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, 2005
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Item 1. Reports to Stockholders.
[LOGO]Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Investment Grade Bond Fund
- -------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o 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
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The economy grew steadily in 2005 despite continuous rate hikes by the U.S.
Federal Reserve, sharply higher energy prices and major disruptions from
Hurricanes Katrina and Rita. Job gains remained surprisingly strong with a
12-month moving average of 168,000 jobs, and the unemployment rate fell to 5%.
Inflation news was generally positive as CPI, excluding food and energy, hovered
in the area of 2% and the latest release of the Fed's preferred measure of
inflation, core personal consumption expenditures, posted a moderate 1.8% rise
year over year. Against this backdrop, short term interest rates rose
significantly more than long term rates, leaving the slope between 2- and
10-year Treasuries virtually flat by year-end. In an environment where the Fed's
inflation-fighting credibility and policy transparency has been quite good,
interest rate volatility has fallen. Similarly, risk premiums have remained low
during 2005. However, there has been a notable pickup in event risk in the
corporate market over the course of the year which started with downgrades in
the auto sector and spread more broadly with increasing merger activity and
leveraged buy out rumors. As we close the year, slowing growth prospects,
moderate inflation and a likely decline in the housing market lead us to expect
that the Fed is nearly done raising rates.
For the latest year, the Standish Mellon Investment Grade Bond Fund outperformed
the Lehman Brothers U.S. Aggregate Index. Over the 12-month period ended
December 31, 2005, the Fund returned 2.63% net of fees compared to 2.43% for the
index. The Fund's yield curve strategy contributed strongly to excess returns as
we implemented a barbell position (overweight cash and long bonds versus
underweight intermediate maturities) which capitalized on the yield curve
flattening. Similarly, a shorter-than-benchmark duration was advantageous given
significantly higher intermediate bond yields. In spread sectors, the Fund's
allocation to emerging markets was positive as the sector benefited from strong
investor demand and improving credit momentum. Treasury Inflation Protected
Securities (TIPS) were another source of value added. During the year, we
opportunistically added TIPS to take advantage of higher inflation accruals due
to the surge in energy prices and undervalued breakeven inflation rates. In the
corporate bond market, amid increasing negative headlines and event risk, our
defensive security selection was positive for portfolio returns. Finally, our
allocation to higher quality bonds in the commercial mortgage and asset backed
sectors positively impacted performance.
As we begin 2006, we anticipate the Fed to pause soon given policymakers have
moderated their hawkish inflation tone and expressed caution in tightening too
aggressively. Meanwhile, as low risk premiums persist, the Fund's sector
positioning remains defensive. We continue to capitalize on opportunities to
purchase insurance in the credit default market for select issuers with a high
probability of negative event risk. In the structured market, there are
attractively priced opportunities in the asset backed sector with diversified
pools of mortgages. We have moved the Fund's duration from shorter than the
index to neutral given that we are near the end of the tightening cycle.
Finally, in a flat yield curve environment, we favor intermediate bonds which
should benefit portfolio returns as we believe interest rates will likely fall
in the front end of the curve when the Fed pauses.
As always, we look forward to serving you in 2006.
/s/ Catherine Powers /s/ Marc Seidner
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 Brothers U.S. Aggregate Index
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Years Ended 12/31
Average Annual Total Returns (for period ended 12/31/2005)
[GRAPHIC]
Since
Inception
1 Year 3 Years 5 Years 6/1/2000
- ------------------------------------
2.63% 3.66% 5.69% 6.70%
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.
* Source: Lipper Inc.
3
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade 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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- ----------------------------------------------------------------------------------
Actual $1,000.00 $1,001.80 $2.02
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.19 $2.04
(+) Expenses are equal to the Fund's annualized expense ratio of 0.40%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Portfolio Information as of December 31, 2005 (Unaudited)
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Summary of Combined Ratings
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Percentage of
Quality Breakdown Investments
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AAA and higher 58.4%
AA 6.2
A 10.9
BBB 24.5
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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 Investments
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FNMA TBA 5.000 1/1/2036 7.4%
FNMA TBA 4.500 1/1/2021 4.2
U.S. Treasury Bond 5.250 11/15/2028 2.5
FNMA TBA 5.000 1/1/2021 2.7
U.S. Treasury Note 4.750 5/15/2014 1.6
FNMA 5.500 10/1/2033 1.4
FNMA 5.500 2/1/2033 1.3
DLJ Commercial Mortgage Corp. 1998-CF2 B1 7.042 11/12/2031 1.0
FNMA 5.500 11/1/2024 1.0
Northern Rock PLC 144A 5.600 4/30/2014 0.9
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24.0%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- ----------------------------------------------------------------
Treasury/Agency 18.9%
Mortgage pass thru 28.7
Credit 32.8
ABS/CMO/CMBS 19.6
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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, 2005
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Par Value
Security Description Rate Maturity Value (Note 1A)
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UNAFFILIATED INVESTMENTS--123.0%
BONDS AND NOTES--110.6%
Asset Backed--16.1%
Accredited Mortgage Loan Trust 2005-1 A2A (a) 4.47875% 4/25/2035 $ 9,613 $ 9,614
Accredited Mortgage Loan Trust 2005-2 A2A (a) 4.47875 7/25/2035 16,841 16,839
Accredited Mortgage Loan Trust 2005-3 A2 (a) 4.47875 9/25/2035 42,493 42,496
ACE Securities Corp. 2005-HE1 A2A (a) 4.49875 2/25/2035 12,284 12,287
Americredit Automobile Receivables Trust 2005-DA A2 4.75000 11/6/2008 25,000 24,992
Ameriquest Mortgage Securities Inc. 2003-8 AF3 4.37000 10/25/2033 49,221 49,049
Bear Stearns Asset Backed Securities, Inc. 2005-HE2 1A1 (a) 4.48875 2/25/2035 12,032 12,034
Bear Stearns Asset Backed Securities, Inc. 2005-HE3 1A1 (a) 4.45875 3/25/2035 43,955 43,961
Capital One Multi-Asset Execution Trust 2004-C1 C1 3.40000 11/16/2009 58,000 57,043
Capital One Prime Auto Receivables Trust 2004-1 A3 2.02000 11/15/2007 4,266 4,239
Chec Loan Trust LLC 2004-2 A1 (a) (g) 4.54875 1/25/2025 11,329 11,330
Chase Manhattan Auto Owner Trust 2003-A A3 1.52000 5/15/2007 18,518 18,482
Chase Manhattan Auto Owner Trust 2003-C CTFS 2.78000 6/15/2010 48,737 47,842
Citigroup Mortgage Loan Trust, Inc. 2005-WF2 AF7 5.24900 8/25/2035 55,000 54,401
Countrywide Alternative Loan Trust 2005-J4 2A1B (a) 4.49875 7/25/2035 21,892 21,878
Countrywide Asset-Backed Certificates 2005-2 2A1 (a) 4.28375 8/25/2035 12,267 12,268
Credit-Based Asset Servicing and Securitization 2005-CB7 AF1 5.20800 11/25/2035 47,574 47,477
Ford Credit Auto Owner Trust 2005-B B 4.64000 4/15/2010 35,000 34,645
Fremont Home Loan Trust 2005-1 2A1 (a) 4.47875 6/25/2035 11,523 11,527
Green Tree Financial Corp. 1994-7 M1 9.25000 3/15/2020 23,614 24,806
Home Equity Asset Trust 2005-5 2A1 (a) 4.48875 11/25/2035 34,883 34,885
Honda Auto Receivables Owner Trust 2005-5 A1 4.22063 11/15/2006 57,872 57,821
Hyundai Auto Receivables Trust 2004-A B 3.46000 8/15/2011 62,000 60,368
Merrill Lynch Mortgage Investors, Inc. 2005-NC1 A2A (a) 4.48875 10/25/2035 2,400 2,400
Merrill Lynch Mortgage Investors, Inc. 2005-WMC1 A2A (a) 4.47875 9/25/2035 8,065 8,066
Morgan Stanley ABS Capital I 2005-WMC2 A2A (a) 4.45875 2/25/2035 10,662 10,663
Morgan Stanley Home Equity Loans 2005-2 A2A (a) 4.46875 5/25/2035 65,453 65,421
Nomura Asset Acceptance Corp. 2005-WF1 2A5 5.15900 3/25/2035 28,000 27,323
Opteum Mortgage Acceptance Corp. 2005-1 A2 (a) 4.51875 2/25/2035 39,524 39,524
Origen Manufactured Housing 2005-A A1 4.06000 7/15/2013 40,065 39,845
Popular ABS Mortgage Pass--Thru Trust 2005-5 AF6 5.33100 11/25/2035 25,000 24,789
Popular ABS Mortgage Pass--Thru Trust 2005-D AF1 5.36100 1/25/2036 23,797 23,782
Residential Asset Mortgage Products, Inc. 2003-RS9 MI1 5.80000 10/25/2033 25,000 24,908
Residential Asset Mortgage Products, Inc. 2005-RS2 AII1 (a) 4.48875 2/25/2035 39,525 39,538
Residential Asset Mortgage Products, Inc. 2005-RS3 AI1 (a) 4.47875 3/25/2035 34,218 34,223
Residential Asset Mortgage Products, Inc., 2004-RS8 AI2 3.81000 1/25/2026 62,951 62,691
Residential Asset Securities Corp. 2004-KS10 AI1 (a) 4.54875 10/25/2013 8,655 8,656
Residential Asset Securities Corp. 2005-EMX1 AI1 (a) 4.47875 3/25/2035 16,463 16,466
Soundview Home Equity Loan Trust 2005-M M3 5.82500 5/25/2035 40,000 39,842
Specialty Underwriting & Residential Finance 2004-BC4 A2A (a) 4.52875 10/25/2035 15,946 15,949
Specialty Underwriting & Residential Finance 2005-BC1 A1A (a) 4.48875 12/25/2035 12,468 12,469
Structured Adjustable Rate Mortgage Loan 2005-8XS A1 (a) 4.47875 4/25/2035 16,783 16,783
USAA Auto Owner Trust 2004-1 A3 2.06000 4/15/2008 43,090 42,595
WFS Financial Owner TR2004-3 B 3.51000 2/17/2012 22,603 22,129
WFS Financial Owner Trust 2003-3 A4 3.25000 5/20/2011 62,000 61,024
WFS Financial Owner Trust 2004-4 C 3.21000 5/17/2012 35,764 35,043
WFS Financial Owner Trust 2005-2 B 4.57000 11/19/2012 56,000 55,590
Whole Auto Loan Trust 2003-1 C 3.13000 3/15/2010 20,845 20,679
Total Asset Backed (Cost $1,471,000) ----------
1,460,682
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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, 2005
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Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------
Collateralized Mortgage Obligations--13.0%
GNMA 2004-23B 2.94600% 3/16/2019 $ 67,000 $ 63,834
GNMA 2004-9A 3.36000 8/16/2022 63,712 61,131
GNMA 2003-48 AC 2.71200 2/16/2020 47,875 45,955
GNMA 2003-72 A 3.20620 4/16/2018 26,603 25,789
GNMA 2003-88 AC 2.91410 6/16/2018 26,538 25,486
GNMA 2003-96 B 3.60720 8/16/2018 70,000 68,006
GNMA 2004-12A 3.11000 1/16/2019 57,333 54,901
GNMA 2004-25 AC 3.37700 1/16/2023 58,823 56,618
GNMA 2004-43 A 2.82200 12/16/2019 60,622 57,926
GNMA 2004-51 A 4.14500 2/16/2018 57,114 55,986
GNMA 2004-57 A 3.02200 1/16/2019 31,674 30,399
GNMA 2004-67 A 3.64800 9/16/2017 44,433 43,397
GNMA 2004-77 A 3.40200 3/16/2020 50,673 48,913
GNMA 2004-97 AB 3.08400 4/16/2022 59,579 57,051
GNMA 2005-12 A 4.04400 5/16/2021 20,324 19,873
GNMA 2005-14 A 4.13000 2/16/2027 63,607 62,173
GNMA 2005-32 B 4.38500 8/16/2030 34,000 33,363
GNMA 2005-50 A 4.01500 11/16/2026 37,583 36,653
GNMA 2005-52 A 4.28700 1/16/2030 18,814 18,446
GNMA 2005-87 A 4.44900 3/16/2025 24,941 24,521
GNMA 2005-29 A 4.01600 7/16/2027 26,921 26,208
Nomura Asset Acceptance Corp. 2005-AP2 A5 4.97600 5/25/2035 28,000 27,099
Structured Asset Mortgage Investments, Inc. 1998-2 B 6.00546 4/30/2030 2,220 2,207
Washington Mutual 2003-AR10 A5 4.06884 10/25/2033 72,000 70,594
Washington Mutual 2004-AR7 A6 3.94563 7/25/2034 67,000 64,814
Washington Mutual 2004-AR9 A7 4.18088 8/25/2034 47,000 46,034
Washington Mutual 2005-AR4 A4B 4.67939 4/25/2035 56,000 54,845
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Total Collateralized Mortgage Obligations (Cost $1,212,401) 1,182,222
----------
Corporate--27.9%
Banking--3.0%
JPMorgan Chase & Co. 5.12500 9/15/2014 44,000 43,556
MBNA Corp. 6.12500 3/1/2013 15,000 15,906
Regions Financial Corp. (a) 4.38000 8/8/2008 50,000 49,991
Suntrust Capital II 7.90000 6/15/2027 59,000 63,231
Wells Fargo & Co. (c) 6.37500 8/1/2011 30,000 32,155
Zions Bancorporation 2.70000 5/1/2006 32,000 31,792
Zions Bancorporation 6.00000 9/15/2015 36,000 37,621
---------
274,252
---------
Basic Materials--2.0%
Cabot Corp. 144A 5.25000 9/1/2013 60,000 58,362
Celulosa Arauco y Constitution SA 5.62500 4/20/2015 31,000 30,774
ICI Wilmington, Inc. 4.37500 12/1/2008 9,000 8,770
ICI Wilmington, Inc. 5.62500 12/1/2013 36,000 35,833
Temple-Inland 6.62500 1/15/2018 10,000 10,303
Westvaco Corp. 7.95000 2/15/2031 19,000 21,865
Weyerhaeuser Co. 7.37500 3/15/2032 13,000 14,452
---------
180,359
---------
Communications--1.9%
Comcast Corp. (c) 5.50000 3/15/2011 35,000 35,190
New Cingular Wireless Services, Inc. 8.75000 3/1/2031 12,000 15,898
News America Holdings, Inc. 7.70000 10/30/2025 20,000 22,947
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------
Communications (continued)
SBC Communications, Inc. 5.625 6/15/2016 $ 23,000 $ 23,142
Sprint Capital Corp. 8.750 3/15/2032 32,000 42,467
Time Warner, Inc. 6.750 4/15/2011 23,000 24,152
Verizon Global Funding Corp. 7.750 6/15/2032 11,000 13,095
--------
176,891
--------
Consumer Cyclical--0.4%
DaimlerChrysler NA Holding Corp. 8.500 1/18/2031 9,000 10,890
Darden Restaurants 6.000 8/15/2035 20,000 18,942
Heinz (H.J.) Co. 144A 6.428 12/1/2008 10,000 10,273
------
40,105
------
Consumer Noncyclical--1.5%
Aramark Services, Inc. 7.000 7/15/2006 21,000 21,193
Aramark Services, Inc. 6.375 2/15/2008 16,000 16,365
Coors Brewing Co. 6.375 5/15/2012 10,000 10,597
RR Donnelley & Sons Co. 4.950 4/1/2014 50,000 46,683
Safeway, Inc. (c) 7.250 2/1/2031 20,000 21,582
Wyeth 5.500 2/1/2014 16,000 16,207
--------
132,627
--------
Energy--1.6%
Amerada Hess Corp. 7.300 8/15/2031 23,000 26,618
Amoco Co. 6.500 8/1/2007 50,000 51,244
Chevron Phillips 7.000 3/15/2011 18,000 19,340
Enbridge Energy Partners 6.300 12/15/2034 15,000 15,208
XTO Energy, Inc. 7.500 4/15/2012 29,000 32,439
--------
144,849
--------
Financial--10.8%
Aegon NV 5.75000 12/15/2020 10,000 10,151
Archstone-Smith Operating Trust REIT 5.000 8/15/2007 16,000 15,991
Archstone-Smith Operating Trust REIT 5.250 5/1/2015 11,000 10,848
Arden Realty LP 5.250 3/1/2015 16,000 16,167
Bear Stearns Cos., Inc. 4.500 10/28/2010 21,000 20,501
Boeing Capital Corp. 7.375 9/27/2010 43,000 47,316
Boston Properties, Inc. 6.250 1/15/2013 18,000 18,883
Caterpillar Financial Service Corp. 3.10000 5/15/2007 35,000 34,243
CBA Capital Trust I 144A 5.805 6/30/2015 46,000 47,369
Citigroup, Inc. 4.750 12/15/2010 20,000 19,667
Commercial Net Lease Realtor REIT 6.15000 12/15/2015 10,000 10,149
Countrywide Home Loans, Inc. 4.00000 3/22/2011 20,000 18,819
Credit Suisse FB USA, Inc. 5.12500 8/15/2015 25,000 24,758
Duke Realty LP 3.500 11/1/2007 34,000 33,079
Duke Realty LP 7.750 11/15/2009 14,000 15,194
EOP Operating LP 7.000 7/15/2011 32,000 34,251
Erac USA Finance Co. 144A 7.950 12/15/2009 48,000 52,751
ERP Operating LP 4.750 6/15/2009 8,000 7,907
ERP Operating LP 5.125 3/15/2016 20,000 19,263
Federal Realty Investment 5.650 6/1/2016 10,000 10,057
Glencore Funding LLC 144A 6.000 4/15/2014 62,000 58,314
Goldman Sachs Group, Inc. 4.500 6/15/2010 20,000 19,545
Healthcare Realty Trust, Inc. 8.12500 5/1/2011 30,000 33,228
HSBC Finance Corp. (c) 4.750 4/15/2010 18,000 17,733
International Lease Finance Corp. 4.75000 1/13/2012 23,000 22,425
Jefferies Group, Inc. 7.500 8/15/2007 43,000 44,590
Jefferies Group, Inc. 5.500 3/15/2016 5,000 4,939
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------
Financial (continued)
John Deere Capital Corp. 4.50000% 8/25/2008 $ 30,000 $ 29,683
John Deere Capital Corp. 4.40000 7/15/2009 28,000 27,522
Mack-Cali Realty LP REIT 5.05000 4/15/2010 10,000 9,886
Mack-Cali Realty LP REIT 5.12500 1/15/2015 11,000 10,714
MassMutual Global Funding II 144A 3.80000 4/15/2009 37,000 35,863
Merrill Lynch & Co. (c) 4.12500 9/10/2009 27,000 26,198
Morgan Stanley 4.75000 4/1/2014 39,000 37,404
Prudential Financial, Inc. 4.10400 11/15/2006 19,000 18,875
Quest Diagnostics, Inc. 144A 5.12500 11/1/2010 10,000 9,997
Regency Centers LP 5.25000 8/1/2015 4,000 3,927
Residential Capital Corp. 6.37500 6/30/2010 48,000 48,774
Simon Property Group LP 4.87500 8/15/2010 26,000 25,639
Willis Group North America 5.62500 7/15/2015 26,000 25,990
---------
978,610
---------
Industrial--1.4%
American Standard, Inc. 7.62500 2/15/2010 20,000 21,498
Raytheon Co. 5.50000 11/15/2012 8,000 8,182
Republic Services, Inc. 6.08600 3/15/2035 34,000 34,681
Sealed Air Corp. 144A 5.62500 7/15/2013 29,000 28,787
Waste Management, Inc. 6.87500 5/15/2009 16,000 16,870
Waste Management, Inc. 7.37500 8/1/2010 5,000 5,441
Waste Management, Inc. 7.00000 7/15/2028 11,000 12,393
---------
127,852
---------
Services--1.7%
Harrahs Operating Co., Inc. 8.00000 2/1/2011 20,000 22,103
May Dept Stores 6.65000 7/15/2024 35,000 36,799
Metlife, Inc. 5.00000 6/15/2015 58,000 56,887
Nuveen Investments, Inc. 5.00000 9/15/2010 15,000 14,759
Sovereign Bancorp. 144A 4.80000 9/1/2010 25,000 24,502
---------
155,050
---------
Transportation--0.6%
Fedex Corp. 2.65000 4/1/2007 26,000 25,291
Norfolk Southern Corp. 6.75000 2/15/2011 12,000 12,945
Ryder System, Inc. 5.00000 6/15/2012 16,000 15,231
---------
53,467
---------
Utilities--3.0%
Appalachian Power Co. 5.95000 5/15/2033 19,000 19,085
Assurant, Inc. 6.75000 2/15/2034 16,000 17,389
Dominion Resources, Inc. 7.19500 9/15/2014 15,000 16,665
Dominion Resources, Inc. (a) 4.81938 9/28/2007 30,000 30,013
FirstEnergy Corp. 6.45000 11/15/2011 16,000 16,960
Niagara Mohawk Power Corp. 7.75000 10/1/2008 13,000 13,880
Nisource Finance Corp. 5.25000 9/15/2017 20,000 19,454
Oneok, Inc. 5.20000 6/15/2015 23,000 22,586
Pacific Gas & Electric Co. 3.60000 3/1/2009 15,000 14,394
Pepco Holdings, Inc. 5.50000 8/15/2007 28,000 28,169
Public Service Co. of Colorado 4.37500 10/1/2008 28,000 27,649
Southern California Edison Co. (a) 4.43000 1/13/2006 44,000 43,998
---------
270,242
---------
Total Corporate (Cost $2,573,411) 2,534,304
---------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------
Municipal Bonds-0.6%
Sacramento County California Pension Funding (b) (Cost $52,487) 0.00000% 7/10/2030 $ 56,000 $ 54,640
--------
Sovereign Bonds-0.7%
Republic of South Africa 9.12500 5/19/2009 39,000 43,729
United Mexican States (c) 6.62500 3/3/2015 20,000 21,900
--------
Total Sovereign Bonds (Cost $65,864) 65,629
--------
Yankee Bonds-5.5%
Amvescap PLC 5.37500 2/27/2013 35,000 34,492
BHP Billiton Finance 5.25000 12/15/2015 10,000 10,040
Koninklijke KPN NV 8.37500 10/1/2030 35,000 41,474
ING Groep NV 5.77500 11/30/2049 15,000 15,203
British Sky Broadcasting PLC 6.87500 2/23/2009 28,000 29,332
Deutsche Telekom International Finance BV 8.25000 6/15/2030 30,000 38,156
Falconbridge Ltd. 5.37500 6/1/2015 5,000 4,821
Falconbridge Ltd. 6.00000 10/15/2015 10,000 10,098
National Westminster Bank PLC (g) 7.75000 10/16/2007 77,000 80,430
Northern Rock PLC 144A 5.60000 4/30/2014 90,000 90,503
Pearson Dollar Finance PLC 144A 4.70000 6/1/2009 33,000 32,462
Potash Corp. of Saskatchewan 4.87500 3/1/2013 36,000 35,105
St. George Bank Ltd. 144A 5.30000 10/15/2015 51,000 51,228
Telecom Italia Capital SA 4.87500 10/1/2010 25,000 24,510
Total Yankee Bonds (Cost $501,517) --------
497,854
--------
Pass Thru Securities-41.3%
Agency Pass Thru-30.8%
FHLMC Gold 4.50000 10/1/2009 48,154 47,463
FHLMC Gold 4.50000 4/1/2010 51,863 51,041
FHLMC Gold 3.50000 9/1/2010 7,491 7,129
FHLMC Gold 6.00000 5/1/2017 48,591 49,600
FNMA 4.00000 5/1/2010 56,060 54,215
FNMA 3.53000 7/1/2010 37,340 35,191
FNMA 5.00000 10/1/2011 71,877 71,597
FNMA 4.06000 6/1/2013 28,000 25,870
FNMA 6.50000 12/1/2015 10,633 10,939
FNMA 6.00000 4/1/2017 86,336 88,253
FNMA 6.00000 6/1/2017 21,234 21,706
FNMA 6.00000 7/1/2017 9,578 9,791
FNMA 5.50000 11/1/2024 96,826 96,698
FNMA 5.50000 12/1/2024 23,881 23,850
FNMA 5.50000 1/1/2025 73,598 73,500
FNMA 7.50000 2/1/2029 13,657 14,345
FNMA 7.50000 9/1/2029 1,128 1,183
FNMA 7.00000 11/1/2031 2,986 3,121
FNMA 7.00000 5/1/2032 25,987 27,119
FNMA 7.00000 6/1/2032 49,603 51,763
FNMA 5.50000 2/1/2033 134,756 133,807
FNMA 5.50000 10/1/2033 137,151 136,145
FNMA 5.50000 1/1/2034 31,621 31,390
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------
Agency Pass Thru (continued)
FNMA 5.50000% 1/1/2034 $ 46,330 $ 45,990
FNMA (TBA) (d) 4.50000 1/1/2021 425,000 413,445
FNMA (TBA) (d) 5.00000 1/1/2021 275,000 271,992
FNMA (TBA) (d) 5.00000 1/1/2036 770,000 745,938
FNMA (TBA) (d) 5.50000 1/1/2021 80,000 80,475
FNMA Grantor Trust 2001-T6 B 6.08800 5/25/2011 76,000 80,181
FNMA Grantor Trust 2002-T11 A 4.76878 4/25/2012 31,925 31,805
GNMA 8.00000 8/15/2025 12,219 13,097
GNMA 8.00000 11/15/2025 16,991 18,212
GNMA 8.00000 5/15/2026 4,431 4,749
GNMA 8.00000 11/15/2026 11,600 12,432
GNMA 6.50000 7/15/2032 14,947 15,619
----------
2,799,651
----------
NonAgency Pass Thru-10.5%
Banc of America Commercial Mortgage, Inc. 2005-2 A2 4.24700 7/10/2043 44,000 43,382
Bear Stearns Commercial Mortgage Securities 2003-T12 A3 4.24000 8/13/2039 43,000 41,477
Bear Stearns Commercial Mortgage Securities 2005-T20 A2 5.12700 10/12/2042 45,000 45,079
Calwest Industrial Trust 2002-CALW A 144A 6.12700 2/15/2017 82,000 86,303
Chase Commercial Mortgage Securities Corp. 1997-1 D 7.37000 6/19/2029 39,000 40,065
Chase Commercial Mortgage Securities Corp. 1997-1 E 7.37000 6/19/2029 67,000 68,946
Chase Commercial Mortgage Securities Corp. 1997-2 C 6.60000 12/19/2029 75,000 76,984
Citigroup/Deutsche Bank Commercial Mortgage 2005-CD1 A2FX 5.22540 7/15/2044 20,000 20,131
Crown Castle Towers LLC, 2005-1A D 144A 5.61200 6/15/2035 45,000 43,830
DLJ Commercial Mortgage Corp. 1998-CF2 A1B 6.24000 11/12/2031 40,000 41,226
DLJ Commercial Mortgage Corp. 1998-CF2 B1 7.04214 11/12/2031 100,000 105,067
JP Morgan Chase Commercial Mortgage Sec. Co. 2005-LDP4 A2 4.79000 10/15/2042 30,000 29,599
JP Morgan Chase Commercial Mortgage Security Co. 2005-LDP5 A2 5.19800 12/15/2044 20,000 20,082
LB Commercial Conduit Mortgage Trust 1999-C1 B 6.93000 6/15/2031 27,000 28,589
Merrill Lynch Mortgage Trust, Inc. 2005-CIP1 A2 4.96000 7/12/2038 25,000 24,857
Morgan Stanley Capital 1998-HF1 E 7.35074 3/15/2030 74,000 77,383
Morgan Stanley Capital I 1999-CAM1 A4 7.02000 3/15/2032 36,000 37,988
Morgan Stanley Dean Witter Capital I 2001-PPM A2 6.40000 2/15/2031 31,739 32,715
Morgan Stanley Dean Witter Capital I 2001-PPM A3 6.54000 2/15/2031 25,629 26,495
Mortgage Capital Funding, Inc. 1997-MC2 C 6.88100 11/20/2027 70,000 72,007
----------
962,205
----------
Total Pass Thru Securities (Cost $3,811,668) 3,761,856
----------
US Treasury Obligations-5.5%
U.S. Treasury Bond (c) 5.25000 11/15/2028 250,000 272,676
U.S. Treasury Note (c) 3.50000 2/15/2010 70,000 67,708
U.S. Treasury Note (c) (f) 4.75000 5/15/2014 155,000 158,772
----------
Total US Treasury Obligations (Cost $495,741) 499,156
----------
TOTAL BONDS AND NOTES (Cost $10,184,089) 10,056,343
----------
Contract
PURCHASED OPTIONS-0.0% Size
--------
U.S. Treasury Note 4.25% Put, Strike Price 97.171, 2/6/06 95,000 214
----------
TOTAL PURCHASED OPTIONS (Cost $1,188) 214
----------
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------------
SHORT TERM INVESTMENTS--3.3%
U.S. Government Agency--2.8%
FHLMC Discount Note (e) 4.000% 1/13/2006 $ 100,000 $ 99,856
FNMA Discount Note (c) (e) 4.128 1/12/2006 155,000 154,786
-----------
254,642
-----------
U.S. Treasury--0.5%
U.S. Treasury Bill (e) (f) 3.938 3/9/2006 50,000 49,648
-----------
Total Short Term Investments (Cost $304,283) 304,290
-----------
INVESTMENT OF CASH COLLATERAL--9.1% Shares
------
BlackRock Cash Strategies L.L.C. (h) (Cost $831,212) 4.310 831,212 831,212
-----------
TOTAL UNAFFILIATED INVESTMENTS (Cost $11,320,772) 11,192,059
-----------
AFFILIATED INVESTMENTS--3.0%
Dreyfus Institutional Preferred Plus Money Market Fund (h) (i) (Cost $275,803) 4.060 275,803 275,803
-----------
Total Investments--126.0% (Cost $11,596,575) 11,467,862
-----------
Liabilities in Excess of Other Assets--(26.0%) (2,373,239)
-----------
NET ASSETS--100.0% $ 9,094,623
===========
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, normally to qualified institutional buyers. At the year
end, the value of these securities amounted to $614,421 or 6.8% of net
assets.
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 as of 12/31/05.
(b) Zero coupon security.
(c) Security, or a portion thereof, was on loan at 12/31/05.
(d) Delayed Delivery contract.
(e) Rate noted is yield to maturity.
(f) Denotes all or part of security pledged as collateral.
(g) Step bond; rate indicated as of 12/31/05.
(h) Stated rate is the seven day yield for the fund at year end.
(i) Affiliated institutional money market fund.
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, 2005
- --------------------------------------------------------------------------------
At December 31, 2005, the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- ----------------------------------------------------------------------------------------------------
US 5 Year Treasury (12 Contracts) Long 3/22/2006 $1,271,099 $ 5,027
US 10 Year Treasury (1 Contract) Short 3/22/2006 108,078 (1,328)
US 2 Year Treasury (5 Contracts) Short 3/31/2006 1,025,563 (418)
---------- -------
$2,404,740 $ 3,281
---------- -------
At December 31, 2005, the Fund held the following open swap contracts:
Unrealized
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------------
Citigroup Centurytel, Inc., 7.875% due 8/15/2012 Buy (1.19%) 9/20/2015 $65,000 $ (313)
Deutsche Bank Koninklijike KPN N.V., 8.00%
due 10/01/2010 Buy (0.850%) 12/20/2010 50,000 52
JPMorgan Koninklijike KPN N.V., 8.00%
due 10/01/2010 Buy (0.86%) 12/20/2010 60,000 37
Morgan Stanley & Co. Wendy's International, Inc.,
6.2500% due 11/15/2011 Buy (0.97%) 12/20/2015 40,000 536
------
$ 312
======
Pay/Receive Unrealized
Interest Rate Swaps Floating Expiration Notional Appreciation/
Counterparty Floating Rate Index Rate Fixed Rate Date Amount (Depreciation)
- --------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch USD--LIBOR--BBA Pay 4.1725% 5/13/2008 $200,000 $ (2,832)
Merrill Lynch USD--LIBOR--BBA Receive 4.6425% 5/13/2015 200,000 3,717
--------
$ 885
========
The Fund held the following written option contracts at December 31,2005:
Expiration
Written Put Option Security Strike Price Date Contracts Premium Value
- -----------------------------------------------------------------------------------------------------------
U.S. Treasury Note 4.25% Put 95.609 2/06/06 1 $1,188 $ (114)
======= ====== ======
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, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan,
valued at $816,124 (Note 7))
Unaffiliated issuers, at value (Note 1A) (cost $11,320,772) $11,192,059
Affiliated issuers, at value (Note 1A) (cost $275,803) 275,803
Receivable from Advisor 128
Receivable for securities sold 322,465
Interest receivable 70,470
Receivable for Fund shares sold 427,895
Unrealized appreciation on swap contracts, (Note 6) 4,342
Prepaid expenses 5,717
-----------
Total assets 12,298,879
Liabilities
Payable for investments purchased $ 1,773,927
Collateral for securities on loan (Note 7) 831,212
Distributions payable 496,983
Due to Custodian 50,039
Options written, at value (premium received $1,188) (Note 6) 114
Unrealized depreciation on swap contracts, (Note 6) 3,145
Accrued chief compliance officer fee (Note 2) 404
Accrued professional fees 31,580
Accrued administrative service fee (Note 2) 128
Accrued accounting, administration, custody and transfer
agent fees (Note 2) 11,661
Accrued trustees' fees and expenses (Note 2) 1,541
Accrued expenses and other liabilities 3,522
-----------
Total liabilities 3,204,256
-----------
Net Assets $ 9,094,623
===========
Net Assets consist of:
Paid-in capital $ 9,246,910
Accumulated net realized loss (22,104)
Distributions in excess of net investment income (7,022)
Net unrealized depreciation (123,161)
-----------
Total Net Assets $ 9,094,623
===========
Shares of beneficial interest outstanding 485,577
===========
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 18.73
===========
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, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $1,506,307
Dividend income from affiliated investment (Note 1F) 14,380
Security lending income (Note 7) 4,546
----------
Total investment income 1,525,233
Expenses
Investment advisory fee (Note 2) $ 139,755
Accounting, administration, custody and transfer agent fees (Note 2) 119,871
Professional fees 52,535
Registration fees 14,500
Trustees' fees and expenses (Note 2) 8,001
Insurance expense 9,500
Miscellaneous 11,218
----------
Total expenses 355,380
Deduct:
Waiver of investment advisory fee (Note 2) (139,755)
Reimbursement of fund operating expenses (75,870)
----------
Total expense deductions 215,625
----------
Net expenses 139,755
----------
Net investment income 1,385,478
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 38,865
Financial futures transactions 91,290
Written options transactions 616
Swap transactions (2,461)
----------
Net realized gain (loss) 128,310
Change in unrealized appreciation (depreciation) on:
Investments (506,854)
Financial futures contracts (3,433)
Written options (3,280)
Swap contracts 1,410
----------
Net change in unrealized appreciation (depreciation) (512,157)
----------
Net realized and unrealized gain (loss) on investments (383,847)
----------
Net Increase in Net Assets from Operations $1,001,631
==========
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income (loss) $ 1,385,478 $ 2,186,333
Net realized gain (loss) 128,310 1,276,348
Change in net unrealized appreciation (depreciation) (512,157) (709,054)
----------- -----------
Net increase (decrease) in net assets from investment operations 1,001,631 2,753,627
----------- -----------
Distributions to Shareholders (Note 1C)
From net investment income (1,470,098) (2,343,659)
From net realized gains on investments (300,897) (1,026,990)
----------- -----------
Total distributions to shareholders (1,770,995) (3,370,649)
----------- -----------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 5,230,124 2,823,448
Value of shares issued to shareholders in reinvestment
of distributions 942,835 1,632,872
Cost of shares redeemed (47,909,871) (14,862,788)
----------- -----------
Net increase (decrease) in net assets from Fund share transactions (41,736,912) (10,406,468)
----------- -----------
Total Increase (Decrease) in Net Assets (42,506,276) (11,023,490)
Net Assets
At beginning of year 51,600,899 62,624,389
----------- -----------
At end of year [including distributions in excess of net
investment income and undistributed net investment income
of ($7,022) and $26,421] $ 9,094,623 $51,600,899
=========== ===========
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
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Net Asset Value, Beginning of the year $ 20.01 $ 20.31 $ 20.80 $ 20.41 $ 20.65
-------- -------- -------- -------- --------
From Operations:
Net investment income* (a) 0.80 0.74 0.69 0.89 1.27
Net realized and unrealized gain (loss) on investments (0.28) 0.17 0.09 0.79 0.59
-------- -------- -------- -------- --------
Total from investment operations 0.52 0.91 0.78 1.68 1.86
-------- -------- -------- -------- --------
Less Distributions to Shareholders:
From net investment income (1.27) (0.80) (0.78) (0.91) (1.30)
From net realized gain on investments (0.53) (0.41) (0.49) (0.38) (0.80)
-------- -------- -------- -------- --------
Total distributions to shareholders (1.80) (1.21) (1.27) (1.29) (2.10)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 18.73 $ 20.01 $ 20.31 $ 20.80 $ 20.41
======== ======== ======== ======== ========
Total Return (b) 2.63% 4.53% 3.81% 8.44% 9.21%
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.40% 0.40% 0.40% 0.40% 0.21%
Net Investment Income (to average daily net assets)* 3.98% 3.59% 3.30% 4.30% 6.00%
Portfolio Turnover: (c)
Inclusive 336% 275% 457% 391% 357%
Exclusive 119% 127% -- -- --
Net Assets, End of Year (000's omitted) $ 9,095 $ 51,601 $ 62,624 $ 84,101 $ 63,564
- -----------
* 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 (a) $ 0.68 $ 0.67 $ 0.63 $ 0.83 $ 1.17
Ratios (to average daily net assets):
Expenses 1.02% 0.75% 0.70% 0.69% 0.68%
Net investment income 3.36% 3.24% 3.00% 4.01% 5.53%
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
(c) Beginning in 2004, the portfolio turnover ratio is presented inclusive and
exclusive of the effect of rolling forward purchase commitments.
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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not listed
on an exchange or national securities market, or securities for which there
were no reported transactions, are valued at the last quoted bid price.
Securities that are fixed income securities, other than short-term
instruments with less than sixty days remaining to maturity, for which
accurate market prices are readily available, are valued at their current
market value on the basis of quotations, which may be furnished by a
pricing service or dealers in such securities. 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 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 cost based upon the value
on such date unless the Trustees determine during such sixty-day period
that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the yield - to -
maturity. 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 accounting principles
generally accepted in the United States of America. These differences,
which may result in reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales and amortization and/or
accretion of premiums and discounts on certain securities.
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 (loss) 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 among funds of the Trust 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 are 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, and general office facilities, is
payable 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, 2005. Pursuant to this agreement, for the year ended
December 31, 2005, Standish Mellon voluntarily waived its investment
advisory fee in the amount of $139,755 and reimbursed the Fund $75,870 for
other operating expenses. This agreement is voluntary and temporary and may
be discontinued or revised by Standish Mellon at any time.
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 was charged $6,992 during the year ended December 31, 2005.
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 was charged $112,879 during
the year ended December 31, 2005.
The Fund entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Fund's lending agent.
Mellon Bank receives an agreed upon percentage of the net lending revenues.
Pursuant to this agreement, Mellon Bank received $1,835 for the year ended
December 31, 2005. See Note 7 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the year
ended December 31, 2005, the Fund was charged $2,269. No other director,
officer or employee of Standish Mellon or its affiliates received any
compensation from the Trust or the Fund for serving as an officer or
Trustee of the Trust. The Trust pays each Trustee who is not a director,
officer or employee of Standish Mellon or its affiliates an annual fee and
a per meeting fee as well as reimbursement for travel and out of pocket
expenses. In addition, the Trust pays the legal fees for the independent
counsel of the Trustees.
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such services,
the Fund may pay each Plan Administrator an administrative service fee in
an amount of up to 0.15% (on an annualized basis) of the Fund's average
daily net assets attributable to fund shares that are held in accounts
serviced by such Plan Administrator. For the year ended December 31, 2005
the Fund was charged $128 for fees payable to Mellon Private Wealth
Management. The Fund's adviser or its affiliates may pay additional
compensation from their own resources to Plan Administrators and other
entities for administrative services, as well as in consideration of
marketing or other distribution-related services. These payments may
provide an incentive for these entities to actively promote the Fund or
cooperate with the distributor's promotional efforts.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2005 were as follows:
Purchases Sales
------------ ------------
U.S. Government Securities $116,280,261 $137,533,049
============ ============
Investments (non-U.S. Government Securities) $ 13,804,197 $ 43,306,481
============ ============
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, 2005 December 31, 2004
----------------- -----------------
Shares sold 261,106 137,236
Shares issued to shareholders reinvestment of distributions declared 48,779 81,343
Shares redeemed (2,402,674) (723,366)
---------- --------
Net increase (decrease) (2,092,789) (504,787)
========== ========
At December 31, 2005, two shareholders of record held approximately 92% 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
30 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 period ended December 31, 2005, the Fund did not
collect any redemption fees.
During the year ended December 31, 2005, the Investment Grade Bond Fund had
a redemption-in-kind valued at $40,050,635, of which $2,547,407 was
distributed in cash and $37,503,228 was transacted via an in-kind
redemption of investment securities. For tax purposes, this was a tax free
exchange transaction. For accounting purposes gains and losses resulting
from the redemptions-in-kind are included in realized gain/loss from
securities in the Statement of operations. The Fund realized a loss of
$144,717.
(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, 2005, was as follows:
Unrealized appreciation $ 36,420
Unrealized depreciation (167,137)
-----------
Net unrealized appreciation/depreciation (130,717)
===========
Cost for federal income tax purposes $11,598,579
===========
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
---------- ----------
Ordinary income $1,666,639 $2,934,513
Capital gains 104,356 436,136
---------- ----------
$1,770,995 $3,370,649
========== ==========
The Fund elected to defer to its fiscal year ended December 31, 2006
$16,819 of capital losses recognized during the period November 1, 2005 to
December 31, 2005.
(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 Fund may trade the following instruments with off-balance sheet risk:
20
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Options
Call and put options give the holder the right to purchase or sell a
security or currency or enter into a swap arrangement on a future date at a
specified price. The Fund 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 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 option is shown in the Schedule of Investments. This amount
reflects each contract's exposure to the underlying instrument at year end.
Losses may arise from changes in the value of the underlying instruments if
there is an illiquid secondary market for the contract or if the
counterparty does not perform under the contract's terms.
Premiums received from writing options which expire are treated as realized
gains. Premiums received from writing options which are exercised or are
closed are added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. Realized gains and
losses on purchased options are included in realized gains and losses on
investment securities, except purchased options on foreign currency which
are included in realized gains and losses on foreign currency transactions.
If a put option written by the Fund is exercised, the premium reduces the
cost basis of the securities purchased by the Fund. The Fund, 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.
During the year ended December 31, 2005, the Fund entered into the
following transactions:
Number of
Written Put Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of year 1 $ (7,607)
Options written 7 (394)
Options expired (4) 17,473
Options closed (3) (8,284)
--------- ---------
Outstanding, end of year 1 $ 1,188
========= =========
Number of
Written Call Options Transactions Contracts Premiums
Outstanding, beginning of year 1 $ (3,609)
Options written 6 (8,244)
Options expired (5) 17,857
Options closed (2) (6,004)
--------- ---------
Outstanding, end of year 0 0
========= =========
At December 31, 2005 the Fund held options. See Schedule of Investments for
further details.
Futures contracts
The Fund may enter into financial futures contracts for the sale or
delivery of securities or contracts based on financial indices at a fixed
price on a future date. Pursuant to 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
21
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
underlying instrument, while selling futures tends to decrease the Fund's
exposure to the underlying instrument or hedge other 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 counterparty does
not perform under the contract's terms. The Fund 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, 2005, the Fund held open financial futures contracts. See
the 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 at the beginning of the measurement period are
reflected as such on the Statement of Assets and Liabilities. 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.
At December 31, 2005, the Fund had swap agreements outstanding. See the
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, 2005 and
earned interest on the invested collateral of $113,443 of which, $108,897
was rebated to borrowers or paid in fees. At December 31, 2005, the Fund
had securities valued at $816,124 on loan. See the Schedule of Investments
for further detail on the security positions on loan and collateral held.
22
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond 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.
At December 31, 2005, the Portfolio held delayed delivery securities. See
Schedule of Investments for further details.
(9) Line of Credit:
The Fund, and other funds in the Trust and subtrusts in Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties to
a committed line of credit facility, which enables each portfolio/fund to
borrow, in the aggregate, up to $35 million. Interest is charged to each
participating portfolio/fund based on its borrowings at a rate equal to the
Federal Funds effective rate plus 1/2 of 1%. In addition, a facility fee,
computed at an annual rate of 0.060 of 1% on the committed amount, is
allocated ratably among the participating portfolio/funds at the end of
each quarter. For the year ended December 31, 2005, the facility fee was
$827 for the Fund.
During the year ended December 31, 2005, the Fund had average borrowings
outstanding of $338,597 for eleven days and incurred $432 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 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, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
24
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the fund's
investment adviser or underwriter (the "Independent Trustees") voting
separately, approve the Fund's advisory agreement and the related fees on
an annual basis. In their most recent deliberations concerning their
decision to approve the continuation of the investment advisory agreement,
the Board of Trustees conducted the review and made the determinations that
are described below. In conducting this review and in making such
determinations, the Independent Trustees received from the Fund's
investment adviser, Standish Mellon Asset Management Company LLC ("Standish
Mellon"), a broad range of information in response to a written request
prepared on their behalf by their own legal counsel. The Independent
Trustees met alone in a private session with their legal counsel on
September 22, 2005 to review these materials and to discuss the proposed
continuation of the Fund's advisory agreement. Representatives of Standish
Mellon attended a portion of the September meeting to provide an overview
of its organization, personnel, resources and strategic plans, and to
respond to questions and comments arising from the Independent Trustees'
review of the materials and their deliberations. The entire Board then met
on October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of several
publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical performance,
management fee and expense ratio compared to other funds, and Standish
Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance and any material portfolio manager and strategy
changes that may have affected the Fund in the prior year, as well as the
Fund's "fact sheets" prepared by Standish Mellon providing salient data
about the Fund and Standish Mellon's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the Board
of Trustees, including the Independent Trustees, did not identify any
single factor as all-important or controlling, and individual Trustees did
not necessarily attribute the same weight or importance to each factor. The
Trustees determined that the terms and conditions of the Fund's advisory
agreement and the compensation to Standish Mellon provided therein were
fair and reasonable in light of the services performed, expenses incurred
and such other matters as the Trustees considered relevant in the exercise
of their reasonable judgment. The following summary does not detail all the
matters that were considered. Some of the factors that figured prominently
in the Trustees' determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by Standish Mellon. In their deliberations as to the
continuation of the Fund's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision
of the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Fund effectively.
25
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by Standish Mellon with input from
the Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2005 based on the Lipper materials
provided to the Board at the September 22, 2005 meeting. The Board found
that the Fund outperformed its peer group average return for the one-year
period (5.00% vs. 4.92%) but underperformed its peer group average returns
for the three-year period (4.73% vs. 5.43%) and five-year period (6.81% vs.
7.20%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to Standish
Mellon. The Lipper data presenting the Fund's "net advisory fees" included
fees paid by the Fund, as calculated by Lipper, for administrative services
provided by Mellon Bank, N.A., the Trust's custodian. Such reporting was
necessary, according to Lipper, to allow the Board to compare the Fund's
advisory fees to those peers that include administrative fees within a
blended advisory fee.
The Fund's contractual advisory fee was 0.40%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.455%. The Fund's
net advisory fee, after giving effect to expense limitations, was 0.08%,
below the peer group median net advisory fee of 0.438%. Based on the Lipper
data, as well as other factors discussed at the September 22, 2005 meeting,
the Board determined that the Fund's advisory fee is reasonable relative to
its peer group averages, both with and without giving effect to expense
limitations.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Fund
relative to these other types of clients, the Board concluded that the fees
payable under the advisory agreement were reasonable.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.40% (after giving effect to expense limitations) was
lower than the median net expense ratio of the peer group of 0.50%
notwithstanding the fact that all of the other funds in the peer group were
larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Fund
and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect
expenses incurred by Standish Mellon or its affiliated investment adviser,
The Boston Company Asset Management, LLC ("TBCAM") in managing the Fund and
other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that, based on the profitability
information submitted to them by Standish Mellon, Standish Mellon incurred
losses in managing many of the investment companies in the Mellon
Institutional Funds family of funds, including the Fund, and that among
those funds that were profitable to Standish Mellon, several generated only
marginal profitability for the firm. The Trustees observed that Standish
Mellon had incurred losses in operating the Fund in both 2003 and 2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size.
The Board concluded that, at existing asset levels and considering current
assets growth projections, the implementation of additional fee breakpoints
or other fee reductions was not necessary at this time. They requested,
however, that management consider the issue of future breakpoints and
respond to the Independent Trustees and to present a proposal for such
breakpoints or, in each case as applicable, management's rationale as to
why such future breakpoints are not necessary or appropriate for a
particular Fund.
26
Mellon Institutional Funds Investment Trust
Standish Mellon Investment Grade Bond Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Fund's advisory agreement
and the compensation to Standish Mellon provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one-year period.
27
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 remuneration paid
as of the period ended December 31, 2005. 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
Trustee
Number of Remuneration
Principal Portfolios in Other (period
Name Term of Office Occupation(s) Fund Complex Directorships 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 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $1,508
c/o Decision Resources, Inc. 11/3/1986 Decision Resources, Inc.
260 Charles Street ("DRI") (biotechnology
Waltham, MA 02453 research and consulting
9/30/40 firm); formerly Chairman
of the Board and Chief
Executive Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex Street 32 None $1,635
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 5600 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 32 None $1,508
c/o Harvard University 9/13/1989 Professor of Political
Littaver Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, Mertens 32 None $1,508
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 President and Chief 32 None $0
The Boston Company and Chief Operating Officer of
Asset Management, LLC Executive Officer The Boston Company
One Boston Place Asset Management, LLC;
Boston, MA 02108 formerly Senior Vice President
7/24/65 and Chief Operating Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
28
Principal Officers who are Not Trustees
Principal
Name Term of Office Occupation(s)
Address, and Position(s) and Length of During Past
Date of Birth Held with Trust Time Served 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon Asset Management and Secretary Mellon Asset Management ("MAM"); formerly First
One Boston Place Vice President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller,
Mellon Asset Management and Treasurer since 1999; Mellon Asset Management
One Boston Place Treasurer
Boston, MA 02108 since 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager
One Boston Place of Shareholder Services, MAM, Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management Company LLC
1/19/71
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management
Mellon Asset Management Compliance and Chief Compliance Officer, Mellon Funds Distributor
One Boston Place Officer and Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President,
4/8/57 State Street Research & Management Company
("SSRM"), Vice President, SSRM
29
[LOGO]Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6946AR1205
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Enhanced Yield Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o Boston, MA 02108-4402
A Mellon Asset Management Company
1
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Economic activity continued at a robust level in 2005. Real gross domestic
product grew between 3.5% and 4% during the year. Employment growth was solid
and consumer spending, housing and corporate profitability were all strong. The
economic strength occurred in spite of two major hurricanes, skyrocketing gas
and oil prices and a Federal Reserve bent on raising short-term interest rates.
Such resiliency is impressive and is due in part to the combined accommodative
monetary and fiscal policies over the prior several years.
The Federal Reserve raised the overnight funds rate throughout the year,
tightening by 25 basis points at each meeting. The overnight funds rate ended
the year at 4.25%, up 200 basis points from the beginning of the year. Other
short-term interest rates rose similarly; however, the amount of increase
lessened as the term of the interest rate lengthened. As a result, the yield
curve dramatically flattened during the year. Whereas the overnight interest
rate rose 200 basis points, the yield on the 2-year Treasury note rose only 133
basis points, the 5-year note only 74 basis points and the 10-year note only 17
basis points. The resulting yield curve is almost perfectly flat out through 10
years, with the 2-year note yielding 4.40% and the 10-year note yielding 4.39%.
The prospects for economic growth in 2006 are good. Strong corporate balance
sheets and consumer spending should help offset a probable slowdown in housing.
Fiscal policy remains stimulative. Monetary policy is approaching a neutral
posture. One more tightening by the Federal Reserve is anticipated by the market
this year, taking the overnight rate to 4.50%.
Performance for the Fund was negatively impacted by the increase in short-term
interest rates throughout the year. Performance for the Fund was 2.66% for 2005.
During the year, the benchmark was changed from iMoneyNet to the 6-month
Treasury Bill index. This change was made to be more consistent with the Fund's
strategy and to more closely align the Fund's benchmark with that of other
short-duration funds. Performance for the iMoneyNet benchmark was 2.65%. The
Treasury total return for 2005 was 3.10%. During a period of rising interest
rates, longer duration portfolios generally underperform. Somewhat offsetting
the negative duration impact, the fund invests a high percentage of its assets
in higher yielding asset-backed and corporate securities. In addition, the Fund
benefited from its holding of TIPS (inflation indexed Treasury securities)
during the year.
/s/ Laurie Carroll /s/ Johnson Moore
Laurie Carroll Johnson Moore
2
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Comparison of Change in Value of $100,000 Investment in
Standish Mellon Enhanced Yield Fund with the
Merrill Lynch 6 Month T-Bill Index and the iMoneyNet All-Taxable Average
- --------------------------------------------------------------------------------
[LINE GRAPH]
[PLOT POINTS TO COME]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/1/1989
- --------------------------------------------------------------------------------
2.66% 1.63% 2.82% 4.28% 5.29%
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.
* Source: Bloomberg Inc.
** Source: iMoneyNet Fund Report
(1) The Merrill Lynch (ML) 6-month US Treasury Bill Index is comprised of a
single issue purchased at the beginning of the month and held for a full
month. The issue selected at each month-end rebalancing is the outstanding
Treasury Bill that matures closest to but not beyond 6 months from the
rebalancing date. Effective May 1, 2005, the fund changed its benchmark
from the iMoneyNet Fund Average Index to the ML 6-month US Treasury Bill
Index because the adviser believes the ML 6-month Treasury Bill Index is
more consistent with the characteristics and duration target of the fund.
