)
Danish Krone 24,490,000 3/16/2005 4,473,386 4,359,358 (114,028)
Euro 2,547,855 1/3/2005 3,456,491 3,469,014 12,523
Euro 138,594,000 3/16/2005 188,163,669 184,609,867 (3,553,802)
British Pound Sterling 23,850,000 3/16/2005 45,526,430 45,708,764 182,334
New Zealand Dollar 105,446 1/25/2005 75,442 75,025 (417)
New Zealand Dollar 29,050,000 3/16/2005 20,671,544 20,547,855 (123,689)
Singapore Dollar 19,035,000 3/16/2005 11,693,517 11,541,610 (151,907)
------------ ------------ -----------
TOTAL $295,517,945 $291,331,702 $(4,186,243)
============ ============ ===========
At December 31, 2004 the Fund held the following cross currency exchange
contracts:
VALUE AT IN VALUE AT CONTRACT UNREALIZED
CONTRACTS TO DELIVER DECEMBER 31, 2004 EXCHANGE FOR DECEMBER 31, 2004 VALUE DATE GAIN/LOSS
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand Dollar $ 5,900,743 Australian Dollar $ 6,029,008 1/25/2005 $ 128,265
Australian Dollar 6,029,008 New Zealand Dollar 5,976,184 1/25/2005 (52,824)
---------- ----------- ----------
$11,929,751 $12,005,192 $ 75,441
=========== =========== ==========
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Fund held the following open swap contracts:
PORTFOLIO/COUNTERPARTY EXPIRATION DATE DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
840,000 USD 11/19/09 Agreement with Bear Stearns, dated 11/17/04
to receive the notional amount multiplied by
3.90700% and to pay the notional amount
multiplied by the 3 month LIBOR. $ (1,806)
650,000 USD 12/20/07 Agreement with Bear Stearns, dated 12/08/04
to receive 2.05% per year times the notional amount.
The Fund makes payment only upon a credit
event by Republic of Turkey, the notional amount
times the difference between the par value and the
then-market of Republic of Turkey, 11.875% due 1/15/30. 7,300
840,000 USD 12/20/09 Agreement with Bear Stearns, dated 11/17/04
to receive 2.84% per year times the notional amount.
The Fund makes payment only upon a credit event
by Ukraine Government, the notional amount times the
difference between the par value and the then-market
of Ukraine Government, 7.65% due 6/11/13. 12,100
650,000 USD 12/20/05 Agreement with Bear Stearns, dated 12/08/04
to pay 1.05% per year times the notional amount.
The Fund receives payment only upon a credit event
by Republic of Turkey, the notional amount times the
difference between the par value and the then-market
of Republic of Turkey, 11.875% due 1/15/30. (800)
-------
Total Swap Value $16,794
=======
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $5,048,081) (Note 7)
Unaffiliated issuers, at value (Note1A) (cost $273,719,929) $297,574,164
Affiliated issuers, at value (Note 1A) (cost $8,112,606) (Note 1H) 8,112,606
Foreign currency, at value (cost $1,023,158) 1,072,175
Receivable for investments sold 3,098,658
Receivable for Fund shares sold 287,485
Interest receivable 5,243,650
Swap contracts, at value (Note 6) 16,794
Unrealized appreciation on forward currency exchange contracts (Note 6) 593,260
Prepaid expenses 32,000
------------
Total assets 316,030,792
LIABILITIES
Collateral for securities on loan (Note 7) $5,258,600
Payable for Fund shares redeemed 562,030
Payable for investments purchased 1,234,747
Unrealized depreciation on forward currency exchange contracts (Note 6)
4,433,924
Payable for variation margin on open futures contracts (Note 6) 40,780
Distribution payable 1,947,420
Accrued accounting, custody, administration and transfer agent fees (Note 2) 47,431
Accrued trustees' fees and expenses (Note 2) 19,375
Accrued expenses and other liabilities 80,368
----------
Total liabilities 13,624,675
------------
NET ASSETS $302,406,117
============
NET ASSETS CONSIST OF:
Paid-in capital $326,855,742
Accumulated net realized loss (52,267,830)
Undistributed net investment income 7,577,775
Net unrealized appreciation 20,240,430
------------
TOTAL NET ASSETS $302,406,117
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 14,164,418
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 21.35
============
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (Net of $128,672 foreign tax expense and including
securities lending income of $17,062 (Note 7)) $ 14,277,141
Interest income from affiliated investments (Note 1H) 258,253
------------
Total investment income 14,535,394
EXPENSES
Investment advisory fee (Note 2) $ 1,471,638
Accounting, administration and custody fees (Note 2) 236,187
Professional fees 118,160
Registration fees 17,800
Trustees' fees and expenses (Note 2) 67,814
Transfer agent fees--Institutional Class (Note 2) 6,840
Transfer agent fees--Service Class (Note 2) 2,032
Service Fees--Service Class (Note 2) 199
Insurance expense 19,035
Miscellaneous 39,237
------------
Total expenses 1,978,942
Deduct:
Reimbursement of Fund operating expenses--Service Class (Note 2) (2,032)
------------
Net expenses 1,976,910
------------
Net investment income 12,558,484
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 49,260,014
Financial futures contracts (118,328)
Written options transactions (131,568)
Foreign currency and forward foreign currency exchange contracts (24,591,440)
------------
Net realized gain 24,418,678
Change in unrealized appreciation (depreciation)
Investment securities (23,050,969)
Financial futures contracts (150,582)
Written options transactions 299,511
Swap contracts 16,794
Foreign currency and forward foreign currency exchange contracts 5,167,414
------------
Change in net unrealized appreciation (depreciation) (17,717,832)
------------
Net realized and unrealized gain on investments 6,700,846
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 19,259,330
============
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 12,558,484 $ 14,790,796
Net realized gains (loss) 24,418,678 (7,210,791)
Change in net unrealized appreciation (depreciation) (17,717,832) 12,057,374
------------ ------------
Net increase in net assets from investment operations 19,259,330 19,637,379
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income-Institutional Class (9,610,131) --
------------ ------------
Total distributions to shareholders (9,610,131) --
------------ ------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares
Institutional Class 150,741,250 244,264,085
Service Class 25,910 1,066,887
Value of shares issued to shareholders in reinvestment of distributions
Institutional Class 7,662,711 --
Redemption fees credited to capital
Institutional Class 542 --
Cost of shares redeemed
Institutional Class (235,353,049) (258,534,627)
Service Class (96,133) (3,750,467)
------------ ------------
Net decrease in net assets from Fund share transactions (77,018,769) (16,954,122)
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (67,369,570) 2,683,257
NET ASSETS
At beginning of period 369,775,687 367,092,430
------------ ------------
At end of period (including undistributed net investment income of
$7,577,775 and distributions in excess of
net investment income of $11,010,459) $302,406,117 $369,775,687
============ ============
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
FINANCIAL HIGHLIGHTS-INSTITUTIONAL CLASS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003 2002 2001(A) 2000
-------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF THE PERIOD $ 21.02 $ 20.04 $ 19.43 $ 18.97 $ 21.32
-------- -------- -------- -------- --------
FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.75 0.66 0.75 0.76 1.12
Net realized and unrealized gain (loss) on investments 0.27 0.32 0.46 0.01 0.84
-------- -------- -------- -------- --------
Total from investment operations 1.02 0.98 1.21 0.77 1.96
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.69) -- (0.47) (0.31) (4.31)
From tax return of capital -- -- (0.13) -- --
-------- -------- -------- -------- --------
Total distributions to shareholders (0.69) -- (0.60) (0.31) (4.31)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 21.35 $ 21.02 $ 20.04 $ 19.43 $ 18.97
======== ======== ======== ======== ========
TOTAL RETURN 4.88% 4.89% 6.44% 4.07% 9.68%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) 0.54% 0.59% 0.59% 0.56% 0.53%
Net Investment Income (to average daily net assets) 3.43% 3.20% 3.89% 3.94% 5.21%
Portfolio Turnover 170% 185% 159% 211% 240%
Net Assets, End of Year (000's omitted) $302,406 $369,706 $364,460 $422,626 $454,333
- -------
* The Fund has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and
began amortizing premium and discount on all debt securities on an
effective yield basis. The effect of this change for the year ended
December 31,2001 was to decrease net investment income per share by $0.007,
increase net realized and unrealized gains and losses per share by $0.007
and decrease the ratio of net investment income to average net assets from
3.98% to 3.94%. Per share data and ratios/supplemental data for the periods
prior to January 1, 2001 have not been restated to reflect this change in
presentation.
(1) Calculated based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME 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 International Fixed Income Fund (the "Fund") is a separate
diversified investment series of the Trust.
During the year ended December 31, 2004 the Fund had offered two classes of
shares: Institutional Class and Service Class. On April 30, 2004 the
Service Class was liquidated and closed. Expenses of the Fund, until the
time when the Service Class was closed, were borne pro-rata by the holders
of each class of shares, except for transfer agent fees and an account
service fee of up to 0.25% of the average daily net assets of the Service
Class of shares. Each class voted separately as a class only with respect
to its own service plan (Service Class only) or other matters that relate
only to that class. Shares of the Service Class received their pro-rata
share of the net assets of the Fund (after satisfaction of any
class-specific expenses) when the Service Class was liquidated.
The objective of the Fund is to maximize total return while realizing a
market level of income consistent with preserving principal and liquidity.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in fixed income securities. The
Fund also invests, under normal circumstances, at least 65% of net assets
in non-U.S. dollar denominated fixed income securities of foreign
governments and companies located in various countries, including emerging
markets.
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 in the
principal market in which such securities are primarily traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 coupon interest accrued, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities of greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis. The Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss from investments. 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 Fund's books and the U.S. dollar equivalent amounts actually received
or paid.
C. 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.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. 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.
E. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income will be declared and distributed
quarterly. 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, foreign
currency gains and losses, post-October losses, amortization and/or
accretion of premiums and discounts on certain securities and the timing of
recognition of gains and losses on futures contracts.
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 and foreign currency transactions 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.
F. 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.
G. 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.
H. AFFILIATED ISSUERS
Affiliated issuers represent issuers held in the Fund in other investment
companies advised by Standish Mellon Asset Management Company LLC
("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services, and general office facilities is paid
monthly at the annual rate of 0.40% of the Fund's average daily net assets.
Standish Mellon voluntarily agreed to limit the Service Class operating
expenses (excluding brokerage commissions, taxes and extraordinary
expenses) for the year ended December 31, 2004, so that the Service Class
annual operating expenses did 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 December 31, 2004, Standish Mellon reimbursed the
Service Class $2,032 for class specific operating expenses.
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 Standish Mellon, 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 paid $16,638 during the period ended
December 31, 2004.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, 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 paid $174,384 during the year
ended December 31, 2004.
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. See Note 7 for further details.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
------------ ------------
U.S. Government Securities $ 29,053,223 $ 29,662,489
============ ============
Investments (non-U.S.
Government Securities) $543,530,866 $645,092,944
============ ============
(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: DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
Shares sold 7,131,845 11,910,779
Shares issued to shareholders in
reinvestment of distributions 359,246 --
Shares redeemed (10,919,398) (12,510,470)
----------- -----------
Net decrease (3,428,307) (599,691)
=========== ===========
FOR THE FOR THE
YEAR ENDED YEAR ENDED
SERVICE CLASS: DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
Shares sold 1,242 52,864
Shares issued to shareholders in
reinvestment of distributions -- --
Shares redeemed (4,616) (182,602)
----------- -----------
Net decrease (3,374) (129,738)
=========== ===========
A significant portion of the Fund's shares are beneficially owned by fiduciary
accounts over which Standish Mellon and its affiliates have either sole or joint
investment discretion. 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 in the Fund. The fee does not apply to shares
that are acquired through reinvestment of distributions. For the year ended
December 31, 2004, the Fund received $542 of redemption fees.
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 December 31, 2004, was as follows:
AMOUNT
------------
Unrealized appreciation $ 23,998,155
Unrealized depreciation (148,925)
------------
Net unrealized appreciation/depreciation 23,849,230
Undistributed ordinary income 4,002,987
Capital loss carry-forward 52,478,133
Cost for federal income tax purposes $281,837,540
At December 31, 2004, the Fund, for federal income tax purposes, has
capital loss carryovers of $52,478,133 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
------------- ----------------
$19,147,781 12/31/2007
19,786,516 12/31/2008
6,955,771 12/31/2009
6,588,065 12/31/2010
-------------
$52,478,133
-------------
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003, were as follows:
Distributions paid from: 2004 2003
------------ ------------
Ordinary income $9,610,131 0
(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
20
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 had entered into option transactions during the year ended
December 31, 2004. The option transactions of the Fund were as follows:
NUMBER OF
WRITTEN PUT CURRENCY OPTIONS TRANSACTIONS CONTRACTS PREMIUMS
---------- ----------
Outstanding, beginning of period 3 $ 184,869
Options written 12 630,460
Options expired (7) (366,118)
Options closed (8) (449,211)
---------- ----------
Outstanding, end of period 0 0
========== ==========
NUMBER OF
WRITTEN CALL OPTIONS TRANSACTIONS CONTRACTS PREMIUMS
---------- ----------
Outstanding, beginning of period 0 0
Options written 2 $ 148,954
Options expired (1) (38,338)
Options closed (1) (110,616)
---------- ----------
Outstanding, end of period 0 0
========== ==========
NUMBER OF
WRITTEN PUT OPTIONS TRANSACTIONS CONTRACTS PREMIUMS
---------- ----------
Outstanding, beginning of period 0 0
Options written 1 $ 71,730
Options expired 0 0
Options closed (1) (71,730)
---------- ----------
Outstanding, end of period 0 0
========== ==========
FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund 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 Fund primarily to protect the value of the Fund'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.
The Fund had entered into foreign currency exchange contracts during the
year ended December 31, 2004. See Schedule of Investments for further
details.
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
21
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
The Fund had entered in to futures transactions during the year ended
December 31, 2004. See Schedule of Investments for further details.
SWAP AGREEMENTS
The Fund may enter into 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,
if any, are included as part of realized gain or loss. Entering into these
agreements 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 December 31, 2004 the Fund held swap contracts. See Schedule of
Investments for further details.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to the
Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment of
the collateral. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears the
risk in the event that the interest and/or dividends received on invested
collateral is not sufficient to meet the Fund's obligations due on the
loans.
The Fund loaned securities during the year ended December 31, 2004
resulting in security lending income of $17,062. At December 31, 2004, the
Fund had securities valued at $5,048,081 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% committed amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended December 31, 2004, a facility fee of
$4,670 was allocated to the Fund.
During the year ended December 31, 2004, the Fund had average borrowings
outstanding of $1,623,857 on a total of seven days and incurred $855 of
interest expense.
22
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON INTERNATIONAL FIXED INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon International Fixed Income 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 International Fixed Income Fund (the "Fund") at December
31, 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 December 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
23
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $6,905
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 Fund: $7,768
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 Fund: $6,905
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 Fund: $6,905
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer,
Asset Management Executive 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
24
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
25
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0931AR1204
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
ANNUAL REPORT STANDISH MELLON
SHORT-TERM ASSET RESERVE FUND
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 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 September 30, 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
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its' 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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
One Boston Place * Boston, MA 02108-4402
A MELLON ASSET MANAGEMENT COMPANY
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Economic activity maintained a healthy pace in 2004. The employment picture
improved with monthly job gains averaging approximately 185,000. Investment
spending and capacity utilization picked up and despite higher interest rates,
the housing market and consumer spending kept pace. Amid rising oil prices and a
weaker dollar, the Federal Reserve maintained a tame inflation outlook. Bond
market volatility was low as the Fed hiked interest rates in a predictable and
steady fashion from 1% to 2.25% by the end of the year. The unusual aspect of
this tightening cycle has been the decline in 10- and 30-year yields as short
rates have risen. So while the yield curve has flattened similarly to previous
cycles, long-term interest rates have moved to lower levels than expected. To a
large degree, the massive foreign purchases of U.S. Treasuries have kept
long-term interest rates lower than anticipated during a period of tighter
monetary policy.
Over the past year, broad sectors outperformed Treasuries with particularly
strong excess returns from investment grade corporate bonds. Spread sectors,
especially mortgages, benefited from declining interest rate volatility. The
credit sector fared well amid steady economic activity. Treasury
inflation-protected securities (TIPS) outperformed nominal Treasuries as both
actual and expected levels of inflation rose.
The prospects for economic growth in 2005 are good. We expect reasonably strong
economic data will support continued rate hikes by the Fed. Under tighter
monetary conditions, we anticipate upward pressure on interest rates and a
flatter yield curve. With today's low volatility environment and narrow yield
spreads, many sectors appear overvalued.
Performance of the fund was negatively impacted by the increase in short-term
interest rates throughout the year. Performance for the fund was .75% for the
year versus the iMoneyNet benchmark of .78%. Although long-term interest rates
ended the year near where they began, short-term interest rates rose 125 basis
points, in line with the Fed's actions. The strategic duration target for the
fund is at approximately 1 year and the fund is marked to market. This
combination of a longer duration and mark-to-market accounting translates into a
performance disadvantage compared to a money market fund benchmark, which has a
much shorter duration and constant $1.00 NAV accounting. These negative factors
were partially offset by the long-term advantages of fund. By having a longer
strategic duration, the fund is able to move out on a normally positively sloped
yield curve. In addition, the fund is able to invest in a broader and better
yielding set of investments than those normally available to a money market
fund. As a result, performance for the fund for the year was only slightly below
its money market fund benchmark.
/s/ Laurie Carroll /s/ Johnson Moore
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE (STAR) FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN
STANDISH MELLON STAR FUND AND IMONEYNET FUND AVERAGE
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS
(FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 01/03/1989
- -------------------------------------------------------------------------------------------------------------------------
.75% 1.78% 3.66% 4.80% 5.45%
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 SHORT-TERM ASSET RESERVE 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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JULY 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
- ---------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,006.60 $2.27
Hypothetical (5% return
per year before expenses) $1,000.00 $1,022.87 $2.29
- -------
+ EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.45%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/366 (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
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
SUMMARY OF COMBINED RATINGS
--------------------------------------------
PERCENTAGE OF
QUALITY BREAKDOWN INVESTMENTS
--------------------------------------------
Treasury/Agency 6.5%
AAA 30.5
AA 11.2
A 46.3
BBB 4.4
Cash & Equivalents 1.1
-----
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
----------------------------------------------------------------------------------------------------------
American Express Master Trust 2002-1 A 2.473 12/15/2005 4.1%
Mound Financing PLC 3A A1-1 144A 2.350 2/8/2008 3.7
Morgan Stanley Dean Witter 7.750 6/15/2005 3.0
Diageo Capital PLC 6.125 8/15/2005 3.0
CS First Boston (USA), Inc. Notes MTN 2.790 6/19/2006 3.0
Citigroup Global Markets Holdings, Inc. 2.578 6/6/2006 3.0
Washington Mutual, Inc. 2.450 11/3/2005 3.0
Gracechurch Card Funding PLC 4 A 2.453 6/15/2008 3.0
Bear Stearns Co., Inc. MTN 2.633 9/15/2006 3.0
Toyota Auto Receivables Owner Trust 2003-B A3 2.433 8/15/2007 3.0
------
31.8%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
--------------------------------------------
Treasury/Agency 6.5%
Credit 23.9
Floating rate credit 38.6
Asset-Backed 8.7
Floating rate asset-backed 21.2
Cash & equivalents 1.1
-----
100.0%
The Portfolio is actively managed. Current holdings may be different
than those presented above.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in Standish Mellon Short-Term Asset Reserve Portfolio
("Portfolio"), at value (Note 1A) $67,266,628
Receivable for Fund shares sold 650
Prepaid expenses 24,245
-----------
Total assets 67,291,523
LIABILITIES
Payable for Fund shares redeemed $ 750
Distributions payable 42,459
Accrued transfer agent fees (Note 2) 7,839
Accrued Trustees' fees and expenses 510
Accrued expenses and other liabilities 10,340
-----------
Total liabilities 61,898
-----------
NET ASSETS $67,229,625
===========
NET ASSETS CONSIST OF:
Paid-in capital $69,842,343
Accumulated net realized loss (2,428,981)
Undistributed net investment income 1,458
Net unrealized depreciation (185,195)
-----------
TOTAL NET ASSETS $67,229,625
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,480,171
===========
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 19.32
===========
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Investment income allocated from Portfolio $1,714,379
Expenses allocated from Portfolio (400,334)
----------
Net investment income allocated from Portfolio 1,314,045
EXPENSES
Transfer agent fees (Note 2) $ 16,909
Registration fees 27,245
Professional fees 24,491
Trustees' fees and expenses (Note 2) 2,010
Insurance expense 1,362
Shareholder reports 8,612
Analytical Services Fees 4,998
Miscellaneous 3,735
----------
Total expenses 89,362
Deduct:
Reimbursement of Fund operating expenses
(Note 2) (55,494)
----------
Total expenses 33,868
----------
Net investment income 1,280,177
----------
REALIZED AND UNREALIZED GAIN (LOSS) Net realized gain (loss) allocated from
Portfolio on:
Investment transactions and futures transactions (63,934) Change in
unrealized appreciation (depreciation) allocated from Portfolio on:
Investments and futures (423,401)
----------
Net realized and unrealized loss on investments (487,335)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 792,842
==========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 1,280,177 $ 2,842,200
Net realized gains (losses) (63,934) 509,269
Change in net unrealized appreciation (depreciation) (423,401) (754,524)
------------- ------------
Net increase in net assets from investment operations 792,842 2,596,945
------------- ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (1,475,658) (3,213,940)
------------- ------------
Total distributions to shareholders (1,475,658) (3,213,940)
------------- ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 62,046,776 153,359,955
Value of shares issued to shareholders
in reinvestment of distributions declared 1,074,063 2,836,562
Cost of shares redeemed (137,044,992) (160,362,595)
------------- ------------
Net increase in net assets from Fund share transactions (73,924,153) (4,166,078)
------------- ------------
TOTAL DECREASE IN NET ASSETS (74,606,969) (4,783,073)
NET ASSETS
At beginning of year 141,836,594 146,619,667
------------- ------------
At end of year (including undistributed net investment income of
$1,458 and distributions in excess of net investment income of $33,067) $ 67,229,625 $141,836,594
============= ============
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
2004 2003 2002 2001 2000
------- -------- -------- -------- --------
NET ASSET VALUE, BEGINNING OF THE YEAR $ 19.48 $ 19.55 $ 19.55 $ 19.36 $ 19.23
------- -------- -------- -------- --------
FROM INVESTMENT OPERATIONS:
Net investment income(* (1)) 0.27 0.31 0.58 0.95 1.15
Net realized and unrealized gain (loss) on investments (0.12) (0.04) 0.03 0.21 0.13
------- -------- -------- -------- --------
Total from investment operations 0.15 0.27 0.61 1.16 1.28
------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.31) (0.34) (0.61) (0.97) (1.15)
------- -------- -------- -------- --------
Total distributions to shareholders (0.31) (0.34) (0.61) (0.97) (1.15)
------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 19.32 $ 19.48 $ 19.55 $ 19.55 $ 19.36
======= ======== ======== ======== ========
TOTAL RETURN((+)) 0.75% 1.48% 3.14% 6.14% 6.94%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*(2)) 0.45% 0.36% 0.36% 0.36% 0.36%
Net Investment Income (to average daily net assets)(*) 1.33% 1.60% 2.99% 4.89% 6.07%
Net Assets, End of Year (000's omitted) $67,230 $141,837 $146,620 $133,939 $183,858
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee charged to the Portfolio
and/ or reimbursed the Fund for a portion of its operating expenses. If this
voluntary action had not been taken, the investment income per share and the
ratios would have been:
Net investment income per share (1) $ 0.25 $ 0.30 $ 0.56 $ 0.94 $ 1.15
Ratios (to average daily net assets):
Expenses (2) 0.51% 0.43% 0.46% 0.41% 0.38%
Net investment income 1.27% 1.53% 2.89% 4.84% 6.05%
(a) Through its investment in the Portfolio, the Fund has adopted the
provisions of the revised AICPA Audit and Accounting Guide for Investment
Companies effective January 1, 2001 and began amortizing premium and
discount on all debt securities on an effective yield basis. The effect of
this change for the year ended December 31, 2001 was to increase net
investment income per share by $0.001, decrease net realized and unrealized
gains and losses per share by $0.001 and increase the ratio of net
investment income to average net assets by less than 0.01%. Per share data
and ratios/supplemental data for the periods prior to January 1, 2001 have
not been restated to reflect this change in presentation.
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's share of the Standish Mellon Short-Term Asset Reserve
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
STANDISH MELLON SHORT-TERM ASSET RESERVE 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 Short-Term Asset Reserve Fund (the "Fund") is a separate
diversified investment series of the Trust.
The objective of the Fund is to achieve a high level of current income
consistent with preserving principal and liquidity. The Fund seeks to
achieve its objective by investing all of its investable assets in an
interest of the Standish Mellon Short-Term Asset Reserve 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 dollar-denominated money market instruments,
short-term fixed income securities and asset-backed securities of U.S. and
foreign governments, banks and 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 100% at December 31, 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 of the Portfolio 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 the ex-dividend date.
Dividends from net investment income will be declared daily and distributed
monthly. 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 capital loss carryforwards and amortization and/or
accretion of premiums and discounts on certain securities.
Permanent book and tax basis differences 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 and foreign currency
transactions 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 or Portfolio Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated taking
into consideration, among other things, the nature and type of expense and
the relative size of the funds or portfolios.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE 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 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
Standish Mellon Asset Management Company LLC ("Standish Mellon"), a
wholly-owned subsidiary Mellon Financial Corporation, for such services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. Standish Mellon voluntarily agreed to
limit the total operating expenses of the Fund and its pro rata share of
the Portfolio expenses (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.45% of the Fund's average daily net assets for
the year ended December 31,2004. Pursuant to these agreements, for the year
ended December 31, 2004, Standish Mellon voluntarily reimbursed the Fund
for $55,494 of its operating expenses. This agreement is voluntary and
temporary and may be discontinued or revised by Standish Mellon 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 Standish Mellon, 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 paid $6,756 during the period ended
December 31, 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.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 2004, aggregated $63,157,972 and $138,574,542,
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
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
Shares sold 3,186,297 7,856,671
Shares issued to shareholders in payment
of distributions declared 55,316 145,331
Shares redeemed (7,042,292) (8,221,254)
---------- ----------
Net decrease (3,800,679) (219,252)
========== ==========
At December 31, 2004, one shareholder of record held approximately 14% of
the total outstanding shares of the Fund. Investment activity of this
shareholder could have a material impact on the Fund.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 December 31, 2004 and December 31, 2003, the components of
distributable earnings on a tax basis were as follows:
2004
------------
Undistributed ordinary income $ 1,458
Capital loss carry forward (2,356,373)
At December 31, 2004, the Fund, for federal income tax purposes, has
capital loss carryovers of $2,356,373 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
------------ ----------------
$ 381,998 12/31/2005
80,787 12/31/2006
848,377 12/31/2007
816,280 12/31/2008
228,931 12/31/2012
----------
$2,356,373
==========
Tax character of distributions paid during the fiscal year ended December
31, 2004 and December 31, 2003 were as follows:
2004 2003
------------ ------------
Ordinary income $1,475,658 $3,213,940
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON SHORT-TERM ASSET RESERVE FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Short-Term Asset Reserve 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 Standish Mellon Short-Term Asset Reserve Fund (the
"Fund") at December 31, 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
the 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
agreement of the amount of the investment in the Portfolio at December 31,
2004 to the Portfolio's records, provide a reasonable basis for our
opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
EXPECTED
MATURITY PAR VALUE
SECURITY RATE (UNAUDITED) MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--98.2%
ASSET BACKED--25.6%
American Express Master Trust 2002-1 A(a) 2.473% 1/18/2005 12/15/2005 $ 2,735,000 $ 2,735,165
Chase Funding Mortgage Loan Asset Backed 2003-3 2A2(a) 2.688 5/25/2005 4/25/2033 1,327,746 1,331,774
Chase Manhattan Auto Owner Trust 2002-B A3 3.580 1/15/2005 5/15/2006 19,172 19,175
Chase Manhattan Auto Owner Trust 2003-B A4 2.570 7/15/2008 2/16/2010 1,000,000 982,345
Citibank Credit Card Issuance Trust 2004-A1 A1 2.550 1/20/2007 1/20/2009 1,250,000 1,228,729
Discover Card Master Trust I 2000-5 A(a) 2.583 5/16/2005 11/15/2007 725,000 725,491
GE Dealer Floorplan Master Note Trust 2004-1(a) 2.460 7/20/2006 7/20/2008 400,000 400,046
Gracechurch Card Funding PLC 4 (a) 2.453 6/15/2006 6/15/2008 2,000,000 2,001,448
GS Auto Loan Trust 2004-1 A4 2.650 3/15/2008 5/16/2011 315,000 308,916
Honda Auto Receivables Owner Trust 2002-4 A4 2.700 4/15/2007 3/17/2008 600,000 596,553
Lehman Brothers Commercial Mortgage Trust 2004-LLFA A1(a) 2.533 1/16/2007 10/15/2017 399,629 400,112
M & I Auto Loan Trust 2003-1 A4 2.970 12/20/2007 4/20/2009 700,000 692,728
Option One Mortgage Loan Trust 2004-1(a) 2.708 7/25/2018 1/25/2034 266,308 266,433
Option One Mortgage Loan Trust 2004-3 A2 (a) 2.568 5/25/2006 11/25/2034 397,210 397,217
Residential Asset Securities Corp. 1998 KS3 A16(a) 2.918 3/26/2012 10/25/2029 477,304 479,567
SLM Student Loan Trust 2004-9 A2 (a) 2.000 1/25/2011 1/25/2009 1,000,000 999,531
Toyota Auto Receivables Owner Trust 2003-B A3(a) 2.433 6/15/2006 8/15/2007 2,000,000 2,000,456
Wachovia Auto Owner Trust 2004-B A4 3.440 9/20/2008 3/21/2011 400,000 396,070
Washington Mutual 2003-AR4 3.551 8/25/2005 5/25/2033 244,365 244,051
World Financial Network Credit Card 2004-B A 2.503 9/15/2006 7/15/2010 1,000,000 1,000,161
-----------
Total Asset Backed (Cost $17,243,011) 17,205,968
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS--5.9%
Mound Financing PLC 3A A1-1 144A(a) 2.350 2/8/2006 2/8/2008 2,500,000 2,501,050
Permanent Financing PLC 3A(a) 2.585 12/12/2005 6/10/2007 1,490,000 1,491,295
-----------
Total Collateralized Mortgage Obligations (Cost $3,990,000) 3,992,345
-----------
CORPORATE--59.3%
BANKING--13.6%
Citigroup Global Markets Holdings, Inc. 2.578 6/6/2006 2,000,000 2,003,754
HSBC Bank USA 2.590 9/21/2007 1,500,000 1,500,636
National City Bank Of Indiana 2.375 8/15/2006 700,000 689,600
National City Bank of Indiana (a) 2.580 9/16/2005 440,000 440,334
US Bancorp Notes MTN 2.625 3/15/2006 500,000 495,691
Wachovia Corp. 2.503 7/20/2007 1,000,000 999,714
Washington Mutual, Inc.(a) 2.450 11/3/2005 2,000,000 2,003,270
Zions Bancorporation 2.700 5/1/2006 1,000,000 991,457
-----------
9,124,456
-----------
BROKERAGES--14.2%
Bear Stearns Co., Inc. MTN(a) 2.633 9/15/2006 2,000,000 2,001,118
CS First Boston (USA), Inc. Notes MTN(a) 2.790 6/19/2006 2,000,000 2,007,050
JP Morgan Chase & Co. 2.600 12/12/2006 850,000 851,894
Merrill Lynch & Co.(*) 2.460 2/6/2009 1,000,000 999,972
Morgan Stanley 5.800 4/1/2007 935,000 980,229
Morgan Stanley Dean Witter 7.750 6/15/2005 2,000,000 2,043,650
Morgan Stanley Dean Witter Senior Notes(a) 2.610 1/31/2006 620,000 622,500
-----------
9,506,413
-----------
COMMUNICATIONS--3.0%
Verizon Wireless Capital 144A 2.415 5/23/2005 1,000,000 999,733
Viacom, Inc. 5.625 5/1/2007 1,000,000 1,045,501
-----------
2,045,234
-----------
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
EXPECTED
MATURITY PAR VALUE
SECURITY RATE (UNAUDITED) MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER NONCYCLICAL--8.2%
Coca-Cola Enterprises 2.500% 9/15/2006 $ 1,559,000 $ 1,536,649
Diageo Capital PLC 6.125 8/15/2005 2,000,000 2,039,292
General Mills, Inc. 2.625 10/24/2006 2,000,000 1,965,994
-----------
5,541,935
-----------
FINANCIAL--11.1%
CIT Group, Inc.(a) 2.730 6/19/2006 500,000 501,094
CIT Group, Inc. Senior Notes(a) 2.921 9/22/2006 1,550,000 1,556,774
Countrywide Home Loans, Inc 2.450 2/17/2006 700,000 699,817
Credit Agricole Indosuez(a) 2.308 2/28/2005 2,000,000 2,000,000
Genworth Financial, Inc.(*) 2.640 6/15/2007 1,000,000 998,813
John Deere Capital Corp. 2.570 3/16/2006 500,000 500,313
SLM Corp. Notes MTN(a) 2.300 1/13/2006 700,000 701,271
Textron Financial Corp. MTN 2.690 10/3/2006 500,000 492,910
-----------
7,450,992
-----------
HEALTH CARE--1.0%
Unitedhealth Group, Inc. 3.375 8/15/2007 700,000 694,635
-----------
INSURANCE--5.2%
Allstate Corp. Senior Notes 7.875 5/1/2005 1,500,000 1,523,972
Met Life Global Funding I 144A(a) 2.101 10/5/2007 1,000,000 999,588
Nationwide Life Global Fund 144A(a) 2.590 9/28/2007 1,000,000 999,660
-----------
3,523,220
-----------
TECHNOLOGY--1.5%
First Data Corp. 4.700 11/1/2006 1,000,000 1,022,351
-----------
PUBLIC UTILITY--1.5%
Alabama Power Co. 2.571 8/25/2009 1,000,000 999,922
-----------
Total Corporate (Cost $39,989,144) 39,909,158
-----------
YANKEE BONDS--2.2%
HBOS Treasury Services PLC 144A (Cost $1,500,000) 2.140 1/12/2007 1,500,000 1,502,478
-----------
U.S. GOVERNMENT AGENCY--5.2% GOVERNMENT BACKED--3.6%
FNMA 4.500 3/25/2008 5/25/2012 750,000 760,133
FHLMC 5.000 7/15/2007 6/15/2016 650,000 662,290
FHLMC 4.500 12/15/2007 1/15/2019 494,985 499,833
FHLMC 5.000 6/15/2009 1/15/2023 465,000 476,277
-----------
Total Government Backed (Cost $2,409,510) 2,398,533
-----------
PASS THRU SECURITIES--1.6%
FHLMC 2.614 9/15/2007 7/15/2011 628,634 621,484
FHLMC 5.500 9/15/2007 10/15/2018 425,000 435,524
-----------
Total Pass Thru Securities (Cost $1,065,223) 1,057,008
-----------
Total U.S. Government Agency (Cost $3,474,733) 3,455,541
-----------
TOTAL BONDS AND NOTES (COST $66,196,888) 66,065,490
-----------
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--5.0%
COMMERCIAL PAPER--2.1%
Market Street Fund++ 2.230% 1/3/2005 $ 400,000 $ 400,00
Starbird Funding Corp.++ 2.220 1/3/2005 1,000,000 1,000,000
-----------
1,400,000
-----------
U.S. GOVERNMENT--0.3%
FNMA Discount Note++ (b) 2.180 2/9/2005 200,000 199,552
-----------
SHARES
---------
INVESTMENT COMPANIES--0.0%
Dreyfus Institutional Preferred Plus((+)) 25,358 25,358
-----------
INVESTMENT OF CASH COLLATERAL--2.6%
BlackRock Cash Strategies L.L.C.(**) 1,714,212 1,714,212
-----------
TOTAL SHORT TERM INVESTMENTS--(Cost $3,339,122) 3,339,122
-----------
TOTAL INVESTMENTS--103.2% (COST $69,536,010) 69,404,612
LIABILITIES IN EXCESS OF OTHER ASSETS--(3.2%) (2,137,984)
-----------
NET ASSETS--100.0% $67,266,628
===========
NOTES TO SCHEDULE OF INVESTMENTS:
FHLMC-Federal Home Loan Mortgage Corporation
FNMA-Federal National Mortgage Association
MTC-Medium Term Notes
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified buyers.