3
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced 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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- ------------------------------------------------------------------------------------
Actual $1,000.00 $1,016.20 $1.27
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.59 $1.28
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.25%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
4
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Economic Sector Allocation Investments
- --------------------------------------------------------------------------------
Treasury/Agency 7.2%
Credit 4.5
Floating rate credit 31.3
Asset-Backed 17.6
Floating rate asset-backed 30.9
CMBS 2.8
Cash & equivalents 5.7
-----
100.0%
Percentage of
Top Ten Holdings* Rate Maturity Investments
- ------------------------------------------------------------------------------------------------------
U.S. Treasury Inflation-Indexed Bond 3.625 1/15/2008 7.0%
Citibank Credit Card Issuance Trust 2004-A1 A1 2.550 1/20/2009 3.4
Merrill Lynch & Co. 4.541 2/6/2009 2.8
Genworth Financial, Inc. 4.641 6/15/2007 2.8
Wachovia Corp. 4.460 7/20/2007 2.8
Metropolitan Life Global Funding I 144A 4.147 10/5/2007 2.8
Gracechurch Card Funding PLC 4 A 4.419 6/15/2008 2.8
Wells Fargo & Co. 4.410 3/10/2008 2.8
World Financial Network Credit Card Master Trust 2004-B A 4.469 7/15/2010 2.8
Residential Asset Securities Corp.-EMX2 A2 (a) 4.539 7/25/2035 2.8
----
32.8%
* Excluding short-term investments and investment of cash collateral.
Summary of Combined Ratings
- --------------------------------------------------------------------------------
Percentage of
Quality Breakdown Investments
- --------------------------------------------------------------------------------
AAA & Higher 49.4%
AA 17.8
A 23.2
BBB 3.9
P1 0.5
P2 5.2
-----
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.
The Standish Mellon Enhanced Yield Fund invests all of its investable assets in
an interest of the Standish Mellon Enhanced Yield Portfolio (See Note 1 of the
Fund's Notes to Financial Statements). The Portfolio is actively managed.
Current holdings may be different than those presented above.
The accompanying notes are an integral part of the financial statements.
5
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investment in Standish Mellon Enhanced Yield Portfolio
(Portfolio), at value (Note 1A) $ 38,713,166
Receivable from Advisor 1,051
Receivable for Fund shares sold 146
Prepaid expenses 3,203
------------
Total assets 38,717,566
Liabilities
Distributions payable $ 31,479
Payable for Fund shares redeemed 95
Accrued administrative services fee (Note 2) 1,051
Accrued chief compliance officer fees (Note 2) 429
Accrued transfer agent fees (Note 2) 3,490
Accrued professional fees 18,106
Accrued trustees' fees and expenses (Note 2) 500
Other accrued expenses and liabilities 3,059
---------
Total liabilities 58,209
------------
Net Assets $ 38,659,357
============
Net Assets consist of:
Paid-in capital $ 41,312,072
Accumulated net realized loss (2,358,262)
Net unrealized depreciation (294,453)
------------
Total Net Assets $ 38,659,357
============
Shares of beneficial interest outstanding 2,017,619
============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 19.16
============
The accompanying notes are an integral part of the financial statements.
6
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Statement of Operations
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 2,073,424
Expenses allocated from Portfolio (187,292)
------------
Net investment income allocated from Portfolio 1,886,132
Expenses
Registration fees $ 35,798
Professional fees 38,748
Transfer agent fees (Note 2) 8,378
Shareholder reporting fees 6,103
Shareholder services expense 1,051
Trustees' fees (Note 2) 1,990
Insurance expense 1,048
Miscellaneous 8,721
---------
Total expenses 101,837
Deduct:
Reimbursement of Fund operating expenses (Note 2) (101,837)
---------
Net expenses --
------------
Net investment income 1,886,132
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments (196,071)
Financial futures transactions (104,983)
---------
Net realized gain (loss) (301,054)
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investments (155,746)
Financial futures contracts 46,488
---------
Net change in unrealized appreciation (depreciation) (109,258)
------------
Net realized and unrealized gain (loss) on investments (410,312)
------------
Net Increase in Net Assets from Operations $ 1,475,820
============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Investment Operations
Net investment income $ 1,886,132 $ 1,280,177
Net realized gain (loss) (301,054) (63,934)
Change in net unrealized appreciation (depreciation) (109,258) (423,401)
----------------- -----------------
Net increase (decrease) in net assets from investment operations 1,475,820 792,842
----------------- -----------------
Distributions to Shareholders (Note 1C)
From net investment income (1,940,395) (1,475,658)
----------------- -----------------
Total distributions to shareholders (1,940,395) (1,475,658)
----------------- -----------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 15,151,988 62,046,776
Value of shares issued to shareholders in reinvestment of distributions 1,492,509 1,074,063
Redemption fees credited to capital 50 -
Cost of shares redeemed (44,750,240) (137,044,992)
----------------- -----------------
Net increase (decrease) in net assets from Fund share transactions (28,105,693) (73,924,153)
----------------- -----------------
Total Increase (Decrease) in Net Assets (28,570,268) (74,606,969)
Net Assets
At beginning of year 67,229,625 141,836,594
----------------- -----------------
At end of year (including undistributed net investment income of
$0 and $1,458) $ 38,659,357 $ 67,229,625
================= =================
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ----------- -----------
Net Asset Value, Beginning of the Year $ 19.32 $ 19.48 $ 19.55 $ 19.55 $ 19.36
---------- ---------- ---------- ----------- -----------
From Operations:
Net investment income* (a) 0.62 0.27 0.31 0.58 0.95
Net realized and unrealized gain (loss) on investments (0.11) (0.12) (0.04) 0.03 0.21
---------- ---------- ---------- ----------- -----------
Total from investment operations 0.51 0.15 0.27 0.61 1.16
---------- ---------- ---------- ----------- -----------
Less Distributions to Shareholders:
From net investment income (0.67) (0.31) (0.34) (0.61) (0.97)
---------- ---------- ---------- ----------- -----------
Total distributions to shareholders (0.67) (0.31) (0.34) (0.61) (0.97)
---------- ---------- ---------- ----------- -----------
Net Asset Value, End of Year $ 19.16 $ 19.32 $ 19.48 $ 19.55 $ 19.55
========== ========== ========== =========== ===========
Total Return (b) 2.66% 0.75% 1.48% 3.14% 6.14%
Ratios/Supplemental Data:
Expenses (to average daily net assets) *(c) 0.32% 0.45% 0.36% 0.36% 0.36%
Net Investment Income (to average daily net assets) * 3.24% 1.33% 1.60% 2.99% 4.89%
Net Assets, End of Year (000's omitted) $ 38,659 $ 67,230 $ 141,837 $ 146,620 $ 133,939
- ----------
* 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 (a) $ 0.57 $ 0.25 $ 0.30 $ 0.56 $ 0.94
Ratios (to average daily net assets):
Expenses (c) 0.62% 0.51% 0.43% 0.46% 0.41%
Net investment income 2.95% 1.27% 1.53% 2.89% 4.84%
(a) Calculated based on average shares outstanding,
(b) Total return would have been lower in the absence of expense waivers.
(c) Includes the Fund's share of the Standish Mellon Enhanced Yield
Portfolio's allocated expenses.
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced 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 Enhanced Yield Fund (the "Fund") is a separate
diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest of the
Standish Mellon Enhanced Yield Portfolio (the "Portfolio"), a subtrust of
the Mellon Institutional Funds Master Portfolio (the "Portfolio Trust"),
which is organized as a New York trust and has the same investment
objective as the Fund. The Portfolio seeks to achieve its objective by
investing, under normal circumstances, at least 80% of net assets in
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 (100% at December 31, 2005). 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 Portfolio
values its securities at value as 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
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 Fund are allocated from the Portfolio.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from 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 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 reclassifications, are primarily due to differing
treatments for 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 accumulated net investment income, accumulated net realized gain
(loss) and paid in capital. Undistributed net investment income (loss) 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 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 among
funds of the Trust and/or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
10
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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 period from January 1, 2005 through April 30, 2005 and
0.25% for the period from May 1, 2005 to December 31, 2005. Pursuant to
these agreements, for the year ended December 31, 2005, Standish Mellon
voluntarily reimbursed the Fund for $102,888 of its operating expenses.
This agreement is voluntary and temporary and may be discontinued or
revised by Standish Mellon at any time.
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 was charged $8,378 during the year ended December 31, 2005.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
year ended December 31, 2005, the Fund was charged $2,293. No other
director, officer or employee of Standish Mellon or its affiliates
received 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 Portfolio Trust pays the legal
fees for the independent counsel of the Trustees.
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. For the year ended
December 31, 2005, the Fund was charged $1,051 for fees payable to Mellon
Private Wealth Management. The Fund's adviser or its affiliates may pay
additional compensation from their own resources to Plan Administrators
and other entities for administrative services, as well as in
consideration of marketing or other distribution-related services. These
payments may provide an incentive for these entities to actively promote
the Fund or cooperate with the distributor's promotional efforts.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 2005, aggregated $16,645,003 and $46,674,285,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules. Book/tax differences arise when changes
in proportionate interest for funds investing in the Portfolio occur.
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 786,928 3,186,297
Shares issued to shareholders for
reinvestment of distributions 77,632 55,316
Shares redeemed (2,327,112) (7,042,292)
---------- ----------
Net increase (decrease) (1,462,552) (3,800,679)
========== ==========
At December 31, 2005, seven shareholders of record held approximately 47%
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
30 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 their costs associated with short-term trading in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period ended December 31, 2005, the
Fund received $50 in redemption fees.
11
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield 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, 2005, the components of distributable earnings on a tax
basis were as follows:
2005 2004
------------ -----------
Undistributed ordinary income -- $ 1,458
Capital loss carry forward $ (2,231,167) (2,356,373)
At December 31, 2005, the Fund, for federal income tax purposes, has capital
loss carryovers of $2,231,167 which will reduce the Fund's taxable income
arising from net realized gain on investment, 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 Expiration
Carryover Date
------------ -----------
$ 80,787 12/31/2006
848,377 12/31/2007
816,280 12/31/2008
228,931 12/31/2012
256,792 12/31/2013
------------
$ 2,231,167
============
It is uncertain whether the Fund will be able to realize the benefits of the
losses before they expire.
Tax character of distributions paid during the fiscal years ended December 31,
2005 and December 31, 2004 were as follows:
2005 2004
------------ -----------
Ordinary income $ 1,940,395 $ 1,475,658
The Fund elected to defer to its fiscal year ending December 31, 2006 $134,356
of capital losses recognized during the period November 1, 2004 to December 31,
2005.
See corresponding master portfolio for tax basis unrealized appreciated
(depreciation) information.
12
Mellon Institutional Funds Investment Trust
Standish Mellon Enhanced Yield Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Standish Mellon Enhanced Yield 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 Enhanced Yield Fund, formerly known as Standish Mellon
Short-Term Asset Reserve Fund, (the "Fund") at December 31, 2005, the results of
its operations for the year then ended, the changes in its net assets for each
of the two years in the period then ended, and the financial highlights for each
of the five years in the period then ended, 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, 2005 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
13
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--101.6%
BONDS AND NOTES--93.4%
Asset Backed--39.9%
Advanta Business Card Master Trust 2005-C1 C1 (a) 4.880% 8/22/2011 $ 500,000 $ 503,170
American Express Issuance Trust 2005-1 C (a) 4.699 8/15/2011 500,000 501,810
Asset Backed Funding Certificates 2005-WMC1 M4 (a) 4.969 6/25/2035 500,000 498,648
Bear Stearns Alt-A Trust 2005-1 A1 (a) 4.659 1/25/2035 349,286 346,146
Chase Funding Mortgage Loan Asset Backed 2003-3 2A2 (a) 4.649 4/25/2033 452,057 452,882
Chase Manhattan Auto Owner Trust 2003-B A4 2.570 2/16/2010 1,000,000 974,956
Citibank Credit Card Issuance Trust 2004-A1 A1 2.550 1/20/2009 1,250,000 1,220,841
Citigroup Mortgage Loan Trust, Inc. 2005-OPT4 A2B (a) 4.529 7/25/2035 355,000 354,887
Collegiate Funding Services Education Loan 2005-A A1 (a) 4.539 9/29/2014 509,085 508,800
Countrywide Alternative Loan Trust 2005--65CB 1A5(a) 5.129 1/25/2036 998,597 999,409
Countrywide Asset-Backed Certificates 2005-7 3AV1 (a) 4.499 11/25/2035 335,088 335,086
Countrywide Home Loans 2004-16 1A1 (a) 4.779 9/25/2034 519,964 520,802
First USA Credit Card Master Trust 1997-4 A (a) 4.580 2/17/2010 750,000 752,200
Gracechurch Card Funding PLC (a) 4.679 9/15/2010 500,000 499,766
Gracechurch Card Funding PLC 4 A (a) 4.419 6/15/2008 1,000,000 1,000,288
GS Auto Loan Trust 2004-1 A4 2.650 5/16/2011 315,000 305,109
Honda Auto Receivables Owner Trust 2002-4 A4 2.700 3/17/2008 404,833 400,361
M & I Auto Loan Trust 2003-1 A4 2.970 4/20/2009 700,000 684,461
Opteum Mortgage Acceptance Corp. 2005-5 2A1A 5.470 12/25/2035 498,936 498,710
Option One Mortgage Loan Trust 2004-1 (a) 4.669 1/25/2034 90,571 90,625
Option One Mortgage Loan Trust 2005-4 M4 (a) 4.979 11/25/2035 500,000 499,797
Residential Asset Securities Corp. 2005-EMX2 A2 (a) 4.539 7/25/2035 1,000,000 1,000,089
Residential Asset Securities Corp. 2005-EMX4 M7 (a) 5.629 11/25/2035 500,000 498,859
Slm Student Loan Trust 2004-9 A2 (a) 4.220 10/25/2012 602,150 600,964
Wachovia Auto Owner Trust 2004-B A4 3.440 3/21/2011 400,000 388,420
World Financial Network Credit Card Master Trust 2004-B A (a) 4.469 7/15/2010 1,000,000 1,000,095
------------
Total Asset Backed (Cost $15,516,152) 15,437,181
------------
Collateralized Mortgage Obligations--2.6%
Mound Financing PLC 3A A1-1 144A (a) 4.440 2/8/2008 1,000,000 999,844
------------
Total Collateralized Mortgage Obligations (Cost $1,000,000)
Corporate--33.2%
Banking--9.0%
Bank One Texas 6.250 2/15/2008 750,000 769,307
US Bank NA (a) 4.480 10/1/2007 700,000 700,871
Wachovia Corp. (a) (b) 4.460 7/20/2007 1,000,000 1,001,204
Wells Fargo & Co. (a) 4.410 3/10/2008 1,000,000 1,000,250
------------
3,471,632
------------
Brokerages--9.0%
Bear Stearns Co., Inc. (a) 4.393 4/29/2008 700,000 701,290
JPMorgan Chase & Co. (a) 4.610 12/12/2006 850,000 851,419
Merrill Lynch & Co. (a) 4.541 2/6/2009 1,000,000 1,002,809
Morgan Stanley 5.800 4/1/2007 935,000 944,530
------------
3,500,048
------------
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Expected Par Value
Security Rate Maturity Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------
Financial--10.7%
Caterpillar Financial Services Corp. (a) 4.392% 2/11/2008 $ 750,000 $ 750,860
CIT Group, Inc. (a) 4.901 9/22/2006 900,000 902,476
Citigroup, Inc. (a) 4.310 11/1/2007 750,000 750,554
Genworh Financial, Inc. (a) 4.641 6/15/2007 1,000,000 1,001,872
Western Corp. Federal Credit Union (a) 4.400 2/15/2008 750,000 750,295
------------
4,156,057
------------
Insurance--4.5%
Metropolitan Life Global Funding I 144A (a) 4.147 10/5/2007 1,000,000 1,000,847
Principal Life, Inc., Funding (a) 4.480 12/7/2007 750,000 750,248
------------
1,751,095
------------
Total Corporate (Cost $12,896,537) 12,878,832
------------
Yankee Bonds--2.3%
HBOS Treasury Services PLC 144A (a) (Cost $900,000) 4.203 1/12/2007 900,000 901,320
------------
U.S. Government Agency--8.8%
Government Backed--7.8%
FHLMC 5.000 6/15/2016 559,186 558,732
FHLMC 4.500 1/15/2019 391,283 389,207
FHLMC 5.000 1/15/2023 448,686 448,329
FHLMC 5.000 9/15/2024 866,374 865,577
FNMA 4.500 5/25/2012 597,181 593,540
FNMA 5.250 4/25/2025 150,532 147,466
------------
Total Government Backed (Cost $3,059,182) 3,002,851
------------
Pass Thru Securities--1.0%
FHLMC 2.614 7/15/2011 29,939 29,661
FHLMC 5.500 10/15/2018 366,986 368,157
------------
Total Pass Thru Securities (Cost $408,587) 397,818
------------
Total US Government Agency (Cost $3,467,769) 3,400,669
------------
US Treasury Obligations--6.6%
U.S. Treasury Inflation-Indexed Bond (Cost $2,662,904) 3.625 1/15/2008 2,472,045 2,538,384
------------
TOTAL BONDS AND NOTES (Cost $36,443,362) 36,156,230
------------
SHORT TERM INVESTMENTS--5.7%
Commercial Paper--5.2%
Fortune Brands, Inc. (c) 4.300 1/3/2006 2,000,000 2,000,000
------------
U.S. Government--0.5%
FNMA Discount Note (c) (d) 4.140 2/8/2006 200,000 199,160
------------
TOTAL SHORT-TERM INVESTMENTS (Cost $2,199,172) 2,199,160
------------
Investment Of Cash Collateral--2.5% Shares
------------
BlackRock Cash Strategies L.L.C. (e) (Cost $978,500) 4.310 978,500 978,500
------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $39,621,034) 39,333,890
------------
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Value
Security Rate Shares (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------
AFFILIATED INVESTMENTS--0.5%
Dreyfus Institutional Preferred Plus Money Market (e) (g) (Cost $183,610) 4.060% 183,610 $ 183,610
------------
Total Investments--102.1% (Cost $39,804,644) 39,517,500
------------
Liabilities in Excess of Other Assets--(2.1%) (804,334)
------------
NET ASSETS--100.0% $ 38,713,166
============
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, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $2,902,011 or 7.5% of net
assets.
FHLMC--Federal Home Loan Mortgage Company
FNMA--Federal National Mortgage Association
(a) Variable Rate Security; rate indicated as of 12/31/05.
(b) Security, or a portion of thereof, was on loan at December 31, 2005.
(c) Rate noted is yield to maturity.
(d) Denotes all of part of security pledged as collateral.
(e) Stated rate is the seven-day yield for the fund at year end.
(g) Affiliated institutional money market fund.
At December 31, 2005 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- ---------------------------------------------------------------------------------------------------
US 2 Year Treasury Note (36 Contracts) Long 4/15/2006 $ 7,396,875 $ (10,210)
US 5 Year Treasury Note (37 Contracts) Short 3/31/2006 3,932,984 (1,821)
EURO BOND (2 Contracts) Short 12/15/2008 475,375 (488)
EURO BOND (2 Contracts) Short 3/17/2008 478,125 1,837
EURO BOND (2 Contracts) Short 6/16/2008 478,000 1,812
EURO BOND (2 Contracts) Short 9/15/2008 477,600 1,561
----------
$ (7,309)
==========
The accompanying notes are an integral part of the financial statements.
16
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $951,189) (Note 6)
Unaffiliated issuers, at value (Note 1A) (cost $39,621,034) $ 39,333,890
Affiliated issuers (Note 1F), at value (Note 1A) (cost $183,610) 183,610
Interest and dividends receivable 197,554
Prepaid expenses 1,776
------------
Total assets 39,716,830
Liabilities
Collateral for securities on loan (Note 6) $ 978,500
Accrued advisor fees (Note 2) 167
Variation margin payable 580
Accrued professional fees 18,842
Accrued accounting, administration and custody fees (Note 2) 3,087
Accrued trustees' fees and expenses (Note 2) 2,162
Accrued expenses and other liabilities 326
---------
Total liabilities 1,003,664
------------
Net Assets (applicable to investors' beneficial interest) $ 38,713,166
============
The accompanying notes are an integral part of the financial statements.
17
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Statement of Operations
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 1,962,791
Interest income from affiliated investments (Note 1F) 108,011
Security lending income (Note 6) 2,622
-----------
Total investment income 2,073,424
Expenses
Investment advisory fee (Note 2) $ 126,580
Accounting, administration and custody fees (Note 2) 77,337
Professional fees 33,091
Trustees' fees and expenses (Note 2) 7,980
Insurance expense 9,083
Miscellaneous 1,913
-----------
Total expenses 255,984
Deduct
Waiver of investment advisory fee (Note 2) (68,692)
-----------
Net expenses 187,292
-----------
Net investment income 1,886,132
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (196,071)
Financial futures transactions (104,983)
-----------
Net realized gain (loss) (301,054)
Change in unrealized appreciation (depreciation) on:
Investments (155,746)
Financial futures contracts 46,488
-----------
Change in net unrealized appreciation (depreciation) (109,258)
-----------
Net realized and unrealized gain (loss) (410,312)
-----------
Net Increase in Net Assets from Operations $ 1,475,820
===========
The accompanying notes are an integral part of the financial statements.
18
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Investment Operations
Net investment income $ 1,886,132 $ 1,314,045
Net realized gain (loss) (301,054) (63,934)
Change in net unrealized appreciation (depreciation) (109,258) (423,401)
------------ -------------
Net increase (decrease) in net assets from investment operations 1,475,820 826,710
------------ -------------
Capital Transactions
Contributions 16,645,003 63,157,972
Withdrawals (46,674,285) (138,574,542)
------------ -------------
Net increase (decrease) in net assets from capital transactions (30,029,282) (75,416,570)
------------ -------------
Total Increase (Decrease) in Net Assets (28,553,462) (74,589,860)
Net Assets
At beginning of year 67,266,628 141,856,488
------------ -------------
At end of year $ 38,713,166 $ 67,266,628
============ =============
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
--------------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- --------- --------- ---------
Total Return (a) 2.66% 0.79% 1.48% 3.14% 6.15%
Ratios:
Expenses (to average daily net assets)* 0.32% 0.41% 0.36% 0.36% 0.35%
Net Investment Income (to average daily net assets)* 3.24% 1.36% 1.60% 2.99% 4.89%
Portfolio Turnover 75% 39% 113% 160% 174%
Net Assets, End of Year (000's omitted) $ 38,713 $ 67,267 $ 141,856 $ 146,771 $ 134,055
- ----------
* 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 0.44% N/A 0.37% 0.38% N/A
Net investment income 3.12% N/A 1.59% 2.97% N/A
(a) Total return for the Portfolio has been calculated based on the total
return for the invested Fund, assuming all distributions were invested,
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 Enhanced Yield 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 Enhanced Yield Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust.
The Fund's Board of Trustees approved, effective May 1, 2005, the change
in the Fund's name from "Standish Mellon Short-Term Asset Reserve Fund" to
"Standish Mellon Enhanced Yield Portfolio".
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.
At December 31, 2005 there was one fund, Standish Mellon Enhanced Yield
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, 2005 was 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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost
based upon the value on such date unless the Trustees determine during
such sixty-day period that amortized cost 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 earned, 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 disregarded entity 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 the
Portfolio's investor 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.
21
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
D. Commitments and contingencies
In the normal course of business, the Portfolio may enter into contracts
and agreements that contain a variety of representations and warranties,
which provide general indemnifications. The maximum exposure to the
Portfolio under these arrangements is unknown, as this would involve
future claims that may be made against the Portfolio that have not yet
occurred. However, based on experience, the Portfolio expects the risks of
loss to be remote.
E. 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 among
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
F. Affiliated issuers
Affiliated issuers are 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, and general office facilities is
paid monthly at the annual rate of 0.25%, for the period from January 1,
2005 through April 30, 2005 and 0.20% for the period from May 1, 2005 to
December 31, 2005, of the Portfolio's average daily net assets. 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 period from January 1, 2005 through April
30, 2005 and to 0.25% for the period from May 1, 2005 to December 31,
2005. Pursuant to these agreements, for the period ended December 31,
2005, Standish Mellon voluntarily waived a portion of its investment
advisory fee in the amount of $68,692. This agreement is voluntary and
temporary and may be discontinued or revised by Standish Mellon at any
time.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly
owned subsidiary of Mellon Financial Corporation and an affiliate of
Standish Mellon, to provide custody, fund administration and fund
accounting services for the Portfolio. For these services the Portfolio
pays Mellon Bank a fixed fee plus asset and transaction based fees, as
well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio
was charged $77,337 during the year ended December 31, 2005.
The Portfolio entered into an agreement with Mellon Bank to perform
certain securities lending activities and to act as the Portfolio lending
agent. Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon Bank received $1,145 for the
year ended December 31, 2005. See Note 6 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. No other
director, officer or employee of Standish Mellon or its affiliates
received 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, 2005 were as follows:
Purchases Sales
------------ ------------
U.S. Government Securities $ 7,263,885 $ 5,131,634
============ ============
Investments (non-U.S. Government Securities) $ 30,906,753 $ 57,887,186
============ ============
22
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2005, as computed on a federal
income tax basis, were as follows:
Aggregate cost $ 39,804,690
============
Gross unrealized appreciation $ 20,421
Gross unrealized depreciation (307,611)
------------
Net unrealized appreciation (depreciation) $ (287,190)
============
(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 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 year end. Losses may
arise from changes in the value of the underlying instruments if there is
an illiquid secondary market for the contract or if the counterparty does
not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers.
The Fund did not enter into option transactions during the year ended
December 31 2005.
Futures contracts
The Portfolio may enter into financial futures contracts for the 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, 2005, the Portfolio held open financial futures contracts.
See the Schedule of Investments for further details.
23
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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 are not
sufficient to meet the Portfolio's obligations due on the loans.
The Portfolio loaned securities during the year ended December 31, 2005
and earned interest on the invested collateral of $57,106 of which,
$54,484 was rebated to borrowers or paid in fees. At December 31, 2005,
the Portfolio had securities valued at $951,189 on loan. See the Schedule
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 did not enter into any delayed delivery transactions during
the year ended December 31, 2005.
(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 committed amount, is allocated ratably among the participating
portfolios/funds at the end of each quarter. For the year ended December
31, 2005, the facility fee was $748 for the Portfolio.
During the year ended December 31, 2005, the Portfolio had average
borrowings outstanding of $133,523 on a total of thirteen days and
incurred $193 of interest expense.
24
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Master Portfolio and Investors of
Standish Mellon Enhanced Yield 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 Enhanced Yield
Portfolio, formerly known as Standish Mellon Short-Term Asset Reserve Portfolio,
(the "Portfolio") at December 31, 2005, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years in
the period then ended, 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
25
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the fund's
investment adviser or underwriter (the "Independent Trustees") voting
separately, approve the Fund's advisory agreement and the related fees on an
annual basis. The Fund is not a party to an investment advisory agreement
directly with any investment adviser and does not invest directly in portfolio
securities. Instead, the Fund invests all of its investable assets in the
Standish Mellon Enhanced Yield Portfolio (the "Portfolio"), which is managed by
Standish Mellon Asset Management Company LLC ("Standish Mellon"). The Fund's
Board of Trustees determines annually whether the Fund should continue to invest
in the Portfolio. The members of the Fund's Board of Trustees also serve as the
Board of Trustees of the Portfolio. In that capacity, they consider annually
whether to continue the investment advisory agreement between the Portfolio and
Standish Mellon. In their most recent deliberations concerning their decision to
approve the continuation of the investment advisory agreement, the Board of
Trustees conducted the review and made the determinations that are described
below. In conducting this review and in making such determinations, the
Independent Trustees received from Standish Mellon a broad range of information
in response to a written request prepared on their behalf by their own legal
counsel. The Independent Trustees met alone in a private session with their
legal counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans, and to
respond to questions and comments arising from the Independent Trustees' review
of the materials and their deliberations. The entire Board then met on October
18, 2005.
The information requested by the Independent Trustees and reviewed by the entire
Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as well as
a profitability analysis of Standish Mellon, including a separate presentation
of Standish Mellon's profitability relative to that of several publicly traded
investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well as
information concerning Standish Mellon's executive management, investment
management, client service personnel and overall organizational structure,
insurance coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper Analytical
Services ("Lipper") regarding the Fund's historical performance, management fee
and expense ratio compared to other funds, and Standish Mellon's separate
account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on the
Fund's performance (rather than the Portfolio alone) and any material portfolio
manager and strategy changes that may have affected the Fund and Portfolio in
the prior year, as well as "fact sheets" prepared by Standish Mellon providing
salient data about the Fund and Portfolio and Standish Mellon's views concerning
the issues of breakpoints in the management fee schedule of the Portfolio and
potential economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency, custody,
administration and securities lending services provided to the Funds by
affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the Board
of Trustees, including the Independent Trustees, did not identify any single
factor as all-important or controlling, and individual Trustees did not
necessarily attribute the same weight or importance to each factor. The Trustees
determined that the terms and conditions of the Portfolio's advisory agreement
and the compensation to Standish Mellon provided therein were fair and
reasonable in light of the services performed, expenses incurred and such other
matters as the Trustees considered relevant in the exercise of their reasonable
judgment. The following summary does not detail all the matters that were
considered. Some of the factors that figured prominently in the Trustees'
determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by Standish Mellon. In their deliberations as to the
continuation of the Portfolio's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision of
the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment management,
administrative, compliance and related services provided by Standish Mellon. The
Board determined that the services provided were of high quality and at least
commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of Standish Mellon to
receive an overview of its organization, personnel, resources and strategic
plans. Among other things, the Trustees considered the size, education and
experience of Standish Mellon's investment staff, technological infrastructure
and overall responsiveness to changes in market conditions.
The Board determined that Standish Mellon had the expertise and resources to
manage the Portfolio effectively.
26
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund (rather than the
Portfolio alone) against a peer group of investment companies selected by
Standish Mellon with input from the Trustees. The Board also compared the Fund's
investment performance against the average performance of a larger universe of
funds regarded by Lipper as having similar investment objectives and considered
the Fund's performance rankings against that universe. In addition to the
information received by the Board at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for the
Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and five-year
periods ended July 31, 2005 based on the Lipper materials provided to the Board
at the September 22, 2005 meeting. The Board found that the Fund underperformed
its peer group average returns for the one-year period (1.59% vs. 2.56%),
three-year period (1.59% vs. 2.66%) and five-year period (3.09% vs. 3.25%). The
Trustees requested that Standish Mellon arrange for a presentation to the Board,
as part of the usual fund reporting cycle, to explain the reasons for the Fund's
underperformance and efforts by Standish Mellon to improve the Fund's
performance.
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Portfolio to Standish
Mellon. The Lipper data presenting the Portfolio's "net advisory fees" included
fees paid by the Portfolio, as calculated by Lipper, for administrative services
provided by Mellon Bank, N.A., the Portfolio's custodian. Such reporting was
necessary, according to Lipper, to allow the Board to compare the Portfolio's
advisory fees to those peers that include administrative fees within a blended
advisory fee.
The Portfolio's contractual advisory fee was 0.25%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.36%. The Portfolio's
net advisory fee, after giving effect to expense limitations, was 0.209%, below
the peer group median net advisory fee of 0.301%. Based on the Lipper data, as
well as other factors discussed at the September 22, 2005 meeting, the Board
determined that the Portfolio's advisory fee is reasonable relative to its peer
group averages, both with and without giving effect to expense limitations.
The Board also compared the fees payable by the Portfolio relative to those
payable by separate account clients of Standish Mellon. Based on the additional
scope and complexity of the services provided and responsibilities assumed by
Standish Mellon with respect to the Portfolio relative to these other types of
clients, the Board concluded that the fees payable under the advisory agreement
were reasonable relative to overall industry averages and to the nature and
quality of the services provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds. The
Board found that the actual net expense ratio of 0.449% (after giving effect to
expense limitations) was equal to the median net expense ratio of the peer group
of 0.449%.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Portfolio
and Fund and the Mellon Institutional Funds as a group, as well as the
methodology used to compute such profitability, and the various direct and
indirect expenses incurred by Standish Mellon or its affiliated investment
adviser, The Boston Company Asset Management, LLC ("TBCAM") in managing the
Portfolio and Fund and other funds in the Mellon Institutional Funds family of
funds. The Independent Trustees had observed that, based on the profitability
information submitted to them by Standish Mellon, Standish Mellon incurred
losses in managing many of the investment companies in the Mellon Institutional
Funds family of funds, including the Portfolio and Fund, and that among those
funds that were profitable to Standish Mellon, several generated only marginal
profitability for the firm. The Trustees observed that Standish Mellon had
incurred losses in operating the Portfolio and Fund in both 2003 and 2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Portfolio and Fund grow. They observed that the Standish Mellon
Fixed Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size. The
Board concluded that, at existing asset levels and considering current assets
growth projections, the implementation of additional fee breakpoints or other
fee reductions was not necessary at this time. They requested, however, that
management consider the issue of future breakpoints and respond to the
Independent Trustees and to present a proposal for such breakpoints or, in each
case as applicable, management's rationale as to why such future breakpoints are
not necessary or appropriate for a particular Fund.
27
Mellon Institutional Funds Master Portfolio
Standish Mellon Enhanced Yield Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a result
of its relationship with the Mellon Institutional Funds as a group, including
revenues received by Mellon affiliates in consideration of custodial,
administrative, transfer agency and securities lending services provided by such
affiliates to the Funds. In each case, such affiliates were selected by the
Board on the basis of a comparative analysis of their capabilities and fees
relative to those of unaffiliated competitors. In addition, the Board, including
a majority of the Independent Trustees, conduct an examination annually of each
such arrangement as to whether (i) the terms of the relevant service agreement
are in the best interests of Fund shareholders; (ii) the services to be
performed by the affiliate pursuant to the agreement are required by and
appropriate for the Funds; (iii) the nature and quality of the services provided
by the affiliate pursuant to the agreement are at least equal to those provided
by other, unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for its
services are fair and reasonable in light of the usual and customary charges
imposed by other, unaffiliated firms for services of the same nature and
quality.
The Board considered the fact that Mellon operates businesses other than the
Mellon Institutional Funds, some of which businesses share personnel, office
space and other resources and that these were a component of the profitability
analysis provided. The Board also considered the intangible benefits that accrue
to Mellon and its affiliates by virtue of its relationship with the Funds and
the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in determining
that the terms and conditions of the Portfolio's advisory agreement and the
compensation to Standish Mellon provided therein are fair and reasonable and,
thus, in approving the continuation of the agreement for a one-year period.
28
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 remuneration paid
as of the period ended December 31, 2005. 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 (period 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 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None Fund: $500
c/o Decision Resources, Inc. 11/3/1986 Decision Resources, Portfolio: $1,642
260 Charles Street Inc. ("DRI")
Waltham, MA 02453 (biotechnology
9/30/40 research and
consulting firm);
formerly Chairman of
the Board and Chief
Executive Officer,
DRI
Caleb Loring III Trustee Trustee since Trustee, Essex 32 None Fund: $500
c/o Essex Street Associates 11/3/1986 Street Associates Portfolio: $1,802
P.O. Box 5600 (family investment
Beverly, MA 01915 trust office)
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None Fund: $500
c/o Harvard University 9/13/1989 Maier, Professor of Portfolio: $1,642
Littaver Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, 32 None Fund: $500
P.O. Box 2333 11/3/1986 Mertens House, Inc. Portfolio: $1,642
New London, NH 03257 (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 32 None $0
The Boston Company President and Operating Officer of
Asset Management, LLC Chief Executive The Boston Company
One Boston Place Officer Asset Management,
Boston, MA 02108 LLC; formerly Senior
7/24/65 Vice President and
Chief Operating
Officer, Mellon Asset
Management ("MAM")
and Vice President
and Chief Financial
Officer, MAM
29
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- ----------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of
Mellon Asset Management and Secretary Operations, Mellon Asset Management
One Boston Place ("MAM"); formerly First Vice President, MAM
Boston, MA 02108 and Mellon Global Investments
2/20/61
Steven M. Anderson Vice President Vice President since Vice President and Mutual Funds Controller,
Mellon Asset Management and Treasurer 1999; Treasurer since Mellon Asset Management
One Boston Place 2002
Boston, MA 02108
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of
Mellon Asset Management President Compliance, Mellon Asset Management
One Boston Place ("MAM"); formerly Manager of Shareholder
Boston, MA 02108 Services, MAM, Shareholder Representative,
1/19/71 Standish Mellon Asset Management Company LLC
Mary T. Lomasney Chief Compliance Since 2005 First Vice President, Mellon Asset
Mellon Asset Management Officer Management and Chief Compliance Officer,
One Boston Place Mellon Funds Distributor and Mellon Optima
Boston, MA 02108 L/S Strategy Fund, LLC; formerly Director,
4/8/57 Blackrock, Inc., Senior Vice President,
State Street Research & Management Company
("SSRM"), Vice President, SSRM
30
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
High Yield Bond Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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.
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
February 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o Boston, MA 02108-4402
A Mellon Asset Management Company
1
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Market Environment
For 2005, the Standish Mellon High Yield Bond Fund returned +3.70% as compared
to the Merrill Lynch Master II Master Index mark of +2.74% and the Merrill Lynch
Constrained High Yield Index total of +2.78%. The Lehman Aggregate Index
reported a return of 2.43% for 2005, below that of High Yield and 3 Month
Treasury Bills (+3.05%).
During the year, the benchmark for the Fund was changed from the Master II Index
to the Constrained Index, which limits individual issuer credit exposures to 2%
of the index. Otherwise, both indexes use similar methodology. The benchmark
change was made to mitigate the extremely large index weightings of more than 6%
resulting from the downgrades of GM (May 31, 2005) and Ford Motor Company
(December 31, 2005). Unconstrained weighting positions of that size are
inconsistent with the management of a diversified fixed income portfolio.
In 2005, three industry groups stood out as significant underperformers. The
automotive (-7.72%) and auto parts and suppliers (-11.76%) subsectors reflected
the well documented struggles of the two largest U.S. auto producers, GM and
Ford. The financial pain created by this situation was felt most acutely by the
parts suppliers to GM and Ford, as that sector absorbed a number of bankruptcies
including Delphi, and Collins and Aikman, and badly hurt the credit standing of
many other companies. The other major industry credit news in 2005 concerned the
airlines (-10.71%), which were stung by long-running labor cost problems, brutal
competition, and rising fuel costs. The last of the laggard sectors was paper
and forestry, which fell -4.27%, hurt by weak newsprint demand and rising energy
costs.
Actual defaults in the high yield market were in the 2%-3% range in 2005 and are
projected by the major rating agencies to remain in the same area for the next
year. Despite some significant damage and disruption from two hurricanes,
general economic conditions were quite strong. That said however, over the last
12 months the general tenor of the news in the fixed income market has taken a
turn for the worse. An actively tightening Federal Reserve, along with a string
of financial problems in the U.S. auto industry, Calpine, Refco, Delphi, and the
airlines, all contributed to nervousness among fixed income investors. The
investment grade credit market also had credit issues primarily stemming from
event risk. A number of companies, frustrated by lagging equity market
valuations, pursued leveraging transactions or outright sales that harmed prices
of covenant-free debt issues.
Portfolio Strategy Review and Results
In a year when many of the outperforming sectors were small, relative
performance was more a function of what a portfolio did not hold than what it
did. Our careful credit selection and very modest industry exposure to the
airlines and the auto industry served us well in 2005. For example, underweights
in autos, paper and
2
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Calpine securities all were benefits to Fund performance in 2005. In addition,
despite a privatizing transaction, the Georgia Pacific bonds held as an
overweight position in the Fund contained restrictive covenants, which led them
to be tendered out at favorable levels. Although the Fund did have exposure to
some of the strong performing wireless and telecom companies, our holdings were
more concentrated in the senior securities and stronger credits which lagged the
performance of some of the highest yielding issues.
While 2005 had its share of bad news being absorbed by the market, one positive
item for investors has been the greater yield levels offered on recently priced
new deals. Going forward, however, the market will also be looking for stronger
credit quality among the companies coming to market. Strong credits have been
poorly represented amongst new issues in 2005, which were dominated by
lower-rated, leveraging transactions.
Investment Outlook
As 2006 begins the high yield marketplace exhibits reasonable investor demand
and a general expectation of stable credit conditions. Key elements to future
performance will be efficient credit management and risk control, hopefully
combined with the appearance of some worthwhile new financing opportunities.
/s/ Jonathan Uhrig
Jonathan Uhrig
3
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, Merrill Lynch High Yield Master II Index
and Merrill Lynch U.S. High Yield Master II Constrained Index
- --------------------------------------------------------------------------------
[PERFORMANCE GRAPH]
[PLOT POINTS TO COME]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 6/2/1997
- --------------------------------------------------------------------------------
3.70% 11.45% 8.03% 6.06%
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.
* Source: Lipper Inc.
** Source: Bloomberg Inc.
(1) The Merrill Lynch Master II High Yield ("ML Master II") Index is an
unmanaged market value-weighted index of all domestic and Yankee high
yield bonds. Effective July 1, 2005, the fund changed its benchmark from
the ML Master II Index to the Merrill Lynch High Yield Constrained ("ML
Constrained") Index because the adviser believes the ML Constrained Index
is more consistent with the diversification limitations of the fund. The
ML Constrained Index is comprised of all of the bonds held in the ML
Master II Index, but this index caps single issuer exposure to 2% of the
index.
4
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield 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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,021.90 $2.55
Hypothetical (5% return
per year before expenses) $1,000.00 $1,022.68 $2.55
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.50%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Summary of Combined Ratings
- ------------------------------------------------------
Percentage of
Quality Breakdown Investments
- ------------------------------------------------------
Treasury 7.7%
AA 0.1
A 0.5
BBB 9.6
BB 43.9
B 35.5
CCC 1.9
C/D/NR 0.8
-----
Total 100.0%
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
Chevy Chase Bank FSB 6.875% 12/1/2013 2.2%
Douglas Dynamics LLC 144A 7.750 1/15/2012 1.8
Sovereign Capital Trust IV 4.375% CVT Pfd 4.375 1.6
Qwest Corp. 7.875 9/1/2011 1.5
AES Corp. 144A 8.750 5/15/2013 1.5
Freescale Semiconductor Inc. 6.875 7/15/2011 1.4
Crown Cork & Seal Co, Inc. 7.375 12/15/2026 1.4
Rite Aid Corp. 12.500 9/15/2006 1.2
Stater Brothers Holdings 8.125 6/15/2012 1.2
Dynegy Holdings, Inc. 144A 9.875 7/15/2010 1.1
----
14.9%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- ------------------------------------------------------
Banking 3.8%
Basic industry 10.7
Brokerage 0.0
Capital goods 11.1
Consumer cyclical 7.1
Consumer non-cyclical 8.5
Energy 8.6
Finance 1.0
Insurance 0.0
Media 5.3
Municipals 0.7
Real estate 0.6
Services cyclical 11.7
Services non-cyclical 2.4
Technology 1.9
Telecommunications 7.9
Utility 9.9
Emerging markets 1.0
Agency 0.1
Cash & equivalents 7.7
-----
100.0%
6
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investment in Standish Mellon High Yield Bond Portfolio (Portfolio), at value (Note 1A) $ 17,597,396
Receivable for Fund shares sold 80,406
Receivable from Advisor 334
Prepaid expenses 2,733
-------------
Total assets 17,680,869
Liabilities
Distributions payable $ 57,108
Accrued chief compliance officer fee (Note 2) 392
Payable for Fund shares redeemed 24,867
Accrued professional fees 23,930
Accrued transfer agent fees (Note 2) 2,864
Accrued trustees' fees and expenses (Note 2) 495
Accrued administrative services expense (Note 2) 334
Other accrued expenses and liabilities 2,070
-----------
Total liabilities 112,060
-------------
Net Assets $ 17,568,809
=============
Net Assets consist of:
Paid-in capital $ 27,542,591
Accumulated net realized loss (10,243,980)
Undistributed net investment income 2,537
Net unrealized appreciation 267,661
-------------
Total Net Assets $ 17,568,809
=============
Shares of beneficial interest outstanding 1,111,233
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 15.81
=============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Statement of Operations
for the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 1,939,452
Expenses allocated from Portfolio (132,095)
-------------
Net investment income allocated from Portfolio 1,807,357
Expenses
Professional fees $ 44,025
Registration fees 21,939
Transfer agent fees (Note 2) 7,268
Shareholder services expense (Note 2) 877
Trustees' fees (Note 2) 2,496
Shareholder reporting fees 4,515
Insurance expense 947
Miscellaneous 5,442
-----------
Total expenses 87,509
Deduct:
Reimbursement of Fund operating expenses (Note 2) (87,509)
-----------
Net expenses --
-------------
Net investment income 1,807,357
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments 1,164,137
Swap transactions 4,907
Foreign currency transactions and forward foreign currency exchange transactions 98,513
-----------
Net realized gain (loss) 1,267,557
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments (2,870,133)
Swap contracts (12,983)
Foreign currency translations and forward foreign currency exchange contracts 53,899
-----------
Change in net unrealized appreciation (depreciation) (2,829,217)
-------------
Net realized and unrealized gain (loss) on investments (1,561,660)
-------------
Net Inrease in Net Assets from Operations $ 245,697
=============
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 1,807,357 $ 4,084,505
Net realized gain (loss) 1,267,557 1,476,264
Change in net unrealized appreciation (depreciation) (2,829,217) (438,129)
----------------- -----------------
Net increase (decrease) in net assets from investment operations 245,697 5,122,640
----------------- -----------------
Distributions to Shareholders (Note 1C)
From net investment income (1,881,356) (3,992,711)
----------------- -----------------
Total distributions to shareholders (1,881,356) (3,992,711)
----------------- -----------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 4,184,283 6,909,820
Value of shares issued to shareholders in reinvestment of distributions 1,683,595 3,688,577
Redemption fees credited to capital 602 248
Cost of shares redeemed (43,337,322) (12,091,338)
----------------- -----------------
Net increase (decrease) in net assets from Fund share transactions (37,468,842) (1,492,693)
----------------- -----------------
Total Increase (Decrease) in Net Assets (39,104,501) (362,764)
Net Assets
At beginning of period 56,673,310 57,036,074
----------------- -----------------
At end of period (including undistributed
net investment income of $2,537 and $107,560) $ 17,568,809 $ 56,673,310
================= =================
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
----------------------------------------------------
2005 2004 2003 2002 2001
-------- -------- -------- -------- --------
Net Asset Value, Beginning of Period $ 16.52 $ 16.19 $ 14.34 $ 14.88 $ 15.88
-------- -------- -------- -------- --------
From Operations:
Net investment income* (a) 1.13 1.18 1.21 1.26 1.40
Net realized and unrealized gains (loss) on investments (0.54) 0.31 1.85 (0.59) (1.18)
-------- -------- -------- -------- --------
Total from investment operations 0.59 1.49 3.06 0.67 0.22
-------- -------- -------- -------- --------
Less Distributions to Shareholders:
From net investment income (1.30) (1.16) (1.21) (1.21) (1.21)
From net realized gains on investments -- -- -- -- (0.01)
-------- -------- -------- -------- --------
Total distributions to shareholders (1.30) (1.16) (1.21) (1.21) (1.22)
-------- -------- -------- -------- --------
Net Asset Value, End of Period $ 15.81 $ 16.52 $ 16.19 $ 14.34 $ 14.88
======== ======== ======== ======== ========
Total Return (b) 3.70% 9.56% 21.76% 4.70% 1.52%
Ratios/Supplemental data:
Expenses (to average daily net assets)* (c) 0.50% 0.50% 0.50% 0.50% 0.50%
Net Investment Income (to average daily net assets)* 6.84% 7.28% 7.79% 8.68% 8.86%
Net Assets, End of Period (000's omitted) $ 17,569 $ 56,673 $ 57,036 $ 44,059 $ 46,302
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not
to impose a portion of its investment advisory fee and/or reimbursed the
Fund for all or a portion of its operating expenses. If this voluntary
action had not been taken, the investment income per share and the ratios
would have been:
Net investment income per share(a) $ 0.97 $ 1.12 $ 1.13 $ 1.21 $ 1.33
Ratios (to average daily net assets):
Expenses 1.45% 0.87% 1.00% 1.01% 0.97%
Net investment income 5.89% 6.91% 7.29% 8.17% 8.39%
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
(c) Includes the Fund's share of the Portfolio's allocated expenses.
The accompanying notes are an integral part of the financial statements.
10
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield 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 High Yield Bond Fund (the "Fund") is a separate
diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest in 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 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 (100% at
December 31, 2005). 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 Portfolio
values its securities at value as 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
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 Fund are allocated pro rata among the
investors in the Portfolio.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from 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 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 reclassifications, are primarily due to differing
treatments for losses deferred due to wash sales, foreign currency gains
and losses, post-October losses, and amortization and/or accretion of
premiums and discounts on certain securities.
Permanent book and tax basis differences will result in reclassifications
among accumulated net investment income, accumulated net realized gain
(loss) and paid in capital. Undistributed net investment income (loss) 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 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 among
funds of the Trust and/or portfolios of the Portfolio Trust 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 High Yield Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Commitments and contingencies
In the normal course of business, the Fund may enter into contracts and
agreements that contain a variety of representations and warranties, which
provide general indemnifications. The maximum exposure to the Fund under
these arrangements is unknown, as this would involve future claims that
may be made against the Fund that have not yet occurred. However, based on
experience, the Fund expects the risks of loss to be remote.
(2) Investment Advisory Fee and 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, 2005, Standish Mellon voluntarily reimbursed
the Fund for $87,509 of its operating expenses.
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 was charged $7,268 during the year ended December 31, 2005.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
year ended December 31, 2005, the Fund was charged $2,256. No other
director, officer or employee of Standish Mellon or its affiliates
received 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 Portfolio Trust pays the legal
fees for the independent counsel of the Trustees.
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. For the year ended
December 31, 2005, the Fund was charged $334 for fees payable to Mellon
Private Wealth Management. The Fund's adviser or its affiliates may pay
additional compensation from their own resources to Plan Administrators
and other entities for administrative services, as well as in
consideration of marketing or other distribution-related services. These
payments may provide an incentive for these entities to actively promote
the Fund or cooperate with the distributor's promotional efforts.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
period ended December 31, 2005, aggregated $5,802,546 and $45,178,933,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules. Book/tax differences arise when changes
in proportionate interest for funds investing in the Portfolio occur.
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 257,259 428,139
Shares issued to shareholders in
reinvestment of distributions 104,233 227,570
Shares redeemed (2,681,089) (747,381)
----------------- -----------------
Net increase (decrease) (2,319,597) (91,672)
================= =================
12
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 2005, three shareholders of record held approximately 73%
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
30 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 their costs associated with short-term trading in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the period ended December 31, 2005, the
Fund received $602 in redemption fees.
During the year, the Standish Mellon High Yield Bond Fund had a
redemption-in-kind valued at $35,215,618, of which $3,822,450 was
distributed in cash and $31,393,168 was transacted via an in-kind
redemption of investment securities. For tax purposes, this was a tax free
exchange transaction. For accounting purposes gains and losses resulting
from the redemptions-in-kind are included in realized gain/loss from
securities in the statement of operations. The Fund realized a $1,167,955
gain.
(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, 2005, the components of distributable earnings on a tax
basis were as follows:
2005
------------
Undistributed ordinary income $ 8,979
Accumulated losses 10,170,982
At December 31, 2005, the Fund, for federal income tax purposes, has
capital loss carryovers of $10,170,982 which will reduce the Fund's
taxable income arising from net realized gain on investment, 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 a 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
16,054 12/31/2013
------------
$ 10,170,982
============
It is uncertain whether the Fund will be able to realize the benefits of
the losses before they expire.
The Fund elected to defer to its fiscal year ended December 31, 2006
$41,090 of capital losses recognized during the period November 1, 2005 to
December 31, 2005.
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
----------- -----------
Ordinary income $ 1,881,356 $ 3,992,711
See corresponding master portfolio for tax basis unrealized appreciated
(depreciation) information.
13
Mellon Institutional Funds Investment Trust
Standish Mellon High Yield Bond Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and 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, 2005, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, 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, 2005 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
14
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- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--95.0%
BONDS AND NOTES--88.8%
Convertible Corporate Bonds--0.4%
Centerpoint Energy, Inc. 144A CVT 2.875% 1/15/2024 25,000 $ 26,906
Xcel Energy, Inc. 144A 7.500 11/21/2007 15,000 23,213
Sinclair Broadcast Group, Inc. (c) 4.875 7/15/2018 25,000 21,656
-----------
Total Convertible Corporate Bonds (Cost $65,988) 71,775
-----------
Corporate--76.8%
Banking--2.3%
Chevy Chase Bank FSB 6.875 12/1/2013 345,000 355,350
Colonial Bank 9.375 6/1/2011 35,000 41,095
-----------
396,445
-----------
Basic Industry--6.9%
Airgas, Inc. 6.250 7/15/2014 10,000 9,825
Compression Polymers Holdings 144A 10.500 7/1/2013 15,000 14,550
Earle M Jorgenson Co. 9.750 6/1/2012 35,000 37,450
Equistar Chemicals LP/Equistar Funding Corp. 10.625 5/1/2011 55,000 60,500
Freeport-McMoRan Copper & Gold, Inc. 10.125 2/1/2010 60,000 65,925
Freeport-McMoRan Copper & Gold, Inc. 6.875 2/1/2014 65,000 65,650
Georgia-Pacific Corp. 8.000 1/15/2024 75,000 71,625
International Steel Group, Inc. 6.500 4/15/2014 75,000 75,000
KRATON Polymers LLC/Capital Corp. 8.125 1/15/2014 5,000 4,800
Lubrizol Corp. 4.625 10/1/2009 75,000 73,509
Lubrizol Corp. 5.500 10/1/2014 100,000 100,266
Lyondell Chemical Co. 9.625 5/1/2007 55,000 57,406
Nalco Co. 7.750 11/15/2011 25,000 25,688
Nalco Co. 8.875 11/15/2013 100,000 104,750
Neenah Paper, Inc. 7.375 11/15/2014 5,000 4,513
Standard Pacific Corp. 6.500 8/15/2010 80,000 76,300
Steel Dynamics, Inc. 9.500 3/15/2009 110,000 115,775
Stone Container Corp. 8.375 7/1/2012 115,000 111,263
Temple-Inland (b) 6.625 1/15/2018 70,000 72,118
United States Steel Corp. 9.750 5/15/2010 34,000 36,975
Westlake Chemical Corp. 8.750 7/15/2011 33,000 35,310
-----------
1,219,198
-----------
Capital Goods--7.7%
Accuride Corp 8.500 2/1/2015 85,000 83,725
Alliant Techsystems, Inc. 8.500 5/15/2011 35,000 36,750
Alliant Techsystems, Inc. 144A 2.750 2/15/2024 15,000 16,181
Ball Corp. 6.875 12/15/2012 10,000 10,325
Berry Plastics 10.750 7/15/2012 55,000 59,125
CCM Merger, Inc. 144A 8.000 8/1/2013 40,000 38,400
Crown Cork & Seal Co, Inc. 7.375 12/15/2026 240,000 219,600
Esterline Technologies Corp. 7.750 6/15/2013 40,000 41,800
Goodman Global Holdings 144A (a) 7.491 6/15/2012 130,000 128,700
L-3 Communications Corp. 7.625 6/15/2012 50,000 52,625
L-3 Communications Corp. 6.125 7/15/2013 85,000 84,363
L-3 Communications Corp. 144A 3.000 8/1/2035 20,000 19,775
Leucadia National Corp. 7.000 8/15/2013 90,000 89,550
Norcraft Finance Co. 9.000 11/1/2011 15,000 15,525
Owens-Brockway 7.750 5/15/2011 50,000 52,188
The accompanying notes are an integral part of the financial statements.
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Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------
Capital Goods (continued)
Owens-Illinois, Inc. 7.500% 5/15/2010 95,000 $ 96,425
Owens-Illinois, Inc. (b) 7.800 5/15/2018 120,000 119,400
Silgan Holdings, Inc. 6.750 11/15/2013 70,000 69,650
Solo Cup Co. (b) 8.500 2/15/2014 25,000 21,875
Texas Industries, Inc. 144A 7.250 7/15/2013 5,000 5,188
Trinity Industries LE 6.500 3/15/2014 100,000 98,500
-----------
1,359,670
-----------
Consumer Cyclical--5.2%
Cinemark USA, Inc. 9.000 2/1/2013 45,000 47,588
Couche-Tard 7.500 12/15/2013 35,000 36,050
DR Horton, Inc. 8.500 4/15/2012 75,000 80,131
Keystone Automotive Operation, Inc. 9.750 11/1/2013 35,000 30,275
Leslie's Poolmart 7.750 2/1/2013 40,000 40,100
Neiman Marcus Group, Inc. 144A 9.000 10/15/2015 25,000 25,563
Pinnacle Entertainment, Inc. (b) 8.750 10/1/2013 55,000 58,575
Rite Aid Corp. (e) 12.500 9/15/2006 190,000 198,788
Rite Aid Corp. 8.125 5/1/2010 70,000 71,225
Rite Aid Corp. 9.500 2/15/2011 45,000 47,475
Russell Corp. 9.250 5/1/2010 62,000 62,853
Speedway Motorsports, Inc. 6.750 6/1/2013 160,000 162,000
True Temper Sports, Inc. 8.375 9/15/2011 35,000 31,500
Visteon Corp. 8.250 8/1/2010 30,000 25,500
-----------
917,623
-----------
Consumer Noncyclical--5.9%
Alliance One International 144A 11.000 5/15/2012 25,000 22,000
Altria Group, Inc. 7.000 11/4/2013 45,000 49,241
ANR Pipeline Co. 7.000 6/1/2025 10,000 9,899
Chattem, Inc. 7.000 3/1/2014 70,000 71,050
Corrections Corp Of America 7.500 5/1/2011 20,000 20,700
Del Monte Corp. 8.625 12/15/2012 75,000 79,688
Domino's, Inc. 8.250 7/1/2011 38,000 39,710
Elizabeth Arden, Inc. 7.750 1/15/2014 20,000 20,200
Goodyear Tire & Rubber 144A 9.000 7/1/2015 95,000 93,575
Ingles Markets, Inc. 8.875 12/1/2011 50,000 51,750
Mohegan Tribal Gaming 7.125 8/15/2014 105,000 107,494
Penn National Gaming Inc. 6.875 12/1/2011 25,000 25,250
Penn National Gaming Inc. 6.750 3/1/2015 20,000 19,650
Psychiatric Solutions, Inc. 7.750 7/15/2015 20,000 20,650
Scotts Co. 6.625 11/15/2013 30,000 30,375
Seneca Gaming Corp. 144A 7.250 5/1/2012 15,000 15,094
Smithfield Foods, Inc. 7.000 8/1/2011 25,000 25,500
Smithfield Foods, Inc. 7.750 5/15/2013 55,000 58,163
Southern Natural Gas Co. 8.875 3/15/2010 15,000 16,031
Stater Brothers Holdings 8.125 6/15/2012 200,000 198,000
Stater Brothers Holdings (a) 7.991 6/15/2010 65,000 65,000
-----------
1,039,020
-----------
Energy--7.7%
ANR Pipeline Co. 7.375% 2/15/2024 20,000 20,562
Dynegy Holdings, Inc. 144A 9.875 7/15/2010 165,000 180,881
El Paso Natural Gas Co. 8.625 1/15/2022 90,000 102,113
El Paso Natural Gas Co. 8.375 6/15/2032 45,000 50,825
The accompanying notes are an integral part of the financial statements.
16
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Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------
Energy (continued)
El Paso Production Holding Co. 7.750 6/1/2013 55,000 $ 57,063
FPL Energy National Wind 144A 6.125 3/25/2019 97,390 95,293
Frontier Oil Corp. 6.625 10/1/2011 35,000 35,700
Houston Exploration Co. 7.000 6/15/2013 50,000 48,000
Newfield Exploration Co. 8.375 8/15/2012 55,000 58,850
Newfield Exploration Corp. 6.625 9/1/2014 60,000 61,050
Peabody Energy Corp. 6.875 3/15/2013 40,000 41,600
Pogo Producing Co. 6.625 3/15/2015 75,000 73,125
Premcor Refining Group, Inc. 9.500 2/1/2013 65,000 72,452
Southern Natural Gas Co. 7.350 2/15/2031 45,000 46,166
Tennessee Gas Pipeline Co. 8.375 6/15/2032 60,000 68,076
Transcontinental Gas Pipe Line Corp. 8.875 7/15/2012 110,000 125,950
Williams Cos., Inc. 7.875 9/1/2021 160,000 173,200
Williams Cos., Inc. 7.750 6/15/2031 40,000 42,200
-----------
1,353,106
-----------
Financial--3.2%
Arch Western Finance 6.750 7/1/2013 25,000 25,469
BCP Crystal Holding Corp. 9.625 6/15/2014 69,000 76,763
Crystal US Holdings Corp. 0.000 10/1/2014 92,000 67,620
E*Trade Financial Corp. 144A 7.375 9/15/2013 15,000 15,188
Ford Motor Credit Co 7.375 10/28/2009 35,000 31,041
General Motors Acceptance Corp. 7.750 1/19/2010 110,000 102,728
General Motors Acceptance Corp. (b) 8.000 11/1/2031 50,000 47,894
Glencore Funding LLC 144A 6.000 4/15/2014 65,000 61,135
Residential Capital Corp. 6.375 6/30/2010 105,000 106,692
Residential Capital Corp. 6.875 6/30/2015 30,000 31,878
-----------
566,408
-----------
Industrial--4.1%
Browning-Ferris Industries 9.250 5/1/2021 35,000 36,050
Columbus McKinnon Corp. 144A 8.875 11/1/2013 25,000 26,000
Cooper Standard Auto 8.375 12/15/2014 25,000 19,000
Crown Americas Inc. 144A 7.750 11/15/2015 65,000 67,275
Crown Americas Inc. 144A 7.625 11/15/2013 120,000 124,500
Douglas Dynamics LLC 144A 7.750 1/15/2012 290,000 279,850
Gibraltar Industries, Inc. 144A 8.000 12/1/2015 35,000 35,263
Southern Peru Copper Corp. 144A 6.375 7/27/2015 100,000 99,818
Terex Corp. 7.375 1/15/2014 30,000 29,700
-----------
717,456
-----------
Media--5.7%
Cablevision Systems Corp. (a) 8.716 4/1/2009 115,000 116,150
CBD Media, Inc. 8.625 6/1/2011 50,000 51,000
CSC Holdings, Inc. 8.125 8/15/2009 65,000 65,650
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 25,000 26,188
Dex Media West LLC/Dex Media Finance Co. 9.875 8/15/2013 28,000 31,080
Dex Media, Inc. 8.000 11/15/2013 30,000 30,600
DirecTV Holdings LLC 8.375 3/15/2013 58,000 62,350
Echostar DBS Corp. 5.750% 10/1/2008 54,000 52,920
Entercom Radio LLC/Entercom Capital, Inc. 7.625 3/1/2014 15,000 15,038
MCI, Inc. 6.908 5/1/2007 63,000 63,473
Nextel Communications Inc. 6.875 10/31/2013 85,000 88,673
The accompanying notes are an integral part of the financial statements.
17
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Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------
Media (continued)
PX Escrow Corp. 9.625 2/1/2006 105,000 $ 101,287
Radio One, Inc. 8.875 7/1/2011 45,000 47,475
RH Donnelley Finance Corp. 144A 10.875 12/15/2012 105,000 118,388
Salem Communications Corp. 7.750 12/15/2010 130,000 134,713
------------
1,004,985
------------
Real Estate--0.6%
BF Saul REIT 7.500 3/1/2014 100,000 101,750
------------
Services: Cyclical--7.4%
AMC Entertainment, Inc. 8.000 3/1/2014 65,000 58,825
Ameristar Casinos, Inc. 10.750 2/15/2009 170,000 180,200
Chumash Casino & Resort Enterprises 144A 9.520 7/15/2010 55,000 58,438
DPL, Inc. 6.875 9/1/2011 110,000 115,913
Gaylord Entertainment Co. 6.750 11/15/2014 40,000 39,200
Hawaiian Telcom Communication 144A (a) 9.948 5/1/2013 35,000 33,775
Hertz Corp. 144A 8.875 1/1/2014 40,000 40,750
Hertz Corp. 144A 10.500 1/1/2016 20,000 20,600
Isle of Capri Casinos, Inc. 7.000 3/1/2014 100,000 97,500
Kansas City Southern Railway 7.500 6/15/2009 85,000 87,763
Meristar Hospitality Corp. 9.500 4/1/2010 60,000 70,875
Meristar Hospitality Operationg Partnership LP (b) 10.500 6/15/2009 65,000 68,494
Mohegan Tribal Gaming Authority 8.000 4/1/2012 65,000 68,413
Service Corp Interational 144A 7.500 6/15/2017 25,000 24,813
Sierra Pacific Resources 8.625 3/15/2014 100,000 108,199
Station Casinos, Inc. 6.000 4/1/2012 110,000 109,725
Turning Stone Casino Resort Enterprise 144A 9.125 2/15/2010 85,000 87,550
Williams Scotsman, Inc. 8.500 10/1/2015 20,000 20,700
------------
1,291,733
------------
Services: Non-Cyclical--3.8%
Allied Waste North America 8.500 12/1/2008 50,000 52,500
Coventry Health Care, Inc. 5.875 1/15/2012 135,000 136,350
HCA, Inc. 8.750 9/1/2010 80,000 88,480
HCA, Inc. 7.875 2/1/2011 150,000 161,274
Kinetic Concepts, Inc. 7.375 5/15/2013 29,000 29,580
Plastipak Holdings, Inc. 144A 8.500 12/15/2015 90,000 90,900
Tenet Healthcare Corp. 144A 9.250 2/1/2015 110,000 109,175
------------
668,259
------------
Technology & Electronics--1.8%
Communications & Power Industries, Inc. 8.000 2/1/2012 10,000 9,975
Fisher Scientific Intl. 6.750 8/15/2014 125,000 130,313
Nevada Power Co. 6.500 4/15/2012 45,000 46,125
Nevada Power Co. 5.875 1/15/2015 90,000 89,309
Panamsat Corp. 9.000 8/15/2014 22,000 23,045
PQ Corp. 144A 7.500 2/15/2013 10,000 9,300
SunGard Data Systems Inc. 144A (a) 8.525 8/15/2013 15,000 15,525
------------
323,592
------------
Telecommunications--4.8%
Airgate PCS Inc. (a) 7.900 10/15/2011 15,000 15,488
Alamosa Delaware, Inc. 8.500 1/31/2012 105,000 113,531
Consolidated Comm Holdings 9.750 4/1/2012 52,000 55,380
Qwest Communications International 144A 7.500% 2/15/2014 130,000 133,575
The accompanying notes are an integral part of the financial statements.
18
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Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------
Telecommunications (continued)
Qwest Communications International, Inc. (a) 7.840 2/15/2009 65,000 $ 65,894
Qwest Corp. 7.875 9/1/2011 225,000 242,438
Rural Cellular Corp. 9.875 2/1/2010 25,000 26,375
Rural Cellular Corp. 8.250 3/15/2012 30,000 31,650
Ubiquitel Operating Co. 9.875 3/1/2011 80,000 88,600
US Unwired, Inc. (a) 8.741 6/15/2010 65,000 66,788
------------
839,719
------------
Utilities--9.7%
AES Corp. 8.875 2/15/2011 102,000 110,288
AES Corp. 144A 8.750 5/15/2013 215,000 234,081
CMS Energy Corp. 9.875 10/15/2007 60,000 64,200
CMS Energy Corp. 7.750 8/1/2010 50,000 52,438
CMS Energy Corp. 8.500 4/15/2011 30,000 32,663
El Paso Natural Gas Co. 7.500 11/15/2026 55,000 56,785
Enterprie Products Oper 4.625 10/15/2009 85,000 82,904
Freescale Semiconductor 7.125 7/15/2014 20,000 21,300
Freescale Semiconductor Inc. (b) (e) 6.875 7/15/2011 210,000 220,500
Freescale Semiconductor, Inc. (a) 6.900 7/15/2009 55,000 56,513
Mirant North America LLC 144A 7.375 12/31/2013 130,000 131,463
Monongahela Power Co. 6.700 6/15/2014 35,000 38,310
MSW Energy Holdings 7.375 9/1/2010 110,000 113,025
NorthWestern Corp. 5.875 11/1/2014 25,000 25,047
NRG Energy, Inc. 8.000 12/15/2013 27,000 30,105
Reliant Energy, Inc. 9.250 7/15/2010 25,000 25,000
TECO Energy, Inc. 7.500 6/15/2010 25,000 26,625
Texas Genco LLC/Financing 144A 6.875 12/15/2014 65,000 70,363
Texas Utilities Corp. 4.800 11/15/2009 85,000 81,759
Transcont Gas Pipe Corp 7.000 8/15/2011 75,000 78,281
Txu Corp. 5.550 11/15/2014 170,000 161,472
------------
1,713,122
------------
Total Corporate Bonds (Cost $13,287,259) 13,512,086
------------
Municipal--1.3%
Erie County NY Tobacco Asset Securitization Corp. 6.000 6/1/2028 25,000 24,485
Mashantucket West Pequot 144A 5.912 9/1/2021 120,000 119,900
South Carolina Tobacco Settlement Authority 6.000 5/15/2022 30,000 31,544
Tobacco Settlement Authority Iowa 6.500 6/1/2023 60,000 60,261
------------
Total Municipal (Cost $231,382) 236,190
------------
Sovereign Bonds--1.0%
Republic of Argentina 2.000 1/3/2010 25,000 16,073
Republic of Argentina (b) 8.280 12/31/2033 14,425 12,117
Republic of Brazil 8.750 2/4/2025 5,000 5,525
Republic of Brazil (a) 5.250 4/15/2012 22,942 22,655
Republic of Brazil (b) 10.125 5/15/2027 5,000 6,288
Republic of Colombia 10.000 1/23/2012 5,000 5,950
Republic of Colombia 10.750 1/15/2013 5,000 6,200
Republic of Colombia 8.125 5/21/2024 5,000 5,400
Republic of Peru (c) 5.000 3/7/2017 16,400 15,457
Republic of Venezuela (a) (b) 5.194 4/20/2011 15,000 14,700
Russian Federation 5.000 3/31/2030 30,000 33,825
Russian Ministry of Finance 3.000 5/14/2008 25,000 23,656
------------
Total Sovereign Bonds (Cost $148,141) 167,846
The accompanying notes are an integral part of the financial statements.
19
Mellon Institutional Funds Master Portfolio
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Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------
Yankee Bonds--7.7%
Aes Gener SA 7.500% 3/25/2014 40,000 $ 40,615
Braskem Sa 144A 12.500 11/5/2008 10,000 11,675
Intelsat Bermuda Ltd. 144A (a) 8.695 1/15/2012 90,000 91,463
INVISTA 144A 9.250 5/1/2012 155,000 165,463
Jean Coutu Group, Inc. (b) 7.625 8/1/2012 75,000 73,875
JSG Funding PLC 9.625 10/1/2012 50,000 50,000
Nell AF Sarl 144A 8.375 8/15/2015 75,000 74,250
Noble Group Ltd. 144A 6.625 3/17/2015 100,000 92,089
Norampac, Inc. 6.750 6/1/2013 40,000 38,600
Nova Chemicals Corp. (b) 6.500 1/15/2012 45,000 43,594
Quebecor Media, Inc. 11.125 7/15/2011 50,000 54,125
Rogers Wireless Inc. (b) 8.000 12/15/2012 50,000 52,938
Rogers Wireless, Inc. (a) 7.616 12/15/2010 55,000 56,788
Royal Caribbean Cruises Ltd. 8.000 5/15/2010 150,000 162,918
Royal Caribbean Cruises Ltd. 8.750 2/2/2011 155,000 175,150
Russel Metals, Inc. 6.375 3/1/2014 25,000 24,250
Stena AB 9.625 12/1/2012 25,000 27,156
Stena AB 7.500 11/1/2013 25,000 24,000
Telenet Group Holding NV 144A (c) 11.500 6/15/2014 46,000 37,720
Tembec Industries, Inc. 7.750 3/15/2012 55,000 29,425
Wind Acquisition Finance SA 144A 10.750 12/1/2015 20,000 20,650
------------
Total Yankee Bonds (Cost $1,346,337) 1,346,744
------------
Foreign Denominated--1.6%
Euro--1.6%
Central European Distribution Corp. 144A 8.000 7/25/2012 EUR 50,000 64,057
Culligan Finance Corp., BV 144A 8.000 10/1/2014 30,000 38,123
General Motors Acceptance Corp. 5.375 6/6/2011 30,000 31,426
NTL Cable Plc 8.750 4/15/2014 60,000 75,271
Remy Cointreau S.A. 144A 6.500 7/1/2010 20,000 25,297
Telenet Communications NV 144A 9.000 12/15/2013 40,000 52,405
------------
Total Foreign Denominated (Cost $269,621) 286,579
------------
TOTAL BONDS AND NOTES (Cost $15,348,728) 15,621,220
------------
COMMON STOCK--0.1% Shares
---------
MCI, Inc. (Cost $0) USD 949 18,724
------------
CONVERTIBLE PREFERRED STOCKS--1.7%
Fannie Mae 7.00% CVT Pfd 300 16,350
Sovereign Capital Trust IV 4.375% CVT Pfd 5,900 258,125
Tyco International Group SA 3.125% 144A CVT Pfd 20,000 27,250
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $328,000) 301,725
------------
WARRANTS--0.0%
Republic of Argentina Warrant, 12/15/2035 (d)
(Cost $0) 39,306 2,044
------------
INVESTMENT OF CASH COLLATERAL--4.4%
BlackRock Cash Strategies L.L.C. (f) (Cost $771,627) 4.130 771,627 771,627
------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $16,448,355) 16,715,340
------------
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, 2005
- --------------------------------------------------------------------------------
Value
Security Description Rate Shares (Note 1A)
- -------------------------------------------------------------------------------------------------
AFFILIATED INVESTMENTS--9.2%
Dreyfus Institutional Preferred Plus Money Market Fund
(f)(g) (Cost $1,612,327) 4.030% USD 1,612,327 $ 1,612,327
-----------
Total Investments--104.2% (Cost $18,060,682) 18,327,667
-----------
Liabilities in Excess of Other Assets--(4.2%) (730,271)
-----------
NET ASSETS--100.0% $17,597,396
===========
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, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $3,386,136 or 19.2% of net
assets.
CVT--Convertible
REIT--Real Estate Investment Trust
EUR--Euro
(a) Variable Rate Security; rate indicated is as of 12/31/2005
(b) Security, or a portion of thereof, was on loan at December 31, 2005.
(c) Step up security; rate indicated is as of 12/31//2005.
(d) Non-income producing.
(e) Denotes all or part of security pledged as collateral.
(f) Stated rate is the seven-day yield for the fund at year end.
(g) Affiliated institutional money market fund.
At December 31, 2005 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, 2005 to Receive Gain/(Loss)
- ------------------------------------------------------------------------------------------------
Brazilian Real 80,000 2/22/2006 $ 33,691 $ 27,220 $ (6,471)
Brazilian Real 80,000 2/22/2006 32,865 30,155 (2,710)
Euro 244,000 3/15/2006 289,981 292,810 2,829
--------- ---------- --------
Total $ 356,537 $ 350,185 $ (6,352)
========= ========== ========
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2005 to Deliver Gain
- ------------------------------------------------------------------------------------------------
Brazilian Real 160,000 2/22/2006 $ 67,383 $ 54,589 $ 12,794
========= ========== =========
At December 31, 2005, the Portfolio held the following open swap contracts:
Unrealized
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Ukraine Government, 7.650%
due 6/11/2013 Sell 2.840% 12/20/2009 $ 25,000 $ 1,322
JPMorgan Cooper Tire & Rubber Company
7.75 % due 12/15/2009 Buy (1.070) 9/20/2010 20,000 1,422
Merrill Lynch Dow Jones CDX.NA.IG.4 7-10% tranche Buy (0.305) 6/20/2010 188,900 (306)
Merrill Lynch Meadwestvaco Corp., 6.850%
due 4/1/2012 Buy (0.770) 6/20/2009 170,000 (1,892)
Merrill Lynch Georgia-Pacific Corp. 8.125%
due 5/15/2011 Sell 1.600 6/20/2009 170,000 (6,250)
Morgan Stanley & Co. Dow Jones CDX.NA.IG.4 7-10% tranche Buy (0.350) 6/20/2010 300,100 (876)
Morgan Stanley & Co. Wendy's International, Inc.,
6.25% due 11/15/2011 Buy (0.620) 12/20/2010 200,000 1,694
----------
$ (4,886)
==========
Interest Rate Floating Rate Pay/Receive Fixed Expiration Notional Unrealized/
Swaps Counterparty Index Floating Rate Rate Date Amount (Depreciation)
- ---------------------------------------------------------------------------------------------------------------------------------
Bear Stearns USD--LIBOR--BBA Pay 3.907% 11/19/2009 $ 25,000 $ (839)
==========
The accompanying notes are an integral part of the financial statements.
21
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $749,973 (Note 6))
Unaffiliated issuers, at value (Note 1A) (cost $16,448,355) $16,715,340
Affiliated issuers, at value (Note 1A) (cost $1,612,327) (Note 1H) 1,612,327
Foreign currency, at value (cost $6,825) 6,813
Receivable for investments sold 33,272
Interest and dividends receivable 309,999
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 15,623
Unrealized appreciation on swap contracts (Note 5) 4,438
Prepaid expenses 2,062
-----------
Total assets 18,699,874
Liabilities
Collateral for securities on loan (Note 6) $ 771,627
Payable for investments purchased 275,146
Unrealized depreciation on forward foreign currency exchange contracts (Note 5) 9,181
Unrealized depreciation on swap contracts (Note 5) 10,163
Due to Custodian 653
Accrued professional fees 22,997
Accrued accounting, administration and custody fees (Note 2) 8,843
Accrued trustees' fees and expenses (Note 2) 3,596
Other accrued expenses and liabilities 272
-----------
Total liabilities 1,102,478
-----------
Net Assets (applicable to investors' beneficial interest) $17,597,396
===========
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Statements of Operations
For the Year Ended December 31 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 1,875,476
Dividend income from affiliated investments (Note 1H) 20,956
Security lending income (Note 6) 10,126
Dividend income (net of foreign withholding taxes of $338) 32,894
-----------
Total investment Income 1,939,452
Expenses
Investment advisory fee (Note 2) $ 132,645
Accounting, administration and custody fees (Note 2) 108,624
Professional fees 34,654
Trustees' fees and expenses (Note 2) 8,542
Insurance expense 8,500
Miscellaneous 1,967
-----------
Total expenses 294,932
Deduct:
Waiver of investment advisory fee (Note 2) (132,645)
Reimbursement of Fund operating expenses (Note 2) (30,192)
-----------
Total expense deductions (162,837)
-----------
Net expenses 132,095
-----------
Net investment income 1,807,357
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment security transactions 1,164,137
Swap transactions 4,907
Foreign currency transactions and forward foreign currency exchange contracts 98,513
-----------
Net realized gain (loss) 1,267,557
Change in unrealized appreciation (depreciation)
Investment securities (2,870,133)
Swaps (12,983)
Foreign currency and forward currency exchange contracts 53,899
-----------
Change in net unrealized appreciation (depreciation) (2,829,217)
-----------
Net realized and unrealized gain (loss) (1,561,660)
-----------
Net Increase in Net Assets from Operations $ 245,697
===========
The accompanying notes are an integral part of the financial statements.
23
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets
From Operations
Net investment income $ 1,807,357 $ 4,084,657
Net realized gain (loss) 1,267,557 1,476,264
Change in net unrealized appreciation (depreciation) (2,829,217) (438,129)
------------ ------------
Net increase(decrease) in net assets from investment operations 245,697 5,122,792
------------ ------------
Capital Transactions
Contributions 5,802,546 10,724,449
Withdrawals (45,178,933) (16,197,718)
------------ ------------
Net increase (decrease) in net assets from capital transactions (39,376,387) (5,473,269)
------------ ------------
Total Increase (Decrease) in Net Assets (39,130,690) (350,477)
Net Assets
At beginning of period 56,728,086 57,078,563
------------ ------------
At end of period $ 17,597,396 $ 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
Financial Highlights
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------
2005 2004 2003 2002 2001
------- ------- ------- ------- -------
Total Return (a) 3.70% 9.56% 21.76% 4.71% 1.54%
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.50% 0.50% 0.50% 0.50% 0.50%
Net Investment Income (to average daily net assets)* 6.84% 7.28% 7.79% 8.66% 8.87%
Portfolio Turnover 25% 51% 80% 130% 117%
Net Assets, End of Period (000's omitted) $17,597 $56,728 $57,079 $44,144 $47,048
- ----------
* 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 1.12% 0.76% 0.85% 0.82% 0.81%
Net investment income 6.22% 7.02% 7.44% 8.34% 8.56%
(a) 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.
25
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, 2005 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, 2005 was 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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost
based upon the value on such date unless the Trustees determine during
such sixty-day period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method. 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 disregarded entity 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 the
Portfolio's investor 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.
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.
26
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond 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.
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 Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated among
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
H. Affiliated issuers
Affiliated issuers are 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, and general office facilities 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, 2005. Pursuant to this agreement,
for the year ended December 31, 2005, Standish Mellon voluntarily waived
its investment advisory fee in the amount of $132,645 and reimbursed the
Portfolio $30,192. This agreement is voluntary and temporary and may be
discontinued or revised by Standish Mellon at any time.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly
owned subsidiary of Mellon Financial Corporation and an affiliate of
Standish Mellon, to provide custody, fund administration and fund
accounting services for the Portfolio. For these services the Portfolio
pays Mellon Bank a fixed fee plus asset and transaction based fees, as
well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio
was charged $108,624 during the year ended December 31, 2005.
The Portfolio entered into an agreement with Mellon Bank to perform
certain securities lending activities and to act as the Portfolio lending
agent. Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon bank received $10,126 for the
year ended December 31, 2005. See Note 6 for further details.
27
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. No other
director, officer or employee of Standish Mellon or its affiliates
received 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, 2005 were as follows:
Purchases Sales
----------- ------------
Investments (non-U.S. Government Securities) $ 6,971,949 $ 44,303,988
=========== ============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2005, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $ 18,092,590
============
Gross unrealized appreciation 499,345
Gross unrealized depreciation (264,268)
------------
Net unrealized appreciation (depreciation) $ 235,077
============
(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 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 year end. Losses may
arise from changes in the value of the underlying instruments if there is
an illiquid secondary market for the contract or if the counterparty does
not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers.
The Fund did not enter into any options transactions during the year ended
December 31 2005.
28
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, 2005, the Portfolio held open forward currency exchange
contracts. See the Schedule of Investments for further details.
Futures contracts
The Portfolio may enter into financial futures contracts for the 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 Fund did not enter into any futures contracts during the year ended
December 31, 2005.
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 at the beginning of the measurement period are reflected as such
on the Statement of Assets and Liabilities. 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.
At December 31, 2005, the Portfolio held open swap contracts. See the
Schedule of Investments for further details.
29
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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, 2005
and earned interest on the invested collateral of $ 73,132 of which,
$63,006 was rebated to borrowers or paid in fees. At December 31, 2005,
the Portfolio had securities valued at $749,973 on loan. See the Schedule
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 did not enter into any delayed delivery transactions during
the year ended December 31, 2005.
(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 committed amount, is allocated ratably among the participating
portfolios/funds at the end of each quarter. For the year ended December
31, 2005, the facility fee was $687 for the Portfolio.
During the year ended December 31, 2005, the Portfolio had average
borrowings outstanding of $591,247 on a total of thirty eight days and
incurred $2,063 of interest expense.
30
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of the 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, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
31
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the fund's
investment adviser or underwriter (the "Independent Trustees") voting
separately, approve the Fund's advisory agreement and the related fees on an
annual basis. The Fund is not a party to an investment advisory agreement
directly with any investment adviser and does not invest directly in portfolio
securities. Instead, the Fund invests all of its investable assets in the
Standish Mellon High Yield Bond Portfolio (the "Portfolio"), which is managed by
Standish Mellon Asset Management Company LLC ("Standish Mellon"). The Fund's
Board of Trustees determines annually whether the Fund should continue to invest
in the Portfolio. The members of the Fund's Board of Trustees also serve as the
Board of Trustees of the Portfolio. In that capacity, they consider annually
whether to continue the investment advisory agreement between the Portfolio and
Standish Mellon. In their most recent deliberations concerning their decision to
approve the continuation of the investment advisory agreement, the Board of
Trustees conducted the review and made the determinations that are described
below. In conducting this review and in making such determinations, the
Independent Trustees received from Standish Mellon a broad range of information
in response to a written request prepared on their behalf by their own legal
counsel. The Independent Trustees met alone in a private session with their
legal counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans, and to
respond to questions and comments arising from the Independent Trustees' review
of the materials and their deliberations. The entire Board then met on October
18, 2005.
The information requested by the Independent Trustees and reviewed by the entire
Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as well as
a profitability analysis of Standish Mellon, including a separate presentation
of Standish Mellon's profitability relative to that of several publicly traded
investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well as
information concerning Standish Mellon's executive management, investment
management, client service personnel and overall organizational structure,
insurance coverage, brokerage and soft dollar policies and practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper Analytical
Services ("Lipper") regarding the Fund's historical performance, management fee
and expense ratio compared to other funds, and Standish Mellon's separate
account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on the
Fund's performance (rather than the Portfolio alone) and any material portfolio
manager and strategy changes that may have affected the Fund and Portfolio in
the prior year, as well as "fact sheets" prepared by Standish Mellon providing
salient data about the Fund and Portfolio and Standish Mellon's views concerning
the issues of breakpoints in the management fee schedule of the Portfolio and
potential economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency, custody,
administration and securities lending services provided to the Funds by
affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the Board
of Trustees, including the Independent Trustees, did not identify any single
factor as all-important or controlling, and individual Trustees did not
necessarily attribute the same weight or importance to each factor. The Trustees
determined that the terms and conditions of the Portfolio's advisory agreement
and the compensation to Standish Mellon provided therein were fair and
reasonable in light of the services performed, expenses incurred and such other
matters as the Trustees considered relevant in the exercise of their reasonable
judgment. The following summary does not detail all the matters that were
considered. Some of the factors that figured prominently in the Trustees'
determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by Standish Mellon. In their deliberations as to the
continuation of the Portfolio's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision of
the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment management,
administrative, compliance and related services provided by Standish Mellon. The
Board determined that the services provided were of high quality and at least
commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of Standish Mellon to
receive an overview of its organization, personnel, resources and strategic
plans. Among other things, the Trustees considered the size, education and
experience of Standish Mellon's investment staff, technological infrastructure
and overall responsiveness to changes in market conditions.
The Board determined that Standish Mellon had the expertise and resources to
manage the Portfolio effectively.
32
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund (rather than the
Portfolio alone) against a peer group of investment companies selected by
Standish Mellon with input from the Trustees. The Board also compared the Fund's
investment performance against the average performance of a larger universe of
funds regarded by Lipper as having similar investment objectives and considered
the Fund's performance rankings against that universe. In addition to the
information received by the Board at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for the
Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and five-year
periods ended July 31, 2005 based on the Lipper materials provided to the Board
at the September 22, 2005 meeting. The Board found that the Fund outperformed
its peer group average return for the five-year period (8.05% vs. 6.56%) but
underperformed its peer group average returns for the one-year period (10.19%
vs. 11.19%) and three-year period (14.06% vs. 16.05%). The Trustees requested
that Standish Mellon arrange for a presentation to the Board, as part of the
usual fund reporting cycle, to explain the Fund's performance issues and efforts
by Standish Mellon to improve the Fund's performance.
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Portfolio to Standish
Mellon. The Lipper data presenting the Portfolio's "net advisory fees" included
fees paid by the Portfolio, as calculated by Lipper, for administrative services
provided by Mellon Bank, N.A., the Portfolio's custodian. Such reporting was
necessary, according to Lipper, to allow the Board to compare the Portfolio's
advisory fees to those peers that include administrative fees within a blended
advisory fee.
The Portfolio's contractual advisory fee was 0.50%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.678%. The Portfolio's
net advisory fee, after giving effect to expense limitations, was 0.171%, below
the peer group median net advisory fee of 0.552%. Based on the Lipper data, as
well as other factors discussed at the September 22, 2005 meeting, the Board
determined that the Portfolio's advisory fee is reasonable relative to its peer
group averages, both with and without giving effect to expense limitations.
The Board also compared the fees payable by the Portfolio relative to those
payable by separate account clients of Standish Mellon. Based on the additional
scope and complexity of the services provided and responsibilities assumed by
Standish Mellon with respect to the Portfolio relative to these other types of
clients, the Board concluded that the fees payable under the advisory agreement
were reasonable relative to overall industry averages and to the nature and
quality of the services provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds. The
Board found that the actual net expense ratio of 0.502% (after giving effect to
expense limitations) was lower than the median net expense ratio of the peer
group of 0.837% notwithstanding the fact that most of the other funds in the
peer group were larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Portfolio
and Fund and the Mellon Institutional Funds as a group, as well as the
methodology used to compute such profitability, and the various direct and
indirect expenses incurred by Standish Mellon or its affiliated investment
adviser, The Boston Company Asset Management, LLC ("TBCAM") in managing the
Portfolio and Fund and other funds in the Mellon Institutional Funds family of
funds. The Independent Trustees had observed that, based on the profitability
information submitted to them by Standish Mellon, Standish Mellon incurred
losses in managing many of the investment companies in the Mellon Institutional
Funds family of funds, including the Portfolio and Fund, and that among those
funds that were profitable to Standish Mellon, several generated only marginal
profitability for the firm. The Trustees observed that Standish Mellon had
incurred losses in operating the Portfolio and Fund in both 2003 and 2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Portfolio and Fund grow. They observed that the Standish Mellon
Fixed Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size. The
Board concluded that, at existing asset levels and considering current assets
growth projections, the implementation of additional fee breakpoints or other
fee reductions was not necessary at this time. They requested, however, that
management consider the issue of future breakpoints and respond to the
Independent Trustees and to present a proposal for such breakpoints or, in each
case as applicable, management's rationale as to why such future breakpoints are
not necessary or appropriate for a particular Fund.
33
Mellon Institutional Funds Master Portfolio
Standish Mellon High Yield Bond Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a result
of its relationship with the Mellon Institutional Funds as a group, including
revenues received by Mellon affiliates in consideration of custodial,
administrative, transfer agency and securities lending services provided by such
affiliates to the Funds. In each case, such affiliates were selected by the
Board on the basis of a comparative analysis of their capabilities and fees
relative to those of unaffiliated competitors. In addition, the Board, including
a majority of the Independent Trustees, conduct an examination annually of each
such arrangement as to whether (i) the terms of the relevant service agreement
are in the best interests of Fund shareholders; (ii) the services to be
performed by the affiliate pursuant to the agreement are required by and
appropriate for the Funds; (iii) the nature and quality of the services provided
by the affiliate pursuant to the agreement are at least equal to those provided
by other, unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for its
services are fair and reasonable in light of the usual and customary charges
imposed by other, unaffiliated firms for services of the same nature and
quality.
The Board considered the fact that Mellon operates businesses other than the
Mellon Institutional Funds, some of which businesses share personnel, office
space and other resources and that these were a component of the profitability
analysis provided. The Board also considered the intangible benefits that accrue
to Mellon and its affiliates by virtue of its relationship with the Funds and
the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in determining
that the terms and conditions of the Portfolio's advisory agreement and the
compensation to Standish Mellon provided therein are fair and reasonable and,
thus, in approving the continuation of the agreement for a one-year period.
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 remuneration paid
as of the period ended December 31, 2005. 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
Portfolios Trustee
Principal in Fund Other Remuneration
Name Term of Office Occupation(s) Complex Directorships (period ended
Address, and Position(s) and Length of During Past Overseen Held by December 31,
Date of Birth Held with Trust Time Served 5 Years by Trustee Trustee 2005)
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None Fund: $500
c/o Decision Resources, 11/3/1986 Decision Resources, Inc. Portfolio: $1,348
Inc. ("DRI") (biotechnology
260 Charles Street research and consulting
Waltham, MA 02453 firm); formerly Chairman
9/30/40 of the Board and Chief
Executive Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex Street 32 None Fund: $500
c/o Essex Street 11/3/1986 Associates (family Portfolio: $1,457
Associates investment trust office)
P.O. Box 5600
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 32 None Fund: $500
c/o Harvard University 9/13/1989 Professor of Political Portfolio: $1,348
Littaver Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, 32 None Fund: $500
P.O. Box 2333 11/3/1986 Mertens House, Inc. Portfolio: $1,348
New London, NH 03257 (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, President Since 2003 President and Chief 32 None $0
The Boston Company and Chief Operating Officer of
Asset Management, LLC Executive Officer The Boston Company
One Boston Place Asset Management, LLC;
Boston, MA 02108 formerly Senior Vice
7/24/65 President and Chief
Operating Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
35
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- -------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon Asset Management and Secretary Mellon Asset Management ("MAM"); formerly First
One Boston Place Vice President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller,
Mellon Asset Management and Treasurer since 1999; Mellon Asset Management
One Boston Place Treasurer
Boston, MA 02108 since 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager
One Boston Place of Shareholder Services, MAM, Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management Company LLC
1/19/71
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management
Mellon Asset Management Compliance and Chief Compliance Officer, Mellon Funds Distributor
One Boston Place Officer and Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President,
4/8/57 State Street Research & Management Company
("SSRM"), Vice President, SSRM
36
THIS PAGE INTENTIONALLY LEFT BLANK
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6943AR1205
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Opportunistic High Yield Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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.
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
February 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o 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
- --------------------------------------------------------------------------------
Market Environment
For 2005, the Standish Mellon High Yield Bond Fund returned +3.55% as compared
to the Merrill Lynch Master II Index mark of +2.74% and the Merrill Lynch
Constrained High Yield Index total of +2.78%. The Lehman Aggregate Index
reported a return of 2.43% for 2005, below that of High Yield and 3 Month
Treasury Bills (+3.05%).
During the year, the benchmark for the Fund was changed from the Master II Index
to the Constrained Index, which limits individual issuer credit exposures to 2%
of the index. Otherwise, both indexes use similar methodology. The benchmark
change was made to mitigate the extremely large index weightings of more than 6%
resulting from the downgrades of GM (May 31, 2005) and Ford Motor Company
(December 31, 2005). Unconstrained weighting positions of that size are
inconsistent with the management of a diversified fixed income portfolio.
In 2005, three industry groups stood out as significant underperformers. The
automotive (-7.72%) and auto parts and suppliers (-11.76%) subsectors reflected
the well documented struggles of the two largest U.S. auto producers, GM and
Ford. The financial pain created by this situation was felt most acutely by the
parts suppliers to GM and Ford, as that sector absorbed a number of bankruptcies
including Delphi, and Collins and Aikman, and badly hurt the credit standing of
many other companies. The other major industry credit news in 2005 concerned the
airlines (-10.71%), which were stung by long-running labor cost problems, brutal
competition, and rising fuel costs. The last of the laggard sectors was paper
and forestry, which fell -4.27%, hurt by weak newsprint demand and rising energy
costs.
Actual defaults in the high yield market were in the 2%-3% range in 2005 and are
projected by the major rating agencies to remain in the same area for the next
year. Despite some significant damage and disruption from two hurricanes,
general economic conditions were quite strong. That said however, over the last
12 months the general tenor of the news in the fixed income market has taken a
turn for the worse. An actively tightening Federal Reserve, along with a string
of financial problems in the U.S. auto industry, Calpine, Refco, Delphi, and the
airlines, all contributed to nervousness among fixed income investors. The
investment grade credit market also had credit issues primarily stemming from
event risk. A number of companies, frustrated by lagging equity market
valuations, pursued leveraging transactions or outright sales that harmed prices
of covenant-free debt issues.
Portfolio Strategy Review and Results
In a year when many of the outperforming sectors were small, relative
performance was more a function of what a portfolio did not hold than what it
did. Our careful credit selection and very modest industry exposure to the
airlines and the auto industry served us well in 2005. For example, underweights
in autos, paper and Calpine securities all were benefits to Fund performance in
2005. In addition, despite a privatizing transaction, the Georgia Pacific bonds
held as an overweight position in the Fund contained restrictive
2
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
covenants, which led them to be tendered out at favorable levels. Although the
Fund did have exposure to some of the strong performing wireless and telecom
companies, our holdings were more concentrated in the senior securities and
stronger credits which lagged the performance of some of the highest yielding
issues.
While 2005 had its share of bad news being absorbed by the market, one positive
item for investors has been the greater yield levels offered on recently priced
new deals. Going forward, however, the market will also be looking for stronger
credit quality among the companies coming to market. Strong credits have been
poorly represented amongst new issues in 2005, which were dominated by
lower-rated, leveraging transactions.
Investment Outlook
As 2006 begins the high yield marketplace exhibits reasonable investor demand
and a general expectation of stable credit conditions. Key elements to future
performance will be efficient credit management and risk control, hopefully
combined with the appearance of some worthwhile new financing opportunities.
/s/ Jonathan Uhrig
Jonathan Uhrig
3
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Comparison of Change in Value of $100,000 Investment in
Standish Mellon Opportunistic High Yield Fund,
Merrill Lynch High Yield Master II Index
and Merrill Lynch U.S. High Yield Master II Constrained Index
- --------------------------------------------------------------------------------
[LINE GRAPH]
[PLOT POINTS TO COME]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 4/2/2001
- --------------------------------------------------------------------------------
3.55% 11.81% 8.07%
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.
* Source: Lipper Inc.
** Source: Bloomberg Inc.
(1) The Merrill Lynch Master II High Yield ("ML Master II") Index is an
unmanaged market value-weighted index of all domestic and Yankee high
yield bonds. Effective July 1, 2005, the fund changed its benchmark from
the ML Master II Index to the Merrill Lynch High Yield Constrained ("ML
Constrained") Index because the adviser believes the ML Constrained Index
is more consistent with the diversification limitations of the fund. The
ML Constrained Index is comprised of all of the bonds held in the ML
Master II Index, but this index caps single issuer exposure to 2% of the
index.
4
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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,021.30 $0.51
Hypothetical (5% return
per year before expenses) $1,000.00 $1,024.70 $0.51
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of .10%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Summary of Combined Ratings
- --------------------------------------------------------------------------------
Percentage of
Quality Breakdown Investments
- --------------------------------------------------------------------------------
Treasury 3.0%
AA 0.1
A 1.2
BBB 6.8
BB 44.7
B 43.1
CCC 0.3
NR 0.8
-----
Total 100.0%
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
Chevy Chase Bank FSB 6.875 12/1/2013 2.1%
Sovereign Capital Trust IV 4.375% CVT Pfd 1.8
AES Corp. 144A 8.750 5/15/2013 1.6
Freescale Semiconductor, Inc. 6.875 7/15/2011 1.5
Nevada Power Co. 6.500 4/15/2012 1.5
Qwest Corp. 7.875 9/1/2011 1.2
Crown Americas Inc.144A 7.625 11/15/2013 1.2
Georgia-Pacific Corp. 8.000 1/15/2024 1.2
Dynegy Holdings, Inc. 144A 9.875 7/15/2010 1.2
Transcontinental Gas Pipe Line Corp. 8.875 7/15/2012 1.1
----
14.4%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Summary of Industries Investments
- ---------------------------------------------------------
Banking 4.2%
Basic industry 12.0
Brokerage 0.0
Capital goods 12.3
Consumer cyclical 7.9
Consumer non-cyclical 6.7
Energy 9.8
Finance 1.3
Insurance 0.0
Media 7.8
Municipals 0.8
Real estate 0.6
Services cyclical 11.9
Services non-cyclical 2.5
Technology 2.4
Telecommunications 5.3
Utility 11.4
Agency 0.1
Cash & Equivalents 3.0
-----
100.0%
The Fund is actively managed. Current holdings may be different than those
presented above.
6
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--103.5%
BONDS AND NOTES--95.1%
Convertible Corporate Bonds--0.4%
Centerpoint Energy, Inc. 144A CVT 2.875% 1/15/2024 USD 25,000 $ 26,906
Xcel Energy, Inc. 144A 7.500 11/21/2007 40,000 61,900
------------
Total Convertible Corporate Bonds (Cost $65,000) 88,806
------------
Corporate--83.9%
Banking--2.2%
Chevy Chase Bank FSB (e) 6.875 12/1/2013 430,000 442,900
------------
Basic Industry--10.2%
Airgas, Inc. 6.250 7/15/2014 25,000 24,563
Arch Western Finance 6.750 7/1/2013 55,000 56,031
Ball Corp. 6.875 12/15/2012 95,000 98,088
Berry Plastics 10.750 7/15/2012 95,000 102,125
Compression Polymers Holdings 144A 10.500 7/1/2013 35,000 33,950
Earle M Jorgenson Co. 9.750 6/1/2012 100,000 107,000
Equistar Chemicals LP/ Equistar Funding Corp. 10.125 9/1/2008 60,000 65,100
Equistar Chemicals LP/Equistar Funding Corp. 10.625 5/1/2011 15,000 16,500
Freeport-McMoRan Copper & Gold, Inc. 6.875 2/1/2014 70,000 70,700
Freeport-McMoRan Copper & Gold, Inc. 10.125 2/1/2010 40,000 43,950
Georgia-Pacific Corp. 8.000 1/15/2024 260,000 248,300
International Steel Group, Inc. 6.500 4/15/2014 100,000 100,000
Jefferson Smurfit Corp. US 8.250 10/1/2012 150,000 144,000
KRATON Polymers LLC/Capital Corp. 8.125 1/15/2014 15,000 14,400
Lubrizol Corp. 4.625 10/1/2009 150,000 147,019
Lyondell Chemical Co. 9.625 5/1/2007 50,000 52,188
Nalco Co. 7.750 11/15/2011 190,000 195,225
Neenah Paper, Inc. 7.375 11/15/2014 10,000 9,025
Peabody Energy Corp. 6.875 3/15/2013 105,000 109,200
Standard Pacific Corp. 6.500 8/15/2010 100,000 95,375
Steel Dynamics, Inc. 9.500 3/15/2009 100,000 105,250
Stone Container Corp. 8.375 7/1/2012 70,000 67,725
Temple-Inland 6.625 1/15/2018 80,000 82,421
Westlake Chemical Corp. (e) 8.750 7/15/2011 39,000 41,730
------------
2,029,865
------------
Capital Goods--8.6%
Alliant Techsystems, Inc. 8.500 5/15/2011 50,000 52,500
Alliant Techsystems, Inc. 144A 2.750 2/15/2024 35,000 37,756
CCM Merger, Inc. 144A (b) 8.000 8/1/2013 50,000 48,000
Church & Dwight Co.,Inc. 6.000 12/15/2012 105,000 103,425
Crown Cork & Seal Co, Inc. 8.000 4/15/2023 150,000 144,000
Esterline Technologies Corp. 7.750 6/15/2013 70,000 73,150
Gibraltar Industries, Inc. 144A 8.000 12/1/2015 30,000 30,225
L-3 Communications Corp. 7.625 6/15/2012 150,000 157,875
L-3 Communications Corp. 144A 3.000 8/1/2035 25,000 24,719
L-3 Communications Corp. 144A 6.375 10/15/2015 25,000 24,938
Leslie's Poolmart 7.750 2/1/2013 70,000 70,175
Leucadia National Corp. 7.000 8/15/2013 75,000 74,625
Neiman Marcus Group, Inc. 144A 9.000 10/15/2015 30,000 30,675
Norcraft Finance Co. 9.000 11/1/2011 40,000 41,400
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------
Capital Goods (continued)
Owens-Brockway 7.750% 5/15/2011 USD 155,000 $ 161,781
Owens-Illinois, Inc. 7.500 5/15/2010 210,000 213,150
Quiksilver, Inc. 144A 6.875 4/15/2015 100,000 96,250
Silgan Holdings, Inc. 6.750 11/15/2013 120,000 119,400
Solo Cup Co. (b) 8.500 2/15/2014 50,000 43,750
Texas Industries, Inc. 144A 7.250 7/15/2013 40,000 41,500
Trinity Industries LE 6.500 3/15/2014 115,000 113,275
------------
1,702,569
------------
Consumer Cyclical--2.9%
CSC Holdings, Inc. 8.125 7/15/2009 70,000 70,700
Domino's, Inc. 8.250 7/1/2011 26,000 27,170
DR Horton, Inc. 8.500 4/15/2012 150,000 160,261
Fisher Scientific International 6.750 8/15/2014 65,000 67,763
Keystone Automotive Operation, Inc. 9.750 11/1/2013 40,000 34,600
PQ Corp. 144A 7.500 2/15/2013 10,000 9,300
Russell Corp. 9.250 5/1/2010 50,000 50,688
Scotts Co. 6.625 11/15/2013 140,000 141,750
Visteon Corp. 8.250 8/1/2010 15,000 12,750
------------
574,982
------------
Consumer Non-Cyclical--5.4%
Alliance One International 144A 11.000 5/15/2012 50,000 44,000
Altria Group, Inc. 7.000 11/4/2013 50,000 54,712
Amerigas Partners LP 7.250 5/20/2015 50,000 51,000
Chattem, Inc. 7.000 3/1/2014 60,000 60,900
Del Monte Corp. 8.625 12/15/2012 65,000 69,063
Elizabeth Arden, Inc. 7.750 1/15/2014 40,000 40,400
Goodyear Tire & Rubber 144A (b) 9.000 7/1/2015 115,000 113,275
Hertz Corp. 144A 8.875 1/1/2014 45,000 45,844
Hertz Corp. 144A (b) 10.500 1/1/2016 20,000 20,600
Ingles Markets, Inc. 8.875 12/1/2011 60,000 62,100
Rite Aid Corp. 12.500 9/15/2006 140,000 146,475
Rite Aid Corp. 9.500 2/15/2011 75,000 79,125
Smithfield Foods, Inc. 7.000 8/1/2011 25,000 25,500
Smithfield Foods, Inc. 7.750 5/15/2013 70,000 74,025
Stater Brothers Holdings 8.125 6/15/2012 65,000 64,350
Stater Brothers Holdings (a) 7.991 6/15/2010 125,000 125,000
------------
1,076,369
------------
Energy--9.9%
CMS Energy Corp. 8.900 7/15/2008 200,000 213,750
Colorado Interstate Gas 5.950 3/15/2015 50,000 48,294
Colorado Interstate Gas 144A 6.800 11/15/2015 175,000 178,811
Dynegy Holdings, Inc. 144A 9.875 7/15/2010 225,000 246,656
El Paso Natural Gas Co. 7.500 11/15/2026 110,000 113,569
El Paso Natural Gas Co. 8.625 1/15/2022 50,000 56,730
El Paso Production Holding Co. 7.750 6/1/2013 45,000 46,688
Frontier Oil Corp. 6.625 10/1/2011 25,000 25,500
Houston Exploration Co. 7.000 6/15/2013 40,000 38,400
Newfield Exploration Corp. 6.625 9/1/2014 100,000 101,750
Newfield Exploration Corp. 7.625 3/1/2011 60,000 64,200
Pacific Energy Partners/Finance 144A 6.250 9/15/2015 30,000 29,550
Pogo Producing Co. 6.625 3/15/2015 50,000 48,750
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------
Energy (continued)
Premcor Refining Group, Inc. 9.500% 2/1/2013 USD 40,000 $ 44,586
Southern Natural Gas Co. 8.875 3/15/2010 25,000 26,718
Tennessee Gas Pipeline Co. 8.375 6/15/2032 150,000 170,191
Transcontinental Gas Pipe Line Corp. 8.875 7/15/2012 200,000 229,000
Williams Cos., Inc. 8.750 3/15/2032 65,000 75,400
Williams Cos., Inc. 7.875 9/1/2021 200,000 216,500
------------
1,975,043
------------
Financial--3.6%
BCP Crystal Holding Corp. 9.625 6/15/2014 116,000 129,050
E*Trade Financial Corp. 144A 7.375 9/15/2013 20,000 20,250
Ford Motor Credit Co. 7.375 10/28/2009 70,000 62,082
General Motors Acceptance Corp. 7.750 1/19/2010 200,000 186,777
General Motors Acceptance Corp. (b) 8.000 11/1/2031 60,000 57,473
Glencore Funding LLC 144A 6.000 4/15/2014 75,000 70,541
Residential Capital Corp. 6.375 6/30/2010 125,000 127,014
Residential Capital Corp. (b) 6.875 6/30/2015 40,000 42,503
Wind Acquisition Finance SA 144A 10.750 12/1/2015 25,000 25,813
------------
721,503
------------
Industrial--3.6%
Browning-Ferris Industries 9.250 5/1/2021 50,000 51,500
Cooper Standard Auto 8.375 12/15/2014 35,000 26,600
Crown Americas Inc. 144A 7.625 11/15/2013 240,000 249,000
Crown Americas Inc. 144A 7.750 11/15/2015 140,000 144,900
Douglas Dynamics LLC 144A 7.750 1/15/2012 155,000 149,575
Goodman Global Holdings 144A (a) 7.491 6/15/2012 100,000 99,000
------------
720,575
------------
Media--5.2%
Cablevision Systems Corp. (a) 8.716 4/1/2009 125,000 126,250
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 85,000 89,038
DirecTV Holdings LLC 8.375 3/15/2013 30,000 32,250
Echostar DBS Corp. 5.750 10/1/2008 65,000 63,700
Entercom Radio LLC/Entercom Capital, Inc. 7.625 3/1/2014 50,000 50,125
Lamar Media Corp. 7.250 1/1/2013 20,000 20,750
PX Escrow Corp. (c) 9.625 2/1/2006 160,000 154,342
Radio One, Inc. 8.875 7/1/2011 150,000 158,250
RH Donnelley Finance Corp. 144A 10.875 12/15/2012 135,000 152,213
Salem Communications Corp. 7.750 12/15/2010 130,000 134,713
Sinclair Broadcast Group, Inc. (d) 4.875 7/15/2018 60,000 51,975
------------
1,033,606
------------
Real Estate--1.1%
Beazer Homes USA 6.875 7/15/2015 85,000 81,494
BF Saul REIT 7.500 3/1/2014 125,000 127,188
------------
208,682
------------
Services: Cyclical--9.2%
Ameristar Casinos, Inc. 10.750 2/15/2009 140,000 148,400
Chumash Casino & Resort Enterprises 144A 9.520 7/15/2010 105,000 111,563
Cinemark USA, Inc. 9.000 2/1/2013 75,000 79,313
Corrections Corp Of America 7.500 5/1/2011 60,000 62,100
Gaylord Entertainment Co. 8.000 11/15/2013 55,000 57,613
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------
Services: Cyclical (continued)
Host Marriott LP (b) 7.000% 8/15/2012 USD 100,000 $ 102,500
Isle of Capri Casinos, Inc. 7.000 3/1/2014 90,000 87,750
Meristar Hospitality Operating Partnership LP (b) 10.500 6/15/2009 100,000 105,375
MGM Mirage, Inc 8.500 9/15/2010 150,000 162,563
Mohegan Tribal Gaming Authority 7.125 8/15/2014 145,000 148,444
Mohegan Tribal Gaming Authority 8.000 4/1/2012 175,000 184,188
Penn National Gaming, Inc. 6.875 12/1/2011 25,000 25,250
Penn National Gaming, Inc. 6.750 3/1/2015 60,000 58,950
Seneca Gaming Corp. 144A 7.250 5/1/2012 25,000 25,156
Speedway Motorsports, Inc. 6.750 6/1/2013 205,000 207,563
Station Casinos, Inc. 6.000 4/1/2012 150,000 149,625
True Temper Sports, Inc. 8.375 9/15/2011 65,000 58,500
Turning Stone Casino Resort Enterprise 144A 9.125 12/15/2010 45,000 46,350
------------
1,821,203
------------
Services: Non-Cyclical--4.0%
Allied Waste North America 8.500 12/1/2008 50,000 52,500
Coventry Health Care, Inc. 8.125 2/15/2012 60,000 63,750
Davita, Inc. (b) 7.250 3/15/2015 50,000 50,625
HCA, Inc. 7.875 2/1/2011 175,000 188,152
HCA, Inc. 8.750 9/1/2010 50,000 55,300
Kinetic Concepts, Inc. 7.375 5/15/2013 91,000 92,820
Plastipak Holdings, Inc. 144A 8.500 12/15/2015 110,000 111,100
Psychiatric Solutions, Inc. 7.750 7/15/2015 25,000 25,813
Service Corp International 144A 7.500 6/15/2017 30,000 29,775
Tenet Healthcare Corp. 144A (b) 9.250 2/1/2015 100,000 99,250
Williams Scotsman, Inc. 8.500 10/1/2015 30,000 31,050
------------
800,135
------------
Technology & Electronics--2.4%
Communications & Power Industries, Inc. 8.000 2/1/2012 25,000 24,938
Freescale Semiconductor, Inc. (b) 6.875 7/15/2011 310,000 325,500
Freescale Semiconductor, Inc. (a) 6.900 7/15/2009 100,000 102,750
Sungard Data Systems Inc. 144A (a) 8.525 8/15/2013 20,000 20,700
------------
473,888
------------
Telecommunications--5.1%
AT&T Corp. (d) 9.750 11/15/2031 50,000 62,806
Consolidated Communication Holdings, Inc. 9.750 4/1/2012 59,000 62,835
Hawaiian Telecom Communication 144A (a) 9.948 5/1/2013 30,000 28,950
Nextel Communications, Inc. 5.950 3/15/2014 150,000 150,786
Nextel Communications, Inc. 6.875 10/31/2013 30,000 31,296
Qwest Communications International 144A 7.500 2/15/2014 185,000 190,088
Qwest Corp. 7.200 11/10/2026 115,000 111,550
Qwest Corp. 7.875 9/1/2011 240,000 258,600
Rural Cellular Corp. 8.250 3/15/2012 50,000 52,750
Sierra Pacific Resources 8.625 3/15/2014 50,000 54,099
------------
1,003,760
------------
Utilities--10.5%
AES Corp. 9.375 9/15/2010 60,000 65,550
AES Corp. (b) 8.875 2/15/2011 123,000 132,994
AES Corp. 144A 8.750 5/15/2013 310,000 337,513
DPL, Inc. 6.875 9/1/2011 50,000 52,688
FPL Energy Wind Funding LLC 144A 6.876 6/27/2017 87,100 86,991
Mirant North America LLC 144A 7.375 12/31/2013 150,000 151,688
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------
Utilities (continued)
Monongahela Power Co. 6.700% 6/15/2014 USD 65,000 $ 71,147
MSW Energy Holdings 8.500 9/1/2010 50,000 53,250
MSW Energy Holdings 7.375 9/1/2010 95,000 97,613
Nevada Power Co. 6.500 4/15/2012 300,000 307,500
NorthWestern Corp. 5.875 11/1/2014 35,000 35,066
NRG Energy, Inc. 8.000 12/15/2013 66,000 73,590
Reliant Energy, Inc. 9.250 7/15/2010 55,000 55,000
TECO Energy, Inc. 7.500 6/15/2010 50,000 53,250
TECO Energy, Inc. 6.750 5/1/2015 10,000 10,350
Texas Genco LLC/Financing 144A 6.875 12/15/2014 50,000 54,125
Txu Corp. 4.800 11/15/2009 175,000 168,328
Txu Corp. 5.550 11/15/2014 205,000 194,716
Whiting Petroleum Corp. 7.250 5/1/2013 75,000 75,938
------------
2,077,297
------------
Total Corporate (Cost $16,462,280) 16,662,377
------------
Municipal Bonds--1.5%
Erie County NY Tobacco Asset Securitization Corp. 6.000 6/1/2028 25,000 24,485
Mashantucket West Pequot 144A 5.912 9/1/2021 150,000 149,876
South Carolina Tobacco Settlement Authority 6.000 5/15/2022 50,000 52,574
Tobacco Settlement Authority Iowa 6.500 6/1/2023 75,000 75,326
------------
Total Municipal Bonds (Cost $294,378) 302,261
------------
Yankee Bonds--7.6%
Bombardier, Inc. 144A (b) 6.300 5/1/2014 100,000 87,500
Intelsat Bermuda Ltd. 144A (a) 8.695 1/15/2012 85,000 86,381
INVISTA 144A 9.250 5/1/2012 180,000 192,150
Jean Coutu Group, Inc. (b) 7.625 8/1/2012 50,000 49,250
JSG Funding PLC 9.625 10/1/2012 50,000 50,000
Nell AF Sarl 144A 8.375 8/15/2015 75,000 74,250
Noble Group Ltd. 144A 6.625 3/17/2015 125,000 115,111
Norampac, Inc. 6.750 6/1/2013 120,000 115,800
Nova Chemicals Corp. (b) 6.500 1/15/2012 105,000 101,719
Quebecor Media, Inc. 11.125 7/15/2011 95,000 102,838
Rogers Wireless Inc. (b) 8.000 12/15/2012 60,000 63,525
Rogers Wireless, Inc. 7.250 12/15/2012 50,000 52,563
Rogers Wireless, Inc. (a) 7.616 12/15/2010 60,000 61,950
Royal Caribbean Cruises Ltd. 8.000 5/15/2010 100,000 108,612
Royal Caribbean Cruises Ltd. 8.750 2/2/2011 110,000 124,300
Russel Metals, Inc. 6.375 3/1/2014 50,000 48,500
Stena AB 7.500 11/1/2013 70,000 67,200
------------
Total Yankee Bonds (Cost $1,498,173) 1,501,649
------------
Foreign Denominated--1.7%
Euro--1.7%
Culligan Finance Corp., BV 144A 8.000 10/1/2014 EUR 35,000 44,477
General Motors Acceptance Corp. 5.375 6/6/2011 45,000 47,139
Hornbach Baumarkt AG 144A 6.125 11/15/2014 15,000 17,753
NTL Cable PLC 8.750 4/15/2014 35,000 43,908
Remy Cointreau S.A. 144A 6.500 7/1/2010 40,000 50,595
Telenet Communications NV 144A 9.000 12/15/2013 100,000 131,073
------------
Total Foreign Denominated (Cost $246,160) 334,945
------------
TOTAL BONDS AND NOTES (COST $18,565,991) 18,890,038
------------
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, 2005
- --------------------------------------------------------------------------------
Value
Security Description Rate Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------
CONVERTIBLE PREFERRED STOCKS--2.2%
Fannie Mae 7.00% CVT Pfd (e) 300 $ 16,350
Sovereign Capital Trust IV 4.375% CVT Pfd (e) 8,850 387,188
Tyco International Group SA 3.125% 144A CVT Pfd 25,000 34,046
------------
TOTAL CONVERTIBLE PREFERRED STOCKS (Cost $482,496) 437,584
------------
INVESTMENT OF CASH COLLATERAL--6.2%
BlackRock Cash Strategies L.L.C. (f) (Cost $1,225,630) 4.130% 1,225,630 1,225,630
------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $20,274,117) 20,553,252
------------
AFFILIATED INVESTMENTS--3.2%
Dreyfus Institutional Preferred Plus Money
Market Fund (f) (g) (Cost $635,870) 4.060 635,870 635,870
------------
Total Investments--106.7% (Cost $20,909,987) 21,189,122
Liabilities in Excess of Other Assets--(6.7%) (1,331,803)
------------
NET ASSETS--100.0% $ 19,857,319
============
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, normally to qualified institutional buyers. At year end, the
value of these securities amounted to $4,332,608 or 21.8% of net assets.