(a) Variable Rate Security, rate indicated is as of 12/31/04.
(b) Denotes all or part of security is pledged as collateral for futures
transactions.
+ Affiliated institutional money market fund.
++ Rate noted is yield to maturity
* Security, or a portion thereof, was on loan at December 31, 2004.
** Money market fund exempt from registration under the Investment Company
Acts of 1940 offered only to eligible investors.
At December 31, 2004 the Portfolio held the following futures contracts:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE GAIN/(LOSS)
- ------------------------------------------------------------------------------------------------------------------------------
EURO Future (23 Contracts) Long 3/14/2005 $ 5,572,700 $ 10,149
EURO Future (23 Contracts) Long 6/13/2005 5,595,338 (28,014)
EURO Future (23 Contracts) Long 9/19/2005 5,587,038 (32,077)
EURO Future (23 Contracts) Long 12/19/2005 5,549,038 (3,855)
--------
$(53,797)
========
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $1,679,767
(Note 6))
Unaffiliated issuers, at value (Note 1A) (cost $69,510,652) $69,379,254
Affiliated issuers, at value (Note 1A) (cost $25,358) (Note 1F) 25,358
Interest and dividends receivable 277,911
Variation margin receivable 6,038
Prepaid expenses 2,086
-----------
Total assets 69,690,647
LIABILITIES
Collateral for securities on loan (Note 6) $ 1,714,212
Payable for securities purchased 665,505
Accrued accounting, administration and custody fees (Note 2) 14,071
Accrued advisory fees 923
Accrued trustees' fees and expenses (Note 2) 5,721
Accrued expenses and other liabilities 23,587
-----------
Total liabilities 2,424,019
-----------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $67,266,628
===========
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (including securities lending income of $1,351 (Note 6)) $1,711,952
Income from affiliated investment (Note 1F) 2,427
----------
Total investment income 1,714,379
EXPENSES
Investment advisory fee (Note 2) $ 243,135
Accounting, administration and custody fees (Note 2) 89,505
Legal and audit services 27,688
Trustees' fees and expenses (Note 2) 25,539
Insurance expense 12,257
Miscellaneous 2,210
----------
Total expenses 400,334
----------
Net investment income 1,314,045
==========
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment security transactions 68,181
Futures transactions (132,115)
----------
Net realized gain (loss) (63,934) Change in unrealized appreciation
(depreciation) on:
Investment securities (325,503)
Futures contracts (97,898)
----------
Change in net unrealized appreciation (depreciation) (423,401)
----------
Net realized and unrealized loss (487,335)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 826,710
==========
The accompanying notes are an integral part of the financial statements.
18
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 1,314,045 $ 2,845,203
Net realized gain (loss) (63,934) 509,270
Change in net unrealized appreciation (depreciation) (423,401) (754,526)
------------ ------------
Net increase in net assets from investment operations 826,710 2,599,947
------------ ------------
CAPITAL TRANSACTIONS
Contributions 63,157,972 153,343,305
Withdrawals (138,574,542) (160,857,552)
------------ ------------
Net decrease in net assets from capital transactions (75,416,570) (7,514,247)
------------ ------------
TOTAL DECREASE IN NET ASSETS (74,589,860) (4,914,300)
NET ASSETS
At beginning of year 141,856,488 146,770,788
------------ ------------
At end of year $ 67,266,628 $141,856,488
============ ============
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003 2002 2001(A) 2000
-------- -------- --------- -------- --------
TOTAL RETURN((+)) 0.79% 1.48% 3.14% 6.15% 6.96%
RATIOS:
Expenses (to average daily net assets)(*) 0.41% 0.36% 0.36% 0.35% 0.34%
Net Investment Income (to average daily net assets)(*) 1.36% 1.60% 2.99% 4.89% 6.07%
Portfolio Turnover 39% 113% 160% 174% 70%
Net Assets, End of Year (000's omitted) $67,267 $141,856 $146,771 $134,055 $180,548
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Ratios (to average daily net assets):
Expenses N/A 0.37% 0.38% N/A N/A
Net investment income N/A 1.59% 2.97% N/A N/A
(
(a) The Portfolio has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
increase the ratio of the net investment income to average net assets by less
than 0.01%. Ratios for the periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(+) Total return for the Portfolio has been calculated based on the total return
for the invested 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.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE 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. Standish
Mellon Short-Term Asset Reserve Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
At December 31, 2004 there was one fund, Standish Mellon Short-Term Asset
Reserve 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 December 31, 2004 was approximately 100%.
The objective of the Portfolio is to achieve a high level of current income
consistent with preserving principal and liquidity. The Portfolio seeks to
achieve its objective by investing, under normal circumstances, at least
80% of net assets in dollar-denominated money market instruments,
short-term fixed income securities and asset-backed securities of U.S. and
foreign governments, banks and companies.
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 in the
principal market in which such securities are normally traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 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 and short-term securities with greater than sixty
days to maturity. 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. EXPENSES
The majority of expenses of the Trust or Portfolio Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated taking
into consideration, among other things, the nature and type of expense and
the relative size of the funds or portfolios.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
F. AFFILIATED ISSUERS
Affiliated issuers represent investments held in the Portfolio in other
investment companies advised by Standish Mellon Asset Management Company
LLC ("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services is paid monthly at the annual rate of
0.25% of the Portfolio's average daily net assets.
The Portfolio compensates Mellon Bank, N.A. under a custody, administration
and accounting services agreement for providing custody, fund
administration and fund accounting services for the Portfolio. Pursuant to
this agreement the Portfolio paid $77,893 during the year ended December
31, 2004.
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.For further details see Note 6.
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.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
---------- ----------
U.S. Government Securities $10,285,317 $16,873,386
========== ==========
Investments (non-U.S.
Government Securities) $24,208,797 $68,625,142
========== ==========
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $69,536,010
==========
Gross unrealized appreciation 53,794
Gross unrealized depreciation (185,192)
----------
Net unrealized depreciation $ (131,398)
==========
(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.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 any option transactions during the year
ended December 31, 2004.
INTEREST RATE FLOORS
Interest rate floors purchased by the Portfolio entitle the Portfolio to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined
interest rate amount. Credit and market risk exist with respect to these
instruments. If forecasts of interest rates and other market factors are
incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were not used.
Even if the forecasts are correct, there are risks that the positions may
correlate imperfectly with the asset or liability being hedged, a liquid
secondary market may not always exist, or a counterparty to a transaction
may not perform. The Portfolio expects to enter these transactions
primarily for hedging purposes including, but not limited to, preserving a
return or spread on a particular investment or portion of its portfolio,
protecting against interest rate fluctuations, as a duration management
technique or protecting against an increase in the price of securities the
Portfolio anticipates purchasing at a later date. Interest rate floors are
"marked-to-market" daily based on quotations from market makers and the
change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. Periodic payments of interest, if any, are
reported as additions to interest income in the Statement of Operations.
Realized gains or losses from these agreements are disclosed in the
Statement of Operations.
The Portfolio did not enter into any open interest rate floor agreements
during the year ended December 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.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held financial futures contracts. At
December 31, 2004, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts. See
Schedule of Investments for further detail.
(6) SECURITY LENDING:
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 December 31, 2004
resulting in $1,351 of security lending income. At December 31, 2004, the
Portfolio had securities valued at $1,679,767 on loan. See the Statement of
Investments for further detail on the security positions on loan and
collateral held.
(7) DELAYED DELIVERY TRANSACTIONS:
The Portfolio may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Portfolio
instructs its custodian to segregate securities having value at least equal
to the amount of the purchase commitment.
The Portfolio may enter into to be announced ("TBA") purchase commitments
to purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Portfolio holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the Portfolio may enter into offsetting contracts for the forward
sale of other securities it owns. Income on the securities will not be
earned until settlement date. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Unsettled
TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Investment security valuations" above.
The Portfolio may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Portfolio as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into.
At December 31, 2004, the Portfolio did not have any delayed delivery
transactions.
(8) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in 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 daily unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended December 31, 2004, a facility fee of $1,515 was allocated to the
Portfolio.
During the year ended December 31, 2004, the Portfolio had average
borrowings outstanding of $219,500 on a total of six days and incurred $90
of interest expense.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON SHORT-TERM ASSET RESERVE PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and
Investors of the Standish Mellon Short-Term Asset Reserve 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
Standish Mellon Short-Term Asset Reserve Portfolio (the "Portfolio") at
December 31, 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 December 31, 2004
by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
25
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive Portfolio: $3,792
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None Fund: $500
c/o Essex Street Associates 11/3/1986 Associates (family Portfolio: $4,111
P.O. Box 181 investment trust office) Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None Fund: $500
c/o Harvard University 9/13/1986 Professor of Political Portfolio: $3,792
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $3,792
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer, Portfolio: $0
Asset Management Executive 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
26
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
27
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THIS PAGE INTENTIONALLY LEFT BLANK
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0926AR1204
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report STANDISH MELLON
FIXED INCOME FUND
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its' 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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
One Boston Place * Boston, MA 02108-4402
A MELLON ASSET MANAGEMENT COMPANY
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Economic activity maintained a healthy pace in 2004. The Standish Mellon Fixed
Income Fund returned 5.74% for the year 2004 while the Lehman Brothers Aggregate
Index returned 4.34% for the same period.
The employment picture improved with monthly job gains averaging approximately
185,000. Investment spending and capacity utilization picked up and despite
higher interest rates, the housing market and consumer spending kept pace. Amid
rising oil prices and a weaker dollar, the Federal Reserve maintained a tame
inflation outlook. Bond market volatility was low as the Fed hiked interest
rates in a predictable and steady fashion from 1% to 2.25% by the end of the
year. The unusual aspect of this tightening cycle has been the decline in 10-
and 30-year yields as short rates have risen. So while the yield curve has
flattened similarly to previous cycles, long-term interest rates have moved to
lower levels than expected. To a large degree, the massive foreign purchases of
U.S. Treasuries have kept long-term interest rates lower than anticipated during
a period of tighter monetary policy.
Over the past year, broad sectors outperformed Treasuries with particularly
strong excess returns from high yield corporate bonds. Spread sectors,
especially mortgages, benefited from declining interest rate volatility.
Investment grade and lower quality corporate bonds fared well amid steady
economic activity. International bonds outperformed as Europe's lagging economic
growth resulted in lower European yields relative to the U.S. Over the course of
the year, the primary sources of outperformance were the overweight positions in
corporate and non-U.S. bonds, as well as the defensive yield curve strategy. As
the yield curve flattened, the Fund's underweight position in intermediate bonds
(bullet strategy) relative to cash and longer maturities (barbell strategy)
benefited returns. Portfolio positioning also capitalized on the lower
volatility environment with an increased allocation to mortgages. Toward
year-end, we took some profits in the non-dollar position. Similarly, with much
narrower corporate bond spreads, we selectively reduced the Fund's credit
exposure in both the high yield and investment grade corporate sectors.
The prospects for economic growth in 2005 are good. We expect reasonably strong
economic data will support continued rate hikes by the Fed. Under tighter
monetary conditions, we anticipate upward pressure on interest rates and a
flatter yield curve. With today's low volatility environment and narrow yield
spreads, many sectors appear overvalued. Given the vulnerability to a correction
in spread sectors, we have positioned the Fund defensively, particularly with a
reduced corporate bond position. We have increased our allocation to Treasury
inflation-protected securities (TIPS) as seasonal inflation patterns and
breakeven inflation rates in the area of 2.5% make TIPS attractive relative to
nominal Treasuries. With weaker European growth prospects, we anticipate rising
U.S. rates relative to Europe which will benefit the remaining international
position. Ultimately, if as we expect, the Fed maintains their tightening
stance, the Fund's shorter than benchmark duration and barbell curve position
will continue to contribute positively to performance.
As always, we look forward to serving you in the coming year.
/s/ Catherine Powers /s/ Marc Seidner
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN
STANDISH MELLON FIXED INCOME FUND AND THE LEHMAN AGGREGATE INDEX
- --------------------------------------------------------------------------------
[LINE CHART]
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 10 Year 03/30/1987
- -----------------------------------------------------------------------------------------------------------------------
5.74% 6.63% 7.44% 7.44% 7.83%
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 FIXED INCOME 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 JUNE 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 SEPTEMBER 30, 2004
- ---------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,051.40 $2.48
Hypothetical (5% return
per year before expenses) $1,000.00 $1,022.72 $2.44
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.48%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY
184/366 (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
STANDISH MELLON FIXED INCOME FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
PERCENTAGE OF
SUMMARY OF COMBINED RATINGS INVESTMENTS
----------------------------------------------
QUALITY BREAKDOWN
----------------------------------------------
Treasury/Agency 49.5
AAA 7.8
AA 3.0
A 11.0
BBB 22.4
BB 5.7
B 0.6
-----
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
----------------------------------------------------------------------------------------------------------
FNMA 5.500% 1/1/2035 8.4%
FNMA 6.000 1/1/2035 7.6
FNMA 5.500 1/1/2020 4.6
U.S. Treasury Note 4.250 8/15/2013 4.3
FNMA 6.000 1/1/2020 4.3
U.S. Treasury Note 6.250 5/15/2030 3.9
U.S. Treasury Inflation Index Bond 3.000 7/15/2012 2.2
FNMA 5.000 1/1/2020 1.7
FNMA 5.500 2/1/2020 1.3
Capital One Multi-Asset Execution Trust 2002-B1 B1 MBS 3.083 7/15/2008 1.3
------
39.6%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
----------------------------------------------
Treasury/Agency 16.6
Mortgage pass through 32.9
Credit 36.9
ABS/CMO/CMBS 7.4
Nondollar 3.0
Emerging markets 3.2
-----
100.0
The Portfolio is actively managed. Current holdings may be different
than those presented above.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investment in Standish Mellon Fixed Income Portfolio (Portfolio), at value (Note 1A) $465,542,782
Receivable for Fund shares sold 143,901
Prepaid expenses 18,799
------------
Total assets 465,705,482
LIABILITIES
Payable for Fund shares redeemed $ 11,546
Distribution payable 2,333,714
Accrued transfer agent fees (Note 2) 11,989
Accrued professional fees 24,740
Accrued trustees' fees (Note 2) 499
Accrued expenses 16,342
------------
Total liabilities 2,398,830
------------
NET ASSETS $463,306,652
------------
NET ASSETS CONSIST OF:
Paid-in capital $639,278,455
Accumulated net realized loss (185,183,868)
Net investment income 1,584,919
Net unrealized appreciation 7,627,146
------------
TOTAL NET ASSETS $463,306,652
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 23,076,603
============
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 20.08
============
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income allocated from Portfolio $ 21,875,662
Dividend income allocated from Portfolio 151,965
Expenses allocated from Portfolio (2,305,986)
------------
Net investment income allocated from Portfolio 19,721,641
EXPENSES
Transfer agent fees (Note 2) $ 34,739
Registration fees 27,005
Professional fees 90,037
Trustees' fees and expenses (Note 2) 1,999
Shareholder reports 16,169
Industry association fees 12,571
Insurance expense 2,375
Miscellaneous 4,720
------------
Total expenses 189,615
------------
Net investment income 19,532,026
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investments, futures, options, swaps and foreign currency transactions 20,499,067
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments, futures, options, swaps and foreign currencies (13,157,811)
-----------
Net realized and unrealized gain (loss) on investments 7,341,256
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $26,873,282
===========
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
----------------- -----------------
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 19,532,026 $ 29,885,520
Net realized gains 20,499,067 15,573,883
Change in net unrealized appreciation (13,157,811) (4,658,158)
------------- -------------
Net increase in net assets from investment operations 26,873,282 40,801,245
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (27,209,831) (25,303,177)
------------- -------------
Total distributions to shareholders (27,209,831) (25,303,177)
------------- -------------
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 46,761,132 24,407,420
Value of shares issued to shareholders
in reinvestment of distributions 18,592,134 18,529,816
Cost of shares redeemed (197,499,402) (403,886,019)
------------- -------------
Net decrease in net assets from Fund share transactions (132,146,136) (360,948,783)
------------- -------------
TOTAL DECREASE IN NET ASSETS (132,482,685) (345,450,715)
NET ASSETS
At beginning of year 595,789,337 941,240,052
------------- -------------
At end of year (including undistributed net
investment income of $1,584,919 and $2,677,342) $ 463,306,652 $ 595,789,337
============= =============
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------
2004 2003 2002 2001 2000
-------- -------- -------- ---------- ----------
NET ASSET VALUE, BEGINNING OF YEAR $ 20.08 $ 19.70 $ 18.93 $ 18.92 $ 18.55
-------- -------- -------- ---------- ----------
FROM INVESTMENT OPERATIONS:
Net investment income(* (1)) 0.77 0.75 0.93 1.22 1.35
Net realized and unrealized gains (loss) on investments 0.36 0.28 0.71 0.10 0.47
-------- -------- -------- ---------- ----------
Total from investment operations 1.13 1.03 1.64 1.32 1.82
-------- -------- -------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.13) (0.65) (0.87) (1.31) (1.45)
From net realized gains on investments -- -- -- -- --
-------- -------- -------- ---------- ----------
Total distributions to shareholders (1.13) (0.65) (0.87) (1.31) (1.45)
-------- -------- -------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 20.08 $ 20.08 $ 19.70 $ 18.93 $ 18.92
======== ======== ======== ========== ==========
TOTAL RETURN ((+)) 5.74% 5.24% 8.89% 7.16% 10.21%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*(2)) 0.48% 0.42% 0.38% 0.38% 0.37%
Net Investment Income (to average daily net assets)(*) 3.77% 3.76% 4.86% 6.35% 7.23%
Net Assets, End of Year (000's omitted) $463,307 $595,789 $941,240 $1,475,570 $2,220,981
- -------
* For the periods indicated, the investment advisor voluntarily agreed not to
impose a portion of its its investment advisory fee in the Portfolio 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 $ 0.73 $ 0.93 N/A N/A
Ratios (to average daily net assets):
Expenses(2) N/A 0.45% 0.42% N/A N/A
Net investment income N/A 3.73% 4.82% N/A N/A
(a) The Fund has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
decrease net investment income per share by $0.004, increase net realized and
unrealized gains and losses per share by $0.004 and decrease the ratio of net
investment income to average net assets from 6.37% to 6.35%. Per share data and
ratios/supplemental data for the periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(1) Calculated based on average shares outstanding. (2) Includes the Fund's
share of the 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
STANDISH MELLON FIXED INCOME 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 Fixed Income Fund (the "Fund") is a separate diversified
investment series of the Trust.
The objective of the Fund is to achieve a high level of current income,
consistent with conserving principal and liquidity, and secondarily to seek
capital appreciation when changes in interest rates and economic conditions
indicate that capital appreciation may be available without significant
risk to principal. The Fund seeks to achieve its objective by investing all
of its investable assets in an interest of the Standish Mellon Fixed Income
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 fixed income securities issued
by U.S. and foreign governments and 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 100% at December 31, 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 in the Portfolio 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 the ex-dividend date.
Dividends from net investment income will be declared daily and distributed
monthly. 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 capital loss carryforwards and amortization and/or
accretion of premiums and discounts on certain securities.