CVT--Convertible
EUR--Euro
REIT--Real Estate Investment Trust
(a) Variable Rate Security; rate indicated is as of 12/31/2005.
(b) Security, or a portion of thereof, was on loan at December 31, 2005.
(c) Security valued at fair value using methods determined in good faith by or
under the direction of the Board of Trustees.
(d) Step up security; rate indicated is as of 12/31//2005.
(e) Denotes all or part of security pledged as collateral.
(f) Stated yield is the seven day yield for the fund at year end.
(g) Affiliated institutional money market fund.
At December 31, 2005 the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2005 to Receive Gain
- --------------------------------------------------------------------------------------------
Euro 296,000 3/15/2006 $ 351,780 $ 355,282 $ 3,502
============= ========== ==========
At December 31, 2005, the Fund held the following open swap contracts:
Unrealized
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
JPMorgan Cooper Tire & Rubber Co.,
7.750% due 12/15/2009 Buy (1.07%) 9/20/2010 $ 25,000 $ 1,777
Morgan Stanley Dow Jones CDX.NA.IG.4 7-10% Tranche Buy (0.35%) 6/20/2010 385,400 (1,125)
Merrill Lynch Dow Jones CDX.NA.IG.4 7-10% Tranche Buy (0.305%) 6/20/2010 242,600 (392)
Merrill Lynch Georgia-Pacific Corp., 8.125%, 5/15/2011 Sell 1.600% 6/20/2009 420,000 (15,441)
Merrill Lynch Meadwestvaco Corp., 6.850% due 4/1/2012 Buy (0.77%) 6/20/2009 420,000 (4,674)
Morgan Stanley & Co. Wendy's International, Inc.,
6.25% due 11/15/2011 Buy (0.62%) 12/20/2010 240,000 2,033
---------
$ (17,822)
=========
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at
$1,194,995 (Note 7))
Unaffiliated issuers, at value (Note 1A) (cost $20,274,117) $ 20,553,252
Affiliated issuers, at value (Note 1A) (cost $635,870) (Note 1H) 635,870
Foreign currency, at value (cost $11,133) 11,105
Unrealized appreciation on swap contracts, (Note 6) 3,810
Unrealized appreciation on forward currency exchange contracts (Note 6) 3,502
Interest and dividends receivable 373,366
Prepaid expenses 2,961
---------------
Total assets 21,583,866
Liabilities
Collateral for securities on loan (Note 7) $ 1,225,630
Payable for Fund shares redeemed 300,000
Distribution payable 129,667
Due to Custodian 3,074
Unrealized depreciation on swap contracts, (Note 6) 21,632
Accrued professional fees 35,965
Accrued accounting, administration, custody and transfer
agent fees (Note 2) 6,967
Accrued trustees' fees and expenses (Note 2) 743
Accrued Chief Compliance Officer fees (Note 2) 404
Other accrued expenses and other liabilities 2,465
-----------
Total liabilities 1,726,547
---------------
Net Assets $ 19,857,319
===============
Net Assets consist of:
Paid-in capital $ 35,839,033
Accumulated net realized loss (16,256,473)
Undistributed net investment income 10,051
Net unrealized appreciation 264,708
---------------
Total Net Assets $ 19,857,319
===============
Shares of beneficial interest outstanding 1,181,020
===============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 16.81
===============
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 Operations
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 1,299,121
Dividend income from affiliated investments (Note 1H) 37,733
Security lending income (Note 7) 8,909
Dividend income 23,162
--------------
1,368,925
Expenses
Investment advisory fee (Note 2) $ 76,753
Accounting, administration, custody, and transfer agent fees (Note 2) 72,579
Professional fees 52,360
Registration fees 9,250
Trustees' fees and expenses (Note 2) 3,241
Insurance expense 6,100
Miscellaneous 9,536
------------
229,819
Deduct:
Waiver of investment advisory fee (Note 2) (76,753)
Reimbursement of Fund operating expenses (Note 2) (133,878)
------------
Total expense deductions (210,631)
------------
Net expenses 19,188
--------------
Net investment income 1,349,737
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments (50,755)
Foreign currency transactions and forward currency exchange transactions 37,254
Swap transactions 17,042
------------
Net realized gain 3,541
Change in unrealized appreciation (depreciation) on:
Investments (674,816)
Foreign currency translations and forward currency exchange contracts 8,710
Swap contracts (22,539)
------------
Net change in net unrealized appreciation (depreciation) (688,645)
--------------
Net realized and unrealized gain (loss) on investments (685,104)
--------------
Net Increase in Net Assets from Operations $ 664,633
==============
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 1,349,737 $ 2,632,850
Net realized gain (loss) 3,541 2,633,830
Change in net unrealized appreciation (depreciation) (688,645) (1,788,291)
------------ ------------
Net increase (decrease) in net assets from investment operations 664,633 3,478,389
------------ ------------
Distributions to Shareholders (Note 1C)
From net investment income (1,451,950) (2,893,284)
------------ ------------
Total distributions to shareholders (1,451,950) (2,893,284)
------------ ------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 7,614,232 1,609,132
Value of shares issued to shareholders in reinvestment of
distributions 998,844 1,369,851
Cost of shares redeemed (5,822,713) (27,553,173)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions 2,790,363 (24,574,190)
------------ ------------
Total Increase (Decrease) in Net Assets 2,003,046 (23,989,085)
Net Assets
At beginning of year 17,854,273 41,843,358
------------ ------------
At end of year(including undistributed
net investment income of $10,051 and $34,540, respectively) $ 19,857,319 $ 17,854,273
============ ============
The accompanying notes are an integral part of the financial statements.
15
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the Period
April 2, 2001
Year Ended December 31, (commencement
-------------------------------------------------- of operations) to
2005 2004 2003 2002 December 31, 2001
----------- ----------- ----------- ----------- -----------------
Net Asset Value, Beginning of Year $ 17.47 $ 17.64 $ 15.72 $ 16.36 $ 20.00
From Investment Operations:
Net investment income * (a) 1.21 1.38 1.36 1.41 1.34
Net realized and unrealized gain
(loss) on investments (0.61) 0.47 1.97 (0.46) (1.93)
----------- ----------- ----------- ----------- ------------
Total from investment operations 0.60 1.85 3.33 0.95 (0.59)
----------- ----------- ----------- ----------- ------------
Less Distributions to Shareholders:
From net investment income (1.26) (2.02) (1.41) (1.58) (2.98)
From tax return of capital -- -- -- (0.01) (0.07)
----------- ----------- ----------- ----------- ------------
Total distributions to shareholders (1.26) (2.02) (1.41) (1.59) (3.05)
----------- ----------- ----------- ----------- ------------
Net Asset Value, End of Year $ 16.81 $ 17.47 $ 17.64 $ 15.72 $ 16.36
=========== =========== =========== =========== ============
Total Return (b) 3.55% 10.85% 21.77% 6.07% (2.91)%(c)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.10% 0.10% 0.10% 0.10% 0.10%(d)
Net Investment Income (to average daily net assets)* 7.03% 7.57% 8.00% 8.78% 9.46%(d)
Portfolio Turnover 42% 36% 133% 121% 191%(c)
Net Assets, End of Year (000's omitted) $ 19,857 $ 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 (a) $ 1.02 $ 1.25 $ 1.22 $ 1.31 $ 1.28
Ratios (to average daily net assets):
Expenses 1.20% 0.83% 0.91% 0.73% 0.54%(d)
Net investment income 5.93% 6.84% 7.19% 8.15% 9.02%(d)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of fee waivers and
expense limitations.
(c) Not annualized.
(d) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
16
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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost based upon the
value on such date unless the Trustees determine during such sixty-day
period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method. 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. 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 accounting principles
generally accepted in the United States of America. These differences,
which may result in 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 capital loss
carryforwards.
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 (loss) 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.
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. 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.
17
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 among funds of the Trust 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 are 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 Transactions With Affiliates:
The investment advisory fee paid to Standish Mellon for overall investment
advisory and administrative services, and general office facilities, is
payable 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, 2005. Pursuant to this agreement, for the
year ended December 31, 2005, Standish Mellon voluntarily waived its
investment advisory fee in the amount of $76,753 and reimbursed the Fund
for $133,878 of its operating expenses. This agreement is voluntary and
temporary and may be discontinued or revised by Standish Mellon at any
time.
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 was charged $6,310 during the year ended December 31, 2005.
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 was charged $66,269 during
the year ended December 31, 2005.
The Fund entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Fund's lending agent.
Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon Bank received $3,837 for the
year ended December 31, 2005. See Note 7 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
year ended December 31, 2005, the Fund was charged $2,269 for fees payable
to Mellon Private Wealth Management. No other director, officer or
employee of Standish Mellon or its affiliates received 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.
18
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. The Fund's adviser or its
affiliates may pay additional compensation from their own resources to
Plan Administrators and other entities for administrative services, as
well as in consideration of marketing or other distribution-related
services. These payments may provide an incentive for these entities to
actively promote the Fund or cooperate with the distributor's promotional
efforts.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2005 were as follows:
Purchases Sales
----------- -----------
Investments (non-U.S. Government Securities) $ 9,678,100 $ 7,492,433
=========== ===========
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 439,323 91,564
Shares issued to shareholders in
reinvestment of distributions
declared 58,759 78,037
Shares redeemed (339,279) (1,519,183)
-------- ----------
Net increase (decrease) 158,803 (1,349,582)
======== ==========
At December 31, 2005, seven 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.
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
30 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, 2005, the Fund did not
collect any redemption fees
(5) Federal Taxes:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax
cost as of December 31, 2005, was as follows:
Unrealized appreciation $ 566,798
Unrealized depreciation (301,355)
-----------
Net unrealized appreciation/depreciation 265,443
===========
Undistributed ordinary income 13,553
Undistributed long term capital gain --
Cost for federal income tax purposes 20,923,679
19
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
----------- -----------
Ordinary income $ 1,451,950 $ 2,893,284
At December 31, 2005, the Fund, for federal income tax purposes, has
capital loss carryovers of $16,242,781 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
138,283 12/31/2013
------------
$ 16,242,781
============
It is uncertain whether the Fund will be able to realize the benefits of
the losses before they expire.
(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 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 security 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 option is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
year end. Losses may arise from changes in the value of the underlying
instruments if there is an illiquid secondary market for the contract or
if the counterparty does not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, 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 Fund did not enter into any options transactions during the year ended
December 31 2005.
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 are included in the Statement of
Assets and Liabilities.
At December 31, 2005, the Fund held currency exchange contracts. See the
Schedule of Investments for further details.
20
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 sale or
delivery of securities or contracts based on financial indices at a fixed
price on a future date. Pursuant to 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 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 counterparty does not perform under the contract's terms.
The Fund 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 Fund did not enter into any futures contracts during the year ended
December 31 2005.
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 at
the beginning of the measurement period are reflected as such on the
Statement of Assets and Liabilities. 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.
At December 31, 2005, the Fund had swap agreements outstanding. See the
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, 2005 and
earned interest on the invested collateral of $46,066 of which, $37,157
was rebated to borrowers or paid in fees. At December 31, 2005, the Fund
had securities valued at $1,194,995 on loan. See the Schedule of
Investments for further detail on the security positions on loan and
collateral held.
21
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 did not enter into any delayed delivery transactions during the
year ended December 31, 2005.
(9) Line of Credit:
The Fund, and other funds in the Trust and subtrusts in Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties
to a committed line of credit facility, which enables each portfolio/fund
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating portfolio/fund based on its borrowings at a rate equal
to the Federal Funds effective rate plus 1/2 of 1%. In addition, a
facility fee, computed at an annual rate of 0.060 of 1% on the committed
amount, is allocated ratably among the participating portfolio/funds at
the end of each quarter. For the period ended December 31, 2005, the
facility fee was $296 for the Fund.
During the year ended December 31, 2005, the Fund had average borrowings
outstanding of $334,000 on a total of two days and incurred $53 of
interest expense.
22
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 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, 2005, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the four years in the period then ended, and the period April 2, 2001
(commencement of operations) through December 31, 2001, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
23
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the
fund's investment adviser or underwriter (the "Independent Trustees")
voting separately, approve the Fund's advisory agreement and the related
fees on an annual basis. In their most recent deliberations concerning
their decision to approve the continuation of the investment advisory
agreement, the Board of Trustees conducted the review and made the
determinations that are described below. In conducting this review and in
making such determinations, the Independent Trustees received from the
Fund's investment adviser, Standish Mellon Asset Management Company LLC
("Standish Mellon"), a broad range of information in response to a written
request prepared on their behalf by their own legal counsel. The
Independent Trustees met alone in a private session with their legal
counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
Standish Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance and any material portfolio manager and strategy
changes that may have affected the Fund in the prior year, as well as the
Fund's "fact sheets" prepared by Standish Mellon providing salient data
about the Fund and Standish Mellon's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
Fund's advisory agreement and the compensation to Standish Mellon provided
therein were fair and reasonable in light of the services performed,
expenses incurred and such other matters as the Trustees considered
relevant in the exercise of their reasonable judgment. The following
summary does not detail all the matters that were considered. Some of the
factors that figured prominently in the Trustees' determination are
described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by Standish Mellon. In their deliberations as to the
continuation of the Fund's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision
of the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Fund effectively.
24
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by Standish Mellon with input from
the Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one- and three-year
periods ended July 31, 2005 based on the Lipper materials provided to the
Board at the September 22, 2005 meeting. The Board found that the Fund
underperformed its peer group average returns for the one-year period
(10.70% vs. 11.21%) and three-year period (14.45% vs. 16.07%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to Standish
Mellon. The Lipper data presenting the Fund's "net advisory fees" included
fees paid by the Fund, as calculated by Lipper, for administrative
services provided by Mellon Bank, N.A., the Trust's custodian. Such
reporting was necessary, according to Lipper, to allow the Board to
compare the Fund's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Fund's contractual advisory fee was 0.40%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.678%. The Fund's
net advisory fee, after giving effect to expense limitations, was 0.043%,
well below the peer group median net advisory fee of 0.552%. Based on the
Lipper data, as well as other factors discussed at the September 22, 2005
meeting, the Board determined that the Fund's advisory fee is reasonable
relative to its peer group averages, both with and without giving effect
to expense limitations.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Fund
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.10% (after giving effect to expense limitations) was
lower than the median net expense ratio of the peer group of 0.837%
notwithstanding the fact that most of the other funds in the peer group
were larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Fund
and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect
expenses incurred by Standish Mellon or its affiliated investment adviser,
The Boston Company Asset Management, LLC ("TBCAM") in managing the Fund
and other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that, based on the profitability
information submitted to them by Standish Mellon, Standish Mellon incurred
losses in managing many of the investment companies in the Mellon
Institutional Funds family of funds, including the Fund, and that among
those funds that were profitable to Standish Mellon, several generated
only marginal profitability for the firm. The Trustees observed that
Standish Mellon had incurred losses in operating the Fund in both 2003 and
2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size.
The Board concluded that, at existing asset levels and considering current
assets growth projections, the implementation of additional fee
breakpoints or other fee reductions was not necessary at this time. They
requested, however, that management consider the issue of future
breakpoints and respond to the Independent Trustees and to present a
proposal for such breakpoints or, in each case as applicable, management's
rationale as to why such future breakpoints are not necessary or
appropriate for a particular Fund.
25
Mellon Institutional Funds Investment Trust
Standish Mellon Opportunistic High Yield Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Fund's advisory agreement
and the compensation to Standish Mellon provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one-year period.
26
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 remuneration paid
as of the period ended December 31, 2005. 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 (period 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 2005)
- ---------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $ 723
c/o Decision Resources, Inc. 11/3/1986 Decision Resources,
260 Charles Street Inc. ("DRI")
Waltham, MA 02453 (biotechnology
9/30/40 research and
consulting firm);
formerly Chairman of
the Board and Chief
Executive Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex Street 32 None $ 777
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 5600 investment trust
Beverly, MA 01915 office)
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 32 None $ 723
c/o Harvard University 9/13/1989 Professor of
Littaver Center 127 Political Economy,
Cambridge, MA 02138 Harvard University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, 32 None $ 723
P.O. Box 2333 11/3/1986 Mertens House, Inc.
New London, NH 03257 (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 32 None $ 0
The Boston Company President and Operating Officer of
Asset Management, LLC Chief Executive The Boston Company
One Boston Place Officer Asset Management,
Boston, MA 02108 LLC; formerly Senior
7/24/65 Vice President and
Chief Operating
Officer, Mellon Asset
Management ("MAM")
and Vice President
and Chief Financial
Officer, MAM
27
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- ---------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President and Since 2003 Senior Vice President and Head of Operations, Mellon
Mellon Asset Management Secretary Asset Management ("MAM"); formerly First Vice President,
One Boston Place MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President and Vice President since Vice President and Mutual Funds Controller, Mellon Asset
Mellon Asset Management Treasurer 1999; Treasurer Management
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,
Mellon Asset Management President Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager of
One Boston Place Shareholder Services, MAM, Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management Company LLC
1/19/71
Mary T. Lomasney Chief Compliance Since 2005 First Vice President, Mellon Asset Management and Chief
Mellon Asset Management Officer Compliance Officer, Mellon Funds Distributor and Mellon
One Boston Place Optima L/S Strategy Fund, LLC; formerly Director,
Boston, MA 02108 Blackrock, Inc., Senior Vice President, State Street
4/8/57 Research & Management Company ("SSRM"), Vice President,
SSRM
28
THIS PAGE INTENTIONALLY LEFT BLANK
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6949AR1205
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
International Fixed Income Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o 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 hedged to the dollar produced some of the best bond
returns of all the fixed income sectors in 2005. The Standish Mellon
International Fixed Income Fund returned 4.72% for 2005, after all expenses,
compared to a return of 5.60% for the J.P. Morgan Non-U.S. Government Bond
Index.
Low single digit returns in most major bond markets represented a decent outcome
in 2005 considering that central banks have started a global tightening cycle
and headline inflation is up on the back of high oil prices.
The European Central Bank raised interest rates in the fourth quarter by 0.25%
but that did not damage the positive return on bonds. European bonds were among
the best performers in the hedged index for 2005 as economic growth disappointed
in the first half of the year. European core inflation also dropped to 1.5%
during 2005, and that provided a tail wind to bonds. Finally, the long end of
European bond markets has performed very well as pension reforms in various
countries are providing a demand for long duration bonds. European yield curves
also flattened considerably during the year, making long duration bonds the best
performing bonds in 2005.
Japan's economy surprised on the strong side in 2005. the Japanese stock market
was one of the best performing global markets which hurt the performance of
Japanese bonds. Nevertheless, returns for Japanese bonds benefited from the
carry associated with hedging back to the dollar and managed to outperform U.S.
Treasury returns over the year.
The star performer within the index was Canada where returns were driven by the
fact that the Bank of Canada has lagged U.S. Federal Reserve rate increases,
opening a sizeable gap in short rate spreads of 1% between these two countries.
Also, the strong Canadian dollar has eased upward pressure on interest rates.
The non-government sectors of the international bond markets were not a major
source of positive or negative return in 2005. Security selection in high yield
and corporate bonds certainly added value as some sectors, like autos, performed
poorly. Emerging markets was the best performing sector once again among the
non-government sectors as credit quality continued to improve and capital flowed
freely into the sector.
The Fund underperformed its benchmark during the year. Our positions in
investment grade and high yield corporate bonds and emerging market securities
were the largest positive contributors relative to our benchmark. The results of
our country weightings were mixed. We were underweight in Japan and the U.S. but
lost value by not overweighting the long end of the European yield curve. We had
a long duration position in Australia that lagged the benchmark. The Australian
housing market deteriorated significantly but this did not lead to the interest
rate cuts from the Reserve Bank of Australia that we expected. The Bank of
England did cut interest rates to offset weak consumer demand that was partially
driven by weak housing and that helped U.K. bonds to solid performance in 2005.
Duration positioning was another negative factor as long duration bonds
outperformed despite strong economic growth and rising short-term yields. Our
process emphasizes value in bond markets and given the low level of real yields,
we were surprised at the performance of long-duration bonds in 2005.
2
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Our outlook for international bonds in 2006 is favorable. 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 probably
pause in raising interest rates while Europe and Canada and perhaps also Japan
continue to raise interest rates. We believe opportunities for added value can
be found in the higher real yielding markets of Australia, the U.K., Sweden and
even the U.S. if the housing market exerts a large drag on economic growth. In a
global tightening cycle Japan may end up being a good diversifying position if
economic growth peters out. Non-government sectors such as corporate and
emerging market bonds, have increased in value 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.
During the year we changed portfolio managers on the International Fixed Income
Fund. Charles Dolan and Thomas Fahey have assumed management responsibility of
the fund while Chuck Cook pursues new responsibilities within the firm.
We appreciate your continued support and look forward to working on your behalf
over the next year.
/s/ Thomas Fahey /s/ Charles Dolan
Thomas Fahey Charles Dolan
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 JP Morgan Non-US Hedged Index
- --------------------------------------------------------------------------------
[GRAPH]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/3/1991
- --------------------------------------------------------------------------------
4.72% 4.83% 5.00% 7.06% 8.22%
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.
* Source: Bloomberg Inc.
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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,015.80 $ 3.00
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,022.28 $ 3.01
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.59%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).The Example reflects the
combined expenses of the Fund and the master portfolio in which it invests
all its assets.
5
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
U.S. Treasury Inflation-Indexed Bond 0.875 4/15/2010 9.4%
Deutsche Republic 4.750 7/4/2034 6.4
Queensland Treasury Corp. 0.000 6/14/2011 6.2
Swedish Government 5.250 3/15/2011 4.6
Development Bank of Japan 1.700 9/20/2022 3.7
KFW International Finance 1.750 3/23/2010 3.2
Deutsche Republic 3.250 7/4/2015 3.2
Canadian Government 5.500 6/1/2010 3.0
Singapore Government Bond 3.500 7/1/2012 2.9
United Kingdom Gilt 4.750 6/7/2010 2.5
----
45.1%
Summary of Combined Ratings
- ---------------------------------------------------
Percentage of
Quality Breakdown Investments
- ---------------------------------------------------
AAA 64.2%
AA 10.1
A 5.1
BBB 9.9
BB 6.8
B 1.3
Below B 2.6
-----
Total 100.0%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- ---------------------------------------------------
Government 60.8%
Corporate 29.0
Emerging Markets 5.3
Cash & equivalents 4.9
-----
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--96.3%
BONDS AND NOTES--94.2%
Corporate--2.1%
Basic Materials--0.1%
Georgia-Pacific Corp. 8.000% 1/15/2024 USD 180,000 $ 171,900
-------------
Communications--0.5%
Qwest Corp. 144A (a) 7.741 6/15/2013 550,000 593,313
-------------
Financial--1.5%
Chevy Chase Bank FSB 6.875 12/1/2013 380,000 391,400
Glencore Funding LLC 144A 6.000 4/15/2014 430,000 404,433
Residential Capital Corp. (a) 5.896 6/29/2007 245,000 245,606
Residential Capital Corp. (a) 5.670 11/21/2008 745,000 745,978
-------------
1,787,417
-------------
Total Corporate Bonds (Cost $2,532,787) 2,552,630
-------------
Sovereign Bonds--5.1%
Argentina Bonos (a) 4.005 8/3/2012 675,000 528,525
Egyptian Treasury Bill 144A 7.500 3/23/2006 2,035,000 2,089,558
Egyptian Treasury Bill 144A 9.000 7/14/2006 535,000 555,020
Republic of Brazil (a) 5.250 4/15/2012 412,949 407,787
Republic of Panama 8.875 9/30/2027 445,000 529,550
Republic of South Africa 9.125 5/19/2009 275,000 308,344
Republic of Turkey 11.500 1/23/2012 625,000 792,969
Russian Federation 11.000 7/24/2018 360,000 530,550
Russian Ministry of Finance 3.000 5/14/2008 570,000 539,363
-------------
Total Sovereign Bonds (Cost $6,191,499) 6,281,666
-------------
Yankee Bonds--0.2%
Rogers Wireless, Inc. (Cost $255,000) 7.500 3/15/2015 255,000 275,400
-------------
Foreign Denominated--77.4%
Australia--8.2%
Australian Government Bond 6.000 2/15/2017 AUD 3,230,000 2,522,660
Queensland Treasury Corp. 6.000 6/14/2011 10,020,000 7,569,999
-------------
10,092,659
-------------
Canada--4.5%
Canadian Government 5.500 6/1/2010 CAD 4,040,000 3,695,655
Canadian Pacific Railway Ltd. 144A 4.900 6/15/2010 2,000,000 1,757,052
-------------
5,452,707
-------------
Denmark--1.8%
Realkredit Danmark A/S 4.000 1/1/2006 DKK 13,965,000 2,216,209
-------------
Euro--34.0%
ASIF III 5.125 5/10/2007 EUR 500,000 607,660
Autostrade SpA (a) 2.902 6/9/2011 900,000 1,074,169
Belgium Government Bond 4.250 9/28/2013 2,240,000 2,832,233
Bombardier, Inc. 5.750 2/22/2008 420,000 497,070
Bundesobligation 4.500 8/17/2007 40,000 48,574
Bundesobligation 3.000 4/11/2008 350,000 415,179
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -------------------------------------------------------------------------------------------------------
Euro (continued)
Bundesobligation 3.250% 4/9/2010 EUR 1,885,000 $ 2,250,092
Bundesrepub Deutschland 5.250 7/4/2010 1,320,000 1,704,587
Citigroup Inc. (a) 2.624 6/3/2011 675,000 799,240
Deutsche Bundesrepublik 5.000 7/4/2011 1,590,000 2,060,010
Deutsche Cap Trust IV (a) 5.330 9/29/2049 600,000 769,890
Deutsche Republic 4.500 1/4/2013 2,160,000 2,763,397
Deutsche Republic 3.250 7/4/2015 3,295,000 3,884,623
Deutsche Republic 4.750 7/4/2034 5,500,000 7,841,316
FCE Bank PLC (a) 2.895 6/28/2006 2,320,000 2,674,057
General Motors Acceptance Corp. 4.375 9/26/2006 440,000 504,889
Glencore Finance Europe SA/Luxembourg 5.375 9/30/2011 465,000 565,021
GMAC International Finance BV (a) 4.014 8/4/2006 690,000 783,950
Hellenic Republic Government Bond 3.700 7/20/2015 1,845,000 2,217,938
Kappa Beheer BV 10.625 7/15/2009 365,000 447,278
Kingdom of Denmark 3.125 10/15/2010 1,210,000 1,432,884
Linde Finance BV 6.000 7/29/2049 545,000 661,971
MPS Capital Trust I 7.990 2/7/2011 550,000 770,825
Netherlands Government Bond 5.500 7/15/2010 1,475,000 1,923,760
Owens-Brockway Glass Containers 6.750 12/1/2014 520,000 609,266
Resona Bank Ltd. 144A 4.125 1/10/2049 310,000 364,291
Sogerim 7.000 4/20/2011 385,000 529,043
Sumitomo Mitsui Banking Corp. 144A (a) 4.375 7/15/2049 575,000 689,381
-------------
41,722,594
-------------
United Kingdom--8.2%
Barclays Bank PLC 6.000 9/15/2026 GBP 240,000 431,039
Bat International Finance PLC 6.375 12/12/2019 155,000 290,941
British Telecom PLC 7.125 12/7/2006 330,000 580,776
Deutsche Telekom International Finance BV 7.125 9/26/2012 305,000 586,414
HBOS Capital Funding LP (c) 6.461 11/30/2048 155,000 300,626
Inco 15.750 7/15/2006 796,000 1,430,608
Transco Holdings PLC 7.000 12/16/2024 140,000 302,637
United Kingdom Gilt 4.250 6/7/2032 720,000 1,289,572
United Kingdom Gilt (b) 4.750 6/7/2010 1,755,000 3,089,537
United Kingdom Gilt 8.000 9/27/2013 825,000 1,780,472
-------------
10,082,622
-------------
Japan--11.7%
Development Bank of Japan 1.600 6/20/2014 JPY 170,000,000 1,475,970
Development Bank of Japan 1.700 9/20/2022 553,000,000 4,597,233
European Investment Bank 1.400 6/20/2017 272,700,000 2,275,801
Japan Finance Corp. 1.550 2/21/2012 228,000,000 1,984,246
KFW International Finance 1.750 3/23/2010 450,000,000 3,983,381
-------------
14,316,631
-------------
Singapore--2.9%
Singapore Government Bond 3.500 7/1/2012 SGD 5,880,000 3,613,189
-------------
Sweden--6.1%
Swedish Government 8.000 8/15/2007 SEK 13,215,000 1,805,184
Swedish Government 5.250 3/15/2011 41,075,000 5,685,883
-------------
7,491,067
-------------
Total Foreign Denominated (Cost $96,571,590) 94,987,678
-------------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations--9.4%
U.S. Treasury Inflation-Indexed Bond (b)
(Cost $11,716,780) 0.875% 4/15/2010 USD 12,138,644 $ 11,539,771
-------------
TOTAL BONDS AND NOTES (Cost $117,267,656) 115,637,145
-------------
Contract
Size
PURCHASED OPTIONS--0.2% ---------
EUR Put/USD Call, Strike Price 1.20, 2/23/06 4,115,000 86,827
EUR Put/USD Call, Strike Price 1.20, 3/16/06 4,155,000 91,410
EUR Put/USD Call, Strike Price 1.18, 4/5/06 3,745,000 54,935
iTRAXX Europe Series 4 Version 1, Strike
Price .50, 6/20/2006 5,000,000 3,465
-------------
TOTAL PURCHASED OPTIONS (COST $187,826) 236,637
-------------
SHORT TERM INVESTMENTS--1.6%
U.S. Treasury--1.6%
Treasury Bill (d)(e) 3.870 3/2/2006 1,620,000 1,609,909
Treasury Bill (b)(d) 3.800 3/9/2006 150,000 148,945
Treasury Bill (d)(e) 3.810 3/16/2006 150,000 148,827
-------------
Total Short Term Investments--
(Cost $1,907,107) 1,907,681
-------------
Shares
----------
INVESTMENT OF CASH COLLATERAL--0.3%
BlackRock Cash Strategies L.L.C. (f)
(Cost $420,000) 4.31 420,000 420,000
-------------
TOTAL UNAFFILIATED INVESTMENTS
(Cost $119,782,589) 118,201,463
-------------
AFFILIATED INVESTMENTS--2.5%
Dreyfus Institutional Preferred Plus Money
Market Fund (f)(g) (Cost $3,086,777) 4.06 3,086,777 3,086,777
-------------
TOTAL INVESTMENTS--98.8% (Cost $122,869,366) 121,288,240
OTHER ASSETS, LESS LIABILITIES--1.2% 1,433,046
-------------
NET ASSETS--100.0% $ 122,721,286
=============
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, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $6,453,048 or 5.3% of net
assets. AUD--Australian Dollar
CAD--Canadian Dollar
DKK--Danish Krone
EUR--Euro
GBP--British Pound
JPY--Japanese Yen
SGD--Singapore Dollar
SEK--Swedish Krona
(a) Variable Rate Security; rate indicated is as of 12/31/2005.
(b) Denotes all or part of security segregated as collateral.
(c) Step up security, rate indicated is as of 12/31/2005.
(d) Rate noted is yield to maturity.
(e) Security, or a portion of thereof, was on loan at December 31, 2005.
(f) Stated rate is the seven-day yield for the fund at year end.
(g) Affiliated institutional money market fund.
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, 2005
- --------------------------------------------------------------------------------
At December 31, 2005 the Fund held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- -------------------------------------------------------------------------------------------------------
US 10 Year Treasury (70 Contracts) Short 3/18/2006 $ 7,607,031 $ (51,491)
US 5 Year Treasury (85 Contracts) Short 3/31/2006 9,046,523 7,105
-----------
$ (44,386)
===========
At December 31, 2005, the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2005 to Receive Gain/(Loss)
- ----------------------------------------------------------------------------------------------------------------------
Australian Dollar 13,870,000 3/15/2006 $ 10,147,750 $ 10,286,132 $ 138,382
Brazilian Real 2,200,000 2/10/2006 929,486 789,524 (139,962)
British Pound Sterling 5,710,000 3/15/2006 9,821,628 10,113,780 292,152
Canadian Dollar 6,470,000 3/15/2006 5,576,505 5,565,504 (11,001)
Danish Krone 17,040,000 3/15/2006 2,715,646 2,759,291 43,645
Euro 34,285,000 3/15/2006 40,745,837 41,383,710 637,873
Japanese Yen 1,709,210,000 3/15/2006 14,627,592 14,891,599 264,007
Singapore Dollar 7,145,000 3/15/2006 4,308,629 4,306,059 (2,570)
Swedish Krona 59,540,000 3/15/2006 7,538,236 7,611,869 73,633
--------------- ------------ -----------
Total $ 96,411,309 $ 97,707,468 $ 1,296,159
=============== ============ ===========
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2005 to Deliver Gain
- ----------------------------------------------------------------------------------------------------------------------
Brazilian Real 2,200,000 2/10/2006 $ 929,486 $ 733,333 $ 196,153
Brazilian Real 1,330,000 3/15/2006 556,881 548,906 7,975
--------------- ------------ -----------
Total $ 1,486,367 $ 1,282,239 $ 204,128
=============== ============ ===========
Percentage of
Country Allocation Investments
---------------------------------------------------
Euro 34.3%
U.S. 23.6
Japan 11.8
U.K. 8.3
Australia 8.3
Sweden 6.2
Canada 4.5
Singapore 3.0
-----
100.0%
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, 2005
- --------------------------------------------------------------------------------
At December 31, 2005, the Fund held the following open swap contracts:
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration
Counterparty Entity Protection Fixed Rate Date
- -----------------------------------------------------------------------------------------------------------------
Bear Stearns Alcoa, Inc., 6.000% due 1/15/2012 Buy (0.415%) 6/20/2010
Bear Stearns Alcoa, Inc., 6.500% due 6/01/2011 Buy (0.52%) 6/20/2010
Bear Stearns Conocophillips, 4.750% due 10/15/2012 Buy (0.31%) 6/20/2010
Bear Stearns Nucor Corp., 4.875% due 10/01/2012 Buy (0.40%) 6/20/2010
Bear Stearns Ukraine Government, 7.650% due 6/11/2013 Sell 2.840% 12/20/2009
Deutsche Bank Republic of Brazil, 12.25%, due 3/6/2030 Sell 1.450% 10/20/2008
Goldman Sachs Consolidated Natural Gas Co.,
6.000% due 10/15/2010 Sell 0.200% 3/20/2006
JPMorgan British American Tobacco PLC,
4.875% due 2/25/2009 Sell 0.425% 12/20/2010
JPMorgan Daimlerchrysler AG, 7.20% due 9/1/2009 Sell 0.700% 12/20/2010
JPMorgan Degussa AG, 5.125% due 12/10/2013 Buy (1.75%) 12/20/2010
JPMorgan Dow Jones CDX.EM.4 Sell 1.800% 12/20/2010
JPMorgan France Telecom, 7.25% due 1/28/2013 Sell 0.660% 12/20/2015
JPMorgan Glencore International AG,
5.375%, due 9/30/2011 Sell 1.480% 12/20/2010
JPMorgan ICI Wilmington, 5.625% due 12/1/2013 Sell 0.510% 12/20/2010
JPMorgan iTraxx Europe HiVol Series 4 Version 1 Buy (0.70%) 12/20/2010
JPMorgan Republic of Panama, 8.875% due 9/30/2027 Sell 1.500% 12/20/2010
JPMorgan Republic of Peru, 8.75% due 11/21/2033 Buy (1.700%) 12/20/2010
JPMorgan Telecom Italia SPA, 6.25% due 2/1/2012 Sell 0.520% 12/20/2010
JPMorgan Volkswagen, 4.875% due 5/22/2013 Sell 0.450% 12/20/2010
Morgan Stanley & Co. Wendy's International, Inc.,
6.25% due 11/15/2011 Buy (0.62%) 12/20/2010
Unrealized
Credit Default Swaps Notional Appreciation/
Counterparty Amount (Depreciation)
- ------------------------------------------------------
Bear Stearns $ 328,000 USD $ (3,018)
Bear Stearns 727,000 USD (9,775)
Bear Stearns 1,055,000 USD (3,946)
Bear Stearns 494,000 USD (218)
Bear Stearns 840,000 USD 44,404
Deutsche Bank 1,020,000 USD 5,598
Goldman Sachs
6,140,000 USD 2,057
JPMorgan
600,000 EUR 2,607
JPMorgan 600,000 EUR (109)
JPMorgan 1,000,000 EUR (23,998)
JPMorgan 2,360,000 USD (6,685)
JPMorgan 475,000 EUR (9,237)
JPMorgan 600,000 EUR 6,729
JPMorgan 600,000 EUR 47
JPMorgan 2,975,000 EUR (3,348)
JPMorgan 378,000 USD 765
JPMorgan 378,000 USD 7,638
JPMorgan 600,000 EUR (1,657)
JPMorgan 600,000 EUR 566
Morgan Stanley & Co.
960,000 USD 8,133
----------
$ 16,553
==========
Interest Rate Swaps Floating Rate Pay/Receive Fixed Expiration
Counterparty Index Floating Rate Rate Date
- --------------------------------------------------------------------------------------------------------------------
Bear Stearns USD--LIBOR--BBA Pay 3.907% 11/19/2009
Interest Rate Swaps Notional Unrealized/
Counterparty Amount (Depreciation)
- -------------------------------------------------------
Bear Stearns $ 840,000 $ (28,197)
==========
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, 2005
- --------------------------------------------------------------------------------
During the period ended December 31, 2005, the Portfolio entered into the
following option transactions:
Written Put Options Security Strike Price Expiration Date Contracts Premiums Value
- -------------------------------------------------------------------------------------------------
USD Put/EUR Call 1.2800 2/23/2006 1 41,971 $ 1,646
USD Put/EUR Call 1.2800 3/16/2006 1 48,559 3,740
USD Put/EUR Call 1.2600 4/05/2006 1 36,139 11,348
- -------- --------
3 126,669 $ 16,734
= ======== ========
Written Call Options Security Strike Price Expiration Date Contracts Premiums Value
- -------------------------------------------------------------------------------------------------
EUR Put/USD Call, Strike Price 1.1200 4/05/2006 1 $ 18,351 $ 10,048
======== ========
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, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $412,089) (Note 7):
Unaffiliated issuers, at value (cost $119,782,589) $ 118,201,463
Affiliated issuers, at value (cost $3,086,777) 3,086,777
Foreign currency, at value (cost $1,511,774) 1,502,823
Receivable for investments sold 150,000
Receivable for Fund shares sold 370,062
Swap premiums paid 43,570
Interest and dividends receivable 2,129,811
Unrealized appreciation on forward currency exchange contracts (Note 6) 1,653,820
Unrealized appreciation on swap contracts (Note 6) 78,544
Receivable for variation margin on open futures contracts (Note 6) 16,016
Prepaid expenses 8,460
--------------
Total assets 127,241,346
Liabilities
Collateral for securities on loan (Note 7) $ 420,000
Payable for swap premium 30,680
Bank loan payable (Note 9) 150,000
Payable for Fund shares redeemed 1,584,672
Distributions payable 1,990,679
Unrealized depreciation on forward currency exchange contracts (Note 6) 153,533
Options written, at value (premium received $145,020) (Note 6) 26,782
Unrealized depreciation on swap contracts (Note 6) 90,188
Accrued chief compliance officer fee (Note 2) 404
Accrued administrator services fee (Note 2) 534
Accrued accounting, custody, administration and transfer agent fees (Note 2) 27,738
Accrued professional fees 33,764
Accrued trustees' fees and expenses (Note 2) 7,266
Other accrued expenses and liabilities 3,820
------------
Total liabilities 4,520,060
--------------
Net Assets $ 122,721,286
==============
Net Assets consist of:
Paid-in capital $ 171,129,527
Accumulated net realized loss (47,943,516)
Distribution in excess of net investment income (403,751)
Net unrealized depreciation (60,974)
--------------
Total Net Assets $ 122,721,286
==============
Shares of beneficial interest outstanding 6,994,044
==============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 17.55
==============
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, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income (Including $1,914 of foreign tax expense) $ 8,568,102
Dividend income from affiliated investments (Note 1H) 230,232
Security lending income (Note 7) 23,750
--------------
8,822,084
Expenses
Investment advisory fee (Note 2) $ 869,424
Accounting, custody, administration and transfer agent fees (Note 2) 199,911
Professional fees 73,012
Registration fees 48,500
Trustees' fees and expenses (Note 2) 28,951
Insurance expense 17,700
Miscellaneous 20,936
------------
Total expenses 1,258,434
--------------
Net investment income 7,563,650
--------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 6,916,278
Financial futures transactions 22,447
Swap transactions 287,591
Foreign currency transactions and forward foreign currency exchange contracts 14,754,311
------------
Net realized gain 21,980,627
Change in unrealized appreciation (depreciation) on:
Investments (25,435,361)
Financial futures contracts 170,922
Written options contracts 118,238
Swap contracts (28,438)
Foreign currency translation and forward foreign currency exchange contracts 4,873,235
------------
Change in net unrealized appreciation (depreciation) (20,301,404)
--------------
Net realized and unrealized gain on investments 1,679,223
--------------
Net Increase in Net Assets from Operations $ 9,242,873
==============
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 7,563,650 $ 12,558,484
Net realized gain (loss) 21,980,627 24,418,678
Change in net unrealized appreciation (depreciation) (20,301,404) (17,717,832)
-------------- --------------
Net increase (decrease) in net assets from investment operations 9,242,873 19,259,330
-------------- --------------
Distributions to Shareholders (Note 1E)
From net investment income (33,162,511) (9,610,131)
-------------- --------------
Total distributions to shareholders (33,162,511) (9,610,131)
-------------- --------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 35,702,518 150,767,160
Value of shares issued to shareholders in reinvestment of distributions 29,233,578 7,662,711
Redemption fees credited to capital 534 542
Cost of shares redeemed (220,701,823) (235,449,182)
-------------- --------------
Net increase (decrease) in net assets from Fund share transactions (155,765,193) (77,018,769)
-------------- --------------
Total Increase (Decrease) in Net Assets (179,684,831) (67,369,570)
Net Assets
At beginning of year 302,406,117 369,775,687
-------------- --------------
At end of year [including distributions in excess of
net investment income and undistributed net investment
income of ($403,751) and $7,577,775] $ 122,721,286 $ 302,406,117
============== ==============
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
- --------------------------------------------------------------------------------
Year Ended December 31,
---------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- ---------
Net Asset Value, Beginning of the period $ 21.35 $ 21.02 $ 20.04 $ 19.43 $ 18.97
--------- --------- --------- --------- ---------
From Operations:
Net investment income (a) 0.75 0.75 0.66 0.75 0.76
Net realized and unrealized gain (loss) on investments 0.23 0.27 0.32 0.46 0.01
--------- --------- --------- --------- ---------
Total from investment operations 0.98 1.02 0.98 1.21 0.77
--------- --------- --------- --------- ---------
Less Distributions to Shareholders:
From net investment income (4.78) ( 0.69) -- (0.47) (0.31)
From tax return of capital -- -- -- (0.13) --
--------- --------- --------- --------- ---------
Total distributions to shareholders (4.78) (0.69) -- (0.60) (0.31)
--------- --------- --------- --------- ---------
Net Asset Value, End of Period $ 17.55 $ 21.35 $ 21.02 $ 20.04 $ 19.43
========= ========= ========= ========= =========
Total Return 4.72% 4.90% 4.89% 6.44% 4.07%
Ratios/Supplemental Data:
Expenses (to average daily net assets) 0.58% 0.57% 0.59% 0.59% 0.56%
Net Investment Income (to average daily net assets) 3.49% 3.43% 3.20% 3.89% 3.94%
Portfolio Turnover 168% 170% 185% 159% 211%
Net Assets, End of Period (000's omitted) $ 122,721 $ 302,406 $ 369,706 $ 364,460 $ 422,626
- ----------
(a) 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.
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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or secutities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost based upon the
value on such date unless the Trustees determine during such sixty-day
period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the yield - to -
maturity method. 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 secutities 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. 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 accounting principles
generally accepted in the United States of America. These differences,
which may result in 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 (loss) 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.
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. 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.
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 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.
G. 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 among funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
H. Affiliated issuers
Affiliated issuers are 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, and general office facilities, is
payable monthly at the annual rate of 0.40% of the Fund's average daily
net assets.
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 was charged $18,712 during the year ended December 31, 2005.
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 was charged $181,199 during
the period ended December 31, 2005.
The Fund entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Fund's lending agent.
Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon bank received $10,102 for the
year ended December 31, 2005. See Note 7 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
year ended December 31, 2005, the Fund was charged $2,269. No other
director, officer or employee of Standish Mellon or its affiliates
received 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.
18
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. For the year ended
December 31, 2005, the Fund was charged $534 for fees payable to Mellon
Private Wealth Management. The Fund's adviser or its affiliates may pay
additional compensation from their own resources to Plan Administrators
and other entities for administrative services, as well as in
consideration of marketing or other distribution-related services. These
payments may provide an incentive for these entities to actively promote
the Fund or cooperate with the distributor's promotional efforts.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2005 were as follows:
Purchases Sales
------------- -------------
U.S. Government Securities $ 26,671,616 $ 14,967,234
============= =============
Investments (non-U.S.
Government Securities) $ 296,380,274 $ 449,395,651
============= =============
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 1,676,512 7,133,087
Shares issued to shareholders for
reinvestment of distributions 1,578,442 359,246
Shares redeemed (10,425,328) (10,924,014)
----------- -----------
Net increase (decrease) (7,170,374) (3,431,681)
=========== ===========
At December 31, 2005, five shareholders of record held approximately 36%
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
30 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, 2005, the Fund received
$534 in redemption fees.
(5) Federal Taxes:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax
cost as of December 31, 2005, were as follows:
Unrealized appreciation $ 1,363,077
Unrealized depreciation (3,042,923)
-------------
Net unrealized appreciation (depreciation) (1,679,846)
Undistributed ordinary income 1,050,632
Cost for federal income tax purposes 122,968,086
19
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 2005 the Fund, for federal income tax purposes, has
capital loss carryover of $47,802,072 which will reduce the Fund's taxable
income arising from net realized gain on investmets, 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
------------ ---------------
$ 14,471,720 12/31/2007
19,786,516 12/31/2008
6,955,771 12/31/2009
6,588,065 12/31/2010
------------
$ 47,802,072
============
The Fund utilized $4,676,061 in capital loss carry forwards. It is
uncertain whether the Fund will be able to realized the benefits of the
losses before they expire.
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
------------ -----------
Ordinary income $ 33,162,511 $ 9,610,131
The Fund elected to defer to its fiscal year ending December 31, 2006
$24,119 of capital losses recognized during the period November 1, 2005 to
December 31, 2005.
(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 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 security 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 option is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
year end. Losses may arise from changes in the value of the underlying
instruments if there is an illiquid secondary market for the contract or
if the counterparty does not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, 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.
20
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Transactions in written call and put options were as follows:
Number of
Written Put Option Transactions Contracts Premiums
--------- -----------
Outstanding, beginning of period 0 $ 0
Options written 3 126,669
Options expired 0 0
--------- -----------
Outstanding, end of period 3 $ 126,669
--------- -----------
Number of
Written Call Options Transactions Contracts Premiums
--------- -----------
Outstanding, beginning of period 0 $ 0
Options written 1 18,351
Options expired 0 0
--------- -----------
Outstanding, end of period 1 $ 18,351
--------- -----------
At December 31, 2005, the Fund held options. See Schedule of Investments
for further details.
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, 2005, the Portfolio held foreign currency exchange
contracts. See schedule of investments for further details.
Futures contracts
The Fund may enter into financial futures contracts for the sale or
delivery of securities or contracts based on financial indices at a fixed
price on a future date. Pursuant to 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 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 counterparty does not perform under the contract's terms.
The Fund 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, 2005, the Fund held open financial futures contracts. See
the Schedule of Investments for further details.
21
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
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 at
the beginning of the measurement period are reflected as such on the
Statement of Assets and Liabilities. 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.
At December 31, 2005, the Fund held open swap contracts. See the 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 period ended December 31, 2005 and
earned interest on the invested collateral of $600,261 of which, $576,511
was rebated to borrowers or paid in fees. At December 31, 2005, the Fund
had securities valued at $412,089 on loan. See the 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. The Fund did not enter into any delayed
delivery transactions during the year ended December 31, 2005.
22
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(9) Line of Credit:
The Fund, and other funds in the Trust and subtrusts in Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties
to a committed line of credit facility, which enables each portfolio/fund
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating portfolio/fund based on its borrowings at a rate equal
to the Federal Funds effective rate plus 1/2 of 1%. In addition, a
facility fee, computed at an annual rate of 0.060 of 1% on the committed
amount, is allocated ratably among the participating portfolio/funds at
the end of each quarter. For the period ended December 31, 2005, the
facility fee was $4,225 for the Fund.
During the year ended December 31, 2005, the Fund had average borrowings
outstanding of $802,188 for a total of sixteen days and incurred $1,346 of
interest expense.
23
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of the Mellon Institutional Funds Investment Trust and
Shareholders of Standish Mellon International Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of invesments, 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, 2005, the results of its operations for
the year then ended, the changes in its net assets for each of the two years in
the period then ended, and the financial highlights for each of the five years
in the period then ended, 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2006
24
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the
fund's investment adviser or underwriter (the "Independent Trustees")
voting separately, approve the Fund's advisory agreement and the related
fees on an annual basis. In their most recent deliberations concerning
their decision to approve the continuation of the investment advisory
agreement, the Board of Trustees conducted the review and made the
determinations that are described below. In conducting this review and in
making such determinations, the Independent Trustees received from the
Fund's investment adviser, Standish Mellon Asset Management Company LLC
("Standish Mellon"), a broad range of information in response to a written
request prepared on their behalf by their own legal counsel. The
Independent Trustees met alone in a private session with their legal
counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
Standish Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance and any material portfolio manager and strategy
changes that may have affected the Fund in the prior year, as well as the
Fund's "fact sheets" prepared by Standish Mellon providing salient data
about the Fund and Standish Mellon's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
Fund's advisory agreement and the compensation to Standish Mellon provided
therein were fair and reasonable in light of the services performed,
expenses incurred and such other matters as the Trustees considered
relevant in the exercise of their reasonable judgment. The following
summary does not detail all the matters that were considered. Some of the
factors that figured prominently in the Trustees' determination are
described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by Standish Mellon. In their deliberations as to the
continuation of the Fund's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision
of the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Fund effectively.
25
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by Standish Mellon with input from
the Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2005 based on the Lipper materials
provided to the Board at the September 22, 2005 meeting. The Board found
that the Fund underperformed its peer group average returns for the
one-year period (6.96% vs. 7.90%), three-year period (5.80% vs. 8.69%) and
five-year period (5.68% vs. 7.92%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to Standish
Mellon. The Lipper data presenting the Fund's "net advisory fees" included
fees paid by the Fund, as calculated by Lipper, for administrative
services provided by Mellon Bank, N.A., the Trust's custodian. Such
reporting was necessary, according to Lipper, to allow the Board to
compare the Fund's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Fund's contractual advisory fee was 0.40%, in the 2nd quintile (1st
being the best) of its peer group of funds, the median fee of which was
0.535%. The Fund's net advisory fee was 0.405%, below the peer group
median net advisory fee of 0.485%. Based on the Lipper data, as well as
other factors discussed at the September 22, 2005 meeting, the Board
determined that the Fund's advisory fee is reasonable relative to its peer
group averages.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Fund
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.537% was lower than the median net expense ratio of the
peer group of 0.733% notwithstanding the fact that most of the other funds
in the peer group were larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Fund
and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect
expenses incurred by Standish Mellon or its affiliated investment adviser,
The Boston Company Asset Management, LLC ("TBCAM") in managing the Fund
and other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that Standish Mellon incurred losses in
managing many of the investment companies in the Mellon Institutional
Funds family of funds, and that among those funds that were profitable to
Standish Mellon, several generated only marginal profitability for the
firm. The Trustees observed that Standish Mellon had experienced profits
in operating the Fund in both 2003 and 2004 and concluded these were not
excessive.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size.
The Board concluded that, at existing asset levels and considering current
assets growth projections, the implementation of additional fee
breakpoints or other fee reductions was not necessary at this time. They
requested, however, that management consider the issue of future
breakpoints and respond to the Independent Trustees and to present a
proposal for such breakpoints or, in each case as applicable, management's
rationale as to why such future breakpoints are not necessary or
appropriate for a particular Fund.
26
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Fund's advisory agreement
and the compensation to Standish Mellon provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one-year period.
27
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 remuneration paid
as of the period ended December 31, 2005. 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 (period 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 2005)
- -----------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $ 5,497
c/o Decision Resources, 11/3/1986 Decision Resources, Inc.
Inc. ("DRI") (biotechnology
260 Charles Street research and consulting
Waltham, MA 02453 firm); formerly
9/30/40 Chairman of the Board and
Chief Executive Officer,
DRI
Caleb Loring III Trustee Trustee since Trustee, Essex Street 32 None $ 6,225
c/o Essex Street 11/3/1986 Associates (family
Associates investment trust
P.O. Box 5600 office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 32 None $ 5,497
c/o Harvard University 9/13/1989 Professor of Political
Littaver Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, Mertens 32 None $ 5,497
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 President and Chief 32 None $ 0
The Boston Company and Chief Operating Officer of
Asset Management, LLC Executive Officer The Boston Company
One Boston Place Asset Management, LLC;
Boston, MA 02108 formerly Senior
7/24/65 Vice President
and Chief Operating
Officer, Mellon Asset
Management ("MAM") and
Vice President and
Chief Financial Officer,
MAM
28
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- --------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon Asset Management and Secretary Mellon Asset Management ("MAM"); formerly First
One Boston Place Vice President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller,
Mellon Asset Management and Treasurer since 1999; Mellon Asset Management
One Boston Place Treasurer
Boston, MA 02108 since 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager
One Boston Place of Shareholder Services, MAM, Shareholder
Boston, MA 02108 Representative, Standish Mellon Asset Management
1/19/71 Company LLC
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management
Mellon Asset Management Compliance and Chief Compliance Officer, Mellon Funds Distributor
One Boston Place Officer and Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President,
4/8/57 State Street Research & Management Company
("SSRM"), Vice President, SSRM
29
[LOGO] MELLON
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6931AR1205
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
International Fixed Income Fund II
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o 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 negative returns in 2005. The low single
digit returns produced in local bond markets were offset by negative currency
returns, while the U.S. dollar appreciated during the year versus most
currencies in the J.P. Morgan Non-U.S. Government Bond Index. The Standish
Mellon International Fixed Income Fund II returned (9.95%)% for 2005, after all
expenses, compared to a return of (9.24%)% for the index.
Low single digit returns in most major bond markets represented a decent outcome
in 2005 considering that central banks have started a global tightening cycle
and headline inflation is up on the back of high oil prices.
The European Central Bank raised interest rates in the fourth quarter by 0.25%
but that did not damage the positive return on bonds. European bonds were good
performers within the index for 2005 as economic growth disappointed in the
first half of the year. European core inflation also dropped to 1.5% during
2005, and that provided a tail wind to bonds. Finally, the long end of European
bond markets has performed very well as pension reform in various countries is
providing a demand for long duration bonds. European yield curves also flattened
considerably during the year, making long duration bonds the best performing
bonds in 2005.
Japan's economy surprised on the strong side in 2005. The Japanese stock market
was one of the best performing global markets which hurt the performance of
Japanese bonds. Returns for Japanese bonds were the worst in the index for 2005.
The two highest performers within the index were Canada and the U.K. Canada's
positive return was driven by the fact that the Bank of Canada has lagged U.S.
Federal Reserve rate increases, opening a sizeable gap in short rate spreads of
1% between these two countries. Also, the strong Canadian dollar has eased
upward pressure on interest rates. U.K. yields performed well as the Bank of
England was one of the only central banks to cut interest rates in 2005, as the
drag from housing hit consumer demand.
Even though the local bond returns were positive in all markets within the
index, the currency portion of total return had the most significant impact.
Only Canada produced a positive total return when including the currency. The
positive bond returns in other markets were reduced by the appreciation of the
dollar against the yen, euro and sterling.
The non-government sectors of the international bond markets were not a major
source of positive or negative return in 2005. Security selection in high yield
and corporate bonds certainly added value as some sectors, like autos, performed
poorly. Emerging markets was the best performing sector once again among the
non-government sectors as credit quality continued to improve and capital flowed
freely into the sector.
The Fund underperformed its benchmark during the year. Our positions in
investment grade and high yield corporate bonds and emerging market securities
were the largest positive contributor relative to our benchmark. The results of
our country weightings were mixed. We were underweight in Japan but lost value
by not overweighting the long end of the European yield curve. Duration
positioning was another negative factor as long duration bonds outperformed
despite strong economic growth and rising short-term yields. Our process
emphasizes value in bond markets and, given the low level of real yields, we
were surprised at the performance of long-duration bonds in 2005.
2
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Management Discussion and Analysis
- --------------------------------------------------------------------------------
Our outlook for international bonds in 2006 is favorable. 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 probably
pause in raising interest rates while Europe and Canada and perhaps also Japan
continue to raise interest rates. We believe opportunities for added value can
be found in the higher real yielding markets of Australia, the U.K., Sweden and
even the U.S. if the housing market exerts a large drag on economic growth. In a
global tightening cycle Japan may end up being a good diversifying position if
economic growth peters out. Non-government sectors such as corporate and
emerging market bonds have increased in value 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.
During the year we changed portfolio managers on the International Fixed Income
Fund II. Charles Dolan and Thomas Fahey have assumed management responsibility
of the fund while Chuck Cook pursues new responsibilities within the firm.
We appreciate your continued support and look forward to working on your behalf
over the next year.
/s/ Thomas Fahey /s/ Charles Dolan
Thomas Fahey Charles Dolan
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. Unhedged Index
- --------------------------------------------------------------------------------
[GRAPH]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 6/30/1999
- --------------------------------------------------------------------------------
(9.95)% 6.61% 6.87% 5.25%
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.
* Source: Bloomberg Inc.
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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $ 1,000.00 $ 963.60 $ 3.71
Hypothetical (5% return
per year before
expenses) $ 1,000.00 $ 1,021.42 $ 3.82
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.75%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Summary of Combined Ratings
-------------------------------------------------------
Percentage of
Quality Breakdown Investments
-------------------------------------------------------
AAA 59.0%
AA 15.2
A 8.1
BBB 6.7
BB 5.8
B 1.0
Below B 4.2
-----
Total 100.0%
Percentage of
Top Ten Holdings* Rate Maturity Investments
----------------------------------------------------------------------
Bundesobligation 4.500 8/17/2007 7.3%
Swedish Government 5.250 3/15/2011 6.1
Bundesrepub Deutschland 5.250 7/4/2010 5.4
Belgium Government Bond 4.250 9/28/2013 5.2
Deutsche Republic 4.750 7/4/2034 5.0
Hellenic Republic Government Bond 3.700 7/20/2015 4.5
Development Bank of Japan 1.700 9/20/2022 4.3
Queensland Treasury Corp. 0.000 6/14/2011 4.2
Netherlands Government Bond 5.500 7/15/2010 3.8
United Kingdom Gilt 4.750 6/7/2010 3.7
-----
49.5%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
-------------------------------------------------------
Government 69.3%
Corporate 23.9
Emerging Markets 5.9
Cash & equivalents 0.9
-----
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--97.4%
BONDS AND NOTES--95.9%
Corporate--1.5%
Basic Materials--0.2%
Georgia-Pacific Corp. 8.000% 1/15/2024 USD 70,000 $ 66,850
------------
Communications--0.3%
Qwest Corp. 144A (a) 7.741 6/15/2013 125,000 134,844
------------
Financial--1.0%
Chevy Chase Bank FSB 6.875 12/1/2013 45,000 46,350
Glencore Funding LLC 144A 6.000 4/15/2014 105,000 98,757
Residential Capital Corp. 6.375 6/30/2010 45,000 45,725
Residential Capital Corp. (b) 6.875 6/30/2015 80,000 85,007
Residential Capital Corp. (a) 5.896 6/29/2007 55,000 55,136
Residential Capital Corp. (a) 5.670 11/21/2008 155,000 155,204
------------
486,179
------------
Total Corporate (Cost $678,195) 687,873
------------
Sovereign Bonds--4.5%
Argentina Bonos (a) 4.005 8/3/2012 250,000 195,750
Egyptian Treasury Bill 144A 7.500 3/23/2006 480,000 492,869
Egyptian Treasury Bill 144A 9.000 7/14/2006 115,000 119,303
Republic of Brazil 8.000 1/15/2018 115,000 124,085
Republic of Brazil (a) 2.063 4/15/2012 65,001 64,189
Republic of El Salvador 7.650 6/15/2035 65,000 66,950
Republic of Panama 8.875 9/30/2027 95,000 113,050
Republic of Philippines 9.375 1/18/2017 105,000 120,225
Republic of South Africa 9.125 5/19/2009 35,000 39,244
Republic of South Africa 7.375 4/25/2012 50,000 55,500
Republic of Turkey 11.500 1/23/2012 150,000 190,313
Russian Federation 11.000 7/24/2018 20,000 29,475
Russian Federation 5.000 3/31/2030 330,000 372,075
Russian Ministry of Finance 3.000 5/14/2008 140,000 132,475
------------
Total Sovereign Bonds (Cost $2,064,015) 2,115,503
------------
Yankee Bonds--0.3%
Naftogaz Ukrainy 8.125 9/30/2009 100,000 103,500
Rogers Wireless, Inc. 7.500 3/15/2015 25,000 27,000
------------
Total Yankee Bonds (Cost $130,131) 130,500
------------
US Treasury Obligations--2.8%
U.S. Treasury Inflation-Indexed Bond (b) 0.875 4/15/2010 678,166 644,708
U.S. Treasury Note (b) 4.250 8/15/2013 650,000 644,186
------------
Total US Treasury Obligations (Cost $1,317,899) 1,288,894
------------
Foreign Denominated--86.8%
Argentina--0.2%
Republic of Argentina 0.698 9/30/2014 ARS 330,000 108,802
------------
Australia--6.3%
Australian Government Bond 6.000 2/15/2017 AUD 1,335,000 1,042,647
Queensland Treasury Corp. 0.000 6/14/2011 2,480,000 1,873,613
------------
2,916,260
------------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------------
Brazil--0.3%
Republic of Brazil 12.500% 1/5/2016 BRL 285,000 $ 122,267
------------
Canada--3.4%
Canadian Government Bond 5.000 6/1/2014 CAD 560,000 517,128
Canadian Pacific Railway Ltd. 144A 4.900 6/15/2010 95,000 83,460
Province of Ontario 5.200 3/8/2007 555,000 484,184
Quebec Province 4.500 11/29/2007 560,000 484,949
------------
1,569,721
------------
Denmark--0.3%
Realkredit Danmark A/S 4.000 1/1/2006 DKK 735,000 116,643
------------
Euro--46.3%
ASIF III 5.125 5/10/2007 EUR 180,000 218,758
Autostrade SpA (a) 2.552 6/9/2011 200,000 238,704
Belgium Government Bond 4.250 9/28/2013 1,830,000 2,313,833
Bombardier, Inc. 5.750 2/22/2008 100,000 118,350
Bundesobligation (c) 4.500 8/17/2007 2,675,000 3,248,397
Bundesobligation (b) 3.000 4/11/2008 165,000 195,727
Bundesobligation 3.250 4/9/2010 340,000 405,852
Bundesrepub Deutschland 5.250 7/4/2010 1,880,000 2,427,745
Citigroup Inc. (a) 2.237 6/3/2011 110,000 130,246
Deutsche Bundesrepublik (c) 4.000 7/4/2009 270,000 330,108
Deutsche Cap Trust IV (a) 5.330 9/29/2049 85,000 109,068
Deutsche Republic (c) 4.500 1/4/2013 1,005,000 1,285,747
Deutsche Republic 3.250 7/4/2015 795,000 937,261
Deutsche Republic 4.750 7/4/2034 1,550,000 2,209,825
FCE Bank PLC (a) 2.389 6/28/2006 770,000 887,510
French Treasury Note 5.000 1/12/2006 255,000 301,949
GE Capital European Funding (a) 2.198 5/4/2011 110,000 130,127
General Motors Acceptance Corp. 4.375 9/26/2006 60,000 68,849
Glencore Finance Europe SA/Luxembourg 5.375 9/30/2011 190,000 230,869
GMAC International Finance BV (a) 3.876 8/4/2006 275,000 312,444
Hellenic Republic Government Bond 3.700 7/20/2015 1,670,000 2,007,564
Kappa Beheer BV 10.625 7/15/2009 20,000 24,508
Kingdom of Denmark 3.125 10/15/2010 760,000 899,993
Linde Finance BV 6.000 7/29/2049 120,000 145,755
MPS Capital Trust I 7.990 2/7/2011 85,000 119,128
Netherlands Government Bond 5.500 7/15/2010 1,305,000 1,702,039
Owens-Brockway Glass Containers 6.750 12/1/2014 60,000 70,300
Resona Bank Ltd. 144A 4.125 1/10/2049 70,000 82,259
Sogerim 7.000 4/20/2011 100,000 137,414
Sumitomo Mitsui Banking Corp. 144A (a) 4.375 7/15/2049 130,000 155,860
Telenet Communications NV 144A 9.000 12/15/2013 50,000 65,536
------------
21,511,725
------------
Japan--11.8%
Development Bank of Japan 1.600 6/20/2014 JPY 70,000,000 607,752
Development Bank of Japan 1.700 9/20/2022 230,000,000 1,912,050
European Investment Bank 1.400 6/20/2017 85,000,000 709,362
Japan Finance Corp. 1.550 2/21/2012 132,000,000 1,148,774
KFW International Finance 1.750 3/23/2010 125,000,000 1,106,495
------------
5,484,433
------------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------------
Mexico--0.3%
Mexican Fixed Rate Bonds 8.000% 12/19/2013 MXN 1,735,000 $ 161,045
------------
Singapore--2.4%
Singapore Government Bond 3.500 7/1/2012 SGD 1,850,000 1,136,803
------------
Sweden--7.2%
Swedish Government 8.000 8/15/2007 SEK 4,420,000 603,777
Swedish Government 5.250 3/15/2011 19,525,000 2,702,785
------------
3,306,562
------------
United Kingdom--8.3%
Barclays Bank PLC 6.000 9/15/2026 GBP 90,000 161,640
Bat International Finance PLC 6.375 12/12/2019 60,000 112,622
British Telecom PLC 7.125 12/7/2006 125,000 219,991
Deutsche Telekom International Finance BV 7.125 9/26/2012 115,000 221,107
HBOS Capital Funding LP (d) 6.461 11/30/2048 60,000 116,372
Inco 15.750 7/15/2006 200,000 359,449
Transco Holdings PLC 7.000 12/16/2024 50,000 108,085
United Kingdom Gilt 4.750 6/7/2010 925,000 1,628,389
United Kingdom Gilt 8.000 9/27/2013 285,000 615,072
United Kingdom Gilt 4.250 6/7/2032 175,000 313,433
------------
3,856,160
------------
Total Foreign Denominated (Cost $41,648,506) 40,290,421
------------
TOTAL BONDS AND NOTES (COST $45,838,746) 44,513,191
------------
PURCHASED OPTIONS--0.1% Contract Size
-------------
EUR Put/USD Call, Strike Price 1.20, 2/23/06 USD 955,000 20,151
EUR Put/USD Call, Strike Price 1.20, 3/16/06 960,000 21,120
EUR Put/USD Call, Strike Price 1.18, 4/5/06 955,000 14,009
iTRAXX Europe Series 4 Version 1, Strike Price .50, 6/20/2006 (e) EUR 1,950,000 1,351
------------
TOTAL PURCHASED OPTIONS (Cost$46,149) 56,631
------------
SHORT-TERM INVESTMENTS--0.2%
U.S. Treasury Bills--0.2% Par Value
---------
U.S.Treasury Bill (c) (e) 3.800 3/9/2006 USD 50,000 49,648
U.S.Treasury Bill (b)(c)(e) 3.810 3/16/2006 50,000 49,608
------------
TOTAL SHORT-TERM INVESTMENTS (COST $99,243) 99,256
------------
INVESTMENT OF CASH COLLATERAL--1.2% Shares
------
BlackRock Cash Strategies L.L.C. (f) (Cost $563,194) 4.310 USD 563,194 563,194
------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $46,547,332) 45,232,272
------------
AFFILIATED INVESTMENTS--0.4%
Dreyfus Institutional Preferred Money Market Plus Fund (f)(g)
(Cost $172,084) 4.060 172,084 172,084
------------
TOTAL INVESTMENTS--97.8% (Cost $46,719,416) 45,404,356
------------
Other Assets, Less Liabilities--2.2% 1,009,492
------------
NET ASSETS--100% $ 46,413,848
============
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, 2005
- --------------------------------------------------------------------------------
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. At the period end, the value of these
securities amounted to $1,150,629 or 2.5% of net assets.
ARS--Argentina Peso
AUD--Australian Dollar
BRL--Brazilian Real
CAD--Canadian Dollar
DKK--Danish Krone
EUR--Euro
GBP--British Pound
JPY--Japanese Yen
MXN--Mexican Peso
SEK--Swedish Krone
SGD--Singapore Dollar
(a) Variable Rate Security; rate indicated is as of 12/31/2005.
(b) Security, or a portion thereof, was on loan at December 31, 2005.
(c) Denotes all or part of security segregated as collateral.
(d) Step up security; rate indicated is as of 12/31/05.
(e) Rate noted is yield to maturity.
(f) Stated yield is the seven day yield for the fund at year end.
(g) Affiliated institutional money market fund.
At December 31, 2005, the Fund held the following futures contracts:
Underlying Face Unrealized
Contracts to Receive Position Expiration Date Amount at Value Gain/(Loss)
- ------------------------------------------------------------------------------------------------------
U.S. 5 Year Treasury Note (30 Contracts) Short 3/31/2006 $ 3,192,891 $ 2,444
U.S. 10 Year Treasury Note (9 Contracts) Short 3/31/2006 978,047 (6,649)
Euro--Bobl (6 Contracts) Short 3/10/2006 793,931 365
Euro--Bund (4 Contracts) Short 3/15/2006 566,113 (4,872)
--------
$ (8,712)
========
At December 31, 2005, the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2005 to Receive Gain/(Loss)
- -----------------------------------------------------------------------------------------------------
Australian Dollar 3,300,000 3/15/2006 $ 2,414,388 $ 2,457,896 $ 43,508
Brazilian Real 365,000 2/10/2006 154,210 131,074 (23,136)
British Pound Sterling 310,000 3/15/2006 533,223 549,084 15,861
Canadian Dollar 600,000 3/15/2006 517,141 518,659 1,518
Euro 1,320,000 3/15/2006 1,568,745 1,583,981 15,236
Japanese Yen 95,000,000 3/15/2006 813,020 821,494 8,474
Swedish Krona 27,080,000 3/15/2006 3,428,542 3,462,030 33,488
Singapore Dollar 2,000,000 3/15/2006 1,206,054 1,205,330 (724)
------------ ----------- ---------
Total $ 10,635,323 $10,729,548 $ 94,225
============ =========== =========
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2005 to Deliver Gain/(Loss)
- -----------------------------------------------------------------------------------------------------
Brazilian Real 365,000 2/10/2006 $ 154,210 $ 121,667 $ 32,543
Brazilian Real 280,000 3/15/2006 117,238 115,559 1,679
Danish Krone 6,505,000 3/15/2006 1,036,695 1,048,788 (12,093)
Euro 1,715,000 3/15/2006 2,038,183 2,059,887 (21,704)
Japanese Yen 1,394,110,000 3/15/2006 11,930,934 12,071,573 (140,639)
------------ ----------- ---------
Total $ 15,277,260 $15,417,474 $(140,214)
============ =========== =========
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, 2005
- --------------------------------------------------------------------------------
At December 31, 2005, the Fund held the following open swap contracts:
Unrealized
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ----------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Alcoa, Inc., 6.000% due 1/15/2012 Buy (0.415)% 6/20/2010 72,000 USD $ (662)
Bear Stearns Alcoa, Inc., 6.500% due 6/1/2011 Buy (0.52)% 6/20/2010 158,000 USD (2,124)
Bear Stearns Conocophillips, 4.750% due 10/15/2012 Buy (0.31)% 6/20/2010 230,000 USD (860)
Bear Stearns Nucor Corp., 4.875% due 10/01/2012 Buy (0.40)% 6/20/2010 108,000 USD (48)
Bear Stearns Ukraine Government, 7.650% due 6/11/2013 Sell 2.840% 12/20/2009 80,000 USD 4,229
Deutsche Bank Republic of Brazil, 12.25%, due 3/6/2030 Sell 1.450% 10/20/2008 240,000 USD 1,317
Goldman Sachs Consolidated Natural Gas Co.,
6.000% due 10/15/2010 Sell 0.200% 3/20/2006 1,440,000 USD 482
JPMorgan Dow Jones CDX.EM.4 Sell 1.800% 12/20/2010 917,000 USD (2,598)
JPMorgan Daimlerchrysler AG, 7.20% due 9/1/2009 Sell 0.700% 12/20/2010 225,000 EUR (41)
JPMorgan Degussa AG, 5.125% due 12/10/2013 Buy (1.75)% 12/20/2010 375,000 EUR (8,999)
JPMorgan France Telecom, 7.25% due 1/28/2013 Sell 0.660% 12/20/2015 100,000 EUR (1,945)
JPMorgan British American Tobacco PLC,
4.875% due 2/25/2009 Sell 0.425% 12/20/2010 225,000 EUR 978
JPMorgan Glencore International AG,
5.375%, due 9/30/2011 Sell 1.480% 12/20/2010 225,000 EUR 2,523
JPMorgan ICI Wilmington, 5.625% due 12/1/2013 Sell 0.510% 12/20/2010 225,000 EUR 18
JPMorgan iTraxx Europe HiVol Series 4 Version 1 Buy (0.70)% 12/20/2010 1,175,000 EUR (1,322)
JPMorgan Republic of Panama, 8.875% due 9/30/2027 Sell 1.500% 12/20/2010 145,000 USD 294
JPMorgan Republic of Peru, 8.75% due 11/21/2033 Buy (1.70)% 12/20/2010 145,000 USD 2,930
JPMorgan Telecom Italia SPA, 6.25% due 2/1/2012 Sell 0.520% 12/20/2010 225,000 EUR (621)
JPMorgan Volkswagen, 4.875% due 5/22/2013 Sell 0.450% 12/20/2010 225,000 EUR 212
Morgan Stanley Wendy's International, Inc.,
6.25% due 11/15/2011 Buy (0.62)% 12/20/2010 370,000 USD 3,134
---------
$ (3,103)
=========
Unrealized
Interest Rate Swaps Floating Rate Pay/Receive Expiration Notional Appreciation/
Counterparty Index Floating Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Bear Stearns USD--LIBOR--BBA Pay 3.907% 11/19/2009 $ 80,000 $ (2,685)
========
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, 2005
- --------------------------------------------------------------------------------
The Fund held the following written option contracts at December 31, 2005:
Written Put Options Strike Price Expiration Date Contracts Premium Value
- ------------------------------------------------------------------------------------
USD Put/EUR Call 1.2800 2/23/2006 1 $ 9,741 $ 382
USD Put/EUR Call 1.2800 3/16/2006 1 11,219 864
USD Put/EUR Call 1.2600 4/05/2006 1 9,216 2,894
- ------- ------
3 $30,176 $4,140
= ======= ======
Written Call Option Strike Price Expiration Date Contracts Premium Value
- -------------------------------------------------------------------------------------
EUR Put/USD Call 1.1200 4/05/2006 1 $ 4,680 $ 2,562
======= =======
Percentage of
Country Allocation Net Assets
------------------------------------
Euro 47.8%
Japan 12.2
U.K. 8.6
Canada 3.5
Denmark 0.0
Sweden 7.4
Australia 6.5
U.S. 10.6
Singapore 2.5
Mexico 0.4
Brazil 0.3
Argentina 0.2
-----
100.0%
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, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $547,809) (Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $46,547,332) $ 45,232,272
Affiliated issuers, at value (Note 1A) (cost $172,084) (Note 1H) 172,084
Foreign Currency (cost, $516,834) 513,172
Receivable for Fund shares sold 362,563
Receivable from Advisor 164
Swap premium paid 17,012
Unrealized appreciation on forward currency exchange contracts (Note 6) 152,307
Unrealized appreciation on swap contracts (Note 6) 16,117
Interest and dividends receivable 845,946
Receivable for variation margin (Note 6) 1,546
Prepaid expenses 11,387
------------
Total assets 47,324,570
Liabilities
Payable for Fund shares redeemed $ 21,302
Collateral for securities on loan (Note 7) 563,194
Unrealized depreciation on forward currency exchange contracts (Note 6) 198,296
Distributions payable 34,871
Payable for swap premiums 11,921
Unrealized depreciation on swap contracts (Note 6) 21,905
Due to Custodian 9,710
Options written, at value (premium received $46,149) (Note 6) 6,702
Accrued chief compliance officer (Note 2) 404
Accrued professional fees 31,175
Accrued administrative service fees (Note 2) 867
Accrued accounting, administration, custody and transfer agent fees (Note 2) 7,955
Accrued trustees' fees and expenses (Note 2) 1,325
Accrued expenses and other liabilities 1,095
---------
Total liabilities 910,722
------------
Net Assets $ 46,413,848
============
Net Assets consist of:
Paid-in capital $ 48,619,253
Accumulated net realized gain 113,405
Distributions in excess of net investment income (954,782)
Net unrealized depreciation (1,364,028)
------------
Total Net Assets $ 46,413,848
============
Shares of beneficial interest outstanding 2,189,083
============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 21.20
============
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, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income (net of foreign withholding tax of $813) $ 1,859,838
Dividend income from affiliated investments (Note 1H) 85,410
Security lending income (Note 7) 4,985
------------
1,950,233
Expenses
Investment advisory fee (Note 2) $ 192,358
Accounting, administration, custody, and transfer agent fees (Note 2) 117,686
Professional fees 51,844
Registration fees 23,750
Trustees' fees and expenses (Note 2) 7,476
Insurance expense 7,150
Miscellaneous 12,076
------------
Total Expenses 412,340
Deduct:
Waiver of investment advisory fee (Note 2) (51,602)
------------
Net expenses 360,738
------------
Net investment income 1,589,495
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 836,520
Financial futures transactions (26,110)
Written options transactions (2,154)
Foreign currency transactions and forward currency exchange contracts (1,924,660)
Swap transactions 45,493
------------
Net realized gain (loss) (1,070,911)
Change in unrealized appreciation (depreciation) on:
Investments (5,170,199)
Financial futures contracts 3,523
Written options contracts 28,154
Foreign currency translations and forward currency exchange contracts (440,420)
Swap contracts (7,669)
------------
Net change in net unrealized appreciation (depreciation) (5,586,611)
------------
Net realized and unrealized gain (loss) on investments 6,657,522
------------
Net Decrease in Net Assets from Operations $ (5,068,027)
============
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 1,589,495 $ 1,337,696
Net realized gain (loss) (1,070,911) 1,508,254
Change in net unrealized appreciation (depreciation) (5,586,611) 1,775,281
------------ ------------
Net increase (decrease) in net assets from investment operations (5,068,027) 4,621,231
------------ ------------
Distributions to Shareholders (Note 1E)
From net investment income (1,400,043) (1,965,761)
------------ ------------
Total distributions to shareholders (1,400,043) (1,965,761)
------------ ------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 18,026,659 28,789,234
Value of shares issued to shareholders in reinvestment of distributions 1,334,158 1,946,429
Cost of shares redeemed (16,193,309) (7,660,029)
------------ ------------
Net increase (decrease) in net assets from Fund share transactions 3,167,508 23,075,634
------------ ------------
Total Increase (Decrease) in Net Assets (3,300,562) 25,731,104
Net Assets
At beginning of year 49,714,410 23,983,306
------------ ------------
At end of year [including distributions in excess of net investment
income and undistributed net investment income of ($954,782) and $304,457] $ 46,413,848 $ 49,714,410
============ ============
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,
--------------------------------------------------------------
2005 2004 2003 2002 2001
---------- ---------- ---------- ---------- ----------
Net Asset Value, Beginning of Period $ 24.23 $ 22.97 $ 21.66 $ 17.83 $ 18.87
---------- ---------- ---------- ---------- ----------
From Operations:
Net investment income *(a) 0.74 0.88 0.77 0.73 0.73
Net realized and unrealized gain (loss) on investments (3.12) 1.52 3.81 3.10 (1.74)
---------- ---------- ---------- ---------- ----------
Total from investment operations (2.38) 2.40 4.58 3.83 (1.01)
---------- ---------- ---------- ---------- ----------
Less Distributions to Shareholders:
From net investment income (0.65) (1.14) (3.27) -- (0.03)
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (0.65) (1.14) (3.27) -- (0.03)
---------- ---------- ---------- ---------- ----------
Net Asset Value, End of Period $ 21.20 $ 24.23 $ 22.97 $ 21.66 $ 17.83
========== ========== ========== ========== ==========
Total Return (b) (9.95%) 10.73% 21.51% 21.48% (5.31%)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.75% 0.75% 0.55% 0.55% 0.55%
Net Investment Income (to average daily net assets)* 3.31% 3.93% 3.34% 3.87% 3.99%
Portfolio Turnover 139% 132% 192% 178% 205%
Net Assets, End of Period (000's omitted) $ 46,414 $ 49,714 $ 23,983 $ 21,202 $ 40,337
- ----------
* 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 (a) $ 0.72 $ 0.84 $ 0.60 $ 0.60 $ 0.68
Ratios (to average daily net assets):
Expenses 0.86% 0.91% 1.30% 1.23% 0.85%
Net investment income 3.20% 3.77% 2.59% 3.19% 3.69%
(a) Calculated based on average shares outstanding.
(b) 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.
16
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 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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or secutities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost based upon the
value on such date unless the Trustees determine during such sixty-day
period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the yield - to -
maturity method. 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 secutities 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. 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 accounting principles
generally accepted in the United States of America. These differences,
which may result in 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 (loss) 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. 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.
17
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
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. 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.
G. 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 among funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
H. Affiliated issuers
Affiliated issuers are 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
payable 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% of the Fund's average daily net assets
for the year ended December 31, 2005. Pursuant to this agreement, for the
year ended December 31, 2005, Standish Mellon voluntarily waived a portion
of its investment advisory fee in the amount of $51,602. This agreement is
voluntary and temporary and may be discontinued or revised by Standish
Mellon at any time.
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 was charged $7,823 during the year ended December 31, 2005.
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 was charged $109,863 during
the year ended December 31, 2005.
The Fund entered into an agreement with Mellon Bank to perform certain
securities lending activities and to act as the Fund's lending agent.
Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon Bank received $2,131 for the
year December 31, 2005. See Note 7 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
period ended December 31, 2005, the Fund was charged $2,269. No other
director, officer or employee of Standish Mellon or its affiliates
received 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.
18
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. For the year ended
December 31, 2005 the Fund was charged $867 for fees payable to Mellon
Private Wealth Management. The Fund's adviser or its affiliates may pay
additional compensation from their own resources to Plan Administrators
and other entities for administrative services, as well as in
consideration of marketing or other distribution-related services. These
payments may provide an incentive for these entities to actively promote
the Fund or cooperate with the distributor's promotional efforts.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2005 were as follows:
Purchases Sales
----------- -----------
U.S. Government Securities $ 4,410,834 $ 2,594,019
=========== ===========
Investments (non-U.S. Government Securities) $61,207,036 $56,304,982
=========== ===========
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 796,615 1,262,514
Shares issued to shareholders in
reinvestment of distributions
declared 59,347 83,344
Shares redeemed (719,016) (337,694)
-------- ---------
Net increase (decrease) 136,946 1,008,164
======== =========
At December 31, 2005, three shareholders of record held approximately 82%
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
30 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, 2005, the Fund did not
collect any redemption fees
(5) Federal Taxes:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
The tax basis components of distributable earnings and the federal tax
cost as of December 31, 2005, was as follows:
Unrealized appreciation $ 202,664
Unrealized depreciation (1,597,334)
-----------
Net unrealized appreciation/depreciation (1,394,670)
Undistributed ordinary income 178,627
Cost for federal income tax purposes 46,799,026
19
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
---------- ----------
Ordinary income $1,400,043 $1,965,761
The Fund elected to defer to its fiscal year ending December 31, 2006
$989,812 of currency losses recognized during the period November 1, 2005
to December 31, 2005.
(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 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 security 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 option is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
year end. Losses may arise from changes in the value of the underlying
instruments if there is an illiquid secondary market for the contract or
if the counterparty does not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, 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.
Transactions in written call and put options were as follows:
Number of
Written Put Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of period 0 $ 0
Options written 3 30,176
Options expired 0 0
Options closed 0 0
--------- --------
Outstanding, end of period 3 $ 30,176
========= ========
Number of
Written Call Options Transactions Contracts Premiums
--------- --------
Outstanding, beginning of period 0 $ 0
Options written 1 4,680
Options expired 0 0
Options closed 0 0
--------- --------
Outstanding, end of period 1 $ 4,680
========= ========
See Schedule of Investments for further details.
20
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, 2005, the Portfolio held open foreign currency exchange
contracts. See Schedule of Investments for further details.
Futures contracts
The Fund may enter into financial futures contracts for the sale or
delivery of securities or contracts based on financial indices at a fixed
price on a future date. Pursuant to 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 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 counterparty does not perform under the contract's terms.
The Fund 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, 2005, the Fund held open financial futures contracts. See
the 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 at
the beginning of the measurement period are reflected as such on the
Statement of Assets and Liabilities. 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.
At December 31, 2005, the Fund held open swap contracts. See the Schedule
of Investments for further details.
21
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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, 2005 and
earned interest on the invested collateral of $141,111 of which, $136,126
was rebated to borrowers or paid in fees. At December 31, 2005, the Fund
had securities valued at $547,809 on loan. See the 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.
The Fund did not enter into any delayed delivery transactions during the
year ended December 31, 2005.
(9) Line of Credit:
The Fund, and other funds in the Trust and subtrusts in Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties
to a committed line of credit facility, which enables each portfolio/fund
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating portfolio/fund based on its borrowings at a rate equal
to the Federal Funds effective rate plus 1/2 of 1%. In addition, a
facility fee, computed at an annual rate of 0.060 of 1% on the committed
amount, is allocated ratably among the participating portfolio/funds at
the end of each quarter. For the year ended December 31, 2005, the
facility fee was $563 for the Fund.
During the year ended December 31, 2005, the Fund had average borrowing
outstanding of $609,000 for one day and incurred $81 of interest expense.
22
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of the Mellon Institutional Funds Investment Trust and
Shareholders of Standish Mellon International Fixed Income Fund II:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of invesments, 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 II (the "Fund") at December 31, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2006
23
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the
fund's investment adviser or underwriter (the "Independent Trustees")
voting separately, approve the Fund's advisory agreement and the related
fees on an annual basis. In their most recent deliberations concerning
their decision to approve the continuation of the investment advisory
agreement, the Board of Trustees conducted the review and made the
determinations that are described below. In conducting this review and in
making such determinations, the Independent Trustees received from the
Fund's investment adviser, Standish Mellon Asset Management Company LLC
("Standish Mellon"), a broad range of information in response to a written
request prepared on their behalf by their own legal counsel. The
Independent Trustees met alone in a private session with their legal
counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
Standish Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance and any material portfolio manager and strategy
changes that may have affected the Fund in the prior year, as well as the
Fund's "fact sheets" prepared by Standish Mellon providing salient data
about the Fund and Standish Mellon's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
Fund's advisory agreement and the compensation to Standish Mellon provided
therein were fair and reasonable in light of the services performed,
expenses incurred and such other matters as the Trustees considered
relevant in the exercise of their reasonable judgment. The following
summary does not detail all the matters that were considered. Some of the
factors that figured prominently in the Trustees' determination are
described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by Standish Mellon. In their deliberations as to the
continuation of the Fund's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision
of the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Fund effectively.
24
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by Standish Mellon with input from
the Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2005 based on the Lipper materials
provided to the Board at the September 22, 2005 meeting. The Board found
that the Fund underperformed its peer group average returns for the
one-year period (5.19% vs. 7.37%), three-year period (10.60% vs. 11.36%)
and five-year period (7.86% vs. 9.00%). The Trustees requested that
Standish Mellon arrange for a presentation to the Board, as part of the
usual fund reporting cycle, to explain the reasons for the Fund's
underperformance and efforts by Standish Mellon to improve the Fund's
performance.
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to Standish
Mellon. The Lipper data presenting the Fund's "net advisory fees" included
fees paid by the Fund, as calculated by Lipper, for administrative
services provided by Mellon Bank, N.A., the Trust's custodian. Such
reporting was necessary, according to Lipper, to allow the Board to
compare the Fund's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Fund's contractual advisory fee was 0.40%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.619%. The Fund's
net advisory fee, after giving effect to expense limitations, was 0.276%,
below the peer group median net advisory fee of 0.468%. Based on the
Lipper data, as well as other factors discussed at the September 22, 2005
meeting, the Board determined that the Fund's advisory fee is reasonable
relative to its peer group averages, both with and without giving effect
to expense limitations.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Fund
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.747% (after giving effect to expense limitations) was
lower than the median net expense ratio of the peer group of 0.836%
notwithstanding the fact that all of the other funds in the peer group
were larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Fund
and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect
expenses incurred by Standish Mellon or its affiliated investment adviser,
The Boston Company Asset Management, LLC ("TBCAM") in managing the Fund
and other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that, based on the profitability
information submitted to them by Standish Mellon, Standish Mellon incurred
losses in managing many of the investment companies in the Mellon
Institutional Funds family of funds, including the Fund, and that among
those funds that were profitable to Standish Mellon, several generated
only marginal profitability for the firm. The Trustees observed that
Standish Mellon had incurred losses in operating the Fund in both 2003 and
2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size.
The Board concluded that, at existing asset levels and considering current
assets growth projections, the implementation of additional fee
breakpoints or other fee reductions was not necessary at this time. They
requested, however, that management consider the issue of future
breakpoints and respond to the Independent Trustees and to present a
proposal for such breakpoints or, in each case as applicable, management's
rationale as to why such future breakpoints are not necessary or
appropriate for a particular Fund.
25
Mellon Institutional Funds Investment Trust
Standish Mellon International Fixed Income Fund II
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Fund's advisory agreement
and the compensation to Standish Mellon provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one-year period.
26
Trustees and Officers
The following table lists the Trust's trustees and officers; their address and
date of birth; their position with the Trust; the length of time holding that
position with the Trust; their principal occupation(s) during the past five
years; the number of portfolios in the fund complex they oversee; 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 remuneration paid
as of the period ended December 31, 2005. 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 (period 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 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $1,069
c/o Decision Resources, Inc. 11/3/1986 Decision Resources,
260 Charles Street Inc. ("DRI")
Waltham, MA 02453 (biotechnology
9/30/40 research and
consulting firm);
formerly Chairman
of the Board and
Chief Executive
Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex 32 None $1,180
c/o Essex Street Associates 11/3/1986 Street Associates
P.O. Box 5600 (family
Beverly, MA 01915 investment trust
11/14/43 office)
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None $1,069
c/o Harvard University 9/13/1989 Maier, Professor
Littaver Center 127 of Political
Cambridge, MA 02138 Economy, Harvard
8/5/44 University
John H. Hewitt Trustee Trustee since formerly Trustee, 32 None $1,069
P.O. Box 2333 11/3/1986 Mertens House,
New London, NH 03257 Inc. (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and 32 None $ 0
The Boston Company President Chief Operating
Asset Management, LLC and Chief Officer of The
One Boston Place Executive Boston Company
Boston, MA 02108 Officer Asset Management,
7/24/65 LLC; formerly
Senior Vice
President and
Chief Operating
Officer, Mellon
Asset Management
("MAM") and Vice
President and
Chief Financial
Officer, MAM
27
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- -----------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations, Mellon
Mellon Asset Management and Secretary Asset Management ("MAM"); formerly First Vice President,
One Boston Place MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, Mellon Asset
Mellon Asset Management and Treasurer since 1999; Management
One Boston Place Treasurer since
Boston, MA 02108 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager of
One Boston Place Shareholder Services, MAM, Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management Company LLC
1/19/71
Mary T. Lomasney Chief Compliance Since 2005 First Vice President, Mellon Asset Management and Chief
Mellon Asset Management Officer Compliance Officer, Mellon Funds Distributor and Mellon
One Boston Place Optima L/S Strategy Fund, LLC; formerly Director,
Boston, MA 02108 Blackrock, Inc., Senior Vice President, State Street
4/8/57 Research & Management Company ("SSRM"), Vice President,
SSRM
28
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6945AR1205
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Emerging Markets Debt Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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.
[MELLON LOGO] Mellon
--------------------------
Mellon Institutional Funds
February 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o Boston, MA 02108-4402
A Mellon Asset Management Company
1
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
The emerging market debt asset class had another strong year as it outperformed
other asset classes for the third year in a row in 2005. Overall, there was
spread tightening as a result of strong fundamentals, improving credit quality
and strategic inflows into the asset class. There were also periodic sell-offs,
led mostly by exogenous forces, such as rising short-term rates in the U.S. and
equity market volatility. Over 2005, the Emerging Markets Debt Fund outperformed
the JP Morgan index by 256 basis points; it returned 13.29% versus the JP Morgan
EMBI Global index, which returned 10.73%. The Dominican Republic was the best
performing market, returning 24.2%, followed by the Philippines which returned
20.6%. Other notable performers included Venezuela at 16.1% and Uruguay at
16.3%. Russia and Brazil returned 13.29% and 13.21% respectively, while Mexico
underperformed the market, returning 8.1%.
During the year, the tug of war between positive credit fundamentals and inflows
to the asset class on the one hand, and exogenous factors like the Federal
Reserve rhetoric on the other hand, persisted in emerging markets. However,
several key factors dominated the market in 2005: on the positive side, strong
commodity prices and further consolidation in oil prices, continued improvements
in emerging market countries' macroeconomic fundamentals and new strategic
inflows into the asset class. On the negative side, U.S. Fed rate hikes,
inflation scares and sporadic episodes of risk aversion in the equity markets
spooked the market.
The year began with a sell-off in emerging markets, mostly driven by a surge in
issuance as well as U.S. Treasury volatility. The market soon calmed down, but
in April spreads widened again. Volatility and risk aversion continued to
dominate the second quarter as the markets focused on issues related to Ford and
GM, hedge fund correlation trades and fears over a slowdown in U.S. growth.
Reacting to these factors, credit spreads widened and equity markets sold off.
Emerging markets spreads widened, but unlike the 2004 sell-off, the market's
strong fundamental backdrop and continued improvement in credits limited the
extent of the widening.
By the end of the second quarter though, external risk dissipated and the market
began focusing on emerging markets fundamentals. Argentina successfully
restructured its defaulted debt, which was upgraded by Moody's, a boost to the
asset class. In Europe, as expected, France and The Netherlands rejected the EU
constitution. While this was disappointing, the impact on Turkey and other
accession countries was muted. Finally, the resurgence of oil prices was
supportive for credits like Russia and Venezuela, further improving sentiment
toward emerging markets, and driving emerging markets spreads much tighter.
In the third quarter, strong inflows and favorable fundamentals dominated
emerging markets markets, driving spreads tighter, and ignoring the uncertain
external environment. U.S. monetary policy was a key risk as the Federal Reserve
kept on tightening rates, however, several key factors were favorable for the
sector.
2
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
First, the trend of rising commodity prices was a plus: while it threatened
global growth, it remained a key support to the asset class given that most
emerging market countries are large exporters of oil and other natural
resources. This helped strengthen the current account and fiscal account
position for most countries. Further, excess cash from oil exports receipts has
enabled countries like Russia to continue to buy back their external debt.
Second, equity market volatility, a key driver of emerging markets, remained
low. Third, strategic inflows at the end of the third quarter helped spreads
grind tighter.
In terms of performance, the Fund began the year on a soft note, and was flat to
the index in the first quarter. We had positioned the portfolio for stable to
slightly tighter spreads, keeping beta higher than the index and increasing
spread duration. However, performance turned around, and the Fund outperformed
the JP Morgan EMBI Global Index every quarter for the rest of the year as the
Fund correctly overweighed credits like the Dominican Republic, Brazil, Russia,
Venezuela and the Philippines.
The outlook for 2006 is positive as we expect the emerging markets asset class
to continue to differentiate itself from other asset classes. Fundamentals have
improved significantly, and positive technicals, such as strategic inflows, are
expected to continue. Another positive is that many emerging markets
pre-financed in 2005 for 2006, so there should be less financing needs in 2006.
On the external side, we feel that the Fed is close to the end of its tightening
cycle. This is usually positive for emerging markets as well. Some of the risks
in our outlook include an unfavorable global economic backdrop or a significant
geopolitical scare. Further, we expect some particular uncertainties due to the
multiple elections in Latin America. We do not expect the broader spreads to
widen by much, but the risk would be country specific.
We thank you for your continued support.
/s/ John L. Peta /s/ Boris Segura
John L. Peta Boris Segura
3
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Comparison of Change in Value of $100,000 Investment in Standish Mellon
Emerging Markets Debt Fund and the JP Morgan EMBI Global Index
- --------------------------------------------------------------------------------
[PLOT POINTS TO COME]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 03/26/2001
- --------------------------------------------------------------------------------
13.29% 17.65% 15.74%
Average annual total returns reflect the change in the value of an investment,
assuming reinvestment of the fund's dividend income and capital gains. The
$100,000 line graph and the fund's returns do not reflect the deduction of taxes
that a shareholder would pay on fund distributions or the redemption of fund
shares. During periods of reimbursement by the fund's investment adviser (if
applicable), the fund's total return will be greater than it would be had the
reimbursement not occurred. Past performance is not predictive of future
performance.
* Source: Bloomberg Inc.
4
Mellon Institutional Funds Investment Trust
Standish Mellon 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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,064.80 $2.19
Hypothetical (5% return
per year before expenses) $1,000.00 $1,023.29 $2.14
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.42%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
Russian Federation 5.000 3/31/2030 9.7%
Republic of Brazil 5.250 4/15/2012 3.2
Republic of Brazil 8.750 2/4/2025 2.7
Republic of Brazil 8.000 1/15/2018 2.7
Republic of Brazil 11.000 8/17/2040 2.6
Pemex Project Funding Master Trust 8.625 2/1/2022 2.4
United Mexican States 8.125 12/30/2019 2.4
Republic of Brazil 11.000 1/11/2012 2.4
Republic of Turkey 11.875 1/15/2030 2.3
Republic of Turkey 11.750 6/15/2010 2.2
-------
32.6%
* Excluding short-term investments and investment of cash collateral.