Permanent book and tax basis differences 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 and foreign currency
transactions 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 or Portfolio Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated taking
into consideration, among other things, the nature and type of expense and
the relative size of the funds or Portfolios.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME 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 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
Standish Mellon Asset Management Company LLC ("Standish Mellon"), 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 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 Standish Mellon, 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 paid $19,762 during the period ended
December 31, 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.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 2004, aggregated $65,727,299 and $238,255,854,
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
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
Shares sold 2,338,169 1,222,331
Shares issued to shareholders in
payment of distributions declared 927,191 928,677
Shares redeemed (9,861,429) (20,268,022)
---------- -----------
Net decrease (6,596,069) (18,117,014)
========== ===========
(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 December 31, 2004, the components of distributable earnings on a tax
basis were as follows:
AMOUNT
------------
Undistributed ordinary income $ 1,368,942
Accumulated losses 185,181,079
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 2004, the Fund, for federal income tax purposes, has
capital loss carryovers of $185,181,079 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
------------ ----------------
$ 30,546,743 12/31/2007
118,614,149 12/31/2008
36,020,187 12/31/2009
------------
$185,181,079
============
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003 were as follows:
2004 2003
---------- ----------
Ordinary income $27,209,831 $25,303,177
See corresponding master portfolio for tax basis unrealized
appreciation/(depreciation) information.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON FIXED INCOME FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Fixed Income 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 Standish Mellon Fixed Income Fund (the "Fund") at
December 31, 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 agreement of the amount of the invesment in the Portfolio at
December 31, 2004, to the Portfolio's records, provide a reasonable basis
for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
13
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--116.7%
ASSET BACKED--20.1%
Advanta Mortgage Loan Trust 1999-3 A4 7.750% 10/25/2026 $ 428,539 $ 441,311
American Express Credit Account Master Trust 2000-2 B (a) 2.753 9/17/2007 1,250,000 1,250,224
American Express Credit Account Master Trust 2004-C 144 A(a) 2.903 2/15/2012 4,500,000 4,506,593
American Express Master Trust 2002-1 A(a) 2.473 12/15/2005 4,400,000 4,400,265
Capital Auto Receivables Asset Trust 2004-2 D 5.820 5/15/2012 1,950,000 1,950,000
Capital One Master Trust 2001-2 C (a) 3.503 1/15/2009 2,000,000 2,009,560
Capital One Multi-Asset Execution Trust 2002-B1 B1 (a) 3.083 7/15/2008 5,840,000 5,855,734
Capital One Multi-Asset Execution Trust 2003-B2 B2 3.500 2/17/2009 725,000 725,356
Capital One Multi-Asset Execution Trust 2004-C1 C1 3.400 11/16/2009 2,950,000 2,927,893
Chase Credit Card Master Trust 2000-3 A (a) 2.533 1/15/2008 2,480,000 2,482,290
Chase Credit Card Master Trust 2004-2 C (a) 2.953 9/15/2009 1,000,000 1,005,799
Chase Credit Card Master Trust 2002-6 B (a) 2.753 1/15/2008 2,245,000 2,248,218
Chase Credit card Master Trust 2002-8 A (a) 2.463 3/17/2008 1,900,000 1,900,999
Chase Funding Loan Acquisition Trust 2003-A A3 (a) 2.598 9/25/2013 466,279 466,364
Chase Funding Mortgage Loan Asset-Backed 2001-1 2A1(a) 2.658 12/25/2030 1,445,179 1,445,788
Chase Manhattan Auto Owner Trust 2003-A A3 1.520 5/15/2007 1,060,646 1,052,859
Chec Loan Trust 2004-2 A1 (a) 2.588 10/25/2034 1,591,076 1,591,105
Chase Credit Card Master Trust 2002-2 C (a) 3.303 7/16/2007 2,985,000 2,990,198
Citibank Credit Card Issuance Trust 2000-C1 C1 7.450 9/15/2007 3,250,000 3,347,759
Citibank Credit Card Issuance Trust 2001-C3 C3 6.650 5/15/2008 1,420,000 1,477,426
Citibank Credit Card issuance Trust 2002-A2 A2 (a) 2.320 2/15/2007 4,545,000 4,543,796
Countrywide Asset-Backed Certificates 2004-10 2AV1 (a) 2.578 9/15/2014 1,097,609 1,097,721
Countrywide Asset-backed Certificates 2004-14 A1 (a) 2.560 12/25/2022 2,300,000 2,300,000
CS First Boston Mortgage Securities Corp. 2002-HE4 6.940 8/25/2032 650,000 668,897
First USA Credit Card Master Trust 1998-4 (a) 2.910 3/18/2008 1,875,000 1,876,138
Harley-Davidson Motorcycle Trust 2001-3 B 3.720 10/15/2009 1,332,550 1,335,593
Honda Auto Receivables Owner Trust 2004-1 A3 2.400 2/21/2008 1,383,000 1,367,544
Household Credit Card Master Note Trust I 2001 Cl A (a) 2.543 8/15/2008 3,250,000 3,253,986
John Deere Owner Trust 2004-A A1 1.140 5/13/2005 1,110,929 1,109,986
MBNA Master Credit Card Trust 2000-A C 7.900 7/16/2007 2,145,000 2,156,730
MBNA Master Credit Card Trust 2000-C C (a) 3.203 7/15/2007 4,400,000 4,399,313
MBNA Credit Card Master Note Trust 2001-C3 C3 6.550 12/15/2008 1,595,000 1,664,281
MMCA Automobile Trust 2002-1 Cl B 5.370 1/15/2010 315,866 319,128
Morgan Stanley Auto Loan Trust 1.330 5/15/2006 126,419 126,308
Option One Mortgage Loan Trust 2004-3 A2 (a) 2.568 11/25/2034 2,736,336 2,736,387
Residential Asset Mortgage Products, Inc. 2004-RS12 AII1 (a) 2.547 5/25/2027 2,700,000 2,700,000
Residential Asset Securities Corp. 2004-KS10 AI1 (a) 2.588 3/25/2025 1,325,995 1,326,137
Residential Asset Securities Corp. 2003-KS11 AI1 (a) 2.588 9/25/2021 955,746 955,888
Specialty Underwriting & Residential Finance 2004-BC4 A2A (a) 2.570 10/25/2035 2,860,000 2,860,000
USAA Auto Owner Trust 2004-3 A1 2.337 11/15/2005 2,002,075 2,001,361
Vanderbilt Mortgage Finance 1999-A 1A6 6.750 3/7/2029 1,110,000 1,170,677
WFS Financial Owner Trust 2004-1 D 3.170 8/22/2011 1,730,422 1,715,172
WFS Financial Owner Trust 2004-4 C 3.210 5/17/2012 2,025,000 2,015,849
WFS Financial Owner Trust 2004-4 Cl A2 2.500 12/17/2007 1,335,000 1,328,775
Whole Auto Loan Trust 2004-1 A1 2.150 10/15/2005 3,472,978 3,469,738
Whole Loan Auto Trust 2003-1 A2 1.400 4/15/2006 730,470 728,643
------------
Total Asset Backed (Cost $93,701,925) 93,303,789
------------
COLLATERALIZED MORTGAGE OBLIGATIONS--4.5%
GNMA 2004-51 A 4.145 2/16/2018 2,055,517 2,068,936
GNMA 2004-57 A 3.022 1/16/2019 990,250 971,472
GNMA 2004-12 A 3.110 1/16/2019 1,228,394 1,201,701
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
GNMA 2004-25 AC 3.377% 1/16/2023 $ 885,000 $ 870,335
GNMA 2004-43 A 2.822 12/16/2019 1,389,459 1,354,351
GNMA 2004-67 A 3.648 9/16/2017 1,080,990 1,076,320
GNMA 2003-48 AC 2.712 2/16/2020 2,690,669 2,630,118
GNMA 2003-72 A 3.206 4/16/2018 2,350,390 2,323,157
GNMA 2004-97 AB 3.084 1/16/2022 1,994,150 1,946,230
GNMA 2004-77 A 3.402 3/16/2020 866,205 854,653
GNMA 2003-88 AC 2.914 6/16/2018 1,707,918 1,672,205
GNMA 2003-96 B 3.607 8/16/2018 615,000 610,615
Structured Asset Mortgage Investments, Inc. 1998-2 B 6.750 4/30/2030 115,514 115,145
Washington Mutual 2003-AR10 (a) 4.086 10/25/2033 1,800,000 1,785,046
Washington Mutual 2004-AR9 A7 (a) 4.240 8/25/2034 1,250,000 1,250,985
------------
Total Collateralized Mortgage Obligations (Cost $20,867,163) 20,731,269
------------
CORPORATE--30.0%
BANKING--5.3%
Amsouth Bank NA 4.850 4/1/2013 1,100,000 1,098,812
Bank of America Corp. 7.400 1/15/2011 2,100,000 2,432,594
BB&T Corp. 4.750 10/1/2012 1,000,000 1,005,074
Chevy Chase Bank FSB 6.875 12/1/2013 1,370,000 1,414,525
Citigroup, Inc. 5.625 8/27/2012 1,305,000 1,389,747
City National Corp. 5.125 2/15/2013 940,000 949,414
JP Morgan Chase & Co 5.125 9/15/2014 1,600,000 1,610,496
National City Bank 6.200 12/15/2011 1,300,000 1,429,156
National City Corp. 6.875 5/15/2019 675,000 771,372
Provident Cap Trust I 8.600 12/1/2026 590,000 650,792
Rabobank Capital Funding Trust III 144A 5.254 10/15/2049 1,450,000 1,442,119
Regions Financial Corp. 6.375 5/15/2012 1,000,000 1,102,459
Southtrust Corp. 5.800 6/15/2014 330,000 349,457
Union Planters Corp. 4.375 12/1/2010 525,000 524,058
Union Planters Corp. 7.750 3/1/2011 1,965,000 2,300,964
US Bank National Association 6.375 8/1/2011 890,000 988,392
Wachovia Corp. 4.875 2/15/2014 650,000 647,841
Washington Mutual, Inc. 4.625 4/1/2014 2,175,000 2,079,415
Wells Fargo & Co. 6.375 8/1/2011 850,000 941,075
Wells Fargo & Co. 5.000 11/15/2014 480,000 485,472
Zions Bancorporation 6.000 9/15/2015 1,145,000 1,220,575
------------
24,833,809
------------
BASIC MATERIALS--2.1%
Cabot Corp. 144A 5.250 9/1/2013 900,000 900,967
Georgia-Pacific Corp. 8.000 1/15/2024 980,000 1,136,800
ICI Wilmington, Inc. 4.375 12/1/2008 335,000 336,891
International Flavors & Fragrances, Inc. 6.450 5/15/2006 950,000 987,874
International Paper Co.(*) 5.300 4/1/2015 1,150,000 1,163,494
International Steel Group(*) 6.500 4/15/2014 1,045,000 1,120,763
Lubrizol Corp. 4.625 10/1/2009 930,000 928,565
Lubrizol Corp.(*) 6.500 10/1/2034 1,400,000 1,425,840
Meadwestvaco Corp. 6.800 11/15/2032 545,000 595,757
RPM International 6.250 12/15/2013 1,145,000 1,191,029
------------
9,787,980
------------
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMUNICATIONS--3.1%
AT&T Wireless Services, Inc. 8.750% 3/1/2031 $ 430,000 $ 579,775
Clear Channel Communication 4.250 5/15/2009 1,030,000 1,019,576
Comcast Corp.(*) 5.500 3/15/2011 325,000 343,510
L-3 Communications Corp. 7.625 6/15/2012 1,450,000 1,591,375
News America Holdings(*) 9.250 2/1/2013 536,000 690,754
News America Inc 144A(*) 5.300 12/15/2014 295,000 298,481
SBC Communications(*) 5.625 6/15/2016 710,000 733,466
Sprint Capital Corp. 8.750 3/15/2032 1,720,000 2,291,571
TCI Communications, Inc. 7.875 2/15/2026 825,000 1,013,121
Time Warner, Inc. 6.750 4/15/2011 1,925,000 2,165,354
Univision Communications, Inc. 7.850 7/15/2011 917,000 1,081,925
Verizon Global Funding Corp.(*) 4.375 6/1/2013 2,050,000 1,997,567
Verizon Global Funding Corp.(*) 7.750 6/15/2032 575,000 717,419
------------
14,523,894
------------
CONSUMER CYCLICAL--1.3%
Caesars Entertainment, Inc. 8.500 11/15/2006 520,000 562,900
Caesars Entertainment, Inc. 8.875 9/15/2008 900,000 1,019,250
DaimlerChrysler NA Holding Corp. 8.500 1/18/2031 325,000 406,072
DR Horton, Inc.(*) 8.500 4/15/2012 170,000 189,550
Heinz (H.J.) Co. 6.189 12/1/2005 1,105,000 1,132,122
MGM Mirage, Inc. 6.950 2/1/2005 720,000 721,800
MGM Mirage, Inc. 6.000 10/1/2009 410,000 420,250
Mohegan Tribal Gaming Authority 8.000 4/1/2012 840,000 911,400
Station Casinos 6.000 4/1/2012 850,000 865,938
------------
6,229,282
------------
CONSUMER NONCYCLICAL--2.9%
Altria Group, Inc. 7.000 11/4/2013 900,000 975,194
Aramark Services, Inc. 7.000 7/15/2006 2,290,000 2,398,241
Aramark Services, Inc. 7.000 5/1/2007 1,225,000 1,306,959
Erac USA Finance Co. 144A 7.950 12/15/2009 1,000,000 1,161,184
Kroger Co. 7.250 6/1/2009 600,000 672,063
Kroger Co. 8.000 9/15/2029 955,000 1,189,149
Laboratory Corp. of America Holdings 5.500 2/1/2013 895,000 927,989
RR Donnelley & Sons Co. 4.950 4/1/2014 1,710,000 1,716,163
Safeway, Inc. 6.150 3/1/2006 1,470,000 1,516,249
Stater Brothers Holding(*) 8.125 6/15/2012 865,000 914,738
Wyeth 5.500 3/15/2013 555,000 576,824
------------
13,354,753
------------
ENERGY--1.3%
Amerada Hess Corp. 7.300 8/15/2031 1,190,000 1,327,565
Halliburton Co.(*) 5.500 10/15/2010 705,000 742,561
Southern Natural Gas Co. 6.700 10/1/2007 1,910,000 2,003,113
Tosco Corp. 7.250 1/1/2007 615,000 656,065
XTO Energy, Inc.(*) 7.500 4/15/2012 1,220,000 1,427,651
------------
6,156,955
------------
FINANCIAL--8.1%
Archstone-Smith Operating Trust 5.000 8/15/2007 850,000 873,673
Archstone-Smith Operating Trust 5.625 8/15/2014 225,000 233,755
Arden Realty LP REIT 5.200 9/1/2011 780,000 786,923
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
ASIF Global Financing 144A 3.850% 11/26/2007 $ 870,000 $ 873,323
Bear Stearns Cos., Inc.(*) 4.500 10/28/2010 905,000 912,753
Boeing Capital Corp. 4.750 8/25/2008 350,000 361,986
Boeing Capital Corp. 7.375 9/27/2010 780,000 899,280
Boston Properties LP 5.625 4/15/2015 675,000 695,770
Countrywide Home Loans, Inc. 4.000 3/22/2011 2,379,000 2,313,007
Deluxe Corp. 144A 3.500 10/1/2007 485,000 478,754
Duke Really LP 5.875 8/15/2012 1,150,000 1,213,989
Duke Realty LP 7.750 11/15/2009 915,000 1,047,365
Duke Realty LP 6.950 3/15/2011 25,000 27,929
EOP Operating LP 7.000 7/15/2011 1,100,000 1,240,517
ERP Operating LP 6.625 3/15/2012 450,000 501,937
Ford Motor Credit Co. 7.200 6/15/2007 2,290,000 2,442,617
Ford Motor Credit Co.(*) 5.625 10/1/2008 1,900,000 1,942,117
General Electric Capital Corp. 6.125 2/22/2011 800,000 876,312
General Motors Acceptance Corp.(*) 6.750 12/1/2014 1,300,000 1,301,777
Glencore Funding LLC 144A 6.000 4/15/2014 1,320,000 1,277,071
Goldman Sachs Group, Inc.(*) 3.875 1/15/2009 650,000 648,528
Goldman Sachs Group, Inc. 5.700 9/1/2012 750,000 795,014
Healthcare Realty Trust, Inc. 8.125 5/1/2011 540,000 629,058
Household Finance Corp. 6.375 10/15/2011 1,848,000 2,040,924
Jefferies Group, Inc. 7.750 3/15/2012 1,920,000 2,178,509
Leucadia National Corp. 7.000 8/15/2013 1,160,000 1,194,800
MassMutual Global Funding II 144A 3.800 4/15/2009 650,000 644,152
Morgan Stanley 4.750 4/1/2014 1,350,000 1,315,451
Nationwide Mutual Insurance Co. 144A 8.250 12/1/2031 1,000,000 1,235,879
Nationwide Mutual Insurance Co. 144A 6.600 4/15/2034 485,000 485,562
Principal Life Income Funding Trusts (a) 2.080 10/14/2005 1,935,000 1,934,774
Prudential Financial, Inc. 5.100 9/20/2014 925,000 929,433
Simon Property Group LP 144A 4.875 8/15/2010 795,000 810,328
SLM Corp. 5.000 10/1/2013 2,600,000 2,632,854
------------
37,776,121
------------
INDUSTRIAL--1.4%
American Standard, Inc.(*) 7.375 2/1/2008 500,000 548,413
ICI Wilmington 5.625 12/1/2013 1,365,000 1,413,720
Northrop Grumman Corp. 7.125 2/15/2011 545,000 625,449
Raytheon Co. 6.750 8/15/2007 248,000 267,172
Raytheon Co. 5.500 11/15/2012 380,000 401,204
Sealed Air Corp. 144A 5.625 7/15/2013 570,000 589,675
Waste Management, Inc. 6.875 5/15/2009 1,220,000 1,351,732
Waste Management, Inc. 7.375 8/1/2010 275,000 315,220
Waste Management, Inc.(*) 7.000 7/15/2028 900,000 1,015,107
Waste Management, Inc. 7.375 5/15/2029 35,000 41,117
------------
6,568,809
------------
SERVICES--0.3%
CVS Corp.(*) 4.000 9/15/2009 360,000 358,308
May Dept Stores 6.650 7/15/2024 1,145,000 1,204,801
------------
1,563,109
------------
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSPORTATION--0.8%
CSX Corp. 6.250% 10/15/2008 $ 865,000 $ 932,623
Fedex Corp. 2.650 4/1/2007 1,090,000 1,067,575
Norfolk Southern Corp.(*) 6.750 2/15/2011 325,000 366,267
Union Pacific Corp. 3.875 2/15/2009 1,400,000 1,389,919
------------
3,756,384
------------
TECHNOLOGY--0.1%
Freescale Semiconductor, Inc. 6.875 7/15/2011 335,000 359,288
------------
UTILITIES--3.3%
Appalachian Power Co. 5.950 5/15/2033 450,000 454,656
Arizona Public Service(*) 6.500 3/1/2012 400,000 444,652
Consumers Energy Co. 6.250 9/15/2006 625,000 652,537
Consumers Energy Co. 5.375 4/15/2013 995,000 1,029,024
Dominion Resources, Inc. 5.250 8/1/2033 1,575,000 1,577,848
First Energy Corp. 7.375 11/15/2031 400,000 456,794
Illinois Power Co. 7.500 6/15/2009 1,190,000 1,342,166
Indianapolis Power & Light 144A 6.600 1/1/2034 285,000 305,322
Monongahela Power 144A 6.700 6/15/2014 260,000 288,047
Nevada Power Co. 144A 5.875 1/15/2015 275,000 277,063
Niagara Mohawk Power Corp. 7.750 10/1/2008 1,000,000 1,124,983
Nisource Finance Corp. 7.875 11/15/2010 750,000 881,684
Pacific Gas & Electric Co. 3.600 3/1/2009 550,000 540,868
Pepco Holdings, Inc. 5.500 8/15/2007 850,000 883,929
Public Service Co. of Colorado 4.375 10/1/2008 930,000 943,015
Southern California Edison Co. (a) 2.353 1/13/2006 1,550,000 1,555,358
Southern California Edison Co. 8.000 2/15/2007 1,100,000 1,197,879
Txu Corp. 144A 6.500 11/15/2024 1,105,000 1,106,844
------------
15,062,669
------------
Total Corporate (Cost $136,411,986) 139,973,053
------------
MUNICIPAL BONDS--0.9%
Badger Tob Asset Securitization Corp. 6.125 6/1/2027 965,000 958,486
Golden State Tobacco Securitization Corp. 5.000 6/1/2021 1,795,000 1,803,634
Sacramento County California Pension Funding (b) 0.000 7/10/2030 1,675,000 1,586,225
------------
Total Municipal Obligations (Cost $4,137,374) 4,348,345
------------
SOVEREIGN BONDS--3.0%
Banco Nacional de Desenvolvimento Economic (a) 5.832 6/16/2008 1,325,000 1,354,813
Republic of El Salvador 9.500 8/15/2006 1,200,000 1,308,000
Republic of El Salvador 144A 8.500 7/25/2011 870,000 993,975
Republic of Panama 9.625 2/8/2011 1,010,000 1,196,850
Republic of South Africa 6.500 6/2/2014 1,250,000 1,362,250
Russian Federation 10.000 6/26/2007 1,315,000 1,483,583
Russian Federation(*) 8.250 3/31/2010 955,000 1,052,295
Russian Federation 5.000 3/31/2030 800,000 825,000
Ukraine Government 144A (a) 5.330 8/5/2009 545,000 575,307
United Mexican States 6.375 1/16/2013 750,000 796,875
United Mexican States 6.750 9/27/2034 2,785,000 2,754,365
------------
Total Sovereign Bonds (Cost $13,395,756) 13,703,313
------------
18
The accompanying notes are an integral part of the financial statements.
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS--5.6%
Amvescap PLC 5.375% 2/27/2013 $1,090,000 $ 1,099,723
Bombardier, Inc. 144A 7.450 5/1/2034 1,415,000 1,206,288
Bombardier, Inc. 144A 6.300 5/1/2014 690,000 598,575
British Sky Broadcasting PLC 6.875 2/23/2009 115,000 126,156
British Sky Broadcasting PLC 8.200 7/15/2009 3,555,000 4,109,267
Celulosa Arauco Constitution 5.125 7/9/2013 935,000 925,980
Deutsche Telekom International Finance BV 8.500 6/15/2010 700,000 833,961
Deutsche Telekom International Finance BV 8.750 6/15/2030 965,000 1,274,242
Domtar, Inc.(*) 5.375 12/1/2013 560,000 554,432
Donohue Forest Products 7.625 5/15/2007 1,560,000 1,613,620
Export-Import Bank Korea 4.500 8/12/2009 895,000 902,480
French Telecom 8.500 3/1/2011 440,000 524,877
HBOS PLC 144A 5.375 11/1/2013 1,200,000 1,230,367
Nordea Bank Sweden AB 144A 5.250 11/30/2012 1,660,000 1,718,837
Northern Rock PLC 144A 5.600 4/30/2014 640,000 660,796
Pearson Dollar Finance PLC 144A 4.700 6/1/2009 875,000 891,798
Petro-Canada 5.000 11/15/2014 920,000 916,616
Rogers Wireless Inc. 144A 7.250 12/15/2012 385,000 408,100
Rogers Wireless Inc. 144A 7.500 3/15/2015 110,000 116,050
Royal Caribbean Cruises Ltd. 8.750 2/2/2011 1,720,000 2,031,750
Sappi Papier Holding AG 144A 6.750 6/15/2012 1,076,000 1,195,553
St. George Bank Ltd. 144A 5.300 10/15/2015 890,000 906,178
Teck Cominco Ltd. 7.000 9/15/2012 1,465,000 1,623,764
UPM-Kymmene Corp. Senior Notes 144A 5.625 12/1/2014 580,000 604,932
------------
Total Yankee Bonds (Cost $24,964,332) 26,074,342
------------
NON-AGENCY--4.4%
NON-AGENCY PASS THRU SECURITIES--4.4%
Bear Stearns Commercial Mortgage Securities 2003-T12 A3 4.240 8/13/2039 1,890,000 1,878,553
Calwest Industrial Trust 2002-CALW A 6.127 2/15/2017 1,120,000 1,218,375
Capco America Securitization Corp. 1998-D7 A1B 6.260 10/15/2030 1,165,000 1,255,228
DLJ Commercial Mortgage Corp. 1998-CF2 B1 (a) 7.050 11/12/2031 2,350,000 2,562,687
First Chicago/Lennar Trust 1997-CHL1 D(a) 7.863 4/29/2039 3,995,001 4,161,668
GMAC Commercial Mortgage Securities, Inc. 1996-C1 F non-ERISA 7.860 11/15/2006 2,375,000 2,524,994
Lehman Brothers 2004-LLFA A1 (a) 2.533 10/15/2017 4,395,919 4,401,229
Mach One Trust 2004-1A A1 3.890 5/28/2040 1,117,393 1,113,316
JP Morgan Commercial Mortgage Finance Corp. 1997-C5 A3 7.088 9/15/2029 1,274,034 1,354,889
------------
Total Non-Agency (Cost $19,938,924) 20,470,939
------------
U.S. GOVERNMENT AGENCY--33.6%
PASS THRU SECURITIES--33.6%
FHLMC Gold 4.000 10/1/2009 687,015 689,927
FHLMC Gold 7.000 11/1/2031 223,621 237,001
FHLMC Gold 7.000 11/1/2031 189,433 200,768
FHLMC Gold 6.000 10/1/2033 2,772,726 2,865,521
FHLMC Gold 5.500 1/1/2034 1,065,688 1,083,306
FHLMC Gold 5.500 3/1/2034 422,829 429,820
FNMA 4.000 5/1/2010 2,710,092 2,696,001
FNMA 3.640 6/1/2010 2,665,000 2,561,355
FNMA 3.530 7/1/2010 1,200,026 1,159,996
FNMA 5.139 12/25/2011 1,050,216 1,095,887
The accompanying notes are an integral part of the financial statements.
19
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
PASS THRU SECURITIES (CONTINUED)
FNMA 8.500% 6/1/2012 $ 47,010 $ 49,767
FNMA 5.000 7/1/2018 1,032,094 1,049,600
FNMA 5.000 1/1/2019 538,711 547,683
FNMA 5.500 11/1/2024 2,020,402 2,066,277
FNMA 5.500 1/1/2025 5,050,000 5,164,665
FNMA 7.500 11/1/2029 896 960
FNMA 5.500 5/1/2033 1,247,226 1,267,283
FNMA 5.500 1/1/2034 918,999 933,777
FNMA 5.500 1/1/2034 2,393,128 2,431,613
FNMA (TBA)(#) 5.000 1/1/2020 7,775,000 7,896,484
FNMA (TBA)(#) 6.000 1/1/2020 18,900,000 19,797,750
FNMA (TBA)(#) 6.000 1/1/2035 34,225,000 35,380,094
FNMA (TBA)(#) 5.500 1/1/2020 20,500,000 21,179,063
FNMA (TBA)(#) 5.500 1/1/2035 38,615,000 39,194,225
FNMA (TBA)(#) 5.500 2/1/2020 6,000,000 6,185,628
GNMA 9.000 2/15/2021 20,801 23,385
GNMA 6.500 8/15/2032 342,782 361,157
------------
Total U.S. Government Agency (Cost $156,510,531) 156,548,993
------------
US TREASURY OBLIGATIONS--11.6%
U.S. Treasury Inflation Index Bonds(*) 3.000 7/15/2012 9,352,344 10,436,262
U.S. Treasury Note(*) 1.625 1/31/2005 25,000 24,994
U.S. Treasury Note(*) 1.625 3/31/2005 5,255,000 5,246,792
U.S. Treasury Note(*) 4.250 8/15/2013 19,775,000 19,931,045
U.S. Treasury Note(*) 6.250 5/15/2030 15,265,000 18,250,620
------------
Total U.S. Treasury Obligations (Cost $53,315,731) 53,889,713
------------
FOREIGN DENOMINATED--3.0%
EURO--3.0%
Deutsche Republic 4.125 7/4/2008 EUR 3,265,000 4,614,492
Deutsche Republic 4.500 1/4/2013 3,205,000 4,646,304
Deutsche Republic 4.750 7/4/2034 3,195,000 4,667,100
------------
Total Foreign Denominated (Cost $11,628,666) 13,927,896
------------
TOTAL BONDS AND NOTES (COST $534,872,388) 542,971,652
------------
CONVERTIBLE PREFERRED STOCKS--0.8% SHARES
-------
Equity Office Properties Trust 5.25% 144A CVT Pfd REIT 50,600 2,599,575
Fannie Mae 5.375% CVT Pfd 8 846,000
Fannie Mae 7.00% CVT Pfd 7,950 450,666
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $3,732,200) 3,896,241
PURCHASED OPTIONS--0.0% CONTRACT SIZE
-------------
US Treasury Note 3.00% Call , Strike Price 101.109 2/18/05 232,150 1,814
US Treasury Note 4.25% Call , Strike Price 99.875 3/02/05 45,250 50,047
US Treasury Note 4.25% Put, Strike Price 98.0078 3/02/05 45,750 20,176
------------
TOTAL PURCHASED OPTIONS (Cost $232,187) 72,037
------------
The accompanying notes are an integral part of the financial statements.
20
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--25.1%
U.S. GOVERNMENT AGENCY--9.0%
FNMA Discount Note((+)(+)) 2.171% 1/13/2005 $12,860,000 $ 12,850,632
FNMA Discount Note((+)(+)) 2.096 1/19/2005 28,965,000 28,933,217
-------------
41,783,849
-------------
U.S. TREASURY BILL--0.0%
U.S. Treasury Bill( !) 2.215 3/17/2005 400,000 398,302
-------------
INVESTMENT COMPANIES--0.3% SHARES
----------
Dreyfus Institutional Preferred Plus Money Market Fund ((+)) 1,491,436 1,491,436
-------------
INVESTMENT OF CASH COLLATERAL--15.8%
BlackRock Cash Strategies L.L.C( **) 73,522,325 73,522,325
-------------
TOTAL SHORT TERM INVESTMENTS (Cost $117,195,800) 117,195,912
-------------
TOTAL INVESTMENTS--142.7% (COST $656,032,575) 664,135,842
OTHER ASSETS, LESS LIABILITIES--(42.7)% (198,593,060)
-------------
NET ASSETS--100% $465,542,782
=============
NOTES TO SCHEDULE OF INVESTMENTS:
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration to qualified buyers.
EUR-Euro
FHLMC-Federal Home Loan Mortgage Company
FNMA-Federal National Mortgage Association
GNMA-Government National Mortgage Association
REIT-Real Estate Investment Trust
TBA-To Be Announced
(a) Variable Rate Security, rate indicated is as of 12/31/04.
(b) Zero coupon security.
(+) Affiliated institutional money market fund.
(+)(+) Rate noted is yield to maturity
* Security, or a portion thereof, was on loan at December 31, 2004.
** Money market fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
# Delayed Delivery contract.
! Denotes all of part of security pledged as collateral.
At December 31, 2004 the Portfolio held the following futures contracts:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE GAIN/(LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. Long Bond CBT (20 Contracts) Long 3/21/2005 $ 2,250,000 $ 39,432
U.S. 5 Year Note (335 Contracts) Short 3/21/2005 36,692,969 (264,987)
U.S. 10 Year Note (131 Contracts) Short 3/21/2005 14,663,813 (154,172)
---------
$(379,727)
=========
The accompanying notes are an integral part of the financial statements.
21
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE DECEMBER 31, 2004 TO RECEIVE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 8,410,000 3/16/2005 $11,417,929 $11,201,952 $(215,977)
During the year ended December 31, 2004, the Portfolio entered into the
following option transactions:
WRITTEN PUT OPTION TRANSACTIONS NUMBER OF CONTRACTS PREMIUMS
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 4 $ 287,972
Options written 12 1,077,286
Options expired (12) (1,089,115)
Options closed (3) (211,092)
------ ------------
Outstanding, end of period 1 $ 65,051
====== ============
SECURITY CONTRACT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
US Treasury Note 4.25% Put, Strike Price 96.195, 3/2/05 (premiums received $65,051) 1 $11,712
------ ------------
WRITTEN CALL OPTION TRANSACTIONS NUMBER OF CONTRACTS PREMIUMS
- -----------------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of period 4 $ 220,133
Options written 11 598,720
Options expired (6) (320,027)
Options closed (8) (467,717)
------ ------------
Outstanding, end of period 1 $31,109
====== ============
SECURITY CONTRACT VALUE
- -----------------------------------------------------------------------------------------------------------------------------------
US Treasury Note 4.25% Call, Strike Price 101.406, 3/2/05 (premiums received $31,109) 1 $ 47,332
------ ------------
The accompanying notes are an integral part of the financial statements.
22
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Portfolio held the following swap contracts:
NOTIONAL AMOUNT
PORTFOLIO/COUNTERPARTY EXPIRATION DATE DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
1,415,000 USD 6/20/09 Agreement with Merrill Lynch, dated 4/23/04
to receive 1.56% per year times the notional
amount. The Portfolio makes payment only upon
a credit event by Georgia Pacific Corp., the notional
amount times the difference between the par value
and the then-market of Georgia Pacific Corp.,
8.125% due 5/15/11. $ 38,440
1,000,000 USD 12/20/08 Agreement with Bear Stearns, dated 12/15/04
to receive 1.96% per year times the notional amount.
The Portfolio makes payment only upon a credit
event by General Motors Acceptance Corp.,
the notional amount times the difference between
the par value and the then-market of General Motors
Acceptance Corp., 6.875% due 8/28/12. 3,570
1,100,000 USD 12/20/07 Agreement with Bear Stearns, dated 12/08/04
to receive 2.05% per year times the notional amount.
The Portfolio makes payment only upon a credit
event by Republic of Turkey, the notional amount
times the difference between the par value
and the then-market of Republic of Turkey,
11.875% due 1/15/30. 12,353
2,300,000 USD 12/20/09 Agreement with Bear Stearns, dated 11/17//04
to receive 2.84% per year times the notional amount.
The Portfolio makes payment only upon a credit
event by Ukraine Government, the notional
amount times the difference between the par
value and the then-market of Ukraine Government,
7.65% due 6/11/13. 33,132
1,000,000 USD 12/17/08 Agreement with Lehman Brothers, dated 12/15/04
to receive the notional amount multiplied by
3.68375% and to pay the notional amount multiplied
by the month LIBOR. (5,269)
$940,000 USD 9/20/09 Agreement with Merrill Lynch, dated 8/25/04
to pay 5.05% per year times the notional amount.
The Portfolio receives payment only upon a credit
event by Bombardier, Inc., the notional amount
times the difference between the par value and the
then-market of Bombardier, Inc., 6.75% due 5/1/12. (27,864)
2,300,000 USD 11/19/09 Agreement with Bear Stearns, dated 11/17/04
to receive the notional amount multiplied by
3.90700% and to pay the notional amount
multiplied by the 3 month LIBOR. (4,945)
1,100,000 USD 12/20/05 Agreement with Bear Stearns, dated 12/08/04
to pay 1.05% per year times the notional amount.
The Portfolio receives payment only upon a credit
event by Republic of Turkey, the notional amount
times the difference between the par value and the
then-market of Republic of Turkey, 11.875% due 1/15/30. (1,353)
--------
Total Swap Value $ 48,064
========
The accompanying notes are an integral part of the financial statements.
23
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $72,044,892) (Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $654,541,139) $662,644,406
Affiliated issuers, at value (Note 1A)(cost $1,491,436) (Note 1H) 1,491,436
Interest and dividends receivable 4,166,313
Receivable for investments sold 1,151,732
Swap contracts contracts, at value (Note 5) 48,064
Prepaid expenses 2,950
------------
Total assets 669,504,901
LIABILITIES
Payable for investments purchased $129,894,582
Collateral for securities on loan (Note 7) 73,522,325
Due to custodian 39,739
Payable for variation margin on open futures contracts (Note 5) 66,906
Unrealized depreciation on forward foreign currency exchange contracts (Note 5)
215,977
Options written, at value (premiums received $96,160) (Note 5) 59,044
Accrued professional fees 78,767
Accrued accounting and custody fees (Note 2) 26,502
Accrued trustees' fees and expenses (Note 2) 25,370
Accrued expenses 32,907
------------
Total liabilities 203,962,119
------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL INTEREST) $465,542,782
============
The accompanying notes are an integral part of the financial statements.
24
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Interest income (including securities lending income of $48,570 (Note 6)) $ 21,804,716
Income from affiliated investments (Note 1H) 70,946
Dividend income 151,965
------------
Total investment Income 22,027,627
EXPENSES
Investment advisory fee (Note 2) $ 1,925,294
Accounting and custody fees (Note 2) 171,984
Professional fees 84,257
Trustees' fees and expenses (Note 2) 95,651
Insurance expense 21,360
Miscellaneous 7,440
------------
Total expenses 2,305,986
------------
Net investment income 19,721,641
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 21,025,877
Financial futures contracts (170,191)
Swap transactions 750,811
Written Option transactions 1,077,281
Foreign currency transactions and forward foreign currency exchange contracts (2,184,711)
------------
Net realized gain 20,499,067
Change in unrealized appreciation (depreciation)
Investment security transactions (14,049,184)
Financial futures contracts (319,720)
Written Option transactions (77,753)
Swaps (50,372)
Foreign currency transactions and forward foreign currency exchange contracts 1,339,218
------------
Change in net unrealized appreciation (depreciation) (13,157,811)
------------
Net realized and unrealized gain (loss) 7,341,256
------------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 27,062,897
------------
The accompanying notes are an integral part of the financial statements.
25
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
------------------ -----------------
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 19,721,641 $ 30,021,028
Net realized gains 20,499,067 15,573,886
Change in net unrealized appreciation (depreciation) (13,157,811) (4,658,156)
------------- -------------
Net increase in net assets from investment operations 27,062,897 40,936,758
------------- -------------
CAPITAL TRANSACTIONS
Contributions 65,727,299 24,345,488
Withdrawals (238,255,854) (398,371,613)
------------- -------------
Net increase (decrease) in net assets from capital transactions (172,528,555) (374,026,125)
------------- -------------
TOTAL DECREASE IN NET ASSETS (145,465,658) (333,089,367)
------------- -------------
NET ASSETS
At beginning of year 611,008,440 944,097,807
------------- -------------
At end of year $ 465,542,782 $ 611,008,440
============= =============
The accompanying notes are an integral part of the financial statements.
26
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2004 2003 2002 2001(A) 2000
-------- -------- --------- ---------- ----------
TOTAL RETURN((+)) 5.77% 5.25% 8.89% 7.18% 10.23%
RATIOS:
Expenses (to average daily net assets)(*) 0.45% 0.41% 0.38% 0.36% 0.35%
Net Investment Income (to average daily net assets)(*) 3.80% 3.78% 4.86% 6.37% 7.24%
Portfolio Turnover 98% 398% 384% 329% 233%
Net Assets, End of Year (000's omitted) $465,543 $611,008 $944,098 $1,495,389 $2,226,002
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to impose all or a portion of its investment
advisory fee and/or reimbursed the Fund for a portion of its operating expenses. If this voluntary action had not been
taken, the investment income per share and the ratios would have been:
Ratios (to average daily net assets):
Expenses N/A 0.42% 0.39% N/A N/A
Net investment income N/A 3.77% 4.85% N/A N/A
(a) The Portfolio has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and
began amortizing premium and discount on all debt securities on an
effective yield basis. The effect of this change for the year ended
December 31, 2001 was to decrease the ratio of the net investment income to
average net assets from 6.39% to 6.37%. Ratios for the periods prior to
January 1, 2001 have not been restated to reflect this change in
presentation.
(+) Total return for the Portfolio has been calculated based on the total
return for the invested 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.
27
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME 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. Standish
Mellon Fixed Income Portfolio (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust.
At December 31, 2004 there was one fund, Standish Mellon Fixed Income 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 December 31,
2004 was approximately 100%.
The objective of the Portfolio is to achieve a high level of current
income, consistent with conserving principal and liquidity, and secondarily
to seek capital appreciation when changes in interest rates and economic
conditions indicate that capital appreciation may be available without
significant risk to principal by investing, under normal circumstances, at
least 80% of net assets in fixed income securities issued by U.S. and
foreign governments and companies.
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 in the
principal market in which such securities are normally traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 trade date. Interest income is
determined on the basis of coupon interest accrued, adjusted for accretion
of discount or amortization of premium using the yield - to - maturity
method on long-term debt securities and short-term securities with greater
than sixty days to maturity. 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 actually
received or paid.
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 income 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.
28
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. FOREIGN CURRENCY TRANSACTIONS
The Portfolio maintains its records in U.S. dollars. 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. EXPENSES
The majority of expenses of the Trust or Portfolio are directly
identifiable to an individual fund or Portfolio. Expenses which are not
readily identifiable to a specific fund or Portfolio are allocated taking
into consideration, among other things, the nature and type of expense and
the relative size of the funds.
H. AFFILIATED ISSUERS
Affiliated issuers represent issuers in which the Portfolio held
investments in other investment companies advised by Standish Mellon Asset
Management Company LLC ("Standish Mellon"), a wholly-owned subsidiary of
Mellon Financial Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services is paid monthly at the annual rate of
0.40% of the Portfolio's first $250,000,000 of average daily net assets,
0.35% of the next $250,000,000 of average daily net assets, and 0.30% of
the average daily net assets in excess of $500,000,000.