6
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--99.8%
BONDS AND NOTES--96.4%
Corporate--9.5%
Consumer Goods--1.8%
Argentine Beverages Finance 144A 7.375% 3/22/2012 USD 30,000 $ 30,150
Celulosa Arauco y Constitution SA (e) 5.625 4/20/2015 70,000 69,489
Innova S de RL 9.375 9/19/2013 45,000 49,950
-----------
149,589
-----------
Energy--6.5%
Morgan Stanley Bank AG for OAO Gazprom 144A 9.625 3/1/2013 100,000 120,625
National Power Corp. 144A (a) 8.630 8/23/2011 35,000 37,607
Pemex Project Funding Master Trust 6.625 6/15/2035 55,000 55,138
Pemex Project Funding Master Trust 7.375 12/15/2014 55,000 61,105
Pemex Project Funding Master Trust 8.625 2/1/2022 155,000 190,263
Salomon Brothers AF for OAO Siberian Oil Co. 10.750 1/15/2009 40,000 45,244
Salomon Brothers AF for Tyumen Oil Co. 11.000 11/6/2007 30,000 32,559
-----------
542,541
-----------
Utilities--1.2%
Cent Elet Brasileiras SA 144A 7.750 11/30/2015 100,000 102,000
-----------
Total Corporate (Cost $768,400) 794,130
-----------
Sovereign Bonds--78.9%
Banco Nacional de Comercio Exterior SNC 144A (e) 3.875 1/21/2009 140,000 134,400
Dominican Republic 9.040 1/23/2018 41,956 44,159
Egyptian Treasury Bill 144A 7.500 3/23/2006 70,000 71,877
Egyptian Treasury Bill 144A 9.000 7/14/2006 100,000 103,742
Lebanese Republic 8.500 1/19/2016 35,000 36,575
Ministry Finance Russia 3.000 5/14/2011 60,000 53,550
Nigeria Promissory Notes Series RC 5.092 1/5/2010 265,000 74,200
Republic of Argentina 2.000 1/3/2010 57,000 36,645
Republic of Argentina (a) 4.005 8/3/2012 105,000 82,215
Republic of Argentina (c) 1.330 12/31/2038 70,000 23,100
Republic of Argentina (b) (e) 8.280 12/31/2033 77,776 65,332
Republic of Brazil 14.500 10/15/2009 55,000 70,538
Republic of Brazil 10.000 8/7/2011 75,000 87,188
Republic of Brazil 8.875 10/14/2019 45,000 50,423
Republic of Brazil 8.750 2/4/2025 200,000 221,000
Republic of Brazil 8.250 1/20/2034 150,000 159,225
Republic of Brazil (e) 11.000 8/17/2040 160,000 206,240
Republic of Brazil 14.500 10/15/2009 50,000 64,125
Republic of Brazil (a) 5.250 4/15/2012 257,711 254,489
Republic of Brazil (b) 11.000 1/11/2012 155,000 189,100
Republic of Brazil (b) 8.000 1/15/2018 193,000 208,247
Republic of Colombia 10.000 1/23/2012 95,000 113,050
Republic of Colombia 8.125 5/21/2024 30,000 32,400
Republic of Colombia (a) 6.142 11/16/2015 100,000 102,000
Republic of Costa Rica 144A 8.050 1/31/2013 40,000 42,860
Republic of Ecuador (c) 7.000 8/15/2030 35,000 31,850
Republic of Ecuador 144A 9.375 12/15/2015 100,000 93,250
Republic of El Salvador 8.250 4/10/2032 60,000 66,300
Republic of El Salvador 144A 7.650 6/15/2035 35,000 36,050
Republic of Indonesia 7.250 4/20/2015 35,000 35,919
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -------------------------------------------------------------------------------------------------
Sovereign Bonds (continued)
Republic of Indonesia 144A 8.500 10/12/2035 USD 100,000 $ 108,750
Republic of Panama 7.125 1/29/2026 55,000 55,688
Republic of Panama 8.875 9/30/2027 120,000 142,800
Republic of Peru 9.875% 2/6/2015 120,000 144,000
Republic of Peru 8.750 11/21/2033 15,000 16,875
Republic of Philippines 8.375 2/15/2011 65,000 70,200
Republic of Philippines 9.375 1/18/2017 140,000 160,300
Republic of Philippines 10.625 3/16/2025 45,000 57,150
Republic of Philippines (b) 9.500 2/2/2030 90,000 105,750
Republic of Serbia 3.750 11/1/2024 70,000 62,300
Republic of South Africa 7.375 4/25/2012 95,000 105,450
Republic of Turkey 11.750 6/15/2010 145,000 177,625
Republic of Turkey 7.250 3/15/2015 45,000 47,363
Republic of Turkey 7.375 2/5/2025 110,000 113,575
Republic of Turkey 11.875 1/15/2030 18,000 27,675
Republic of Turkey (b) 11.875 1/15/2030 120,000 184,500
Republic of Uruguay 7.500 3/15/2015 100,000 102,750
Republic of Venezuela 10.750 9/19/2013 90,000 110,700
Republic of Venezuela 8.500 10/8/2014 30,000 33,000
Republic of Venezuela 7.650 4/21/2025 80,000 81,700
Republic of Venezuela 9.250 9/15/2027 145,000 171,825
Republic of Venezuela (a) 5.194 4/20/2011 110,000 107,800
Republic of Vietnam 144A 6.875 1/15/2016 100,000 104,250
Russian Federation 12.750 6/24/2028 80,000 146,800
Russian Federation 5.000 3/31/2030 692,000 780,230
Russian Ministry of Finance 3.000 5/14/2008 85,000 80,431
United Mexican States 8.375 1/14/2011 90,000 102,600
United Mexican States 6.625 3/3/2015 30,000 32,850
United Mexican States 8.125 12/30/2019 155,000 190,263
United Mexican States 6.750 9/27/2034 40,000 43,750
United Mexican States (b) 6.375 1/16/2013 90,000 95,625
-----------
Total Sovereign Bonds (Cost $6,273,500) 6,554,624
-----------
Yankee Bonds--5.8%
Braskem Sa 144A 12.500 11/5/2008 45,000 52,538
Kazkommerts International Bank 144A 8.000 11/3/2015 100,000 105,810
Naftogaz Ukrainy 8.125 9/30/2009 100,000 103,500
Telefonos de Mexico SA de CV 4.750 1/27/2010 130,000 127,715
VTB CAP (Vneshtorgbank) 144A (a) 5.250 9/21/2007 100,000 100,147
-----------
Total Yankee (Cost $485,466) 489,710
-----------
Foreign Denominated--2.2%
Argentina--1.3%
Republic of Argentina 0.698 9/30/2014 ARS 160,000 52,752
Republic of Argentina 2.000 1/3/2016 90,000 52,693
-----------
105,445
-----------
Mexico--0.9%
Mexican Fixed Rate Bonds 8.000 12/19/2013 MXN 800,000 74,256
-----------
Total Foreign Denominated (Cost $274,485) 179,701
-----------
TOTAL BONDS AND NOTES (Cost $7,801,851) 8,018,165
-----------
The accompanying notes are an integral part of the financial statements.
8
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Value
Security Description Rate Shares (Note 1A)
- --------------------------------------------------------------------------------------------------------------
WARRANTS--0.3%
Republic of Argentina Warrant, 12/15/2035 (d) 311,923 $ 16,220
United Mexican States Warrant, 10/10/2006 (d) 135 5,397
-----------
Total Warrants (Cost $3,380) 21,617
-----------
Contract
OPTIONS--0.0% Size
--------
Dow Jones CDX. EM Series 4, exercise rate 100.9%, 2/21/2006 (premium paid $960) 150,000 1,200
-----------
SHORT-TERM INVESTMENTS--4.8%
INVESTMENT OF CASH COLLATERAL--3.1% Shares
--------
BlackRock Cash Strategies L.L.C. (f) (Cost $254,310) 4.310 254,310 254,310
-----------
TOTAL UNAFFILIATED INVESTMENTS (Cost $8,060,501) 8,295,292
-----------
AFFILIATED INVESTMENTS--1.7%
Dreyfus Institutional Preferred Plus Money Market Fund (f) (g) (Cost $140,356) 4.060 140,356 140,356
-----------
TOTAL INVESTMENTS--101.5% (Cost $8,200,857) 8,435,648
-----------
Liabilities in Excess of Other Assets--(1.5%) (123,275)
-----------
NET ASSETS--100.0% $ 8,312,373
===========
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, normally to qualified institutional buyers. At the year end,
the value of these securities amounted to $1,244,056 or 15.0% of net
assets.
ARS--Argentina Peso
MXN--Mexican Peso
(a) Variable Rate Security; rate indicated as of 12/31/05.
(b) Security, or a portion of thereof, was on loan at 12/31/05.
(c) Stepup bond, rate indicated as of 12/31/05
(d) Non-income producing.
(e) Denotes all or part of security pledged as collateral.
(f) Stated rate is the seven day yield for the fund at year end.
(g) Affiliated institutional money market fund.
At December 31, 2005 the Fund held the following forward foreign currency
exchange contracts:
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Deliver Amount Value Date December 31, 2005 to Receive Gain/(Loss)
- -------------------------------------------------------------------------------------------------
Brazilian Real 415,000 1/17/2006 $ 176,574 $ 150,794 $ (25,780)
Brazilian Real 175,000 2/1/2006 74,115 72,494 (1,621)
Brazilian Real 420,000 2/22/2006 176,879 139,278 (37,601)
Mexican Peso 383,000 3/15/2006 36,056 35,267 (789)
Turkish Lira 78,000 4/3/2006 56,479 56,481 2
--------- --------- ---------
Total $ 520,103 $ 454,314 $ (65,789)
========= ========= =========
The accompanying notes are an integral part of the financial statements.
9
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
At December 31, 2005 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, 2005 to Receive Gain/(Loss)
- -------------------------------------------------------------------------------------------------
Brazilian Real 415,000 1/17/2006 $ 176,573 $ 134,697 $ 41,876
Brazilian Real 175,000 2/1/2006 74,115 67,895 6,220
Brazilian Real 420,000 2/22/2006 176,879 143,296 33,583
Brazilian Real 210,000 5/25/2006 86,198 86,659 (461)
Turkish Lira 156,000 4/3/2006 112,959 111,625 1,334
--------- --------- ---------
Total $ 626,724 $ 544,172 $ 82,552
========= ========= =========
At December 31, 2005, the Fund held the following open swap contracts:
Credit Default Swaps Reference Buy/Sell Expiration Notional Unrealized
Counterparty Entity Protection Fixed Rate Date Amount Appreciation
- ---------------------------------------------------------------------------------------------------------------------------
Bear Stearns Ukraine Government, 7.650% due 6/11/2013 Sell 2.84% 12/20/2009 $110,000 $ 5,817
Deutsche Bank Republic of Brazil, 12.25%, due 3/6/2030 Sell 1.45% 10/20/2008 331,000 1,817
Deutsche Bank Gazprom, 9.125%, due 4/25/2007 Sell 1.04% 11/20/2007 325,000 1,764
JP Morgan Republic of Panama, 8.875% due 9/30/2027 Sell 1.50% 12/20/2010 44,000 87
JP Morgan Republic of Peru, 8.75% due 11/21/2033 Buy (1.70%) 12/20/2010 44,000 889
-------
$10,374
=======
At December 31, 2005, the Fund held the following written option call contract:
Exercise Expiration Notional
Security Counter Party Rate Date Amount Premium Value
- --------------------------------------------------------------------------------------------
Dow Jones CDX.EM Series 4 Deutsche Bank 1.80% 2/21/2006 $300,000 $960 $1,200
Percentage of
Geographic Region Investments
-------------------------------------------------------------------
Latin America 57.0%
Europe 28.0
Asia 7.6
Africa 4.0
Middle East 1.6
Cash & equivalents 1.8
-----
100.0%
10
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $246,521 (Note 7))
Unaffiliated issuers, at value (Note 1A) (cost $8,060,501) $8,295,292
Affiliated issuers, at value (Note 1A) (cost $140,356) (Note 1H) 140,356
Foreign currency (cost $1,437) 1,419
Receivable for securities sold 29,464
Interest and dividends receivable 162,089
Unrealized appreciation on forward currency exchange contracts (Note 6) 83,015
Unrealized appreciation on swap contracts, (Note 6) 10,374
Prepaid expenses 18,336
----------
Total assets 8,740,345
Liabilities
Collateral for securities on loan (Note 7) $ 254,310
Payable for securities purchased 1,040
Unrealized depreciation on forward currency exchange contracts (Note 6) 66,252
Options written (premium received $960) (Note 6) 1,200
Distributions payable 58,695
Accrued accounting, administration, custody and transfer agent fees (Note 2) 5,658
Accrued chief compliance officer fee (Note 2) 403
Accrued professional fees 37,601
Accrued trustees' fees and expenses (Note 2) 632
Other accrued expenses and liabilities 2,181
---------
Total liabilities 427,972
----------
Net Assets $8,312,373
----------
Net Assets consist of:
Paid-in capital $8,046,778
Accumulated net realized gain 20,839
Distributions in excess of net investment income (16,939)
Net unrealized appreciation 261,695
----------
Total Net Assets $8,312,373
==========
Shares of beneficial interest outstanding 425,649
==========
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 19.53
==========
The accompanying notes are an integral part of the financial statements.
11
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Statement of Operations
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 610,382
Dividend income from affiliated investments (Note 1H) 4,872
Securitity lending income (Note 7) 8,389
----------
Total investment income 623,643
Expenses
Investment advisory fee (Note 2) $ 38,879
Accounting, administration, custody, and transfer agent fees (Note 2) 56,657
Professional fees 53,849
Registration fees 5,825
Trustees' fees and expenses (Note 2) 2,894
Insurance expense 4,900
Miscellaneous 9,048
---------
172,052
Deduct:
Waiver of investment advisory fee (Note 2) (38,879)
Reimbursement of Fund operating expenses (Note 2) (105,373)
---------
Total expense deductions (144,252)
---------
Net expenses 27,800
----------
Net investment income 595,843
Realized and Unrealized Gain (Loss) on:
Net realized gain (loss)
Investments 577,768
Financial future transactions 9,607
Foreign currency transactions and forward currency exchange transactions 48,120
Swap transactions 2,773
---------
Net realized gain 638,268
Change in unrealized appreciation (depreciation) on:
Investments (418,263)
Futures contracts 4,733
Foreign currency translations and forward currency exchange contracts 14,633
Swap contracts 6,276
Written options contracts (240)
---------
Net change in net unrealized appreciation (depreciation) (392,861)
----------
Net realized and unrealized gain (loss) on investments 245,407
----------
Net Increase in Net Assets from Operations $ 841,250
==========
The accompanying notes are an integral part of the financial statements.
12
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the For the
Year Ended Year Ended
December 31, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 595,843 $ 1,148,795
Net realized gain (loss) 638,268 618,467
Change in net unrealized appreciation (depreciation) (392,861) 111,845
------------- -----------
Net increase (decrease) in net assets from investment operations 841,250 1,879,107
------------- -----------
Distributions to Shareholders (Note 1C)
From net investment income (535,695) (1,054,097)
From net realized gains on investments (800,032) (668,039)
------------- -----------
Total distributions to shareholders (1,335,727) (1,722,136)
------------- -----------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 3,475,000 3,011,075
Value of shares issued to shareholders in reinvestment of distributions 1,162,757 1,122,390
Cost of shares redeemed (6,833,029) (9,520,626)
------------- -----------
Net increase (decrease) in net assets from Fund share transactions (2,195,272) (5,387,161)
------------- -----------
Total Increase (Decrease) in Net Assets (2,689,749) (5,230,190)
Net Assets
At beginning of year 11,002,122 16,232,312
------------- -----------
At end of year [including distributions in excess of
net investment income ($16,939) and ($16,065)] $ 8,312,373 $11,002,122
============= ===========
The accompanying notes are an integral part of the financial statements.
13
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Financial Highlights
- --------------------------------------------------------------------------------
For the Period
March 26, 2001
Year Ended December 31, (commencement
---------------------------------------- of operations) to
2005 2004 2003 2002 December 31, 2001
------ ------- ------- ------ -----------------
Net Asset Value, Beginning of the Year $20.37 $ 20.81 $ 18.39 $17.67 $20.00
------ ------- ------- ------ ------
From Investment Operations:
Net investment income * (a) 1.57 1.56 1.61 1.59 1.58
Net realized and unrealized gain (loss)
on investmets 0.98 0.72 3.59 0.65 0.10
------ ------- ------- ------ ------
Total from investment operations 2.55 2.28 5.20 2.24 1.68
------ ------- ------- ------ ------
Less Distributions to Shareholders:
From net investment income (1.40) (1.53) (1.32) (1.52) (3.90)
From net realized gain on investments (1.99) (1.19) (1.46) -- --
From tax return of capital -- -- -- -- (0.11)
------ ------- ------- ------ ------
Total distributions to shareholders (3.39) (2.72) (2.78) (1.52) (4.01)
------ ------- ------- ------ ------
Net Asset Value, End of Year $19.53 $ 20.37 $ 20.81 $18.39 $17.67
====== ======= ======= ====== ======
Total Return (b) 13.29% 11.54% 28.82% 13.20% 8.94%(c)
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.36% 0.30% 0.30% 0.30% 0.30%(d)
Net Investment Income (to average daily net 7.67% 7.53% 7.64% 8.83% 10.33%(d)
assets)*
Portfolio Turnover 172% 228% 224% 421% 505%(c)
Net Assets, End of Year (000's omitted) $8,314 $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 (a) $ 1.19 $ 1.37 $ 1.26 $ 1.23 $ 1.34
Ratios (to average daily net assets):
Expenses 2.22% 1.23% 1.92% 2.31% 1.82%(d)
Net investment income 5.81% 6.60% 6.02% 6.82% 8.81%(d)
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of fee waivers and
expense limitations.
(c) Not annualized.
(d) Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
14
Mellon Institutional Funds Investment Trust
Standish Mellon 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 Emerging Markets Debt Fund (the "Fund") is a
separate non-diversified investment series of the Trust.
The Fund's Board of Trustees approved, effective November 1, 2005, the
change in the Fund's name from "Standish Mellon Opportunistic Emerging
Markets Debt Fund" to "Standish Mellon Emerging Markets Debt Fund".
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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost based upon the
value on such date unless the Trustees determine during such sixty-day
period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the
yield-to-maturity method. 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. 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 accounting principles
generally accepted in the United States of America. These differences,
which may result in 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 (loss) 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.
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.
15
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
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.
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 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.
G. 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 among funds of the Trust taking into consideration,
among other things, the nature and type of expense and the relative size
of the funds.
H. Affiliated issuers
Affiliated issuers are 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, 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 period
from January 1, 2005 to October 31, 2005 and 0.65% for the period November
1, 2005 to December 31, 2005. Pursuant to this agreement, for the year
ended December 31, 2005, Standish Mellon voluntarily waived its investment
advisory fee in the amount of $38,879 and reimbursed the Fund for $105,373
of other operating expenses. This agreement is voluntary and temporary and
may be discontinued or revised by Standish Mellon at any time.
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 was charged $6,379 during the year ended December 31, 2005.
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 was charged $50,278 during
the year ended December 31, 2005.
16
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt 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.
Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon bank received $3,602 for the
year ended December 31, 2005. See Note 7 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
period ended December 31, 2005, the Fund was charged $2,269 for fees
payable to Mellon Private Wealth Management. No other director, officer or
employee of Standish Mellon or its affiliates received any compensation
from the Trust or the Fund for serving as an officer or Trustee of the
Trust. The Trust pays each Trustee who is not a director, officer or
employee of Standish Mellon or its affiliates an annual fee and a per
meeting fee as well as reimbursement for travel and out of pocket
expenses. In addition, the Trust pays the legal fees for the independent
counsel of the Trustees.
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. The Fund's adviser or its
affiliates may pay additional compensation from their own resources to
Plan Administrators and other entities for administrative services, as
well as in consideration of marketing or other distribution-related
services. These payments may provide an incentive for these entities to
actively promote the Fund or cooperate with the distributor's promotional
efforts.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 2005, were as follows:
Purchases Sales
----------- -----------
U.S. Government Securities $ 371,445 $ 370,740
=========== ===========
Investments (non-U.S. Government Securities) $12,737,655 $15,786,655
=========== ===========
(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, 2005 December 31, 2004
----------------- ------------------
Shares sold 170,232 158,814
Shares issued to shareholders
reinvestment of distributions
declared 59,293 55,260
Shares redeemed (343,898) (454,120)
-------- --------
Net increase (decrease) (114,373) (240,046)
======== ========
At December 31, 2005, seven shareholders of record held approximately
99.96% 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
30 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, 2005, the Fund did not
collect any redemption fees.
17
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt 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, 2005, was as follows:
Unrealized appreciation $ 375,223
Unrealized depreciation (150,565)
-----------
Net unrealized appreciation/depreciation 224,658
Undistributed ordinary income 18,708
Undistributed long term capital gain 12,264
Cost for federal income tax purposes 8,210,990
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
----------- -----------
Ordinary income $ 1,197,960 $ 1,653,944
Capital gains-long term 137,767 68,192
----------- -----------
$ 1,335,727 $ 1,722,136
=========== ===========
The Fund elected to defer to its fiscal year ending December 31, 2006
$1,511 of currenct losses recognized during the period November 1, 2004 to
December 31, 2005.
(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 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 security 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 option is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
year end. Losses may arise from changes in the value of the underlying
instruments if there is an illiquid secondary market for the contract or
if the counterparty does not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Fund is exercised, the
premium reduces the cost basis of the securities purchased by the Fund.
The Fund, 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.
During the year ended December 31, 2005, the Fund entered into the
following transactions:
Number of
Contracts Premiums
--------- --------
Outstanding, beginning of period 0 $ -
Options written 1 960
--------- --------
Outstanding, end of year 1 $ 960
========= ========
The Fund had option transactions outstanding during the year ended
December 31, 2005. See the Schedule of Investments for future details.
18
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 are included in the Statement of
Assets and Liabilities.
At December 31, 2005, the Fund held foreign currency exchange contracts.
See the Schedule of Investments for further details.
Futures contracts
The Fund may enter into financial futures contracts for the sale or
delivery of securities or contracts based on financial indices at a fixed
price on a future date. Pursuant to 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 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 counterparty does not perform under the contract's terms.
The Fund 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, 2005, the Fund did not hold any financial futures
contracts.
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 at
the beginning of the measurement period are reflected as such on the
Statement of Assets and Liabilities. 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.
At December 31, 2005, the Fund had swap agreements outstanding. See the
Schedule of Investments for further details.
19
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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, 2005 and
earned interest on the invested collateral of $35,278 of which, $26,889
was rebated to borrowers or paid in fees. At December 31, 2005, the Fund
had securities valued at $246,521 on loan. See the 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.
The Fund did not enter into any delayed delivery transactions during the
year ended December 31, 2005.
(9) Line of Credit:
The Fund, and other funds in the Trust and subtrusts in Mellon
Institutional Funds Master Portfolio (the "Portfolio Trust") are parties
to a committed line of credit facility, which enables each portfolio/fund
to borrow, in the aggregate, up to $35 million. Interest is charged to
each participating portfolio/fund based on its borrowings at a rate equal
to the Federal Funds effective rate plus 1/2 of 1%. In addition, a
facility fee, computed at an annual rate of 0.060 of 1% on the committed
amount, is allocated ratably among the participating portfolio/funds at
the end of each quarter. For the year ended December 31, 2005, the
facility fee was $169 for the Fund.
During the year ended December 31, 2005, the Fund had average borrowings
outstanding of $24,290 for a total of thirty-one days and incurred $86 of
interest expense.
20
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Report of Independent Registered Public Accounting Firm
- --------------------------------------------------------------------------------
To the Trustees of Mellon Institutional Funds Investment Trust and Shareholders
of Standish Mellon 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 Emerging Markets
Debt Fund, formerly Standish Mellon Opportunistic Emerging Markets Debt Fund,
(the "Fund") at December 31, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the four years in
the period then ended and the period March 26, 2001 (commencement of operations)
through December 31, 2001, 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
21
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the
fund's investment adviser or underwriter (the "Independent Trustees")
voting separately, approve the Fund's advisory agreement and the related
fees on an annual basis. In their most recent deliberations concerning
their decision to approve the continuation of the investment advisory
agreement, the Board of Trustees conducted the review and made the
determinations that are described below. In conducting this review and in
making such determinations, the Independent Trustees received from the
Fund's investment adviser, Standish Mellon Asset Management Company LLC
("Standish Mellon"), a broad range of information in response to a written
request prepared on their behalf by their own legal counsel. The
Independent Trustees met alone in a private session with their legal
counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
Standish Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance and any material portfolio manager and strategy
changes that may have affected the Fund in the prior year, as well as the
Fund's "fact sheets" prepared by Standish Mellon providing salient data
about the Fund and Standish Mellon's views concerning the issues of
breakpoints in the management fee schedule of the Fund and potential
economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Fund's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
Fund's advisory agreement and the compensation to Standish Mellon provided
therein were fair and reasonable in light of the services performed,
expenses incurred and such other matters as the Trustees considered
relevant in the exercise of their reasonable judgment. The following
summary does not detail all the matters that were considered. Some of the
factors that figured prominently in the Trustees' determination are
described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Fund by Standish Mellon. In their deliberations as to the
continuation of the Fund's advisory agreement, the Trustees were also
mindful of the fact that, by choosing to invest in the Fund, the Fund's
shareholders have chosen to entrust Standish Mellon, under the supervision
of the Board, to manage the portion of their assets invested in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Fund's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Fund effectively.
22
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund against a peer
group of investment companies selected by Standish Mellon with input from
the Trustees. The Board also compared the Fund's investment performance
against the average performance of a larger universe of funds regarded by
Lipper as having similar investment objectives and considered the Fund's
performance rankings against that universe. In addition to the information
received by the Board for at the September 22, 2005 Board meeting, the
Trustees received similar detailed comparative performance information for
the Fund at each regular Board meeting during the year.
The Board considered the Fund's performance for the one- and three-year
periods ended July 31, 2005 based on the Lipper materials provided to the
Board at the September 22, 2005 meeting. The Board found that the Fund
underperformed its peer group average returns for the one-year period
(20.22% vs. 20.69%) and three-year period (21.11% vs. 22.83%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Fund to Standish
Mellon. The Lipper data presenting the Fund's "net advisory fees" included
fees paid by the Fund, as calculated by Lipper, for administrative
services provided by Mellon Bank, N.A., the Trust's custodian. Such
reporting was necessary, according to Lipper, to allow the Board to
compare the Fund's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Fund's contractual advisory fee was 0.50%, in the 1st (best) quintile
of its peer group of funds, the median fee of which was 0.754%.
The Fund's net advisory fee, after giving effect to expense limitations,
was 0.098%, well below the peer group median net advisory fee of 0.715%.
Based on the Lipper data, as well as other factors discussed at the
September 22, 2005 meeting, the Board determined that the Fund's advisory
fee is reasonable relative to its peer group averages, both with and
without giving effect to expense limitations.
The Board also compared the fees payable by the Fund relative to those
payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Fund
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable.
The Board also considered the Fund's expense ratio and compared it to that
of its peer group of similar funds. The Board found that the actual net
expense ratio of 0.30% (after giving effect to expense limitations) was
lower than the median net expense ratio of the peer group of 1.054%
notwithstanding the fact that all of the other funds in the peer group
were larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the Fund
and the Mellon Institutional Funds as a group, as well as the methodology
used to compute such profitability, and the various direct and indirect
expenses incurred by Standish Mellon or its affiliated investment adviser,
The Boston Company Asset Management, LLC ("TBCAM") in managing the Fund
and other funds in the Mellon Institutional Funds family of funds. The
Independent Trustees had observed that, based on the profitability
information submitted to them by Standish Mellon, Standish Mellon incurred
losses in managing many of the investment companies in the Mellon
Institutional Funds family of funds, including the Fund, and that among
those funds that were profitable to Standish Mellon, several generated
only marginal profitability for the firm. The Trustees observed that
Standish Mellon had incurred losses in operating the Fund in both 2003 and
2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Standish Mellon Fixed
Income Portfolio, the largest fund in the complex, already had breakpoints
in its fee arrangement that reflected economies resulting from its size.
The Board concluded that, at existing asset levels and considering current
assets growth projections, the implementation of additional fee
breakpoints or other fee reductions was not necessary at this time. They
requested, however, that management consider the issue of future
breakpoints and respond to the Independent Trustees and to present a
proposal for such breakpoints or, in each case as applicable, management's
rationale as to why such future breakpoints are not necessary or
appropriate for a particular Fund.
23
Mellon Institutional Funds Investment Trust
Standish Mellon Emerging Markets Debt Fund
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Fund's advisory agreement
and the compensation to Standish Mellon provided therein are fair and
reasonable and, thus, in approving the continuation of the agreement for a
one-year period.
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 remuneration paid
as of the period ended December 31, 2005. 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 (period 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 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus, 32 None $611
c/o Decision Resources, Inc. 11/3/1986 Decision Resources, Inc.
260 Charles Street ("DRI") (biotechnology
Waltham, MA 02453 research and consulting
9/30/40 firm); formerly Chairman
of the Board and Chief
Executive Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex Street 32 None $637
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 5600 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier, 32 None $611
c/o Harvard University 9/13/1989 Professor of Political
Littaver Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, 32 None $611
P.O. Box 2333 11/3/1986 Mertens House, Inc.
New London, NH 03257 (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, Since 2003 President and Chief 32 None $0
The Boston Company President and Operating Officer of
Asset Management, LLC Chief Executive The Boston Company
One Boston Place Officer Asset Management, LLC;
Boston, MA 02108 formerly Senior Vice
7/24/65 President and Chief
Operating Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
25
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- -------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon Asset Management and Secretary Mellon Asset Management ("MAM"); formerly First
One Boston Place Vice President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller,
Mellon Asset Management and Treasurer since 1999; Mellon Asset Management
One Boston Place Treasurer
Boston, MA 02108 since 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager
One Boston Place of Shareholder Services, MAM, Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management Company LLC
1/19/71
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management
Mellon Asset Management Compliance and Chief Compliance Officer, Mellon Funds Distributor
One Boston Place Officer and Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President,
4/8/57 State Street Research & Management Company ("SSRM"),
Vice President, SSRM
26
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[MELLON LOGO] Mellon
--------------------------
MELLON INSTITUTIONAL FUNDS
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6947AR1205
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Fixed Income Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o Boston, MA 02108-4402
A Mellon Asset Management Company
1
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
The economy grew steadily in 2005 despite continuous rate hikes by the U.S.
Federal Reserve, sharply higher energy prices and major disruptions from
Hurricanes Katrina and Rita. Job gains remained surprisingly strong with a
12-month moving average of 168,000 jobs, and the unemployment rate fell to 5%.
Inflation news was generally positive as CPI, excluding food and energy, hovered
in the area of 2% and the latest release of the Fed's preferred measure of
inflation, core personal consumption expenditures, posted a moderate 1.8% rise
year over year. Against this backdrop, short term interest rates rose
significantly more than long term rates, leaving the slope between 2- and
10-year Treasuries virtually flat by year-end. In an environment where the Fed's
inflation-fighting credibility and policy transparency has been quite good,
interest rate volatility has fallen. Similarly, risk premiums have remained low
during 2005. However, there has been a notable pickup in event risk in the
corporate market over the course of the year which started with downgrades in
the auto sector and spread more broadly with increasing merger activity and
leveraged buy out rumors. As we close the year, slowing growth prospects,
moderate inflation and a likely decline in the housing market lead us to expect
that the Fed is nearly done raising rates.
For the latest year, the Standish Mellon Fixed Income Fund outperformed the
Lehman Brothers U.S. Aggregate Index. Over the 12-month period ended December
31, 2005, the Fund returned 2.96% net of fees compared to 2.43% for the index.
The Fund's yield curve strategy contributed strongly to excess returns as we
implemented a barbell position (overweight cash and long bonds versus
underweight intermediate maturities) which capitalized on the yield curve
flattening. Similarly, a shorter-than-benchmark duration was advantageous given
significantly higher intermediate bond yields. In spread sectors, the Fund's
allocation to emerging markets was quite positive as the sector benefited from
strong investor demand and improving credit momentum. Given rising U.S. rates
relative to many global markets, the Fund's hedged position in European bonds
added to returns. Treasury Inflation Protected Securities (TIPS) were another
source of value added. During the year, we opportunistically added TIPS to take
advantage of higher inflation accruals due to the surge in energy prices and
undervalued breakeven inflation rates. In the corporate bond market, amid
increasing negative headlines and event risk, our defensive security selection
was positive for portfolio returns. Finally, our allocation to higher quality
bonds in the commercial mortgage and asset backed sectors positively impacted
performance.
As we begin 2006, we anticipate the Fed to pause soon given policymakers have
moderated their hawkish inflation tone and expressed caution in tightening too
aggressively. Meanwhile, as low risk premiums persist, the Fund's sector
positioning remains defensive. We continue to capitalize on opportunities to
purchase insurance in the credit default market for select issuers with a high
probability of negative event risk. In the structured market, there are
attractively priced opportunities in the asset backed sector with diversified
pools of mortgages. We have moved the Fund's duration from
shorter-than-the-index to neutral given that we are near the end of the
tightening cycle. Finally, in a flat yield curve environment, we favor
intermediate bonds which should benefit portfolio returns as we believe interest
rates will likely fall in the front end of the curve when the Fed pauses.
As always, we look forward to serving you in 2006.
/s/ Catherine Powers
Catherine Powers 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 Brothers U.S. Aggregate Index
- --------------------------------------------------------------------------------
[LINE GRAPH]
[PLOT POINTS TO COME]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 3/30/1987
- --------------------------------------------------------------------------------
2.96% 4.65% 5.99% 5.94% 7.56%
* Source: Lipper Inc.
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 (July 1, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $ 1,000.00 $ 1,003.80 $ 2.17
Hypothetical (5% return
per year before expenses) $ 1,000.00 $ 1,023.04 $ 2.19
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.43%,
multiplied by the average account value over the period, multiplied by
183/366 (to reflect the one-half year period).
4
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Summary of Combined Ratings Investments
- -------------------------------------------------------------
Quality Breakdown
- -------------------------------------------------------------
AAA and higher 64.4%
AA 2.8
A 8.7
BBB 19.5
BB 2.7
B 1.9
-----
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 higher rating category.
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
FNMA (TBA) 6.000 1/1/2036 7.0%
U.S. Treasury Note 3.625 4/30/2007 6.0
FNMA (TBA) 4.500 1/1/2021 5.5
U.S. Treasury Notes 3.500 2/15/2010 4.4
FNMA (TBA) 5.000 1/1/2021 3.0
FNMA (TBA) 5.500 1/1/2036 2.6
U.S. Treasury Bond 5.250 11/15/2028 2.4
U.S. Treasury Note 4.750 5/15/2014 1.2
FNMA (TBA) 6.000 1/1/2021 1.2
FNMA (TBA) 5.500 1/1/2025 0.8
----
34.1%
* Excluding short-term investments and investment of cash collateral.
Percentage of
Economic Sector Allocation Investments
- -----------------------------------------------------------
Treasury/Agency 24.8%
Mortgage pass through 29.5
Credit 32.8
ABS/CMO/CMBS 9.8
Nondollar 0.6
Emerging markets 2.5
-----
100.0%
The Standish Mellon Fixed Income Fund invests all of its investable assets in an
interest of the Standish Mellon Fixed Income Portfolio (See Note 1 of the Fund's
Notes to Financial Statements). The Portfolio is actively managed. Current
holdings may be different than those presented above.
The accompanying notes are an integral part of the financial statements.
5
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Statement of Assets and Liabilities
December 31, 2005
- --------------------------------------------------------------------------------
Assets
Investment in Standish Mellon Fixed Income Portfolio
(Portfolio), at value (Note 1A) $ 457,799,857
Receivable for Fund shares sold 444,492
Prepaid expenses 7,308
----------------
Total assets 458,251,657
Liabilities
Distributions payable $ 2,274,109
Payable for Fund shares redeemed 18,951
Accrued administrative services expense (Note 2) 31,738
Accrued transfer agent fees (Note 2) 6,811
Accrued professional fees 22,616
Accrued trustees' fees (Note 2) 500
Accrued chief compliance officer fee (Note 2) 404
Other accrued expenses and liabilities 5,285
---------------
Total liabilities 2,360,414
----------------
Net Assets $ 455,891,243
----------------
Net Assets consist of:
Paid-in capital $ 640,671,216
Accumulated net realized loss (184,094,466)
Distributions in excess of net investment income (282,143)
Net unrealized depreciation (403,364)
----------------
Total Net Assets $ 455,891,243
================
Shares of beneficial interest outstanding 23,183,508
================
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding)
$ 19.66
================
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, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Income allocated from Portfolio $ 21,109,034
Expenses allocated from Portfolio (2,076,858)
-------------
Net investment income allocated from Portfolio 19,032,176
Expenses
Transfer agent fees (Note 2) $ 29,115
Registration fees 41,249
Professional fees 45,576
Administrative services expenses (Note 2) 31,738
Trustees' fees and expenses (Note 2) 2,001
Insurance expense 1,900
Industry Association fees 7,926
Miscellaneous 5,522
---------------
Total expenses 165,027
-------------
Net investment income 18,867,149
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investments 637,983
Financial futures transactions 140,603
Written options transactions 445,713
Foreign currency transactions and forward currency exchange transactions 1,413,087
Swap transactions 440,129
---------------
Net realized gain (loss) 3,077,515
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investments (8,659,451)
Financial futures contracts 346,498
Written options contracts 31,242
Foreign currency translation and forward currency exchange contracts 186,791
Swap contracts 64,410
---------------
Net change in net unrealized appreciation (depreciation) (8,030,510)
-------------
Net realized and unrealized gain (loss) on investments (4,952,995)
-------------
Net Increase in Net Assets from Operations $ 13,914,154
=============
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Investment Operations
Net investment income $ 18,867,149 $ 19,532,026
Net realized gain (loss) 3,077,515 20,499,067
Change in net unrealized appreciation (depreciation) (8,030,510) (13,157,811)
--------------- -------------
Net increase (decrease) in net assets from investment operations 13,914,154 26,873,282
--------------- -------------
Distributions to Shareholders (Note 1C)
From net investment income (22,878,370) (27,209,831)
--------------- -------------
Total distributions to shareholders (22,878,370) (27,209,831)
--------------- -------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 51,996,373 46,761,132
Value of shares issued to shareholders in reinvestment of distributions 15,442,638 18,592,134
Cost of shares redeemed (65,890,204) (197,499,402)
--------------- -------------
Net increase (decrease) in net assets from Fund share transactions 1,548,807 (132,146,136)
--------------- -------------
Total Increase (Decrease) in Net Assets (7,415,409) (132,482,685)
Net Assets
At beginning of year 463,306,652 595,789,337
--------------- -------------
At end of year [including distributions in excess of income and
undistributed net investment income of ($282,143) and $1,584,919] $ 455,891,243 $ 463,306,652
=============== =============
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,
---------------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- -----------
Net Asset Value, Beginning of the Year $ 20.08 $ 20.08 $ 19.70 $ 18.93 $ 18.92
--------- --------- --------- --------- -----------
From Operations:
Net investment income* (a) 0.82 0.77 0.75 0.93 1.22
Net realized and unrealized gains (loss) on investments (0.23) 0.36 0.28 0.71 0.10
--------- --------- --------- --------- -----------
Total from investment operations 0.59 1.13 1.03 1.64 1.32
--------- --------- --------- --------- -----------
Less Distributions to Shareholders:
From net investment income (1.01) (1.13) (0.65) (0.87) (1.31)
--------- --------- --------- --------- -----------
Total distributions to shareholders (1.01) (1.13) (0.65) (0.87) (1.31)
--------- --------- --------- --------- -----------
Net Asset Value, End of Year $ 19.66 $ 20.08 $ 20.08 $ 19.70 $ 18.93
========= ========= ========= ========= ===========
Total Return (b) 2.96% 5.74% 5.24% 8.89% 7.16%
Ratios/Supplemental data:
Expenses (to average daily net assets)* (c) 0.49% 0.48% 0.42% 0.38% 0.38%
Net Investment Income (to average daily net assets)* 4.09% 3.77% 3.76% 4.86% 6.35%
Net Assets, End of Year (000's omitted) $ 455,891 $ 463,307 $ 595,789 $ 941,240 $ 1,475,570
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not
to impose a portion of its investment advisory fee and/or reimbursed the
Fund for all or a portion of its operating expenses. If this voluntary
action had not been taken, the investment income per share and the ratios
would have been:
Net investment income per share (a) N/A N/A $ 0.73 $ 0.93 N/A
Ratios (to average daily net assets):
Expenses (c) N/A N/A 0.45% 0.42% N/A
Net investment income N/A N/A 3.73% 4.82% N/A
(a) Calculated based on average shares outstanding.
(b) Total return would have been lower in the absence of expense waivers.
(c) Includes the Fund's share of the Portfolio's allocated expenses.
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 Fund invests all of its investable assets in an interest of the
Standish Mellon 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 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 (100% at
December 31, 2005). 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 Portfolio
values its securities at value as 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
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 Fund are allocated in the Portfolio.
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. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from 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 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 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 accumulated net investment income, accumulated net realized gain
(loss) and paid in capital. Undistributed net investment income (loss) 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 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 among
funds of the Trust and/or portfolios of the Portfolio Trust 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.
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 was charged $29,115 during the year ended December 31, 2005.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
year ended December 31, 2005, the Fund was charged $2,269. No other
director, officer or employee of Standish Mellon or its affiliates
received 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 Portfolio Trust pays the legal
fees for the independent counsel of the Trustees.
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. For the year ended
December 31, 2005 the Fund was charged $31,738. The Fund's adviser or its
affiliates may pay additional compensation from their own resources to
Plan Administrators and other entities for administrative services, as
well as in consideration of marketing or other distribution-related
services. These payments may provide an incentive for these entities to
actively promote the Fund or cooperate with the distributor's promotional
efforts.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 2005, aggregated $67,138,420 and $88,960,526,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules. Book/tax differences arise when changes
in proportionate interest for funds investing in the Portfolio occur.
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 2,590,559 2,338,169
Shares issued to shareholders for
reinvestment of distributions 777,096 927,191
Shares redeemed (3,260,750) (9,861,429)
---------- ----------
Net increase (decrease) 106,905 (6,596,069)
========== ==========
11
Mellon Institutional Funds Investment Trust
Standish Mellon Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 2005, one shareholder of record held approximately 7% of
the total outstanding shares of the Fund. Investment activity of this
shareholder could have a material impact on the Fund.
The Fund imposes a redemption fee of 2% of the net asset value of the
shares, with certain exceptions, which are redeemed or exchanged less than
30 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 their costs associated with short-term trading in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions.
(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, 2005, the components of distributable earnings on a tax
basis were as follows:
Amount
-------------
Undistributed ordinary income $ --
Accumulated losses (181,733,972)
At December 31, 2005, the Fund, for federal income tax purposes, has
capital loss carryovers of $181,733,972 which will reduce the Fund's
taxable income arising from net realized gain on investment, 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 Expiration
Carryover Date
------------- ----------
$ 27,099,636 12/31/2007
118,614,149 12/31/2008
36,020,187 12/31/2009
-------------
181,733,972
=============
It is uncertain whether the Fund will be able to realize the benefits of
the losses before they expire.
The Fund elected to defer to its fiscal year ended December 31, 2006
$1,684,620 of capital losses and $282,143 of currency losses recognized
during the period November 1, 2005 to December 31, 2005.
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
------------- -------------
Ordinary income $ 22,878,370 $ 27,209,831
See corresponding master portfolio for tax basis unrealized appreciated
(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 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, 2005, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the five years in the period then ended, 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, 2005 to the Portfolio's records, provide a reasonable
basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
13
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--138.6%
BONDS AND NOTES--112.6%
Asset Backed--18.4%
Accredited Mortgage Loan Trust 2005-1 A2A (a) 4.479% 4/25/2035 $ 370,783 $ 370,829
Accredited Mortgage Loan Trust 2005-2 A2A (a) 4.479 7/25/2035 887,159 887,062
Accredited Mortgage Loan Trust 2005-3 A2 (a) 4.479 9/25/2035 1,466,022 1,466,118
ACE Securities Corp. 2005-HE1 A2A (a) 4.499 2/25/2035 473,817 473,919
American Express Credit Account Master Trust 2004-C 144A (a) 4.869 2/15/2012 3,295,584 3,302,343
Americredit Automobile Receivables Trust 2005-DA A2 4.750 11/6/2008 1,475,000 1,474,531
Bear Stearns Asset Backed Securities, Inc. 2005-HE2 1A1 (a) 4.489 2/25/2035 495,433 495,523
Bear Stearns Asset Backed Securities, Inc. 2005-HE3 1A1 (a) 4.459 3/25/2035 395,593 395,652
Capital Auto Receivables Asset Trust 2004-2 D 144A 5.820 5/15/2012 1,950,000 1,934,675
Capital One Auto Finance Trust 4.480 10/15/2008 1,400,000 1,396,958
Capital One Master Trust 2001-2 C 144A (a) (f) 5.469 1/15/2009 2,000,000 2,002,027
Capital One Multi-Asset Execution Trust 2003-B2 B2 (f) 3.500 2/17/2009 725,000 722,065
Capital One Multi-Asset Execution Trust 2004-C1 C1 3.400 11/16/2009 2,950,000 2,901,326
Centex Home Equity 2005-D AV1 (a) 4.489 10/25/2035 1,524,393 1,524,490
Centex Home Equity Co. LLC 2004-2 A1 (a) (f) 4.549 1/25/2025 401,245 401,277
Chase Credit Card Master Trust 2004-2 C (a) (f) 4.919 9/15/2009 1,000,000 1,004,194
Chase Manhattan Auto Owner Trust 2003-A A3 1.520 5/15/2007 92,592 92,409
Chase Manhattan Auto Owner Trust 2005-B A2 4.770 3/15/2008 1,500,000 1,499,868
Citibank Credit Card Issuance Trust 2001-C3 C3 (f) 6.650 5/15/2008 2,810,000 2,828,260
Citigroup Mortgage Loan Trust, Inc. 2005-OPT3 A1A (a) 4.469 5/25/2035 854,680 854,866
Citigroup Mortgage Loan Trust, Inc. 2005-WF2 AF2 4.922 8/25/2035 1,823,611 1,816,748
Citigroup Mortgage Loan Trust, Inc. 2005-WF2 AF7 5.249 8/25/2035 1,900,000 1,879,309
Countrywide Alternative Loan Trust 2005-J4 2A1B (a) 4.499 7/25/2035 912,155 911,580
Countrywide Asset-Backed Certificates 2005-2 2A1 (a) (f) 4.469 8/25/2035 487,067 487,125
Credit-Based Asset Servicing and Securitization 2005-CB4 AV1 (a) 4.479 8/25/2035 787,060 787,056
Credit-Based Asset Servicing and Securitization 2005-CB7 AF1 5.208 11/25/2035 2,378,675 2,373,837
Credit-Based Asset Servicing and Securitization 2005-CB8 AF1B 5.451 12/25/2035 2,200,731 2,199,477
CS First Boston Mortgage Securities Corp. 2002-HE4 6.940 8/25/2032 650,000 656,723
First Franklin Mortgage Loan Asset Backed 2005-FFH3 2A1 (a) 4.509 9/25/2035 1,432,237 1,432,412
Ford Credit Auto Owner Trust 2005-B B 4.640 4/15/2010 1,350,000 1,336,325
Fremont Home Loan Trust 2005-1 2A1 (a) 4.479 6/25/2035 487,519 487,660
Green Tree Financial Corp. 1994-7 M1 9.250 3/15/2020 927,676 974,517
Harley-Davidson Motorcycle Trust 2001-3 B (f) 3.720 10/15/2009 685,735 679,135
Home Equity Asset Trust 2005-5 2A1 (a) 4.489 11/25/2035 1,993,297 1,993,433
Home Equity Asset Trust 2005-8 2A1 (a) 4.489 2/25/2036 1,155,239 1,155,436
Honda Auto Receivables Owner Trust 2004-1 A3 (f) 2.400 2/21/2008 1,318,199 1,303,134
Honda Auto Receivables Owner Trust 2005-5 A1 (f) 4.221 11/15/2006 2,739,284 2,736,878
JP Morgan Mortgage Acquisition Corp. 2005-FRE1 A2F1 5.375 10/25/2035 2,375,182 2,373,037
MBNA Credit Card Master Note Trust 2001-C3 C3 6.550 12/15/2008 3,000,000 3,027,369
Merrill Lynch Mortgage Investors, Inc. 2005-NC1 A2A (a) 4.489 10/25/2035 98,582 98,591
Merrill Lynch Mortgage Investors, Inc. 2005-WMC1 A2A (a) 4.479 9/25/2035 237,925 237,960
MMCA Automobile Trust 2002-1 Cl B (f) 5.370 1/15/2010 315,866 315,026
Morgan Stanley ABS Capital I 2005-WMC2 A2A (a) 4.459 2/25/2035 418,854 418,912
Morgan Stanley ABS Capital I 2005-WMC6 A2A (a) 4.489 7/25/2035 920,093 920,168
Morgan Stanley Home Equity Loans 2005-2 A2A (a) 4.469 5/25/2035 523,627 523,367
Nomura Asset Acceptance Corp. 2005-WF1 2A5 5.159 3/25/2035 880,000 858,714
Opteum Mortgage Acceptance Corp. 2005-1 A2 (a) 4.519 2/25/2035 335,955 335,951
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Backed (continued)
Origen Manufactured Housing 5.140% 2/15/2014 $ 2,012,000 $ 2,012,056
Origen Manufactured Housing 2005-A A1 4.060 7/15/2013 1,556,098 1,547,561
Park Place Securities,Inc. 2005-WHQ1 A3A (a) 4.489 3/25/2035 587,489 587,581
Popular ABS Mortgage Pass--Through Trust 2005-D AF1 5.361 1/25/2036 2,165,521 2,164,138
Residential Asset Mortgage Products, Inc. 4.294 10/25/2035 1,907,162 1,907,231
Residential Asset Mortgage Products, Inc. 2004-RS12 AII1 (a) 4.509 6/25/2027 1,005,397 1,005,700
Residential Asset Mortgage Products, Inc. 2005-RS2 AII1 (a) 4.489 2/25/2035 523,702 523,883
Residential Asset Mortgage Products, Inc. 2005-RS3 AI1 (a) 4.479 3/25/2035 1,393,535 1,393,747
Residential Asset Securities Corp. 2004-KS10 AI1 (a) (f) 4.549 10/25/2013 310,678 310,717
Residential Asset Securities Corp. 2005-AHL2 A1 (a) 4.479 10/25/2035 1,722,192 1,722,255
Residential Asset Securities Corp. 2005-EMX1 AI1 (a) 4.479 3/25/2035 665,772 665,902
Residential Asset Securities Corp. 2005-EMX3 AI1 (a) 4.489 9/25/2035 1,391,112 1,391,320
Saxon Asset Securities Trust 2005-3 A2A (a) (f) 4.499 11/25/2035 1,264,646 1,264,737
Soundview Home Equity Loan Trust 2005-M M3 5.825 5/25/2035 500,000 498,030
Specialty Underwriting & Residential Finance 2004-BC4 A2A (a) (f) 4.529 10/25/2035 642,351 642,463
Specialty Underwriting & Residential Finance 2005-BC1 A1A (a) (f) 4.489 12/25/2035 512,063 512,132
Structured Adjustable Rate Mortgage Loan 2005-8XS A1 (a) 4.479 4/25/2035 1,033,308 1,033,308
Vanderbilt Mortgage Finance 1999-A 1A6 6.750 3/7/2029 1,110,000 1,154,719
WFS Financial Owner Trust 2003-3 A4 3.250 5/20/2011 2,425,000 2,386,818
WFS Financial Owner Trust 2004-1 D (f) 3.170 8/22/2011 987,859 972,261
WFS Financial Owner Trust 2004-4 C 3.210 5/17/2012 1,392,752 1,364,666
WFS Financial Owner Trust 2004-4 Cl A2 2.500 12/17/2007 383,805 382,428
WFS Financial Owner Trust 2005-2 B 4.570 11/19/2012 675,000 670,062
------------
Total Asset Backed (Cost $84,918,932) 84,461,987
------------
Collateralized Mortgage Obligations--5.8%
GNMA 2003-48 AC (f) 2.712 2/16/2020 2,103,076 2,018,709
GNMA 2003-72 A (f) 3.206 4/16/2018 2,046,098 1,983,506
GNMA 2003-88 AC 2.914 6/16/2018 1,443,957 1,386,745
GNMA 2003-96 B (f) 3.607 8/16/2018 615,000 597,482
GNMA 2004-12A 3.110 1/16/2019 1,112,434 1,065,251
GNMA 2004-25 AC 3.377 1/16/2023 839,644 808,174
GNMA 2004-43 A 2.822 12/16/2019 1,284,829 1,227,687
GNMA 2004-51 A (f) 4.145 2/16/2018 1,934,517 1,896,291
GNMA 2004-57 A 3.022 1/16/2019 940,894 903,022
GNMA 2004-67 A (f) 3.648 9/16/2017 678,834 663,013
GNMA 2004-77 A 3.402 3/16/2020 791,763 764,265
GNMA 2004-97 AB (f) 3.084 4/16/2022 1,921,897 1,840,347
GNMA 2005-32 B 4.385 8/16/2030 1,365,000 1,339,416
GNMA 2005-87 A 4.449 3/16/2025 1,321,853 1,299,617
GNMA 2005-9 A 4.026 5/16/2022 1,720,908 1,680,138
GNMA 2005-90 A 3.760 9/16/2028 1,850,000 1,787,563
GNMA 2005-29 A 4.016 7/16/2027 1,105,668 1,076,396
Nomura Asset Acceptance Corp. 2005-AP2 A5 4.976 5/25/2035 950,000 919,446
Structured Asset Mortgage Investments, Inc. 1998-2 B 6.005 4/30/2030 47,421 47,146
Washington Mutual 2003-AR10 A6 (a) 4.067 10/25/2033 1,800,000 1,759,089
Washington Mutual 2004-AR9 A7 4.181 8/25/2034 1,250,000 1,224,312
Washington Mutual 2005-AR4 A4B 4.679 4/25/2035 450,000 440,719
------------
Total Collateralized Mortgage Obligations (Cost $27,358,448) 26,728,334
------------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate--27.8%
Banking--3.5%
Chevy Chase Bank FSB 6.875% 12/1/2013 $ 1,370,000 $ 1,411,100
City National Corp. 5.125 2/15/2013 940,000 934,503
Colonial Bank NA 6.375 12/1/2015 800,000 822,610
JPMorgan Chase & Co 5.125 9/15/2014 1,600,000 1,583,858
MBNA Corp. 6.125 3/1/2013 1,575,000 1,670,160
Provident Capital Trust I 8.600 12/1/2026 590,000 627,486
Rabobank Capital Funding Trust III 144A 5.254 10/15/2049 1,450,000 1,421,764
Regions Financial Corp. (a) 4.380 8/8/2008 1,675,000 1,674,682
Sovereign Bancorp. 144A 4.800 9/1/2010 1,150,000 1,127,076
US Bank NA (a) 4.313 9/29/2006 2,625,000 2,625,423
Wells Fargo & Co. (b) 6.375 8/1/2011 850,000 911,071
Zions Bancorporation 6.000 9/15/2015 1,145,000 1,196,569
------------
16,006,302
------------
Basic Materials--2.6%
Cabot Corp. 144A 5.250 9/1/2013 900,000 875,434
Celulosa Arauco Constitu 5.625 4/20/2015 215,000 213,431
Georgia-Pacific Corp. 8.000 1/15/2024 980,000 935,900
ICI Wilmington, Inc. 4.375 12/1/2008 335,000 326,441
ICI Wilmington, Inc. 5.625 12/1/2013 1,365,000 1,358,679
International Flavors & Fragrances, Inc. (f) 6.450 5/15/2006 950,000 954,536
International Steel Group, Inc. 6.500 4/15/2014 940,000 940,000
Lubrizol Corp. 6.500 10/1/2034 1,400,000 1,461,648
Lubrizol Corp. (b) 4.625 10/1/2009 930,000 911,515
RPM International, Inc. 4.450 10/15/2009 645,000 618,473
RPM International, Inc. 6.250 12/15/2013 1,145,000 1,154,291
Temple-Inland (b) 6.625 1/15/2018 875,000 901,476
Westvaco Corp. 7.950 2/15/2031 525,000 604,169
Weyerhaeuser Co. 7.375 3/15/2032 530,000 589,206
------------
11,845,199
------------
Communications--1.9%
Comcast Corp. (b) 5.500 3/15/2011 325,000 326,763
New Cingular Wireless Services, Inc. 8.750 3/1/2031 430,000 569,672
News America Holdings Inc. 7.700 10/30/2025 1,000,000 1,147,371
SBC Communications, Inc. 5.625 6/15/2016 710,000 714,375
Sprint Capital Corp. (f) 8.750 3/15/2032 1,720,000 2,282,578
TCI Communications, Inc. 7.875 2/15/2026 825,000 952,237
Time Warner, Inc. 6.750 4/15/2011 1,100,000 1,155,098
Univision Communications, Inc. 7.850 7/15/2011 917,000 1,009,132
Verizon Global Funding Corp. 5.850 9/15/2035 735,000 708,299
------------
8,865,525
------------
Consumer Cyclical--1.4%
Caesars Entertainment, Inc. 8.500 11/15/2006 520,000 533,614
Caesars Entertainment, Inc. 8.875 9/15/2008 900,000 973,125
Crown Americas Inc. 144A 7.625 11/15/2013 720,000 747,000
Crown Americas Inc. 144A 7.750 11/15/2015 410,000 424,350
DaimlerChrysler NA Holding Corp. 4.875 6/15/2010 380,000 371,027
DaimlerChrysler NA Holding Corp. (b) 8.500 1/18/2031 325,000 393,256
Darden Restaurants 6.000 8/15/2035 650,000 615,610
The accompanying notes are an integral part of the financial statements.
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- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Consumer Cyclical (continued)
Heinz (H.J.) Co. 144A 6.428% 12/1/2008 $ 525,000 $ 539,317
Mohegan Tribal Gaming Authority 8.000 4/1/2012 840,000 884,100
Station Casinos, Inc. 6.000 4/1/2012 850,000 847,875
------------
6,329,274
------------
Consumer Noncyclical--1.8%
Altria Group, Inc. 7.000 11/4/2013 900,000 984,819
Aramark Services, Inc. (f) 7.000 7/15/2006 2,290,000 2,311,022
Aramark Services, Inc. 7.000 5/1/2007 1,225,000 1,252,387
RR Donnelley & Sons Co. 4.950 4/1/2014 1,710,000 1,596,571
Safeway, Inc. 7.250 2/1/2031 830,000 895,635
Stater Brothers Holdings 8.125 6/15/2012 865,000 856,350
Wyeth 5.500 2/1/2014 555,000 562,189
------------
8,458,973
------------
Energy--1.1%
Amerada Hess Corp. 6.650 8/15/2011 500,000 537,276
Amerada Hess Corp. 7.300 8/15/2031 865,000 1,001,051
Southern Natural Gas Co. 6.700 10/1/2007 1,910,000 1,929,652
XTO Energy, Inc. 7.500 4/15/2012 1,220,000 1,364,654
------------
4,832,633
------------
Financial--7.0%
Aegon NV 5.750 12/15/2020 1,205,000 1,223,224
American International Group, Inc. 144A 5.050 10/1/2015 595,000 583,951
Archstone-Smith Operating Trust REIT 5.000 8/15/2007 850,000 849,533
Archstone-Smith Operating Trust REIT 5.250 5/1/2015 200,000 197,234
Arden Realty LP REIT 5.200 9/1/2011 780,000 790,105
Bear Stearns Cos., Inc. 4.500 10/28/2010 905,000 883,490
Boeing Capital Corp. 7.375 9/27/2010 1,055,000 1,160,882
Boston Properties LP 5.625 4/15/2015 675,000 682,174
CIT Group, Inc. 4.750 8/15/2008 985,000 981,250
Commercial Net Lease Realtor REIT 6.150 12/15/2015 475,000 482,080
Countrywide Home Loans, Inc. 4.000 3/22/2011 604,000 568,327
Credit Suisse FB USA, Inc. 5.125 8/15/2015 1,000,000 990,333
Duke Realty LP 5.875 8/15/2012 1,150,000 1,189,629
Duke Realty LP 7.750 11/15/2009 915,000 993,022
Duke Realty LP 6.950 3/15/2011 25,000 26,802
EOP Operating LP 7.000 7/15/2011 1,100,000 1,177,377
Erac USA Finance Co. 144A 7.950 12/15/2009 1,000,000 1,098,983
ERP Operating LP 6.625 3/15/2012 200,000 214,785
ERP Operating LP 5.125 3/15/2016 735,000 707,926
Federal Realty Investment Trust REIT 5.650 6/1/2016 750,000 754,248
Glencore Funding LLC 144A 6.000 4/15/2014 1,320,000 1,241,515
Goldman Sachs Group, Inc. 4.500 6/15/2010 1,145,000 1,118,956
Healthcare Realty Trust, Inc. 8.125 5/1/2011 540,000 598,107
HSBC Financial Capital Trust IX (a) 5.911 11/30/2035 600,000 605,104
International Lease Finance Corp. 4.750 1/13/2012 650,000 633,747
Jefferies Group, Inc. 7.750 3/15/2012 1,920,000 2,135,015
John Deere Capital Corp. 4.400 7/15/2009 665,000 653,646
Lehman Brothers E-Capital Trust I 144A (a) 5.150 8/19/2065 250,000 250,625
Leucadia National Corp. 7.000 8/15/2013 1,160,000 1,154,200
The accompanying notes are an integral part of the financial statements.
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Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Financial (continued)
Mack-Cali Realty LP REIT 5.050% 4/15/2010 $ 350,000 $ 346,021
Mack-Cali Realty LP REIT 5.125 1/15/2015 550,000 535,717
MassMutual Global Funding II 144A 3.800 4/15/2009 650,000 630,033
Mizuho JGB Investment 144A (a) 9.870 8/30/2049 975,000 1,078,293
Morgan Stanley 4.750 4/1/2014 1,350,000 1,294,740
Phoenix Cos., Inc. 6.675 2/16/2008 445,000 449,167
Regency Centers LP 5.250 8/1/2015 300,000 294,514
Residential Capital Corp. 6.125 11/21/2008 850,000 852,067
Residential Capital Corp. 6.375 6/30/2010 1,990,000 2,022,069
Simon Property Group LP 4.875 8/15/2010 795,000 783,973
------------
32,232,864
------------
Industrial--2.3%
American Standard, Inc. 7.375 2/1/2008 500,000 520,894
American Standard, Inc. 7.625 2/15/2010 1,000,000 1,074,877
Enterprise Products Operations 6.650 10/15/2034 1,750,000 1,806,978
ILFC E-Capital Trust I 144A (a) 5.900 12/21/2065 360,000 361,414
L-3 Communications Corp. 144A (f) 6.375 10/15/2015 240,000 239,400
L-3 Communications Corp. 7.625 6/15/2012 1,450,000 1,526,125
Northrop Grumman Corp. 7.125 2/15/2011 545,000 593,883
Raytheon Co. 5.500 11/15/2012 380,000 388,645
Raytheon Co. 6.750 8/15/2007 248,000 254,069
Sealed Air Corp. 144A 5.625 7/15/2013 570,000 565,814
Southern Peru Copper Corp. 144A (f) 7.500 7/27/2035 590,000 587,870
Waste Management, Inc. 6.875 5/15/2009 1,220,000 1,286,312
Waste Management, Inc. 7.375 8/1/2010 275,000 299,281
Waste Management, Inc. 7.000 7/15/2028 900,000 1,013,989
Waste Management, Inc. 7.375 5/15/2029 35,000 40,903
------------
10,560,454
------------
Services--2.0%
ACE Capital Trust II 9.700 4/1/2030 405,000 563,530
AON Corp. 8.205 1/1/2027 650,000 772,101
Coventry Health Care, Inc 5.875 1/15/2012 1,145,000 1,156,450
CVS Corp. 4.000 9/15/2009 360,000 346,241
Harrahs Operating Co., Inc. 8.000 2/1/2011 825,000 911,745
May Dept Stores 6.650 7/15/2024 1,145,000 1,203,854
Medco Health Solutions Inc. 7.250 8/15/2013 310,000 340,540
Metlife, Inc. 5.000 6/15/2015 2,150,000 2,108,739
MGM Mirage, Inc. 6.000 10/1/2009 410,000 407,438
Nextel Communications, Inc. 5.950 3/15/2014 565,000 567,959
Nuveen Investments, Inc. 5.000 9/15/2010 600,000 590,357
------------
8,968,954
------------
Transportation--0.9%
CSX Corp. 6.250 10/15/2008 865,000 892,246
FedEx Corp. 2.650 4/1/2007 1,090,000 1,060,262
Norfolk Southern Corp. 6.750 2/15/2011 325,000 350,601
Ryder System, Inc. 5.000 6/15/2012 720,000 685,403
Union Pacific Corp. 3.875 2/15/2009 1,400,000 1,352,628
------------
4,341,140
------------
The accompanying notes are an integral part of the financial statements.
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Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Technology & Electronics--0.2%
Freescale Semiconductor Inc. (b) 6.875% 7/15/2011 $ 335,000 $ 351,750
Quest Diagnostics, Inc. 144A 5.125 11/1/2010 450,000 449,872
------------
801,622
------------
Utilities--3.1%
Appalachian Power Co. 5.950 5/15/2033 450,000 452,022
Assurant, Inc. 6.750 2/15/2034 600,000 652,075
Consumers Energy Co. 5.375 4/15/2013 995,000 987,768
Dominion Resources, Inc. 7.195 9/15/2014 1,380,000 1,533,134
Dominion Resources, Inc. (a) 4.819 9/28/2007 1,140,000 1,140,504
FirstEnergy Corp. 6.450 11/15/2011 650,000 688,998
FPL Energy National Wind 144A 5.608 3/10/2024 224,809 223,975
Mirant North America LLC 144A 7.375 12/31/2013 510,000 515,738
Nevada Power Co. 5.875 1/15/2015 275,000 272,889
Niagara Mohawk Power Corp. 7.750 10/1/2008 1,000,000 1,067,695
Nisource Finance Corp. 5.250 9/15/2017 800,000 778,147
Oneok, Inc. 5.200 6/15/2015 475,000 466,445
Pacific Gas & Electric Co. 3.600 3/1/2009 550,000 527,798
Pepco Holdings, Inc. 5.500 8/15/2007 850,000 855,144
Public Service Co. of Colorado 4.375 10/1/2008 930,000 918,338
Republic Services, Inc. 6.086 3/15/2035 1,450,000 1,479,033
Southern California Edison Co. (a) (f) 4.430 1/13/2006 1,550,000 1,549,946
------------
14,109,649
------------
Total Corporate (Cost $127,473,339) 127,352,589
------------
Municipal Bonds--0.9%
Badger Tobacco Asset Securitization Corp. Wis 6.125 6/1/2027 910,000 958,221
Erie County NY Tob Asset Securitization Corp. 6.000 6/1/2028 980,000 959,792
Sacramento County California Pension Funding (c) (f) 0.000 7/10/2030 1,675,000 1,634,331
Tobacco Settlement Authority Iowa 6.500 6/1/2023 475,000 477,066
------------
Total Municipal Bonds (Cost $3,840,885) 4,029,410
------------
Sovereign Bonds--1.5%
Argentina Bonos (a) 4.005 8/3/2012 1,485,000 1,162,755
Banco Nacional de Desenvolvimento Economico e Social (a) 5.727 6/16/2008 1,325,000 1,321,688
Republic of El Salvador 144A 8.500 7/25/2011 870,000 974,400
Republic of South Africa 9.125 5/19/2009 1,485,000 1,665,056
Ukraine Government 144A (a) 7.343 8/5/2009 545,000 588,600
United Mexican States 6.625 3/3/2015 1,055,000 1,155,225
------------
Total Sovereign Bonds (Cost $6,777,150) 6,867,724
------------
Yankee Bonds--4.7%
Amvescap PLC 5.375 2/27/2013 1,090,000 1,074,175
Bombardier, Inc. 144A (b) 6.300 5/1/2014 2,090,000 1,828,750
British Sky Broadcasting PLC 6.875 2/23/2009 115,000 120,470
British Sky Broadcasting PLC (f) 8.200 7/15/2009 1,055,000 1,153,060
Celulosa Arauco y Constitucion SA 5.125 7/9/2013 935,000 903,841
Chuo Mitsui Trust & Banking Co. Ltd. 144A (a) 5.506 2/15/2049 1,235,000 1,196,730
Deutsche Telekom International Finance BV 8.250 6/15/2030 1,320,000 1,678,867
The accompanying notes are an integral part of the financial statements.
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Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
Yankee Bonds (continued)
Export-Import Bank of Korea 4.500% 8/12/2009 $ 895,000 $ 879,014
Falconbridge Ltd. 5.375 6/1/2015 100,000 96,413
Falconbridge Ltd. 6.000 10/15/2015 480,000 484,683
ING Groep NV (a) 5.775 11/30/2049 860,000 871,612
Ispat Inland Ulc 9.750 4/1/2014 330,000 373,725
Nippon Life Insurance 144A 4.875 8/9/2010 1,000,000 984,538
Northern Rock PLC 144A 5.600 4/30/2014 640,000 643,575
Pearson Dollar Finance PLC 144A 4.700 6/1/2009 875,000 860,743
Resona Bank Ltd. 144A 5.850 1/10/2049 1,015,000 1,010,711
Royal KPN NV 8.375 10/1/2030 1,815,000 2,150,737
Sappi Papier Holding AG 144A 6.750 6/15/2012 1,076,000 1,027,588
St. George Bank Ltd. 144A 5.300 10/15/2015 890,000 893,970
Sumitomo Mitsui Banking 144A (a) 5.625 7/15/2049 675,000 672,473
Teck Cominco Ltd. 7.000 9/15/2012 1,465,000 1,586,865
Telecom Italia Capital SA 4.875 10/1/2010 1,000,000 980,389
------------
Total Yankee Bonds (Cost $21,619,307) 21,472,929
------------
Pass Thru Securities--34.5%
Non-Agency Pass Thru Securities--4.1%
Banc of America Commercial Mortgage, Inc. 2005-2 A2 4.247 7/10/2043 1,900,000 1,873,292
Bayview Commercial Asset Trust 2005-3A B3 144A (a) 7.379 11/25/2035 296,745 296,745
Bayview Commercial Asset Trust 2005-4A B3 144A (a) 7.870 1/25/2036 250,000 250,000
Bear Stearns Commercial Mortgage Securities 2003-T12 A3 4.240 8/13/2039 1,890,000 1,823,055
Calwest Industrial Trust 2002-CALW A 144A 6.127 2/15/2017 2,120,000 2,231,250
Capco America Securitization Corp. 1998-D7 A1B 6.260 10/15/2030 1,155,000 1,189,764
Crown Castle Towers LLC, 2005-1A D 144A 5.612 6/15/2035 540,000 525,961
DLJ Commercial Mortgage Corp. 1998-CF2 B1 7.042 11/12/2031 2,350,000 2,469,079
First Chicago/Lennar Trust 1997-CHL1 D 144A (a) (f) 7.674 4/29/2039 3,995,001 4,017,473
JP Morgan Chase Commercial Mortgage Security Co. 2005-LDP5 A2 5.198 12/15/2044 1,585,000 1,591,514
Mach One Trust 2004-1A A1 144A 3.890 5/28/2040 1,081,851 1,057,042
Merrill Lynch Mortgage Trust, Inc. 2005-CIP1 A2 4.960 7/12/2038 1,065,000 1,058,918
Merrill Lynch Mortgage Trust, Inc. 2005-CKI1 A2 5.224 11/12/2037 375,000 378,107
------------
18,762,200
------------
Agency Pass Thru Securities--30.4%
FHLMC Gold 4.000 10/1/2009 564,495 550,344
FHLMC Gold 3.500 9/1/2010 449,447 427,767
FHLMC Gold 7.000 11/1/2031 176,299 183,675
FHLMC Gold 7.000 11/1/2031 161,676 168,440
FHLMC Gold 5.500 1/1/2034 911,884 904,407
FHLMC Gold 5.500 3/1/2034 327,592 324,905
FNMA 4.000 5/1/2010 2,081,431 2,012,946
FNMA 3.640 6/1/2010 2,665,000 2,506,709
FNMA 3.530 7/1/2010 1,177,634 1,109,872
FNMA 5.139 12/25/2011 928,575 937,075
FNMA 8.500 6/1/2012 27,999 29,011
FNMA 5.000 1/1/2019 434,835 430,411
FNMA 5.500 11/1/2024 1,692,062 1,689,816
FNMA (f) 5.500 1/1/2025 4,477,959 4,472,015
FNMA 7.500 11/1/2029 867 909
The accompanying notes are an integral part of the financial statements.
20
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Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------------------
Agency Pass Thru Securities (continued)
FNMA 5.500% 1/1/2034 $ 834,456 $ 828,337
FNMA 5.500 1/1/2034 2,047,628 2,032,612
FNMA (TBA) (d) 4.500 1/1/2021 33,850,000 32,929,686
FNMA (TBA) (d) 5.000 1/1/2021 17,800,000 17,605,304
FNMA (TBA) (d) 5.500 1/1/2021 3,725,000 3,747,119
FNMA (TBA) (d) 6.000 1/1/2021 6,785,000 6,929,181
FNMA (TBA) (d) 5.500 1/1/2036 15,730,000 15,572,700
FNMA (TBA) (d) 6.000 1/1/2036 2,250,000 2,270,390
FNMA (TBA) (d) 6.000 1/1/2036 42,625,000 41,292,969
GNMA 5.000 2/15/2021 19,538 21,339
------------
138,977,939
------------
Total Pass Thru Securities (Cost $157,412,653) 157,740,139
------------
U.S. Treasury Obligations--18.7%
U.S. Treasury Bond (b) 5.250 11/15/2028 12,875,000 14,042,801
U.S. Treasury Bond (b) (f) 6.250 5/15/2030 1,840,000 2,285,194
U.S. Treasury Note (b) (f) 3.625 4/30/2007 36,190,000 35,811,127
U.S. Treasury Note (b) 4.750 5/15/2014 6,864,000 7,031,042
U.S. Treasury Note (b) 3.500 2/15/2010 27,245,000 26,353,151
------------
Total U.S. Treasury Obligations (Cost $85,367,213) 85,523,315
------------
Foreign Denominated--0.3%
Mexico--0.3%
Mexican Fixed Rate Bonds (Cost$ 1,123,529) 9.000 12/22/2011 MXN 12,200,000 1,197,315
------------
TOTAL BONDS AND NOTES (COST $515,891,456) 515,373,742
------------
CONVERTIBLE PREFERRED STOCKS--0.6% Shares
----------
Equity Office Properties Trust CVT Pfd REIT (Cost $2,513,200) USD 50,600 2,530,000
------------
Contract
PURCHASED OPTIONS--0.0% Size
----------
Dow Jones CDX.EM. Series 4, Exercise Rate 101.60%, 2/21/2006 8,710,000 41,337
U.S. Treasury Note 4.25% Put, Strike Price 97.171, 2/6/06 4,470,000 10,058
------------
TOTAL PURCHASED OPTIONS (Cost $108,135) 51,395
------------
SHORT TERM INVESTMENTS--8.9% Par Value
----------
U.S. Government Agency--7.9%
FHLMC Discount Note (e) 3.980 1/13/2006 $ 3,300,000 3,295,251
FNMA Discount Note (e) 4.150 1/18/2006 24,345,000 24,294,481
FNMA Discount Note (b) (e) 4.150 1/12/2006 8,365,000 8,353,425
------------
35,943,157
------------
U.S. Treasury Bill--1.0%
U.S. Treasury Bill (b) (e) 3.800 3/9/2006 100,000 99,297
U.S. Treasury Bill (b) (e) 3.830 2/2/2006 4,800,000 4,784,582
U.S. Treasury Bill (e) (f) 3.730 1/26/2006 50,000 49,865
------------
4,933,744
------------
TOTAL SHORT TERM INVESTMENTS (COST $40,875,430) 40,876,901
------------
The accompanying notes are an integral part of the financial statements.
21
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Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
Value
Security Description Rate Shares (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------------------
INVESTMENT OF CASH COLLATERAL--16.5%
BlackRock Cash Strategies L.L.C (g) (Cost $75,788,306) 4.130 75,788,306 75,788,306
-------------
TOTAL UNAFFILIATED INVESTMENTS (Cost $635,176,527) 634,620,344
-------------
AFFILIATED INVESTMENTS--3.1%
Dreyfus Institutional Preferred Plus Money Market Fund (g)(h) (Cost $14,057,690) 4.030 14,057,690 14,057,690
-------------
TOTAL INVESTMENTS--141.7% (Cost $649,234,217) 648,678,034
-------------
LIABILITIES IN EXCESS OF OTHER ASSETS--(41.7%) (190,878,177)
-------------
NET ASSETS--100% $ 457,799,857
=============
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, normally to qualified institutional buyers. At the year end,
the value of these securities amounted to $39,262,018 or 8.6% of net
assets.
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
MXN--Mexican Peso
(a) Variable Rate Security; rate indicated as of 12/31/2005.
(b) Security, or a portion of thereof, is on loan at December 31, 2005.
(c) Zero coupon security.
(d) Delayed delivery security.
(e) Rate noted is yield to maturity
(f) Denotes all or part of security pledged as collateral.
(g) Stated rate is the seven-day yield for the fund at year end.
(h) Affiliated institutional money market fund.
At December 31, 2005 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Gain/(Loss)
- ------------------------------------------------------------------------------------------------------------------------------
U.S. 10 Year Treasury Note (80 Contracts) Short 3/18/2006 $ 8,693,750 $ (58,598)
U.S. 2 Year Treasury Note (75 Contracts) Long 3/20/2006 15,377,344 11,576
U.S. 5 Year Treasury Note (287 Contracts) Long 3/31/2006 30,411,719 107,678
U.S. Long Bond CBT (45 Contracts) Short 3/31/2006 5,044,456 (93,885)
-----------
$ (33,229)
===========
The accompanying notes are an integral part of the financial statements.
22
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Schedule of Investments--December 31, 2005
- --------------------------------------------------------------------------------
At December 31, 2005, the Fund held the following open swap contracts:
Unrealized
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Citigroup CenturyTel, Inc. 7.875% due 8/15/2012 Buy (1.160%) 9/20/2015 853,000 USD $ (2,234)
Citigroup CenturyTel, Inc. 7.875% due 8/15/2012 Buy (1.190%) 9/20/2015 1,920,000 USD (9,258)
Citigroup Dow Jones CDX.NA.IG.4 7% to 10% tranche Buy (0.705%) 6/20/2010 3,277,000 USD (57,351)
Citigroup Dow Jones CDX.NA.IG.4 7% to 10% tranche Buy (0.685%) 6/20/2010 470,000 USD (7,848)
Washington Mutual, Inc., 4.000% due
Citigroup 1/15/2009 Sell 0.530% 3/20/2015 2,305,000 USD 11,850
Deutsche Bank Koninkijke KPN N.V., 8.00% due
10/01/2010 Buy (0.850%) 12/20/2010 2,310,000 USD 2,406
Goldman Sachs Consolidated Natural Gas Co., 6.000%
due 10/15/2010 Sell 0.200% 3/20/2006 13,670,000 USD 4,579
Cooper Tire & Rubber Co., 7.750% due
JPMorgan 12/15/2009 Buy (1.070%) 9/20/2010 1,120,000 USD 79,624
JPMorgan Koninklijke KPN N.V., 8.00% due
10/01/2010 Buy (0.86%) 12/20/2010 3,460,000 USD 2,105
JPMorgan Republic of Panama, 8.875% due
9/30/2027 Sell 1.500% 12/20/2010 1,413,000 USD 2,861
JPMorgan Republic of Peru, 8.75% due 11/21/2033 Buy (1.70%) 12/20/2010 1,413,000 USD 28,553
Morgan Stanley CenturyTel, Inc. 7.875% due 8/15/2012 Buy (1.150%) 9/20/2015 247,000 USD (466)
Morgan Stanley Dow Jones CDX.NA.IG.4 7% to 10% tranche Buy (0.685%) 6/20/2010 470,000 USD (7,755)
Morgan Stanley Wendy's International, Inc.,
6.250% due 11/15/2011 Buy (0.97%) 12/20/2015 1,860,000 USD 24,918
--------
$ 71,984
========
Unrealized
Interest Rate Swaps Floating Rate Pay/Receive Expiration Notional Appreciation/
Counterparty Index Floating Rate Fixed Rate Date Amount (Depreciation)
- ------------------------------------------------------------------------------------------------------------------------------------
Merrill Lynch USD--LIBOR--BBA Pay 4.1725% 5/13/2008 $ 9,140,000 $ (129,413)
Merrill Lynch USD--LIBOR--BBA Receive 4.6425% 5/13/2015 9,140,000 169,903
----------
40,490
==========
At December 31, 2005, the Fund held the following written options contracts:
Written Put Number of
Option Security Strike Price Expiration Date Contracts Premiums Value
- -----------------------------------------------------------------------------------------------------------------------------------
U.S. Treasury Note 4.25% Put 95.609 2/6/06 1 $ 55,875 $ 5,364
=======
Written Call
Option Security Counter Party Exercise Rate Expiration Date Notional Amount Premium Value
- -----------------------------------------------------------------------------------------------------------------------------------
Dow Jones CDX.EM. Series 4 Bear Stearns 102.38% 2/21/06 17,420,000 $ 52,260 $ 34,413
========
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, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities (including securities on loan, valued at $74,402,883) (Note 7)
Unaffiliated issuers, at value (Note 1A) (cost $635,176,527) $ 634,620,344
Affiliated issuers, at value (Note 1A) (cost $14,057,690) (Note 1G) 14,057,690
Foreign currency, at value (identified cost, $789,818) 77
Receivable for investments sold 14,232,583
Interest and dividends receivable 3,752,927
Unrealized appreciation on swap contracts (Note 5) 326,799
Receivable for variation margin on open futures contracts (Note 5) 5,687
Prepaid expenses 2,298
-------------
Total assets 666,998,405
Liabilities
Payable for investments purchased $ 133,073,758
Collateral for securities on loan (Note 6) 75,788,306
Due to custodian 845
Unrealized depreciation on swap contracts (Note 5) 214,325
Options written, at value (premiums received $108,135) (Note 5) 39,777
Accrued professional fees 24,946
Accrued accounting, administration and custody fees (Note 2) 12,915
Accrued trustees' fees and expenses (Note 2) 15,478
Other accrued expenses and liabilities 28,198
-------------
Total liabilities 209,198,548
-------------
Net Assets (applicable to investors' beneficial interest) $ 457,799,857
=============
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, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 20,670,108
Dividend income 132,825
Dividend income from affiliated investments (Note 1H) 224,128
Security lending income (Note 6) 81,973
-------------
Total investment Income 21,109,034
Expenses
Investment advisory fee (Note 2) $ 1,741,829
Accounting, administration and custody fees (Note 2) 198,972
Professional fees 60,952
Trustees' fees and expenses (Note 2) 51,490
Insurance expense 16,750
Miscellaneous 6,865
-------------
Total expenses 2,076,858
-------------
Net investment income 19,032,176
-------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 637,983
Financial futures transactions 140,603
Written options transactions 445,713
Foreign currency transactions and forward currency exchange transactions 1,413,087
Swap transactions 440,129
-------------
Net realized gain (loss) 3,077,515
Change in unrealized appreciation (depreciation) on:
Investments (8,659,451)
Financial futures contracts 346,498
Written options contracts 31,242
Foreign currency translations and forward currency exchange contracts 186,791
Swap contracts 64,410
-------------
Change in net unrealized appreciation (depreciation) (8,030,510)
-------------
Net realized and unrealized gain (loss) (4,952,995)
-------------
Net Increase in Net Assets from Operations $ 14,079,181
=============
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Investment Operations
Net investment income $ 19,032,176 $ 19,721,641
Net realized gain (loss) 3,077,515 20,499,067
Change in net unrealized appreciation (depreciation) (8,030,510) (13,157,811)
------------- -------------
Net increase (decrease) in net assets from investment operations 14,079,181 27,062,897
------------- -------------
Capital Transactions
Contributions 67,138,420 65,727,299
Withdrawals (88,960,526) (238,255,854)
------------- -------------
Net increase (decrease) in net assets from capital transactions (21,822,106) (172,528,555)
------------- -------------
Total Increase (Decrease) in Net Assets (7,742,925) (145,465,658)
Net Assets
At beginning of year 465,542,782 611,008,440
------------- -------------
At end of year $ 457,799,857 $ 465,542,782
============= =============
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,
-----------------------------------------------------------
2005 2004 2003 2002 2001
--------- --------- --------- --------- -----------
Total Return (a) 3.00% 5.77% 5.25% 8.89% 7.18%
Ratios/Supplemental Data:
Expenses (to average daily net assets)* 0.45% 0.45% 0.41% 0.38% 0.36%
Net Investment Income (to average daily net assets)* 4.12% 3.80% 3.78% 4.86% 6.37%
Portfolio Turnover: (b)
Inclusive 380% 301% 398% 384% 329%
Exclusive 106% 98% -- -- --
Net Assets, End of Year (000's omitted) $ 457,800 $ 465,543 $ 611,008 $ 944,098 $ 1,495,389
- ----------
* 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 N/A 0.42% 0.39% N/A
Net investment income N/A N/A 3.77% 4.85% N/A
(a) 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.
(b) Beginning in 2004, the portfolio turnover ratio is presented inclusive and
exclusive of the effect of rolling forward purchase commitments.
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.
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.
At December 31, 2005 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, 2005 was 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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost
based upon the value on such date unless the Trustees determine during
such sixty-day period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the yield - to -
maturity method. 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 disregarded entity 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 the
Portfolio's investor 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.
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.
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.
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 Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated among
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
H. Affiliated issuers
Affiliated issuers are 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 0.40% 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 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 Portfolio. For these services the Portfolio
pays Mellon Bank a fixed fee plus asset and transaction based fees, as
well as, out-of-pocket expenses. Pursuant to this agreement the Portfolio
was charged $198,972 during the year ended December 31, 2005.
The Portfolio entered into an agreement with Mellon Bank to perform
certain securities lending activities and to act as the Portfolio lending
agent. Mellon Bank receives an agreed upon percentage of the net lending
revenues. Pursuant to this agreement, Mellon Bank received $35,585 for the
year ended December 31, 2005. See Note 6 for further details.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. No other
director, officer or employee of Standish Mellon or its affiliates
received 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, 2005 were as follows:
Purchases Sales
--------------- --------------
U.S. Government Securities $ 1,781,343,469 $1,764,051,309
=============== ==============
Investments (non-U.S. Government Securities) $ 239,934,866 $ 276,956,943
=============== ==============
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2005, as computed on a federal
income tax basis, were as follows:
Aggregate cost $ 649,943,320
===============
Gross unrealized appreciation 3,605,210
Gross unrealized depreciation (4,870,496)
---------------
Net unrealized appreciation (depreciation) $ (1,265,286)
===============
(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 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 year end. Losses may
arise from changes in the value of the underlying instruments if there is
an illiquid secondary market for the contract or if the counterparty does
not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers.
30
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
During the year ended December 31, 2005, the Portfolio entered into the
following transactions:
Number of
Written Put Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of year 1 $ (65,051)
Options written 7 (81,091)
Options expired (5) 275,139
Options closed (2) (73,122)
--------- ---------
Outstanding, end of year 1 $ 55,875
========= =========
Number of
Written Call Option Transactions Contracts Premiums
--------- ---------
Outstanding, beginning of year 1 $ (31,109)
Options written 7 (61,377)
Options expired (5) 209,145
Options closed (2) (64,399)
--------- ---------
Outstanding, end of year 1 $ 52,260
========= =========
At December 31, 2005, the Portfolio held options. See the Schedule of
Investments for further details.
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, 2005, the Portfolio did not hold forward currency exchange
contracts.
Futures contracts
The Portfolio may enter into financial futures contracts for the 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
31
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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, 2005, the Portfolio held open financial futures
contracts. See the 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 at the beginning of the measurement period are reflected as such
on the Statement of Assets and Liabilities. 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.
At December 31, 2005, the Portfolio held open swap contracts. See the
Schedule of Investments for further details.
(6) Securities 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, 2005
and earned interest on the invested collateral of $2,680,748 of which,
$2,598,775 was rebated to borrowers or paid in fees. At December 31, 2005,
the Portfolio had securities valued at $74,402,883 on loan. See the
Schedule of Investments for further detail on the security positions on
loan and collateral held.
32
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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.
At December 31, 2005, the Porfolio held delayed delivery securities. See
the 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 committed amount, is allocated ratably among the participating
portfolios/funds at the end of each quarter. For the year ended December
31, 2005, the facility fee was $5,255 for the Portfolio.
During the year ended December 31, 2005, the Portfolio had average
borrowings of $28,000 for a total of three days and incurred $9 of
interest.
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, 2005, the results of its operations
for the year then ended, the changes in its net assets for each of the two years
in the period then ended, and the financial highlights for each of the five
years in the period then ended, 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, 2005 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
February 24, 2006
34
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the
fund's investment adviser or underwriter (the "Independent Trustees")
voting separately, approve the Fund's advisory agreement and the related
fees on an annual basis. The Fund is not a party to an investment advisory
agreement directly with any investment adviser and does not invest
directly in portfolio securities. Instead, the Fund invests all of its
investable assets in the Standish Mellon Fixed Income Portfolio (the
"Portfolio"), which is managed by Standish Mellon Asset Management Company
LLC ("Standish Mellon"). The Fund's Board of Trustees determines annually
whether the Fund should continue to invest in the Portfolio. The members
of the Fund's Board of Trustees also serve as the Board of Trustees of the
Portfolio. In that capacity, they consider annually whether to continue
the investment advisory agreement between the Portfolio and Standish
Mellon. In their most recent deliberations concerning their decision to
approve the continuation of the investment advisory agreement, the Board
of Trustees conducted the review and made the determinations that are
described below. In conducting this review and in making such
determinations, the Independent Trustees received from Standish Mellon a
broad range of information in response to a written request prepared on
their behalf by their own legal counsel. The Independent Trustees met
alone in a private session with their legal counsel on September 22, 2005
to review these materials and to discuss the proposed continuation of the
Fund's advisory agreement. Representatives of Standish Mellon attended a
portion of the September meeting to provide an overview of its
organization, personnel, resources and strategic plans, and to respond to
questions and comments arising from the Independent Trustees' review of
the materials and their deliberations. The entire Board then met on
October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
Standish Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance (rather than the Portfolio alone) and any material
portfolio manager and strategy changes that may have affected the Fund and
Portfolio in the prior year, as well as "fact sheets" prepared by Standish
Mellon providing salient data about the Fund and Portfolio and Standish
Mellon's views concerning the issues of breakpoints in the management fee
schedule of the Portfolio and potential economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
Portfolio's advisory agreement and the compensation to Standish Mellon
provided therein were fair and reasonable in light of the services
performed, expenses incurred and such other matters as the Trustees
considered relevant in the exercise of their reasonable judgment. The
following summary does not detail all the matters that were considered.
Some of the factors that figured prominently in the Trustees'
determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by Standish Mellon. In their deliberations as to
the continuation of the Portfolio's advisory agreement, the Trustees were
also mindful of the fact that, by choosing to invest in the Fund, the
Fund's shareholders have chosen to entrust Standish Mellon, under the
supervision of the Board, to manage the portion of their assets invested
in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Portfolio effectively.
35
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund (rather than
the Portfolio alone) against a peer group of investment companies selected
by Standish Mellon with input from the Trustees. The Board also compared
the Fund's investment performance against the average performance of a
larger universe of funds regarded by Lipper as having similar investment
objectives and considered the Fund's performance rankings against that
universe. In addition to the information received by the Board at the
September 22, 2005 Board meeting, the Trustees received similar detailed
comparative performance information for the Fund at each regular Board
meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2005 based on the Lipper materials
provided to the Board at the September 22, 2005 meeting. The Board found
that the Fund outperformed its peer group average return for the one-year
period (6.16% vs. 5.21%) but underperformed its peer group average returns
for the three-year period (5.84% vs. 5.93%) and for the five-year period
(6.95% vs. 6.98%).
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Portfolio to
Standish Mellon. The Lipper data presenting the Portfolio's "net advisory
fees" included fees paid by the Portfolio, as calculated by Lipper, for
administrative services provided by Mellon Bank, N.A., the Portfolio's
custodian. Such reporting was necessary, according to Lipper, to allow the
Board to compare the Portfolio's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Portfolio's contractual advisory fee was 0.378% (based on the
following breakpoints: 0.40% of the first $250 million; 0.35% of the next
$250 million; and 0.30% over $500 million), in the 1st quintile (best) of
its peer group of funds, the median fee of which was 0.479%. The
Portfolio's net advisory fee was 0.376% (which was lower than the Fund's
0.378% contractual advisory fee due to Lipper's rounding methodology),
below the peer group median net advisory fee of 0.422%. Based on the
Lipper data, as well as other factors discussed at the September 22, 2005
meeting, the Board determined that the Portfolio's advisory fee is
reasonable.
The Board also compared the fees payable by the Portfolio relative to
those payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Portfolio
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds.
The Board found that the actual net expense ratio of 0.483% was lower than
the median net expense ratio of the peer group of 0.581% notwithstanding
the fact that most of the other funds in the peer group were larger than
the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the
Portfolio and Fund and the Mellon Institutional Funds as a group, as well
as the methodology used to compute such profitability, and the various
direct and indirect expenses incurred by Standish Mellon or its affiliated
investment adviser, The Boston Company Asset Management, LLC ("TBCAM") in
managing the Portfolio and Fund and other funds in the Mellon
Institutional Funds family of funds. The Independent Trustees had observed
that Standish Mellon incurred losses in managing many of the investment
companies in the Mellon Institutional Funds family of funds, and that
among those funds that were profitable to Standish Mellon, several
generated only marginal profitability for the firm. The Trustees observed
that Standish Mellon had experienced profits in operating the Portfolio
and Fund in both 2003 and 2004 and concluded these were not excessive.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Fund grows. They observed that the Fund, the largest fund
in the complex, already had breakpoints in its fee arrangement that
reflected economies resulting from its size and that no different or
additional breakpoints were appropriate at this time.
36
Mellon Institutional Funds Master Portfolio
Standish Mellon Fixed Income Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Portfolio's advisory
agreement and the compensation to Standish Mellon provided therein are
fair and reasonable and, thus, in approving the continuation of the
agreement for a one-year period.
37
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 remuneration paid
as of the period ended December 31, 2005. 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 (period 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 2005)
- ------------------------------------------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman 32 None Fund: $ 500
c/o Decision Resources, Inc. 11/3/1986 Emeritus, Portfolio: $6,949
260 Charles Street Decision
Waltham, MA 02453 Resources, Inc.
9/30/40 ("DRI")
(biotechnology
research and
consulting
firm); formerly
Chairman of the
Board and Chief
Executive
Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex 32 None Fund: $ 500
c/o Essex Street Associates 11/3/1986 Street Associates Portfolio: $8,062
P.O. Box 5600 (family
Beverly, MA 01915 investment trust
11/14/43 office)
Benjamin M. Friedman Trustee Trustee since William Joseph 32 None Fund: $ 500
c/o Harvard University 9/13/1989 Maier, Professor Portfolio: $6,949
Littaver Center 127 of Political
Cambridge, MA 02138 Economy,
8/5/44 Harvard
University
John H. Hewitt Trustee Trustee since formerly Trustee, 32 None Fund: $ 500
P.O. Box 2333 11/3/1986 Mertens House, Portfolio: $6,949
New London, NH 03257 Inc. (hospice)
4/11/35
Interested Trustees
Patrick J. Sheppard Trustee, President Since 2003 President and 32 None $ 0
The Boston Company and Chief Chief Operating
Asset Management, LLC Executive Officer Officer of The
One Boston Place Boston Company
Boston, MA 02108 Asset Management,
7/24/65 LLC; formerly
Senior Vice
President and
Chief Operating
Officer, Mellon
Asset Management
("MAM") and Vice
Chief President
and Financial
Officer, MAM
38
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations, Mellon
Mellon Asset Management and Secretary Asset Management ("MAM"); formerly First Vice
One Boston Place President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller, Mellon
Mellon Asset Management and Treasurer since 1999; Asset Management
One Boston Place Treasurer
Boston, MA 02108 since 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds Operations,
Mellon Asset Management President Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager of
One Boston Place Shareholder Services, MAM, Shareholder
Boston, MA 02108 Representative, Standish Mellon Asset Management
1/19/71 Company LLC
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management and
Mellon Asset Management Compliance Chief Compliance Officer, Mellon Funds Distributor
One Boston Place Officer and Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President,
4/8/57 State Street Research & Management Company ("SSRM"),
Vice President, SSRM
39
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[LOGO] Mellon
--------------------------
Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6923AR1205
[LOGO] Mellon
--------------------------
Mellon Institutional Funds
Annual Report Standish Mellon
Global Fixed Income Fund
- --------------------------------------------------------------------------------
Year Ended December 31, 2005
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.
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. For a
complete list of the Fund's portfolio holdings, view the most recent quarterly
holdings report, semi-annual report or annual report on the Fund's web site at
http://melloninstitutionalfunds.com.
To view the Fund's proxy voting guidelines and proxy voting record for the
12-month period ended June 30 visit http://melloninstitutionalfunds.com or 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 2006
Dear Mellon Institutional Fund Shareholder:
Enclosed you will find your Fund's annual report for the fiscal year ended
December 31, 2005.
To put the 2005 environment in perspective, the economy showed resiliency,
largely shrugging off the effects of Hurricanes Katrina and Rita. Real GDP
advanced 4.1% in the third quarter, although some lagging impact of the storms
is likely to reduce fourth quarter growth. While the storm damage and related
oil shocks did not significantly derail economic growth, these events did help
dampen investor enthusiasm, with mixed results for the broad equity markets. The
S&P 500 advanced 3%, while the Dow Jones Industrial Average fell by 0.6%. Both
developed and emerging foreign markets outperformed the U.S., as foreign
companies' profitability continued to exceed expectations. For example, in local
currency terms, the MSCI EAFE Index, a broad representation of international
stocks, advanced 25.9%, while the MSCI Emerging Markets index advanced 24.5%.
In the bond market, the U.S. Federal Reserve continued its course of "measured"
tightenings, which steadily pushed up short-term rates. By year-end, however,
the Fed started to signal that the cycle of tightenings was approaching
conclusion. The yield curve ended the year virtually flat, as the long end
changed very little in 2005, reflecting the market's conviction that inflation
was relatively contained. This environment proved very good for long-term bond
investors. The Lehman U.S. Treasury Long Bond Index, for example, had a total
return of 6.5% in 2005. A major focus in 2006 will be on incoming Fed Chairman
Ben Bernanke, and how he implements his inflation-targeting philosophy in his
new role.
Looking ahead, we believe the global expansion should become more balanced in
2006. Internal domestic demand abroad should expand, while the contribution by
the U.S. to overseas economic growth - by virtue of its widening balance of
trade - should slow. In the U.S., the key questions this year appear to be the
extent to which a softening housing market will be a drag on the economy, and
whether corporate spending will be enough to pick up the slack. GDP is
anticipated by most economists to be above 3%, as the accommodative monetary
policy of the past several years continues to support expansion. During the past
several years, companies have been hoarding cash, reluctant to boost employment
or spend on plant and equipment. That trend is beginning to reverse, and more
support for the economy is likely to come from increased corporate spending, and
from the rebuilding efforts in New Orleans and other damaged regions. Some of
the concerns from last year carry over to 2006. Consumers are weighted with debt
and potentially vulnerable in a rising rate environment. Higher energy prices
act like a tax on economic growth. Fortunately, recent inflation indicators have
been good, which gives consumers higher real income and the Fed some breathing
room in its tightening policy.
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
President and CEO
Mellon Institutional Funds
One Boston Place o 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 hedged to the dollar produced some of the best bond returns
of all the fixed income sectors in 2005. The Standish Mellon Global Fixed Income
Fund returned 3.64% for 2005, after all expenses, compared to a return of 4.28%
for the J.P. Morgan Non-U.S. Government Bond Index.
Low single digit returns in most major bond markets represented a decent outcome
in 2005 considering that central banks have started a global tightening cycle
and headline inflation is up on the back of high oil prices. Not surprisingly,
the U.S. bond market produced the lowest returns within the hedged index because
the Federal Reserve was hiking interest rates at every meeting in 2005, raising
interest rates by a total of 2% during the year. Even though the U.S. Federal
Reserve raised interest rates by 2%, the benchmark ten-year Treasury bond yield
rose only from 4.22% to 4.39% during the year.
The European Central Bank also raised interest rates in the fourth quarter by
0.25% but that did not damage the positive return on bonds. European bonds were
among the best performers in the hedged index for 2005 as economic growth
disappointed in the first half of the year. European core inflation also dropped
to 1.5% during 2005, and that provided a tail wind to bonds. Finally, the long
end of European bond markets has performed very well as pension reform in
various countries is providing a demand for long duration bonds. European yield
curves also flattened considerably during the year, making long duration bonds
the best performing bonds in 2005.
Japan's economy surprised on the strong side in 2005. The Japanese stock market
was one of the best performing global markets, which hurt the performance of
Japanese bonds. Nevertheless, returns for Japanese bonds benefited from the
carry associated with hedging back to the dollar and managed to outperform U.S.
Treasury returns over the year.
The star performer within the index was Canada where returns were driven by the
fact that the Bank of Canada has lagged Fed rate increases, opening a sizeable
gap in short rate spreads of 1% between these two countries. Also, the strong
Canadian dollar has eased upward pressure on interest rates.
The non-government sectors of the international bond markets were not a major
source of positive or negative return in 2005. Security selection in high yield
and corporate bonds certainly added value as some sectors, like autos, performed
poorly. Emerging markets was the best performing sector once again among the
non-government sectors as credit quality continued to improve and capital flowed
freely into the sector.
The Fund underperformed its benchmark during the year. Our positions in
investment grade and high yield corporate bonds and emerging market securities
were the largest positive contributor relative to our benchmark. The results of
our country weightings were mixed. We were underweight in Japan and the U.S. but
lost value by not overweighting the long end of the European yield curve. We had
a long duration position in Australia that lagged the benchmark. The Australian
housing market deteriorated significantly but this did not lead to the interest
rate cuts from the Reserve Bank of Australia that we expected. The Bank of
England did cut interest rates to offset weak consumer demand that was partially
driven by weak housing,
2
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Management Discussion and Analysis
- --------------------------------------------------------------------------------
and that helped U.K. bonds to solid performance in 2005. Duration positioning
was another negative factor as long duration bonds outperformed despite strong
economic growth and rising short-term yields. Our process emphasizes value in
bond markets and, given the low level of real yields, we were surprised at the
performance of long-duration bonds in 2005.
Our outlook for international bonds in 2006 is favorable. 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 probably
pause in raising interest rates while Europe and Canada and perhaps also Japan
continue to raise interest rates. We believe opportunities for added value can
be found in the higher real yielding markets of Australia, the U.K., Sweden and
even the U.S. if the housing market exerts a large drag on economic growth. In a
global tightening cycle Japan may end up being a good diversifying position if
economic growth peters out. Non-government sectors, such as corporate and
emerging market bonds, have increased in value 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.
During the year we changed portfolio managers on the Global Fixed Income Fund.
Charles Dolan and Thomas Fahey have assumed management responsibility of the
fund while Chuck Cook pursues new responsibilities within the firm.
We appreciate your continued support and look forward to working on your behalf
over the next year.
/s/ Thomas Fahey /s/ Charles Dolan
Thomas Fahey Charles Dolan
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 Aggregate Index
- --------------------------------------------------------------------------------
[LINE GRAPH]
[PLOT POINTS TO COME]
Average Annual Total Returns
(for period ended 12/31/2005)
- --------------------------------------------------------------------------------
Since
Inception
1 Year 3 Years 5 Years 10 Years 1/1/1994
- --------------------------------------------------------------------------------
3.64% 4.99% 5.28% 6.66% 6.34%
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.
* Source: Lehman
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, 2005 to December 31, 2005).
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, 2005 to
July 1, 2005 December 31, 2005 December 31, 2005
- --------------------------------------------------------------------------------
Actual $1,000.00 $1,009.20 $3.29
Hypothetical (5% return
per year before expenses) $1,000.00 $1,021.93 $3.31
- ----------
+ Expenses are equal to the Fund's annualized expense ratio of 0.65%,
multiplied by the average account value over the period, multiplied by
184/365 (to reflect the one-half year period).
5
Mellon Institutional Funds Investment Portfolio
Standish Mellon Global Fixed Income Fund
Portfolio Information as of December 31, 2005 (Unaudited)
- --------------------------------------------------------------------------------
Percentage of
Economic Sector Allocation Investments
- -----------------------------------------------------------
Government 53.3%
Credit 35.3
Emerging markets 6.1
Mortgage pass thru 1.9
ABS/CMBS/CMO 0.5
Cash & equivalents 2.9
-----
100.0%
Percentage of
Top Ten Holdings* Rate Maturity Investments
- --------------------------------------------------------------------------------
U.S. Treasury Inflation-Indexed Bond 0.88 4/15/2010 9.8%
Queensland Treasury Corp. 6.00 6/14/2011 7.2
Netherlands Government Bond 5.50 7/15/2010 6.6
Swedish Government 5.25 3/15/2011 6.2
U.S. Treasury Inflation-Indexed Bond 3.38 1/15/2007 3.7
Singapore Government Bond 5.63 7/1/2008 3.6
KFW International Finance 1.75 3/23/2010 2.4
United Kingdom Gilt 4.75 6/7/2010 2.1
FCE Bank PLC 2.39 6/28/2006 2.1
Kingdom of Denmark 3.13 10/15/2010 1.9
----
45.6%
* Excluding short-term investments and investment of cash collateral.
Summary of Combined Ratings
- -----------------------------------------------------------
Percentage of
Quality Breakdown Investments
- -----------------------------------------------------------
AAA 60.2%
AA 5.5
A 7.9
BBB 13.3
BB 6.7
B 2.9
CCC/NR 3.5
-----
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.
The Standish Mellon Global Fixed Income Fund invests all of its investable
assets in an interest of the Standish Mellon Global Fixed Income Portfolio (See
Note 1 of the Fund's Notes to Financial Statements). 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, 2005
- --------------------------------------------------------------------------------
Assets
Investment in Standish Mellon Global Fixed Income
Portfolio (Portfolio), at value (Note 1A) $ 71,108,799
Receivable from advisor 66
Prepaid expenses 4,785
------------
Total assets 71,113,650
Liabilities
Distributions payable $ 866,964
Payable for Fund shares redeemed 46,451
Accrued shareholder services fee (Note 2) 307
Accrued chief compliance officer fees (Note 2) 404
Accrued professional fees 23,807
Accrued transfer agent fees (Note 2) 4,034
Accrued trustees' fees (Note 2) 500
Other accrued expenses and liabilities 3,391
----------
Total liabilities 945,858
------------
Net Assets $ 70,167,792
============
Net Assets consist of:
Paid-in capital $ 92,332,507
Accumulated net realized loss (21,684,758)
Distributions in excess of net investment income (151,654)
Net unrealized depreciation (328,303)
------------
Total Net Assets $ 70,167,792
============
Shares of beneficial interest outstanding 3,839,096
============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 18.28
============
The accompanying notes are an integral part of the financial statements.
7
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Statement of Operations
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 3,183,858
Dividend income allocated from Portfolio (net of foreign
witholding taxes of $1,220) 3,169
Expenses allocated from Portfolio (470,999)
-----------
Net investment income allocated from Portfolio 2,716,028
Expenses
Transfer agent fees (Note 2) $ 8,140
Registration fees 26,149
Professional fees 32,517
Shareholder reports 4,833
Trustees' fees (Note 2) 2,001
Insurance expense 1,100
Miscellaneous 9,844
-----------
Total expenses 84,584
Deduct:
Reimbursement of Fund operating expenses (Note 2) (83,984)
-----------
Net expenses 600
-----------
Net investment income 2,715,428
Realized and Unrealized Gain (Loss)
Net realized gain allocated from Portfolio on:
Investments 1,773,781
Financial futures transactions 23,569
Foreign currency transactions and forward currency
exchange transactions 4,292,162
Swap transactions 94,335
-----------
6,183,847
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investments (7,595,580)
Financial futures contracts (29,470)
Written options contracts 42,400
Foreign currency translation and forward currency
exchange contracts 1,264,204
Swap contracts (8,621)
-----------
(6,327,067)
-----------
Net realized and unrealized gain (loss) allocated
from Portfolio (143,220)
-----------
Net Increase in Net Assets from Operations $ 2,572,208
===========
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets:
From Operations
Net investment income $ 2,715,428 $ 3,709,860
Net realized gain (loss) 6,183,847 8,814,993
Change in net unrealized appreciation (depreciation) (6,327,067) (7,922,754)
----------------- -----------------
Net increase (decrease) in net assets from investment
operations 2,572,208 4,602,099
----------------- -----------------
Distributions to Shareholders (Note 1C)
From net investment income (7,240,447) (6,932,393)
----------------- -----------------
Total distributions to shareholders (7,240,447) (6,932,393)
----------------- -----------------
Fund Share Transactions (Note 4)
Net proceeds from sale of shares 568,992 2,287,428
Value of shares issued to shareholders in reinvestment
of distributions 6,373,483 6,021,997
Redemption fees credited to capital 10 -
Cost of shares redeemed (4,347,568) (79,923,935)
----------------- -----------------
Net increase (decrease) in net assets from Fund share
transactions 2,594,917 (71,614,510)
----------------- -----------------
Total Increase (Decrease) in Net Assets (2,073,322) (73,944,804)
Net Assets
At beginning of year 72,241,114 146,185,918
----------------- -----------------
At end of year (including distributions in excess
of net investment income of $151,654 and $1,048,644) $ 70,167,792 $ 72,241,114
================= =================
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,
--------------------------------------------------------------------
2005 2004 2003 2002 2001
----------- ----------- ----------- ----------- -----------
Net Asset Value, Beginning of the year $ 19.64 $ 20.67 $ 19.43 $ 18.45 $ 18.53
----------- ----------- ----------- ----------- -----------
From Operations:
Net investment income* (a) 0.75 0.83 0.75 0.82 0.84
Net realized and unrealized gain
(loss) on investments (0.04) 0.20 0.49 0.44 (0.01)(b)
----------- ----------- ----------- ----------- -----------
Total from investment operations 0.71 1.03 1.24 1.26 0.83
----------- ----------- ----------- ----------- -----------
Less Distributions to Shareholders:
From net investment income (2.07) (2.06) -- (0.27) (0.91)
From tax return of capital -- -- -- (0.01) --
----------- ----------- ----------- ----------- -----------
Total distributions to shareholders (2.07) (2.06) -- (0.28) (0.91)
----------- ----------- ----------- ----------- -----------
Net Asset Value, End of Year $ 18.28 $ 19.64 $ 20.67 $ 19.43 $ 18.45
=========== =========== =========== =========== ===========
Total Return (c) 3.64% 4.98% 6.38% 6.94% 4.51%
Ratios/Supplemental Data:
Expenses (to average daily net assets)*(d) 0.65% 0.65% 0.65% 0.60% 0.56%
Net Investment Income (to average daily net assets)* 3.75% 3.86% 3.74% 4.43% 4.46%
Net Assets, End of Year (000's omitted) $ 70,168 $ 72,241 $ 146,186 $ 164,582 $ 359,358
- ----------
* 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 (a) $ 0.73 $ 0.83 $ 0.74 N/A N/A
Ratios (to average daily net assets):
Expenses (d) 0.77% 0.68% 0.70% N/A N/A
Net investment income 3.63% 3.83% 3.69% N/A N/A
(a) Calculated based on average shares outstanding,
(b) 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.