The Portfolio compensates Mellon Bank, N.A. under a custody, administration
and accounting services agreement for providing custody, fund
administration and fund accounting services for the Portfolio. Pursuant to
this agreement the Portfolio paid $150,228 during the year ended December
31, 2004.
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. See Note 6 for further details.
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.
29
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
------------ ------------
U.S. Government Securities $330,557,690 $291,609,634
============ ============
Investments (non-U.S. Government Securities) $256,413,208 $369,093,760
============ ============
(4) FEDERAL TAXES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2004, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $656,415,090
============
Gross unrealized appreciation 9,279,843
============
Gross unrealized depreciation (1,559,091)
============
Net unrealized appreciation $ 7,720,752
============
(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 option 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 held options at December 31, 2004. See Schedule of
Investments for further details.
30
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INTEREST RATE FLOORS
Interest rate floors purchased by the Portfolio entitle the Portfolio to
receive payments on a notional principal amount from the party selling such
floor to the extent that a specified index falls below a predetermined
interest rate amount. Credit and market risk exist with respect to these
instruments. If forecasts of interest rates and other market factors are
incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were not used.
Even if the forecasts are correct, there are risks that the positions may
correlate imperfectly with the asset or liability being hedged, a liquid
secondary market may not always exist, or a counterparty to a transaction
may not perform. The Portfolio expects to enter these transactions
primarily for hedging purposes including, but not limited to, preserving a
return or spread on a particular investment or portion of its portfolio,
protecting against interest rate fluctuations, as a duration management
technique or protecting against an increase in the price of securities the
Portfolio anticipates purchasing at a later date. Interest rate floors are
"marked-to-market" daily based on quotations from market makers and the
change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. Periodic payments of interest, if any, are
reported as additions to interest income in the Statement of Operations.
Realized gains or losses from these agreements are disclosed in the
Statement of Operations.
The Portfolio did not enter into any interest rate floors during the year
ended December 31, 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.
The Portfolio held open foreign currency exchange contracts at December 31,
2004. See Schedule of Investments for further details.
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.
The Portfolio held open financial futures contracts at December 31, 2004.
At December 31, 2004, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts. See
Schedule of Investments for further details.
SWAP AGREEMENTS
The Portfolio may enter into swap agreements. A swap is an agreement to
exchange the return generated by one instrument for the return generated by
another instrument. The Portfolio 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 Portfolio
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 Portfolio may use credit
default swaps to provide a measure of protection against defaults of
issuers (i.e., to reduce risk where the Portfolio 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
31
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 Portfolio 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, if any, are included as part of realized gain and loss.
Entering into these agreements 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.
The Portfolio held open swap contracts at December 31, 2004. See Schedule
of Investments for further details.
(6) SECURITY LENDING:
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 December 31, 2004
resulting in $48,570 of security lending income. At December 31, 2004, the
Portfolio had securities valued at $72,044,892 on loan. See the Statement
of Investments for further detail on the security positions on loan.
(7) DELAYED DELIVERY TRANSACTIONS:
The Portfolio may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Portfolio
instructs its custodian to segregate securities having value at least equal
to the amount of the purchase commitment.
The Portfolio may enter into to be announced ("TBA") purchase commitments
to purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Portfolio holds, and maintains until settlement date, cash or
high-grade debt obligations in an amount sufficient to meet the purchase
price, or the Portfolio may enter into offsetting contracts for the forward
sale of other securities it owns. Income on the securities will not be
earned until settlement date. TBA purchase commitments may be considered
securities in themselves, and involve a risk of loss if the value of the
security to be purchased declines prior to the settlement date. Unsettled
TBA purchase commitments are valued at the current market value of the
underlying securities, according to the procedures described under
"Investment security valuations" above.
The Portfolio may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Portfolio as an unrealized gain or loss. If the TBA sale commitment is
closed through the acquisition of an offsetting purchase commitment, the
Portfolio realizes a gain or loss from the sale of the securities based
upon the unit price established at the date the commitment was entered
into. See Schedule of Investments for further details.
32
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(8) LINE OF CREDIT:
The Portfolio, and other subtrusts in the Portfolio Trust and funds in 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 daily unused portion of the facility, is allocated ratably among the
participating portfolios/funds at the end of each quarter. For the year
ended December 31, 2004, the expense allocated to the Portfolio was $6,879
During the year ended December 31, 2004, the Portfolio had average
borrowings outstanding of $1,428,200 on a total of five days and incurred
$456 of interest expense.
33
MELLON INSTITUTIONAL FUNDS MASTER PORTFOLIO
STANDISH MELLON FIXED INCOME PORTFOLIO
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and
Investors of Standish Mellon Fixed Income 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
Standish Mellon Fixed Income Portfolio (the "Portfolio") at December 31,
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 December 31, 2004
by correspondence with the custodian and brokers, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
34
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 and Chief Executive Portfolio: $9,886
260 Charles Street Officer, Decision
Waltham, MA 02453 Resources, Inc.
9/30/40
Caleb Loring III Trustee Trustee since Trustee, Essex Street 30 None Fund: $500
c/o Essex Street Associates 11/3/1986 Associates (family Portfolio: $11,380
P.O. Box 181 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 30 None Fund: $500
c/o Harvard University 9/13/1986 Professor of Political Portfolio: $9,886
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since Trustee, Mertens 30 None Fund: $500
P.O. Box 2333 11/3/1986 House, Inc. (hospice) Portfolio: $9,886
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer, Portfolio: $0
Asset Management Executive 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
35
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
36
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0923AR1204
Annual Report STANDISH MELLON
OPPORTUNISTIC HIGH YIELD FUND
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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 OPPORTUNISTIC HIGH
YIELD FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
For the year 2004, the Standish Mellon Opportunistic High Yield Bond Fund has
returned 10.85% while the Merrill Lynch Master II High Yield Index was up
10.87% for the same period. The 10-year US Treasury yield closed the month at
4.22%, down from 4.35% at the November close and basically coming full circle
from its starting point (4.25%) at the start of the year. The Lehman Aggregate
Index gained .92% in December and finished with a 2004 return of 4.34%. On an
index comparison basis high yield has bested higher quality fixed income by over
600 basis points in 2004. With a strong fourth quarter, equities had a good year
in 2004 as the S&P 500 gained 10.74% and small cap stocks performed
significantly better than that. The other star in the fixed income asset class
was Emerging Markets, which, along with high yield closed the year with a string
of good months and recorded a 2004 return of close to 12%.
During the year the Index benchmark for the Fund was changed from the Lehman
Brothers US High Yield Index to the Merrill Lynch Master II High Yield Index.
Both indexes use similar methodology but the change was made for reasons of
market acceptance, usability and transparency to outside investors. The Lehman
High Yield Index returned 11.13% for 2004.
As the high yield rally has continued in the last four months, lower quality
names have led performance. For December CCC-rated bonds returned a healthy
+3.09%, and as they did in November, October and September, clearly outdistanced
both the BB (+1.24%) and B (+1.16%) quality sectors. The hot performance of
CCC's in the last four months of 2004 has left the relative performance
situation in high yield an almost miniature repeat of 2003, with lower-priced,
higher-yielding bonds significantly outperforming issues from stronger credits.
For the year BB's reported a YTD result of +9.33%, B's stand at +10.44% and
CCC's finished with a remarkable return of +15.75%.
The lower quality theme favoring higher yields and lower dollar prices during
2004 was even more clearly demonstrated by the performance of the market's
distressed credits. Looking at credit quality on a ratings-blind basis shows
distressed credits (those with spreads greater than 1,000 basis points over
Treasuries) had another huge month in December at +7.44% as compared to
non-distressed names return of 1.24%. Spreads on the non-distressed cohort
widened a small bit in December from +271 to +279. With strong performance in
the fourth quarter, bonds categorized as distressed (+24.78% annual return)
outperformed their non-distressed peers (+10.23%) in 2004.
As was the case in the previous two months, outperformance by speculative,
distressed credits dominated the top industry returns in December, primarily
driven by snapbacks in some of the sectors that have struggled for most of the
year. Air Transport again topped this list as labor negotiation progress and
some relief on the fuel cost front boosted optimism and produced a monthly
return of 7.23%. Airlines remain as the only losing sector on the year at -.40%.
Telecom was another winner in December at +2.28%. No industries had negative
returns for the month. Some of the weaker December performances were turned in
by some of the market's more stable sectors including Consumer Products (.57%),
Gaming (+.75%) and the previously strong Building Materials sector (+.50%).
2
Generally speaking industry returns were quite closely bunched in 2004 with
Airlines being the only industry without a positive yearly return. The Fund had
a small exposure to the airline sector through some EETC holdings in
Continental and Northwest Airlines, two of the more liquid companies in a tough
industry. Those holdings were actually a small positive for performance as they
were purchased at favorable prices. The snap back dynamic among sectors that
underperformed in 2003 sponsored the year's big industry winners as Textile and
Apparel (+28.08 2004 return), Steel (+19.32%) and Chemicals (+15.48%) topped the
yearly return chart. With the exception of Chemicals none of these industries
represents a large part of the high yield market.
On an issuer specific basis the largest index contributions came from three
sources: 1) recovering pipelines and utilities (El Paso, Williams and Edison
International) 2) Wireline Telecom (AT&T, Quest and MCI) and 3) large distressed
issuers (Charter, Calpine and Levi Strauss). The Fund had large exposures to the
pipeline and utility area which was helpful to performance although our holdings
were concentrated more in the regulated operating pipeline and first mortgage
utility bonds than in the holding company issues that provided the very largest
returns. Although we did have investments (where permitted by ratings
guidelines) to the wireline telecom providers our exposure was smaller than the
index and focused on the safety of operating-company and shorter-maturity bonds.
Our stance here was dictated by continued competition and the technological
threats to the business model of these companies. Lastly, Standish portfolios
are never highly exposed to distressed issuers. We did not like in 2004 and
continue not to like for 2005, the finances of Charter or Calpine. Neither
company looks like it can come close to supporting its current debt load and
both situations appear to contain large risks to the capital of bondholders
despite the two issuers ability to solve liquidity problems by accessing the
high yield market by issuing various types of secured paper.
MARKET ENVIRONMENT
In 2004 high yield investors were once more handsomely rewarded for
concentrating on the highest yielding opportunities in the market. Risk seeking
investors also had a big hand in shaping the composition of the new issues that
came to market as speculative-grade issues represented a large share of new
deals. In 2004 new global high yield issuance hit an all-time record of over
$160 billion. Almost 20% of that new issuance was rated speculative grade CCC or
lower. As a contrast in 2003 about 7% of new issuance carried speculative
ratings and, in the credit stressed environment of 2001 and 2002, the share was
around 3%. An interesting note on the demand side was the fervent search for
high yield bonds that took place despite annual outflows of over $4 billion from
high yield mutual funds. Yield-thirsty institutional investors and other
constituencies such, as hedge funds and structured credit vehicles, more than
made up for the slide in retail demand as compared to 2003 when mutual funds had
significant inflows.
3
PORTFOLIO STRATEGY AND OUTLOOK
On the year high yield spreads tightened over 100 basis points as the broad ML
Master II Index spread fell from 418 bp at the close of 2003 to +310 at year-end
2004. Much of this spread tightening took place in the fourth quarter of the
year. High yield is now at a point where the market looks overpriced on the
basis of historically very low yields (the average B-rated bond yields about
6.80%) and spreads, combined with a risky overall ratings profile given the
expansion of speculative rated securities. The broad Merrill Lynch Index now has
14% of its market value in CCC and lower rated securities and the similar Lehman
index reports over 17%. This extreme valuation situation is more stable than it
appears however as a number of positive market forces derived from stable credit
conditions and an acute lack of attractive yield-oriented investment
alternatives have provided supporting technicals and comfort to investors
holding credit risk.
Over the last half of 2004 the credit risk of the Standish portfolio has been
reduced a bit and even more focus has been placed on identifying improving
credit situations. The portfolio also now holds a number of floating-rate high
yield bond issues and these should continue to provide good performance and
serve as a counterbalance to some of the longer duration investments that have
been made in improving credits where spreads are expected to tighten. As always
credit vigilance will be high and that should be the driver of portfolio returns
in 2005.
/s/Jonathan Uhrig
Jonathan Uhrig
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD BOND FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
OPPORTUNISTIC HIGH YIELD BOND FUND, THE LEHMAN BROTHERS HIGH YIELD INDEX AND
THE MERRILL LYNCH HIGH YIELD MASTER II INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 04/02/2001
- ------------------------------------------------------------------------------------------------------------------------------------
10.85% 12.71% 9.18%
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.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD 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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JUNE 1, 2004 TO
JUNE 1, 2004 DECEMBER 31, 2004 SEPTEMBER 30, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,097.40 $0.53
Hypothetical (5% return
per year before expenses) $1,000.00 $1,024.63 $0.51
(
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.10%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(TO REFLECT THE ONE-HALF YEAR PERIOD).
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
PORTFOLIO INFORMATION AS OF DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PERCENTAGE OF
SUMMARY OF COMBINED RATINGS INVESTMENTS
--------------------------------------------
QUALITY BREAKDOWN
--------------------------------------------
Treasury 1.9%
BBB 3.3
BB 41.8
B 49.8
CCC 2.4
NR 0.8
_____
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
- ----------------------------------------------------------------------------------------------------------
Freescale Semiconductor Inc. 6.875% 7/15/2011 2.7%
Chevy Chase Bank FSB 6.875 12/1/2013 2.6
Sovereign Capital Trust II Convertible Preferred 4.375 2.4
Georgia-Pacific Corp. 8.000 1/15/2024 1.9
Chumash Casino & Resort Enterprises 144A 9.000 7/15/2010 1.7
Williams Cos, Inc. 7.875 9/1/2021 1.7
PX Escrow Corp. 9.625 2/1/2006 1.5
El Paso Natural Gas Co. 8.625 1/15/2022 1.5
INVISTA 144A 9.250 5/1/2012 1.4
Crown Cork & Seal Co, Inc. 8.000 4/15/2023 1.4
______
18.8%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
SUMMARY OF INDUSTRIES INVESTMENTS
- -----------------------------------------------------------------------
Banking 4.9%
Basic industry 12.9
Capital goods 12.7
Consumer cyclical 4.5
Consumer non-cyclical 8.1
Energy 9.8
Finance 0.7
Media 12.9
Real estate 0.3
Services cyclical 12.9
Services non-cyclical 1.5
Technology 3.3
Telecommunications 4.9
Utility 8.4
Municipal 0.3
Agency 0.1
Cash & Equivalents 1.8
_____
100.0%
The Fund is actively managed. Current holdings may be different than
those presented above.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--95.6%
CONVERTIBLE CORPORATE BONDS--0.3%
Centerpoint Energy, Inc. 144A CVT (cost $55,000) 2.875% 1/15/2024 $ 55,000 $ 57,888
___________
CORPORATE--84.1%
BANKING--2.6%
Chevy Chase Bank FSB 6.875 12/1/2013 455,000 469,788
___________
BASIC INDUSTRY--12.0%
Airgas, Inc. 6.250 7/15/2014 25,000 25,500
Arch Western Finance 6.750 7/1/2013 55,000 56,788
BCP Caylux Holdings Luxembourg SCA 144A 9.625 6/15/2014 100,000 112,750
Berry Plastics 10.750 7/15/2012 55,000 62,975
Earle M Jorgenson Co. 9.750 6/1/2012 100,000 112,500
Equistar Chemicals LP/ Equistar Funding Corp. 10.125 9/1/2008 90,000 103,725
Equistar Chemicals LP/Equistar Funding Corp. 10.625 5/1/2011 15,000 17,400
Freeport-McMoRan Copper & Gold, Inc. 10.125 2/1/2010 75,000 85,688
Freeport-McMoRan Copper & Gold, Inc. 6.875 2/1/2014 70,000 69,563
Georgia-Pacific Corp. 7.375 7/15/2008 220,000 239,250
Georgia-Pacific Corp. 8.000 1/15/2024 300,000 348,000
KRATON Polymers LLC/Capital Corp. 144A 8.125 1/15/2014 15,000 15,638
Lubrizol Corp. 4.625 10/1/2009 150,000 149,769
Lyondell Chemical Co.(*) 9.625 5/1/2007 100,000 110,000
Nalco Co. 7.750 11/15/2011 175,000 189,000
Neenah Paper, Inc. 144A 7.375 11/15/2014 10,000 10,150
Peabody Energy Corp. 6.875 3/15/2013 40,000 43,300
Steel Dynamics, Inc. 9.500 3/15/2009 100,000 109,500
Stone Container Corp. 8.375 7/1/2012 145,000 158,050
Westlake Chemical Corp. 8.750 7/15/2011 104,000 117,520
___________
2,137,066
___________
CAPITAL GOODS--8.5%
Alliant Techsystems, Inc. 8.500 5/15/2011 100,000 109,500
Alliant Techsystems, Inc. 144A 2.750 2/15/2024 35,000 37,056
Crown Cork & Seal Co, Inc. 8.000 4/15/2023 250,000 246,250
Esterline Technologies Corp. 7.750 6/15/2013 70,000 76,475
L-3 Communications Corp. 7.625 6/15/2012 85,000 93,288
Leucadia National Corp. 7.000 8/15/2013 65,000 66,950
National Waterworks, Inc. 10.500 12/1/2012 55,000 61,875
Norcraft Finance Co. 9.000 11/1/2011 40,000 43,200
Owens-Brockway 144A 6.750 12/1/2014 50,000 50,500
Owens-Brockway 7.750 5/15/2011 55,000 59,538
Owens-Illinois, Inc.(*) 7.500 5/15/2010 210,000 222,863
Pinnacle Foods Holding Corp. 144A(*) 8.250 12/1/2013 85,000 80,963
Silgan Holdings, Inc. 6.750 11/15/2013 85,000 88,400
Solo Cup Co.(*) 8.500 2/15/2014 50,000 52,000
Texas Industries, Inc. 10.250 6/15/2011 110,000 128,700
Trinity Industries, Inc. 6.500 3/15/2014 100,000 100,000
___________
1,517,558
___________
CONSUMER CYCLICAL--2.4%
Advanced Accessory Systems LLC(*) 10.750 6/15/2011 85,000 80,750
Domino's, Inc. 8.250 7/1/2011 76,000 83,030
Friendly Ice Cream Corp.(*) 8.375 6/15/2012 25,000 24,531
The accompanying notes are an integral part of the financial statements.
8
ELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL (CONTINUED)
Keystone Automotive Operations, Inc. 9.750% 11/1/2013 $ 40,000 $ 42,800
Russell Corp. 9.250 5/1/2010 125,000 134,063
Scotts Co. 6.625 11/15/2013 65,000 68,413
___________
433,587
___________
CONSUMER NON-CYCLICAL--7.2%
Altria Group, Inc. 7.000 11/4/2013 50,000 54,177
Chattem, Inc. (b) 5.400 3/1/2010 50,000 51,000
Chattem, Inc. 7.000 3/1/2014 60,000 61,800
Del Monte Corp. 8.625 12/15/2012 105,000 117,600
Elizabeth Arden, Inc. 7.750 1/15/2014 40,000 42,400
Fisher Scientific International 144A 6.750 8/15/2014 140,000 150,150
Ingles Markets, Inc. 8.875 12/1/2011 75,000 80,250
RJ Reynolds Tobacco Holdings, Inc.(*) 7.750 5/15/2006 65,000 67,925
Rite Aid Corp.(*) 12.500 9/15/2006 140,000 157,500
Rite Aid Corp. 9.500 2/15/2011 75,000 82,313
Smithfield Foods, Inc. 7.750 5/15/2013 70,000 77,875
Standard Commercial Corp. 8.000 4/15/2012 50,000 51,375
Stater Brothers Holdings (b) 5.990 6/15/2010 125,000 128,438
Stater Brothers Holdings(*) 8.125 6/15/2012 150,000 158,625
___________
1,281,428
___________
ENERGY--10.0%
Amerigas Partners LP/Amerigas Eagle Finance Corp. 8.875 5/20/2011 100,000 109,000
ANR Pipeline Co. 7.375 2/15/2024 100,000 106,000
Dynegy Holdings, Inc. 144A 9.875 7/15/2010 150,000 167,625
El Paso Natural Gas Co. 8.625 1/15/2022 225,000 262,406
El Paso Natural Gas Co. 7.500 11/15/2026 110,000 114,813
El Paso Production Holding Co. 7.750 6/1/2013 45,000 47,138
Enterprise Products Operating LP 144A 4.625 10/15/2009 60,000 59,906
Frontier Oil Corp. 144A 6.625 10/1/2011 25,000 25,500
Newfield Exploration Co. 144A 6.625 9/1/2014 100,000 105,750
Premcor Refining Group, Inc. 9.500 2/1/2013 40,000 46,400
Southern Natural Gas Co. 8.875 3/15/2010 25,000 28,000
Tennessee Gas Pipeline Co. 8.375 6/15/2032 50,000 56,375
Tesoro Petroleum Corp. 8.000 4/15/2008 35,000 38,063
Transcontinental Gas Pipe Line Corp. 8.875 7/15/2012 200,000 243,250
Williams Cos, Inc. 7.875 9/1/2021 275,000 306,625
Xcel Energy, Inc. 144A 7.500 11/21/2007 40,000 61,900
___________
1,778,751
___________
FINANCIAL--0.7%
Glencore Funding LLC 144A 6.000 4/15/2014 75,000 72,561
Marsh & McLennan Cos., Inc. 5.375 7/15/2014 60,000 58,624
___________
131,185
___________
INDUSTRIAL--0.9%
Douglas Dynamics LLC 144A 7.750 1/15/2012 155,000 157,131
___________
MEDIA--11.2%
American Media Operation, Inc. 10.250 5/1/2009 95,000 100,106
Cablevision Systems Corp. 144A (b) 6.669 4/1/2009 200,000 212,000
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 85,000 94,563
Dex Media West LLC/Dex Media Finance Co. 9.875 8/15/2013 83,000 95,658
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
MEDIA (CONTINUED)
DirecTV Holdings LLC 8.375% 3/15/2013 $ 86,000 $ 96,428
Echostar DBS Corp. 5.750 10/1/2008 140,000 141,750
Entercom Radio LLC/Entercom Capital, Inc. 7.625 3/1/2014 50,000 53,813
Entravision Communications Corp. 8.125 3/15/2009 100,000 106,750
Lamar Media Corp. 7.250 1/1/2013 20,000 21,600
Nextel Communications, Inc. 6.875 10/31/2013 95,000 103,075
PX Escrow Corp. 9.625 2/1/2006 330,000 264,000
Radio One, Inc. 8.875 7/1/2011 75,000 81,656
RH Donnelley Finance Corp. 144A 8.875 12/15/2010 140,000 156,100
RH Donnelley Finance Corp. 144A 10.875 12/15/2012 135,000 160,313
Salem Communications Corp. 7.750 12/15/2010 130,000 140,563
Sinclair Broadcast Group, Inc. 4.875 7/15/2018 60,000 57,525
Spanish Broadcasting System 9.625 11/1/2009 100,000 105,000
___________
1,990,900
___________
REAL ESTATE--0.3%
BF Saul REIT 7.500 3/1/2014 50,000 51,500
___________
SERVICES: CYCLICAL--11.8%
American Casino & Entertainment Properties LLC 7.850 2/1/2012 55,000 58,438
Ameristar Casinos, Inc. 10.750 2/15/2009 140,000 156,100
Chumash Casino & Resort Enterprises 144A 9.000 7/15/2010 280,000 310,100
Cinemark USA, Inc.(*) 9.000 2/1/2013 75,000 85,594
Continental Airlines, Inc. 8.307 4/2/2018 44,667 39,051
Continental Airlines, Inc. 6.795 8/2/2018 74,510 65,113
Corrections Corp of America 7.500 5/1/2011 30,000 32,063
Goodman Global Holdings 144A (b) 5.760 6/15/2012 125,000 126,875
Host Marriott LP 144A(*) 3.250 4/15/2024 55,000 63,250
Isle of Capri Casinos 7.000 3/1/2014 175,000 178,500
Meristar Hospitality Operating Partnership LP 10.500 6/15/2009 100,000 109,000
Mohegan Tribal Gaming Authority 8.000 4/1/2012 25,000 27,125
Mohegan Tribal Gaming Authority 7.125 8/15/2014 225,000 236,813
Northwest Airlines Corp. 8.304 9/1/2010 178,893 150,611
Speedway Motorsports, Inc. 6.750 6/1/2013 150,000 157,875
Station Casinos, Inc. 6.000 4/1/2012 150,000 152,813
True Temper Sports, Inc. 8.375 9/15/2011 65,000 60,450
Turning Stone Casino Resort Enterprise 144A 9.125 12/15/2010 95,000 102,838
___________
2,112,609
___________
SERVICES: NON-CYCLICAL--1.3%
Browning-Ferris Industries 9.250 5/1/2021 75,000 79,875
Kinetic Concepts, Inc. 7.375 5/15/2013 91,000 98,280
Medex, Inc. 8.875 5/15/2013 20,000 23,300
Neighborcare, Inc. 6.875 11/15/2013 30,000 31,425
___________
232,880
___________
TELECOMMUNICATIONS--3.2%
AT&T Corp. 9.750 11/15/2031 100,000 119,375
Consolidated Communications Illinois/Texas Holdings, Inc. 144A 9.750 4/1/2012 90,000 97,200
Qwest Corp. 7.200 11/10/2026 115,000 110,400
Qwest Corp. 144A(*) 7.875 9/1/2011 175,000 189,875
Rural Cellular Corp. 8.250 3/15/2012 50,000 52,875
___________
569,725
___________
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
TECHNOLOGY & ELECTRONICS--3.4%
Communications & Power Industries, Inc. 8.000% 2/1/2012 $ 25,000 $ 26,500
Freescale Semiconductor Inc.(*) (b) 4.820 7/15/2009 100,000 104,125
Freescale Semiconductor Inc. 6.875 7/15/2011 445,000 477,263
___________
607,888
___________
UTILITIES--8.6%
AES Corp.(*) 8.875 2/15/2011 123,000 140,528
AES Corp. 144A 8.750 5/15/2013 160,000 181,800
DPL, Inc. 6.875 9/1/2011 100,000 109,213
FPL Energy Wind Funding LLC 144A 6.876 6/27/2017 94,600 97,556
Monongahela Power 144A 6.700 6/15/2014 65,000 72,012
MSW Energy Holdings 7.375 9/1/2010 65,000 68,250
Nevada Power Co. 6.500 4/15/2012 200,000 211,500
Northwestern Corp. 144A 5.875 11/1/2014 35,000 35,804
NRG Energy, Inc. 144A 8.000 12/15/2013 45,000 49,050
Reliant Energy, Inc. 6.750 12/15/2014 20,000 19,875
Reliant Energy, Inc. 9.250 7/15/2010 55,000 61,325
TECO Energy, Inc. 7.500 6/15/2010 50,000 55,250
Texas Utilities Corp. 144A 4.800 11/15/2009 175,000 175,313
Texas Utilities Corp. 144A 5.550 11/15/2014 205,000 203,649
Texas Genco LLC/Texas Genco Financing Corp. 144A 6.875 12/15/2014 50,000 51,688
___________
1,532,813
___________
Total Corporate (Cost $14,007,048) 15,004,809
___________
MUNICIPAL--0.3%
South Carolina Tobacco Settlement Authority (Cost $44,685) 6.000 5/15/2022 50,000 49,402
___________
YANKEE BONDS--8.0%
Bombardier, Inc. 144A(*) 6.300 5/1/2014 100,000 86,750
Crown European Holdings SA 9.500 3/1/2011 175,000 199,500
Culligan Finance Corp., BV 144A 8.000 10/1/2014 100,000 142,443
GT Group Telecom, Inc. Senior Step Up Notes (~) (a) 13.250 2/1/2010 900,000 90
INVISTA 144A 9.250 5/1/2012 230,000 256,450
Jean Coutu Group Pjc, Inc. 144A 7.625 8/1/2012 45,000 47,588
JSG Funding PLC 9.625 10/1/2012 50,000 55,750
Norampac, Inc.(*) 6.750 6/1/2013 45,000 47,363
Nova Chemicals Corp. 6.500 1/15/2012 55,000 58,300
Quebecor Media, Inc. 11.125 7/15/2011 95,000 108,538
Rogers Wireless, Inc. 144A(*) 8.000 12/15/2012 60,000 63,450
Rogers Wireless, Inc. 144A (b) 5.525 12/15/2010 60,000 62,850
Royal Caribbean Cruises Ltd. 8.750 2/2/2011 110,000 129,938
Royal Caribbean Cruises Ltd.(*) (a) 0.000 5/18/2021 50,000 43,125
Russel Metals, Inc. 6.375 3/1/2014 50,000 50,750
Stena AB 7.500 11/1/2013 70,000 73,325
___________
Total Yankee Bonds (Cost $1,732,618) 1,426,210
___________
EURO--2.9%
Hornbach Baumarkt AG 144A 6.125 11/15/2014 EUR 15,000 20,629
NTL Cable PLC 144A(*) 8.750 4/15/2014 135,000 204,202
Remy Cointreau S.A. 144A 6.500 7/1/2010 40,000 57,656
Telenet Communications NV 144A 9.000 12/15/2013 100,000 150,583
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
EURO (CONTINUED)
Valentia Telecommunications Ltd 7.250% 8/15/2013 EUR 60,000 $ 91,348
___________
Total Euro Securities (Cost $283,036) 524,418
___________
TOTAL BONDS AND NOTES (COST $16,122,387) 17,062,727
___________
CONVERTIBLE PREFERRED STOCKS--4.7% SHARES
_______
Fannie Mae 7.00% CVT Pfd 300 $17,006
Ford Motor Co. Capital Trust II 6.50% CVT Pfd 850 44,872
General Motors Corp. Series C 6.25% CVT Pfd 750 19,995
Kansas City Southern 4.25% 144A CVT Pfd 160 105,220
Omnicare, Inc. 4.00% CVT Pfd 700 38,325
Sovereign Capital Trust II 4.375% CVT Pfd 8,850 431,438
Tyco International Group SA 3.125% 144A CVT Pfd 105,000 176,400
___________
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $732,493) 833,256
___________
WARRANTS--0.0%
GT Group Telecom, Inc., 02-01/2010 (^) 1,900 19
McLeod USA, Inc., 04/16/2007 (^) 3,291 691
___________
TOTAL WARRANTS (COST $87,862) 710
___________
SHORT TERM INVESTMENTS--13.6%
INVESTMENT COMPANIES--2.1%
Dreyfus Institutional Preferred Plus Money Market Fund ((+)) 376,823 376,823
INVESTMENT OF CASH COLLATERAL--11.5%
BlackRock Cash Strategies L.L.C.(**) 2,059,543 2,059,543
___________
TOTAL SHORT TERM INVESTMENTS--(Cost $2,436,366) 2,436,366
___________
TOTAL INVESTMENTS--113.9% (COST $19,379,108) 20,333,059
LIABILITIES IN EXCESS OF OTHER ASSETS--(13.9%) (2,478,786)
___________
NET ASSETS--100.0% $17,854,273
___________
NOTES TO SCHEDULE OF INVESTMENTS:
144A-- Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration
to qualified buyers.
CVT--Convertible
(a) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specific rate and date. The rate shown is the rate applicable
at December 31, 2004. The maturity date shown is the ultimate maturity.
(b) Variable Rate Security, rate indicated is as of 12/31/2004.
* Security, or a portion thereof, was on loan at 12/31/2004.
** Money market fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
EUR-Euro
REIT-Real Estate Investment Trust
Step Up--Coupon rate increases in increments to maturity. Rate disclosed is as
of 12/31/2004. Maturity date disclosed is the ultimate maturity.
(+) Affiliated institutional money market fund.
~ Defaulted security.
^ Non-income producing security.
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Fund held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO DELIVERAMOUNTVALUE DATEDECEMBER 31, 2004TO RECEIVE(LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 366,000 3/16/2005 $496,904 $487,342 $(9,562)
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO RECEIVE AMOUNT VALUE DATE DECEMBER 31, 2004 TO DELIVER GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 120,000 3/16/2005 $162,919 $159,590 $3,329
At December 31, 2004, the Fund held the following open swap contracts:
NOTIONAL AMOUNT EXPIRATION DATE DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
420,000 USD 6/20/09 Agreement with Merrill Lynch, dated 7/14/04
to receive 1.60% per year times the notional amount.
The Portfolio makes payment only upon a credit
event by Georgia Pacific Corp., an amount equal to
the notional amount times the difference between
the par value and the then-market of Georgia
Pacific Corp., 8.125% due 5/15/11. $12,085
420,000 USD 6/20/09 Agreement with Merrill Lynch, dated 7/14/04
to pay 0.77% per year times the notional amount.
The Portfolio receives payment only upon a
credit event by Mead Westvaco Corp., an amount
equal to the notional amount times the difference
between the par value and the then-market of
Mead Westvaco Corp., 6.85% due 4/01/12. (7,368)
_______
Total Swap Value $ 4,717
_______
_______
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $2,009,807
(Note 7))
Unaffiliated issuers, at value (Note 1A) (cost $19,002,285) $19,956,236
Affiliated issuers, at value (Note 1A) (cost $376,823) (Note 1H) 376,823
Cash 5,385
Foreign currency, at value (cost $5,243) 5,494
Swap contracts, at value (Note 6) 4,717
Interest and dividends receivable 344,904
Unrealized appreciation on forward foreign currency exchange contracts (Note 6) 3,329
Prepaid expenses 5,619
___________
Total assets 20,702,507
LIABILITIES
Collateral for securities on loan (Note 7) $ 2,059,543
Distribution payable 731,232
Unrealized depreciation on forward currency exchange contracts (Note 6) 9,56
Accrued professional fees 26,516
Accrued accounting, custody, administration and transfer agent fees (Note 2) 14,877
Accrued trustees' fees and expenses (Note 2) 2,199
Accrued expenses and other liabilities 4,305
___________
Total liabilities 2,848,234
___________
NET ASSETS $17,854,273
___________
NET ASSETS CONSIST OF:
Paid-in capital $32,985,327
Accumulated net realized loss (16,118,947)
Net investment income 34,540
Net unrealized appreciation 953,353
___________
TOTAL NET ASSETS $17,854,273
___________
___________
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,022,217
___________
___________
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 17.47
___________
___________
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (including securities lending income of $5,527 (Note 7)) $2,616,134
Interest income from affiliated investments (Note 1H) 10,273
Dividend income 41,378
__________
Total investment income 2,667,785
EXPENSES
Investment advisory fee (Note 2) $ 139,739
Accounting, custody, administration and transfer agent fees (Note 2) 76,995
Professional fees 41,235
Registration fees 6,360
Trustees' fees and expenses (Note 2) 8,030
Insurance expense 8,882
Miscellaneous 7,845
__________
Total expenses 289,086
DEDUCT:
Waiver of investment advisory fee (Note 2) (139,739)
Reimbursement of Fund operating expenses (Note 2) (114,412)
__________
Total expense deductions (254,151)
__________
Net expenses 34,935
__________
Net investment income 2,632,850
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) on:
Investment security transactions 2,710,298
Foreign currency transactions and forward currency exchange contracts (64,55)
Swap transactions (11,910)
__________
Net realized gain 2,633,830
Change in unrealized appreciation (depreciation) on:
Investment securities (1,883,585)
Foreign currency transactions and forward currency exchange contracts 79,267
Swap transactions 16,027
__________
Change in net unrealized appreciation (depreciation) (1,788,291)
__________
Net realized and unrealized gain on investments 845,539
__________
NET INCREASE IN NET ASSETS FROM OPERATIONS $3,478,389
__________
__________
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS:
FROM INVESTMENT OPERATIONS
Net investment income $ 2,632,850 $ 2,973,253
Net realized gains 2,633,830 1,430,331
Change in net unrealized appreciation (depreciation) (1,788,291) 2,875,365
___________ ___________
Net increase in net assets from investment operations 3,478,389 7,278,949
___________ ___________
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income (2,893,284) (3,206,052)
___________ ___________
Total distributions to shareholders (2,893,284) (3,206,052)
___________ ___________
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 1,609,132 30,966,852
Value of shares issued to shareholders in reinvestment of distributions 1,369,851 2,344,012
Cost of shares redeemed (27,553,173) (34,572,371)
____________ ___________
Net (decrease) in net assets from Fund share transactions (24,574,190) (1,261,507)
___________ ___________
TOTAL INCREASE (DECREASE) IN NET ASSETS (23,989,085) 2,811,390
NET ASSETS
At beginning of year 41,843,358 39,031,968
___________ ___________
At end of year (including net investment income of $34,540 and 94,915) $17,854,273 $41,843,358
___________ ___________
___________ ___________
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC HIGH
YIELD FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR THE PERIOD
APRIL 2, 2001
(COMMENCEMENT OF
YEAR ENDED SEPTEMBER 30, OPERATIONS) TO
______________________________________
2004 2003 2002 DECEMBER 31, 2001
_______ _______ _______ ___________________
NET ASSET VALUE, BEGINNING OF YEAR $ 17.64 $ 15.72 $ 16.36 $ 20.00
_______ _______ _______ _______
FROM INVESTMENT OPERATIONS:
Net investment income( (1)*) 1.38 1.36 1.41 1.34
Net realized and unrealized gain (loss) on investments 0.47 1.97 (0.46) (1.93)
_______ _______ _______ _______
Total from investment operations 1.85 3.33 0.95 (0.59)
_______ _______ _______ _______
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (2.02) (1.41) (1.58) (2.98)
From tax return of capital -- -- (0.01) (0.07)
_______ _______ _______ _______
Total distributions to shareholders (2.02) (1.41) (1.59) (3.05)
_______ _______ _______ _______
NET ASSET VALUE, END OF YEAR $ 17.47 $ 17.64 $ 15.72 $ 16.36
_______ _______ _______ _______
_______ _______ _______ _______
TOTAL RETURN((+)) 10.85% 21.77% 6.07% (2.91)%((+)(+)(+))
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*) 0.10% 0.10% 0.10% 0.10 %((+)(+))
Net Investment Income (to average daily net assets)(*) 7.57% 8.00% 8.78% 9.46%((+)(+))
Portfolio Turnover 36% 133% 121% 191%((+)(+)(+))
Net Assets, End of Year (000's omitted) $17,854 $41,843 $39,032 $46,193
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Net investment income per share(1) $ 1.25 $ 1.22 $ 1.31 $ 1.28
Ratios (to average daily net assets):
Expenses 0.83% 0.91% 0.73% 0.54%((+)(+))
Net investment income 6.84% 7.19% 8.15% 9.02%((+)(+))
(1) Calculated based on average shares outstanding.
(+) Total return would have been lower in the absence of fee waivers and
expense limitations.
(+)(+) Computed on an annualized basis.
(+)(+)(+) Not annualized
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD 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 Opportunistic High Yield Bond Fund (the "Fund") is a
separate non-diversified investment series of the Trust.
The objective of the Fund is to maximize total return, consistent with
preserving principal, primarily through the generation of current income
and, to a lesser extent, capital appreciation by investing, under normal
circumstances, at least 80% of net assets in below investment grade fixed
income securities.
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 in the
principal market in which such securities are primarily traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 coupon interest accrued, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis. The Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss from investments. 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 Fund's books and the U.S. dollar equivalent amounts usually received or
paid.
C. FOREIGN CURRENCY TRANSACTIONS
The Fund keeps its books and records in U.S. dollars. Investment security
valuations, other assets, and liabilities initially expressed in foreign
currencies are converted into U.S. dollars based upon current currency
exchange rates at the valuation date. 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.
D. 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
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
E. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income will be declared and distributed
quarterly. 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, foreign
currency gains and losses, post-October losses, amortization and/or
accretion of premiums and discounts on certain securities and the timing of
recognition of gains and losses on futures contracts.
Permanent book and tax basis differences 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 and foreign currency
transactions 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.
F. 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.
G. 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.
H. AFFILIATED ISSUERS
Affiliated issuers represent issuers in which the Fund held investments in
other investment companies advised by Standish Mellon Asset Management
Company LLC ("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 0.40% of the Fund's average daily net assets.
Standish Mellon voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.10% of the Fund's average daily net assets for the year ended December
31, 2004. Pursuant to this agreement, for the year ended December 31, 2004,
Standish Mellon collectively and voluntarily waived its investment advisory
fee in the amount of $139,739 and reimbursed the Fund for $114,412 of its
operating expenses. This agreement is voluntary and temporary and may be
discontinued or revised by Standish Mellon 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 Standish Mellon, 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 paid $3,277 during the period ended
December 31, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, 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 paid $60,759 during the year
ended December 31, 2004.
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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. See Note 7 for further details.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
____________ ____________
Investments (non-U.S. Government Securities) $ 11,814,623 $ 35,491,280
____________ ____________
____________ ____________
(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
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
Shares sold 91,564 1,812,094
Shares issued to shareholders in
reinvestment of distributions declared 78,037 137,526
Shares redeemed (1,519,183) (2,061,476)
__________ __________
Net increase (decrease) (1,349,582) (111,856)
__________ __________
__________ __________
At December 31, 2004, three shareholders of record held approximately 48%
of the total outstanding shares of the Fund. Investment activity of these
shareholders could have a material impact on the Fund.
A significant portion of the Fund's shares represent investments by
fiduciary accounts over which Standish Mellon and its affiliates have
either sole or joint investment discretion.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax cost
as of December 31, 2004, was as follows:
AMOUNT
____________
Unrealized appreciation $ 1,497,960
Unrealized depreciation (558,458)
___________
Net unrealized appreciation/depreciation 939,502
Undistributed ordinary income 28,307
Capital loss carry-forward 16,104,498
Cost for federal income tax purposes $19,393,557
20
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 2004, the Fund, for federal income tax purposes, has
capital loss carryovers of $16,104,478 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
____________ ________________
$ 8,800,951 12/31/2010
7,303,547 12/31/2011
____________
$ 16,104,478
____________
____________
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003, were as follows:
2004 2003
__________ __________
Ordinary income $2,893,284 $3,206,052
(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 any option transactions during the year ended
at December 31, 2004.
FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund 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 Fund primarily to protect the value of the Fund'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.
The Fund held forward currency exchange contracts at December 31, 2004. See
Schedule of Investments for further details.
21
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
FUTURES CONTRACTS
The Fund may enter into financial futures contracts for the delayed sale or
delivery of securities or contracts based on financial indices at a fixed
price on a future date. Pursuant to the margin requirements, the Fund
deposits either cash or securities in an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or received
by the Fund each day, depending on the daily fluctuations in the value of
the underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the value
of their underlying instruments or indices, which may not correlate with
changes in the value of hedged investments. Buying futures tends to
increase the Fund's exposure to the underlying instrument, while selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund investments. In addition, there is the risk that the
Fund may not be able to enter into a closing transaction because of an
illiquid secondary market. Losses may arise if there is an illiquid
secondary market or if the counterparties do not perform under the
contract's terms. The Fund enters into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
securities prices and foreign currencies. Gains and losses are realized
upon the expiration or closing of the futures contracts. Futures contracts
are valued at the quoted daily settlement prices established by the
exchange on which they trade.
The Fund did not enter into any futures contracts during the year ended
December 31, 2004.
SWAP AGREEMENTS
The Fund may enter into 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,
if any, are included as part of realized gain or loss. Entering into these
agreements 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.
The Fund held swap contracts at December 31, 2004. See Schedule of
Investments for further details.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to the
Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment of
the collateral. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears the
risk in the event that the interest and/or dividends received on invested
collateral is not sufficient to meet the Fund's obligations due on the
loans.
The Fund loaned securities during the year ended December 31, 2004
resulting in security lending income of $5,527. At December 31, 2004, the
Fund had securities worth $2,009,807 on loan. See Schedule of Investments
for further detail on the security positions on loan and collateral held.
22
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(8) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Fund instructs its
custodian to segregate securities having value at least equal to the amount
of the purchase commitment.
The Fund may enter into to be announced ("TBA") purchase commitments to
purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Fund holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
Fund may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Investment
security valuations" above.
The Fund may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Fund as an unrealized gain or loss. If the TBA sale commitment is closed
through the acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
The Fund did not enter into any delayed delivery transactions during the
year ended December 31, 2004.
(9) CONCENTRATION OF RISK:
The Fund invests in low rated (non-investment grade) and comparable quality
unrated high yield securities. Investments in high yield securities are
accompanied by a greater degree of credit risk and the value of high yield
securities tends to be more sensitive to economic conditions than higher
rated securities. The risk of loss due to default of an issuer may be
significantly greater for holders of high yield securities, because such
securities are generally unsecured and are often subordinated to other
creditors of the issuer.
There are certain additional considerations and risks associated with
investing in foreign securities and currency transactions that are not
inherent with investments of domestic origin. The Fund's investment in
emerging market countries may involve greater risks than investments in
more developed markets and the price of such investments may be volatile.
These risks of investing in foreign and emerging markets may include
foreign currency exchange rate fluctuations, perceived credit risk, adverse
political and economic developments and possible adverse foreign government
intervention.
(10) 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% committed amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended December 31, 2004, a facility fee of $420
was allocated to the Fund.
During the year ended December 31, 2004, the Fund did not borrow under the
credit facility.
23
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC HIGH YIELD FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Opportunistic High Yield 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 Opportunistic High Yield Bond Fund (the "Fund") at December
31, 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 December 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
24
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $959
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 Fund: $1,052
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 Fund: $959
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 Fund: $959
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer,
Asset Management Executive 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
25
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
26
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One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
Annual Report STANDISH MELLON
OPPORTUNISTIC EMERGING MARKETS DEBT FUND
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its' 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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 OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
The Emerging Market debt asset class performed well in 2004, due both to a
supportive environment for risky assets and to fundamental improvements in the
economic condition of many emerging market countries. Volatility in the Treasury
market did spill over into Emerging Market debt, particularly during the
April-May sell-off. The year 2004 was the third full year for the Opportunistic
Emerging Market Fund and it returned 11.54%, barely behind the J.P. Morgan EMBI
Global benchmark (11.74% return). Uruguay was the best performing market with a
return of 34%; the country continued recovering strongly from its collapse in
2002 and benefited from early constructive signals sent by the incoming Vasquez
administration. Other notable performers included Dominican Republic, Venezuela,
and Ecuador, all with returns above 20%, the later two helped by strong oil
prices and reduced political uncertainty. The worst performing market in the
high-beta universe was Ukraine; it managed a 7.2% return in 2004, as political
noise was a constant throughout the year. Other key markets such as Mexico and
Russia returned 8.6% and 11.5%, respectively. Argentina's bond prices also
performed strongly, returning 19.8%, as its long-delayed exchange draws nearer.
Emerging market debt was driven by three important factors for most of 2004: the
US economic outlook, continued improvements in Emerging Market countries'
fundamentals, and new inflows into the asset class.
Early in the year, strong inflows into the asset class kept the momentum from
2003 going, but long-duration supply and political scandals in EM bellwether
Brazil put some pressure on spreads, which range-traded during most of the first
four months of the year. However, due to stronger than expected payroll reports,
Treasuries sold off by over 100 bps during April and May. This negatively
affected emerging market spreads as investors remembered the fallout from the
1994 Mexico crisis that was in part caused by a rise in Treasury yields.
Throughout this period, EM spreads widened by more than 100 basis points.
EM spreads remained volatile until late May, when tame inflation and weak
employment growth led the market to believe that a dramatic tightening by the
Fed was not to occur. Since then, EM spreads have been on a clear downward path.
Once US Treasury rates stabilized, emerging market spreads continued to
contract, falling by 200 basis points by yearend. Throughout the year, but
especially in the second half, new inflows into the asset class from
institutional and retail investors helped keep bond prices well supported.
Moreover, most of the positive rating actions in EM universe materialized
throughout the second half of the year, supporting higher bond valuations.
In late June the Federal Reserve began its long awaited tightening process,
raising its benchmark rate by 25 basis points. In total, the Fed tightened rates
by 125 basis points in 2004. Its' "measured" pace of tightening has provided
support to fixed income markets.
In terms of performance, the Fund had two distinct phases. During the first half
of the year, performance was disappointing, as risk in high-beta credits and
interest rate duration were not cut enough during the April-May selloff.
However, the underperformance was almost made up during the second half, as the
Fund correctly overweighted high-beta assets in Brazil, Ecuador, Argentina
(Boden 12), Russia (Aries bonds) and Turkey.
2
In 2005 we expect the first half of the year to be somewhat of a continuation of
the trends in 2004 with the Federal Reserve continuing its policy
"normalization" and continued credit improvement in many emerging markets.
During the second half of the year the outlook is less certain as, depending on
incoming data on inflation and growth, the Federal Reserve might change its
"measured" pace of tightening and all fixed income assets, including emerging
market debt, might overshoot in either direction. Other factors such as a
disorderly decline in the value of the US dollar, another terrorist strike or
investor uneasiness with upcoming elections in several countries during 2006
could pose challenges during the course of the year.
We thank you for your continued support.
/s/John L. Peta /s/Boris Seguna
John L. Peta Boris Seguna
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
OPPORTUNISTIC EMERGING MARKETS DEBT FUND AND THE JP MORGAN EMBI GLOBAL INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 03/27/2001
- --------------------------------------------------------------------------------
11.54% 17.60% 16.09%
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 STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT 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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 July 1, 2004 to
July 1, 2004 December 31, 2004 December 31, 2004
- --------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,166.00 $1.63
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.63 $1.53
(
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.30%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(TO REFLECT THE ONE-HALF YEAR PERIOD).
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
FUND INFORMATION AS OF DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOP TEN HOLDINGS RATE MATURITY NET ASSETS
- ---------------------------------------------------------------------------------------------------------
Russian Federation 144A 5.000 3/31/2030 9.6%
Republic of Brazil 11.000 8/17/2040 4.7
Republic of Brazil 10.125 5/15/2027 3.7
Banco Nacional de Comercio Exterior SNC 144A 3.875 1/21/2009 3.5
Aries Vermogensverwaltng 144A 7.750 10/25/2009 3.5
Republic of Argentina 6.000 3/31/2023 3.0
Republic of Argentina 2.008 8/3/2012 2.9
Republic of Turkey 11.875 1/15/2030 2.8
Republic of Venezuela 9.250 9/15/2027 2.7
Petroliam Nasional Berhad 144A 7.750 8/15/2015 2.7
____
39.1%
PERCENTAGE OF
GEOGRAPHIC REGION INVESTMENTS
--------------------------------------------
Latin America 61.4%
Europe 20.0
Middle East 8.6
Asia 4.5
Africa 4.0
Cash & Equivalents 1.5
_____
100.0%
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- -----------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--98.7%
CORPORATE--9.0%
ENERGY--9.0%
Morgan Stanley Bank AG for OAO Gazprom 144A 9.625% 3/1/2013 USD 75,000 $ 88,50
Pemex Project Funding Master Trust 144A 3.790 6/15/2010 95,000 97,470
Pemex Project Funding Master Trust 7.375 12/15/2014 120,000 133,380
Pemex Project Funding Master Trust 8.625 2/1/2022 240,000 278,640
Petroliam Nasional Berhad 144A 7.750 8/15/2015 240,000 293,089
Salomon Brothers AF for OAO Siberian Oil Co. 10.750 1/15/2009 95,000 101,175
___________
Total Corporate (Cost $966,410) 992,254
___________
SOVEREIGN BONDS--85.9%
Banco Nacional de Comercio Exterior SNC 144A 3.875 1/21/2009 400,000 390,000
Dominican Republic 144A 9.500 9/27/2006 120,000 112,200
Ministry Finance Russia 3.000 5/14/2008 190,000 176,225
Nigeria Promissory Notes Series RC 5.092 1/5/2010 470,000 157,450
Philippine Government International Bond 9.375 1/18/2017 170,000 176,588
Republic of Argentina 2.008 8/3/2012 380,000 324,520
Republic of Argentina 12.250 6/19/2018 84,900 28,017
Republic of Argentina 6.000 3/31/2023 590,000 330,400
Republic of Argentina 12.000 6/19/2031 137,800 45,474
Republic of Brazil 14.500 10/15/2009 120,000 160,020
Republic of Brazil 12.000 4/15/2010 210,000 259,350
Republic of Brazil 11.000 1/11/2012 165,000 200,310
Republic of Brazil 3.125 4/15/2012 304,830 290,350
Republic of Brazil 10.125 5/15/2027 355,000 404,280
Republic of Brazil 11.000 8/17/2040 435,000 515,910
Republic of Brazil (a) 3.063 4/15/2024 195,000 180,375
Republic of Brazil* 14.500 10/15/2009 20,000 26,668
Republic of Colombia 10.500 7/9/2010 65,000 75,725
Republic of Colombia 10.000 1/23/2012 65,000 75,075
Republic of Colombia 10.750 1/15/2013 30,000 35,850
Republic of Colombia* 9.750 4/23/2009 115,000 131,100
Republic of Colombia* 8.125 5/21/2024 100,000 97,000
Republic of Ecuador 144A 12.000 11/15/2012 85,000 87,125
Republic of Ecuador 8.000 8/15/2030 80,000 69,600
Republic of El Salvador 8.250 4/10/2032 55,000 55,550
Republic of El Salvador 144A 8.500 7/25/2011 20,000 22,850
Republic of El Salvador 144A 7.750 1/24/2023 75,000 81,938
Republic of Indonesia 144A 6.750 3/10/2014 25,000 25,063
Republic of Panama 9.625 2/8/2011 115,000 136,275
Republic of Panama 7.250 3/15/2015 40,000 41,400
Republic of Panama 8.875 9/30/2027 160,000 177,600
Republic of Peru 9.125 2/21/2012 150,000 174,375
Republic of Peru 9.875 2/6/2015 60,000 74,100
Republic of Peru 8.375 5/3/2016 40,000 44,800
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SOVEREIGN BONDS (CONTINUED)
Republic of Peru 4.500% 3/7/2017 USD 150,000 $ 140,250
Republic of South Africa 9.125 5/19/2009 95,000 112,201
Republic of South Africa 6.500 6/2/2014 130,000 141,674
Republic of Turkey 10.500 1/13/2008 70,000 80,222
Republic of Turkey 11.750 6/15/2010 200,000 251,300
Republic of Turkey 11.500 1/23/2012 135,000 173,603
Republic of Turkey 11.875 1/15/2030 213,000 306,654
Republic of Turkey 8.000 2/14/2034 45,000 46,558
Republic of Uruguay 7.500 3/15/2015 138,000 134,895
Republic of Venezuela 5.375 8/7/2010 110,000 103,290
Republic of Venezuela 3.090 4/20/2011 150,000 136,125
Republic of Venezuela 8.500 10/8/2014 30,000 31,500
Republic of Venezuela 9.250 9/15/2027 280,000 295,400
Russian Federation 12.750 6/24/2028 80,000 130,850
Russian Federation 144A 5.000 3/31/2030 1,020,000 1,051,875
Serbian Government # 3.750 11/15/2024 105,000 87,413
Ukraine Government 144A 6.365 8/5/2009 100,000 105,561
Ukraine Government 144A* 7.650 6/11/2013 100,000 106,500
Ukraine Government Senior Notes 11.000 3/15/2007 60,668 65,029
United Mexican States 7.500 1/14/2012 50,000 56,700
United Mexican States 9.875 2/1/2010 140,000 172,550
United Mexican States 6.375 1/16/2013 55,000 58,438
United Mexican States 6.625 3/3/2015 65,000 69,810
United Mexican States 8.125 12/30/2019 55,000 64,763
United Mexican States 8.000 9/24/2022 140,000 161,700
United Mexican States 7.500 4/8/2033 119,000 128,818
United Mexican States 6.750 9/27/2034 50,000 49,450
___________
Total Sovereign Bonds (Cost $8,885,493) 9,446,692
___________
FOREIGN DENOMINATED--3.8%
EURO--3.5%
Aries Vermogensverwaltng 144A 7.750 10/25/2009 EUR 250,000 387,479
___________
FRENCH FRANC--0.3%
Ivory Coast FLIRB ~ 2.000 3/29/2018 FRF 1,170,000 37,503
___________
Total Foreign Denominated (Cost $358,978) 424,982
___________
TOTAL BONDS AND NOTES (COST $10,210,881) 10,863,928
___________
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--5.6%
U.S. GOVERNMENT--0.2%
U.S. Treasury Bill ((+)(+)) 2.215% 3/17/2005 USD 25,000 $24,894
INVESTMENT COMPANIES--1.9% SHARES
_________
Dreyfus Institutional Preferred Plus Money Market Fund ((+)) 209,372 209,372
INVESTMENT OF CASH COLLATERAL--3.5%
BlackRock Cash Strategies L.L.C ** 381,850 381,850
___________
TOTAL SHORT TERM INVESTMENTS (Cost $616,109) 616,116
___________
TOTAL INVESTMENTS--104.3% (Cost $10,826,990) 11,480,044
LIABILTIES IN EXCESS OF OTHER ASSETS--(4.3)% (477,922)
___________
NET ASSETS--100% $11,002,122
___________
___________
NOTES TO SCHEDULE OF INVESTMENTS:
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration
to qualified buyers.
(a) Variable Rate Security, rate indicated is as of 12/31/04.
* Security, or a portion thereof, was on loan at December 31, 2004.
** Money Market Fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
FLIRB-Front Loaded Interest Reduction Bond
~ Defaulted security.
EUR-Euro
FRF-French Franc
USD-United States Dollar
(+) Affiliated institutional money market fund.
(+)(+) Security is pledged as collateral for futures contracts.
# Delayed delivery security
At December 31, 2004 the Fund held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO RECEIVE AMOUNT VALUE DATE DECEMBER 31, 2004 TO DELIVER GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Brazilian Real 300,000 1/14/2005 $112,300 $106,838 $ 5,462
Euro 154,000 3/16/2005 209,080 205,282 3,798
________ ________ ________
TOTAL $321,380 $312,120 $ 9,260
________ ________ ________
________ ________ ________
LOCAL
PRINCIPAL CONTRACT VALUE USD AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE AT DECEMBER 31, 2004 TO RECEIVE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
Euro 382,000 3/16/2005 $518,627 $511,273 $(7,354)
At December 31, 2004 the Fund held the following futures contracts:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. 10 Year Note (5 Contracts) Short 3/21/2005 $554,977 $(4,733)
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Fund held the following swap contracts:
NOTIONAL AMOUNT EXPIRATION DATE DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
275,000 USD 12/20/07 Agreement with Bear Stearns, dated 12/08/04
to receive 2.05% per year times the notional amount.
The Fund makes payment only upon a credit
event by Republic of Turkey, an amount equal to the
notional amount times the difference between the par
value and the then-market of Republic of Turkey,
11.875% due 1/15/30. $ 3,088
110,000 USD 12/20/09 Agreement with Bear Stearns, dated 11/17/04
to receive 2.84% per year times the notional amount.
The Fund makes payment only upon a credit event
by Ukraine Government, an amount equal to the notional
amount times the difference between the par value and the
then-market of Ukraine Government, 7.65% due 6/11/13. 1,585
275,000 USD 12/20/05 Agreement with Bear Stearns, dated 12/08/04
to pay 1.05% per year times the notional amount.
The Fund receives payment only upon a credit
event by Republic of Turkey, an amount equal to the
notional amount times the difference between the par
value and the then-market of Republic of Turkey,
11.875% due 1/15/30. (338)
110,000 USD 11/19/09 Agreement with Bear Stearns, dated 11/17/04
to receive the notional amount multiplied
by 3.90700% and to pay the notional amount
multiplied by the 3 month LIBOR. (237)
________
Total Swap Value $ 4,098
________
________
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $371,647)
(Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $10,617,618) $11,270,672
Affiliated issuers, at value (Note 1A) (cost $209,372) (Note 1H) 209,372
Foreign currency (cost $17,785) 17,779
Receivable for securities sold 32,341
Interest and dividends receivable 213,072
Open swap contracts, at value (Note 6) 4,098
Unrealized appreciation on forward currency exchange contracts (Note 6) 9,260
Prepaid expenses 3,569
___________
Total assets 11,760,163
LIABILITIES
Collateral for securities on loan (Note 7) $ 381,850
Distribution payable 239,503
Payable for securities purchased 87,413
Unrealized depreciation on forward currency exchange contracts (Note 6) 7,35
Accrued accounting, custody, administration and transfer agent fees (Note 2)
11,702
Payable for variation margin on open futures contracts (Note 6) 1,328
Accrued trustees' fees and expenses (Note 2) 1,321
Accrued expenses and other liabilities 27,570
___________
Total liabilities 758,041
___________
NET ASSETS $11,002,122
___________
___________
NET ASSETS CONSIST OF:
Paid-in capital $10,167,953
Accumulated net realized gain 195,678
Distributions in excess of net investment income (16,065)
Net unrealized appreciation 654,556
___________
TOTAL NET ASSETS $11,002,122
___________
___________
SHARES OF BENEFICIAL INTEREST OUTSTANDING 540,022
___________
___________
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 20.37
___________
___________
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (including securities lending income of $6,591 (Note 7)) $1,190,422
Interest income from affiliated investments (Note 1H) 4,320
__________
Total investment income 1,194,742
EXPENSES
Investment advisory fee (Note 2) $ 76,578
Accounting, custody, administration and transfer agent fees (Note 2) 55,633
Professional fees 34,239
Registration fees 3,795
Trustees' fees and expenses (Note 2) 4,746
Insurance expense 5,183
Miscellaneous 7,468
__________
Total expenses 187,642
Deduct:
Waiver of investment advisory fee (Note 2) (76,578)
Reimbursement of Fund operating expenses (Note 2) (65,117)
__________
Total expense deductions (141,695)
__________
Net expenses 45,947
__________
Net investment income 1,148,795
__________
REALIZED AND UNREALIZED GAIN (LOSS) ON:
Net realized gain (loss)
Investment security transactions 657,102
Financial futures contracts (9,796)
Foreign currency transactions and forward currency exchange contracts (40,954)
Written options transactions 12,115
__________
Net realized gain 618,467
Change in unrealized appreciation (depreciation) on:
Investment securities 103,092
Financial futures contracts (4,733)
Swap contracts 4,098
Foreign currency transactions and forward currency exchange contracts 9,716
Written options (328)
__________
Change in net unrealized appreciation (depreciation) 111,845
__________
Net realized and unrealized gain on investments 730,312
__________
NET INCREASE IN NET ASSETS FROM OPERATIONS $1,879,107
__________
__________
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 1,148,795 $ 717,550
Net realized gain 618,467 1,285,953
Change in net unrealized appreciation (depreciation) 111,845 222,613
____________ ____________
Net increase in net assets from investment operations 1,879,107 2,226,116
____________ ____________
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income (1,054,097) (694,242)
From net realized gains on investments (668,039) (1,050,575)
____________ ____________
Total distributions to shareholders (1,722,136) (1,744,817)
____________ ____________
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 3,011,075 11,826,248
Value of shares issued to shareholders in reinvestment of distributions 1,122,390 1,543,165
Cost of shares redeemed (9,520,626) (4,887,894)
____________ ____________
Net increase (decrease) in net assets from Fund share transactions (5,387,161) 8,481,519
____________ ____________
TOTAL INCREASE (DECREASE) IN NET ASSETS (5,230,190) 8,962,818
NET ASSETS
At beginning of year 16,232,312 7,269,494
____________ ____________
At end of year (including distributions in excess of
net investment income of $16,065 and $4,825) $11,002,122 $16,232,312
____________ ____________
____________ ____________
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON OPPORTUNISTIC
EMERGING MARKETS DEBT FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR THE PERIOD
MARCH 26, 2001
(COMMENCEMENT
YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
_______________________________________
2004 2003 2002 DECEMBER 31, 2001
_______ _______ ______ __________________
NET ASSET VALUE, BEGINNING OF YEAR $ 20.81 $ 18.39 $17.67 $20.00
_______ _______ ______ ______
FROM INVESTMENT OPERATIONS:
Net investment income (1)* 1.56 1.61 1.59 1.58
Net realized and unrealized gain (loss) on investments 0.72 3.59 0.65 0.10
_______ _______ ______ ______
Total from investment operations 2.28 5.20 2.24 1.68
_______ _______ ______ ______
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.53) (1.32) (1.52) (3.90)
From net realized gain on investments (1.19) (1.46) -- --
From tax return of capital -- -- -- (0.11)
_______ _______ ______ ______
Total distributions to shareholders (2.72) (2.78) (1.52) (4.01)
_______ _______ ______ ______
NET ASSET VALUE, END OF YEAR $ 20.37 $ 20.81 $18.39 $17.67
_______ _______ ______ ______
_______ _______ ______ ______
TOTAL RETURN((+)(+)(+)) 11.54% 28.82% 13.20% 8.94%((+)(+))
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*) 0.30% 0.30% 0.30% 0.30%((+))
Net Investment Income (to average daily net assets)(*) 7.53% 7.64% 8.83% 10.33%((+))
Portfolio Turnover 228% 224% 421% 505%((+)(+))
Net Assets, End of Year (000's omitted) $11,002 $16,232 $7,269 $3,702
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Net investment income per share(1) $ 1.37 $ 1.26 $ 1.23 $ 1.34
Ratios (to average daily net assets):
Expenses 1.23% 1.92% 2.31% 1.82%((+))
Net investment income 6.60% 6.02% 6.82% 8.81%((+)
(1) Calculated based on average shares outstanding.