(c) Total return would have been lower in the absence of expense waivers.
(d) Includes the Fund's share of the Portfolio's allocated expenses.
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 Fund invests all 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 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 (100% at December 31, 2005). 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 Portfolio
values its securities at value as 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
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 Fund are from the Portfolio.
C. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date. The
Fund's distributions from 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 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 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 accumulated net investment income, accumulated net realized gain
(loss) and paid in capital. Undistributed net investment income (loss) 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 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 among
funds of the Trust and/or portfolios of the Portfolio Trust 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 its pro rata
share of the Portfolio expenses (excluding brokerage 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, 2005, Standish Mellon voluntarily reimbursed
the Fund for $83,984 of its operating expenses.
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 was charged $ 8,140 during the year ended December 31, 2005.
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. For the
year ended December 31, 2005, the Fund was charged $2,269. No other
director, officer or employee of Standish Mellon or its affiliates
received 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 Portfolio Trust pays the legal
fees for the independent counsel of the Trustees.
The Fund pays administrative service fees. These fees are paid to
affiliated or unaffiliated retirement plans, omnibus accounts and platform
administrators and other entities ("Plan Administrators") that provide
record keeping and/or other administrative support services to accounts,
retirement plans and their participants. As compensation for such
services, the Fund may pay each Plan Administrator an administrative
service fee in an amount of up to 0.15% (on an annualized basis) of the
Fund's average daily net assets attributable to fund shares that are held
in accounts serviced by such Plan Administrator. For the year ended
December 31, 2005, the Fund was charged $307 for fees payable to Mellon
Private Wealth Management. The Fund's adviser or its affiliates may pay
additional compensation from their own resources to Plan Administrators
and other entities for administrative services, as well as in
consideration of marketing or other distribution-related services. These
payments may provide an incentive for these entities to actively promote
the Fund or cooperate with the distributor's promotional efforts.
(3) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for the
period ended December 31, 2005, aggregated $7,042,475 and $11,579,112,
respectively. The Fund receives a proportionate share of the Portfolio's
income, expenses, and realized and unrealized gains and losses based on
applicable tax allocation rules. Book/tax differences arise when changes
in proportionate interest for funds investing in the Portfolio occur.
(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, 2005 December 31, 2004
----------------- -----------------
Shares sold 28,662 123,648
Shares issued to shareholders for
reinvestment of distributions 348,849 306,932
Shares redeemed (216,159) (3,825,212)
-------- ----------
Net increase (decrease) 161,352 (3,394,632)
======== ==========
12
Mellon Institutional Funds Investment Trust
Standish Mellon Global Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 2005, four shareholders of record held approximately 86%
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
30 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 their costs associated with short-term trading in the
Fund. The fee does not apply to shares that were acquired through
reinvestment of distributions. For the year ended December 31, 2005, the
Fund received $10 in redemption fees.
(5) Federal Taxes:
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes substantially all of its taxable income for its
fiscal year.
As of December 31, 2005, the components of distributable earnings on a tax
basis were as follows:
Amount
-----------
Undistributed ordinary income $ 452,639
Accumulated losses $21,628,703
At December 31, 2005, the Fund, for federal income tax purposes, has
capital loss carryovers of $21,628,703 which will reduce the Fund's
taxable income arising from net realized gain on investment, 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 a follows:
Capital Loss
Carry Over Expiration Date
------------ ---------------
$ 2,498,111 12/31/2007
15,100,842 12/31/2008
408,689 12/31/2009
3,621,061 12/31/2010
------------
$ 21,628,703
============
The Fund elected to defer to its fiscal year ending December 31, 2006
$38,381 of capital losses recognized during the period November 1, 2005 to
December 31, 2005.
The Fund utilized $768,064 in capital loss carry forwards. It is uncertain
whether the Fund will be able to realize the benefits of the losses before
they expire.
Tax character of distributions paid during the fiscal years ended December
31, 2005 and December 31, 2004 were as follows:
2005 2004
---------- ----------
Ordinary income $7,240,447 $6,932,393
See corresponding master portfolio for tax basis unrealized
appreciated/(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
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, 2005, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the financial highlights for each of the five years
in the period then ended, 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, 2005 to the Portfolio's records, provide a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2006
14
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
UNAFFILIATED INVESTMENTS--95.2%
BONDS AND NOTES--93.6%
Collateralized Mortgage Obligation--0.4%
Crown Castle Towers LLC, 2005-1A D 144A
(Cost $320,000) 5.612% 6/15/2035 USD 320,000 $ 311,681
----------
Corporate--9.6%
Basic Materials--0.3%
Freeport-McMoRan Copper & Gold, Inc. 10.125 2/1/2010 130,000 142,838
Georgia-Pacific Corp. 8.000 1/15/2024 105,000 100,275
----------
243,113
----------
Communications--1.7%
COX Communications Inc. 7.125 10/1/2012 295,000 316,085
Dex Media West LLC/Dex Media Finance Co. 8.500 8/15/2010 70,000 73,325
Dex Media West LLC/Dex Media Finance Co. 9.875 8/15/2013 69,000 76,590
News America Holdings, Inc. 9.250 2/1/2013 180,000 218,615
Qwest Corp. 144A (a) 7.741 6/15/2013 175,000 188,781
Salem Communications Corp. 7.750 12/15/2010 90,000 93,263
Univision Communications, Inc. 7.850 7/15/2011 200,000 220,094
----------
1,186,753
----------
Consumer Cyclical--0.3%
Mohegan Tribal Gaming Authority 8.000 4/1/2012 100,000 105,250
Yum! Brands, Inc. 8.875 4/15/2011 75,000 85,869
----------
191,119
----------
Energy--0.3%
Halliburton Co. 5.500 10/15/2010 125,000 127,670
Southern Natural Gas Co. 8.875 3/15/2010 100,000 106,872
----------
234,542
----------
Financial--4.1%
ACE Capital Trust II 9.700 4/1/2030 195,000 271,329
Boston Properties, Inc. 6.250 1/15/2013 85,000 89,169
Chevy Chase Bank FSB 6.875 12/1/2013 295,000 303,850
Duke Realty Corp REIT 5.250 1/15/2010 175,000 175,324
Glencore Funding LLC 144A 6.000 4/15/2014 95,000 89,351
ILFC E-Capital Trust II 144A (a) 6.250 12/21/2065 135,000 137,034
International Lease Finance Corp. 5.000 4/15/2010 180,000 179,036
Jefferies Group, Inc. 5.500 3/15/2016 110,000 108,658
Lehman Brothers E-Capital Trust I 144A (a) 5.150 8/19/2065 100,000 100,250
Nisource Finance Corp. 6.150 3/1/2013 150,000 157,089
Nordea Bank 144A 7.500 1/30/2007 445,000 456,141
Residential Capital Corp. 6.375 6/30/2010 75,000 76,209
Residential Capital Corp. 6.875 6/30/2015 130,000 138,136
Residential Capital Corp. (a) 5.896 6/29/2007 70,000 70,173
Residential Capital Corp. (a) 5.670 11/21/2008 230,000 230,302
Washington Mutual, Inc. 4.625 4/1/2014 365,000 343,231
----------
2,925,282
----------
Industrial--1.1%
American Standard, Inc. 7.375 2/1/2008 145,000 151,059
Crown Americas, Inc. 144A 7.625 11/15/2013 130,000 134,875
Crown Americas, Inc. 144A 7.750 11/15/2015 75,000 77,625
Jefferson Smurfit Corp. US 8.250 10/1/2012 15,000 14,400
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
Industrial (continued)
Republic Services, Inc. 6.750% 8/15/2011 USD 150,000 $ 161,151
Waste Management, Inc. 6.875 5/15/2009 245,000 258,317
----------
797,427
----------
Technology & Electronics--0.3%
Freescale Semiconductor, Inc. (a) 6.900 7/15/2009 100,000 102,750
Quest Diagnostics, Inc. 144A 5.125 11/1/2010 90,000 89,974
----------
192,724
----------
Utilities--1.5%
AES Corp. 144A 8.750 5/15/2013 100,000 108,875
FirstEnergy Corp. 6.450 11/15/2011 260,000 275,599
Mirant North America LLC 144A 7.375 12/31/2013 190,000 192,138
Niagara Mohawk Power Corp. 7.750 10/1/2008 175,000 186,847
TXU Energy Co. 7.000 3/15/2013 270,000 287,729
----------
1,051,188
----------
Total Corporate (Cost $6,691,725) 6,822,148
----------
Sovereign Bonds--4.5%
Argentina Bonos (a) 4.005 8/3/2012 400,000 313,200
Egyptian Treasury Bill 144A 7.500 3/23/2006 725,000 744,437
Egyptian Treasury Bill 144A 9.000 7/14/2006 175,000 181,549
Republic of Brazil 8.000 1/15/2018 165,000 178,035
Republic of Brazil (a) 5.250 4/15/2012 99,414 98,171
Republic of Panama 8.875 9/30/2027 155,000 184,450
Republic of Philippines 9.375 1/18/2017 165,000 188,925
Republic of South Africa 7.375 4/25/2012 120,000 133,200
Republic of South Africa 9.125 5/19/2009 60,000 67,275
Republic of Turkey 11.500 1/23/2012 230,000 291,813
Russian Federation 5.000 3/31/2030 485,000 546,838
Russian Ministry of Finance 3.000 5/14/2008 190,000 179,788
Salomon Brothers AF for Tyumen Oil Co. 11.000 11/6/2007 125,000 135,663
----------
Total Sovereign Bonds (Cost $3,171,580) 3,243,344
----------
Yankee Bonds--2.5%
Amvescap PLC 5.375 2/27/2013 130,000 128,113
Amvescap PLC 5.375 12/15/2014 70,000 68,622
Carnival Corp. 3.750 11/15/2007 265,000 259,044
Chuo Mitsui Trust & Banking Co. Ltd. 144A (a) 5.506 2/15/2049 365,000 353,689
Falconbridge Ltd. 6.000 10/15/2015 155,000 156,512
ING Groep NV (a) 5.775 11/30/2049 230,000 233,105
Naftogaz Ukrainy 8.125 9/30/2009 100,000 103,500
Rogers Wireless, Inc. 7.500 3/15/2015 45,000 48,600
Royal KPN NV 8.375 10/1/2030 210,000 248,846
Telecom Italia Capital SA 4.875 10/1/2010 160,000 156,862
----------
Total Yankee Bonds (Cost $1,765,293) 1,756,893
----------
U.S. Government Agency--1.8%
Pass Thru Securities--1.8%
FNMA 5.500 1/1/2034 496,395 492,754
FNMA(TBA) (b) 6.500 1/1/2036 760,000 779,475
----------
Total U.S. Government Agency (Cost $1,284,106) 1,272,229
----------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
U.S. Treasury Obligations--13.8%
U.S. Treasury Bond 5.250% 11/15/2028 USD 245,000 $ 267,222
U.S. Treasury Inflation-Indexed Bond(c) 3.375 1/15/2007 2,438,987 2,456,899
U.S. Treasury Inflation-Indexed Bond 0.875 4/15/2010 6,886,801 6,547,034
U.S. Treasury Note 6.625 5/15/2007 105,000 108,052
U.S. Treasury Note 3.250 8/15/2008 450,000 437,537
----------
Total U.S. Treasury Obligations
(Cost $9,960,351) 9,816,744
----------
Foreign Denominated--61.0%
Argentina--0.2%
Republic of Argentina 0.698 9/30/2014 ARS 520,000 171,446
----------
Australia--8.3%
Australian Government Bond 6.000 2/15/2017 AUD 1,390,000 1,085,603
Queensland Treasury Corp. 6.000 6/14/2011 6,400,000 4,835,129
----------
5,920,732
----------
Brazil--0.3%
Republic of Brazil 12.500 1/5/2016 BRL 430,000 184,472
----------
Canada--0.8%
Canadian Pacific Railway Ltd. 144A 4.900 6/15/2010 CAD 620,000 544,686
----------
Denmark--1.1%
Realkredit Danmark A/S 4.000 1/1/2006 DKK 5,140,000 815,705
----------
Euro--25.0%
Allied Irish Bank UK (a) 4.781 12/10/2049 EUR 160,000 187,929
ASIF III 4.750 9/11/2013 270,000 345,156
Autostrade SpA (a) 2.902 6/9/2011 300,000 358,056
Barclays Bank PLC (a) 4.875 12/15/2014 150,000 180,351
Belgium Government Bond 4.250 9/28/2013 560,000 708,058
Bombardier, Inc. 5.750 2/22/2008 150,000 177,525
Bundesobligation 3.000 4/11/2008 270,000 320,281
Bundesobligation 4.500 8/17/2007 320,000 388,593
Bundesschatzanweisungen 2.750 6/23/2006 135,000 159,882
Citigroup, Inc. (a) 2.624 6/3/2011 370,000 438,102
Daimlerchrysler International Finance 7.000 3/21/2011 125,000 170,151
Deutsche Bundesrepublik 4.000 7/4/2009 175,000 213,959
Deutsche Republic 3.250 7/4/2015 685,000 807,577
Deutsche Republic 4.500 1/4/2013 170,000 217,490
Deutsche Republic 4.750 7/4/2034 350,000 498,993
Deutsche Telekom International Finance BV 6.625 7/11/2011 165,000 224,412
FCE Bank PLC (a) 2.895 6/28/2006 1,205,000 1,388,896
FCE Bank PLC EMTN (a) 3.492 9/30/2009 385,000 381,149
Finmeccanica SpA 4.875 3/24/2025 175,000 212,018
GE Capital European Funding (a) 2.389 5/4/2011 370,000 437,700
Glencore Finance Europe SA/Luxembourg 5.375 9/30/2011 280,000 340,228
GMAC International Finance BV (a) 4.014 8/4/2006 415,000 471,506
Hellenic Republic Government Bond 3.700 7/20/2015 800,000 961,707
Household Finance Corp. 6.500 5/5/2009 300,000 390,405
Kappa Beheer BV 10.625 7/15/2009 135,000 165,432
Kingdom of Denmark 3.125 10/15/2010 1,075,000 1,273,017
Linde Finance BV 6.000 7/29/2049 180,000 218,633
MPS Capital Trust I 7.990 2/7/2011 160,000 224,240
The accompanying notes are an integral part of the financial statements.
17
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Standish Mellon Global Fixed Income Portfolio
Schedule of Investments -- December 31, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
Euro (continued)
National Westminster Bank PLC 6.625% 10/5/2009 EUR 70,000 $ 92,100
Netherlands Government Bond 5.500 7/15/2010 3,355,000 4,375,739
Owens-Brockway Glass Containers 6.750 12/1/2014 95,000 111,308
Resona Bank Ltd. 144A 4.125 1/10/2049 110,000 129,264
Sogerim 7.000 4/20/2011 185,000 254,215
Sumitomo Mitsui Banking Corp. 144A (a) 4.375 7/15/2049 195,000 233,790
Telenet Communications NV 144A 9.000 12/15/2013 75,000 98,304
Veolia Environnement 4.875 5/28/2013 135,000 171,620
Volkswagen International Finance NV 4.875 5/22/2013 180,000 227,377
West LB Covered Bond Bank 144A 4.000 3/25/2014 150,000 185,425
-----------
17,740,588
-----------
Japan--8.3%
Depfa Acs Bank 1.650 12/20/2016 JPY 140,000,000 1,186,755
Development Bank of Japan 1.600 6/20/2014 100,000,000 868,218
European Investment Bank 1.400 6/20/2017 135,000,000 1,126,634
Japan Finance Corp. 1.550 2/21/2012 130,000,000 1,131,368
KFW International Finance 1.750 3/23/2010 178,000,000 1,575,649
-----------
5,888,624
-----------
Mexico--0.3%
Mexican Fixed Rate Bonds 8.000 12/19/2013 MXN 2,565,000 238,086
-----------
Singapore--3.4%
Singapore Government Bond 5.625 7/1/2008 SGD 3,780,000 2,424,474
-----------
Sweden--7.5%
Swedish Government 8.000 8/15/2007 SEK 8,715,000 1,190,479
Swedish Government 5.250 3/15/2011 29,940,000 4,144,500
-----------
5,334,979
-----------
United Kingdom--5.8%
Barclays Bank PLC 6.000 9/15/2026 GBP 130,000 233,480
Bat International Finance PLC 6.375 12/12/2019 90,000 168,933
British Telecom PLC 7.125 12/7/2006 185,000 325,586
Deutsche Telekom International Finance BV 7.125 9/26/2012 175,000 336,467
HBOS Capital Funding LP (d) 6.461 11/30/2048 85,000 164,860
Inco 15.750 7/15/2006 200,000 359,449
Transco Holdings PLC 7.000 12/16/2024 80,000 172,936
United Kingdom Gilt 4.250 6/7/2032 140,000 250,751
United Kingdom Gilt 4.750 6/7/2010 800,000 1,408,336
United Kingdom Gilt 8.000 9/27/2013 310,000 669,026
-----------
4,089,824
-----------
Total Foreign Denominated (Cost $44,331,678) 43,353,616
-----------
TOTAL BONDS AND NOTES (Cost $67,524,733) 66,576,655
-----------
CONVERTIBLE PREFERRED STOCKS--0.1% Shares
-----------
Fannie Mae 5.375% CVT Pfd (Cost $100,000) 1 91,891
----------
PURCHASED OPTIONS--0.1% Contract Size
-------------
EUR Put USD Call, Strike Price 1.20, 2/23/2006 1,450,000 30,595
EUR Put USD Call, Strike Price 1.20, 3/16/2006 1,450,000 31,900
EUR Put USD Call, Strike Price 1.18, 4/05/2006 1,420,000 20,830
iTRAXX Europe Series 4 Version 1,
Strike Price 0.50, 6/20/2006 2,850,000 1,975
----------
TOTAL PURCHASED OPTIONS (Cost $69,303) 85,300
----------
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, 2005
- --------------------------------------------------------------------------------
Par Value
Security Description Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS--1.4%
U.S. Government--0.3%
U.S. Treasury Bill (c) (e) 3.900% 3/2/2006 $ 125,000 $ 124,221
U.S. Treasury Bill (c) (e) 3.938 3/9/2006 125,000 124,121
-----------
Total U.S. Government (Cost $248,251) 248,342
-----------
U.S. Government Agency--1.1%
FHLMC Discount Note (e) (Cost $768,935) 4.128 1/12/2006 770,000 768,935
-----------
Total Short-Term Investments (Cost $1,017,186) 1,017,277
-----------
TOTAL UNAFFILIATED INVESTMENTS (Cost $68,711,222) 67,771,123
-----------
AFFILIATED INVESTMENTS--2.3% Shares
-----------
Dreyfus Institutional Preferred Plus Money Market
Fund (f) (g) Cost $1,658,189) 4.060 1,658,189 1,658,189
-----------
TOTAL INVESTMENTS--97.5% (Cost $70,369,411) 69,429,312
-----------
OTHER ASSETS, LESS LIABILITIES--2.5% 1,679,487
-----------
NET ASSETS--100% $71,108,799
===========
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, normally to qualified institutional buyers. At the period
end, the value of these securities amounted to $4,357,869 or 6.1% of net
assets.
ARS--Argentina Peso
AUD--Australian Dollar
BRL--Brazilian Real
CAD--Canadian Dollar
CVT--Convertible
DKK--Danish Krone
EUR--Euro
GBP--British Pound
JPY--Japanese Yen
MXN--Mexican New Peso
SEK--Swedish Krona
SGD--Singapore Dollar
(a) Variable Rate Security; rate indicated is as of 12/31/2005.
(b) Delayed delivery security.
(c) Denotes all or part of security segregated as collateral.
(d) Step up security; rate indicated is as of 12/31/2005.
(e) Rate noted is yield to maturity.
(f) Stated rate is seven-day yield for the fund at year end.
(g) Affiliated money market fund.
At December 31, 2005 the Portfolio held the following futures contracts:
Underlying Face Unrealized
Contract Position Expiration Date Amount at Value Loss
- ---------------------------------------------------------------------------------------------
US 10 Year Treasury (40 Contracts) Short 3/22/2006 $ 4,346,875 $ (29,470)
=========
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, 2005
- --------------------------------------------------------------------------------
At December 31, 2005 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, 2005 to Receive Gain/(Loss)
- ---------------------------------------------------------------------------------------------------------------------------------
Australian Dollar 7,460,000 3/15/2006 $ 5,457,982 $ 5,540,075 $ 82,093
Brazilian Real 525,000 2/10/2006 221,809 188,324 (33,485)
Canadian Dollar 620,000 3/15/2006 534,379 535,947 1,568
Danish Krone 7,820,000 3/15/2006 1,246,265 1,266,294 20,029
Euro 15,328,000 3/15/2006 18,216,485 18,455,817 239,332
British Pound Sterling 2,080,000 3/15/2006 3,577,756 3,684,179 106,423
Japanese Yen 701,980,000 3/15/2006 6,007,616 6,115,268 107,652
Swedish Krona 43,440,000 3/15/2006 5,499,848 5,553,877 54,029
Singapore Dollar 4,320,000 3/15/2006 2,605,077 2,603,524 (1,553)
------------ ------------ -----------
Total $ 43,367,217 $ 43,943,305 $ 576,088
============ ============ ===========
Local
Principal Contract Value at USD Amount Unrealized
Contracts to Receive Amount Value Date December 31, 2005 to Deliver Gain
- ---------------------------------------------------------------------------------------------------------------------------------
Brazilian Real 525,000 2/10/2006 $ 221,809 $ 175,000 $ 46,809
Brazilian Real 435,000 3/15/2006 182,138 179,529 2,609
------------ ------------ -----------
Total $ 403,947 $ 354,529 $ 49,418
============ ============ ===========
At December 31, 2005, the Portfolio held the following open swap contracts:
Unrealized
Credit Default Swaps Reference Buy/Sell (Pay)/Receive Expiration Notional Appreciation/
Counterparty Entity Protection Fixed Rate Date Amount (Depreciation)
- -----------------------------------------------------------------------------------------------------------------------------------
Bear Stearns Alcoa, Inc., 6.000% due 1/15/2012 Buy (0.415)% 6/20/2010 107,000 USD $ (985)
Bear Stearns Alcoa, Inc., 6.500% due 6/1/2011 Buy (0.52) 6/20/2010 238,000 USD (3,200)
Bear Stearns Conocophillips, 4.750% due 10/15/2012 Buy (0.31) 6/20/2010 345,000 USD (1,290)
Bear Stearns Nucor Corp., 4.875% due 10/01/2012 Buy (0.40) 6/20/2010 162,000 USD (72)
Bear Stearns Ukraine Government, 7.650% due
6/11/2013 Sell 2.840 12/20/2009 150,000 USD 7,929
Deutsche Bank Republic of Brazil, 12.25%, due
3/6/2030 Sell 1.450 10/20/2008 358,000 USD 1,965
JPMorgan British American Tobacco PLC,
4.875% due 2/25/2009 Sell 0.425 12/20/2010 350,000 EUR 1,521
JPMorgan Daimlerchrysler AG, 7.20% due 9/1/2009 Sell 0.700 12/20/2010 350,000 EUR (64)
JPMorgan Degussa AG, 5.125% due 12/10/2013 Buy (1.75) 12/20/2010 550,000 EUR (13,199)
JPMorgan Dow Jones CDX.EM.4 Sell 1.800 12/20/2010 1,350,000 USD (3,824)
JPMorgan France Telecom, 7.25% due 1/28/2013 Sell 0.660 12/20/2015 175,000 EUR (3,403)
JPMorgan Glencore International AG, 5.375%,
due 9/30/2011 Sell 1.480 12/20/2010 350,000 EUR 3,925
JPMorgan ICI Wilmington, 5.625% due 12/1/2013 Sell 0.510 12/20/2010 350,000 EUR 28
JPMorgan iTraxx Europe HiVol Series 4 Version 1 Buy (0.70) 12/20/2010 1,725,000 EUR (1,941)
JPMorgan Republic of Panama, 8.875% due
9/30/2027 Sell 1.500 12/20/2010 216,000 USD 437
JPMorgan Republic of Peru, 8.75% due 11/21/2033 Buy (1.70) 12/20/2010 216,000 USD 4,365
JPMorgan Telecom Italia SPA, 6.25% due 2/1/2012 Sell 0.520 12/20/2010 350,000 EUR (967)
JPMorgan Volkswagen, 4.875% due 5/22/2013 Sell 0.450 12/20/2010 350,000 EUR 330
Morgan Stanley & Co. Koninklijke KPN N.V.,
8.00% due 10/1/2010 Buy (0.77) 12/20/2010 785,000 USD 3,538
Morgan Stanley & Co. Wendy's International, Inc.,
6.25% due 11/15/2011 Buy (0.62) 12/20/2010 550,000 USD 4,660
---------
$ (247)
=========
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, 2005
- --------------------------------------------------------------------------------
Interest Rate Swaps Floating Rate Pay/Receive Expiration Notional Unrealized
Counterparty Index Floating Rate Fixed Rate Date Amount Depreciation
- -------------------------------------------------------------------------------------------------------------
Bear Stearns USD-LIBOR-BBA Pay 3.907% 11/19/2009 $150,000 $(5,035)
=======
The Fund held the following written option contracts at December 31, 2005:
Written Put Options Strike Price Expiration Date Contracts Premium Value
- -----------------------------------------------------------------------------------------
USD Put/EUR Call 1.2800 2/23/2006 1 $ 14,791 $ 580
USD Put/EUR Call 1.2800 3/16/2006 1 16,946 1,305
USD Put/EUR Call 1.2600 4/05/2006 1 13,703 4,303
-- -------- -------
3 $ 45,440 $ 6,188
== ======== =======
Written Call Options Strike Price Expiration Date Contracts Premium Value
- -----------------------------------------------------------------------------------------
EUR Put/USD Call 1.1200 4/05/2006 1 $ 6,958 $ 3,810
=== ======== =======
Percentage of
Country Allocation Investments
-----------------------------------------------------
United States 38.2%
Euro 25.7
Japan 8.6
United Kingdom 5.9
Canada 0.8
South Korea 0.0
Denmark 0.0
Sweden 7.7
Australia 8.6
South Africa 0.0
Poland 0.0
Mexico 0.4
Singapore 3.5
Hungary 0.0
Thailand 0.0
Czech Republic 0.0
New Zealand 0.0
Argentina 0.3
Brazil 0.3
Taiwan 0.0
Malaysia 0.0
-----
100.0%
The Standish Mellon Global Fixed Income Fund invests all of its investable
assets in an interest of the Standish Mellon Global Fixed Income Portfolio (See
Note 1 of the Fund's Notes to Financial Statements). The Portfolio is actively
managed. Current holdings may be different than those presented above.
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, 2005
- --------------------------------------------------------------------------------
Assets
Investments in securities
Unaffiliated issuers, at value (Note 1A) (cost $68,711,222) $ 67,771,123
Affiliated issuers, at value (Note 1A) (cost $1,658,189) (Note 1H) 1,658,189
Cash 149
Foreign currency (cost $793,126) 787,450
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 660,544
Interest receivable 1,105,684
Receivable for variation margin 6,875
Swap premium paid 25,024
Unrealized depreciation on swap contracts (Note 5) 28,698
Prepaid expenses 1,772
------------
Total assets 72,045,508
Liabilities
Payable for securities purchased $ 777,473
Unrealized depreciation on forward foreign currency exchange contracts (Note 5) 35,038
Unrealized depreciation on swap contracts (Note 5) 33,980
Payable for swap premium 17,550
Options written, at value (premium received $52,398) (Note 5) 9,998
Accrued professional fees 23,500
Accrued accounting, administration, and custody fees (Note 2) 8,825
Accrued trustees' fees and expenses (Note 2) 3,511
Other accrued expenses and liabilities 26,834
------------
Total liabilities 936,709
------------
Net Assets (applicable to investors' beneficial interest) $ 71,108,799
============
The accompanying notes are an integral part of the financial statements.
22
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Statement of Operations
For the Year Ended December 31, 2005
- --------------------------------------------------------------------------------
Investment Income (Note 1B)
Interest income $ 3,120,551
Dividend income from affiliated investments (Note 1H) 59,502
Security lending income 3,805
Dividend income (net of foreign withholding tax of $1,220) 3,169
------------
3,187,027
Expenses
Investment advisory fee (Note 2) $ 290,028
Accounting, administration and custody fees (Note 2) 127,102
Professional fees 34,897
Trustees' fees and expenses (Note 2) 10,561
Insurance expense 9,600
Miscellaneous 1,800
------------
Total expenses 473,988
Deduct:
Waiver of investment advisory fee (Note 2) (2,989)
------------
Net expenses 470,999
------------
Net investment income 2,716,028
------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) on:
Investments 1,773,781
Financial futures transactions 23,569
Foreign currency transactions and forward currency exchange contracts 4,292,162
Swap transactions 94,335
------------
Net realized gain (loss) 6,183,847
Change in unrealized appreciation (depreciation)
Investments (7,595,580)
Financial futures contracts (29,470)
Written options contracts 42,400
Foreign currency translation and forward currency exchange contracts 1,264,204
Swap contracts (8,621)
------------
Change in net unrealized appreciation (depreciation) (6,327,067)
------------
Net realized and unrealized gain (143,220)
------------
Net Increase in Net Assets from Operations $ 2,572,808
============
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, 2005 December 31, 2004
----------------- -----------------
Increase (Decrease) in Net Assets
From Operations
Net investment income $ 2,716,028 $ 3,746,228
Net realized gain (loss) 6,183,847 8,814,993
Change in net unrealized appreciation (depreciation) (6,327,067) (7,922,754)
------------- -------------
Net increase (decrease) in net assets from investment operations 2,572,808 4,638,467
------------- -------------
Capital Transactions
Contributions 7,042,475 8,539,443
Withdrawals (11,579,112) (93,677,695)
------------- -------------
Net increase (decrease) in net assets from capital transactions (4,536,637) (85,138,252)
------------- -------------
Total Increase (Decrease) in Net Assets (1,963,829) (80,499,785)
Net Assets
At beginning of year 73,072,628 153,572,413
------------- -------------
At end of year $ 71,108,799 $ 73,072,628
============= =============
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,
-----------------------------------------------------------------------
2005 2004 2003 2002 2001
----------- ----------- ----------- ----------- -----------
Total Return(a) 3.64% 5.00% 6.40% 6.98% 4.54%
Ratios/Supplemental data:
Expenses (to average daily net assets) 0.65% 0.63% 0.63% 0.56% 0.53%
Net Investment Income (to average daily net assets) 3.75% 3.89% 3.75% 4.47% 4.49%
Portfolio Turnover:(b)
Inclusive 181% 166% 222% 205% 251%
Exclusive 167% 130% -- -- --
Net Assets, End of Year (000's omitted) $ 71,109 $ 73,073 $ 153,572 $ 164,590 $ 364,068
- ----------
* For the periods indicated, the investment advisor voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the Fund
for all or a portion of its operating expenses. If this voluntary action had
not been taken, the investment income per share and the ratios would have
been:
Ratios (to average daily net assets):
Expenses (to average daily net assets) 0.65% NA NA NA NA
Net investment income 3.74% NA NA NA NA
(a) 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.
(b) Beginning in 2004, the portfolio turnover ratio is presented inclusive and
exclusive of the effect of rolling forward purchase commitments.
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, 2005 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, 2005 was 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 are valued at the last sale prices on the exchange or national
securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for
which there were no reported transactions, are valued at the last quoted
bid price. Securities that are fixed income securities, other than
short-term instruments with less than sixty days remaining to maturity,
for which accurate market prices are readily available, are valued at
their current market value on the basis of quotations, which may be
furnished by a pricing service or dealers in such securities. 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 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 cost
based upon the value on such date unless the Trustees determine during
such sixty-day period that amortized cost 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 earned, adjusted for
accretion of discount or amortization of premium using the yield - to -
maturity method. 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 disregarded entity 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.
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.
26
Mellon Institutional Funds Master Portfolio
Standish Mellon Global 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.
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 Trust are directly
identifiable to an individual fund or portfolio. Expenses which are not
readily identifiable to a specific fund or portfolio are allocated among
funds of the Trust or portfolios of the Portfolio Trust taking into
consideration, among other things, the nature and type of expense and the
relative size of the funds or portfolios.
H. Affiliated issuers
Affiliated issuers are 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, and general office facilities is
paid monthly at the annual rate of 0.40% of the Portfolio's average daily
net assets. 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. Pursuant to this agreement,
for the year ended December 31, 2005, Standish Mellon voluntarily waived a
portion of its investment advisory fee in the amount of $2,989. This
agreement is voluntary and temporary and may be discontinued or revised by
Standish Mellon at any time.
The Portfolio has contracted Mellon Bank, N.A. ("Mellon Bank"), a wholly
owned subsidiary of Mellon Financial Corporation and an affiliate of
Standish Mellon, to provide custody, fund administration and fund
accounting services for the Portfolio. For these services the Portfolio
pays Mellon Bank a fixed fee plus asset and transaction based fees, as
well as out-of-pocket expenses. Pursuant to this agreement the Portfolio
was charged $127,102 during the year ended December 31, 2005.
The Portfolio entered into an agreement with Mellon Bank to perform
certain securities lending activities and to act as the Portfolio lending
agent. 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.
Pursuant to this agreement, the Mellon Bank received $1,610 for the year
ended December 31, 2005. See Note 6 for further details.
27
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Effective July 1, 2005, the Trust reimburses Mellon Asset Management for a
portion of the salary of the Trust's Chief Compliance Officer. No other
director, officer or employee of Standish Mellon or its affiliates
received 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, 2005 were as follows:
Purchases Sales
----------- -----------
U.S. Government Securities $31,848,205 $25,349,221
----------- -----------
Investments (non-U.S. Government Securities) $93,599,497 $99,559,867
(4) Federal Taxes:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 2005, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $70,431,503
===========
Gross unrealized appreciation 883,887
Gross unrealized depreciation (1,886,078)
-----------
Net unrealized appreciation (depreciation) $(1,002,191)
===========
(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 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 year end. Losses may
arise from changes in the value of the underlying instruments if there is
an illiquid secondary market for the contract or if the counterparty does
not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
Exchange traded options are valued at the last sale price, or if no sales
are reported, the last bid price for purchased options and the last ask
price for written options. Options traded over-the-counter are valued
using prices supplied by the dealers.
28
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Transactions in written call and put options were as follows:
Number of
Written Put Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of year 0 $ 0
Options written 3 45,440
Options expired 0 0
Options closed 0 0
--------- --------
Outstanding, end of year 3 $ 45,440
========= ========
Number of
Written Call Option Transactions Contracts Premiums
--------- --------
Outstanding, beginning of year 0 $ 0
Options written 1 6,958
Options expired 0 0
Options closed 0 0
--------- --------
Outstanding, end of year 1 $ 6,958
========= ========
At December 31, 2005, the Portfolio held options. See Schedule of
Investments for further details.
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, 2005, the Portfolio held open foreign currency exchange
contracts. See the Schedule of Investments for further details.
Futures contracts
The Portfolio may enter into financial futures contracts for the 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, 2005, the Portfolio held open financial futures
contracts. See the Schedule of Investments for further details.
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 at the beginning of the measurement period are reflected as such
on the Statement of Assets and Liabilities. 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.
At December 31, 2005, the Portfolio held open swap contracts. See the
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, 2005
and earned interest on the invested collateral of $59,612 of which,
$55,807 was rebated to borrowers or paid in fees. See the Schedule 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.
At December 31, 2005, the Portfolio held delayed delivery securities. See
the Schedule of Investments for further details.
30
Mellon Institutional Funds Master Portfolio
Standish Mellon Global 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 0.06 of 1%
on the committed amount, is allocated ratably among the participating
portfolios/funds at the end of each quarter. For the year ended December
31, 2005, the facility fee was $748 for the Portfolio.
During the year ended December 31, 2005, the Portfolio did not borrow
under the credit facility.
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, 2005, the results of its operations for the year then ended,
the changes in its net assets for each of the two years in the period then
ended, and the financial highlights for each of the five years in the
period then ended, 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, 2005 by correspondence with the
custodian and brokers, provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
March 1, 2006
32
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
The Investment Company Act of 1940 requires that the Board of Trustees,
including a majority of its Trustees who are not affiliated with the
fund's investment adviser or underwriter (the "Independent Trustees")
voting separately, approve the Fund's advisory agreement and the related
fees on an annual basis. The Fund is not a party to an investment advisory
agreement directly with any investment adviser and does not invest
directly in portfolio securities. Instead, the Fund invests all of its
investable assets in the Standish Mellon Global Fixed Income Portfolio
(the "Portfolio"), which is managed by Standish Mellon Asset Management
Company LLC ("Standish Mellon"). The Fund's Board of Trustees determines
annually whether the Fund should continue to invest in the Portfolio. The
members of the Fund's Board of Trustees also serve as the Board of
Trustees of the Portfolio. In that capacity, they consider annually
whether to continue the investment advisory agreement between the
Portfolio and Standish Mellon. In their most recent deliberations
concerning their decision to approve the continuation of the investment
advisory agreement, the Board of Trustees conducted the review and made
the determinations that are described below. In conducting this review and
in making such determinations, the Independent Trustees received from
Standish Mellon a broad range of information in response to a written
request prepared on their behalf by their own legal counsel. The
Independent Trustees met alone in a private session with their legal
counsel on September 22, 2005 to review these materials and to discuss the
proposed continuation of the Fund's advisory agreement. Representatives of
Standish Mellon attended a portion of the September meeting to provide an
overview of its organization, personnel, resources and strategic plans,
and to respond to questions and comments arising from the Independent
Trustees' review of the materials and their deliberations. The entire
Board then met on October 18, 2005.
The information requested by the Independent Trustees and reviewed by the
entire Board included:
(i) Financial and Economic Data: Standish Mellon's income statements, as
well as a profitability analysis of Standish Mellon, including a separate
presentation of Standish Mellon's profitability relative to that of
several publicly traded investment advisers;
(ii) Management Teams and Operations: Standish Mellon's Form ADV, as well
as information concerning Standish Mellon's executive management,
investment management, client service personnel and overall organizational
structure, insurance coverage, brokerage and soft dollar policies and
practices;
(iii) Comparative Performance and Fees: Analyses prepared by Lipper
Analytical Services ("Lipper") regarding the Fund's historical
performance, management fee and expense ratio compared to other funds, and
Standish Mellon's separate account advisory fee schedules;
(iv) Specific Facts Relating to the Fund: Standish Mellon's commentary on
the Fund's performance (rather than the Portfolio alone) and any material
portfolio manager and strategy changes that may have affected the Fund and
Portfolio in the prior year, as well as "fact sheets" prepared by Standish
Mellon providing salient data about the Fund and Portfolio and Standish
Mellon's views concerning the issues of breakpoints in the management fee
schedule of the Portfolio and potential economies of scale; and
(v) Other Benefits: The benefits flowing to Mellon Financial Corporation
("Mellon") and its affiliates in the form of fees for transfer agency,
custody, administration and securities lending services provided to the
Funds by affiliates of Mellon.
In considering the continuation of the Portfolio's advisory agreement, the
Board of Trustees, including the Independent Trustees, did not identify
any single factor as all-important or controlling, and individual Trustees
did not necessarily attribute the same weight or importance to each
factor. The Trustees determined that the terms and conditions of the
Portfolio's advisory agreement and the compensation to Standish Mellon
provided therein were fair and reasonable in light of the services
performed, expenses incurred and such other matters as the Trustees
considered relevant in the exercise of their reasonable judgment. The
following summary does not detail all the matters that were considered.
Some of the factors that figured prominently in the Trustees'
determination are described below.
Nature, Extent and Quality of Services
The Board considered the nature, scope and quality of the overall services
provided to the Portfolio by Standish Mellon. In their deliberations as to
the continuation of the Portfolio's advisory agreement, the Trustees were
also mindful of the fact that, by choosing to invest in the Fund, the
Fund's shareholders have chosen to entrust Standish Mellon, under the
supervision of the Board, to manage the portion of their assets invested
in the Fund.
Among the specific factors the Board reviewed were the investment
management, administrative, compliance and related services provided by
Standish Mellon. The Board determined that the services provided were of
high quality and at least commensurate with industry standards.
The Trustees reviewed the background and experience of the Portfolio's two
portfolio managers and also met with senior management of Standish Mellon
to receive an overview of its organization, personnel, resources and
strategic plans. Among other things, the Trustees considered the size,
education and experience of Standish Mellon's investment staff,
technological infrastructure and overall responsiveness to changes in
market conditions.
The Board determined that Standish Mellon had the expertise and resources
to manage the Portfolio effectively.
33
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Investment Performance
The Board considered the investment performance of the Fund (rather than
the Portfolio alone) against a peer group of investment companies selected
by Standish Mellon with input from the Trustees. The Board also compared
the Fund's investment performance against the average performance of a
larger universe of funds regarded by Lipper as having similar investment
objectives and considered the Fund's performance rankings against that
universe. In addition to the information received by the Board at the
September 22, 2005 Board meeting, the Trustees received similar detailed
comparative performance information for the Fund at each regular Board
meeting during the year.
The Board considered the Fund's performance for the one-, three- and
five-year periods ended July 31, 2005 based on the Lipper materials
provided to the Board at the September 22, 2005 meeting. The Board found
that the Fund underperformed its peer group average returns for the
one-year period (6.31% vs. 7.24%), three-year period (6.08% vs. 8.39%) and
five-year period (6.12% vs. 7.63%). The Trustees requested that Standish
Mellon arrange for a presentation to the Board, as part of the usual fund
reporting cycle, to explain the reasons for the Fund's underperformance
and efforts by Standish Mellon to improve the Fund's performance.
Advisory Fee and Other Expenses
The Board considered the advisory fee rate paid by the Portfolio to
Standish Mellon. The Lipper data presenting the Portfolio's "net advisory
fees" included fees paid by the Portfolio, as calculated by Lipper, for
administrative services provided by Mellon Bank, N.A., the Portfolio's
custodian. Such reporting was necessary, according to Lipper, to allow the
Board to compare the Portfolio's advisory fees to those peers that include
administrative fees within a blended advisory fee.
The Portfolio's contractual advisory fee was 0.40%, in the 2nd quintile
(1st being the best) of its peer group of funds, the median fee of which
was 0.57%. The Portfolio's net advisory fee, after giving effect to
expense limitations, was 0.386%, below the peer group median net advisory
fee of 0.537%. Based on the Lipper data, as well as other factors
discussed at the September 22, 2005 meeting, the Board determined that the
Portfolio's advisory fee is reasonable relative to its peer group
averages, both with and without giving effect to expense limitations.
The Board also compared the fees payable by the Portfolio relative to
those payable by separate account clients of Standish Mellon. Based on the
additional scope and complexity of the services provided and
responsibilities assumed by Standish Mellon with respect to the Portfolio
relative to these other types of clients, the Board concluded that the
fees payable under the advisory agreement were reasonable relative to
overall industry averages and to the nature and quality of the services
provided.
The Board also considered the Fund's (rather than solely the Portfolio's)
expense ratio and compared it to that of its peer group of similar funds.
The Board found that the actual net expense ratio of 0.65% (after giving
effect to expense limitations) was lower than the median net expense ratio
of the peer group of 0.95% notwithstanding the fact that most of the other
funds in the peer group were larger than the Fund.
Standish Mellon's Profitability
The Board considered Standish Mellon's profitability in managing the
Portfolio and Fund and the Mellon Institutional Funds as a group, as well
as the methodology used to compute such profitability, and the various
direct and indirect expenses incurred by Standish Mellon or its affiliated
investment adviser, The Boston Company Asset Management, LLC ("TBCAM") in
managing the Portfolio and Fund and other funds in the Mellon
Institutional Funds family of funds. The Independent Trustees had observed
that, based on the profitability information submitted to them by Standish
Mellon, Standish Mellon incurred losses in managing many of the investment
companies in the Mellon Institutional Funds family of funds, including the
Portfolio and Fund, and that among those funds that were profitable to
Standish Mellon, several generated only marginal profitability for the
firm. The Trustees observed that Standish Mellon had incurred losses in
operating the Portfolio and Fund in both 2003 and 2004.
Economies of Scale
The Board also considered the extent to which economies of scale might be
realized as the Portfolio and Fund grow. They observed that the Standish
Mellon Fixed Income Portfolio, the largest fund in the complex, already
had breakpoints in its fee arrangement that reflected economies resulting
from its size. The Board concluded that, at existing asset levels and
considering current assets growth projections, the implementation of
additional fee breakpoints or other fee reductions was not necessary at
this time. They requested, however, that management consider the issue of
future breakpoints and respond to the Independent Trustees and to present
a proposal for such breakpoints or, in each case as applicable,
management's rationale as to why such future breakpoints are not necessary
or appropriate for a particular Fund.
34
Mellon Institutional Funds Master Portfolio
Standish Mellon Global Fixed Income Portfolio
Factors Considered by Board of Trustees in Approving Advisory Agreement
- --------------------------------------------------------------------------------
Other Benefits
The Board also considered the additional benefits flowing to Mellon as a
result of its relationship with the Mellon Institutional Funds as a group,
including revenues received by Mellon affiliates in consideration of
custodial, administrative, transfer agency and securities lending services
provided by such affiliates to the Funds. In each case, such affiliates
were selected by the Board on the basis of a comparative analysis of their
capabilities and fees relative to those of unaffiliated competitors. In
addition, the Board, including a majority of the Independent Trustees,
conduct an examination annually of each such arrangement as to whether (i)
the terms of the relevant service agreement are in the best interests of
Fund shareholders; (ii) the services to be performed by the affiliate
pursuant to the agreement are required by and appropriate for the Funds;
(iii) the nature and quality of the services provided by the affiliate
pursuant to the agreement are at least equal to those provided by other,
unaffiliated firms offering the same or similar services for similar
compensation; and (iv) the fees payable by the Funds to the affiliate for
its services are fair and reasonable in light of the usual and customary
charges imposed by other, unaffiliated firms for services of the same
nature and quality.
The Board considered the fact that Mellon operates businesses other than
the Mellon Institutional Funds, some of which businesses share personnel,
office space and other resources and that these were a component of the
profitability analysis provided. The Board also considered the intangible
benefits that accrue to Mellon and its affiliates by virtue of its
relationship with the Funds and the Mellon Institutional Funds as a group.
* * *
The foregoing factors were among those weighed by the Trustees in
determining that the terms and conditions of the Portfolio's advisory
agreement and the compensation to Standish Mellon provided therein are
fair and reasonable and, thus, in approving the continuation of the
agreement for a one-year period.
35
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 remuneration paid
as of the period ended December 31, 2005. 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
Principal
Name Term of Office Occupation(s)
Address, and Position(s) and Length of During Past
Date of Birth Held with Trust Time Served 5 Years
- --------------------------------------------------------------------------------------------------
Samuel C. Fleming Trustee Trustee since Chairman Emeritus,
c/o Decision Resources, Inc. 11/3/1986 Decision Resources, Inc.
260 Charles Street ("DRI") (biotechnology
Waltham, MA 02453 research and consulting
9/30/40 firm); formerly Chairman
of the Board and Chief
Executive Officer, DRI
Caleb Loring III Trustee Trustee since Trustee, Essex Street
c/o Essex Street Associates 11/3/1986 Associates (family
P.O. Box 5600 investment trust office)
Beverly, MA 01915
11/14/43
Benjamin M. Friedman Trustee Trustee since William Joseph Maier,
c/o Harvard University 9/13/1989 Professor of Political
Littaver Center 127 Economy, Harvard
Cambridge, MA 02138 University
8/5/44
John H. Hewitt Trustee Trustee since formerly Trustee, Mertens
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 President and Chief
The Boston Company and Chief Operating Officer of
Asset Management, LLC Executive Officer The Boston Company
One Boston Place Asset Management, LLC;
Boston, MA 02108 formerly Senior Vice President
7/24/65 and Chief Operating Officer,
Mellon Asset Management
("MAM") and Vice
President and Chief
Financial Officer, MAM
Number of Trustee
Portfolios in Other Remuneration
Name Fund Complex Directorships (period ended
Address, and Overseen by Held by December 31,
Date of Birth Trustee Trustee 2005)
- --------------------------------------------------------------------------------
Samuel C. Fleming 32 None Fund: $500
c/o Decision Resources, Inc. Portfolio: $1,692
260 Charles Street
Waltham, MA 02453
9/30/40
Caleb Loring III 32 None Fund: $500
c/o Essex Street Associates Portfolio: $1,865
P.O. Box 5600
Beverly, MA 01915
11/14/43
Benjamin M. Friedman 32 None Fund: $500
c/o Harvard University Portfolio: $1,692
Littaver Center 127
Cambridge, MA 02138
8/5/44
John H. Hewitt 32 None Fund: $500
P.O. Box 2333 Portfolio: $1,692
New London, NH 03257
4/11/35
Interested Trustees
Patrick J. Sheppard 32 None $0
The Boston Company
Asset Management, LLC
One Boston Place
Boston, MA 02108
7/24/65
36
Principal Officers who are Not Trustees
Name Term of Office
Address, and Position(s) and Length of Principal Occupation(s)
Date of Birth Held with Trust Time Served During Past 5 Years
- -----------------------------------------------------------------------------------------------------------------------
Barbara A. McCann Vice President Since 2003 Senior Vice President and Head of Operations,
Mellon Asset Management and Secretary Mellon Asset Management ("MAM"); formerly First
One Boston Place Vice President, MAM and Mellon Global Investments
Boston, MA 02108
2/20/61
Steven M. Anderson Vice President Vice President Vice President and Mutual Funds Controller,
Mellon Asset Management and Treasurer since 1999; Mellon Asset Management
One Boston Place Treasurer
Boston, MA 02108 since 2002
7/14/65
Denise B. Kneeland Assistant Vice Since 1996 Vice President and Manager, Mutual Funds
Mellon Asset Management President Operations, Mellon Asset Management
One Boston Place
Boston, MA 02108
8/19/51
Cara E. Hultgren Assistant Vice Since 2001 Assistant Vice President and Manager of Compliance,
Mellon Asset Management President Mellon Asset Management ("MAM"); formerly Manager
One Boston Place of Shareholder Services, MAM, Shareholder Representative,
Boston, MA 02108 Standish Mellon Asset Management Company LLC
1/19/71
Mary T. Lomasney Chief Since 2005 First Vice President, Mellon Asset Management
Mellon Asset Management Compliance and Chief Compliance Officer, Mellon Funds Distributor
One Boston Place Officer and Mellon Optima L/S Strategy Fund, LLC; formerly
Boston, MA 02108 Director, Blackrock, Inc., Senior Vice President,
4/8/57 State Street Research & Management Company
("SSRM"), Vice President, SSRM
37
[LOGO] Mellon
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Mellon Institutional Funds
One Boston Place
Boston, MA 02108-4408
800.221.4795
www.melloninstitutionalfunds.com
6934AR1205
Item 2. Code of Ethics.
As of December 31, 2005, 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, 2005, 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 12(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 the fiscal
years ended December 31, 2005 and 2004 were $214,000 and $193,322,
respectively.
(b) AUDIT RELATED FEES: The aggregate fees billed for the fiscal years
ended December 31, 2005 and 2004 for assurance and related
services by PricewaterhouseCoopers LLP that are reasonably related
to the performance of the audit of the Registrant's financial
statements and are not reported under paragraph (a) of this Item
were $57,000 and $57,000, respectively. The nature of the services
comprising the fees disclosed under this Item for both years
included: the examination of compliance with requirements of Rule
17f-2 of the Investment Company Act of 1940.
(c) TAX FEES: The aggregate fees billed for the fiscal years ended
December 31, 2005 and 2004 for professional services rendered by
PricewaterhouseCoopers LLP for tax compliance, tax advice, and tax
planning were $44,258 and $96,205, respectively. Services rendered
in both years included asset diversification testing, the
preparation of tax returns and extensions, the review of periodic
distributions.
(d) ALL OTHER FEES: No such fees were billed to the Registrant by
PricewaterhouseCoopers LLP for 2005 or 2004.
(e) (1) AUDIT COMMITTEE PRE-APPROVAL POLICY: The Registrant's audit
committee pre-approves all audit and non-audit services to be
performed by the Registrant's accountant before the accountant is
engaged by the Registrant to perform such services.
(e) (2) 100% of the services described in each of paragraphs (b)
through (d) of this Item 4 were pre-approved by the Registrant's
audit committee before the accountant was engaged by the
Registrant to perform such services.
(f) Not applicable.
(g) The aggregate non-audit fees billed by PricewaterhouseCoopers LLP
for services rendered to the Registrant and the Registrant's
investment advisers, and any entity controlling, controlled by or
under common control with the advisers that provides ongoing
services to the Registrant
for the fiscal years ended December 31, 2005 and 2004 were $0 and
$31,000, 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. The aggregate non-audit fees billed by the Registrant's
accountant for services rendered to the Registrant's transfer
agent by PricewaterhouseCoopers LLP for the fiscal years ended
December 31, 2005 and 2004 were $75,000 and $43,708,
respectively. Services provided in both years 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.
(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. Portfolio Managers of Closed-End Management Investment Companies
Not applicable to the Registrant.
Item 9. Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers.
Not applicable to the Registrant.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes.
Item 11. 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 12. 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, 2006
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, 2006
By (Signature and Title): /s/ STEVEN M. ANDERSON
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Steven M. Anderson, Vice President and Treasurer
Date: March 10, 2006