(+) Computed on an annualized basis.
(+)(+) Not annualized.
(+)(+)(+) Total return would have been lower in the absence of fee waivers and
expense limitations.
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT 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 Opportunistic Emerging Markets Debt Fund (the "Fund") is a
separate non-diversified investment series of the Trust.
The objective of the Fund is to generate a high total return through a
combination of capital appreciation and income. The fund seeks to achieve
its objective by investing, under normal circumstances, at least 80% of net
assets in fixed income securities issued by governments, companies and
banks of emerging markets, as well as preferred stocks, warrants and
tax-exempt bonds.
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 in the
principal market in which such securities are primarily traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 coupon interest accrued, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis. The Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss from investments. 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 Fund's books and the U.S. dollar equivalent amounts usually received or
paid.
C. 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 at the valuation date. 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.
D. 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
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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.
E. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income will be declared and distributed
quarterly. 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, foreign
currency gains and losses, post-October losses, amortization and/or
accretion of premiums and discounts on certain securities and the timing of
recognition of gains and losses on futures contracts.
Permanent book and tax basis differences 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 and foreign currency
transactions 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.
F. 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.
G. 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.
H. AFFILIATED ISSUERS
Affiliated issuers represent issuers the Fund held in other investment
companies advised by Standish Mellon Asset Management Company LLC
("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 0.50% of the Fund's average daily net assets.
Standish Mellon voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.30% of the Fund's average daily net assets for the year ended December
31, 2004. Pursuant to this agreement, for the year ended December 31, 2004,
Standish Mellon voluntarily waived its investment advisory fee in the
amount of $76,578 and reimbursed the Fund for $65,117 of other operating
expenses. This agreement is voluntary and temporary and may be discontinued
or revised by Standish Mellon 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 Standish Mellon, 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 paid $2,655 during the period ended
December 31, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, 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 paid $41,014 during the year
ended December 31, 2004.
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. See Note 7 for further details.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
__________ __________
U.S. Government Securities $ 463,008 $ 468,904
____________ ____________
____________ ____________
Investments (non-U.S. Government Securities) $ 32,386,509 $ 37,248,523
____________ ____________
____________ ____________
(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
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
Shares sold 158,814 548,758
Shares issued to shareholders in
reinvestment of distributions 55,260 74,295
Shares redeemed (454,120) (238,253)
________ ________
Net decrease (240,046) 384,800
________ ________
________ ________
At December 31, 2004, five shareholders of record held approximately 79% of
the total outstanding shares of the Fund. Investment activity of these
shareholders could have a material impact on the Fund.
A significant portion of the Fund's shares represent investments by
fiduciary accounts over which Standish Mellon and its affiliates have
either sole or joint investment discretion.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax cost
as of December 31, 2004, was as follows:
AMOUNT
________
Unrealized appreciation $644,557
Unrealized depreciation (75,906)
________
Net unrealized appreciation/depreciation 568,651
Undistributed ordinary income 235,920
Cost for federal income tax purposes $10,911,393
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003, were as follows:
2004 2003
__________ __________
Ordinary income $1,653,944 $1,697,933
Capital gains 68,192 46,884
__________ __________
Total Distributions $1,722,136 $1,744,817
__________ __________
__________ __________
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT 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 had entered into option transactions during the year ended
December 31, 2004. The detail of those option transactions were as follows
NUMBER OF
WRITTEN PUT OPTION TRANSACTIONS CONTRACTS PREMIUMS
__________ __________
Outstanding, beginning of year 1 4,688
Options written 1 4,219
Options expired (2) (8,907)
__________ __________
Outstanding, end of year 0 0
__________ __________
__________ __________
NUMBER OF
WRITTEN CALL OPTION TRANSACTIONS CONTRACTS PREMIUMS
__________ __________
Outstanding, beginning of year 1 3,500
Options written 1 4,219
Options closed (2) (7,719)
__________ __________
Outstanding, end of year 0 0
__________ __________
__________ __________
FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund 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 Fund primarily to protect the value of the Fund'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.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Fund held these contracts at December 31, 2004. See Schedule of
Investments for further details.
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.
The Fund held these contracts at December 31, 2004. See Schedule of
Investments for further details.
SWAP AGREEMENTS
The Fund may enter into 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,
if any, are included as part of realized gain or loss. Entering into these
agreements 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.
The Fund held swap contracts at December 31, 2004. See Schedule of
Investments for further details.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to the
Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment of
the collateral. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears the
risk in the event that the interest and/or dividends received on invested
collateral is not sufficient to meet the Fund's obligations due on the
loans.
The Fund loaned securities during the year ended December 31, 2004
resulting in security lending income of $6,591. At December 31, 2004, the
Fund had securities valued at $371,647 on loan. See Schedule of Investments
for further detail on the security positions on loan and collateral held.
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(8) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Fund instructs its
custodian to segregate securities having value at least equal to the amount
of the purchase commitment.
The Fund may enter into to be announced ("TBA") purchase commitments to
purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Fund holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
Fund may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Investment
security valuations" above.
The Fund may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Fund as an unrealized gain or loss. If the TBA sale commitment is closed
through the acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
The Fund held delayed delivery securities during the year ended December
31, 2004. See Schedule of Investments for further details.
(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% committed amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended December 31, 2004, a facility fee of $140
was allocated to the Fund.
During the year ended December 31, 2004, the Fund had average borrowings
outstanding of $45,400 on a total of fifteen days and incurred $50 of
interest expense.
20
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST
STANDISH MELLON OPPORTUNISTIC EMERGING MARKETS DEBT FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Opportunistic Emerging Markets Debt 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 Opportunistic Emerging Markets Debt Fund (the "Fund") at
December 31, 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 December 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
21
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $675
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 Fund: $711
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 Fund: $675
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 Fund: $675
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer,
Asset Management Executive 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
22
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
23
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One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
Annual Report STANDISH MELLON
INVESTMENT GRADE BOND FUND
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
Thank you for your business and confidence in Mellon Institutional Funds. Please
feel free to contact us with questions or comments.
Sincerely,
Patrick J. Sheppard
One Boston Place * Boston, MA 02108-4402
A MELLON ASSET MANAGEMENT COMPANY
1
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
Economic activity maintained a healthy pace in 2004. The employment picture
improved with monthly job gains averaging approximately 185,000. Investment
spending and capacity utilization picked up, and despite higher interest rates,
the housing market and consumer spending kept pace. For the year ending December
31, 2004, the Standish Mellon Investment Grade Bond Fund returned 4.53% while
the Lehman Brothers Aggregate Index returned 4.34% for the same period. Amid
rising oil prices and a weaker dollar, the Federal Reserve maintained a tame
inflation outlook. Bond market volatility was low as the Fed hiked interest
rates in a predictable and steady fashion from 1% to 2.25% by the end of the
year. The unusual aspect of this tightening cycle has been the decline in 10-
and 30-year yields as short rates have risen. So while the yield curve has
flattened similarly to previous cycles, long-term interest rates have moved to
lower levels than expected. To a large degree, the massive foreign purchases of
U.S. Treasuries have kept long-term interest rates lower than anticipated during
a period of tighter monetary policy.
Over the past year, broad sectors outperformed Treasuries with particularly
strong excess returns from investment grade corporate bonds. Spread sectors,
especially mortgages, benefited from declining interest rate volatility. The
credit sector fared well amid steady economic activity. Treasury
inflation-protected securities (TIPS) outperformed nominal Treasuries as both
actual and expected levels of inflation rose. Over the course of the year, the
primary sources of outperformance were the overweight positions in corporate
bonds and TIPS, as well as the defensive yield curve strategy. As the curve
flattened, the Fund's underweight position in intermediate bonds (bullet
strategy) relative to cash and longer maturities (barbell strategy) benefited
returns. Portfolio positioning also capitalized on the lower volatility
environment with an increased allocation to mortgages. Toward year-end, with
much narrower corporate bond spreads, we selectively reduced the Fund's
investment grade credit exposure.
We believe prospects for economic growth in 2005 are good. We expect reasonably
strong economic data will support continued rate hikes by the Fed. Under tighter
monetary conditions, we anticipate upward pressure on interest rates and a
flatter yield curve. With today's low volatility environment and narrow yield
spreads, many sectors appear overvalued. Given the vulnerability to a correction
in spread sectors, we have positioned the Fund defensively, particularly with a
reduced corporate bond position. We have increased our allocation to Treasury
inflation-protected securities as seasonal inflation patterns and breakeven
inflation rates in the area of 2.5% make TIPS attractive relative to nominal
Treasuries. Ultimately, if as we expect, the Fed maintains their tightening
stance, the Fund's shorter than benchmark duration and barbell curve position
will continue to contribute positively to performance.
As always, we look forward to serving you in the coming year.
Catherine Powers Marc Seidner
2
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
INVESTMENT GRADE BOND FUND AND THE LEHMAN AGGREGATE INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 06/01/2000
- ------------------------------------------------------------------------------------------------------------------------------------
4.53% 5.57% 7.60%
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 INVESTMENT GRADE
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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JULY 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
- ------------------------------------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,043.50 $2.05
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.13 $2.03
(
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.40%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(TO REFLECT THE ONE-HALF YEAR PERIOD).
4
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
FUND INFORMATION AS OF DECEMBER 31, 2004
- --------------------------------------------------------------------------------
SUMMARY OF COMBINED RATINGS
----------------------------------------------------------------
PERCENTAGE OF
QUALITY BREAKDOWN INVESTMENTS
----------------------------------------------------------------
Treasury/Agency 50.1%
AAA 9.1
AA 3.7
A 13.4
BBB 23.7
_____
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
----------------------------------------------------------------------------------------------------------
FNMA TBA 6.000% 1/1/2035 7.3%
FNMA TBA 5.500 1/1/2020 5.4
FNMA TBA 5.500 1/1/2035 3.8
FNMA TBA 6.000 1/1/2020 3.4
U.S. Treasury Inflation Index Bonds (TIPS) 3.000 7/15/2012 3.1
FNMA TBA 5.000 1/1/2020 2.9
US Treasury Bonds 6.250 5/15/2030 2.8
Chase Manhattan Auto Owner Trust 1.520 5/15/2007 1.8
FNMA 5.500 2/1/2033 1.5
FNMA 5.500 10/1/2033 1.4
_____
33.4%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
--------------------------------------------
Treasury/Agency 14.5%
Mortgage pass thru 35.1
Credit 34.2
ABS/CMO/CMBS 15.7
Cash & equivalents 0.5
_____
100.0%
The Fund is actively managed. Current holdings may be different than
those presented above.
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--118.9%
ASSET BACKED--21.7%
American Express Credit Account Master Trust 2000-2 B (a) 2.753% 9/17/2007 $ 175,000 $ 175,031
American Express Credit Account Master Trust 2004-C (a) 2.903 2/15/2012 500,000 500,733
American Express Master Trust 2002-1 A(a) 2.473 12/15/2005 475,000 475,029
Ameriquest Mortgage Securities Inc. 2003-8 AF3 4.370 10/25/2033 300,000 300,217
Capital One Multi-Asset Execution Trust 2002-B1 B1 (a) 3.083 7/15/2008 625,000 626,684
Capital One Multi-Asset Execution Trust 2004-C1 C1 3.400 11/16/2009 260,000 258,052
Capital One Prime Auto Receivables Trust 2004-1 A3 2.020 11/15/2007 50,000 49,512
Centex Home Equity 2004-B AF2 2.375 12/25/2021 150,000 147,994
Chase Credit Card Master Trust 2000-3 A (a) 2.533 1/15/2008 270,000 270,249
Chase Credit Card Master Trust 2002-6 B (a) 2.753 1/15/2008 250,000 250,358
Chase Credit Card Master Trust 2002-8 A (a) 2.463 3/17/2008 215,000 215,113
Chase Funding Loan Acquisition Trust 2.598 9/25/2013 74,605 74,618
Chase Manhattan Auto Owner Trust 1.520 5/15/2007 951,252 944,268
Chase Manhattan Auto Owner Trust 2003-C CTFS 2.780 6/15/2010 225,000 222,796
Centex Home Equity Co. LLC 2004-2 A1 (a) 2.588 1/25/2025 201,224 201,228
Chase Credit Card Master Trust 2002-2 C (a) 3.303 7/16/2007 315,000 315,549
Citibank Credit Card Issuance Trust 2001-C3 C3 6.650 5/15/2008 325,000 338,143
Citibank Credit Card Issuance Trust 2002-A2 A2 (a) 2.320 2/15/2007 480,000 479,873
Countrywide Asset-Backed Certificates 2004-10 2AV1 (a) 2.578 9/25/2023 223,222 223,244
Countrywide Asset-Backed Certificates 2004-14 A1 (a) 2.560 12/25/2022 305,000 305,000
Ford Credit Auto Owner Trust 2002-B A4 4.750 8/15/2006 250,000 251,934
Household Credit Card Master Note Trust I 2001 Cl A (a) 2.543 8/15/2008 350,000 350,429
Hyundai Auto Receivables Trust 2004-A B 3.460 8/15/2011 275,000 272,876
John Deere Owner Trust 2004-A A1 1.140 5/13/2005 158,704 158,569
MBNA Credit Card Master Note Trust 2001-C3 C3 6.550 12/15/2008 225,000 234,773
Morgan Stanley Auto Loan Trust 2004-HB1 A1 1.330 5/15/2006 15,451 15,438
Option One Mortgage Loan Trust 2004-3 A2 (a) 2.568 11/25/2034 317,768 317,774
Residential Asset Mortgage Products, Inc. 2003-RS11 AI2 3.047 3/25/2025 155,000 154,478
Residential Asset Mortgage Products, Inc. 2004-RS12 AII1 (a) 2.547 5/25/2027 385,000 385,000
Residential Asset Mortgage Products, Inc., 2004-RS8 AI2 3.810 1/25/2026 315,000 315,053
Residential Asset Securities Corp. 2004-KS10 AI1 (a) 2.588 3/25/2025 165,749 165,767
Residential Asset Securties Corp. 2003-KS11 AI1 (a) 2.588 9/25/2021 97,832 97,847
Specialty Underwriting & Residential Finance (a) 2.570 10/25/2035 320,000 320,000
USA Auto Owner Trust 2004-1 A3 2.060 4/15/2008 300,000 296,036
USA Auto Owner Trust 2004-3 A1 2.337 11/15/2005 221,969 221,890
WFS Financial Owner Trust 2004-3 B 3.510 2/17/2012 160,000 159,383
WFS Financial Owner Trust 2004-1 D 3.170 8/22/2011 251,698 249,480
WFS Financial Owner Trust 2004-4 C 3.210 5/17/2012 235,000 233,938
Whole Auto Loan Trust 2003-1 C 3.130 3/15/2010 180,833 179,919
Whole Auto Loan Trust 2004-1 A1 2.150 10/15/2005 407,543 407,163
___________
Total Asset Backed (Cost $11,205,369) 11,161,438
___________
COLLATERALIZED MORTGAGE OBLIGATIONS--8.9%
GNMA 3.402 3/16/2020 247,487 244,187
GNMA 3.084 1/16/2022 274,196 267,607
GNMA 1.698 11/16/2006 228,696 228,214
GNMA 3.648 9/16/2017 319,383 318,004
GNMA 2.946 3/16/2019 300,000 291,484
GNMA 3.360 8/16/2022 306,221 301,101
The accompanying notes are an integral part of the financial statements.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
COLLATERALIZED MORTGAGE OBLIGATIONS (CONTINUED)
GNMA 4.145% 2/16/2018 $ 269,175 $ 270,932
GNMA 3.022 1/16/2019 147,067 144,278
GNMA 2.822 12/16/2019 293,548 286,131
GNMA 3.110 1/16/2019 283,476 277,316
GNMA 3.377 1/16/2023 275,000 270,443
GNMA 2003-48 AC 2.712 2/16/2020 271,254 265,150
GNMA 2003-72 A 3.206 4/16/2018 134,822 133,259
GNMA 2003-88 AC 2.914 6/16/2018 138,480 135,584
GNMA 2003-96 B 3.607 8/16/2018 310,000 307,789
Housing Securties, Inc. 1994-2 A1 6.500 7/25/2009 25,403 25,359
Structured Asset Mortgage Investments, Inc. 1998-2 B 6.750 4/30/2030 5,407 5,390
Washington Mutual 2003-AR10 A5 4.078 10/25/2033 325,000 323,140
Washington Mutual 2004-AR7 A6 (a) 3.950 7/25/2034 300,000 296,448
Washington Mutual 2004-AR9 A7 (a) 4.232 8/25/2034 210,000 210,165
___________
Total Collateralized Mortgage Obligations (Cost $4,625,227) 4,601,981
___________
CORPORATE--28.6%
BANKING--6.4%
Amsouth Bank NA 4.850 4/1/2013 125,000 124,865
Bank of America Corp. 7.400 1/15/2011 205,000 237,467
Branch Banking & Trust Co. Wilson North Carolina 5.200 12/23/2015 315,000 321,093
CBA Capital Trust I 144A 5.805 6/30/2015 125,000 130,129
City National Corp. 5.125 2/15/2013 150,000 151,502
JP Morgan Chase & Co. 5.125 9/15/2014 290,000 291,902
National City Corp. 6.875 5/15/2019 250,000 285,694
Rabobank Cap Fd Trust III 144A 5.254 10/15/2049 170,000 169,076
Regions Financial Corp. 6.375 5/15/2012 90,000 99,221
Southtrust Corp. 5.800 6/15/2014 80,000 84,717
Suntrust Bank 5.450 12/1/2017 100,000 102,583
US Bank National Association 6.375 8/1/2011 145,000 161,030
Wachovia Corp. 4.875 2/15/2014 310,000 308,970
Washingtion Mutual, Inc. 4.625 4/1/2014 415,000 396,762
Wells Fargo & Co. 6.375 8/1/2011 135,000 149,465
Zions Bancorporation 2.700 5/1/2006 145,000 143,761
Zions Bancorporation 6.000 9/15/2015 160,000 170,561
___________
3,328,798
___________
BASIC MATERIALS--1.0%
Cabot Corp. 144A 5.250 9/1/2013 165,000 165,177
ICI Wilmington, Inc. 4.375 12/1/2008 40,000 40,226
International Paper Co. 5.300 4/1/2015 185,000 187,171
Meadwestvaco Corp. 6.800 11/15/2032 95,000 103,848
___________
496,422
___________
COMMUNICATIONS--2.6%
AT&T Wireless Services, Inc. 8.750 3/1/2031 55,000 74,157
Clear Channel Communication 4.250 5/15/2009 120,000 118,786
Comcast Corp.(*) 5.500 3/15/2011 155,000 163,828
News America Inc. 144A(*) 5.300 12/15/2014 180,000 182,124
SBC Communications 5.625 6/15/2016 105,000 108,470
Sprint Capital Corp. 8.750 3/15/2032 210,000 279,785
Time Warner, Inc. 6.750 4/15/2011 125,000 140,607
Verizon Global Funding Corp. 6.875 6/15/2012 145,000 165,522
Verizon Global Funding Corp.(*) 7.750 6/15/2032 70,000 87,338
___________
1,320,617
___________
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
CONSUMER CYCLICAL--0.4%
DaimlerChrysler NA Holding Corp. 4.750% 1/15/2008 $ 85,000 $ 86,815
Heinz (H.J.) Co. (a) 6.189 12/1/2005 130,000 133,191
___________
220,006
___________
CONSUMER NONCYCLICAL--1.8%
Aramark Services, Inc. 7.000 7/15/2006 95,000 99,490
Aramark Services, Inc. 6.375 2/15/2008 70,000 74,890
Kroger Co. 8.050 2/1/2010 165,000 193,143
Laboratory Corp. of America Holdings 5.500 2/1/2013 85,000 88,133
RR Donnelley & Sons Co. 4.950 4/1/2014 225,000 225,811
Safeway, Inc. 4.125 11/1/2008 110,000 109,354
Safeway, Inc.(*) 5.800 8/15/2012 40,000 42,226
Wyeth 5.500 2/1/2014 70,000 72,421
___________
905,468
___________
ENERGY--1.4%
Amoco Co. 6.500 8/1/2007 225,000 241,194
Chevron Phillips 7.000 3/15/2011 170,000 191,574
Enbridge Energy Partners 6.300 12/15/2034 65,000 67,287
Halliburton Co. 5.500 10/15/2010 90,000 94,795
XTO Energy, Inc. 7.500 4/15/2012 130,000 152,127
___________
746,977
___________
FINANCIAL--9.6%
Archstone-Smith 5.625 8/15/2014 70,000 72,724
Archstone-Smith Operating Trust 5.000 8/15/2007 75,000 77,089
Bear Stearns Cos., Inc.(*) 4.500 10/28/2010 95,000 95,814
Boeing Capital Corp. 4.750 8/25/2008 100,000 103,425
Boeing Capital Corp. 7.375 9/27/2010 125,000 144,115
Boston Properties Inc. 6.250 1/15/2013 170,000 184,440
Caterpillar Financial Service Corp. 3.100 5/15/2007 155,000 153,693
Countrywide Home Loan Inc. 4.000 3/22/2011 275,000 267,372
Duke Realty LP 3.500 11/1/2007 150,000 149,555
Duke Realty LP 7.750 11/15/2009 150,000 171,699
EOP Operating LP 7.000 7/15/2011 145,000 163,523
Erac USA Finance Co. 144A 7.950 12/15/2009 130,000 150,954
ERP Operating LP 4.750 6/15/2009 60,000 61,265
ERP Operating LP 6.625 3/15/2012 40,000 44,617
Ford Motor Credit Co. 6.500 1/25/2007 55,000 57,192
Ford Motor Credit Co.(*) 5.625 10/1/2008 190,000 194,212
Ford Motor Credit Co. 7.875 6/15/2010 40,000 44,070
Ford Motor Credit Co. 7.250 10/25/2011 85,000 91,156
General Electric Capital Corp. 6.750 3/15/2032 60,000 70,227
General Motors Acceptance Corp.(*) 6.875 8/28/2012 175,000 178,672
Glencore Funding LLC 144A 6.000 4/15/2014 170,000 164,471
Goldman Sachs Group, Inc. 6.875 1/15/2011 280,000 315,890
Healthcare Realty Trust, Inc. 8.125 5/1/2011 135,000 157,265
Household Finance Corp. 6.375 10/15/2011 225,000 248,489
Jefferies Group, Inc. 7.500 8/15/2007 195,000 213,387
Jefferies Group, Inc. 5.500 3/15/2016 25,000 24,853
MassMutual Global Funding II 144A 3.800 4/15/2009 100,000 99,100
Merrill Lynch & Co. 4.125 9/10/2009 120,000 119,918
Morgan Stanley 4.750 4/1/2014 265,000 258,218
Nationwide Mutual Insurance Co. 144A 8.250 12/1/2031 115,000 142,126
Nationwide Mutual Insurance Co. 144A 6.600 4/15/2034 60,000 60,069
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
Principal Life Income Funding Trusts (a) 2.080% 10/14/2005 $ 210,000 $ 209,975
Prudential Financial, Inc. 5.100 9/20/2014 190,000 190,910
Prudential Financial, Inc. 4.104 11/15/2006 85,000 85,931
Simon Property Group LP 144A 4.875 8/15/2010 115,000 117,217
SLM Corp. 5.000 4/15/2015 65,000 64,833
___________
4,948,466
___________
INDUSTRIAL--1.0%
ICI Wilmington 5.625 12/1/2013 165,000 170,889
Raytheon Co. 5.500 11/15/2012 35,000 36,953
Republic Services, Inc. 6.750 8/15/2011 60,000 67,396
Sealed Air Corp. 144A 5.625 7/15/2013 80,000 82,761
Waste Management, Inc. 6.875 5/15/2009 70,000 77,558
Waste Management, Inc. 7.375 8/1/2010 25,000 28,656
Waste Management, Inc. 7.000 7/15/2028 50,000 56,395
___________
520,608
___________
SERVICES--0.4%
CVS Corp. 4.000 9/15/2009 50,000 49,765
May Dept Stores 6.650 7/15/2024 155,000 163,095
___________
212,860
___________
TRANSPORTATION--0.6%
Fedex Corp. 2.650 4/1/2007 115,000 112,634
Norfolk Southern Corp.(*) 6.750 2/15/2011 55,000 61,984
Union Pacific Corp. 3.875 2/15/2009 150,000 148,920
___________
323,538
___________
UTILITIES--3.4%
CenterPoint Energy Houston Electric LLC 5.750 1/15/2014 275,000 291,534
Appalachain Power Co.(*) 5.950 5/15/2033 85,000 85,880
Arizona Public Service 6.500 3/1/2012 105,000 116,721
Dominion Resources, Inc. 5.250 8/1/2033 180,000 180,325
KeySpan Corp.(*) 4.650 4/1/2013 95,000 95,077
Niagara Mohawk Power Corp. 7.750 10/1/2008 60,000 67,499
Nisource Finance Corp. 7.875 11/15/2010 110,000 129,314
Pacific Gas & Electric Co. 3.600 3/1/2009 65,000 63,921
Pepco Holdings, Inc. 5.500 8/15/2007 125,000 129,990
Public Service Co. of Colorado 4.375 10/1/2008 125,000 126,749
Southern California Edison Co. (a) 2.353 1/13/2006 200,000 200,691
Southern California Edison Co. 8.000 2/15/2007 120,000 130,678
Wisconsin Electric Power 5.625 5/15/2033 130,000 132,235
___________
1,750,614
___________
Total Corporate (Cost $14,520,341) 14,774,374
___________
MUNICIPAL BONDS--0.5%
Sacramento County California Pension Funding (b) (Cost $233,702) 0.000 7/10/2030 250,000 236,750
___________
SOVEREIGN BONDS--1.6%
Province of Quebec(*) 5.000 7/17/2009 115,000 120,126
Republic of South Africa 6.500 6/2/2014 215,000 234,307
United Mexican States 6.375 1/16/2013 175,000 185,938
United Mexican States 6.750 9/27/2034 300,000 296,700
___________
Total Sovereign Bonds (Cost $804,280) 837,071
___________
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- -----------------------------------------------------------------------------------------------------------
YANKEE BONDS--4.5%
Amvescap PLC 5.375% 2/27/2013 $ 155,000 $ 156,383
British Sky Broadcasting PLC 6.875 2/23/2009 125,000 137,126
Deutsche Telekom International Finance BV 8.500 6/15/2010 135,000 160,835
Deutsche Telekom International Finance BV 8.750 6/15/2030 180,000 237,682
Domtar, Inc.(*) 5.375 12/1/2013 85,000 84,155
Exxon Capital Corp. 6.125 9/8/2008 140,000 150,784
France Telecom 8.500 3/1/2011 125,000 149,113
HBOS PLC 144A 5.375 11/1/2013 250,000 256,327
National Westminster Bank PLC 7.750 10/16/2007 345,000 377,506
Northern Rock PLC 144A 5.600 4/30/2014 90,000 92,924
Pearson Dollar Finance PLC 144A 4.700 6/1/2009 90,000 91,728
Petro-Canada 5.000 11/15/2014 130,000 129,522
Potash Corp. of Saskatchewan 4.875 3/1/2013 165,000 165,850
St. George Bank Ltd. 144A 5.300 10/15/2015 140,000 142,545
___________
Total Yankee Bonds (Cost $2,273,118) 2,332,480
___________
PASS THRU SECURITIES--47.0%
AGENCY PASS THRU--36.8%
FHLMC Gold 4.500 10/1/2009 271,152 274,504
FNMA 4.000 5/1/2010 325,211 323,520
FNMA 5.500 11/1/2024 518,787 530,566
FNMA 5.500 12/1/2024 124,355 127,178
FNMA 5.500 1/1/2025 375,000 383,515
Fannie Mae Grantor Trust 2001-T6 B 6.088 5/25/2011 340,000 372,933
FNMA Grantor Trust 2002-T11 A 4.769 4/25/2012 162,731 167,459
GNMA 8.000 8/15/2025 16,730 18,231
GNMA 8.000 11/15/2025 26,415 28,784
GNMA 8.000 5/15/2026 6,530 7,105
GNMA 8.000 11/15/2026 31,593 34,376
GNMA 6.500 7/15/2032 22,321 23,517
FNMA 3.530 7/1/2010 170,735 165,040
FNMA 5.000 10/1/2011 436,955 444,679
FNMA 4.060 6/1/2013 125,000 118,530
FNMA 6.500 12/1/2015 73,988 78,529
FNMA 6.000 4/1/2017 524,038 549,440
FNMA 6.000 6/1/2017 146,921 154,051
FNMA 6.000 7/1/2017 53,985 56,602
FNMA 5.000 7/1/2018 137,613 139,947
FNMA 7.500 2/1/2029 20,047 21,612
FNMA 7.500 9/1/2029 1,729 1,853
FNMA 7.000 11/1/2031 5,670 6,019
FNMA 7.000 5/1/2032 157,205 166,649
FNMA 7.000 6/1/2032 274,376 290,859
FNMA 5.500 2/1/2033 745,912 758,396
FNMA 5.500 10/1/2033 727,626 739,327
FNMA 5.500 10/1/2033 508,215 516,388
FNMA 5.500 1/1/2034 154,779 157,268
FNMA 5.500 1/1/2034 241,730 245,617
FNMA (TBA)(#) 5.000 1/1/2020 1,450,000 1,472,656
FNMA (TBA)(#) 6.000 1/1/2035 3,665,000 3,788,694
FNMA(TBA)(#) 5.500 1/1/2020 2,675,000 2,763,609
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- -----------------------------------------------------------------------------------------------------------------------
AGENCY PASS THRU (CONTINUED)
FNMA(TBA)(#) 6.000% 1/1/2020 $ 1,675,000 $ 1,754,563
FNMA(TBA)(#) 5.500 1/1/2035 1,925,000 1,953,875
Freddie Mac Gold 6.000 5/1/2017 344,742 361,105
___________
18,996,996
___________
NON-AGENCY PASS THRU--10.2%
Bear Stearns Commercial Mortgage Securities 2003-T12 A3 4.240 8/13/2039 190,000 188,849
Calwest Industrial Trust 2002-CALW A 6.127 2/15/2017 135,000 146,858
Capco America Securitization Corp. 1998-D7 A1B 6.260 10/15/2030 130,000 140,068
Chase Commercial Mortgage Securities Corp. 1997-1 D 7.370 6/19/2029 175,000 188,597
Chase Commercial Mortgage Securities Corp. 1997-1 E 7.370 6/19/2029 300,000 323,163
Chase Commercial Mortgage Securities Corp. 1997-2 C 6.600 12/19/2029 75,000 80,555
DLJ Commercial Mortgage Corp. 6.240 11/12/2031 180,000 193,785
DLJ Commercial Mortgage Corp. 1998-CF2 B1 7.050 11/12/2031 215,000 234,459
DLJ Commercial Mortgage Corp. 1999-CG1 A1A 6.080 3/10/2032 291,967 302,704
JP Morgan Commercial Mortgage Finance Corp. 1997-C5 A3 7.088 9/15/2029 114,985 122,282
LB Commercial Conduit Mortgage Trust 1999-C1 B 6.930 6/15/2031 120,000 133,200
Lehman Brothers 2004-LLFA A1 144A (a) 2.533 10/15/2017 599,443 600,168
Mach One Trust 2004-1A A1 144A 3.890 5/28/2040 181,331 180,670
Morgan Stanley Capital 1998-HF1 E 7.560 3/15/2030 330,000 362,278
Morgan Stanley Capital I 1998-HF1 C 6.750 3/15/2030 180,000 194,731
Morgan Stanley Capital I 1999-CAM1 A4 7.020 3/15/2032 165,000 183,897
Morgan Stanley Capital I 1999-RM1 A2 6.710 12/15/2031 145,000 157,860
Morgan Stanley Dean Witter Capital I 2001-PPM A2 6.400 2/15/2031 217,554 231,904
Morgan Stanley Dean Witter Capital I 2001-PPM A3 6.540 2/15/2031 150,000 161,718
Mortgage Capital Funding, Inc. 1996-MC1 C 7.800 6/15/2028 410,000 429,056
Mortgage Capital Funding, Inc. 1997-MC2 C 6.881 11/20/2027 310,000 332,546
Mortgage Capital Funding, Inc. 1997-MC2 D 7.117 11/20/2027 350,000 375,851
___________
5,265,199
___________
Total Pass Thru Securities (Cost $24,189,342) 24,262,195
___________
US TREASURY OBLIGATIONS--6.1%
U.S. Treasury Inflation Index Bonds (TIPS) 3.000 7/15/2012 1,438,414 1,605,123
U.S. Treasury Note (!) 6.750 5/15/2005 100,000 101,547
U.S. Treasury Bond(*) 6.250 5/15/2030 1,202,000 1,437,094
___________
Total US Treasury Obligations (Cost $3,109,325) 3,143,764
___________
TOTAL BONDS AND NOTES (Cost $60,960,704) 61,350,053
___________
CONVERTIBLE PREFERRED STOCKS--0.1% SHARES
_______
Fannie Mae 7.00% CVT Pfd (Cost $45,000) 900 51,019
___________
PURCHASED OPTIONS--0.0% CONTRACT SIZE
_____________
U.S. Treasury Note 4.25% Put, Strike Price 98.007, 3/2/05 5,350 2,359
U.S. Treasury Note 3.00% Call, Strike Price 101.109, 2/18/05 24,750 193
U.S. Treasury Note 4.25% Call, Strike Price 99.875, 3/2/05 5,250 5,807
___________
TOTAL PURCHASED OPTIONS (Cost $25,718) 8,359
___________
The accompanying notes are an integral part of the financial statements.
Page 11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE NOTE (1A)
- ----------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--9.3%
U.S. GOVERNMENT AGENCY--3.9%
FNMA Discount Note((+)(+)) 2.170% 1/13/2005 $ 760,000 $ 759,433
FNMA Discount Note((+)(+)) 2.096 1/19/2005 1,230,000 1,228,803
___________
1,988,236
___________
INVESTMENT OF CASH COLLATERAL--5.4% SHARES
_______
BlackRock Cash Strategies L.L.C.(**) 2,801,798 2,801,798
___________
TOTAL SHORT TERM INVESTMENTS--(Cost $4,789,902) 4,790,034
___________
TOTAL INVESTMENTS--128.3% (Cost$65,821,324) 66,199,465
___________
LIABILITIES IN EXCESS OF OTHER ASSETS--(28.3%) (14,598,566)
___________
NET ASSETS--100.0% $ 51,600,899
___________
___________
NOTES TO SCHEDULE OF INVESTMENTS: \
144A-Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration
to qualified buyers.
FHLMC-Federal Home Loan Mortgage Company
FNMA-Federal National Mortgage Association
GNMA-Government National Mortgage Association
TBA-To Be Announced
(a) Variable Rate Security, rate indicated is as of 12/31/04.
(b) Zero coupon security.
(+)(+) Rate noted is yield to maturity
* Security, or a portion thereof, was on loan at December 31, 2004.
** Money market fund exempt from registration under the Investment Company Act
of 1940 offered only to eligible investors.
# Delayed Delivery contract.
! Denotes all or part of security pledged as collateral.
The Fund held the following open swap contracts at December 31, 2004:
NOTIONAL AMOUNT EXPIRATION DATE DESCRIPTION VALUE
- -----------------------------------------------------------------------------------------------------------
125,000 USD 12/17/08 Agreement with Lehman Brothers, dated 12/15/04 $ (659)
to receive the notional amount multiplied by
3.68375% and to pay the notional amount
multiplied by the 1 month LIBOR.
125,000 USD 12/20/08 Agreement with Bear Stearns, dated 12/15/04 446
to receive 1.96% per year times the notional amount.
The Fund makes payment only upon a credit
event by General Motors Acceptance Corp., an
amount equal to the notional amount times the
difference between the par value and the then-market
of General Motors Acceptance Corp., 6.875% due 8/28/12.
_______
Total swap contracts $ (213)
_______
_______
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
The Fund held the following futures contracts at December 31, 2004:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE GAIN/LOSS
- ------------------------------------------------------------------------------------------------------------------------------
U.S. 10 Year Note (7 Contracts) Short 3/21/2005 $ 775,414 $ (8,183)
U.S. 5 Year Note (16 Contracts) Short 3/21/2005 1,739,875 (12,846)
U.S. Long Bond-CBT (14 Contracts) Long 3/21/2005 1,547,328 27,742
________
$ 6,713
________
________
The Fund held the following written option contracts at December 31, 2004:
WRITTEN CALL OPTION TRANSACTIONS NUMBER OF CONTRACTS PREMIUMS
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 5 $ 26,225
Options written 10 67,250
Options expired (6) (39,580)
Options closed (8) (50,286)
______ _________
Outstanding, end of year 1 $ 3,609
______ _________
______ _________
SECURITY CONTRACT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
UST 4.25% Call, Strike Price 101.406, 3/2/05 (premiums received $3,609) 1 $5,492
______ _________
______ _________
WRITTEN PUT OPTION TRANSACTIONS NUMBER OF CONTRACTS PREMIUMS
- ------------------------------------------------------------------------------------------------------------------------------------
Outstanding, beginning of year 5 $ 39,804
Options written 11 114,428
Options expired (12) (123,784)
Options closed (3) (22,841)
______ _________
Outstanding, end of year 1 $ 7,607
______ _________
______ _________
SECURITY CONTRACT VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
UST 4.25% Put, Strike Price 96.195, 3/2/05 (premiums received $7,607) 1 $ 1,370
______ _________
______ _________
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $2,750,554(Note 7))
at value (Note 1A)(cost $65,821,324) $66,199,465
Cash 5,847
Receivable for securities sold 51,969
Interest receivable 392,688
Variation margin receivable 6,391
Prepaid expenses 3,948
___________
Total assets 66,660,308
LIABILITIES
Payable for investments purchased $11,725,742
Collateral for securities on loan (Note 7) 2,801,798
Distributions payable 458,772
Bank loan payable (Note 9) 12,524
Options written, at value (premium received $11,216) (Note 6) 6,862
Open swap contracts, at value (Note 6) 213
Accrued professional fees 26,695
Accrued accounting, custody, administration and transfer agent fees (Note 2) 18,194
Accrued trustees' fees and expenses (Note 2) 3,334
Accrued expenses and other liabilities 5,275
___________
Total liabilities 15,059,409
___________
NET ASSETS $51,600,899
___________
___________
NET ASSETS CONSIST OF:
Paid-in capital $51,128,540
Accumulated net realized gain 56,942
Net investment income 26,421
Net unrealized appreciation 388,996
___________
TOTAL NET ASSETS $51,600,899
___________
___________
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,578,366
___________
___________
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) $ 20.01
___________
___________
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (including securities lending income of $5,738 (Note 7)) $2,417,426
Interest income from affiliated investment (Note 1F) 13,665
___________
Total investment income 2,431,091
EXPENSES
Investment advisory fee (Note 2) $ 244,758
Accounting, custody, administration and transfer agent fees (Note 2) 108,069
Professional fees 45,923
Registration fees 22,100
Trustees' fees and expenses (Note 2) 13,468
Insurance expense 10,450
Miscellaneous 10,513
__________
Total Expenses 455,281
Deduct:
Waiver of investment advisory fee (Note 2) (210,523)
__________
Net expenses 244,758
___________
Net investment income 2,186,333
___________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on:
Investment security transactions 1,051,847
Financial futures contracts 10,369
Written options transactions 117,791
Swap transactions 96,341
__________
Net realized gain 1,276,348
Change in unrealized appreciation (depreciation) on:
Investment securities (686,741)
Financial futures contracts 8,300
Written Options (20,253)
Swaps (10,360)
__________
Change in unrealized appreciation (depreciation) (709,054)
___________
Net realized gains and unrealized (loss) on investments 567,294
___________
NET INCREASE IN NET ASSETS FROM OPERATIONS $2,753,627
___________
___________
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 2,186,333 $ 2,430,959
Net realized gains 1,276,348 1,612,628
Change in net unrealized appreciation (depreciation) (709,054) (996,641)
_____________ _____________
Net increase in net assets from investment operations 2,753,627 3,046,946
_____________ _____________
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1C)
From net investment income (2,343,659) (2,606,499)
From net realized gains on investments (1,026,990) (1,540,028)
_____________ _____________
Total distributions to shareholders (3,370,649) (4,146,527)
_____________ _____________
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 2,823,448 4,213,048
Value of shares issued to shareholders in reinvestment of distributions 1,632,872 2,270,143
Cost of shares redeemed (14,862,788) (26,860,158)
_____________ _____________
Net decrease in net assets from Fund share transactions (10,406,468) (20,376,967)
_____________ _____________
TOTAL INCREASE (DECREASE) IN NET ASSETS (11,023,490) (21,476,548)
NET ASSETS
At beginning of year 62,624,389 84,100,937
_____________ _____________
At end of year (including net investment income of $26,421 and distribution
in excess of net investment income of $11,275) $ 51,600,899 $ 62,624,389
_____________ _____________
_____________ _____________
The accompanying notes are an integral part of the financial statements.
16
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
FOR THE PERIOD
JUNE 1, 2000
(COMMENCEMENT
YEAR ENDED DECEMBER 31, OF OPERATIONS) TO
______________________________________________
2004 2003 2002 2001(A) DECEMBER 31, 2000
_______ _______ _______ _______ ___________________
NET ASSET VALUE, BEGINNING OF THE YEAR $ 20.31 $ 20.80 $ 20.41 $ 20.65 $ 20.00
_______ _______ _______ _______ _______
FROM INVESTMENT OPERATIONS:
Net investment income(1) 0.74 0.69 0.89 1.27 0.86
Net realized and unrealized
gain (loss) on investments 0.17 0.09 0.79 0.59 0.89
_______ _______ _______ _______ _______
Total from investment operations 0.91 0.78 1.68 1.86 1.75
_______ _______ _______ _______ _______
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.80) (0.78) (0.91) (1.30) (0.88)
From net realized gain on investments (0.41) (0.49) (0.38) (0.80) (0.22)
_______ _______ _______ _______ _______
Total distributions to shareholders (1.21) (1.27) (1.29) (2.10) (1.10)
_______ _______ _______ _______ _______
NET ASSET VALUE, END OF YEAR $ 20.01 $ 20.31 $ 20.80 $ 20.41 $ 20.65
_______ _______ _______ _______ _______
_______ _______ _______ _______ _______
TOTAL RETURN ((+)) 4.53% 3.81% 8.44% 9.21% 8.87%((+)(+)(+))
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets) 0.40% 0.40% 0.40% 0.21% 0.00%((+)(+))
Net Investment Income (to average
daily net assets) 3.59% 3.30% 4.30% 6.00% 7.21%((+)(+))
Portfolio Turnover 127% 457% 391% 357% 136%((+)(+)(+))
Net Assets, End of Year (000's omitted) $51,601 $62,624 $84,101 $63,564 $57,447
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/ or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Net investment income (1) $ 0.67 $ 0.63 $ 0.83 $ 1.17 $ 0.78
Ratios (to average daily net assets):
Expenses 0.75% 0.70% 0.69% 0.68% 0.72%((+)(+))
Net investment income 3.24% 3.00% 4.01% 5.53% 6.48%((+)(+))
(1) Calculated based on average shares outstanding.
(a) The Fund has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
decrease net investment income per share by $0.004, increase net realized and
unrealized gains and losses per share by $0.004 and decrease the ratio of net
investment income to average net assets from 6.02% to 6.00%. Per share data and
ratios/supplemental data for the periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(+) Total return would have been lower in the absence of expense waivers
(+)(+) Computed on an annualized basis.
(+)(+)(+) Not annualized.
The accompanying notes are an integral part of the financial statements.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
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 Investment Grade Bond Fund (the "Fund") is a separate
diversified investment series of the Trust.
The objective of the Fund is to maximize total return, consistent with
preserving principal and liquidity, primarily through the generation of
current income and, to a lesser extent, capital appreciation. The Fund
seeks to achieve its objective by investing, under normal circumstances, at
least 80% of net assets in investment grade fixed income securities
including, but not limited to, government, agency, corporate and mortgage
and asset-backed issues.
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 in the
principal market in which such securities are primarily traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 coupon interest accrued, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis
C. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
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 generally accepted accounting principles. These
differences, which may result in distribution reclassifications, are
primarily due to differing treatments for losses deferred due to wash
sales, amortization and/or accretion of premiums and discounts on certain
securities and the timing of recognition of gains and losses on futures
contracts.
Permanent book and tax basis differences 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.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
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.
F. AFFILIATED ISSUERS
Affiliated issuers represent investments of the Fund in other investment
companies advised by Standish Mellon Asset Management Company LLC
("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon for overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 0.40% of the Fund's average daily net assets.
Standish Mellon voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.40% of the Fund's average daily net assets for the year ended December
31, 2004. Pursuant to this agreement, for the year ended December 31, 2004,
Standish Mellon collectively and voluntarily waived a portion of its
investment advisory fee in the amount of $210,523. This agreement is
voluntary and temporary and may be discontinued or revised by Standish
Mellon 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 Standish Mellon, 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 paid $4,269 during the period ended
December 31, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, 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 paid $80,875 during the year
ended December 31, 2004.
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. See Note 7 for further details.
No director, officer or employee of Standish Mellon or its affiliates
receives any compensation from the Trust or the Fund for serving as an
officer or Trustee of the Trust. The Trust pays each Trustee who is not a
director, officer or employee of Standish Mellon or its affiliates an
annual fee and a per meeting fee as well as reimbursement for travel and
out of pocket expenses. In addition, the Trust pays the legal fees for the
independent counsel of the Trustees.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, excluding short-term
securities, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
___________ ___________
U.S. Government Securities $50,928,168 $55,782,399
___________ ___________
___________ ___________
Investments (non-U.S. Government Securities) $32,881,028 $31,783,662
___________ ___________
___________ ___________
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
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
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ __________________
Shares sold 137,236 201,404
Shares issued to shareholders in
reinvestment of distributions 81,343 110,742
Shares redeemed (723,366) (1,271,678)
_________ ___________
Net increase (decrease) (504,787) (959,532)
_________ ___________
_________ ___________
At December 31, 2004, three shareholders of record held approximately 90%
of the total outstanding shares of the Fund. Investment activity of these
shareholders could have a material impact on the Fund.
A significant portion of the Fund's shares represent investments by
fiduciary accounts over which Standish Mellon and its affiliates have
either sole or joint investment discretion.
(5) FEDERAL TAXES:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax cost
as of December 31, 2004, was as follows:
Unrealized appreciation $ 619,116
Unrealized depreciation (243,816)
____________
Net unrealized appreciation/depreciation 375,300
Undistributed ordinary income 79,661
Undistributed long term capital gain 13,260
Cost for federal income tax purposes $65,824,165
Tax character of distributions paid during the fiscal years ended December
31, 2004 and December 31, 2003, were as follows:
2004 2003
Distributions paid from: AMOUNT AMOUNT
__________ __________
Ordinary income $2,934,513 $3,867,494
Capital gains 436,136 279,033
(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
20
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 entered into option transactions at December 31, 2004. See
Schedule of Investments for further details
INTEREST RATE FLOORS
Interest rate floors purchased by the Fund entitle the Fund to receive
payments on a notional principal amount from the party selling such floor
to the extent that a specified index falls below a predetermined interest
rate amount. Credit and market risk exist with respect to these
instruments. If forecasts of interest rates and other market factors are
incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were not used.
Even if the forecasts are correct, there are risks that the positions may
correlate imperfectly with the asset or liability being hedged, a liquid
secondary market may not always exist, or counterparty to a transaction may
not perform. The Fund expects to enter these transactions primarily for
hedging purposes including, but not limited to, preserving a return or
spread on a particular investment or portion of its portfolio, protecting
against interest rate fluctuations, as a duration management technique or
protecting against an increase in the price of securities the Fund
anticipates purchasing at a later date. Interest rate floors are
marked-to-market daily based on quotations from market makers and the
change, if any, is recorded as unrealized appreciation or depreciation in
the Statement of Operations. Realized gains or losses from these agreements
are disclosed in the Statement of Operations.
The Fund did not enter into any interest rate floor transactions during the
year ended December 31, 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.
The Fund held futures at December 31, 2004. At December 31, 2004 the Fund
had segregated cash and /or securities to cover margin requirements on open
future contracts. See Schedule of Investments for further details.
21
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 loss. 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.
The Fund entered into swap agreements at December 31, 2004. See Schedule of
Investments for further details.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to the
Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment of
the collateral. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears the
risk in the event that the interest and/or dividends received on invested
collateral is not sufficient to meet the Fund's obligations due on the
loans.
The Fund loaned securities during the year ended December 31, 2004
resulting in security lending income of $5,738. At December 31, 2004, the
Fund had securities valued at $2,750,554 on loan. See Schedule of
Investments for further detail on the security positions on loan and
collateral held.
(8) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase or sell securities on a when-issued, delayed delivery
or forward commitment basis. This Fund segregates securities having a value
at least equal to the amount of the purchase commitment.
The Fund may enter into to be announced ("TBA") purchase commitments to
purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Fund holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
Fund may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
22
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date, which risk is in addition
to the risk of the decline in the value of the Fund's other assets.
Unsettled TBA purchase commitments are valued at the current market value
of the underlying securities, according to the procedures described under
"Investment security valuations" above.
The Fund may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Fund as an unrealized gain or loss. If the TBA sale commitment is closed
through the acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
See the Schedule of Investments for outstanding delayed delivery contracts
(9) 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% committed amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended December 31, 2004, a facility fee of $623
was allocated to the Fund.
During the year ended December 31, 2004, the Fund had average borrowings
outstanding of $387,881 on a total of four days and incurred $102 of
interest expense.
23
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INVESTMENT GRADE
BOND FUND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon Investment Grade 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 Investment Grade Bond Fund (the "Fund") at December 31,
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 December 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
24
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $1,750
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 Fund: $1,901
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 Fund: $1,750
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 Fund: $1,750
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer,
Asset Management Executive 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
25
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
Standish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
26
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One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
0946AR1204
Annual Report STANDISH MELLON
INTERNATIONAL FIXED INCOME FUND II
YEAR ENDED DECEMBER 31, 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 September 30, 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.
February 28, 2005
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2004.
The year was largely positive for the financial markets, as the economic
expansion continued. However, as the year progressed, anticipated GDP growth
diminished in line with typical expectations at this point in the economic
cycle.
The S&P 500 entered 2004 with a sharp climb, fueled to a large degree by
above-trend GDP growth: 4.4% in the fourth quarter of 2003 and 5.0% in the first
quarter of the year, 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, the
uncertainties of a tight presidential campaign, and the ever-present threats
posed by terrorism. The equity markets greeted the reelection of President Bush
with optimism, as the S&P 500 surged past 1200 in the closing weeks of the year
to its' 2004 peak.
In the bond market, the year started 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. In the first quarter,
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 is 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. The stimulus of monetary policy, tax cuts and
government spending is waning. Nevertheless, business activity has some
significant momentum, which should carry over into 2005, with reasonable profit
growth and modest inflation. Finally, the president's ambitious plans to
privatize Social Security, reform health care, and revise the tax code could
potentially have major fiscal implications that the market will be watching
carefully.
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 INTERNATIONAL FIXED
INCOME FUND II
MANAGEMENT DISCUSSION AND ANALYSIS
- --------------------------------------------------------------------------------
International bond markets produced double-digit returns in 2004 from a
combination of positive local market returns and currency gains related to the
decline of the U.S. dollar. The Standish Mellon International Fixed Income Fund
II returned 10.73% for the year, after all expenses, compared to a return of
12.04% for the J.P. Morgan Non-U.S. Government Bond Index.
A return of more than 10% for international bonds is perhaps surprising
considering that at the beginning of the year, the consensus expectation was
that bond yields would rise as central banks raised interest rates. Indeed, bond
yields did rise early in the year and this rise was lead by the U.S. bond
market, which experienced a vicious sell-off in the first half. However, as the
year progressed, it became apparent that core inflation was well contained in
the U.S., the job market strengthened but not as much as anticipated, and growth
in large economies overseas was anemic. Bond yields in the U.S. and overseas
fell during the second half of the year, and in the end, despite the volatility,
bond investors managed to earn a bit more than their coupon. The positive return
from international bond markets combined with the gains related to the decline
of the US. Dollar, resulted in another year of strong returns from the asset
class.
The non-government sectors of the international bond markets were a pleasant
surprise producing returns well above government bonds for the second year in a
row. The star performers were corporate bonds, particularly the high-yield
sector, and emerging markets. A number of factors contributed to the
outperformance of the corporate and emerging sectors particularly global growth,
low inflation, low interest rates and in the case of the commodity laden
emerging markets, high commodity prices. The high yield corporate and emerging
market indices both had returns of over 10% for the year. Other non-government
sectors also performed well including mortgages, agencies and asset-backed
securities.
The range of returns in hedged terms for government bond markets as measured by
the JP Morgan Government Bond Indices was modest for the year with only 534
basis points, separating the best market Italy (+8.00%) from the worst, Japan
(+2.66%). The U.S. component of the index returned 3.75% while European markets
returned 6.77% on average. The U.S. dollar had traded in a modest range for most
of the year however it fell sharply in the final quarter. The decline of the
dollar was the sharpest relative to the European currencies against which it
declined by more than 7%. The U.S. dollar has been under pressure since 2002 as
the mix of loose fiscal and monetary policy and the large current account
deficit made the currency unattractive to global investors.
The Fund underperformed its benchmark during the year. Our position in
investment grade and high yield corporate bonds and emerging market securities
was the largest positive contributor relative to our benchmark. The results of
our country weightings were mixed. We were overweight European markets, which
produced the best returns however we had a zero weight in the Japanese bond
market which weighed on our performance. Although Japan was the worst performing
market in the index, our zero weighting in the market was a drag on performance
as Japan did produce a positive return. In currencies, our small primarily,
option-based positions detracted a modest amount from our performance.
2
Our outlook for 2005 is favorable for international bonds. We believe that the
performance of global economies will be close to trend, yet the behavior of
central banks around the world could be quite different. The Fed will continue
to raise interest rates at least in the first half of the year and this will
flatten the yield curve but we expect longer dated bonds to be fairly stable.
Opportunities for value-added can be found in Europe and in some of the smaller
index components such as Australia, New Zealand and the U.K. In the latter three
markets, the central banks have been raising interest rates for some time and
those increases now appear to be having an effect. These economies have housing
markets that are vulnerable to price declines and if the economies soften, we
believe bonds in these markets will perform well. Non-government sectors such as
corporate and emerging market bonds have richened quite a bit over the past two
years and we believe that these sectors will not perform as well as in the past
but that the sector still offers opportunities to add-value through security
selection.
We appreciate your continued support and look forward to working on your behalf
over the next year.
/s/ W. Charles Cook
W. Charles Cook
3
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN STANDISH MELLON
INTERNATIONAL FIXED INCOME FUND II AND J.P. MORGAN NON-U.S. GOVERNMENT BOND
INDEX
- --------------------------------------------------------------------------------
AVERAGE ANNUAL TOTAL RETURNS (FOR PERIOD ENDED 12/31/2004)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Year 5 Year 06/30/1999
- ------------------------------------------------------------------------------------------------------------------------------------
10.73% 17.78% 8.52% 8.27%
AVERAGE ANNUAL TOTAL RETURNS REFLECT THE CHANGE IN THE VALUE OF AN INVESTMENT,
ASSUMING REINVESTMENT OF THE FUND'S DIVIDEND INCOME AND CAPITAL GAINS AND
ASSUMING A CONSTANT RATE OF PERFORMANCE EACH YEAR. 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 STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
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 (July 1, 2004 to December 31, 2004).
Actual Expenses
The first line of the table below provides information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, 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 JULY 1, 2004 TO
JULY 1, 2004 DECEMBER 31, 2004 DECEMBER 31, 2004
- ---------------------------------------------------------------------------------------------------------
Actual $1,000.00 $1,122.90 $4.00
Hypothetical (5% return
per year before expenses) $1,000.00 $1,021.37 $3.81
(
- -------
((+)) EXPENSES ARE EQUAL TO THE FUND'S ANNUALIZED EXPENSE RATIO OF 0.75%,
MULTIPLIED BY THE AVERAGE ACCOUNT VALUE OVER THE PERIOD, MULTIPLIED BY 184/366
(TO REFLECT THE ONE-HALF YEAR PERIOD).
5
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
FUND INFORMATION AS OF DECEMBER 31, 2004 (UNAUDITED)
- --------------------------------------------------------------------------------
PERCENTAGE OF
TOP TEN HOLDINGS* RATE MATURITY NET ASSETS
----------------------------------------------------------------------------------------------------------
UK Gilt 4.000 3/7/2009 9.2%
Netherlands Government Bond 5.500 7/15/2010 4.0
Bundesobligation 4.500 8/17/2007 3.9
Belgium Government Bond 4.250 9/28/2013 3.7
Deutsche Republic 4.750 7/4/2034 3.6
Deutsche Bundesrepublik 4.000 1/4/2028 3.5
Italy Buoni Poliennali Del Tesoro 4.500 3/1/2007 3.4
Australian Government Bond 7.500 9/15/2009 3.3
Bundesobligation 5.000 5/20/2005 2.9
New Zealand Government Bond 6.500 4/15/2013 2.9
______
40.4%
* Excluding short-term investments and investment of cash collateral.
PERCENTAGE OF
TOP TEN COUNTRIES NET ASSETS
--------------------------------------------
Germany 21.1%
United States 15.2
United Kingdom 13.7
France 7.2
New Zealand 5.4
Australia 4.8
Netherlands 4.4
Italy 3.9
Belgium 3.9
Austria 3.4
_____
83.0%
PERCENTAGE OF
ECONOMIC SECTOR ALLOCATION INVESTMENTS
--------------------------------------------
Government 68.7%
Corporate 22.9
Mortgage 0.8
Emerging markets 4.1
Cash & equivalents 3.5
_____
100.0%
The Fund is actively managed. Current holdings may be different than
those presented above.
6
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES--85.1%
CORPORATE--1.1%
BASIC MATERIALS--0.1%
International Steel Group(*) 6.500% 4/15/2014 USD 50,000 $ 53,625
___________
COMMUNICATIONS--0.2%
CSC Holdings, Inc. 7.875 12/15/2007 20,000 21,450
RH Donnelley Finance Corp. 8.875 12/15/2010 5,000 5,575
RH Donnelley Finance Corp. 10.875 12/15/2012 10,000 11,875
Salem Communications Corp. 7.750 12/15/2010 15,000 16,219
Sprint Capital Corp. 8.375 3/15/2012 55,000 66,998
___________
122,117
___________
CONSUMER CYCLICAL--0.1%
Mohegan Tribal Gaming Authority 8.000 4/1/2012 25,000 27,125
Yum! Brands, Inc. 8.875 4/15/2011 25,000 30,888
___________
58,013
___________
ENERGY--0.2%
Chesapeake Energy Corp. 8.125 4/1/2011 30,000 32,475
Pemex Project Funding Master Trust (a) 3.790 6/15/2010 45,000 46,170
___________
78,645
___________
FINANCIAL--0.4%
Amvescap PLC 5.375 2/27/2013 25,000 25,223
Chevy Chase Bank FSB 6.875 12/1/2013 45,000 46,463
Glencore Funding LLC 6.000 4/15/2014 105,000 101,585
Salomon Brothers AF for OAO Siberian Oil Co. 10.750 1/15/2009 30,000 31,950
___________
205,221
___________
UTILITIES--0.1%
AES Corp. 8.750 5/15/2013 25,000 28,406
___________
Total Corporate Bonds (Cost $525,823) 546,027
___________
SOVEREIGN BONDS--2.0%
Banco Nacional de Desenvolvimento Economic (a) 5.832 6/16/2008 30,000 30,675
Republic of Brazil (a) 3.125 4/15/2012 75,001 71,438
Republic of Brazil (a) 3.063 4/15/2024 85,000 78,625
Republic of Colombia 10.000 1/23/2012 30,000 34,650
Republic of El Salvador 8.500 7/25/2011 25,000 28,563
Republic of El Salvador 8.250 4/10/2032 25,000 25,250
Republic of Panama 9.625 2/8/2011 15,000 17,775
Republic of Panama 7.250 3/15/2015 20,000 20,700
Republic of Panama 8.875 9/30/2027 40,000 44,400
Republic of Peru (a) 4.500 3/7/2017 25,000 23,375
Republic of South Africa 9.125 5/19/2009 35,000 41,337
Republic of South Africa 7.375 4/25/2012 50,000 56,932
Republic of Turkey 9.000 6/30/2011 120,000 136,734
Republic of Turkey 11.500 1/23/2012 25,000 32,149
Russian Federation 11.000 7/24/2018 20,000 27,800
Russian Federation 12.750 6/24/2028 10,000 16,356
Russian Federation 5.000 3/31/2030 110,000 113,438
Serbian Government (#) 3.750 11/15/2024 100,000 83,250
Ukraine Government Senior Notes 11.000 3/15/2007 46,668 50,023
United Mexican States 8.300 8/15/2031 50,000 58,500
___________
Total Sovereign Bonds (Cost $959,590) 991,970
___________
The accompanying notes are an integral part of the financial statements.
7
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
YANKEE BONDS--1.6%
Amvescap PLC 5.900% 1/15/2007 USD 25,000 $ 26,15
Aramark Services, Inc. 7.000 7/15/2006 210,000 219,926
British Sky Broadcasting PLC 7.300 10/15/2006 70,000 74,361
HBOS PLC 5.375 11/1/2013 155,000 158,922
Ispat Inland 9.750 4/1/2014 78,000 96,330
Rogers Wireless Inc. 144A 7.250 12/15/2012 140,000 148,400
Rogers Wireless Inc. 144A 7.500 3/15/2015 25,000 26,375
Royal Caribbean Cruises Ltd. 8.250 4/1/2005 15,000 15,150
Southern Natural Gas Co. 8.875 3/15/2010 15,000 16,800
___________
Total Yankee Bonds (Cost $768,818) 782,423
___________
FOREIGN DENOMINTED--80.4%
AUSTRALIA--4.8%
Australian Government Bond 7.500 9/15/2009 AUD 1,915,000 1,638,727
Australian Government Bond (*) 6.250 4/15/2015 905,000 758,526
___________
2,397,253
___________
CANADA--0.2%
Canadian Pacific Railway Ltd. 4.900 6/15/2010 CAD 95,000 81,004
___________
SWISS FRANC--0.6%
Philip Morris Capital Corp. 4.000 5/31/2006 CHF 320,000 286,517
___________
DENMARK--0.3%
Realkredit Danmark A/S 4.000 1/1/2006 DKK 735,000 136,067
___________
EURO--53.1%
Allied Domecq Financial Services PLC 5.875 6/12/2009 EUR 20,000 29,720
Austria Government Bond 5.750 4/11/2007 710,000 1,027,070
Autostrade SpA (a) 2.621 6/9/2011 200,000 272,447
Bank of America Corp (a) 4.750 5/6/2019 125,000 177,641
Barclays BAnk PLC 7.500 12/15/2010 145,000 235,583
Belgium Government Bond 4.250 9/28/2013 1,285,000 1,828,367
Bundesobligation 5.000 5/20/2005 1,065,000 1,459,318
Bundesobligation 5.000 8/19/2005 760,000 1,048,235
Bundesobligation 4.500 8/17/2007 1,350,000 1,917,166
Bundesobligation(*) 3.000 4/11/2008 275,000 375,364
Bundesschatzanweisungen 2.750 6/23/2006 570,000 777,336
Citigroup, Inc. (a) 2.324 6/3/2011 110,000 148,786
Depfa ACS Bank 3.875 7/15/2013 450,000 618,236
Deutsche Bundesrepublik 4.000 1/4/2028 1,235,000 1,745,250
Deutsche Cap Trust IV (a) 5.330 9/29/2049 85,000 123,879
Deutsche Republic 4.500 1/4/2013 720,000 1,043,787
Deutsche Republic 4.750 7/4/2034 1,215,000 1,774,815
Deutsche Telekom International Finance BV 8.125 5/29/2012 55,000 94,605
Dexia Municipal Agency 5.375 4/26/2007 360,000 518,029
Eurohypo AG 4.500 1/21/2013 50,000 72,093
FBG Treasury Europe 5.750 3/17/2005 5,000 6,825
FCE Bank PLC (a) 2.578 6/28/2006 75,000 100,890
The accompanying notes are an integral part of the financial statements.
8
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
EURO (CONTINUED)
France Telecom 7.250% 1/28/2013 EUR 160,000 $ 264,13
France Telecom 8.125 1/28/2033 255,000 490,187
French Treasury Note 4.500 7/12/2006 515,000 720,808
French Treasury Note BTAN 5.000 1/12/2006 975,000 1,359,228
GE Capital Euro Funding (a) 2.278 5/4/2011 110,000 148,569
General Motors Acceptance Corp. 4.375 9/26/2006 60,000 82,063
General Motors Acceptance Corp. (a) 3.898 7/5/2005 75,000 102,132
Glencore Finance Europe SA/Luxembourg 5.375 9/30/2011 350,000 477,232
HBOS PLC 6.050 11/23/2049 20,000 30,673
Hilton Group Finance PLC 6.500 7/17/2009 30,000 45,801
HJ Heinz BV 5.125 4/10/2006 50,000 69,956
Household Finance Corp. 6.500 5/5/2009 45,000 68,895
International Paper Co. 5.375 8/11/2006 20,000 28,157
Italy Buoni Poliennali Del Tesoro 4.500 3/1/2007 1,190,000 1,681,685
Kappa Beheer BV 10.625 7/15/2009 20,000 28,692
KFW Group 3.500 4/17/2009 180,000 249,688
Lear Corp. 8.125 4/1/2008 75,000 114,285
Morgan Stanley 5.750 4/1/2009 30,000 44,669
MPS Capital Trust 7.990 2/7/2011 85,000 139,238
Nalco Co. 7.750 11/15/2011 30,000 44,157
Natexis Banque 4.375 6/20/2013 85,000 118,829
National Westminster Bank PLC 6.625 10/5/2009 80,000 122,815
Netherlands Government Bond 5.500 7/15/2010 1,305,000 1,982,633
Owens-Brockway Glass Containers 6.750 12/1/2014 60,000 85,262
Parker Hannifin Corp. 6.250 11/21/2005 10,000 14,003
Pemex Project Funding Master Trust 6.625 4/4/2010 20,000 30,211
Republic of Austria 5.625 7/15/2007 445,000 645,740
Sara Lee Corp. 6.125 7/27/2007 30,000 43,872
Spain Government Bond 4.250 10/31/2007 780,000 1,101,931
Telecom Italia Finance SA 7.250 4/20/2011 100,000 159,842
Telefonica Europe BV 5.125 2/14/2013 35,000 51,532
Telenet Communications NV 9.000 12/15/2013 60,000 90,350
Telenor ASA 5.875 12/5/2012 60,000 92,407
ThyssenKrupp Finance Nederland BV 7.000 3/19/2009 25,000 38,232
Tyco International Group SA 5.500 11/19/2008 80,000 116,797
Veolia Environnement 4.875 5/28/2013 85,000 122,470
___________
26,402,615
___________
NEW ZEALAND--5.4%
New Zealand Government Bond 6.500 4/15/2013 NZD 1,950,000 1,445,912
New Zealand Government Bond 7.000 7/15/2009 1,660,000 1,236,887
___________
2,682,799
___________
SINGAPORE--2.4%
Singapore Government Bond 3.500 7/1/2012 SGD 1,850,000 1,221,935
___________
The accompanying notes are an integral part of the financial statements.
9
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 2004
- --------------------------------------------------------------------------------
PAR VALUE
SECURITY DESCRIPTION RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNITED KINGDOM--13.6%
Inco 15.750% 7/15/2006 GBP 200,000 $ 421,45
UK Gilt 4.000 3/7/2009 2,430,000 4,573,588
UK Gilt 8.000 9/27/2013 505,000 1,207,953
UK Gilt 4.250 6/7/2032 300,000 558,857
___________
6,761,852
___________
Total Foreign Denominated (Cost $36,184,689) 39,970,042
___________
TOTAL BONDS AND NOTES (Cost $38,438,920) 42,290,462
___________
PREFERRED STOCK--0.2% SHARES
__________
Fannie Mae 7.00% CVT Pfd (Cost $77,500) 1,550 87,866
___________
CONTRACT
PURCHASED OPTIONS--0.0% SIZE
__________
EUR Put/USD Call Strike, Price 1.30, 2/9/2005 505,000 934
AUD Put/USD Call Strike, Price .705, 3/10/2005 470,000 564
EUR Put/USD Call Strike, Price 1.29, 2/10/2005 470,000 517
GBP Put/USD Call Strike, Price 1.875, 2/10/2005 470,000 2,562
CHF Put/USD Call Strike, Price 1.21, 3/10/2005 470,000 1,208
___________
TOTAL PURCHASED OPTIONS (Cost $13,154) 5,785
___________
SHORT-TERM INVESTMENTS--11.3%
U.S. GOVERNMENT--6.9% PAR VALUE
__________
Treasury Bill ((+)) 2.215 3/17/2005 USD 3,450,000 3,435,358
INVESTMENT COMPANIES--2.4% SHARES
__________
Dreyfus Institutional Preferred Plus Money Market Fund((+)(+)) 1,208,517 1,208,517
INVESTMENT OF CASH COLLATERAL--2.0%
BlackRock Cash Strategies L.L.C.(**)
1,002,860 1,002,860
___________
TOTAL SHORT TERM INVESTMENTS (Cost $5,646,137) 5,646,735
___________
TOTAL INVESTMENTS--96.6 (Cost $44,175,709) 48,030,848
OTHER ASSETS, LESS LIABILITIES--3.4% 1,683,562
___________
NET ASSETS--100% $49,714,410
___________
___________
NOTES TO SCHEDULE OF INVESTMENTS:
144A--Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from registration
to qualified buyers.
AUD--Australian Dollar
CAD--Canadian Dollar
CHF--Swiss Franc
DKK--Danish Krone
EUR--Euro
GBP--British Pound
NZD--New Zealand Dollar
SGD--Singapore Dollar
(a) Variable Rate Security, rate indicated is as if 12/31/2004.
* Security, or a portion of thereof, was on loan at December 31, 2004.
** Money market fund exempt from registration under the Investment Company
Act of 1940 offered only to eligible investors.
(+) Denotes all or part of security segregated as collateral.
(+)(+) Affiliated institutional money market.
# Delayed delivery security.
The accompanying notes are an integral part of the financial statements.
10
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
The Fund held the following futures contracts at December 31, 2004:
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE LOSS
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. 5 Year Note (11 Contracts) Short 3/21/2005 $1,204,844 $ (8,729)
U.S. 10 Year Note (3 Contracts) Short 3/21/2005 335,813 (3,506)
________
$(12,235)
________
________
At December 31, 2004 the Fund held the following forward foreign currency
exchange contracts:
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO RECEIVE AMOUNT VALUE DATE DECEMBER 31, 2004 TO DELIVER GAIN
- ------------------------------------------------------------------------------------------------------------------------------------
Canadian Dollar 1,215,000 3/16/2005 $ 1,012,703 $ 995,086 $ 17,617
Danish Krone 3,670,000 3/16/2005 670,369 653,397 16,972
Euro 2,990,000 3/16/2005 4,059,406 4,033,466 25,940
Japanese Yen 1,804,650,000 3/16/2005 17,714,877 17,344,899 369,978
__________ ___________ _________
TOTAL $23,457,355 $23,026,848 $430,507
__________ ___________ _________
__________ ___________ _________
LOCAL
PRINCIPAL CONTRACT VALUE AT USD AMOUNT UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE DECEMBER 31, 2004 TO RECEIVE GAIN/LOSS
- ------------------------------------------------------------------------------------------------------------------------------------
Australian Dollar 2,610,000 3/16/2005 $ 2,029,529 $ 1,993,943 $ (35,586)
Swiss Franc 340,000 3/16/2005 299,596 295,909 (3,687)
Euro 1,228,778 1/3/2005 1,666,961 1,671,820 4,859
Euro 4,995,000 3/16/2005 6,781,517 6,648,537 (132,980)
New Zealand Dollar 10,579 1/25/2005 7,569 7,527 (42)
New Zealand Dollar 3,820,000 3/16/2005 2,718,254 2,702,819 (15,435)
British Pound Sterling 2,015,000 3/16/2005 3,846,363 3,857,298 10,935
Singapore Dollar 2,000,000 3/16/2005 1,228,633 1,212,672 (15,961)
___________ ___________ _________
TOTAL $18,578,422 $18,390,525 $(187,897)
___________ ___________ _________
___________ ___________ _________
At December 31, 2004 the Fund held the following cross currency exchange
contracts:
VALUE AT IN VALUE AT CONTRACT UNREALIZED
CONTRACTS TO DELIVER DECEMBER 31, 2004 EXCHANGE FOR DECEMBER 31, 2004 VALUE DATE GAIN/LOSS
- ------------------------------------------------------------------------------------------------------------------------------------
New Zealand Dollar $ 591,984 Australian Dollar $ 604,852 1/25/2005 $12,868
Australian Dollar 604,852 New Zealand Dollar 599,552 1/25/2005 (5,300)
__________ __________ _______
$1,196,836 $1,204,404 $ 7,568
__________ __________ _______
__________ __________ _______
The accompanying notes are an integral part of the financial statements.
11
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
SCHEDULE OF INVESTMENTS--DECEMBER 31, 2004
- --------------------------------------------------------------------------------
At December 31, 2004, the Fund held the following open swap contracts:
NOTIONAL AMOUNT
PORTFOLIO/COUNTERPARTY EXPIRATION DATE DESCRIPTION VALUE
- ------------------------------------------------------------------------------------------------------------------------------------
90,000 USD 12/20/07 Agreement with Bear Stearns, dated 12/08/04
to receive 2.05% per year times the notional amount.
The Fund makes payment only upon a credit event
by Republic of Turkey, the notional amount times the
difference between the par value and the then-market
of Republic of Turkey, 11.875% due 1/15/30. $ 1,011
80,000 USD 12/20/09 Agreement with Bear Stearns, dated 11/17/04 to receive
2.84% per year times the notional amount. The Fund
makes payment only upon a credit event by Ukraine
Government, the notional amount times the difference
between the par value and the then-market of Ukraine
Government, 7.65% due 6/11/13. 1,152
90,000 USD 12/20/05 Agreement with Bear Stearns, dated 12/08/04 to pay
1.05% per year times the notional amount. The Fund
receives payment only upon a credit event by Republic of
Turkey, the notional amount times the difference between
the par value and the then-market of Republic of Turkey,
11.875% due 1/15/30. (111)
80,000 USD 11/19/09 Agreement with Bear Stearns, dated 11/17/04 to receive
the notional amount multiplied by 3.90700% and to pay
the notional amount multiplied by the 3 month LIBOR. (172)
_______
Total Swap Value $ 1,880
_______
_______
The accompanying notes are an integral part of the financial statements.
12
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES DECEMBER 31, 2004
- --------------------------------------------------------------------------------
ASSETS
Investments in securities (including securities on loan, valued at $956,684)
(Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $42,967,192) $46,822,331
Affiliated issuers, at value (Note 1A) (cost $1,208,517) (Note 1H) 1,208,517
Foreign Currency (cost $116,413) 118,121
Receivable for Fund shares sold 16,956
Receivable for securities sold 2,383,807
Swap contracts, at value (Note 6) 1,880
Unrealized appreciation on forward currency exchange contracts (Note 6) 459,169
Interest and dividends receivable 888,653
Prepaid expenses 17,390
___________
Total assets 51,916,824
LIABILITIES
Payable for Fund shares redeemed $2,616
Payable for investments purchased 920,316
Collateral for securities on loan (Note 7) 1,002,860
Unrealized depreciation on forward
currency exchange contracts (Note 6) 208,991
Distributions payable 13,650
Payable for variation margin 2,344
Accrued accounting, custody and
transfer agent fees (Note 2) 17,851
Accrued trustees' fees and expenses (Note 2) 2,091
Accrued expenses and other liabilities 31,695
___________
Total liabilities 2,202,414
___________
NET ASSETS $49,714,410
___________
___________
NET ASSETS CONSIST OF:
Paid-in capital $45,465,310
Accumulated net realized loss (277,940)
Undistributed net investment income 304,457
Net unrealized appreciation 4,222,583
___________
TOTAL NET ASSETS $49,714,410
___________
___________
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,052,137
___________
___________
NET ASSET VALUE, OFFERING AND REDEMPTION PRICE PER SHARE
(Net Assets/Shares outstanding) 24.23
___________
___________
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2004
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income (net of foreign withholding tax of $456 and
including securities lending income of $1,209 (Note 7)) $1,559,039
Interest income from affiliated investments (Note 1H) 32,736
__________
Total investment income 1,591,775
EXPENSES
Investment advisory fee (Note 2) $136,010
Accounting, custody, and transfer agent fees (Note 2) 98,809
Professional fees 39,987
Registration fees 11,300
Trustees' fees and expenses (Note 2) 7,016
Insurance expense 6,345
Miscellaneous 11,762
_________
Total expenses 311,229
Deduct:
Waiver of investment advisory fee (Note 2) (57,150)
_________
Net expenses 254,079
__________
Net investment income 1,337,696
__________
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 2,059,177
Financial futures contracts (5,935)
Foreign currency transactions and forward currency exchange contracts (541,342)
Written options transactions (3,646)
__________
Net realized gain 1,508,254
Change in unrealized appreciation (depreciation)
Investment securities 1,264,421
Written option transactions 17,952
Swap contracts 1,880
Financial futures contracts (8,736)
Foreign currency transactions and forward currency exchange contracts 499,764
__________
Change in net unrealized appreciation (depreciation) 1,775,281
__________
Net realized and unrealized gains on investments 3,283,535
__________
NET INCREASE IN NET ASSETS FROM OPERATIONS $4,621,231
__________
__________
The accompanying notes are an integral part of the financial statements.
14
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE FOR THE
YEAR ENDED YEAR ENDED
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
INCREASE (DECREASE) IN NET ASSETS: FROM INVESTMENT OPERATIONS
Net investment income $ 1,337,696 $ 784,044
Net realized gain 1,508,254 3,073,507
Change in net unrealized appreciation (depreciation) 1,775,281 556,179
____________ ____________
Net increase in net assets from investment operations 4,621,231 4,413,730
____________ ____________
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income (1,965,761) (3,060,410)
____________ ____________
Total distributions to shareholders (1,965,761) (3,060,410)
____________ ____________
FUND SHARE TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 28,789,234 10,008,544
Value of shares issued to shareholders in reinvestment of distributions 1,946,429 3,046,737
Cost of shares redeemed (7,660,029) (11,627,410)
____________ ____________
Net increase in net assets from Fund share transactions 23,075,634 1,427,871
____________ ____________
TOTAL INCREASE (DECREASE) IN NET ASSETS 25,731,104 2,781,191
NET ASSETS
At beginning of year 23,983,306 21,202,115
____________ ____________
At end of year (including undistributed
net investment income of $304,457 and $105,920) $49,714,410 $ 23,983,306
____________ ____________
____________ ____________
The accompanying notes are an integral part of the financial statements.
15
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31,
____________________________________________________________
2004 2003 2002 2001 2000
_______ ________ _______ _______ _______
NET ASSET VALUE, BEGINNING OF YEAR $ 22.97 $ 21.66 $ 17.83 $ 18.87 $ 19.47
FROM INVESTMENT OPERATIONS:
Net investment income (1)* 0.88 0.77 0.73 0.73 0.98
Net realized and unrealized gain (loss) on investments 1.52 3.81 3.10 (1.74) (1.50)
_______ ________ _______ _______ _______
Total from investment operations 2.40 4.58 3.83 (1.01) (0.52)
_______ ________ _______ _______ _______
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.14) (3.27) -- (0.03) (0.08)
_______ ________ _______ _______ _______
Total distributions to shareholders (1.14) (3.27) -- (0.03) (0.08)
_______ ________ _______ _______ _______
NET ASSET VALUE, END OF YEAR $ 24.23 $ 22.97 $ 21.66 $ 17.83 $ 18.87
_______ ________ _______ _______ _______
_______ ________ _______ _______ _______
TOTAL RETURN((+)) 10.73% 21.51% 21.48% (5.31)% (2.73)%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)(*) 0.75% 0.55% 0.55% 55.00% 0.27%
Net Investment Income (to average daily net assets)(*) 3.93% 3.34% 3.87% 3.99% 5.30%
Portfolio Turnover 132% 192% 178% 205% 216%
Net Assets, End of Year (000's omitted) $49,714 $23,983 $21,202 $40,337 $41,614
- -------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose all or a portion of its investment advisory fee and/or reimbursed the
Fund for a portion of its operating expenses. If this voluntary action had not
been taken, the investment income per share and the ratios would have been:
Net investment income per share(1) $ 0.84 $ 0.60 $ 0.60 $ 0.68 $ 0.86
Ratios (to average daily net assets):
Expenses 0.91% 1.30% 1.23% 0.85% 0.90%
Net investment income 3.77% 2.59% 3.19% 3.69% 4.67%
(a) The Fund has adopted the provisions of the revised AICPA Audit and
Accounting Guide for Investment Companies effective January 1, 2001 and began
amortizing premium and discount on all debt securities on an effective yield
basis. The effect of this change for the year ended December 31, 2001 was to
decrease net investment income per share by $0.002, increase net realized and
unrealized gains and losses per share by $0.002 and decrease the ratio of net
investment income to average net assets from 4.00% to 3.99%. Per share data and
ratios/supplemental data for the periods prior to January 1, 2001 have not been
restated to reflect this change in presentation.
(1) Calculated based on average shares outstanding.
(+) Total return would have been lower in the absence of fee waivers and
expense limitations.
The accompanying notes are an integral part of the financial statements.
13
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
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 International Fixed Income II Fund (the "Fund") is a
separate diversified investment series of the Trust.
The objective of the Fund is to maximize total return while realizing a
market level of income consistent with preserving principal and liquidity.
The Fund seeks to achieve its objective by investing, under normal
circumstances, at least 80% of net assets in fixed income securities, and
at least 65% of net assets in non-U.S. dollar denominated fixed income
securities of foreign government and companies located in various
countries, including emerging markets.
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 in the
principal market in which such securities are primarily traded. Market
quotations are not considered to be readily available for certain debt
obligations; such investments are stated at fair value on the basis of
valuations furnished by a pricing service or dealers, approved by the
Trustees, which determine valuations for normal institutional-size trading
units of such securities using methods based on market transactions for
comparable securities and variable relationships between securities that
are generally recognized by institutional traders. 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
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 coupon interest accrued, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method on long-term debt securities and short-term
securities with greater than sixty days to maturity. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from securities
sold are recorded on the identified cost basis. The Fund does not isolate
that portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from changes in
market prices of securities held. Such fluctuations are included with the
net realized and unrealized gain or loss from investments. 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 Fund's books and the U.S. dollar equivalent amounts actually received
or paid.
C. 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.
17
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
D. 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.
E. DISTRIBUTIONS TO SHAREHOLDERS
Distributions to shareholders are recorded on the ex-dividend date.
Dividends from net investment income will be declared and distributed
quarterly. 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, foreign
currency gains and losses, post-October losses, amortization and/or
accretion of premiums and discounts on certain securities and the timing of
recognition of gains and losses on futures contracts.
Permanent book and tax basis differences 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 and foreign currency
transactions 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.
F. 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.
G. 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.
H. AFFILIATED ISSUERS
Affiliated issuers represent issuers in which the Fund held investments in
other investment companies advised by Standish Mellon Asset Management
Company LLC ("Standish Mellon"), a wholly-owned subsidiary Mellon Financial
Corporation, or its affiliates.
(2) INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
The investment advisory fee paid to Standish Mellon overall investment
advisory, administrative services, and general office facilities, is paid
monthly at the annual rate of 0.40% of the Fund's average daily net assets.
Standish Mellon voluntarily agreed to limit total Fund operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.75% effective January 1, 2004, from 0.55% prior to that date, of the
Fund's average daily net assets for the year ended December 31, 2004.
Pursuant to this agreement, for the year ended December 31, 2004, Standish
Mellon voluntarily waived a portion of its investment advisory fee in the
amount of $57,150 This agreement is voluntary and temporary and may be
discontinued or revised by Standish Mellon at any time.
18
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 Standish Mellon, 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 paid $3,233 during the year ended
December 31, 2004.
The Fund has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly owned
subsidiary of Mellon Financial Corporation and an affiliate of Standish
Mellon, 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 paid $75,946 during the year
ended December 31, 2004.
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. See Note 7 for further details.
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.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2004 were as follows:
PURCHASES SALES
__________ __________
U.S. Government Securities $ 2,282,163 $ 2,321,551
___________ ___________
Investments (non-U.S.
Government Securities) $54,611,331 $38,021,972
___________ ___________
___________ ___________
(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
DECEMBER 31, 2004 DECEMBER 31, 2003
__________________ _________________
Shares sold 1,262,514 425,279
Shares issued to shareholders in
reinvestment of distributions 83,344 132,785
Shares redeemed (337,694) (495,664)
__________ __________
Net increase 1,008,164 62,400
__________ __________
__________ __________
At December 31, 2004, two shareholders of record held approximately 83% 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 in the Fund. The
fee does not apply to shares that are acquired through reinvestment of
distributions. For the year ended December 31, 2004, the Fund did not
collect any redemption fees.
19
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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 December 31, 2004, was as follows:
2004
AMOUNT
____________
Unrealized appreciation $ 3,863,312
Unrealized depreciation (15,006)
___________
Net unrealized appreciation/depreciation 3,848,306
Undistributed ordinary income 555,312
Capital loss carry over 283,844
Cost for federal income tax purposes $44,182,540
At December 31, 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
____________ ________________
$283,844 12/31/2010
Tax character of distributions paid during the fiscal years ended December
31, 2004, and December 31, 2003 were as follows:
2004 2003
__________ __________
Ordinary income $ 1,965,761 $ 3,060,410
(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.
20
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 had entered into options transactions during the year ended
December 31, 2004. The option transactions were as follows:
NUMBER OF
WRITTEN CALL OPTION TRANSACTIONS CONTRACTS PREMIUMS
__________ __________
Outstanding, beginning of period 0 0
Options written 1 2,519
Options expired (1) (2,519)
__________ __________
Outstanding, end of period 0 0
__________ __________
__________ __________
NUMBER OF
WRITTEN PUT OPTION TRANSACTIONS CONTRACTS PREMIUMS
__________ __________
Outstanding, beginning of period 3 10,814
Options written 13 51,043
Options expired (7) (24,407)
Options closed (9) (37,450)
__________ __________
Outstanding, end of period 0 0
__________ __________
__________ __________
FORWARD CURRENCY EXCHANGE CONTRACTS
The Fund 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 Fund primarily to protect the value of the Fund'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.
The Fund held foreign currency exchange contracts at December 31, 2004. See
Schedule of Investments for further details.
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.
The Fund held futures at December 31, 2004. See Schedule of Investments for
further details.
21
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
SWAP AGREEMENTS
The Fund may enter into 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,
if any, are included as part of realized gain or loss. Entering into these
agreements 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 December 31, 2004 the Fund held swap contracts. See Schedule of
Investments for further details.
(7) SECURITY LENDING:
The Fund may lend its securities to financial institutions which the Fund
deems to be creditworthy. The loans are collateralized at all times with
cash or securities with a market value at least equal to the market value
of the securities on loan. The market value of securities loaned is
determined daily and any additional required collateral is allocated to the
Fund on the next business day. For the duration of a loan, the Fund
receives the equivalent of the interest or dividends paid by the issuer on
the securities loaned and also receives compensation from the investment of
the collateral. As with other extensions of credit, the Fund bears the risk
of delay in recovery or even loss of rights in its securities on loan
should the borrower of the securities fail financially or default on its
obligations to the Fund. In the event of borrower default, the Fund
generally has the right to use the collateral to offset losses incurred.
The Fund may incur a loss in the event it was delayed or prevented from
exercising its rights to dispose of the collateral. The Fund also bears the
risk in the event that the interest and/or dividends received on invested
collateral is not sufficient to meet the Fund's obligations due on the
loans.
The Fund loaned securities during the year ended December 31, 2004
resulting in security lending income of $1,209. At December 31, 2004, the
Fund had securities valued at $956,684 on loan. See Schedule of Investments
for further detail on the security positions on loan and collateral held.
(8) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. Income on the
securities will not be earned until settlement date. The Fund instructs its
custodian to segregate securities having value at least equal to the amount
of the purchase commitment.
The Fund may enter into to be announced ("TBA") purchase commitments to
purchase securities for a fixed unit price at a future date beyond
customary settlement time. Although the unit price has been established,
the principal value has not been finalized. However, the amount of the
commitments will not fluctuate more than 0.01% from the principal amount.
The Fund holds, and maintains until settlement date, cash or high-grade
debt obligations in an amount sufficient to meet the purchase price, or the
Fund may enter into offsetting contracts for the forward sale of other
securities it owns. Income on the securities will not be earned until
settlement date. TBA purchase commitments may be considered securities in
themselves, and involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date. Unsettled TBA purchase
commitments are valued at the current market value of the underlying
securities, according to the procedures described under "Investment
security valuations" above.
22
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
The Fund may enter into TBA sale commitments to hedge its portfolio
positions. Proceeds of TBA sale commitments are not received until the
contractual settlement date. During the time a TBA sale commitment is
outstanding, an offsetting TBA purchase commitment deliverable is held as
"cover" for the transaction.
Unsettled TBA sale commitments are valued at the current market value of
the underlying securities, generally according to the procedures described
under "Investment security valuations" above. The contract is
'marked-to-market' daily and the change in market value is recorded by the
Fund as an unrealized gain or loss. If the TBA sale commitment is closed
through the acquisition of an offsetting purchase commitment, the Fund
realizes a gain or loss from the sale of the securities based upon the unit
price established at the date the commitment was entered into.
The Fund did not hold any delayed delivery securities at December 31, 2004
(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% committed amount,
is allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended December 31, 2004, a facility fee of $387
was allocated to the Fund.
During the year ended December 31, 2004, the Fund had average borrowings
outstanding of $26,063 on a total of four days and incurred $4 of interest
expense.
23
MELLON INSTITUTIONAL FUNDS INVESTMENT TRUST STANDISH MELLON INTERNATIONAL FIXED
INCOME FUND II
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and the
Shareholders of Standish Mellon International Fixed Income Fund II 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 International Fixed Income II Fund (the "Fund") at December
31, 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 December 31, 2004 by correspondence
with the custodian and brokers, provide a reasonable basis for our opinion
PricewaterhouseCoopers LLP
New York, NY
February 25, 2005
24
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; 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; and total annual remuneration
paid as of December 31, 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 TRUSTEE
PRINCIPAL PORTFOLIOS IN OTHER REMUNERATION
NAME TERM OF OFFICE OCCUPATION(S) FUND COMPLEX DIRECTORSHIPS (YEAR ENDED
ADDRESS, AND POSITION(S) AND LENGTH OF DURING PAST OVERSEEN BY HELD BY DECEMBER 31,
DATE OF BIRTH HELD WITH TRUST TIME SERVED 5 YEARS TRUSTEE TRUSTEE 2004)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman of the Board 30 None Fund: $799
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 Fund: $859
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 Fund: $799
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 Fund: $799
P.O. Box 2333 11/3/1986 House, Inc. (hospice)
New London, NH 03257
4/11/35
INTERESTED TRUSTEES
Patrick J. Sheppard Trustee, President Since 2003 Senior Vice President 30 None Fund: $0
Mellon Institutional and Chief and Chief Operating Officer,
Asset Management Executive 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
25
PRINCIPAL OFFICERS WHO ARE NOT TRUSTEES
NUMBER OF
PORTFOLIOS IN
NAME TERM OF OFFICE FUND COMPLEX
ADDRESS, AND POSITION(S) AND LENGTH OF PRINCIPAL OCCUPATION(S) OVERSEEN BY
DATE OF BIRTH HELD WITH TRUST TIME SERVED DURING PAST 5 YEARS TRUSTEE
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Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations 30
Mellon Institutional and Secretary Mellon Institutional Asset Management, formerly
Asset Management First Vice President, Mellon Institutional Asset
One Boston Place Management and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, 30
Mellon Institutional and Treasurer since 1999; Mellon Institutional Asset Management
Asset Management Treasurer Institutional Asset
One Boston Place since 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations, 30
Mellon Institutional President Mellon Institutional Asset Management
Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager, 30
Mellon Institutional President Shareholder Services, Mellon Institutional
Asset Management Asset Management since 2001;
One Boston Place Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management
1/19/71
Jan F. Jumet Chief Since 2004 Senior Vice President and Chief Compliance Officer 30
tandish Mellon Assest Compliance for Standish Mellon Asset Management Company LLC;
Management Company LLC Officer formerly Director of Compliance and Administration
One Boston Place and Chief Administration Officer for Standish Mellon
Boston, MA 02108 Asset Management Company LLC, Senior
8/9/66 Vice President and Chief Administration Officer
for Mellon Bond Associates, LLP, and
First Vice President and Senior Sales Associate
for Mellon Institutional Asset Management
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One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
ITEM 2. CODE OF ETHICS.
As of December 31, 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 December 31, 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 billed for professional services
rendered by the 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 for 2004 and 2003
were $130,555 and $127,776, respectively.
(b) AUDIT RELATED FEES: The aggregate fees billed for audit-related
professional services rendered by PricewaterhouseCoopers LLP for
2004 and 2003 were $40,356 and $39,290, respectively. Such
services and related fees for 2004 and 2003 included the
preparation of fiscal year end tax provisions and distribution
requirements necessary to prepare annual financial statements.
(c) TAX FEES: The aggregate fees billed for professional services
rendered by PricewaterhouseCoopers LLP for tax compliance, tax
advice, and tax planning for 2004 and 2003 were $96,205 and
$92,214, respectively. Services rendered in both years 2003
included asset diversification testing, the preparation of tax
returns and extensions, the review of periodic distributions and,
in 2003, tax advice related to the proper tax treatment of
investments in total return swaps.
(d) ALL OTHER FEES: No such fees were billed to the Registrant by
PricewaterhouseCoopers LLP for 2004 or 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 the Registrant's accountant
for services rendered to the Registrant's investment adviser by
PricewaterhouseCoopers LLP for 2004 and 2003 were $31,000 and
$50,925, respectively. Services provided in 2004 included the
review and documentation of the Registrant's change in custodian
and fund accounting agent and the review and issuance of consent
related to the registration and filing of a new fund on Form N-1A.
Services provided in 2003 included consultation and discussions
regarding the tax implications resulting from the Registrant's
change of custodian and fund administrator, including change in
partnership allocation methodology for funds in a master feeder
structure and state tax issues concerning domicile of master
portfolios. The aggregate non-audit fees billed by the
Registrant's accountant for services rendered to the Registrant's
transfer agent by PricewaterhouseCoopers LLP for 2004 were
$43,708. Services provided in 2004 included a review of the
transfer agency function and to issue a report under Rule
17Ad-13(a)(3) of the Securities and Exchange Act of 1934. In 2003,
the Registrant's transfer agent was not an entity controlling,
controlled by, or under common control with the Registrant's
investment adviser.
(h) Because all of the non-audit services rendered to the Registrant's
investment adviser or any entity controlling, controlled by, or
under common control with the investment adviser that provides
ongoing services to the registrant were pre-approved by the
Registrant's Audit Committee of the Board of Directors and no such
non-audit services were not pre-approved, the Audit Committee was
not asked to consider whether the provision of non-audit services
rendered to the Registrant's investment adviser or any entity
controlling, controlled by, or under common control with the
investment adviser that provides ongoing services to the
registrant which were not pre-approved by the Registrant's Audit
Committee is compatible with maintaining the principal
accountant's independence.
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) Not applicable to the Registrant.
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: March 10, 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: March 10, 2004
By (Signature and Title): /s/ STEVEN M. ANDERSON
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Steven M. Anderson, Vice President and Treasurer
Date: March 10, 2004